§ Second Reading debate resumed.
§ 4.30 p.m.
§ Lord WYNNE-JONES
My Lords, when the noble Lord, Lord Trefgarne, introduced this Bill's Second Reading I was fascinated listening to him because it seemed to me that he did not produce any reason at all for introducing the Bill. On the one hand, he explained how extremely well British Aerospace have done their job. He went out of his way to tell us how many different new aircraft they had 47 introduced; he went out of his way to show how British Aerospace had reached agreement with Aerospatiale and the Germans over the airbus; he went on to explain that they had the HS. 125 going. He talked about all their work and he went on to congratulate the noble Lord, Lord Beswick, on the excellent way in which he had done his job. He also pointed out what was surely the whole purpose of the nationalisation, and that was that the various companies had been brought together and had formed an extremely successful working combine.
Let us remember the Bill was passed only three years ago almost to the day; let us remember that it went through after long discussion in both Houses. This has been apparently, on the noble Lord's own admission, very successful. Do we every two or three years go and upset a successful organisation? Is that the way in which we try to run the affairs of the country? If so, it is not surprising that we do not do remarkably well. Surely, when we have an organisation working well, we allow it to go on functioning.
I look back at the debate which took place on Second Reading in your Lordships' House and I think that possibly the noble Lord, Lord Orr-Ewing, is one of the few people taking part today who took part in that debate.
§ Lord WYNNE-JONES
Yes, my Lords, but with not quite the same speech, whereas the noble Lord, Lord Orr-Ewing, delivered almost the same speech on that occasion. He has brought it up to date of course. Some of the figures are a bit different. In the same way as on that occasion, which was 28th September 1976, he has not paid any attention at all to the purpose of this Bill. He scarcely mentioned in his speech today the British aerospace industry; he told us about British Steel; he told us about all the other nationalised industries; but not a word about British Aerospace. I looked down and I wondered what Bill we were indeed discussing. It clearly was not the Bill that was printed. We were discussing something quite different. We were discussing apparently his views and observations on nationalisation.
48 My Lords, that is not the purpose of this Bill. The purpose of this Bill is to disintegrate something which was set up and has worked well. I remember on that occasion, 28th September 1976, the speech of the noble Lord, Lord Kings Norton. I am sorry not to see him here today because there is no one in this country who has a better understanding of the aircraft industry than the noble Lord. He has been in it from a boy and has worked his way right through it and has held almost every position; he has not only taken part in building the heavier-than-air machines but also he helped to build a dirigible. The noble Lord has done the whole lot. He said on that occasion that he was himself in favour of an industry of this type being run by private enterprise. But at col. 252 of Hansard he went on to say:I do not think that any noble Lords will want to oppose the Second Reading of the Bill "—that was the nationalisation Bill—The outcome, I think, is a foregone conclusion, and not only many of your Lordships but most of the people in the industry itself want the Bill to be law and as soon as possible … Decisions long deferred can then be taken, and the organisation to implement them created. The British aircraft industry, particularly on the design side, can again gather momentum".In the small part of his speech which the noble Lord, Lord Orr-Ewing, devoted to this particular Bill he mentioned— and I agree with him entirely— that there is a long lead Lime in designing and building aircraft. Precisely because there is a long lead time, precisely because designs have already started, precisely because things are under way, surely that is the very reason why one does not upset the organisation. If the lead time were a few weeks one might argue that it does not matter very much; but when it is eight years, as he said, towards a design, one does not after three years during which this organisation has been going ahead suddenly scrap it and say, "We want a new organisation".
I always thought that the Conservative Party stood for conservatism, not for whimsical innovation; not for changing things every day just because some queer, bizarre notion came into their heads. What is the bizarre notion here? We are told, I understand from the noble Lord, Lord Trefgarne, that they will do their best to retain the organisation. I received a different impression from the noble Lord, Lord Orr-Ewing. He was talking about 49 changing the organisation. I see that the noble Lord shakes his head but he said definitely that over the next 10 to 20 years they would want to change the organisation.
One cannot really have this made a plaything of political whimsy like this. One cannot say one day "We shall create an organisation and hope that it will do something good ", and when it does something good turn round and say, "Now it has done something good we can make some money by selling it. Let us sell the thing and see what happens and hope for the best". That is no sensible way to run an important, great industry such as has been built up in this country. Surely it is time we realised that this national industry is an important one. I do not claim to have been involved in it deeply but I spent some years of the war inside a Royal Aircraft establishment. There I came into contact with the industry and learned an affection for it which I have never lost. I feel very strongly that anything that we do which affects the good working of that industry is something which is bad for the industry and can be disastrous for this country.
I personally have not been satisfied with the assurances given by the noble Lord, Lord Trefgarne. Let me make it clear that I do not for one moment suggest that he is not absolutely sincere in making those promises, but one thing we always know with Governments is that no promise made by a Minister is worth anything at all legally: it is only if it is actually put down in the Bill. We have had it on a number of occasions, and it is no disrespect to the Minister to say that we cannot be satisfied with assurances that the control of British Aerospace will be kept within this country, unless we see that written clearly and emphatically into the Bill.
There are so many peculiar things about finance. I am not a financier and I hope that the noble Lord, Lord Cullen, will be able to deal with some of these points. I look at The Times today and find there that the original owners of BAC have only been paid, I think, at most, 20 per cent. of what they claim they ought to have had; and now the assets which they used to have are going to he sold. This is a very peculiar position because, with regard to Vickers, GEC and other firms 50 such as Lairds who owned the BAC and other aircraft interests, for which they claim they have never been paid except for a small amount on account, the assets which were theirs are apparently now to be sold.
I gather from The Times that, although the Bill has not gone through, arrangements have already been made for sales to take place of up to 49 per cent. of the shares in British Aerospace. Once that happens, what happens to the compensation to the firms which originally owned the BAC? Are they to be left nicely out in the cold? What is to happen to them? I want to hear it stated: I thank the noble Lord for his nod, but a nod is as good as a wink to a blind horse and on this occasion I am blind and I wish to hear what is being done in this matter.
The matter which is to me crystal-clear is that this industry is not being dealt with in this way for any sound commercial reason or for any sound administrative or operational reason, but simply to satisfy the political inclinations of the noble Lord, Lord Orr-Ewing, and others who think like him. In other words, they are allowing political dogma and political prejudice to dictate what is to be done to an important industry in this country. They turn round always, as the noble Lord, Lord Orr-Ewing, has done today, and accuse us on this side of dogma. It is like the old saying about heterodoxy:Orthodoxy is my doxy but heterodoxy is the other man's doxy".They are saying that we are the people who, because we hold views, are wrong. They are the people who, because they hold views, must be right, whatever destruction they may cause in operating them. If it were possible to vote against this Bill on Second Reading I would do so, but as it is not a tradition to vote against a Government Bill on Second Reading, I merely say that it is a deplorable Bill.
§ 4.45 p.m.
§ Lord CULLEN of ASHBOURNE
My Lords, that there are differences in principle and in detail between the views of noble Lords on the Labour Benches and those which are held by the Government is, of course, inevitable. I do not propose to go down the route that the noble Lord, Lord Wynne-Jones, encour- 51 ages me to take regarding dogma on one or other side of the House. In the few years I have been coming here regularly I have heard this very often, and I do not think it does much good to say it many times more. What I do believe is that there is not so much between us as the noble Lord, Lord Ponsonby, and the noble Lord, Lord Wynne-Jones, suggested. The previous Conservative Government made many efforts to bring together into one organisation those famous companies referred to by my noble friend Lord Trefgarne. The last Labour Government achieved that by nationalisation and what we are proposing under this Bill is what we believe to be the best of both worlds.
It has been suggested by noble Lords on the Labour Benches that this Bill is in some way a destructive measure and will be a cause of disruption in the aerospace industry. I believe, on the contrary, that it is a moderate measure which will provide continuity and stability for the industry; and this will be the theme of my remarks today.
In saying this, I do not seek to minimise the importance of the change that will be brought about by the Bill: the effects of the change from statutory corporation to private sector company will be fundamental and far-reaching, as my noble friend Lord Trefgarne emphasised. But the essence of the change is that it will give greater opportunities and greater freedom to the existing organisation and to the people who manage it and work in it.
The organisation itself will be unchanged, and I emphasise this to the noble Lord, Lord Wynne-Jones. There will be no division of the business. People employed by British Aerospace will continue to be employed by the successor company when vesting takes place: their contracts— like all other contracts— will pass unchanged to the successor company. All the Government's existing commitments to British Aerospace— most notably in connection with its membership of Airbus Industrie— will be honoured. The Government's relationship with the company as a customer for its defence products will be unchanged; and the Government will be willing to consider, on the same basis as in the past, entering into memoranda of understanding with overseas Governments in relation to contracts 52 placed with British Aerospace Ltd. Finally, the Government will retain a substantial shareholding in the company; this will emphasise that there is an important element of stability underlying the break between public sector and private sector. We believe that in the private sector British Aerospace Ltd. will be better able to build on its present strength and to prosper in the competitive international markets in which it must do business, and that is why we have brought this Bill before Parliament. There is nothing in the Bill that will weaken the commercial position of British Aerospace in any way.
Having emphasised this theme of continuity, I should now like to deal with some of the points that have been raised during the debate. I think the fears of noble Lords will be allayed if they reflect on the degree of stability which the Government are determined to secure. It has been suggested that not enough is known about the company in which British Aerospace's business is to vest. This has not been mentioned here today, but I should like to deal with this matter. I hope I shall be able to show that this criticism is not justified.
The first point to emphasise is that so far as its business is concerned the company will be identical to British Aerospace. Not only will it inherit all British Aerospace's contracts and employees; in addition, the initial board of directors will be drawn from the members of British Aerospace. This continuity will be reflected in the company's memorandum of association, which will be based on the memoranda of the companies which vested in British Aerospace on nationalisation; its broad purpose is to ensure that the successor company can do anything which British Aerospace or its predecessor companies could do. The substance of the memorandum can be seen in that of the shell company which is available in the Library. That memorandum will need to be amended when the company's share capital is increased shortly before the appointed day. However, its substantive provision, the objects clause, should be unchanged.
The articles of the shell company will be replaced by articles appropriate to a public company. These will be based on those in table A of Schedule 1 to the Companies Act 1948, brought up to date 53 in various ways. The articles will contain only three special provisions: first, to permit the appointment of two Government directors; secondly, to prevent foreign control and, thirdly, to make any necessary provisions for an employee share ownership scheme. I shall have some more to say about these last two subjects a little later in my speech. But before that I should like to emphasise that the Government are convinced that British Aerospace Ltd. should, like any other limited company, have its objects and constitution defined in its memorandum and articles; not in legislation.
The noble Lord, Lord Ponsonby, asked me what would be the cost of the flotation. He suggested some figures and asked for more. I accept without demur that there will be a cost of flotation, and that in order to boost public receipts it is necessary to spend some money, but I am afraid that I cannot give precise figures. There will be many expenses, but by far the most important will be the cost of underwriting and sub-underwriting the issue which, as noble Lords know well, are charged as a commission on the amount of the issue. I accept that that there will be costs and these could run to millions, but they will be small in comparison with the receipts from the flotation. They will be still smaller in comparison with the long-term benefits that we believe will flow from the freeing of a great organisation from the toils of nationalisation. We all know how easy it is for a Government to intervene in the affairs of a nationalised industry and how debilitating this is in the long run.
I come now to the need to prevent British Aerospace Ltd. from falling into foreign control. This point was raised by the noble Lord, Lord Ponsonby. I think there is no dispute here as to the objective, and I hope that by setting out in some detail the measures the Government propose to take, I shall be able to demonstrate to noble Lords that the objective will indeed be achieved.
The company's articles of association will contain a provision restricting the proportion of voting shares that may be foreign-held at 15 per cent., as mentioned by my noble friend. A draft of this article was placed in the Library of the House on 6th February. It is a complex article, and I will not outline all its provisions 54 now. However, I would like to stress three central features of it. First the definition of "foreign-held share "is drawn very wide. It encompasses not only shares whose nominal holder is a foreigner, but shares which are in any way under the control of foreigners, foreign corporations, or corporations under foreign control. Thus there is no danger, for example, of shares held by United Kingdom nominees on behalf of foreign interests escaping the net.
Secondly, the directors will be required to obtain a declaration as to whether any owner or part-owner of a share is a foreigner, a foreign corporation or a corporation under foreign control, before that share is registered; that is, before it confers a right to vote. Thus it should always be known whether or not a share is foreign-held before it is entered on the register. And if to register a share would take the total foreign holding above 15 per cent., then of course it would not be registered. Thirdly, if, notwithstanding the precautions I have outlined, the foreign shareholding did exceed 15 per cent., it would be the duty of the directors to disfranchise the excess foreign-held shares, and then to ensure that they were transferred to United Kingdom ownership.
The Government will ensure that they are able to preserve this article and to prevent any undesirable amendment to it. They will do this by retaining a shareholding over 25 per cent., and by voting their shares against any resolution to remove the article or to amend it in any unacceptable way. The Government believe that the arrangements I have outlined provide the most effective possible means of ensuring that BAe Ltd. cannot fall under foreign control.
Ministers have made clear that they will be prepared to vote their shareholding to prevent any amendment of the foreign control article, and to prevent the election to the board of a director representing a foreign interest. Even if the Government were required by law to retain a shareholding of over 25 per cent., it would still be up to the Government of the day to decide whether to vote their shares. To ensure that the foreign control safeguards remain, we must in the last resort rely on the determination of the Government of the day. I take it there can be no doubt that any Government will be so determined.
55 I have explained that the Government will retain a shareholding of over 25 per cent. in order to protect the foreign control article. This brings me to the question of what size of shareholding the Government will retain after the initial flotation. The noble Lord, Lord Ponsonby, has criticised the Government for being unable to say precisely what the proportion of shares owned by the Government will be. With respect, I think that criticism is misplaced, because of what we have said about the Government's relationship with the company: what matters is not whether the Government have the potential for control, but whether they will, in fact, exercise control.
I should like to illustrate this point by referring to the precedent of BP. Since 1914, when the Government acquired 51 per cent. of the voting shares in BP, the Government have always had the potential for control; they have never exercised control. At various times, the Government have held as high as 70 per cent., or as low as 46 per cent. of the shares in BP. At no time have they exercised control. It is accepted on all sides that BP is, in practice, a private sector company and that the Government do not intervene in its affairs. Accordingly, successive Governments have not attached importance to the exact size of the Government shareholding, whether it has been more or less than half. The Government's relationship with BP has in no way been affected by changes in the size of their shareholding.
The same will be true of British Aerospace Limited. My noble friend Lord Trefgarne has stressed that it will be a free-standing private sector company and that the Government will not intervene in its management. This was reiterated time and again during the debates on the Bill in another place. This being so, I think noble Lords will agree that the exact size of the Government's shareholding is not of crucial significance: just as in the case of BP, the Government will not exercise control over the company, whether they have a potentially controlling stake or not. The Government's shareholding after the initial flotation will be about half. This will provide an important element of stability after the change from statutory corporation to private sector company. But the exact 56 proportion will depend on such factors as financial advice as to the number of shares that should be offered for sale, and the number that are taken up by employees. Clearly these are matters which cannot be known at present.
The Government's policy with regard to the size of their shareholding is reflected in Clauses 5 and 7 of the Bill. Clause 5 enables the Secretary of State to acquire ordinary voting shares or anything else (for example, convertible loan stock or share warrants) which may eventually result in the ownership of ordinary voting shares. This ensures that the Government can maintain a given proportionate shareholding if they wish to do so and, in particular, guarantees that the pledge to retain a stake of more than 25 per cent. can be fulfilled. At the same time, the target investment limit under Clause 7 will ensure that the Government's proportionate shareholding cannot be increased above the level that results after the initial flotation; and by allowing the limit subsequently to be lowered, Clause 7 envisages the possibility that the Government may decide to sell further shares.
I should also like to say a little about our plans to enable employees to own shares, a matter raised by the noble Earl, Lord Amherst. This is the other subject on which a special provision may need to be included in the articles of association. As noble Lords will know, the Government are committed to promoting wider share ownership, and we are considering various ways of offering shares in British Aerospace Limited to employees on a preferential basis. We have discussed all the possibilities with British Aerospace and have invited views from trade unions with members in the industry. We hope that British Aerospace Limited will develop their own permanent arrangements for employee shareholding, but that will be a matter for them.
What I have to say now concerns the arrangements to be made in the initial flotation. We have, of course, a wider range of options. At one extreme, it might prove possible merely to give employees priority in allocation so that they could subscribe secure in the knowledge that their applications would be accepted. At the other extreme, shares could simply be given away, or sold on preferential terms. Noble Lords will 57 know the precedent of the arrangements made for BP, where employees who subscribed for shares which were lodged in a trust were given a matching share. That is certainly a precedent we should wish to study and are indeed looking at closely. It might be possible to ring some changes on the precedent.
One scheme the Government are considering would involve two stages: an allocation of free shares to all employees who satisfied a given service qualification, and an opportunity to purchase further shares which would be matched with an equal number of free ones. This second part of the scheme would be comparable to the arrangements adopted in the recent BP issue. All three categories of shares— those allocated completely free, those bought and the matching free allocation— would have to be vested in a trust established in accordance with the provisions of the Finance Act 1978. This would confer tax reliefs, provided the shares are not sold for a number of years.
I should emphasise that no decisions have been taken. The scheme i have outlined is only one of the possibilities we arc considering, and we are ensuring that there is a full opportunity for consultation with British Aerospace and with the trade unions concerned. However, it seems to us to be a way of encouraging employees to buy shares on the one hand while on the other enabling all employees to own at least some shares, even if they do not have any money available to spend. Whatever the precise details of the scheme decided on, we shall ensure that employees can have a continuing stake in the business— indeed, a more genuine stake than they have at present with the industry under state ownership. We hope to be able to make a more definite announcement of the arrangements we propose in the near future.
The noble Lord, Lord Wynne-Jones, asked me what is going to happen to the assets of the underlying companies which have not yet been compensated. It will not have any effect on the assets. It will simply be that a proportion of the shares that the Government take will be sold to the public. So it will have no effect at all on the assets. It is a purely financial operation. In conclusion, as I said earlier, I do not believe that there is much between us.
§ Lord GRANVILLE of EYE:
My Lords, before the noble Lord sits down, may I ask him to make one point quite clear. He has indicated in his speech that at present large orders, certainly for military aircraft and civilian aircraft, are very much a matter for governments. Certainly that is so with regard to sales to the United States of America. May I ask the Minister with regard to permits, currency and all the rest whether that function is to continue?
§ Lord CULLEN of ASHBOURNE:
My Lords, it most certainly is, yes. In conclusion, as I said earlier, I do not believe that there is so much between us. What this Bill proposes is a transfer of the whole of the business of British Aerospace to a Companies Act company, of which about one half of the shares will initially be owned by the Government. This will be analogous to the situation which has for many years existed with BP, a situation which was not disturbed by the last Labour Government. We firmly believe that this change will be beneficial. It will ensure the stability of the industry and of those who work in it, and it offers the best prospect for those in British Aerospace to build on the present strength of the industry and to achieve lasting prosperity. I commend the Bill to the House.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.