§ 4.33 p.m.
§ Lord STRABOLGI
My Lords, I beg to move that this Bill be now read a second 884 time. The aim of the Bill is to place the finances of the Covent Garden Market Authority on a sound basis so that New Covent Garden Market can be made viable. The market, as noble Lords will know, was moved from Covent Garden to Nine Elms in 1974. The market is the largest in the country and now provides modern wholesale horticultural marketing facilities which are second to none. The Authority, responsible for its operations, have no other sources of revenue than that derived from the market and its associated premises.
Perhaps I may briefly summarise the historical background leading to the present financial position before I go on to explain the Government's proposals in the Bill in more detail. The Covent Garden Market Act 1961 established the Authority to take over the old market from the private market company who were then operating it, and to rebuild and improve it at Covent Garden. But a new market on that site was shown later to be impracticable and the Authority obtained powers under the Covent Garden Market Act 1966 to move the market to Nine Elms on railway land then becoming redundant. Under Government economic restrictions of the day, however, major construction work was deferred in 1966, and although planning and site acquisition continued, the main building contract for the new market was not begun until 1971.
The market has been entirely financed from Government funds. About £10 million of the expected final cost of about £43 million has been provided from the grants made available by the Agriculture and Horticulture Act 1964 for modernising wholesale horticultural markets of national importance in the United Kingdom. The remaining costs have been met by long-term loans, under normal conditions, taken from the National Loans Fund.
In order to provide the conditions for a successful move and to give traders an opportunity to settle into new and unfamiliar premises, the then Government in 1970 sanctioned the principle of initial sub-economic rents for trading and associated office space at the new market. After lengthy negotiations, the Authority and the traders agreed terms on this basis in 1973. The agreements provided for settled rents, including provision for 885 services, on a six-year lease from November 1974 (when the new market opened for trading) with a fixed 10 per cent. increase after the third year.
The construction period coincided with an unforeseen rise in inflation, having consequent effects on the costs of the building work and loan interest rates, and on the costs of running the market. This led to rapidly accumulating loan charges and the deficit in the first year of the new market, ending in October 1975, was £3.9 million, with little prospect of early improvement. At the end of 1975 the Authority concluded that they were un-likely to meet their financial duty of breaking even, one year with another. They reported the position officially to my noble friend the then Minister of Agriculture, Fisheries and Food.
The Government considered carefully the steps that should be taken to deal with the situation. We were of course well aware of the importance of the market both to national distribution and in the role of price setting; a stabilising and beneficial influence for the consumer in determining prices for horticultural produce. To dispose of the market for other purposes would result in the disruption of fruit and vegetable distribution on a wide scale, with adverse effects on consumers and horticultural producers. Disposing of the market for continued use as such under some body other than the Authority would not serve to eliminate the Authority's debts.
Of immediate practical concern, the Authority's borrowing powers are limited by the existing Covent Garden Market Acts to £45 million, a limit which would be used up within the next year if the Authority's borrowings continued at the expected rate. Primary legislation would be needed to increase this limit and let the Authority carry on. The Government have concluded in these circumstances that it should seek the approval of Parliament to the present Bill and provide thereby for the continuation of the market.
I will now deal with the more important provisions of the Bill. Clause 1 effects the reduction of the Authority's debts to a manageable level by writing off £13 million of their liabilities and suspending a maximum of a further £25 million. This will leave the Authority with active debt 886 of some £6 to £7 million on normal National Loans Fund terms, taking into account liabilities which have still to be met for the construction and other capital costs of the project.
The write-off, we consider, is fully justified by the unique situation of the Authority. This is very different from that of the local authorities operating rather similar markets. I have mentioned already the unique position of the Authority, but there are other important factors to be considered. The proceeds from the sale of the old market were relatively small due, in some measure, to the historic nature of the buildings there, while on the other hand the release of the site for other use confers very considerable social benefit on the whole community. The Authority also suffers disadvantages in relation to taxes and rates.
My Lords, I should next explain the concept of the suspended debt. This is not written off. It will be revived as circumstances permit. So long as debts are suspended, however, no interest is chargeable on them, nor is there any requirement for repayment of capital. Once the reconstruction has taken place no further debt can be suspended, and once any of these suspended liabilities have been revived they cannot be re-suspended. This clause goes on to provide that the amount of suspended debt shall be shown suitably and prominently in the Authority's accounts. Noble Lords may know that during consideration of the Bill in another place it was amended in respect of the way the suspended debt should appear in the accounts and the provision now fully resolves the doubts that were there ex-pressed. I suggest that the remainder of Clause 1 provides the necessary flexibility for deciding the amount and timing of suspension in consultation with the Authority and with the approval of the Treasury.
My Lords, Clause 2 provides my right honourable friend the Minister of Agriculture, Fisheries and Food with a reserve power to direct the Authority to dispose of assets if in his view this will promote the proper exercise of their powers or duties. He must consult the Authority in exercising this power, and our seeking such a power does not imply a lack of confidence in the Authority's will to dispose of assets which appear to them no longer necessary 887 for the performance of their proper functions. They have a highly responsible view of their duties, and here I should like to pay a tribute to them. But what we are seeking here is a reserve power providing for the unforeseen eventuality where a direction could be used to act in support of the Authority in the public interest.
My Lords, Clause 3 amends certain provisions of the Covent Garden Market Act 1961 in consequence of the action being taken to reduce the liabilities of the Authority under Clause 1. The most significant concern the powers of direction sought over the Authority's financial affairs. Subsection (2) retains the pro-vision of Section 37 of the 1961 Act in that the Authority are required to break even, taking one year with another, but it adds a duty to achieve such further financial targets as may be considered desirable. It also adds a power to direct the Authority in the use of their powers so as to achieve the objectives. There must be prior consultation with the Authority in setting the objectives and over any direction that is given.
I have now dealt with the provisions of the Bill which represent the Exchequer's financial contribution for the improvement of the Authority's and of course the market's financial standing. Market traders and other users must also contribute to this improvement. They are, I know, running their businesses on fine margins but it is, I think, reasonable to expect them to be ready to pay the cost of running the market which provides the services they need and to contribute something—increasingly in the longer term—to the cost of the capital assets. At the same time, it is right that the costs of market operation should be reduced to the greatest extent possible consistent with reasonable standards and I am glad to be able to report to the House that market tenants, together with market workers and users' representatives, are now ready to take part in a Working Party with the Authority, directed at finding economies in the provision of market services.
My Lords, the Authority, it is universally acknowledged, have done a splendid job in carrying through the move of the market and establishing it at Nine Elms. We believe they can perform equally well 888 in running the established market. But marketing needs are not static and, in providing for changes and continued efficient operation of the market, the Authority recognise, as we do, the need to work in close co-operation with users of the services which they provide.
My Lords, the Bill is the statutory part of a package to put the country's premier wholesale horticultural market on a continuing viable basis. Repayment of certain debts will be delayed or forgone, but we consider that the realities of the situation must be faced and that the Bill represents an essential measure in the public interest. Accordingly, I commend this Bill to your Lordships and beg to move.
§ Moved, That the Bill be now read 2a.—(Lord Strabolgi.)
§ 4.48 p.m.
§ Lord SANDYS
My Lords, the House will be grateful to the noble Lord for going into considerable detail on this important Bill. It is of course a certified Money Bill and therefore your Lordships' House will be placed under the constraints of the Parliament Act 1911. The history of the situation dates back a little earlier than the noble Lord suggested because it dates from the Runciman Report of 1960, and this is really one of the fundamental problems out of which arose the financial position in which the Authority finds itself today. The Runciman Report was opposed in the days of the Labour Opposition on the grounds that it would be very much better not to treat the problem of a single authority—in those days it was the Covent Garden Company—as a separate unit but rather to set up a complete London Market Authority. The Labour Opposition suggested that Covent Garden, Billingsgate, Spitalfields and Smithfield should also be taken into account.
Of course we have learned a great deal since those days, and I believe that the Government, in bringing their Bill to your Lordships' House this afternoon, should recognise that they have also learned a considerable amount about establishing markets because, of course, all over the United Kingdom mistakes have been made. I believe that not only Governments but also the architectural profession should recognise this; after all, who, today, would set up a place such as the Bull Ring in Birmingham or the market complex 889 round the Elephant and Castle, only a few miles from this place?
I have visited the Nine Elms site, not in great detail, but I feel that anybody who visits it would say that it has justly earned the epithet, "Colditz", which has been attributed to it. We may call it Colditz or we may call it "Moonland", but architectural advisers have produced a design which we hope is proving a satisfactory set-up in which the market can operate. But it is not necessarily what the consuming public have found satisfactory to look at. This, of course, centres on the conservation argument.
I should like to pay tribute to my right honourable friend Mr. Geoffrey Rippon, who started the conservation argument as long ago as 1964 in listing certain buildings. This led to a whole movement within the Covent Garden area which eventually turned into a theme in planning the revised site at Nine Elms. I think that we are looking today at the end point, and to apply a simplistic argument is very easy; one can say: "You cannot have your cake and eat it". This is what the Government have attempted to do. In looking at this Bill we have at some point to decide upon a means whereby the site is paid for, the conservation is adequately seen to, and a satisfactory market provision is agreed. I should like to go over the ground in a little detail here because enormous sums of money are being dealt with. We are asked in the course of the Bill to nod in passing to the write-off of £13 million initially, and secondly to suspend £25 million debt, making a total of £38 million, and to provide for a set of circumstances in which the Authority and the Minister may find themselves in the future.
It was never envisaged at its inception that the market would cost more than £43 million, and we are looking at a debt today of approximately £38 million, with other commitments added in. The noble Lord, Lord Strabolgi, rightly, has mentioned that £10 million has been drawn from sources within the Agriculture and Horticulture Act 1964, and he has also referred to the consequences of the initial deficit; that is, of £3.9 million in December 1975.
I should like to pay tribute to the two chairmen of the Authority. Sir Henry 890 Authority extremely well and have further enabled a very difficult move to take place. Nobody could have envisaged in the early 1970s that the money market was going to be as fluctuating as it has proved to be, nor was it expected that the borrowing powers would have to be so large as they subsequently proved to be.
One of the principle difficulties of the whole operation has been the sale of the site at Covent Garden, and I think that the noble Lord, Lord Strabolgi, mentioned that the sale could have been more satisfactory. Indeed, from figures mentioned in another place it was quite clear that although the site could have been sold for approximately £20 million, the sum actually realised was approximately £10 million. Therefore we are paying—and we must recognise this—a high price for conserving a whole area in the centre of London. We believe that there are balances to be examined here in regard to conservation, and bearing in mind that your Lordships will shortly be debating a Motion by my noble friend Lord Sandford on inner-city areas, I should point out that here is one of the prices that we have to pay for conserving a very important inner-city area. We believe that we should recognise what a high price it is and set it down very clearly in argument. We also believe that to conserve this particular area has been a worthwhile operation, and as time proceeds we expect that the conservation policy will prove to have been very worth while.
I should like to ask the noble Lord three questions. First, can he explain a little more about the suspended debt; that is to say, the £25 million which it is proposed to set into this particular category? Secondly, I should like to draw attention to the financial targets which are set out in Clause 3(2), and would ask whether the noble Lord believes that these financial targets are realistic in the light of the current financial position. Thirdly, there is the problem of the additional figure of £500,000, which the Government mentioned on 11th January, in the debate on the Second Reading in another place. I should like to refresh the memory of the noble Lord, Lord Strabolgi, to the effect that his honourable friend Mr. Bishop said, as reported at column 1275 of the Official Report[...]
891 In the debate on the Second Reading a number of questions were repeatedly asked of the Government: how this figure was going to be made up; whether it was to be a levy; whether it was to be paid for by an increase in rental; or whether it was to be gathered from market traders in some other way. The Government were remarkably elusive on this point, and I wonder whether the noble Lord, Lord Strabolgi, might be able to give us a little further information.
It is quite clear that the Bill is the end product of a long period of delay, and one must also recognise that the policy of postponement which the Labour Government of 1966 carried out is one of the causes of the present debt. In an era in which building costs have risen so sharply—indeed, I am told that since 1973 building costs have increased by no less than 120 per cent.—I think it is remarkable that the debt has not increased to an even greater extent, and so I hope that the Government will be able to assure us that the extent of the present financial provisions included in the Bill will be sufficient to meet the whole position.
§ 4.57 p.m.
§ Viscount SIDMOUTH
My Lords, this is indeed a serious position that has arisen with regard to the Covent Garden market, and I feel sure that your Lordships will agree that the provisions of the Bill are probably now the only way in which the situation can be met. To that extent I certainly would support the Bill. We have heard of some of the financial back ground which has led to this unfortunate position, and first of all the delays which led to increased building costs, at least double the original estimates, on which the feasibility studies were originally done. There is also the question of the increase in loan costs which has been encountered in recent years. We have heard, too, about the reduced sums realised by the old Covent Garden market site, which have greatly increased the indebtedness of the Authority.
I should like to take up points which have been already referred to by the noble Lord, Lord Sandys, in that I think that some quite fundamental mistakes have been made in policy which have also contributed to this situation. I refer back to the period round about 1964, 892 because that was the date of the Agriculture and Horticulture Act which has been referred to, and which initiated a national policy of improving horticultural markets throughout the country, of which Covent Garden was only one. The elected office that I happened to hold at that time in the National Farmers' Union put me in the position of being a spokesman in the discussions that took place. These were very much concerned with the possibility of our entry into the Common Market, and with what should be and could be done to put us in a position to be competitive if and when that event took place.
As a part of our preparations for this, we undertook very extensive studies of what was being done on the Continent, where a great deal of improvement was also being carried out at that time, and we hoped to benefit from what was being done there. Arising from these studies, I personally was called in by three authorities here—that is to say, Liverpool, Birmingham and Newcastle—to advise on the conclusions to which we had come. What we said then was that it was quite apparent that the state of the industry was such that considerable financial stringency would arise with regard to rents. I must confess we had a self-interest in this, because the rents paid by the traders, the wholesalers, come ultimately from the commission which we, as producers, pay them. We felt that, in normal circumstances, this would mean that horticultural markets were no longer a centre-of-city activity; they were basically an out-of-town activity. This had cer-certainly been accepted in several big cities in the United States, where money was then, and probably still is, less of a consideration than it has to be here. The costs of operating inside cities—and there is no need to elaborate the point—are a great deal more so far as staff and many running costs are concerned. I would cite only the question of rubbish disposal, which is a major problem in horticultural markets.
For that reason, my Lords, we and the other authorities concerned strongly advised that out-of-town markets were what were required. It is perhaps of interest, looking forward from that time, to see that at Birmingham, where we foresaw a potential white elephant in the otherwise splendid Bull Ring development taking place, that that has come to pass; 893 and that in the case of the other one where we also sat down with the local authority—namely, Newcastle—and where they took a different line, they have opened a very efficient and rather happy, including financially happy, market South of the river at Gateshead. Our fears were based on the fact that horticulture was then, and is no longer now, a protected industry, and it was therefore probable that we would be coming under pressure from EEC conditions. There was another consideration, too, and that was that, although wholesale markets were, and still are, greatly important, in the scheme of things, in the distribution of fresh produce in this country, none the less there were certain factors which were reducing the volume of produce passing through wholesale markets. One obvious example is the growth of big buyers—Sainsbury's, Tesco, Marks and Spencer—who, of course, like to deal with large sellers; and there has been a tendency to form co-operatives and other selling operations in order to cope with this. These parties deal directly with each other, and do not go through the market.
My Lords, I should like to deal with another fallacy, as I see it, which has run right through the policies of both Governments on Covent Garden as such. Indeed, it featured to some extent in the remarks of the noble Lord, Lord Strabolgi, in his opening speech. That is, that great stress has always been laid on the national price-fixing role of the central market. This phrase I think started with Runciman, and has recurred repeatedly throughout. Of course, a price-fixing role is one of the primary objects of any market, and a national role is extremely important; but the French, who started on this exercise before we did, I think used superior logic, at any rate in this particular matter. They came upon the same point, and they came to the conclusion that this was a matter for market intelligence.
It is perfectly true that years ago one could go to Covent Garden market and could see produce which we had laboriously sent up there with tickets on it for Torquay, Leicester or many places throughout the country. This, of course, is an essential role, but it is equally absurd because you do not transport traffic into the centre of a city simply to send it out again. The French system was based on setting up a countrywide network of telex communications centred on the 894 markets in each provincial area, which really had the effect of creating a unified market throughout France. This price-fixing role is much more efficient and better than anything Covent Garden can do simply on its own, because it reflects the increasing importance of the provincial markets, which has also happened here, and enables the supply and demand situation, which is critical in dealing with perishables, to have full effect.
My Lords, I should like to conclude by referring to the contribution which it is intended should be made by the users of the market. It is obviously fair and above board, and only right, that there should be a contribution to the costs by the users. But I would urge—and I am delighted to hear that these are being arranged—that there should be consultations between the Authority and all concerned with the working of the market, including, of course, the staff, because I believe that there is evidence that the costs of operating this market are considerably higher than they ought to be.
One could not go into details of their accounts, nor, indeed, am I competent to do so, but before sitting down I should like to cite one example which leads me to think that this is so. My company has an operation by which we produce flowers in Kenya, practically all of which are sold at the co-operative market in Aalsmeer, near Amsterdam. As foreigners, we pay 8 per cent. in commission there, as against the 10 per cent. that we pay as natives in Covent Garden. But if we were members of the auction we would pay only 4 per cent.; and I believe—in fact, I am sure—that as this is a co operative market owned by the producers, the growers, the 4 per cent. represents the cost of operating the market. There is no profit element there. Indeed, in many years the members of the auction receive a bonus at the end of the year of what is surplus to what has been produced by their 4 per cent. commission. My Lords, I believe that the difference between that and what we have to pay in Covent Garden and, indeed, in some other markets in this country, illustrates the fact that there is room for improvement and a reduction in costs.
§ 5.8 p.m.
§ Lord STRABOLGI
My Lords, this debate has been short but I have found it 895 a stimulating occasion and I am grateful to the noble Lord, Lords Sandys, and to the noble Viscount, Lord Sidmouth, for their contributions. Before I seek to answer particular points, there are I think a few general points which I should like to develop, especially in view of some of the general remarks made by the noble Lord, Lord Sandys. With regard to the Authority's revenues, there is no way in which the Authority's revenues can be increased to clear a debt of these proportions if it is allowed to mount. Traders certainly could not pay it, no other organisations would be prepared to take over the market with its debts, and the implications for producers and consumers of fruit and vegetables would be far too serious for us to let the market sink without making a serious attempt to re establish it on a viable basis. The Government have therefore faced reality in a practical way. This they are doing by recognising the unique circumstances of the Authority in providing for some write-off, by suspending the majority of the remaining debt until it can be paid and by taking reserve powers to safeguard the use of public money and thus help the Authority to make a go of this important market.
The noble Lord, Lord Sandys, raised a number of points and he asked me first whether I would explain a little more about the suspended debt provisions contained in Clause 1(4). We want to ensure that the suspended debt is included in the accounts, but we think it is necessary to do this in such a way that we are not left with a balance sheet which gives an unnecessarily pessimistic view of the Authority's financial position. The Authority's assets are worth in terms of their revenue yielding value far less than their historic cost and should be revalued on the lower basis. The suspended debt is part of the historic cost, and if it were shown as a liability against the lower-valued assets, we should have to balance the account by showing a loss from revaluation on the assets side.
Although in purely financial terms this would not be a major objection—for that loss would not need financing out of revenue—it would be paradoxical and less than encouraging to good management to leave the Authority with a balance sheet showing a large continuing deficit after re construction. What we therefore propose 896 is simply that on the liabilities side of the balance sheet the Authority will show their total borrowings (remaining after write off) including the suspended debt. The next entry will show the suspended debt itself and this will then be subtracted from the total borrowings. The remainder, which constitutes the active debt, will then be taken into the total of the liabilities column. The arithmetic of this process will be shown clearly in each year's accounts. In addition, we shall require the first set of accounts, following the financial reconstruction, to include a reconstruction statement which will show the effect of the changes arising from this Bill.
The noble Lord, Lord Sandys, also referred to the old Covent Garden site and, as he said, it has been suggested—and was suggested in another place at one point—that the Authority should have made considerably more profit from their old site to help with the new market. This did not materialise because in 1973 plans for the redevelopment of the Covent Garden area by the Greater London Council were changed in favour of conservation and many buildings in the area, including some of the Authority's buildings, were listed by decision of the then Secretary of State for the Environment as being of historical and architectural interest, as the noble Lord, Lord Sandys, has said.
Here I should like to pay a tribute to Mr. Geoffrey Rippon and his actions in this respect. I think that of all the achievements of the previous Government—and they had some achievements—this was one of the most notable, because through it we have been able to preserve a very charming and typically old quarter of London with great character. I think that otherwise it would have become a soulless concrete desert with no pleasure or profit to anybody except for the property developers. But in consequence of this action which was necessary on conservation grounds, and for which I think future generations will thank us, the value of the old market site dropped, and there was also the general decline in the commercial property market as compared with their expectations, and in contrast to the effect of rapid inflation between 1971 and 1974 on their costs in the construction and financing of the new market.
The noble Lord, Lord Sandys, also asked about financial targets and about 897 what was being done by the Authority to achieve such financial targets as the Minister may set. The Minister will be required to consult with the Authority about these targets and to obtain Treasury approval for them. The targets need not be limited to any particular period, for example an accounting period, although the Minister may set the period when he determines the target. A target when set will require the Authority to do better than to break even in any specific period and it will be the duty of the Authority to achieve the target. These additional targets are justified by the fact that the Authority's improved financial position has been brought about by the use of public funds under this Bill.
The noble Lord, Lord Sandys, also asked about the £500,000 expected from the tenants and the users. The Minister at a meeting with the market tenants and users when this Bill was presented last November suggested that the amount that should be regarded as their necessary contribution should be something over £500,000 at today's prices. Since then market tenants have agreed to join in discussions of ways of reducing the costs of the day-to-day operation of the market and the Minister has agreed that the tenants and users should share in any savings by offsetting their share against the £500,000. The tenants have agreed to undertake discussions on how the contribution is to be raised. It is for the Authority to negotiate this with the tenants and users.
The noble Lord also wondered, I think, about the question of rents. Here, of course, the previous rents at Nine Elms were low because they were kept low in order to encourage tenants to move; but the Authority are in the process of negotiating further rents with users, and part of the package of the measures necessary to put the Authority on a firm financial footing is the raising of additional revenue from market traders and users in this way. It may be true that whole sale profits are less than buoyant given this time of financial difficulty for many businesses throughout the country, but wholesale prices for horticultural products are moreover significantly above those of 1974 and the indications are that there was an increase in the volume of trade at New Covent Garden in the first full year of trading compared with the old market.
898 The Authority are also negotiating certain staff cuts with regard to general administration and a certain amount of rationalisation. The noble Viscount, Lord Sidmouth, made also a most interesting contribution. Of course he will not expect me to go over the old ground because the decision was made to site the market at Nine Elms. I dare say that there were probably arguments for putting it outside London, as the market which has replaced Les Halles has been moved outside Paris, but there were also arguments against it. But Parliament made the decision to site the market at Nine Elms. With regard to rationalisation of the wholesale markets in London in general, of course the rationalisation of these markets which serve London and the South East was proposed in the last full review by the Runciman Committee, but it was not acceptable to all the market authorities concerned and, moreover, it is not certain that the wholesale markets will continue in the long run to exercise their present dominant role. They are expected to remain important to national and regional distribution, but more direct forms of distribution are being developed. My Lords, I hope that that has answered all the different points made by the two noble Lords.
§ On Question, Bill read 2a: Committee negatived.