Royal Ordnance Factories: Valuation (Hansard, 6 December 1984)

§ Lord Diamond
My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

§ The Parliamentary Under-Secretary of State for the Armed Forces (Lord Trefgarne)
My Lords, good progress has been made to prepare for the vesting day of Royal Ordnance plc. Full lists of the assets to be transferred to the company, together with the principles of valuation to be applied to those assets, will be set out in the scheme to be made under the Act. That scheme is not yet complete, but we have undertaken, subject to considerations of security and commercial confidentiality, to place a copy in the Library on vesting day. We have also made clear our intention to publish in full, subject again to considerations of commercial sensitivity, a memorandum defining the relationship between the Secretary of State and the company.

§ Lord Diamond
My Lords, I am grateful to the noble Lord for making it quite clear that he has gone as far as he reasonably can under the Act in putting before your Lordships' House a number of details which have not yet been settled; but may I come back to the earliest part of his Answer when he referred to the fact that progress had been made? Does that mean that no definite transfer, as envisaged by Section 1, has yet taken place and would that not be regrettable?
Does the Minister recollect that the main reason the Government gave for overriding the decision of your Lordships' House that this House should be consulted before and not after the event was—and I think I can quote it— that it would result in unnecessary delay"? The delay would have been for perhaps half a day. Is it not the case that six weeks have elapsed and nothing has happened in the sense of making a transfer? Is not this a further example of the Government's highhanded attitude with regard to your Lordships' House in refusing to give it information which they conveniently could have done?

§ Lord Trefgarne
My Lords, I am sorry if the noble Lord thinks that, because it is not the case. We can 1446 hardly place a document before Parliament which is not yet complete. As I explained in the Answer, work continues on the preparation of the scheme; and, as I have said, at the earliest moment we shall place it before your Lordships.

§ Lord Diamond
My Lords, if work continues on it, then obviously no transfer has taken place. Why then could we not have had even the whole of half a day's delay so that the House of Lords should be consulted, as it had decided on a vote?

§ Lord Trefgarne
My Lords, as the noble Lord will be aware, the parliamentary procedure that would be required would be considerably longer than half a day.

§ Lord Graham of Edmonton
My Lords, bearing in mind the promises that were made concerning no detriment to the rights of the workers, would the Minister care to tell the House what progress has been made concerning arrangements for the transfer of pension rights? Also, would the Minister confirm to the House that an additional £2 million has been paid into the pension fund against the possibility that a court may order that the present arrangements are detrimental to the rights of the workers?

§ Lord Trefgarne
My Lords, I do not believe that the workers will have any reason to believe that the new arrangements are in any way detrimental to them. Perhaps I could say in parenthesis that some of the redundancies that were originally foreshadowed at two of the Royal Ordnance factories—namely, Birtley and Bishopton—will not now be as serious as was at first feared: 261 fewer jobs are likely to be lost at Birtley as a result of a recent order for Armour Piercing Fin Stabilised Discarding Sabot shot. Also, at Bishopton there will be a saving in the number of redundancies of 240 against the figures originally envisaged—again because of an improved workload.

§ Lord Mayhew
My Lords, bearing in mind the experience of the BT flotation, may I ask whether it would have been right to have made this scheme, which includes the basis of valuation of the assets, subject to approval by Parliament?

§ Lord Trefgarne
No, my Lords, I do not think that would have been the right course of action. Of course, this has no relation to the public sale of shares in Royal Ordnance plc. What we are talking about is the transfer of these assets to a company which will in the first instance be wholly owned by my right honourable friend.

Lord Bruce of Donington
My Lords, is the noble Lord aware that his answers to the very particular questions that were put to him by the noble Lord, Lord Diamond, were most unsatisfactory? Will the noble Lord explain just how conditions of what he describes as "commercial confidentiality" prevent him from disclosing what assets of every kind are to be acquired and at what price, and what is the basis of valuation? Surely before one embarks on disposing of public assets in the hopeful belief that they will not be sold off at a loss, it is quite permissible to disclose to the House the basis of valuation that is to be adopted for the transfer itself?

§ Lord Trefgarne
My Lords, we shall of course reveal as much detail as we can in the scheme which I have referred to, which will be laid before the House no later than vesting day. But there are elements of this which impinge upon the commerical relevance to the company concerned. For example, if the other commercial competitors with Royal Ordnance factories knew the precise value of certain assets, and thus the amount to be ascribed to their costs in relation to the servicing of those assets, that would be a piece of commercial information which the opposition would no doubt find very useful.

Baroness Vickers
My Lords, may I ask my noble friend whether he can tell us how many firms will apply to take over the various factories?

§ Lord Trefgarne
My Lords, none has as yet been invited to do so.

§ Lord Glenamara
My Lords, is the noble Lord aware that we are quite appalled at this further Government-induced unemployment in the North-East, which is the area of highest unemployment in Great Britain?

§ Lord Trefgarne
My Lords, I am not quite sure what the noble Lord is referring to. I have just announced a reduced number of redundancies, not an increase. The level of employment in the Royal Ordnance Factories is not wholly in the gift of the Government. It depends on the commercial success of the Royal Ordnance Factories; and when they eventually move into the private sector they will be in a much better position to achieve that.

§ Lord Glenamara
My Lords, the noble Lord is aware, I am quite sure, that I am referring to the further unemployment at Birtley which is resulting from these arrangements being made by the Government.

§ Lord Trefgarne
My Lords, I have just announced a reduction in the number of redundancies which are anticipated at Birtley, but none the less the continued maintenance of a particular level of employment at that factory in the Royal Ordnance system or at any other is dependent upon their commercial success. The Ministry of Defence is not a sort of National Health Service for the defence industries of this country.

§ Lord Glenamara
My Lords, what an appalling answer!

§ Lord Taylor of Gryfe
My Lords, since the Question makes some reference to the valuation of assets, and since the valuation of assets will, I hope, have some relevance to the price at which the Royal Ordnance Factories will be disposed of, can the Minister tell us whether it would not be wise to await the examination of the Public Accounts Committee of the sale and price of British Telecom before proceeding with this further privatisation?

§ Lord Trefgarne
My Lords, we have not as yet announced any date for the privatisation of the Royal Ordnance Factories. The exercise that we are now 1448 considering is the transfer of the assets to a company which will be wholly owned by the Secretary of State.

§ Lord Cledwyn of Penrhos
My Lords, while the Ministry of Defence is not a National Health Service, is the noble Lord not aware that the closure of docks and ordnance factories in areas of high unemployment is an extremely serious matter, especially as this Government never make any preparation for it or provide any alternative employment?

§ Lord Trefgarne
My Lords, of course these are important matters which the Ministry of Defence does indeed take into account but, as I said in answer to another Question the other day, these are not the paramount considerations to which we have to have regard.

§ Viscount Trenchard
My Lords, as a result of the intervention by the noble Lord the Leader of the Opposition, will my noble friend make it clear once again that, if I understand the Question on the Order Paper correctly, it has nothing whatever to do with the redundancies recently announced and the question of employment in certain ordnance factories? Indeed, will he confirm that the whole purpose of removing the inevitable constraints upon an organisation on a trading fund basis in the public sector is to enable that organisation to compete more effectively within the arms industry at home and abroad, where, although it has made some progress in export orders, there is a lot that the quality of its products could still achieve, and that the object of these arrangements —

Noble Lords
Speech!

§ Viscount Trenchard
—is therefore to increase employment and increase the success of this industry?

§ Lord Trefgarne
My Lords, my noble friend is quite right. The main thrust of these proposals is to enable the Royal Ordnance Factories to compete more effectively in world markets for these products.

§ Lord Avebury
My Lords, as the auditors of firms in the commercial sector have to certify that the accounts represent a true and fair view of the affairs of the company concerned, including the valuation of its assets, why should the ordnance factories be in a completely different situation? Why does the noble Lord say that, for competitive reasons, they cannot give information which would be obliged to be given in the case of a firm in the commercial sector?

§ Lord Trefgarne
My Lords, the valuation of the assets to be transferred will be agreed by the Secretary of State with the management of the Royal Ordnance Factories, relying, if need be, on the advice of independent advisers.

§ Lord Leatherland
My Lords, may I ask the noble Lord this question? If the Royal Ordnance Factories invent a very effective new weapon, will the privately-owned ordnance factories be entitled to export that weapon to other countries?

§ Lord Trefgarne
My Lords, yes they will, subject to the usual constraints that exist with regard to any other defence contractor.

§ Lord Glenamara
My Lords, in view of the staggering reply of the noble Lord to my last supplementary question about the Ministry of Defence not being a health service—obviously it is not—is he aware that we can and do reasonably expect the Ministery of Defence and other Government purchasing agencies to make their purchases in areas of high unemployment?

§ Lord Trefgarne
My Lords, we certainly aim to spread our purchases over the country as effectively as possible but in the end we have to have regard, in the main anyway, to the considerations of cost effectiveness as far as the defence budget is concerned, and to ensure that we get the right product at the right price and made to the right specification.