HL Deb 01 July 1980 vol 411 cc245-53

3.55 p.m.


My Lords, with your Lordships' permission I will repeat the Statement being made in the other place by my right honourable friend the Secretary of State for Industry. The Statement is as follows:

"With permission, Mr Speaker, I will make a statement about the disposal of the NEB's shareholding in Ferranti. I undertook in our recent debate to study what was said and to report to the House.

"The overwhelming view of the House was that if the NEB's shares were to be sold, they should he sold in such a way as to safeguard, at least temporarily, Ferranti's independence.

"I had told the House that a placing of shares to achieve such a purpose would tend to be below market price, so that the taxpayer would probably get less than he would if bids for the company were considered. Moreover, to place the shares without conditions might not meet the purpose, since it might be possible for an over-bid at an attractive price to succeed. In that case the taxpayer would not have the benefit from the higher price, and the independence of the company, which would have been the purpose of the exercise, would not have been preserved.

"I pointed out that conditions could be imposed, but that they would further lower the price. I explained that a placing of shares, with conditions, with a group of institutions, would not provide a guarantee of independence.

" The board of the NEB told me that in all the circumstances, as a matter of commercial judgment, they considered the right course was to place the shares with institutions. But they thought that to impose conditions on the disposal was not a normal commercial action and accordingly they asked me to give them a direction. This I have done. Under powers in the Industry Act 1975 I directed the NEB yesterday to sell their shares on terms under which each purchaser agrees not to dispose of any interest in them for two years without the consent of the NEB. I have also directed the NEB to retain 4 per cent. of their holding for Ferranti's employees under an appropriate scheme. A copy of this direction has been laid before Parliament.

"The NEB hopes to place the shares at £5.30 each. This compares with £5.97, the price immediately prior to the suspension of the shares yesterday morning—a discount of about 11 per cent.

"The cost to the taxpayer of this arrangement, as distinct from selling the shares to the highest bidder, cannot be known. It must be recognised, however, that a successful bid might —I repeat, might—have been referred to the Monopolies and Mergers Commission, and some months would have passed before the outcome was known. Had the decision gone against the bidder the taxpayers' interest would have suffered, and even a favourable decision would have deferred the sale receipts for some time. I believe, therefore, that the balance of advantage lies with a placing, subject to conditions, despite a small net loss to the taxpayer.

"I believe that the whole House will wish the company well".

My Lords, that is the end of the Statement.


My Lords, I thank the noble Lord for repeating the Statement being made by the Secretary of State in another place. The Statement largely repeats what many of your Lordships may have read in the daily press today. Although in fact the daily press conjecture that the loss to the taxpayer might be something in the order of £7 million, I see that that figure was not actually included in the Statement. However, if any of your Lordships had not read the daily press you would have greeted this Statement with some element of incredulity, in view of the Prime Minister's Statement in another place three weeks ago that the NEB must be allowed to dispose of the shares in Ferranti at the best possible price.

I am sure that all of us welcome this change of heart and the knowledge that Ferranti is to be protected from possible foreign control and is not to be absorbed into another British conglomerate. One also welcomes the fact that one effect of this decision will be that jobs will be saved in Scotland. Also, I am bound to comment that one is pleased to know that the Government are sometimes capable of being flexible. But one must continue to question the wisdom of selling off the Government holding in a company whose business is largely of a defence nature. This is an area of business where market forces do not play a significant part.

I am sure that we on this side of the House regret that this step has had to be taken at all, but we welcome the way in which it is now being taken and I am sure we would also like to join the noble Lord in wishing the company well in the future.

4.2 p.m.

Viscount SIMON

My Lords, may I, on behalf of my noble friends, also thank the noble Lord for repeating this Statement. I think certainly it would be very rash of me, with my small knowledge of these matters, to comment on the terms which the Government outline in this Statement, but I feel that it is of the utmost importance that the independence of Ferranti should be maintained. If, as I assume, it has been ascertained that at this price the institutions will be prepared to take up the shares, then I would accept that the cost to the community is worth paying for securing the independence of Ferranti.

I should like to ask the noble Lord one question about the retention of some shares for the benefit of employees under an appropriate scheme. I am wondering whether the noble Lord can tell us anything about the appropriate scheme, how it is going to work, and in particular whether the employees' shares issued under the scheme will also be subject to being held for a period before they can be disposed of?


My Lords, I am grateful to both noble Lords for, as I think I can call it, their welcome of the Statement, although I accept the reservations expressed by the noble Lord, Lord Ponsonby. The noble Lord referred to the preferability, as he saw it, of the company remaining in Government ownership having regard in particular to its role in defence products. I remember discussing that point with the noble Lord when we dealt with the Aerospace Bill some months ago, and I am afraid my view remains that there is no particular reason for a company to remain in Government ownership just because it deals with the Government as an important customer.

As for the details of the employee shareholding scheme about which the noble Viscount, Lord Simon, asked, he will appreciate that the direction to the NEB was issued only yesterday. I am not yet in a position to give any details of the scheme which will be devised.


My Lords, is the noble Lord aware that this is a case of a firm which was rescued from bankruptcy by public control, and that now, whether we agree with the method by which it is to be disposed of or not, the taxpayer has certainly made a terrifically good deal by it having been in the custody of the NEB? Is the noble Lord aware that as recently as the period when the Industry Bill was before the House it was emphasised from the Government Front Bench that firms which have a scientific product such as Ferranti should not be disposed of, that the Government were keen that the NEB should retain control of firms of that nature? Why is it that this change of heart has now taken place? Is the noble Lord aware that, as they are going to dispose of it, for my part I would agree with my noble friend Lord Ponsonby that this is the best way to do it? I should have thought that this is the best way to ensure that the ownership remains in British hands, but the fate of the employees of a number of Ferranti firms may well depend upon the sale in the manner the Government have now agreed upon. From that point of view I would agree that it is right to do it that way.


My Lords, I do not think it right to say that the Government have said that high techonlogy firms should remain in public ownership. Certainly we have said that one of the remaining functions of the NEB should be to catalyse and promote in the highest realms of technology enterprise which might not otherwise be launched. But certainly it is no part of our policy that companies so launched should remain in public ownership indefinitely. In any event, I think Ferranti is a special case in this context. It was virtually a going concern when the Government took an interest in it, and we think the time has now come for the disposal in the terms I have described.


My Lords, is my noble friend aware that there is no company in this country which has done more to keep this country in the forefront of technological progress in the sciences of peace and war than the Ferranti company, but that in order to achieve their successes they have in the past mostly done best when they were independent? Therefore, one welcomes the difficult decision which the Government have had to make, which underlines the need for independence.


My Lords, I am sure my noble friend is right. I think the Ferranti company for all its great achievements to date will now go from strength to strength under its new ownership.


My Lords, I do not propose to repeat references to the general principle involved, which is the disposal of the Ferranti firm. We have to recognise that this is part of the Government's policy and we have to accept it, whether we like it or not, until there is a change of Government or there is a U-turn, which has been referred to in the press and television and radio media. I do not propose to raise that at all. We have to accept the facts; the Government are in control.

What I am concerned about is this. The Ferranti firm has made a very valuable contribution to defence in electronics and in a variety of products to which I need not refer. I think it is generally known that Ferranti has made such a contribution. Can we have an assurance that this contribution will be controlled in the interests of our security, that there will be no private enterprise intervention in a matter of this sort? I want an assurance on that to begin with.

I should like also some assurance about the possibility of developments in technological advance in which the Ferranti firm has been involved. Are we to lose control of that? The shares will pass to certain contributors, the people who buy the shares. What assurance have we got that we can control them, and that the conditions that prevail under the new dispensation will be of a character consistent with our security?


My Lords, I am not quite sure what assurance the noble Lord is asking for, but I can say, of course, that Ferranti will continue—exactly as it was doing so successfully before it came into public ownership—to be in the forefront of technological advance; I believe it will continue to be so.


My Lords, we ought not to allow this to pass without drawing attention to the fact that this is a classic instance of the necessity for Government intervention in certain circumstances at the right time. I should like to ask the Minister a question. Does he think that two years to move in dealing with these shares is enough?—because I do not.


My Lords, as regards the first point raised by the noble Lord, I do not want to enlarge upon the circumstances that applied when Ferranti was taken into public ownership some years ago. However, as regards the second point raised by the noble Lord, Yes, I do think that two years is enough. There are arguments both ways, of course, and we have to reach a balanced judgment on these factors and two years was considered the right period.


My Lords, in view of the huge capital investment involved in the R and D for the new generations of technology involved, is my noble friend satisfied that they will be able to carry on without further recourse to greater capital? Can they manage on their own in the future with the huge capital resources necessary? Secondly, my noble friend said something about the possible losses on the sale price. Will he say something about the overall profit or loss from the start, including the amount of money injected into the company?


My Lords, Yes, indeed. I shall deal with the two points raised by my noble friend. The first point raised the question of the continuing, capital requirements of Ferranti. Your Lordships will know that Ferranti recently made a rights issue for that purpose which, I think, according to my information, is likely to go very well. However, as regards the other point raised by my noble friend, I can tell him that the original cost to the Government of the Ferranti rescue operation—as it was then described—was about £7 million and the receipts to the Government arising from this disposal are likely to be about £60 million: so the bargain is a good one.


My Lords, will the noble Lord accept that the reason Ferranti was taken into part public ownership was the fact that the company had gone bankrupt or had suffered very substantial losses and required a rescue operation? Is he satisfied that the management and structure of Ferranti, now privatised once more, will respond to the market in a way that will make it continually prosperous?


Yes, my Lords, we were of course anxious to see that the situation was as_described by the noble Lord and we are certainly satisfied about the new arrangement.


My Lords, if it is your Lordships' wish, I think that we might continue now with consideration of the Social Security (No. 2) Bill.