Lords Sitting of 25 October 1976

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Salisbury.
The Lord Tollemache—Sat first in Parliament after the death of his father.

RHODESIA: UK PASSPORT HOLDERS
Lord AVEBURY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether it is their policy to remove to Zimbabwe (Rhodesia) holders of United Kingdom passports who flee to the United Kingdom from Zimbabwe with a view to avoiding conscription into the Armed Forces of the illegal reéime.
The MINISTER of STATE, HOME OFFICE (Lord Harris of Greenwich): My Lords, Her Majesty's Government have no fixed practice in circumstances such as these but give careful consideration to each case on its merits.
Lord AVEBURY: My Lords, surely this is a matter of principle. Are the
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Government really saying that there are circumstances in which individuals will be sent back to join the Armed Forces of the illegal régime of Rhodesia and thereby, if the negotiations which we hope will be successful are not successful, prop up the continued existence of that régime which for 10 years we have been trying to put down? Particularly in the case of Mr. Desai last weekend, whether or not evasion of the draft was the principal motive in his coming here, do not the Government think it was grossly unfair to him to send him back to face what may be severe penalties for coming here in the first instance and evading the papers which were served on him?
Lord HARRIS of GREENWICH: No, my Lords; I do not think we take the same view as does the noble Lord on the last point in his supplementary question. So far as general practice is concerned, the situation is this. We will look at every case on its merits, but we cannot ignore the potential size of the commitment to admit anyone who applies to come here because he does not wish to serve in the Rhodesian Armed Forces.
Lord BROCKWAY: My Lords, is it the case that the Government consider every case on its merits? Is it lot the case that they consider it only when it is referred to the Home Office by a Member of the other place or this House? Is the Minister aware that I have recently taken up a case which had been refused entry at Heathrow, but upon consideration the

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Home Office accepted it? Before a decision is reached at Heathrow, would it not be desirable that cases will be referred to the Home Office?
Lord HARRIS of GREENWICH: My Lords, the immigration officers act on the basis of immigration rules. If any approach is made by a Member of either House, then either my right honourable friend the Home Secretary or one of his colleagues will look at the circumstances of the case. So far as this narrow issue is concerned, until May of this year we had received no applications from Rhodesian citizens to enter or remain in this country on the grounds of wishing to avoid military service.
Lord SHINWELL: My Lords, is it not a something of a misnomer to describe Rhodesia now as an "illegal régime", when in fact Her Majesty's Government are sponsoring a conference and recognising the existence of Rhodesia?
Lord HARRIS of GREENWICH: My Lords, that is a rather wider question.
Lord AVEBURY: My Lords, the noble Lord has said that he had received no case of a person who wished to remain here in order to avoid a call-up. If that is so, will he look at the case of Mr. Archie Coleman and Mr. Selwyn Quarrie who originally arrived here in May and who have been on IS96s ever since, reporting regularly to the police every week? Will the Minister consider the possibility of testing the bona fides of people who say they are conscientious objectors by bringing in the United Nations High Commissioner for Refugees, notwithstanding the fact that these people are not de jure refugees?
Lord HARRIS of GREENWICH: My Lords, as I have indicated, until May of this year we had received no applications of this kind. I will look at the two cases that the noble Lord has raised and will study the suggestion that he has made or will ensure that my honourable friend the Joint Minister of State will do so. What I have said indicates that we are prepared to look at every case on its merits. We consider that that is the appropriate way of dealing with these matters.
Lord BEAUMONT of WHITLEY: My Lords, is it the policy of Her Majesty's Government not to discourage recruitment to the Forces of a régime in rebellion against the Crown of this country?
Lord HARRIS of GREENWICH: My Lords, what I have indicated is that we are not prepared to indicate that we will admit anyone who wants to come here simply because they do not wish to serve in the Rhodesian Armed Forces. Such a commitment would be a very substantial one and I do not think we could lightly enter into it at the present time.
Lord BROCKWAY: My Lords, appreciating what the Minister has said, that the immigration officers at Heathrow are given rules to act by and that their task is very difficult, may I ask whether it is not clear in cases of this kind—and I have knowledge of the two cases raised by the noble Lord, Lord Avebury—that the immigration officers should consult with the Home Office before they decide to send a person back rather than wait for a Member of Parliament or a Member of your Lordships' House to raise the matter with the Home Office?
Lord HARRIS of GREENWICH: My Lords, I think it would be going too far to say that no immigration officer should take a decision on his own account, for this would slow down the administrative processes by which it is decided whether or not to admit a person. I hope that I have indicated that the Government are prepared to look at cases on their merits and that we will do so in the future as we have done in the past.

SUMMER TIME: EEC SYNCHRONISATION
2.40 p.m.
Lord BEAUMONT of WHITLEY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they propose to take steps to synchronise the dates of changes into and out of Summer Time with those proposed for France and the Benelux countries.
Lord HARRIS of GREENWICH: My Lords, proposals for the harmonisation of Summer Time dates within the European Economic Community in 1978 and 1979 are under consideration. In the meantime, France and the Benelux countries are understood to be making their own arrangements for a period of Summer Time next year which will be substantially shorter than the period of British Summer Time. We have made it clear to our partners in Europe that any change in our arrangements would have to be acceptable to Parliament.
Lord BEAUMONT of WHITLEY: My Lords, while thanking the noble Lord for that encouraging Answer, may I ask that the Government should take into consideration when negotiating that this is a matter which is of considerable importance within the travel industry and other areas where the present difference of dates causes extreme confusion, and that to concede to our partners would be a concession to European opinion which would be as rare as it would be welcome?
Lord HARRIS of GREENWICH: My Lords, we will take that into account.

LIGHT BULB SAFETY STANDARDS
2.46 p.m.
Lord AIREDALE: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether it is true, as stated in recent Press Reports, that the Department of Prices and Consumer Protection has more than once had to warn the public to examine new light bulbs for dangerous protruding wires; and if so, whether they do not consider that the safety standards being applied by the light bulb industry require investigation.
Lord ORAM: My Lords, public warnings about potentially dangerous light bulbs with protruding wires were issued by the Deparment of Prices and Consumer Protection on 1st and 11th October. The British lamp industry has informed the Government that stringent testing and
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inspection procedures are already used but that further measures are now being taken to ensure that only safe bulbs are released for sale. It is already a contravention of the Electrical Equipment (Safety) Regulations 1975 to sell or possess for sale any light bulbs in this dangerous condition, whether British-made or imported.
Lord AIREDALE: My Lords, I am very much obliged. Are the Government satisfied that the sanctions are sufficient to prevent manufacturers and importers from releasing these dangerous bulbs on to the market? Is it not the case that you cannot expect busy wholesalers mid retailers to inspect every single item, nor can the Department be expected to get the message through to every member of the public that they must inspect every single light bulb that they buy?
Lord ORAM: My Lords, I would not claim that we are satisfied with the situation. We have asked the British Standards Institution to call their committee together to reconsider the matter of standards. Such a meeting is due to take place on 19th November. I can assure the noble Lord that the Department's views about the inadequacy of the present standards will be conveyed to that meeting.
The Earl of KIMBERLEY: My Lords, is the noble Lord in a position to say how many thousands—if it amounts to that figure—of these light bulbs have been imported from Europe, and whether they are still in this country? Are they going to be sent back, and is the money we spent on them going to be repaid?
Lord ORAM: My Lords, it is not possible to say how many defective bulbs have been imported. I believe eight million bulbs altogether are imported. This should be seen against the 240 million British made bulbs.
Lord WYNNE-JONES: My Lords, is there no general testing of e electrical equipment that comes into this country? Is my noble friend aware that the magazine Which? constantly calls attention to the failure of imported electrical equipment to satisfy regulations? Is it not proper that all imported electrical equipment should be subjected to at least spot testing, even if every single item cannot be tested?
Lord ORAM: My Lords, since my noble friend refers to imported electrical equipment, perhaps I should make it clear in relation to electric light bulbs that the second release from my Department made it clear that both British and imported bulbs are subject to the defect that has recently been revealed. As to the question of testing, I think some system of spot testing is desirable. I am not fully acquainted with the present position, but I will write to my noble friend.
Lord AUCKLAND: My Lords, regarding the last part of the noble Lord's answer, is he aware (as I am sure he is) that Czechoslovakia and the COMECON countries are large exporters of these bulbs? Will the noble Lord say what consultations have taken place with the Governments of those countries to encourage them to test the articles at source?
Lord ORAM: My Lords, the attention of manufacturers in the Eastern European countries concerned has been drawn to the defects found in their bulbs, and they have assured us that the procedures for testing are being reviewed in their countries.
Lord SLATER: My Lords, regarding checking procedures of imported bulbs, my noble friend may be surprised when I tell him that just last week my good lady purchased a light bulb of English manufacture, and as she put it in the light bracket the bulb came to pieces. I looked at it but I could not give you the name of the bulb manufacturer. Therefore, if there are to be spot checks I hope they will be carried out on British manufactured bulbs as well as imported ones.
Lord ORAM: My Lords, the hazard to which my noble friend refers is a different one: the exploding bulb. We do not want to get into an argument as between imported or home produced light bulbs; our anxiety is to see that all are subject to safety tests.
Lord CLITHEROE: My Lords, could the noble Lord tell us how we can tell when a light bulb is "dud"?
Lord ORAM: My Lords, it is not a case of a light bulb being a "dud"; these bulbs will light but they are dangerous. The question was about the hazard of protruding wires. They can be readily
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recognised because the wire is easily seen. The wire is in danger of being bent over to touch the cap of the bulb, and that would electrify the whole system. That is the danger. I have an example of such a bulb in my room and I shall be glad to show it to the noble Lord.

BAHAMAS: WORK PERMITS
2.50 p.m.
Lord TREFGARNE: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what reciprocal arrangements exist between the United Kingdom and the Bahamas in respect of the issue of work permits to our respective citizens and, in particular, what fees are payable in each case.
Lord JACQUES: My Lords, there are no reciprocal arrangements between the United Kingdom and the Bahamas for the issue of work permits. No fee is charged for a work permit by the United Kingdom. Fees charged by the Bahamas vary according to the category of job and range from 25 to 5,000 Bahamian dollars per annum.
Lord TREFGARNE: My Lords, I am grateful to the noble Lord for that reply. Would he not agree that, despite the absence of any formal reciprocal arrangements, there really ought to be some form of equality? If he is unwilling to introduce fees for Bahamian citizens applying for work permits in this country, will he use his influence with the Bahamian Government to see that the fees charged there are more equitable?
Lord JACQUES: My Lords, the fees charged by the Bahamian Government are a matter for the Bahamian Government. As regards the question of our charging fees, I would say, first, that very few countries charge fees for work permits; so far as we know, there are only three in the world. Secondly, there were only 11 permits issued in the United Kingdom to Bahamian citizens last year, so that very little would be raised. Thirdly, if we are to have fees for this, I should hope that they would be on a better basis than tit-for-tat.
Lord TREFGARNE: My Lords, I thank the noble Lord for that further answer. Could he then revert to the second suggestion that I made; namely, the possibility of making representations to the Bahamian Government to reduce the fees there or make them more in line with the benefits granted?
Lord JACQUES: My Lords, we have no evidence that the fees charged by the Bahamian Government cause hardship to any resident of the United Kingdom.
Lord HAILSHAM of SAINT MARYLEBONE: But surely, my Lords, if this were done by us it would be denounced universally as blatantly racist.

THE POUND STERLING
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, with the leave of the House, at a convenient moment after 3.30 p.m. my noble friend the Leader of the House will repeat a Statement on Sterling.

ROYAL COUNTY OF BERKSHIRE (PUBLIC ENTERTAINMENT) PROVISIONAL ORDER CONFIRMATION BILL
Lord HARRIS of GREENWICH: My Lords, I understand that no Amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript Amendment or to speak in Committee on Recommitment. Therefore, unless any noble Lord objects, I beg to move that the Order of Recommitment be discharged.
Moved, That the Order of Recommitment be discharged.—(Lord Harris of Greenwich.)
On Question, Motion agreed to.

EDUCATION BILL
2.53 p.m.
Report received.
Clause 1 [The comprehensive principle]:
Lord ELTON Lord ELTON moved Amendment No. 1:
Page 1, line 19, after ("pupils") insert ("of compulsory school age").
The noble Lord said: My Lords, there is one procedural matter to which your Lordships may like me first to draw your attention, though I believe it is not my proper place so to do. But I understand that the order of the Amendments on the Marshalled List is different from the order in which it is proposed to lake them. The noble Lord, Lord Donaldson, will correct me if I am wrong, but I understand that we are first to have an Amendment No. 1, then Amendment No. 4, then Amendment No. 3 and then Amendment No. 2, because that is the order in which they strike in the Bill. But as your Lordships may have differing interests in different parts of the Bill, I wonder whether the noble Lord would care to confirm or otherwise what I believe to be the case.
The MINISTER of STATE, DEPARTMENT of EDUCATION and SCIENCE (Lord Donaldson of Kingsbridge): My Lords, this has not been suggested to me. It sounds to me in no way objectionable, and if the noble Lord wants to do it in this order I will be very happy to do so. But the order in the Marshalled List is the order which I was proposing to take, unless otherwise asked.
Lord ELTON: My Lords, plainly I have been misinformed. I understood that this was the order in which it had been intended to take them. I have no wishes in the matter at all. I shall now proceed as though nothing had happened.
We return, therefore, at the outset of our debate on this Bill to an Amendment which we tabled and discussed in Committee. The original intention of the Amendment was to secure that sixth form colleges could be run as academic institutions suitable for pupils of comprehensive schools who had academic gifts. It is in no way aimed at destroying or curtailing the operation of the comprehensive principle at any point in the career of schoolchildren of compulsory school age. It was framed, in fact, as a means of making it easier to overcome what, to all of us, is seen as being one of the undesirable side effects of the introduction of the comprehensive principle in one of its forms, and I refer to the generation of schools of very considerable size.
I submitted at Committee stare that one widely accepted way of reducing the

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size of such units was to set up sixth form colleges and the Minister pronounced himself in favour of them. I suggested that they would operate far more effectively if they were permitted to select their entry on grounds that were academic—that is, grounds that were based on ability and aptitude—and I tried to make it clear that the pursuit by school pupils of academic excellence, upon which the whole future of excellence of the administration and industrial performance of this country depend, is made very much easier and more profitable in an atmosphere where that pursuit is recognised as the dominant aim of all those participating. Whatever the social advantages of non-selective education up to the age of 16, the educational advantages of selective education from that time onwards are considerable and have a close bearing upon the future prosperity and cohesion of this country.
However, in his reply, the noble Lord, Lord Donaldson, said at col. 1331:
"The Government are perfectly clear that they want to eliminate selection at all stages of secondary education, and the Government … see no reason to make an exception for sixth form education."
A little further on he went on to say:
"It has always been the Government's view that the sole criterion for admission to a sixth form course should be the pupil's ability to profit from that course."—[Official Report, 6/10/76.]
In accepting that the ability of a pupil was a criterion for admission to a course, he emphasised that it could not, under the Bill, he a criterion for admission to the school in which the course was held.
While I did not in any way accept the wisdom of the noble Lord and his Party in making this decision—and that is a matter of political choice on which we on this side disagree, differ from them fundamentally—it became clear almost immediately afterwards from an intervention by the noble Lord, Lord Alexander of Potterhill, that there were other reasons of an entirely pragmatic and non-political nature that must be taken into account before such a choice can be endorsed by this House, whatever its political complexion may be. If I may summarise, they are briefly as follows. First, there already exist a number of routes by which pupils over compulsory school age can pursue their education beyond the fifth form,
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and they can do so without remaining at school. Some of these routes are part-time and provide an area for the development of exactly that interrelation between employment and learning that the Prime Minister, in a speech to which I shall have occasion to refer again later, warmly encouraged. Others are full-time and involve institutions of education other than schools.
The second consideration is that the traditional and essential function of the sixth form has hitherto been to provide an extension of education beyond compulsory school age for the specifically academically able up to university entrance level. They are the proper institutions to provide this service and, if they do not provide it, it will not be adequately provided at all in the foreseeable future. If noble Lords opposite want to widen this function and take in an extension of non-academic schools careers, that is an addition to that vital function and not something to replace it. There is scope for such an extension and it will be for them to see that it is not done at the cost of the prime function. Whether or not they can do so is a question that may be open to doubt, but it is not the question to which I am now asking noble Lords to address their attention.
The third consideration is that in present economic circumstances, to quote the Prime Minister again,
"There can be little expectation of further increased resources being made available, at any rate for the time being."
This, I take it, was a euphemistic way of saying that the resources that we are sampling at present already taste very strongly of the bottom of the barrel. If that is so, the 15 sixth form colleges, which the Minister has already told us operate selectively, and any new colleges which may be subsequently opened under the auspices, or perhaps I should say the blight, of this Bill, cannot be expected in any realistic way to deploy any resources beyond the performance of their essential functions; and that is especially the case where such a deployment would merely be in duplication of some of the other resources in other institutions of further education and polytechnics to which I have already referred.
The fourth consideration brings me back to the very valuable intervention of

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the noble Lord, Lord Alexander of Potterhill, at an earlier stage. It is this: as the noble Lord, Lord Donaldson, said, it has always been the Government's view that the sole criterion for admission to a sixth form course should be the pupil's ability to profit from that course. But the criterion for admission to the college is no more than the sum of the criteria for admission to the courses it offers; and as the noble Lord, Lord Alexander of Potterhill, said, obviously if a child is going to take A-level he must have O-levels in order to pursue the course satisfactorily. That is one measure of ability to which the Minister referred. The Minister was quite clear, and rightly so, that there should be no question of pupils entering upon courses from which, by reason of lack of ability, they could not profit. But if the sixth form college offers only academic courses, it will be forced to admit selectively on academic grounds: that is, on grounds of ability or aptitude.
However, the Bill expressly makes clear in Clause 1, on page 1, lines 17 to 20, that this will disbar the local education authority from placing students in that college. Existing selective colleges will then be faced with the alternatives of closure or of a considerable deployment of scarce resources in needlessly duplicating facilities already available to their potential pupils elsewhere. That is an anomaly in this Bill and it is one quite clearly which, from the tone of the remarks made by the noble Lord at Committee stage, was not foreseen when the Bill was drawn up. In his concluding intervention at Committee stage, in col.1336 of the Official Report, on 6th October 1976, he said:
"Though I do not want to look at the principle involved"—
and he meant the comprehensive principle as applied to post-O-level education—
"I am quite prepared to look at the point the noble Lord—"
and he was referring to the noble Lord, Lord Alexander of Potterhill, to whom I should perhaps apologise for having followed him so closely in this argument—
"has raised, which we can deal with, or otherwise, at a later stage."
That later stage has arrived and as it was our Amendment originally we have tabled it again to provide an opportunity for an explanation of the point; and upon what that explanation is and what
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evolves from it will rest our decision on what to do at the conclusion of the debate. I beg to move.
Lord ALEXANDER of POTTER HILL: My Lords, since I have been referred to so frequently perhaps I should make my position quite clear. When this point was raised in Committee the Minister was kind enough to say that he would look at the point, and he has been kind enough subsequently to write to me, which I very much appreciate. In his letter he gives an assurance that there is no intention of interfering with the operation of sixth form colleges. I hope I have not misinterpreted the letter. Naturally I accept the sincerity of that assurance without any reservation of any kind, but I have to tell the noble Lord the Minister that that assurance can be fulfilled only if this Amendment is accepted by the Government.
The position is as follows. There are three types of operation at sixth form level emerging increasingly. There are tertiary colleges which, as your Lordships know, I personally favour very much, which protect the comprehensive principle and offer the full range of courses. There is no problem there because they operate under further education regulations and are therefore excluded from the provisions of this clause. There are sixth form colleges which have a policy of open admission: that is to say any child of appropriate age can come, and they seek to provide a course which is appropriate to the ability of the child. They do not affect Clause 1. But there are a. number of colleges to which the noble Lord, Lord Elton, has referred which are deliberately designed to provide sixth form courses essentially for A-levels and which therefore necessarily require as a condition of admission appropriate evidence that the course can be pursued satisfactorily.
It is true, of course, that normally young people who do not want to pursue these courses can go to an institution of further education in the area and pursue other courses, so that the full educational opportunity is not barred. These colleges are run under schools regulations. As such, such a college is a school. If therefore any parent, teacher or body of teachers makes a complaint, say, under Section 68, to the Secretary of State against such a

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college the Secretary of State, in my judgment, would necessarily rule against the authority and the college under this clause. If in his endeavours to fulfil the undertakings the Minister has given he did not so rule, then any parent taking the Secretary of State to court must win because the words of the clause are perfectly clear. This is a school. Its admission policy is on the evidence of academic aptitude, as evidenced by passing certain examinations at the necessary level. I would appeal to the Government, in order to secure that these undertakings are fulfilled, to accept this Amendment. That would resolve the problem and I do not believe it would in any way harm the impact of the Bill.
Lord DONALDSON of KINGS-BRIDGE: My Lords, when we discussed this Amendment on the first day of the Committee stage I made the Government's position quite clear. We wish to eliminate selection at all stages of secondary education, and see no reason to make an exception to those aged 16. But both the noble Lord, Lord Belstead, and the noble Lord, Lord Alexander of Potterhill, raised one particular point. In essence they wished to know whether a sixth form college would be in breach of the comprehensive principle if it were not able to provide for pupils of lower ability who wished to pursue certain practical and technical courses normally found within a further education college. On that occasion I said that although I did not want to look again at the principle involved I was quite prepared to look at this specific point. I did in fact correspond with the noble Lord on that point, as he has been kind enough to say. He pointed out on that occasion that where an authority's provision for the 16 to 19 age group is in tertiary colleges students of all abilities and aptitudes would be catered for within one institution.
It has never been envisaged that sixth form colleges should provide the same breadth of courses. To duplicate un-necessarily the courses provided in the local further education college would be a waste of time and money. The Government wish to encourage close co-operation between the schools and colleges providing for 16 to 19 year olds in
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any area; and for two main reasons. The first is that they want to see the most efficient use of teachers and equipment. Secondly, they want to ensure that between the school and further education sectors a full range of courses is offered for students of all abilities. I can assure noble Lords that there is no question of a sixth form college contravening the comprehensive principle because it could not cater for a pupil wishing to follow a course which it did not provide and which in any case was either already being offered or could be provided more satisfactorily at the local further education college. I hope this will go some way towards satisfying the noble Lord, Lord Alexander, but he shakes his head and so it seems I am unlucky.
I have looked at our latest information. Of the 72 sixth form colleges and two sixth form centres in operation in September 1976, only three still operated selective admission procedures; and of these, two are moving towards becoming open access colleges. By "open access" we do not mean that any student can control for any course. Clearly anyone wishing to study for A-level in a particular subject will need the entrance requirement set by the tutors for those who wish to follow that course. What it does mean is that no general entrance requirement—for example, passes in five O-levels—will be required before a young person can enter the college. Thus there is no entrance requirement to the college but only entrance requirements that are relevant to the course or courses the pupil wishes to take.
Nor does open access mean that a sixth form college must provide every conceivable course which, if I understood the noble Lord aright, is what the noble Lord, Lord Alexander of Potterhill, appeared to be saying. A sixth form college will provide only those courses for which there is a demand, for which it has resources and which are not readily available elsewhere. This clause will bite only on those colleges with a general academic standard for admission, such as five O-levels. It will be perfectly permissible for open access colleges to set standards for admission to particular courses. That is the Government's position and I am afraid I cannot accept the Amendment.
Lord BEAUMONT of WHITLEY: My Lords, I am afraid that this is a very difficult situation. One sees the virtues of the arguments on both sides, but my judgment must come down on the side of the Government. More young people are staying on at school after the compulsory school leaving age and we wish to encourage this trend. I should have thought that taking into account the present very large unemployment problem everybody would wish to encourage this trend as much as possible. It is far better to be learning than to be idle.
When it comes to a choice of what kind of education they are after, there may be very good reasons why young people will want to stay in the school atmosphere rather than move to tertiary colleges, even if academically they are not of a very high standard. Although I say this, I am very much in favour of tertiary colleges; they encourage these young people who feel that they wish to move out of the school atmosphere and go on to tertiary education. Nevertheless, we must take account of the fact that there are young people who wish to stay in the school atmosphere, and parents also who wish them to stay in that atmosphere. I understand that parental choice is still an important feature of Conservative Party policy. Therefore, where there are sixth form colleges I think it is important that young people should be allowed to go to them.
Nor do I see that there is a very great academic difficulty about this unless young people wish to pursue a course which is not offered at a sixth form college. If they do, we have the assurance of the noble Lord, Lord Donaldson of Kingsbridge, that these young people do not in any way lay themselves open to the law. Where, however, they can be accepted, surely this is a situation where, almost more than anywhere else, the comprehensive system and the mixed ability teaching system work. We tend to think of mixed ability teaching, if we approve of it at all, as working only at a fairly low age level, but of course that is absolute nonsense. The older one is, the better the system can work.
One of the great vices of the present debate is that we tend to think of the selective system and the comprehensive system as entirely opposed to each other.
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They are not. The ideal of the best educationalists in both system is that every child shall be taught individually according to his or her abilities. When you get to sixth form level and to the academic children, plus the children who have voluntarily chosen to stay on, and when you get to the usually higher ratio between staff and pupils, you are most able to take the individual pup I, whether he be very bright or not so bright, and teach him individually: set him or her to do his own job in the school library, with film strips, or what have you. The sixth form colleges and the sixth forms are much more able to take care of mixed ability groups than are certain classes in middle schools, particularly these which are situated in difficult and crowded social situations. Therefore I see no difficulty and I think, on balance, that although there are difficulties the Government are right to resist the Amendment.
Baroness MACLEOD of BO RVE: My Lords, the noble Lord, Lord Alexander of Potterhill, said that a college is a school. May I ask the noble Lot d whether a sixth form college is to be treated as a school? So many of the following clauses hang on this question that I should be grateful if the noble Lord could clarify the point.
Lord DONALDSON of KINGS-BRIDGE: My Lords, I understand that the answer is, Yes.
3.15 p.m.
Viscount ECCLES: My Lords, I cannot feel satisfied with the answer of the Minister and I support the arguments of the noble Lord, Lord Alexander of Potterhill. If we had infinite resources, then I suppose one could build as many non-selective sixth form colleges as there might be children who wanted to stay on until they were 18, but we have not. We are in for quite a long period wren it will be necessary to make the very best use of the courses which can be provided, using the highly qualified teachers that we have in a restricted number of colleges, which number none of us sees much chance of increasing in the near future. Therefore we ought to look at the sixth form college problem more from a practical point of view, given the organisation of secondary education as envisaged in the Bill.

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The fact is that secondary education cannot be organised on the principles of Clauses 1 to 3 without doing educational damage. That is mainly because a limit will have to be put upon the size of all but a very few exceptional comprehensives, not for educational reasons but for reasons of administration and in order to create that sense of community without which a school is not a school and is sometimes a bear-garden.
Public opinion will not for much longer accept the chaos which now characterises some of our large comprehensives. The Soviet Union found that out years ago and limited by decree the general run of schools to a maximum of 800 pupils. Whether or not the limit has been observed I do not know, but at the time Mr. Khrushchev told me that this limitation was necessary because many teachers had no liking or gift for administration. Is the same true here? That is a question which requires very careful investigation and we have put down an Amendment asking for such an investigation to be made. However, we do know now that a great many local education authorities have come round to the view that most comprehensives must be limited to five-or six-form entry if they are to reach the best standards (I think particularly the best standards of discipline) of which their staff is capable.
A price has to he paid for this limitation on size because in four cases out of five the comprehensives will be too small to develop a strong sixth form. That will happen only in some very favourable neighbourhoods. Then what happens? Limitation of size forces selection, either between a group of comprehensives, or from comprehensives to a sixth form college or to some other such institution. The local education authorities will have to decide which is the less unsatisfactory course: either children dawdling, running or being transported from one comprehensive to another in search of the courses that they want to take and therefore wasting time and probably getting up to mischief, or selecting children at 16 to go on to a sixth form college where the courses that they want are taught by qualified teachers. Noble Lords will notice that either method requires selection.
My noble friend's Amendment is necessary to give the sixth-form colleges as they
20
are now a chance to do the best they can for able children. If they do not select they are not going to attract highly qualified teachers to teach the less well-known subjects, or, indeed, some well-known subjects, like mathematics and the more difficult languages. Therefore, I support this Amendment but with a heavy heart, because sixth-form colleges will decapitate so many comprehensives. The highly qualified teachers will not like teaching in the small comprehensives and many bright children will never arrive at the point where A-levels are within their grasp. Their talents will either be underdeveloped or undiscovered, and the loss of the A-stream all the way from 11 to 17 will deprive the country of leaders in a great many walks of life.
I should like to make two further points. As I have said, in most comprehensives linked to a sixth-form college a strong sixth form can never be developed in the school. At 16, or even before, the bright children will have moved on. This will be a great loss. A sixth form gives a sense of responsibility to the whole school. It is a status to aim at and to work hard for; it encourages staff and pupils to do their best all the way up the school. It helps the head teacher to organise discipline inside the school. Take all that away and substitute a sixth-form college in a different, building with a different staff who will not know any of these young adolescents until they arrive at the age of 16—and then they will be pretty difficult to know—and you have lost something very valuable indeed.
I am astonished that the universities have not seen what is happening and have not demanded changes in this Bill long before it came to your Lordships' House. The consequences of going comprehensive in the manner proposed in the first three clauses of the Bill will damage education for the able children, will be had for industry and will be extremely bad for the universities. If my noble friend presses his Amendment to a Division, I shall be with him.
Baroness BACON: My Lords, I think some noble Lords are making a mountain out of a molehill over this Amendment, because from what I can see there would be very few pupils affected by this. As we have heard from my noble friend Lord Donaldson of Kingsbridge, most of the

21
sixth-form colleges are what he calls "open colleges", and it seems to me that few pupils would opt to go into a sixth-form college where most of the children had O-levels and were going to take A-levels; but if they do want to do that, then I think they should be encouraged to do so and not prohibited. While this Amendment looks as though it is doing something positive, in fact it is doing something negative, because it is giving the local authorities the power to exclude such pupils from the sixth-form colleges. I agree with the noble Lord, Lord Beaumont of Whitley, when he says that surely they could be catered for.
I agree with the legal interpretation put on this matter by my noble friend Lord Alexander of Potterhill, when he says that if a child were excluded, then the parent would probably (though we never know in view of recent rulings) be able to pray in aid Section 68 of the 1944 Education Act—but we all know where that has led some people lately. That aside, it seems to me that so few pupils will be affected by this provision that those who are affected should be welcomed into the sixth-form colleges and we should not seek to exclude them.
Lord ALEXANDER of POTTERHILL: My Lords, by leave of the House, may I say that there are 85 sixth-form colleges, of which 17 would be in breach of this clause. If those 17 have to satisfy the clause they will have to extend the range of their courses and their staff. In fact, they would become virtually tertiary colleges to meet the needs of the whole range of ability, which is a major problem and therefore would necessarily call for considerable resources. As to how they would operate, I may say that I was recently in Solihull, and it is perfectly true, as the noble Lord the Minister said, that they operate very closely indeed with the further education college which is nearby, so that those who do not go to the sixth-form college go to the further education college. It is a fact that last year they won 20 scholarships, so I think it would be a pity if they had to depart from their present purpose.
Lord DONALDSON OF KINGS-BRIDGE: My Lords, it is important that we should not turn a Report stage into a Committee stage argument but I should
22
just like to say to the noble Lord, by leave of the House, that I do not agree with his figures.
Lord ROBBINS: My Lords, may I say that when I heard my noble friend—if I may so call him—Lord Eccles, say that he confronted this question with a heavy heart, I completely agreed with him. I am personally out of sympathy with the intention of the Government to do everything at once and to enforce on the educational system changes which will involve years of reorganisation when a slightly slower pace might have enabled us to reach the wished for goal with much less dislocation. I imagine that I shall be almost alone in this House when I express my deep conviction that the true target in this connection is not the existing organisation but the influences which have paused the existing organisation to come into being.
I am totally out of sympathy with the general policy of the universities South of the Border to inflict upon school education before the age of 18 a sort of imitation of university education as it used to be in my young days. think the Scottish system, which provides for greater versatility and for more superficiality, perhaps, up to the age of 18, is a much superior system, and it is no accident at all that where in the rest of the world the education in this island has been imitated, it is the Scottish system and not the system South of the Border—with one or two notable exceptions—which has been imitated. I have no sympathy at all with the pride in the specialisation w rich is en-enforced in the sixth form colleges, whatever designation they may enjoy. I have no sympathy at all with the system which enforces on my grandchildren at the tender age of 14 or 15 the choice whether they should be scientists or humanists. I think in this Amendment we are completely on the wrong track and, therefore, whatever Division takes place, I personally shall remain glued to my seat.
Baroness BROOKE of YSTRAD-FELLTE: My Lords, I wish to make only a brief intervention at this point. We have heard about the administration, we have heard about the different types of sixth-form college, we have heard about the large comprehensive schools and the small comprehensive schools: what we have not heard about are the children

23
themselves. Never have children wanted more to have the confidence of those people who are teaching them and have been looking after them from the age of, possibly, eleven onwards, than they do now. With broken homes, with increasing crime figures, the one place where there is a possibility of stability is in the schools where members of the staff have been teaching children—and I am particularly thinking of girls—from an early age. I would beg noble Lords to consider the child through its school years when they are considering the way in which they are going to vote on this Amendment, with which I have very great sympathy.
3.31 p.m.
Lord BELSTEAD: My Lords, this first Amendment of the Report stage of this Bill demonstrates a problem which, it has struck me throughout the Committee stage, plagues the Bill despite the excellent and thorough arguments and replies which the noble Baroness, Lady Stedman, and the noble Lord, Lord Donaldson of Kingsbridge, have given us in answer to our Amendments. As I see it, the problem is the inflexibility of the provisions of the Bill.
I would assure the Government that this Amendment was not originally put down again on Report with any intention on the part of my noble friend, Lord Elton, or myself that we should press it to a Division as a matter of principle, but because the needs of children differ, as the noble Baroness, Lady Brooke of Ystradfellte, has said so pertinently. We now find, having listened to the debate, that there are very deep considerations to be taken into account as to what should be done with this Amendment, and not least the technical imperfections of the drafting of the Bill which have been shown up by the speech made earlier in this discussion by the noble Lord, Lord Alexander of Potterhill.
The simple effect of this Amendment, if it were to be pressed, would be to allow local authorities to have regard to ability and aptitude in providing sixth-form education. Even the Minister in charge of the Bill could not believe that the choosing of pupils for the sixth form should not pay some regard to their ability to profit from the courses offered;
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yet that is the really incredible effect of this Bill. Because he was a reasonable man the noble Lord, Lord Donaldson of Kingsbridge, took that view before he read the Bill in any detail. Because he is, as we all know, an honest man, he stood up and said, "To me, 'sixth form' has an academic meaning, whereas it has not in secondary education now, nor should it have".
Let us just look for a moment at his opinion and the really extraordinary reason which he gave in Committee for its correction. I would guess that the noble Lord, Lord Donaldson, being a totally reasonable man, before he read the provisions of this extraordinary Bill took the view that sixth forms should, as far as possible, open their entry to any pupils who had any chance at all of tackling the courses offered. I have no doubt that the noble Lord, Lord Donaldson, would have taken into account that the raising of the school-leaving age was designed to encourage more pupils to to stay on longer at school. I am sure also that the noble Lord was armed with the knowledge that many people want to see a broader sixth-form curriculum—only this afternoon we heard the noble Lord, Lord Robbins, speak again on this particular point on which he has expressed his views trenchantly and forcibly on previous occasions in this House. But to move from all that to the assumption that it should therefore become the law of the land that every single sixth form must admit every single pupil to every single course without any regard at all to either aptitude or ability is really a very large assumption indeed. It will lead to problems of the type which my noble friend Lord Eccles has outlined.
This coercion in the Bill leads the Government into a second problem which plagues the Bill, namely, obscure drafting, a fault which in no way should be laid at the door of the Parliamentary draftsman but which is evidence of the impossibility of translating the intentions of Ministers with regard to this subject into a draft which can take account of the practicalities of life. In the real world, where young people reach the stage when they want to choose courses suitable to their abilities and aptitudes, what are they going to do? They will look around to find where those courses are offered.

25
The noble Lord, Lord Alexander of Potterhill, has reminded us of the problem as he sees it with regard to the drafting of the Bill on this point. Having listened to the noble Lord speaking, I think it is clear that if a sixth-form college can exclude some pupils because it does not offer certain courses, this is bound to be selection by ability and aptitude. I have listened to what the noble Lord, Lord Donaldson of Kingsbridge, had to say and I would ask the Government this question, and perhaps, as this is Report stage the noble Baroness, Lady Stedman, will be able to reply. If the Government are saying that the noble Lord, Lord Alexander of Potterhill, is wrong, then I hope they will explain the distinction between a college which refuses admission on the grounds that it does not offer the necessary courses and an institution which includes courses of such a standard that some pupils might then be refused admission?
I know perfectly well that the Government will tell me that the second option is completely prohibited by the terms of the Bill. Why is it that the first option cannot be prohibited too? I am driven to the conclusion that the noble Lord, Lord Alexander, is right; that the drafting of Clause 1(1) will lay a duty on authorities to see that their sixth-form colleges can admit any pupil for any course. May I offer the Government a word of warning on this, of an entirely practical kind? I do not know whether the noble Lord has seen the report of the Head-masters' Conference some three weeks or so ago, in which Mr. Dance, Head-master of St. Dunstan's College, Cat ford, and formerly the head of the Luton Sixth-Form College, said that he was concerned whether sixth-form colleges were desirable at all, because at Luton he found that too much—and I quote his words—"remedial work was needed when pupils arrived". He added that it had been a relief to him to return to a school where there was a sense of continuity. That was a very significant statement, because the Luton Sixth-Form College is one of the seventeen selective sixth-form colleges in the country. Presumably the state of affairs on which Mr. Dance was expressing an opinion would have been less marked at the college of which he was then the head than it would have been at colleges which were totally open.
26
My Lords, I am bound to put it to the Government that they are laying a very formidable burden on local education authorities. Even if the legal advice given to the Government on this Amendment is that this is not so, undoubtedly the Bill is going to continue the practice of spreading sixth-form teaching resources ever more widely, rather than concentrating them, a point on which my noble friend Lord Eccles spoke.
A week ago the right honourable gentleman the Prime Minister made his speech at Oxford, expressing his concern about the results of our education system. He expressed his view in terms of the skills which should be acquired by school-leavers and he was specific. The right honourable gentleman said:
"Is there not a case for a professional review of the mathematics needed by industry at different levels?".
The Government will remember that the right honourable gentleman went on to ask why there were 30,000 vacancies for science and engineering students last year while the humanities courses in higher education were full. These are wholly reasonable words. But what is the Bill doing? It is busy ensuring that the answers to questions which the Prime Minister put are never going to be provided. By removing the discretion of local authorities to provide education as they think best you arc going to be hard put to it to provide, for instance, the sort of maths teaching we want. We shall be discussing this point in more detail when we come to the Amendment of my noble friend Lord Eccles.
My Lords, at col.1342, of Hansard for 6th October last, during the Committee stage of this Bill, the noble Lord, Lord James of Rusholme, put the matter more clearly than I could when he said that if the rare resources for teaching maths up to Advanced level are going to be deployed properly, selection is inescapable. This is precisely what this Bill is aiming to prevent, and that is the point to which this Amendment is directed. The Bill will also work against the expressed desire of the right honourable gentleman the Prime Minister for a swing towards science and engineering, because the total imposition of comprehensive education is absolutely bound to destroy schools which have a science and engineering staff, facilities and traditions.

27
I remember well the Birmingham proposals in 1973 for reorganisation. There were schools which bear the name of the noble Lord, Lord Kings Norton, and because they do, they have a very strong engineering side to them. I remember how anxious and concerned the noble Lord on the Cross Benches was that those schools were to be turned into mini-comprehensives within a consortium of schools. I remember well the reorganisation proposals for Harrow Secondary School. By common consent, including views given in letters written to the Department at the time by Members of Parliament on the Labour Benches, that school had almost the finest science department of all the maintained schools in the country. It was literally going to be destroyed and dismantled in order to turn the school into an 11 to 16 comprehensive. I am not arguing for a return to the technical schools of the tripartite system, but having listened to my noble friend Lord Eccles I am driven to the conclusion—and I would hope the Government are, too—that if you pull up good sixth form teaching by the roots in this way you cannot hope to achieve the declared objectives of the Prime Minister, when he said that what was needed was a more technological bias in science teaching that would lead towards practical application in industry.
Whether in the light of the Prime Minister's Oxford speech the Government are prepared to write some flexibility into the Bill I suppose we are now going to discover, for a new Secretary of State is saddled with a Bill on which the Government have so far refused to make one concession. Surely this could be an opportunity to recognise that a degree of flexibility for local education authorities is necessary. In addition, I hope the Government will take on board the fact that authorities are genuinely worried that the wording of Clause 1(1) as it appears will lay a duty on them to provide courses at any standard for any pupil who may be admitted. It will be for my noble friend Lord Elton to decide what we ought to do about this Amendment. There is no wish on this side of the House to breach the general principle of the Bill in this respect. As I said when I started, we put down this Amendment for a second time purely to find out what the effect of the wording of
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the Bill will be in regard to sixth form teaching.
I am bound to say that, in a clash of opinion between the Government and the noble Lord, Lord Alexander, I believe that the noble Lord, with all his experience, is right. The effect of the wording of Clause 1(1) will be to make every sixth form open. There are questions to be answered when the noble Baroness, Lady Stedman, comes to speak. Is the noble Lord, Lord Donaldson, right in saying that you may not refuse admission to an institution because it is an institution but you may refuse admission to an institution because a pupil has not got the correct qualifications for a particular course? Why is it that the wording of this Bill, in distinction to the wording of the 1970 Bill when it was introduced by the last Labour Government, outlaws selection in sixth form colleges but will allow sixth forms in schools to be as highly selective as they wish. We shall hear the answers to these interesting questions in a few moments; then it might be right to have some discussion between the Government, the Opposition and the noble Lord, Lord Alexander, and other noble Lords, and maybe we can return to this matter again on Third Reading.

THE POUND STERLING
3.44 p.m.
The LORD PRIVY SEAL (Lord Peart): My Lords, with the leave of the House, I shall repeat a Statement which has just been made in another place by my right honourable friend the Chancellor of the Exchequer. His words were as follows:
"The sterling dollar rate declined sharply when business began this morning. At one point, it was more than 7 cents down on its closing rate in London at the end of last week, a week in which sterling held up well in active trading conditions.
"I understand that the whole of today's pressure has stemmed from the story in yesterday's Sunday Times which suggested that the IMF and the United States Treasury have agreed on a set of conditions, including a lower exchange rate, for the projected United Kingdom drawing from the Fund.
"This story has been denied in the most unequivocal terms both by the International Monetary Fund and by the United States Treasury. The House will have seen that Mr. William Simon, the United States Secretary of the Treasury, has described the story as—I quote his words,
'irresponsible and patently untrue'.
"Mr. William Dale, the Acting Managing Director of the IMF, said that the reports—I quote again,
'have absolutely no basis in fact as to either the Fund's method of procedure or the particular nature and size of the terms. The Fund does not, and cannot, determine its views on detailed measures until after a careful examination of the economic indicators on the spot'.
"These are Mr. Dale's words. In fact, the mission from the IMF staff will not be arriving in London for discussions with Her Majesty's Government until next month.
"It will not form a view on what terms are appropriate until it has been able to assess the prospects for the British economy in the light of Treasury forecasts which will then be available".
My Lords, that concludes the Statement.
Lord CARRINGTON: My Lords, the House will be grateful to the noble Lord the Leader of the House for having repeated that Statement. I think on this sort of subject we must be very careful what we say. Certainly it is not the wish of anybody in your Lordships' House to say anything which would make a difficult situation more difficult. I would only say—and I think the noble Lord the Leader of the House would agree—that above all what is needed now is confidence here and abroad. If that confidence existed I think we need not fear what other people think. I hope the Government will address themselves to that aspect, and quickly.
Lord BYERS: My Lords, I should like to endorse what the noble Lord, Lord Carrington, has said. This ought to be a lesson to all of us. If a massive wave of selling of sterling can be sparked off by one newspaper article it shows how fragile our credibility overseas has become, and sterling will presumably be at risk until negotiations have been completed
30
with the IMF. Therefore, I would ask the Government whether it would not be wise to try to hasten these discussions so that the period of risk is shortened.
Lord PEART: My Lords, I would say how grateful I am to the noble Lords, Lord Carrington and Lord Byers, for their responsible attitude. I expected that. I remember that my first baptism here on a similar matter led to a debate, but today I believe it is right to exercise a measure of restraint although it is right for noble Lords to ask certain questions. I agree so much with the question of confidence and how important it is. On the question of talks with the International Monetary Fund, they will begin in November but there have already been soundings between officials.
Lord ROBBINS: My Lords, speaking from the Cross-Benches, may I say how much I personally agree with the attitude which has been adopted by the Leader of the Opposition and the Leader of the Liberal Party. Speaking as one who in the past has had something to do with the national Press, I was a little shocked at the cocksureness and irresponsibility of the article referred to. On the other hand, may I say to the noble Lord that I hope the reputation which he has been able to convey to the House of the alleged information conveyed in that article will not lead to any complacency on the part of the Government with regard to the measures which need to be taken if we are to be saved from the fate which was perhaps foreshadowed in that article. One has only to travel abroad as I have been doing in the last few weeks to realise with a sense of humiliation the compassion with which our ability to manage our affairs hitherto is commonly regarded by people of good will and of all political persuasions.
Lord PEART: My Lords, I naturally thank the noble Lord. May I say that Mr. Simon, the United States Treasury Secretary, said that we have taken some rather courageous measures and I believe that we have to.

EDUCATION BILL
3.49 p.m.
Report stage resumed.
Lord DONALDSON of KINGSBRIDGE: My Lords, by leave of the House I should like to make two comments, both factual, on what has been said. The first is that the noble Lord, Lord Belstead, referred to Luton in a sense which suggested that it was selective. It is not selective at the moment. Secondly, the difference between the figures quoted by the noble Lord, Lord Alexander, and mine were so wide that I must repeat my figures, which come from the Department. Of the 72 sixth form colleges and two sixth form centres in operation in September 1976, only three still operated selective admission procedures and, of those, two are moving towards becoming open access colleges. This being a Report stage discussion, I shall not resume the argument.
Lord SLATER: My Lords, I rose to my feet prior to the Statement of the noble Lord the Leader of the House in regard to the serious situation in which we find ourselves, in order to follow Lord Belstead. I listened to his opening speech and also to the speech he made later on the Amendment. What was noticeable was that he quoted from an ex-Minister of Education, in the person of Lord Eccles, and he also praised Lord Robbins on the Cross-Benches. He played with the noble Lord, Lord Alexander, because of his knowledge of the educational position in this country prior to his coming to this House. But he had not a word to say in reply to the questions that were posed to him by the noble Lord, Lord Beaumont, or my noble friend Lady Bacon. Nor had he anything to say to the noble Baroness, Lady Brooke, in regard to the very important question which she put.
There is another aspect which has never been brought within the ambit of consideration regarding the 17s to 19s, quoted in the course of the debate—these young people who are not prepared to go in for their A-levels after being successful in their O-levels. There is one thing being overlooked, in my submission, and it is this. A lot of these young people who have left the sixth form have left the schools, and have not made application to go into these colleges but have gone into industry, have what is known as day release. They go to technical colleges; this is where you are going to get your technologists from and not so much from
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the universities. It is to the technical colleges that we look these days to produce those young men and women for the future of this country. I do not know whether Lord Belstead will make any reference at all to what was said by Lord Beaumont and my noble friend Lady Bacon, seeing that both of them are educationists in their own right. I was a member of a county council before I became a Member of Parliament, and I say this in all sincerity and without any sense of arrogance. Lord Alexander did not always receive the praise of local educational authorities up and down this country before coming here. I would say to Lord Belstead that he has played his tactics very well on this occasion, but the time will come when he will try such tactics once too often and he will find that he will be brought down. He will find that what he has to say on important issues like this will not come off in the way it has today.
3.55 p.m.
Lord ELTON: My Lords, I trust that the House will indulge me in exercising my normal prerogative. It is a difficult task to reply to this debate. It has in part turned out to be a debate about the merits and demerits of the sixth-form colleges as a means of education. To start at the point of greatest difficulty, I must refer to the third intervention of the noble Lord, Lord Donaldson, which was by leave of the House. We are in some difficulty about the figures, because although there is a difference between the figures presented by the noble Lord, Lord Donaldson, this week and those presented by the noble Lord, Lord Alexander of Potterhill, this week, there is also a difference between the figures presented by the noble Lord, Lord Donaldson, this week and the figures presented by him last week. To get a reduction from 14 to three in a matter of seven days is progress of a very high order.
The noble Lord, Lord Belstead, has already advised us to look at this carefully because the question is not as simple as it seems to be thought to be in some parts of this House. First of all, I must emphasise to noble Lords who dislike the idea of an increase in the number of sixth-form colleges that, deplorable as their effects may be in some directions, there are those who feel that they are less

33
deplorable than the effects of gargantuan size which in many cases are the alternative in a straight-through comprehensive school covering the whole of the ability range. This, I think, is a point that should be brought home to the noble Baroness, Lady Bacon. And I am sure that my noble friend Lord Belstead had no intention of being discourteous either to her or to the noble Lord, Lord Beaumont, as the noble Lord, Lord Slater, seemed to think he might have, in not referring to what they had said. He referred in substance to what they had said even if he did not refer to them by name, and perhaps it is the courteous thing to refer to by name only those who have uttered sentiments with which one agrees.
The fact is that come the passage of this Bill, in whatever form, there is going to be an increase of demand for places in sixth form colleges and there is going to be in some cases an excess of demand over availability. We have heard nothing from the Government so far to say on what basis they would allocate the insufficiency of places to the over-sufficiency of pupils applying for them. Is it not going to be on the grounds of aptitude or ability? I shall be very surprised if it is not.
We are in a much more difficult position when we come to examine the noble Lord's reply to the substantive point that I sought to make in my speech in introducing this Amendment. He has said in effect that the admissions criteria for an institution are not the sum of the admissions criteria for the courses which that institution offers. Even if we look at it only in those simple terms, I feel that this is a matter of such importance that it must be decided on an irrefutable authority and one which we have had time to examine. I would have thought that this was something in which the noble and learned Lord on the Woolsack might well interest himself between now and Third Reading, because if we do not have an assurance of the rectitude of Lord Donaldson's interpretation of this Bill, then, like Lord Alexander, we simply cannot accept the assurance of an intention as being superior to the clear duty of the court to rule in a contrary sense if a case is brought. It does seem to me difficult, and indeed odd, to suggest that if a pupil should arrive at a sixth form college and say, "I want to study history. I have got
34
an O-level in history", he can be brought in; but if he arrives and says, "I want to study history but I have no O-level in history", he can be told that he cannot come in to that college.
What happens if he addresses himself to the head of the college and merely says, "I wish to come to your college. I have no O-levels"? He is then not going to be qualified to enter any course, or indeed the college. On a layman's view, it seems to me prima facie to suggest that a sixth form college is selective if it says that. Indeed, my doubts as to what the noble Lord means by an open college and a non-selective college are deepened by the figures he gave in his last intervention just before my reply. He said that the college at Luton was non-selective. I just wonder what non-selective is in that case, and I shall want to study that against the undertakings that the noble Lord has given as to the intentions of the Government.
What has been said by the noble Lord is so set about with uncertainty that it would be irresponsible to move this Amendment at this stage, since we shall be moving on uncertain ground. As I' said at the last stage, it is the duty of the Government to make clear what is the law and it is for the Government to draft their legislation in such a way that it can be understood outside the courts as well as inside the courts. Therefore, if the noble Lord cannot do better than he has now done, I hope your Lordship, will bear with me if I reserve the right to come back with this Amendment at Third Reading. Frankly, we are not satisfied. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
4.2 p.m.
Lord BEAUMONT of WHITLEY Lord BEAUMONT of WHITLEY moved Amendment No. 2:
Page 2, line 11, at end insert—
("( ) Subject to subsection (1) a Jove, local education authorities shall have. I duty to arrange for the admission of pupils with particular needs to the schools most suitable for them.").
The noble Lord said: My Lords, if it is indeed right that I should be sparking to this Amendment at this time—because I too was advised that it would be taken in a different order—I should like to move the Amendment standing in my name. This arises from an argument which we

35
had on Committee stage, I think very largely on a Conservative Amendment. The trouble with that Amendment as the Government saw it, and indeed as I saw it, was that it could have been used to wreck the Bill and to destroy subsection (1). I hope that this Amendment does not have that disadvantage, because it makes subject to subsection (1) what we are trying to put forward. That means that it cannot be used in any way to subvert the comprehensive principle, but it makes a positive virtue of the fact that local education authorities must do their best to arrange the admission of pupils with particular needs to the schools most suitable for them.
We shall be told that education authorities do this already, and I am quite prepared to believe that that is so in the great majority of cases—in fact I am sure that they do. But without joining in the competition as to whether we can be most paranoic about odd Secretaries of State, or rebel authorities, I think we are safe in trying to work on a basis that not every local education authority will be entirely faultless, and that there is always a like-lihood, in the bureaucracies of overworked and undersupplied authorities, that these matters are not always looked at with individual pupils quite as carefully as they might. By imposing this duty, I think that we can give a ground for parents and children to stand on when trying to get admission to a particular school for a particularly good reason.
It is not my intention to weary the House with a number of instances. I shall merely take one. In the library at Swiss Cottage of Camden Borough there was over the last month—and may be still for all I know—a remarkable exhibition of photographs by two girls aged 8 and 13, the daughters of a professional photographer, who were obviously guided, but not overtly helped, by their parents. The photographs of both of them were extremely good; in fact the photographs of the younger one were perhaps the more outstanding.
When it comes to choosing a school for a child like that, obviously it would be right that, if there was a school with good darkrooms and with an art teacher who specialised in photography, the child should go to that school. Although we
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on the Front Benches here are agreed on the comprehensive principle, I hope that we are also agreed upon the principle of excellence, and that where we find excellence we ought to cultivate it. Here is a situation where a sensible education authority, when appealed to to make this choice in this particular allocation, would do so.
But not all education authorities are perfect, although most of them are very good for most of the time. I am sure that noble Lords can think of many other cases, it merely happens that the one I mentioned has come into my experience in the course of the last few months. When we come across a case like that it is right that we should lay an especial duty on the local education authority to make that kind of choice. I cannot see that this Amendment can do any harm to the general principle of the Bill at all. It seems to me that it strikes one of the very small blows which are available for the freedom of choice of parents and children that we should all like to see increased. Therefore, I beg to move.
4.7 p.m.
Baroness STEDMAN: My Lords, we discussed a rather similar Amendment at Committee stage, which was moved by the noble Lord, Lord Belstead, but warmly welcomed by the noble Lord, Lord Beaumont. On that occasion I explained that the Conservative Amendment would enable local authorities legally to retain their selective systems, and it was then withdrawn. This Amendment, although, similar, has one important difference. Local authorities would have a duty to arrange suitable education for pupils with particular needs, but subject to the comprehensive principle. This Amendment does not share the defects of the former one; in principle it is reasonable but, as I hope to convince the noble Lord, totally unnecessary.
In earlier debates we established the fact that, whether or not the first fourteen lines had been added to Clause 1, local authorities are to have regard to the comprehensive principle,
"in the exercise and performance of their powers and duties relating to secondary education …"
In other words, the duty to have regard to the comprehensive principle in no way absolves authorities from their duties

37
under Section 8 of the 1944 Act to offer such variety of instruction and training as is necessary in view of pupils' different ages, abilities and aptitudes. Authorities are already under a duty to provide children with a suitable education, and when the Bill is enacted, they will still be under a duty to continue to do this while having regard to the comprehensive principle—that is, within a school that admits children without reference to ability or aptitude.
As I said during the debate on the previous similar Amendment, the principle in Clause 1 is really quite narrowly drawn: all that it does not allow is the making of special arrangements for the admission of pupils on the basis of their academic ability. It would be permissible for a pupil to be admitted to a school in order to benefit from special facilities if his admission was not governed by his general academic ability and it would remain a duty of the local authority to ensure that each child was provided with an education suitable to his or her needs. It is because this ideal is more readily attainable within a comprehensive system that we support comprehensive rather than selective schools. I hope that in the light of what I have said the noble Lord will feel able to withdraw the Amendment; if not, I must ask the House to reject it as being unnecessary.
Lord BELSTEAD: My Lords, the noble Baroness, Lady Stedman, has assured us that the Amendment is unnecessary because Section 8 of the Education Act 1944 remains in force and that that lays a duty on authorities to provide schools which are suitable to the age, ability and aptitude of pupils. I accept from the noble Baroness that she means exactly what she says, but I confess that she could have fooled me, considering the reception which our first Amendment had in Committee when we tried to write in Sections 8 and 76 of the 1944 Act and for which it seemed the Government were not particularly enthusiastic. That aside, I have a more positive concern about this issue and it lies within the new draft Manual of Guidance which the Department of Education and Science issued in the summer and to which I referred in Committee.
The reply which the noble Baroness just gave does not seem to be quite in tune
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with new draft Manual of Guidance, a document which has raised considerable anxieties. As I pointed out in Committee, there is no mention in the new draft of the part which would b played by religion in deciding admissions to voluntary schools. In addition, there is no mention in it of many of the other reasons why parents want their children to go to a particular school; because it is large or small, because it uses new or traditional methods, because it is mixed or single sex or—and this is, I think particularly worrying the noble Lord, Lord Beaumont of Whitley—because it has especially good teaching in a particular subject. The noble Baroness kindly wrote to me on 20th October on this general point and in her letter she said:
"You also referred to the draft circular about the admission of children to schools of their parents' choice. Reference to religious factors was omitted quite deliberately, together with reference to other factors of a general kind (e. g. preference for single sex education) because such factors are mainly relevant to the general arrangements made by authorities for allocating places, whereas the draft circular was intended, unlike the old Manual of Guidance, to be concerned with particular cases which might be referred to the Secretary of State."
I am grateful to the noble Baroness for writing to me, but I find that passage worrying. Surely it is precisely on the grounds referred to in her letter that particular cases of parental choice get referred to the Secretary of State. It is because parents want a single-sex or denominational school or a small or traditional school that they sometimes come in conflict with their local education authority and eventually the case goes to the Secretary of State under Section 68 of the 1944 Act.
Am I to assume that because there are legitimate reasons for parents wanting choice of school and because they are accepted as being legitimate reasons by the Department of Education and Science, they do not need to be referred to in the new draft Manual of Guidance? I should like to think that I have t tat right, but my hopes were dashed when I read on in the draft manual and, on coming to paragraph 8—which I have quoted before but will repeat—I read:
"Questions of a school's suitability to the ability and aptitude of a child are not expected to remain of practical significance for much longer as they should not normally arise in the case of admission to a comprehensive school."

39
With their obsession for academic selection, I could have understood it if the Government were saying in their draft circular that questions of the ability of a child should not be allowed to arise in the case of admission to a comprehensive school. I would not applaud it, but I could understand it.
As noble Lords have pointed out incessantly in these debates, the aptitude of a pupil may require choice of one school and not of another. I am therefore particularly glad that the Amendment refers to the needs of children. In Committee I gave an example of a dyslexic child I knew who was not making any progress at school and was moved to another school where his need for specialised teaching would be met. Could anybody doubt that that boy had been admitted to his second school on grounds of need, the need in that case of his particular disability? My noble friend Lady Faithfull spoke in previous debates on this subject of children who were not categorised as handicapped but who were in need of special care and education, often in boarding schools, because they had symptoms of maladjustment and were probably backward. Those pupils are placed on grounds of their needs, the needs of their aptitudes and sometimes of their abilities, also.
The point to which I did not receive a reply in Committee was the question of what one does if one has a very gifted child who will obviously make progress in one school rather than in another. Presumably the Bill will prohibit admission to one school rather than the other because the admission of that pupil would be decided on the grounds of his or her need, in this case the need of ability, which can strike at the very root of the life of a very gifted child.
I was particularly glad that Lord Beaumont pointed out that this is not a wrecking Amendment but is subject to subsection (1). It says that there should be the discretion of local authorities to be allowed to take those pupils of whom I have tried to give illustrations into one comprehensive school, if the Government like, and not into another. The Bill, so far as can be seen, will prohibit the placing of a child in one school rather than in another, even if they are comprehensive
40
schools. If I am right on that, then that is the reverse to progress in education and the Amendment would help to rectify the damage which I still believe Clause 1 will do in this respect.
4.17 p.m.
Lord ALEXANDER of POTTERHILL: My Lords, I am sorry that, because of its drafting, I cannot support the Amendment. To place a duty on local education authorities to arrange for pupils to go to particular schools because of their particular needs is not in my opinion a practical proposition; that is, unless one accepts the entire principle of selection over all schools in the area. I should have no objection whatever if it was so drafted that it was not a breach of Clause 1 for a local authority to arrange for the admission of pupils with particular needs to schools most suitable for them. Then one would rest on parental choice.
This is a very real problem. The banding system will not work in practice, in my view, because of the difficulties of transport and the complaints of parents. It would be a very difficult operation. Inevitably, therefore, comprehensive schools will vary a great deal in their nature; they will vary in the range of ability in the schools according to the districts or areas in which they are. I am thinking of the last city in which I administered; the comprehensive school in Fulwood would be very nearly a grammar school while the comprehensive school in the Attercliffe Valley would be a very different comprehensive school indeed.
Obviously if one accepts what is now the amended Clause 1, the provision of Section 76 applies and parents would have the right to say to an authority, "I would prefer my child to go to this rather than that comprehensive school because he has particular needs, "whatever these might he, "and I should be happy if the authority will say we accept that and we agree." He is not required to go to the neighbourhood school, so to speak, if a case can be made. Obviously it would depend on the availability of places in the particular schools. However, to place a duty on the authority to arrange to do that is very different. I do not think it is a practical proposition in terms of administration.
Baroness STEDMAN: My Lords, by leave of the House I accept what the noble Lord, Lord Belstead, has said that this is not a wrecking Amendment. On the other hand, we think it is quite unnecessary and, perhaps I may refresh the memory of the House as to what Section 8(1) of the 1944 Act states. It is that:
It shall be the duty of every local education authority to secure that there shall be available for their area sufficient schools—(a) for providing primary education … and (b) for providing secondary education … and the schools available for an area shall not be deemed to be sufficient unless they are sufficient in number, character, and equipment to afford for all pupils opportunities for education offering such variety of instruction and training as may be desirable in view of their different ages, abilities, and aptitudes, and of the different periods for which they may be expected to remain at school, including practical instruction and training appropriate to their respective needs."
That part of the 1944 Act still goes side by side with this Bill when it is enacted and we are still subject to it.
So far as the comments which I made in my letter to the noble Lord are concerned, if he had read on it would have said:
"There is no intention of implying that denominational preferences should no longer play a part in school allocations but as explained in the debate at column 1624 we are going to have another look at the arrangement for allocations for school places and the Secretary of State will, among other things, be reviewing the draft circular to which he referred."
I am quite sure that this Amendment is unnecessary. I agree with the noble Lord, Lord Alexander of Potterhill, that it would be unwise to place a duty on authorities, and I hope the noble Lord might withdraw it.
Lord ELTON: If I might intervene briefly, my Lords, to take up a point which the noble Baroness made. She quoted to us in extenso the part of Section 8(1) of the 1944 Act which sets out the duty of a local authority to provide places,
"… sufficient in number, character, and equipment to afford for all pupils opportunities for education offering such variety of instruction and training as may be desirable …"
Of course, the whole Bill is concerned about whether children who have the needs meet up with the places that offer the resources they require. Therefore, I do not think that what the noble Lord, Lord Beaumont of Whitley, seeks to do is in
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any way superflous at all. That was the substance of our Second Reading and a good deal of our Committee stage debate, and I am surprised that it seems to be slipping away from us. The ethos of the comprehensive idea, the respectable content of the comprehensive idea, is that you remove from a child the agonising and odious choice between schools with different academic and, therefore, different social connotations and you present the same choice to the child within a school where the choice is no longer odious because it is not publicly discerned.
That is a condensed but recognisable description of the situation. That is what the noble Baroness and her friends seek to do. What we are saying is, "A 1 right"—and I specifically said this at the last stage on this Bill—"if that is what you are seeking to do and if you can do it, well and good." What we want is for children to be well-educated, educated as well as is possible with the resources at our command. But we said that we are not confident that it is physically possible to produce all these different choices in the one school. It becomes very big if you do and we have just had a debate about the sixth-form colleges which arose simply because of the need to make these schools less big.
Another solution is to split them up in some other way. But if you split them vertically instead of horizontally, and split them according to some criterion other than age, then some of the resources you want will be in one school and not in another; the choice will no longer be within the school, and thus the covert choice—to extend the paraphrase I have used—will be an open choice between two schools. Now, obviously, if the comprehensive principle is to survive, it must not be a choice resting upon academic aptitude and ability of the mass of the children, because that brings you back into the bipartite system.
What you have to do is to say that the schools are generally selected without reference to ability and aptitude, but in particular cases—and the noble Lord has wisely used the word "particular" as we did in our first draft—wherethere is a brilliant teacher of music in one school and you have a musically gifted child in another, regardless of any other considerations that particular nerd and

43
we have avoided the use of aptitude and ability) shall be taken into consideration and the child shall be transferred. You cannot say that is not a choice by reference to aptitude and ability and that destroys the principle of the Bill in reference to that school. Here is a child who is admitted to that school in regard to its particular ability for music. I am sorry I chose music, because there is an Amendment covering music already. Let us say it is sculpture or Greek—it does not matter what it is so long as it is a breach of the principle.
The noble Lord has a point and the noble Baroness has not answered it. I did not anticipate that she would because it will be very difficult to do. If the draft which the noble Lord is submitting to the House has the effect that I think it has, as the noble Lord, Lord Alexander of Potterhill—who is exercising a considerable effect on our debates this afternoon—thinks, then if he is right in this interpretation, and he would seem to be, you could say that every child is a particular child and every child has particular needs. Therefore, we are back to where we tried not to be before; though it might give a certain glow to our political hearts it would be in direct contradiction to the principle of the Bill. That, I know, is not what the noble Lord, Lord Beaumont of Whitley, wishes to do, and far be it from me to egg him on to do things which are contrary to his principles. But he has a point and I feel that the noble Baroness has not answered it. It must be answered if unfairness is not to result, and I hope that we resolve this question before the Bill leaves this House.
Lord BEAUMONT of WHITLEY: My Lords, one thing is quite clear, and that is that the noble Baroness, Lady Stedman, and the noble Lord, Lord Alexander of Potterhill, cannot both be right. It cannot be both unnecessary and impractical. So I should like to take the two arguments separately. I take very seriously the point which the noble Lord, Lord Alexander of Potterhill, has made, but I would say to him that if we cannot find a way in this Bill whereby we can make it more flexible for individual children without breaching the whole principle, we certainly will have failed in this House. I believe we can find such a way. I believe that my Amendment is
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two-thirds of the way there, if not further. It is my intention to ask the House to divide on this issue and I would say to the noble Lord, Lord Alexander of Potterhill, that perhaps he and I could get together in order to bring an Amendment to the Bill, as it will be amended, on Third Reading and to put in an extra qualification if one is needed. It seems to me that what is needed is a qualification about what is practicable for local education authorities. We can pass this Amendment now and then put in an extra qualification if necessary at Third Reading. I believe that would be a very straightforward way of dealing with the matter and would waste less time in your Lordships' House.
To the noble Baroness, Lady Stedman, I would merely emphasise what the noble Lord, Lord Elton, said. Section 8 of the 1944 Act does not lay a duty on local education authorities actually to help put children into the right schools. What it does is to say that they must provide the requisite number of places in order to deal with them, of particular types over a whole local education authority, which is a very different point altogether. The noble Baroness says that this Amendment is unnecessary, but I think that it ought to be put in because everyone knows—the Government Front Bench knows—that there is considerable worry in this country that what the Government are trying to do is to impose a rigid grey comprehensive system over the whole country. Whatever noises the Conservative Front Bench may be making at this particular moment, the Government Front Bench and myself know that this is untrue; but it is very important in my mind that we should make it quite clear to people that it is untrue and that we should make the system in such a way that it cannot be made true. It was for that reason, and with the assurance to the noble Lord, Lord Alexander of Potterhill, and anyone else who feels the same way he does, that we will examine the possibility and desirability of putting down a further qualifying Amendment at a later stage that I ask the House to divide.
4.30 p.m.
On Question, Whether the said Amendment (No. 2) shall be agreed to?
Their Lordships divided: Contents, 102; Not-Contents, 53.

CONTENTS

Airedale, L.

Emmet of Amberley, B.

Nugent of Guildford, L.

Amory, V.

Erskine of Rerrick, L.

O'Hagan, L.

Ampthill, L.

Faithfull, B.

O'Neill of the Maine, L.

Amulree, L.

Ferrers, E.

Onslow, E.

Arran, E.

Fraser of Kilmorack, L.

Platt, L.

Ashbourne, L.

Glasgow, E.

Rankeillour, L.

Auckland, L.

Glenkinglas, L.

Redesdale, L.

Banks, L.

Gray, L.

Reigate, L.

Beaumont of Whitley, L.

Grey, E.

Rochdale, V.

Belstead, L.

Gridley, L.

Ruthven of Freeland, Ly.

Berkeley, B.

Grimston of Westbury, L.

Sackville, L.

Brooke of Cumnor, L.

Hailsham of Saint Marylebone, L.

St. Aldwyn, E.

Brooke of Ystradfellte, B.

St. Davids, V.

Byers, L.

Hampton, L. [Teller.]

Sandys, L.

Campbell of Croy, L.

Hanworlh, V.

Savile, L.

Carr of Hadley, L.

Harmar-Nicholls, L.

Sharples, B.

Carrington, L.

Harvey of Prestbury, L.

Simon, V. [Teller.]

Cathcart, E.

Hylton-Foster, B.

Spens, L.

Clancarty, E.

Inglewood, L.

Stamp, L.

Clifford of Chudleigh, L.

Kimberley, E.

Strathclyde, L.

Clitheroe, L.

Kinnaird, L.

Strathcona and Mount Royal, L.

Clwyd, L.

Lauderdale, E.

Sudeley, L.

Cullen of Ashbourne, L.

Long, V.

Tenby, V.

Darcy (de Knayth), B.

Lyell, L.

Teviot, L.

Daventry, V.

Macleod of Borve, B,

Thomas, L.

De Freyne, L.

Marley, L.

Trefgarne, L.

Denham, L.

Merrivale, L.

Vickers, B.

Derwent, L.

Mersey, V.

Vivian, L.

Devonshire, D.

Monck, V.

Wakefield of Kendal, L.

Drumalbyn, L.

Morris, L.

Ward of North Tyneside, B.

Ebbisham, L.

Mowbray and Stourton, L.

Ward of Witley, V.

Eccles, V.

Munster, E.

Wigoder, L.

Elles, B.

Newall, L.

Wolverton, L.

Elliot of Harwood, B.

Northchurch, B.

Young, B.

Elton, L.

NOT-CONTENTS

Aylestone, L.

Harris of Greenwich, L.

Phillips, B.

Bacon, B.

Henderson, L.

Popplewell, L.

Birk, B.

Houghton of Sowerby, L.

Sainsbury, L.

Blyton, L.

Jacques, L. [Teller.]

Shepherd, L.

Brimelow, L.

Janner, L.

Shinwell, L.

Brockway, L.

Kirkhill, L.

Slater, L.

Buckinghamshire, E.

Leatherland, L.

Stedman, B.

Burntwood, L.

Lee of Newton, L.

Stone, L.

Burton of Coventry, B.

Llewelyn-Davies of Hastoe, B.

Strabolgi, L. [Teller.]

Champion, L.

Lloyd of Hampstead, L.

Summerskill, B.

Collison, L.

Lovell-Davis, L.

Taylor of Mansfield, L.

Cooper of Stockton Heath, L.

Maelor, L.

Wallace of Coslany, L.

Crowther-Hunt, L.

Maybray-King, L.

Wells-Pestell, L.

Cudlipp, L.

Melchett, L.

Wigg, L.

Darling of Hillsborough, L.

Northfield, L.

Winterbottom, L.

Donaldson of Kingsbridge, L.

Oram, L.

Wise, L.

Gordon, Walker, L.

Pannell, L.

Wynne-Jones, L.

Hale, L.

Peart, L. (L. Privy Seal.)

Resolved in the affirmative, and Amendment agreed to accordingly.
4.38 p.m.
Viscount ECCLES Viscount ECCLES moved Amendment No. 3:
Page 2, line 11, at end insert ("or
(c) the provision of education in any school where the arrangements for the admission of pupils are based partly on selection to ensure the most effective use of qualified teachers of mathematics.").
The noble Viscount said: My Lords, this Amendment does not open the door to all kinds of exceptions to the general principle in Clause 1. I should not want it to do that. It creates one new exception—mathematics—to be added to music and dancing. When I put down the Amendment, I did not know that, in a matter of days, the Prime Minister would declare himself a strong supporter for the reasons which have prompted my new subsection. In his speech at Ruskin College, the right

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honourable gentleman made my case for me. The part of his speech which dealt with the decline of standards in mathematics received very wide and favourable publicity and so, with such backing from such an important quarter, it would be grotesque if the Government did not accept the Amendment. It replaces the one which I withdrew at the Committee stage; and, as your Lordships will remember, on that occasion all noble Lords who spoke recognised that the standards of teaching mathematics varied very much from school to school, and in many schools adequate teaching was almost non-existent. It was agreed by all of us that action was required. The Amendment which I then moved sought to divide that action into two parts. It called for the attainment of minimum skills in mathematics to become a statutory aim in all schools—something which the Prime Minister warmly endorsed in his speech—and it provided for the selection of pupils to attend schools where the subject was taught by highly qualified teachers.
The Amendment which I am now moving is reduced in scope. It proposes the first essential step towards making an all-round improvement in the teaching of mathematics, and that cannot be done unless the very best possible advantage is taken of all the qualified teachers in this subject that we have at the present time. It needs to be said again and again that the lowering of standards in mathematics has not occurred in the grammar schools but in the primary schools and the non-selective secondary schools. At the Committee stage, the noble Lord, Lord Davies of Leek, with his customary vigour, described the abandonment of elementary mathematics in many primary schools. It was there, he said, in the primary schools, that the rot had set in. That is indeed part of the story, but if the teaching it unsatisfactory in the primary schools that cannot be put right until more boys and girls secure reasonable passes in O-and A-level mathematics and until a fair proportion of them go on to become teachers. I wonder whether your Lord-ships realise that last year 38 per cent. of all students entering colleges of training as teachers did not have a pass at O-level in mathematics. That is the root of the trouble, and we must deal with it as best we can in this Bill.
What has been the result of this long neglect? Thousands of children are leaving primary schools hardly able to do the simplest sums. That was the point made by the noble Lord, Lord Davies of Leek, and no one can deny the truth of his statement. When these unfortunate children reach seconday schools, unless they receive remedial teaching in mathematics they abandon the subject as soon as they can. This is bound to happen on a considerable scale because, as your Lordships know, in many non-selective schools there are not enough qualified mathematics teachers to cope with the children who arrive having been well taught in primary schools, let alone the children who arrive knowing next to no mathematics, not even their tables. It would be very interesting to know how many are these deprived innumerate children; and we have to say that we do not know because the authorities do not tell us. If they did, they would have a prodigious row with the parents. But it would not be far out to suggest a figure between 30 and 40 per cent. of the total intake of the non-selective secondary schools.
I want to add one or two further points for your Lordships' consideration. The child who leaves school without having mastered the basic skills in mathematics is unlikely to acquire them later in life. Once out in the world, boys and girls may be inclined to educate themselves by reading, by watching TV, by taking up some hobby; but how often do they buckle to and learn elementary mathematics? This job has to be done in the schools if it is to be done anywhere. Yet—and this is my second point—if British industry is to keep up with the rest of the world, young entrants should have received a good grounding in mathematics. The Prime Minister made much of that in his speech last Monday, and, of course, he was right. Numbers are the language of technology. I could not, but industry, at a pinch, can do without music and dancing: industry cannot do without mathematics.
Therefore, my Amendment is designed to make it possible to maintain and enlarge the pool of potential mathematicians. I am not driving a coach and horses through the general principle of Clause 1, but in this House we ought to add to music

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and dancing any further specific exception if we are quite sure that such an exception is in the national interest and that the result could not be attained by any other methods. Of that, my Lords, I think there can be no doubt at all. Selection for mathematics is a very high national priority, at least as high, your Lordships may think, as music and dancing, and it ought to be written into the Bill. Whatever comes out of the Secretary of State's review of mathematics teaching—and we all hope that she will undertake that review with thoroughness and expedition—she will need to have this power in the Bill. Without it, she cannot get very far, and that is why we must put it in now.
It may be that the Government will object to my Amendment on two grounds. They may say that, where a comprehensive school does not have sufficient qualified teachers, the pupils wishing to take O-and A-level mathematics can at the age of, I suppose, 14 or 15 be selected and sent to another comprehensive where appropriate teachers are in post. My Lords, do not fall for that argument. The boy or girl with a bent for mathematics shows it early, as the noble Lords, Lord Snow and Lord James of Rusholme, told us on the Committee stage. They need good teaching long before they reach the sixth form. It is not only the children who will suffer from non-selection. Many good mathematicians—I know three or four—are attracted to teaching only when they can teach children all the way to A-level. They are unhappy teaching in the un-selected schools where classes of mixed ability can be the rule up to the age of 14. Noble Lords opposite may be inclined to say, "But how disgraceful! Every graduate teacher ought to be prepared to teach children of every level of ability and aptitude". Perhaps they ought, my Lords, but the facts of life are different.
At the Committee stage, the noble Lord, Lord Donaldson, dismayed some of us when he said that the Government intended all secondary schools to be neighbourhood comprehensive schools. He knows that this means that the good schools will get better and the poor schools will get worse. The reluctance to teach in the poor areas of the qualified mathematics teachers, who can pick and choose where they go because there are so few of them, will become more pronounced,
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and the result will be that thousands of children in the poor areas will never have a chance to discover their talent in mathematics. This Bill diminishes t le chances of the able children in the working-class areas, and the social consequences are bound to be deplorable. Professional people will not want to live in areas where the neighbourhood comprehensive school is unsatisfactory. Therefore this Amendment is a test case. Do the Government want to see teaching improved and more young people with the basic skill; in mathematics entering industry; or do they prefer to discourage the qualified teachers we have today from staying in the profession and, as a result, to diminish the output of mathematicians for the future? This is a test case by which we shall know whether the Prime Minister's encouraging speech last Monday means business. It is not possible to make any serious impression on the present unsatisfactory state of mathematics teaching unless we can select the able pupils to be taught by the totally insufficient number of qualified mathematicians. I beg to move.
Baroness ELLIOT of HARWOOD: My Lords, I should like to support the noble Viscount in the excellent case that he has put for this Amendment. Nobody knows more than he or has more experience and nobody could put the case better. I support it because I have had experience of mathematics in my own family. True, the boy in question did not go to a comprehensive school. If he had gone to a comprehensive school he would have had to fight very hard to get anywhere where he would have received the sort of teaching in mathematics that he obtained in the private sector. Nevertheless, once taught and once reaching a very high stage, he will then be in a position to help to train others if he so wishes. But some effort must be made to bring in this particular skill. My experience as chairman of an education committee for many years was that there were certain schools and certain teachers who were extremely good at mathematics and one was able to see that the children who wanted mathematics teaching got to those schools or to those classes in the schools. But one had to make a selection; there was no other way of doing it. And mathematics teachers wanted to get pupils who would benefit from the kind of skills that they were able to teach.

51
It seems to me that to be so hidebound about the way you deal with these special and important subjects means that you are shutting your eyes to what it is possible to do. I think it is necessary to have a clause of this kind in the Bill. After all, we have it for two other subjects, music and dancing. As my noble friend Lord Eccles has said, this is of vital importance in the development of our industrial life. Unless there is something of this kind in the Bill then, as my noble friend has said, the whole standard will continue to go down. It is going down now and we must stop it from going down. Unless this Amendment is accepted we shall be simply aiding what we are all desperately anxious to stop at the present time. I support the Amendment strongly.
Lord DONALDSON of KINGSBRIDGE: My Lords, the noble Viscount, in 75 per cent. of what he was saying, was talking about a serious reality which the Government would not for a moment wish to deny, which is the importance of putting right the present shortage of, particularly, graduate teachers of mathematics. Where we differ is in the view that this Bill is the place to do it. The Amendment would enable an authority virtually to retain its selection procedure on the grounds that it was an effective use of mathematics teachers. The word "partly" does little to mitigate this defect, and in a previous debate I pointed out that in a selective system pupils were only partly selected on academic ability—geographical area, age and sex all played a part in this selection. It is reasonable, however, to use this Amendment to discuss mathematics education in the light of the comprehensive principle, which is something of the greatest importance in our opinion; but if the Amendment is pressed to a vote it must be clearly seen as potentially wrecking. Hence, we shall have to ask the House to reject it.
My Lords, there can be no dispute that mathematics is a vital part of the school curriculum. My right honourable friend the Prime Minister, as the noble Viscount has said, in his speech at Ruskin College on 18th October voiced the concern of all of us that the standards of numeracy of school-leavers shall be such that they have the option to pursue careers in science and technology and to meet the
52
requirements of employers at different levels. But we need facts here. We need to know whether the achievements of the schools genuinely fail to match the needs of industry. There is a letter in The Times today, which most noble Lords will have seen, questioning this. We want to discover whether this is a serious failure to match or a matter of misunderstanding or of minor discontinuities which can be put right relatively easily.
At present there is no objective statistical evidence about national standards in numeracy. Such evidence as there is does not support the conclusion that there has been a substantial fall in standards. The Department of Education and Science has now given its Assessment of Performance Unit the task of developing methods of assessing and monitoring the achievements of children at school. The unit is treating mathematics as a priority area and is building on work already carried out for the Department by the National Foundation for Educational Research—and the noble Viscount will note that this is not a Departmental examination—in preparation for a monitoring system to cover mathematical skills. It is hoped that a start can be made on monitoring performance in mathematics in 1978. The National Survey of Secondary Schools by Her Majesty's Inspectorate is concerned among other things with the development of numeracy in the last two years at secondary schools, as I told your Lordships in Committee. This Survey, based on a 10 per cent. sample of all maintained secondary schools, will go on for 2½ years. These investigations together with information from national monitoring of performance of pupils in mathematics will give us much more evidence of the true situation in our schools.
To turn to the question of the numbers of teachers, the persistent shortage of teachers of mathematics is, of course, a serious problem. I recognise, as I think the noble Viscount does, that there is a vicious circle here. If the schools produce too few entrants to higher education in the shortage subjects, a consequence must be a shortage of teachers of quality in those subjects. This shortage itself is one of the factors which leads to too few pupils

53
studying them to a higher level. In these circumstances there can be no quick or easy remedy. But let me say again what I said in Committee. The number of A-level mathematic passes rose from 37,000 in 1964 to 47,000 in 1974. Over 25 per cent. in 10 years. This does not suggest that the rapid increase in the comprehensive education is having an adverse effect.
Let me explain the extent and nature of the shortage of mathematics teachers. The Department of Education and Science carries out an annual survey of teachers of shortage in secondary schools, based on an inquiry to heads of a 10 per cent. sample of secondary schools. On this basis, the net shortage of mathmeatics teachers was estimated to have declined from 1,140 in 1974 to 720 in 1975. This net improvement reflects the fact that heads report a net surplus of certificated teachers of mathematics. But the heads state their main need as being for graduate teachers of mathematics, and here the picture is more gloomy; the shortage of graduate mathematics teachers increased somewhat, from 1,450 in 1974 to 1,580 in 1975. This is clearly a situation which gives cause for concern.
For a number of years the Department has, on the basis of the results of its surveys, asked teacher training colleges to give priority to the admission of students who want to train to teach mathematics, or other subjects shown in the surveys to be difficult to staff in the secondary schools. The Department also keeps university departments of education in touch with its thinking on these matters. The available figures indicate that entrants to specialist courses in mathematics have not increased as a proportion of total entrants, although mathematics has on the whole been holding its own as a subject. The colleges have also been made aware of the importance of providing adequately for mathematics as part of the training offered to intending teachers of young children. The need to continue adequate provision for the subject has again been emphasised in guidance given to the colleges earlier this year for their forward plans for course provision over the next few years, as the total size of the teacher training system declines and with it the risk that those subjects to which recruitment is difficult will no longer he adequately provided for. These forward plans, co-ordinated on a
54
regional basis, are now being carefully examined by the Department so that further guidance can be given to the colleges if necessary.
One of the main results of the reorganisation of the teacher training system now in progress will be to strengthen the part played in teacher training of institutions with strong mathematics and science Departments. At the same time the establishment of the bachelor of education degree and the diploma of higher education in place of the old teacher's certificate should enable more students with scientific and mathematical backgrounds to opt for teacher training after a period in which they can carry forward these subjects beyond school level. These developments should help to strengthen the place of mathematics in the training system.
There is a further specific point to make on initial training. Noble Lords will know that, when compulsory professional training for graduates wishing to teach in secondary schools was introduced in 1973, it was agreed that new mathematics and science graduates should be exempted from the requirement because of the severe shortage of teachers of these subjects. The Advisory Committee on the Supply and Training of Teachers recommended at their meeting in June last that these exemptions from the training requirement should now be abolished. My right honourable friend the Secretary of State recognises the arguments in principle for professional training; but in the light of the continuing severe shortages in these subjects, and the contribution which untrained graduates are making to the schools, she has now decided or balance that the time is not yet ripe for removing the training exemption. We must encourage as many mathematics and science graduates as possible to teach in our schools.
In several of our previous debates I have been at pains to point out that we are legislating against selection for admission to secondary schools, not against selection for courses followed within those schools. A school whose admission arrangements are in accordance with the comprehensive principle may specialise in certain areas of the curriculum. We should consider this type of specialisation likely to be of overriding importance only at sixth form level; and, of course it may

55
apply to other subjects besides mathematics. One school may develop its mathematics provision; another its provision for languages, music or engineering. And where it is the most convenient way to arrange such matters children from other schools would attend courses at the school with the specialist teaching facilities. This kind of co-operation between schools—and indeed with the further education sector—is to be encouraged.
Authorities must consider carefully their 16–19 provision. We want to make the most effective use of all teachers, not only mathematics teachers. There are several subjects for which teachers are difficult to recruit: mathematics is not unique in this respect. It is clear that certain reorganisation structures lend themselves more readily to the efficient use of specialist teachers. Sixth form colleges and tertiary colleges, catering for 16 to 19-year-olds, and upper schools, catering for 13 to 18 and 14 to 18-year-olds, can bring together pupils and teachers in efficient working ratios for the more advanced levels of work. Nothing in this Bill will prevent reasonable arrangements from making the most effective use of all teachers.
I have spoken at considerable length, which indicates the importance that the Government give to the general point which the noble Viscount has raised. In relation to this Bill, this Amendment is unnecessary and, I fear, potentially wrecking. I hope that the noble Viscount will withdraw it; if not, I must advise the House to vote against it.
5.7 p.m.
Lord WOLVERTON: My Lords, I do not know what the noble Viscount, Lord Eccles, will feel regarding taking this Amendment to a Division. If he does so, I will certainly support him. We have been told in this debate and in previous debates that there is a great shortage of mathematics teachers. If there is such a shortage, this branch of the profession will have to be built up and that will take time. In the meantime, I see no other alternative but to have some form of selection. This deficiency must be put right, as the Prime Minister said at Ruskin College last Monday. I fully support the noble Viscount, Lord Eccles, in his admirable speech.
Lord ALEXANDER of POTTERHILL: My Lords, there is another problem which this Amendment would not solve—not that I am out of sympathy with its purposes. I believe the great problem in possible falling standards in mathematics is not in the secondary schools but in the primary schools. The reason for this, despite repeated attempts which some of us have made in the National Advisory Committee on the Training and Supply of Teachers, is that we have never faced the issue of making O-level mathematics a requirement for all those who wish to enter a college of education. We do so for English. It must be 15 years since I suggested we did so in mathematics but the representatives of the colleges would not accept it because the great majority of teachers going into primary schools are women and they argued that we would lose a great many good women teachers if they were required to take O-level mathematics. I reject that proposition. It is a fact that, whereas our ladies would be ashamed to suggest that they were illiterate, they can smile beautifully and say: "Figures? I haven't a clue". In other words, there is an acceptance among women that not to be numerate is in no way a disgrace—
Lord BOOTHBY: And they are right.
Lord ALEXANDER of POTTERHILL:—and it may apply to some men also. My Lords, I suggest that this is where the attack should be made. In general, graduate teachers of mathematics do not teach in primary schools—that would be quite exceptional. The need, therefore, is an attack in the primary schools which will not cause children at that stage to have an adverse reaction. A teacher who is not interested in mathematics, and not very skilled in the teaching of arithmetic, will transmit a dislike of the subject to the children. That, in turn, will cause them not to pursue the subject subsequently. I venture to suggest that the Department might look carefully at whether the stage has been reached where requirements in mathematics, as well as the requirements in English, for all students entering colleges of education should be imposed.
Lord THOMAS: My Lords, I should like to align myself firmly behind the noble Viscount, Lord Eccles, for his admirable

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proposal embodied in this Amendment. In this day and age mathematics is not merely a building block but a foundation stone for education of all kinds. It teaches honesty and produces a mental discipline which is good, and although it may not have the visual or oral glamour of music or dancing, it is essentially an emotional subject. Mathematics can be extremely attractive and sentimental, if properly taught and appreciated. As I say, I should like to align myself whole-heartedly behind the noble Viscount.
5.11 p.m.
Lord BEAUMONT of WHITLEY: My Lords, I must apologise to the noble Viscount, Lord Eccles, for having unfortunately missed a small part of his opening remarks. I agreed with 90 per cent. of what he said, and perhaps the 10 per cent. I did not agree with occurred because of my absence during those few minutes. I think the importance of this point has been underlined by every speaker, and not least by the noble Lord, Lord Donaldson, when he told us about the Government's decision not to remove training exemptions. That is an extremely important decision, which must have been taken under very considerable pressure from the trade unions the other way, and which shows the importance attached by the Government to this problem.
Nevertheless, I do not think this Amendment is in fact the right way to deal with the situation. I am against our putting specific exemptions like this into the Bill. It is very difficult to know when to stop and where to start. In spite of the fact that music and dancing add to the Bill, as a correspondent whom I quoted at an earlier stage said, an almost frivolous air, they have a defence in that there are already specialist schools dealing with those subjects. I think we are going quite a long way towards dealing with the problem in the progress we have already made in this Bill. At an earlier stage your Lordships were good enough to approve the last three lines of sub-section (2)(b) of Clause 1 which gave power to the Secretary of State to make categories of exemptions in the future. That is perhaps a better way of dealing with this problem, rather than taking what are rather technical decisions in this House. At the same time your Lordships have just been good enough to pass my
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Amendment No. 2, enabling local education authorities to match particular children with need for mathematical teaching with the best mathematical teachers in that area. If your Lordships should pass Amendment No. 13, concerning the Committee of Inquiry which would have the duty of looking into the facts of the situation, then with those three Amendments I have referred to—provided that your Lordships are firm in keeping them in the Bill, whatever happens—we shall have gone a long way towards meeting the point put by the noble Viscount, and we may be doing it in a rather better way.
5.14 p.m.
Lord ELTON: My Lords, I should like from these Benches to welcome with great enthusiasm the Amendment of my noble friend Lord Eccles. I think it is 'fortunate that the Amendment should have been moved by somebody with his distinguished experience, stature and eloquence. I must say that it was not matched in content by the reply gained, although there was a great deal of interest in that. It was noticeable that at Ruskin College last week the Prime Minister said in terms:
"I am concerned on my journeys to find complaints from industry that new recruits from the schools sometimes do not have the basic tools to do the job that is required."
He went on to say that there was concern about the standards of numeracy in school-leavers. It seems to me tint this is a matter of some urgency, when one looks at the economic and industrial scene around us. It also seems that this Bill is designed to accelerate the decline which we detect, and which the noble Lord does not detect, in the standard of mathematics in this country at the present time.
The argument is simple. I can do little more than recapitulate what the noble Viscount has said, but it may be that my approach will be somewhat different. Our resources for the teaching of mathematics are limited and inadequate. The need to make use of them is general and urgent. Surely, as a first step, regardless of any doctrinaire position adopted by any Party, we should at least ensure that wherever possible the children best able to make use of those resources are brought into contact with them. The device of the noble Lord, Lord Donaldson, for doing that was a sort of shuttlecock between

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schools with mathematically able children and schools with mathematically able teachers. The noble Lord said that they would be seconded to or could attend courses at other schools. There seems to be a certain absurdity about enrolling children in one school, with the deliberate intention of then ferrying them to another school for a great deal of their school career. Everybody in this Chamber must be aware, as I am, that at an early age one is aware of whether or not one is mathematically able. I was aware of the fact, to my great regret, at the age of 11 or 12. Computers did not exist then to make the analogy, but a lot of my friends had minds like silent and swift abacuses, whereas my own was like a rather jumbled cupboard. Whether it is a matter of heredity or the elective principle I do not know, but I think that among your Lordships the distribution is about the same as it is in constitutional terms. The fact is that by the age of 11 or 12 there are some of us on whom it is not worth wasting the highest mathematical teaching talents; and I am one of them.
The noble Lord, Lord Donaldson, and his Party are, it seems, completely "sold" on the comprehensive idea. When one used to ask them why that was, it used to be pretty clear that it was for the purposes of what one may loosely call "social engineering". They looked to it to produce homogeneity in our society. My own view has always been that in the long term it will produce a polarisation far less satisfactory, as a result of neighbourhood schools. But I do not want to tempt the noble Lord, Lord Donaldson, to charge me again with making a Second Reading point, so I shall move on. But I would say that in one of the more revelatory passages in our Committee stage the noble Lord disavowed the idea that the motives for comprehensive education were in any way social. Time did not allow for it to be made clear what other motives there could he for this extraordinarily expensive and disruptive reorganisation of our schools. I hope the omission may soon be made good, but even if such an explanation is not forth-coming, which it certainly ought to be, we have to look no further than our Prime Minister for an endorsement of what some of us have been proclaiming for a very long time. He said at Oxford last week:
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"There is no virtue in producing socially well-adjusted members of society who are unemployed because they do not have the skills."
It may be that this illumination has not yet spread beyond the Prime Minister and the more reasonable occupants of the Benches opposite. It may be that some of them still think that you have to mix pupils up in batches as if they were cement in order to produce a society that is either cohesive or just.
I would refer them first to the pronouncement of their Leader, which I have just quoted and, secondly, to my two certainties about the division between the mathematically gifted and the mathematical dunces. I think that even if they do hold these views it will be seen that they ought not to resist the Amendment of my noble friend. My certainty is that the division between the mathematically gifted and the mathematical dunces follows absolutely no discernible line of social demarcation. It is as clearly in evidence in the most patrician public schools as it is in the most disadvantaged and educationally deprived areas. Therefore selection on grounds of ability or aptitude in this subject will have no effect on the impact of the comprehensive system. The choice will be mathematically determinate but socially random, if T may so express it.
Therefore it is really necessary for the noble Lord to say what he expects of the comprehensive system, other than social advantage for our society, which causes him to reject this principle, which would not upset the social impact of comprehensive reorganisation in any way. If the motive is social egalitarianism that is a recognisable motive, although we do not welcome it. I can only say that to pursue it to the extent of rejecting the advantages which selection in this area would bring to the children on the one hand and to the nation on the other seems to me to be an example of exactly that which I said our Party were set against at the beginning of the debate on this Bill at Second Reading; and that was the universal, blind and undiscriminating application of the comprehensive principle. I believe that my noble friend Lord Eccles summed it up very nicely when he said that the Government's attitude to this Amendment was a test case of the good intentions of their Prime Minister, because he has said that he deplores what appears to be our

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shortcomings in the mathematical and industrial fields. My noble friend has gone further and said that here is one way in which we can help them.
The noble Lord, Lord Donaldson, has come forward with a number of interesting aspirations and intentions, but they will not mature until after the Bill has been effective for some time. I note, in passing, that it is not until 1978 that we are to have the statistics from the assessment of performance unit, which he said are the statistics that we lack before we can determine whether or not there is a decline. If he is to say that we should not take this step until we have these statistics, then he is in the position of the captain of a sinking ship with the water washing around our knees, saying: "Stand away from the pumps. You cannot use them, until I have sounded the water in the bilges", because subjectively it is clear, however objectively it may be obscure, that things are not as they should be.
There is also an absurdity in the position of a Government who reject an Amendment, which is as eminently constructive and sensible and as much in the public interest as this, and which is clearly not in breach of the general principles of the Bill, on the grounds that it is in breach of the principles, when they already have music and dancing. It seems to me that they are prepared to educate infant Neros to fiddle, while we destroy ourselves and leave the embryo Einsteins untaught in schools without adequate supervision. I think that their position is regrettable. I think it displays a far greater commitment to ideology than it does to political reality.
I would refer the noble Lord, Lord Donaldson, to the article by J. B. Priestley in the Sunday Telegraph only yesterday, which said that common sense dictated that when you found a good school you left it to get on with its job and ideology dictated that you removed it and replaced it with something else. I fear that that is the position that we are in—and he is a veteran Socialist. I think that the Government are here committing themselves far beyond the brief which they originally had. They are now legislating to satisfy their ideologues, who are pushing them on from behind, and they have got out of touch with reality. So I hope that my noble friend is successful in pressing this Amendment.
5.22 p.m.
Viscount ECCLES: My Lords, a really astonishing remark fell from the Minister's lips. I think I have got it right. He said, "Nothing in the Bill will make it impossible to make the best use of all our highly qualified teachers of mathematics". Let me give him just one example to show that that is not so. I know—and lie would know if I told him which I it was—an admirable grammar school in South London which had about 650 girls, a sixth form of 200 and far above the average number of scholarships to universities. Its arms have been twisted, because it has no money to go independent, and it has been compelled to come into the comprehensive system and the sixth form may be reduced to about 60. How does the noble Lord think that that kind of thing can take place, without a number of very highly qualified teachers saying: "I am sorry. I have spent more than half my life teaching sixth forms. I am not the kind of person who can teach children over the whole range of ability. I have had plenty of other offers from the computer industry, or wherever it is, for my mathematical ability, and I am off". That is happening. That is one reason why, at any rate, during the period when there are not the resources to make the new comprehensives really able to cope with the full range of ability, we shall have fewer qualified teachers than we have today.
The second reason—I am sorry, but I said it before and perhaps I did not make myself plain—is that for the production of mathematicians who will become graduates thereafter, and, we hope, return to teaching, it is no good selecting them at the age of 16 and sending them to a sixth form college, where there may be an admirable set of mathematics masters or m: stresses. Unless they learn their mathematics all the way up towards the A-level, they will not be fit and they will probably give up the struggle ever to take A-level at all. That is why selection is still needed now, because if you deny selection you will deny to a very large number of children the opportunity to be taught t y well-qualified teachers before they reach the age of 15 or 16, and in many cases that will be too late. I wish that the noble Lord, Lord James of Rusholme, was here. He understands that far better

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than I do, and he would put it to your Lordships most convincingly.
I now come to what the noble Lord, Lord Alexander of Potterhill, said. He made the case for this Amendment as no one has ever done. He said, like the noble Lord, Lord Davies of Leek, at the Committee stage, that the rot is in the primary schools. Very well then, he said, the remedy for that is to make O-level in mathematics a condition of a student going to a college of education to train to be a teacher. But how are all these girls to get O-level in mathematics, unless we make the very best use of the highly qualified teachers we have? Any teacher who is going to do any good taking a class for O-level in mathematics, must himself, or herself, have learned mathematics to A-level, or they will not teach O-level at all well. Where are they to come from?
We know that there is a tremendous gap. We could not have had the speech from the Prime Minister, which my noble friend Lord Elton quoted, unless that gap was very widely recognised, and recognised as very serious in the national interest at this time. To carry out the wish of the noble Lord, Lord Alexander, it would be admirable that every student presenting himself, or herself, at a college of education should have an O-level in mathematics. But there will have been
the greatest difficulty in bringing those students together, with the inadequate quantity of higher mathematics teachers which we have today. So that to say that this Bill does not damage the situation is something which I do not think anyone in the education world, who is not absolutely prejudiced beyond belief on the political principle, can possibly do.
It is equally sad that the need for a massive effort to teach mathematics better should not lead the Government to see that, however many inquiries the Department may make, however many groups are sent here and there and whatever the statistics they find out, that will not do any good unless the able pupils are matched with the inadequate supply of able teachers. We shall simply go on having one report after another and we shall lose a significant number—I do not know how many—of the middle-aged mathematics teachers whom we have in our sixth forms today. Therefore we should put this Amendment in the Bill and let them have an argument in another place, where, if it goes to a vote, the Prime Minister is bound to be in our Lobby.
5.30 p.m.
On Question, Whether the said Amendment (No. 3) shall be agreed to?
Their Lordships divided: Contents, 96; Not-Contents, 63.

CONTENTS

Amory, V.

Faithfull, B.

Lyell, L.

Belstead, L.

Ferrers, E.

Macleod of Borve, B.

Berkeley, B.

Fraser of Kilmorack, L.

Mancroft, L.

Brooke of Cumnor, L.

Gainford, L.

Marley, L.

Brooke of Ystradfellte, B.

Glendevon, L.

Mersey, V.

Caccia, L.

Glenkinglas, L.

Monck, V.

Campbell of Croy, L.

Gore-Booth, L.

Monson, L.

Carr of Hadley, L.

Gray, L.

Morris, L.

Carrington, L.

Gridley, L.

Mottistone, L.

Cathcart, E.

Grimston of Westbury, L.

Mowbray and Stourton, L. [Teller.]

Clifford of Chudleigh, L.

Hailsham of Saint Marylebone, L.

Clitheroe, L.

Newall, L.

Crawford, and Balcarres, E.

Hankey, L.

Northchurch, B.

Cullen of Ashbourne, L.

Hanworth, V.

Nugent of Guildford, L.

Darcy (de Knayth), B.

Harmar-Nicholls, L.

O'Hagan, L.

Daventry, V.

Harvey of Prestbury, L.

O'Neill of the Maine, L.

Denham, L. [Teller.]

Hawke, L.

Onslow, E.

Derwent, L.

Home of the Hirsel, L.

Orr-Ewing, L.

Drumalbyn, L.

Hylton-Foster, B.

Pender, L.

Ebbisham, L.

Ilchester, E.

Rankeillour, L.

Eccles, V.

Kimberley, E.

Redesdale, L.

Ellenborough, L.

Kings Norton, L.

Reigate, L.

Elles, B.

Kinloss, Ly.

Rochdale, V.

Elliot of Harwood, B.

Kinnaird, L.

Ruthven of Freeland, Ly.

Elton, L.

Lauderdale, E.

St. Aidwyn, E.

Emmet of Amberley, B.

Long, V.

St. Davids, V.

Sandys, L.

Strathclyde, L.

Vivian, L.

Savile, L.

Strathcona and Mount Royal, L.

Wakefield of Kendal, L.

Selkirk, E.

Sudeley, L.

Ward of North Tyneside, B

Sharples, B.

Tenby, V.

Ward of Witley, V.

Snow, L.

Thomas, L.

Wolverton, L.

Spens, L.

Trefgarne, L.

Young, B.

Stamp, L.

Vickers, B.

NOT-CONTENTS

Airedale, L.

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

Maybray-King, L.

Allen of Abbeydale, L.

Evans of Hungershall, L.

Melchett, L.

Ampthill, L.

Fulton, L.

Oram, L. [Teller.]

Amulree, L.

Gladwyn, L.

Pannell, L.

Avebury, L.

Gordon-Walker, L.

Peart, L. (L. Privy Seal.)

Aylestone, L.

Grey, E.

Phillips, B.

Bacon, B.

Hale, L.

Platt, L.

Beaumont of Whitley, L.

Hampton, L.

Popplewell, L.

Beswick, L.

Harris of Greenwich, L.

Sainsbury, L.

Birk, B.

Henderson, L.

Shepherd, L.

Blyton, L.

Houghton of Sowerby, L.

Shinwell, L.

Brimelow, L.

Jacques, L. [Teller.]

Simon, V.

Brockway, L.

Janner, L.

Slater, L.

Buckinghamshire, E.

Kirkhill, L.

Stedman, B.

Burton of Coventry, B.

Leatherland, L.

Stone, L.

Byers, L.

Lee of Newton, L.

Strabolgi, L.

Champion, L.

Llewelyn-Davies of Hastoe, B.

Taylor of Mansfield, L.

Collison, L.

Lloyd of Hampstead, L.

Wells-Pestell, L.

Cooper of Stockton Heath, L.

Lovell-Davis, L.

Wigoder, L.

Cudlipp, L.

McCluskey, L.

Winterbottom, L.

Donaldson of Kingsbridge, L.

Maelor, L.

Wise, L.

Resolved in the affirmative, and Amendment agreed to accordingly.
5.38 p.m.
Lord ELTON Lord ELTON moved Amendment No. 4:
Page 2, line 11, at end insert ("; or
(c) the provision of education at any non-maintained school which can afford opportunities for education to a particular pupil which cannot be afforded at a maintained school in that area").
The noble Lord said: My Lords, this Amendment is the lineal successor to an Amendment that I moved at Committee stage as Amendment No. 9, which specifically reserved the right of a local authority to provide boarding education in selective non-maintained schools, and part of the group of Amendments Nos.11 to 13 to which my noble friend Lord Belstead spoke at the same stage. It would have been possible to draft the Amendment now before your Lordships more technically by again naming specifically the existing legislation to be reserved from the effects of Clause 1 of the Bill, but our advice has been that it is more effective and simpler to state instead the functions for which those powers can be employed. This method has also the considerable and somewhat unusual advantage that the resultant passage in the Bill as printed, and hopefully the Act as passed, will appear to mean what it intends to mean.
The effect of the Amendment is to enable local authorities, notwithstanding the contents of Clause 1, to provide education at a non-maintained school where that non-maintained school can afford opportunities for education to a particular child which cannot be afforded at a maintained school in that area. The existing powers to which I refer, and which were referred to earlier by my noble friend and myself, are Sections 9 and 81 of the Education Act 1944 and Section 6 of the Education Act 1955. Together they permit the Secretary of State t D arrange and pay for the education pf pupils from their area in non-maintained schools when they are not able adequately to do so in their own maintained schools.
The noble Lord, Lord Donaldson of Kingsbridge, accepted at Committee stage (col.1420 of the Official Report) that certain authorities are at the moment dependent upon the use of places at non-maintained schools to fulfil their statutory duty to provide suitable education to those children for whose education they are responsible. He later assured us that:
"There is no intention on the Government's part to lessen the freedom which the authorities have to give assistance, provided that such assistance is not inconsistent with the comprehensive principle."—[Official Report 6/10/76; col.1421.]
That proviso is exactly at the heart of the matter because it is generally recognised

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that the majority of non-maintained schools are selective. I think the House has taken the point that the Bill has the effect of preventing local education authorities laying out their funds to secure education in selective schools. That prohibition clearly holds good whatever the grounds for which the LEA selects the particular children to go to a non-maintained school because the qualification relates to the school and not to the child.
Therefore, I was interested to receive from the noble Baroness, Lady Stedman, the letter which she promised to send me—for which I thank her—about the provisions for boarding. She said:
"We do not intend to probe into the admission arrangements of non-maintained schools. This would be both impracticable and unnecessary".
It may be impracticable, but I cannot see that under the terms of the Bill it would be unnecessary in the light of the prohibition in Clause 1. The noble Baroness went on to say in her letter:
"The important thing is that authorities' decisions to support education, boarding or day, and non-maintained schools should not be based on considerations of ability. If this condition is met authorities will not be in breach of the duties imposed on them by Clause 1."
Taken on its own, that statement seems to me to be a fundamental misreading of the Bill.
What the Bill expressly discourages is not the use of any particular selective criteria by the authority but the use by the authority of places in a school which selects upon the criteria of ability and aptitude. Those, as it happens, are precisely the criteria upon which most—though not all—non-maintained schools base their selection. However, I implied that this statement by the noble Baroness might bear a different interpretation if it was not taken on its own. By that I did not mean that it took on a different colour viewed in conjunction with what was said by the noble Lord, Lord Donaldson of Kingsbridge, at Committee stage. Your Lordships will recall that he said authorities were free to give assistance to non-maintained places only if that was not inconsistent with the comprehensive principle. The noble Baroness has now narrowed that principle quite without any basis in law, that I can detect, to apply only to the authority and not to the school. The context in which that passage
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of her explanatory letter to me should be set is the context of an earlier paragraph.
I may be in a difficulty here owing to an accident that I had with my notes earlier. She stated that there were 11,500 boarding school pupils at non-maintained schools who were being assisted by local education authorities in schools. The force of her argument seems to be that local authorities are only bound to have regard to the general comprehensive principle and may have regard also to a number of other considerations. It imputes to the Secretary of State the power to accept or reject exceptions from the general principle. I apologise to the noble Baroness for not quoting her in extenso—she will probably do so in any case in her reply—but this was the gravamen of what she said; that is, there were a number of general principles to which the local authority could have regard and it was up to the Secretary of State to decide which of these was admissible.
In the first instance I would say this: it is perfectly clear to anyone who has followed the debates in either House of Parliament that it is the undisguised intention of the Party opposite to use this Bill to secure as wide an application of the comprehensive principle as possible and that no Secretary of State of their Party is likely to extend such an act of clemency or indulgence, even where it is within her power, except under something approaching duress. Secondly, I must ask the noble Baroness to point out to me exactly where in the Bill she finds the power of the Secretary of State to accept or reject any of the exceptions to the general principle. She inclines to her judicial role in the matter and we should like to be told whence it derives.
Thirdly, I have to remind your Lord-ships that the phrase "have regard to" is one fraught with much legal nicety and peril. Your Lordships may see fit to repose confidence in the judgments given in Watt v Kesteven County Council in 1955 and Wood v the London Borough of Ealing in 1966 and assume that the generous intention of the noble Baroness that the local education authorities are left free to have regard to other considerations is soundly based, but I would not counsel your Lordships so to do. I am confident that where they are required

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to have regard to one general principle by statute and impelled to have regard to another by common sense then the courts probably, and the present Government certainly, will give precedence to the general principle enthroned by the Act over the general principle enthroned by reason.
What is more, I think that to rest our expectations of sensible conduct upon the interpretation of the phrase by the noble Baroness at least invites what I would call speculative litigation from those who feel that their authority has had too much regard to one general principle and too little to another which they prefer. This Amendment takes this matter out of the realm of speculation. It removes from the authority the expedient of throwing up their hands in despair when faced with a pupil with specific needs which they are unable to meet. It ought not to be open to them to say, "We recognise that you ought to be in a boarding school because of the circumstances of your family"—or "at a school at a certain altitude because of the circumstances of your health", or "a school of a certain size because of the conditions of your nerves but, alas and alack! we have no such school so here is a bus ticket to the local comprehensive. Good luck."
This Amendment leaves it clearly and unequivocally open for them to say that in those and analogous circumstances, "What we cannot provide out of our own resources we can procure for you elsewhere", and the child will be accepted into a non-maintained school at the authority's own expense, to his own advantage and the advantage of the non-maintained sector which the noble Lord has been at pains to say it is no part of the intentions of this Bill to curtail. The intentions behind this Amendment, therefore, are to enable local authorities to take up places in non-maintained schools when those non-maintained schools are selective.
It is upon that that the argument hinges; I have read very carefully what was said at Committee stage and I am not in any way convinced that the Bill does not prevent the placing by the local authority of its children in non-maintained schools when it cannot otherwise provide for them. I think it ought to be able to do so; I think it would be reasonable and
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I think your Lordships would agree with me that it would be unreasonable to deny them the opportunity of doing so. This is not intended as a means o enabling them to place all their children in non-maintained schools and I do not think really on a reading of the Amendment anybody could claim that it was or that it could be so used because that recourse would be held to be unreasonable. This is a reasonable Amendment, it is not politically based, it is intended to help the children and indeed to make, sense of the Government's legislation. I beg to move.
Baroness BROOKE of YSTRADFELLTE: My Lords, in rising to support the Amendment which has just been extremely ably moved by my noble friend Lord Elton, I should like to bring before your Lordships' imagination for one moment a case of which I happen to know the facts. Two small girls living in a country area, whose mother had to be moved into a mental home, whose father abandoned them, had to be sent to a non-maintained boarding school in order that they might have a certain sense of security and care in being looked after. These children were of an age that had they been boarded out and sent to the local day comprehensive school I regret to say that owing to influences that were around them there would have been nothing but potential criminal tendencies developed. It is on those grounds—human grounds of the individual child or children—that I feel so strongly this particular Amendment could be accepted. I am certain that they are not in large numb m. s. But there will be cases up and down the country which, through domestic, parental, or some problem of that nature, 'will need special care and special cherishing, which one can deal with only by moving them into a non-maintained boarding school.
Baroness FAITHFULL: My Lords, may I support the noble Baroness, Lady Brooke of Ystradfellte, on this. I have dealt with a number of children who can only be sustained in a small school for, say, 30, where there were particular problems with the family and with the child itself. I should very much like to sup port this Amendment.
Lord DONALDSON of KINGSBRIDGE: My Lords, if I may deal with

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the remarks of the two noble Baronesses first, there is nothing in the example given by the noble Baroness, Lady Brooke of Ystradfellte, which is contrary to the practice which the Bill would authorise without this Amendment. I think there is a total misunderstanding here.
Lord BELSTEAD: My Lords, may I ask the noble Lord the Minister a question before he goes on. What if the children to whom the noble Baroness, Lady Brooke of Ystradfellte, was referring were placed at a boarding school, and the entry to that school did require a level of academic standard—in other words, they were selective?
Lord DONALDSON of KINGSBRIDGE: My Lords, in the absence of other alternatives, in my understanding this would be possible for the local authority to use, just as we have said from the word "go" that boarding is a priority. The local education authority has a duty to provide boarding, if possible, within the comprehensive system, but it may not be possible. This has been the position from the beginning, as I understand it. If this Amendment were to be approved, it would be open to any local education authority to take up any number of places at non-maintained schools, without having regard to the comprehensive principle, whenever they thought that a non-maintained school could offer an "educational opportunity" not available in the maintained sector. This would be a very wide freedom indeed. Of course, the Government are not opposed to widening the range of educational opportunities available as much as possible: that is, indeed, precisely our objective in promoting the current Bill. We do firmly believe, however, that the comprehensive principle should be observed as far as possible in the provision of education—the words "as far as possible" are the governing words here.
It. is for this reason that Clause I exists and it was for the same reason that Clause 5—restoring to the Secretary of State her powers to control the extent to which authorities may make use of the non-maintained sector—was originally included in the Bill. It is our intention to ask our colleagues in another place to
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restore the powers contained in the original Clause 5 of the Bill, and if this happens we have declared our intention of administering these powers flexibly, giving sympathetic and careful consideration to a range of circumstances in which authorities, for good reason, may wish to make use of the non-maintained sector.
We are firmly opposed, however, to the selection of pupils to attend non-maintained schools on grounds solely of academic ability. If this Amendment were to be accepted, it would be open to any authority to do this simply by declaring that any particular pupil could only receive a particular educational opportunity (in itself an ill-defined and totally subjective concept) at a non-maintained school. This could, moreover, be done on a sufficient scale to undermine the provision of a fully comprehensive system. It is, therefore, not out of any desire to deny opportunities to particular pupils, but only through our wish to see a general improvement in opportunities for all pupils through the observance of the comprehensive principle that I would now ask the noble Lords to withdraw this Amendment. My right honourable friend has indicated her intention to use her powers of control over the use of the non-maintained sector sympathetically; the effect of the Amendment would be to render those powers useless, and to affect adversely the purpose of the Bill. I hope the noble Lord will not feel it necessary to press the Amendment.
Baroness PHILLIPS: My Lords, before the noble Lord opposite indicates his wishes in the matter—and I do not wish to throw any spanner in the works—I wonder whether the Minister could tell me what is the situation of the religious schools, the denominational schools, with which I am concerned. I listened to the case referred to by the noble Baroness opposite, and it occurred to me that there might be just such a case where the only school available of a certain denomination was a non-maintained school.
Lord DONALDSON of KINGSBRIDGE: My Lords, it is exactly the same as a boarding school. If it is the only available place, it would be up to the local education authority to make use of it, as I understand it.
Lord ALEXANDER of POTTERHILL: My Lords, it is perhaps not unusual that I shall find myself speaking in support of both sides of this House from time to time. This Amendment cannot be sustained without destroying the Bill. There are probably three reasons why local authorities use places in non-maintained schools. The first, and much the largest, is the need for boarding education, and we do not have the facilities for boarding education in maintained schools. As I understand it, an assurance that that would continue to be effective has already been given during an earlier discussion. There are a substantial number of these, of the order of about 10,000. The second reason is where there is a special need not necessarily requiring boarding education, but where there is a genuine lack of the necessary facilities in the area of the authority. As I under-stood it, on that again, there was an assurance that that would be acceptable, although I believe it was indicated that it was presumed it would be temporary rather than permanent.
The third reason is that of authorities wanting to select pupils on the grounds of academic ability, and to send them to schools where they feel they will have a greater opportunity than in the schools of their own area. We know authorities where this happens. This Amendment would enable the third principle to operate. On these grounds, it seems to me that the Government must necessarily reject it, but I hope we can have a repeated assurance that the first two grounds would be acceptable, even if Clause 4 were restored to the Bill.
Lord DONALDSON of KINGSBRIDGE: My Lords, with the leave of the House, I am very glad to give that assurance.
Lord BEAUMONT of WHITLEY: My Lords, the noble Lord, Lord Donaldson of Kingsbridge, said that the objective was to put into effect the comprehensive principle as far as possible. If that were so, I think it would be a bad thing. Luckily, I do not think that it is so in fact. I think that what we are agreed on is that the comprehensive principle ought to be put into practice all over the country, and that we should have a comprehensive system of education in this country. But
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it appears as a pattern from this Report stage and also from the Committee stage that within that system, we should be making the greatest flexibility for individual children, as much as we possibly can.
What this really boils down to—and the noble Lord, Lord Alexander of Potterhill, put his finger on it, although I dc not agree with him—is whether we are going to be more paranoic about a Secretary of State than we are about local education authorities. I think that in this case we are right to be. It is very much more likely that whatever the present Secretary of State says, there may be another Secretary of State who says something completely different. This is much more likely than that local authorities are going to use money which they now have not got, and which they are unlikely to have. for the next 20 years, as far as I can see, to breach the comprehesive system in a massive manner by sending lots and lots of children to maintained schools because of their academic ability. This seems a nightmare, and one which has no remote likely-hood of happening.
On the other hand, I think the vision of a future Secretary of State not using the powers against local education authorities which he or she is given under this Bill is a very real one. That is why, if very sadly the Government decide they will put back the old Clause 5 in another place, I hope your Lordships will not agree with it. I hope your Lordships will, complete the good work by passing this Amendment today.
6 p.m.
Lord BELSTEAD: My Lords, am not entirely happy with the assurance, given in good faith I know, by the noble Lord, Lord Donaldson, to the noble, Lord, Lord Alexander, that where there is a question of boarding need or a genuine lack of the necessary facilities in the area of an authority the Secretary of State will use her powers under the Bill (if the old Clause 5 is put back) to see that authorities can go on taking up places. I am not happy about this for two reasons: first, because the Government have defended their intention to revoke arrangements to take up places at independent schools on the grounds that by the use of these powers local education authorities might seek to avoid complying with the comprehensive

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principle of the Bill. The noble Lord, Lord Donaldson, repeated this view today and it was also effectively dealt with just now by the noble Lord, Lord Beaumont of Whitley.
That is a fundamental misconception of the way in which local education authorities go about their duty to provide education. If possible, authorities will always want to provide their own schools, not least their own sixth forms; but for different reasons, often financial, authorities choose to take up places at independent schools which pupils in the locality have often attended for a great many years. In passing, may I say that surely it is fundamental to the autonomy of authorities that they should be free to decide how to place their pupils at the most suitable schools. In recent years authorities have built up considerable expertise with staff consisting of educational advisers, psychologists, doctors and very often their own inspectors. What is the use of building up a structure like that if an authority is forbidden to use its discretion as to where to place its pupils?
My second reason for being unhappy about the undertaking which the noble Lord has given is connected with the question of boarding need. No one knows more about this than the noble Lord, Lord Alexander, who three years after the Martin Report chaired a committee on the question of boarding education. This evening he has put his finger on what was always held to be the fourth criterion for boarding education, where the special aptitude of the child requires a special training which can only be given by means of boarding education. One is talking about a report which was produced 16 years ago and it is interesting that the Public Schools Commission of 1968 not only accepted the Martin Report categories but elaborated on them and added two more which are particularly relevant to this Amendment. The Public Schools Commission—which, after all, is not notable for its particularly Right-Wing views—held that pupils should be considered for boarding education, and I quote—
"If the child's aptitude or intended course of study requires some special educational provision not available in accessible day school or college of further education …"
and the Public Schools Commission added
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a final criterion to which they said they attached great importance, namely—
"where there are any other exceptional circumstances which severely impede a child's educational progress".
When the noble Baroness, Lady Stedman, was replying in Committee to the Amendment on boarding education, the noble Baroness disregarded the fourth criterion of the Martin Report and the recommendation of the Public Schools Commission, and it is for this reason that I am worried also about the undertaking which has been given concerning boarding need. We should get plainly into our minds that it is a limited undertaking.
In addition there are a variety of other reasons, with which I will not weary the House and with which we are all familiar, as to why parents sometimes want their child to go to a non-maintained school. My noble friend Lady Brooke of Ystradfellte and my noble friend Lady Faithfull have mentioned some of them in passing. My noble friend Lady Faithfull made the point on previous debates that you may get children who are in need of boarding education because they arc bordering on being maladjusted, and my noble friend Lady Brooke made the same point. When he was proposing this Amendment my noble friend Lord Elton said that the difficulty here is what happens if unfortunate children of that sort are placed—as is likely—in a non-maintained boarding school which is selective in its intake.
If the Government are going to refuse this Amendment I would suggest that they will be meddling with arrangements which have continued for many years and where schools have often committed themselves to substantial expenditure in order to enlarge or convert, perhaps from single sex to mixed, or simply to improve their premises for the good of children in the area. I happen to live only I z miles away from a very ancient foundation, Woodbridge School, which spent a huge sum of money out of its own pocket in order to provide—and I know the Government will be pleased to be reminded of this—for a totally open sixth form for all pupils of the area. But they cannot be absolutely sure that under old Clause 5 of the Bill the Secretary of State will allow this arrangement to continue.

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Further, when one considers that 20 per cent. of all sixth form pupils in the country are still at independent schools and that some 35 per cent. of all independent school-leavers go to university one must conclude that sixth form facilities in the independent sector ought to be made available as widely as possible, not as narrowly as possible.
If the Government refuse the Amendment they will be rejecting closer links between the maintained and the independent sectors and will be affirming that what they really believe in is educational monopoly. I think this Amendment is very modest in its effect. In essence it is no more than an extension of Section 8 of the 1944 Education Act which we have written into the Bill, saying that as part of the opportunities of education for pupils authorities should be able to use independent education. This has been the law since 1944. Local authorities have had full discretion in this respect since 1959. I hope we may have persuaded the Government to look with a little more favour on this Amendment than they have suggested during the debate. If not, I very much hope that my noble friend will press the Amendment.
6.8 p.m.
Lord ELTON: My Lords, may I inquire whether the Government Front Bench intend to reply to what my noble friend has said before I reply to the debate?
Lord DONALDSON of KINGSBRIDGE: My Lords, at Report stage I think it would be quite inappropriate.
Lord ELTON: My Lords, it would be inappropriate for the same voice to speak twice, but there is more than one voice to cut off anything which the noble Lord wished to say. I wished to say two things myself: first, I notice that whenever there
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is an Amendment to which the noble Lord and the noble Baroness opposite take particular exception they instantly say that it is a wrecking Amendment. I presume this is because they wish to label it with something which will produce a shout of rage when it goes down the corridor. If they look at the wording—even with respect to the noble Lord, Lord Alexander of Potterhill—it provides for "opportunities for education to a particular pupil". Flow you could expect to use that reasonably to send all your best pupils out of the local authority to non-maintained schools at considerable expense to the rates and in the face of popular hostility among the local electors I do not know. It is not a wrecking Amendment.
The noble Lord laid great stress on the words "as far as possible" being a limitation of the duties of the 13111, but if those words are to have effect or the problem that we are discussing then they would have to occur at line 17 of page 1 of the Bill, because they would have to qualify,
"the general principle that such education is to be provided only in schools where the arrangements for the admission of pupils arc not based wholly on selection by reference to ability or aptitude."
They do not there occur. Thirdly, what the noble Lord says is very welcome in the form of an undertaking, but it is not what the Bill says, and, as I said before, it is to the Bill and not to Hansard that he courts will address themselves when any case is brought before them. Therefore I feel that the noble Lord and the noble Baroness have not answered the case we made. We made it before, we took it away to consider after listening to their arguments and they still have not satisfied us. Therefore I beg to press the Amendment.
6.10 p.m.
On Question, Whether the said Amendment (No. 4) shall be agreed to?
Their Lordships divided: Contents, 104; Not-Contents, 54.

CONTENTS

Airedale, L.

Emmet of Amberley, B.

Mowbray and Stourton, L.

Amory, V.

Faithfull, B.

Newall, L.

Amulree, L.

Ferrers, E.

Northchurch, B.

Ashdown, L.

Fraser of Kilmorack, L.

Nugent of Guildford, L.

Avebury, L.

Gainford, L.

O'Hagan, L.

Balfour of Inchrye, L.

Gladwyn, L.

O'Neill of the Maine, L.

Barrington, V.

Glendevon, L.

Onslow, E.

Beaumont of Whitley, L.

Glenkinglas, L.

Pender, L.

Belstead, L.

Gray, L.

Platt, L.

Berkeley, B.

Greenway, L.

Rankeillour, L.

Birdwood, L.

Grey, E.

Reigate, L.

Brooke of Cumnor, L.

Gridley, L.

Rochdale, V.

Brooke of Ystradfellte, B.

Hailsham of Saint Marylebone, L.

Ruthven of Freeland, Ly.

Brougham and Vaux, L.

Hampton, L.

St. Aldwyn, E. [Teller.]

Byers, L.

Hankey, L.

St. Davids, V.

Caccia, L.

Hanworth, V.

Sandys, L.

Campbell of Croy, L.

Harmar-Nicholls, L.

Savile, L.

Carr of Hadley, L.

Hawke, L.

Selkirk, E.

Cathcart, E.

Hylton-Foster, B.

Sharpies, B.

Chelmer, L.

Ilchester, E.

Simon, V.

Clifford of Chudleigh, L.

Kemsley, V.

Spens, L.

Clitheroe, L.

Kimberley, E.

Stamp, L.

Cullen of Ashbourne, L.

Kings Norton, L.

Strathclyde, L.

Darcy (de Knayth), B.

Kinnaird, L.

Strathcona and Mount Royal, L.

Daventry, V.

Lauderdale, E.

Sudeley, L.

de Clifford, L.

Long, V.

Trefgarne, L.

Denham, L. [Teller,]

Macleod of Borve, B.

Vickers, B.

Derwent, L.

Mancroft, L.

Vivian, L.

Drumalbyn, L.

Marley, L.

Wakefield of Kendal, L.

Dudley, E.

Merrivale, L.

Ward of North Tyneside, B.

Eccles, V.

Mersey, V.

Ward of Witley, V.

Ellenborough, L.

Monck, V.

Wigoder, L.

Elles, B.

Monson, L.

Wolverton, L.

Elliot of Harwood, B.

Morris, L.

Young, B.

Elton, L.

Mottistone, L.

NOT-CONTENTS

Alexander of Potterhill, L.

Gordon-Walker, L.

Pannell, L.

Allen of Abbeydale, L.

Greenwood of Rossendale, L.

Peart, L. (L. Privy Seal)

Ampthill, L.

Henderson, L.

Peddie, L.

Aylestone, L.

Houghton of Sowerby, L.

Phillips, B.

Bacon, B.

Jacques, L.

Popplewell, L.

Beswick, L.

Janner, L.

Sainsbury, L.

Birk, B.

Kinloss, Ly.

Shepherd, L.

Blyton, L.

Kirkhill, L.

Shinwell, L.

Brockway, L.

Leatherland, L.

Slater, L.

Buckinghamshire, E.

Lee of Newton, L.

Stedman, B.

Burton of Coventry, B.

Llewelyn-Davies of Hastoe, B.

Stone, L.

Champion, L.

Lovell-Davis, L.

Strabolgi, L. [Teller.]

Collison, L.

McCluskey, L.

Taylor of Mansfield, L.

Cooper of Stockton Heath, L.

Maelor, L.

Wallace of Coslany, L.

Donaldson of Kingsbridge, L.

Melchett, L.

Wells-Pestell, L. [Teller.]

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

Noel-Buxton, L.

Winterbottom, L.

Evans of Hungershall, L.

Oram, L.

Wise, L.

Fulton, L.

Paget of Northampton, L.

Wynne-Jones, L.

Resolved in the affirmative, and Amendment agreed to accordingly.
Clause 1, as amended, agreed to.
Baroness STEDMAN: My Lords, I beg to move that further consideration of the Bill on Report be adjourned.
Moved, That further consideration of the Bill on Report be adjourned.—(Baroness Stedman.)
On Question, Motion agreed to.

INDUSTRIAL COMMON OWNERSHIP BILL
Read 3a, and passed.

SUPPLEMENTARY BENEFIT (AMENDMENT) BILL
Lord WELLS-PESTELL: My Lords, I understand that no Amendments have been set down to this Bill and that no

81
noble Lord has indicated a wish to move a manuscript Amendment or to speak in Committee. Therefore, unless any noble Lord objects I beg to move that the Order of Commitment be discharged.
Moved, That the Order of Commitment be discharged.—(Lord Wells-Pestell.)
On Question, Motion agreed to.

AIRCRAFT AND SHIPBUILDING INDUSTRIES BILL
6.20 p.m.
The MINISTER OF STATE, NORTHERN IRELAND OFFICE (Lord Melchett): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, that the House do again resolve itself into Committee.—(Lord Melchett.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD DERWENT in the Chair.]
Clause 35 [Compensation for vesting of securities):
Earl FERRERS Earl FERRERS moved Amendment No. 160:
Page 49, line 12, at end insert ("or—
(c) the amount which would have been payable under subsection (3) above, if the special declaration had not been made, less the amount of the payment or assistance which is the subject of the special declaration.").
The noble Earl said: This Amendment refers to the same subject as the last Amendment which we dealt with before the Committee adjourned last Thursday. It refers to this curious phrase "the reduced amount", which is the compensation payable when the Secretary of State makes a special declaration. This Committee will remember that a special declaration can be made when a company has received funds from the Government after 6th November, 1965, when these provisions were announced, and before the vesting date. If the Secretary of State considers that the company would have been unable to pay its debt without those funds, or that the state of the company's affairs—and this is quite remarkable—is such that in the foreseeable future in
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the Secretary of State's view it is probable that the company would be unable to pay its debts without those funds, then the Secretary of State can male a special declaration. It was at this point that on the previous Amendment we suggested that these were very wide rowers and the Secretary of State should have the advice of an independent accountant, but the Government did not see fit to accept that Amendment.
This Amendment is on a different point, because when the special declaration is made then the compensation is the reduced amount. The reduced amount is, as it says in Clause 35(6) either 5 per cent. of the notional value of the shares at 1974 prices, or what would be: he current break-up price of the company had it not received the Government funds. I gave an example of this last time, and I would trouble your Lordships by repeating it so as to remind you of the provisions. Let. us assume that in 1974 there was a company worth £5 million, and it may be that it was in financial difficulties—it may be that it was not—and that since 1974, and indeed between 1974 and 1976, an order had come to the company which it felt that it could carry out. It may be that it would have required to borrow some money, but because it was going to be nationalised the normal places where one would borrow money, such as the banks, would of course not be available. Therefore, the only place to which that company could go to borrow the money to retool, or to buy some new equipment in order to fulfil the order, would be the Government.
Once the company took the money off the Government, or accepted the money from the Government, it had, as it were, the kiss of death, because then the Secretary of State could come along and say, "You have borrowed the money and therefore I will pay you in compensation only the reduced amount" The reduced amount would be either 5 per cent. of the 1974 prices which, in the example I gave of a company worth £5 million would be only a quarter of a million pounds, or alternatively the current break-up price of that company had it not borrowed the money. That is, of course, a figure which would be open to question, and in any event would be an inaccurate figure because it would only be a guess. I believe that it is not fair

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that a company worth that sum of money in 1974 might only be paid a quarter of a million pounds now simply because it had borrowed some money.
The object of this Amendment is to say that the correct and fair compensation would be the figure that it would have received in 1974 less the amount of money which, as a loan or as grant or in any other form, it had received from the Government. That would appear to us to be a fair form of compensation. I hope that the noble Lord, Lord Winter-bottom, in his usual magnanimous way, will agree that it is a fair suggestion and will accept the Amendment. I beg to move.
Lord WINTERBOTTOM: It is a fair suggestion, but at this moment in time I cannot undertake to accept it. We are having a serious discussion, and therefore all suggestions are fair. However, I should like to try to persuade the noble Earl that the Government's view is not quite as rigid as he seemed to make out. I seem to remember that at about midnight one day last week we were talking about events arriving out of a blue sky. But what we are really talking about is a situation where a company is in difficulties—and companies can get into difficulties through no fault of their own—and has to decide whether to go it alone and, with the help of its bankers, fight its way through its difficulties, or turn to the Government and get a loan which in fact affects the degree of compensation that it is likely to receive.
The situation which the noble Earl described is perhaps possible, but I do not think that it actually will be so. Banks, taken by and large, are very loyal to their clients. If a client came to them and described the situation which the noble Earl has foreseen, I think they would support him, but if they did not, then we have this particular situation which we have to consider. May I just give the Government's argument as clearly as I can?
As I see it, and as the Government see it, Amendment No. 160 seeks to offer a further choice of valuation—and we have to deal with other choices of valuation in a later discussion—for a company facing bankruptcy; namely, the full valuation
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less the aid given. The amount of aid given does not have any bearing on the question of whether or not a company is solvent without it. It is either solvent, and thus to be compensated for in full, or else insolvent and thus virtually worthless. The clause already provides two options for compensation, either 5 per cent. of the full compensation or the amount which the shareholders would have received had their bankruptcy taken place. In the vast majority of cases, and this is an unfortunate fact, shareholders receive nothing out of a compulsory winding up, and for this reason I believe that to offer 5 per cent. in these special circumstances is by no means unfair. But to offer any more, except in the remote possibility where shareholders would have received more had the winding-up proceeded, would perhaps be considered unjustified largesse on the part of the Government. It is for this particular reason that I feel I must reject this particular Amendment.
Earl FERRERS: I was surprised that the noble Lord did not accept the Amendment and I was greatly surprised at his reasons for not accepting it because the whole point of the compensation through-out the Bill is that it is based on spurious data; that is, the notional value at 1974. In the example I gave it is possible that in 1974 the company in question was viable and would not go into liquidation. If in 1976 one is buying out a company at 1974 prices, I suggest that it is not fair to say that because subsequent to 1974 the company got into difficulties we should therefore use a different figure from that on which the whole of the compensation is based, which is the 1974 figure. If in 1974 that company was viable, why should it not be paid out in compensation at 1974 prices?
I find the argument adduced by the noble Lord strange because it may be that a company will go into liquidation and, if it does, there is very little left for the share-holders. But in the example I gave the company was not, in 1974, in liquidation and was not likely to go into liquidation and I do not see why the noble Lord says that the Government would be paying out largesse if he accepted the Amendment. It would not be largesse. It would be just and fair to pay the 1974 value less any sums which the Government had paid. Would

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the noble Lord care to explain—I am willing to be told if I am wrong—whether, if a company was solvent in 1974, under these provisions it would not be paid out at 1974 prices?
Lord WINTERBOTTOM: The argument is that in the period between 1974 and 1976 a hypothetical situation may have arisen in which a company is in such difficulty that it is at risk of becoming insolvent and being forced to wind up its operations. It is obviously the Government's wish that such companies should continue trading and one would hope that if such a situation arose the company would turn to the Secretary of State, get a grant and continue doing what it was doing at the time of the original situation in 1974 when it was brought within the ambit of the Bill.
I remind the House that we are talking about hypothetical situations, not real ones. If such a situation were to arise, then either the shareholders would get 5 per cent. of the full compensation—and it is open to them to decide—or the amount which they would have received had the bankruptcy taken place. I think we can assume that at this moment all companies which are concerned with the progress of the Bill would choose to take what assistance the Secretary of State can give them rather than go into liquidation and throw their work forces on to the labour market. Admittedly, this is not a usual situation about which we are talking—it is a hypothetical one—and I believe that the terms proposed by the Government are fair; either 5 per cent. of the full compensation or the amount which the share-holders would have received had the bankruptcy taken place.
Lord TREFGARNE: I regret that the noble Lord, Lord Winterbottom, has opposed the Amendment so strongly. Do the Government understand that the problem is one of blight? We all know that if one is living in the shadow of a projected motorway or similar development the value of one's property can decrease sharply. Similarly, a company threatened with nationalistaion can find itself in a similar position. The noble Lord will recall that the Bill did not appear in the first Session of Parliament, over which the present Government had some control, although it was expected to
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arrive. There was a period of' uncertainty before the Bill was introduced in another place and that exacerbated the situation to which my noble friend has drawn attention. The Government are being unreasonable over this and I hope that my noble friend will press the matter to a Division.
Earl FERRERS: I am grateful to my noble friend Lord Trefgarne and I, too, find the Minister's argument extraordinary, especially when he described this as a hypothetical case.
Lord WINTERBOTTOM: Can any noble Lord tell me of a factual case of any company suffering from blight? Perhaps the noble Lord, Lord Trefgarne, will tell me of one?
Earl FERRERS: It is all very fine to ask that sort of question and I think I see the noble Lord, Lord Winterbottom, smiling. I would remind him that we have not yet had the vesting date and much can happen before then. What he is seeking to defend is putting something in the Bill which I suggest is unfair. My noble friend, Lord Trefgarne, referred to blight and what I think he had in mind was the situation where a company might have been viable in 1974 but could not find the funds to re-tool or buy new equipment, or carry out this new order which it has got since 1974, aid because it might have been in difficulty it must go to the Government. Once it f as gone to the Government, the Secretary of State is obliged to pay out in compensation what is frankly a derisory amount. Had that company in 1974 been in difficulties and had it in 1974 got a grant from the Government because of those difficulties, things might have been different. But it is possible that in 1974 the company was totally viable, and it is the mere operation of obtaining funds from the Government later to develop its exercise that the Government put in this provision which, frankly, will result in a thoroughly unfair amount of compensation. The obvious and reasonable thing, I suggest with humility, would have been to pay out what was agreed to he the proper price in 1974 less any funds the Government paid into the company. Even then the Government would be getting the company at a value probably much lower than is current value simply because it would have borrowed the money to develop its work.

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I find the noble Lord's argument thoroughly unconvincing. I suppose that at this juncture he will not accept the Amendment and I see him, I think sadly, shaking his head in dissent. I am sorry about that. With respect, he is being most unreasonable. I hope there will be a little give somewhere from the Government, otherwise it makes the exercise in which we are involved rather tedious, particularly when we are trying to provide constructive Amendments, of which this is one. However, if the noble Lord sees fit not to accept it, then I shall be obliged to withdraw it and reconsider the matter.
Lord HANKEY: Before the noble Earl seeks leave to withdraw the Amendment, may I ask the Minister, as one who has had to deal with this question only in relation to Communist Governments who have tried to take over companies without paying any compensation at all, how the figure of 5 per cent. was conjured up? It seems remarkably low. One does not know what proportion the compensation bears to the value of the company. It could be virtually taking it over without any compensation. If the noble Lord would explain the clause a little more we might be able to have a better view of the Amendment.
Lord WINTERBOTTOM: I am not the most skilled person on the procedures of your Lordships' House, but I thought that the noble Earl, Lord Ferrers, had withdrawn the Amendment—
Several noble Lords: No!
Lord WINTERBOTTOM:—and, if he had withdrawn it, that is the end of the discussion on the Amendment.
Earl FERRERS: I was careful in the words I chose. I think I said that I would be obliged to withdraw it and then sat down. I did not actually seek leave to withdraw it.
Lord HANKEY: I said as I rose, "Before the noble Earl seeks leave to withdraw the Amendment". I would be grateful if the Minister would explain the provision further; I am sure he understands it better than I do.
Lord WINTERBOTTOM: May I put it in words of one and a half syllables? The Opposition is making too much of the "investment blight". No noble Lord opposite or on the Cross-Benches has told me of a company which is blighted. We have given assurances to companies to ensure that normal, on-going business is not blighted by the Bill and we believe that companies are operating quite normally against the background of this Bill. If any noble Lord can tell me of a case of blight I should like to know of it.
Lord TREFGARNE: Is the noble Lord really saying that because we cannot mention a particular case, we must now write this grotesque provision into the Bill?
Baroness WARD of NORTH TYNESIDE: Am I right in saying that the noble Lord said he had had enough talking? Am I not allowed to talk if I want to? I cannot hear what the noble Lord says.
Lord WINTERBOTTOM: I apologise. I said that I was bad on procedure. I thought that the noble Earl had withdrawn his Amendment, but I find that he has not.
Baroness WARD of NORTH TYNESIDE: I am very grateful to the noble Lord. I was wondering why he said that this was a hypothetical case and asked for evidence. When we are dealing with a Bill, we cannot, until we know what the conditions are and until all the firms that are to be nationalised have been gone into, give any evidence. One cannot say that one cannot have a clause in a Bill which is hypothetical unless one gives the cases. That seems to me to be quite ridiculous and I cannot understand it at all. We want clauses that are fair to the people so that, when we come to deal with the compensation, we can then provide the facts; but we cannot do so on a hypothetical case because at the moment we have no hypothetical cases. So what I want to know is why the noble Lord used the word "hypothetical".
Lord WINTERBOTTOM: I am afraid that hypothetical is hypothetical. I merely asked for an example of a blighted company. None has been given. Therefore, it is very difficult to say whether we are being fair or not. So far, no unfairness has appeared.
Viscount SIMON: I am going to throw a small pebble into the pool by asking the noble Lord whether, if he is satisfied that no case will arise, it is necessary to have the clause in the Bill at all.
Earl FERRERS: Oddly enough, that was almost the question that I was going to ask the noble Lord and, as we are asking each other questions, perhaps I may ask him this. Does he know of any company that was reasonably solvent in 1974 which has subsequently received a Government grant which will result in that company being paid out only either 5 per cent. of its 1974 prices or the current break-up value?
Lord MELCHETT: While we are asking each other questions, maybe I can join in and ask the noble Earl a question. We have been asked a lot of questions and I believe that I am entitled to ask one in return. Noble Lords opposite passed Amendment No. 156 when we were nearing the end of the previous Committee stage: am I right in thinking, as I think I am—for it is the Amendment of noble Lords opposite and not mine—that, under that Amendment, somebody who was not satisfied with the particular item of compensation with which we are dealing at this stage could go to the tribunal and say that, having regard to all the circumstances, the compensation was not fair and could ask the tribunal to alter the compensation? If that is the case, I am not quite sure what we are arguing about.
Earl FERRERS: I can tell the noble Lord exactly what we are arguing about: we are trying to make the provisions of the Bill reasonable. I do not think it much of a statement to say that because somewhere in the Bill there is the right of a company to go to arbitration, therefore all the other provisions of the Bill can be absolutely haywire for, if they are not right, the company can go to arbitration. Clearly, we must try to get things right, but the noble Lord, Lord Winterbottom, asked me specifically whether I knew of any company that was going to be blighted. I shall find out, for I cannot tell him on the spur of the moment. But that does not alter the reason for trying to make the provisions fair. What I should like to know is whether the noble Lord knows of any company which has received funds from the Government and which, as a
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result of receiving those funds, will have the reduced amount payable.
Lord WINTERBOTTOM: I think that we are getting down to details. I shall inform the noble Earl at Report stage.
Earl FERRERS: I am very grateful to the noble Lord. We are getting down to details, and I believe that they are rather important details, but I will withdraw the Amendment and shall come back to it at Report stage. I now, formally, and at the noble Lord's pleasure, beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
6.47 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 162:
Page 49, line 14, leave out ("either").
The noble Lord said: With this Amendment, which I am moving on behalf of my noble friends, I should like to speak to Amendment No. 163. Here, we are still addressing ourselves to this question of the special declaration and we are on a narrower point still. Since we have got into this rather unfortunate word "hypothetical", which looks like being our touchstone instead of our usual one—"flexibility"—I would just point out that, though I know that "hypothetical" is a dirty word in this House, the whole of this clause is to a very large extent hypothetical. That became very evident when the noble Lord was challenged by my noble friend Lord Ferrers to cite an example. Many of the provisions in the Bill are trying to deal with hypothetical situations that may arise. I think that we must accept that. So I do not believe that it will quite do to fling out the word "hypothetical" and say that that is an answer. I do not believe that it is.
What we are dealing with here is a rather technical point which, again, deals with accounting and also involves the onus of proof. Although these are comparatively narrow points, they are of some importance and I believe that they are made more important when this sinister phrase, "in the opinion of the Secretary of State" creeps in. That keeps on happening in this Bill. The subsections to which we are now referring were not in the original draft of the Bill. This is a point that was made in the discussion in

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another place and it was one of the Members from our side who pointed out that we were not here asking for special help but trying to redress an adverse balance against the companies. Indeed, one wonders why these subsections have been introduced. The apparent intention—and this has already been said—is to reduce the compensation which would otherwise be payable in the case of companies which receive Government assistance where, in the opinion of the Secretary of State, that assistance saves the company from liquidation or receivership.
Subsection (4) makes clear what is intended and, again, we are referring back to the date of 6th November 1975 and speaking of the reduced amount. I believe that we have discussed the broader issues involved here and the issue that we are addressing ourselves to in these Amendments is the fact that the accountants regard the phraseology as extremely unsatisfactory. We have these two provisions that the accountant has to declare that the company would be unable to pay its debts as they fall due without the payment or assistance in question. That, I understand, is technically possible, but, where the purely practical accountant says that he runs into grave difficulties is in the provision that the state of the company's affairs is such that, in all the circumstances, it is probable—one might almost have said "hypothetical"—that, in the foreseeable future, it would become unable so to pay the debts without that payment or assistance.
The accountants advise that this is not the kind of statement that they can be expected to make, and the industries feel that this is an unreasonable paragraph to have in here at all. We come back to the "heads I win and tails you lose" type of situation. I do not want to pre-empt the more general debate on compensation which will probably take place on the Question, That the clause stand part, but we are talking about a situation where one does not get a penny more if one has done better since November, but one gets substantially less if one has done worse. Again, in this particular instance, we are talking about a potential collapse.
May I finally remind the noble Lord that it was in discussing this point in another place that the remark which showed an appalling lack of understanding of the whole principle of compensation was made by Mr. Carmichael when he said:
"We are not in a take-over situation, we are acquiring by Act of Parliament."
If that is the attitude as exemplified in that discussion, then this is perhaps a slightly more important Amendment than at first might appear. I beg to move.
Lord WINTERBOTTOM: We have been discussing a group of Amendments which relate to the reduction of compensation for companies saved from collapse by Government financial assistance in the period, shall we say, from 1974 to whatever date it is when the Bill becomes an Act. May I briefly outline the basic philosophy behind the compensation terms before dealing with the Amendments which we are discussing now, Nos.162 and 163.
Compensation is fixed on the basis of a past reference period, the six months up to the end of February 1974. At that time, all the companies named in the Bill were viable concerns at the end of the reference period and the basic assumption still is that they will remain in that state up to the vesting day. Just to make the point clear, no company as of now has come to ask for aid under the clause, so we are—I know it is a longish word—in a position where the whole situation we are discussing is "hypothetical". I agree that it is the duty of this House and another place to discuss hypothetical situations, but hypothetical situations are less important than real situations, and as of now no company has come forward for help. The noble Lord opposite has said that clearly the prospects of individual companies may have changed since the reference period. But that in itself does not affect the basis of compensation. By basing compensation on a past period, the compensation payable is fixed, and generally speaking the shareholders are assured as to the basis on which the compensation they will receive will be assessed. We are talking about something that is not hypothetical but is factual.
However, all of this is built on the premise that the companies continue as going concerns up to the vesting date,

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and I think we can agree on that. If a company should collapse before the vesting date, then clearly the whole basis of compensation is destroyed. That is recognised by the provisions of Clauses 27 and 29 which have already been discussed. But for a number of reasons the Government may not be prepared to see a company collapse before vesting day, and again, noble Lords who arc fair-minded men would not wish that to happen. In those circumstances, the Government may decide to support the company in the intervening period with some form of financial aid. If a company is saved from collapse solely by the Government digging into their pockets—ot should I say more carefully as noble Lords will correct me—digging into the pockets of the public, it is clearly wrong that the shareholders should nevertheless receive full compensation as if the company had remained viable by its own efforts.
I believe that it would not be right for the House to accept these Amendments. When a company is running into financial difficulties, its directors will seek to avert the final collapse by early action and not wait until the receiver is at the door: that is to say, provided their accounting procedures are adequate. As soon as the danger signs appear, the company will seek whatever financial assistance it can to stave off collapse. The noble Lord opposite said that the bank might not support it. That again is a hypothetical situation, because I believe that banks tend to support their old and trusted clients.
It may be that the company has no option but to turn to the Government, if the size of the problem is too great for any other sources to deal with it. While the ultimate collapse without assistance might be inevitable and clearly foreseen, it might nevertheless not occur at once—shall we say that while the organisation was working at full blast, the order book was shrinking and the future looked some-what bleak. If the Government give aid in these circumstances it is just as much to stave off bankruptcy as if the bankruptcy would have occurred the next day. As I understand it, sub-paragraph (b) of sub-section (6) which the noble Lord, Lord Strathcona and Mount Royal, is trying to delete in Amendments Nos.162 and 163, is to recognise this fact. If that sub-paragraph were to be deleted, then a company
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could receive aid a mere week before its bankruptcy and this maintain its right to full compensation. It is for those reasons that I must resist these two Amendments.
Lord CARR of HADLEY: Before my noble friend replies on this Amendment, and since the noble Lord, Lord Winter-bottom, said that he wished: o give his view on these Amendments in the context of an explanation about the Government's philosophy on compensation, may I ask him one question? If I understood him aright, he was saying that if between the date in 1974 when we have a fixed point—which is a fact, not a hypothetical position—and the vesting date, a company's activity level and profit level drops so badly that it collapses, then, of course, the whole basis of compensation collapses also? But if that argument applies to a company whose level of activity and profitability changes dramatically in the downward direction, what about the position of a company whose level of activity and profitability changes dramatically in an upward direction? Does not the whole basis of compensation logically collapse, just as much in the case of a company whose level of activity and profitability changed dramatically upwards since 1974? Is that different in principle from one which changes dramatically downwards?
Lord WINTERBOTTOM: We are talking about collapse. If a company's profitability rises, then I suppose there are hypothetical situations when that could bring about the collapse of the company; but it is highly hypothetical and unusual.
Lord CARR of HADLEY: I thought that the noble Lord was trying to tell us an important thing—which we grateful for him trying to tell us—namely, something more about the underlying philosophy of the Government in setting these principles for compensation, which we shall debate more generally in a few moments, and that is why the statement is important and needs to be clarified. As I understood it, he said that it was part of the philosophy that if the situation changed dramatically since 1974, then the basis of compensation would also be undermined. He took the case of a change which was dramatic alas! in the bad direction; but logically the argument applies just as much if the dramatic change were to take place

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in an upward or hopeful direction. Both cases in logic, I suggest, would completely upset the basis of compensation.
Lord MELCHETT: The distinction which the noble Lord has not made and which we would make is that a company's activity and profitability after the date in 1974 can go up or down, and the basis of compensation is not affected; it would still be the base period of 1974. What we are pointing out is the distinction if the company ceases altogether. If the activity drops so low that the company goes bankrupt, then at that point the distinction should be made; but we are not making any distinctions if the profitability or activity goes up or down, except for this one case which, I think the noble Lord would accept, is of a different degree from an increase or decrease in activity or profitability.
Lord CARR of HADLEY: I think I now understand the Government's position. What the Government are in fact saying is that if, following 1974, a company (to put it crudely) sits on its behind and does nothing, then its compensation is fixed. If, on the other hand, in the national interests as well as its own, it really forges ahead and greatly increases its level of activity to the national benefit, then it does not get any benefit from it. Is that really very fair or very encouraging to the sort of effort we want over what is a period of two or three years?
Lord MELCHETT: I do not think there have been cases, unless the noble Lord can bring them to our attention, where companies have sat on their backsides, and I hope the noble Lord was not suggesting that that was the case.
Lord CARR of HADLEY: But if they have not, as I believe is the case, and they have greatly improved their business, on what conceivable basis of fairness is it right to give them only what the Government say they were worth in 1974, when since then they have been forging ahead to the national benefit and not just their own?
The Earl of ONSLOW: There is one question I should like to ask arising
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out of this small debate, and that is this. The noble Lord, Lord Winterbottom, said that no company had approached the Government for rescue aid. Is there any prospect of any companies approaching the Government for rescue aid? It is very easy, perhaps, obviously telling the complete and utter truth and looking backwards, to say that no company has, but is there any prospect, looking forward, of anybody approaching the Government for rescue aid?
Lord MELCHETT: As I understand it, the answer to that is "No", but obviously the Government cannot answer for the companies. It must be the companies who would know whether or not they are going to come to us; but as far as we know the answer which my noble friend gave was the correct one.
Lord TREFGARNE: One of the difficulties that I see with the subsection which the Government seek to retain is the word foreseeable". We have heard no indication of how long "foreseeable" might be. The Government's arguments might hold a little water if "foreseeable" was just a few months, but there is nothing in the Bill to say that. It might be six months, it might be one year, it might be two years, it might be ten years. Is the noble Lord able to give any indication of how far ahead a company would have to be able to ensure its viability to avoid the penal effects of this clause?
Lord WINTERBOTTOM: "Foreseeable" depends upon the accuracy of the firm's accounting and the wisdom of its executives. How far can one peer into the future?
Lord TREFGARNE: I really cannot allow the noble Lord to get away with that. The words in this clause are quite clear:
"… a declaration by the Secretary of State that in his opinion … it is probable that in the foreseeable future …"
According to this clause, it is for the Secretary of State to decide when the foreseeable future shall end. Can the noble Lord tell me how far ahead the Secretary of State can see?
Lord MOTTISTONE: Perhaps on the same point, if I remember rightly my

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noble friend Lord Ferrers said among other things with regard to this paragraph (b) that no reasonable and competent accountant would find it easy to make a statement which backs up the situation which is described here. It is too difficult for even the most expert of common men to deal with this particular paragraph in real life. The noble Lord, Lord Winter-bottom, did not in fact reply to that in his first statement, and it would seem to me that it would be helpful if the Government could tell us why they think this is a paragraph which is in practical terms able to be realised by somebody who is really competent and trying to meet its terms.
Lord STRATHCONA and MOUNT ROYAL: I am very grateful to the last two of my noble friends who spoke from behind me, Lord Trefgarne and Lord Mottistone, because they in fact returned us to the Amendment. On this occasion the Government widened the debate quite beyond what T had originally envisaged when we embarked upon it. I do not think we are any the worse for that, because we probably dealt with issues which we should otherwise have dealt with in a few minutes' time. But I was a little suspicious that possibly the noble Lord was distracting our attention from the particular point that I was trying to deal with and to which we now have to return. The noble Lord nods his head, which I take to mean that he is going to deal with the issue and that he was not trying to distract our attention.
We wandered off into this whole question of hypotheses, and I should like to remind the noble Lord of one thing. The whole basis of compensation, as we shall be saying in a moment, is throughout designed on a hypothetical Stock Exchange valuation; and once you start on that—and the Government have started on that; we have not—you can hardly blame us if we follow with a whole series of other hypotheses. In this particular instance we have a very hypothetical situation, as the Government themselves have admitted, since the noble Lord, Lord Melchett, said that he did not know of anybody who was likely to go "bust"—which I am very glad to hear, incidentally.
May I answer one or two of the other, more general, points which the noble Lord made? The issue of blight spreads right across the industry. Once you
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announce that it is going to be nationalised, it is very difficult indeed for any company, under that kind of threat, to borrow money. That is surely self-evident, and there are many noble Lords here tonight who will, I hope, reiterate this much more authoritatively than ever I can.
But the noble Lord asked us one or two questions, trying to envisage the kind of circumstances. If one thinks back to the position of property companies during the period of the recent fall in property values, one recalls that many large property companies were: technically "bust". The City thought it would be undesirable to allow them to go through the hoop, which is perfectly proper, and they have a lifeboat committee, or some such committee I think it is cal ed, which exists to avoid this happening to such companies. I do not think anybody suggests that because they are technically "bust" you should therefore say that all their assets are worthless, which I think is what follows from the kind of argument here.
Furthermore—and this brings us right back—is it seriously supposed that any accountant could possibly do any of the three or four things required of him here? No accountant could do them. It talks about the foreseeable future and "it is probable". Accountants try to make their trade into as exact a science as possible, and they like to stick to facts. We are all trying to stick to facts. That is our complaint here. On the narrow point, leaving aside the more geneeral one about hypothetical values, lifeboat operations, Burmah, the Bank of England, nationalised boards, et cetera, we are trying to stick to the practical point and we are saying that we are assured by those whose business it is that they would be extremely unhappy if they were asked to perform the particular service which is liable to be asked of them under this Bill as it stands at the present time.
I rather doubt if the noble Lord wants to say anything further about this matter at this stage. If he does, I will gladly give way to him. If not, I should be happy to allow us to proceed to the Question, Whether the clause shall stand part of the Bill?, and the debate on it which will ensue. But I must warn the noble Lord that it is quite possible that

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we may have to address ourselves purely to the narrow, technical point at a later stage of the Bill. I beg leave to withdraw this Amendment.
Amendment, by leave, withdrawn.
7.9 p.m.
On Question, Whether Clause 35, as amended, shall stand part of the Bill?
Lord CULLEN of ASHBOURNE: The reason I am entering the fray at this late stage is because my noble friend Lord Selsdon has asked me to move some Amendments which he put down. I have accordingly been studying the Bill and Hansard assiduously over the weekend, but I know quite well I can be tripped up on detail. However, I propose to deal with the general point, which I think is important and which was referred to by my noble friend Lord Orr-Ewing and expanded upon during the debate on Amendment No. 156 by my noble friend Lord Carr.
I would first refer your Lordships to subsection (3) of this clause, which reads:
"… the amount of compensation due to any person in respect of any securities of a company which are held by him immediately before the date of transfer of that company shall be an amount equal to the base value of those securities",
and so on. I draw attention to the significant words, "any person". These words occur again in subsections (4) and (5). As I understand it, these words are only applicable in the case of one out of the 43 companies intended to be nationalised. In the other 42 cases, the compensation is to be paid not to any person but to the parent company concerned.
Let us for the moment forget the one quoted company and consider the other 42. The Government have repeatedly made clear that they wish to be fair. I should like to know what is meant by the word "fair". I trust that this means fairness not only to the taxpayer but also to the parent companies and to the underlying shareholders. If the Government are going to be fair to the parent companies they will automatically be fair to the shareholders; but the shareholders are, so to speak, once removed and will receive no compensation at all from the Government. They will, if they so wish, continue to hold shares in the parent
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company and will be concerned that the value of the compensation stock will be sufficient to replace lost assets with others of equivalent earning power. If that is not so, the Government will definitely not have been fair to the shareholders—something which the noble Lord, Lord Melchett, has frequently told us it is the avowed aim of the Government to be. I realise that it is very late in the day to raise the point and I do not have the experience to know how the Bill should be amended, but I would suggest that the words "any person" should be changed to "any parent company or person". If the Committee agree with this then perhaps we could return to it on Report.
It seems to me that the Government, perhaps owing to the immense amount of legislation to which they were committed by their Manifesto, have used previous nationalisation Bills as a blue-print for this Bill. They have tried to use the previous system of using Stock Exchange prices by inventing the extraordinary idea of notional prices. For this, I suspect, they may have drawn some inspiration from Lewis Carroll. While speaking to Amendment No. 156, my noble friend Lord Wardington explained very clearly the inadequacy of using actual Stock Exchange prices as a means of valuing a company. It must be well known to the Government that during the relevant period Stock Exchange valuations were well below asset values. Therefore, if the parent companies had sold their assets on the basis of Stock Exchange valuations they would have been unable to replace them. Similarly, if the Government nationalise one of their subsidiaries and compensate on a Stock Exchange or quasi-Stock Exchange basis, the parent company will be unable to establish itself—to quote the words of the Under-Secretary of State—
"at the same level of activity as existed before its subsidiaries were vested".
If the Government would admit that, although they want to be fair they arc using a method of compensation that is unfair, we could get together and work out some improvements to the Bill to make it at least more fair, but the intransigent attitude adopted by the Government that they are being fair when it is obvious they are not, seems somewhat tedious and time-wasting.
7.14 p.m.
Lord ROBBINS: May I crave your Lordships' indulgence from the Cross-Benches to indulge in a few general reflections on the implications of this clause? I have not spoken, save on one occasion, on the rest of the Bill and I do not wish on this occasion to indulge in any observations at all on the nationalisation of the two industries concerned. I address myself solely to the question of fairness on which I personally am prepared to accept the assurances which have been given by noble Lords on the Government Front Bench that they are united with the rest of the world in seeking. I am afraid that the impression left upon what I imagine to be an impartial observer in this particular context must be to the contrary. It is on that matter and on that matter alone that I should like to expatiate for a few moments.
It is very clear (is it not?), that the draftsmen of this Bill started from the simple notion that if some person or group of persons is compensated on the basis of the Stock Exchange value at a said date, then the criterion of fairness is satisfied. Unfortunately or fortunately, it so happens that the companies enumerated in the Schedule for the most part lack a Stock Exchenge quotation on the named date. It is therefore considered to be necessary, and certainly it is necessary if compensation is to be devised at all, that some tribunal of arbitration should be set up to ascertain what would have been the Stock Exchange value at a certain date of these companies had they enjoyed the benefit of quotation—a task which must be associated with all sorts of perplexities and necessarily involves a vast number of judgments which in the nature of things are subjective.
It may be that if the fundamental Amendment moved last time by the noble Lord, Lord Selsdon, survives in another place, the terms of reference of the arbitration committee may be interpreted in such a wide sense as in the event to vitiate the many fears which have been expressed in this House (and, I think, are expressed in the knowledgeable world at large) with regard to the procedure of this tribunal which I think it is not unfair to say is implicit in much which has been said from the Government Benches, much indeed which has been said from the
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Government Benches, in the last half hour.
Let us then proceed to examine a little the fairness involved in what I, at any rate, believe to be implicit in the general philosophy of compensation as alluded to by the noble Lord, Lord Winterbottom, 10 minutes ago. Let me start from the position of an individual shareholder, if such an individual shareholder exists; but I hope Lord Winterbottom will not think I am indulging in too much in a hypothetical exercise if I use the words actually used in the Bill, "a person". The person involved may have observed that since the date mentioned in the Bill there has been a not inconsiderable degree of inflation. Any pecuniary compensation, therefore, which is paid to him now, or two or three years hence, is likely to have a very substantially lower real purchasing power than it would I have had at that date.
You may dismiss that and I can under-stand your dismissing it, although I deplore the fact that Governments in general usually dismiss such arguments. I must say—perhaps this may be thought by noble friends on the other side a vindication of my speaking from the Cross-Benches—that I think most Parties have been almost criminally indifferent to the effects of inflation on investors, especially on investors who have been coaxed by the very often honest and upright agents of the Government to invest their money in Government securities. However, this is the fate of many unfortunate people, and those who receive lower recompense in real terms for what is taken over in respect of aerospace and shipbuilding are suffering in common with a great many of their fellow countrymen who have not had the common sense to "twig" the inherent dishonesty of Government policy in general in regard to inflation. I will not dwell upon that grievance any longer.
On the other hand, I think that the individual might have some, complaint about the date. If I were in such a position—I am not aware I am—I should certainly feel that the choice of date and the perspective it involves is open to criticism on more than one count. Retrospectively, surely, the date occurs at a time when many values have been upset by every kind of unforeseen contingency:

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the rise in the price of oil; the gradual realisation of the catastrophic nature of the inflation to which we have been committed by an earlier Government, the attitude of certain bodies of producers and so on. If I were the individual person concerned, I should feel that some compensation assessed on a wider view of past profitability of what was to be taken from me would be appropriate.
Leaving that on one side, accepting for the moment the cynical vindication which might be made: "Well, you might just as well choose some date, and we have chosen that, and that is that", I cannot regard as so unimportant the point made just before we embarked on this part of the debate by the noble Lord, Lord Carr of Hadley. Supposing that some of the companies concerned—I use the word, "some" advisedly—had shown some elements of enterprise, had reinvested profits in the industry, some of the entrepreneurs concerned had shown themselves not to be the imbeciles they are sometimes represented to be, if I, the person, were to be compensated on some notional value of what my shares would have been worth on the Stock Exchange in 1974, I might feel some sense of grievance. Similarly, if there were some companies which answered to the description sometimes delicately referred to by the noble Lord, Lord Melchett, as not having been absolutely 100 per cent. in every possible respect, it may well be that if I were the person concerned with those companies, I might he rather lucky in comparison to the other persons, to whom I have alluded, who had foresight to invest their money in more go-ahead concerns.
I cannot regard this point as insignificant. I found it extraordinary that so fair-minded a debater as the noble Lord, Lord Winterbottom, can brush it aside as being merely hypothetical. It surely must be the case that there are some people who will lose relatively because of the adoption of this criterion. However, all this pales into insignificance beside a further conceptual mistake which seems to have been made by the framers of this Bill. For the purposes of argument, let me accept that compensation according to notional Stock Exchange value in the year 1974 seems to be fair. I am perfectly prepared to admit if you were thinking simply of inflicting an extraordinary fine on some reprehensible
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person by depriving him of his opportunity to possess shares in a certain branch of industry, and then you were persuaded that, after all, he needed compensation, it might seem fair if you could—and if your arbitration tribunal could do the job properly for you—compensate him at the notional Stock Exchange valuation. He could then buy another security of equivalent value.
But now we come to what may be said is the grand structural defect of this set of provisions. It may appear to be fair when you are considering individual persons, and regarding the rest of the world as staying put, but it loses all appearance of fairness when you are thinking of compensation to holding companies and to parent companies, whose subsidiaries are to be compensated in the same way. I will not dwell further on the anomalies very well pointed out by the noble Lord, Lord Wardington, in the debate on Thursday night which may arise as a result of the use of notional Stock Exchange values compensating equal holdings in different companies. The noble Lord, Lord Wardington, gave striking examples of the anomalies of that kind. The point I wish to make—I do not wish to detain your Lordships much longer—is this: taking over the assets of an entire company is taking over something which usually if the company has any prospects of prosperity is considerably lower than the Stock Exchange value. This has certainly proved to he the case again and again in the City where a perfectly fair take-over bid is made for the assets of a particular company.
Viscount SIMON: Did the noble Lord say "lower than"? Surely he meant "considerably higher than"? When you take over a company you usually pay much higher than the—
Lord ROBBINS: Did I not say "higher"? I beg your Lordships' pardon. I certainly meant to say "higher". The point is so obvious that I do not think I need elaborate it further. It is true that the individual shareholder, other things being equal, does not realise, either annually or when he sells his securities, his share of the total value of the going concern. But when the going concern is taken over as a whole, then a

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notional valuation based upon Stock Exchange values at a certain date will certainly not, even if inflation is taken out of the system, enable the company concerned to replace the value of its assets and control. That, I believe, is the fundamental defect inherent in this part of the Bill. In my judgment, fair compensation involves an assessment of re-placement value, and even to say that is over-simplifying.
The point to which I have been leading up is an extremely simple one. I have yet to indulge in any conversation or to read any article in which it is controverted. Yet unless the Amendment moved by the noble Lord, Lord Selsdon, so enlarges the opportunities for the arbitration tribunal, the simple principle of fairness will be flagrantly violated by this clause. That, I think, is a pity because people are cynical enough already about the degree of fairness they may expect from Government in this country. I think it is a pity, because it violates principles of abstract justice, because it will certainly be a further discouragement to prudent investment and, finally—and I do not drag this in now, since it has been at the back of my mind ever since I became conscious of this element in the Bill—it is a pity because of the impression that it will create abroad.
I wonder whether members of this Government, if some British company operating abroad were to be nationalised by some other reprehensible Government on the principles of this clause, would feel that full compensation was being paid by an export credits department or some other department if it were to act on this principle. Certainly we should be under no misapprehension at all in this respect. Noble Lords who were present earlier this afternoon will have witnessed that I have borne testimony on my feet in this chamber today to the unwisdom and the irresponsibility of certain remarks in the newspapers yesterday and to the effect that has had on the pound. But anyone who goes abroad deceives himself if he thinks that this kind of thing has not contributed materially to the inability of the pound to stand up to the sort of vicissitudes it has suffered recently. I cannot believe that the sober and moderate men on the Government Benches really intend that result.
The Earl of DUDLEY: Noble Lords have had a great deal to say about whether the compensation terms will be fair. The noble Lord, Lord Robbins, was among them. There haw been some very persuasive speeches from the Opposition Front Bench, and among others from the noble Lord, Lord Selsdon, and the noble Lord, Lord Orr-Ewing, from the Back-Benches. I am prepared to go along with those noble Lord; including the noble Lord, Lord Harmar-Nicholls, and the noble Lord, Lord Robbins, who paid tribute to noble Lords c opposite for being fairminded; and of course I would add that they obviously wish to be seen to be fair. Whether or not these terms are fair, it is perfectly clear that the only possible two reasons for unfairness would be either that the compensation "Cake" was too small or that the slices were cut unfairly. These are the two strands which the noble Lord, Lord Kirkhill, defined during the Second Reading of this Bill as being the Government's approach to compensation.
The Bill intends that the general principles, which the noble Lord set out as being necessary, should be devised for common application to all the companies to be taken over and that the Secretary of State would have regard to these principles in the case of the quoted company and the Secretary of State and the arbitration tribunal in the case of the unquoted company. As has been said by the noble Lord, Lord Robbins, and others, in this they will be guided by notional Stock Exchange values. Therefore all the effects which will flow from the compensation principle, such as fairness or unfairness, the added burden on the National Debt or restitution to the shareholders who have lost capital and income, depend upon the suitability of the Stock Exchange mechanism as a method of determining whether these effects can be achieved in the best possible way.
I should like to ask noble Lords Opposite which of these effects they are seeking to achieve in respect of the compensation terms. They have said that they wish to be fair, and, of course, it would be very satisfactory, egalitarian and equitable if shareholders could be compensated fairly; but I see some difficulty for noble Lords in the proposition that we should, at the same time as we attack nationalisation on

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the basis that the country cannot afford the cost, be suggesting that the price should be upped. What we ought to want, and what Ministers more than anyone else ought to want, is the most efficient and effective deployment of the nation's resources, which in terms of investment means that funds should find their way not, as so often happens, to the least resourceful companies, but to the most resourceful companies. I do not believe it is possible to sustain the momentum of a mixed economy unless the energies and resources of the public and private sectors are most delicately sustained, balanced and co-ordinated.
Noble Lords opposite accuse us of confrontation, but have they tried to sit down with the CBI and discuss with them, and with leaders of the other Parties, the implications and possible consequences of this Bill? And how can the private sector, which is soon to be deprived of these vast and, in many cases, profitable assets, plan to redeploy the proceeds of compensation stock in the most gainful way, in the way to achieve the greatest benefit to the domestic product, if they are to be kept in the dark about what they can expect to receive and what demands are to be made by some irrelevant and inappropriate formula?
If Ministers think that average Stock Exchange values of three years ago are the best way of valuing the current worth of a business, then they greatly misunderstand and overrate the mechanism of the Stock Exchange and the movement of share prices as a means of computing the resources and resourcefulness of a group or company in the private sector at any time. In my view nothing can be done to undo the damage to the economy by transferring companies to the State sector—some vigorous and flourishing, and removed from the control of well-tried and flourishing managements; others in decline being propped up at public expense for a period. But compensation will, at least, provide an injection of funds into the private sector to help carry the State sector whose enlargement, as Professor Friedman said yesterday, has brought us to the cliff top of collapse.
Many noble Lords opposite will, because of their views, reject what I say. But I ask them to consider whether the
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highest standard of living, and the greatest satisfaction, is obtained in that country which has the most vigorous and largest private sector, or in that country where all the resources, all the means of production, distribution and exchanges, are owned by the State. I have no doubt in which direction the Labour Party will take us, unless we dig our heels in all the way. That is why there is this talk of confrontation, and I suggest to noble Lords opposite that if they want to cool the temperature, to bring the heat down and to try to produce a situation where we shall have some kind of meaningful relationship between the Parties, they should try to introduce a measure of flexibility into this Bill, which does not at the moment exist; that they should try, between now and Report stage, at least to modify the compensation clauses so that they can be seen to bring benefit to the nation.
7.45 p.m.
Lord HARMAR-NICHOLLS: I hope that the noble Earl, Lord Dudley, was wrong in one respect. I hope he was wrong when he said that he anticipated that noble Lords on the Government Benches would reject the advice which he had been giving them, because that would mean that they underestimate the dangers that lie in front of us. One advantage of a debate on "clause stand part" is that one can talk in a general way. We have examined line by line, and word by word, what is in the Bill and we can now give a little genuine advice to the Government in the hope that they will accept it. I do not expect for one moment that noble Lords opposite can accept the arguments which will be put, but I hope that they will impress upon the Department how essential it is that, by the time this Bill becomes an Act—if ever it does—the compensation clause carries with it a message very different from what is in it now, even as amended.
The first question which I should like to ask noble Lords is whether they will use their influence to see that the Amendments which have been carried in this House remain in the Bill, and that it will not just come back to us from the other place in the most unfair state in which it existed before we first looked at it. Will they take into account what the noble Lord, Lord Robbins, said to them that this clause carries with it something

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much more important than that which is in the Bill? This will, I believe, affect the general world view of our future possibilities and potentialities.
If one values the pound now on a purely technical basis, taking into account the inflation in Germany, France, Switzerland and elsewhere, one can quite safely say that it should stand at around 1·90 to 1·95 to the dollar. The reason why it is at its present frighteningly low figure is that the world has no confidence in our forward projections, and people think that our potential will be misused. That has a bigger impact than anything else on forming a view. Everybody knows that what we need in this country is a bigger output per man hour to bring us to the level of some of our competitors. Alongside that, we need a more vigorous and risky investment programme, both from Government and from private individuals. Unless we can get those two things we shall be over the cliff, and we shall be unable to get back.
This clause relates very fundamentally to the second point. If the Government give the impression that when they nationalise they will be unfair in giving compensation, they will undermine world confidence at a time when they ought to be rebuilding it. They will drive the private investor away from using any savings or other money in a constructive way. They will encourage the feeling, which is rife throughout the country today, that the best thing to do is spend your money and not invest it; to get something on the shelf, in the safe or in the cupboard which will maintain its value. This kind of feeling, which comes from being unfair in matters such as this, will send us so quickly down the road to ultimate ruin that the present forecasts will seem almost rosy when we look at them in retrospect.
If I might have the attention of the noble Lord, Lord Melchett, who is the Under-Secretary as distinct from being a conveyor of messages, I should like to emphasise that apart from maintaining, with all their influence, the Amendments which have been written into the clause the Government should go further and recognise the force of the argument of the noble Lord, Lord Robbins: that unless replacement value is taken into account nobody will be compensated. People
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are not being asked to sell at a time of their own choosing; they are having to sell at a time dictated to them by the Government. The least that the Government can do is to insist upon a compensation clause which will ensure that people are able to retain the replacement it value of the assets that they have built up in the past.
There is much more to this clause than merely being fair to the people, who are involved. The clause will send out a message regarding our future approach which will decide whether or not we shall have any home investment. In. hat spirit, not merely in the technical spirit, I hope that the clause will be looked at by the Government before it comes back to us at Report stage and before we are asked to give it a Third Reading. If the clause goes back to the other place in anything like this form I hope that they will not feel that they have an ideological duty to send it back to us in a form which can bring only disaster to this country.
The Earl of ONSLOW: The noble Earl, Lord Dudley, mentioned the question of the mixed economy. Per taps the attitude of Her Majesty's present advisers to the mixed economy is that of drunken American who likes his dry Martinis mixed with less and less Martini. By this I mean that the Martini is the private section of the economy while the gin is the public sector. Also I have a feeling that noble Lords opposite are trying to buy the gin at duty free prices.
This leads me to my next point: that if the Government buy at a notional share value and find, leaving aside the part we were discussing the other day relating to the ship repairers and the plastic coating manufacturers, that they have something that they want to sell in that shipbuilding, ship repairing or aircraft manufacturing company which is totally the bounds of the Bill, they will be indulging in what they have accused the "flyer" members of the City of; namely, of asset stripping. Earlier in our proceedings when I raised the point of surplus office blocks and said that I hoped the Government would not have to buy new office blocks to house these vast Corporations, the noble Lord, Lord Melchett, gave me an assurance that they would try not to do this. If the Government are buying large numbers of ship repairing and

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shipbuilding companies and are putting them into British Shipbuilders and if they are also buying the two main airframe and engine manufacturing companies and calling them British Aerospace, they must find that they will have spare stuff to sell. Consequently they will be selling, either for their benefit or for the benefit of the Corporation, certain assets that they have and they will be buying at this notional share value. If the notional share value were freely negotiated or if it were a freely negotiated takeover perhaps this would be fair, but as it is not a freely negotiated takeover the people who are suffering are not the bloated City plutocrats who seem to loom so large in the imagination of noble Lords opposite but the vast majority of the institutions which to a large extent provide life insurance and pension funds for ordinary working men and women.
When they have to justify the Bill to our lords and masters, the citizens of the United Kingdom, I hope that the Government will explain to them that what they have done has been to depreciate those pension and life insurance companies which have tried to keep up the value through appallingly inflationary times, and economic mismanagement of Olympian standards; that it is their fault and that they are very sorry, but they had to do it for doctrinaire reasons, and that their pension and life insurance funds, when they come to maturity, will be less than they would have been had they not interfered by buying these shares in that way.
7.55 p.m.
Earl FERRERS: The clause that we are discussing is of extreme importance and the reason why it is important is, as has already been said, that any form of compensation must be fair. I do not think that there ought to be anything between those of us who sit anywhere in the House and the Government. If you are going to nationalise, then it stands to reason that the price paid must be fair. This means that the price has to be fair to the person receiving the compensation for which his assets are being removed. It must mean also that the price has to be fair to the Government and to the taxpayer in order to indicate that they should not pay out more than that which
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the assets are worth. It is fundamental to the discussion of Clause 35 that the compensation should be fair. The noble Lord, Lord Kirkhill, referred to this in his Second Reading speech when he said:
"My own view is that the compensation approach in the Bill is the fairest that can be devised"—
Those are very important words. Referring to the principle of compensation which the Government are using, the noble Lord went on to say:
"Your Lordships' House will have understood that the approach has two basic strands. The one is to devise general principles of common application to all the companies to be acquired"—
that is understandable—
"the other is to apply those principles in the fairest way possible".—[Official Report, 28/9/76; col.181.]
So if the expression of view of the noble Lord, Lord Kirkhill, is correct, there is nothing between anybody on the principle that compensation should be fair. If one does not agree with that, one is saying that expropriation or unfair compensation is acceptable and I do not believe that that is contemplated by the Government; at least, I like to think that it is not.
My worry is that even if the Government intend the compensation to be fair the very methods that they are using ensure that it cannot be fair because they are founded upon spurious data. The noble Lord, Lord Kirkhill, said that we have to find a common system of compensation. The whole basis of compensation is notional values of Stock Exchange prices, and of all the 43 companies which are to be taken over, only one is quoted on the Stock Exchange. Therefore one starts off by saying that the other 42 companies will be valued on an unreal basis; they will be valued on the basis of what the figure would have been had they been quoted, which they are not.
When I say to the noble Lord, Lord Winterbottom, that this is spurious data this is because one is trying to compensate people for a level of shares which does not exist. This means that then you have to devise a system to find our what is right. If one begins with what the share figure should be, one of the first things one realises is that the value of shares goes up and down depending on all kinds of circumstances: on the economic circumstances, on the viability of the company as a whole; and on the timing of the

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reports. And not only that: the share value of companies depends to a large extent on what is known about the company by the public at the time and it does not depend upon what the public knew about the company in retrospect. This is the situation in which the Government will be involved in trying to find out in 1976 not what actually happened in 1974 but what the view of people in 1974 would have been for the future of those companies, which at that time was not known. That is the type of consideration which has to be given.
And, of course, the value of shares depends upon what the public know about the company at that time, which is not the same as what the company knows about the company at that time. The company obviously may know very much more of its inner workings than the public knows, yet it is what the public knows that determines the value of the shares. Even then the value of the shares represents only the very small number of shares that change hands, and, as the noble Lord, Lord Robbins, said, absolutely correctly, if you are going to acquire a controlling interest then the value of those shares is enormously higher. It is reckoned that to have a controlling interest in a firm means that normally the share value will be 50 per cent. higher than that parcel of shares which is quoted on the Stock Exchange. Indeed, only the other day (dare we refer to it?) the Felixstowe Dock and Harbour Board were given a value for the full control of the company, and those shares were valued at 60 per cent. higher than those quoted on the Stock Exchange.
I suggest that in this respect these figures cannot be fair, because they are based, to start with, on shares that are not known and on the value at which they would have been quoted on the Stock Exchange floor, and they are not valued on the basis of an acquiring and controlling interest. So the whole basis of what the notional value of the shares would have been in hindsight I suggest is spurious and academic. It is certainly open to question and to argument on all sides and by many people. Of course, the value of these shares practically never reflects the value or the cost or the earning power of the individual assets which underpin the shares, because the individual investor is in no position to realise his share of those
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assets. The individual investor receives only the dividend income that that company chooses to pay, and that of course, as a matter of practice, is invariably much less than the total earnings of the company. Yet again that is the kind of value—what the shares earn—that determines the level of the shares on the Stock Exchange.
But if one accepts the fact that for control of a company it must be expected that the shares would increase in value by 50 per cent., and I think that is generally agreed upon by all people, then the value of the compensation which the Government are offering these companies is only two-thirds of the value of what it should be for a controlling interest. The curious part is that the shareholders are being paid, some time between 1976 and 1980, for securities which are transferred in 1976 and the compensation for which is based on 1973/74 values. So there is a huge time-lag and, as has already been stated, during that time inflation has gone up. So what in fact are the companies to do with the money which they acquire for the shares which have been taken over? The answer is that presumably they will either buy other companies or put that money into new plant and new equipment. They will have to buy new plant and new equipment at 1978 prices with cash paid for their assets at 1973–74 prices.
I do not believe that that can be said to be fair, and perhaps I may just interject this thought with regard to Amendment No. 159, which I think was the last Amendment with which we dealt on Thursday. It was asked whether the Government accountancy service was consulted over the drawing up of the compensation aspects of this Bill, and the noble Lord, Lord Melchett, said, quite reasonably, that that was not something which arose on that particular Amendment. He said that he did not know what the answer was but that he would be kind enough to let us know the answer if we referred to it on the Question, 'Whether Clause 35 shall stand part of tie Bill? So I shall be grateful if the noble Lord, Lord Winterbottom, if he is to reply to this Amendment, will say whether in fact the Government accountancy service was consulted over the drawing up of the compensation clauses.
I am bound to say that I find myself in a little difficulty over this matter because I

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believe that between us all we agree that the system should be fair. I do not think it is fair, and, what is more, the point that I find infinitely worrying is that when the Government were asked about compensation during the Committee stage of this Bill in another place the Minister of State, Mr. Kaufman, made it perfectly clear. He said, in effect, "We are not taking over these companies on the basis on which a willing buyer would get them from a willing seller. That is not what we are doing. We are nationalising them. We are taking them over by Act of Parliament. Therefore the terms on which a willing buyer buys them from a willing seller are not the terms on which we are offering compensation". It is as simple as that. That is what Mr. Kaufman said, in effect. The difficulty I find is that it is terribly hard to believe that the Government intend to be fair when the Minister of State says that that is the basis on which we are compensating companies. I genuinely hope—and I suppose it is an almost impossible thing to ask the Government—they they will reconsider this matter. If they want to be fair, then they must be seen to be fair, and at the moment I do not believe that they are being seen to be fair, nor do I believe that they are being fair.
Lord HANKEY: I hope that there may be time for one more speech from the Cross-Benches. I share the views which have been expressed that this really is not a very fair arrangement. The relevant days cover six months, during which period we had a coal strike, the engineers' strike, the three-day working week and numerous other troubles, and I cannot conceive that a worse period could have been chosen for fixing the base value.
I do not want to repeat all the things which have been said, but I did not get an answer to a question which I put to the Government as to how they thought up the figure of 5 per cent. for the "reduced amount". It seems to me an extremely low figure. My experience in cases of company compensations has been gained when dealing with Communist Governments. They never want to pay compensation, and they pay it at the lowest imaginable figure. The figure of 5 per cent. strikes me as an ominous similarity and puts fear into my bones. I do not like it. If it strikes me like that, it will
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strike foreign investors like that and we want foreign capital in this country. I have always hoped that we would have a Government which would give real help to our shipbuilding industry—knock down a bit of town around the shipbuilding yards, and extend the yards to build ships in a new way, as do the Swedes and the Germans. I had hoped that the Government would encourage investment in shipbuilding, but instead they have cast a blight on the whole thing.
Someone on the Government Front Bench—I think it was the noble Lord, Lord Winterbottom—said he did not know of any case where any company had asked for Government help. But with a text like this around where you get only 5 per cent. if you have asked for Government help regardless of how much their help was needed, how do you expect to find anyone asking for it? The shipyards are starved of capital and the industries have had a blight cast upon them. This is a most unfortunate moment to bring forward such a Bill.
What ought to happen is that in view of our economic situation, the Government should have the good sense to scrap the Bill. It does not matter that it is part of the Social Contract. If the Social Contract requires something manifestly idiotic and unfair, it should not be carried out. These are strong words, but I have very good reasons for thinking this in this case.
Finally, we have the interesting case that the compensation will be paid in the form of Government stock. At a time when the inflation rate is running at 14 per cent. and likely to rise again because the Government borrowing continues, can you think of a quicker way to lose everything than to put it into Government stock? This is so much so that the Government have had to raise the rate of interest to 15 per cent., and probably it will go higher. If you pay 15 per cent. for assets which you take over, the assumption is that you are able to make more than 15 per cent. out of them, otherwise you will lose your money. Do the Government seriously think that, by taking over the shipbuilding companies, which have been badly treated, they will make 15 per cent. profit out of them? Or is this not otherwise throwing money down the drain? This is bad economics, bad commerce,

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bad finance, bad in every way. These compensation proposals are very open indeed to criticism.
8.13 p.m.
Baroness WARD of NORTH TYNESIDE: It is perfectly obvious from the debate that compensation is badly regarded from all sides of your Lordships' Committee, and quite rightly so. I want only to raise one particular point, a rather different one from most people. I wish to ask why this system was introduced by this Government? Several of my colleagues have said that the system itself was a very bad one and that the Government ought to have been able to find a better system. I happen to have represented Wallsend-on-Tyne from 1931 to 1945. Wallsend-on-Tyne is a very big shipbuilding and ship repairing area. For all those years, even having lost my seat in 1945, and afterwards being returned for Tynemouth in 1950, I have still retained a very great interest in the shipbuilding area on Tyneside. I like to think that I know, at any rate, something about it.
When I lost my seat in 1945 and the Labour Government were returned with, if I remember rightly, Mr. Attlee as Prime Minister, the first decision was taken to nationalise the coal mines. That was the first nationalisation programme. So the coal mines were nationalised, and the question of compensation arose. It is very difficult to remember so long ago; but I think my brain is quite clear that the decision was then made that an independent body should advise on the compensation to be paid to the private coal owners.
Of course, the problem of compensation in shipbuilding depends, at any rate to some extent, on the different assets of the different companies. Some companies have tremendous assets, some shipyards are losing money and some shipyards have ship-repairing yards attached. One cannot find a general compensation scheme which would fit every shipyard. In the same way, in 1945 you could not find a scheme of general compensation because of the different coal fields.
At that time I had some connection with Bolsover, one of the most progressive coal mines, which always had plenty of money, which had deep seams and was a grand company. In my area of Northumberland and Durham we had a lot of
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mines which were losing money. Again, as today in shipbuilding, there were many differences in the compensation which had to be paid to the private mine owners, as there is in paying adequate compensation to the different shipyards.
Although I had lost my seat in 1945, I still had a fairly wide connection with colliery undertakings. An independent body was set up to assess what would be fair compensation. My recollection is that the compensation terms game out, they were considered by the private colliery owners as fair and there was not the controversy over the compensation to the private colliery owners as there has been over the compensation to ship-builders and ship repairing yards. So it seems to me that the system used then was a very much better one than tie system being used today. I should like to know from the Government whether they have considered using the same system as was used in 1945. I suppose it ran until 1948, because there would be some t me while the investigations were put into operation.
My recollection is that the private colliery owners were very well satisfied with the scheme that had been put into operation. I should like to know from the noble Lord why the Government have not used that system today in the compensation of shipbuilders and those connected with shipbuilding. Had that been done, it would have been very much more helpful. I am always looking at these things with great interest, with regard both to shipbuilding and coal-mining. I have always wondered why the old system of compensation paid to the private colliery owners was not used, and I should be grateful to hear why not, because it was regarded as fair. Nothing like the controversy arose then as is arising over the present system which this Government now want to introduce. I am very sorry that I failed to hear the speech made by the noble Lord, Lord Robens, because, after all, he fought in the next constituency to me in Blyth very many years ago when he was a great supporter of nationalisation.
Lord ROBBINS: With the deepest respect to the noble Baroness, she is confusing me with a much more eminent Peer of the name of Robens. I rejoice in the humble name of Robbins, and I

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have never entered into political conflict with the noble Baroness, and I should fear to do so.
Baroness WARD of TYNESIDE: I do apologise. Unfortunately, when I came in I heard one or two noble Lords talking about Lord Robens, so they also used my noble friend's name incorrectly. Nevertheless, had he been here I should have liked to hear what the real Lord Robens thought. In those days, he was a great believer in nationalisation. He does not seem to be now, and he has gone into other and wider fields. He accepted the compensation for the coal mines—whether or not he had shares of course I do not know. It seems to me that that scheme under Mr. Attlee was a much fairer one. Though I did not agree with his policies, Mr. Attlee for many years Prime Minister of a Socialist Government, was widely respected and had a very wide approach to the problems of industry. I wonder whether he would have been pleased with the terms in regard to ship-building and ship repairing which have been put forward by noble Lords opposite.
The scheme for compensation for the coal mines, carried out by an independent body and accepted by the private colliery owners, was apparently a good one. Of course, they regretted nationalisation, they did not enjoy losing their private collieries, but at the same time they considered that they had been fairly treated. When I heard many noble Lords say what a bad system this Government are producing, I wondered whether they had looked at that scheme—but perhaps they are all too young and it is only I who am old enough to remember what happened in 1945. When the noble Lord replies, I should be glad to know why this particular system, which has caused so much controversy, has been introduced, and why the other form of compensation has not been adopted on this occasion.
Lord LLOYD of KILGERRAN: I should like briefly to support the general view expressed by many noble Lords that the Government's formula for compensation, based on a notional Stock Exchange value, is not realistic and not fair. I should like to raise one aspect in which in my submission the formula is not realistic or fair—that is, in its application
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to the successful company, particularly the successful company whose success is based on the technology and the good will and the know-how that it has built up and also to the assets it has built up which are generally known as industrial and intellectual property.
When I spoke on Second Reading, I declared an interest in that I was a small shareholder in Vosper Thorneycroft. It seems to me that the Government's formula omits to take such assets into account. If I may mention a personal aspect, I have spent many hours of my life endeavouring to assess the value of good will, of know-how and the value of assets of industrial and intellectual property. In a successful company, the value of these assets often has no relation to the Stock Exchange value. Therefore, even at this late stage, I should like to invite the Government to indicate what their policy is in relation to that aspect of compensation.
Lord WARDINGTON: I cannot speak with the graciousness or fairness of the noble Lord, Lord Robbins, but without going back to the debate of last Wednesday and the various points which I then considered to be unfair, I should like to consider whether a notional price is appropriate. The Stock Exchange price represents the whole of the business. But many companies which are the subject of the Bill have a variety of interests and divisions. Not all divisions necessarily produce the same earnings or have the same assets or asset value for people who might wish to take over a part. Following on the remarks of the noble Baroness, Lady Ward of Tyneside, previous Bills have related to industries where there were a substantial number of companies quoted which, therefore, provided a reasonable base to start with, though exceptions had to be made. Previous Bills gave an option because the assets represented a different value to different people. Whether it is fair or appropriate I leave for the moment, though I do not retract what I said the other day. It is going to be difficult to arrive at a notional price.
A Stock Exchange price takes the future into account, but that is something we are explicitly excluding from 1974 onwards. That is unfair and inappropriate. We are

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specifically excluding any increase in dividend and, as I said the other day, we are including a period of quite exceptional circumstances and taking a very short period of time. Disregard the question of whether this is a good time to bring in the Bill or whether it is a suitable industry to be nationalised. Six months is not a good period, and I believe that one of the reasons why we have these anomalies in the Bill is that political expediency meant that the Bill had to be drawn up quickly and therefore previous nationalisation Bills were not blue-prints for these wholly exceptional circumstances. I should like to say one or two further things as we progress through Clauses 37 and 38 because they are all related together. But I beg your Lordships opposite to pay particular attention to what Lord Robbins said, because it is very pertinent.
8.30 p.m.
The Earl of LAUDERDALE: Noble Lords on the Front Bench opposite are beginning to look a little weary and perhaps even bored.
Lord WINTERBOTTOM: No.
The Earl of LAUDERDALE: I am glad that is not so; obviously my rising to my feet makes a difference. But in general I think it would he fair to say that there has been a look of some weariness, or a sort of Lenten look of fasting and misery, about noble Lords on the Front Bench opposite, because this is a tedious exercise. Constructive Amendments have been put forward and they have been simply blocked outright. We have been taking part in a dialogue of the deaf. It is necessary to go on repeating points made over and over again in the hope that noble Lords opposite may eventually tumble to the point. It is always said that if you make a speech to simple people you should say what you are going to say, say it, and then tell them what you have said. I am not going to say that noble Lords opposite are as simple as that, but there are moments when one wonders whether their refusal to answer questions derives from the principle, "Never explain, because your friends understand you and your enemies will not believe you", or whether their philosophy is, "Better a bad excuse than none at all."
What has been so extraordinary about
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debates on this Bill so far is the emptiness and silence of the Benches opposite. Your Lordships' House has been enriched in the last few years by the ennoblement of a number of persons of very considerable business, industrial and City experience. Indeed, some of them, when they have come here on a rare occasion, particularly the Opening of Parliament, have come in the Rolls-Royce we heard about over the weekend, which I must say are absent from noble Lords on this side of the House. But where are they? When the Front Bench cannot give intelligible explanations and rely simply on reading out briefs, which are not very well constructed to start with, all right, that is their bad luck; but one would have thought that at least their own supporters with knowledge and experience of industry and the City would come to their rescue and explain what they are up to. The fact is that they have been deserted by their own side, and it can only be that the good and intelligent and wise and experienced men who exist in the Party opposite do not really have much faith in; he policy behind this Bill in general and behind this set of clauses in particular.
The Government may be getting rather tired of hearing about fairmindedness. When I was at school we were always told about "house spirit" until I could have screamed. Of course "house spirit" meant that we all did what the housemaster wanted. It may well be that noble Lords opposite will say that when the rest of the House talks about fairmindedness, it means fair in our view and not in theirs. But the fact is that this issue of fairness is critical in the eyes of the world. It has been said half a dozen times tonight, but it is worth saying another twenty times, if only noble Lords would take it on board in their heart of hearts, that we are not asking them to declare a great charismatic conversion tonight but we are asking that they will look at the problem of fairmindedness in the light of this country's reputation, in the light of today's news about sterling, in the light of the lack of investment and lack of foreign confidence in this country, and by Report stage come back and at any rate, as the phrase is, be a little more flexible.
This word "fairness" is really, in the jargon of Statutes and of Bills brought before Parliament, a fairly new concept." Fairness cannot be defined; fairness

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is something we know about, something we recognise and understand, but it is jolly hard to define it. It is a fairly new concept, but it is creeping into other aspects of our public life. For example, only a fortnight ago—the text reached me today—the Department of Energy sent round a letter to companies applying for licences in the fifth round of licensing; they were invited to say whether they would enter into discussions about the participation of the British National Oil Company on the basis not of the market price for crude oil but a fair price. Hitherto it has been the market price. This is a matter I shall refer to on another occasion. The point is that the concept of "fairness" is being used by the Government to introduce quite a new slant where there is a negotiation between the Government on the one side and "little brother" on the other. So this question of the way the Government treat fairness is a touchstone, and is going to he seen abroad as a touch-stone, of the Government's good faith.
The words of Mr. Kaufman in the Standing Committee have been quoted, but they need to be quoted over and over again, because unless noble Lords opposite understand the inwardness, as we say in Scotland, the real meaning of what Mr. Kaufman said, they will never grasp what we are getting at. What Mr. Kaufman said was this:
"We are not taking over these companies on the basis on which a willing buyer would get them from a willing seller. The Government are not going out on the market to buy control. We are taking control by Act of Parliament. While doing so we are offering fair compensation for the assets".
If that is not the classic Communist case of, as you might say, double-think and double-speak with regard to expropriation, then it is very difficult to imagine what is. This phrase is going to be stuck in the Government's mouth for a long time to come.
May I say in parenthesis, talking about fairness, that we on these Benches, and I believe throughout the House, have no fear whatsoever of the sort of blackmail nonsense that has been spoken over the weekend in certain speeches by Members of another place. Where it comes to fairness and we are seen to be standing for fairness the public will be behind us. It might be well worth while noble Lords
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opposite understanding that, instead of allowing some of their friends down the corridor to rant about Rolls-Royces and a lot of other things that are quite irrelevant. The concept of fairness is critical to this country's good name in the world, and this is the point that is at issue on this clause.
It may well be said that I am only repeating what has been said already, but I have explained why it is worth while repeating these things. There are the distortions, of which the worst is the wholly hypothetical nature of the calculation; it is one hypothesis built upon another. There is a notional value which can be twisted and turned to mean absolutely anything; it certainly cannot be checked objectively. There is the question of the Stock Exchange quotation—what it would have been. How on earth can serious people, be they lawyers or economists, say what would have been in a hypothetical situation, one hypothesis on top of another? Then there is the assessment, which is either what the stockholders can negotiate with "Big Brother" in an atmosphere of so-called fairness, negotiate under the threat of the bullet, negotiate when some people are more equal than others, or it is what the arbitration tribunal may fix; and in view of the Government's philosophy about fairness as we have had it hitherto, who is going to have much confidence in a tribunal?
Then much has been said, and it is worth while repeating, about this nonsense of the Stock Exchange quote. An example was given so well and so convincingly and so plausibly, and I thought so simply, by the noble Lord, Lord Selsdon, who, alas, cannot be with us today. I think he is in America, or Geneva, or abroad somewhere. He said it is like trying to measure the value of Boot's by the value of the high street chemist. Stock Exchange prices, anyway, do not refer to assets; they refer to the market for a small block of shares on any particular day. One knows that, and it is worth saying again, because noble Lords do not seem to be able to understand quite simple matters in this regard.
They say they are taking control. All right, taking control normally means paying between 25 per cent. and 50 per cent. above the market level of the shares

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at the present time. Let us take a very good example. There has been an uproar over the weekend because this House threw out the Felixstowe Docks Bill on Friday. Under that Bill we were invited to approve a situation in which British Transport Docks Board has been offering 150p per share for shares that stood at 90p when the offer was made. This is an offer that the Government approved. If they accept the principle that when you buy control you have to offer very much more than the market price, surely they could recognise it now.
The fact is that the Government consider that it is fair to confiscate the control value of a company, and we shall listen with interest to what they have to say now. But I am reminded of the adage of one politician—and I think he was in fact from the Party opposite but he might well have come from my side—when he said something very shrewd on political argument. He said,
"The more one seeks to speak the truth, the more difficult it becomes to he precise".
8.42 p.m.
Lord WINTERBOTTOM: Before I reply to this somewhat diffuse discussion on clause stand part, may I, through the noble Lord, Lord Cullen, thank the noble Lord, Lord Selsdon, for his courteous note in which he told me that he was not going to be present here tonight. As I understand it, the noble Lord, Lord Cullen, has a watching brief on this subject, and I am certain that he will exercise his watching brief with precision. So far as I understand it the noble Lord, Lord Cullen, raised the question of the meaning of the word "person", which I believe under the Interpretation Act 1889 includes a body corporate as well as an individual; that is, a body corporate which is a parent company as well as an individual. This should not stand as a hazard in our discussions.
On Wednesday night noble Lords opposite passed Amendment No. 156 moved by the noble Lord, Lord Selsdon, which introduced in statutory form the word, "fair" into the Bill. We believe that this Amendment would have dealt with the problems raised by noble Lords on all sides of the Committee. However, we on this side of the Committee resisted
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the Amendment on the basic, that the terms in the Bill as present to the House were fair. I shall, therefore, make my remarks at this point on the basis of the Government's view of what is fair. May I say to the noble Earl, Lord Ferrers, that I think he was fair when le pointed out to the Committee that fairness is a two-way state: the Government have to be fair to the individual or to the company, and the Government at the same time have to be fair to the taxpayer, because at the end of the day it is the taxpayers' money that is being shifted to compensate the individual or the company.
The noble Lord, Lord Robbins, took perhaps a realistic but at the same time rather hard view that none of the Parties, no Government, is ever truly fair; that fairness is a word that they find very difficult to understand. It is not quite true because I think we all try to be fair, but what exactly we mean by fairness is not the easiest thing to define. Noble Lords opposite have put "fair'' into the Bill, and we shall perhaps in clue course know what the statutory in: aping of "fair" is. The best we could do as a Government was to take a measure that was not hypothetical but factual, and which was the average of a series of share values over a six-monthly period.
I am willing to accept that that method of measurement is imperfect. In point of fact anything that we did was bound to be imperfect. But I suggest that certain aspects of the fairness or unfairness of this decision might be discussed at a later stage in our discussions with greater precision. On this Motion on clause stand part noble Lords seen-to have fired at me with a blunderbuss, some bits going back and some going forward, and we are going to have an opportunity as we go on with our discussions to discuss the base value of listed securities, the base value of other securities, the function of the stockholders' representatives, and of course the arbitration tribunal. I should have thought that there were particular clauses in the Bill where certain of the points raised in this discussion might more profitably have been raised. After all, we are coming to them, and I hope noble Lords will be prepared to argue with us with greater precision these specific points which have been raised rather loosely at this stage of our discussions on Part II.
The Earl of LAUDERDALE: I hope that the noble Lord will acquit us of any endeavours to hold up proceedings. This section of the Bill is headed "Compensation", and it seemed to a number of us that by far the simplest way of despatching the business and, for that matter, helping the Government to get on with the Bill, was by making these general comments on the clause stand part. I speak for myself, but I think that was the idea. I hope we are not going to have a long clause stand part on each clause, otherwise we are going to get very thirsty indeed.
Lord WINTERBOTTOM: I think that the noble Earl mentioned the "Lenten look" on this Bench. May I say that so far as I am concerned it must be very early in Lent because I have not yet got a lean and hungry look. But I hope that the noble Earl will in fact practise asceticism at the later stages of our discussion, and having had a full meal now will in fact fast thereafter.
May I go back to the point that I was making. The most factual way that we could find of valuing shares as a starting point of negotiations was the Stock Exchange valuation of those shares, or the shares of parent companies, at a series of dates prior to the Government's announcement to nationalise these two groups of companies. Might I say to the noble Lord, Lord Robbins, that the reference period which ended in February 1974 was chosen as the last reasonable period during which share prices were unaffected by the prospect of nationalisation. To have chosen a later period would have opened the Government to the charge that they were rigging the terms of their offer. The problem we are discussing I think divides both sides of the Committee, but we believe that we chose the only factual and fair way of valuing the shares for the purposes of compensation.
Earl FERRERS: Can the noble Lord say how it is factual?
Lord WINTERBOTTOM: Stock Exchange prices, so far as I know, are a fact. When I buy a share or sell a share the price is a fact, and that is the best and nearest I can get to a factual state.
Earl FERRERS: The noble Lord will observe, of course, that the majority
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of the companies do not have Stock Exchange prices.
Lord WINTERBOTTOM: This is a very interesting point. I am not dodging it. I cannot dodge it because it is coming towards me. We should be able to deal with this with precision, even brutality, when we come to Clause 38. I see that the noble Earl, Lord Lauderdale, is about to leave the Chamber. Presumably he has lost his appetite for these proceedings, though it is of course for him to decide to have a meal whenever he likes.
The Earl of LAUDERDALE: I enjoy listening to the noble Lord, Lord Winterbottom, but I thought he had left the points that interested me and that I might have a thin Lenten supper.
Lord WINTERBOTTOM: After that pleasant exchange perhaps I might answer the noble Earl, Lord Dudley, who will of course correct me if I failed to grasp exactly what he said. He asked what, at the end of a transaction, when Government stock had been exchanged for shares and so on, the individual company was to do with its Government stock. He argued that it was essential that the money—not the money of course; the Government stock—that had been issued for this purpose should in due course find its way into productive investment for industry. This point is of great importance which is recognised by the Government, and I am grateful to him for bringing it to the notice of the House.
In cases where the compensation stock is issued to a single shareholder, which is the holding company concerned, that company may wish to realise its stock in order to restructure its company, and I am certain that will happen; it has happened in the past and I feel sure that it will happen now. The Government are anxious to encourage reinvestment in productive industry and they have therefore provided an incentive in the Finance Act 1976—I believe in Section 54—by which a company owning the shares of a vesting subsidiary which sells its compensation stock within one year of receiving it is exempt from any capital gains tax on the stock, provided that it reinvests the proceeds in what the Inland Revenue calls qualifying assets; for land, building, fixed plant and so on. This

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amounts to reinvestment in productive industry, whether or not it takes place inside or outside the aircraft or ship-building industries, which is what the noble Earl wants and what the Government also want.
Lord ROBBINS: I hope the Minister can relieve my extreme puzzlement. I gather that in the course of a friendly exchange of view concerning the issue of Government stock, the noble Lord, Lord Melchett, argued with great force and a considerable degree of voracity that this issue was simply a transfer and did nothing necessarily to augment the flow of aggregate expenditure.
Lord WINTERBOTTOM: That was the situation at the moment of the transaction, but time passes and various other factors come into effect and this is one of them. I do not believe that some of these great companies which receive a substantial holding of Government stock as compensation will just sit there and hold it; they will do something with it, but this is not on the day of the transfer, of the transaction.
Lord ROBBINS: Am I to understand, then, that the noble Lord thinks that eventually the issue of this stock will augment the flow of aggregate expenditure? This has deep implications as regards macro-economics.
Lord WINTERBOTTOM: I shrink from arguing with the noble Lord, whose expertise is far greater than mine, but I think he will agree that nothing in life is static. There may be an exchange of equal value between the Government and the individual on vesting day, but that does not mean to say that that freezes the situation for ever. I would hope that the situation today is not one that is frozen for ever.
The Earl of DUDLEY: I am grateful to the Minister for answering my point. However, nothing he has said so far invalidates my proposition that provided the stock is sold and the funds reinvested, a generous rate of compensation would be in the national interest.
Lord HAWKE: Arising out of what the noble Lord, Lord Winterbottom, has been saying and the fact that he visualises
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these companies selling their Government stock, may I ask him to agree, that the only people who will buy it are the very people who would otherwise buy Government stock direct from the Government? As the Government have at present enlisted every buyer they can to raise the wind, they are mortgaging their own future in this way. I am not sure that he was correct in his remarks about capital gains tax; I always understood there was no capital gains tax on Government stock, anyway.
Lord WINTERBOTTOM: That is going a little beyond what we are discussing. At any rate, what I am discussing is Clause 35 standing part of the Bill. Much of what has bun said is valuable, but it is not quite what we set out to discuss at this stage of the evening.
Lord CARR of HADLEY: It is the Minister who has inadvertently or other-wise strayed into another important field. Unless the Government tell Parliament and the country that there will be some time bar on the recipients of this stock in selling it, liquidating t, he does not begin to answer the point nude by the noble Lord, Lord Robbins; namely, the effect on the aggregate purchasing power released into the economy. Unless he says that the Government will put some time bar on the sale of this stock, he is admitting what we all—we on these Benches and the Liberal arid Cross-Benches as well as people o outside the Committee—have been saying from the beginning; namely, that this act of nationalisation adds significant, to the Government financial demand and the Government financial deficit.
8.57 p.m.
Lord WINTERBOTTOM: What the noble Lord has said is extremely interesting but there must be a point, which probably we have passed, when such points should be discussed. I think it is valid on Second Reading to discuss the whole impact of these proposals on the money stock, but what I am trying to do, and what I thought it only courteous to do, is to pick up the point made by the noble Earl and express the Government's view on the problem he raised. I cannot do more than that and noble Lords would not wish me to do more than I can do.

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I shall, therefore, stick firmly to the provisions of Clause 35 and not wander into the charming areas of macro-economics and Stock Exchange valuations and so on which have been dragged across my path. The points raised by the noble Earl, Lord Ferrers, will have to be raised again on later Amendments and I am sure he will keep up his strength to deal with those issues properly at a later stage of our night's discussion.
I come firmly back to Clause 35, which deals with two points only; it prescribes that compensation will be in the form of Government stock and that the amount of Government stock to be issued will equal the value of compensation and it provides that where a company is saved from collapse by Government financial assistance, a reduced amount of compensation will be paid. This is a splendid hook on which to hang much of our discussion, but I am sure that the Committee will excuse me if I do not go into the question of the saving of a company from collapse by Government financial assistance because we have had a good discussion of that already. I want simply to come back to the point that Clause 35 prescribes that compensation will be in the form of Government stock and that the amount of Government stock to be issued will equal the value of compensation. This will provide former shareholders with a steady income and with the opportunity of gaining whatever capital appreciation there may be on the gilt edge market.
The stock can be traded in in exactly the same way as equity shares. The clause provides that the amount of compensation due will be the base value of the vesting securities and we go to Clauses 37 and 38 to decide what is appropriate in the case of base values. Clause 35—the clause that we have been discussing—does not bear on the valuation of securities themselves. I know that noble Lords will sharpen their intellect to deal with the method of valuation on later clauses. It is on this very simple premise that I ask the House to accept the clause.
9.1 p.m.
Lord CARR of HADLEY: While I had a little sympathy with the noble Lord, Lord Winterbottom, when he felt that he
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was being fired at with a blunderbuss, I did not expect him to fire back with such accuracy at his own Minister. It seems to me that the shot from the blunderbuss has not done the noble Lord much damage but his own Minister's case on the effect of the compensation in the Bill has been utterly destroyed by the unerringness of his rifle shot. It is now clear that what the Government have been trying to tell the House and people outside about the financial effect of going ahead with nationalisation has been totally misleading. I feel that the importance of what he has said has perhaps not yet fully dawned upon him, but I am sure that it will almost certainly dawn upon some of his colleagues when they have had time to reflect.
I may not properly have understood what the noble Lord said about capital gains tax and, if I have misunderstood him, I have no doubt that he will forgive me and I can correct my error at some future date. I was under the impression that the Finance Act 1976 said that any compensation that might be reinvested in stocks and shares by the recipient would certainly be subject to capital gains tax. I may have misunderstood the point that the noble Lord was trying to make when he referred to certain conditions of freedom from capital gains tax, but I think that I am right about that and I do not believe that it applied to the compensation from steel nationalisation. There again, however, I may be misinformed and perhaps, if the noble Lord cannot answer me straight away, he will look at this and let me know because, if I am right in the two propositions that I have put forward, that only serves to underline what we were all saying from many sides of the House and from outside the House that, as at present proposed, the compensation formulae are not fair if we use precedents set in other nationalisation Statutes as a standard of fairness. They are not fair by past precedents, let alone by any more abstract or technical yardsticks that we might define.
As to the blunderbuss over which I said I had some sympathy with the noble Lord, I believe that there was a need for a general debate on the whole question of compensation and it did seem to a number of us that the debate on the Question, Whether the clause shall stand part of the Bill? provided the best opportunity. I hope—I cannot do more than that—

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when we come to the bits that are still ahead of us we may be speaking near enough in time to remember that we have used the same arguments already. However, I can only express that hope. I shall try to do my best to set an example in that respect, but I believe that it was for everybody's convenience to have a general debate at this stage.
Before I come, in summing up the debate, to the more general principles, may I first refer back, not in detail but very briefly, to the technical Amendments which preceded this debate? I want to ask the noble Lord, Lord Winterbottom, and his colleagues, to look very carefully at some of the arguments that we were using, because I do not believe that they were partisan in any political way. believe that they have substance. Of course they are to some extent hypothetical, but so is so much of what we are talking about. I would just say to the noble Lord, Lord Melchett, that, while I accept that it may be true that, if we have an arbitration tribunal with much wider powers, which is certainly what we want—and we shall be coming back to a further Amendment on that later in our deliberations tonight—it will not matter so much if some of the other clauses and sub-sections are not as fair as they should be because there will be this fall-back machinery to cope with any unfairness that arises, I hope that noble Lords opposite will agree that we ought to try to get the clauses as good as we can because we do not want to have to resort to the arbitration tribunal on almost every single case. We really ought to try to see that the tribunal is a genuine fall-back machinery which is used more as an exception than as a general rule.
For that reason alone, I feel that it is important to try to get the other clauses as technically correct and fair as possible, and I repeat that I really do not think that the arguments that have been put forward on a number of detailed Amendments to this clause are in any way partisan and, even if one accepts—which we do not—this basis of compensation, within that acceptance, I really believe that many of these present clauses are rather like a dog's breakfast and really need tidying up in order to avoid undue resort to arbitration, which is what would happen if they go through in their present form. So I hope that before the next
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stage the Government will lock at some of these technical points with an open mind, even if they feel unable to look at the overall issue with such an open mind.
Coming on to that overall issue, it struck me that one of our troubles not only on these Conservative Benches but on all sides of the Committee is that the Government are really not Seeing this problem through the same eyes as we are. It seems to me that they start from a belief that what we are trying to do is necessarily to get more money—more taxpayers' money—to compensate the present owners of these businesses. Of course we want to get a fair amount of taxpayers' money, but as we have said—and I am glad to notice that the noble Lord, Lord Winterbottom, picked up this point, because my noble friend Lord Ferrers said it again this evening—we must be fair to the taxpayer as well as to the present owners of hip business. I have a feeling, however, that noble Lords opposite suspect that every Amendment that comes forward is a device inevitably to raise the total amount of money we want to extract from the taxpayer.
I was encouraged to fear that by some words used by the noble Lord, Lord Melchett, in our debates on this subject last Wednesday night, when lie said at one stage—and I made a note of the words he used—that the compensation was fair or even generous. With respect, we are not talking about being generous. That has nothing to do with the Amendments we are moving. The Amendments are entirely to do with fairness, and fairness means fairness—fairness, let me repeat, as between the taxpayer and the recipients of the compensation; but fair-ness also—and this is extremely important—in the allocation of the total sum between the different claimants is on it. As has been pointed out both last time we debated this matter and again today, if we do not get fairness in the distribution, we shall get a misallocation of capital and therefore inefficiency both within the Corporation and within the holding companies being compensated for the loss of some of their subsidiaries.
First of all, therefore, I ask the noble Lord and his colleagues to realise that the arguments about unfairness are indeed strong. They are not Party arguments in a

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politically partisan sense. They do not come only from these Benches. Indeed, they do not come only from other Benches in this House; they come also from outside. As I said last week, some of the earliest and certainly some of the strongest representations about the unfairness of these proposals we have in the Bill at the moment came from those most concerned with the protection of small savings and present and future pensions of many hundreds of thousands of our fellow citizens. That is where one of the earliest and strongest protests came from, and it was not in any way politically inspired or motivated. As the noble Lord will know, that protest was made not only in the first place to the Minister but also later on personally to the Prime Minister. I hope therefore that the Government will, even though we are at a late stage of the Bill, take very seriously these arguments about fairness, realising they are not just politically partisan and realising that changing their minds about the principles of compensation does not in any way compromise their stand for the principle of nationalisation.
Of course I accept, however reluctantly, that to go ahead with nationalisation is a principle on which we cannot expect the Government to compromise. I believe that it is against the national interest, that they are wrong and will be proved wrong, but I accept that politically they cannot compromise on that point. However, I beg them to confine their incapacity to compromise to the genuine political issue of nationalisation and not to extend it to other areas of the Bill, notably the area about which we arc talking at the moment, the area of compensation, where the arguments being put forward are not politically partisan, did not start in that way, have not been continued in that way, as I believe was made very clear by the noble Lord, Lord Robbins, in his speech tonight when he specifically prefaced what he was saying by emphasising that he was not in any way referring to the merits of the main question as to whether these industries should or should not be nationalised.
I beg the Government to look again at their proposed basis of compensation. I beg them to look at it again from two points of view; first from the point of view of the reference dates. I do not believe,
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whatever basis is chosen, that the reference date contained in this Bill is fair. I noted what the noble Lord said about the particular six months in question having been chosen as the last period when it could be said that the share prices were not in any way affected by the blight of nationalisation. I accept that and I accept the good faith behind the choice of those dates.
There are two qualifications which one must make to that. First of all, I believe that when those dates were chosen it was anticipated by the Government, and indeed firmly intended by them, that this nationalisation process should go through much sooner: and the fact that it has not is not due to the time that Parliament has taken in debating it; it is due to the Government's own time-table. So I believe that when, in good faith, Ministers chose this particular period of six months they were honestly believing that the time between that period of six months and the enactment of this Bill would be much shorter than it has in fact proved to be. Because I do not need to remind the noble Lord that the Bill was not proceeded with at the moment in the Government's programme which was originally intended, but was in fact postponed by a good many months. I therefore think that we are now dealing with a much longer gap between the time when the compensation will be paid and the dates laid down in the Bill on which the share prices are to be taken than was ever thought likely by the Government when they laid down those dates.
I also think it is not fair for the related reason that I put forward in a debate on an earlier Amendment, as did other noble Lords, and which, indeed, the noble Lord, Lord Robbins, put forward in his speech in this particular debate; namely, that by sticking to this three-year-old period, as it will virtually be, or certainly two-and-a-half-year period, at the end of which this compensation might begin to be calculated, we are taking no account of the behaviour of individual companies in that period. A laggard company, provided it has managed to keep itself out of bankruptcy when certain things that we have been talking about earlier this afternoon happened, and which does no more than just keep itself out of bankruptcy, will do as well as the company which, in not just its own interests but in the interests of employment and of the

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overall state of the national economy, has done everything that any company could to be vigorous and expanding over these last two and a half years. It seems to me a pretty poor reward to have your compensation irretrievably fixed by some artificial yardstick dating back to the last few months of 1973 and the first two months of 1974, with no regard being paid to how you have behaved in the meantime. As I have said, a lazy company which has sat back and done nothing except keep itself out of the bankruptcy court will not lose anything by its action, whereas another company which has forged ahead as if nothing was going to happen to it, completely undeterred by the fact that it was going to be taken over, will gain nothing by what I think one can describe as patriotic behaviour in that period. That seems to me to be a bad principle. So I believe that the reference date is unfair for the two reasons I have given, quite apart from others which might well be adduced as well.
This brings me on to the second reason for the unfairness, and that is the basic method or reference standard which has been chosen by the Government; namely, of share prices. Of course I accept that share prices have been used as a basis for compensation in other nationalisation Statutes, and I accept that in certain circumstances they may provide a reasonably fair basis. Where the shares of a whole company are held by lots of people, then I accept that those recipients of the compensation are probably treated fairly because they are probably given an amount of money with which they can make an equally advantageous investment on the stock market. So when one is buying out a company which is held widely by a large number of shareholders, it may be that using the stock market price as the basis for compensation does produce a reasonably fair result, at least for the individual shareholders involved. But where the Government go wrong is in not realising that a totally different situation arises where one is dealing with wholly-owned subsidiaries, or almost wholly-owned subsidiaries, which is the the case in the majority of the companies affected by this Bill. There, the position is entirely different, because the value to the holding companies is no longer to be measured in terms of the share market
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price: it is in fact, and can only in fact be, fairly measured in terms of as; et values.
Perhaps I may ask the noble Lord to confirm a proposition which I am just going to put to him. I understand that the ICFC—that is to say, the Industrial and Commercial Finance Corporation; anyhow, we all know the ICFC—which was, after all, set up under Government auspices a good many years ago now, is specifically prevented from selling any subsidiaries except on an asset basis. The ICFC when selling a subsidiary can only deal by selling on an asset valuation basis and is specifically prohibited from doing so on a share price basis. If my information is correct, I suggest that that is an argument which the Government ought to look at. If it is not correct, then that particular argument falls to the ground; but I believe it to be correct. I think that the Government must address themselves to it. It is evidence that I think the Government have accepted that when you come to sell a complete company as opposed to shares to a lot of individual shareholders, you can only do ii fairly on an asset basis.
If it is needed to emphasise this—and I am only going through it briefly—it is also brought home that talking about making the share price a basis of compensation for 43 companies and then having to admit that 42 of them do not have a share price at all proves, at least by reductio ad absurdum, the proposition that we are trying to make: that this is not the right way to proceed. If all these companies, or a majority of them, had share prices, then the Government might have, not, I think, a convincing argument but a stronger argument on which to base themselves. The arguments against it in principle, coupled by the absurdity of picking a yardstick which does not apply and cannot apply to 42 out of the 43 companies which are to be nationalised, are so absurd as to be untenable.
I am sure that noble Lords opposite ought to take seriously what has just been said by my noble friend Lord Wardington, who speaks on the subject with specific knowledge and experience, that the problem of determining what is a notional share price is a very substantial one—indeed, so substantial as to be almost certainly incapable of achievement with

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any sense of certainty or fairness as between one company and another.
The trouble we are in is that the Government have embarked on this principle in the belief that the market for shares is the stock market where prices are fixed on an open market between willing buyers and willing sellers and that, therefore, the stock market prices must be fair; but they have never really faced up to the other part of the argument which I have been putting, which is that the Stock Exchange is the market for small blocks of shares owned by large numbers of people but it is not, and never has been, a market for the sale of whole businesses with a single owner. The market for whole businesses is conducted quite separately, and mainly by merchant hankers in the City. This market may be less well known and less understood by the public at large than the Stock Exchange, and, of course, it impinges on the Stock Exchange; but the terms of trading in this merchant bank market are quite different.
Many noble Lords in the course of this and earlier debates have pointed this out. I am not going into the detail of it all again except to tell the Committee that I have been looking at the record of 19 recent company purchases. It is interesting to find, taking the whole of the 19 purchases, that the price actually paid by the purchasers was on average 48 per cent. higher than the share price at the date immediately preceding the initial bid—which again is proof, in 19 recent cases, of a very big difference between the share market price and the price you have to pay for the control and acquisition of the whole of a company.
I do not believe that the Government can shirk that or shrug off that argument. I am not going to give the figures for each of the 19 companies, but let me say that the lowest surplus of the price that had to be paid over the share market price immediately before the bid was made was 21 per cent. and the highest was 124 per cent. In no case was the purchase price as low, or anything like as low, as the share price of the company immediately before the bid was made.
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The Government must look at this aspect. They must realise that if Hawker Siddeley, to take one of the two examples in the aerospace industry, were able, given the opportunity, to sell their shares in their wholly owned subsidiaries involved in this Bill through the merchant bankers' market and not through the Stock Exchange, they would get a wholly different and much higher value. The same applies to most of the other companies, but not all the other companies, involved. Indeed, some of them, I fear, would get a much lower value then they are going to get out of this formula. That brings me back to the other vital aspect of unfairness: not only the total must be fair, the allocation between the different claimants must be fair. The Government have misunderstood this distinction and so perhaps unintentionally may have arrived at the wrong result. The distinction between the two markets that I have been talking about is like the distinction between selling one-tenth of a Rembrandt in Petticoat Lane and taking the whole of the picture and selling it at Sothebys, and the Government are trying to sell it bit by hit in Petticoat Lane, and that is not fair.
Earl FERRERS: I wonder whether the noble Lord, Lord Winterbottom, would be kind enough to answer one question. When in Committee the other day, a noble Lord asked whether the Government Accountancy Service was consulted. The noble Lord, Lord Melchett, said that no doubt that was something which could properly be raised on the question that the clauses stand part. I said that perhaps the noble Lord would he good enough to seize himself of the information so that we would he able to get an answer. I am sure this is a matter of inadvertency.
Lord WINTERBOTTOM: I apologise to the noble Earl. I did not forget this undertaking. Government accountants have been closely involved at all stages during the formulation of the compensation provisions of this Bill.
Clause 35, as amended, agreed to.
9.27 p.m.
Lord CARR of HADLEY Lord CARR of HADLEY moved Amendment No. 164:
After Clause 35, insert the following new clause:—
Compensation for severance
.—(1) This section applies to a person who—

(a) is entitled to receive compensation under section 35 above in relation to the securities of a company (the "relevant company"); and

(b) suffers special loss or damage or reasonably incurs expenses (not being taxes) as a direct result of the vesting of those securities in a Corporation.

(2) A person to whom this section applies shall be entitled to receive a payment (to be determined in like manner to the compensation payable to him) equal to the loss or damage or expenses referred to in subsection (1) above.
(3) Where the relevant company forms part of a larger undertaking, the payment referred to in subsection (2) above shall include a sum equivalent to the reasonable cost of re-arranging the affairs of that undertaking and a sum calculated by reference to any increase in the proportion of the overhead expenses of the undertaking to the volume of the business over which those expenses are spread, so far as that increase is due to the vesting of those securities and is not reasonably capable of being avoided or diminished.
The noble Lord said: As we know only too well, Clause 35 contains the provisions for paying compensation for the securities which are to vest in these Corporations. Most of the privately owned companies named in Schedules 1 and 2, as we have noted over and over again, are members of groups rather than independent companies in their own right. Their parent companies stand to lose more by the nationalisation of these subsidiaries than just the value of their securities as investments. This new clause is intended to enable these additional losses to be made good. This is a principle for which there is a good precedent in other nationalisation Statutes.
When a subsidiary is severed from a group of companies by nationalisation or, indeed, for any other reason, it will obviously cease to pay its share of the central costs of the group to which it has belonged. These costs include such items as expenses of management, administration,
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technological advisory services, industrial relations services, counting, salaries, printing, pensions and insurance; and so one could go on. When I company is severed, is torn out of the group, a heavier burden than beforehand falls upon the companies that remain in that group, moreover, the past profits of the nationalised subsidiary, which will be a relevant factor in the assessment of share values under Clause 38, will have been reduced by payments made towards the central costs. Thus a parent company may first see its compensation diminished by the subsidiary's past contributions to its central costs, while getting no compensation for the lack of those contributions in the future. So the reduced or altered scale of the group's operations may even make some head office staff redundant, which will reduce the remainder of the group's costs in the long run. But the compensation for loss of employment will be considerable in the short run and it will he for the employees of nationalised companies only.
Investigations within the industries cocerned have brought to light a number of other instances of potential losses arising from severance. While I want to be as brief as I can in moving this Amendment, I. feel I must give your Lordships some examples of the costs that the companies involved may have in mind. There is the cost of physically dividing premises which may arise, or the cost of providing alternative accommodation when one subsidiary has been hived off but some of the activities on those premises have not been, and therefore it is necessary to find a new home for them. There are the additional costs arising from changes in insurance arrangements organised on a group basis. There can be higher funding rates, pension and life insurance funds for staff and manual workers for permanent disability, death and other insurance schemes. There can be additional costs arising concerning additional centralised computer services, no longer available to the parent company and the remaining subsidiaries. There can be costs which will be borne by the parent company in connection with undertakings in respect of overseas secondments concerning continuity of United Kingdom employment which are not honoured.
There are cases where employees have gone abroad and have been promised a job when they return home, and the promises cannot be honoured because the company in which they were to be given a job is no longer part of the group. There are arrangements for goods and services supplied on a group basis which will be adversely affected by the reduced volume of those requirements following nationalisation. There is the cost of obtaining alternative security for a loan secured until vesting date by securities which will vest in one of the Corporations. One could go on to give numbers of examples, but I hope I have given enough to persuade your Lordships that there are many additional costs which a group can bear as a result of having had one or more companies within the group removed from it, and that these are not covered by compensation in the ordinary sense, whether or not we think the present proposed basis is fair.
I said that the Amendment we are seeking to effect through this new clause has good precedents, and indeed it has because the need to compensate for the kinds of losses I have been describing has been recognised in the past, notably in Section 17 of the Coal Industry Nationalisation Act and also in Clause 39 of the Ports Bill. It is true—and the noble Lord may well point it out—that no such provision was included in the Iron and Steel Act 1967; but I think when one thinks about that Act one should realise that the iron and steel companies then being nationalised were for the most part themselves quoted on the Stock Exchange, so that whole groups were taken into public ownership in their entirety. That is entirely in contra-distinction to what is happening under this nationalisation Bill.
So I really believe that something needs to be done on the precedent of those earlier nationalisation Statutes that I have quoted and that it is really not relevant to refer merely to the Iron and Steel Act 1967, which is not comparable, for the reasons I have just mentioned. I think I have made the main case which I need to make in moving this clause. It has, of
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course, already been put forward in another place.
I gather that one of the arguments put up by the Government against it was the precedent of the Iron and Steel Act, to which I have referred, and which I have explained should not apply. I think it may also have been said that, anyhow, the totality of the kind of costs I have mentioned is not very great, and therefore could perhaps be disregarded on de minimis grounds. I can only say that that is genuinely not the belief of the industries concerned, which believe that the Government have seriously underestimated the scale of the losses I have been describing when subsidiaries are severed from groups, as opposed to whole groups being taken over, and I cannot see why there should be this injustice of not offering compensation for these. So I hope that this Amendment will be seriously and sympathetically considered by the Government. I think it is important, and the precedents for it in previous nationalisation Statutes which I have quoted are very much stronger and more relevant than the one precedent against it.
Finally, it is perhaps right that I should mention that this new clause was tabled at Report stage in another place, but could not be debated because of the guillotine. That is why we are rectifying the omission here, and why it has not had previous discussion, and why we might have to have a fairly full discussion here tonight. I beg to move.
9.37 p.m.
Lord MELCHETT: As the noble Lord made clear, a similar Amendment was proposed in the Committee stage in another place, and after some discussion was rejected. Since that time, the Government have considered this whole question very seriously, in particular since the Amendment was tabled at Report stage in another place and again in your Lord-ships' House. I regret to say that after very full consideration I cannot tell the noble Lord that the Government have changed their minds since the Committee stage in another place. We still believe that there is no case for making additional

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payments of compensation for severance in the case of companies to be vested under the Bill.
The effects of severance are difficult to quantify, and in considering the question we have to look at the total effects of vesting certain companies from a group in the new Corporations. We believe that the Bill provides a fair method of compensation for the securities of the vesting companies. In the case of a subsidiary of a larger group being vested, valuation will be based on the company's imputed Stock Exchange quotation during the reference period which we have discussed at some length. To the extent that the profits or losses of such a company have been distorted by its position as a subsidiary, and, in consequence, arrangements with its holding company and fellow subsidiaries, the fact of its subsidiary status will be a relevant factor which will have to be taken into account for the purpose of removing any such distortion in order to arrive at a proper valuation.
The compensation will be payable to the parent as shareholder. There is a series of options open to the parent as to how it will use its compensation. It may decide to distribute it to its own share-holders; it may use it to expand its existing activities which are not affected by the Bill, or it may diversify into completely new activities. Either of these last two courses allows the parent to re-establish itself at the same level of activity as existed before its subsidiaries were vested. The disruption caused will therefore be significantly reduced if the parent decided on that course.
The noble Lord, Lord Carr, referred to the precedents for the clause which he has moved and, naturally, I take those very seriously. In particular, the noble Lord referred to the severance provisions contained in both the Coal Industry Nationalisation Act and the Ports Bill, which was lost at the 1970 General Election. I think that those were the two precedents which he had in mind. I must tell him that I would not accept that the Iron and Steel Act 1967 is not analogous to the present Bill. In fact, I would say that it is more so than the two precedents to which the noble Lord has referred.
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Under the coal Act, compensation was quite differently based. As we have already heard from the noble Baroness, Lady Ward of North Tyneside, this evening, the compensation was asset based; it was not based on share values. Also, compensation took some eight years to be completed. Under the Ports Bill severance payments were provided for only in relation to the vesting of ports businesses—in other words, stevedoring, warehousing, et cetera, often carried out on property leased from harbour undertakings. The Bill provided for the later acquisition of ports businesses and compensation was to be assessed in a different manner from that for the harbour undertakings acquired at the start. Ports businesses could in many cases be an integral part of a much larger operation. Without the ports business, the remainder of the under-taking could have found itself it a position where its operations were severely curtailed. It was for this reason, where the remaining productive business might have suffered, that provision for severance payments was included in that Bill.
This Bill is designed to ensure that the companies named in the Bill vest with the minimum disruption to the parent companies and fellow subsidiaries which remain in private ownership. I believe this was a point that the noble Lord, Lord Orr-Ewing, and I discussed at an earlier stage. We would all hope to see the compensation paid within a great deal shorter period than the eight years that it took under the Coal Industry Nationalisation Act. As has been said before and as I have to tell noble Lords I shall be saying again (with the noble Earl, Lord Lauderdale, I think that it bears repetition, even if it does not convince anybody) we believe that the existing provisions are fair. In particular, we believe that they are fair in relation to the concept to which the Amendment moved by the noble Lord, Lord Carr of Hadley, refers.
Lord ORR-EWING: I feel very sorry for the noble Lord, Lord Melchett, because he always seems to be put up when there is absolutely no budge to come, whereas the noble Lord, Lord Winterbottom, is allowed to make a more sympathetic speech and say that the

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Government will look at the matter again. Perhaps at a later stage the noble Lords could reverse roles so that we could get the carrot from the noble Lord, Lord Melchett, and the stick from the noble Lord, Lord Winterbottom. It would make a change.
I concede that there is a need for speed, but there is also a need for fairness, and we disagree about this. In another place a colleague of mine for some 20 years described the compensation terms as ridiculous. He is a very sensible person who is close to areas which arc involved with the shipbuilding industry. I think that this was a wise assessment. I make the point that the compensation must be fair if, as my noble friend put it earlier, you have a head office in your group. I speak now of an interest that I have declared six times so far in our discussions. Very often the head office is responsible for the computer services which have been mentioned and for advisory services, such as metallurgy, or physics, and for the more general services which it can provide on tap to its subsidiaries which need expert assistance. Very often the head office is responsible also for the research and development in a group, particularly long-term speculative research which cannot be decentralised to small companies consisting of 300 or 400 people. Such research is probably best done across certain parts of the spectrum of any group in centralised laboratories which can provide the service. Therefore it is rather naive of the noble Lord to say that you can decimate a group—that you can cut off the vital arms and legs of the group but that there need not be any compensation for recreating the head office.
If noble Lords will bear with me, I cannot help reflecting that one of the troubles which we as a nation are suffering from at this time—and that is why the Prime Minister is on "Panorama" tonight trying to explain it away—is that we have got far too big a head office. We have 1·9 million people in local and central Government and only 40 per cent. in wealth creating industry. I am not saying that one should have too large a central
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or head office; obviously that would be a grave mistake. One of the advantages of having had a fairly rigorous financial climate during eight out of the last 12 years under successive Socialist Governments is that we have had to prune to the bare minimum our head office in order even to stay alive.
But I still think it is a little naive to say that if you have to recreate offices and you have to recreate these services to serve a group there is no need for any additional financial compensation. I hope that perhaps the noble Lord will look at this rather more sympathetically and will, perhaps, ask some of his friends in industry. He has been so busy on the Front Bench since he joined us that probably he has not had all that time, and now he has Northern Ireland on his plate as well, so probably he has even less time to go and see and talk to people who are trying to make engineering groups viable—engineering groups which have very important and sometimes even a majority sector of the group likely to be cut off as a result of this nationalisation measure. If he does that, I think lie will come back with some understanding, and I hope perhaps that at Report stage he might have that gleam of satisfaction because otherwise—and, of course, this would be ridiculous—he might be charged with being a rather Left-wing character who does not like to shift when their Lordships' House are making constructive alternatives. Of course that would be obviously untrue and I hope he will put this matter right at later stages of the Bill.
Lord CARR of HADLEY: I must say once again that I really think the arguments put up are of a very stonewalling kind. I should have thought that the case made by the companies involved, which I tried to explain to your Lordships, was really a pretty reasonable one. Of course the amount of the severance costs will vary from company to company but I really do not see why they should have to bear them. I could only see why they should have to bear them without compensation specifically allocated to the cost if the Minister could give us confidence that the method of calculating the basic compensation was both fair overall

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and, in particular, took account of the sort of costs we are talking about.
I am not sure that at one stage in his speech the noble Lord, Lord Melchett, was not trying to say that to us. If he was, I wonder whether he would expand on it. If he is saying to us that in arriving at the notional share price, however that is to be done, one thing that will be done is to make allowance for the sort of severance costs that I have been referring to, and it is a specific assurance from the Government that these costs will he one of the factors to be taken into account (whatever others may also have to be taken into account) in calculating the notional share price, then perhaps we ought to listen to that. I wonder whether the noble Lord can say whether I was reading more into his words than I should have done, or whether that was what he was intending to imply.
Lord MELCHETT: I think the noble Lord was reading rather more into what I said. I was referring in particular to the position of a subsidiary and the fact that it was a subsidiary, and that any distorting effect on its profits and losses arising out of its status as a subsidiary will be taken into account; but I would not go so far as to say that the long list of things read out by the noble Lord, Lord Carr, would necessarily be taken into account. Of course, I am always anxious to come as far as I possibly can to meet noble Lords opposite and I apologise to the noble Lord, Lord Orr-Ewing, if I have given him the impression of being a hard and unbending character. Nothing could be further from my wishes. I am anxious to find ground for agreement with noble Lords opposite whenever possible, and with that in mind it might be helpful if I were to acknowledge a very minor point to the noble Lord, Lord Carr, about pension funds. In fact, severance costs arising from pension funds are covered by Clause 49(12). I apologise that it is such a minor point but I hope it is indicative that I am trying to do my best.
Perhaps while I am on my feet I might respond to one point made by the noble Lord, Lord Orr-Ewing. I may have got
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this wrong, but the noble Lord seemed to be giving the impression that the services concerned entirely with the vesting company in some way would be left with the parent and not compensated for. Of course, if the services were entirely concerned with the vesting company, they would be acquired under Clause 20 and compensation paid for them it the usual way. I may have misunderstood what the noble Lord said, but I have put it on the record for what it is worth.
Lord ORR-EWING: I am grateful for the more sympathetic approach of the noble Lord, Lord Melchett, and for the indication that the light was beginning to shine from his eye and that we would get some "give" in the later clauses. I was making the point that one has specialised characters, very highly trained people in the various sciences, based at head office. If you take one-quarter of the companies away, you cannot divide a cha D into four and give one-quarter of his body to one company, so the other subsidiaries have to carry the extra costs. This happens in many instances—I mentioned particularly research and development. There is a viable size for sensible, economical research and development. You have to have a laboratory of a certain size, a project team of a certain size, mechanical assistance and a team of draughtsmen of a certain size. If you think of a quarter of them as being used by the companies being taken over, it is difficult to reduce the laboratory or the service by a quarter.
Lord MELCHETT: I do not want to prolong the discussion. To make the point to the noble Lord, it does not cover every case. We both wish to see the companies investing compensation in new businesses and new productive assets. If that happens, I hope that the quarter of a research worker being used in one of the companies being vested will be used in the new investment the companies undertake.
Lord ORR-EWING: This is not immediately so. It will take us two or three years to re-create economically viable groups after we have had the major sectors cut off under this Bill. You cannot keep people standing around.

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Young people are ambitious; they want to work on something. They cost increasingly large sums of money and their support costs money. If we run them down or get rid of them pending acquisition of new companies or projects, we will have to give them redundancy pay. Whatever you do, you will be caught in years one, two or possibly three before you can re-create a viable group. That is why I am pressing the point my noble friend made so ably, that this ought to be one of the factors which ought to be taken into account by the Tribunal, which does not seem unreasonable. Many people have put this case in quite reasonable terms. My noble friend pressed this point. Is it one of the factors which may be taken into account? Or is the noble Lord's mind closed and it cannot be taken into account when assessing fair compensation?
Lord CARR of HADLEY: Perhaps we must bring the debate to an end so that we can move on, but I am profoundly disappointed by the reply from the noble Lord, Lord Melchett. It seems to me that he has undermined his own case (I hope this does not seem ungrateful of me) by pointing to the slight relief provided in Clause 49 which I myself had not yet appreciated, but no doubt will do when we get to it. If one admits the need for
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compensating the group in respect of extra pension costs arising out of losing part of the group as apparently Clause 49 does, at least to some extent, then it seems to me that one has admitted the principle that severance cost ought to be covered. If pension costs, then why not all the other costs of the kind that I have mentioned? I feel this is very unsatisfactory, and does not stand on any logical or consistent basis.
The Government have admitted in respect of one item, the need to compensate for the costs that I have mentioned, but not in respect of any others. I fear I must say to the noble Lord that I shall wish to seek further information about this, and almost certainly wish to return to it on Report. One of the things I am sure the Government are realising is that if, on point after point, we are saying we will return to it on Report stage, we are heading for a very, very long Report stage. It seems rather a pity and rather unnecessary, when more flexibility, or at least more substantial argument might dispose of it one way or another on Committee stage. In view of the circumstances, before voting on this issue I should like to seek more information. Therefore, I beg leave to withdraw this Amendment.
Amendment, by leave, withdrawn.
Clause 36 [Payment of compensation]:
9.55 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 165:
Page 50, line 29, leave out subsections (6) and (7) and insert—
("( ) Where, after the date of transfer, a stockholder's representative submits a claim in writing to the Secretary of State for payment on account of compensation in respect of the vesting of securities under this Act, the Secretary of State shall within six months of that date make a provisional estimate of any compensation so payable and compensation stock equal in value to 75 per cent. of that amount shall forthwith be issued to, or at the direction of, that person or his successor in title.")
The noble Lord said: This is a fairly straightforward Amendment. In essence we are substituting the word "shall" for the word "may", though we have managed to do it in quite a number of words. Clause 36 provides that compensation shall not be payable for the vesting of any securities of the company before the Secretary of State has fixed the conversion date for all the securities of a particular class of that company, and it is on the date so fixed that compensation stock is to be issued. So far as the basic equity capital is concerned, Clause 36(3) and (4) provide that compensation stock cannot be issued until after its base value has been determined and from that, has to be deducted any claims in relation to the other provisions, in particular those in Clause 39. Of course we are faced with the fact that the base value of the equity share capital of a company may be the subject of quite long-winded negotiation or, indeed, arbitration proceedings, which is a subject we have discussed at considerable length already. It seems to us, therefore, that it could be months—and it is possibly not exaggerating to say years—before compensation gets paid.
Subsections (6), (7) and (8) go some way towards alleviating the position of the shareholders in that they are permissive on the Secretary of State and not obligatory on him to make payments of compensation on account before the valuations are finally agreed or determined. These provisions were not in the original Bill but following representations from the industries that it would be inequitable to shareholders they have been
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introduced. Of course the shareholders in the cases we are talking about are mostly parent companies or financiers, and it is not right that they should be kept out of their money. It is also an important point that these parent companies, either directly or through their subsidiaries, are engaged in industrial activities which are of great importance to the economy of this country. We feel that it is in the national interest that the companies should be enabled to re-invest in other industrial activities Es soon as possible. At a time of great worries about unemployment I do not think the point needs to be laboured.
The difficulty is that the companies do not know within a large area of doubt exactly the size of the compensation they are going to receive, and the noble Lord, Lord Melchett, was coy—to put it mildly—for what I thought was an unrespectable reason that it would weaken the Government's bargaining power about the amount of money he figured was going to be paid out in compensation, which I am bound to say rather reminded me of the noble Lord, Lord Balogh (who has not appeared for some time) who spoke about negotiations with the oil companies being "negotiations in the Arab souks". I am not necessarily suggesting that in this rather more respectable area of industry we are reduced to that kind of level. Nevertheless, this is implicit in some of the things we have been saying. This takes us back to an old bone of contention. I am not going to repeat the remarks I was making about assurances to the noble Lord, Lord Melchett, a few days ago, but I want to draw the distinction between the powers that the Secretary of State may have and the obligations which should be imposed upon him.
I dare say the noble Lord, Lord Winterbottom, will give us all sorts of undertakings before we are through today about how splendid the Government are going to be. From the way he is looking, perhaps he is not going to give us any undertakings at all, in which case we are going to be in serious trouble. What we are seeking here is perfectly straight-forward; we are saying that this should not be an option the Secretary of State may have, but an obligation upon him; if the money is owed it should be paid.
One can cite a number of precedents for this, and one in particular which has been called to my attention is the Transport Act 1947. There are also some of the land compensation pro-visions, where an advance payment equal to 90 per cent. of the agreed or estimated value of the interest is payable; that is, Section 52 of the Land Compensation Act 1973. But quite aside from the moral force of the equity point and the fairness point, what we are particularly concerned about is to keep these industries moving. One would make the perfectly simple point that in an ordinary commercial transaction the normal settlement period is one month. Perhaps this may stretch to three months. If we are talking of going to six, nine or even 12 months, we feel the companies would have something to complain about. Therefore, I move this Amendment in the hope that it will appeal to the Government to give us some help on this point.
Lord WINTERBOTTOM: I am grateful to the noble Lord, Lord Strathcona, for moving this Amendment, which enables me to explain to the Committee the Government's intentions with regard to payment on account of compensation. The negative motion of my head was due to the fact that I was not going to be tied down on percentages or time; but I think the noble Lord w ill find that in spirit we are together. Of the 43 companies named in the Bill 42 are unquoted. In all these cases compensation will be determined under the provisions of Clause 38—and I am stressing the next phrase—by negotiations with recourse to arbitration. While it is our intention and wish to complete these negotiations as quickly as possible, it is inevitable that even with the best will in the world it will be some time before the settlements are reached. Here we are still in agreement.
We recognise that shareholders could feel aggrieved if they have a long wait before they receive their compensation, even though interest on the stock will accrue from the vesting date. It is for this reason that we felt it right to make provision in the Bill for the Secretary of State to make payments on accounts of compensation stock. If the provision is to be of any real value, payments on
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account should he substantial and should be made at the earliest possible opportunity. A small payment on account only shortly before the final settlement would be of little benefit to shareholders or companies. It is therefore, intended that payments on account should be as large as possible and as early as possible consistent with the uncertainty still surrounding negotiations. The negotiations will be complex. Not only will it be necessary to settle the base value of compensation; it will also be necessary to establish, on the basis of detailed investigation of the company's records, whether there are any intercompany debts to be treated as securities, as we have discussed under Clause 21, and whether there are any appropriate deductions to be made under Clause 39. Here is an indication of the Government's thinking. While it is the Government's intention to make payments on account within six months of vesting day, the complication of negotiations may be such that in some cases it might not be possible to reach a sufficiently definitive view on that time-scale.
The Amendment, if passed, would reduce the flexibility of the present provision, which could act against the interests of shareholders where the negotiations are particularly complicated. Clearly we would wish to avoid making payments on account which might, in the light of further negotiations, have to be reclaimed. The noble Lords who have moved these Amendments have been perhaps less ambitious than those who tabled similar Amendments in another place. The noble Lord, Lord Strathcona, has suggested paying 75 per cent. of the Secretary of State's estimate rather than 90 per cent. While I consider this to be moderate, it in no way alters the objection in principle to the Amendment.
The setting of a figure is found to reduce the flexibility of the provisions. In cases of great uncertainty it could be too high. In others where there are few problems it could be too low. Either way one party or another could suffer. It is far better for everyone to retain the degree of flexibility in the existing provisions. I assure the Committee that the existing provisions for payments on account are intended to give real benefit to share-holders. The payments will be substantial

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and early. It is not intended that it should be a cosmetic provision. Unfortunately "substantial and early" is rather like the word, "fair"; what exactly it means is difficult to say, but we talked about industrial democracy and I think we know it when we see it. For that reason, I hope that the noble Lord will not press his Amendment, since the object of the Government is the same as his.
10.7 p.m.
Lord GEORGE-BROWN: I do not think that that meets this point very well. We have to say a little more clearly what it is we are going to pay for what assets we are taking over. To say that an elephant is only an elephant when you see it—
Lord WINTERBOTTOM: You would recognise it. Is my noble friend referring to my quip about an elephant being recognisable although difficult to define?
Lord GEORGE-BROWN: Yes, of course I was. I did not think it was a very clever remark, because I think that people who own assets need something a little better than that. The Government are buying here—I am not necessarily against it—the assets of a lot of people. They really have to say what they are buying, and what they are paying. To say they will take six, or nine months, or maybe 12 months, when the Bill does not say anything of the sort, is not good enough. When we get to clause whatever it is, I think it is No. 122 or thereabouts, I want to raise the question of the things that I do not think the Government should buy. Even if we are dealing with the things that the Government think that they should buy, they must explain the basis by reference to something.
I see the noble Lord, Lord Peddie, who has been through this one before. I do not think that the noble Lord, Lord Winterbottom, is able to get away with saying that it will all come out in the wash. The people who own the present equity need to be told on what basis their equity is to be compulsorily taken over and it must be something rather better
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than what is going; my impression from what Lord Winterbottom said is that it will not be then, it cannot be now and it could be almost any time in the future, so to speak.
I, as a Socialist who does not much mind the Bill—except the references to the matters which come up later in Clause 122 do not see how the Government can honestly and truthfully think that they can get away with the sort of brief that was provided to the noble Lord tonight. We must have an assurance that there will be a willing seller and a willing buyer arrangement. If that is not present, it will be cheating and the Government will have cheated a lot of quite nice ordinary people, many of whom up to now have voted Labour, and I simply do not see how this can be a Labour Government arrangement. The Minister must come forward with something rather more affirmative, something clearer, than he has given so far.
10.12 p.m.
Lord MOTTISTONE: Further to what the noble Lord, Lord George-Brown, said, it seems that there is a point that the noble Lord, Lord Winterbottom, did not cover, or if he did cover it I did not hear him do so. I refer to the essential difference between what my noble friends have suggested and what is in the Bill. I refer of course to the quest on of the obligation on the Secretary of State as opposed to the Secretary of State "thinking fit", and it seems to me that as the Secretary of State is come of the bargainers, so to speak, in this deal, it is reasonable that he should be obligated to make this payment—whether it is 75 per cent. or another figure does not matter for the purpose of this argument; I am sure that this would be arguable and that Lord Winterbottom is right to say that in some cases 75 per cent. would be too little and in others it would be too much—in advance rather than the matter being left to one of the bargainers making up his mind about it. I hope that Lord Winter-bottom will take that up more fully than he did in his last reply.
Lord WINTERBOTTOM: From now on I intend to cling closely to my brief

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and the clause under discussion; I do not intend to wander into any clause other than the one under review. Having said that, let me tell the noble Lord, Lord George-Brown, who came into the Chamber and talked about the value placed on the securities to be traded, that that is not what we are talking about. We are discussing this Amendment to this clause and what the Government should do to make life easier for individuals or companies whose shares are being valued for the purpose of compensation so that they should not be kept an inordinate time waiting for that compensation to be paid. Noble Lords must recognise that this is a proper attitude to take. The ultimate value of those shares will be decided at the end of the day in the negotiations between the representatives of the Secretary of State and the shareholders' and stock-holders' representatives.
This, as the noble Lord, Lord Strathcona, said, could take some time and it is pretty sure to do so, and, in order to alleviate any hardship or difficulties that may arise as a result of the necessary delay—and I am not here arguing about whether the nationalisation is right or wrong, but simply saying that a delay in the procedures will be necessary—some payment should be made on account. There are 43 companies, of which 42 are unquoted—those are the difficult ones—and there must be a period, first, of analysis and, secondly, of negotiation. We have at this point to accept the fact that the Secretary of State, who is responsible to Parliament, will be watched with interest by Members of both Houses to see how he deals with the problems of delay. We have to start somewhere in calculating the interim payments and the only starting point that we could think of is the Secretary of State's estimate because, when this operation started, the Secretary of State clearly made an estimate. So what will be paid early will be a substantial proportion of the Secretary of State's estimate of the what the ultimate settlement of the negotiations will be. I do not see, other than waiting for the negotiations to be completed, any other course of action that could be taken. "Substantial" and "early" are, as I have said, subjective matters and they will doubtless be watched by the Members of both Houses.
10.17 p.m.
Lord MOTTISTONE: I should like to come straight back because the noble Lord did not really answer the point that I was making, which was that the Amendment puts an obligation on the Secretary of State to pay this. We both agree that that is necessary and should be done as early as possible. We are not quarrelling with the Secretary of State making a provisional estimate, but the Bill as it stands says that this will be done when and if the Secretary of State thinks fit, whereas the Amendment puts an obligation on him to do it and does not leave it to when he thinks fit. Though it was encouraging to hear from the noble Lord that there is entire agreement in principle on this which, in that sense, is an undertaking that it will be done, we all know that undertakings are splendid but are not part of the law of the land. It would be helpful if the noble Lord would go a little further and agree to an obligation on the Secretary of State being written into the Bill, rather than leaving it to when he thinks fit.
Lord ROBBINS: May I make a humble suggestion in this connection? The noble Lord, Lord Mottistone, clearly feels—and I sympathise with him—that any tincture of arbitrariness in the shape of leaving it to the wish or the whim of the Secretary of State is unacceptable. May I suggest that, alternatively, if there is to be set up—as I understand there is to be—a tribunal which will fix the notional values on which compensation is to be paid, it might be possible to devise a clause whereby that tribunal might recommend to the Secretary of State that advance payment should be made in the absence of precise ascertainment of the ultimate sum? That would seem to me to meet both schools of thought.
Lord GEORGE-BROWN: May I just say how much I support that? It seems to me—and I think I know the noble Lord well enough to know that he must see this—that this is taking over somebody's holding by a diktat. All right, let somebody decide on what basis? Then let the somebody who decides upon-what basis decide at what points you make the decisions. This Amendment does not quite do that. I would hope very much that at some subsequent stage we could make

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an Amendment that does exactly that. Somebody assesses what is the value of the stock you are taking over; somebody assesses at what point you pay for it, and then the Minister is required to say—and I must say some of us do not have any longer as much belief in the present behaviour of Ministers just to pass Bills which assumes that Ministers will behave well.
I like the words moved by the noble Lord, Lord Robbins. Those are not the words in this particular Amendment. I should like to see such words moved at some stage in the Bill and if the Minister were to be good enough to say that he would not mind having a look at moving such words I would be much happier, so long as I can still make it quite clear that in my view these do not refer to the ship repairing part of this Bill. I liked those words. The Amendment does not use them, so perhaps at some future stage we can put down a different kind of Amendment. I thought that the noble Lord, Lord Robbins, got it nearly as right as I would like it to be.
Lord WINTERBOTTOM: The difference between us is that the Amendment would like to place an obligation upon the Secretary of State. I have given an undertaking on behalf of the Secretary of State. I know that my noble friend will not place a great deal of weight on that, but I place weight on it myself because I am authorised to do so. May I answer the point made by the noble Lord, Lord Robbins, which is constructive—and I always welcome any constructive points in debates like this. The only snag against using the arbitration tribunal is that it is the last stage of all and these negotiations do not come before the tribunal unless there is a deadlock. Therefore, that would be very much at the end of the day and a far worse situation than the one which we, as the Government, are proposing, or indeed as the Amendment proposes. I will, however, bring the view of the noble Lord to the attention of my right honourable friend the Secretary of State.
Although I shall not say a word, I feel that there must be some machinery which would enable one to get an early assessment of the figure of which a percentage would be paid in compensation. But, as I say, I try not to make promises
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saying that I will look at it if I do not mean to do so. I believe, however, that my right honourable friend will look at this matter. Whether or not any rational or precise method of calculation is available, I cannot say and I would not say: but since we have a starting figure which is the Secretary of State's assessment, perhaps we could build on that.
10.25 p.m.
Lord STRATHCONA and MOUNT ROYAL: The noble Lord has some to a conciliatory state of mind, I think, and I am grateful to the noble Lord, Lord Robbins, backed up by the noble Lord, Lord George-Brown, for putting him in that happy condition, I think it is fair to say. It is encouraging to find that the noble Lord agrees that we are all of the same spirit, and he goes on to say that it is intended that the payments shall be substantial and early. So them really is not anything between us in principle, and all we are up against is something we have talked about so often, and that is how far we can give good intentions the force of law.
I think it may be helpful if I read out what was said in the Transport Act 1947, which presumably was a Labour Government's Act—and I referred to this earlier. It says:
"A provisional ascertainment of the total amount payable under the last preceding section with respect to an undertaking shall be made as soon as may be after the date of transfer without regard to the possibility that the commission may, after the date of the completion of the pro-visional ascertainment, disclaim any property or contract not disclaimed by them before the completion of the provisional ascertainment".
There, it seems to me that they are covering themselves in very much the same way as we are seeking to cover ourselves in this clause of this Bill.
We quite understand that the Government are saying, "We concede that we owe you some money; we are lot totally certain about what the amount of money is"; and to my regret I find that the noble Lord is still saying that the Secretary of State has an idea as to what t le amount of money is. To use the noble Lord's actual words, "The Secretary of State will have made an estimate". Then it is also said, unfortunately, that the Secretary of State "may" decide to make an advancement, and "The reason we hedge around this is because we are fearful

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that the Secretary of State may advance too much having regard to the counterclaims against the original estimate which he, the Secretary of State, has made." It seems to me, quite seriously, that the proposal put forward by the noble Lord, Lord Robbins, would be quite a useful goad; and it is not a political point, I believe, to say that people who are not in Government find it necessary from time to time to have a slight spur to encourage the Government to move faster than they would normally move otherwise.
This is all that this Amendment is seeking to do. I do not want to try to make this wider than it really is, but the principle involved here is simply the ordinary principle that a man who does a commercial deal with another man has, and that is that if he does not get paid he can say to him, "Look here, chum; it is about time that at least you made a payment on account while we are arguing about the details". I think that is a totally reasonable situation to set up as between the Government and a company which is being forcibly acquired. That is all we are saying, and it seems to me that the noble Lord agrees in principle. He demurs in practice from having the obligations placed upon him, and I quite understand that that is what his brief tells him to say. I am grateful to him for opening the door even the tiny chink that he has opened it, and I think the best thing I can do is to say: Let us observe the chink, let us rejoice about it, and let us see if we cannot push the door a little wider open at a later stage. Having said that, I am sure the right thing at this juncture is to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 36 agreed to.
Clause 37[Base value of securities of a listed class]:
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 166:
Page 50, line 42, leave out ("that") and insert ("being a class any of the securities of which").
The noble Lord said: I beg to move Amendment No. 166 and I would suggest that, with this, Amendment No. 168 might conveniently be discussed. These are really drafting Amendments and I hope
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that the Government will accept them without much difficulty. The subject was discussed in another place and the Government said that they would look at the point. It is simply that the word "listed" in line 42 on page 50 is evidently intended to apply to the word "class" and not to "securities". In the same way in sub-section (1) of Clause 38 it is intended to apply to all the securities of a class where any securities of that class were issued on or before the last of the relevant days. That is the reason for Amendment No. 168.
It is clear from subsection (2) of Clause 37 (also applicable to Clause 38) that fresh issues are an exception to the treatment in subsection (1) in each case. We think that these Amendments would make the position clearer than it is at present in the Bill.
Lord WINTERBOTTOM: As the noble Lord, Lord Campbell of Croy, has pointed out, this particular proposal was discussed at some length in another place. The Amendment was withdrawn because of an assurance given by the Minister of State to consider altering the marginal note to Clause 37 from "Base value of securities of a listed class" to "Base value of listed securities". However, after due consideration, it was decided that such a change would make the note incorrect.
May I explain why we believe that this would be the case? I am grateful to the noble Lord for taking Amendments Nos.166 and 168 together. Subsection (1) deals with the valuation of quoted securities where they were on issue throughout the reference period. A company may have more than one class of securities. Subsection (1) deals with the valuation of all securities issued throughout the reference period no matter what their class. The important point of the subsection is that it is the securities which are being valued and not the class of which they are a part.
Subsection (2) deals with the same class of securities as is covered by subsection (1) but only with those securities of those classes which were issued after the reference period—I emphasise: "after the reference period." Again it is the securities that are being valued and not the classes. In this case the sum received for securities

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issued after the reference period is added to the valuation of the securities of that class which were issued throughout the reference period. The average price for each security in the class is thus worked out. This distinction between subsection (1) and subsection (2) is very important. It is one aspect of the assurances that we have given that any new money put into companies after the reference period will be taken into account at par in assessing compensation.
It is our view that the Amendment proposed would at least blur this essential distinction and could result in new securities of the type covered in sub-section (2) being taken into account at something less than par. This could act against the interest of security holders. Exactly the same arguments apply in relation to Amendment No. 168.
Lord CAMPBELL of CROY: This is not worth pursuing; but the noble Lord has had the opportunity of trying to explain further the purpose of the clause and of the clause immediately after it, and the explanation of what is intended. I would only ask the noble Lord to see whether there is any other way in which it might be made clearer. It has not been clear to those who will have to wrestle with this Bill when it becomes an Act. I know that the Minister must have had some difficulty about the marginal description; but I had hoped that these Amendments would have provided another way of clarifying the clause. I am sorry that the Government cannot accept them, but I should hope that if they can see any other and better way of clarifying what is intended they would seek to put down Amendments at a later stage. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
10.35 p.m.
Lord TREFGARNE Lord TREFGARNE moved Amendment No. 167:
Page 51, line 4, after ("days") insert ("multiplied by 4/3,").
The noble Lord said: We have had a long and full debate upon Clause 35 and the various shortcomings which we see in the Government's proposals for compensation. This Amendment is an attempt to rectify one of those deficiencies. Clause 37 provides for the acquisition of
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the stocks in a company based upon their Stock Exchange value during a certain period. When my noble friend Lord Carr was talking on Clause 35, he drew, attention to the difficulty of distinguishing between a small parcel of shares which might change hands on the Stock Exchange, and the whole body of shares in a company which might change hands tender the auspices of a merchant bank or some agreed take-over bid.
He pointed out to your Lordships the difference in value and the difference in price paid for the shares on the one hand on the Stock Exchange in small I parcels, and on the other hand as part of a bid for the acquisition of the whole company. My noble friend referred to the percentage increase that might be expected when companies are acquired in this way. He referred to the examples to which I should like to draw your Lordships' attention again, and remind your Lordships of the figures that he mentioned. During a period late in 1973 and early in 1974—that is to say, the reference period described in this Bill—a number of bits, as is normal, were completed, and I have before me the figures. The average percentage increase in the price paid for the shares as part of an agreed bid, as distinct from the price ruling on the Stock Exchange on the day immediately prior to the bid, was no less than 48 per cent., yet the Government are proposing under the Bill to acquire the shares at the same value as was reigning on the Stock Exchange.
If we accept the average figure as accurate, the Government are therefore seeking, in my view, to acquire these shares for 48 per cent. less than they should be. I am prepared to accept that the figures may be a little generous, and it s for that reason that I have pitched my Amendment at 33⅓ per cent. over the Stock Exchange price.
There is one other aspect. Earlier, the noble Lord, Lord Melchett, was not able to explain why it is that the Estate Duty Office, when they are valuing shares which constitute control in the company" value them substantially higher than the Stock Exchange quotation reigning at the particular time. Taking these two points together, we ought firmly to say that the Government must pay a higher price for the shares than the price reigning on the

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Stock Exchange. We may be forced to accept that the Stock Exchange price must somewhere be used as a base line; but the price itself is substantially below what I believe to be an equitable price. I therefore beg to move.
10.40 p.m.
Lord WINTERBOTTOM: Some little time ago, while we were talking about Clause 35, I complained rather plaintively that we were debating every clause of Part II. The noble Lord, Lord Carr of Hadley, was good enough to say that if we could remember what was said, we could take that as read. May I say that this particular argument of the noble Lord, Lord Trefgarne, is one that we have dealt with in detail and with care—the whole question as to whether or not 100 per cent. of shares is more valuable than, say, an individual share at 20 per cent. For that reason, I would argue that the fairest way that we as a Government could think of calculating the value of shares was based on the Stock Exchange values over a six-month period. If that argument in the earlier debate did not convince the noble Lord, nothing that I can say now will convince him. The arguments are now as they were on the Question, Whether Clause 35 shall stand part of the Bill?
Lord TREFGARNE: I am a little shattered by that, I must say. I think the noble Lord is saying that I am not supposed to argue my Amendments and must just refer back to the debate we have had earlier. I must say that I really do not go along with that. I certainly have not been convinced by the arguments advanced by the noble Lord and his colleagues as to why the Government have stuck so rigidly to this baseline. I most firmly believe that there is a serious injustice, not to say a confiscation of assets in this matter. Here the Government are setting out to acquire a whole range of companies, and have produced a very unsatisfactory formula for compensation. We are stuck with the basic concept of Stock Exchange prices which, in the light of the fact that only one of the companies is quoted, is wholly unrealistic.
I have not gone so far as to try to change that, though I believe that perhaps that should have been done. I accept that, but have said that the Stock Exchange
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price must be "doctored"—there is no other word—so as to more accurately represent the fact that the Government are acquiring control of companies. Control is worth something. If the Government are acquiring control without compensation—and that is exactly what it is—then that is confiscation; and if the noble Lord is taking such an unhelpful line with my Amendment, I shall have to reserve my position very firmly and come back to it at another stage. There are a number of points I could raise but, while listening to my noble friends, I shall ponder on what to do now.
Lord CAMPBELL of CROY: I think that what the noble Lord, Lord Winterbottom, said—that everything had virtually been discussed on the Question, Whether Clause 35 shall stand part of the Bill?—was not a very fortunate way of dealing with the Amendment of my noble friend, because he has made a suggestion for dealing with a particular part of this clause. I would hope that the noble Lord would not repeat all the general arguments trying to support the Government's whole system of compensation, which is what we discussed in connection with Clause 35, but that he will address himself to the particular point covered by this Amendment.
I think it was convenient that we should have had a general debate at one place on the whole question of compensation—and that is what we have just had in connection with Clause 35. I think that was for the convenience of both sides, including the Government Front Bench, because it meant that we did not have general arguments repeated. But that did not mean that individual Amendments, when moved, should not get a reply addressed to the particular point being raised in a particular clause, as my noble friend is attempting to do here. For the Government to say, "We have answered all this already" is disappointing, because this is a particular matter that my noble friend is putting forward. I would hope that the noble Lord, Lord Winterbottom, in connection with the Amendments we are to move on Clause 38—and the noble Lord is always courteous in the way he does reply—will be able to reply to individual points raised. We are not, of course, going over all the ground which we covered on the general question

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in regard to compensation, and the Government's proposals.
Lord ROBBINS: I should like to suggest to the mover of the Amendment, with which, in some conceivable circumstances I would not demur, that in some respects it must be regarded as a pis-aller, a second-best. If the Government could be persuaded to jettison this ridiculous idea of going back to the share values of 1974, and manufacturing them by appointing a committee to establish notional values which might have prevailed at that time had these securities been quoted, and if they would simply substitute-I will not say retreat from that—the instruction to the arbitration committee that it should determine compensation on the basis of asset values, or replacement cost, if you like, taking into account intangibles, justice would be much better done than by inserting a rather artificial multiplier to the results of the attempt to ascertain notional values.
Lord WINTERBOTTOM: The noble Lord, Lord Robbins, has come to my aid. As I understand it, the noble Lord, Lord Carr, produced a vulgar fraction of about six over four, and the noble Lord, Lord Trefgarne, has a vulgar fraction of four over three, but I do not think that this is the kind of calculation which one can do in a Committee stage. Turning to the noble Lord, Lord Robbins, I am afraid that this argument has gone on and on. Many noble Lords who have spoken today have felt that the valuation of the stock on the basis of Stock Exchange valuations is not an equitable one. The Government have tried to explain that we have produced a formula which we believe is the best we can get, and I am afraid that I cannot move from that. Even if one were in favour of the principle of the Amendment of the noble Lord, Lord Trefgarne, I do not think that we could as a body agree to his arithmetic. That is a hard fact of life.
Lord ROBBINS: May I ask the noble Lord whether, among the solutions which the Government have considered, they have thought about the simple basis of ascertained asset values, which certainly has precedents in the past and which, so far as I know, has had no convincing arguments brought against it.
Lord MELCHETT: That, again, is one of the things which we have dealt with at some length this evening. I am not sure whether the noble Lord was in the Chamber, or was lucky enough to be having something to eat, at that stage. But we dealt with the Coal Industry Nationalisation Act and the fact that compensation then was based on asset values, which took at least eight years to settle. The noble Lord, Lord Orr-Ewing, and I agreed that we did not want that process repeated.
Lord TREFGARNE: I am still some-what smarting under the initial reaction of the noble Lord, Lord Winterbottom, to my Amendment. There is one point that I must put to him again; I am sorry that he has heard it before, and may well hear it again later. The formula that he has arrived at takes no account of the fact that the Government are acquiring control of these companies. Therefore, does the noble Lord not agree that, since the Government are offering no compensation for the control which they are acquiring, they are confiscating control of those companies? If I am wrong, the noble Lord will please put me right; but I insist that the Government are confiscating the control of those companies. The noble Lord has criticised my arithmetic, and I would not claim to be the greatest arithmetician in the world, but something like it ought to be acceptable to the Government. Clearly, I cannot pursue the matter new, but I must tell the noble Lord that he has quite failed to satisfy my fears about this confiscation of control, and I reserve the right to return to this at a later stage after consultation with my colleagues. In the meantime, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 37 agreed to.
Clause 38 [Base value of other securities]:
The DEPUTY CHAIRMAN of COMMITTEES (The Earl of Shannon): Amendment No. 168 is not moved?
Lord CAMPBELL of CROY: I understand that Amendment No. 168 comes before Amendment No. 167A, although it is printed the wrong way round on the

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Marshalled List. The Amendment has been discussed with Amendment No. 166 and therefore is not moved.
10.51 p.m.
Lord CULLEN of ASHBOURNE Lord CULLEN of ASHBOURNE moved Amendment No. 167A:
Page 52, line 39, after ("value") insert ("as being a fair price taking into account the past trading records and future prospects of the company and the company's net tangible assets on the relevant vesting date and in particular the amount of equity capital which would be required to yield the average profit which the arbitration tribunal is satisfied on the best available evidence would have been made (as if this Act had not been passed) in the company's financial years ending the calendar years 1974 to 1978 inclusive.")
The noble Lord said: On behalf of my noble friend Lord Selsdon I beg leave to move this Amendment which recognises that if nationalised industries are to be managed efficiently and the country's economic resources allocated effectively the correct economic value must be ascribed to the starting public capital: in other words, the cost of acquiring a company, taking account of its present value and likely future profitability. Any value which is based upon historic share prices can have no relation to this value and the Government are making a rod for their own back in future if they persist on this basis. The effects of using it have already been seen in the case of steel nationalisation.
Under the circumstances of the Bill, compensation for some of the companies in British Shipbuilders will be so high in relation to their real value today that the Government may later have to ask Parliament to write off some of the initial capital. On the other hand, the disastrous effect upon confidence to invest in profitable opportunities and hence upon the efficient allocation of economic resources if efficient companies are confiscated for less than their true value has already been discussed.
Lord MELCHETT: On some of the more general Amendments which stand in the name of the noble Lord, Lord Selsdon, which the noble Lord, Lord Cullen of Ashbourne, is moving on his behalf, it seems to me that we are in a slightly unreal position, in that I am not entirely clear whether I am expected to speak to the Bill as it is now—in other
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words, as amended by Amendment No. 156, which it was not when the noble Lord, Lord Selsdon, tabled the Amendment—or whether to justify the Bill as it was before it was amended. Although I take the point which noble Lords opposite have made that on some of the particular Amendments these general arguments do not apply, at the same time this is a fairly general Amendment (this I think the noble Lord will accept) on the broad principles of compensation.
It seems to me that if it achieves anything Amendment No. 156 has already achieved what this Amendment seeks to do, but perhaps I could very briefly say a word about the effects of the Amendment and the Government's reasons for not accepting it or, indeed, Amendment No. 156 when it was pressed. As we have said, the compensation terms included in the Bill are for unquoted securities to be valued as if they had been quoted on the Stock Exchange during the six months up to the end of February 1974. We believe that the Stock Exchange is established in precedent as an impartial and objective test of the value of the securities. Techniques for imputing Stock Exchange valuations to unquoted securities are tried and tested in the City of London as well as within Government. Instead of this, the noble Lord's Amendment No. 167A, as Amendment No. 156 has already done, seeks to set the valuation at what the Amendment refers to as a "fair price". The Amendment states that the fair price should take account of the trading record and future prospects of the company and its net assets.
As I said a moment ago in response to an intervention of the noble Lord, Lord Robbins, without a separate independent asset valuation, which would be a very lengthy process as previous experience has shown, the net assets of a company as recorded in its books reflect only the particular accounting conventions of the company. May I suggest to the noble Lord, who will, I think, agree with me, that that in itself would not be particularly objective and presumably, therefore, would not be particularly fair.
We have already dealt this evening at some length with the question of the premium for control, and that was something that the noble Lord, Lord Trefgarne, mentioned on a previous Amendment;

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and as this is something which no doubt will come up again and again during the course of the evening it might be helpful if I were to say another word about it. I know the noble Lord has promised to return to it at the Report stage and I look forward to that, but it may be if I say a word he will be able to reflect on that between now and the Report stage.
As I understand it, noble Lords have suggested that Stock Exchange quotations and, by analogy, imputed quotations, represent the price at which small parcels of shares change hands, and the suggestion is that when there is a takeover bid the price paid is generally higher than the quotation. This, I agree, may be so in the commercial world where one company seeks to take over another undertaking. In such circumstances the buyer may be forced to offer a higher price solely to persuade the seller to sell, but as my honourable and right honourable friends have said in another place and we have repeated here, the Government do not believe that this analogy with compensation terms in the Bill is a right one. The Bill seeks to establish the fair market value of securities by reference to the best established criteria for establishing that value—the Stock Exchange. The higher price for a complete undertaking does not, in our view, represent the fair market value. It represents only the price at which the buyer is prepared to buy to take over a company, and is the value to the buyer and not the market or the undertaking.
In the final analysis the true measure of fair compensation is whether it represents the capital and income loss for every security holder being compensated. The capital structures of companies in the aircraft and shipbuilding industries are very complicated and differ, of course, from company to company. The annual income received per f 100 of nominal stock will vary widely between the various companies. So will the certainty of that income being continued. To assume that all the profits which these very different companies might have earned could be directly related to equity capital not only could result in a substantial over-payment of compensation but must operate unfairly among the different classes of shareholders within those different companies.
We believe—and I do not make any apology for repeating myself because I
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I think it is fair to say that noble Lords opposite are repeating their attacks on us, but I make no complaint about that, the noble Earl, Lord Lauderdale will be pleased to hear. I repeat that in our view the Stock Exchange basis solves the basic problem of how to allocate compensation fairly between the various classes of shareholder within companies but with very different capital structures, and it is for that reason that we resisted Amendment No. 156, which is already in the Bill, and would of course resist this Amendment which I think covers the same ground.
Lord ROBBINS: May I ask the noble Lord a straight question? Would he maintain that a parent company, one of whose subsidiaries has been taken over on the basis of this notional stock Exchange value, would be able to replace the assets which it had surrendered out of the compensation thus paid?
Lord MELCHETT: The noble Lord said he was asking me a straight question but I have been in your Lordships' House just long enough to know that noble Lords' straight questions are not always quite as straight as they seem. If I may give him a straight answer—and no doubt he will say that that fact applies to my answer as it applies to his question—it is that they probably vary from company to company.
Lord TREFGARNE: The noble Lord was kind enough to refer to me. I think he said—and he will correct mo if I am wrong—that the Government justified acquiring these securities at their Stock Exchange value because the value of the control, which I was complaining about, is only of value to the company acquiring the assets or the shares in a takeover bid, and the value of the company to the market is the value of the share s, or the sum total of the value of the shares. But would he not agree that the market is not a market in companies; it is a market in companies' shares? One cannot buy a whole company on the Stock Exchange.
Lord WARDINGTON: The question of the noble Lord, Lord Robbins, is a perfectly fair and straight one. It is quite simple to give the answer, which is that if you are having assets taken away on a share price, they should be

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replaced on a share price; but this is impossible. If they are being taken away on asset values, they can be replaced by purchasing assets. I should just like to refer to the answer of the noble Lord, Lord Melchett, to the noble Lord, Lord Lord Trefgarne, a moment ago when he was quoting a remark he had made earlier, when I am afraid I was taking the opportunity of having something to eat, when he referred to coal nationalisation being protracted to the extent of eight years. May I remind the noble Lord that on that occasion the number of companies quoted was something of the order of 120, and there were an equal number of privately-owned companies, all of which were owned privately by individuals and were not subsidiaries of other companies. That is why it took eight years, not because there was an arbitration tribunal.
The Earl of LAUDERDALE: Might I just put a point. First, having had a slim Lenten supper, and being much fortified thereby, and I am glad that the noble Lord, Lord Melchett, is also fortified, I congratulate him on the highly-condensed prose he composed for his last answer. It was highly professional and bore all the marks of several double firsts. But from what I could understand, he was drawing attention to, and rather protesting against, our suggestion that there is, and should be, a premium for control. If I understood his very complicated, condensed and classic prose aright, it seemed to me that he was suggesting that premium for control is not really quite so proper. But the Government approved, and last week were very angry when we rejected the position with regard to the Felixstowe Dock Company when the British Transport Docks Board offered 150p per share when they were standing at 90p. Is there any legitimate premium for control, or not? Perhaps I misunderstood the complicated and condensed passage which the noble Lord had composed to read to us.
Lord MELCHETT: I made the point because the noble Lord, Lord Trefgarne, said he was going to return to this on Report stage, and I thought it would be helpful if I said a word or two so that the noble Lord could look at it before coming back on Report. The noble Earl, Lord Lauderdale, says it is condensed and complicated. Maybe it would repay
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study in Hansard. I hesitate to suggest that anyone should look at anything that I have said in Hansard, but noble Lords opposite have occasionally done me that courtesy, and then we can all return to it on Report, having had the benefit of study, if any benefit is to be gained.
Earl FERRERS: Did the noble Lord, Lord Melchett, say that it was a tried and tested way of valuing a company and, indeed, that it was by the best established criteria—I think that was the expression the noble Lord used—to use the Stock Exchange valuation? Is that the best and the tried and tested way to value a company?
Lord MELCHETT: I said the technique for imputing a share value was tried and tested.
Lord ORR-EWING: I should like to support the Amendment. I am relying on the fact that this was not discussed in the House in the other place; it was discussed in Committee, but the Committee stage was a very small one. This goes for 49 out of 57 clauses and four out of seven Schedules. That is why we are paying close attention to it here, although this view does not seem to be popular with the certain Government Ministers, nor with the Prime Minister on "Panorama" tonight.
This Amendment makes one more effort to get fair competition, and it is based on the Amendment of Mr. Willey the Member of Parliament for Sunderland. He had Austin and Pickersgill in his constituency. I do not think he was one of the most successful shipbuilders. He described these compensation terms as ridiculous, and it is believed—I do not know whether this is true or not, but I have read it in many papers—that Mr. Kaufman, the Minister, persuaded him not to move the Amendment which perhaps is why we are giving special attention to it here. My noble friend on the Front Bench will remember that Nye Bevan once said, "Why look in the crystal ball when you can read the book?" Here we can actually read the book of what profits these people have made, not in 1972 and 1973 but in 1974, 1975, 1976 and 1977. We can actually see the results. Surely, therefore, it is not unreasonable to

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take this as a criterion. I hope that the noble Lord, Lord Melchett, will look at this again and bear in mind that Fred Willey is a man who is deeply respected in another place and that this Amendment is based on his views. Therefore, we are not being biased in our view; we are asking that sensible consideration be given at this stage.
Lord STRATHCONA and MOUNT ROYAL: May I make one brief interjection? Following what my noble friend Lord Ferrers said, the noble Lord spoke about "tried and tested and accepted", but he seems to be unaware that many members of the Stock Exchange who are Members of this House have been at pains this evening to assert at great length that they do not accept the arguments he is putting forward. This seems to me the burden of what is being said here. He goes on to read a lecture to these members of the Stock Exchange, and then proceeds with the even more inconsistent argument by saying, "In our view …". We are arguing about the difference between what he thinks the Stock Exchange does and what the Stock Exchange thinks that it does, and there is a very considerable difference which is being emphasised by this Amendment.
Lord CULLEN of ASHBOURNE: I appreciate that we are not going to get any further on this point because we disagree on every aspect. I also see that Amendment No. 156 would cover it to some extent. In the meantime, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
11.8 p.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 169:
Page 52, line 41, at end insert ("taking into account all factors which the arbitration tribunal consider relevant in order to ensure that the compensation in respect of the securities shall be fair").
The noble Lord said: In the general debate on the Question, That Clause 35 stand part of the Bill, my noble friend and other noble Lords have pointed out how inappropriate, irrelevant and inequitable are the Government's proposals for compensation in the Bill. They are based on the values on the Stock Exchange of
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shares of parent companies over a certain period in the past; and as has been pointed out, those quotations are not a measure of the worth of a company, and there is very little relevance when one comes to the subsidiary companies. I do not expect the Minister w ho replies to attempt to repeat a justification of the Government's proposals, but in this Amendment we believe an important improvement could be made to the proposals in the Bill. I will briefly rehearse the reasons for the Amendment.
The value of a wholly owned subsidiary is that it can be disposed of as a going concern in its entirety. Such a disposal will attract a price much above any equivalent quoted value. The Stock Exchange quotation reflects the value based on the exchange of small quantities of shares in a market affected by factors unrelated to the specific company or even to the market as a whole. Then the means of calculating the notional quoted price is very uncertain. The amount of uncertainty and the virtual guesswork involved cannot produce fair or reasonable results. In this situation the object of this Amendment is that should the calculation required to reach a notional quoted price result in unfair and absurd compensation the arbitration tribunal will lave some latitude to take into account factors that will ensure an element of fairness.
I should like to add one example of a company which would receive inequitable treatment under this Bill. That is the company of John G. Kincaid, who are marine engine manufacturers at Greenock—a straightforward, uncomplicated case. The Government's proposed system of valuation applied to a situation nearly three years ago would produce absurd results. The company's report and accounts for the year up to the end of 1975 show that the turnover increased nearly fourfold, the profits are up four and a half fold and the reserves and assets are almost doubled. That no account can be taken of substantial improvements in profitability and the net asset position is tantamount to expropriation. This Amendment would go some way to improving the situation by allowing the Arbitration Tribunal which is to be set up under the Bill to take into account some other factors if an absurd result was produced by the system which is at present prescribed in the Bill. I beg to move.
Lord MELCHETT: This Amendment, No. 169, is clearly more limited in its scope than Amendment No. 156, which, noble Lords opposite pressed into the Bill on the previous Committee day. It does not seek so clearly to overthrow the Stock Exchange linkage which we believe is vital to the objectivity of the present terms. To that extent No. 169 is probably already subsumed in No. 156, which your Lordships passed after a Division. Amendment No. 169 merely requires that the Tribunal shall take account of all relevant factors in order to ensure that the compensation is fair.
There are two points that I should like to make to the noble Lord on this. First, the Bill already provides in Clause 38(3) that the Tribunal shall have regard to all relevant factors. The Tribunal is an independent body and it would not be acting properly if it had regard to factors relevant to Stock Exchange valuation yet failed to take account of them. While the present words may be different, the effect is exactly the same, and there is no need to duplicate the provision, as Amendment No. 169 seeks to do.
Secondly, there is the question of fair-ness, which we have discussed at some length. As drafted, the Amendment seeks to embody the concept of fairness in relation to the Stock Exchange valuation. In that fairness is ensured both by the basis and the application of the present terms, this might appear unexceptionable. But fairness is essentially subjective unless it is defined in relation to a specific set of parameters; indeed that was one of my main objections to Amendment No. 156. The second part of the Amendment could, therefore, weaken the basic objectivity of the terms. In itself, this could reduce the fairness already fundamental to the Government terms. I appreciate the noble Lord's desire to ensure that the compensation which shareholders receive will be fair. As we have tried to make clear from these Benches, although I know with not a great deal of success, that, is too, the objective of the Government. The terms included in the Bill are both fair in their basis and their application. Amendment No. 169 is unnecessary and could, in certain circumstances, be harmful. In view of that, and in view of the fact that I think it is probably subsumed in No. 156 in any event, I hope the noble Lord will not press the Amendment.
Lord HARMAR-NICHOLLS: Why does the noble Lord restrict the meaning of the words in this Amendment? Why restrict the very important words that "all factors" should be taken into account which are relevant in order to attain fairness in arriving at a notional Stock Exchange valuation. I wonder whether the noble Lord could answer this question. The words in the Amendment are, "taking into account all factors". Would he tell me the sort of factors he does not think should be taken into account; what description would he give to the factors which he does not think should be taken into account? I should have thought that to be fair you have to take into account all factors, apart from whether or not they fit into a notional Stock Exchange value at the end of the day.
If you do not want an arbitration tribunal to take all factors into account why go to the expense and trouble of setting one up? Why not just press a button or two on one or another of these computers we have, and they could give you that kind of answer. Since this is a human decision that is going to affect ordinary people, all factors ought to be taken into account.
The other word is "relevant". The noble Lord is not suggesting that matters which are relevant in arriving at a valuation, whether it is done by a computer or tribunal should not be taken into account? What are the relevant factors—that these things could be unkind, or unfair, or unclean—that should not be taken into account? This is a modest Amendment, as the noble Lord said, and it may well be already covered by Amendment No. 156. If it is, I do not think it would do any harm to reiterate and underline the importance of these factors. Can the noble Lord tell me what are the factors he would not like to take into account? What is his case for saying that relevant matters ought not be taken into account? If he rules out both of those things how, at the end of the day, can you possibly come to a fair valuation?
11.16 p.m.
Lord MELCHETT: I apologise for repeating myself, but I tried to make the point. The tribunal is an independent body, and the tribunal would not be acting properly if it had regard to factors

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relevant to a Stock Exchange valuation yet failed to take account of them. While the present words in the Amendment may be different from those in the Bill the effect is the same, and there is no need to duplicate the provision as the Amendment seeks to do.
Baroness WARD of NORTH TYNESIDE: Having regard to the fact that I think that every Amendment that has been proposed has been refused, and now we have got to the point when the noble Lord at least refers to the fact that there will be arbitration, would it not have been more helpful and perhaps saved time if we could have discussed the terms of the arbitration now, who will be on it, and all that sort of thing? We have to wait a long time before we come to discuss arbitration. It would have been better, if the noble Lord is going to refuse every Amendment and just adding occasionally that there will be a reason for arbitration, if we could have discussed the arbitration; we would have then felt that we were getting a hit of the way along the road trying to make things fair. But we have to wait such a long time before we discuss arbitration, and by that time the noble Lord will have refused every Amendment put forward in order to try to make fair compensation.
Lord TREFGARNE: The noble Lord, Lord Melchett, has repeatedly referred to Amendment No. 156, which was passed at an earlier session of this Committee. The noble Lord has asked us to accept that this Amendment is unnecessary because of that Amendment, although this Amendment is rather narrow. Is it the Government's decision that Amendment No. 156 shall be allowed to stand, and that no effort will be made to reverse that Amendment when the House of Commons consider the matter?
Lord MELCHETT: No, I simply made the point, but I went on, so that noble Lords opposite would not accuse me of the very thing the noble Lord has—I did not achieve my purpose, but I suppose one cannot win every time—to give the detailed arguments which the noble Lord will be interested to know were prepared before Amendment No. 156 was pressed into the Bill. Frankly I did not expect it to be pressed into the Bill, so I gave the noble Lord the same speech that I would
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have done if Amendment No. 156 had not been pressed into the Bill. I am sorry I did not convince him, but I have done my best.
Lord TREFGARNE: The point is that the noble Lord has asked us not to pursue this Amendment because we have already done it elsewhere, but it would be quite improper for him to do that if he was intending to pull the carpet out from under us by insisting that the Commons remove Amendment No. 156.
Lord MELCHETT: I do not insist on the Commons doing things. They will make their own decisions about these matters. I said that it seemed that this Amendment, because it was narrower than Amendment No. 156, was subsumed within it and that therefore it did not seem to be necessary at this stage. I went on, because we divided against No. 156 and I do not agree with it, to give the arguments against this Amendment in particular, which is also unacceptable to the Government.
Lord ROBBINS: May I ask; he noble Lord a question, which I will make as straightforward as I possibly can? The noble Lord, Lord Campbell of Croy, cited circumstances which, to ray mind, vividly illustrated the difficulties which have arisen in the minds of some of us who have criticised the Bill as drafted. In that case, would the noble Lord regard the circumstances of the company so described by Lord Campbell as being relevant or irrelevant?
Baroness WARD of NORTH TYNESIDE: A straight answer, please.
Lord MELCHETT: With respect, I do not think it was a straight question; at least, a fairer response might be for me to say that I did not understand the question. Would the noble Lori explain whether it would be "relevant" to what?
Lord ROBBINS: Relevant in the context of the Amendment.
Lord CAMPBELL of CROY: Perhaps I can remind the noble Loud, Lord Melchett, that I said that the turnover had increased by nearly fourfold in the period since the relevant period, that the profits were up four-and-a-half times and

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that the reserves and assets had almost doubled. Those were the points to which the noble Lord, Lord Robbins, was referring.
Lord MELCHETT: I regret to say that the noble Lord, Lord Robbins, answered my question from a sedentary position and I did not hear what he said.
Lord HARMAR-NICHOLLS: Perhaps the noble Lord will answer now. Having had an extra few seconds in which to think about the matter, may I ask him if he considers that the valuation which he is asking the Committee to accept would be fair if it did not take into account the points that my noble friend has just made?
Lord MELCHETT: I am not trying to be difficult. I know that noble Lords are giggling and are thinking that I am, but I honestly do not know whether the noble Lord, Lord Robbins, is asking me about the effect of the word "relevant" in the Amendment or is asking me about the effect of the Bill as drafted. When Lord Robbins answered by question from a sedentary position he had the Marshalled List of Amendments in his hand and I am still not clear where the "relevant" he is asking me about comes.
Lord ROBBINS: It seems quite plain. I am simply asking whether the circumstances mentioned by the noble Lord, Lord Campbell of Croy, would, in his judgment, be relevant to the determination of fair compensation.
Lord MELCHETT: With respect, that has not answered my question, but I will do my best to answer for the Bill as it is drafted and maybe the noble Lord will give his view on his Amendment as that is drafted. The factors that are relevant, so far as the Bill is concerned, are the factors that are relevant to valuing shares as if listed on the Stock Exchange, not those which a tribunal may consider are relevant to a loose concept of fair compensation, and that has been our objection to the looseness of the phrase "fair
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compensation" which noble Lords have already inserted in the Bill.
Viscount SIMON: We seem to be getting into some confusion over this. Perhaps I might, with the permission of the Committee, ask the noble Lord, Lord Campbell of Croy, a question. Does he think there is any difference between the effect of his Amendment and the effect of Clause 38 (3)? I do not see what the difference is, and if he could explain it, it might be rather easier to understand the position.
Lord CAMPBELL of CROY: I am grateful to the noble Viscount for asking that question because I had intended to deal with it at the end of the debate on the Amendment, and it seems that that point has now been reached. The noble Lord, Lord Melchett, began by saying that he thought that this Amendment, No. 169, was subsumed in Amendment No. 156 which the Committee made to the Bill at our last sitting. We do not believe that it is subsumed in that. We believe that it is supplementary to it but that it is not covered by it. Therefore, we believe that Amendment No. 169 is necessary also.
Then I come to the next point—and this is the point to which the noble Viscount referred—which the noble Lord spoke of, saying that he thought that this was covered by Clause 38 (3). However, that appears to be limited purely to Stock Exchange factors, whereas Amendment No. 169 refers to the application of the principle of notional valuation and is not simply limited to Stock Exchange factors. So, in answer to the noble Viscount, we think that there is an important difference between the two. We regard this as an important Amendment which would make a necessary improvement to the Bill. I would ask my noble friends to support me in pressing the Amendment.
11.26 p.m.
On Question, Whether the said Amendment (No. 169) shall be agreed to?
Their Lordships divided: Contents 76; Not-Contents, 43.

CONTENTS

Amory, V.

Halsbury, E.

Rochdale, V.

Ampthill, L.

Hanworth, V.

St. Aldwyn, E. [Teller.]

Atholl, D.

Harcourt, V.

Sandford, L.

Barrington, V.

Harmar-Nicholls, L.

Sandys, L.

Belstead, L.

Kemsley, V.

Seear, B.

Blakenham, V.

Killearn, L.

Selkirk, E.

Brookeborough, V.

Kimberley, E.

Sempill, Ly.

Campbell of Croy, L.

Kinnaird, L.

Sharpies, B.

Carr of Hadley, L.

Kinnoull, E.

Shuttleworth, L.

Carrington, L.

Lauderdale, E.

Simon, V.

Cork and Orrery, E.

Lloyd of Kilgerran, L.

Stamp, L.

Cullen of Ashbourne, L.

Long, V.

Strathclyde, L.

de Clifford, L.

Lyell, L.

Strathcona and Mount Royal, L.

Denham, L. [Teller.]

Middleton, L.

Sudeley, L.

Drumalbyn, L.

Molson, L.

Terrington, L.

Dudley, E.

Monson, L.

Trefgarne, L.

Ellenborough, L.

Mottistone, L.

Tweedsmuir, L.

Elles, B.

Mountgarret, V.

Vernon, L.

Elliot of Harwood, B.

Mowbray and Stourton, L.

Vickers, B.

Ferrers, E.

O'Hagan, L.

Vivian, L.

Glasgow, E.

Onslow, E.

Ward of North Tynes de, B.

Glenkinglas, L.

Orr-Ewing, L.

Ward of Witley, V.

Gray, L.

Rankeillour, L.

Wardington, L.

Greenway, L.

Redesdale, L.

Wigoder, L.

Grey, E.

Robbins, L.

Young, B.

NOT-CONTENTS

Brimelow, L.

Kaldor, L.

Peart, L. [L. Privy Seal.]

Brockway, L.

Kirkhill, L.

Peddie, L.

Champion, L.

Llewelyn-Davies of Hastoe, B.

Pitt of Hampstead, L.

Collison, L.

Lloyd of Hampstead, L.

Shepherd, L.

Cooper of Stockton Heath, L.

Longford, E.

Stedman, B.

Davies of Leek, L.

Lovell-Davies, L.

Stone, L.

Delacourt-Smith of Alteryn, B.

Lyons of Brighton, L.

Strabolgi, L. [Teller]

Elwyn-Jones, L. [L. Chancellor.]

McCluskey, L.

Vaizey, L.

Mais, L.

Weidenfeld, L.

Fisher of Camden, L.

Melchett, L.

Wells-Pestell, L.

Goronwy-Roberts, L.

Milner of Leeds, L.

White, B.

Gregson, L.

Morris of Kenwood, L.

Willis, L.

Harris of Greenwich, L.

Northfield, L.

Winterbottom, L.

Houghton of Sowerby, L.

Oram, L.

Wynne-Jones, J.

Jacques, L. [Teller.]

Parry, L.

Resolved in the affirmative, and Amendment agreed to accordingly.
11.34 p.m.
Lord CULLEN of ASHBOURNE Lord CULLEN of ASHBOURNE moved Amendment No. 170A:
Page 53, line 6, at end insert ("and amongst those factors to all relevant facts known at the time of the determination of the base value which were in existence on any of the relevant days, notwithstanding that any of them would not have been known on any of the relevant days.").
The noble Lord said: This Amendment might more conveniently have come later than Amendment No. 172A, because if the Government accept Amendment No. 172A then this Amendment will be unnecessary. This Amendment enables all facts inexistence during the reference period which are relevant to the calculation of a notional share price to be taken into account, and this would apply at least for
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the duration of the reference period. That is the bwllfa principle. I expect I have pronounced this wrongly, as I am no student of the Welsh language; but, in short, it is the general principle in law that where facts are available they are to be preferred to prophecies—a principle that I would hope commends itself to your Lordships as well as to lawyers. This Amendment is similar to a provision in the Coal Industry Act, which applied the bwllfa principle to facts which were in existence at vesting date but which were known only at the time when compensation came to be determined. I beg to move.
Lord WINTERBOTTOM: I very much apologise; I did not get the Welsh joke. I turned round to my noble friend behind me, who is Welsh-speaking, and I did not get the translation in time. As I understand it, Amendment No. 170A seeks to

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specify that all the facts relating to a company during the reference period shall be taken into account in determining unquoted securities, irrespective of whether they would have been known. In so far as the noble Lord is seeking to widen the compensation base of the Bill, I am afraid I must reject this Amendment: in so far as he is seeking to establish that adequate information should be available for valuation purposes under the Bill, I shall try to show why it is unnecessary.
Under Clause 38, unlisted securities are to be valued on the basis of what would have been their quotation on the Stock Exchange during the reference period had they been listed. I think this is a rather important argument. For the purposes of the valuation process, therefore, it is to be assumed that the shares were in fact listed. In making this basic assumption, it automatically follows that all the requirements of the Stock Exchange which would have been a condition of that listing, including the provision of adequate information, would have been satisfied, whatever the reality.
Officials of the Department of Industry have held discussions with representatives of the vesting companies on the whole question of which information is relevant to the valuation. It has been suggested on behalf of the companies that the information requirements of the Stock Exchange do not apply to unlisted secureties, and the information which would be required for a private treaty sale is more relevant. But, for better or for worse, the Bill prescribes compensation terms on a different basis. The basis prescribed is that the securities shall be valued "as if quoted". In such circumstances, it is the Stock Exchange basis, and not the private treaty basis, which is relevant; and it is therefore the information which is adequate for a Stock Exchange listing, and not some wider, ill-defined basis, which is relevant.
The provisions of Clause 38 require the valuation of unquoted securities to take account of all factors relevant to a Stock Exchange quotation during the reference period. This is deliberately widely drawn. It is inevitable in the valuation of 42 widely different companies in four industries that differing factors will apply in relation to different companies. The requirement
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to take account of all relevant factors is intended to give sufficient flexibility to ensure that the valuation is equally fair to all security holders. It enables the stockholders' representative for each company to bring into the negotiations, and if necessary before the arbitration tribunal, all the factors which he considers relevant to the valuation of the shares of the company as if they had been listed on the Stock Exchange. This enables him to argue that any piece of information would have a direct bearing on the share quotation of a company had it been listed.
Even if it were thought necessary to explain all this in the Bill, the Amendment would be inappropriate on the grounds that it would relate to an essentially different basis of valuation. I have told the Committee on more than one occasion that the Bill values unlisted shares as if they were listed in the Stock Exchange. It is not, and has not been, our intention to value them as if sold by private treaty.
There is another point that I would make in the form of a half-apology to the noble Lord, Lord Trefgarne. He is not in his place, but I was going to say that he had accused me of condoning expropriation. I do not believe that expropriation can be the word to be applied to a situation where the stockholders' representative can argue the case with the Secretary of State and, at the end of the day, the arbitration tribunal will decide. It is for this reason that I believe we will get the fairest possible valuation of the shares on the basis proposed in this particular clause.
Lord WARDINGTON: Am I being stupid or would it not be fair that some acknowledgement of the bwllfa principle should be accepted by noble Lords opposite and looked into? If one likes to go back, your Lordships may remember a very much respected Law Lord who laid down the principle that you should not speculate on facts when you can know.
Lord WINTERBOTTOM: I am afraid that I cannot help the noble Lord in this matter.
Lord WARDINGTON: I was suggesting that this matter perhaps might be looked at.
Viscount SIMON: The noble Lord's last remark in response to the noble Lord, Lord Trefgarne, seemed to me to imply that because provisions arise later for, first of all, negotiation and, if necessary, arbitration, that this could meet the point made by Lord Trefgarne. But I thought that in previous exchanges it had been made quite clear that the negotiation and the subsequent arbitration was only within the ambit of this Bill; that is, on the basis that no value could be added for the managerial content of the take-over.
Lord WINTERBOTTOM: What is intended within the ambit of the Bill is the following: the requirement to take account of all relevant factors is intended to give flexibility and to ensure the valuation is equally shared to all security holders. It enables the stockholders' representative for each company to bring into negotiations and (if agreement cannot be reached) before the arbitration tribunal all the factors he considers relevant to the valuation of the shares of the company as if they had been listed on the Stock Exchange. This would enable him to argue that any piece of information would have a direct bearing on the share quotation of a company. We are talking about honest arbitration and honest negotiations.
Lord ORR-EWING: I must confess that I am terribly perplexed about this business of "supposing that it had been on the Stock Exchange" when only one out of 43 companies actually had a quotation on the Stock Exchange. It seems an extra-ordinary criterion on which to base the whole discussion on all of Part II of the Bill. The noble Lord and I served on the Board of Admiralty for some time. I remember inquiring about how many people were color blind. We were always concerned about that for they would say they could not read the flags—though flags are not much used nowadays—and could not therefore serve in the Royal Navy. There were, say, 2½ in every 100 who were color blind. This is about the percentage of companies that we are concerned with. You would not say, "Let us judge all people by they number who are color blind and base everything on the assumption that the cannot read colours; cannot look at colour television or identify traffic lights, and so on".
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This does not seem a vet realistic approach to life. Therefore it is a false assumption. I have never heard of the bwllfa system. Even the noble Lord found it unusual. As I quoted earlier, I was more familiar with Nye Bevan's principle; why gaze at the crystal ball when you can read the record? This; seems an admirable principle, rather more modern and certainly not Welsh, and easier to pronounce than the other one.
Either principle is much sounder than the supposition that somebody, however wise they are, on the Tribunal can somehow work out what would have been the Stock Exchange value if in fact the company had ever been on the Stock Exchange for some strange period in 1972–73, paying no regard so far as we are able to know up to now, of any result achieved in expansion, improvement and efficiency, and every other factor in exports. We have not yet heard that these are relevant factors. The noble Lord has only to say, "As a sensible man I would think that these are some of the factors which a tribunal would need to take into account if we are going to have fair compensator, as every Government Minister has promised". Then I am sure we would be very happy to go on to the next proceedings.
Lord WINTERBOTTOM: May I reread the sentence I read from my brief, interpreting it in terms of what the noble Lord said. It enables the stockholders' representative to bring into negotiations and, if necessary, before the Arbitration Tribunal, all the factors which he considers relevant to the valuation of the Mares of a company as if they had been listed on the Stock Exchange. Tonight we are not trying to impose on the stockholders' representative an assessment, a code of conduct, a method of assessment, binding laws as to the way he starts his negotiations; the factors which are considered relevant by the stockholders' representative are the ones that will be brought into negotiation, and although I know that your Lordships would not wish any names to be mentioned, one name I know among the stockholders' representatives, s a man whose negotiating power is formidable and who I am certain will present the case of his clients very well indeed. So it lies with the stockholders' representative to produce any factors which he considers relevant to

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the argument. I imagine the cases mentioned by some noble Lords must be considered relevant.
11.48 p.m.
Lord ROBBINS: But is the noble Lord still not tying the concept of relevance to the establishment of the notional value of 1974, or is he prepared to admit that the case so admirably described by the noble Lord, Lord Campbell of Croy, events which happened after 1974, would he relevant to fair compensation? The noble Lord has passionately denied that he is in favour of expropriation. I would say that if the factors in the case mentioned by the noble Lord, Lord Campbell of Croy, were not brought into the assessment, there would be expropriation.
Lord WINTERBOTTOM: If the stock-holder's representative considered these factors to be relevant, he would put them forward in his argument. I do not think we can say more than that.
Lord CARR of HADLEY: May we be clear? In the Government's view, would the Arbitration Tribunal be entitled to take into account events which have occurred since 1974? This is the crucial factor. Let us assume that we accept for the moment—but it is wrong to accept—that the starting point has to be an extraordinary, notional Stock Exchange value. We think it is a crazy starting point; but let us for a moment assume it is the starting point. Having started with that, can the stockholders' representative argue about events which have taken place since then as a reason why the compensation should be different? If the stockholders' representative does so argue, do the Government give us a categorical assurance that the Arbitration Tribunal will be entitled to take those arguments into account and base their judgment upon them?
Lord WINTERBOTTOM: I can say that we are looking forward to the prospect beyond 1974 and are taking it into account. It is very difficult to put this into precise language, but I should have thought, knowing at least one of the individuals who are stockholders' representatives, that it would be very hard to keep him away from the situation mentioned by the noble Lord.
Lord CARR of HADLEY: I do not want to press the noble Lord unfairly, because I am sure he is not dodging the issue deliberately. Of course he can say that the stockholders' representatives can and will come and put the arguments, but the crucial point is whether the arbitration tribunal will be within their terms of reference to give weight to these particular arguments. It is no good just saying that the stockholders' representatives can put the arguments, if the terms of reference of the tribunal were such that they could not take them into account in arriving at their valuation. I think if we could all be reassured categorically that the arbitration tribunal would be able to give weight to those arguments and use them as part of the evidence on which they would base their recommendations, some of us would be at least less unhappy than we are at the moment.
Lord WINTERBOTTOM: It is not possible to foresee every question that might be put to one in an argument of this kind; but I think the argument put by the noble Lord is entirely valid and that what he says is correct. However, we have come to Clause 42 in due course this evening and I will try to get something more concrete for him by them.
Lord CULLEN of ASHBOURNE: We have had an interesting discussion on this Amendment, which I now beg leave to withdraw.
Amendment, by leave, withdrawn.
11.52 p.m.
The PRINCIPAL DEPUTY CHAIRMAN of COMMITTEES (Baroness Tweedsmuir of Belhelvie): Before I call Amendment No. 170B, I should say that if it is agreed I cannot call Amendment No. 171.
Lord CULLEN of ASHBOURNE Lord CULLEN of ASHBOURNE moved Amendment No. 170B:
Page 53, line 19, leave out subsection (6).
The noble Lord said: In order to arrive at an estimate of compensation for all but one of the 43 companies, it is necessary to calculate the price which the shares of those companies would have had if they had been quoted on the Stock Exchange between August 1973 and February 1974. Such a calculation can

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be shown to be impossible. If a notional share price is to be quoted in any systematic way, it must be possible to say, first, what factors determine the share prices, and secondly, the weight given to each of these factors by the Stock Market. Leading City analysts, statisticians and economists have attempted to do this in order to discover whether it is possible to predict future share prices, their subjective data going back for some years for the larger companies to the most advanced statistical method, but they found it impossible to make predictions with a degree of accuracy that was helpful, conclusive or meaningful.
The weightings given to various factors appear to be completely random: in other words, there is no clear or apparent relationship between the share price of individual companies or between the share price of individual companies or between the share price of an individual company and the general level of the Stock Market. Two almost identical companies can have a totally different share price when measured short term or over a longer period. This result may sound improbable, but it is nevertheless a fact. Even the largest companies, which might be thought to have the most consistent relationship with the Stock Market as a whole fluctuate substantially relative to each other and to the general level of the Market. For example, in one year ICI fluctuated relative to the Market by 59 per cent., GEC by 39 per cent., Unilever by 58 per cent., and Vickers by 100 per cent. Smaller companies are liable to fluctuate much more widely. The impossibility of calculating a hypothetical or notional share price would not matter if it was clear from the Stock Exchange evaluation of the parent company over the reference period what was the actual evaluation of the subsidiary. But the parent company's share price is helpful only if it is possible to dissect, from the evaluation of the whole, the evaluation of the separate parts of the whole.
Finding the relationship of the parts of a multi-activity company to each other, and to the company as a whole, is an insoluable problem for the same preconditions of knowledge are required. It must be known what weight the Stock Market gives to the factors in order to assess the contribution of the parts of the whole. Should it measure what is the
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subsidiary's proportion of the group's net assets, pre-tax or post-tax profits, or liquidity? Each factor used on its own would produce a separate remit. What balance or "mix" of factors should be employed? For this reason, the known share price of the parent is no a helpful guide to the subsidiary's notional share price. In fact, by directing as Clause 38 requires, that the parent's share price should be taken into account, the task of devising a notional share price is made more difficult and complex as an extra layer of difficulties is encountered. In the case of steel nationalisation, there was no such requirement. I beg to move.
11.57 p.m.
Lord WINTERBOTTOM: This is a complex matter and there was considerable discussion in Committee in another place about the meaning of Clause 38 (6) to which the Amendment relates. Clause 38(6) provides that, where a vesting company represents a substantial proportion of a quoted parent, the share quotation of that parent shall be one of the relevant factors. I must emphasise that this is only one of the relevant factors. The basic requirement on the Tribunal is to take account of all relevant factors in determining the notional share quotation of an unlisted company. The inclusion of Clause 38 (6) merely ensures that the quote of a parent is not excluded from the considerations when it is strictly relevant. If the subsection were not included, as proposed in Amendment No. 170B, the Bill would fail to recognise the obvious correlation between a parent company's value and the subsidiary's value when the subsidiary represented the major part of the parent. I think that that is a fair argument, using the word "fair" in the sense in which it was accepted earlier.
Lord CULLEN of ASHBOURNE: That is a very good answer, but it answers only a very small part of what I said. My main point was that to calculate a notional share price will be extremely difficult, and I wonder whether any noble Lord here today has a notion of what t notional share price is. I do not have one.
Lord ROBBINS: May I point out that at an earlier stage of our discussions the noble Lord, Lord Melchett, said that

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the technique of computing notional share price was well-known. After puzzling about the literature, I should like to submit a humble request to the Front Bench that a paper be laid in the Library, giving an authentic account of the technique of computing notional share prices.
Lord HARMAR-NICHOLLS: I was a little puzzled, too. The main explanation which the Minister gave for including the quotation of the parent company was to make certain that it would not be excluded when it was relevant. If you have to name something in order to show that it is not excluded because it is relevant, why do the Government not accept all of our suggestions that we ought to mention liquidity, profits being ploughed back or extra profits being earned? This adds point to our argument that what we have mentioned should be included, in order to show that they, too, are relevant. How does the noble Lord square that, because that was the only answer he gave?
Lord WARDINGTON: In his reply to my noble friend the noble Lord referred to a subsidiary being the major part of a parent. Does this mean that if it is a minor part of a parent the considerations do not apply?
Lord WINTERBOTTOM: If the subsidiary company is a minor part of a major group, then it is not quite so relevant as if the area for nationalisation were a major part of the parent group. There is a difference. The profits and assets of the minor part obviously must carry greater weight in calculating its value than if the bulk of a major company came within the ambit of the Bill.
Lord WARDINGTON: Then may I point out to the noble Lord that the greatest number of major companies which are to be nationalised will have a minor part nationalised? It seems to me that according to the noble Lord's interpretation, this applies only to minor companies which have no share quotation. A minor subsidiary would not come within the ambit of the Bill. It is the major companies, with minor subsidiaries, which are quoted. It would be helpful if the noble Lord could look again at this point. The noble Lord stated that where the subsidiary to be nationalised was a major
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part of a parent the price at which it would be nationalised would bear a relationship to its parent's quotation.
Lord WINTERBOTTOM: I am grateful to the noble Lord for having put his point so clearly because I think I can help him. The application of Clause 38(6) is strictly limited; it applies only where an acquired company represents a substantial part of a quoted group. In other words, Clause 36 will apply only where the activities of the acquired company are clearly a major factor in determining the quotation of the parent. It is not the Government's intention to apply Clause 38(6) where the activities of the acquired company are less than major in determining the share price of the parent. Minor holdings will not affect the issue. Clause 36(6) is limited in its scope.
Lord CULLEN of ASHBOURNE: This was another of the Amendments which was tabled in an effort to try to make the Government see how extraordinary the notional share price is. However, I know that one could go on like this for ever without its having any effect. Therefore, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
12.4 a.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 171:
Page 53, line 32, leave out from beginning to ("the") in line 34 and insert ("the arbitration tribunal, in determining the base value of the company's securities in accordance with subsection (1) above, may have regard to").
The noble Lord said: I beg to move Amendment No. 171. If one looks at line 32 on page 53 one sees that as the Bill stands it says that one of the relevant factors shall be—the words are obligatory—the quotation of shares of a parent company. This is most unsatisfactory. I will not go over the arguments again. My noble friend Lord Cullen of Ashbourne has just pointed out that a parent company's quotation bears very little relationship to the value of a subsidiary company. Its inclusion as a prominent factor is inappropriate, in that a parent company's quotation would be only a reliable indication of the notional value in the special circumstances where the acquired subsidiary constituted almost the whole of the parent company's activities. This is about

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the only situation where that would apply. The Amendment does not make the taking into account of just one prominent factor obligatory. The Amendment does not predetermine the question of relevance of the parent company quotation. What it does is to enable the arbitration tribunal to have regard to the quotation of the shares if they decide to do so. We think this is an improvement in the drafting of the Bill and I ask the Government to consider it. I beg to move.
Lord WINTERBOTTOM: Of course, the Government will consider these arguments; that is what we are really doing this evening, considering them; but as we see it Amendment 171 would limit the application of Clause 38(5) unnecessarily. It would make the arbitration tribunal responsible for deciding whether or not to take into consideration a parent share quotation. This could lead to an anomalous situation where, for example, the arbitration tribunal decided not to consider a parent's quotation where it was in fact strictly relevant. Clause 38(6) is so drafted that it can be applied in negotiations in the way most appropriate to the particular valuation in question. Any reduction in the flexibility of the application provision, which would result from the inclusion of Amendment 171, could be detrimental to either party in the negotiations. I feel that, since we are speaking about negotiations, flexibility is important since "give and take" between the two parties must be an integral part of the negotiations. Therefore, I suggest that this Amendment should not be accepted.
The Duke of ATHOLL: Can the noble Lord say how many companies will be affected by subsection (6) of Clause 38? My impression is that it will be very few.
Lord WINTERBOTTOM: I will give the noble Duke an answer as to exactly how many at a later stage. My impression is the same as his, but I should like to be precise when I give an answer.
Lord CAMPBELL of CROY: On this Bench we consider it to be unsatisfactory that this should be the only factor that is referred to, and our Amendment would certainly be in line with the other Amendments which the Committee has made today and on the last occasion. I will not
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press the Amendment at this time, but I reserve the right to return to it at the Report stage. At this stage I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 172:
Page 53, line 35, at end insert—
("( ) In determining the base value of any securities of a company in accordance with subsection (1) above, it shall be assumed that dividends had been paid by that company of such an amount as would have been appropriate if no restrictions as to the payment of dividends had been imposed on the company under the terms and conditions of a temporary loan made to the company by the Secretary of State for Defence.").
The noble Lord said: This Amendment at least has the merit of being relatively straightforward and of very narrow application. If we are going to have hypothetical Stock Exchange valuations it is likely that the main factor that will be taken into account by those who are responsible for agreeing or adjudicating on the values of a company will be the actual and prospective dividend yield. But it so happens that during the six months reference period when these valuations are to be struck, in the case of two shipbuilding companies, although they were in fact earning quite satisfactory profits they were precluded from paying dividends by the terms of the agreements under which they had accepted loans from the Ministry of Defence. The point of this Amendment is quite simply to demonstrate that it would be unfair if the existence of these particular and perfectly normal restrictions on dividend distribution during the particular reference period were to be taken into account to the detriment of the valuation of the shares of the two companies concerned.
I do not think there is any need for me to go into the cases in detail. Rather strange grounds were advanced in another place when a similar Amendment was put forward, on the grounds that it would destroy the generality of the phrase, "all relevant factors" in subsection (3). But what we are saying here is quite simply that the Tribunal should not merely have regard to the nature of these restrictions, but should adopt certain definite assumptions as to how the companies would have been situated if they had been quoted on the Stock Exchange. Noble Lords

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have been at great pains to point out that this is the basis of their valuation. I suggest what we are putting forward here is a nearer approach to reality in this respect. I have modest confidence that the noble Lord may be prepared to accept it. I beg to move.
Lord WINTERBOTTOM: I am afraid I cannot help the noble Lord, Lord Strathcona and Mount Royal, but it might be helpful to the Committee as a whole if I gave the same assurances as were given in another place by the Parliamentary Under-Secretary. The specific factors which might be considered to be relevant are not listed because their relevance can vary from company to company. It is for the stockholders' representative to make a case for including a factor among the relevant factors. Since the companies concerned are free to put their case to the Secretary of State—and I stress the word "free"—why the conditions attached to the Ministry of Defence loan should be disregarded, these Amendments are unnecessary unless, of course, the companies do not feel that their case is sufficiently strong to persuade the Secretary of State; but if they feel their case is strong, then they are in a position to put the argument forward.
Lord STRATHCONA AND MOUNT ROYAL: The reply of the noble Lord, Lord Winterbottom, is disappointing, and particularly so in this respect; he is suggesting that the Secretary of State is an open-minded man, prepared to listen to reasoned arguments. We have been here since about seven o'clock this evening, and judging by the degree of flexibility (to use one of the Government's favourite words) demonstrated by the Government, God help anyone trying to persuade the Government they should be reasonable in looking for loans of this sort! I am bound to say I found this extremely disappointing, but this is not something to make an issue of now. One can only say that I am sure the companies will be no more re-assured than I am. But having made our protest, I think I had better beg leave to withdraw this Amendment.
Amendment, by leave, withdrawn.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 175:
Page 53, line 45, at end insert—
("(7A) If, by virtue of an approval given by the Secretary of State pursuant to section 30 or 31 above, property, rights or liabilities have been transferred by the company in question, then, for the purpose of determining, in accordance with subsection (1) above, the base value of the securities of the company or such of them as are specified in the approval, it shall be assumed that, immediately before each of the relevant days—

(a) the property, rights or liabilities so transferred were not vested in the company, and

(b) in place of that property, those rights or liabilities there were vested in the company funds equal to any consideration which passed to the company as a result of the property, rights or liabilities being so transferred.").

The noble Lord said: This Amendment was discussed with Amendment No. 148, which the Committee approved. Therefore, I beg to move.
On Question, Amendment agreed to.
12.13 a.m.
Lord WARDINGTON Lord WARDINGTON moved Amendment No. 175A:
Page 55, line 22, at end insert—
("(11A) Where apart from this subsection the base value of the securities of a company for the purposes of section 35 above would be determined in accordance with the provisions of subsections (1) to (11) above, the stock-holders' representative may by notice in writing to the Secretary of State given at any time before the expiry of three months from the date of transfer of the company, elect that in lieu of subsections (1) to (11) above, the base value of the securities of the company be agreed or determined in accordance with the provisions of subsection (12) below.
(11B) In the event of the stockholders' representative giving notice to the Secretary of State under subsection (11A) the base value for the purposes of section 35 above of the securities of the company shall be such as may be agreed between the Secretary of State and the stockholders' representative or, in default of agreement, as may be determined by arbitration under this Act to be the price which would be put on the securities of the company by a purchaser willing to purchase at arm's length on the open market (as if the Act had not been passed) all the securities of the company in order to acquire the company as a going concern on the day following the date of transfer; and the arbitration tribunal in determining the base value that any securities would have had in those circumstances shall have regard (in addition to any other relevant factors) to the following, that is to say—

(a) the net value of assets after allowing for liabilities;

(b) the amount of the profits or losses which have been made during such period as appears material or might have been expected to be made in the future;

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(c) any property, rights or liabilities which become vested in the company by virtue of section 20 above.").

The noble Lord said: In the absence of my noble friend Lord Selsdon, may I speak to this Amendment. The draft Amendments to Clause 38 are to provide the stockholders' representative with the option to choose a different measure of compensation for companies whose securities are unquoted. The whole basis of the nationalisation of the companies is the acquisition of their securities, and compensation is paid on that basis. The draft Amendment is consistent with this, and measures the compensation by the value of the company's securities. The value is to be the price put on the securities by a person who wishes to acquire the company as a going concern by purchasing the securities. As a company's business can either be acquired by purchasing all its securities or by buying for cash the whole of its undertaking, this measure of compensation in essence is identical to the measure of compensation proposed in the Ports Bill 1970.
In addition, the Iron and Steel Act had a 61-month relevant period from 1961 to 1966. The companies in any one industry are not either at their peak or their trough so far as prices or earnings are concerned at any given moment. The option that was given under the Iron and Steel Act was that a company could choose an average of that 61-month period or the last six months. That struck me then and strikes me now as being a perfectly reasonable and fair basis. It applied to quoted companies and was used as a basis for quoted companies, and also used in argument for unquoted companies, but the unquoted companies did not necessarily use the same basis of compensation; they had the option. I think, also, it is fair because prices fluctuate with the company's history, its potential, what has just been reported, what orders they have received. Assets remain the same basically, although the assets can be valued totally differently in the market place. if I may recall to your Lordships' attention Lord Selsdon's remarks; he referred to a company which at one moment had a market capitalisation of £190 million and at another moment shortly afterwards of only £19 million. The assets had remained the same; the assessment by the investing public had changed.
This draft Amendment follows very closely Clause 40 of the Ports Bill 1970 and paragraph 3 of Schedule 4 to this Bill. I am not arguing about nationalisation I am not really at this moment arguing about fairness. I am arguing about the correctness and the feasibility, the possibility, of utilising the terms that are being put forward. We have heard so much about the notional price. I have tried to explain earlier how difficult this is to arrive at when a number of the factors which would apply to a notional price are disallowed in the Bill. In trying to arrive at a notional price, it is surely wrong to prohibit an increase in dividend—which I have been led to believe could be taken into account by the stockholders' representatives in arguing the case after 1974—and at the same time refuse compensation for amounts put back into the business. The former could have a very marked effect on the price. Everyone knows the effect of a dividend increase.
Therefore, assuming for one moment that the price in the Stock Exchange is a worthwhile tool to use in arriving at compensation, if the dividend was allowed to be increased and if, as the noble Lord hinted might be the case, it could be applied to the period after 1974, then it would have a marked effect on the terms at present envisaged for compensation. In the latter case, which is the refusal to allow compensation to be paid for amounts put back into the business, it seems to be even more unfair. This ploughing back in Kincaid has been mentioned today, and Yarrow and Vosper and Vickers, and many others which I mentioned on Wednesday, have ploughed back enormous sums into these companies.
They have expanded their employment, business, exports, and yet the Government are refusing any compensation to be allowed for that ploughing back of retained profits, which they could not pay out in dividends because that is prohibited. Do the Government realise that the appalling waste of time by management in keeping these companies that are to be nationalised as ongoing business entities successfully exporting and employing people has very damaging effects, in many cases, on share prices because of the time that is taken up in dealing with these questions? It does not necessarily have an effect on assets. I have taken rather a long time,

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but in the absence of my noble friend, I beg to move.
12.23 a.m.
Lord CARR of HADLEY: Perhaps I may make one more effort to penetrate the minds of noble Lords opposite to try to get them to understand why this basis which they are insisting on cannot provide a basis for fair compensation. They go on asserting that their object is to provide fair compensation, and they further assert that this extraordinary business of the notional share value will achieve it. This Amendment gives us one more chance to try to penetrate their minds about this, and, if only we could, to provide us with the basis on which we might put the matter right.
The Government insist that their aim is to compensate the shareholders on the basis of the earning power of the assets being nationalised. I believe that that is common between us. The Government insist that it is their object to compensate the shareholders on the basis of the earning power of the assets being nationalised. We all agree about that proposition. May I now repeat the words of the noble Lord, Lord Melchett. He stated categorically on 20th October, at column 1437 of our debates, that what the Bill tries to do is,
"… make good to each and every shareholder the capital and income that that shareholder has lost from the acquisition of his or her shares."
That again we can agree with fully, if that is the Government's intention, as we understand it is. But what sort of shareholder did the noble Lord think he was referring to? The previous day—it appears at column 1408 of Hansard—the noble Lord referred to the general level of the stock market as if it had something to do with the earning power of the sort of shareholders with whom we are concerned in this measure; namely, a share-holder who is a parent company or a controlling shareholder as opposed to being a Stock Exchange investor, because there is a crucial difference between the two.
Surely by now we can hope that we have made it clear—it is no great discovery on our part; if the noble Lord had consulted the Stock Exchange Council or anybody in the City he would have heard this
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long before the Bill was drafted—that the Stock Market reflects only the value of the dividend earning power to the private individual investor and, by definition, cannot reflect the much greater earning power of all the company's assets when those assets are in the hands of a controlling shareholder or parent company. What such a shareholder needs—in other words, what no fewer than 42 out of the 43 companies being nationalised under the Bill need—in return for the assets which they are losing, and what they must have in order to make good their loss, is what I have just described; namely, the total cost of the physical assets, the stocks and so on, plus the goodwill element, in other words the asset value of the company to be nationalised.
There is no other way in which the parent company can replace that which is being lost, and to replace what is being lost is, according to Lord Melchett, the purpose of the Bill. I really believe it is unarguable that the method chosen simply cannot fulfil the purpose which Lord Melchett and his colleagues keep repeating to us is the purpose of the Bill. The purpose of the Bill is right in this connection and we are prepared to accept the good faith of the Government in saying that that was their intention when they drafted it, but we must, before we finish, penetrate their minds to get them to understand that what they are proposing fails to achieve the purpose which they claim to have in mind.
Lord Melchett further confused the issue by arguing that because the level of the Stock Market now might be slightly lower than in the reference period, some companies might not just be fairly compensated but might be receiving a bonus. But that again is based on this wholly wrong conception of the company share-holder holding the whole of the assets, compared with the individual investor, stockholder. For reasons which I have at least partially touched on in previous debates, the limitations on the dividends which companies have been allowed to pay to their Stock Exchange holders out of the total income they enjoyed has meant that even in 1974 the Stock Market values of most companies were well below the value of the assets owned by them, and since 1974 inflation has made the situation even worse. Thus, compensation equal to the reference period capitalisations of

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most companies could not, even in 1974, have allowed the parent company's share-holders to replace the assets which they owned.
To what extent will that amount allow those assets to be replaced three or four years later when inflation has just about doubled the cost of all the industrial assets they will have to replace? As I have already said, the Government say that they want to compensate on the basis of the earning power of the assets being nationalised. Well and good. I repeat that that is what we want too, but we are stuck with the provisions of Clause 38, which says that the compensation will be based on the price the vesting company would have commanded as if it were quoted—in others words, based upon the earning power of a Stock Exchange shareholder and not upon the basis of the earning power of a parent company shareholder who is actually losing the assets and not just losing his share and getting another share in place of it.
I hope that, by now, I and many other noble Lords from all sides of the Committee have shown that these two things are not the same thing and are not approximately the same thing. So will the Government at long last explain why they think that the terms of the Bill will allow their professed aim to be achieved? I, for one, cannot see how that will be so, nor—as I believe noble Lords opposite must admit—can other noble Lords from all parts of the Committee, or experts outside the House, regardless of Party political persuasion.
May I finally in support of my arguments ask noble Lords opposite to refer to the tenets of one of the Government's own Departments which has been referred to in our previous debates; namely, the Export Credits Guarantee Department? As I understand it, that Department recognises the distinction that I have been making between the value of a Stock Exchange shareholder and the real value of a company to its parent company. As I understand it, the ECGD works on the principle that a fair compensation value is the original cost of the investment plus retained profits and that this—and I quote from one of their official statements,
"bears no direct relation to any Stock Market quotation of the shares concerned".
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I therefore say most seriously to the Government that, if they will r of believe me and other noble Lords, they should believe their own Department and the criteria that that Department has set down. I believe that the case that we are putting is a substantially reasonable one in order to achieve fair compensation on the very terms that the Government themselves have defined. I repeat that we are not seeking to set any different objective from the Government themselves. We are trying to get them to understand that they cannot achieve their own objective by the means that they are proposing and that that is the unanimous view of anybody who knows anything about the subject, not only in this House but outside it as well.
Please will the Government understand that this is no Party matter at all. It has nothing to do with any confrontation between Lords and Commons, Conservatives and Labour. This is a technical matter as to how the Government can or cannot achieve the very objective they have said they are seeking to achieve. So often in this Committee we have been at severe odds about our objectives: here, we are in 100 per cent. agreement about them, but apparently in 100 per cent. disagreement about the technical competence of the methods selected by the Government to achieve those objectives. I make or. e further appeal to the Government to take this matter seriously because I beg them to believe that it needs taking seriously and to remember another case which I quoted earlier today of another Government sponsored body—the ICFC. For very much the same reasons, the ICFC is only allowed to sell a company on asset value, not on share value. There are precedents within the Government themselves for the point of view which we and everybody else are putting to them. May I make this further appeal to the Government at last, therefore, to let their minds be penetrated by what we are trying to say.
Lord ORR-EWING: May I quote another instance which gives some substance for some "give" on the Government side. On the 18th November, 1975—and I had warned the noble Lord, Lord Beswick, that I or others might be raising this point so the noble Lord will be able to turn to that part of his brief

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which deals with it—some of the City institutions saw the noble Lord, Lord Beswick, who was at that time Minister of State at the Department of Industry and was specifically concerned with aero-space. That timing was before the Second Reading in another place which took place on 2nd December, 1975. The institutions reported receiving an assurance from the noble Lord, Lord Beswick, that:
"The intention of the Government was to provide fair compensation and that the Bill would permit the Arbitration Tribunal to take all relevant factors into account."
We have had much debate on relevant factors. The two associations representing the investment trust companies and unit trust managers used the above-quoted words in a Press release which they put out on the 22nd January. That Press release recounted the points set out in that note and, having quoted the words of the noble Lord, Lord Beswick, they added:
"The assurance is welcomed. The associations, however, consider that the basic formula for compensation adopted in this Bill is unsuitable in particular for the compulsory acquisition of unquoted companies and are concerned that they should not be used as a precedent."
The Chairman of the Investment Protection Association of the British Assurance Association followed up the meeting with the Minister of State with a letter to him which the Under-Secretary quoted with approbation in the Commons Committee, at column 1767 of the Official Report of their 34th sitting as follows:
"We welcomed your assurance that the Arbitration Tribunal will be able to have regard to all relevant factors in determining the base value of unquoted securities"—
and this is the vital point which I hope will be impressed on the minds of noble Lords—
"that the quoted market price of the shares of a parent company will not be the overriding consideration."
That is very encouraging because it means that some of the relevant factors may be more important than the quoted market price of the parent company. I may say that the Under-Secretary went on to say:
"In other words, as we have said, there will he other considerations."
I thought there was a little more extra "give" there than we have had confirmed in this Committee tonight, and I
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felt I should put it on the Record in the hope that the noble Lord would be able to say, "Yes, we accept that. It was said by the noble Lord, Lord Beswick, who was a Minister of the Government at the time, and naturally we stand by a Minister's statement of that sort which had itself been repeated in Committee by another Minister in another place."
12.38 a.m.
Lord MELCHETT: May I first of all say to the noble Lord, Lord Carr of Hadley, that certainly we take the points he is making on this Amendment very seriously and I hope he has not gained the impression from anything I have said or anything my noble friends have said that we arc not taking the Amendments he is moving seriously, and I hope he has not got the impression that we have not taken this point seriously when he has made it to us, as he himself said, several times before in the Committee stage. Certainly we have, and we have done our best seriously to respond to it. I certainly intend to do my best to try again.
Once again, the general effect of what the noble Lord said is overtaken to some extent by Amendment No. 156 and I merely say that to put in on the Record. The noble Lord, Lord Trefgarne, is not here, but in case anybody else gets up to say, "The noble Lord is dodging answering the question", I will go on to answer this particular Amendment as if No. 156 was not in the Bill. However, it seriously alters the background against which we would be considering the Amendment.
Amendment 175A seeks to offer a choice between the concept of the imputed stock exchange quotation and the concept of the price securities will fetch in a transaction between a willing buyer and a willing seller. The clearest objective test of that price is, for quoted securities, the Stock Exchange quotation of that security. The Stock Exchange quotation is, quite simply, the price at which a security will change hands between a willing seller and a willing buyer. It is the fair market price for the security. I am repeating the point I have already made several times this evening, and I make no apology for that. In the case of unquoted securites, a ready-made Stock Exchange quotation is, of course,

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not available. But, nevertheless, an imputed Stock Exchange quotation provides an equally valid yardstick for valuing a security as an actual share quotation. In the same way as a Stock Exchange quotation represents a fair market value of a quoted security, an imputed share quotation represents a fair market value of an unquoted security.
All the noble Lord's Amendment No. 175A does, therefore, is to offer to the stockholders' representative the choice to remove from the clause the one accepted yardstick for measuring the fair market value of a security. That is why I say that, in a sense, it follows Amendment No. 156, which in the Government's view would achieve the same result. In our view, this Amendment would quite simply reduce the clarity of the clause. There are three further major objections which the Government have to this Amendment.
Lord CARR of HADLEY: At this point, I wonder if I could ask on what criteria, then, one calculates the uplift over the share value which always has to be paid, not just to buy a few shares in a company but to acquire all the shares in a company? The noble Lord will no doubt remember that earlier I quoted 19 recent cases which showed that, on average, the price paid was 48 per cent. above the quoted share value. Somewhere, if there is going to be fair compensation, there has to be a calculation of that uplift over the price at which you can buy just a few shares.
Lord MELCHETT: I answered that specific point on an earlier Amendment, when it was raised by the noble Lord, Lord Trefgarne. I know the noble Earl, Lord Lauderdale, accused me of speaking very quickly and made some complimentary remarks about my English; and I think the noble Earl and the noble Lord, Lord Trefgarne, said that they would look at what I had said, and the noble Lord, Lord Trefgarne, particularly, has promised to return to it at Report stage. So possibly I could leave it at that, as I really have said all I have to say this evening, at any rate. I will study what noble Lords have said to me about it; and we have the promise to return to it.
As I was saying, the Government have three further major objections to this Amendment. First, it proposes that the
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stockholders' representative should have a choice of the valuation method. The representative can either accept the method already in the Bill or he or she can choose the willing buyer/willing seller method. In other words, the stockholders' representative can choose the best option. The objective of the compensation terms is that they should be fair. I think that in giving someone an option in the way that the noble Lord's Amendment would, the noble Lord is implying that "fair" means the highest possible price. I know that that is not the noble Lord's intention, but it does seem to me to be implicit in giving people a choice between adopting one method or another, because inevitably the stock-holders' representative will make the choice which gives him the highest price, and it is quite right that he should, too. Before the noble Lord intervenes, perhaps I could finish making my point, and then I shall certainly give way to him. Noble Lords are asking the Committee to approve compensation terms which effectively say, "Heads the shareholder wins, tails the taxpayer loses", and that, in the interests of fairness, we must reject. Does the noble Lord wish to make a point?
Lord WARDINGTON: I beg the noble Lord's pardon. I think I was wrong in my etiquette when I tried to correct him. I should not have said, "May I correct the noble Lord?". He said that one of the accepted views—I am sorry; I have lost the thread of my remarks.
Lord MELCHETT: Perhaps the noble Lord could think about it and make his point when I have finished my speech. The second major objection that the Government have to this Amendment is that it introduces the concept of an asset valuation. The book value of assets represents little more than a company's accounting conventions and is of little use in a fair valuation process. This point I made earlier. I also said then, and repeat it now, that a separate independent valuation of a company's assets would be a very time-consuming process. I mentioned the case of coal nationalisation. Although one noble Lord—I think it was Lord Wardington—explained one reason for the time involved, I would still say that the fact that there had to be an independent valuation of the assets of the companies involved meant that the process took as long as it did (eight years) to settle.

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The third major point of objection that the Government have is that the Amendment contemplates the alternative willing buyer/willing seller basis of valuation taking place as at the date of transfer. This destroys the fundamental principle that the valuation should not be affected by the prospect of nationalisation. Any form of valuation at the date of transfer must have been affected in some way by the prospect of nationalisation. In some cases, this may have been an adverse effect and, in others, a favourable effect. Whichever way the effect operates, it is bound to have an influence on the valuation and this must detract, in the Government's view, from the basic fairness of the terms.
There are two other points that I could make briefly in answer to noble Lords. The noble Lord, Lord Carr, raised the question of the ECGD overseas investment insurance scheme. This, as the noble Lord knows, was discussed at great length during the Committee stage in another place. As my honourable friend the Minister of State made clear at that time, the Government do not believe that this scheme has any relevance to the compensation provisions in the Bill. The ECGD scheme is designed to protect United Kingdom investors against expropriation of their assets by foreign Governments. Investors pay a premium in return for which they can claim recompense from the ECGD in respect of losses suffered as a result of expropriation of their assets.
This arrangement has no relevance to the compensation terms for two reasons: first, because there is no question of compensation under the Bill being unfair; and, secondly, the ECGD scheme is a form of insurance under which certain benefits arise as a result of the payment of a premium.
The noble Lord, Lord Orr-Ewing, raised the question of, as I understand it, a letter written by my noble friend Lord Beswick. Although the noble Lord told my noble friend that he was going to raise the matter, he did not tell me. While I think I may have been handed by somebody outside the Chamber a copy of the letter, I am not sure that I have it right. If I have not got the point right, perhaps I could write to the noble Lord on it. I have not seen the documents, but my
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understanding is that my noble friend gave assurances that the tribunal will have regard to all factors and that the parent company's quotation will not override that. My understanding is, as my honourable friend said in another place, that we stand by those assurances.
Lord ORR-EWING: It is a little more than that. It is: "will not be the over-riding consideration". It implies that other considerations will be more important than the parent company's share quotation.
Lord MELCHETT: The parent company's quotation will not be an over-riding factor. I hope that the noble Lord will take this. I have not seen a copy of the letter and he did not give me notice. If I have not got it straight, because it is a complex issue, I should like the chance to look into it.
12.50 a.m.
Lord HARMAR-NICHOLLS: I have been trying to find some way of putting these explanations, and what they mean, in what I would call simple language. I have been looking through my own business commitments and I cannot find a good example. But my eye did alight on the noble Lord, Lord Gregson, when he was in his place. He may represent a company and circumstances which may impress upon the noble Lord what could be the unfairness of this situation. The noble Lord, Lord Gregson, is a director of Faireys; he is also the managing director of one of the subsidiaries.
The Fairey Group is quoted round at about 30p, the asset value of Faireys is about 74p. The subsidiary of which he is managing director is about a half of it. If it is that this subsidiary was one that was going to be taken over under this Bill, they could only have the 30p valuation at which their main company is quoted on the Stock Exchange. Since the subsidiary is half of the main, that would mean that they would get the equivalent of 15p, not 37p—half of the 74p asset value—and the main company would then be left with half of the company, which would mean they had half of the 74p asset value, which would be 37p. They would have 15p from the half which had been sold on the valuation. Automatically, the asset value of the company that would

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remain would he reduced from 74p down to 52p; that is the 37p plus the 15p that they get.
How would one feel in having to recommend that to one's shareholders? If, when the noble Lord has had a chance of reading what I call this simple example, he can say that is even rough justice, never mind about general fairness, I will withdraw all the opposition I have. It is literally a fact that if this Bill is applied as it was written before Amendment No. 156 amended it (and I hope that Amendment is going to remain), innocent shareholders would be put at risk having the asset value of their holding reduced from 74p to 52p in the example I have given, through no fault of their own. I fail to see where that could be considered to be fair in any meaning of the language.
Lord CARR of HADLEY: I must press this further. I cannot accept what the noble Lord, Lord Melchett, said about the relevance of the ECGD example. The fact there is an insurance policy, with respect, has nothing to do with the case. Presumably, the ECGD is a Government Department that would not agree to insure an unfairly high value. They would only insure what they regard as a proper value; they would not insure some fancy value. They define what they regard as the fair value, then they charge a company a premium for insuring that fair value. I repeat that ECGD specifically say that what they regard as the fair compensation value bears no direct relation to any stock market quotation of the shares concerned. That is a statement of principle and policy by a Government Department on the basis of which they issue insurance policies in effect. I do not think the example of the ECGD can be brushed off like that.
I still notice that neither the noble Lord, Lord Winterbottom—with whom I raised it for the first time some hours ago—nor the noble Lord, Lord Melchett, have yet referred to the analogy of ICFC. I repeat that I am informed that is not allowed to sell companies based on share values, but only is allowed to sell them based on asset values. Once again, it is said that that is the only fair basis on which to arrive at a value. I am quoting examples of two Government-sponsored bodies.
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One is a Government Department and one was set up by Government—I believe, though I could be wrong, set up by a Labour Government. What film is wrong with those precedents, particularly when reinforced by other arguments?
May I finally say to the noble Lord, Lord Melchett, that he said, quite fairly, that he was replying to this particular Amendment as if we had not already passed the Amendment strengthening the powers of the Arbitration Tribunal. I agree, and accept that makes a difference, provided that we really can be sure that the arbitration tribunal will be effective. Some time ago—I believe when we were debating Clause 42—the noble Lord, Lord Winterbottom, said, as I understood it, that he could confirm that it would be within the terms of reference of the Arbitration Tribunal to give weight to what had happened since 1974. I think I understood him to say that at a later stage he would confirm that. Since then I have myself been trying to make some inquiries and what I have discovered rather concerns me. First, I have discovered that it is the opinion of one leading counsel that the tribunal, under the Government's proposal, would be able to admit only information which was available to the Stock Exchange in the relevant period; that is the only evidence which would he admissible. If that were so it would contradict the assurance which the noble Lord hoped to be able to give rte. Moreover, my research shows that it was made clear in Standing Committee in another place by one of the Ministers that no information beyond this can be admissible, because it undermines the logic of the notional Stock Exchange price in the relevant period. If the noble Lord cannot now confirm, as I fear he cannot, the assurance he had hoped to give me, we are all in great difficulty. I do not think it will be a difficulty we can resolve tonight, but I must warn noble Lords that this is something to which we shall return with much persistence and vehemence at Report stage. I hope I can get replies from the noble Lord about this earlier hoped-for assurance which he said he would check but may I just try to emphasise again that we are not seeking here to achieve any purpose other than the Government's own purpose. However, the Government have totally failed to convince me that the methods

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they propose do achieve their admitted purpose. That is something we must continue to press to be satisfied on, and if that is not done tonight then we must continue at Report stage.
Lord MELCHETT: May I very briefly answer the point to which my noble friend said he would return, as I understand it. The Arbitration Tribunal w ill take into account all factors which a prudent investor would have taken into account during the reference period. The stock market valuation takes account of the condition of the company and of its future prospects. The terms of the Bill allow the Tribunal to look forward from the reference period, but it would be inconsistent with the basis of valuation for them to look back from the present day. If that is not immediately clear to the noble Lord, perhaps he will study the answer, as he has promised that he will come back to this on Report stage.
Lord WARDINGTON: The Arbitration Tribunal takes into account the value of a Stock Exchange share; but there is only one, and that is tiny. We have been into this before this evening and I will not go into it again. But I should like just to say that I am not entirely conversant with the procedures of your Lordships. I should like to mention that Amendment No. 180A is consequential on this Amendment, and at this stage I should like to ask leave to withdraw both Amendments and possibly reserve the right to raise them at a later stage.
Amendment, by leave, withdrawn.
Clause 38, as amended, agreed to.
Clause 39 [The appropriate deduction]:
1 a.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 176:
Page 57, line 1, leave out from beginning to ("there") in line 4 and insert ("on the date of transfer").
The noble Lord said: On behalf of my noble friend Lord Carr, I beg to move Amendment No. 176 and it might be convenient to speak to Nos.177 and 179 which are on the same point. This is basically a technical point, when compensation can be affected by orders
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issued by the Corporations themselves. The situation is that after the date of transfer a repayment, which might result in a deduction from compensation under subsection (5), would be decided by the debtor company only after it had ceased to be controlled by its present owners, and hence became controlled by the statutory Corporation which the Bill sets up. It seems quite unreasonable that an act done on the instruction of the Corporation should result in a deduction from the compensation. I will leave it at that and see what the noble Lord says. I beg to move.
Lord WINTERBOTTOM: The noble Lord has been good enough to speak to three Amendments together, and I should like to get one small point out of the way which has arisen for the first time this evening. The Government will be very pleased to accept Amendment No. 177, which is a drafting Amendment and improves the Bill. I now come to the "nitty-gritty" of Amendments Nos.176 and 179. As we see it, Amendment No. 176 seeks to limit the effect of the provision to a repayment in the period before the date of transfer (as opposed to up to nine months after under the present provision). The effect of this would be to allow repayment any time after the date of transfer until a notice had been served with respect to the debt, without any effect on compensation. As most of these debts are on immediate call, such repayments would be almost inevitable, and would result in a significant loss to the new corporations.
Amendment No. 179 seeks to prescribe that no deduction shall be made unless the Secretary of State has notified the stockholders' representative that a deduction will be made; in the case of a part repayment by the time the notice is served under Clause 21, and in the case of a total repayment by nine months after the date of transfer. This is unnecessary. No debt will be treated as a security unless a notice is served in respect of it. Once the notice is served in respect of a debt which has been repaid either in part or in whole, the stockholders' representative will know that a deduction will apply. And if a notice has not been served within nine months of the date of transfer, a debt cannot be treated as a security and so no deduction can apply.

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I hope that with those explanations the noble Lord will feel able to withdraw Amendment No. 176.
Lord STRATHCONA and MOUNT ROYAL: Of course, we are grateful for the acceptance of Amendment No. 177. As regards Amendments Nos.176 and 179, these are technical matters and the best thing we can do is to read the report of the noble Lord's reply. One is always slightly doubtful when he rejects something of this kind, which has been put forward in all seriousness. But the best course is to read what he has said and see whether it satisfactorily meets the point. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
1.5 a.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 177:
Page 57, line 5, leave out third ("of") and insert ("to").
The noble Lord said: This Amendment has been agreed. I beg to move.
On Question, Amendment agreed to.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 177A:
Page 57, line 6, leave out ("on") and insert ("following").
The noble Lord said: This Amendment goes with Amendment No. 146A which was accepted more days ago than I can remember. I beg to move.
On Question, Amendment agreed to.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 180:
Page 57, line 8, at end insert—
("( ) No deduction shall be made from the amount of any compensation by virtue of the application of subsection (5) above if the period therein referred to has expired without either the amount of such deduction having been determined by agreement under subsection (7) below or an application having been made to the arbitration tribunal to determine such amount under that subsection.").
The noble Lord said: This is another complicated technicality. Clause 39 has the effect of creating a deduction from the compensation where a loan has been repaid after the vesting date to a parent company and, had this loan been left outstanding and valued as a security under Clause 21, might have been valued at less
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than its face value. By Clause 21, any such notice has to be served within nine months of vesting date. However, in the applications under Clause 39 no such limit exists as the Secretary o' State can at any time assert that a Section 21 notice could have been served and that a deduction should, therefore, be made.
The point of the Amendment is to provide that where a loan has been repaid in the circumstances described in Clause 39(5) no deduction shall be capable of being made unless the parties are aware of it and unless the deduction has been established, or at least referred to arbitration, before the expiry of the nine month period but which would have been applied had the loan been left outstanding. I hope that the Amendment will commend itself to the Government. I beg to move.
Lord WINTERBOTTOM: The noble Lord has led me into a draftsman's maze. I have to be more strongly disinheriting about this Amendment than I was about the other two. Apparently, Amendment No. 180 destroys the whole purpose of Clause 39(5) by seeking to have the deductions settled or referred to arbitration within nine months of the date of transfer, but a notice not needing to be served in respect of a debt until nine months after the date of transfer. There would, therefore, be no time under Amendment No. 180 to assess the deduction before the time limit expired. For this reason it would be impossible to make a deduction. I hope I have made myself clear. Apparently Amendment No. 180 seeks to achieve the impossible, although the word "impossible" is one which the noble Lord will hardly accept. Nevertheless, he may accept that it would be almost impossible. The Government cannot accept the Amendment because we believe that it is a nonsense.
Lord STRATHCONA and MOUNT ROYAL: I doubt very much whether either of us has made himself clear, certainly not to each other. I can assure the noble Lord that the intent on of our Amendment is nothing like so drastic as he has suggested it might be. The proper course to take is to refer back the Amendment to those who are briefing us to see what they make of our exchange. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 39, as amended, agreed to.
Clause 40 agreed to.
Clause 41 [Stockholders' representatives]:
1.10 a.m.
Lord REDESDALE Lord REDESDALE moved Amendment No. 181:
Page 59, line 8, leave out ("company whose securities") and insert ("class of securities which").
The noble Lord said: The Bill at present provides for the appointment of one stock-holders' representative to represent the holders of all the securities of each of the companies that have been acquired. There could well be a situation where different classes of securities may have to be negotiated or determined on the basis of presentations which will not necessarily reflect the interests of another class of securities. For example, if a company were to have both shares and debenture stock requiring to be valued, the arguments used for the two valuations would be different and the holders of the debenture stock may want to establish arguments which could prejudice the valuations of other securities.
It is not reasonable for a single stock-holders' representative to be obliged to represent conflicting interests unless he is both willing and also instructed to do so by all the holders of securities in that company. We believe that the Amendment enables the holders of each class of securities to be represented separately, should they so wish. I beg to move.
Lord WINTERBOTTOM: I do not know whether the noble Lord wishes to take Amendment No. 182 at the same time?
Lord REDESDALE: Yes.
Lord WINTERBOTTOM: I have sympathy with the objective of Amendment No. 181, but I find that I cannot accept this group of Amendments, which seek to alter provisions in Clauses 41 and 56 which are concerned with the appointment of stockholders' representatives. Amendment No. 181 would have the effect of appointing a stockholders' representative for each class of security in a company instead of at present only one for each company. Amendments Nos.182 and 206
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make consequential changes to Clause 41(1) and the definition Clause 56.
We believe that these Amendments are harmful, Schedule 6 provides that all the holders of the securities in a company shall appoint their own stockholders' representative who will represent their various interests in the negotiations with the Secretary of State and, if necessary, before the Arbitration Tribunal. The stock-holders' representative may call a "general" meeting of all the holders or a meeting of particular classes of holders where matters affecting exclusively these classes are to be discussed and at both types of meeting the procedure provides fairness for all and in particular safeguards the minority shareholders. Every holder is entitled to one vote for each pound by normal value of the securities held by them. To have more than one stockholders' representative per company would open the way to certain groups of shareholders being treated differently, either more or less advantageously than other groups. Further it could delay the process of negotiation which would be detrimental to the shareholders. I hope I have made myself clear. It is felt to be very much better that one stockholders' representative should represent one company than one particular class of share, and on reflection I am sure the noble Lord will agree.
Lord REDESDALE: I accept what the noble Lord has said. I am still not entirely happy that one person can represent different interests totally satisfactorily. However, I will read very carefully what the noble Lord has said and, if necessary, I will come back to it at a later stage. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 41 agreed to.
Clause 42 [The arbitration tribunal]:
1.15 a.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 182A:
Page 60, line 24, leave out subsection (3) and insert—
"(3) The arbitration tribunal shall consist of a President who shall be a Barrister or a Solicitor of not less than 7 years' standing appointed by the Lord Chancellor and such number of other Members as the Lord Chancellor may determine, so, however, that as nearly

221
as may be at all times the members of the arbitration tribunal including the President shall consist of an equal number of barristers or solicitors of not less than 7 years' standing, of persons experienced in business and of persons experienced in finance, of whom the barristers or solicitors shall be appointed by the Lord Chancellor and the persons experienced in business or finance respectively shall be appointed by the Secretary of State after consultation with all the stockholders' representatives.
(3A) The jurisdiction of the arbitration tribunal shall be exercised by any one division consisting of the President or a barrister or solicitor who shall preside over that division, one person experienced in business and one person experienced in finance, and references in this Act to the arbitration tribunal other than in subsection (3) above shall be construed accordingly.
(3B) Subject to the provisions of subsection (3A) above the President shall select the members of each division and shall determine the division which shall deal with each question dispute or other matter.
(3C) Subject to any rules made under paragraph 5 of Schedule 7 of this Act, the President may give directions to each division as to the date and venue of each hearing and such other directions as may be necessary to secure the just, expeditious and economical disposal of all issues."
The noble Lord said: Here we are moving into Part III of this Bill. This is a point of practical administration and, I hope, clarity, which I think possibly may commend itself to the Government. We have already established in Clause 42 and in. Schedule 7 which goes with it the Aircraft and Shipbuilding Industries Arbitration Tribunal. We make regulations regarding the composition and proceedings of the Tribunal. But Clause 42(3) seems to us to be ambiguous. It says the Tribunal may sit in two or more divisions, but it may only consist of, and there is only power to appoint as the Arbitration Tribunal, a president and two members. In view of the many uncertainties surrounding the determination of compensation—and if there is one thing we are agreed about it is that there are a good many uncertainties—and of the difficulties in valuing unquoted securities, it seems rather more likely than not that a good many issues will be taken to arbitration under the Act. Indeed, this is of particular importance in view of some of the Amendments we have moved earlier on the compensation clauses.
It seems to us that, if only one issue can be determined at a time, it will be many years before all the issues are finally
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determined; so the purpose of this Amendment is to enable the Arbitration Tribunal to sit simultaneously in a number of divisions. The terms of this Amendment have been lifted from Sections 2 and 3 of the Land Tribunals Act 1949. In the same way, paragraph 5(1) of Schedule 7 gives the Lord Chancellor power to make procedural rules. In order to avoid unnecessary delays, either the Act or the rules should impose on the president of the Tribunal the d to give all the interested parties and to the divisions of the Arbitration Tribunal such directions as may be necessary, "to secure the just, expeditious and economical disposal of all issues". That is an expression lifted from what I believe is called the White Book of the Supreme Court.
In Committee, the Government argued that the present wording enables as many divisions of the Tribunal to be created as the situation demands, and for ad hoc appointments to be made. However, we would contend that the Bill is not crystal clear, and this Amendment is an attempt to clarify any doubts there may be beyond all possibility of further argument. I beg to move.
Lord WINTERBOTTOM: I hope that I shall be able to remove the anxiety of the noble Lord, Lord Strathcona and Mount Royal, over the meaning and intention of Clause 42, and to relieve the anxieties of the shipbuilders and repairers national Association, which is one of the organisations most concerned with this particular problem. As I understand it, the theory is that there will be a large number of parties appealing to the Tribunal, and if only one issue can be determined at a time, many years will elapse before they are all finally determined. This is obviously an impossible situation. However, I will try to explain what the actual subsection says.
The Bill can deal with this; situation because Clause 42(3) provides that the arbitration tribunal shall,
"as the Lord Chancellor may direct either sit as a single tribunal or sit in two or more divisions and shall for the hearing of any proceedings consist"
of a president and two other members. I agree it is not immediately crystal clear. It is the two or more divisions that give us the flexibility we require. This may be

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elliptical, but it means that the reference to composition is to the composition of the tribunal or division which is sitting to hear a given set of proceedings. Where divisions sit there will be as many presidents as there are divisions. The Amendment is, therefore, based on a misunderstanding, in that it appears to assume that there will be only one president, of the Tribunal as a whole.
Subsection (3B) provides for the selection of members of each division by the president and for the allocation of business by him to each division. Again, I think this is misconceived. If the Tribunal were a permanent panel of judges, like the Queen's Bench Division of the High Court, it would be necessary for someone to decide which judge heard what, and who should sit together when more than one judge heard a case. But the Tribunal is not such a standing court. It is set up ad hoc to meet the demands of business, and as many divisions will be set up as the Lord Chancellor may, in the light of the workload, direct, with the membership of each division appointed by the Lord Chancellor and the Secretary of State in accordance with Clause 42(3)(a) and (b). There is, therefore, no scope for a president to select members of the Tribunal where it sits as one tribunal, or of the divisions when the Tribunal is divided.
Similarly, since the Tribunal or each division will be set up ad hoc to deal with a particular set of proceedings, there will be no scope for allocating business between them. The Lord Chancellor and the Secretary of State might decide that on the termination of current proceedings before one division they would appoint the same members to hear subsequent proceedings. This would look very like allocation of business between divisions, but strictly speaking it would not be so. Subsection (3C) of the Amendment provides for directions by the president to the divisions as to date, venue and conduct of their proceedings. The Government consider that these are all matters for the rules to be made under paragraph 5(2) of Schedule 7. For these reasons, the Government remain convinced that the present version of Clause 42 takes care of the fears expressed. I, therefore, urge the noble Lord to withdraw his Amendment.
Lord STRATHCONA and MOUNT ROYAL: It is quite clear the noble Lord
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is at great pains to reassure us on all the doubts we have expressed. He conceded that possibly this did not have the total clarity that one might wish; so conceivably he might consider whether it would be possible to bring in an Amendment at a later stage to deal with this small point. In the meantime, we will look at what he has said and see whether it satisfies those who have raised this point. I thank the noble Lord for his help, and beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 42 agreed to.
Clauses 43 to 46 agreed to.
Clause 47. [Right of persons engaged in shipbuilding or ship repairing to object to practices of British Shipbuilders or its wholly-owned subsidiaries.]:
1.24 a.m.
Lord CARR of HADLEY Lord CARR of HADLEY moved Amendments Nos.183 to 192 en bloc:
Page 64, line 26, leave out from ("in") to end of line 27 and insert ("one or more of the activities specified in section 2(1) or (2) above, other than—
(a) a Corporation, or")
Page 64, line 32, leave out ("British Shipbuilders") and insert ("a Corporation")
Page 64, line 33, leave out ("the sale of ships") and insert ("that or those activities")
Page 64, line 35, leave out subsection (2).
Page 65, line 8, leave out ("British Shipbuilders") and insert ("the Corporation con
Page 65, line 10, leave out ("British Shipbuilders") and insert ("the Corporation")
Page 65, line 12, leave out ("British Ship-builders") and insert ("the Corporation")
Page 65, line 17, leave out ("British Ship-builders") and insert ("the Corporation")
Page 65, line 23, leave out ("British Ship-builders") and insert ("the Corporation")
Page 65, line 30, leave out ("British Ship-builders") and insert ("the Corporation")
The noble Lord said: I think it might be to the convenience of the Committee if, together with this Amendment, we dealt with all the other Amendments on the Marshalled List up to and including Amendment No. 192, because they are all directly consequential; they all hang together. The object of these Amendments is obviously to widen the scope of Clause 47 to cover all the activities of both Corporations in respect of this matter of fair trading, guarantees to the private sector that the Corporations will not indulge in any unfair trading practices, any unfair competition.
A number of Amendments were proposed in Standing Committee in the other place in relation to various clauses in the Bill, to give some measure of protection against unfair competition to companies remaining in the private sector after nationalisation of the shipbuilding and the aerospace industries. All these proposed Amendments were originally rejected by the Government, but one proposed by Mr. Willey was accepted by the Government in principle in relation to shipbuilding and then, at Mr. Willey's insistence, to ship repairing also. Certain reassuring noises were also made by Government spokesmen during the debates on the policies which the Co-operation would adopt. At the Report stage in another place the Secretary of State, Mr. Varley, tabled a clause, which is now Clause 47, to provide for a tribunal to investigate complaints in respect of shipbuilding sales, or ship repair contracts only. In our submission this is unsatisfactory in two major aspects. First, it does not cover the activities of British Aerospace at all. Secondly, in relation to British Shipbuilders, it does not cover the activities of other than the sale of ships and the provision of ship repairing services.
On the first aspect, that it does not cover the activities of British Aerospace, there seems to us to be no logical reason for the exclusion of sales of aircraft, or aircraft repairing, since the activities of British Aerospace could very well have the effect of eroding the highly successful equipment sector of the industry. Moreover, so far as aircraft manufacture is concerned, the facile reply which I believe was made in another place, that British Aerospace will contain the principal airframe manufacturers and therefore, by implication, there are no others one needs to worry about, is not good enough because Westland, Short Brothers and Harland, and Fairey (that is to say, Britten Norman) are all remaining in the private sector, so there are other aircraft manufacturers remaining in the private sector who in our view need protecting.
So far as aircraft repair is concerned, there is in any event one large company in the private sector which specialises in this work, and which could be severely damaged by unfair competition from British Aerospace. One of the purposes
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of the unfair trading clause was, in the eyes of the Society of British Aerospace Companies, to put an obstacle in the way of unnecessary diversification and wilful undercutting of the private sector by Government financed concerns. I believe that one cannot logically, or on grounds of equity, exclude the activities of British Aerospace.
On the second aspect, it is well known that the methods of engaging in unfair competition are many and varied, and it would be impossible to specify them with any degree of precision in the Bill. However, private sector companies feel strongly that the Bill should contain a procedure which would enable them to draw attention to acts on the part of either Corporation which amount to unfair competition. When the steel industry was nationalised the provision was introduced into the Iron and Steel Bill, subsequently the Act of 1967, on its passage through your Lordships' House for setting up a complaints procedure to deal with cases of unfair competition by the Steel Corporation. That provision, which became Section 30 of the Iron and Steel Act 1967, was introduced following a debate in the other place at the Report stage when the then Minister, Mr. Richard Marsh, confirmed that the provision containing a complaints procedure would be introduced into the Bill, and at the same time sought to reassure steel producers remaining in the private sector that their fears regarding unfair competition were unjustified.
The remarks of the Minister giving those assurances were quite emphatic, but despite those assurances the complaints procedure did subsequently hive to be invoked by the independent steel producers and their complaints were found to some extent to be justified by Lord Hirshfield, who was appointed to investigate the complaints. In his report he found that there had been unfairness and made certain recommendations to bring the t state of affairs to an end. I have quoted that to show that in the previous nationalisation measure, in spite of the assurances given by the then Minister, which were undoubtedly given in good faith, the private steel producers subsequently found it necessary to have recourse to the appeals machinery; and, when the appeals machinery was activated, it Was found that there had been some unfair practices

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which needed to be corrected. There is, therefore, a precedent to show the need for this machinery.
Clause 47 of the Bill would secure for shipbuilding and ship repairing a provision similar to Section 30 of the Iron and Steel Act 1967. As I have pointed out, it would not secure it for aircraft manufacture and aircraft repair, so the very minimum is that Clause 47 should do the same for aircraft manufacture and aircraft repair as for shipbuilding and ship repairing, but in our contention it needs to go further than that because while ten years or so ago the circumstances in the steel industry were such that a limitation to unfair competition simply with sales was reasonable, we believe that under the different circumstances now applicable to the aerospace and shipbuilding industries, wider scope for the appeals tribunal is necessary.
In Standing Committee in another place attention was drawn to a number of possible forms of unfair trading which are not covered by Clause 47. I will not go over them now because I am sure the Minister has briefed himself on them, although T shall if necessary refer to them later. On some of those, assurances were given in Standing Committee that the new Corporations would not act unfairly. Of course such assurances are welcome and I repeat that we accept them in good faith, but they do not have statutory force. I have pointed out in relation to the steel industry that there was appeals machinery and that recourse was had to it, and if the Government are sufficiently confident and good-intentioned on this matter to give those assurances, I fail to see why they should have any real objection to an extension of the scope of the appeals tribunal to cover these further possibilities.
The Minister will have noticed that the new Clause 47 is permissive, and we are not asking that it should be anything more than permissive. In other words, the Secretary of State under Clause 47 has discretion whether or not to investigate a complaint and that, T suggest, provides an effective remedy against the possibility of any frivolous complaints that might be made. While I have no doubt that the companies remaining in the private sector might prefer to see a more independent and compulsory appeals procedure, they would I believe accept, and certainly we
228
would, a provision along the lines of Section 30 of the Iron and Steel Act in the appropriate circumstances; in other words if the Government would agree to the extension of Clause 47 in its present form to cover aircraft manufacture and air-craft repair as well as shipbuilding and ship repairing, and include for both Corporations certain practices other than simply sale and repair contracts, we should be perfectly happy for the clause to remain permissive, and it would give the Secretary of State control over what he feels should and should not be investigated. I feel that this is a reasonable case and I very much hope that the Government will accept it.
1.35 a.m.
Lord MELCHETT: I accept that the noble Lord, Lord Carr, moved this string of Amendments in a constructive way and I am grateful to him for saying what he did about the assurances given in another place on the points covered, and for making the point that there was considerable discussion about this matter during the Committee and Report stages in another place. As the Government made clear when Amendments similar to these were tabled in another place, the Amendments are not acceptable. In the Government's view, they are not necessary.
In accepting, during Committee stage in another place, the need for this clause covering shipbuilding and ship repairing, the Government are not accepting that the fair trading legislation introduced by the Party opposite is deficient; nor that, in general, a procedure such as that in Clause 47 is necessary or desirable when a nationalised industry is competing with the private sector in either its main line or its ancillary activities. We recognise special circumstances in shipbuilding and ship repair where some yards will remain outside public ownership. We consider that the only activities of British Shipbuilders which should be covered by fair trading provisions in this Bill are the sale of ships and the provision of ship repair services. The noble Lord, Lord Carr, made some reference to Section 30 of the Iron and Steel Act 1967, but that was restricted to the selling of certain iron and steel products and, as I understand it, went no wider than that.
The noble Lord, Lord Carr, referred to the remarks made in another place about

229
the extension of these provisions to aerospace and the Government's reasons for not wishing to extend the provisions to aerospace. But I would say that underlying our arguments is this basic contention that legislation such as is provided in this clause is not generally necessary just because we are dealing with a nationalised industry which is competing with the private sector. It seems to me that, just because it is nationalised, noble Lords wish to restrict British Aerospace in its competition—if any—with Westland, which of course makes helicopters which are not made by BAC or Hawker Siddeley, or with Britten Norman, which makes light aircraft a great deal smaller than those made by BAC or Hawker Siddeley, or with Shorts, which we shall come to on the next Amendment, and which I believe I am right in saying is not directly in competition with either BAC or Hawker Siddeley. British Aerospace, in its competition with these companies which remain in private ownership, will be subject to general fair trading legislation and to the Minister's control over diversification. Unlike British Shipbuilders, the main competitors of British Aerospace will be overseas companies.
The Earl of KINNOULL: Hawker Siddeley and Britten Norman make executive aircraft. I think that the noble Lord was suggesting that they do not compete against each other. In fact, they do so far as executive aircraft are concerned. Hawker Siddeley make jet executive aircraft and Britten Norman make the slower type of aircraft.
Lord MELCHETT: Though I bow to the noble Earl's greater knowledge of the specification of the planes involved, I should not have said from my own limited knowledge of flying in the two aircraft that they could be said to be directly in competition. In fact, I should have thought that the propeller driven light aircraft were in a slightly different category to the executive jets, but I do not think that it will necessarily be all that helpful to prolong a detailed debate on technicalities because, as I have said, I am accepting that there may be instances where British Aerospace could be in competition with these companies. I repeat that, in that case, they will be subject to the general fair trading legislation passed by the Government of noble Lords opposite,
230
which we believe will be sufficient to ensure that there is no unfair competition.
Aside from the substantial Fair Trading legislation which will apply to the two Corporations, I will of course reiterate the assurance given in another place and welcomed by the noble Lord, Lord Carr that British Shipbuilders and British Aero-space would have no wish to extract unfair advantages. Both chairmen of the organising committees have agreed to make, in due course, a formal Policy statement on future trading practices. I know from my discussions with them both that they are both deeply committed to fair trading. I hope that with that explanation of the background to the Government's objection to the Amendments, and a repetition of the assurances given in another place—which I know the noble Lord does not find wholly satisfactory, but I can repeat them very firmly for what it is worth—he will see fit to withdraw his Amendment.
Lord CARR of HADLEY: I do not understand this argument because the noble Lord started by saying early on in his remarks that the Government had admitted Clause 47 for ship3uilders, I think I understood him to say, because some yards were outside public ownership and could therefore compete. But we have just been hearing—and he has not been denying in the last few moments—that some aircraft manufacturers and some aircraft repairers are also outside public ownership. Certainly on the aircraft repair side there is already the potentiality of direct competition between the public and the private sector. When one comes to aircraft manufacture, it may he true at the moment the t Hawker Siddeley and BAC, which will form the new British Aerospace Corporation, are not manufacturing the sort of aircraft that Britten Norman are, or Westland who are at the moment confined entirely to helicopters. But who is to say that that will continue and who is to say that the Aerospace Corporation may not get into either the helicopter field o: into the lower priced, lighter executive plane field. The fact that they do not directly compete at the moment does not give any indication that they may not directly compete in, say, five years' time.
I cannot understand why it is appropriate to have Clause 47 for shipbuilding

231
and ship repairing if it is not also appropriate to have it for aircraft manufacture and aircraft repair. There is no logic of any kind behind the Minister's reply on that point. It is no good referring us to the Fair Trading Act 1973 and saying that that will give sufficient protection. If it will give sufficient protection in the realm of aircraft manufacture and aircraft repair, why does it not give sufficient protection in the field of shipbuilding and ship repairing? Surely the answer is that it does not give the sort of protection required, nor, frankly, was that Act ever intended to give the sort of protection that is required here.
The reference of the State-owned Corporation to the Monopolies Commission on the part of the Office of Fair Trading, strikes one as somewhat unlikely in any event, though I certainly hope it is not impossible. But, even if such a reference were made, surely the Minister would agree that the Monopolies Commission on all past experience, would be unlikely to report for perhaps two or three years, certainly not for many months, whereas Lord Hirshfield in the Steel case, to which I referred earlier,
was able to report within almost exactly three months of the date of his appointment. When one has a case of this kind, it is essential to have machinery to deal with it which can operate quickly.
While I might not agree with him, I can understand the Secretary of State refusing to extend the scope of the appeal machinery beyond pure sales and beyond pure repair contracts into all the other fields. I would not agree with it, but I can understand it as there would be a certain logic about that. I can see, however, neither fairness nor logic in saying that shipbuilding and ship repairing are in a different category and order of protection from aircraft manufacture and above all even at the present time aircraft repairing. I cannot understand what is the reason for that. if the Government will not think again about it, I have no option but to ask my noble friends to press this Amendment to a vote.
1.45 a.m.
On Question, Whether the said Amendments (Nos.183 to 192) shall be agreed to?
Their Lordships divided: Contents, 56; Not-Contents, 39.

CONTENTS

Ampthill, L.

Halsbury, E.

Robbins, L.

Atholl, D.

Hanworth, V.

Rochdale, V.

Barrington, V.

Kemsley, V.

Sandford, L.

Belstead, L.

Kimberley, E.

Sandys, L.

Blakenham, V.

Kinnaird, L.

Seear, B.

Brookeborough, V.

Kinnoull, E.

Selkirk, E.

Campbell of Croy, L.

Long, V.

Sempill, Ly.

Carr of Hadley, L.

Lyell, L.

Sharples, B.

Carrington, L.

Mackie of Benshie, L.

Stamp, L.

Cathcart, E.

Monson, L.

Strathcona and Mount Royal, L

Cork and Orrery, E.

Mottistone, L.

Sudeley, L.

CuIIen of Ashbourne, L.

Mowbray and Stourton, L. [Teller.]

Trefgarne, L.

Denham, L. [Teller.]

Tweedsmuir, L.

Devonshire, D.

Newall, L.

Vernon, L.

Dudley, E.

O'Hagan, L.

Vickers, B.

Elles, B.

Onslow, E.

Ward of Witley, V.

Elliot of Harwood, B.

Pender, L.

Wardington, L.

Ferrers, E.

Rankeillour, L.

Wigoder, L.

Gray, L.

Redesdale, L.

Young, B.

NOT-CONTENTS

Birk, B.

Jacques, L. [Teller.]

Peart, L. (L. Privy Seal.)

Brimelow, L.

Kagan, L.

Peddie, L.

Champion, L.

Kaldor, L.

Pitt of Hampstead, L.

Collison, L.

Kirkhill, L.

Ponsonby of Shulbrede, L.

Cooper of Stockton Heath, L.

Llewelyn-Davies of Hastoe, B.

Shepherd, L.

Davies of Leek, L.

Longford, E.

Stedman, B.

Delacourt-Smith of Alteryn, B.

Lovell-Davis, L.

Stone, L.

Donaldson of Kingsbridge, L.

McCluskey, L.

Strabolgi, L. [Teller.]

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

Mais, L.

Weidenfeld, L.

Fisher of Camden, L.

Melchett, L.

Wells-Pestell, L.

Goronwy-Roberts, L.

Morris of Kenwood, L.

White, B.

Gregson, L.

Oram, L.

Winterbottom, L.

Harris of Greenwich, L.

Parry, L.

Wynne-Jones, L.

Resolved in the affirmative, and Amendments agreed to accordingly.
Clause 47, as amended, agreed to.
Clause 48 [Duty of British Shipbuilders to consult, etc., with Northern Ireland state-controlled shipbuilders]:
1.53 a.m.
Viscount BROOKEBOROUGH Viscount BROOKEBOROUGH moved Amendment No. 193:
Page 65, line 34, after ("Shipbuilders") insert ("and British Aerospace")
The noble Viscount said: The object of this Amendment which I now beg to move is to make sure that Short Brothers and Harland are included in the ambit of Clause 48. Short Brothers and Harland represent 10 per cent. of the British Aerospace employment and if they are left out there is a great danger that they might die from neglect. At this late hour, I do not want to detain your Lordships in debating this issue, because the Government recognised, when it put in Clause 48 at the last moment, that Harland and Wolff, by being left out totally from the Bill, were going to suffer from neglect and were liable to be in trouble. What I am now asking the Government to do is to accept that what applies to Harland and Wolff should apply now to Short Brothers and Harland.
It is a question entirely that I feel, my noble friends feel, the trade unions feel and the management feel, that it is necessary for this to be written into the Bill. There must be a legal requirement in the Bill, and subsequently in the Act, on British Aerospace and on British Shipbuilders that they must involve both Harland and Wolff and Short Brothers and Harland.
1.55 a.m.
Lord MELCHETT: It is a great relief temporarily to sail into the quieter Parliamentary waters of Northern Ireland. When we discussed Amendment No. 6, 1 made it clear that the Government were most sympathetic to the objectives of securing proper co-ordination between British Aerospace and Short Brothers and Harland. At that stage, the noble Viscount and I both referred to these Amendments to Clause 48 and I promised that the Government would consider them most carefully to see whether there is
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anything we can do to meet the points that these Amendments make.
The Amendments extend Clause 48 in two different ways. Amendment No. 193 seeks to extend its scope so that the same arrangements would obtain for Shorts and British Aerospace as for Harland and Wolff and British Shipbuilders under Clause 48 as drafted. I emphasise "seeks to extend" because I am advised that Amendment No. 193 is technically defective. I think the body which British Aerospace will be required to consult will be Harland and Wolff under the Amendment as drafted. The Govern went want to consider the question of further extending the scope of Clause 48 to aerospace. I would ask the noble Viscount not to press the Amendment at this stage, on the firm understanding that we will come back to it at Report, and in the hope that I can draft an Amendment which does not have the same effect as the noble Viscount's Amendment, but one which he would be happy to see.
I do not know whether it would be helpful if I gave a firm view on Amendment No. 194A, which I think the noble Viscount spoke to as well. I appreciate that he wishes to strengthen Clause 48, but the Government feel that it would not be reasonable to place a duty on British Aerospace and British Shipbuilders to assist Shorts and Harland and Wolff wherever practicable. The Government believe that this could amount to a requirement that the Corporation should provide financial support for these companies. That is probably not what the noble Viscount nor I wish to see. We would both object to an element of cross-subsidisation which that phrase, I am advised, would imply. I hope that, with the firm undertaking I have given, the noble Viscount will withdraw both Amendments.
Viscount ROCHDALE: I gather the noble Lord, Lord Melchett, wants to discuss both the Amendments at this stage. He said in the earlier Amendments we had in Clause 1 that he was sympathetic; but he has not yet produced anything new in the way of an improved Amendment on Clause 48. One or two counts are important, and we should get them clear. I am pleased with what the noble Lord said about Amendment No. 193, and that

235
he will re-draft an Amendment so that it applies to both aerospace and shipbuilding.
On Amendment No. 194A, we want to make it clear that this is not merely a local or provincial Amendment. To my mind it affects the organisation of the whole industry. It illustrates the point I want to make from shipbuilding. This industry, like so many other industries, has operated in the past and does today operate as an industry, but not merely as individual companies. There are a great many things, of course, individual companies operate themselves; they compete with each other, have their own designs, and so on. Equally, there are a lot of areas where often they operate as an industry, and what I think my noble friend and I are afraid of is that when the new set-up takes place, when we have British Shipbuilders, the Northern Ireland companies will tend to be squeezed out from a number of different areas where they ought to be.
For instance, let us take the case of technical research. Obviously individual companies do technical research on their own. It is essential that British Ship-builders will have a research policy of their own to which Harland and Wolff must be a party. If you take market research, that is something they will do on their own, but equally they will do it as an industry, and it is natural that British Shipbuilders would take over the role of the focal point of that sort of market research. Are Harland and Wolff to be excluded?
Again, in connection with advertising, quite often we have overseas delegations operated by the industry in co-operation with the Government. There may be exhibitions and delegations going overseas: would not Harland and Wolff be allowed to play their part and express their views on those things? One could go on quoting all sorts of different areas where it is absolutely essential that Short and Harland in the case of aerospace and Harland and Wolff in the case of shipbuilding, can go in and play their part as of right. The important thing is that the leaders of these companies should not constantly have to struggle to make their voices heard. Referring to Amendment No. 194A, where we have used the word
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"assist"—as the noble Lord, Lord Melchett, said, it may not be the right word but it is absolutely essential that there should be the opportunity for those companies to come in. Until now the focal point has been very largely the trade association, the SRNA. Now the focal point will be the Corporation, which must view these Northern Ireland companies in the same way as SRNA or SBAC have viewed the Northern Ireland companies who were their members in the past.
I should like to mention one other important area, which is the negotiations and agreements between the trade unions and the companies. That has been done. There were central and national agreements. Who is to be responsible as the focal point of those agreements on the employers' side? If it is to be the Corporations, then surely the companies must be party to them. One could go on in this way, but I do not want to take up more time of the Committee. However, I should like to press for some assurance from the noble Lord that, at the next stage, he will bring forward an Amendment or Amendments dealing with these points, so that Harland and Wolff and Short Brothers can know that it is to be written into the Bill that in these areas they are to be regarded as members in their own right and able to take part in matters that are of great concern to their future wellbeing. Having said that, perhaps the noble Lord will give a further definite assurance of what he intends to do on Report stage, so that the further Amendments standing in the names of my noble friends and myself may not be moved.
Viscount BROOKEBOROUGH: I should like to say to the noble Lord, Lord Melchett, that there is a precedent for this within part of Northern Ireland that the Chairman of the Tourist Board for Northern Ireland has of right a position in the BTA. Originally this was in the Act: they have recognised it as a right, and so the Chairman of the Northern Ireland Tourist Board has always been part of the BTA. There is a precedent here; but I think we really do feel that somehow or other there must be some right to meet the problems which my noble friend Lord Rochdale has explained, and to give assurances to the whole industry. This is a question of a united industry: the trade unions, the

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managements and people of Northern Ireland feel very much that they could be left out in the cold.
2.5 a.m.
Lord MELCHETT: As I said before, I do not think there is anything between the two noble Viscounts and myself about what we wish to see happen. We are really talking about the mechanics of it. I explained my objections to the Amendment and, in particular, to the word "assist", which seemed to me to have undesirable connotations and might well lead to effects which none of us wished to see in the cross-subsidisation and so on between British Shipbuilders and Harland and Wolff.
Maybe it would be helpful if I told the noble Viscount that informal consultation has already started between the organising committee of British Shipbuilders and the board of Harland and Wolff Limited. These two bodies have recently had a useful meeting at which subjects of mutual interest were discussed, including all of those raised by the noble Viscount; that is, technical research and development, general market research, standardisation, participation in international organisations, co-ordination of activities in engine building, purchasing policies and so on. I understand that both the organising committee and Harland and Wolff felt that the discussion was mutually beneficial, and that they are confident of building up a good relationship for future co-operation.
I suggest that the provisions of Clause 48, which we will consider extending to Short Brothers, have already been translated into action so far as shipbuilding is concerned, and the Government are confident that the objective of Clause 48—namely, the co-ordination of shipbuilding activities in Northern Ireland with British Shipbuilders, which we all wish to see—will be achieved in practice. I suggest that the meeting between the organising committee and Harland and Wolff gives us grounds for very considerable optimism that, by the two organisations getting together and sorting things out for themselves, which must always be the best way of proceeding, we will achieve what we wish.
I will certainly look at what the noble Viscount has said about his second
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Amendment, and study the matter before we get to Report stage. I cannot promise to bring forward an Amendment on that aspect, but I will certainly look at the question of including Short Brothers in the Bill. If the noble Viscounts are not satisfied with what I have said about how Clause 48 is already working, so far as shipbuilding is concerned, no doubt they will put down an Amendment to make sure that I am compelled to discuss the matter at a more congenial hour on Report.
Viscount ROCHDALE: From what the noble Lord, Lord Melchett, has just said, I felt that he had rather gone back on what lie said to begin with, because I understood him to say just now that he doubted whether it was necessary to alter Clause 48 as it stands.
Lord MELCHETT: No; I have given a firm undertaking that, so far as Amendment No. 193 is concerned, the Government will consider tabling an Amendment. I have promised that I will look at Amendment No. 194A on Report, but our information is that Clause 48 is working well, so far as British Ship-builders and Harland and Wolff are concerned, and we do not at present see the need for any further Amendment. But I have said that I will look very carefully at what the noble Viscount has said.
Viscount ROCHDALE: I hope the noble Lord will not take it too, much for granted that it is already working well enough.
Viscount BROOKEBOROUGH: I do not want to keep the Committee any longer, but am I to understand that the noble Lord will be able to give us a guarantee that Short Brothers and Harland and Wolff will have available to them, on an equal basis, research, marketing, finance and all the otter items which are available to every company within British Aerospace and British Shipbuilders? In particular, will the noble Lord assure us, so far as Harland and Wolff are concerned, about the statement which his right honourable friend Mr. Stanley Orme made in another place, that no more money would be available to Harland and Wolff? Further will the noble Lord make sure that taking this

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money—£37 million out of £60 million—out of a geographical unit will apply to the whole of the United Kingdom or else that the aid to Harland and Wolff, if it has to happen, comes out of the United Kingdom as a whole rather than just out of the Northern Ireland budget?
We want to know whether all the special facilities which will be available for British Shipbuilders and British Aero-space will be available to each and also whether the latest method of financing Harland and Wolff—that is, taking it out of the social budget of Northern Ireland—either applies to the whole of the United Kingdom by area or does not apply to Northern Ireland. I say this in order to shorten the debate.
Lord MELCHETT: I am not sure whether the noble Viscount wishes me to use them, but I have two long pages of answers to the points which he raised earlier in the debate. I shall be quite happy to give those answers to the Committee now but it is very late. If, therefore, the noble Viscount will allow me to write to him with full answers to all the points he has raised, that might be a better way to proceed.
Viscount BROOKEBOROUGH: I should be delighted if the noble Lord were to adopt that course. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 48 agreed to.
Clause 49 [Provisions as to pension rights]:
2.12 a.m.
Lord WINTERBOTTOM Lord WINTERBOTTOM moved Amendment No. 196:
Page 68, line 2, leave out from ("person") to ("Corporation") in line 4 and insert ("who is liable to make contributions or to pay pensions under an existing scheme (other than a wholly owned subsidiary of the relevant Corporation) the relevant")
The noble Lord said: Amendments Nos.196 and 197 are Government Amendments which bring about purely technical changes. After Government Amendments at Report stage in the Commons, Clause 49(12) was left containing references to subsidiaries of "that Corporation". In the context, the phrase
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fails to make clear which Corporation is meant. It is believed that the two Amendments will clarify the position and I hope that noble Lords will accept them. However, before I ask them to do so it might be of value if I made a comment upon the implications. Subsection (12) is designed to deal with the possibility that there may be cases where a pension scheme applies to a group of companies, not all of which pass into public ownership. In such a case, a consequence of the pension regulations may be that those which do not will have to pay higher premiums in respect of their pension schemes in order to secure the same benefits for their employees. The sub-section ensures that in such an event any person suffering loss by reason of any regulation made under subsection (4), except in cases covered by subsection (8), will be indemnified by the Corporation, the extent of the loss involved to be determined by the arbitration tribunal in default of an agreement.
This subsection differs from those in previous nationalisation Statutes in that it could apply more widely than just to the vesting companies. In particular, it could, in certain circumstances, enable insurance companies engaged on the pension arrangements by the vesting companies to go to arbitration if they felt that they had been adversely affected. I thought that it was worth while putting this on the record because the reasons behind these Government Amendments are important. I beg to move.
Lord CARR of HADLEY: We are grateful to the Government for tabling these two Amendments and we appreciate the arguments put forward by the noble Lord, Lord Winterbottom. Certainly we have no wish to resist the Amendments.
On Question, Amendment agreed to.
Lord WINTERBOTTOM Lord WINTERBOTTOM moved Amendment No. 197:
Page 68, line 8, at end insert—
("( ) In subsection (12) above "the relevant Corporation" means the Corporation which is the holding company of the company for or in respect of whose employees or former employees the existing scheme provides pensions.")
On question, Amendment agreed to.
Clause 49, as amended, agreed to.
Clause 50 agreed to.
Clause 51 [Furnishing of information to the Secretary of State]:
2.15 a.m.
Earl FERRERS Earl FERRERS moved Amendment No. 198:
Page 70, line 3, at end insert—
("( ) No person shall under subsection (1) above be under a duty to produce any book, record or document or to furnish any information unless and until the relevant Corporation or the Secretary of State (as the case may be) specifies in writing to that person the provision of this Act for the purpose of which such production or furnishing is required and (in the case of such production) the nature of the information thereby sought to be ascertained, and no such requirement shall be deemed to be reasonable to the extent that the nature of the information so sought or required to be furnished is not such as directly to concern the application of the provision so specified.")
The noble Earl said: This Part of the Bill gives the Secretary of State power to look at all and any documents, not only of the companies which are to be acquired but of any other associated company or parent company. Of course it is perfectly reasonable that for purposes of compensation the Secretary of State should have access to some books in order to get the necessary information, but we believe that the clause as it is drafted at the moment is too wide. One merely has to look back at the problem which we have been facing in recent months over inspectors who go round looking at VAT returns and documents. From that one learns that there has been wide concern that the VAT inspectors have been looking at documents which have nothing to do with the particular business they have in hand, and they can cause very great distress.
At the moment, as the Bill stands, any person who is authorised by the Secretary of State can go along to the company and say, "I want to look at your books", and the Bill says that his request must be for information
"reasonably required for the purpose of the Act".
But of course in so doing he may acquire a whole lot of information which is not reasonably required for the purpose of the Act; indeed it may have nothing to do with it at all. It may well be the business, solely and properly, of the parent company or the associated company; and the company concerned or the
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individual representing the company may well be reluctant to give information which it is felt not necessary to give, and yet at present it is bound to be given.
This Amendment would allow the Secretary of State access to the books of any parent company or associated company, provided that the person so authorised specifies the information he wants and why he wants it. He would then produce the document saying what it is and the individual concerned would be able to give him the information which he requires. I hope this is a reasonable Amendment. I beg to move.
The MINISTER of STATE, SCOTTISH OFFICE (Lord Kirkhill): The Government believe that any fears which may be expressed about this clause are unjustified. The provisions are not exceptional, nor are they unprecedented. They are certainly in balance with previous nationalisation legislation, for example the Iron and Steel Act of 1967, Section 41. This Amendment requires that the Secretary of State or the relevant Corporation, when seeking information under sub-section (1) of the clause, shout I specify in writing the provision, or provisions, of the Act for which the documents are required. However, in seeking: he documents the Secretary of State or the relevant Corporation must similarly specify the nature of the information sought. No requirement for the production of documents would be considered reasonable unless the nature of the information sought or required to be produced tallies with the provision of the Act specified. Thus the Secretary of State would have to write a note saying he wants Document X under, for instance, the compensation provisions, Section 35–41; however he would also have to specify that the information sought is, for example, the value of a particular premises or the terms of an individual contract.
On the other hand, if noble Lords are worried about the Government having access to unlimited documents—and indeed the noble Earl, Lord Ferrers, made specific reference to this—I can assure your Lordships that the provisions in the Bill, tried and tested under previous legislation, ensure the proper respect to commercial confidentiality and quite adequate protection against the abuse of the powers given to the Secretary of State.

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First, the documents, reports and so on sought by the Secretary of State are restricted to those that,
"may reasonably be required by the Corporations or the Secretary of State for the purposes of this Act".
Secondly, there are strict and specific provisions in Clause 52 prohibiting the unauthorised disclosure for purposes not related to the Act of any information obtained under the provisions of this clause. I can quite see that noble Lords opposite may object that the test of reasonableness could mean a wide access. Indeed it could, but a wide range of information will be needed to provide a fair basis for the compensation negotiations. Were this to go ahead on the basis of either incomplete or incorrect information, the result may be unfair either to the taxpayers or shareholders. Surely that is in the interest of no one and the Government would, of course, wish to resist this Amendment.
Earl FERRERS: I want to make it perfectly clear that the Amendment was in no way designed to curtail the information which the Secretary of State reasonably requires to come to the appropriate figures for compensation. The noble Lord, Lord Kirkhill, said that the provisions are not unprecedented, and I think that is something which makes one a little alarmed, because of the facts to which I referred, where inspectors can go into great detail about many things which in fact do not actually refer to their particular problem.
I absolutely accept that if the inspectors or the representatives of the Secretary of State do find this information, I am not concerned that they would have disclosed it, but that they would have the right to go through not only the books of the company, but also the parent company, the subsidiary company and any associated company. As an example, if one can take just one out of the air—Hawker Siddeley Aviation will be taken over and that would give the Secretary of State the right to inspect all the accounts of all the Hawker Siddeley group and all the associated companies. You could have inspectors crawling all over the company books. I should have thought that this was far too wide a provision. I hope the noble Lord, Lord Kirkhill, will look at it
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to see whether he can meet us in some way.
Lord KIRKHILL: I am further advised that if we were to talk about the phrase, "may reasonably require", if a company thought that the request was unreasonable, it would not supply the information required, and would leave the Secretary of State to test in the courts whether or not the request made to the company was reasonable. Perhaps I should have added that earlier on.
Earl FERRERS: I am grateful to the noble Lord for having informed us of that, and beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
2.22 a.m.
Earl FERRERS Earl FERRERS moved Amendment No. 199:
Page 70, line 35, at end insert—
("( ) If a person refuses or fails to comply with a requirement purporting to be made by a Corporation or the Secretary of State under subsection (1)(a) above or refuses or fails to provide any facilities of the kind referred to in subsection (1)(b) above, the Court, on the application of the Corporation or the Secretary of State, may make such order or orders requiring that person to comply with the requirement or provide the facilities as the Court think just and reasonable for the purposes of this Act.
For the purposes of this subsection "the Court" means the High Court in England or Northern Ireland or the Court of Session in Scotland, as the case may be.")
The noble Earl said: This Amendment is on the same subject, except for the fact that, as I understand it, under the Bill at present if a representative of a company believes the request which the Secretary of State is making is unreasonable, he may go to the courts, as the noble Lord, Lord Kirkhill, has just said, for clarification and, indeed, for instruction as to whether the information which the Secretary of State requires should be disclosed by the company.
The object of this Amendment is that the requests to the courts should not be to the magistrates' court, but to the High Court, because where one is dealing with items of a confidential nature and of an important nature, we think it would be more appropriate that the High Court should do that rather than the magistrates' court. I beg to move.
Lord KIRKHILL: I think the Government have a difficulty over Amendment No. 199, in that it excludes any provision for refusing and failing to comply with a requirement under Clause 51(3). This means that under the provisions of the Amendment, anyone can simply transfer documents and other relevant material to someone not covered by subsection (2). That would happen for the two years for which the clause is in operation. If this Amendment were accepted and the action I have just described were taken, the Secretary of State could have no access to documents vital to the implementation of the Bill. I am thinking, for instance, of a banker, lawyer, or some other person of that kind, someone outwith the terms of the clause. There is the Government's difficulty in accepting Amendment No. 199.
The Earl of KINNOULL: I wonder whether the noble Lord would consider this. If a company refused to disclose information it is under a duty to disclose under the Bill, could some indication be written into the Bill to inform the company that indeed it has the right to go to the court to see whether the test of reasonableness does apply?
Lord KIRKHILL: I am not empowered to accept that suggestion this evening, but it is on the record and I will certainly look at what the noble Earl has said.
Earl FERRERS: I am very grateful to the noble Lord. I will also look at what he has said, because it seems to me that what he said was considerably wider than I had anticipated the Amendment to be. The object of my Amendment was really to give the authority to the High Court and not the magistrates' court. I shall be interested to read what the noble Lord has said and the implications of it. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 51 agreed to.
Clause 52 agreed to.
2.26 a.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 201:
After Clause 52 insert the following new clause:
Acquired company's documents to be made available to former parent company
.—(1) This section applies to—

(a) a company which comes into public ownership (the "former subsidiary")
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and which immediately before its date of transfer was a subsidiary of n company not being a company which comes into public ownership (the "former parent company"); and

(b) the books, accounts and documents of the former subsidiary so far as they relate to its affairs subsisting at, or at any time before, that date of transfer.

(2) The former subsidiary shall, an any time, and from time to time after the date of transfer of its equity share capital, make available to the former parent company such ft citifies for the examination of and the making of extracts from or copies of the relevant documents as the former parent company may reasonably request for the purposes of its business or, in the event of any question arising between the former parent company and the former subsidiary whether any request is reasonable, as may be directed by the Secretary of State.
(3) A company which comes into public ownership and whose equity share capital was held immediately before the date of transfer by two companies in equal proportions shall make available to each of those companies, or to a company of which either of them was a subsidiary, the same facilities, to the same extent and upon the same terms w a former subsidiary is required to make available to its former parent company under sub; section (2) above.
The noble Lord said: As the Bill stands there is no provision which gives a former parent company the right of access to books of a former subsidiary company which is to be nationalised. This Amendment seeks to give the parent company the reasonable access to the records of their former subsidiary after the latter have been nationalised which they would have insisted upon in an ordinary commercial transaction. A clause somewhat similar to this was moved in another place and the Government resisted it on the grounds that it was a fundamental principle that when the ownership changes the former owner loses all rights with respect to the company. But that is simply lot true. It is, I understand, normal for a company which sells its subsidiary to another group to make it a condition of the sale that it should continue to have access to the books and records of the subsidiary at least during the period of warranty which normally goes with the sale. I remember instances in my own experience. This seems a sensible provision. I hope the noble Lord will be able to accept this new clause. I beg to move.
Lord KIRKHILL: This new clause seeks to enable the former parent company of an acquired company to have access to information held by the acquired

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company after its transfer. The Government consider the new clause entirely open-ended. As drafted it would give right of access at any time after the date of transfer, no matter how long after that date. At this point the noble Lord, Lord Strathcona and the Government would diverge. The Amendment is virtually identical to one put down by the Opposition during Committee stage in another place. As my honourable friend the Minister of State explained then, it is a fundamental principle that when the ownership of a company changes the former owner loses all his rights or interests with respect to the company. The noble Lord has given an example of the difference between us at this point. Nevertheless, the Government's view is that the break is usually complete and absolute.
This clause would destroy that principle. A third party—namely the former parent—would have a continuing power of access to the books of a wholly-owned subsidiary of the Corporation. Not only would this be quite wrong, it would also be unnecessary. Any prudent company, especially of the efficiency so often claimed for the companies concerned, which was aware that it was about to give up ownership of one of its subsidiaries would ensure, before the date of transfer, that it had all the necessary information to continue its residual business after the transfer.
Furthermore, the new clause is unnecessary in connection with the compensation negotiations. The negotiations will be carried out on behalf of the shareholders by a stockholders' representative for each company appointed under Clause 41. Under subsection (6) of Clause 41, the stockholders' representative has full access to all information necessary for the conduct of the negotiations. It is therefore unnecessary for a former parent also to have direct access to the same information. That is the Government's view of the noble Lord's Amendment.
Lord STRATHCONA and MOUNT ROYAL: Someone has gone to a good deal of trouble to destroy the case that one might reasonably have tried to make, and I hope that they think the trouble has been worth while. It seems to me that they
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are making heavy weather of a comparatively minor point, and I think they are wrong on a straight point of fact. It is quite a common practice to have something like this. I accept that the time element is a perfectly fair point. We will look at what the noble Lord has said, and it may be that the proper thing to do is to come back with an Amendment which puts in a time limitation, but I hope possibly he will remonstrate with those who have briefed him for not even trying to sound a little more co-operative.
Lord KIRKHILL: I am too tired to remonstrate with anyone.
Lord STRATHCONA and MOUNT ROYAL: I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 53 [Liabilities of Corporations etc.]:
2.32 a.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 201A:
Page 73, line 7, after ("effect") insert ("(a)")
The noble Lord said: I beg to move Amendment No. 201A, and I suggest it would be convenient to discuss Amendments Nos.201B and 201C at the same time. One of the effects of subsection (6) is to deprive a lender of any entitlement to exercise a right to have his loan repaid on any of the grounds referred to, while at the same time excusing the borrower from the corresponding obligation to repay. I understand that subsection (7) was introduced following discussion between the companies and the Government. The effect of the subsection, as at present worded, is to preserve the right to repayment in these circumstances without also preserving the corresponding obligation to repay. This seems an absurd situation, and the proposed Amendments are intended to correct this. I hope that the Government will feel able to accept them. I beg to move Amendment No. 201A.
Lord MELCHETT: At the risk of usurping my noble friend Lord Winter-bottom's role as the soft man on the Government Front Bench and losing my reputation with the noble Lord, Lord Orr-Ewing, as being a hard line Left Winger—and I am very sorry that he is

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not here—I am glad to say that I accept the noble Lord's Amendments. I am tempted to make it conditional, but of course I will not, on the noble Lord agreeing to tell his noble friends Lord Carr and Lord Orr-Ewing that I have actually accepted an Amendment, because they have constantly criticised me for not doing any such thing.
Lord CAMPBELL of CROY: I was going to say, in thanking the noble Lord for that, first that I was delighted to see that he was rising because I thought that the Government would be able to accept this group of Amendments, and I shall certainly make sure that my noble friend Lord Orr-Ewing is told as soon as possible. I am most glad that the Bill can be amended in these respects.
On Question, Amendment agreed to.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 201B:
Page 73, line 9, after ("made") insert ("by him").
On Question, Amendment agreed to.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 201C:
Page 73, line 11, at end insert ("or
(b) in relation to any obligation owed to such a person by the debtor in respect of such a loan").
On Question, Amendment agreed to.
Clause 53, as amended, agreed to.
Clauses 54 and 55 agreed to.
Clause 56 [Interpretation]:
2.35 a.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 202:
Page 74, line 40, at end insert ("being a date falling not less than twenty-eight days after the making of the order").
The noble Lord said: It may be for the convenience of the Committee if we discussed at the same time Amendment No. 205. This clause contains the definitions of various expressions which are used throughout the Bill. It defines the aircraft industry vesting date and the shipbuilding industry vesting date as being
"… such date as the Secretary of State may by order made by statutory instrument specify …"
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As these definitions stand, the Secretary of State will be enabled to make an order which is not subject to any form of Parliamentary control. It may be made without warning and it may specify an immediate date for the vesting in each Corporation of the companies to be nationalised. We believe that the vesting orders should give the companies concerned some warning, and the object of the Amendment is to secure a minimum breathing space of 28 days between the date when a vesting order is made and the date when it comes into operation. I beg to move.
Lord MELCHETT: The Provisions for specifying vesting dates in the Bill follow, as the noble Lord may have realised, the Iron and Steel Ac: 1967 in which there was no provision for a statutory gap between the publishing of the vesting order and vesting day. It may well be that there will have to be a period of some weeks or even months between the Royal Assent and vesting, but the Government can see no advantage in a statutory requirement for such a gap. Once Parliament has given its approval to this measure—and I feel sure that that will not be long delayed in view of the marvellous progress we have made tonight—the only factor to which the Government will give weight on deciding vesting date is the preparedness of the Corporations to take control of the companies.
The Organising Committees which become the new Corporations on Royal Assent have been hard at work for almost a year. They are making excellent progress—I was able to give the two noble Viscounts an example of this when we discussed an earlier Amendment—and there is every advantage in vesting at the earliest opportunity. I suggest to the noble Lord that these two Amendments would limit the flexibility to do what is best in the interests of the Amendments and I hope, therefore, that he will agree to leave the Bill as it is.
Lord CAMPBELL of CROY: I think the noble Lord meant to say "in the interests of the Corporations"; he said "in the interests of the Amendments".
Lord MELCHETT: I meant to say "in the interests of the industry", which is what I think I did say.
Lord CAMPBELL of CROY: The noble Lord mentioned the Iron and Steel Act 1967, and there my recollection is that the vesting date was specified as occurring 36 weeks after the passing of the Act
"… or such earlier date as the Minister may by order appoint".
He could have made the appointed day very soon after, but the fact that 36 weeks was mentioned made it clear that a considerable interval was expected. In this Amendment 28 days, a much shorter period, is being suggested; the Minister could act so quickly that the companies got no warning at all. I have made the point and the noble Lord said that the Government's interest is to get the Corporations going as soon as possible. I hope will he take into account the need to warn the companies, and I will reserve the possibility that we may wish to raise this matter again on Report. At this stage, however, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
2.39 a.m.
Lord MOTTISTONE Lord MOTTISTONE moved Amendment No. 203:
Page 75, line 21, at end insert (""industrial democracy" means Management of a concern with the maximum practicable consultation with representatives of all employees at all levels").
The noble Lord said: The Committee may remember that when, it seems many moons ago, we discussed this general subject of industrial democracy under Clause 2, I reserved the right to move this Amendment depending on how that debate went, and in my humble opinion it did not go very well. If your Lordships will remember, what worried me and many of my noble friends, not to mention other noble Lords in other parts of the House, was that, without a proper definition of what "industrial democracy" meant, it was going seriously to impede effective and efficient management. I remember making the point—and others have made it too—that management is a serious, important and difficult job which requires much experience and training and is not something that any old person can do by being fed into the management system by the back door in some rather obscure way. My attention has been drawn to an interesting letter in The Times today by Sir Henry Chisholm, who makes this point
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rather effectively. I commend it to the Government.
In putting down this Amendment, I should of course like to think that the Government, having gone through the long debates associated with the Bill, are now so wise in their understanding of these problems that they will accept my Amendment without further ado. However, if they do not propose to do that, perhaps they can explain what they do not like about it rather fully, even at this late hour, so that we may know what is the Government's thinking on this point. I beg to move.
Lord KIRKHILL: As I explained when discussing the noble Lord's Amendment No. 44 to Clause 2(4), the approach that the present Amendment reflects is unacceptable to the Government. The promotion of industrial democracy is one of the most important features of the Bill. We have explained that we do not consider it right to prescribe a particular form of industrial democracy because that is something for those in the industries to work out. At this point, the Government and the noble Lord diverge somewhat. But our firm hope and expectation is that it will enable all employees to play their full part in the future of these industries.
The Amendment would simply define industrial democracy as management of a concern with the maximum practicable consultation with representatives of all employees at all levels. We, of course, fully support maximum consultation, but what we hope to see evolve within the Corporations is something much more than mere consultation. I would hope that any good management would follow the principle of maximum consultation with the workforce, but consultation is not in itself equivalent to involvement or participation at all levels and it is this which we hope will be encouraged by our industrial democracy provisions.
With respect, the approach reflected in the noble Lord's Amendment is the sort of attitude which we hope to see change as industrial democracy develops. We believe that industrial democracy will involve employee participation and that our provisions will encourage this. This is something much more fundamental than consultation. Encouraging it will be one of the prime benefits we expect to see

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from this legislation. I do not believe that I can add more, given what I said on Amendment No. 44.
Lord CARR of HADLEY: I should like briefly to say one or two words because it is too late at night to go into this subject in detail, although I believe that we shall have to return to it at Report stage. I accept that it is genuinely one of the Government's major intentions in the Bill to promote industrial democracy, but I really think that, if they mean to do that, they will have to make some attempt to define what they mean by industrial democracy. I said earlier, and I repeat very briefly tonight, that it is not our intention to try to force the Government to prescribe what forms industrial democracy should take, but that it is really essential, if they mean what they say, that they should establish that democracy is something which, of its very nature, is available to all the members of the community.
We keep saying to the Government that they are deliberately excluding large numbers of the members of this community and while, as I have already admitted on previous Amendments, there are difficulties when it comes to collective bargaining, difficulties which I fully understand and admit, we do not accept on this side that they apply to consultation. We have had assurances from various Members of the Government Front Bench that nothing in the Bill was meant to exclude everybody from consultation. We have tended to say, "But if you give a legal right to some there is a danger that by implication you will exclude others from the enjoyment of that right."
I received this morning a letter from the Shipbuilding and Airline Industries Management Association from which I will read out two or three sentences and no more. It says:
"Our greatest immediate concern lies in the fact that the definition of a relevant trade union in the Bill is apparently being pre-emptively applied before the Bill is on the Statute Book in as much as we have been excluded from facilities for consultation"—
for "consultation" not from collective bargaining—
"excluded from opportunities for consultation with the organising committee and Ministers on proposals for the future of the industry under nationalisation. A meeting which we were promised with the organising committee some time ago has still not taken place."
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There is fear that that is what is going to happen, and here is some: suggestive evidence that what is feared is already happening; namely, by giving the legal right to a proportion only they will deny this basic democratic right to a substantial minority which may be as many as 30 per cent. of all employees, at least in the aircraft industry.
I do not wish to push the matter further tonight, but I hope that Ministers will realise that the very assurances which they have been giving look as if they are being denied in practice. This is, therefore, something to which, if they mean what they say about industrial democracy, we shall both have to return to when we come to the Report stage.
The Earl of KINNOULL: I should like to support briefly what my noble friend has said. I have heard the same complaint, particularly in the aircraft industry, and it would be of great value this evening that even if the Government cannot accept this Amendment, they could at least give an assurance that those who are worried at the present time about rot being consulted, will be consulted. Perhaps the noble Lord can explain what consultations are taking place at ft e present time, particularly at the middle management level between the organising committees.
Lord KIRKHILL: We discussed this matter at some length earlier and we will come back to it at Report, there is no doubt about that. I believe that the Government should rest their position at this time,
Lord CARR of HADLEY: Will the Minister at least think very carefully about finding out before Report stage whether or not some of the fears which I am reporting have any substance. If they have not, could he give some assurance in a categorical form that the substantial minority will not be denied this right to consultation?
Lord KIRKHILL: I cannot respond this morning to the latter pat of the question by the noble Lord, Lord Carr of Hadley. As to the first part of the question he addressed to me, I shall certainly give every consideration to it.
Lord MOTTISTONE: This being a late hour, and it being due to the intransigence of the Government in many other respects that we have to discuss these important matters at 3 o'clock in the morning, I hope that they will consider the points which have been raised by my noble friends and the suggestion that I made that perhaps the Government would care to read the letter in The Times which makes the matter very clear. Furthermore, I hope that, in reconsidering this matter, they will give serious thought to the efficiency of management. That is the important thing, These Corporations and their subordinate firms will not be successful if they are not efficiently managed. Any happy, bright ideas about what might happen under the broad heading of "industrial democracy", as described by the noble Lord, Lord Kirkhill, are not going to be conducive to efficient management; so further thought must be given to it. But with that proviso, and with the thought that we shall return to this at Report, I beg leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
2.50 a.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 204:
Page 75, line 45 at end insert (""net loss" means the amount by which the value of the securities of the company would have been reduced upon the hypothesis that the relevant transaction had occurred immediately before the first of the relevant days.").
The noble Lord said: Compensation is to be based on the average of the values of the securities in the specified six months, but it will not be paid until after vesting date, possibly not until a long time after vesting date. But deductions from compensation, which are the amount of net losses resulting to the new Corporations from relevant transactions under Clauses 30, 31 and 35, will be related to values at the date of transfer, for the net losses suffered by the Corporations must be measured by the difference caused by those transactions in the value of the assets at the date of transfer. So losses valued at 1976 prices are to be deducted from 1973/74 base values.
The purpose of the Amendment is to ensure that both the positive and negative elements of compensation are valued on the same basis with regard to the time of
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valuation. Otherwise, the Corporations would be protected against inflation while the owners of securities would be exposed to it. I would point out—and I am sorry the noble Lord, Lord Winterbottom, is not here, as he was talking about hypotheses and hypothetical matters earlier on—that the concept of a hypothetical date is here taken from Clause 39 of the Bill. I beg to move.
Lord KIRKHILL: Clauses 30 and 31 impose a personal liability on directors for any "net loss" to the new Corporations arising from material transactions and onerous transactions entered into after the safeguarding date. The purpose of these provisions is to prevent the transactions in question taking place. It is therefore important that adequate sanctions should be included to secure that that type of asset dissipation covered by these clauses does not take place.
The fundamental concept behind all of these clauses is that any of the transactions in question are either the responsibility of the equity holders or will confer a benefit, either directly or indirectly, on the shareholders. The extent of this benefit will be the actual sum of money they will gain as a result of the transaction. The gain to the shareholders will at the same time be a loss to the Corporations. The shareholders will have gained a sum which they would not otherwise have received, and the new Corporations are poorer by the same amount. But I would emphasise the point that the concept of "net loss" implies simply an arithmetical sum for which the directors would become liable, or by which the compensation would be reduced, under the relevant clauses of the Bill. That is the Government thinking behind this clause, and, of course, we would wish to resist the Amendment.
Lord CAMPBELL of CROY: I cannot say that I think that explanation is very satisfactory, but I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 56 agreed to.
Remaining clause agreed to.
Schedule 1 [Aircraft industry]:
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 212:
Page 80, line 34, after ("aircraft") insert ("other than guided weapons")
The noble Lord said: This is a simple question of definition. Schedule 1 includes in the companies to be nationalised those making guided weapons, but goes on to exclude aircraft designed to fly un-manned. For the sake of clarity it should be made clear that the definition of "aircraft designed to fly unmanned" is exclusive of guided weapons. It seems to me that that is a sensible definition to make in a world going into cruise missiles, space shuttles and the like. I beg to move.
Lord MELCHETT: I have to confess that I have a note here which is based on the assumption that the noble Lord wished to omit guided missiles altogether from the scope of the Bill. I hope noble Lords will not take it amiss when I say that this was not unexpected in view of the attitude they have taken over other parts of the Bill they wanted to omit. In view of the fact that it is designed as a drafting Amendment, I would suggest that it probably does not achieve the result intended; but I should like to take it away and look at the Amendment. If there is any need for re-drafting, I will undertake to come back to it on Report.
Lord STRATHCONA and MOUNT ROYAL: That will be perfectly satisfactory. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Schedule 1 agreed to.
Schedule 2 [Shipbuilding industry]:
The DEPUTY CHAIRMAN of COMMITTEES: Before calling Amendment No. 214, if it is moved, I should point out that if this Amendment is agreed to, I cannot call Amendment No. 250.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY: had given Notice of his intention to move Amendment No. 214:
Page 81, line 15, leave out lines 15 to 17.
The noble Lord said: There are five Amendments, Nos.214, 216, 219, 220
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and 221, which are linked with and are consequential to Amendments on ship repairing on which we have had two debates. Our intention is not to move these Amendments now, as we have been over that ground, but to revert to the subject on Report stage. I do not move Amendment No. 214.
Schedule 2 agreed to.
Schedules 3 to 6 agreed to.
Schedule 7 [Procedure etc. of arbitration tribunal]:
2.59 a.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 226:
Page 97, line 7, leave out ("and").
The noble Lord said: It seems a pity that we cannot finally wind this up, but I must move Amendments Nos.226, 227 and 228, which return to the question of interim payments on account of compensation, and attempt to ensure that any issues of this kind are speedily settled. These Amendments are merely designed to give the parties the advantages conferred by sections 13, 14, 15, 16 and 17 of the Arbitration Act 1950. This requires the Lord Chancellor in determining the rules for arbitrators to have regard to the fact that the issues should be resolved as quickly as possible. I beg to move.
Lord MELCHETT: The Arbitration Act 1950 contains the code regulating the procedure for arbitrations which are plainly designed to cover cases where arbitration is provided for in agreement between private persons as a means of settling differences or where questions are referred to arbitration by a court. Many provisions of this Act are therefore inapplicable to a tribunal such as the one being set up under the Bill. As a result, the Bill applies only a few of its provisions, and supplements this by making special though analogous provisions where they are specifically needed.
I have a long list of the various sections which will be applied by Amendments Nos.226 and 227. It would take me a quarter of an hour to read them all out, to gather the reasons why in each case they are not relevant. If the noble Lord would like me to refer to any of them, we can return to this on Report. I think the noble Lord also referred to Amendment

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No. 228, the final Amendment, which deals with speed. The Government sympathise with the desire to see speedier decisions reached by the tribunal. But in addition to speed, there are other important objectives: for example, the need to give parties a fair hearing and adequate opportunity for presenting their case. Subjects likely to figure in the arbitration tribunal rules would include the institution of procedures, pleadings, interlocutory directions, service of documents, representation at hearings and evidence, et cetera Regulations will be framed so as to enable speedier decisions so long as they are consistent with the need to see justice done. But to pick on speed as the only criteria worthy of mention in the Bill, as I think would be the case if Amendment No. 228 were passed, would be inappropriate. I hope the noble Lord will not press it.
The Earl of KINNOULL: While accepting the time limit is almost impracticable in many instances, can the noble Lord say whether interest will run from the vesting date?
Lord MELCHETT: We have covered this in great detail. We gave that assurance at least a couple of days ago, if not earlier.
Lord STRATHCONA and MOUNT ROYAL: Speed appears to be of the essence at this time of night. I am sure the Government have hoisted on board
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the point being made here. If it is necessary to come back and look at the detail, this is something we can do later. I am grateful to the noble Lord for his assurance and warnings about some of the other issues involved in the early part of our Amendment. I beg leave to withdraw this, our last, Amendment.
Amendment, by leave, withdrawn.
Schedule 7 agreed to.
House resumed: Bill reported with the Amendments.

ENERGY BILL [H.L.]
Returned from the Commons agreed to with Amendments; the said Amendments to be printed.