HL Deb 14 April 1980 vol 408 cc35-44

4.5 p.m.

Report stage resumed on Clause 7.

Lord PONSONBY of SHULBREDE moved Amendment No. 5: Page 7, line 20, leave out ("after that time as is reasonably practicable") and insert ("as it is appropriate to do so.").

The noble Lord said: My Lords, we now come to Amendment No. 5. At the Committee stage I had an amendment down to this clause which would have required the Secretary of State to obtain an adequate price for his shares. This amendment was rejected by the Government. However, it was in their rejection of it and the statement made by the noble Lord, Lord Cullen, at that time that more than ever convinced me that the present wording of this subsection is wrong. It may be, of course, that the noble Lord would like to look again at the off-the-cuff interpretation he gave at the end of his speech at the Committee stage, but perhaps first I could remind your Lordships of the arguments used then.

The noble Lord, Lord Cullen, said: It will, of course, be the Government's intention, in the arranging of any disposal of their shares, to obtain the best possible price consistent with fulfilling the obligation to ensure that the target investment limit is observed … The timing will obviously depend upon the particular situation".—[Official Report, 17/3/80, col. 114.]

He went on to say: Nothing in the clause would oblige the Government to dispose of shares in such a rush that they did not achieve their true value".—[Col. 115.]

At the end of his speech he said: As an ex-stockbroker, I know how extremely difficult it is when somebody rings up and says: 'I should like to sell so many shares. I leave it to you when to do it'. If you decide that you might get a better price tomorrow and say: 'I will wait until tomorrow', you are always wrong, and it is always an extremely difficult decision to take. All I would say is that 'a short period' might be one account or two accounts, but I doubt whether it would be more than that".—[col. 115.]

On pressing him he agreed that something like a month would be his interpretation of this particular clause.

What the noble Lord was saying, on the one hand, was that the Secretary of State would not dispose of his shares in a rush, and, on the other hand, he was saying that he would dispose of them in about a month or so. I consider that to be a rush. One can well remember the Burmah Oil situation, which is still a matter for decision in the courts. The Government, through the Bank of England holding, suddenly found themselves in possession of a much higher percentage of shares than they in fact thought it was right and proper for the Government to hold, and it was necessary for the surplus Government shareholding to be disposed of. One can envisage that a similar situation—one hopes it does not happen—might happen with regard to British Aerospace. In that sort of situation, it would obviously be folly to tie the hands of the Secretary of State to such an extent that he had to dispose of a shareholding valued at many millions of pounds, which no doubt if disposed of quickly would depress the market.

It seems that if the interpretation of the present wording in the Bill is the interpretation the noble Lord gave on Committee stage then it is one which needs to be looked at again. I have proposed an amendment which may be faulty in its drafting but is intended to give the Secretary of State that degree of flexibility that he would have to dispose of his surplus shareholding quickly, but would not be forced in a rush to dispose of the surplus shareholding. I hope the Government will look at the wording of the clause again. I beg to move.

Lord CULLEN of ASHBOURNE

My Lords, in moving the amendment the noble Lord, Lord Ponsonby of Shulbrede, returned to the point, as he mentioned, which we discussed in Committee. At that time he was concerned to ensure that the Secretary of State would not necessarily have to act immediately to sell surplus shares under the duty imposed on him by subsection (5) should the target investment limit be exceeded. I assured him that, while the clause obliged the Secretary of State to sell shares, it enabled him to defer their sale for a short period to take account of market factors. At that time the noble Lord appeared to accept that explanation and withdrew his amendment, but he has clearly since reconsidered the matter.

By the present amendment, the noble Lord is seeking to alter the wording of subsection (6) again, as I understand it to introduce a degree of flexibility which he feels the present wording would not allow. I am afraid, however, that the amendment would be detrimental to the effectiveness of the subsection because it would introduce ambiguity. The difficulty lies in interpreting what as soon after that time as it is appropriate to do so would in fact mean. The phrase would undoubtedly introduce greater flexibility, but it would raise unanswered questions about what critieria should be taken into account in determining the "appropriate" time. There could be arguments that a wide range of factors should be taken as determinants of appropriateness, and the sole judge would be the Secretary of State. It would be possible that a determined Secretary of State could take a view of what was appropriate which would allow shares to be held for far longer than the present drafting would allow.

I must make clear that this is an interpretation which runs so starkly counter to the Government's policy that we could not agree to it. The amendment would also be quite contrary to the prime purpose of subsection (6), which is to ensure that if the target investment limit is breached, the surplus shares will be sold. As I have said, the present wording of the Bill will permit the Secretary of State to defer for a short period a sale of shares compelled by the duty imposed on him under Clause 7, while at the same time insisting on the obligation to sell shares if the target investment limit is breached. The Government are satisfied that the wording is right, and I hope noble Lords will accept that explanation.

Lord PONSONBY of SHULBREDE

My Lords, I am sorry at that reply from the Minister. He is right that my amendment would introduce an element of doubt, but I regard it as an element of flexibility. I confess that I am disappointed at the reply of the noble Lord, and I would have hoped that at least he could give us a considered explanation of his interpretation of the clause as at present drafted. I do not propose to press the amendment to a Division; I do not think it would be profitable to do so. But I am concerned that if at a future time a sort of Burmah Oil situation arises, and there is a heavy batch of shares to be disposed of quickly, somebody will refer back in Hansard to the statement of the noble Lord and will say, "These have to be sold in a month", but that might be quite inappropriate. Although the noble Lord is not prepared to accept the amendment as it stands, perhaps he could give a broad interpretation of his explanation of the clause.

Lord ROBBINS

My Lords, I confess that I feel very considerable sympathy with the doubts expressed by the noble Lord, Lord Ponsonby of Shulbrede. On the other hand, I cannot believe that it is in the minds of Members of the Government to do anything injudicious. But in between those points of view there is surely a degree of ambiguity which, if it could be surmounted, would be an advantage to the Bill. In the end, I would humbly submit that the word "appropriate" involves the securing of what is reasonably to be regarded as the maximum present value, and it seems to me to be desirable that in some way or other that should be hinted at in the Bill.

Lord LLOYD of KILGERRAN

My Lords, I wish to express sympathy with the views expressed by the noble Lords, Lord Ponsonby of Shulbrede and Lord Robbins. Of course, the difference between what is now in the Bill and what is proposed by Lord Ponsonby really relates to a difference between what is meant by "as is reasonably practicable" compared with "as it is appropriate to do so". The noble Lord, Lord Cullen of Ashbourne, indicated that if the amendment were acceded to, that would introduce certain parameters possibly as to what was meant by the word "appropriate". Surely the Government are in the same difficulty about what parameters must be associated with the words, "reasonably practicable". Does "reasonably practicable" mean as soon as somebody can get out of the Ministry and get in touch with his broker for the purposes of selling? If not, what does it mean? I suggest that it would be helpful if the Minister went a little further than he has as to the meaning of the words "reasonably practicable". The noble Lord, Lord Ponsonby, suggested that a Burmah Oil position might arise. I should have thought it would be helpful if the Government could go a stage further in explaining these matters.

Lord CULLEN of ASHBOURNE

My I Lords, with the leave of the House, I will try to go a little further. There may be some slight imperfection in the words "reasonably practicable", but as far as I am concerned I am not by any manner of means convinced that the alteration to "appropriate to do so" would be any better, and in my view it would be more ambiguous than conducive to flexibility. We have to consider in what instances we I shall run into any problem here. As I see it, it is only likely that it would be necessary to sell shares in any quantity—it would never be a very large quantity—if there had been a rights issue and shares had been taken up but not by everyone. You might then find yourself with a rather higher percentage of shares than you had before, and you would then have to dispose of those in order to get back to the previous position. I do not see any likelihood—perhaps the noble Lord, Lord Ponsonby of Shulbrede, can see how this might come about—of suddenly finding that a large number of shares needs to be disposed of.

Lord PONSONBY of SHULBREDE

My Lords, with the leave of the House, may I say that 15 years ago none of us would have thought that there was any conceivable likelihood of a Burmah Oil situation arising. I am fortified in the support for my amendment which I have received from the noble Lords, Lord Lloyd of Kilgerran and Lord Robbins. As I said, I do not intend to press the amendment to a Division, but in view of the doubts that have been expressed from all quarters of the House, I hope that the noble Lord will have another look at the question of whether the present wording is really the right wording.

Lord CULLEN of ASHBOURNE

My Lords, I shall be very happy to consider the matter between now and Third Reading, though without giving any particular commitment.

Lord PONSONBY of SHULBREDE

My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 8 [Liability of the successor company for defaulting subsidiary where cause of action arose before appointed day]:

Lord TREFGARNE moved Amendment No. 6: Page 7, line 31, leave out ("by execution or (in Scotland) by diligence").

The noble Lord said: My Lords, this is a drafting amendment which in no way affects the purpose or effect of Clause 8 of the Bill. The need to make it arises because the inclusion of the words "by execution", while perfectly correct in English law, could lead to difficulties of interpretation under the law of Northern Ireland. The Government believe that the best way of avoiding this possibility is to remove the words from the Bill, together with the words "or (in Scotland) by diligence", which become redundant if the preceding words are taken out. As I have said, this amendment will not change the meaning of the clause; indeed by avoiding ambiguity, it will clarify it. I am sure that your Lordships will agree that this is a wholly desirable aim and that, because the amendment is not a controversial one, you will not oppose it. I am particularly happy that the noble and learned Lord, Lord Elwyn-Jones, is not sitting on the Opposition Front Bench at the moment. I beg to move.

4.21 p.m.

Lord WYNNE-JONES moved Amendment No. 7:

After Clause 10, insert the following new clause:

"Research and Development programme

(The Secretary of State shall stipulate as a condition prior to its nomination under this Act that the successor company shall have included in its initial articles and memorandum the necessary provision to ensure that it shall be the duty of the successor company, to formulate at regular intervals a programme of research and development.").

The noble Lord said: My Lords, this amendment, which I beg to move, proposes the insertion of a new clause after Clause 10. The purpose is to make quite clear what I tried to emphasise on a previous amendment; namely, that the real purpose of British Aerospace should be effectively carried out under the new company. When one looks at the articles of association of the company one finds that Article (4) states that it is a purpose of the company: To conduct research and development in connection with the operations of the Company, to establish and maintain research stations, laboratories, workshops, ranges, testing and proving grounds, facilities and establishments and generally to act as researchers and developers".

However, as I previously pointed out, none of this is binding upon the company. This is one of the articles of association, and if the company found it expensive to carry out research, or decided, in view of the new way that they chose to operate, that research was less important, then they could drop it. It is made perfectly clear in the remaining articles of association that the company would be left quite free to do what they want. In my opinion this would be fatal to the future of British Aerospace. We must remember that research and development work in this field is extremely costly. I suppose that it can be about as costly as is research in the pharmaceutical field, where perhaps 20 per cent, of the annual expenditure of the company is devoted to research and development. The same is true in this field.

It has been the triumph of our British aerospace industry that they have carried out research on a very large scale, and much of this has been financed by Government. In regard to military aircraft a large amount of the expenditure comes from Government. We do not know how much because these details are never fully divulged. But in the civil field as well a very large amount of the cost of research has been borne by Government. As is well known, in regard to the RB211 development by Rolls-Royce a very large amount of money came from Government. We know, too, that in the development of Concorde practically all the money for research came from Government. Some of it went directly to the companies concerned, while other parts of the expenditure were in the form of supplying the facilities of the extensive research stations which are under Government control. Indeed, it was those facilities which enabled Concorde to be developed, and it is well known that without them it would have been impossible to develop it. In this regard one has only to go to Farnborough and see the very large sheds which were erected in order to test the whole problem of the distribution of fuel throughout the entire wing structure of Concorde, while the plane was in flight, under all kinds of different conditions, including conditions of extreme temperatures. All that was done entirely inside the Government research establishment.

We are now setting up an independent company, and in fact we are boasting that the company are to be independent. The company will find the cost of research work enormous, and all the evidence of the past suggests that very often they will find it too large to maintain; and what will happen then? We shall find that our aerospace industry, which we have boasted about, will be able to obtain work as a sub-contractor of the big American firms. Boeing would be only too glad to use British Aerospace as a sub-contractor, and I have no doubt that Aerospatiale in France, too, would be prepared to engage I British Aerospace as a sub-contractor.

Of course as a sub-contractor the company would not be involved in the expensive research work in which the primary contractor would be involved. Consequently, the industry could easily become a second grade industry, concerned not with developing new aircraft or new engines, but with acting as a supplier to the main contractors in other countries. That is not what we have considered that our British aerospace industry should do, and not for a moment do I suppose that it is the Government's intention that this should happen, but I believe that that could very well result from the Bill unless we take steps in it to ensure that there is proper expenditure on research and development.

How are we to do this? If it were a nationalised industry, there would be some kind of corporate plan, as we had in the coal industry. We tried to write in that provision at the Committee stage, but the Government opposed it, and so a corporate plan is out. What we propose is that there should be an obligation on the part of the company at regular intervals to publish their plan for research and development, so that all can see what they are aiming at for the period ahead. If they do that, then there is a reasonable chance that we may have a good, active aerospace industry in this country. If not, I am afraid that it will become a subcontracting industry. I beg to move.

Lord TREFGARNE

My Lords, the noble Lord, Lord Wynne-Jones, has once more told us of his fears for British Aerospace Limited, and has also explained why this duty (as he thinks it should be) ought to be laid upon the new company. I must begin by stating quite unequivocally that I hope, and indeed expect, that British Aerospace Limited will carry out research and development, and indeed have a programme for doing so. I say this with total confidence, since it is inconceivable that an aerospace company, operating, as the present statutory corporation does and as the future company will, at the extreme boundaries of knowledge and technology, could operate without substantial spending on research and development. The last published accounts for British Aerospace show research and continuing development costs of £11.6 million, excluding specific launching costs, and I am sure that the 1979 results, due this week, will show comparable expenditure. The constitution of the new company—its memorandum, and particularly its objects clause—will, indeed, enable it to do so; as the noble Lord, Lord Wynne-Jones, described when he read to us a passage from it.

The question between the noble Lord, Lord Wynne-Jones, and the Government is therefore whether there should be imposed upon the company a requirement to do research; and I must make clear that the idea behind the amendment—that a company, like a statutory corporation, has duties to perform, set out in its memorandum—is not well founded. Indeed, the amendment rests upon the false proposition that the objects of a company, set out in its memorandum of association, are binding on the company. A memorandum of association does not impose duties: it confers powers. A company does not have to do everything mentioned in its memorandum, but it may not do anything that is not mentioned.

There is, therefore, no question, by including research and development among the objects of the company, of making it do these things; it would only allow the company to do so. I have already made clear that the company will be, and indeed is, so allowed; and I have made clear that the company, like the present statutory corporation and the other companies which came before it, will do research and development. But there, rather than by seeking to impose a duty which runs contrary to the concept and constitution of a private sector company, is where matters should rest. I hope the noble Lord will accept that explanation and will not press his amendment.

On Question, amendment negatived.