§ 3.35 p.m.
§ Report received.
§ Clause 2 [Organisation etc. of British Shipbuilders' activities.]
Lord Bruce of Donington move Amendment No. 1:
Page 2, line 40, after ("or") insert (", subject to the provisions of subsection (1A) below.")
§ The noble Lord said: My Lords, with the leave of the House I propose to move Amendment No. 1 and to speak to Nos. 2 and 3 as well, since they all fall together. The purpose of these amendments is to enable a reasonably accurate price to be obtained when the Secretary of State, in using his powers under Clause 2, directs British Shipbuilders to dispose of various interests which are described in general terms in Clause 2 itself.312
§ Your Lordships will be aware that we on this side of the House dispute the whole purpose of Clause 2, which is to give the Secretary of State powers to dismantle, virtually, at a point of his own choosing, British Shipbuilders. The noble Lord, Lord Trefgarne, when he was speaking not only at Second Reading but also in Committee, gave a pretty broad hint to the House that it was the intention to dispose of part, or the whole, of the warships section of British Shipbuilders. Your Lordships will be aware, that, speaking in your Lordships' House yesterday, the noble Earl, Lord Gowrie, in announcing that about £2 billion had already been brought into the Treasurey as a result of previous privatisation measures, indicated that a further £2½ billion was also on the pipeline in relation to future privatisation.
§ It may well be, of course, that her Majesty's Government will not be afforded the opportunity of proceeding with this privatisation to the tune of a further £2frac12; billion because, of course, there is an election coming. So far as we on this side of the House are concerned, that election can take place just as quickly as maybe, because we are quite confident of its result. Nevertheless, it is a prospect, by some queer act of fate or some national misfortune, that we may neverthless be inflicted with another era of Thatcherism. This is possible, and indeed the House must legislate for that possibility.
§ Therefore, it is desirable that, whether these various assets be in the form of companies, of shares in companies or of tangible or other assets, we should look carefully into the whole quesion of the value and the benefit that is obtained either by British Shipbuilders or, in certain circumstances, by the Treasury itself for the transfer of these assets into private hands. Your Lordships will be familiar with several cases of privatisation, the results of which have raised eyebrows in all parts of the House and, indeed, in another place, where manifestly, on privatisation, the assets belonging to the nationalised industries have been disposed of at a price which has not reflected their true value. As a consequence, the state—if the state has been involved—or the corporation, has suffered loss. By the same token, there have been occasions, notably Britoil, where apparently there was an overvaluation, and the results are well known.
§ It is important that some rules are laid down. That becomes even more necessary in the light of the attitude apparently taken by Mr. Nigel Lawson in the disposal of Wytch Farm, in which, as recorded in Hansard of another place for 28th March, the right honourable gentleman confirmed that British Gas had been ordered to dispose of its interest. He was questioned about the price. Noble Lords who read The Times and other reputable newspapers will recall that the price which British Gas put on Wytch Farm was in the region of £500 million, whereas they are being compelled to sell at nearer £240 million, or even less. The Secretary of State for Energy was emphatic about it. There was no argument; the House of Commons had decided—the people's will had been spoken, through Her Majesty's Government—and that was the end of the matter.
§ It is one thing for the sale of an undertaking to take place between willing buyer and willing seller. It is another if the seller is instructed to sell against his will, 313 because the prospective purchasers must be aware that if they play the waiting game, the Secretary of State will be bound to instruct the corporation concerned to sell—to a given organisation or consortium—at a given price. So that in itself hardly provides the circumstances under which a sale at fair value can take place.
§ It is that state of affairs that the amendment is designed to remedy. I concede that the wording of the amendment may require correction. Your Lordships will note that I have stipulated in it that the price should be by reference to that determined between willing buyer and willing seller and that, in default of agreement on that, it should not be left to the Secretary of State to issue a diktat but that he should request either the president for the time being of the Institute of Chartered Accountants in England and Wales or, if appropriate, the president of the Institute of Chartered Accountants in Scotland, to appoint an arbitrator with a view to determining a reasonable and fair price.
§ The wording of the amendment, if the principle is agreed, will obviously have to be extended to include the presidents of the Association of Certified Accountants and the Institute of Cost and Management Accountants, as well as perhaps the Chartered Institute of Public Finance and Accountancy—in other words, all those professional bodies of accountants that are gathered together within the consultative committee of accountancy bodies and which are recognised officially as the leading professional organisations under the Companies Act.
§ There may be arguments against what is proposed, but the Government are operating under circumstances which differ substantially from those obtaining in private industry. The Government are very strong indeed on value for money and have emphasised repeatedly in other contexts the necessity for value for money audits. Your Lordships will recall that during the passage of the Local Government (Miscellaneous Financial Provisions) Act and other local Government legislation, great emphasis has been placed by the Government on the necessity not only for financial probity but financial prudence.
§ Should not those same values operate on the disposal of valuable assets? The system of Government accounting and the system of accounting obtaining in local government is, with some modification, entirely on a cash basis—money in and money out—and the Government make no effort to account for the capital assets that they possess. A similar situation is applicable in local government, as was revealed in the Layfield Report; that even though ratepayers' and taxpayers' money has been spent on capital projects—in the acquisition or building of substantial assets—Government accounts do not take any account of that, nor do the accounts of local authorities.
§ What would be said of an ordinary commercial company in the possession of substantial assets used in the process of production or commerce, or whatever it may be, which suddenly disposed of some or all of those assets at half the price? Not only would the auditor's attention be drawn to it—he would soon discover it—but it would be reflected in a loss figure being incorporated in the accounts of the company concerned.314
§ Not so with the accounts of central Government. They can dispose of their assets at whatever value they choose, for whatever purpose they conceive—even though the purpose may be entirely political—yet the public at large are quite unaware that in disposing of property (public property paid for out of taxpayers' money) they have flogged it off to private interests at prices far below those which they would normally obtain as between willing buyer and willing seller. The noble Earl, Lord Gowrie, mentioned that £2,000 million had been paid into the Treasury as a result of the privatisation measures so far taken. I would gamble—the Minister can dispute it if he wishes—that that figure would probably have been increased by another £500 million if proper steps had been taken to ensure a proper valuation of the assets, be they shares or physical property, at the time those sales took place. This amendment seeks, therefore, to protect the taxpayer.
§ It is all very well for the Government to realise assets that have been purchased out of taxpayers' money, sell them off to private interests, and then use the money—which indeed they do—for ordinary current purposes in relief of the public sector borrowing requirement; but the public do not know this and the public ought to know it. What has happened so far in a number of instances has been a public scandal. Even though it is not part of this Bill, noble Lords will be aware of the circumstances in which people are permitted to acquire homes at one-half their market value. That does not show up anywhere in the accounts of the local authorities, but it is a loss nevertheless.
§ In moving this amendment, I ought to say to the noble Lord that we are laying down guidelines which we think could usefully be followed, and I would warn him, in terms as temperate as possible, that when the next Labour Government get in office we shall exhume some of these transactions that have taken place; and that what happens now and what has happened in the past may well form a very useful guide as to what may happen on repossession. It is all very well to say that the fixing of a share price or the value of an asset can easily be determined on the basis of market forces. Market forces are a favourite aid to noble Lords opposite as being the cure to all ills and as being the very great leveller to find out what really is the true worth of things. But, as I said at the outset of my remarks, when there are circumstances in which a seller is forced to sell to a prospective buyer, this hardly produces a situation in which an accurate price can be determined; nor is it sufficient to say, as his right honourable friend Mr. Nigel Lawson said in another place when discussing the valuation of Wytch Farm, that a distinguished oil analyst had been called in and had given a figure.
§ Noble Lords with experience in commerce and industry will know quite well that the valuation of shares, particularly unquoted or unlisted shares, is a very difficult and complex matter that has to take into account a variety of factors. It can be dealt with on an earnings basis, or on a dividends basis, or on a net asset realisation basis; a whole series of factors have to be taken into account. The physical aspects of the business concerned, if it is a business, need to be thoroughly reviewed. The business position in terms of 315 the future earnings of the company, in terms of its future sales, the kind of competition against which it will come—all have to be very carefully reviewed. And so does the trading position of the company, the degree to which it is capable of sustaining its overhead expenditure at certain levels, bearing in mind current conditions, and how it can maintain its profitability. So, indeed, does the financial situation have to be reviewed before an accurate valuation can be determined. Cash flows have to be estimated, future capital expenditure has to be reviewed and taken into account. In the case of a valuation of a share or of a company, all these add up to extremely competent professional handling by people who are absolutely impartial.
§ I think that it would be in the interest, in this case, of British Shipbuilders, and, therefore, in the interests of the country as a whole, if this procedure were adopted. I have already indicated to the noble Lord that my amendment is not, of necessity, in its final form. I have already given an indication that certain modifications in regard to the selection of an arbitrator may have to be inserted. But I am convinced that this, or a procedure substantially like it, is the correct procedure to follow. As I said on a previous occasion, the Government's intention to dispose of the warship section which operates mainly on a cost-plus basis and which is already yielding profits is virtually a no-risk section of British Shipbuilders' activities. The companies comprising it, receiving, as they do, defence contracts from this country and other countries, are virtually in a no-risk situation. Therefore, their return—on the lines currently indicated in the accounts of British Shipbuilders—is virtually assured. This, therefore, ought to enhance on an earnings basis the value to be put on the shares or on the undertakings or even on parts of the undertakings.
§ I hope, therefore, that the House will accept this amendment as being a genuine endeavour—even though the amendment itself may carry certain technical and legal defects—to see that, if the Government must continue on this process of privatisation, they should at least proceed on the basis in which the British taxpayer does not suffer any unnecessary capital loss so that the whole thing is done quite openly and quite fairly at prices to be determined independently. In that way, perhaps, the unfortunate process of privatisation, even though we do not agree with it, can be carried out in a manner that is fair and open and can be seen to be so by everyone.