HL Deb 04 June 1981 vol 420 cc1371-410

4.39 p.m.

House again in Committee on Clause 1.

Lord Mishcon moved Amendment No. 4:

Page 2, line 5, at end insert— ("( ) In exercising their powers under sub-section (1) the Board shall retain at least a 51 per cent. holding in any of their subsidiaries").

The noble Lord said: I shall be extremely brief on this amendment, for a reason which will become apparent. But I wonder whether I may be permitted, for the purposes of the record, since we are dealing at this stage with percentages of holdings in subsidiaries, to make clear the point which I was trying to make before, without expecting this to be debated any further? May I say at once, that, of course, I appreciated that, under Section 14 of the Transport Act 1962, if that power was a clear one—and there appears to be some doubt about it, as expressed by the noble Lord the Minister—the British Railways Board had the right to dispose of assets without ministerial consent.

An essential part of the transaction for the hotels sale which was announced in another place yesterday was the acquisition of one-third of the shares in a new private company by the British Railways Board. It was that which required ministerial consent. Apparently, as announced in another place, that ministerial consent, on the information before the Minister, was forthcoming. My noble friend Lord Underhill and I believe that this was a transaction which as a whole had obtained ministerial consent and which could not have taken place as a whole without it. This is what we thought was wrong, having regard to the Bill which is now passing through your Lordships' House.

Having said that—I have, I hope, made my point clear so that there is no misunderstanding—may I turn to the amendment which stands in my name and that of my noble friend Lord Underhill. It is well known that on this matter the Government have one point of view, and the Opposition another, as to whether or not subsidiaries of British Rail should have their assets sold to private parties or whether those subsidiaries should move into private hands. The Government have made the point and it is one which is very easily understood—one can agree or disagree with it but it is a transparently clear principle—that in the main these subsidiaries need private capital. For them to obtain private capital and for them to get away from the limitations of the public sector borrowing requirement and the external financial limit, they must be out of the control of the nationalised British Rail. Control was discussed at some length in another place. One is not quite clear what is meant by it, but there can be no doubt at all that a 51 per cent. retention by British Rail means that British Rail is retaining control of the subsidiary.

In view of the essential difference between the Government and the Opposition, as I see it there is no point in my conducting a long debate. My noble friends and I take the view that it is wrong to dispose of the controlling interest. The Government say that the whole of the policy that they are trying to put forward is completely dismembered if the controlling interest is not part of it. While, therefore, registering very clearly the view of the Opposition in this House, it seems to me to be sensible to move this amendment, as I do now, and then to sit down and await the decision of the Committee, which in the circumstances I believe I am able to forecast.

Lord Donaldson of Kingsbridge

We on these Benches are unable entirely to support the amendment which has just been moved. It seems to us to be based on a doctrinaire view which we do not share. We believe it is absolutely wrong that British Rail should sell its assets for ideological reasons to suit the Government, but we do not believe it is wrong that British Rail should dispose of its assets in order to use the money for something else. We have already expressed our conviction that if they do that under the present arrangements—we shall come to these later—they will probably be unable to use the money for something else. But that is a different point.

Although in general we fully support the Labour Party in their approach, when it comes to asking for a 51 per cent. retention I think we should have to abstain.

Lord Bellwin

May I say at once that I am very grateful to the noble Lord, Lord Mishcon, for the way in which he has very fairly stated the clear difference that exists between us. He is right that we could debate this matter; I assure him that I have copious notes in front of me, and I am sure he has, too.

All I want to say, in the same spirit, is that the Government are strongly opposed to the amendment, which we think would undermine the policy which we have agreed with the British Railways Board. If the amendment were to be accepted, we think that it would make it very difficult to work out any sensible policy which would offer to the subsidiaries a decent future.

I listened carefully to what the noble Lord, Lord Donaldson of Kingsbridge, had to say. Again I think that he put his point very fairly. In the interests of progress, unless noble Lords wish to protract the debate on the amendment I will leave it at that.

On Question, amendment negatived.

Lord Mishcon moved Amendment No. 5:

Page 2, line 5, at end insert— (") ) In exercising their powers under subsection (1) above and notwithstanding anything hereinafter contained, the Board or such other subsidiary shall retain after all such disposals securities controlling not less than 26 per cent. of the voting rights of any such subsidiary.").

The noble Lord said: It is in an entirely different spirit that I move the amendment which is now before the Committee. I hope that the reasonableness which the noble Lord the Minister, with his usual courtesy, ascribed to me in dealing with the previous amendment will commend itself to your Lordships now and therefore make your Lordships think with some amount of concentration about the wisdom and propriety of this amendment.

Only so that we know what the policy is that we are discussing, I wonder whether I may be allowed to quote what the Minister said in another place to Standing Committee E at col. 1029 of Hansard of 17th March, 1981. Your Lordships will be glad to know that I shall quote only one sentence. However, in my view, it is a transparently clear declaration of the policy of the Government. As the right honourable gentleman said", said Mr. Kenneth Clarke. the policy is that the subsidiaries Will be sold to private investors and will become private sector companies passing out of the effective control of British Rail, although British Rail will retain a minority shareholding in them". The Government are there saying very clearly, for reasons which I ventured to repeat to the Committee a moment ago, that the idea is that you remove a controlling interest in the subsidiaries from British Rail in order that private capital may move in and that therefore there will be freedom from the limitations of the PSBR and also the external financial limit. The Government's policy is that a minority interest in the subsidiaries shall be retained by British Rail.

It appears that in effect this policy is being carried out before the passing of this Bill in the transaction that was announced yesterday in another place and to which I wish to give no more publicity than it has already been given in your Lordships' proceedings today; namely, the creation of a new private company, presumably a Companies Act company, in which British Rail are to retain one-third of the shareholding, two-thirds being made available to private investors, that private company to have vested in it three Scottish hotels, including I believe Gleneagles which is, of course, an extremely well-known hotel and one for which many people have learned to have a great affection. Therefore one sees, as I have said, that the policy is the retention of a minority interest. If one is still to have, through British Rail, a minority interest, it must surely be the duty of Parliament to see that it is at least a minority interest which is accompanied by some amount of safeguards in regard to the minority shareholder. One does not want to see a situation where British Rail has to rely, for example, on those sections of the Companies Act which deal with oppression by a majority and finds itself before the court, seeking either a winding-up order or the purchase of its shares from a majority shareholder, and the only sort of shareholding which gives some sort of rights of a very positive kind is one which has a minimum of 26 per cent., thus robbing the other shareholders—if "robbing" is quite the right word—of the power to achieve a 75 per cent. vote at any meeting of the company.

I am perfectly sure that your Lordships are well aware of what a 75 per cent. vote entails under the Companies Act. It confers the ability to pass an extraordinary or a special resolution under company legislation, and the Committee may wish to be reminded of what statutorily—of course one can write other things in addition into the memorandum and articles of association—cannot be done within a company unless a special or extraordinary resolution is passed which, as I have said, commands the 75 per cent. One of them is changing the name of the company; altering the objects as stated in the memorandum is another; altering conditions contained in the memorandum which could have been contained in the articles is another; altering or adding to the articles or any existing special resolutions; reducing capital; declaring that any portion of the unpaid capital should only be capable of being called up in the case of a winding up and other such matters are others. Another is—vitally—the ability to wind up a company and sell off or distribute its assets in a winding up—a matter of great importance, obviously, in the conduct of a company's affairs.

So, if I may say so very briefly, your Lordships are faced with the following propositions—and the more simply and the quicker I put them forward, I imagine the more likely I am to have your Lordships' support.

Baroness Gaitskell

Hear, hear!

Lord Mishcon

I am so glad that I have the acclamation of the noble Baroness, Lady Gaitskell; that means that I am half way home! The first proposition is that it is the Government's own statement of policy that a minority interest is to be retained; the second point is that, if that is so, it must be a minority interest, surely, which does not just have burdens and risks attached to it but has certain minimal rights, although they are not the rights of a controlling shareholder. We have already dealt with that in a short debate.

So it is a matter which I venture to suggest is not contrary to the announced Government policy but is the proper, sensible way in which to deal with this matter in this Bill, safeguarding as we would want to do, the rights of British Rail as a minority shareholder in any subsidiary that is disposed of. In those circumstances, I beg to move this amendment.

Lord Bellwin

The policy of the Government and the Railways Board is that in disposing of their non-rail subsidiaries the board should, if they wish, be able to retain a substantial minority stake in the businesses. This recognises the historic links between the railway and these ancillary activities and would enable the Board to participate in any future growth of profits and to continue to exercise over the businesses the influence appropriate for a major shareholder. In deciding how large a stake to retain, the board will have to take account of the need to relinquish control of the business in order that it may pass into the private sector and may enjoy the full commercial freedoms available there.

The main point that I want to make in relation to this amendment is that it ought to be for the board to decide (taking account of the factors which I have mentioned) how large a shareholding they wish to retain in each case. I do not see why we should attempt to lay down in this Bill some lower limits which will limit their freedom of action regardless of the particular circumstances. I understand the significance of the 26 per cent. which the noble Lord, Lord Mishcon, explained very carefully, but in some cases the board may wish to retain rather more than 26 per cent.

Indeed, the proposals with regard to the three British Transport hotels that we were discussing earlier is a case in point. If the proposals come to fruition British Transport Hotels would hold 33⅓ per cent. of the equity, but in other cases the figure could be more, or it could be rather less. In the property field in particular, in which the board have traditionally sold surplus assets outright, the board might well decide that they did not wish to keep so large a holding in any property company that might be floated or otherwise sold. So it seems to me that this is something which we should leave to the board and the Government are opposed to the amendment for that reason.

There is one other point which I think should be made. If the noble Lord, Lord Mishcon, expects this to be a long-term safeguard of a minimum public stake in these businesses I respectfully suggest that that may be mistaken. The point is that, once in the private sector, these businesses will want to raise investment capital and one of the ways of doing that will be by means of a rights issue. If the businesses are successful it is quite likely that they will wish to arrange such an issue and in that event the board, with the consent of the Secretary of State and if they could afford it, could take up their allotted shares. But if they decided not to do so these amendments would clearly not affect the matter. Their proportion of the total equity of the company would be reduced perhaps below the level stipulated in the amendment. I hope that the noble Lord will feel able not to press this amendment. I understand that this is one of the several basic differences that exist between us, but in the light of what I have said I hope he will not wish to press it.

Viscount Simon

With great respect to the noble Lord, Lord Bellwin, I should not have thought that this was an issue on which there was a great basic difference between the two sides of the Committee. It is a question of a business transaction and what it is wise to do. The noble Lord said that they might wish to have more than 26 per cent. and quoted the case which has been mentioned already, in which they evidently do, but there is nothing to prevent them having more than 26 per cent. I would of course agree that this is a matter for the board of British Rail to decide but it might perhaps be a good idea to protect them from themselves by reminding them that if they get less than 26 per cent. they will find themselves locked in, with no say whatever.

Lord Mottistone

I think it would be reasonable to assume that the people running British Rail are good sensible people who will be fully aware of the points made by the noble Lord, Lord Mishcon, and if they decide that they want to sell a larger share than he is proposing they will surely do so with full cognisance of the implications of it. As it stands, they are given sufficient power to retain control to the degree to which he said. I should have thought that if British Rail is being run by people who are so ignorant and incompetent as the noble Lord and the noble Viscount were almost suggesting, perhaps it is as well that they should have only a minority control because they are not really capable of running anything.

Lord Harris of Greenwich

Rather like the noble Viscount I do not see that there is a substantial ideological issue here and I was mildly surprised to hear the Minister suggest that there was. It seemed to me that the noble Lord, Lord Mishcon, made a reasonable case. He pointed out the relevance of the 26 per cent. proposal in this amendment. With great respect to the noble Lord who has just resumed his seat, I do not think that any of us doubt that there are very large numbers of very capable high-minded people working in British Rail now and no doubt will be in the future. The fact is that it is an illusion to imagine that they are entirely free and independent agents. They are leant on from time to time by Governments of different political persuasions.

If one hears what is said by anyone who has had the responsibility of being chairman of British Rail one knows the degree of interventionism, not only by Ministers but also by civil servants acting on their behalf. Therefore, it is not a question of saving British Rail from itself. It is that the proposal ensures that the taxpayers' interest should be preserved in a highly desirable fashion. Without this amendment I do not think we would have done our duty today. I repeat that I do not see that there is a great ideological gulf on this particular issue. Certainly with my noble friend Lord Donaldson I would not have supported the last amendment, but there does seem to be merit in this one.

Lord Bellwin

All I would like to add, if I may, is that if we are not concerned that this is a matter of major ideological significance—and really I said it was in the same way that I say I believe most of the amendments are in these parts of the Bill, because there are differences of view of where we want to be—I would rest the whole case regarding this amendment, as indeed I do regarding most of the other amendments in this part, on the basic assumption that we do not want to place unnecessary restrictions on the board's freedom of action. The difficulty is to do that in line with wishing to retain the percentage of shareholding, but I do not think the two things are incompatible. There are many examples in the private sector where things go along hand in hand. I would like to rest the case, certainly on this amendment, on that particular point of the freedom to act.

Lord Mishcon

As usual, I find myself in the position that other noble Lords have made my points for me very much better than I would have been able to make them myself. I only want to make one observation on what the noble Lord the Minister said, which I think characterises, if I may say so without disrespect, the nature of his reply. If what we heard from him is to be taken literally, I do not know why ministerial consent is required for the transactions. We heard about it in regard to the hotels. If British Railways Board is so competent to make business decisions, why not leave it to them; why have ministerial supervision? I am not saying anything disrespectful to the British Railways Board, but I so much agree with the wise words of the noble Viscount, Lord Simon, when he said it is a salutary thing to have the provision in the Bill.

The only other observation I want to make is on the rather peculiar point about the rights issue. One would have thought that the Board would consider was it worthwhile to keep on having 26 per cent. and therefore take up the rights issue? I am merely saying that in any sale that takes place they should retain the 26 per cent. What happens in the future in regard to a rights issue will obviously be dealt with at the time. But at least they will have a 26 per cent. vote in regard to any decision made on a rights issue. I think I ought to leave it at that. We do not regard this as a doctrinaire difference at all between ourselves and the Government. We merely say that this is a sensible provision to have, taken for granted that the Government policy is what is it. In those circumstances, I hope the Committee will now divide with objectivity.

5.5 p.m.

On Question, Whether the said amendment (No. 5) shall be agreed to?

Their Lordships divided: Contents, 66; Not-Contents, 112.

CONTENTS
Ampthill, L. Llewelyn-Davies of Hastoe, B.
Beaumont of Whitley, L. Lovell-Davis, L.
Bernstein, L. McCarthy, L.
Beswick, L. Milford, L.
Bishopston, L. Mishcon, L.
Blyton, L. Ogmore, L.
Boston of Faversham, L. Parry, L.
Briginshaw, L. Peart, L.
Brockway, L. Perry of Walton, L.
Brooks of Tremorfa, L. Phillips, B.
Bruce of Donington, L. Ponsonby of Shulbrede, L. [Teller.]
Collison, L.
Cooper of Stockton Heath, L. Rochester, L.
David, B. [Teller.] Ross of Marnock, L.
Donaldson of Kingsbridge, L. Rugby, L.
Elwyn-Jones, L. Sainsbury, L.
Ewart-Biggs, B. Seear, B.
Gaitskell, B. Sefton of Garston, L.
Galpern, L. Shinwell, L.
Gladwyn, L. Simon, V.
Gosford, E. Stewart of Alvechurch, B.
Hale, L. Stewart of Fulham, L.
Hampton, L. Stone, L.
Hanworth, V. Strabolgi, L.
Harris of Greenwich, L. Strauss, L.
Irving of Dartford, L. Taylor of Blackburn, L.
Janner, L. Taylor of Mansfield, L.
Jeger, B. Underhill, L.
Jenkins of Putney, L. Wallace of Coslany, L.
Kaldor, L. Wells-Pestell, L.
Kilmarnock, L. White, B.
Kirkhill, L. Wilson of Langside, L.
Leatherland, L. Wootton of Abinger, B.
Listowel, E.
NOT-CONTENTS
Ailesbury, M. Hylton-Foster, B.
Airey of Abingdon, B. Ilchester, E.
Alport, L. Kemsley, V.
Armstrong, L. Killearn, L.
Atholl, D. Kilmany, L.
Auckland, L. Lauderdale, E.
Avon, E. Long, V.
Bellwin, L. Loudoun, C.
Belstead, L. Lucas of Chilworth, L.
Berkeley, B. Lyell, L.
Bessborough, E. Macleod of Borve, B.
Boyd of Merton, V. Mancroft, L.
Bridgeman, V. Mansfield, E.
Caccia, L. Massereene and Ferrard, V.
Campbell of Croy, L. Melville, V.
Carrington, L. Middleton, L.
Cockfield, L. Monk Bretton, L.
Colwyn, L. Montagu of Beaulieu, L.
Cork and Orrery, E. Montgomery of Alamein, V.
Cottesloe, L. Mottistone, L.
Cranbrook, E. Mowbray and Stourton, L.
Crawshaw, L. Murton of Lindisfarne, L.
Cross, V. Northchurch, B.
Cullen of Ashbourne, L. Nugent of Guildford, L.
Daventry, V. Orr-Ewing, L.
Davidson, V. Portland, D.
de Clifford, L. Rawlinson of Ewell, L.
Denham, L. [Teller.] Renton, L.
Dilhorne, V. Robbins, L.
Drumalbyn, L. Rochdale, V.
Dundee, E. Romney, E.
Dundonald, E. St. Aldwyn, E.
Eccles, V. St. Davids, V.
Ellenborough, L. Sandford, L.
Elliot of Harwood, B. Sandys, L. [Teller.]
Elphinstone, L. Savile, L.
Exeter, M. Seebohm, L.
Faithfull, B. Sharples, B.
Falkland, V. Skelmesrdale, L.
Ferrers, E. Sligo, M.
Ferrier, L. Spens, L.
Fortescue, E. Stamp, L.
Fraser of Kilmorack, L. Strathcarron, L.
Gainford, L. Strathclyde, L.
Gisborough, L. Sudeley, L.
Glenkinglas, L. Swansea, L.
Gowrie, E. Swinfen, L.
Gridley, L. Terrington, L.
Grimston of Westbury, L. Trefgarne, L.
Hailsham of Saint Marylebone, L. Trumpington, B.
Vaux of Harrowden, L.
Hawke, L. Vickers, B.
Henley, L. Vivian, L.
Holderness, L. Wakefield of Kendal, L.
Home of the Hirsel, L. Westbury, L.
Howe, E. Young, B.
Hunt of Fawley, L.

Resolved in the negative, and amendment disagreed to accordingly.

5.13 p.m.

Lord Underhill moved Amendment No. 6.

Page 2, line 5, at end insert— ("( ) When in accordance with the provisions of this Act, British Rail disposes of more than 50 per cent., of the shares in any of their subsidiaries, British Rail shall not be held to be in control of that subsidiary for the purpose of public sector control of the British Railways Board external financing limit").

The noble Lord said: I beg to move Amendment No. 6. This amendment takes in some of the points that were made during consideration of the last amendment in so far as we are dealing now with the question of the external financing limit of the British Railways Board. The principle of the EFL has been argued in relation to proposals in other Government Bills when there has been a great deal of sympathetic support for the principle contained in this amendment not only from the Labour Benches, but from all parts of your Lordships Committee. It has been argued by Ministers that even when more than 50 per cent. interest in a subsidiary is disposed of it will not necessarily mean that British Rail is still not in control. It has been stated that in such circumstances the subsidiary would still come within the external financing limit.

We must keep in mind the statement made by Mr. Kenneth Clarke, the Parliamentary Secretary for Transport, in Standing Committee in the other place on 10th February when, at col. 174, he said: Receipts from sales merely assist the British Railways to live within its EFL. In future years, as in any past year, in negotiating an EFL some consideration is bound to be given to the likely capital receipts by the board". Therefore, we have the position that, where less than 50 per cent. is disposed of, those sales will affect the level of the external financing limit for the next year; so British Railways will not get the full benefit of the sale. But also, in the event of more than 51 per cent. being sold, it may be decided that the circumstances are such that British Rail is held to be still in effective control, and so again British Rail will not get the full benefit of the sale.

The purpose of the amendment is very clear. What we are asking is that when more than a 50 per cent. interest is disposed of, it will be held that British Rail is not still in control, so that the external financing limit will not come into consideration. This is a principle which so many noble Lords have expressed that I hope that the Government will find their way clear to accept the amendment. I beg to move.

Lord Mishcon

I should just like to say that we are in entire agreement with the amendment.

Lord Bellwin

This issue was discussed extensively in another place. The Government explained then at some length why it is necessary for the Railways Board to relinquish effective control over its subsidiaries if these businesses are to enjoy the full freedoms of the private sector and if their borrowing and investment are no longer to count against the Railways Board's external financing limit and investment ceiling. I have already touched on this issue in the discussions on previous amendments, but I shall try to explain the position a little more fully now.

The objective of this whole exercise is to transfer these businesses to the private sector where they can be free of existing constraints. There are two stages in this process. Once the board no longer hold the majority of the shares in a business and can no longer control the composition of its board of directors, the company will cease to be a subsidiary within the meaning of the Transport Acts and the statutory controls in those Acts will no longer apply to it. However, even where the board hold a minority of the shares, it is possible in some circumstances—depending on the distribution of the other shareholdings and the trading relationship, if any, between the board and the company—that the board would still be able to exercise de facto control over the company. In that case, the company would still be classified to the public sector and its borrowing and investment would still score against the board's EFL and investment ceiling. Also, of course, its borrowing would continue to count against the PSBR. The question of whether the board would still be exercising effective control of a company, would have to be determined on the facts of the particular case and it is not, perhaps, very profitable to try to discuss it in the abstract.

The purpose of this amendment is to shortcircuit this process by statutory means: to provide that once the board cease to hold a majority of the shares in a business, they shall no longer be held to control it, no matter what the reality of the situation is. I respectfully submit that this will not do: it is based on a fundamental misconception of the nature and purpose of the PSBR and of the controls over nationalised industry borrowing. The point is that Government or Parliament cannot merely decide what shall and shall not be held to count against the PSBR. The PSBR is a practical, factual definition, and the real world cannot just be altered by a wave of the legislative wand.

Once you start debasing the definition of the PSBR—of which external financing limits are part—then the PSBR figure will become meaningless and irrelevant. The financial markets will start to look beyond it to the real facts of the matter; they will start taking their own views of who is effectively borrowing with the backing of the Government's credit, as of course the nationalised industries effectively do. And however hard the Government try to pretend that the PSBR is defined in one way, the markets will see the truth of the matter as markets always will. You cannot alter interest rates or inflation or any other economic facts, just by juggling with words. But I am afraid that an attempt to alter the real facts is what the amendment represents.

I hope that the Committee will therefore see why we cannot accept the amendment. I submit that this is not a party political point at all. External financing limits were introduced by the last Government, and the rules on what counts against EFLs and against the PSBR are common both to the last Administration and to this one. The fact is that in order for these businesses to escape public sector constraints the board must relinquish effective control. The board accept this. In the Bill we cannot try to avoid the reality of the situation.

5.20 p.m.

Viscount Simon

I cannot quite follow what the noble Lord, Lord Bellwin, is saying. If the board has disposed of more than 50 per cent. of the shareholding, why should it be argued that it has not abandoned effective control? Why should it be thought that it has effective control if it has disposed of more than 50 per cent. of the shareholding? I thought that the noble Lord threw something like a red herring across the trail by referring to outside bodies which are making advances to a company with a Government guarantee. But once British Rail has disposed of more than 50 per cent. of its shareholding, that subsidiary will not have a guarantee any more. Therefore, why should it be part of the public sector?

I thought that the whole object of the exercise was to make it part of the private sector. There may be some very unusual arrangement by which, if British Rail holds less than 50 per cent. of the shares, it retains control. It would be quite easy, would it not, if there is a loophole there, to stop up that loophole? I should have thought that once the shareholding had fallen below 50 per cent. the natural assumption would be that the British Rail Board no longer had control.

Lord Bellwin

I tried to explain this on an earlier amendment when we spoke about the 51 per cent. We have been at some pains to emphasise the fact that a shareholding of 51 per cent. has significance, but we have said again and again that as a Government we do not want to interfere with the day-to-day management and control of business, least of all this business. I think that this will arise again in the next few amendments. As the noble Viscount knows, to hold a majority of the shareholding does not by any means necessarily affect day-to-day control. Indeed, if the other shareholdings are widely spread, a dominant shareholder can, in effect, control a company even though he has a minority shaerholding. It depends on the facts in each particular case. That is almost standard practice.

I am anxious to argue this case against the amendment on the ground of principle rather than of legal technicalities, because I think that the amendment centres on the question of control and whether, once the board has sold a majority of its shares, its borrowing should continue to count against its EFL and hence against the PSBR. The reason I gave the instances that I quoted earlier was to try to illustrate the kind of situations that could arise. However, once again it seems that we are not of one mind on this.

Lord Mottistone

I am really a complete ignoramus on these matters. On many occasions I do not agree with or even understand what my noble friend on the Front Bench (not this one) says. However, in this case the argument that he advances seems so very clear and understandable that I do not know what the amendment is all about. Why bother with it? May I suggest that we move on as quickly as we can and forget this one?

Lord Underhill

That would be very nice for the noble Lord, Lord Mottistone, but the noble Lord, Lord Bellwin, has said that we are juggling with words. He used the word "dominate". The word "dominate" has a different meaning from the word "control", and we are talking about relinquishing control, not about relinquishing domination. We are talking about a company in which British Rail will have less than half the shares, and even though all the others will be made up in small portions, British Rail will still be the majority shareholder.

Lord Bellwin

I shall be very interested to read in Hansard tomorrow whether I did, in fact, use the word "dominate". I do not recall having done so, but I am open to correction.

Lord Underhill

I think the noble Lord will find that I am correct. He said that we are juggling with words; but we are talking about something which is rather artificial. We on this side of the Committee, with support from our noble friends, are trying to assist British Rail, so that when it sells a majority shareholding it has the right to obtain further investment without fear of it coming within the EFL of British Rail. This seems reasonable. As simple as the explanation of the noble Lord, Lord Bellwin, seems to the noble Lord, Lord Mottistone, our attitude seems simple to me and I cannot understand why it cannot be accepted. Because it is so sensible and there is obviously support for it in the Committee, we must insist on the amendment.

5.25 p.m.

On Question, Whether the said amendment (No. 6) shall be agreed to?

Their Lordships divided: Contents, 52; Not-Contents, 108.

CONTENTS
Beaumont of Whitley, L. Lovell-Davis, L.
Bernstein, L. Mishcon, L.
Beswick, L. Ogmore, L.
Bishopston, L. Peart, L.
Blyton, L. Phillips, B.
Boston of Faversham, L. Ponsonby of Shulbrede, L. [Teller.]
Briginshaw, L.
Brockway, L. Rochester, L.
Brooks of Tremorfa, L. Ross of Marnock, L.
Bruce of Donington, L. Seear, B.
Collison, L. Sefton of Garston, L.
Cooper of Stockton Heath, L. Segal, L.
David, B. [Teller.] Shinwell, L.
Donaldson of Kingsbridge, L. Simon, V.
Elwyn-Jones, L. Stewart of Alvechurch, B.
Gaitskell, B. Stone, L.
Galpern, L. Strabolgi, L.
Gladwyn, L. Strauss, L.
Gosford, E. Taylor of Blackburn, L.
Hale, L. Taylor of Mansfield, L.
Hampton, L. Tordoff, L.
Hanworth, V. Underhill, L.
Jeger, B. Wells-Pestell, L.
Kilmarnock, L. White, B.
Leatherland, L. Wilson of Langside, L.
Llewelyn-Davies of Hastoe, B. Wootton of Abinger, B.
Longford, E.
NOT-CONTENTS
Airey of Abingdon, B. Daventry, V.
Alport, L. Davidson, V.
Ampthill, L. de Clifford, L.
Armstrong, L. Denham, L. [Teller.]
Atholl, D. Dilhorne, V.
Auckland, L. Drumalbyn, L.
Avon, E. Dundee, E.
Bellwin, L. Dundonald, E.
Belstead, L. Eccles, V.
Benson, L. Ellenboriugh, L.
Berkeley, B. Elliot of Harwood, B.
Bessborough, E. Elphinstone, L.
Bridgeman, V. Exeter M.
Caccia, L. Faithfull B.
Campbell of Croy, L. Falkland, V.
Cockfield, L. Ferrers, E.
Colwyn, L. Ferrier, L.
Cork and Orrery, E. Fortescue, E.
Cottesloe, L. Fraser of Kilmorack, L.
Cranbrook, E. Gainford, L.
Crathorne, L. Gisborough, L.
Cross, V. Glenkinglas, L.
Cullen of Ashbourne, L. Gowrie, E.
Gridley, L. Orr-Ewing, L.
Grimston of Westbury, L. Peel, E.
Hailsham of Saint Marylebone, L. Portland, D.
Rawlinson of Ewell, L.
Hawke, L. Renton, L.
Henley, L. Rochdale, V.
Holderness, L. Romney, E.
Home of the Hirsel, L. Rugby, L.
Howe, E. St. Aldwyn, E.
Hunt of Fawley, L. St. Davids, V.
Hylton-Foster, B. Sandford, L.
Ilchester, E. Sandys, L. [Teller.]
Kemsley, V. Savile, L.
Killearn, L. Sharples, B.
Lauderdale, E. Skelmersdale, L.
Long, V. Sligo, M.
Loudoun, C. Spens, L.
Lucas of Chilworth, L. Stamp, L.
Lyell, L. Strathcrron, L.
Mancroft, L. Strathclyde, L.
Mansfield, E. Sudeley, L.
Massereene and Ferrard, V. Swansea, L.
Middleton, L. Swinfen, L.
Monk Bretton, L. Terrington, L.
Montagu of Beaulieu, L. Trefgarne, L.
Montgomery of Alamein, V. Trumpington, B.
Mottistone, L. Vaux of Harrowden, L.
Mowbray and Stourton, L. Vivian, L.
Murton of Lindisfarne, L. Wakefield of Kendal, L.
Newall, L. Westbury, L.
Northchurch, B. Young, B.
Nugent of Guildford, L.

Resolved in the negative, and amendment disagreed to accordingly.

5.34 p.m.

Lord Underhill moved Amendment No. 7: Page 2, line 13, at end insert ("save that the Board may not establish as a subsidiary a company operating a particular railway line or network of railway lines owned by the Board").

The noble Lord said: This amendment seeks to provide that any disposal of assets or of a subsidiary shall be such as it may not be the establishment of any company to operate a particular railway line or network of railway lines. The Transport Act 1962 in Section 3(1) lays down duties upon the British Rail Board to provide railway services in Great Britain. The purpose of the amendment is to ensure that that power continues to remain solely with British Rail.

Noble Lords will have listened to Ministers explaining provisions in the telecommunications Bill for licensing private sector companies to provide services using the Telecom network. They would also have heard Ministers explaining other provisions in the same Bill for granting licences to break the Post Office monopoly in certain areas. The amendment seeks to ensure that there can be no possibility of the creation of a subsidiary for eventual disposal of any part of the rail network, or for any other concern other than British Rail to operate a particular rail service.

Having read debates in the other place, I am sure that the Minister will say that this should not take place and that I am raising needless fears. However, in a later amendment we shall be coming to the question of Clause 3, and subsection (2) of that clause says that it will be a duty of the Railway Board to carry out a direction to dispose of any subsidiary, and continues: (notwithstanding any duty imposed on them by section 3(1) of the Transport Act 1962)". The reference to the Transport Act 1962 refers to the duty of the Railways Board to run a railway service.

Therefore, if a subsequent clause says that the Railways Board must carry out a directive of the Minister notwithstanding that power, it means that that power could be set on one side. If the power can be set on one side there is a 100 per cent. justification for this amendment. What we are endeavouring to do is to ensure in this amendment that what the Government believe will not happen, will not happen. We want to make sure of it by putting it in the Bill because of this reference to the duty of the board to carry out any directive of the Minister, notwithstanding the powers in the 1962 Act.

Lord Bellwin

As the noble Lord, Lord Underhill, anticipated, I say that his fears are unnecessary. I can see why the amendment is put down. They fear that the powers in Clause 1 will open the way for de-nationalisation of parts of the railway itself The amendment attempts to prevent that happening by debarring the board from establishing a subsidiary company to operate part of the rail network. The logic is apparently that since the board's disposal powers in this clause apply only to subsidiaries, that will block the use of these powers in relation to the railway.

I do not think—I say it again—that the fears are in any way justified. It is no part of my or my colleagues' policy to dispose of parts of the railway network and nor have the board the slightest intention of pursuing such an unrealistic course. That the railway network should remain in the public sector is surely something that we are all agreed on. I do not see how I could be much more categorical than that. We had at first thought of making it plain that the railway network would be excluded from the application of the powers in Clause 1. But we did not follow that course because we felt it was unnecessary. The board could not on their own initiative use the powers in Clause 1 to dispose of part of the railway network. The board have a duty under Section 3(1) of the Transport Act 1962 to provide railway services and these disposal powers do not override that duty. If the board chose to sell part of the network as a going concern they would be in clear breach of that duty. If the board wish to cease to provide a passenger rail service they are required to go through the statutory closure procedures. So Clause 1 does not enable the board to sell off parts of the rail network and that is why I say that this amendment is therefore unnecessary.

I could also point out that the amendment is not within the spirit of Part I of this Bill, the main purpose of which is to give the hoard new powers. This amendment would actually prohibit the board from doing something which they can already do; namely, to form subsidiaries to carry on part of their undertaking. In view of the noble Lords' strictures on the Government for allegedly interfering with the board's freedom to run its business as it thinks best, I would respectfully suggest that that is a rather curious position for the noble Lord to get into.

To sum up, I understand the fears of the noble Lord, Lord Underhill, but I hope he will be satisfied when I tell him that I think they are misplaced. That is why the amendment is not necessary, and it would in any case take away powers the board already have. I hope that in the light of that explanation he will not press the amendment.

Lord Underhill

I am delighted to have received those categorical assurances from the Minister, but in my political life it has always been emphasised to me that it is not what Ministers say in their speeches but what is contained in the Bill that matters. After all, what one Secretary of State may feel inclined to do, another may have different views about. I therefore urge the Minister to re-read in the Official Report what he has said and study carefully the reference in Clause 3(2): notwithstanding any duty imposed on them by section 3(1) of the Transport Act 1962". I am not a lawyer, but those words seem definite and appear to indicate that things could be done notwithstanding the power placed in the board. I hope the Minister will examine the matter to see if an amendment needs to be made, but, in view of the assurances he has given, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 8 not moved.]

5.42 p.m.

Lord Underhill moved Amendment No. 9:

Page 2, line 26, at end insert— ("(6) In this section the term "subsidiary" shall not apply to Sealink UK Ltd.").

The noble Lord said: This is the first of a series of amendments dealing with particular subsidiaries. We feel it important to deal with these subsidiaries because they are important units of British Rail and the country in general. The Government have argued that the four subsidiaries to be involved initially in relation to Clause 1 will have no relation to British Rail activities, and I am questioning whether that applies to Sealink.

Sealink has a number of subsidiaries. It operates 48 ships and 11 harbours, and the involvement of the railways in shipping goes back about a century, and the link-up of the railways with shipping services and harbours has over the years been a very useful development. We on this side therefore question why that should not be allowed to continue. Our view on Sealink and several other subsidiaries is reinforced by the fact that repeatedly today the Minister has referred not only to the bringing in of private capital but to the purpose of the Bill being to dispose of items.

Over the years, Sealink has been a profitable subsidiary; we are not dealing with a loss-making body. In 1980 there was an operating surplus of £6.5 million. I appreciate that one must compare that with almost double that surplus in 1979, but the 1980 result was achieved despite the recession, which in particular affected Sealink in terms of the carriage of freight. On Sealink's shipping side, it provides ferry services on 25 routes—to the Continent, Ireland and some of the islands round our coast—and although handicapped during the year by protracted delays in the delivery of four new ships, nevertheless it was able to achieve the operating surplus in 1980 to which I have referred.

The operation of its 11 harbours produced a surplus of nearly £4 million in 1980, almost the same surplus as was achieved in the previous year. Operating surpluses on the harbours side have increased steadily from 1976. The harbours are mainly small and have close links with rail services, and in a later amendment we shall be dealing with the proposal to separate them from the general Sealink organisation, but that is not the issue here. The link between rail, ferries and harbours should be preserved, and the only reason for breaking it must surely be to open the way for the disposal of all or part of Sealink to the private sector. If that is the intention, and it is not merely the attraction of private capital, then I trust that that will be seriously considered by the Committee.

There are a few questions I hope the Minister will answer. Will the Government oppose any possible proposal to sell off Sealink ferries to any of its existing competitors? There is a danger there of monopoly coming in. What is there to prevent the Secretary of State or a future Secretary of State from directing British Rail to establish a number of separate subsidiaries of Sealink with a view to the disposal of specific ferry services, not necessarily the whole of Sealink? Some of Sealink's services are operated in agreement with continental partners, generally the state rail lines of Belgium, France and Holland. Have those partners expressed a view about possible proposals to split Sealink form British Rail or to sell off specific ferry services with which they may be involved? I understand that the joint companies in which the continental partners share, take in some 21 per cent. of the harbours' revenue. For all those reasons, this seems to be one subsidiary which should be left with British Rail, and that is why in the amendment we are asking that the provisions of Clause 1 should not apply to Sealink.

Lord Bellwin

I am sure the noble Lord, Lord Underhill, will not be surprised to know that the amendment is unacceptable to the Government. It cuts right across our policy, and I therefore assume that this is a probing amendment designed to discover the Government's intentions towards Sealink. Our position is simply that we want Sealink to be transferred to the private sector as soon as possible, for reasons which are well known and which I shall therefore not repeat.

We have open minds on how this should be achieved. The Railways Board are in the lead in implementing this policy and it is for them to put forward proposals. That is the key point. The board have said that they would like to float Sealink on the Stock Exchange. If that proves to be possible within a reasonable period, the Government will be quite content. If, on the other hand, Sealink's financial performance rules are a general flotation, the board will need to examine other solutions. The board clearly recognise this because Sir Peter Parker recently referred to the board's willingness to consider joining forces with a commercially suited private sector partner, perhaps as a preliminary to a flotation of shares.

The noble Lord expressed concern about Sealink's shipping services being a necessary adjunct to the railways, but I suggest that his fears do not stand up. It may have been true many years ago, but it is not the case now. Only about a quarter of Sealink's traffic is now railborne; the great majority consists of cars and lorries. Thus, there is no fundamental operational link which will be broken if Sealink is majority owned by private investors. There are, admittedly, areas in which Sealink will need to continue to work closely with the railways—for instance, in the co-ordination of rail and shipping services, especially container and train ferry services and in the through booking of tickets—but surely those are matters which can be covered by appropriate commercial contracts.

I repeat—I hope this will assuage some of the noble Lord's fears—that the present intention is that Sealink should be kept together as one company. I understand that Sealink's board have had discussions with their continental partners and that there are no objections to the proposed policies. I listened carefully to what the noble Lord said about a possible monopoly, but that, should it occur, would surely be a matter for the Monopolies Commission to decide. I do not think I can say more on the subject. I understand the concern which led the noble Lord to raise the matter, but I hope that he in turn will understand why we feel unable to accept the amendment.

Lord Underhill

I should like to ask the Minister a question before he sits down. He said that the present intention is to keep Sealink in one company. Does that apply only to Sealink shipping, or are all Sealink shipping and harbour interests to be kept together?

Lord Bellwin

I cannot answer that question because I do not know the position. However, I shall be glad to write to the noble Lord, if that would be helpful.

Lord Underhill

Obviously the Government have their view on this matter. We think that it is a wrong view, but we shall not press the amendment to a Division. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5.50 p.m.

Lord Underhill moved Amendment No. 10:

Page 2, line 26, at end insert— ("( ) In this section the term "subsidiary" shall not apply to the British Rail Property Board.").

The noble Lord said: This amendment deals with the question of the British Rail Property Board and here I hope that I can appeal to those noble Lords who have far greater knowledge than I have of businesses. I think that it would be a bad business deal to take away the Property Board from British Rail. It is not a subsidiary that is in dire financial straits. In fact, it is a very healthy going concern. In 1980 there was a net surplus of no less than £34 million on all the operations of the Rail Property Board—22 per cent. above the previous year. Gross income from its lettings of both operational and non-operational property increased by 19 per cent. to £49 million. The property operations all told make a valuable contribution to the British Rail corporate finances. In 1980 £67 million was provided from the operations of the Property Board, and over the past four years no less than £155 million has been contributed to British Rail finances from these property operations.

I do not want to weary the Committee, but in order to show that this is an efficient organisation, which should be kept as it is, I wish to refer to a few items from the British Rail annual report for 1980. According to the report, two developments funded and managed by the Property Board were completed during the last year—one involving a 28,000 square feet development in Bristol, the other involving a 34,000 square feet industrial estate in Glasgow. Most schemes of the board have been progressed in partnership with private developers—I emphasise the involvement of private developers—and 2¾ million square feet of industrial, commercial and retail accommodation were completed on land owned by the board during the year. The developments included a quarter of a million square feet shopping centre in Walsall, a 70,000 square feet cash and carry centre at Gateshead, and a 39,000 square feet industrial estate at Kirkby-in-Ashfield. That was a very interesting and novel development, because it was undertaken jointly by British Rail and Nottinghamshire County Council. Twenty-three other schemes were started, including a major road/rail freight complex in Leeds, a rail-link warehouse in Perth, 10 industrial units in Harrow, and a shopping centre in Liverpool on the site of the old Central Station.

I mention those examples because they all indicate a sound management capability and one well experienced in property operations. I should like to repeat a statement which I quoted on Second Reading. It was a statement by Sir Robert Lawrence, chairman of the Property Board, who on 7th April stated: But it should not be forgotten that once land is sold its income or its potential income is lost to the railways forever. We have sold property which in a different climate we might have retained for its growth potential". Surely it is common sense to leave this potential with British Rail, to give it the opportunity itself to derive all the surplus from any additional value that might be created in land and other property in years to come.

The Government apparently see the issue differently, for Mr. Kenneth Clarke said on 10th February that if the present policy of selling land for development continued, the proceeds would go through the chain of companies to the British Rail Board. He went on to argue that the sale of a majority controlling interest would result in a flow of funds to the Rail Board and a substantial stake which the board would retain in the subsidiary would ensure proceeds of development flowing back to British Rail. Nobody has mentioned anything about the substantial stake; it could be only 25 or 20 per cent., or even lower. The attitude reflected by Mr. Kenneth Clarke ignores two aspects. First, Ministers of State have stated that the receipts from the capital sale will affect the board's future external financing limit. Secondly, it would surely be more sensible to retain the entire property portfolio with British Rail, and continue the very successful policy which the Property Board (by the examples that I have given) has been carrying on. Surely this is one of the subsidiaries which it would be really foolish, not from a political point of view, but from a business point of view, to take away from British Rail. I beg to move.

Lord Bellwin

First, I should like to concentrate on the figures that the noble Lord mentioned and which seemed to form the basis of his argument for the amendment. I think I should state the following facts. There are two points to make on the matter of the figures. The first is that the great bulk of the board's net rental income from property is derived from operational property, which, it should be said at once, is only marginally affected by the present policy. A limited number of buildings classified as "operational" but in fact no longer needed for running the railway are to be included under the new policy. Rental income from operational property was £25.3 million in 1980 (£87.6 million over the last five years); whereas income from non-operational property—I want to stress this—which makes up the great bulk of the portfolio which the Government now wish to get into the private sector, was £8.5 million in that year, and £36 million over the last five years.

The second point to note is that much of the board's property income is in fact from disposals—£32 million in 1980 and £66 million in the last five years. That is income of course, but it is once-off income when a disposal is made. The board has always disposed of surplus property in order to meet its cash needs. There is nothing wrong in that. But in assessing the trading position one must bear in mind the difference, and in the present policy we are concerned with no more than a continuation, albeit on a larger scale, of what has been a trend.

On the previous occasions when the plans for getting private capital into the British Rail subsidiary businesses have been considered in your Lordships' House there have been confused references to property and to the British Rail Property Board. Although it will not surprise the noble Lord, Lord Mishcon, to learn that I cannot accept this amendment, it gives me an opportunity which I should take to explain a little more clearly what is the policy of the board and the Government on this matter.

If I may first deal briefly with the amendment itself, I am afraid that it is based on a fundamental misconception about the nature of the Property Board in the way that I have just tried to explain. The fact is that, although we are apt to refer loosely to the Property Board as a subsidiary activity of British Rail, it is not a subsidiary in any formal or legal sense. Unlike the other businesses with which we are dealing, it is not a Companies Act company. It has no separate legal status and is merely an internal division of the Railways Board. The key point is that the assets which it manages are owned by the board. Therefore, it will be seen that the amendment does not have meaning.

Turning to our policy towards the board's property holdings, I should explain that the board has a large and varied portfolio of non-operational property. Its net book value in December 1980 was about £170 million and it produced a net rental income for the board in that year of £8.5 million. This property has ceased to have any connection with the railway and is surplus to its needs. Some of it is of good quality, but much of it is low value. As a whole the portfolio is underdeveloped and produces a low income in relation to its potential. The board has always made disposals from this portfolio to the extent that I have just mentioned. In the present difficult financial circumstances I should have thought it quite reasonable to expect the board to realise some of its assets in this way, especially under-used assets. All that the board is doing is to realise the capital value of assets unwanted now in order to help with current cash difficulties, rather than to keep the assets in order to enjoy future rental income.

What the board now propose is that all the non-operational portfolio, together with a limited number of properties—mainly office buildings occupied by private tenants—which are classified as operational but which no longer have any connection with the running of the railway, should be transferred to the ownership of British Rail Investments Limited. British Rail Investments Limited is expected to continue the existing sales policy, but also to look for more radical ways of getting in private investment through joint ventures or through the sale of one or more property companies. What the board and the Government are looking for is a more rapid development of the portfolio than would be possible under the existing approach.

I have perhaps gone into more detail than might have been necessary but I believe it is important to answer the points made by the noble Lord, Lord Underhill, which, on the face of them, have appeared quite valid in themselves but when set in the context of what it is that we are setting out to do really do not give cause for the kind of concern which the noble Lord expressed.

Lord Beswiek

I do not think there is any misconception. Here is a case where valuable assets now owned by British Rail will have to be sold by them under duress, which otherwise they could exploit by rental or by sale at an appropriate time. British Rail are having to dispose of profitable assets. What I find absolutely intolerable is when one noble Lord stands at the Dispatch Box and justifies the sale of profitable elements in British Rail when, an hour or two earlier, we had to listen to his colleague, the noble Lord the Minister of State at the Treasury, who spoke in the picturesque language which he always employs about the losses made by British Rail. May I beg the noble Lord, Lord Bellwin, to speak to his noble collegaue? The noble Lord would find it much easier to get this Bill through if he prevents his noble friend Lord Cockfield from lecturing us about the losses made by British Rail when it is simply a question of compelling British Rail to run unprofitable and unsocial services while at the same time compelling British Rail to sell those services which it is now running at a profit.

Lord Bellwin

It is not for me to tell my noble friend Lord Cockfield how to express himself; he has no difficulty in doing that. I am sorry if my noble friend Lord Cockfield's remarks did not appeal to the noble Lord, Lord Beswick, but certainly they appealed to many Members of your Lordships' House. As to the point that was made about compulsion to sell under duress, when the noble Lord, Lord Beswick, reads what I said in the Official Report—and I am not going to repeat my remarks or over-emphasise certain points of my speech again—I think that on reflection he will accept the validity of what I have said about the effect of doing that in relation to this amendment.

Lord Donaldson of Kingsbridge

Could the noble Lord, Lord Bellwin, repeat what I believe he said—that this is not a matter of selling assets under duress? If it were I should agree with the noble Lord, Lord Beswick; but if the Railways Board is selling off property which it does not any longer wish to use for one reason or another, that would be perfectly acceptable. Always, behind all this, there remains the feeling that there is no guarantee that if the Railways Board sells valuable property the money will be used by the board for development. The noble Lord, Lord Bellwin, gave a reply of the same kind which Lord Cockfield gave when talking about the Treasury, when he said that the Railways Board will have the money but that it will be taken into consideration in any future estimates that are made. What this really means is that the Railways Board will not have the money. In that case I cannot really understand why the Railways Board is prepared to sell off any assets at all, except under duress.

Lord Bellwin

It has always been the case that when assets are sold off by public bodies the test should be, what is done with the money received? By selling, one converts a fixed asset into a liquid asset. It is how one applies the money that should really be the criterion and the justification for having made the sale in the first place, if we are talking purely economics. Often there exist other factors as well. For instance, if a local authority sells some land, one can certainly decide whether the local authority does with the money that which ought to be done; but one could also bring in all sorts of other arguments about what goes on to the land once it is no longer in the local authority's ownership and so on.

The first test has to be, does the sale need to be made? I said earlier that when times are hard and funds are needed a perfectly legitimate way of raising funds is by disposing of the assets. Then one can apply my second criterion, what is done with the money? I do not believe the noble Lord would quarrel with that point. As to duress, circumstances create duress—not the Government saying to British Rail that it must do this or it must do that. The whole of this Bill is about trying to get away from the position whereby public bodies are in a straitjacket. We want to get assets into the private sector so that they can be better deployed to everyone's advantage.

Viscount Simon

I feel about this amendment as I did about the previous amendment and lean towards the views that have been expressed by the noble Lord, Lord Bellwin. I would lean more firmly towards the noble Lord's views if it was made quite clear that the decision to sell an asset or an investment was one made by the British Railways Board, which would take into account all the things that have been mentioned. The one point that I keep coming back to in my mind is this wretched Clause 3, which states that the Secretary of State can instruct the British Railways Board to sell this, that or the other, and the terms on which such a sale is made. If we could get rid of that then I would have no doubt at all that these questions about whether or not shares in Sealink or in other properties are disposed of could be left to the British Railways Board. With respect, I would suggest that there is nobody in your Lordships' House who is competent to give a decision on such a matter. I believe we are entitled to say that any such decision should be the decision of the British Railways Board. I was going to raise this particular issue on Clause 1 stand part, and if your Lordships will forgive me I would rather wait because the argument I have in mind does not relate to this particular amendment.

6.8 p.m.

Lord Underhill

Needless to say the arguments made by the noble Lord, Lord Bellwin, in putting the Government's case did not satisfy me in terms of the information which I gave to your Lordships. The noble Lord argues that this is a decision taken freely by the Railways Board. It has been suggested that such decisions will not be entirely free decisions, and that in any case there will be a certain amount of arm-twisting because of the external financing limits position, which affects the whole position of British Rail. While immediate cash may be helpful, we are looking at the long-term business view; that on retaining profitable property, British Rail itself can obtain the benefit of appreciating values as the years go by and this seems to be a sensible business attitude to adopt. I cannot imagine that British Rail too would not have seen it that way. The noble Lord, Lord Bellwin, also said it was a question of what British Rail does with the money. Are the Government implying that British Rail has wasted the money that has been transferred from property dealings?

Lord Bellwin

No.

Lord Underhill

The noble Lord says, "No". I am pleased to hear it, because of course British Rail is using the money to cover the deficit on its general rail operations. We know why British Rail has a deficit on its general rail operations—it is because investment is badly needed. Investment in development is badly needed, but I will not go into that at this stage. The statement made by Sir Robert Lawrence from which I quoted suggests that if British Rail could have held on to the property in question it would have much preferred to do so, and would have much preferred to hold on to the land as well. I was a little concerned when the noble Lord commented that operational property is not involved but only some operational property which incorporates such facilities as offices. This is just the sort of property I should like to see BR hold on to, because these are the profitable parts of property. But the Government are adamant and I will not weary the Committee with another Division. Our view has been made quite clear in debate and I still believe that our attitude is right. I beg leave to withdraw the amendment.

Viscount Simon

Before the noble Lord withdraws his amendment, may I be permitted to ask one more question of the noble Lord, Lord Bellwin? He said in the course of his remarks that, technically, the Property Board was not in fact a subsidiary of the Railways Board. Looking at the Bill quickly, I was wondering what the Bill has to do with selling the property in that case.

Lord Beswick

May I also pose another question? If it be the fact, as the noble Lord has said to us, that British Rail now dispose of their property—if they have that power—what is the reason for putting this provision into the Bill?

Lord Bellwin

Perhaps I may just say simply that I confirm that the British Rail Property Board is not a subsidiary of the company of BR. It is in fact merely a management division of the board, and it does not itself own any of the property which it manages on the board's behalf. I fear that in bringing forward the amendment the noble Lord, Lord Underhill, may have fallen into the trap of assuming that the Property board has a separate legal status, which I say again it does not in fact possess; and, if that is not so, then there is no problem between us. I hope that that clarifies the point raised by the noble Viscount, Lord Simon.

Viscount Simon

Actually, my point was better put, I think, by the noble Lord, Lord Beswick. If in fact these are assets belonging to the board and not to any subsidiary, and the board can already dispose of them, because apparently it may have done so, then how do they come into this Bill at all?

Lord Bellwin

I think we get these things within the Bill because we are trying here to point a direction to the board as a whole, and the fact that its activities are run by a management company (I suppose one could call it that) I do not think makes any difference to the policy of disposals. It is the main board, if you like. It is like a company which has a management division within a main board. If the management division takes decisions, then it does so certainly on behalf of the parent, in this case British Rail itself.

Viscount Simon

I do not want to prolong this discussion, but perhaps I may leave this thought with the noble Lord and he can look at it between now and the next stage of the Bill. If he looks at subsection (3) of Clause 1 he will see that it begins: For the purpose of facilitiating the eventual disposal…of any part of their undertaking", the board may establish subsidiaries, and once it has established subsidiaries then this Bill can be used to dispose of any of the subsidiaries. There does not seem to be any provision in this Bill for disposing of the assets of the board as they are.

Lord Bellwin

My information is that it is the intention of the board to create a subsidiary with which to, if you like, part with the property, and such a company could then presumably be sold.

Lord Beswick

Am I to understand that the noble Lord has answered my question?

Lord Bellwin

If the noble Lord, Lord Beswick, feels that I have not, then I will look very carefully at what he has said and if I myself come to that conclusion I will write to him. If he feels I have not, then no doubt he will write to me.

Amendment, by leave, withdrawn.

6.15 p.m.

Lord Underhill moved amendment No. 11:

Page 2, line 26, at end insert— ("( ) In this section the term "subsidiary" shall apply only to Sealink UK Ltd., British Transport Hotels Ltd., BR Hovercraft Ltd., and the British Rail Property Board.").

The noble Lord said: We now come to the situation where your Lordships have accepted the position of the Government that the four subsidiaries which are named in our amendment should be the ones that are dealt with in Clause 1. The fact that I have not referred to British Rail Hovercraft does not mean that we do not regard British Rail Hovercraft as being important. In fact, the only thing I would say on British Rail Hovercraft is that, but for the work of the National Research Development Corporation and British Rail in developing hovercraft, the hovercraft might never have been developed to the extent that it has been. I make that comment in passing, so that your Lordships will know that we are not ignoring British Rail Hovercraft.

When the Secretary of State made his statement on 14th July 1980, with regard to the future of British Rail's subsidiaries he stated that the only businesses involved were the four referred to in the amendment that I am moving. I have the statement repeated in this House on behalf of his noble friend by the noble Lord, Lord Mowbray and Stourton, which shows that what I am saying is absolutely correct. What the amendment seeks to do is limit the effect of the disposal of shares and the disposal of the whole or a part of a subsidiary to just these four subsidiaries. It was made clear from these Benches that we would wish that none of the four was being disposed of. However, in view of the decisions taken and the attitude of the Government we now want to urge that in accordance with the ministerial statement the powers in Clause 1 shall be confined to these four subsidiaries.

Perhaps I may add that all the publicity issued by the Ministry has referred only to these four subsidiaries. I shall not weary your Lordships by going into the other subsidiaries, the main subsidiaries, which are held by British Rail, except to remind noble Lords which they are. First, there is British Rail Engineering Limited. That will be the subject of a further amendment, assuming that the one I am now moving is not agreed to. This particular subsidiary constructs and maintains all BR rolling stock and equipment. No one could say that this is not part of British Rail activity. It is essential to British Rail activity, and this one, surely, should stay with British Rail. But, if necessary, that will be elaborated upon in a subsequent amendment.

Then we have the subsidiary Transmark—Transportation Systems and Market Research Limited. The British Rail Report for 1980 refers to this subsidiary and states: Transmark's award-winning team of consultants trebled profits to over £½ million in 1980 and raised the fee income by 49 per cent. whilst extending their range of activities to 94 projects in 31 countries". It is made clear that this excellent result in development has been achieved by marketing skill together with British Rail's technical skill, which enjoys a very high reputation round the world. This subsidiary relies upon British Rail's technical skill. That, therefore, must be associated with British Rail and should be left where it is.

British Rail Advertising speaks for itself. The surplus which they made over last year of £4.4 million, which is 27 per cent. over 1979, shows why that should be left with British Rail. Lastly, there is Freightliners Limited. This subsidiary operates the container movements of British Rail. It is developing well and winning new customers. The gross revenue of this subsidiary has increased steadily over each of the last four years. It cannot be argued that Freightliners is not connected with British Rail. Therefore, that one should be left. I stress this because the argument about the other four subsidiaries has been that they have no connection with British Rail and therefore they should not be held by British Rail. All the four to which I have referred have direct British Rail activities, and I therefore hope your Lordships will agree to this amendment, which provides that the provisions of Clause 1 of this Bill should relate only to the four subsidiaries which were named originally in the Ministry Statement and which are named in this amendment.

Lord Bellwin

From the outset the Government have made it clear that in carrying forward their policy they wish to proceed in agreement with the British Railways Board. The agreement reached between the Government and the board last summer covered the four businesses referred to in this amendment. It is on these four businesses that the board are at present concentrating, and where we hope to see early progress. If we succeed in achieving the fundamental change in the status of these businesses which both the board and the Government regard as necessary, that will be a major step forward. But it will not exhaust the possibilities. I think the board and the Government will want to take the policy further.

If these first initiatives are successful, we shall want to consider whether the same principles can be applied to other parts of the board's undertaking. This does not mean that we are harbouring plans to sell off parts of the railway system, as was perhaps mentioned in connection with earlier amendments. This policy is not about the railway. But from the time of our first Statement last July we have made no secret of the fact that we wish to explore—and that is the operative word—with the broad the possibility of introducing private capital into British Rail Engineering Limited; and there may be other parts of the board's undertaking which could also benefit from private investment.

Your Lordships may ask why we have not brought forward proposals for BREL at the same time as those for the other businesses. The answer is quite simple. It is clear that this policy will result in extensive changes in the organisation of the Railways Board and its implementation will impose a heavy load on the board's senior management. To have attempted at this stage to include BREL in our proposals would have greatly added to the stresses which the board are facing. I think that this would have been too ambitious. We therefore want to look at BREL over a slightly longer time-scale. We shall want to discuss with the board whether private capital has a role to play in BREL, what methods might be appropriate and how the best interests of the railway can be served. We recognise that BREL is a very different animal from the other businesses with which we have been dealing so far, and that a different approach may be needed. When, in due course, we reach conclusions, we shall inform the House.

Noble Lords have criticised the powers in Clause 1 on the grounds that they are open-ended. It is true that their scope is not closely confined. That is because we want the powers to be available to the board to implement our policy as it develops in close consultation with them. It would be a pity if, by drawing the powers too narrowly at this stage, we were to miss opportunities to secure the advantages of private investment for other parts of the board's undertaking that may arise later on. I can reassure the noble Lord, Lord Underhill, on two important points. First, the Government have no intention of using the powers in this Bill to cut across the board's statutory duty to provide railway services; and, secondly, we shall inform the House of any substantial development of the policy.

I should just mention in passing that the drafting of this amendment is somewhat unsatisfactory and that, as it stands, it would have a much more limiting effect than the noble Lord probably intended. For this, and for the wider reasons which I have given, I hope that he will agree to withdraw it.

Lord Underhill

It is strange how the Government change their argument when confronted with a particular argument. I can recall the statement by the noble Lord, Lord Bellwin, on Second Reading, a rather humorous statement, about the other four subsidiaries having nothing to do with British Rail. Why, then, should they run the hotels and why handle shipping? Here we are proving conclusively that the other subsidiaries are closely linked with British Rail. When we come to the next amendment, we prove that British Rail needs the subsidiary. One cannot follow an argument which changes according to the particular words in a particular amendment. I agree with the noble Viscount, Lord Simon, that at the end of the day all these are linked with what may happen under Clause 3. When we get to that, perhaps we may have a detailed discussion on the powers of the Secretary of State. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6.23 p.m.

Lord Underhill moved Amendment No. 12:

Page 2, line 26, at end insert— ("( ) In this section the term "subsidiary" shall not apply to British Rail Engineering Ltd.").

The noble Lord said: This requires me to elaborate a little on British Rail Engineering. If we are going to have a situation where other subsidiaries can be looked at, then we should look carefully at the question of British Rail Engineering. I gave brief details previously. It operates with 13 workshops which con- struct and maintain British Rail rolling stock and equipment. During 1980 productivity went up by 5.7 per cent. again, showing a not exactly inefficient organisation. This was achieved by investment in new plant by British Rail and cuts in administration costs. Output reached a new record level, says the British Rail report of 1980. Despite the general recession in engineering, BREL maintained a substantial intake of apprentices, thus helping the country's engineering training. No less than £220 million was spent by BREL on outside supplies from private sector firms which rely on the work given to them by BREL. Although, primarily, the work is for British Rail, the subsidiary had sales of £40 million to outside customers during the last year, of which £34 million was for exports. Exports have grown steadily over each year of the past four years.

Mr. Kenneth Clarke said on 29th January (in col. 65): There is no rush to take the policy into BREL. We are no doubt a year or two away from that: we are looking into it and shall see how the policy gets on elsewhere".

We are dealing here with something totally different from, the other subsidiaries. These are essential workshops. I am certain that any businessman listening will think it foolish to take away an efficient enterprise which British Rail relies upon for its manufacturing work. This is one that we should declare quite definitely should not be affected by the powers in this Bill.

Lord Bellwin

There is nothing sinister in the potentially wide application of the powers in Clause 1, or of the Secretary of State's equivalent powers of direction in Clause 3. This policy is about the subsidiaries, not about the railway. Moreover, the keystone of the Government's policy is our desire to proceed in agreement with the board. It is the board, operating through their holding company, British Rail investments Limited, who are taking the lead in making proposals and in carrying them through. We expect their proposals to take many forms, and we certainly do not want to constrain their opportunities to improve the performance of any part of industry with which their interests involve them. This applies in particular to British Rail Engineering Limited.

BREL is a very large business indeed. It has 13 works scattered round the country, employing over 35,000 staff. In 1980, its turnover was £434 million. The vast bulk of its workload is for the Railways Board, but there is also some work for overseas railways. Its workload is of two main kinds: new construction of locomotives, of rolling stock and of other railway equipment using a significant proportion of bought-in parts; and, second, heavy maintenance of locomotives and rolling stock. BREL is unique among Western European railway equipment manufacturers in having a near-monopoly of supply to its national railway. It is perfectly reasonable for the Government to want to take a fundamental look at this arrangement, in association with the Railways Board, to see whether the present organisation of the industry can be improved and made more cost-effective. There is not only British Rail's interest in an efficient service; there is also the need to strengthen the position of the United Kingdom railway equipment manufacturing industry in bidding for export orders. The potential in the export field is enormous, but without a strong and competitive home market, United Kingdom manufacturers will continue to be at a disadvantage in an international market which is fiercely competitive. The opportunities for larger earnings and wider employment must not be overlooked.

These are important issues. Clearly, they will require a lot of thought. The Government will want to look at ways of improving the opportunities for the whole railway equipment industry, BREL and the private sector manufacturers together to compete in both the home and the overseas markets. For the board itself there could be advantages in an arrangement which effectively gave them alternative sources of supply between which they could choose the best buy. There could be questions about the structure and the funding of at least parts of BREL, and this is where the powers in the Bill might come in. All these are matters on which we shall need to exchange views with the board. There is no question of having reached conclusions except about our objective, which is clear: to produce a stronger, more efficient, more prosperous industry with a larger effective market round the world, to the benefit both of the Railways Board and of Britain's export performance. I hope that the noble Lord will realise that it would be folly to close off powers which could in some circumstances help towards securing that objective. This amendment would have that unfortunate result; and I therefore hope that he will withdraw it.

6.30 p.m.

Lord Underhill

The noble Lord, Lord Bellwin, referred to the monopoly supply. When one keeps in mind the figures I mentioned, £220 million obtained from outside suppliers is a big figure. He also referred to British Rail being able to get the best buy. Presumably that is what British Rail do now. In their placing of £220 million with outside suppliers they are obviously looking for the best buy. There is clearly a difference in outlook in this issue between the Government and those on these Benches. There appears to be no immediate developments likely to take place. We shall therefore watch the situation very carefully. Perhaps before any developments take place there will be a change in positions in the House. I shall read carefully in the Official Report what the Minister has said to see whether or not we should come back on this matter. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 1 shall stand part of the Bill?

Viscount Simon

Before we agree Clause 1, I should like to go back to the problem of how the proceeds of any sale get through to British Rail and what they can do with them. The Minister put it very succinctly during his winding-up speech on Second Reading. I will read his words, if I may, which are at column 282 of Hansard for 7th May: The fact is that the proceeds of sales made by the Railways Board using its powers in Clause 1 of the Bill will go to British Rail Investments Limited as owners of the businesses and hence to the Railways Board. Those proceeds will be included by the board in the financial forecasts that it submits to the Government and will be taken into account along with all the other relevant factors in fixing the board's external finance limit each year". Then, after one further sentence, he continues: The precise effect on the board's EFL is therefore undecided at this stage. As the Government have said in another place, they do not intend simply to reduce the board's EFL by the amount of any sales proceeds". So far, so good. But I cannot see why EFL should be affected at all by the proceeds which are not external but internal finance. May I put the position in this way. After listening to the noble Lord, Lord Cockfield, earlier I thought that I understood something about EFL, but I am now sure that I do, not. Let us suppose that discussions take place and, in the light of all the circumstances, it is agreed that next year's EFL for the Railways Board will be £X million. Before the year starts the board succeed in selling 50 per cent., 70 per cent. or whatever of one of their subsidiaries and they get £Y million for that. The Government have said that they will not automatically deduct £Y million from £X million. Why should they deduct any part of it? This £Y million, as the noble Lord, Lord Bellwin, said, is simply resulting from converting an asset into cash. It is not external finance, it is internal finance. I cannot see why they should not be allowed to use that internally obtained finance in addition to anything that has already been thought, as a result of discussion, to be the right figure for that external finance limit for the year. It really is as simple as that.

If that is not done, then the effect is that to the extent that their external finance limit is reduced they actually lose the benefit of the sale they have made. They lose not only the benefit of the sale in cash but, having disposed of the asset, they lose the profit they were getting on it. So they are actually worse off than they would otherwise be. I cannot see how that is going to encourage the British Railways Board to dispose of their subsidiaries.

The noble Lord, Lord Bellwin, has reminded us, quite correctly, that this scheme has been worked out in consultation with British Rail and has implied that they are quite satisfied with it. I receive notes from time to time—as other noble Lords may do—circulated by British Rail under the heading "Rail Talk". In the notes which they circulated in March of this year they discussed this very problem. It is interesting to see that some of the words used in the notes are exactly the same as the words used by the Minister. I suspect that they are drawn from some Government document.

However, are the Railways Board satisfied that this is all right? They end up by saying that the board certainly hope that the net result will be to provide more money for the main railway business activities. If this were not to happen they would be very disappointed and would undoubtedly make strong representations to the Secretary of State. This is an official document issued by the Railways Board and it is clear that they are by no means certain that they are going to get the money when they sell interests in their subsidiaries. I wonder whether the Minister can add to or develop what he said in the winding-up speech on Second Reading.

Lord Donaldson of Kingsbridge

May I add one word in support of what the noble Viscount has said? He and I have raised this matter strongly on several occasions. The truth is that in all deficit financing the persons providing the deficit want to give as little as possible. If an asset is sold intermediately they immediately say, whether it is your mother or somebody else who is giving you the necessary money to do something: "You do not need that, dear, because you have sold your car and that was worth £700 towards the £2,000 you are asking for and so I shall give you £1,300."

This is exactly the case which the noble Viscount is putting up. It is exactly the case which lost the noble Viscount, Lord Eccles, his case for museum charges; and it is exactly the case which every Minister has to deal with when anything is sold by anybody. It is quite impossible for the Minister to put our minds at ease because we know that, whatever he may say, part of this is what will happen. If British Railways sell a very expensive asset extremely successfully then the Treasury will think that in order to finance the very large electrification scheme they can give them a bit less. Nothing that the noble Minister says will convince me otherwise.

I want him to give us a promise that at least some of the assets realised will be over and above any agreement already made between British Railways and the Government to finance their major plans. That is the minimum that we want. If we could get that, we would say that we know the Government will get most of it but at least British Rail will get some. This is far the most important aspect in the whole Bill. I do not know whether the noble Lord can say anything that is in the least reassuring. I doubt that, but I ask him to do so.

Lord Bellwin

Well, I do not know how one follows that. I hope that noble Lords will agree with me on at least one aspect; namely, if the board or any other operation raises money by selling some of its assets, it does not have to borrow that amount of money. That is a very important point because we must move more and more to the stage where one can do things without always having to borrow. When one borrows, in the end, somewhere down the line, it costs; you have to pay the cost of borrowing. It is not just about the availability of money; it is about the cost of that money when you have it. I hope that both noble Lords will at least be with me on that point.

The noble Lord, Lord Donaldson, speaks with much experience—and I gather much feeling—when referring to the attitude which Treasuries take about use of monies. I fear I am not going to be drawn into that because I cannot add to what he already knows about it. I am sure he would agree, as would the noble Viscount, Lord Simon, that at the end of the day it has to be Governments who make a judgment on what the external financial limits can be. Nevertheless, I do assure him that his point is taken.

Perhaps I should say just a word on another point which was mentioned by the noble Viscount. He talked of his concern about the board acting under duress. Another speaker (I believe it was the noble Lord, Lord Donaldson) also expressed the same concern. I should like to say that the Government's policy for subsidiaries is one which has in fact been agreed with the Railways Board and I say now on the record that the board has not entered into this agreement under duress. I could go on to elaborate on that, as some notes in front of me do, but I do not think I ought to do that because unless one has oneself actually sat in on meetings and knows the situation, one is simply passing on at second hand. However, I am so assured, and I take the assurance as it is given in the form in which it is given.

I think it might also be helpful to the noble Lord, Lord Underhill, if, instead of writing to him, I were to answer now his point regarding keeping Sealink together as a single company—he asked whether the position applied also to shipping and harbours. The answer is, Yes, it does. I could go on at considerable length about the principle of this clause but it only reiterates, perhaps in more detail, what may have come out in the discussions so far. I suspect that we all know where we stand respectively on this, and therefore, with the agreement of the Committee, I will leave it at that for the time being.

Clause 1 agreed to.

Clause 2 [The new harbours company]:

6.42 p.m.

Lord Mottistone moved amendment No. 13:

Page 3, line 4, at end insert— ("(2A) At the harbours listed in subsection (2) above, Sealink shall pay due regard to local interests. Representatives of local district or parish councils as appropriate shall be co-opted on to relevant Sealink Harbour operating bodies. (2B) The local representatives referred to in subsection (2A) shall number not less than 3 and not more than 5 as appropriate to the size of the harbour.").

The noble Lord said: It is a pleasure to get away from the rapacious Treasury and Lord Donaldson's rapacious mother and come on to a matter which is essentially one of human relations with a seafaring flavour! There is a problem and my amendment seeks to give some sort of clue towards putting it right. Perhaps I should start by saying that regarding the harbours mentioned in Clause 2(2) I have visited or been through them all, but I have a particular affinity with the Isle of Wight, and it is my experience with the harbours there that I am concerned with—both those which are operated with Sealink, and others. I should also like to say that I have nothing but the highest regard for Sealink from the nautical point of view, as really expert ship operators with first-class crews and with very skilful captains. It is a good opportunity to be able to say that. Indeed, the harbour-operating people, just as much as the crews, are a pleasure to work with, to pass through and to be passed through by.

Having said all that, however, there is a problem that when Sealink wishes to develop its resources in any way whatsoever it comes up against the local interests. From the point of view of the local people, Sealink, is a vast organisation. They see it as an offshoot of British Rail and they see British Rail as a huge nationalised industry with immense power and resources. To put it mildly, if Sealink appears to act in a heavy-handed way it can strike a measure of fear into the local populace that perhaps their interests are not being given quite the regard they would be if they were dealing with a relatively small operating company. So that is sometimes how Sealink is seen by local interests.

Looking at it from the other point of view—and I see Sealink's problems just as much—it finds it has an excellent new plan for working more efficiently in bringing people from one place to another, but finds itself obstructed by people who are very much looking after their own parochial interests—and I mean parochial interests—sometimes with great concern. If you extend the facilities for removing a lot of motorcars from a terminal, you may have a serious effect on the values of houses fronting on roads that such cars have to traverse. So from Sealink's point of view, it finds perhaps that local people have a narrow-minded viewpoint and cannot always understand the great benefits of allowing Sealink the better to develop its valuable and great resources. At the same time, the local people feel that they cannot always get there with Sealink and they fight back, and battles arise; there is bad temper on both sides. That situation has arisen recently in the Isle of Wight, and I suspect that it applies equally at times to all the other harbours which are mentioned in this part of the Bill.

Therefore, what my amendment seeks to do is to provide some way of suggesting that Sealink should, as a statutoryduty, co-opt people from the local district or parish council, depending on the size of the harbour, so that perhaps some of these battles need not take place since there are people there who can immediately say to the operating authorities at the working level: "Don't press us there; we are not ready for it", or "Could you not do it another way?"

At the same time, Sealink itself could be explaining why a certain course would not be quite so bad as those concerned think it will be. While this is done, the message does not always seem to get through and then you get great battles. I am sure all your Lordships have had experience of this in other spheres where local interests come up against what they see as huge and all-powerful bodies with lots of expertise and resources at their disposal. This amendment is an attempt to build a bridge within the terms of this Bill so as to try to avoid such situations. I beg to move.

Lord Bellwin

I am grateful to my noble friend Lord Mottistone for tabling these amendments. It seems to me that his interests are infinite. They stretch to so many matters that I can only wonder in amazement at his great knowledge of such a wide range of subjects. But I am grateful to him for tabling these amendments and giving us an opportunity briefly to discuss how Sealink will operate when it is in the private sector. Sealink is at present, and will continue to be, a Companies Act company. The harbour subsidiary that it is to form will also be a Companies Act company. It will have a board of directors appointed by the shareholders, who for the harbour company will be Sealink, and Sealink will include the British Railways Board and all those who acquire shares when the board dispose of part of their interest.

My noble friend's amendment speaks of "relevant Sealink Harbour operating bodies". I fear I have to tell him that such bodies, each managing a different Sealink port, do not exist. There is one body responsible for managing all Sealink's harbours at present and that is the Sealink board of directors. When Sealink's harbour subsidiary has been set up, responsibility will rest with the board of directors for that company. The conduct of a board of directors is usually regulated by the articles of association for the company. To provide by statute, as my noble friend is in effect seeking to do, for the composition of the board, would tend to change the harbours company subsidiary from a Companies Act company into a statutory one. This is not the policy which the Government wish to pursue for Sealink and its subsidiary. We want them to be normal, privately-owned, commercially-run Companies Act companies, fully responsible to their shareholders and subject only to those statutory controls that apply to all shipping and harbour operators. Investors in the company should choose its board of directors and not find them forced on them by statute.

I hope I have made clear to my noble friend why I respectfully submit that his amendment would not work. The fact is that arrangements of the kind he proposes would be suitable for a harbour managed by harbour commissioners whose activities were governed entirely by statute, but that is quite a different animal from a Companies Act harbour company governed partly by its articles of association, and partly by its statutory obligations as a harbour authority.

My noble friend mentioned circumstances where he feels that Sealink might not always have been seen to be paying due attention to local interests. I am assured that Sealink are happy to meet any local body which feels that local interests have not been sufficiently taken into account. They regularly have meetings with county councils, who are, of course, local transport authorities, and such meetings will often also be attended by representatives of district and parish councils. I hope your Lordships will agree with me that it would be wrong to contemplate imposing on Sealink, alone of Companies Act harbour companies, a new statutory framework of consultation with local interests, when the existing voluntary framework appears, in general, to work well.

In conclusion, therefore, since Sealink have a good record of consultation with local councils for the many harbours that they operate, I hope I have persuaded my noble friend that it would be inappropriate to seek to impose on them new statutory duties of consultation—duties which, I may say again, are not imposed on any other privately-owned shipping and harbour operator and which, in the terms of the amendment, would be incompatible with the normal management of a Companies Act company. I hope that with that explanation my noble friend may feel able to withdraw his amendment.

Lord Mottistone

I thank my noble friend very much for that very full explanation and, of course, I admit that I did not expect that my amendment would fall precisely into the necessary pattern. But what my noble friend said threw up one question for me. Am I to understand that Sealink will form a subsidiary to run all the harbours listed in subsection (2), and that, in effect, there will be no local operating body, because Sealink itself will have a local manager running the ships? But how about the harbours? Will they be run only by the company based in say London, Liverpool, or wherever it is, which looks after all the other harbours? Will there not be a kind of local harbour operating unit with a local harbour manager? How will that part of it work?

My noble friend may not be able to answer me at this stage, but it would be interesting to know how Sealink are proposing to run their harbours. I understand that, at the moment, the harbours are run jointly with the ships that run from the harbours, and this seems to be creating a new picture where the harbours are under a kind of umbrella private company, which is a wholly-owned subsidiary of Sealink.

Lord Bellwin

As I understand it, the set-up will be as described by my noble friend and, as at present, each harbour will have a harbour manager. If it would be helpful, I should be glad to give a more detailed written answer to my noble friend. I suspect that that would be helpful to him and I gladly undertake to do so.

Lord Mottistone

That is extremely kind of my noble friend. With that reassurance, I am happy to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 14 and 15 not moved.]

On Question, Whether Clause 2 shall stand part of the Bill?

Lord Underhill

In the light of the assurance by the noble Lord, Lord Bellwin, that the Sealink shipping company and the Sealink harbour company will be kept together, I have not moved Amendments Nos. 14 and 15, but I should like to ask the noble Lord some questions. If that is the position, why go to all the trouble of setting up a separate harbours company as suggested in this clause? If the ships and harbours are still to be kept together under Sealink, why have a separate harbours company? It seems to me a totally unnecessary piece of bureaucratic machinery, which the Government are always accusing those on this side of the House of trying to encourage.

Secondly, would it be possible, under the proposals in Clause 4 and in the Bill generally, for any one harbour to be sold off separately from the harbours company? Do the Government have it at all in mind—I am not saying that this should be done and am simply asking a question—for the harbours, which are now to be put into a separate company owned by Sealink, to be attached to the new Associated British Ports?

Lord Bellwin

Once again, I do not wish to make a long speech on this clause stand part point, and I am glad that I was able to satisfy the noble Lord on the point of the splitting up. I would only say that, in considering the whole future of Sealink, we have recognised from the outset that the special position of the harbours needed to be taken into account. The reason is that, in order to operate a harbour in this country, it is usually necessary to take statutory powers in a private or local Bill, and in giving such powers Parliament has generally also imposed certain statutory obligations on harbour undertakers in order to ensure that rights of navigation are protected, structures affecting navigation are properly maintained and so on. Sealink's harbours are no exception to this general rule, because most of them are operated under a wide range of local enactments. I understand that there are over 100 altogether, dating from the beginning of the last century and corning up to the present day.

The noble Lord, Lord Underhill, asked: Why go about this whole process at all? I would only say to him, without repeating the arguments and discussions we had in talking to the amendments, that there are legal advantages in setting up a new company. There are also commercial benefits of the type that I described before. It is common practice in the private sector for companies to organise their various activities in separate subsidiaries. The Railways Board itself has found it convenient to set up subsidiaries for its non-mainstream activities in recent years. The establishment of the harbours as a separate company will formalise the relationship which already exists within Sealink between the two parts of its business. By establishing the company in this Bill we shall be relieving Sealink of the need to promote a private Bill to achieve this, when it is a private sector company.

Those are some of the reasons for setting up the harbours company and hence the justification for Clause 2. In conclusion, I suggest that Clause 2 contains convenient and sensible proposals for putting Sealink's harbours into a state in which they can most smoothly enter majority private sector ownership, and I urge the Committee to accept that this clause should stand part of the Bill.

Clause 2 agreed to.

Clause 3 [Power of Secretary of State to give directions]:

6.59 p.m.

Lord Underhill moved Amendment No. 16: Page 3, line 33, leave out paragraph (b).

The noble Lord said: This is the controversial clause over which a lot of concern has already been expressed. At the outset, I should say that, along with the noble Viscount, Lord Simon, I am opposed to the entire clause, which gives arbitrary powers to the Secretary of State to give instructions—because that is what the word "directions" means—to British Rail to carry out disposals under Clause 1 and also to establish subsidiaries. But in the amendment I am asking only for the deletion of paragraph (b) of subsection (1), which gives authority to the Secretary of State to direct British Rail to establish a subsidiary.

We know all the arguments which have been used this afternoon for the purpose of establishing subsidiaries with a view to their eventual disposal. In other words, the instruction to establish a subsidiary is very important. I know that Ministers have said time and again that this is only a reserve power. The same has been said when other Bills have been discussed. If something is to be only a reserve power, I wish it could be spelled out in the Bill and that some criteria could be given for the use of that reserve power. Once we put an arbitrary power into the Bill to be used by a Secretary of State, it is there. It may be that the present Secretary of State is a thoroughly nice chap who would never use this power unfairly, but there are Secretaries of State and Secretaries of State. The fact is that once we put such a provision into the Bill and provide no criteria whatsoever for using it, it can be used to instruct British Rail.

If it is to be a reserve power, can the Minister tell me under what circumstances it would be used? It would be useful to know the answer to that question. Presumably it would be used only when British Rail refused to do something that the Secretary of State wanted them to do. In other words, in certain circumstances their commercial freedom would be lost. Although the Secretary of State has to give any directions after consultation with the British Railways Board, the Bill does not say that this must be done with the agreement of the board. There could, therefore, be circumstances in which there was disagreement and yet the Secretary of State could give instructions to British Rail. As I have said, there are no criteria. The Secretary of State could direct that a subsidiary should be established just as he thought fit.

When dealing with the powers of disposal to be given to the British Railways Board under Clause 1, Mr. Kenneth Clarke, the Parliamentary Secretary, said on 10th February, at col. 156: Management will no longer be subject to all the statutory controls to which it has been subject: all the public sector disciplines, the risk of political interference in management decisions and other inhibitions that affect the management and work force of any nationalised corporation". All these constraints will be taken off and replaced by a statutory power to be given to the Secretary of State to instruct the board to act, when he thinks fit, by the discipline of the Secretary of State—for the board has to carry out his instruction—and by the risk of political interference by the Secretary of State. I cannot see that this is any different from the constraints which the Secretary of State is talking about. The amendment seeks to avoid all this interference with British Rail in its commercial decisions.

Subsection (2) of the clause provides that the British Railways Board shall carry out any direction given by the Secretary of State, notwithstanding any duty imposed on the board under the Transport Act 1962. This means that, if the Secretary of State were so disposed, he could instruct British Rail to do certain things which are outside the powers laid down for British Rail under the 1962 Act. These are sweeping and arbitrary powers. I think that noble Lords in all parts of the Committee will believe that they are far too sweeping and that if there is to be any interference by the Secretary of State the criteria for this so-called reserve power ought to be included in the Bill. I beg to move.

Viscount Simon

I support entirely what the noble Lord, Lord Underhill, has said. I think he has been very modest in asking only for the removal of paragraph (b). I should prefer the whole clause to be removed.

Lord Bellwin

Of course I understand why the amendment has been put down and the situation which noble Lords opposite are trying to avoid. I am sure they will not be surprised to hear me say again that I do not think they need fear that the Government would use the powers of direction which they are trying to delete from the Bill in an irresponsible or sinister way. I hope that after the few remarks I want to make they will feel able to withdraw the amendment.

First, the Government hope very much to proceed in agreement with the British Railways Board in this policy. We have so far been able to develop our plans on the basis of methods and objectives to which both the board and the Government can subscribe. I say again that I hope very much that this will continue and I have no reason to doubt that it will. We do not expect or wish to use the powers in Clause 3 but we feel it is essential that the Government have the right to protect their position and to have these powers. I have said that several times before today but it is so important that it ought to be repeated at the start of our discussions on this clause.

The intention, presumably, is to prevent the Secretary of State from giving the board a direction to create a new subsidiary and to transfer to it part of their main railway activity with a view to subsequent disposal. But this is not in fact the purpose of this provision of Clause 3. The situation which we had in mind in putting forward this proposed power was where the Secretary of State wished to direct the board to put part of its property portfolio into a new company for subsequent sale, bearing in mind that all the board's property belongs to the board itself and that the British Rail Property Board is not a subsidiary. Alternatively, the Secretary of State might wish the board to reorganise an existing subsidiary into separate companies for disposal. For instance, it might prove impracticable to dispose of part of the board's interest in British Transport Holdings as a whole. So the hotels would need to be treated in separate groupings. We do not intend to use this power to direct the board to put parts of the railway into subsidiaries.

I hope the noble Lord, Lord Underhill, might agree that, accepting that we do not expect to have to use these powers, if this does prove necessary it is reasonable that the Secretary of State should have the power in subsection (1)(b) and should use it in the ways which I have described to carry through the agreed policy. It is certainly not the intention, I say again, to use it to direct the board to put parts of the railway into subsidiaries for disposal. That is no part of the Government's policy and I hope that the noble Lord will accept my assurance on that point.

The noble Lord is concerned about the powers of the board to establish subsidiaries. There is no specific power in the Transport Act 1962 for the board to establish subsidiaries, but there is an implied power for them to do so as part of their general power to organise their business as they think fit. The power to establish subsidiaries is implied because, as the Committee will see if they look at Section 25 of the 1962 Act, there are provisions there requiring the board to exercise control over their subsidiaries in a certain manner. The board are in no doubt as to their implied powers and have used them on several occasions without legal challenge. The other relevant section is Section 50(8) of the Transport Act 1968.

With these assurances and explanations, I hope that the noble Lord, if not completely satisfied, as I am sure he will not be, will at least feel that his concern has been reasonably assuaged.

Lord Mishcon

I wonder whether the noble Lord could help some of us who are very worried about this provision and about the directive power which is given to the Minister without any qualification. In view of his previous statements, which obviously moved us considerably as to his faith in the wisdom of the board—his faith in their power to observe what is a sensible investment and what is sensible to take by way of a shareholding when a disposal takes place—may I ask him whether he has not sufficient faith in the board to realise that they will see the reasonableness of a Minister's request to form a subsidiary? Does this power only arise when the Minister has asked for the formation of a subsidiary and the board has said that it will not form one? If not, since the board obviously have the power on their own to form a subsidiary, what does this power imply? Does it not imply a complete lack of confidence in the board, should this situation arise?

Would not the Minister at least consider taking back this clause with a view to putting in its place a provision stating that only when the board act unreasonably and the Minister takes the view that their refusal is unreasonable on certain grounds (and the grounds are set out in the clause) will this power be used? Otherwise, is this not an offensive power in the eyes of those in whom the Minister has such touching faith?

Viscount Simon

May I suggest a slightly different approach from that of the noble Lord, Lord Mishcon? Would it not be possible to include in this clause something to the effect that if there is disagreement between the Secretary of State and the board the matter should be the subject of an inquiry or the subject of arbitration; some opportunity should then be provided for the matter to be discussed impartially if there is a disagreement between the board and the Secretary of State.

7.10 p.m.

Lord Mottistone

I find the remarks, delicately and splendidly put, of both the noble Lord, Lord Mishcon, and the noble Lord, Lord Underhill, quite odd because I remember so well some five years ago sitting on the Benches opposite and hearing it being put across from this side of the House by the then Labour Government how important it was to have all sorts of safeguards of the Secretary of State's control over the companies which at that stage were going to be nationalised. They were so keen to make sure that the companies were really under their thumb, and we kept on saying to them: "Don't you trust them? You are nationalising them, why don't you trust them?"; and they said, "Yes, of course we trust them, but we still think we should have this small power". In the end one had to accept it and one understood it. If the noble Viscount, Lord Simon, makes those remarks, one sympathises and understands because he has been neutral in these battles both times and is sitting on the same Benches, but for it to come from the Labour Party that they think it is unreasonable to have an underpinning in a Bill for the Secretary of State to have last resort powers of whatever sort, seems to me to be not really compatible with what they have done in their own time.

Lord Mishcon

The noble Lord, Lord Mottistone, made his remarks in his usual charming way immedi- ately after I had spoken, and I can assure him that I cannot recall—and I should be delighted if he could remind me—any power that was demanded by this side when in Government, for the Minister to decide about the sale of the assets of a nationalised industry into private hands, which is what we are dealing with now. I am sure that with his terrific memory the noble Lord, Lord Mottistone, will be able immediately to pluck out an example and give it to me, to my eternal shame.

Let us remember that we are dealing here with the creation of subsidiaries. Not every time will this happen but, as the noble Lord, Lord Underhill, said, the whole purpose of the creation of subsidiaries is to exercise the power to dispose of assets. That was the point with which we were dealing, very definitely. I follow the noble Viscount, Lord Simon, as I always do if it looks as though he is supporting a point of view that I am trying to put forward, but if I may say so with respect, I feel that arbitration or an inquiry on a matter of this kind may be difficult. All that I was asking for, and I hope to be able to persuade the Government that this is reasonable—but of course it is for the noble Lord, Lord Underhill, to say whether this suggestion commends itself to him—is that the Minister should take this back with a view at least to setting out in this clause what are the considerations which would make the Minister direct an unwilling British Railways Board to form a subsidiary. It seems in these circumstances a reasonable thing to do, despite the way in which the noble Lord, Lord Mottistone, delved into his memories.

Lord Bellwin

It is interesting to listen to the discussion and I will only say that if I were called upon to quote precedents of what happened in Leeds City Council over previous years I should be very happy to trot them out, with no difficulty at all, but I should have more difficulty in trying to think about what might have been said in your Lordships' House when, as your Lordships know, I have been here for so short a time. So I cannot help either side on that. Also, I am not sure that it would be well to try to think of a series of hypothetical situations which might arise where the power would be needed. I can think of one or two, but quite clearly it would be better to look closely at that matter.

I cannot give the kind of undertakings that I think would satisfy noble Lords opposite and I will only say, as I have done in the past when dealing with other Bills, that I should want to read and to think carefully about what has been said; and I assure noble Lords opposite that if they should decide at some future stage to raise this matter again—which I hope they will not—I shall come forearmed with a much more impressive list of situations than I am now able to give. However, I hope that will not be necessary because I do give an undertaking to look at this and, if there should be any room for manoeuvre, we may well do so, but more than that I cannot do, as noble Lords opposite know.

Lord Underhill

That statement by the Minister would satisfy me at this present stage. If the Minister undertakes to take a careful look at this, that will satisfy me at the moment, because I am not saying— and I do not think anyone who spoke in support of this amendment is saying—that there should not be, if necessary, a fallback. I think the noble Lord, Lord Mottistone, said that there must surely be a last resort power. Very well, then let the Minister have a look to see whether something can be put in here which makes it appear as something like a last resort power. This is so sweeping that it could not be left as it is now.

I readily seek leave to withdraw the amendment on the assurance given by the Minister. He has given us no promise that there will be a change, but we shall have an opportunity at the Report stage to move the deletion of the entire clause, which frankly, on reflection, I think might be the best thing to do if we do not get a satisfactory move from the Government.

Before I sit down, I should like the Minister to look carefully at the Official Report as to what he said about subsection (2) of the clause, because the meaning of this must be made clear to me and it is not clear at the moment: It shall be the duty of the Board (notwithstanding any duty imposed on them by Section 3(1) of the Transport Act 1962) to give effect to any directions given under this section". I will not weary the Committee by reading Section 3(1) of the 1962 Act, which lays down the duties placed upon the board to carry out its railway purposes. Therefore that must mean that even as a last resort the Minister could instruct the board to do things against the powers given them in the 1962 Act. So I hope the Minister will look at that matter as well and, with the assurance he has already given, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 agreed to.

Clause 4 agreed to.

Lord Lyell

I think it might be convenient if we resume the House now to take other business. I understand that the target which has been agreed through the usual channels is eight o'clock. I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.