CROWN AGENTS BILL (Hansard, 3 April 1979)

§ Lord McCLUSKEY

My Lords, I beg to move that the Bill be now read a second time. Your Lordships will be familiar with the historical and constitutional background to this Bill. I therefore propose to touch only briefly on it today. It will be recalled that, since they were established in 1833, the Crown Agents have had no corporate legal status or formal constitution. Their functions have never been closely defined. Individual Crown Agents have been appointed over the years by Ministers, and have been subject to directions from them under prerogative powers. This state of affairs worked well enough while the Crown Agents acted exclusively for colonial Governments, under the close supervision of the Secretary of State for the Colonies. But with the move to independence of most of their principles in the late 1950s and early 1960s, the nature of the Crown Agents' relationship with Ministers became less easy to define, and this gave rise to major difficulties. As the Committee of Inquiry under Judge Fay made clear in its report of December, 1977, uncertainty about the status and functions of the Crown Agents and their relations with Ministers was an important factor in the way in which the own-account activities developed in the years 1967 to 1974, with the disastrous results which we all know about.

The question of responsibility for those events is at present under investigation by a tribunal of inquiry, and it would therefore not be appropriate for me to dwell on it here. It is important to see that these events are looked at in context, and to remember that they form only one chapter in what is otherwise a history of valuable and dedicated service by the Crown Agents, on behalf of overseas principals. But this chapter has served to emphasise the importance of putting the Crown 1809 Agents on a sound and well-defined footing for the future. The Government concluded in October, 1975, that this should be done by introducing legislation to make the Crown Agents a statutory corporation, and the White Paper of April, 1976, set out our proposals in some detail.

More recently, we have had another illustration of the unsatisfactory nature of the existing constitution of what the Bill describes as the "unincorporated Agents". This was the legal advice about which a Statement was made on 10th November last year in another place, to the effect that in strict law the Crown Agents' revenues should have been paid into the Consolidated Fund as hereditary revenues of the Crown, and their expenditure met from Votes. In addition, as a matter of constitutional practice, their borrowing should have had the authority of Parliament. As was then said, there was no alternative to allowing the Crown Agents to carry on as they had for many years, until legislation regularised the position. Your Lordships will, I am sure, be glad that this can now be done.

The Bill which is now before this House does, very broadly, three things. First, it gives the Crown Agents a recognised legal status as a statutory corporation, thus ending the uncertainty and legal difficulties which have surrounded their existing status as an unincorporated Crown body. Secondly, it limits the Crown Agents to their traditional role of offering a range of services to principals including procurement, technical advice, personnel services and investment management. It is the Government's intention to continue the existing practice of not intervening in the detailed transaction of business on behalf of principals, and I will explain in some detail later how the Bill sets out to achieve this.

The Crown Agents began once more to restrict themselves to their traditional role in 1975 when, at the direction of the Minister, they started to disengage from their own-account activities in property and secondary banking. With the exception of the large Australian property investments, that process is now virtually complete, and the Bill reflects the fact that own-account investment of this kind will not form any part of the Crown 1810 Agents' future business. It does this by creating a separate corporate body (the Holding and Realisation Board) to manage and realise the remaining own-account investments.

Thirdly, the Bill puts the Crown Agents on a financial basis comparable with that of other bodies in the public sector, including detailed provisions about revenues, borrowing powers and audit arrangements. The on-going Crown Agents' liquidity is, however, now entirely satisfactory. They have indeed, as was stated in another place on 7th February, found it possible to dispense with the stand-by facility with the Bank of England, which was arranged for them in December, 1974, as part of the rescue package.

The intention of this Bill has been to take account of the lessons of the past and to put right the weaknesses which they have revealed, without allowing the particular events associated with the own-account business to carry any disproportionate weight. Our aim has been to set the Crown Agents on a new path for the future, allowing them to concentrate exclusively on their traditional services to principals, while making appropriate arrangements for maintaining full accountability and control for the own-account investments until they are wound up. There is provision for the traditional business to develop in a controlled and considered way, in line with changing demands from the Crown Agents' principals. Finally, the Bill seeks to achieve a balance between the interests of overseas principals who use the Crown Agents' services and the legitimate public interest in the control and efficient working of a public sector body.

Because of the accelerated way in which this Bill is to proceed through this House, and because of the fact that copies of the Bill, as they should be printed for this House, are not yet available, perhaps your Lordships will forgive me if I spend a little more time dealing with the details of the Bill than I might otherwise have done. By doing so I shall, I hope, save more time without detracting from a proper understanding of how the Bill achieves its objects. So I now turn to examine in more detail the main provisions of the Bill.

1811 Clause 1 provides that, on a day to be appointed, the term of office of each of the existing Crown Agents shall expire, and a new body corporate shall come into being to be known as the Crown Agents for Oversea Governments and Administrations. The reason for retaining the existing title of the Crown Agents is that it is well-known, and also that it is in general use in the legislation of a number of overseas countries for whom the Crown Agents act. Despite their name, the Crown Agents will not retain their present Crown status, and, in particular, they will lose their present immunity from taxation. Although the terms of office of existing Crown Agents will expire on the appointed day, it is open to the Minister to reappoint them to membership of the new body and it is the Minister's present intention to do so.

Clause 2 vests in the new Crown Agents all the property, rights, liabilities and obligations of the unincorporated Agents, except those arising from their own-account activities which are to be vested in the separate corporate body I have mentioned. This, of course, is the Crown Agents Holding and Realisation Board. Clauses 3, 4 and 5, together with their related schedules, define the functions of the Crown Agents and the authorities and bodies for whom they may act. The approach adopted in these clauses is a slightly unusual one, designed to meet the particular circumstances of the Crown Agents, and requires a word of explanation. The aim has been to leave the Crown Agents free to continue to carry out their traditional business for principals without interference from Government, while at the same time providing for the necessary degree of control over the range of their activities and over the management of their finances. This is done in two ways. First, the future development of the Crown Agents is controlled by the close definition of their functions and by the requirement that any new activities may be undertaken only if authorised by order. Secondly, a distinction is drawn between those activities which the Crown Agents are to carry out as agents for their principals—for example, procurement, recruitment of staff and the management of funds—and those which they are to carry out in their own right: for example, provision of technical advice and training services.

1812 Both kinds of activity form part of the Crown Agents' traditional business. But their own-right activities involve greater potential financial risk than their agency work, while agency activities require the Crown Agents to be free to comply with detailed instructions from their principals. For these reasons the Bill provides for stricter ministerial control over own-right business, particularly in relation to financial matters, while preserving safeguards designed to maintain the traditional relationship of confidentiality between the Crown Agents and their principals when the Crown Agents are acting as agents.

For example, the Bill provides for control over own-right financial activities by giving the Minister power to make regulations regarding the investment of funds held by the Crown Agents in their own right, and power to control borrowing. Some of the own-right activities involving financial risk are only to be carried on with consent of the Minister. There is also provision in Clause 23 for the Minister to give the Crown Agents general or specific directions with respect to any financial matter connected with the performance of functions in their own right.

By contrast, the detailed transaction of agency business is not subject to general or specific directions from Ministers, and Clause 3 makes it a duty for the Minister to have regard to the special nature of the relationship between the Crown Agents and the bodies for whom they act as agents in deciding whether or how far to make use of any powers conferred on him by the Act, and in particular the powers in Clause 10 to require information from the Crown Agents.

The authorities and bodies for whom the Crown Agents are empowered to act are much the same as those for whom they may act at present; namely, central and local governments and public sector bodies, mainly overseas but also in the United Kingdom, and certain international organisations and charities in the United Kingdom and overseas. Clause 6 gives the Crown Agents the necessary ancillary powers to enable them to perform their functions. But the Crown Agents will not have the right to acquire land except for their own occupation, nor will they be able to guarantee obligations incurred by third parties.

1813 Clause 7 continues the original duty of the Crown Agents to act on behalf of the remaining Dependencies and associated States. Clause 8 lays on the Crown Agents a duty to ensure, so far as they are able, that their agency activities are prefunded. As has been their objective in the past, the Crown Agents will be required to ensure that before payments fall to be made by them on behalf of their principals, the necessary funds will, so far as possible, either have been paid to them by the principals or provided under irrevocable letters of credit. This requirement is both a commercial and a financial safeguard as it protects the Crown Agents from having either to refuse payments to suppliers or to allow their principals to build up overdrafts.

The Bill includes a number of clauses which have become virtually standard for public sector bodies, and are designed to ensure that there is proper oversight and control of the organisation as a whole. These include Clause 9, which empowers the Minister to require the Crown Agents to undertake a management review from time to time; Clause 10, which gives the Minister powers to require information from the Crown Agents; and Clause 11, which provides that the Crown Agents will make an annual report to the Minister, which will be laid before Parliament. These powers are not designed to be used, and it is not intended that they should be used, to intervene in questions of day-to-day management which are entirely a matter for the Crown Agents Board. Such intervention by the United Kingdom Government would sap the essential relation of confidence between the Crown Agents and their principals.

The Crown Agents have a number of subsidiary companies which it is intended should remain in being after incorporation, and Clause 12 provides for the Crown Agents to exercise control over the activities of their subsidiary companies. They—that is, the subsidiary companies—will not be able to do anything which the Crown Agents themselves are not authorised to do. The Bill, in Clauses 13 to 24, brings the Crown Agents for the first time within the general financial framework for public sector bodies, as outlined in the Government's White Paper on the nationalised industries, published in March of last year. In particular, it has been decided that the Crown Agents, 1814 like other bodies in the public sector, should be required to make a reasonable return on the public resources invested in them. This is a necessary test of whether these resources are being efficiently used.

Thus, the Crown Agents will be required under Clause 17 to assume a commencing capital debt in respect of the assets transferred to them on the appointed day. This debt will be deemed to be a loan from the National Loans Fund, which means that the Crown Agents will be required to service the capital employed in their assets at the rate of interest which would have applied had they borrowed from the National Loans Fund in order to acquire their assets.

Rates of interest on loans from the National Loans Fund are geared to what the Government themselves have to pay to borrow money. This represents a change in the financial basis on which the Crown Agents have operated to date, and the Bill therefore provides for a transitional period of five years, which may be extended to seven years by order, during which interest on the debt may be waived. This period should give the Crown Agents time to adjust to the new financial framework. There is no question of levying interest charges on the Crown Agents during this period in a way that would put their commercial viability in doubt, nor is the intention in any way to penalise the Crown Agents for the own-account losses of the past. The financial powers and duties laid down in the Bill with respect to the Crown Agents have been drawn up solely in relation to the on-going business.

Clause 13 lays on the Crown Agents the duty to ensure that their revenues and those of their subsidiaries together are not less than sufficient to meet their total outgoings, taking one year with another, and to make any necessary allocations to reserves. The Minister is empowered to set the Crown Agents an overall rate of return to be achieved during a given period, so that, for example, any reserves which are built up and kept in the business, and any capital appreciation of assets, are taken into account in determining the overall rate of return which it is reasonable for the Crown Agents to make.

Clause 14 gives the Minister powers of direction over the allocation to, and 1815 application of, the Crown Agents' reserves; and Clause 16 enables the Minister, after consultation with the Crown Agents, to require them to pay over to him surplus revenue or money in any reserves. Clauses 18 to 21 are standard provisions for public sector bodies. They empower the Crown Agents to borrow within certain limits with the Minister's consent; enable the Minister to make grants and loans to the Crown Agents to enable them to perform their functions or meet their obligations; and empower the Treasury to guarantee borrowing by the Crown Agents.

Clause 22 makes detailed provisions regarding the preparation of the Crown Agents' accounts. Provision is made for the Crown Agents' accounts to be audited by commercial auditors appointed by the Minister after consultation with the Crown Agents. Other public sector bodies whose business is primarily of a commercial nature have commercial auditors. The accounts of the Realisation Board will, on the other hand, be audited by the Comptroller and Auditor General.

All the financial clauses have been drafted on the basis that on the appointed day the Crown Agents will be a solvent organisation, and will be concerned only with the traditional business for principals. This is possible, because of the decision which I mentioned earlier, to create a separate corporate body to manage and realise the remaining own-account investments. Clause 25 establishes the Crown Agents' Holding and Realisation Board for this purpose. The connection with the Crown Agents is made clear by the title, and continuity of management and accountability will be maintained by appointing as members of the Holding and Realisation Board those people who are Crown Agents for the time being. But the Board will be legally and financially separate from the Crown Agents, and will inherit the financial burden of the own-account investments.

The creation of two separate corporate bodies helps to avoid any confusion which might otherwise arise from conferring two different sets of powers and functions on a single corporation, and makes it possible simply to dissolve the Board when all the own-account business has been dealt with, so leaving the Crown Agents with only 1816 those powers and functions which relate to the on-going business. It also has the advantage of enabling it to be seen that the on-going business stands on its own feet and is sound in financial as in other terms.

Schedule 5 makes detailed provisions with respect to the Board, including powers for the Minister to give them detailed instructions about the conduct of their business. This is now mainly concerned with the management of the Australian property investments. The time taken to realise these investments must depend to a large extent on developments in the property market in Australia, and may well take a number of years. I believe it is right that we should not be in too much of a hurry to dispose of these investments; the remaining portfolio is a sound one, and with an improvement in the property market the Board can look forward to a better outcome from these investments than would be the case if disengagement were to take place now. But the Government and the Board will continue to keep the whole operation under close review.

The final deficit on the own-account investments can not be known until the prospects for realising the Australian property investments are clearer. This remains the position. The Bill makes provision for any money in excess of that needed to enable the Board to discharge its liabilities to be paid into the Consolidated Fund, and thus whatever is available once all the remaining own-account investments have been realised and the liabilities discharged will come back to the Government. There is therefore no need, on top of this, to provide for the Board to assume the liability of the unincorporated Agents to repay any or all of the recoverable grants of £175 million. Clause 26 accordingly extinguishes this liability. But it is not lost sight of since the clause further provides that the Minister should take account of the fact that the grants were originally recoverable in exercising his powers to recover money from the Board. As the Financial Memorandum makes clear, extinguishing the liability in respect of the £175 million grant will not in any way affect the amount of money which the Government will be able to recover from the Board at the end of the day.

Clause 27 provides for the Board and its wholly owned subsidiaries to be exempt 1817 from corporation tax. The main purpose of this is to avoid a lot of unnecessary administrative work in assessing the Board and its subsidiaries for tax purposes, since any tax which might otherwise have been paid would simply have served to reduce the amount available for payment into the Consolidated Fund, or, in less happy circumstances, to increase the ultimate deficit which Government may have to meet.

Clause 27 also provides for certain transfers of property from the unincorporated Agents to the beneficial ownership of the Crown Agents to be free of stamp duty, in line with the standard practice in setting up new public sector bodies. It also provides that the new Crown Agents, the Board and the wholly owned subsidiaries of the Board shall be exempt from the Moneylenders Acts. Your Lordships will recall that the Moneylenders (Crown Agents) Act 1975 established beyond doubt the exemption of the unincorporated Agents from these Acts. Clause 28 resolves certain legal difficulties that have arisen in consequence of the Crown status of the unincorporated Agents, and it regularises the practice whereby their revenues have not been treated as hereditary revenues of the Crown and have therefore not been paid into the Consolidated Fund. Clauses 29 to 33 contain various supplementary provisions in relation to administrative expenses in connection with the Bill; the making of orders, regulations and consents; interpretation; consequential amendments, transitional provisions and repeals; and the citation and extent of the Bill. My Lords, I regret the length of this speech, but I hope that it helps to make the position clear and will thus assist to smooth the passage of this widely welcomed Bill through this House. I beg to move.