BRITISH AEROSPACE BILL

HL Deb 17 March 1980 vol 407 cc78-139

6.10 p.m.

Lord TREFGARNE

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, that the House do now resolve itself into Committee.—(Lord Trefgarne.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD DERWENT in the Chair.]

Clause 1 [Vesting of property, etc. of British Aerospace in a company nominated by the Secretary of State]:

Lord PONSONBY of SHULBREDE moved Amendment No. 1:

Page 1, line 18, leave out from"1948"to end of line 2 on page 2 and insert— (" Provided that—

1. (a) on the appointed day the company in question shall be a company limited by shares which are wholly owned by the Crown; and
2. (b) the memorandum of the company shall state that the objects of the company are to promote and secure the promotion by its wholly owned subsidiaries of—
1. (i) the efficient and economical design, development, production, sale, repair and maintenance of civil and military aircraft, of guided weapons and of space vehicles; and
79
2. (ii) research into matters relating thereto;
3. (c) a majority of the directors shall be appointed by the Secretary of State.").

The noble Lord said: We now commence on the Committee stage of this Bill and I might say, in prefacing my remarks on my initial amendments, that one of the problems about this Bill is that there is very little detail in it and many of the amendments which I have tabled are an attempt to try to get in more detail. The second subsection of Clause 1 as it is at present worded provides for the transfer of the assets in British Aerospace to any company formed and registered under the Companies Act 1948, but on the appointed day the company in question must be a company limited by shares which are wholly owned by the Crown. This is the so-called private company into which the assets of British Aerospace will be transferred and not the eventual public company in which the public as a whole will be invited to buy shares.

As this clause stands, the assets can be transferred to any company, and one would have thought that the company to which the assets of British Aerospace should be transferred should surely be a company with the specific objectives in its memorandum and articles of association needed by British Aerospace. This amendment attempts to describe in short detail the sort of objectives which would be included in the memorandum of the private company. One has the feeling from the memorandum and articles of association of British Aerospace Limited, prepared by a leading firm of solicitors, and which has been placed in the Library, that in fact the company concerned already exists, and of course at the present time the shares in the company are held by two civil servants who have subscribed to its articles of association on behalf of the Secretary of State. If that is so, one is tempted to ask why in fact the assets of British Aerospace could not immediately be transferred to British Aerospace Limited, of whose memorandum and articles of association we know in part from the documents which have been placed in the Library.

This amendment is in three parts. The first part merely repeats what is already in the clause. The second proviso arises in part from the concern of the workforce of British Aerospace. They are concerned that the Bill, which makes much reference to what will happen to British Aerospace in financial terms concerning the transfer of capital property and so on, makes no real statement about what the new company will do in the areas that concern them most. For example, they are anxious that when the new company is established it shall address itself to the efficient and economical design, development, production, sale, repair and maintenance of civil and military aircraft, and shall not seek to reorganise itself in such a way that the company can cease to be responsible for some of these activities, with consequent problems for the workforce as a whole and consequent problems for industrial relations within the industry. Reference in the memorandum is also made to research. Many millions of pounds will be needed each year to keep the company in the forefront of research and development.

The third proviso reflects our views that the company should remain a company in which the Government should have a major say about its activities and should direct its progress. Indeed, I should say that on Second Reading of the Bill the noble Lord, Lord Trefgarne, gave an undertaking that the initial directors of the private company would all be appointed by the Government, but that the Government would not appoint the subsequent directors of the company, other than two non-executive directors. What I think we need to be assured of is that a majority of the directors in the long term will be working in the interests of the nation and not in the interests of any particular group of shareholders in the company which may happen to put them there.

I should remind your Lordships that this is to be a public company on which our own national defence will rest very heavily, and it is one in which we shall need to be assured that it is working in the national interest. This I know the Government accept. Therefore it would seem that this amendment would be in the interests of the company and of the nation. I beg to move.

Lord TREFGARNE

As the noble Lord, Lord Ponsonby of Shulbrede, explained, this amendment falls into three parts and raises three important matters. Therefore, it may be helpful to your Lordships if I explain the Government position in each of these three matters.

First, the amendment refers to the company being, on the appointed day, a company limited by shares which are wholly owned by the Crown. This is very similar to a provision, which the amendment seeks to replace, already included in Clause 1(2) of the Bill. The company nominated for the purpose of vesting will indeed be a company limited by shares, formed and registered under the Companies Act 1948 and on the appointed day all the shares in the company will be owned by the Crown. Furthermore, as the noble Lord pointed out, the company already exists. It was formed on 31st December 1979 and its name is British Aerospace Limited. It is at present a private limited company, having a share capital of £7, all of which is owned by the Crown. The memorandum and articles of association of the company are, as noble Lords will be aware, available for inspection in the Library of this House. The company is merely a shell, awaiting the appointed day on which the whole of British Aerospace's undertaking will vest in it. The noble Lord asked why they could not be vested in it right away. The answer is of course that the Bill with which we are now dealing has first to get through Parliament.

Lord PONSONBY of SHULBREDE

If I may interpose for a minute, my proposal was why in fact the Bill could not say that the assets should be transferred to British Aerospace, not that they should be transferred straight away

Lord TREFGARNE

I apologise to the noble Lord. I misunderstood what he said and I will come in a moment to the point that I now know he raised. At vesting day it will be turned from a private to a public company, new articles will be adopted, its capital structure will be altered to accommodate whatever capital structure is thought appropriate for the successor company, and the board members of British Aerospace will he elected as its directors.

Second, the amendment mentions the memorandum of the company. The objects set out in the amendment reflect the duties which are imposed on British Aerospace, the statutory corporation, by Section 1(1) of the Aircraft and Shipbuilding Industries Act 1977. But these are duties. As I am sure noble Lords are aware, the memorandum of association of a company does not impose duties upon the company. It is a permissive document which sets out what a company may do, not necessarily what it must do. In tabling this part of the amendment, I imagine that the noble Lord was seeking an assurance that the successor company will continue to do all those things which British Aerospace now does. What I can say is that on the appointed day the whole of the undertaking of the corporation will vest in the successor company and the company will be able to perform all those actions which the corporation and its predecessors formerly performed.

The memorandum of the company, whose objects clause will remain unchanged, will permit this. It has been drawn up in full consultation with the board of British Aerospace and is based upon the memoranda of the pre-nationalisation companies. Indeed, the new memorandum will permit the company to do other things too, so that it is actually more widely drawn than the duties of the corporation. To limit the company, as the duties set out in the amendment would, would be to restrict its ability to respond to the stimulus and challenge of the private sector as we believe it should.

Thirdly, the amendment refers to the majority of the directors of the company being appointed by the Secretary of State. As the sole shareholder in the first instance the Government will appoint the first directors of the company. However, thereafter, with the exception of the two Government directors which the Secretary of State will have power to appoint, it will be for the company as a whole, acting in general meeting, to decide who should be directors. To this end the articles of association of the fully-fledged company will require the directors to offer themselves for re-election, in rotation, as is the normal practice with any company. Once the company ceases to be wholly Government-owned the Government will not exercise control over it, nor intervene in its commercial decisions. It will not be a creature of Government. It will be a private sector company, free of Government interference and able to act without restraints on its commercial judgment. It would therefore be quite inappropriate for the directors to be appointed by the Secretary of State.

Lord GRANVILLE of EYE

Before the noble Lord leaves the point on directors, may I ask him this: If British Aerospace is going to be designing, researching, manufacturing military aircraft which may be on the secret list, surely those directors themselves would have to be subject to the Official Secrets Act?

Lord TREFGARNE

I think anybody who deals with public information is subject to the Official Secrets Act. Perhaps I can look into that point, and if I am wrong I will let the noble Lord know.

As I said, the company will be a private sector company free of Government interference and able to act without restraints upon its commercial judgment. It would therefore be quite inappropriate for the directors to be appointed by the Secretary of State. I hope that your Lordships will agree that the principles behind this amendment are contrary to the Government's approach and would serve only to hamper the successor company. I hope this explanation will persuade the noble Lord, Lord Ponsonby, not to press his amendment.

Lord WYNNE-JONES

The noble Lord, Lord Trefgarne, has put the case for the Government very clearly, but he has suggested that the purpose of the amendment is to impose restrictions and to create a sort of straitjacket in which the company is to operate. On the contrary, the purpose of this amendment is really to ensure that the company will operate in a way which is clearly defined by national interests. This is not an unimportant matter in an industry like the aerospace industry. As the noble Lord knows perfectly well, having been associated with the industry, the industry has played an extremely important part in the whole post-war development in this country. In fact if one looks at this industry and compares it with certain other industries one is really amazed at the success that the industry has had. And it has had this success because even when it was under private enterprise the industry was still under a considerable amount of govern- mental control; it has been important all the time that the needs of this country should be borne in mind.

The purpose of the amendment is not to defeat the purpose of the Bill—which is to bring private capital into the aerospace industry—but rather to try and make sure that when this is done the company which is produced will be able to do its work as efficiently as the present board has done, as the noble Lord himself has agreed, and as efficiently as very often previously the private industry did. It is important to emphasise that there is a national purpose behind the whole of our aerospace industry, and unless there is a way of ensuring this I think there is a danger that the aerospace industry could be fragmented and turned in a way that failed to satisfy national requirements.

Lord PONSONBY of SHULBREDE

IF I may support my noble friend Lord Wynne-Jones, the noble Lord, Lord Trefgarne, said that he assumed that a purpose of this amendment was to ensure that British Aerospace would continue to do all it now does. He turned it round and said it was a restrictive amendment. In fact we never got from him an assurance that British Aerospace would continue to do all it now does.

Lord TREFGARNE

The amendment may well seek to avoid imposing a straitjacket upon British Aerospace, but I am afraid the fact is that that is what it does, and that is what we think is wrong. Of course, British Aerospace is going to remain in the aerospace business. If it were not, we should not be troubling your Lordships with this legislation. I think I should rest my case on the assertion which I competently advance to your Lordships that the provisions of the memorandum and articles, which the noble Lord wishes to circumscribe by his amendment, are really best left to the shareholders of the new company, as indeed was the case before British Aerospace came into public ownership, and that is the situation we now seek to restore. It is indeed the situation with every other major and minor company in British industry and has served us well and will, I believe, continue to do so.

Lord PONSONBY of SHULBREDE

I shall not press this amendment to a Division, but the point of concern here is that, for example, British Aerospace might decide to sub-contract repair work or something like that, and not carry out certain work itself. This is an element of concern among the workforce. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

Clause 2 agreed to.

Clause 3 [Initial Government Shareholding in the successor company]:

6.29 p.m.

Earl AMHERST moved Amendment No. 2: Page 3, line 36, at end insert (" The successor company shall have the right to issue shares not held by the Secretary of State to employees of the Company on such terms as the Board may direct.").

The noble Earl said: At the Second Reading of this debate the noble Lord, Lord Cullen of Ashbourne, made it perfectly clear that the Government were sympathetic to the idea that employees should have an opportunity of owning shares in the company which employs them. He said it was hoped that an announcement would soon be made which would explain various ways in which this could be done. He also said that provision for this would be included in the memorandum and articles of association of the new company.

We on these Benches have long advocated that, as part of the programme for industrial democracy, workpeople should have an opportunity of acquiring such shares, which would not only give them a continuing stake in the business of the company but also allow them to participate in such dividends as may accrue from their shareholdings. We do not think that such a provision should rely only on this being included in the memorandum and articles of association which can be altered at any time by the board and which—as the noble Lord said if I did not misunderstand him—lists the things which can be done but not the things that must be done. Therefore, we think that this is of such importance that it should be covered and clearly stipulated in the Bill. With that objective in view, I beg to move.

Baroness SEEAR

I wish strongly to support the amendment put forward by my noble friend Lord Amherst. At present it is surely most important that the opportunities for employee share ownership should be spread as widely as possible throughout the country to give people a greater stake and a greater understanding of how industry operates and so that they can share in profits where there are profits and dividends where there are dividends, and not rely entirely on their pay packet. This seems to me a first-class opportunity for the Government to take a lead to show that they really believe—as I understand they do—that the principle of employee share-ownership is one to which they give support. They will do that in the most practical way if they write into the Bill the right of the board to issue shares in this form.

Lord CULLEN of ASHBOURNE

I think that the noble Lord has tabled this amendment in a probing spirit because we do see eye-to-eye on this matter. Perhaps it would be helpful if I explained the procedure for the issue of shares on flotation adumbrated in Clause 3 and how the arrangements will relate to employees and to the successor company.

Of course, the precise arrangements for employees will depend upon the scheme which the Government decide to adopt to permit them to acquire shares in the company. No decisions have yet been taken on this important matter but, as noble Lords are aware, it is the Government's declared intention that such arrangements should be made. 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.

In the first instance, all the shares in the successor company will be allotted to the Secretary of State as Clause 3(1) so provides. He will then renounce a proportion of those shares and it is these shares which will be offered for sale to the public. Anyone will be able to apply for shares, but preferential arrangements will be made for employees. Shares will then be allocated to the people whose applications are successful. In due course the company will—as it is bound to do by Clause 3—issue the shares to its various subscribers whose names will be entered on the company's share register. In short then, the Bill provides that the company will issue shares as directed by the Secretary of State and, as I have explained, this will involve some of the shares being issued to the Secretary of State and the rest to those who acquire them as a result of the flotation—including employees.

Of course, what I have said applies only to the initial flotation because on that occasion, all the shares in the company will be at the disposal of the Government. British Aerospace intend to establish continuing arrangements to enable employees to acquire shares and I hope they will be able to build on the arrangements adopted for the flotation—for example, by establishing a profit-sharing scheme under the provisions of the 1978 Finance Act. But I must stress that these arrangements will be for the company to determine in consultation with its employees—it is really not for the Government to dictate what should happen in the future. Similarly, when the company ceases to be wholly-owned by the Crown it will be free to determine for itself what shares to issue and on what terms. I hope that the noble Lord will find my explanation helpful. I have made it clear that the Government will indeed make arrangements that permit employees to acquire shares on flotation.

Lord WYNNE-JONES

The noble Lord, Lord Cullen of Ashbourne, has put the Government's case on this matter. I must confess that I find it a little like asking for a bowl of water so that their hands can be washed and a towel so that they can be dried, so that they may be able to say that their intentions are good. But they do not take any steps themselves; they leave it to the company that is formed.

One of the points about the Bill which disturbs me is the way in which we are asked to sign a blank cheque. There is absolutely nothing put down in the Bill which specifies what is to be done. I should have thought that this was a reasonable amendment, trying to do something which could be of great value in the future to the company which is set up, and to the aerospace industry.

I have received a memorandum from the Amalgamated Union of Engineering Workers who play an important part in this industry. It is a carefully reasoned memorandum which discusses the Bill—it does not like the Bill—and argues against it in clear and reasonable terms. It shows a great interest in the industry. In other words, one is dealing with a group of workers who feel themselves committed to this industry—a group of workers who are not casual"cowboys"who come in one day and do a bit of contracting work and move out the next day. They are not people like that at all: they are people committed to the future of the aerospace industry.

Surely it would be worth while for the Government to pay a little attention to the suggestion put forward in the amendment that it should be written into the Bill—and not left to what may happen in the future—that the employees in this industry (people who have given, many of them five, 10, 15 or more years to the industry) should have the first opportunity, as the industry is now to have private capital put into it, of having some shares in this industry. I ask the Government to look at the matter again and not to turn it down so abruptly.

Baroness SEEAR

I must say that I was very unhappy about the reply by the noble Lord, Lord Cullen. When an industry is being denationalised in this way, it is no ordinary company which is being established. The Government have the right to lay down certain conditions which are appropriate for a company of this type in an industry of this kind. If the Government believe in the principle of employee share-ownership, this is surely an opportunity to make it plain that, in this particular case, such a scheme is to be introduced. If that is so, it should surely figure in the Bill. I cannot understand why the Minister says that it will not, in fact, be written into the Bill. After all, all that is asked in this amendment is that the company has the right to issue such shares. We might well have gone further and have asked that the company has an obligation to issue such shares. It is a very mild amendment as it stands and if the Government cannot concede this, one cannot believe that their interest in employee share-ownership is very profound.

Lord WIGODER

Will the noble Lord, Lord Cullen of Ashbourne, consider looking again at this part of the Bill in order to see whether it is possible to write into the Bill some encouragement to the Company to issue shares to its employees?

Lord CULLEN of ASHBOURNE

I am afraid that I cannot look at this again because I am absolutely certain that we are doing exactly what we should do. We are making arrangements for all employees to have shares on the flotation, and it is entirely up to the company at any time—maybe annually—to make shares available to employees on terms satisfactory to them. I should have thought that there was little more that we could do. Directors will be appointed to the company and it will be entirely up to them to make suitable arrangements. Everybody knows that we are absolutely in favour of schemes for employee participation. I would not wish to tie the hands of the directors in any way—either the hands of those directors or the hands of the directors of ICI or any other public company.

Lord HARMAR-NICHOLLS

Is my noble friend aware that what he has just said is exactly what this amendment says? He has just said that he agrees with it. If we are all of one mind on this, why cannot it be written into the Bill? I intervene on this particular point only on, if you like, party political grounds. The grounds are these. It has been wrongly said that the party which at present forms the Government is not interested in doing this sort of thing. I know that to be untrue. I know that what my noble friend has said is the general outlook of the people who want to make a success of the private enterprise system. We get all sorts of distortions, and one is that we drag our feet and are not really interested in doing this sort of thing.

I was waiting to hear my noble friend say that there were some technical or good strong reasons why it would weaken the Bill or that if it was written into the Bill it would be against what they have already said, but he did not say that. Therefore, as a good party man, I ask him to reconsider it in order that the true face of a Conservative Government can be written into one of the statutes. I do not see why, if we are in agreement, it cannot be written into the Bill, which will set the whole process on its way and make it possible in any case.

Lord PONSONBY of SHULBREDE

This underlines the whole problem of the Bill. We shall come to many amendments with which the Government will agree in principle and say that they are a good idea but that they cannot write the particular points into the Bill because they are matters for the articles of association. That is the problem. This is a very important national industry, and it is one of our national industries which is being passed into private ownership. There are a good many suggestions, with which the Government agree, which we think should be adopted by the new public corporation when it comes into being.

Lord CULLEN of ASHBOURNE

I have no doubt at all that sensible arrangements such as this will be adopted by the sensible directors on this company. But the Government have no intention of tying the hands of the directors in this or any other matter which is not absolutely vital.

Earl AMHERST

I am not happy with the explanation that has been given by the noble Lord or the fact that he thinks that this company should be treated the same as an ordinary commercial company. It is not the same; it is a special company. In that case, I must ask the opinion of the Committee.

6.44 p.m.

On Question, Whether the said amendment (No. 2) shall be agreed to?

Their Lordships divided: Contents, 35; Not-Contents, 69.

CONTENTS
Amherst, E. [Teller.]	Gregson, L.	Ritchie-Calder, L.
Ardwick, L.	Hampton, L.	Seear, B. [Teller.]
Beaumont of Whitley, L.	Hanworth, V.	Segal, L.
Blyton, L.	Harmar-Nicholls, L.	Stone, L.
Boston of Faversham, L.	Harris of Greenwich, L.	Taylor of Mansfield, L.
Brooks of Tremorfa, L.	Houghton of Sowerby, L.	Underhill, L.
Chitnis, L.	Jeger, B.	Wade, L.
Cledwyn of Penrhos, L.	Kilmarnock, L.	Wallace of Coslany, L.
Collison, L.	Kirkhill, L.	Wells-Pestell, L.
Davies of Leek, L.	McGregor of Durris, L.	Wigoder, L.
Davies of Penrhys, L.	McNair, L.	Wynne-Jones, L.
Granville of Eye, L.	Ponsonby of Shulbrede, L.
NOT-CONTENTS
Ailesbury, M.	Exeter, M.	Mottistone, L.
Airey of Abingdon, B.	Ferrers, E.	Mowbray and Stourton, L.
Allerton, L.	Gainford, L.	Moyne, L.
Amory, V.	Galloway, E.	Newall, L.
Ampthill, L.	Gisborough, L.	Norfolk, D.
Armstrong, L.	Glasgow, E.	Nugent of Guildford, L.
Atholl, D.	Glenkinglas, L.	Onslow, E.
Avon, E.	Gowrie, E.	Rawlinson of Ewell, L.
Balfour of Inchrye, L.	Hailsham of Saint Marylcbone,	Redmayne, L.
Bellwin, L.	L. (L. Chancellor.)	Reigate, L.
Belstead, L.	Henley, L.	Renton, L.
Bessborough, E.	Hives, L.	St. Aldwyn, E.
Brougham and Vaux, L.	Hornsby-Smith, B.	St. Davids, V.
Caithness, E.	Killearn, L.	St. Germans, E.
Carrington, L. (A Principal	Long, V.	St. Just, L.
Secretary of State.)	Lucas of Chilworth, L.	Sandys, L. [Teller.]
Cottesloe, L.	Lyell, L.	Selkirk, E.
Cullen of Ashbourne, L.	McFadzean, L.	Sharpies, B.
Davidson, V.	Macleod of Borve, B.	Trefgarne, L.
de Clifford, L.	Margadale, L.	Trenchard, V.
Denham, L. [Teller.]	Masham of Ilton, B.	Vivian, L.
Digby, L.	Minto, E.	Waldegrave, E.
Drumalbyn, L.	Monk Bretton, L.	Wise, L.
Enniskillen, E.	Morris, L.

Resolved in the negative, and amendment disagreed to accordingly.

6.52 p.m.

Lord PONSONBY of SHULBREDE moved Amendment No. 3: Page 4, line 4, at end insert (" provided that no such disposal shall be effective unless authorised by an affirmative resolution of both Houses of Parliament ".).

The noble Lord said: This Amendment deals with the question of Parliamentary control. As I have already said, this Bill is very inadequate. On the one hand, the Government believe that British Aerospace should remain under British control, and on the other hand they want to sell off as much of British Aerospace as they can at the best price they can get. The result is that we have the merest skeleton of a Bill before us today without a great deal of the detail which is to be decided later when the memorandum and articles of association of the public company are finally decided upon and drawn up.

This Amendment seeks to put some semblance of parliamentary control into the Bill. Parliament should be asked each time the Secretary of State seeks to dispose of shares allotted to him. This will not of course be a daily occasion. We know that initially the Secretary of State intends to dispose of about half of the company. We also know that at some later date he intends to dispose of a further 25 per cent. of the company. What we do not know is what set of circumstances will lead him to make that further disposition. In the Second Reading debate, I asked whether in fact this would come about because the company had been particularly successful, and he thought that that was the time to dispose of them, or for some other reason.

We do not know in what sort of circumstances it will happen that the Secretary of State wishes to dispose of shares in the company, but it seems only right, in view of the great importance of the company, that the Secretary of State should come to Parliament and seek approval when he wishes to dispose of any further block of shares in the company. I beg to move.

Lord TREFGARNE

The purpose, and indeed the effect, as the noble Lord, Lord Ponsonby, said of this amendment, is to prevent the Secretary of State from disposing of any shares—and I emphasise"any shares even one—allotted to him as a consequence of vesting unless the disposal has been authorised by an affirmative resolution of each House of Parliament. The effect of the Amendment is that the disposal of one share would, as I understand it, need affirmative resolution from both Houses of Parliament.

Lord PONSONBY of SHULBREDE

The noble Lord is quite right in his supposition, but of course the Secretary of State will not be disposing of just one share.

Lord TREFGARNE

I am glad for confirmation of that. I knew it to be the case. The noble Lord's intervention did not take us much further forward. The fact that the Government intend to sell shares is, however, well known: indeed it is the very essence of the Bill. I think your Lordships will therefore agree that there really is no need for any further Parliamentary procedure simply to approve the fact of a disposal.

It has been suggested that parliamentary approval is needed because the Government have not yet decided what proportion of shares they propose to sell. This was not suggested by the noble Lord just now; but it has been suggested and will no doubt be so in a moment. I think that this places an undue significance on the precise size of the Government's holding. We have announced our intention to sell about half the shares. We have stressed repeatedly that we shall not exercise detailed control over the company, and will not intervene in its commercial decisions, whatever shareholding we retain. In these circumstances, the precise size of the shareholding to be offered for sale is not a significant decision from the policy point of view: it will be influenced by a number of factors, including financial advice nearer the time and the number of shares that are taken up by employees. A decision to sell a particular number of shares will not involve any new policy departure and will not have any significant effect on the future of the company.

Looking further ahead, the position in principle remains the same. The Government have made clear that they will retain a shareholding of more than 25 per cent. in order to be able to protect the article of association dealing with foreign control. Subject to that minimum, the Government may in the future wish to sell further shares if this is financially desirable and if it is in the interests of the company as a whole. Such sales would not change the nature of the Government's relationship with the company in any way. I hope, therefore, that the noble Lord will not press his amendment.

Lord PONSONBY of SHULBREDE

am not satisfied with the noble Lord's answer, but it is not my intention to press this particular amendment to a Division. There are other amendments later which deal with the question of the size of the shareholding, some of which I may feel inclined to press to a Division. I beg leave to withdraw this particular amendment.

Amendment, by leave, withdrawn.

Clause 3 agreed to.

[Amendment No. 4 not moved.]

Clause 4 agreed to.

Clause 5 [Government investment in shares and securities of the successor company]:

7 p.m.

Lord PONSONBY of SHULBREDE moved Amendments Nos. 5 and 6 en bloc: page 5, line 30, leave out (" or "). page 5, line 31, at end insert ("; or (d) make loans to the successor company for such period not exceeding twelve months and otherwise on such terms as may he agreed between the Secretary of State and that company.").

The noble Lord said: These amendments propose to allow the Secretary of State to make short-term loans to the new company. It is in the nature of the British Aerospace business that short-term finance may be required especially during the early days of the successor company's operations to tide the company over a difficult period while it arranges its borrowing facilities from more conventional sources. Such a situation could arise through no fault of the company if, for example, there was an unexpected call on bank guarantees furnished by the company in support of its export business, or if that coincided with a time of lending restraint imposed on the clearing banks.

Normal commercial terms would have to apply to any such short-term borrowing, but it would seem right that such a facility for the Government to make loans in such circumstances should be provided for in the Bill. It is certainly not unusual for such a major shareholder—and the noble Lord, when speaking to an earlier amendment, agreed that in all circumstances the Government would remain a shareholder as to 25 per cent. in the company—to provide funds in such a situation, and the successor company should be in no worse a position than a conventional company. But without the specific statutory power, it appears that the Government could not make short-term finance available in these special circumstances.

Lord TREFGARNE

Before coming to the specific point put by the noble Lord, Lord Ponsonby of Shulbrede, I should like to explain briefly the purpose of the powers in Clause 5. The clause empowers the Secretary of State, with Treasury consent, to make certain subsequent investment in the successor company. I stress the word"certain"for not all types of investment are permitted under this provision. In broad terms, the Government, under this statute, will be able to advance finance when the purpose in so doing is to acquire, either directly or indirectly, equity in the successor company. This limitation is explained quite simply by the purpose behind the clause. It is that the Government should have the means of maintaining a particular proportionate shareholding in the company—for example, a holding of over 25 per cent.—in order to protect the foreign control article. It is not the purpose that the Government should be in a special position relative to the company as a general provider of funds. That would be quite contrary to our repeated concern that it should be recognised that the Government will not stand behind the successor company in the way they stand behind a nationalised industry. The company will and must stand by its own efforts, without special treatment from Government.

I think noble Lords will understand why we believe it would be quite inappropriate for the Government to provide short-term loans to the company when we have said that we expect it to meet its requirements from commercial sources. It would put British Aerospace Limited in a privileged position, whereas the essence of our policy is that it should be in the same position and be subject to the same pressures as any private sector company. Nor would it be comparable with other private sector companies with a large shareholder: institutions which own shares in a company do not expect to act as that company's banker; no more should the Government. Indeed, not even British Aerospace as a nationalised industry receives short-term funds from the Government; it obtains all its overdraft facilities from the market. I hope the noble Lord will not press the amendments.

Lord PONSONBY of SHULBREDE

I do not intend to press the amendments to a Division. The proposal was not that the company should be in a privileged position, but that the normal sort of commercial relationship which might exist between a company and a major shareholder should appertain in this case. However, in view of what the noble Lord said, I beg leave to withdraw the amendments.

Amendments, by leave, withdrawn.

7.5 p.m.

Lord BALFOUR of INCHRYE moved Amendment No. 7:

Page 5, line 44, at end insert— (" Provided that at the time of disposal to the public by the Secretary of State with Treasury consent of any shares, there shall be reserved for employees of the Company with three years continuous service with British Aerospace at the time of the passing of this Act such proportion of the issue as may be determined by the Secretary of State after consultation with the Treasury and the Board of the Company.").

The noble Lord said: I had two purposes in drafting this amendment. The first has already been fulfilled and I need spend no time on it; that is, the matter of how the shares to employees will be issued. I need only remind the Committee, which has been reminded once already, of some words used by the noble Lord, Lord Cullen of Ashbourne, when he said: I should emphasise that no decisions have been taken. The scheme I have outlined is only one of the possibilities that we are considering.". I thought I might as well try to put forward a little more than the generalisation which the Minister quite naturally indulged in. However, the second purpose of the amendment is much more serious. It is a matter entirely relevant to the Bill and one which, I hope, will be welcomed by the Opposition, and to which they will reply. I assure noble Lords that I raise this matter in no party spirit. My question is simply this: Where do the Opposition stand in relation to employer shares? It is a simple question which deserves a simple reply.

All the three main parties believe in worker participation and, therefore, I ask: Does the Labour Party believe in worker participation entirely or does it stop short at investment in the company in which they are working, British Aerospace? The Government, and the Bill itself, are thinking about employee shares, but before the Bill becomes an Act, all those people affected should know clearly and definitely where they stand in relation to workers' investment and the Opposition position. Hitherto, the policy of the opposition has been nationalisation without compensation.

Lord PONSONBY of SHULBREDE

The noble Lord made a very odd remark,"nationalisation without compensation ". Full and fair compensation has always been paid by any Labour Government since Labour Governments have been in existence.

Lord BALFOUR of INCHRYE

Let us pursue that for a moment. If it is not nationalisation without compensation, then noble Lords opposite accept workers' investment in the companies with which the Bill is dealing, and accordingly they must he ready to counter the recommendations made by their party at various party conferences, and I shall come to that shortly. If they reject worker participation, they should say so honestly now. My search for an answer to the question I asked about where they stand on this matter included searching the columns of the House of Commons Hansard debates of what was said by Mr. Silkin and Mr. Smith, and I could find no denial of the policy of nationalisation without compensation except this comment by Mr. Smith: We have a working party on this particular problem ". What is the working party for? Is it to see how shares can be nationalised without compensation? I do not know. Let me explain why I put this matter to the Committee, and to the noble Lord who is speaking for the Opposition. I look to the last Labour Party Conference and to the words of Mr. Clive Jenkins, speaking from the platform, on this issue——

Lord PONSONBY of SHULBREDE

I think that he would be speaking from the rostrum, not from the platform.

Lord BALFOUR of INCHRYE

I am sorry, did the noble Lord say——

Lord PONSONBY of SHULBREDE

I must apologise, but Mr. Clive Jenkins is not a member of the National Executive Committee, and he would have been speaking from the rostrum, not from the platform.

Lord BALFOUR of INCHRYE

I am sorry that I did not differentiate between the rostrum and the platform. However, Mr. Clive Jenkins had the whole of the conference with him; a report that I have says that the conference was fully behind him; no vote was taken on the issue. These are his words: This is a serious warning to all of you. When we take power, your fingers and your wallets will have been burned … He said that that was a warning to insurance companies, pension funds, and investors in the City. I am sorry to say this, but I want to hear that the extremists are repudiated by the Labour Front Bench here. I am sure that it would he a great comfort to all of us, if we can have that repudiation from the noble Lord who is to speak for the Opposition.

Let us assume that a man has £500 and he invests it in shares. He also has the issue of free shares. Is he quite safe in his investment upon renationalisation if, and when, the Labour Party come to power? If his share has increased in value, partly through his own efforts in making a success of the enterprise to which he has devoted his working life, will he be considered a wicked capitalist, taking an unearned increment—or will he be allowed to take any profit accruing to him from the increase in his investment?

These are serious questions—and I have tried to put them in a reasonable way—which should be answered before the Bill passes. Can we have a clear Yes or No on workers' investment in principle? Do noble Lords approve of trade union members taking a financial interest in their enterprise, or do they stand with the extremists, as expressed in the positive voice of the whole of the Labour Party Conference, as I have quoted, under the leadership of the speech of Mr. Clive Jenkins?

It is no good our trying to pass over this question. It is no good our party, the party opposite, or anyone trying to pass over this question without facing the possible issue which the extremists in the Labour Party are advocating. That is why I welcome the opportunity to hear from the noble Lord who is to speak for the Opposition that they are all for worker participation, including the financial aspects and that they do not agree with extremists of their own party. I beg to move.

7.14 p.m.

Lord WYNNE-JONES

The noble Lord, Lord Balfour of Inchrye, has been trying to trail his coat and at the same time twist tails, and undoubtedly he hopes that he will elicit some absolutely revealing remarks which he can quote on some other occasion. The noble Lord speaks with persuasion and interest. He tries to tell us that because a particular speaker at a Labour Party Conference—who was not speaking officially for the Labour Party—made statements which were well received by perhaps a number, an unspecified number, of delegates, he is therefore able to use these as an absolute argument as to what is Labour Party policy. But Labour Party policy has been stated again and again; and not only has it been stated but it has been practised when nationalisation of industries has taken place. The noble Lord knows perfectly well that on no single occasion has there been confiscation; on every occasion there has been compensation.

Of course, everyone argues as to whether or not they have been compensated adequately. I remember when the coal mines were nationalised; I suppose it was in 1947. I had moved to Newcastle. I lived there and I knew quite a number of people in the coal industry. I became associated with that industry indirectly, and there was of course much argument as to whether or not the owners of the coal mines received the right compensation. Yet so far as I could see, most of the coalmine owners did rather better out of nationalisation than they would have done had the mines not been nationalised. I believe that this kind of thing has happened more than once, where people with a virtually bankrupt industry, or a bankrupt section of an industry, have been able to obtain more money than they would have done had they continued in business themselves.

It has never been the policy of the Labour Party to take over anything without compensation. That has never taken place. So I find it a little surprising that the noble Lord, Lord Balfour of Inchrye, should raise this matter under the pretence that he is moving an amendment. It seems to me that he is using your Lordships' Chamber in order to trail his coat gently across it——

Lord BALFOUR of INCHRYE

May I interrupt the noble Lord. As I said, I considered it my duty to raise this great question. I tried to do so not at all in a political spirit, but in a spirit of asking for facts.

Lord WYNNE-JONES

Of course I do not at all reply in a political spirit. The fact that I happened to mention the Labour Party is irrelevant. I am not quite certain whether this situation is like Alice Through the Looking Glass or Alice in Wonderland. It seems to me that the noble Lord is asking a question which is not merely rhetorical, but is a question which has no sense at all, because it bears no relation to anything that has happened in the past, not so far as one can see, to anything that is likely to happen in the future.

Of course, it is quite impossible to say what would happen if there were a revolution in this country. I cannot predict what would happen under such conditions, but we are speaking about policies put before the country, and there is not a vestige of evidence, nor any reason, to suppose that the Labour Party would confiscate without compensation. There is no reason at all to suppose such a thing, In fact, I, who probably stand rather further to the Left in the Labour Party than the noble Lord would like to see anyone stand, might at times wish that the Labour Party would go rather farther; but it has always been the policy of the Labour Party—and I think a sensible policy—to say that you do not use indiscriminate confiscation if you want to get money; you raise the money by taxation. Consequently, if you are buying something you pay the fair price for it; but you raise the money by taxation or in any other suitable way and not by confiscation. I think that this is bringing before your Lordships the strangest form of fish for which, even under the conditions of Common Market tyranny, our fishermen have to fish; that is, this very odd red herring.

Lord HARMAR-NICHOLLS

My noble friend did not succeed in getting what he was after. He was after a reply from the Front Bench opposite which could give some sort of——

Lord PONSONBY of SHULBREDE

I am waiting for the noble Lord, Lord Trefgarne, to spell out his attitude to this amendment before I reply.

Lord HARMAR-NICHOLLS

Then I amend what I said by saying that so far he has not succeeded in getting what he wanted, which is a reply from the Front Bench opposite, which makes it so much more official. I must say that the only two amendments which interested me personally were No. 2, on which I went into the same Lobby as the noble Lord, and this amendment if No. 2 was not accepted. I wish No. 2 had been accepted, and I wish it had been accepted very much on the grounds that my noble friend has put forward in his argument. After a rather long experience of having to meet the Labour Party in political battle, I was rather delighted but surprised to find that they had put down an amendment which seemed to encourage employees having a share ownership in their works. They have never done that in the past; their record has never shown that; and I was delighted that they had put this amendment down on the Marshalled List. That is why I argued not long ago that we ought to let it succeed, in order to pinpoint where the Opposition stood on these matters, in order to preserve freedom; because if it is that you have employee shareholding (and particularly if, as my noble friend said, they are active members of the trade union movement), it adds an extra safeguard or assurance that there will be compensation if they ever consider it worthwhile nationalising it again.

The noble Lord, Lord Wynne-Jones, said that there is not a vestige of evidence that anything of the sort that my noble friend suggested is likely to happen. He knows that that is not according to facts. He knows that there is not a vestige, but a great deal of evidence at party conferences and in speeches from authoritative sources in the Labour Party which shows that it is a real danger from an influential part of a party which could well have the power of government again. It is very much there. It was very interesting that when the noble Lord was giving the disclaimer he spoke only of the past. He said that never in the past had they ever contemplated wanting to do this, and therefore why should we say it now? But he knows, as I do, that it is not the same Labour Party at this time as it was in the past. He knows that there is a real division; he knows that there is a real battle as to which half is to have the power. The evidence is more than a vestige, in my book, if one takes into account the powers that they will possibly get.

Then the noble Lord gave himself a certain cover, so that he could still remain in the party if what he said would not happen did happen. He said:"Of course, I cannot guarantee that there will not be a revolution ". What he meant by that, obviously, was that if the one half of their party do get their way and do carry out what they have said they will by way of taking without compensation, that will be a revolution.

Lord WYNNE-JONES

No.

Lord HA RMAR-NICHOLLS

If it is that it is only a revolution which will bring about what he said has not happened in the past, and if one half of his party say that that is what they would bring about and that half is that may well have the power, then what he is saying is that half of the party that he supports could well be revolutionaries. I think that that is a thing which we ought to keep very much in mind.

My noble friend has done a great job in putting down this amendment in order to allow him to make the speech that he has made. I am only sorry that the same sort of tactics did not impress my noble friends, for whom I have such a great respect, because it would be a good thing to have on the record that at any rate the supporters of the Labour Party in your Lordships' House believe in share ownership for employees. They have never done that in the past; and I should like to have it on record, in a written form, that we do. We do in fact, but I should like it in a written form.

I should like to congratulate my noble friend. I do not know whether he is thinking of pressing his amendment to a Division if it comes to it, but I rather doubt that that is what he has in mind, because his amendment is not as good for achieving what he wanted as the amendment which was put forward by the noble Lords on the opposite Benches. But that does not alter the fact that, the way things are moving at the minute, the noble Lords are not likely to have the power if it is that the party they now support ever has the power of government. I congratulate my noble friend, and I hope that we can get a reinforcement of the denial as to what the Left Wing of their party say that they want to do from the Front Bench as well as from the second Bench.

Lord CULLEN of ASHBOURNE

Since the noble Lord, Lord Ponsonby, is waiting for a reply from this Front Bench, I will reply, but very shortly. In point of fact, the question which my noble friend asked has really been directed at the Opposition Front Bench, and not at the Government Front Bench. I would only say that his suggestion of three years' qualification service will of course be considered with the other matters; but so far as I am concerned I think the possibility of renationalisation without compensation by any democratic Government in this country is not possible. So I just do not believe it can be.

Lord PONSONBY of SHULBREDE

Before the noble Lord sits down, may I say that what I am seeking clarification of is the Government's attitude to the amendment moved by the noble Lord, Lord Balfour of lnehrye.

Lord CULLEN of ASHBOURNE

Our attitude to the amendment is that we will certainly consider the idea of the three years' qualification, as I told my noble friend.

Lord PONSONBY of SHULBREDE

I thank the noble Lord. I was interested to know what the Government thought about this particular amendment, and no doubt the noble Lord, Lord Balfour of Inchrye, will withdraw it on the undertaking given by the noble Lord, Lord Cullen of Ashbourne. Let me be quite frank with your Lordships. When I looked through the amendments to be moved today, I thought I could well lend my support to this particular amendment; and I did not actually see that in fact the debate on this particular amendment would revolve around the question of whether or not a Labour Government would pay full or fair compensation. I think that from a worker-shareholder's point of view the much greater problem facing him is whether in fact the shares in the company which he buys today by the normal operation of market forces will in fact be more valuable in five years' time or less valuable; and he will have to make that particular assessment for himself.

But I can assure the noble Lord, Lord Balfour of Inchrye, that in fact the danger the employee faces from a future Labour Government taking back full control of British Aerospace without compensation is one which is not there. He need have no worry about that particular situation; and if he looks at, in a sense the "Gospel" —that which we in your Lordships' House always regard as containing what we should do about legislation passed up here from the Commons; that is, the party manifesto of whichever party it may be, for we in your Lordships' House accept that we will not block something set out in a Party Manifesto—he will not find in any Party Manifesto which has been published by the Labour Party over the past many decades any suggestion anywhere that there will not be other than full and fair compensation paid for any form of nationalisation.

Lord BALFOUR of INCHRYE

I thank the noble Lord very much indeed for that very firm assurance which I think not only some noble Lords in this House but probably the whole country, and certainly the employees in the factories, have been waiting to receive. They have received it now. I make no apology for having raised the issue. It is very relevant to the question of employee shares which we have been debating this afternoon. I have only to thank the noble Lord for the assurance which I sought. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 agreed to.

Clause 6 [Exercise of Secretary of State's functions under sections 3 and 5 through nominees]:

7.30 p.m.

Lord PONSONBY of SHULBREDE: moved Amendment No. 8:

Page 6, line 27, at end insert— (3) The names and the extent of their holding of every person appointed under subsection (1) of this section shall be published in the London Gazette, together with details of any resignations, and the same shall be notified to the successor companies within seven days ".

Page 6, leave out subsection (4) and insert— (" (4) The Secretary of State, in fixing a target investment limit from time to time by order made by statutory instrument, shall not at any time fix that limit at less than 51 per cent. of the voting rights.".)

The noble Lord said: Clause 6 provides for the exercise of the Secretary of State's functions under Clauses 3 and 5 of the Bill and empowers the Secretary of State to appoint nominees to act for him in these matters. This amendment is asking that, in an era of so-called open Government, the names of those nominees who are to act for the Secretary of State shall be published. I can see no objection to there being public knowledge of those who are to act for the Secretary of State in these matters. I beg to move.

Lord TREFGARNE

I do not believe that the appointment of nominees, or the size of their shareholding, are things which should appropriately be published in the London Gazette. The power to appoint nominees is necessary in the first place because a company must have more than one member in order to comply with the provisions of the Companies Acts. Shares will therefore need to be held by at least one person other than the Secretary of State in the period between the appointed day and the flotation. In practice, we intend to use the power to appoint the Treasury Solicitor to hold shares in the company as the Secretary of State's nominee. That is one point out of the way. This will have purely presentational significance, to show that the shareholding responsibility within Government is distinct from the sponsoring responsibility. In these circumstances, it may also be convenient for the Treasury Solicitor to buy and sell shares on the Secretary of State's behalf. But the clause provides that nominees are to act as directed by the Secretary of State, subject to the consent of the Treasury. This ensures that any nominee's behaviour will be determined by the Government. A nominee will have no powers of decision as to the acquisition of shares and securities or how they should be held or dealt with. Who acts as nominee is immaterial; he or she will have no power to act other than as directed. The nominee is a mere cypher.

The Government will be ready to inform Parliament of the size of the Government's holding of shares, securities and rights in the successor company from time to time. But we do not believe that any purpose would be served by publishing the names of the nominees in the London Gazette.

Lord PONSONBY of SHULBREDE

My Lords, I thank the noble Lord for his explanation in this matter. This is not an amendment which I intend to press to a Division. I beg leave to withdraw it.

Amendment, by leave, withdrawn.

Clause 6 agreed to.

Clause 7 [Target investment limit for Government shareholding under Sections 3 and 5]:

Lord PONSONBY of SHULBREDE moved Amendment No. 9:

Page 6, line 42, leave out subsection (4) and insert— (" (4) The Secretary of State, in fixing a target investment limit from time to time by order made by statutory instrument, shall not at any time fix that limit at less than 51 per cent. of the voting rights.").

The noble Lord said: My Lords, we come to an important amendment, No. 9, which deals with subsection (4) of Clause 7. This is the subsection which currently empowers the Secretary of State by order to fix a target investment limit which has to be lower than the target investment limit previously in force. My amendment seeks to insert (instead of the present subsection (4)) a new subsection (4) which fixes the minimum target investment limit at 51 per cent. of the voting rights of the company. The corporation's business is vital to the national interest in terms of its contribution to exports, profitability, employment and, of course, the defence of the Realm. Its effective control should remain vested in the Government. This in no way need derogate from the independence of the management of the corporation—which is one of the Government's objectives in placing the Bill before Parliament.

A majority shareholding in the company would be regarded by overseas customers and partners, especially governments, as a clear expression of the continuing interest and support for the corporation's business and management. Third-party concern will be increased if Clause 7(4) is not amended because, as it stands, it appears to recognise a continuing diminution in the Government support for British Aerospace. But confidence in the industry is essential. The mere fact that the Bill has been introduced is causing unrest and uncertainty among people in the industry. I understand that there was to have been a lobbying of Parliament today by those involved in the industry. I understand also that the Secretary of State has gone round the country telling the workers that they need not worry too much. But the mere fact that he has had to do this indicates a need for people to be reassured. The passing of this amendment would give people that assurance.

As we have already said, today the House is being asked to authorise an extraordinary process. The Government have set up a £100 company whose capital (as we have already noted) is held by two civil servants on behalf of the Secretary of State. The memorandum and articles of association have been placed in the Library and only later will we learn what are to be the memorandum and articles of association to which British Aerospace will eventually be transferred. It is because of my concern to see that certain items are written into the articles of association that this amendment is here. The noble Lord's colleagues (if that is the right word) have given assurances that the ratchet mechanism as prescribed in this clause will operate in such a way that at no time will the size of the Government shareholding in the company be reduced below 25 per cent. But that figure is not in the clause at all at the present time.

As the clause stands—without the assurances—the Government holding could be reduced to nil. But we have the assurance and therefore at a later stage I could well ask that those assurances be written into this clause of the Bill. However, our strongly-held view is that, in view of the importance of British Aerospace, it is crucial for the functioning of British Aerospace—particularly in its relationship with foreign Governments and the many Commonwealth Governments who have negotiations with British Aerospace for the purchase of defence equipment—that they should know that the Government are solidly behind British Aerospace and that it is a company which is within the control of the British Government.

I do not see that it need affect in any way the performance of the company if 49 per cent. of the company is owned by the public at large and 51 per cent. owned by the State. If we agree this particular amendment, many other problems which arise—some of which we are going to talk about later; for example, the question of foreign control—will disappear. Therefore, I would press very strongly that we make this substitution and place in the clause the figure of 51 per cent.

Earl AMHERST

I should like to support this amendment very strongly. I agree with everything that the noble Lord, Lord Ponsonby, has said. My special reference is to security. Assuming the control of the board is by a simple majority, 51 per cent. is a protection against any possibility of foreign infiltration. If it is not a simple majority, then we will have to be told what it is. If it is a simple majority, then if we get 51 per cent. of the voting rights we can control the position so that the company is not infiltrated by foreign interests.

7.41 p.m.

Lord TREFGARNE

This amendment would prevent the operation of the downward ratchet mechanism provided for in Clause 7(4). I recognise that it is also intended to probe the Government's intentions as to the size of their shareholding. When the successor company ceases to be wholly owned by the Government, a target investment limit will have to be set at the level of the proportionate shareholding of the Government at that time. The purpose of the limit is to set a target level for the Government's proportionate shareholding in the successor company which, although it need not be maintained, must not be exceeded. We want to be able to retain a given proportionate shareholding if we wish to do so, and in particular we must be able to retain a holding of over 25 per cent. in order to protect the foreign control article; but we want it to be clear that the Government's shareholding will not increase above a given level. Subsequent orders setting new limits may be made from time to time provided that each new order sets an investment limit lower than the one it replaces. An order setting a limit can only be revoked by another order setting a lower limit, and this means that some limit must always be in force.

This is wholly consistent with the Government's intention that they should stand back from the successor company. The Government do not intend to intervene in the commercial decision making of the company and do not intend to control it. That is the Government's policy and it is to make it clear that there will be no retrenchment from its initial position—that the company is firmly committed to the private sector—that the Government have provided in the Bill that the Secretary of State's proportionate shareholding cannot be increased above the level immediately after flotation. The Secretary of State can of course reduce his shareholding, and it is right that he should be able to do so. It also follows that the Government should be able to set lower target limits if it wishes, and this power is provided in susbsection (4).

If the amendment were made the effect of the clause would be fundamentally different. The target limit could never be less than 51 per cent., though I should emphasise that it does not follow that the Government's shareholding could not fall below that level: the limit is a maximum only. More important, however, the clause would let the Government set higher target limits and so enable it to increase its proportionate shareholding above the initial level. It would also permit an existing order setting a target limit to be revoked without the need to replace it by an order fixing a new limit. The amendment would therefore make the position of the successor company unclear, by leaving open the prospect that the Government might substantially increase their shareholding in the future. This is wholly contrary to our policy towards the company, and would make shares in the company a less attractive proposition to investors. I hope the Committee will therefore appreciate why we will ask it to disagree with the amendment.

The Government have decided initially to retain about half the shares in the successor company. However, as we have repeatedly stressed, the precise proportion is of no significance because the Government have made it quite clear that we do not intend to exercise control over the company. I must make it clear that the Government do not rule out the possibility of selling more shares in the future. However, I expect that at the time of the flotation the Government will announce that they will not sell any further shares in the company for a specified period.

It would clearly be wrong for the Government to look too far ahead when circumstances may change and make one level of shareholding more desirable than another. The Government will not therefore set a minimum level for their shareholding. But I can repeat the assurance that has been given here and in the other place that the Government will maintain a proportionate shareholding of over 25 per cent. of the voting shares so as, in particular, to be able to prevent any undesirable amendment to the article of association dealing with foreign control. As the noble Lord, Lord Ponsonby, said, this amendment drives to the very heart of this Bill. I do not think that it would be going too far to say that it seeks to negate the whole purpose of the Bill. if hope for that reason at least your Lordships will reject it.

Lord WYNNE-JONES

The noble Lord, Lord Trefgarne, has twice stated that it is the intention of the Government not to allow their holding to drop below 25 per cent. Such a statement, as I pointed out on Second Reading, is a statement which bears no permanent force at all. The mere fact that the Minister states in Parliament that it is the intention of the Government to do something does not commit that Government, and certainly does not commit any other Government. Therefore, if the noble Lord is not prepared to write such a figure into the Bill, then his statement is worthless.

Lord TREFGARNE

I do not think that is fair. I have given a clear undertaking on this matter. The same undertaking was given by my honourable friend Mr. Butler in the other place. The undertaking certainly binds this Government.

Lord WYNNE-JONES

When the noble Lord says"this Government ", he is saying that the present Ministers who make such a statement have a certain honourable obligation in the matter. He does not mean—and he knows he cannot mean—that the Government, which may or may not be in office during the next few years, will be bound by such a statement. This has happened in the past. One knows perfectly well of occasions when definite statements have been made by Ministers. There was one made some years ago on immigration. That

promise was later broken; but nothing could be done about it because one cannot enforce a Minister's statement in a court of law. A court of law deliberately ignores statements made by Ministers. It is therefore important to realise that when a Minister makes a statement such as the noble Lord, Lord Trefgarne, in all honour has made, it only binds him, and it does not bind the Government at all. Consequently, it is quite unreasonable for the Government to expect the Committee to accept a Ministerial statement as being the same as a commitment in the Bill. If it were, he would presumably put it in the Bill.

Lord PONSONBY of SHULBREDE

The noble Lord, Lord Trefgarne, has said that this is an amendment of principle. Despite the various minor points he put about this amendment, and some of the side effects that it might have, I will seek to divide the Committee on this amendment on the point of principle that the Government should retain a 51 per cent. holding in the company. I believe that it would be in the national interest that a holding of that size should be retained in the company.

7.48 p.m.

On Question, Whether the said amendment (No. 9) shall be agreed to?

Their Lordships divided: Contents, 25; Not-Contents, 64.

CONTENTS
Amherst, E.	Greenwood of Rossendale, L.	Peart, L.
Ardwick, L.	Hooson, L.	Ponsonby of Shulbrede, L. [Teller.]
Beaumont of Whitley, L.	Jeger, B.
Boston of Faversham, L.	Kilmarnock, L.	Ritchie-Calder, L.
Brooks of Tremorfa, L.	Kirkhill, L.	Seear, B.
Chitnis, L.	Llewelyn-Davies of Hastoe, B. [Teller.]	Stone, L.
Cledwyn of Penrhos, L.		Underhill, L.
Davies of Leek, L.	McGregor of Durris, L.	Wade, L.
Davies of Penrhys, L.	McNair, L.	Wynne-Jones, L.
NOT-CONTENTS
Ailesbury, M.	Brougham and Vaux, L.	Enniskillen, E.
Airey of Abingdon, B.	Buxton of Alsa, L.	Ferrers, E.
Allerton, L.	Caithness, E.	Galloway, E.
Amory, V.	Carrington, L. (A Principal Secretary of Slate.	Gisborough, L.
Ampthill, L.		Glasgow, E.
Armstrong, L.	Craigavon, V.	Gowrie, E.
Avon, E.	Cullen of Ashbourne, L.	Hacking, L.
Bellwin, L.	Davidson, V.	Henley, L.
Belstead, L.	de Clifford, L.	Hives, L.
Bessborough, E.	Denham, L. [Teller.]	Hornsby-Smith, B.
Boyd of Merton, V.	Drumalbyn, L.	Inglewood, L.
Killearn, L.	Mottistone, L.	St. Just, L.
Lindsey and Abingdon, E.	Mowbray and Stourton, L.	Sandys, L. [Teller.]
Long, V.	Moyne, L.	Selkirk, E.
Lucas of Chilworth, L.	Norfolk, D.	Sharpies, B.
Lyell, L.	Nugent of Guildford, L.	Strathcarron, L.
McFadzean, L.	O'Neill of the Maine, L.	Trefgarne, L.
Macleod of Borve, B.	Rawlinson of Ewell, L.	Trenchard,V.
Margadale, L.	Reigate, L.	Vivian, L.
Minto, E.	Renton, L.	Waldegrave, E.
Monk Bretton, L.	St. Aldwyn, E.	Wise, L.
Morris, L.	St. Germans, E.

Resolved in the negative, and amendment disagreed to accordingly.

7.58 p.m.

Lord PONSONBY of SHULBREDE moved Amendment No. 10: Page 7, line 21, at end insert (" Where the Secretary of State proposes to exercise any power to dispose of shares in the successor company either directly or through nominees he shall, subject to the provisions of this Act and subject to the need to prevent more than 15 per cent. of the shares in the successor company being owned directly or indirectly by any person not resident in the United Kingdom, take steps to ensure that he obtains an adequate price for them.").

The noble Lord said: This amendment deals with the problem which could arise if the Secretary of State at any time finds himself, or finds the Government shareholding, exceeding the target investment limit. This could happen if, for example, the Government found themselves, directly or through the National Enterprise Board, being forced to rescue another company or to reorganise industries or to reorganise a group of companies which themselves have a shareholding in British Aerospace. The clause, as it stands, requires the Secretary of State to dispose of any surplus shares"as soon … as … reasonably practicable"thereafter. What does that mean? How soon in fact does the Secretary of State have to act upon that?

It could well be a very inopportune time if the Secretary of State had to dispose of those shares straight away. He might, because of the situation appertaining at the time, obtain a quite inadequate price for those shares. Surely it would be wise to introduce an element of flexibility here, subject, of course, to the overriding needs of the corporation. The amendment seeks to add to the clause an element of flexibility which would ensure that the Secretary of State would not necessarily have to act immediately on the sale of his surplus shares. I beg to move.

Lord CULLEN of ASHBOURNE

This amendment would require the Secretary of State to obtain an adequate price for any shares in the successor company that he disposes of directly or through nominees. Although the amendment is intended to be inserted in Clause 7, the duty which it imposes would have effect in any of the circumstances in which the Secretary of State might dispose of shares.

There are broadly two categories of case in which the Secretary of State might do this. The first is where, as a result of exercising his rights to subscribe for shares in a rights issue or to convert securities into shares, the Government shareholding inadvertently exceeded the target investment limit. The Secretary of State would then be required to dispose of the excess shares by Clause 7(6). Secondly, the Government might decide, as a matter of policy, to reduce their shareholding. Having taken the decision to dispose of shares, the Secretary of State would take account of a wide range of factors in deciding the exact form and timing of the disposal.

So far as foreign ownership is concerned, the directors of the company will have to ensure, in accordance with the articles of association, that not more than 15 per cent. of the voting shares are foreign held, so there will be no need for the Secretary of State to take special precautions. The directors will not register any transfer of a share if they do not receive a declaration as to whether the transferee is or is not a foreigner; and they will be required not to register one if it appears to them that, if the transfer were to be registered, the 15 per cent. limit would be breached. If, notwithstanding these safeguards, the 15 per cent. limit were exceeded the directors would disfranchise the excess foreign shares held and sell them.

It will, of course, be the Government's intention, in the arranging of any dis- posal of their shares, to obtain the best possible price consistent with fulfilling the obligation to ensure that the target investment limit is observed. It is for this reason that Clause 7(6) includes the words"as soon … as … reasonably practicable ". It obliges the Secretary of State to sell the shares, but it enables him to defer their sale for a short period in order to obtain their true market value unaffected by the dealings in the rights which will no doubt have occurred. The timing will obviously depend upon the particular situation.

As I have said, it will be the Government's intention to obtain"the best possible price ". All that the amendment would require is"an adequate price "; it would therefore be less demanding in practice than what we intend. In any case, what is"an adequate price "? The best price reasonably obtainable is a question of judgment in the particular circumstances which arise, but"an adequate price"brings in so many imponderables that I cannot advise your Lordships to accept the amendment.

I think that your Lordships need have no fear. Nothing in the clause would oblige the Government to dispose of shares in such a rush that they did not achieve their true value. But it is certainly not our intention that the whole purpose of the clause, the limiting of Government involvement in the company, should be frustrated. Hence I consider that subsection (6) is adequate as it stands, and I hope that with that assurance the noble Lord will withdraw his amendment.

Lord PONSONBY of SHULBREDE

I thank the noble Lord for his explanation, but I wonder whether I could press him a little further. In making his explanation, he said that under the clause the Secretary of State would have"a short period"in which to dispose of his surplus holding. I wonder whether he could state what he means by"a short period "?

Lord CULLEN of ASHBOURNE

I find it rather difficult to answer that question. 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.

Lord PONSONBY of SHULBREDE

I thank the noble Lord for his explanation. I understand he is saying that by"a short period"he means that the Secretary of State would have to dispose of the shares within a month of becoming——

Lord CULLEN of ASHBOURNE

I would think so.

Lord PONSONBY of SHULBRED

E——aware that he held an excessive number of shares. I also thank the noble Lord for his explanation of this subsection, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 agreed to.

Clauses 8 and 9 agreed to.

Clause 10 [Dissolution of British Aerospace and transitional provisions]:

On Question, Whether Clause 10 shall stand part of the Bill?

8.6 p.m.

Lord RENTON

This is the only really complicated clause in the Bill. Therefore I feel justified, even at this late hour, in asking a Government spokesman whether he would be so good as to resolve any doubts that one might have, partly about its effect, but also because I should be interested to know about the timing of the various stages which arise under this clause and under the appointed day provision in Clause 14. We find in Clause 10(1) that certain provisions of the Act of 1977, shall cease to have effect on the appointed day in relation to British Aerospace ". Pausing there for a moment about the words"cease to have effect ", sometimes those words are used without justification when it is intended to repeal the clauses to which reference is made in that way. But on this occasion it seems to me that those words are quite properly used, because those provisions of the Act of 1977 will, as we see towards the end of subsection (1), be needed in their application to British Shipbuilders, who, as I understand it, will not be affected by this Bill and, therefore, they will continue to require the provisions of the principal Act.

If we read on to Clause 10(2), we find that British Aerospace is to continue in existence after the appointed day, and that certain other provisions of the Act of 1977 are to, continue to have effect in relation to its constitution and proceedings, until it is dissolved in accordance with subsection (9) ". In subsection (9) we find that the Secretary of State, may, by order made by statutory instrument … dissolve British Aerospace on a day specified ". The day specified will obviously come later than the appointed day. In other words, the appointed day will be the day on which the Bill comes into force and, thereafter, the successor company will be formed. But the day specified is to be the day on which British Aerospace will be dissolved, and between those two days, we find at the end of Clause 10(2), there is to be"the transitional period "—a kind of twilight period for British Aerospace.

My first question is whether my interpretation of those complicated provisions is correct. If it is not correct, it means that the provisions of the Bill may be found perplexing by others as well, but I hope that my interpretaton is correct. My second question is: What sort of interval will there be between the appointed day for the coming into force of the Bill and the day specified for the dissolution of British Aerospace? Is it to he weeks, or months, or years? It would be helpful to be told the answer.

I have one further question—and I shall quite understand if my noble friend is unable to answer without notice this evening, but it is important for us to have the answer from a drafting point of view. One finds that in Schedule 3 various powers and provisions of the Aircraft and Shipbuilding Industries Act 1977 are to he repealed. We find in Clause 10(1) that other provisions are to cease to have effect in relation to British Aerospace but will continue in force in relation to British Shipbuilders. We then find in Clause 10(2), that certain provisions shall apply temporarily to British Aerospace, but after that it would seem to me that they become spent. One does not like to have spent provisions cluttering up the statute book if by vigilance we can ensure that they are removed when no longer needed. Therefore, my third question—I appreciate that it may be difficult to answer on the spur of the moment, but perhaps it could be considered between now and Report—is as follows: are there any provisions in the 1977 Act which are not repealed by Scheule 3, but which may become spent as a result of Clause 10? If so, I suggest that we should make provision in the Bill for those provisions to be repealed if they are no longer needed.

Lord TREFGARNE

My noble friend Lord Renton has raised a complex and difficult matter, and I shall do my best to answer as fully as I can. However, I am afraid that I certainly cannot answer without consideration the last point he put to me about the residual spent provisions of the 1977 Act.

The scenario he described relating to the appointed day as referred to originally in Clause 1 and defined in Clause 14, followed by the day after the transitional period when British Aerospace has finally shaken off this mortal coil, was correct. However, I am afraid that I cannot tell him how long the transitional period will be, because the length of that period will depend on how long it takes to wind down the proceedings and activities of British Aerospace. A number of difficult and technical negotiations have to take place, and I am afraid that at this stage it is not possible to predict what that period will be. As for the last point mentioned by my noble friend, I shall take some advice and write to him.

Lord RENTON

I am much obliged to my noble friend.

Clause 10 agreed to.

8.16 p.m.

Lord PONSONBY of SHULBREDE moved Amendment No. 11: >After Clause 10, insert the following new clause:

" Memorandum of Association and Articles of Association (No. 1) of British Aerospace Limited

.—(1) The Secretary of State shall stipulate as a condition prior to its nomination under this Act that the successor company shall have as its initial memorandum and articles of association those set out in Schedules (Memorandum of Association of British Aerospace Limited) and (Articles of Association of British Aerospace (No. 1)) to this Act.

(2) No amendment to or addition to the Articles of Association and Memorandum of Association of the successor company as set out in Schedules (Memorandum of Association of British Aerospace Limited) and (Articles of Association of British Aerospace Limited (No. 1)) to this Act shall be made without the prior consent of the Secretary of State by statutory instrument, and no such instrument shall be of effect until it has been approved by resolution of both Houses of Parliament.".

The noble Lord said: We now come to a series of four amendments concerning the memorandum and articles of association of the successor company. The Government, as we have previously recalled, are setting up the £100 company to receive British Aerospace and the public corporation will emerge only later. We do not have the memorandum and articles of association of the public company. We have only the straightforward memorandum and articles of association for the private company as provided in the Companies Act 1948, as amended.

There will undoubtedly be elements in common between the two memoranda, but there is no safeguard at present as to what the articles in the one or the other will be. We should have a legislative guarantee as to what will be in the articles of association. This amendment attempts to enshrine the articles of association in the legislation, although I would be the first to admit that this is not entirely satisfactory because even if we enshrine these in legislation, we do not know what will be the exact form of the articles in the ultimate public company.

The Government have already placed in the Library Article 40 concerning foreign control, and one assumes that that article will be included in the articles of the ultimate public company and not in the articles of the initial private company. One wonders whether what is included in Article 40 could in some way be enshrined in the law.

The subsequent amendments deal with other aspects of the ultimate articles which we should like to see enshrined; I shall deal with them when we come to them. If we cannot have the articles enshrined in the Bill, the only answer would seem to be to add clauses to the Bill stipulating the matters that we should like to see enshrined in the articles. Since it is unsatisfactory that we cannot know what the ultimate articles will contain, I feel that the only way round this is to add new clauses to the Bill to ensure that within the ultimate articles these matters are satisfactorily dealt with. As it is, the Committee is being asked to sign a blank cheque and this amendment seeks to put the situation right.

Lord CULLEN of ASHBOURNE

I hope it will be helpful if I seek to describe the process by which the vesting of the business in the successor company will occur. The Bill provides that the successor company must have been formed and registered under the Companies Act 1948; that on the appointed day it must be limited by shares; and that on the appointed day all those shares must be owned by or on behalf of the Crown.

The Secretary of State has formed and registered, under the Companies Act 1948, a private limited company, called British Aerospace Limited. The Secretary of State can do this, quite independent of the Bill, in exactly the way that any individual can form and register a company. The sole function of that company is to stand available as the vessel in which the business of BAe will lodge. It has no purpose or function other than to prepare itself for the vesting on the appointed day. The shares in the company are held by the Secretary of State's nominees, in practice two officials in the Department of Industry; the directors of the company are similarly departmental officials. The issued share capital is purely nominal. The articles of association are in essence those of Table A to Schedule 1 of the Companies Act, with some very small amendments designed to ensure that the company can operate on the very limited basis I have described. These articles are available in the Library of the House, and it is these that are included in the second Schedule associated with this new clause.

This company will be nominated as the successor company for the appointed day, and will be placed in a fit state for the Nesting in it of the undertaking of British Aerospace. This will involve holding, on or shortly before the appointed day, an extraordinary general meeting of the company at which a number of decisions will be taken. First, the authorised share capital of the company will be increased from the purely nominal capital of the"shell company"to a capital appropriate to a company running the British Aerospace industry. Secondly, the company will adopt new articles of association—again, those appropriate for a listed company. The basis of the articles will be those in Table A of the Companies Act 1948, brought up to date in various ways. The articles will also contain the special provisions which I described on Second Reading, for a limit on foreign ownership to a maximum of 15 per cent; and for the appointment of two Government directors. There will be an application for the private limited company to be re-registered as a public limited company. Last, the directors of the new company will be elected from the board members of British Aerospace, and the two departmental officials on the board of the"shell company"will resign. The transformation will be complete: a public limited company, with all British Aerospace's property, rights, liabilities and obligations; with a strong and independent board; with new articles of association; and with an appropriate capital structure will stand ready for a flotation. In response to a direction to be made by the Secretary of State under Clause 3 of the Bill, the company will issue shares in the company to Government nominees.

The essential feature of the memorandum of the public limited company in which shares will be offered to the public—the objects clause—will be that of the company formed at the end of last year. That is the part of the memorandum which sets out the activities the company is permitted to pursue. These are helpfully duplicated in the first schedule associated with this new clause. We expect that they will form the objects clause of the company in which shares will be offered for sale. The memorandum, drawn up in close consultation with British Aerospace allows British Aerospace Limited to do those things which the constituent companies of the statutory corporation were allowed to do. We have put British Aerospace Limited in the same position as that of BAC, Hawker Siddeley and Scottish Aviation. The objects clause in the memorandum of British Aerospace Limited can most easily be regarded as that of BAC, amended as necessary to embrace special features of the other two companies, or of recent developments within the statutory corporation. The definition of what British Aerospace Limited will be allowed to do is therefore available to the House.

I have deliberately repeated in some detail the process that will be adopted to enable noble Lords to understand the background against which the new clause must be considered. The effect of subsection (1) would be to require the successor company to have the memorandum and articles of the present"shell company ". I have explained that the objects clause set out in the memorandum of the"shell company"will indeed be the objects clause of the"real company ". But in all other respects, the memorandum and articles of association are quite inappropriate for and incompatible with the requirements of a public limited and listed company, conducting a business with a turnover in excess of a billion, and assets approaching half that. If the new clause and schedules were accepted therefore the sole effect would be to ensure that, on the appointed day, the company's constitution would require immediate change. They would also prevent the change from private to public limited company occurring before the appointed day.

Subsection (2) would require changes in the memorandum and articles to be approved by Parliament. I appreciate the wish of noble Lords to know more about the memorandum and articles. I have explained that the memorandum will be almost identical to that of the shell company, and the articles will be largely standard; and we outlined on Second Reading the special provisions on foreign control and Government directors. The articles are now being finalised and I can undertake that both they and the memorandum will be laid in the House before Report. However, I do not believe it would be appropriate for amendments to them to be subject to Parliamentary approval. This is not a requirement for Cable and Wireless—wholly owned by Government; nor for Rolls-Royce 1971—again about to be wholly owned by Government direct; nor for British Leyland—almost entirely owned by the NEB. We wish British Aerospace Limited to operate like any other private sector company, subject to exactly the same constraints as any other public limited company. Shareholders in British Aerospace must have the same rights as shareholders in other companies, including the right—if the necessary three-quarters majority is forthcoming—to change the company's memorandum and articles. To intrude a Parliamentary procedure into this would run quite counter to our policy, and produce a strange half-breed, subject in part to Parliament and in part to its members.

I must apologise for a rather long explanation, but I hope thereafter the noble Lord will withdraw his amendment.

Lord MORRIS

I must support my noble friend on this particular point. I believe this amendment to be entirely mischievous. It would be quite improper that anybody other than the promoters of a company should define the terms of the memorandum and articles of association. In this instance, the promoters of this new public company are the Government of the day, acting by analogy as the trustees for putative future shareholders. For anybody other than the promoters to design the memorandum and articles of association of that company surely must not be proper in the normal course of events. As my noble friend so rightly said, there is no precedent in modern days for this. I think that this point of view is certainly worthy of support.

Lord PONSONBY of SHULBREDE

May I thank the noble Lord, Lord Cullen of Ashbourne, for his full explanation. The noble Lord, Lord Morris, has slightly misinterpreted the point of my amendment. I certainly have no desire to help to draw up the memorandum and articles of association of British Aerospace Limited. Indeed, it gave me comfort from the reply of the noble Lord, Lord Cullen of Ashbourne, to learn that in fact the articles of the public company are almost drawn up and that they will be available for noble Lords to see in the Library before we reach the Report stage. That is a small step forward. I hinted at a number of remarks which were made by the noble Lord, Lord Cullen of Ashbourne, when I moved the amendment: that the articles, as tabled, were placed in the Library by the Government at the end of last year.

I feel that by tabling this amendment your Lordships had the opportunity of seeing what was proposed to be included in the articles. However, it in no way lessens my feeling of dissatisfaction at the fact that your Lordships' House has very little say and that Parliament as a whole has very little say about what in fact will be included in the articles. Therefore we go on to the subsequent amendments which ask that specific items be included in the articles, and I beg leave to withdraw this amendment.

Amendment, by leave, withdrawn.

8.31 p.m.

Lord PONSONBY of SHULBREDE moved Amendment No. 12: After Clause 10, insert the following new clause:

" Nationality of directors of successor company 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 provisions to ensure that all directors should be British citizens and resident in the United Kingdom.".

The noble Lord said: This amendment concerns the nationality of the directors of the successor company. We shall shortly be coming to my amendment on the foreign investment limit. The Government have admitted their concern regarding foreign control and the need to restrict the amount of foreign investment in the company. As we have said many times before in this debate, British Aerospace is a British company with substantial British defence interests, and bearing that in mind surely it is not too much to ask that the directors of the company should all be British. I beg to move.

Lord TREFGARNE

We entirely agree that all directors of the company should be citizens of the United Kingdom and Colonies. Provisions to this effect will be included in the articles of association of the successor company which, as my noble friend said just now, will be available to the House in draft before the Report stage. The Government would be prepared to vote their shareholding if it was necessary to prevent any amendment to these provisions.

However, there are two points on which we do not agree with the noble Lord. First, we do not think it right to require directors to be resident in the United Kingdom. This is because British Aerospace has important overseas activities which might require directors to live abroad, at least temporarily. For example, the Walton Division has a director resident in Saudi Arabia and that might equally apply to a director of the company. Secondly, we do not believe that it is appropriate for provisions of this sort to be included in the Bill. It is important that the successor company should be seen to be a normal private sector company governed by its memorandum and articles like any other company. This principle would be infringed if certain provisions of the articles were to be incorporated in the Bill. In the light of this explanation, I hope the noble Lord will not press his amendment.

Lord PONSONBY of SHULBREDE

In his reply, the noble Lord indicated that a reason why he disliked this particular amendment was that it included the words,"and resident in the United Kingdom ", although he said that it was certainly the view of the Government that all the directors should be British citizens. In view of that, I might be well advised to table an amended amendment at Report stage. However, I have noted what the noble Lord has said—that he feels that this is not something which should be written into the Bill. Our strong view is that items like this should be written into the Bill. However, in view of his particular remarks about the defectiveness of this amendment, I beg leave to withdraw it at this stage.

Amendment, by leave, withdrawn.

Lord PONSONBY of SHULBREDE moved Amendment No. 13: After Clause 10, insert the following new clause: After Clause 10, insert the following new clause:

"Consultative Machinery 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 provisions to ensure that—

(1) Except'so far as it is satisfied that adequate machinery exists for achieving the purposes of this section, it shall be the duty of the successor company to consult any relevant trade union with a view to the conclusion between the successor company and any such trade union of such agreements as appear to the parties to be desirable with respect to the establishment and maintenance of machinery for the purposes specified in subsection (2) below.

(2) The purposes referred to in subsection (1) above are:—

1. (a) the settlement by negotiation of terms and conditions of employment of persons employed by the successor company and its wholly owned subsidiaries.
2. (b) the resolution of trade disputes, within the meaning of the Trade Union and Labour Relations Act 1974.
3. (c) the promotion and encouragement of measures affecting efficiency, in any respect, in the carrying out of their activities by the successor company and its wholly owned subsidiaries.
4. (d) the discussion of other matters of mutual interest to the parties to the agreement.

(3) Nothing in this section shall be construed as prohibiting the successor company or any subsidiary from taking part, together with other employers or organisations of employers in the establishment and maintenance of machinery for any of the purposes set out in subsection (2) above ".

The noble Lord said: This amendment was to have been moved by the noble Lord, Lord McCarthy, but unfortunately he is unable to be present today. This clause attempts to establish that the sort of workable industrial relations machinery which the new company might have should be enshrined in the Bill. During its two years of existence, British Aerospace has built up a very effective system of consultative machinery which seems to be working satisfactorily at the present time. To have a clause such as this in the Bill would reassure the present workforce of British Aerospace and I hope that the Government will be able to see their way to include a clause like this in the Bill. I beg to move.

Lord TREFGARNE

The duty which this clause seeks to impose upon the successor company through its articles of association is a standard one imposed upon public corporations. It is one by which British Aerospace is bound by virtue of Section 6 of the Aircraft and Shipbuilding Industries Act 1977. I understand why the noble Lord has moved this amendment, but I believe that when I have described its effect he will see that it is a limited provision which will achieve little or nothing. Provisions in the articles imposed by the clause would require the successor company to consult relevant trade unions (which are not defined, incidentally) as to the establishment and maintenance of machinery for settling terms and conditions of employment, resolving trade disputes, promoting and encouraging measures affecting efficiency and discussing other matters of mutual interest to the parties concerned. It appears that the words"relevant trade unions"are intended to denote those recognised by the successor company for collective bargaining purposes. But the new clause would require consultation only where the successor company was not satisfied that adequate machinery already existed. There would therefore be no compulsion to start from scratch and the successor company would have complete discretion to decide whether or not adequate machinery already existed.

Under its own statutory duty, British Aerospace has for the most part continued to operate the procedures that existed in the companies before nationalisation. Since the corporation has evidently been satisfied with these arrangements there have been no moves towards, for example, major rationalisation of negotiating machinery. The effect of the duty, therefore, can be said to have been very limited indeed.

We believe it is essential that British Aerospace Limited should behave and be treated as a normal private sector company. Therefore, it will have the same responsibilities in relation to consultation and other industrial relations matters as any private sector company. The Government are very much in favour of genuine participation and consultation in industry, and I have no doubt that the successor company will wish to continue and to build on the arrangements that exist in British Aerospace. But to impose upon it a duty in this area by statute and particularly one normally imposed upon public corporations, as this clause would do, would be wholly inappropriate. For that reason and because, as I have explained, the clause would achieve very little, I hope the noble Lord will not press it.

Lord PONSONBY of SHULBREDE

The reply which the noble Lord has given is not unexpected and, in view of the late hour, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.39 p.m.

Lord WYNNE-JONES moved Amendment No.14: After Clause 10, insert the following new clause:

"Corporate Plan

(" 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 provisions to ensure that it shall be the duty of the successor company, after consulting with any relevant trade union, to formulate in each year a corporate plan relating to the conduct of the operations of the successor company and its subsidiaries and dealing with the following matters, namely:—

1. (a) capital investment
2. (b) research and development
3. (c) employment of persons
4. (d) forecasts of income and expenditure on profit and loss account and of payments and receipts of the successor company and its wholly owned subsidiaries
5. (e) such other matters as the successor company considers appropriate, and
6. (f) such other matters as the Secretary of State may for the purposes of this section specify in writing to the successor company.").

The noble Lord said: This amendment proposes the introduction of a clause requiring a corporate plan every year from the company. The purpose of a corporate plan is to obtain from the company an estimate of its capital requirements, as stated here; its research and development work; the employment of persons; forecasts of income and expenditure on profit and loss account; such other matters as the successor company considers appropriate and such other matters as the Secretary of State may, for the purposes of the section, specify in writing to the successor company.

The aerospace industry is one of the largest and most successful industries in the country. It has a very considerable sale of aircraft and components abroad, and it is an industry which is in the very forefront of technological development. If ever there was a case when one could talk about white hot technology, this is it. The aerospace industry has been a focus of white hot technology, and very successful too, and has done a great deal for this country. But what is abundantly clear with an industry of this type, engaged in the very forefront of technology, is that unless large sums of money are spent upon research and development the future is bleak.

This particular industry, of which I think we must all in this country be proud has produced notable achievements, but let us notice that those achievements have only been won at a very high price. If one goes back to the time when we had introduced the first jet airliner, the Comet, we had great trouble with the Comet. Several Comets blew up in the air. Why? Because there were certain weaknesses in the structure which were not known in advance. It was not until a very elaborate testing procedure was introduced, which was the tank that was brought in at the Royal Aircraft Establishment, that they were able to find out why these Comets has been destroyed in the air. This was fundamental research of an extremely important type, and very expensive.

People talk about the high price of Concorde. I remember several years back, ten years or so, going to the Royal Aircraft Establishment and to Filton in order to see what was happening in the development and building of Concorde. What became abundantly clear was the great amount of money that has to be spent upon basic research work—not research work just to build one aeroplane, but research work in order to find out whether supersonic flight could be used for carrying passengers. It was the solution of these immensely difficult problems which cost the very large sum of money which amounted to the fantastic price of Concorde. You may say Concorde is not a financial success, but we do not yet know whether the money spent on the development of Concorde will not in the future reap considerable rewards. We cannot say. But what we can be sure of is that all development of aircraft, all these aerospace developments that we talk about, will only be achieved if there are large sums of money available for research and development.

When the research and development is required for military aircraft the problem is not so grave, because there are plenty of resources made available, from the Defence Ministry and in other ways, in order to develop military aircraft. But when it comes to civil aircraft then these resources have to be devoted by the company concerned. One of the difficulties is to he sure that the money is available. Your Lordships will recollect that some years ago there was the problem with regard to Rolls-Royce, not because Rolls-Royce were doing something badly but because in order to build their new engines they had to commit so much in the way of research and development; they were unable to find the resources, and the Government had to step in and help.

What we are suggesting in this amendment is that a corporate plan should be published every year which states all this, makes it clear what the company requires in order to do the job, which, whether it is a national company or a private company, will remain the job it has got to do; that is, to develop new means of conquering aerospace. This is why we believe that it is vital that a corporate plan should be published every year, in order that we should know exactly what the company is aiming at and know what sort of resources may have to be made available. I beg to move.

Lord MORRIS

I believe this to be another mischievous amendment. It clearly shows that the noble Lord has lost temporarily the idea of what the functions of a memorandum of association and articles of association are. The memorandum is there solely to state the name, the registered office and the broad strategy of the company. The articles of association are the rules which state the way in which the company is being operated. It is not the function of any company to entrench in articles of association any corporate plan, or even to say that the directors of a company should do so year-in, year-out. This must be considered on the exigencies of even the day-to-day decisions of the directors, and it is certainly not the function of the articles of association to be used in this way.

Lord TREFGARNE

As the noble Lord, Lord Wynne-Jones, said, this new clause would provide that the articles of association of the successor company should include a provision requiring the company to formulate a corporate plan after consulting its trade unions. It would, therefore, in effect impose upon the successor company a duty comparable to the one to which British Aerospace is subject as a nationalised industry under Section 7 of the Aircraft and Shipbuilding Industries Act 1977. This approach is fundamentally opposed to the Government's policy, which is to vest British Aerospace's business in a company like any other, subject only to commercial disciplines and free of Government interference. Indeed, the noble Lords who put down this clause have perhaps tacitly recognised that it is incompatible with the basic philosophy underlying the Bill, for although the new clause is based upon Section 7 of the Aircraft and Shipbuilding Industries Act, it does not include any requirement, as that Act does, to act upon lines settled by the Secretary of State.

Of course, British Aerospace Limited will, like any other major company, plan its corporate strategy, and it could hardly produce a corporate plan which did not deal with the items specified in paragraphs (a) to (d) of the new clause. Equally, I have no doubt that the successor company will wish to build on the arrangements which already exist within British Aerospace for consultation with the trade unions. But these will be matters for the company itself. No private sector company is subject to special statutory requirements or ministerial directions in these areas. They are governed by their articles of association which are subject to amendment by a three-quarters majority of their shareholders. We believe it would be quite wrong for British Aerospace Limited to be different and to be subject to duties which, while enshrined in the articles of association, were put there because of a statutory requirement, and, if noble Lords opposite had their way, could only be amended by a decision of Parliament. I hope your Lordships will not accept this amendment.

Lord WYNNE-JONES

I am sorry that the noble Lord is not prepared to accept the amendment. I realise, of course, that if the Government consider that this is at variance with the purpose of the Bill, then the noble Lord has the ability to carry that point of view. I am sorry about that because I think that the Government may regret that they do not have such a clause in the Bill. Nevertheless, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.51 p.m.

Lord PONSONBY of SHULBREDE: moved Amendment No. 15: After Clause 10, insert the following new clause:

Foreign Investment Limit

. (1) The Secretary of State shall by order made by statutory instrument fix a limit for investment by non-United Kingdom residents (the foreign investment limit) in the successor company.

(2) Any issue or transfer of shares which would cause the foreign investment limit to be exceeded shall be void and any moneys paid pursuant to such issue or transfer shall be recoverable as an ordinary debt.

(3) The foreign investment limit shall be expressed as a proportion of the voting rights exercisable at general meetings.

(4) The powers under paragraph (1) above shall not be esercised so as to fix the limit above 15 per cent.

(5) In this section"investment"means the legal ownership or ownership through nominees.".

The noble Lord said: The purpose of this new clause is self-evident. It seeks to protect the corporation against a major foreign stake or influence in the company. The Government have accepted the principle of this amendment and, indeed, have placed draft articles in the Library showing how it is proposed to deal with the problem of foreign shareholding. I think that the noble Lord, Lord Trefgarne, cannot in fact use the argument, which he put forward as regards some of the previous amendments, that British Aerospace should operate on all fours with other public companies, because here the Government have accepted that it will not operate on all fours with other public companies in that it will have in its articles of association Article 40 which deals with the problem of foreign shareholding. Therefore, this amendment should be looked at by the noble Lord in a different way from the way he looked at other amendments which have been tabled.

I hope that the noble Lord, Lord Morris, who spoke to the two earlier amendments, will also realise that this amendment is different from those earlier amendments in that the Government have agreed that in fact the question of foreign ownership must be protected in the articles. In view of that, I hope that the Government will give very serious consideration to including a new clause, like this, in the Bill.

I have not had much success with the noble Lord, Lord Trefgarne, this evening, but I should hope that he might find some merit in including this clause in the Bill. I certainly believe that it would be much more satisfactory from Parliament's point of view if this limitation on foreign ownership was clearly stated in the Bill.

Our misgivings in this matter stem from two concerns. First, we know that the Government are anxious to raise money by selling off national assets—a course of action with which we, as the noble Lord knows, do not agree. But, there must indeed be a temptation to sell off assets to the highest bidder. British Aerospace is a successful undertaking and its knowledge and expertise could be much in demand by a foreign bidder who could well be prepared to pay a premium for a stake.

Secondly, we know how the De Beers Corporation recently, unbeknown to the most inquisitive and investigative journalists, was able to gain a measure of control of Consolidated Goldfields. That makes one concerned that every effort should be made to ensure that the Government's wish, that this company remains under United Kingdom control, is one which is made absolute. Therefore, I think that it would be advisable if we could enshrine within the Bill a clause stating a maximum or ceiling limit for foreign ownership. The Government should give very serious consideration to that matter. I beg to move.

Lord CULLEN of ASHBOURNE

We have consistently made clear that the Government are determined that British Aerospace Limited should not fall into foreign hands. In that matter, we are absolutely in accord with noble Lords opposite. That was made clear by my right honourable friend the Secretary of State in his initial statement in the other place on 23rd July and on Second Reading on 20th November; it was frequently reiterated during the debates on the Bill in the other place, and we reaffirmed it on Second Reading here. I again formally set on record our determination to prevent the company, that will be so important to our defence, from falling into foreign control. It is a determination which I know the Opposition shares. What divides us is merely the means of achieving a common end.

The means we wish to adopt rely on three mechanisms. First, a provision in the articles of association of the new company restricting foreign ownership to not more than 15 per cent. of the voting rights in the company; in substance this is what is proposed in the new clause, though the article is immensely more complicated. Secondly, we have made clear that we shall retain a shareholding of over 25 per cent. and we shall not hesitate to use the voting rights attached to the Government's shares either to stop any attempt to remove or weaken this article, or to oppose the election of directors representing foreign interests. Thirdly, we should be prepared if necessary to use Part II of the Industry Act 1975 to stop a change of control of this key British manufacturing enterprise. We believe that these triple mechanisms provide a full and effective means of enabling us to stop foreign control.

Of these three mechanisms, the most important is the restriction in the company's articles of association. In January, a copy of the first draft article was lodged in the Library: a second draft, incorporating one or two suggestions made by the Opposition in the other place, was placed in the Library on 6th February. It has been drafted with great care to ensure that the objective of this new clause—that no more than 15 per cent. of the shares should be foreign-held—is achieved.

We believe that a relatively simple legislative provision of the sort envisaged in the new clause would be ineffective on its own because there would be no guarantee that all the detailed provisions concerning enforcement, the definition of ownership through nominees, and so on, would be included in the articles.

I recognise that the noble Lord has made some attempt to deal with these points in his new clause, but the draft article (whose purpose is the same) runs to several pages. On the other hand, I believe that it would be wrong to include the full article in the Bill. This would run counter to the principle that the company will be like any other private sector company, free from Government interference and governed by articles of association determined by its shareholders. If the article was laid down by the Bill it would presumably be subject to amendment by Parliament, either by statutory instrument or by new primary legislation. This would be a stark case of the rights of shareholders being subject to specific parliamentary (and indirectly Government) control over the company of the sort we are most anxious to avoid. So I hope that the noble Lord will accept that the arrangements we propose to prevent foreign control really are effective, and that he will withdraw the new clause.

Lord PONSONBY of SHULBREDE

I thank the noble Lord for his explanation and I shall read his detailed reply with interest in Hansard tomorrow. Let me say straight away that my advisers have looked at the new Article 40 placed in the Library. I am advised that it is a very satisfactory attempt at trying to ensure that, in fact, foreign ownership does not creep up above 15 per cent.

Indeed, I agree with the noble Lord that that is a complicated article and competently defines the nature of a foreign company. However, I am not altogether convinced that, in fact, this is as far as we should go. Whether it might be appropriate to have some form of mechanism in the Bill, as we have for the total Government shareholding, as regards the foreign ownership aspect of shareholding is something I should want to consider. Therefore, I beg leave to withdraw this amendment, but could well return to it at the Report stage.

Amendment, by leave, withdrawn.

9 p.m.

Lord PONSONBY of SHULBREDE moved Amendment No. 16: After Clause 10, insert the following new clause:

"Complaints about charges of successor company

—(1) If at any time a complaint is made to the Secretary of State by any body appearing to be representative of persons engaged in the aerospace industry as to the prices charged by the successor company for its goods, the Secretary of State may make directions to the company with regard to the charges made or the subject of the complaint.

(2) The Secretary of State shall not give a direction under this section with regard to any such charges as are mentioned in subsection (1) of this section unless it appears to him that the charges in question are excessive, having regard to the full cost of absorbing the source or sources in respect of which they are made.

(3) It appears to the Secretary of State that a body making a complaint under subsection (1) of this section has a reasonable case to make in support of the complaint, he shall refer the complaint for investigation to a person appearing to him to have suitable qualifications for that responsibility, and shall consider the report of that person before giving a direction upon the complaint under this section.

(4) The procedure on any complaint under this section (including any referral of the complaint for investigation) shall be such as the Secretary of State may determine ''.

The noble Lord said: The Committee stage has perhaps gone a trifle longer than some of us anticipated at one point earlier in the afternoon. Therefore, I shall move this particular clause very quickly indeed. This clause is to provide for investigation of the charges of the successor company so that what it charges can be monitored in the same way as other corporations are monitored. I beg to move.

Lord TREFGARNE

I shall do my best to reply as quickly as the noble Lord has moved the amendment. To be perfectly honest, when I read this amendment I thought that it probably qualified for the silly-amendment-of-the-week prize, and I hope that your Lordships will agree with me when I have quickly said a few words.

The Government have made it clear that the successor company should be like any other company. That means that it should be subject to all the general laws of the land and should have no special privileges. But it also means that it should not be subject to controls or interference to which the generality of companies are not subject. No mechanisms for controlling the prices of an individual company such as those proposed in this clause exist in legislation of general application, and so the successor company would be treated differently from other companies. I think that I have said enough this evening to indicate that that procedure is not acceptable to us, and I hope that the noble Lord will now accept our point of view on that matter and not press his amendment.

Lord PONSONBY of SHULBREDE

I thank the noble Lord for his reply and do not intend to press this particular amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9.4 p.m.

Lord PONSONBY of SHULBREDE moved Amendment No. 17: After Clause 10, insert the following new clause:

"Government Funding

.—(1) For the purpose of promoting the design, development or production of civil aircraft, the Secretary of State with the consent of the Treasury may at any time after the appointed date make payments in accordance with this section to the successor company or any of its wholly owned subsidiaries.

(2) No payments may be made under this section unless—

1. (a) the Secretary of State is of opinion that it is in the national interest that payments on the scale and in the way proposed should be made; and
2. (b) it appears to the Secretary of State that, if the payments are not made, it would be inconsistent with the objects of the company imposed by or under section 1(2)(b) of this Act for the company or any of its wholly owned subsidiaries to undertake the design, development or production in question.

(3) Payments under this section may be made on any terms and conditions, and, without prejudice to the generality of this subsection, by way of fees or by any description of investment or lending or by the making of grants.

(4) There shall be defrayed out of moneys provided by Parliament any sums required by the Secretary of State for making payments under this section and any sums received by the Secretary of State in pursuance of the terms and conditions on which payments are made under this section shall be paid into the Consolidated Fund.".

The noble Lord said: I am afraid that I cannot be quite so speedy about Amendment No. 17. This amendment deals with the question of Government funding. The sort of money which the Corporation will require to launch new projects over the next five years will be formidable and it is difficult to see it coming from private sources. The Airbus entry fee—and we shall not see the pay off of that for some seven or 10 years—was at least £250 million. The 146 project required a commitment of £250 million. The new company could well face research and development costs of between £500 million and £1,000 million over the next five years. I do not see how the company will be able to obtain that sort of money without a Treasury guarantee.

The Government have an overriding desire to reduce the public sector borrowing requirement, so unless there is some special provision for help, it is difficult to see how we can again have civil aviation aircraft projects in this country. One cannot see sufficient money for research and development under the Industry Act, the Civil Aviation Act 1949 or the Science and Technology Act 1965 being made available. Unless we have a commitment from the Government, we could well be seeing the beginning of the end of British Aerospace. When it is pressed for cuts, inevitably the first cuts will come in its research and development work.

The money needed for this is high-risk money. Private investors in this country do not have a good record of putting up massive amounts of capital for research and development in high-risk projects. One can only look at the situation in the British Aerospace industry prior to nationalisation to understand that that is what did not happen. Indeed, had it not been for nationalisation, the Hawker Siddeley 146 project would not be with us today. It is only because the Government were prepared to back this project that we have it here now. I beg to move this amendment.

Lord TREFGARNE

I do not disagree with the principle that powers of the sort included in this new clause should be available to the Government. However, they will be available in any case, since we shall be able to provide assistance under Section 1 of the Civil Aviation Act 1949 to encourage measures for the designing, development and production of civil aircraft. The new clause would, therefore, add nothing to the powers of the Government, since the successor company will be eligible for assistance under the 1949 Act on the same basis as any other company. In this respect it will differ from British Aerospace which was debarred from receiving Civil Aviation Act money by Section 46 of the Aircraft and Shipbuilding Industries Act 1977. Section 45 was included in the 1977 Act as a substitute for the Civil Aviation Act power, to enable British Aerospace to receive direct funding for civil aircraft projects in certain circumstances. We now intend, in effect, to return to the position which existed before nationalisation. British Aerospace Limited will be in exactly the same position as any other company in respect of eligibility for assistance under the 1949 Act. There is, therefore, no need for a special provision in the Bill.

I must, however, sound a word of warning. British Aerospace has not received any launch aid. With one exception—the £50 million provided in connection with British Aerospace's membership of Airbus Industrie—it has received finance related to civil projects only as part of its overall financing requirements in the form of public dividend capital or loans from the National Loans Fund. The policy has been that the Corporation should make its own decisions on investments in future civil projects on fully commercial grounds, and that financing should normally be on commercial terms. This will continue to be the position with British Aerospace Limited, hut it will be reinforced by the fact that the company will have to raise the funds for its investment programme from commercial markets. I would not wish to rule out the possibility that in future there may be reasons of national interest for wishing to consider the provision of launch support. But this is a matter which would need to he looked at on its merits at the time. It would not be profitable to speculate now upon the possible circumstances. However, British Aerospace Limited will he treated on exactly the same basis as any other private sector company.

Lord PONSONBY of SHULBREDE

May I thank the noble Lord for his reply. which I shall study with interest in Hansard. In the meantime, I beg leave to withdraw this amendment.

Amendment, by leave, withdrawn.

Remaining clauses agreed to.

Schedule I agreed to.

[Amendments Nos. 18 and 19 not moved.]

Remaining schedules agreed to.

House resumed: Bill reported without amendment.