Ordnance Factories and Military Services Bill

HL Deb 16 October 1984 vol 455 cc889-967

3.31 p.m.

Report received.

Clause 1 [Transfer schemes]:

Lord Lloyd of Kilgerran

moved Amendment No. 1: Page 1, line 11, after ("liabilities") insert ("other than intellectual property rights and liabilities relating thereto"). The noble Lord said: My Lords, it is my privilege to move the first amendment to this Bill. It is an amendment concerning matters of the utmost importance relating to the defence of the realm, and to the provision of the best possible equipment, secret or classified, for the armed forces. It concerns inventions, designs and know-how so vital to the provision of such equipment. The amendment also concerns the Royal Ordnance factories' contracts involving inventions, designs and know-how, in particular in collaboration with United Kingdom firms and foreign firms; and also the nature of the foreign business undertaken by the Royal Ordnance factories.

In my submission the difficulties in which the Government have found themselves on this Bill arise from Clauses 1 and 2, which give powers to the Secretary of State to make schemes for the transfer of what is termed in the Bill "prescribed property". The word "property" is not defined, but will include, of course, land and factories and machinery. However, I am not concerned with property of that kind. I am concerned with property known by a rather high-sounding phrase as "intellectual property". As your Lordships will know, the term "intellectual property" covers patents, inventions, know-how, technical information, drawings, designs, copyright and trade marks. The Ordnance factories have achieved an international reputation in designing, developing and, indeed, manufacturing equipment for the armed forces. In my submission it is highly desirable, therefore, that great care should be taken that property involving and being concerned with equipment for the armed forces should not be dealt with in the same way as ordinary real property such as land and machinery.

The scope of the activities of the Royal Ordnance factories was set out in the annual report for 1982–83. The report refers to the association of staff—the factories have highly technical staff with a fine reputation—and it indicates the association of the Ordnance factories with industrial companies both in the United Kingdom and abroad. The report goes on to detail the kind of projects associated with the equipment of the armed forces, and concludes by saying: The products, and others, have been developed with industrial partners, and it is specially important that we continue to develop these associations with large defence manufacturers in a number of countries, and to build new ones. The wide range of capabilities of the Royal Ordnance factories is without doubt a major attraction to these companies in the United Kingdom and abroad". Your Lordships will see, therefore, that this property which is known as intellectual property has unique characteristics. It is impossible to evaluate what is its real value, not only in financial terms but in providing the best possible equipment to our armed forces both at the present time and in the future. Yet as far as I am aware the Government have given little or no indication as to the type of schemes which they intend to introduce for the purposes of the transfer. In my submission the Government should disclose far more information to indicate that the nation's interest in these matters will be protected adequately.

I do not propose to give your Lordships a long dissertation on the main difficulties arising from transferring intellectual property. Of course, there is the field of patents; and as a result of the co-operation of the staff of the Royal Ordnance factories with other firms a large number of patents exist. Earlier this year the Minister in the other place indicated that he would soon be publishing a list of patents—they number something of the order of 200 to 300 patents—and that this list would be open to public scrutiny. As far as I am aware nothing has transpired yet, although it was indicated at that time that the information regarding patents would he available some time in April. Also in February of this year the Minister said that a list of Royal Ordnance factories' products, which would include the making of parts for other contractors, was being prepared, but no information about that has yet been disclosed.

What we on these Benches are asking is the subject of my amendment. The amendment is a simple one. It suggests that after the word "liabilities" the definition of property should exclude, intellectual property rights and liabilities relating thereto", so that further steps can be taken to safeguard matters arising from the transfer of intellectual property.

A large number of questions arise in relation to the transfer of patents owned not only by the Royal Ordnance factories alone but also, probably, in collaboration with United Kingdom firms and with United States firms. In the Patents Act there are sections, which I do not propose to read, dealing with security and safety matters arising from patent applications, and, therefore, relating to the inventions concerned. I should like to know whether Sections 22 and 23 of the Patents Act 1977 are being adequately catered for by the Government.

In regard to the services of the Crown, under the Patents Act the Crown has very extensive powers, in Sections 55 to 59, to ensure that the Crown has available to it inventions of all kinds, intellectual property of all kinds, so that the best type of equipment can be available for manufacture for the services of the Crown. Another question I should like to ask is whether, in the view of the Government, those sections of the Patents Act are adequate to preserve the important powers which the Crown now has to maintain the supply of the best possible equipment for the armed forces.

Need I say that in a matter of this kind it is inevitable that the European position must be considered? There are sections of the Patents Act, from Section 77 onwards, dealing with the position of European patents. I have looked at all those sections in relation to this Bill and I find that there is a considerable lacuna—to use a moderate term—in the Act at present and a failure by the Government adequately to take steps for the purposes of protecting their position in relation to defence matters. I, therefore, beg to move this amendment to exclude from Clause 1 the property known as intellectual property in order that it may be dealt with in a different way.

Lord Graham of Edmonton

My Lords, I understand that it would be for the convenience of the House to take Amendments Nos. 13 and 14 at the same time as the amendment moved by the noble Lord because they are related: Amendment No. 13: Page 16, line 2, at end insert ("or any right. undertaking or arrangement of any kind relating to an application by an employee for an award in respect of intellectual property."). Amendment No. 14: Page 16, line 5, after ("pleasure") insert ("or to affect to the disadvantage of an employee any right, undertaking or arrangement of any kind of an employee to apply for or pursue an application for an award in respect of intellectual property or the manner of assessment or amount of such award"). I should like to speak certainly in support of all that has been said by the noble Lord, Lord Lloyd of Kilgerran, in moving his amendment and to pay particular attention to the direct application of what he has said in respect of intellectual property rights to the employees in the Royal Ordnance factories. The noble Lord was right in pointing out the fierce jealousy, loyalty and commitment that exists among the generality of the employees of the Royal Ordnance factories. Of course, they do not have merely their jobs at stake. I shall not make any allusions as to what will happen as regards redundancies and transfers because those matters are the subject of other amendments. However, when one considers the intellectual ability of the employees and the contribution that they have made, I think that the Minister would agree that they are worried as to what will happen to that which, at the moment, is jointly shared between themselves and the Royal Ordnance factories.

The opportunity for them to develop their ideas and to make their contributions only exists because they are employed by the state. Nevertheless, in view of the Government's determination to transform completely the basis of the management and the capitalisation, responsibility and authority of the ROFs, those who are employed in them are entitled to ask questions. I still live in hope that the Minister will be able to satisfy and give assurances to those who have asked us to raise these matters.

When we come to Amendments Nos. 13 and 14 we move to the crucial Schedule 2 which relates to employment. Amendment No. 13 alludes to paragraph 2 of Schedule 2 which says: This paragraph applies where a scheme contains provision under section 1(1)(a) for a transfer of anything which constitutes an undertaking (within the meaning of the 1981 regulations) or part of such an undertaking". Our amendment would then go on to say: or any right, undertaking or arrangement of any kind relating to an application by an employee for an award in respect of intellectual property". Amendment No. 14 deals with the following subsection, which is subsection (2), and in effect it also seeks to introduce a form of protection or to reserve a protection to employees who have been clever enough, sensible enough and committed enough to share with the ROFs the knowledge which they have gained and gleaned as employees of the ROFs.

The Minister has a great many assurances to give during the course of the passage of this stage of the Bill. I am bound to say that not merely on this matter but on a whole range of other matters we are advised that, although it is now almost three months since the Committee stage, there is a range of questions that in our view are entitled not only to be answered, but to be answered in the affirmative.

The Minister must be aware that the question of the safeguarding and the security of the intellectual property rights of the employees—who substantially are those who have created them—are matters that ought to be capable of resolution. It may be that the Government will resolve these matters by accepting the amendments and that in our view would be a satisfactory way to proceed, otherwise the Government will be taking unto themselves not merely the power to sell off the assets. As the noble Lord, Lord Kilgerran, has pointed out, in the main when we allude to property we are talking in terms of prescribed property. The noble Lord quite rightly pointed out the occasions in the past when the Minister had promised that he would indicate precisely what was meant by the prescribed property so that we could perhaps understand what would be meant by the intellectual property rights. The noble Lord quite fairly pointed out the type of things which are normally understood to be contained within the phrase "intellectual property rights".

During this debate the Minister has not merely the opportunity to spell out that which is included on the face of the Bill, but if he is not prepared to accept our amendment. the opportunity to say something which will satisfy the hundreds of people—although it may well be many more—who feel that they are entitled to protection as regards what they have thought up, advanced or done.

I am bound to say that there is an element of secrecy bordering on concealment by the Government but not as to their intention. We know that their intention is to privatise the Ordnance factories per se. We are talking about the methods. There is concealment about the basis upon which this is to be done—the details of the schemes the details of the memorandum of agreement and the details of the financial arrangements. We now have a matter which, at it happens, touches the first part of the Bill and it is something which affects perhaps not every single employee, but I think the House will agree that it is a matter upon which we are entitled to have the Minister give us some assurances. Certainly we on these Benches move Amendments Nos. 13 and 14 because they are very much along the same thrust as those moved by the noble Lord, Lord Lloyd of Kilgerran. Unless we can get satisfactory assurances, we shall certainly follow the noble Lord if he intends to press his amendments to a Division.

Lord Trefgarne

My Lords, I appreciate the concern of the noble Lord, Lord Lloyd of Kilgerran, and the noble Lord, Lord Graham, that nothing in the Bill, or in any of the schemes to be made under it, should place civil servants currently working in the ROFs in a worse position with regard to their rights in intellectual property, including their rights to apply for an award of compensation. I hope to be able to assure noble Lords that this will not happen and that there are ample safeguards, both in the Bill and under the general law, for those rights of employees.

I wrote to the noble Lord, Lord Lloyd of Kilgerran, during the Recess at some length and I hope that he received that letter. I explained to him then that Schedule 2 of the Bill ensures that the TUPE 81 Regulations, as they are called, apply to transferred employees and that their existing rights are as closely as possible transferred to the new company.

Lord Lloyd of Kilgerran

My Lords, I am sorry to interrupt the noble Lord the Minister, but in moving Amendment No. 1 I merely referred generally to intellectual property rights in the definition of "property" and I did not move my second amendment which is concerned with the rights of employees as such. I was saying in my speech that intellectual property was vital in relation to the provision of equipment. There are no safeguards in this Bill concerned with the transfer of that property. In my submission on Amendment No. 1 I was not concerned with the matters arising under Amendment No. 2 as to which the noble Lord the Minister did send me a letter dated 1st August. When we had disposed of Amendment No. 1 I was proposing to deal with the questions which arise under Amendment No. 2.

Lord Trefgarne

My Lords, to be frank, I believe that it had been agreed that Amendments Nos. 1, 2, 13 and 14 would be taken together. Although I agree that the noble Lord's earlier remarks did not specifically address themselves to Amendment No. 2, the fact is that these matters are fairly closely intertwined and it is difficult for me to answer one without answering the other, particularly as the noble Lord, Lord Graham, has spoken to his amendments at the same time. However, in any event, I shall deal with the point about which the noble Lord is now concerned and I hope to be able to satisfy him on that matter also.

This means that there will be the same rights to apply for an award in respect of intellectual property both before and after transfer. In that sense may I tell the noble Lord in advance of his moving his amendments that the amendments to Schedule 2 are unnecessary. At the moment applications for awards are referred to the MOD Committee on Awards to Inventors, who will deal with all applications up to vesting day. After vesting day, as I have explained, the new company will administer its own scheme.

In fact, I understand that there is only one application for an award still in the pipeline in the MOD. That case, and others which may arise between now and vesting day, will be handled by the MOD and any awards paid by the department. After vesting day such applications will be entirely a matter for the company. There is, therefore, no possibility that employees may suffer any detriment in respect of an application which has not been finally processed on vesting day. In addition, I should note that there are no applications outstanding for an award of compensation under the Patents Act 1977, and indeed it seems that no such claim has so far been made by any employee, whether in the Civil Service or outside. Therefore, I trust that what I have said will assure the noble Lord that his concerns on those points are fully understood and indeed provided for.

The noble Lord has sought to make a case for the Ministry to retain intellectual property rights; I think that that was the point that emerged from his earlier remarks. I must say that the Government wish to see the new Royal Ordnance company put in the same position as any other company which has been trading for some years in the defence industry. Any such company possessing an established product line would own a variety of IPR in its products, generated in the course of design, development and manufacture of those products. If the Royal Ordnance company is to function effectively in its new environment it is essential that it shall also own the IPR in its own products. We therefore intend to transfer to the new company only those IPRs which relate to existing products of the Royal Ordnance factories, and certain patents which may not be specifically related to ROF products but which originated within the Royal Ordnance factories.

But the transfer of IPR does not mean that the Government no longer have any interest in, or right to use, it. The Crown has statutory rights in intellectual property under the Patents Act 1977 and the Registered Designs Act 1949, and nothing is being done to affect these. The Crown will continue to have access to the transferred patents and registered designs for Crown purposes. Furthermore, the transfer of much, but not all, of this IPR will be subject to express reservations in favour of the Ministry of Defence, enabling the department to use those rights for Crown purposes, and also authorise third parties to do so, without any payment to the new company. The exceptions will be in respect of IPR relating to products which the Royal Ordnance factories have developed on their own account, and not as a result of work undertaken for the Ministry of Defence.

The Government could not accept a situation in which the Royal Ordance company possessed no IPR of its own. This would be to emasculate the company before it had even begun to establish itself in the market place. I hope that the noble Lord, Lord Lloyd of Kilgerran, would accept that there is no intention here to give away property to which the new company could make no reasonable claim, and that the Government's existing rights in the relevant IPR are fully safeguarded.

The noble Lord has also expressed concern about security of IPR, and I believe that this was much in the mind of the noble Lord, Lord Graham. I should tell the noble Lord, Lord Lloyd, that a few ROF products which would otherwise qualify for transfer are being excluded for specific reasons—for example, on security grounds or to meet the requirements of current competition policy.

I have been asked specifically about copyright. I do not think that the noble Lord, Lord Lloyd of Kilgerran, mentioned it today but it has certainly been mentioned on earlier occasions. For Crown servants the position is governed by Section 39(1) of the Copyright Act 1956, which provides that if a work is, made by or under the direction or control of Her Majesty or a government department", Her Majesty is entitled to the copyright—that is, the work is Crown copyright. For employees in general the applicable provision is Section 4(4) of the 1956 Act, which provides that where, a work is made in the course of the author's employment by another person that person is entitled to ownership of copyright in the work. Civil servants transferred to the ROF company will continue to be subject to this latter provision, and it is clear that they will be no worse off in this respect.

I have therefore to suggest to both noble Lords that these amendments are unnecessary because the Government's existing rights in IPR will be protected, and because the rights of the employees are already fully protected both by the Bill and by the general law.

Perhaps I may touch on two other points that were made by the noble Lord, Lord Lloyd of Kilgerran. First, I want to tell him that the patents to be transferred will, generally speaking, be listed in the scheme, provided that it is not contrary to the public interest to do so. I am sure that he would also like to know that the provisions of the Patents Acts continue to apply to the new company. In the light of this fairly full explanation I hope that the noble Lord will be content that we are taking his concerns fully into account and will see fit to withdraw his amendments.

Lord Lloyd of Kilgerran

My Lords, may I say at once that I had no information that these amendments were to be taken together and, as is my right, I am dealing with the first amendment, realising of course that the Minister has also been directing his attention to the other amendments which I did not move at all in my speech. I am merely concerned that this Bill has no safeguards introduced to it to protect inventions, designs, know-how, copyright and all the matters that are known as "intellectual property". I believe that it is most important that the Government should somehow disclose in this Bill what action they are taking in relation to intellectual property rights arising from the work of the Royal Ordnance factories, not only alone but in collaboration with other firms in this country and throughout the world.

The Minister does not appear to have given a satisfactory answer; certainly he did not give me one in his letter to me of 1st August, where he did not refer to these matters except to tell me something about the Patents Act and the position of employees in relation to the Patents Act and the 1981 regulations about the transfer of rights of civil servants. Therefore, I am in something of a quandary.

We on this side of the House consider that the protection of intellectual property and the transfer of intellectual property is quite different from the transfer of ordinary property in relation to land, factories or machinery. There are no safeguards in the Bill for the purposes of dealing with intellectual property and the speech of the Minister, to which I listened most carefully, gave no assurances that proper regard would be paid and protection given to this branch of property.

In these circumstances, I have no other option but to test the opinion of the House in relation to my Amendment No. 1, which says that, having regard to the complexity of intellectual property, intellectual property should not be considered within the term "property" in the Bill. Therefore, I beg to move.

Lord Strathcona and Mount Royal

My Lords, before the noble Lord sits down, I should like to ask him two questions. The first may sound rather ignorant, but if these amendments were carried, what would happen to the intellectual property rights when the rest of the assets of the Royal Ordnance factories are transferred? Secondly. what is so different about the situation of the Royal Ordnance factories from, for instance, the transfer of the Decca company, which was bought by Racal not so long ago? There must have been all kinds of intellectual property rights that were bought at that time.

Lord Lloyd of Kilgerran

My Lords, with the leave of the House, may I answer the question? The noble Lord who has just sat down has had a distinguished career in the Ministry of Defence and he knows a great deal about these matters. However, the position of Decca and Racal, where Decca was taken over by Racal, is totally different from the position which would arise under this Bill.

I know something about the takeover of Decca by Racal. Great care was taken in the agreements in relation to that business effort to look after the patent rights, the intellectual property rights, as a totally separate matter from factories and machinery and property rights. Intellectual property rights in the deal to which the noble Lord referred were considered to be one of the fundamental assets which were carefully looked after in relation to the goodwill of Decca which was preserved by Racal.

The noble Lord's first question was if all the assets have been transferred—by which he means the property assets of the factories and the machinery—what would happen to the intellectual property rights? They would remain with the company. They should not in my view go over, be transferred, with these real property assets of factories and land. They are a separate, unique class of property which should be dealt with entirely separately from the other kind of real property.

Lord Trefgarne

My Lords, if I have your Lordships' permission to speak again and the noble Lord's permission to intervene in his closing remarks, might I ask him what mischief he apprehends is going to happen in the light of the arrangements being in place that I have described? It seems to me that the concern in the noble Lord's mind was that these most valuable intellectual property rights should not transfer to the new enterprise but should remain available to the Government.

I thought I had explained during the course of my remarks—I tried to do so—that the Government will continue to have access to these rights as is necessary, but not in an unnecessary way; and that the property rights can transfer where it is appropriate for them to do so, and in most cases where the Government will continue to have access to them free of charge as they require. I cannot see what difficulty it is that the noble Lord has in mind.

Viscount Trenchard

My Lords, may I intervene for a moment and ask the noble Lord, Lord Lloyd of Kilgerran, whether the time for the important and quite complicated negotiation of what intellectual property rights would be purchased ultimately by a private purchaser of some kind is not when there is a purchaser actually negotiating? At that time there will be the third party involved, Her Majesty's Government and the Ministry of Defence research establishments, which are still to a large degree separate from the Royal Ordnance factories, who in fact have invented many important inventions in this area.

Clearly there will have to be at the time that money is going to be paid over to Her Majesty's Government a detailed negotiation as to what intellectual property rights pass, and what rights the Ministry of Defence holds at the moment it decides for national reasons it will continue to hold. May I suggest to the noble Lord that it is still to a large degree—and I have some criticisms of it in this respect—an enabling Bill. In an enabling Bill, before the negotiations with the party prepared to put up the money, I do not see how the noble Lord can get any satisfaction on definition of intellectual property. This often arises originally out of an invention in a research establishment and then is passed on to perhaps one of the Ordnance factories to carry out, and occasionally—not so frightfully often—invented in an Ordnance factory. These things will all come for negotiation when hard money is being offered for the Royal Ordnance factories organisation. I do not see how they can come before that time.

Lord Lloyd of Kilgerran

My Lords, with the leave of the House, I do not know whether I should make any comments in relation to what the noble Viscount, Lord Trenchard, has said. He has raised a most important point. As I would expect with his experience in the department, he understands the real problems that will arise in regard to inventions, designs, copyrights and drawings. I am sorry to pursue the matter that the noble Viscount has raised; but say, for example, that there is a contract between the Government and a firm in the United Kingdom. Then because perhaps the money is better, perhaps the circumstances are better, they decide to transfer the property which is the subject of that contract with the United Kingdom firm to a United States firm. Where is the safeguard in relation to avoiding a business arrangement of that kind? Of course it would lead to litigation forthwith, but that is the kind of bother that happens when you do not apply special schemes to intellectual property. Therefore, the object of this amendment is to highlight the question of the importance of intellectual property in these matters.

In view of the fact that there has been considerable discussion going on, and in view of the contributions of the two noble Lords opposite in addition to what the Minister has said, if my noble friends would agree I think in view of the confusion that has arisen we might postpone the consideration further of this matter until the next stage. Therefore, although I have asked the leave of the House to press this amendment, may I now, with the leave of the House, withdraw it without any commitment, and the matter will probably be raised again in a clearer way at the next stage.

Amendment, by leave, withdrawn.

4.7 p.m.

Lord Lloyd of Kilgerran

moved Amendment No. 2: Page 2, line 6, at end insert— ("( ) the protection of the rights of employees associated with intellectual property:"). The noble Lord said: My Lords, I now come to my Amendment No. 2, which is an amendment to Clause 1. This clause is concerned with transfer schemes. It says: the Secretary of State may make a scheme which, or schemes each of which, provides for one or more of the following". Then there follow the titles and scope of a number of schemes.

In my amendment I have suggested a further paragraph, which reads: the protection of the rights of employees associated with intellectual property;". That should be one of the schemes to be considered separately from all the other schemes. The noble Lord the Minister was most helpful in his letter of 1st August to me and also in his speech in reply to observations made by the noble Lord, Lord Graham of Edmonton, in relation to patent matters.

I agree that the rights of civil servants who will be transferred from the Ordnance factories to private enterprises will probably be safeguarded under the terms of the Patents Act relating to employee inventors. But the crunch of my argument rests with the provisions now applying to the staff of the Ordnance factories to set out certain regulations giving them the right to make an application for awards to inventors for their inventions. They can apply for awards. As the Minister told me in the letter, a large number of awards have been made on an ex gratia basis.

What is to happen when those members of staff go into other employment in the company when perhaps they are transferred to this other company? The object of this amendment is to ensure that their position is safeguarded in applying for awards for any of their inventions.

With the leave of the House, I shall speak also to Amendments Nos. 13 and 14 in which it is suggested that in Schedule 2, dealing with schemes, it should be indicated that an, undertaking or arrangement of any kind relating to an application by an employee for an award in respect of intellectual property would not be affected as the result of such a transfer.

The Minister has referred to the Transfer of Undertakings (Protection of Employment) Regulations 1981 and he says that the position is safeguarded by those regulations. I have studied those regulations very carefully and I do not see that they cover the position of an employee in the Ordnance factories who now can apply for an ex gratia award for an invention. They do not preserve his position when he is transferred to the public company, as is desired and intended by this Bill.

This is a simple amendment. It says merely that the important matter relating to awards to inventors should be the subject of an extra paragraph in Clause 1(1), in addition to the three already there, and that the protection of the rights of employees associated with intellectual property should be cited clearly in the Bill. I beg to move.

Lord Graham of Edmonton

My Lords, I rise briefly to support the noble Lord, Lord Lloyd of Kilgerran, and I anticipate that yet again the Minister may say that the words are unnecessary. If they are not contrary to the spirit of the Bill, we ask the Minister to recognise the anxiety which exists in certain quarters and to add the words. I can understand should the Minister have an intellectual argument against their inclusion—and no play upon words is intended. If in the proposition there is something that the Minister cannot accept, that is one thing, but if, as I think we are likely to be told time and time again, it is covered by TUPE 1981, as referred to in the earlier debate, the Minister must know that those who are to be involved and affected are dissatisfied with what he believes are adequate protections.

What has been moved is a reasonable spelling-out of an aspect of the matter of intellectual property which. in our view, would be well received by those affected. Unless the Minister can tell us that there is something contrary to the spirit or the thrust of Clause 1, we trust that the amendment will be accepted.

The Minister should also take on board the scepticism which we on these Benches feel as time passes by as to what is intended at the end of the day. In an earlier debate—and it is germane to this one—the Minister indicated that the detail of the patents which would be involved, would be included in the scheme. The Minister knows that in February his parliamentary colleague in another place said that that list would be available in two or three months' time. Not only is it still not available, after eight or nine months; now it will be made known only after the event. Members on this side of the Chamber do not dream up these anxieties; they are presented to us by those outside the House. We ask the Minister to make sure that if the Bill is to complete its passage and to become law, it will be against the background that the anxieties raised are assuaged by words on the face of the Bill. I give full support to the amendment which has been moved.

Lord Trefgarne

My Lords, I hope that I can reassure both noble Lords that this amendment really is not necessary. The ROF employees will not be in any worse position as a result of the change in status. The position of Crown servants is already the same as that of employees in the private sector, as a result of the Patents Act 1977. The transfer of employees from the department to the new company will make no difference whatsoever to their statutory rights with regard to intellectual property.

The Patents Act contains provision for the payment of an award of compensation in certain circumstances in respect of the benefit accruing to the employer from a patent granted in respect of an invention made on or after 1st June 1978. This provision will continue to apply in the same way to employees of the new company, although we are not aware of an application for such an award to date. The reason for this may be that employees have instead applied for an award under the Civil Service scheme for the payment of ex gratia awards to employee inventors. This Civil Service scheme amounts to a term and condition of service, and as such will transfer to the new company by virtue of TUPE 81. The same scheme for the making of ex gratia awards to employee inventors, or something very much like it, will have to be set up and administered by the company after vesting day. This will be a legal obligation on the company. The right to claim such payments in the appropriate circumstances will therefore continue in substantially the same form.

I hope that I have reassured both noble Lords. The noble Lord, Lord Graham, asked what was the harm of including the new words if they only clarify the position; I think that was the implication of what he said. I think it is a mistake to add to the Bill unnecessary words which will create confusion and generate problems of interpretation. I hope that both noble Lords will agree, in the light of what I have said, that employees will not be in any different position under the new arrangements than they are under the present dispensation and that, accordingly. the noble Lord will see fit not to press his amendment.

Lord Lloyd of Kilgerran

My Lords, the noble Lord has repeated to some extent the contents of a letter that he sent to me on 1st August. It does not satisfy me that the position of these Crown servants on transfer will be protected in relation to ex gratia awards. I agree almost wholly with him in regard to his observation in relation to patents, though complications can arise on patents where the Crown employee is involved as a co-applicant with outside firms on collaboration projects, and in my view the effect of the TUPE regulations does not adequately safeguard an employee in relation to his ex gratia awards.

In his letter, the noble Lord says, on the TUPE regulations: The effect of these Regulations is that the same scheme for the making of ex gratia awards to employee inventors"— and he goes on to use the significant phrase— or something very much like it, will have to be set up and administered by the company after Vesting Day. This will be a legal obligation on the company". I have found it difficult to discover how the legal obligation arises merely because the Minister cites the TUPE regulations. I have indicated that the TUPE regulations are not adequate for the purposes of protecting ex gratia awards to employees of the Ordnance factories.

The Minister continues in his letter to make the following point, though he did not repeat it in his speech: If any changes are to be made"— Therefore, there is a doubt in the Government's mind that the scheme, after the transfer of property, may not be the same as the scheme before; in other words, the employee's application for an ex gratia award will be treated differently, and perhaps to his disadvantage, after the transfer of the property. I repeat: If any changes are to be made in the scheme, they will have to be the subject of negotiations between the company and the Trades Unions representing the transferred employees". The unfortunate employee therefore has to get involved in the discussions between the new company and the trade unions regarding the ex gratia awards. It would be far simpler merely to put in the Bill that one of the matters on which care has to be taken during the transfer is the protection of the rights of employees associated with intellectual property, in particular in regard to the awards-to-inventors scheme. The noble Lord the Minister in his letter to me indicated—and I believe that he has said it today—that many companies have award schemes. A lot of companies just do not have award schemes and some of the award schemes for employees in many industrial companies are not up to the standards of the awards made even to Crown servants. Therefore, unless the noble Lord, who I see is shaking his head, wishes to say anything else, I beg to move this amendment to protect the rights of employees in relation to awards to inventors.

4.22 p.m.

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

Their Lordships divided: Contents, 99; Not-Contents, 112.

DIVISION NO. 1
CONTENTS
Allen of Fallowfield, L.	Jacques, L.
Amherst, E.	Jeger, B.
Ardwick, L.	Jenkins of Putney, L.
Attlee, E.	John-Mackie, L. [Teller.]
Aylestone, L.	Kaldor, L.
Balogh, L.	Kilmarnock, L.
Banks, L.	Leatherland, L.
Bernstein, L.	Listowel, E.
Beswick, L.	Llewelyn-Davies of Hastoe, B.
Blease, L.	Lloyd of Kilgerran, L.
Blyton, L.	Lockwood, B.
Bottomley, L.	Longford, E.
Brockway, L.	Lovell-Davis, L.
Bruce of Donington, L.	Mackie of Benshie, L.
Buckmaster, V.	MacLeod of Fuinary, L.
Chitnis, L.	McNair, L.
Cledwyn of Penrhos, L.	Mar, C.
Collison, L.	Mishcon, L.
Cooper of Stockton Heath, L.	Mulley, L.
David, B.	Nicol, B.
Davies of Leek, L.	Oram, L.
Davies of Penrhys, L.	Plant, L.
Dean of Beswick, L.	Ponsonby of Shulbrede, L.
Donaldson of Kingsbridge, L.	Rea, L.
Donnet of Balgay, L.	Roberthall, L.
Elwyn-Jones, L.	Rochester, L.
Ennals, L.	Ross of Marnock, L.
Ewart-Biggs, B.	Sainsbury, L.
Ezar, L.	Seear, B.
Foot, L.	Scrota, B.
Gaitskell, B.	Shackleton, L.
Galpern, L.	Shepherd, L.
Gladwyn, L.	Simon, V.
Glenamara, L.	Stallard, L.
Gosford, E.	Stedman, B. [Teller.]
Graham of Edmonton, L.	Stewart of Alvechurch, B.
Greys, E.	Stewart of Fulham, L.
Hampton, L.	Stoddart of Swindon, L.
Harris of Greenwich, L.	Strabolgi, L.
Hatch of Lusby, L.	Strauss, L.
Hooson, L.	Taylor of Blackburn, L.
Hughes, L.	Taylor of Gryfe, L.
Hutchinson of Lullington, L.	Taylor of Mansfield, L.
Irving of Dartford, L.	Thurso, V.
Jacobson, L.	Tordoff, L.

Underhill, L.	Willis, L.
Wade, L.	Wilson of Langside, L.
Wedderburn of Charlton, L.	Winstanley, L.
Wells-Pestell, L.	Wootton of Abinger, B.
White, B.

NOT-CONTENTS
Airey of Abingdon, B.	Lane-Fox, B.
Alexander of Tunis, E.	Lauderdale, E.
Alport, L.	Lloyd of Hampstead, L.
Ampthill, L.	Long, V.
Auckland, L.	Luke, L.
Avon, E.	McAlpine of Moffat, L.
Bauer, L.	McFadzen, L.
Belhaven and Stenton, L.	MacLehose of Beoch, L.
Beloff, L.	Mancroft, L.
Belstead, L.	Merrivale, L.
Berkeley, B.	Mersey, V.
Blake, L.	Molson, L.
Boyd-Carpenter, L.	Mottistone, L.
Brabazon of Tara, L.	Mountevans, L.
Broxbourne, L.	Mountgarret, V.
Caithness, E.	Mowbray and Stourton, L.
Cameron of Lochbroom, L.	Murton of Lindisfarne, L.
Campbell of Alloway, L.	Nugent of Guildford, L.
Campbell of Croy, L.	Onslow, E.
Carnegy of Lour, B.	Orr-Ewing, L.
Carver, L.	Pender, L.
Chalfont, L.	Peterborough, Bp.
Coleraine, L.	Portland, D.
Cork and Orrery, E.	Quinton, L.
Cox, B.	Renton, L.
Cullen of Ashbourne, L.	Rochdale, V.
Daventry, V.	Rodney, L.
Davidson, V.	St. Davies, V.
De Freyne, L.	St. Germans, E.
De L'Isle, V.	Saint Oswald, L.
Denham, L. [Teller.]	Saltoun, Ly.
Eccles, V.	Sandford, L.
Eden of Winton, L.	Sandys, L.
Ellenborough, L.	Savile, L.
Elliot of Harwood, B.	Selborne, E.
Elton, L.	Sempill, Ly.
Faithfull, B.	Skelmersdale, L.
Ferrier, L.	Somers, L.
Fraser of Kilmorack, L.	Strathcona and Mount Royal,
Gainford, L.	L.
Gibson-Watt, L.	Strathspey, L.
Glenarthur, L.	Swansea, L.
Gormanston, V.	Swinton, E. [Teller.]
Gridley, L.	Terrington, L.
Hailsham of Saint	Teviot, L.
Marylebone, L.	Thomas of Swynnerton, L.
Hayter, L.	Thorneycroft, L.
Headfort, M.	Trefgrane, L.
Hornsby-Smith, B.	Trenchard, V.
Hunter of Newington, L.	Trumpington, B.
Hylton-Foster, B.	Ullswater, V.
Ilchester, E.	Vaux of Harrowden, L.
Kaberry of Adel, L.	Vickers, B.
Killearn, L.	Vivian, L.
Kimberley, E.	Ward of Witley, V.
Kinloss, Ly.	Westbury, L.
Kitchener, E.	Yarborough, E.

Resolved in the negative, and amendment disagreed to accordingly.

4.30 p.m.

Lord Graham of Edmonton

moved Amendment No. 3: Page 3, line 18, at end insert— ("and, without prejudice to the generality of the foregoing, every scheme shall contain a provision securing to the Ministry of Defence, whenever required, absolute priority in the supply of goods and services to that Department at fair prices of the goods and services it may from time to time require, and every scheme shall contain such provisions as may be necessary to secure to the Ministry of Defence spare manufacturing capacity to the extent required by that Department so as to meet such emergencies as it may envisage."). The noble Lord said: My Lords, I beg to move Amendment No. 3, standing in my name and those of the noble Lords, Lord Stoddart of Swindon and Lord Lloyd of Kilgerran. Although in fact this amendment is here, it deals with a completely separate issue to that of intellectual property but we think it is an issue of vital concern to the protection of the supply of some resources and some requirements by the state in the future that, as we see it, could very well be prejudiced by the Bill as it stands. As the words of the amendment make quite clear, every scheme shall contain such provision as may be necessary to secure to the Ministry of Defence spare manufacturing capacity to the extent required by that Department so as to meet such emergencies as it may envisage". Bluntly, we are concerned to ensure that everything that at present is supplied to the state by the ROFs will continue to be supplied even though in future there will be a completely different, albeit a commercial, view of what is or is not produced. We are under the impression that there will be some things which are presently manufactured and supplied by the ROFs for the defence of the realm which in future will be seen by others as not so commercially advantageous to produce: produced by others, the goods will not be profitable.

If in fact there is any danger that the needs of the state will be prejudiced by the change, then this amendment seeks to ensure by the addition of the words that there will be an absolute priority in the supply of goods and services to that Department at fair prices of the goods and services it may from time to time require". The ROFs provide a number of items which no other commercial manufacturer supplies. They provide complete priority in cases of need. That is not supplied in the ordinary way by a commercial manufacturer. This complete priority is essential, particularly when difficulties arise. If the Minister tells us not only that he does not envisage these difficulties, but that he can give the House a categorical assurance that such difficulties will not arise because there are means to ensure that they will not arise, then of course the purpose of our amendment would be negatived.

The ROFs also provide spare manufacturing capacity which again is vital in terms of the defence of the country. These are matters of extreme importance and could well be lost if the Government do not accept this amendment. Fears have been expressed by previous Secretaries of State for Defence that as a result of what the Government propose our defences could very well suffer. The Minister speaking at Committee stage said that if arrangements such as are envisaged were incorporated in a scheme and were subsequently found not to be working properly there would be no way of changing their fixed and settled effect except by the making of another scheme. We say that there is no substance in this argument, for the amendment does no more than retain the position which has existed for years and years and which has proved highly beneficial and essential to the armed forces. It has in no way impeded the efficiency of the ROFs, and they have built up a high reputation in the field of overseas sales of ROF products.

It is nonsense to suggest that it may not work properly, for the existence of such arrangements has enabled a close liaison to be built up between the armed forces and the workforce of the ROFs at all levels. The production of tanks, including the highly successful Challenger tank, requires some very specialised machine tools, and this machinery is used for no other commercial purpose.

I shall listen to the Minister with interest and wait for him to comment on this illustration of why we consider this amendment is needed. It would be quite impossible for a commercial firm, working on a commercial basis, to retain all the machine tools required in the production of many of the ROF products. The system which has well stood the test of time has enabled excellent working relationships to be developed between the ROFs and the research and design teams in the Ministry of Defence. The Government's proposal to do away with these arrangements could well destroy the expertise which exists in the workforce of the ROFs, together with the extremely close relationship with the armed forces, particularly with the Army, and could prove to be financially very costly to the Ministry of Defence.

We believe there is some ground for concern that the impact of the Government's proposal could very well affect the efficiency of the armed services and in terms not merely of providing them with an assured supply of munitions. What we are concerned about here is providing an assured supply of the munitions and equipment that they require, and at a reasonable cost, and providing it in comparison with others to measure against quality, and providing it with sufficient reserve capacity.

We on this side of the House will await with interest the response from the Minister. If he can indicate to us not merely that he has confidence that the kinds of difficulties I have outlined will not happen but that even if they do there are ways of circumventing them, and if he can guarantee that he can circumvent them, then we shall be satisfied. But, as the Minister very well knows, it needs only one situation where the defence of the realm is vital and where the adequate supply of the provision is not guaranteed. In that context this has been one of the key elements of the ability of the ROFs to be always there: even though the provision of the requirement is not commercial, it is there: It was one of our fears that in the changed circumstances such a guarantee of the provision of that which is needed and required—not something which it is best to have or that we would like to have, but which those with responsibility for security say it is essential that we should have—would not be available. If we can guarantee that will be available, we believe that the MoD is entitled to have written into any new arrangement that their needs will be given priority over any other needs which the company, or those associated with the company, consider is best on commercial grounds. I beg to move.

Lord Lloyd of Kilgerran

My Lords, as the noble Lord, Lord Diamond, pressed the theme of these amendments quite strongly at the Committee stage, may I take this opportunity of apologising on his behalf for his not being here today. He is recovering from an operation and he is sorry not to be present.

The main theme of the noble Lord, Lord Diamond, as of the noble Lord, Lord Graham of Edmonton, today—and also, if I may say so, of the noble and gallant Lord, Lord Carver, at Committee stage—was to prevent a situation arising in which the Government were less capable of providing equipment and other matters for our armed forces in the same way as we are able to provide them at the present time. It was felt that a situation might arise in which the arrangements contemplated by the Government, without these amendments, would not enable the armed forces to get the best possible equipment.

Lord Carver

My Lords, I very strongly support the amendment, as I did at the Committee stage, and the arguments put forward by the noble Lord, Lord Graham of Edmonton, in support. The object of the Royal Ordnance factories and of the service they have rendered down the centuries—I have been a very satisfied customer of the Royal Ordnance factories—is to be in every circumstance a source of production upon which the Government can wholly rely. Unless this amendment is accepted, that principal function of the Royal Ordnance factories will disappear. Having in many ways been an unsatisfied customer of civilian producers of equipment, particularly tanks, I view as very serious indeed the idea that we shall have to rely solely on something which does not contain the guarantee provided for by this amendment.

Viscount Trenchard

My Lords, as one who was privileged to watch over the purchases in the recent Falklands emergency, I want to say again what I said at the time: that the Royal Ordnance factories form only one part of the armaments industry, though historically a very important part. Aircraft, missiles and other armaments have been developed separately and are in private hands. Far more of the operations which here are carried out by the Royal Ordnance factories are in private hands in the United States. I have no doubt that the Minister will describe the background powers of the Government in times of war or emergency in relation to private industry. As the Minister who was ultimately responsible during the Falklands conflict may I say that all parts of the armaments industry performed equal miracles, including the Ordnance factories as well as the British Aircraft Corporation over the supply of Harriers and spares, missiles of every kind and torpedoes that had not even been accepted by the services but which were made available for the operation. There were no problems over any form of equipment.

Turning to price, there are very adequate price controls even when there is no emergency. Those price controls are reviewed from time to time. They have just been reviewed again. They result in our armaments industry having a very much smaller profit margin than the profit margins of armaments industries abroad, in particular the United States armaments industry. In my opinion, therefore, there is full and permanent control—many would say that this control is too fussy and delays the production of equipment—over prices in the private sector.

It is true that we have encouraged private industry to depend more upon exports. One can speculate, at least theoretically, on a conflict of interest arising as a result of obtaining big orders from abroad for aircraft—orders which we need to obtain if our aircraft industry is to remain viable and to be available for our forces in times of emergency. That issue arose at the time of the Falklands conflict in relation to key and critical equipment. I found that the response of private industry was immediate. There was a telephone call on the Sunday and they dealt with the situation the following Monday morning. Therefore our forces were provided with what they needed at the time when they needed it.

Apart from the legal background, which I have no doubt the Minister will describe to us, I do not believe that there is any special reason why the Royal Ordnance factories in private hands will not respond to a national emergency exactly as they have responded in the past. There is interdependence between the armaments industry and the requirements of Her Majesty's forces. Both have long-term interests. Firms must ensure that they hold the maximum share of the supply of British arms to our forces. I have no doubt whatsoever that at the time of privatisation there will be discussions in which both parties will agree that they need both long-term and short-term assurances. The suppliers will be interested in such assurances. The armed forces, for all the reasons which the noble and gallant Lord, Lord Carver, gave at the Committee stage, will also be interested in such assurances. Therefore I believe that the arguments in favour of this amendment fall and have recently been shown to fall in a practical test.

Lord Trefgarne

My Lords, the arguments deployed by my noble friend Lord Trenchard were very much those which were in my mind when we considered this matter at an earlier stage of the Bill. The fact of the matter is that only a very small percentage out of the total of our defence requirements is provided by the Royal Ordnance factories. This is not to say that the amendment does not contain the germ at least of an important point, and I shall seek to reply to it.

As I said in Committee, and as I repeat now, the Government take these matters seriously. I had hoped that what I said at the earlier stage would have reassured your Lordships that we have taken account of the concern exemplified in this amendment. I should say first of all that the Royal Ordnance factories, as a commercial company, will continue to be engaged in the business of manufacturing weapons and ammunition. Again, as I said before, we would expect the Ministry of Defence to remain the major customer of the Royal Ordnance factories for the foreseeable future. I do not therefore accept the argument that the new Royal Ordnance company might not find it commercially convenient to supply the Ministry when most of its business is done with it. However complicated the order or however small the number to be manufactured, the Ministry will have to negotiate the right price to secure the business with the company. Whether it be part of the department or an independent commercial company, the same sort of costs will arise, and we believe that under commercial discipline the Royal Ordnance factories will be able to supply us at better prices.

Regarding the question of priority of supply, which was very much in the mind of the noble and gallant Lord, Lord Carver, this is again something to be negotiated in the contracts between the department and the new company. Contracts are as equally legally binding as schemes made under the Bill, but they have the additional advantage of being more flexible so that new arrangements can be made from contract to contract to suit the circumstances. In their current status, if the Royal Ordnance factories cannot meet an agreed timetable for the supply of goods, then that timetable simply has to be revised. As a commercial company working under contract, the Royal Ordnance factories will face obvious penalties if the timetable stipulated in the contract is not adhered to. I see this as more of an incentive for them to afford priority to the department than the current administrative arrangements within the department. Should there be to this a background of a developing crisis, like the one described by my noble friend Lord Trenchard just now, your Lordships will be aware that the Government would begin to take special measures relating to the industrial organisation of this country. This is not the occasion to go into the detail of the measures which are available to us, but they will be well familiar to at least the noble and gallant Lord, Lord Carver.

By the same token, the spare manufacturing capacity—this was very much in the mind of the noble Lord, Lord Graham of Edmonton—which needs to be maintained against such a crisis can perfectly adequately be maintained by contract. There is no real reason why the new Royal Ordnance company should not wish to enter into such contracts, which could even form part of the orders placed for the original supply of equipment. I am afraid that I do not share the noble Lord's concern that a commercial company would turn its back on such contracts.

As regards the question of costs, we firmly believe that a system of contracts will help the department to monitor more accurately the costs involved, both in production of equipment and in maintaining their capacity. To have such arrangements spelt out in a contract, and the costs therefore more easily identifiable, can only be seen as an improvement in our system of financial accounting. The department will pay proper prices for its orders and for the spare capacity required. In return, the company will of course provide the services. This is a sensible method of dealing with these issues and will be a far more efficient means of securing our objectives than any provisions contained in a scheme could possibly be.

I support fully the aims expressed in this amendment but, as I have said, it is wholly inappropriate and unworkable for a scheme to contain such provisions. All your Lordships' concerns can be met by the drawing up of contracts which can be monitored and changed as necessary. That is a far more reasonable and flexible way of approaching these questions, without in any way detracting from their importance. I hope therefore that the noble Lord will not persist with his amendment.

Lord Graham of Edmonton

My Lords, I am grateful to the Minister for the care he has taken in responding. But we are talking about the past. The Minister is confident that in respect of securing the proper provisions needed this will be as secure in the future as in the past. He is confident about that. He uses phrases such as, "I see no reason why safeguards cannot be built in". The new ball game begins one day after vesting day. The whole purpose behind the Government producing this Bill is to change the raison d'être, not merely of the financing of the small arms factory but also in so many other ways.

The Minister is saying that given the commercial overview of the operation of a business—and this is a very precious business so far as national security is concerned—the shareholders will be looking after the health and wealth of their shares just as any other shareholders look upon the health of their shares. They are shares in a business. There will be lay-offs and there will be slumps. There will be proposals to put things into mothballs. There will be commercial considerations. I acknowledge that this is a small element of the totality. I believe that the Minister gave a figure—

Viscount Trenchard

My Lords, if the noble Lord will permit me to intervene, one of my duties as the Minister concerned was to act as ex officio chairman of the Royal Ordnance factories. I can assure the noble Lord that all the things he has just mentioned are permanent bread and butter to the Royal Ordnance factories at present; that is, cutting out anything, any idle facility or otherwise, that may not be required or is not likely to be required. They may not have shareholders at present, but they do have the Treasury instead. Having spent half my life in industry and also having seen a good deal of the Treasury, I would rather have shareholders. The idea that there has been less financial pressure on the Royal Ordnance factories than on private industry to go for export as a priority and to cut out obsolete things for our own forces is totally erroneous.

Lord Graham of Edmonton

My Lords, I do not accept that stricture because it was never intended that my remarks should be a criticism of how the Ordnance factories have operated in the past. The noble Viscount will at least extend to me the courtesy of taking on board the points I am making. My concern is that whatever the imperatives set by the management of the ROFs in the past there will be an additional imperative introduced in the management of the ROFs in the future, and that will be their commercial viability. I am not going to knock the national integrity of the defence industry; that is not my job. I am simply saying that the element, "Will it pay?" will be introduced in the future, whereas it was not there in the past.

The noble and gallant Lord, Lord Carver. described in a few words the nub of our argument. In the past there has been complete reliance. The noble and gallant Lord said that the source could be wholly relied upon. We are saying that in respect of the defence of the realm we want to ensure that to the extent that a scheme can be amended by the introduction of the proposed words then at least there should be an opportunity to ensure that it will happen in the future.

I am bound to say that the Minister has much more confidence that we have that at the end of the day the commercial interests of the shareholders will be subjected to a lower order of priority by those shareholders than the national interest if there is a conflict. If the Minister says that there will never be a conflict—

Lord Trefgarne

My Lords, if I may have the noble Lord's permission to intervene again, I fear that I could not have made myself clear when I spoke earlier. There is no difficulty that we see about spare capacity in the Royal Ordnance factories—and I think this was very much in the mind of the noble and gallant Lord—being available for use in times of crisis. We see no reason why that capacity should not be maintained in times not of crisis, by means of contract between the Ministry of Defence and the Royal Ordnance factories. As I said during my earlier remarks, that contract may very well arise from a contract arranging for the original supply of the goods concerned.

Lord Graham of Edmonton

My Lords, I am grateful to the Minister, but the fact that the Minister sees no reason why that should not be so does not mean that it will be so when the two parties to the contract get around a table. In the past, there have not been two parties: there has been one party, substantially—the state. In future there will be the state and the private management of the ROFs. There will need to be two to make a contract and two to make an agreement.

The Minister is saying that it would be very much more helpful to national security if in the making of those contracts there was built into them, if necessary, the kind of arrangement that would ensure that the spare capacity which needed to be provided was in fact provided. I agree. But the Minister cannot tell this House and he cannot tell the country that he knows that the raison d'être for the operation of the business after vesting day will be that which he wants. If the Minister says that there will be no change whatsoever, then where is the weight and the muscle of the private shareholders in this? They, too, have some rights; and they have opportunity to express their rights.

We are saying to the Minister—as we have done in respect of so many other matters—that for the sake of not writing into this Bill something which the Minister has said could be superfluous he is missing an opportunity to strengthen the Bill and to provide an assurance to a great many people.

Lord Strathcona and Mount Royal

My Lords, I am sorry to interrupt the noble Lord again, but procedure demands that we work in this way. I remind the noble Lord that the Royal Ordnance factories—and I, too, am a past chairman of the Royal Ordnance Factories Board—have for a long time been working on a trading account. They have been running it as far as possible as a commercial concern. I have no doubt that if they were asked to maintain surplus capacity they would expect to be paid for it by the Ministry of Defence, and the Treasury would have to agree to it in exactly the same way as it is suggested should be done with a commercial company.

I will further remind the noble Lord that there are, I believe, strategic supplies of oil maintained in this country by the oil companies. I am fairly sure that the Government pay the oil companies for the cost of maintaining those strategic supplies of oil. That is a perfectly normal (as the noble Lord has been calling it) contract. Let us not become mesmerised by what it is that we are discussing. If you were to visit the company for which I work and were to ask, "Will you maintain some extra capacity which you do not now need in order to make extra electronic equipment which we might require later?", I have no doubt that the company would reply, "If you would like to pay for it and supply the equipment, we will certainly look after it for you, and you can pay us for dong so". I do not see that that is so very difficult.

On a slightly more technical point, studying the noble Lord's amendment I believe I am right in saying that, if my reading of it is correct, it states: whenever required, absolute priority in the supply of goods and services to that Department at fair prices". His amendment then goes on to say: and every scheme shall contain such provisions as may be necessary", but does not include the words, at fair prices", at that point. As I read it, that would imply that one just has to do it and cannot necessarily get paid for it. Therefore, I should say that, in any case, the amendment is defective.

Lord Graham of Edmonton

My Lords, the noble Lord would say that, wouldn't he? As far as I am concerned, I am not knocking for one moment the past arrangements and the satisfaction with the past arrangements. However, in the past at the end of the day the Government have been the governors; they have been able to lay down the arrangements because they have had the muscle. After all, they are giving the contracts. We cannot see why the form of words that we introduce, which will strengthen the hand of the Government when they come to make the kind of arrangements which the Minister has pointed out are perfectly and properly capable of being aimed at and which, as the noble Lord just pointed out, already exist in his knowledge and which I respect, is not capable of being accepted. Therefore, I intend to press this amendment to a Division.

5.1 p.m.

On Question, Whether the said amendment (No. 3) shall be agreed to?

Their Lordships divided: Contents, 97; Not-Contents, 105.

DIVISION NO. 2
CONTENTS
Airedale, L.	Cledwyn of Penrhos, L.
Ardwick, L.	Collison, L.
Attlee, E.	David, B.
Aylestone, L.	Davies of Leek, L.
Banks, L.	Davies of Penrhys, L.
Beswick, L.	Dean of Beswick, L.
Blease, L.	Donaldson of Kingsbridge, L.
Blyton, L.	Donnet of Balgay, L.
Bottomley, L.	Elwyn-Jones, L.
Brockway, L.	Ennals, L.
Brooks of Tremorfa, L.	Evans of Claughton, L.
Bruce of Donington, L.	Ewart-Biggs, B.
Buckmaster, V.	Ezra, L.
Carmichael of Kelvingrove, L.	Falkland, V.
Carver, L.	Foot, L.
Chitnis, L.	Gaitskell, B.

Galpern, L.	Mishcon, L.
Gladwyn, L.	Monson, L.
Glenamara, L.	Mountevans, L.
Gosford, E.	Mulley, L.
Graham of Edmonton, L.	Nicol, B.
Grey, E.	Oram, L.
Hampton, L.	Perry of Walton, L.
Hatch of Lusby, L.	Ponsonby of Shulbrede, L.
Hayter, L.	[Teller.]
Headfort, M.	Roberthall, L.
Hooson, L.	Rochester, L.
Hughes, L.	Ross of Marnock, L.
Hunter of Newington, L.	Sainsbury, L.
Hylton-Foster, B.	Seear, B.
Jacobson, L.	Shackleton, L.
Jacques, L.	Shepherd, L.
Jeger, B.	Stallard, L.
Jenkins of Putney, L.	Stedman, B. [Teller.]
John-Mackie, L.	Stewart of Alvechurch, B.
Kaldor, L.	Stewart of Fulham, L.
Kilmarnock, L.	Stoddart of Swindon, L.
Kinloss, Ly.	Strabolgi, L.
Leatherland, L.	Taylor of Gryfe, L.
Listowel, E.	Taylor of Mansfield, L.
Llewelyn-Davies of Hastoe, B.	Tordoff, L.
Lloyd of Kilgerran, L.	Underhill, L.
Lockwood, B.	Wade, L.
Lovell-Davis, L.	Wedderburn of Charlton, L.
McIntosh of Haringey, L.	Wells-Pestell, L.
Mackie of Benshie, L.	White, B.
MacLehose of Beoch, L.	Willis, L.
McNair, L.	Wilson of Langside, L.
Mar, C.	Winstanley, L.

NOT-CONTENTS
Airey of Abingdon, B.	Hailsham of Saint
Alexander of Tunis, E.	Marylebone, L.
Ampthill, L.	Harmar-Nocholls, L.
Auckland, L.	Harvington, L.
Avon, E.	Hives, L.
Bauer, L.	Holderness, L.
Belhaven and Stenton, L.	Hornsby-Smith, B.
Beloff, L.	Kimberley, E.
Belstead, L.	King of Wartnaby, L.
Berkeley, B.	Kitchener, E.
Blake, L.	Launderdale, E.
Brabazon of Tara, L.	Lloyd of Hampstead, L.
Broxbourne, L.	Long, V.
Bruce-Gardyne, L.	Luke, L.
Caccia, L.	McAlpine of West Green, L.
Caithness, E.	McFadzean, L.
Cameron of Lochbroom, L.	Mancroft, L.
Campbell of Alloway, L.	Margadale, L.
Campbell of Croy, L.	Merrivale, L.
Carnegy of Lour, B.	Mersey, V.
Chalfont, L.	Molson, L.
Coleraine, L.	Mottistone, L.
Colville of Culross, V.	Mountgarret, V.
Cork and Orrery, E.	Mowbray and Stourton, L.
Crawshaw, L.	Murton if Lindisfarne, L.
Cullen of Ashbourne, L.	Nugent of Guildford, L.
Daventry, V.	Onslow, E.
Davidson, V.	Orr-Ewing, L.
De Freyne, L.	Pender, L.
Denham, L. [Teller.]	Portland, D.
Eden of Winton, L.	Renton, L.
Ellenborough, L.	Rochdale, L.
Elliot of Harwood, B.	Rodney, L.
Elton, L.	St. Davids, V.
Faithfull, B.	St. Germans, E.
Fanshawe of Richmond, L.	Saint Oswald, L.
Ferrier, L.	Saltoun, Ly.
Fortescue, E.	Sandford, L.
Fraser of Kilmorack, L.	Savile, L.
Gainford, L.	Selborne, E.
Gibson-Watt, L.	Sempill, Ly.
Glanusk, L.	Shannon, E.
Glenarthur, L.	Skelmersdale, L.
Gormanston, V.	Somers, L.
Greenway, L.	Strathcona and Mount Royal,
Gridley, L.	L.

Strathspey, L.	Ullswater, V.
Swansea, L.	Vaux of Harrowden, L.
Swinton, E. [Teller.]	Vickers, B.
Thomas of Swynnerton, L.	Vivian, L.
Thorneycroft, L.	Ward of Witley, V.
Trefgarne, L.	Westbury, L.
Trenchard, V.	Wise, L.
Trumpington, B.

Resolved in the negative, and amendment disagreed to accordingly.

Clause 3 [Operation of schemes]:

5.10 p.m.

Lord Stoddart of Swindon

moved Amendment No. 4: Page 4, line 24, at end insert ("but such day shall not be before 1st October 1985."). The noble Lord said: My Lords, I beg to move Amendment No. 4 standing on the Order Paper in my name and the name of my noble friend Lord Graham of Edmonton. As noble Lords will be aware, we moved an identical amendment at the Committee stage but withdrew it because we hoped that the Minister would consider what had been said and come back at this stage with his own amendment. It was clear at that stage that the Government were not ready to put the Bill into operation. Furthermore, by the time we had reached that amendment the Bill was in a rather different form from that at the beginning of the Committee stage, the Government having been defeated twice. However, the Government have decided that they want to press on with the Bill and do so as quickly as they possibly can.

Noble Lords will know that the Opposition are not in favour of the Bill in its entirety. We do not believe that it is necessary. At the Committee stage, having accepted that the Government wanted to have their way, I asked why there was the rush, why the Government wanted to get rid of a profitable organisation and why do it so quickly, before they were really ready. It is patently obvious that they are not ready to implement the Bill in its entirety.

It is becoming clear to us from conversations that we have had that many things need to be settled before vesting day. The vesting day that the Government have in mind is far too close for those matters to be settled. Indeed, had the Government had to meet the original vesting day of 1st October 1984 they would have been in terrible trouble. I very much doubt whether they would have been able to come forward to Parliament with the schemes and information that they have promised to make available.

At the Committee stage, among other things the Minister said that the Government had explained the benefits that he saw as flowing from the operation of the ROFs on a fully commercial basis, and that they were convinced that the best interests of all concerned—the ROFs, the workforce, the services and indeed the country at large—lie in an early change of status.

On 21st May 1984 (at col. 740) in another place, the right honourable Denzil Davies said: What on earth is the benefit of this exercise to the country? What is the benefit to the country's defences? What benefit is there to the employees of the ordnance factories and to the British taxpayer? We received no answers to those questions on Second Reading. in Committee, on Report, or now on Third Reading". To date, we have not received any of the answers from the Government in this noble House.

There are enormous problems in store for the employees with the proposals for two pension and two redundancy schemes which will create much bitterness in the future. Lord Carver said on 19th July 1984 at cols. 1675–76 that the services themselves could suffer greatly as a result of some of the operations of this Bill.

It is now three months since the Minister said that the drafting of the memorandum of understanding was almost finalised. That was three months ago, and we have so far seen nothing at all. I should like to know from the Minister how close the memorandum is to finalisation, bearing in mind that three months ago he said that it was near to being finalised. Presumably it ought now to be completed. Perhaps those who are involved may have a sight of it as soon as possible. We have not even seen an abridged version. We have not seen the final articles of association, although, as I said, three months ago the Minister said that they were in final draft. Where is the information that we were promised? Can he give us an assurance that we shall have it before the completion of the Bill through Parliament?

At the heart of the Bill are the provisions in Clauses 1, 2 and 3 about schemes. Schemes are the chief mechanism by which the Ministry of Defence and other Government property, including that of copyright, presently vested in the Queen, will be transferred to the company. To date neither House of Parliament has any detailed knowledge of the contents of the scheme, yet the Government apparently want to rush ahead with the privatisation of what it is agreed is a very efficient and profitable undertaking. Ministers have said that it is important that the scheme, with necessary exclusions, should be made public so that those whose rights are affected should know where they stand. We have not yet had any scheme published at all. What about the rights of all those people to whom the Minister referred?

Parliament has a right to know what legislation it is passing. It needs to know that the steps being taken by the Government will secure a full financial return for transfers. That is what it is all about. We understand that there is still much work to be done on this scheme, particularly in respect of the valuation of assets, which I should have thought was a matter of the utmost importance particularly to the present Government.

The location for the headquarters of the ammunition division has not yet been decided. I understand that it is currently housed in offices in the old War Office building in London. But if vesting day is to be in November, what happens to the ammunitions headquarters' staff'? Are they to be evicted? Will they be thrown out into the street with nowhere to go? It takes time to acquire and to move into new offices. Again, that is another reason why the operation of the Bill should be delayed, and delayed for a reasonable period, which we believe to be about a year.

There is still much work to be done on pensions and redundancy. As noble Lords will have seen, there are amendments on the Order Paper which will be moved at a later date to try to put those matters right. Nevertheless, there is much work to be done on those matters. The trade unions—the people working in the industry—are not satisfied with what has gone on to date and do not believe that the Bill should become operative until those matters have been settled to their satisfaction and in fairness to them and their families.

The ROFs' annual report for 1982–83 states: The significant improvement in the ROFs' financial position has enabled planning for some expansion of investment with an increasing emphasis on the replacement and the modernisation of factory facilities. At the end of 1982–83 this was reflected in future expenditure contractually committed of £20.6 million and further authorisation not yet committed of £28.5 million". We need to know, and I think we are entitled to know, whether this additional expenditure of £28.5 million was authorised and had indeed been contractually committed.

Perhaps the Minister can answer that when he replies. Indeed, will the Secretary of State also place a limit on any new investment by the ROF PLC involving capital expenditure? Will the new company have its business restricted to defence products? If this is to be the case, then it will need some guarantee of orders from the Ministry of Defence. These are all relevant matters about which we are entitled to have replies.

The Under-Secretary of State, speaking in the Committee stage of the Bill in the House of Commons on 28th February, said: The precise value of the new Company will not be known until after vesting day—perhaps not until two or three months after vesting day, depending on how much work there is to be done. Clearly this fact will influence the issue of securities for which provision will be made in the Scheme. Because of the preliminary work that is being done on valuation, we expect to have a very good idea, though not an exact one, of the total value of the Company by the end of June. Based on that we shall be able to determine the most appropriate capital structure for the Company.". Messrs. Cooper and Lybrand were employed to produce the priciples of valuation. Have these been finalised? So far as we know, they have not. If they have been finalised, have they been approved by the Ministry of Defence?

There are three issues arising from the valuation of assets. These are as follows. First, the Board of Inland Revenue will need to be satisfied that the value attributed to the assets is reasonable, since the valuation will be used as the basis for claims for tax allowances in subsequent trading years. Secondly, the assets transferred will need to be valued in order that an opening balance sheet may be prepared; I should have thought that was elementary. Thirdly, the most appropriate capital structure for the company including the amount of authorised capital and the nominal value of the shares will be based on such valuation. As such work has still to be done on the valuation of assets the capital structure of the company itself is unknown. If the assets have not yet been valued it will be difficult to produce an opening balance sheet. Parliament as a whole lacks information on all these aspects.

I would have thought that with that catalogue of failures of indecision, of not knowing exactly where they are going on the part of the Government, there is a very good case—indeed, an overwhelming case—for delaying the operation of the provisions of this Bill. While I understand the desire of the Government to get rid of national assets to the private sector—although I disagree with it, I understand that that is the nature of their dogma—I say to them that it is not in the country's interests that such assets should be transferred in such a way as to injure the taxpayer and those people who are running and working in Royal Ordnance factories themselves.

I believe that the Government have a duty to the taxpayers and to the people working in these undertakings. I believe the Government have a duty to ensure that the interests of the taxpayers and also the interests of those working in the undertakings are fully safeguarded. They will only do that by ensuring that when they go forward with their schemes, when they decide finally to go to the market and privatise, they are proper, well thought out, well constructed and well balanced schemes that are going to benefit the country, and not the reverse. Therefore, I hope under all these circumstances that the Minister will see fit to accept this amendment.

Lord Trefgarne

My Lords, I am afraid the Government are no more able to accept this amendment now than we were when we discussed it in Committee. The effect would be to delay vesting day by almost a year. The noble Lord has explained why he believes such delay would be helpful, but I have to say that the likely effect of any such delay would merely be to prolong existing uncertainties. There has in fact been progress in the matter of the pensions scheme and redundancy payments, which I think was uppermost in the minds of noble Lords when we last discussed this matter, since this amendment was last before your Lordships. In the interval, I understand that the trade unions have been able to satisfy themselves as to a number of technical points arising on the pensions scheme. I accept that there are still some outstanding issues, and I hope that these can be quickly resolved one way or another.

As to redundancy payments, I believe that the unions are now satisfied that transferred employees will receive after vesting day, in the event that they are declared redundant, indentical compensation to that which they would have received had they remained within the Civil Service. An entitlement to benefits at that level will, in the absence of any agreement to the contrary, form part of the terms and conditions of service after vesting day, and there will therefore be a contractual right on the part of employees to receive benefits at that level. Naturally, any failure by the company to make them would constitute a breach of contract.

The failure to resolve outstanding issues has not been entirely due to lack of time. The questions involved are complex. Their complexity will not diminish with the passage of time. Indeed, the approach of a deadline tends to concentrate the mind, and its postponement merely dissipates the will to complete the task. There is no guarantee that if vesting day were to be postponed, as the amendment calls for, we should not find ourselves in more or less the same situation some months from now.

There is much to be said, I believe, for vesting day to take place, and outstanding issues to be negotiated direct between the unions and the company. The basic position of the unions has been secured and it will not be jeopardised by having vesting day sooner rather than later. I appreciate the noble Lord's anxiety about these matters, but I am afraid that the Government could not accept the amendment.

As to the precise date of vesting day, it has always been our desire to have vesting day as soon as possible after Royal Assent has been given to the Bill. Our earlier intention that it should take place on 1st October 1984 had to be abandoned when it became clear that the Bill could not complete its Parliamentary passage before the Summer Recess. With the benefit of hindsight I think I can say that we would have had some difficulty in meeting that date, anyway. There are still some formalities to be completed. I do not wish now to risk a prediction of when vesting day will be, but I shall only say that it will be as soon as we can manage it after the Bill is passed. Incidentally, the noble Lord referred to the articles of association. These are public documents. They are available now in the company registry. Indeed I shall be happy to send the noble Lord a copy of the holding company's articles if that would be of assistance to him.

The memorandum of understanding I fear is not yet complete but it will be published when its terms are completed, save for any omissions that we have to make for reasons of commercial confidentiality or other security considerations. As I say, it is not yet in final shape but we shall publish it in due course, with the proviso that I have offered, when it is. I hope that I have been able to assuage some of the anxieties of the noble Lord. I fear that this is a matter upon which it will be very difficult for me to persuade him completely, but I none the less hope that the noble Lord will not wish to press his amendment.

Lord Lloyd of Kilgerran

My Lords, if ever there was a speech by a Minister justifying an amendment, we have now just heard it. The noble Minister is very fair. He has admitted that there are all these complications and delays. To revert to a simple matter of the list of patents, two, three or four hundred patents were promised in February. We have heard nothing about them. As we go through this Report stage, we hear more and more about the uncertainties for the preparatory work of this Government in relation to this Bill. If I may echo the words of the noble Lord, Lord Stoddart, Parliament really has a right to know what legislation it is passing.

The object of Clause 1 of the Bill is to produce transfer schemes which must be put to Parliament. Here we are, having postponed one date—the vesting date originally arranged of 1st October. And the Minister says that we could not keep to that. Surely, the Government ought at least to give way to some extent and reduce the uncertainties that they are worried about by giving a date. After all, a year is not a very long time in dealing with matters of this kind. Cannot he give some further date which will be a reasonable period of, not necessarily but approximately, a year as is asked for in the amendment?

Lord Stoddart of Swindon

My Lords, I have to echo the words of the noble Lord, Lord Lloyd of Kilgerran, that if there was a justification for pressing this amendment it was contained in the Minister's own speech. The noble Lord really did not answer the many questions that I put to him. Certainly, I do not believe that he convinced the House that the Government really were ready in any proper state to go forward with the implementation of this Bill when it becomes an Act. Indeed, the whole issue seems to be woolly and airy-fairy.

I accept what the Minister said about the articles of association being available, and I should be most obliged if he would send me a copy. But the memorandum of understanding which is an important understanding and an important document will be published in due course. In due course! That could be three years hence. It could be a decade away. The Minister was not even able to assure this noble House that the memorandum of understanding would be published within a few weeks, two months or even three months. It would be published in due course. "In due course" could cover a very long period of time. That simply is not good enough. Indeed, it reinforces my view that we need a significant delay in the coming into force of the operation of the provisions of this Bill.

Again, the Minister said that the trade unions may now be satisfied. It may very well be that on one or two technical matters they are satisfied. I can, however, assure the Minister and the Government that the trade unions are not satisfied on the principles of, for example, the pension scheme. The Minister may have some more up-to-date information than I have, but they are not satisfied so far as I know that the pensions of all existing staff will be fully indexed for all time. They most certainly have not been assured and satisfied that future employees will have pensions that are comparable to those of existing employees. They are most concerned that within this same organisation there will be two sets of staff, one enjoying superior conditions of service to the other. They are certainly not convinced, for example, about redundancy. We shall be dealing with these matters in later amendments.

If the Minister really believes as he appeared to say and confirm that the trade unions are now basically satisfied, he has a rude awakening coming to him. That is another reason why I urge noble Lords to support this amendment. It will be in the interests of Parliament. It will be in the interests of the country. It will certainly be in the interests of the Royal Ordnance factories and, indeed, of the Government themselves to have a delay of this measure.

5.35 p.m.

On Question, Whether the said Amendment (No. 4) shall be agreed to?

Their Lordships divided: Contents, 84; Not-Contents, 100.

DIVISION NO. 3
CONTENTS
Airedale, L.	Brockway, L.
Ardwick, L.	Brooks of Tremorfa, L.
Attlee, E.	Bruce of Donington, L.
Aylestone, L.	Carmichael of Kelvingrove, L.
Balogh, L.	Carver, L.
Beswick, L.	Cledwyn of Penrhos, L.
Blease, L.	Collison, L.
Blyton, L.	David, B. [Teller.]
Bottomley, L.	Davies of Leek, L.

Davies of Penrhys, L.	McNair, L.
Dean of Beswick, L.	Mishcon, L.
Donnet of Balgay, L.	Mountevans, L.
Elwyn-Jones, L.	Mulley, L.
Ennals, L.	Nicol, B.
Evans of Claughton, L.	Northfield, L.
Ewart-Biggs, B.	Oram, L.
Ezra, L.	Phillips, B.
Galpern, L.	Ponsonby of Shulbrede, L.
Gladwyn, L.	Rochester, L.
Gosford, E.	Ross of Marnock, L.
Graham of Edmonton, L.	Seear, B.
[Teller.]	Shackleton, L.
Grey, E.	Stallard, L.
Hampton, L.	Stedman, B.
Hatch of Lusby, L.	Stewart of Alvechurch, B.
Hayter, L.	Stewart of Fulham, L.
Hooson, L.	Stoddart of Swindon, L.
Hughes, L.	Strabolgi, L.
Hunter of Newington, L.	Taylor of Blackburn, L.
Jacques, L.	Taylor of Gryfe, L.
Jeger, B.	Taylor of Mansfield, L.
Jenkins of Putney, L.	Thurso, V.
Kaldor, L.	Tordoff, L.
Kennet, L.	Underhill, L.
Kilmarnock, L.	Wade, L.
Kinloss, Ly.	Wedderburn of Charlton, L.
Leatherland, L.	Wells-Pestell, L.
Llewelyn-Davies of Hastoe, B.	Whaddon, L.
Lloyd of Kilgerran, L.	White, B.
Lockwood, B.	Wilson of Langside, L.
Lovell-Davis, L.	Winstanley, L.
McIntosh of Haringey, L.	Wootton of Abinger, B.
Mackie of Benshie, L.

NOT-CONTENTS
Airey of Abingdon, B.	Hives, L.
Alexander of Tunis, E.	Hornsby-Smith, B.
Ampthill, L.	Hylton-Foster, B.
Auckland, L.	Kimberley, E.
Avon, E.	King of Wartnaby, L.
Bauer. L.	Kinnoull, E.
Belhaven and Stenton, L.	Kitchener, E.
Beloff, L.	Lindsey and Abingdon, E.
Belstead, L.	Lloyd of Hampstead, L.
Brabazon of Tara, L.	Long, V.
Broxbourne, L.	Lucas of Chilworth, L.
Bruce-Gardyne, L.	Luke, L.
Caccia, L.	McFadzean, L.
Caithness, E.	MacLehose of Beoch, L.
Cameron of Lochbroom, L.	Mancroft, L.
Campbell of Alloway, L.	Margadale, L.
Campbell of Croy, L.	Merrivale, L.
Carnegy of Lour, B.	Mersey, V.
Cathcart, E.	Molson, L.
Coleraine, L.	Monson, L.
Colville of Culross, V.	Morris, L.
Craigavon, V.	Mottistone, L.
Cullen of Ashbourne, L.	Mountgarret, V.
Daventry, V.	Mowbray and Stourton, L.
Davidson, V.	Murton of Lindisfarne, L.
Denham, L. [Teller.]	Nugent of Guildford, L.
Dilhorne, V.	O'Brien of Lothbury, L.
Eden of Winton, L.	Onslow, E.
Elliot of Harwood, B.	Orr-Ewing, L.
Elton, L.	Pender, L.
Faithfull, B.	Portland, D.
Fanshawe of Richmond, L.	Renton, L.
Ferrier, L.	Rochdale, v.
Gibson-Watt, L.	Rodney, L.
Glanusk, L.	St. Davids, V.
Glenarthur, L.	Saltoun, Ly.
Gormanston, V.	Sandford, L.
Granville of Eye, L.	Savile, L.
Greenway, L.	Shrewsbury, E.
Gridley, L.	Skelmersdale, L.
Hailsham of Saint	Somers, L.
Marylebone, L.	Strathcona and Mount Royal
Harmar-Nicholls, L.	L.
Harvington, L.	Strathspey, L.
Headfort, M.	Swansea, L.

Swinton, E. [Teller.]	Trumpington, B.
Thomas of Swynnerton, L.	Ullswater, V.
Thorneycroft, L.	Vaux of Harrowden, L.
Tranmire, L.	Vivian, L.
Trefgarne, L.	Ward of Witley, V.
Trenchard, V.	Windlesham, L.

Resolved in the negative, and amendment disagreed to accordingly.

5.44 p.m.

Baroness Vickers

moved Amendment No. 5: Page 5, line 3, at end insert— ("and unless such disposal has been authorised by an affirmative resolution of both Houses of Parliament."). The noble Baroness said: My Lords, I beg to move Amendment No. 5 standing in my name on the Marshalled List. First of all, I should like to apologise for the fact that it is a starred amendment. I do not know why, in such a long Recess, it did not get here sooner. I should also like to thank the noble Lord for answering questions arising from the previous debate, first of all in regard to the articles of association of the new Royal Ordnance Company, which I gather are going to be kept the same. He said he would always keep the House informed if any significant changes were proposed. That rather ties in with my amendment. How is he going to keep us informed? Perhaps he would let me know when he comes to reply. I am pleased to know also that the Health and Safety at Work Act, the Factories Acts and the public health legislation will now apply to these factories.

The purpose of this amendment is to have a debate before the Secretary of State sells off the shares. The passing of the Bill is the first step, and this changes the status of the Royal Ordnance factories to that of a Companies Act company, with all the shares being held by the Secretary of State for Defence. Unless the amendment is supported, once the Bill is passed the House will have no opportunity to debate the next step, which I think is even more important.

As I said at Committee stage and on Second Reading, there is much concern about the second step, which the Bill does not cover. The second step involves the selling off of shares to private industry, including foreign-controlled industry, although it is accepted that foreign control will be restricted. How is this restriction to be undertaken? A host of problems will arise. Price is one of them. At the end of the day, what price will the Government get for the shares? We know that the Explanatory and Financial Memorandum to the Bill says that it will cost £250 million to safeguard the pension rights of the employees. I presume that that amount will have to come out of the purchase price which the Government will get. The valuation of the assets of the Royal Ordnance factories causes great difficulties and so far neither House has been given satisfactory answers. Valuation principles are very complex, and valuation impinges on the price.

The Parliamentary Under-Secretary of State, Mr. Lee, speaking in the debate on the Report stage in the House of Commons on 17th May 1984, said at col. 538: If we move towards privatisation by way of flotation, which is the most likely course"— he did not say it was the likely course; he said it was the most likely course— the stock exchange itself would require independent valuations to be made and disclosed in any prospectus of the fixed assets". The Minister mentioned only fixed assets, not all the other assets. Perhaps tonight he will reply to that point. The Royal Ordnance factories have intangible assets such as copyright, patents and designs. many of which are shared with the Ministry of Defence. All that will be valued is plant and machinery and perhaps some land. I suggest that the Government are being very irresponsible in proposing to float off a major national asset, one that is vital to the defence of the country, without having a clear idea of the direction in which they are proceeding.

The Minister of State for Defence Procurement, speaking in the Third Reading debate in the House of Commons on 21st May 1984, said, beginning at col. 739: At a later stage but, we hope, a not much later stage, we propose to seek the introduction of private capital into the company. The route and timescale for that will depend essentially on the ROFs' trading record … but we have made it clear that our preferred method of privatisation. if feasible, would be a stock exchange flotation of the enterprise as a whole. The present Bill, is however, concerned with the incorporation of the ROFS as a wholly Government-owned company. We will at a later date put forward detailed proposals on privatisation in the light of the circumstances at the time". I suggest that we need further information today. I hope that the Minister will give this and also give us an idea of when the vesting date is likely to be. Because of the complexities of the valuation of all the assets, because of the uncertainties about the way forward, this amendment should be accepted.

The Bill lays down that before shares are sold the consent of the Treasury must be obtained. I suggest that Parliament also should be given the opportunity to discuss the Government's future proposals and to give its consent. Support for this amendment will mean that the Minister's offer that there will no doubt be an opportunity to discuss them, should the House so wish at that time, will become a reality. We would need also to discuss the Government's proposals on the amendment.

I should like to finish by saying that I consider this to be an extremely important amendment. I hope that people have considered it. but I regret to say that a great many have not really given much consideration to the other amendments—I think that most of them have not even been in the Chamber to hear the arguments.

As I understand it, this legislation is expected to be introduced in November when the Minister of Defence will, I hope, have masterminded which factories are to be affected and what is to be done to them in the future. We do not know whether they will be sold en bloc or individually. For that reason it is essential that we should have some knowledge. Also I want protection given so that we do not get all the shares bought in large blocks, particularly by some foreign country. I want to know what safeguards we shall have as regards that aspect. I hope with those few words that the Minister will give us some really definite answers as to what is going to happen in the future. These ordnance factories made a profit of £68 million last year. The only reason I can understand for selling then off is to enable the Government to say that they are getting rid of some civil servants. That is not a very good reason, and I hope that a better reason will be given for selling off these factories in the future. I beg to move.

Lord Graham of Edmonton

My Lords, I rise to support the amendment which has been so ably moved by the noble Baroness, Lady Vickers. The Minister now has a further opportunity to get rid of the unease which is felt on this side of the House. We are not uneasy that the Minister does not know the timetable and the detail of many matters, but we are uneasy at his reluctance to bring this House and those who work in the factories into his confidence. We cannot believe that, after some 12 months of progress from the Queen's Speech of last year, the Government do not have a clear idea in their head as to where they want to go. Of course they have. The trouble is that Members of this House have not been brought into their confidence.

This amendment has been tabled in the light of all that has gone on in the last two or three years—the methods of disposal, the profit or the loss, the viability or the best way of doing things. This amendment is simply saying in effect that it is all very well for the Bill to say that the disposal shall be made with the Treasury's consent; we are saying, "What about our consent? What about the consent of Parliament?" We are not interfering with the raison d'être of the Bill. We are simply saying, "When you are satisfied that you have a basis of disposal"—and the Minister knows that there are arguments as to the best way of doing it—"tell us what it is and let us have a short debate so that the views of the House can be made known".

The noble Baroness, Lady Vickers, raised a number of questions that can arise quite legitimately—for example, the level of the price. That can be conditioned by the level of the advertising in which the Government indulge. We know the extent to which this Government in their determination to sell off shares in British Telecom have mounted a massive programme. The Minister would do the House a service if he would spend a little time telling the House exactly how the Government intend to launch the sale of shares in our small arms factories on to the market. Do they give as high a priority to the sale of these shares as they have given to the sale of British Telecom shares?

The noble Baroness, Lady Vickers, raised the whole question of valuation—the basis of valuation and the principles of valuation. They are all involved in the final price at which the public—and one assumes that that is the way in which it is to be done—will be invited to put their money into these schemes. The noble Baroness put her thumb on the matter when she pointed out and alluded darkly to the point that the real reason why the whole empire is to be dismantled is to enable it to be shown in some column that there are 18,000 or 20,000 fewer civil servants employed by the Government; and in so doing, in our view, the national security will be put at risk.

So the Minister can help us by answering some questions. The lack of detail given to us, as pointed out by my noble friend Lord Stoddart on an earlier amendment and as pointed out now, really makes a laughing stock of the Government's declaration that they want to treat this House with the respect that it ought to receive—never mind the employees. Beyond any Member of this House, the employees have a lot at stake; it is their livelihood, their respect and their dignity that are involved. What we are saying is that we shall come to arguments on that matter. At present we are concerned with getting value for money. Although we are not arguing about the expertness of the advice that can be given by people who will, of course, make a fat fee for the advice they give to the Government as to how they are to get rid of the shares, we really need, if we have any respect ourselves, to insist that we are entitled to be brought into the Government's confidence in part. Once the Government have made up their mind as to how they are going to proceed, then they should come to the House and tell us. We know that parliamentary arithmetic will give the Government their way. I certainly support the amendment and await with interest the course which the noble Baroness will take in the light of the Minister's reply.

Lord Trefgarne

My Lords, I explained during our discussion of this amendment in Committee the reasons why the Government cannot accept it. We have made it clear that we intend to seek the introduction of private capital into the ROFs once they are a Companies Act organisation, and that we see no reason why privatisation should be long delayed. We have also made it clear that the most likely route for privatisation is by a Stock Exchange flotation of the whole enterprise, although we have also made it clear that we do not rule out separate disposals of subsidiary companies should such a course make sense.

I gave a clear assurance in Committee that we would certainly want to keep the House informed of our intentions as regards the route and timings of privatisation as soon as we were able to do so, and with as much detail as we were able to give. There will be a great many factors to consider before a disposal of the Secretary of State's shares, including the condition of the market at the time and the likely receipts on privatisation. Some of those factors will be commercially sensitive, and others might arise at short notice. If we were to have to go through the mechanics of arranging for an affirmative resolution in both Houses, I can see the possibility that not all of the factors behind the Government's decision regarding privatisation could be made available to the House. We would not wish to prejudice the successful privatisation of this company, and I am sure that your Lordships would not wish this either.

Of course, we will wish to announce our proposals for privatisation to Parliament at the appropriate time. But I believe a much more sensible way of doing this is by making a ministerial statement on which questions can be asked. These can be arranged at shorter notice and therefore be more appropriate than a debate which may have to take place on affirmative resolution possibly weeks beforehand.

I have said before that the Government are not attempting to hide anything from Parliament. We have made clear our intentions for the future of the ROF organisation, and indeed have had a number of debates about the pros and cons of actual privatisation. It has been said before that a new valuation will be required before the company is privatised, and I am sure that that will figure in any debate before privatisation. Perhaps I should emphasise here, as I did with the noble Lord, Lord Stoddart, in Committee, that the public purse is not by any means sustaining a loss through privatisation, and Parliament need have no worries on that score.

I think that my noble friend Lady Vickers referred to £250 million as the expense of privatisation. It really is not that; it is the price to be paid for the buying out of existing legal liabilities. In any case, it is a maximum figure and the cost is unlikely to amount to anything like that in practice. I am afraid that I must therefore ask your Lordships to reject this amendment which restricts the Government's necessary flexibility and could therefore endanger the success of privatisation, bearing in mind the reasonable undertaking that I have given about the information that will be made available and the opportunity to debate privatisation. I hope that my noble friend will be reassured and will not wish to press her amendment.

Baroness Vickers

My Lords, I shall not put this amendment to the vote because obviously I would lose it, but I shall reserve my right to raise the matter again at the final stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6 p.m.

Lord Graham of Edmonton

moved Amendment No. 6: Page 5, line 15, leave out subsection (9) and insert— ("(9) Not less than six weeks before the day on which a scheme comes into force, the Secretary of State shall lay before Parliament a copy of the scheme but omitting any material the disclosure of which he considers would be contrary to national security or to the commercial interest of any person, and such copy shall include any Memorandum of Understanding entered into by a Minister of the Crown and the Chairman of the Board of any Company referred to in subsection (4) describing the relationship between the Government as shareholder and any such Chairman."). The noble Lord said: My Lords, we consider this to be a crucial amendment. The Minister may say that it creates an opportunity for delay, but I beg him to take fully on board the anxiety of those outside the House who are affected by the matters which are contained in this amendment. The amendment begins: Not less than six weeks before the day on which a scheme comes into force, the Secretary of State shall lay before Parliament a copy of the scheme". I pause there because there is more than agitation and frustration at the Minister's words and those of his colleagues in regard to the ultimate appearance of details of the scheme.

The Minister will understand that what is contained in the scheme is vital to the interests of many people. The scheme has been promised or alluded to; I do not have the precise words, but the Minister will know them and where the parliamentary references and letters can be found. The confident expectation was that details of a scheme would certainly be available by now.

When we debated these matters on 19th July the Minister undertook to lay the scheme before Parliament on vesting day, and the inference in his response was that the memorandum of understanding would also be laid before Parliament on vesting day. We believe that that is far too late for Members of this House or the other place to make any observations on the thrust of the details of the scheme. We know what the scheme envisages. It will cover such matters as the transfer of property rights and liabilities. We know what the liabilities are. We know that it will contain the valuation principles, the agreements and licences and the intellectual property rights. In our view all these matters are essential.

What does this amendment seek to do? We are saying that 30 working days or six weeks before vesting day we want to be able to have sight of two crucial documents. One is the memorandum of understanding and the other is the scheme. The Minister will be fully aware of the anxieties which are felt outside. But I should have thought that the Minister could assuage those anxieties by giving some indication as to when the scheme will be made available. The phrases: "in due course", "as soon as possible", and "every confidence" are not acceptable. In fact, we are being invited to buy a pig in a poke. The House and Parliament are being invited to give assent to a Bill which will become an Act, the guts of which, so far as many people are concerned, will not be known until after it is a fait accompli. I hope the Minister will appreciate that this is not a delaying amendment. It is an amendment designed to reassure those people whose personal interests will be vitally affected that they will have an opportunity to study the contents of the scheme so that Members of this House and another place will be able to make observations upon it. I beg to move.

Lord Trefgarne

My Lords, in Committee I explained to the noble Lord, Lord Diamond—and I am sorry that he is unable to be with us today—that the Government are quite prepared to lay the first scheme before Parliament on vesting day and to publish any memorandum of understanding—except in so far as considerations of commercial sensitivity demand otherwise, as I said just now in answer to an earlier amendment—no later than vesting day, should it be ready by then.

Your Lordships are aware that we place great importance on achieving vesting day for the new company as soon as possible. This amendment would have the practical effect of delaying vesting day for up to six weeks for no practical purpose. There will be no memorandum of understanding in the scheme. I accept however that such a memorandum would be an important document which Parliament would wish to consider. But in the final analysis that document is a matter between the Secretary of State and the chairman of the new company, and there would be nothing to be gained by holding up vesting day while Parliament examines the documents. I have already explained that the scheme will be essentially a conveyancing document dealing with the minutiae of the transfer, the scope and general policy underlying which have already been made clear to Parliament by the Government.

I hope your Lordships will accept that the Government are not attempting to hide anything from Parliament, but we must reject this amendment, which imports a totally unnecessary delay in the implementation of the Governments' plans.

To use a colloquialism, I think that we have been round this buoy a good few times now, and I hope that the noble Lord will agree that little is to be gained from pursuing the matter further. It is a matter upon which I very much doubt whether the noble Lord and I can reach agreement, although I have attempted to allay anxieties.

Lord Graham of Edmonton

My Lords, the Minister is correct; we shall not press this amendment to a Division and take up the time of the House. The Minister spoke in terms of the contents of the scheme—the minutiae of the scheme. They may be minutiae to the Minister and I, but they are matters of very great importance to many other people. The Minister rejects the charge that he has something to hide; we are not making the charge that he has something to hide. We are arguing that it would be proper and in accordance with open government if, knowing what the Minister knows, those whose interests are vitally affected were made privy to the scheme at an earlier rather than a later date.

The Minister has said that the amendment would cause delay. It would be a matter of six weeks. On this side of the House we are puzzled as to the significance of six weeks, first, in the lifetime of a parliament and, secondly, in making sure that these matters are dealt with in as orderly a manner as possible. There are people outside who consider it to be a great benefit, not to influence the contents but to be aware of the contents of the scheme and the memorandum of understanding. If they are in possession of that knowledge, the extent to which they would be able to change the scheme is a moot point; but at least if there are queries about it opportunities would be found by parliamentarians in both Houses to question Ministers. I suggest that there is more than a hint that Ministers wish to avoid being questioned too closely in too much detail before the matter becomes a fait accompli.

I do not know the details that the Minister has in his possession and which he and his colleagues have been discussing; hut, as competent as this Minister is, for the life of me I fail to see why, if it is felt necessary, he is not prepared to face challenges and questioning on the matter. We ought to be given that opportunity. As the noble Baroness, Lady Vickers, said on an earlier amendment, this may not be the proper stage at which to press the matter. But I am very disappointed that even on the margin—and in the lifetime of a piece of legislation six weeks is literally on the margin—the Minister is not prepared to demonstrate his willingness to enter into a more open form of government than we believe he has been a party to in this Bill. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 [Government investment limit]:

6.9 p.m.

Lord Stoddart of Swindon

moved Amendment No. 7: Page 6, line 39, at beginning insert— ("( ) This section shall have effect subject to the provisions of section 3(6)."). The noble Lord said: My Lords, I beg to move Amendment No. 7 which stands in the Marshalled List in my name and those of my noble friends Lord Graham of Edmonton and Lord Lloyd of Kilgerran. Perhaps for the convenience of the House, together with this amendment we can take Amendments Nos. 8 and 9. Amendment No. 8: Page 7, line 8, at end insert— (" but such investment shall not prevent the Secretary of State or his nominee or the Treasury's nominees from owning or acquiring shares in any successor company equivalent to more than one-half of the ordinary voting rights."). Amendment No. 9: Page 7, leave out lines 16 and 17. Amendment No. 7 reads: Page 6, line 39, at beginning insert—("( ) This section shall have effect subject to the provisions of section 3(6).")". Perhaps I had better read Section 3(6), which states: The Secretary of State may not dispose of any securities issued to him in pursuance of a provision made by virtue of section 1(2) unless the disposal is made with the Treasury's consent.". We believe that such disposals ought not in fact to be made without the consent of the Treasury.

It may be that the Minister will argue that the amendment is unnecessary because the crux of the amendment is covered elsewhere in the Bill. Indeed the Bill is badly drafted in parts, and perhaps he could consider that and when he replies tell us whether this particular point is covered elsewhere in the Bill.

I now come to Amendment No. 8, which reads: Page 7, line 8, at end insert—("but such investment shall not prevent the Secretary of State or his nominee or the Treasury's nominees from owning or acquiring shares in any successor company equivalent to more than one-half of the ordinary voting rights.")". The Explanatory and Financial Memorandum to the Bill in referring to Clause 7 states: Clause 7 requires the Secretary of State to set an investment limit for the Government shareholding as soon as the company concerned ceases to be wholly owned by the Crown. The limit will be expressed as a proportion of the voting rights held, and will be set by an order made by statutory instrument. The Government investment limit may be reduced, but not increased, by a further order, and the Government is required not to hold shares or rights which would bring the total Government shareholding above the established limit.". The purpose of this amendment is to provide a safeguard for the future—a safeguard for the future not only for a Labour Government but in fact for the present Government and indeed perhaps subsequent Conservative Governments if we are unfortunate enough to be saddled with any further subsequent Conservative Governments. We are trying to ensure that Governments of any political colour shall not be restricted in any way as to what they may wish to do in future in relation to the Royal Ordnance factories.

Clause 7 of the Bill as it stands could create real difficulties for any future Secretaries of State. There is no valid argument, so far as I can see, why the Government should not allow a future Secretary of State to increase by statutory instrument their shareholding in the new Royal Ordnance factory structure. This amendment would allow that to happen. There may be important reasons why a future Government would wish to increase the shareholding. There may be all sorts of reasons. In time of crisis, for example, it may be necessary and the Government should not be restricted. It is surely wrong to prevent a Secretary of State, depending on the circumstances which might arise—as I have said, there could be a time of crisis—doing what is thought to be right at that particular moment.

It may be, for example, that a future Conservative Government will not be happy with the direction in which the new Royal Ordnance Company PLC is going. It could be that the Government of the day feel that they are not receiving the service, supplies and reliability which the armed forces have come to expect from the present Royal Ordnance factories. As a result, the particular Government may find it necessary in their interests and those of the country to increase the number of shares held by the state. It is completely wrong that that line of approach should be blocked.

I have not seen the articles of association but the noble Lord the Minister said in July that steps were being taken to prevent foreign control of the company. Nevertheless, should some clever lawyers in the future find a loophole which allowed more foreign control than was envisaged or originally permitted, the inclusion of this amendment would allow any future Government to do something about the matter. It is for these reasons that we hope that the House will support this particular amendment.

Then we come to Amendment No. 9, which says: Page 7. leave out lines 16 and 17. This part of the Bill seeks to ensure that if any Government alter the investment limit, that limit must be lower than the one it replaces. I feel sure that what the Government are seeking to do is to tie the hands of any future Labour Administration. They are saying that they will endeavour to commit a future Parliament. That is how I read it, because a future Government and a future Parliament if they wished to increase the shareholding rather than to reduce it, if they wished to set a new investment limit, the limit would have to be lower than the one it replaced. If the existing limit was 50 per cent. a future Labour Government could not increase the investment limit to 51 per cent. That is as I understand it. If I am wrong, perhaps the Minister will correct me.

Lord Trefgarne

My Lords, would the noble Lord and the House allow me to intervene? A future Government could, of course, pass new legislation.

Lord Stoddart of Swindon

My Lords, I was coming to that point myself. The fact of the matter is that a future Labour Government may be hard pressed for Parliamentary time. Bearing in mind the mess it would have to clear up after the present Government and the previous Government from 1979, they would have a lot on their plate. It may be essential for a future Government to take action immediately on matters of this sort, but as a result of this Bill, which would then be an Act, there would be a delay, and the Parliamentary programme might be put in jeopardy.

It is a wrong principle—and if I am not mistaken it is a fairly modern principle—that a Government should seek to tie the hands of a future Government in this way. In any event, the present Conservative Government might find that they had had their hands tied. A future Conservative Government—or this one, for that matter—may wish, for some reason or another, to take voting control of a company or companies. If they so decided they would be precluded from doing so by the operation of this Act.

It may be that a Conservative Government would conceive it in the national interest that they should have a majority shareholding in any of the PLC companies, but because of the operation of this clause they would be precluded from taking control of such a company. It is burdensome for themselves and would be burdensome for a future Government, particularly a Labour Government. I hope that the Minister will take seriously what has been said and think about the matter because it could cause him and his Government, as well as a future Labour Government, considerable difficulty. I hope that in any event he will be able to answer some of the points I have made and will be able to assure me on at least one of them.

Lord Trefgarne

My Lords, I have to start by saying that Amendment No. 7, the first of the three we are considering, is unnecessary. Clause 3(6), taken together with Clause 5(2) of the Bill, requires the Secretary of State to obtain the consent of the Treasury to any disposal of shares. Those subsections apply to the disposal of shares issued to the Secretary of State under the provisions of a scheme, and also in respect of any securities which he may have subsequently acquired—whether by purchase, capitalisation issue or otherwise. It follows that any disposal made to accord with the setting of a Government investment limit can have effect only if the Treasury gives its consent. There is nothing in Clause 7 to suggest otherwise.

It is not necessary to refer specifically in Clause 7 to either of these other provisions in Clauses 3 and 5, because Clause 7 is already subject to them. The noble Lord's proposal would add nothing to the Bill beyond making explicit what is already clearly and necessarily implicit. There is no ambiguity here which needs clarification by this amendment, and I hope that, in the light of that. the noble Lord might agree that what he proposes in this first Amendment, No. 7, is already in effect in the Bill, and thus that he need not pursue that proposal further.

Turning to the remaining two amendments, Nos. 8 and 9, the Government have already made their position on this subject clear. We intend that the new Royal Ordnance company shall be free and independent of Government control, and with the likelihood of the flotation in mind we wish this to be clearly understood by potential investors. It is, of course, too early to decide what proportion of shares will be disposed of at the time of the initial privatisation, and it is possible that the Government would retain some shares in the company. However, we would have no intention of adding to them subsequently, and if the complete shareholding had been disposed of we would not intend to re-acquire any shares thereafter. The purpose of Clause 7 is to make this clear by imposing a duty on the Secretary of State to fix a limit on the Government shareholding as soon as he has disposed of any shares. The effect of these amendments would he to nullify this policy. The amendments would permit the Government to re-acquire control of the company at any time simply by purchasing on the market the necessary shareholdings. The whole point and purpose of this clause would thus he defeated.

If your Lordships are concerned about a situation arising after privatisation where the Government needed to act quickly to prevent, for example, a foreign take-over of the ROF company—and the noble Lord mentioned that—then that power will exist anyway in the articles, and the provision for a special shareholding by the Secretary of State relates solely to the prevention of foreign take-overs. There will therefore be powers for the Secretary of State to intervene in that sort of circumstance, and we do not wish to retain wide-ranging powers of intervention if the ROFs are to be a free-standing enterprise. The clause as it stands is necessary to ensure that there is no doubt about the Government's intention. Although noble Lords opposite may not like the intention, it makes no sense to legislate in other parts of the Bill for the ROFs to become a free-standing commercial entity merely to allow, as these amendments propose, executive action to be taken by the Government to re-acquire control. Of course, this would not prevent the Government from introducing a further Act of Parliament to renationalise the industry; Parliament could decide that at the time. If that becomes the policy of a future Administration, then they will have to commit themselves to the public debate associated with the introduction oft Bill before Parliament, as we have done here, and argue the merits of the case. Our concern now is that there should be no doubt about this Government's policy, which is as exemplified in Clause 7.

To put the matter another way about, when we were passing legislation through this House relating to the nationalisation of various undertakings under the previous Administration, there was no question of our saying that the Government of that day were tying the hands of some future Administration, although we made our views and intentions known at the time and subsequently. We are making our views and our intentions known at this time. I believe that we are acting entirely properly in bringing this legislation before your Lordships. I must therefore resist the amendment.

Lord Stoddart of Swindon

My Lords, I should like to thank the noble Minister for his assurances about Amendment No. 7. Of course I accept those assurances. I also have to accept what the Minister has said today and indeed what the Government have said many times before: that they intend that the ROFs should be removed from Government control. There is undoubtedly a great gulf between us. What I have tried to show the Minister (but apparently he has not been persuaded by the arguments) is that what he is doing may hurt his own Government at any given point in time. Bearing in mind the nature of the Royal Ordnance factories, bearing in mind the defence and the security aspects, it seems to us that the Government are unduly and unnecessarily tying their own hands as well as the hands of any future Government.

Obviously, I shall want to study what the Minister has said in his reply. I therefore do not propose to press these amendments to a Division, and I beg leave to withdraw Amendment No. 7.

Amendment, by leave, withdrawn.

[Amendments Nos. 8 and 9 not moved.]

Clause 8 [Vested liabilities on winding up]:

6.26 p.m.

Lord Graham of Edmonton

moved Amendment No. 10: Page 8, line 24, at end insert— ("( ) The Secretary of State shall be liable for existing pensions and redundancy payments."). The noble Lord said: My Lords, Amendment No. 10 deals with vested liabilities on winding up. When we were debating earlier the amendment moved by the noble Baroness, Lady Vickers, there was the reference to the anticipated liability of £250 million. Of course, a substantial element of that is wrapped up in the kind of provisions that need to be made concerning the vested liabilities in pension schemes. We are saying simply that as a fall-back position we are not anticipating that there will be difficulties once the transfer has taken place. On the other hand, the Government cannot guarantee the continued viability of any of the companies which will eventually become the shareholders, the managers and the governors of the employees and their pension funds.

I want to read to the House part of the draft of the Royal Ordnance (Crown Service) Pension Scheme trust deed. This draft was made available at the end of July. Paragraph 14 of it says: An Associated Employer"— that would be a divisional company— may at any time with the consent of the Principal Employer"— that would be the holding company— terminate and the Principal Employer may in its absolute discretion give notice to any Associated Employer requiring it to terminate its liability to contribute to the Fund and its participation in the Scheme by giving notice in writing to the Trustees to that effect whereupon such part of the Fund as is attributable to that Associated Employer and the Members who are its employees shall be determined in accordance with Clause 16 below". The interesting situation that we have in the privatisation stakes of the Government is that the employees in British Telecom quite clearly are the blue-eyed boys. Whenever their interests are being considered on a transfer from the public to the private sector, they appear to us—and the Minister can disabuse us of that feeling—to have a special edge. It cannot be because they ate making a profit, because the Royal Ordnance factories are making a profit as well. We are asking for equity. For instance, in another place the Minister who has now changed his portfolio but who was at that time the Minister of State dealing with the Telecommunications Bill, said that the existing pension obligations will be honoured fully. He said that even if British Telecom—although in this case we are talking about the ROFs—goes out of business, the liability would go to the Secretary of State.

We feel that that is fair because, whatever the Minister might feel as a politician, whatever the shareholders might feel as investors, the employees of the Royal Small Arms factory have not collectively—although many of them individually may feel so—wanted to change their status. They have not wanted to cease to be protected (and I use that word advisedly) by their existing pension provisions and the security of being employed by the state. Now, by Act of Parliament, that position is going to alter radically. The purpose of this amendment is simply to say that in the event, as with British Telecom, of an enormous disaster the Secretary of State shall be liable for existing pension and redundancy payments. It is so reasonable that I believe that the Minister will rise to his feet and second it. I beg to move.

Lord Trefgarne

My Lords, Clause 8 of the Bill deals with the liabilities which will be transferred from the Secretary of State for Defence to the new ROF company. In the most improbable event of the Royal Ordnance company being wound up at some point in the future, any outstanding amounts of those liabilities which have been transferred to it will fall to the Secretary of State to meet. However, the payment of pensions is not such a transferred liability. The Government will completely discharge that liability by the payment of transfer values in respect of the accrued pension rights of those transferred employees who choose to transfer their rights to the new company pension scheme. Thereafter, the company is liable to pay the pensions. Liquidation of the company would have no effect on the ability to pay these pensions, because the pension fund is separate from the company's own finances and, as we have previously explained, will be suitably financed to meet the pension obligations transferred to it from the Civil Service.

Any compensation for redundancies arising before vesting day will be met by the Government, after vesting day such compensation will be paid by the new company: the liability to pay redundancy compensation is not a transferred liability, because the Government are not transferring any liability for incurring redundancies. Commercial circumstances will dictate the need for future redundancies, and it is only right and proper that the company making those redundancies should meet the cost. The capital structure of the company will be determined to take account of this, as well as other potential liabilities.

I have to say that looking at this amendment as it appears, it is not at all clear what it actually means. If it is intended to mean that the Secretary of State is liable to pay pensions which have accrued up to vesting day. there can be no argument about that. Such is his liability, and this will be recognised by the payment of such values, which will be calculated on an actarial basis, will discharge such liability. It would elect to transfer their accrued persion rights. But the payment of such values, which will be calculated on an acturial basis, will discharge such liability. It would then be nonsense to refer in the Bill to the Secretary of State's liability "for existing pensions" because there will not be any. If, on the other hand, the amendment is intended to act as a kind of guarantee of future pension rights, the words, I fear, are ineffective to meet that intention.

Similar considerations apply to the mention of redundancy payments. Existing liabilities, as at vesting day will be the responsibility of the Secretary of State. If the amendment is intended to refer to liability to pay redundancy compensation in respect of redundancies arising after vesting day, the words are inappropriate to cover this. The Government could not possibly accept this amendment because it is quite uncertain on the face of it what is actually intended.

But in any case one of the aims of privatisation is to create independent organisations free from Government interference. The ROFs themselves will be expected to trade profitably, without the need for Government backing. We do not therefore support the giving of the type of guarantee envisaged in this amendment. As I have explained, the new company pension fund will in any case be able to meet the liability for pensions should the company be wound up, and as regards redundancy compensation, the most suitable arrangements will have to be made at the time. It simply makes no sense to attempt to privatise a company which continues to look to Government for financial support for pension and redundancy payments.

Perhaps I may turn to the comparison between this case and that of British Telecom, to which the noble Lord referred. The case of British Telecom is quite different from the one we are considering here. Immediately before the vesting of the assets of the publicly-owned British Telecommunications Corporation in British Telecom PLC, the Government had a specific commitment to make up any shortfalls in the BT pension fund which might become apparent on a future winding up of that company. That commitment itself resulted from the earlier discovery of deficiencies in the funding of the old Post Office pension scheme which, unlike the principal Civil Service pension scheme, was a funded scheme. In making this commitment the Government accepted that they had an obligation to ensure that accrued pensions could actually be paid. The commitment carried across into the statutory corporation, British Telecommunications, and from there to British Telecom PLC. That was the effect of writing into the British Telecommunications Act 1984 a provision in terms similar to that of Clause 8 of this Bill.

Clause 8 provides that any liabilities of the Secretary of State which exist at vesting day and are still unsatisfied in the event of the liquidation of the company after vesting day, shall be met by the Secretary of State himself. In this way, payment of such liabilities is guaranteed because in the BT case the Government had before vesting day accepted a liability to make up deficiencies in the pension fund and that liability now continues as a residual liability of winding up after vesting day. In our own case, the Government have no liability to make up deficiencies in the pension fund. This is because there is no pension fund and therefore there can be no deficiencies.

The principal Civil Service pension scheme, of which ROF employees are members, is not a funded scheme, but the Government have a liability to pay in due course PCSPS pensions accrued up to vesting day. They intend to discharge this liability in respect of all ROF employees who elect to transfer their approved pension rights into the company pension scheme by making appropriate payments into the scheme. The result is that in our case there will be no pre-vesting day pension liability on which Clause 8 of the Bill can bite. In the BT case, there were such liabilities; in our case, there will not be; that is the difference.

I hope that in the light of that explanation, which, I have to confess, needs careful study, your Lordships will feel that we have met the essence of the difficulty which the noble Lord apprehended and that he will not wish to press his amendment.

Lord Lloyd of Kilgerran

My Lords, I understand that the unions have been told by the Government that many of the issues concerned with redundancy payments are very much linked with what the Minister referred to just in passing: the structure of the new company. Is the noble Lord in a position to say when the structure of the new company can be disclosed, or how far it has progressed towards completion?

Lord Trefgarne

My Lords, we are working on this at the moment. I do not have an announcement to make about it tonight, I am afraid, and I cannot tell the noble Lord precisely when I shall be able to do so. On the question of the trade unions and the pensions, we are still in discussion with the trade unions on this matter. Speaking for myself, in the light of the information I have, I believe that it will be possible to reach an agreement with the trade unions on the basis, anyway, of what we propose. Perhaps it would be wiser for me to say that I hope that we can reach an agreement; but grasping the wider consideration I also believe so.

Lord Lloyd of Kilgerran

My Lords, I am obliged to the noble Lord.

Lord Graham of Edmonton

My Lords, I want to surprise the Minister by saying that I fully understood every word he said. To be fair, it was a very lucid explanation of the difference between the two sets of circumstances. I am grateful to him. Just as he has indicated that one needs to study some of these matters with care, what the Minister has said on this matter will be studied with care by those outside the House.

Certainly my understanding of the anxiety goes along the lines that there is no question that on vesting day there will he transferred to the new organisation the accrued rights and benefits; in other words, the money will pass. The fear was that, having discharged its then prime responsibility, something dreadful might happen to the new company and people who did not wish to be transferred but who had been transferred might have their interests affected by a disaster of a financial or commercial kind by the new company.

As regards their pension rights, which of course depend on the hierarchy of the pecking order or responsibilities, the fear of the employees related to what might occur in the event of a bankruptcy. At the moment they are fully protected—they have almost copper-bottomed protection—by the Government. Being transferred is one thing and it discharges the Government's liability, but there is a marginal risk. What we have been seeking to ask is this. In case a tragedy were to occur and the pensions which were transferred disappeared or were made smaller, are the Government prepared to underwrite such a situation in advance?

I am grateful to the Minister for what he has said and we shall study it with care. I am not as sanguine as the Minister sounded that discussions with the trade unions will reach settlements which are satisfactory to the trade unions. I realise that at the end of the day the Government have decisions to make, but when we come to other amendments which deal with redundancy terms and pension rights I fear we shall have something more to say. In the circumstances and in the light of the reply, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 11 not moved.]

Schedule 2 [Employment]:

6.43 p.m.

Lord Graham of Edmonton

moved Amendment No. 12: Page 15, line 43, leave out paragraph 1 and insert— ("1. Any company or companies established pursuant to a scheme made under section 1(1)(a) shall by the appointed day (as defined in paragraph 2(7) below) make an offer of employment to each person employed prior to the appointed day by the civil service of the State in the Royal Ordnance Factories and in the Royal Ordnance Factories establishments at Westcott and at Waltham Abbey and, where a person thus becomes an employee of such a company or companies, then for the purposes of the Employment (Consolidation) Act 1978, that person's period of employment in the civil service of the State shall count as a period of employment by the company or companies, and the change of employment shall not break the continuity of the period of employment. 1A. Notwithstanding the provisions of paragraph 1 above the terms and conditions applicable to any person who, pursuant to a scheme made under section 1(1)(a), becomes an employee of any company or companies should be no less favourable than the terms and conditions which were applicable to that person immediately before the appointed day (as defined in paragraph 2(7) below) under his employment in the civil service of the State."). The noble Lord said: My Lords, as the whole House will appreciate, Schedule 2 is one of the most important parts of the Bill. This schedule in fact deals with employment and we are now coming to the area of great unhappiness so far as the employees are concerned. May I, for the benefit of the debate, read part of the amendment? Page 15, line 43, we are not happy with. What in fact we are seeking to put into words are the offers that have been made about "no less detriment", security and safeguarding. This in fact is what we are doing. In particular, Any company or companies established pursuant to a scheme made under section 1(1)(a) shall by the appointed day … make an offer of employment to each person employed prior to …". The Minister will not be surprised if intelligence comes to Members on this side of the House of intentions and anticipated announcements in respect of redundancies in certain parts of the ROF empire. We have been made very unhappy indeed. The Minister is already aware that it has already been announced that there will be some 460 redundancies at Bishopton, and of course these will have a knock-on effect.

What we are concerned with here in these amendments is to make sure that whenever a redundancy takes place the benefits—I call them benefits—which are at present enjoyed by the employees of the ROF shall also be carried forward and enjoyed subsequently; and whether a person is made redundant prior to or after vesting day is of crucial importance. If the redundancy is made prior to vesting date there is complete sovereignty over the terms of the redundancy. There is an understanding, an acceptance and an agreement as to precisely what the rights are. So the Minister will understand that I am raising a substantial point as to redundancies, which may or may not—and I use the term advisedly—have anything to do with the grand plan for the privatisation of the ROFs.

We are very concerned at the current situation. The Minister knows that since July as regards the relationships between the ROFs and the MoD, and in particular the preferred source argument, there have been some substantial changes. We understand—and the Minister can help us if he will and we shall be very grateful for that—that the order books of the ROFs are now known to be in a far worse position than was apparent even in the spring and summer. So outside the argument of privatisation we recognised that there were likely to be considerations given to the making of redundancies.

I live in Edmonton and I know the Enfield small arms factory very well. I know that when redundancies were announced in August or September some authority was quick to point out that it had nothing whatsoever to do with the privatisation argument. It will take the Minister some time to convince the employees and the unions concerned that redundancies which may be in the air have nothing whatsoever to do with that.

I think the Minister really needs also to take on board the current consequences. We understand there could well be anything up to 1,500 redundancies in the balance, as it were; and by "in the balance" what we mean is that, starting from the knock-on effect of the redundancies at Bishopton, our intelligence tells us, and of course we have parliamentary colleagues—

Lord Trefgarne

My Lords, if the noble Lord will permit me, I think it would be right if I were to intervene now to say that no redundancies at Bishopton have been announced; but I will come to the position when I reply in a moment.

Lord Graham of Edmonton

My Lords, I appreciate the Minister's intervention. As always in these matters, the Minister is 100 per cent. more in possession of the facts than I am, but I raise them because we are talking in terms of protection for employees, not merely at Bishopton but at other places. The Minister will be aware that at the ROFs at Birtley, Chorley and Blackburn there are other rumours circulating that, as a consequence of Bishopton and other factors, redundancies including those at Bishopton could very well total 1,500. ROF employees are in the situation where their interests are affected by this amendment.

The purpose of the amendment is to seek to make sure that the employee will enjoy no less favourable terms and conditions under the new company than he does at the moment. If in fact an employee is made redundant prior to vesting day, he will enjoy the benefits of the present redundancy agreement. On the other hand, if the redundancies which need to be made are held up or withdrawn or not announced until after vesting day, we understand there could be a change.

If the Minister can reassure us about the position whether redundancies are made prior to or after vesting day; if he is able to say, as he had been able to say on more than one amendment, that suitable arrangements can be made in contracts and in understandings with the new managers; and if he can tell us there is a formula whereby the interests of the employees after vesting day will not be less favourable, we shall be very happy to withdraw the amendments.

The amendment specifies the Royal Ordnance factories at Westcott and Waltham Abbey. Why are they introduced? In Committee, the Minister did not take our points fully on board. They have always been looked upon as commercial undertakings under the TUPE-1981 Agreement. In Committee the Minister simply stated that because Westcott and Waltham Abbey are now part of the ROF enterprise as a whole they will be covered. On what grounds did the Minister make this statement? And why did the Minister make the statement in respect of just those two establishments? We are anxious for the Minister to assuage the fears of employees in the Royal Ordnance factories who time and time again have heard the Minister say that they will be no less favourably treated than employees in the rest of the Civil Service. The Minister used the phrase "taken as a whole" in some of his statements but he left it out of another statement. If the Minister believes us to be pedantic he will forgive us. The Minister and I are debating a Bill which affects the livelihood, savings and future of many people. The Minister could do the House a real service by dealing head-on with the matters which we have raised.

The Minister referred earlier to discussions which are taking place. The Minister knows that the new Minister of State, Mr. Adam Butler, has responsibility for these matters. During the discussions which have taken place I understand that reference was made to matters which would he taken on board. The great concern of the trade unions is to have precise details. Those talks have hardly got off the ground. Because of the extremely rushed time-scale for the change of status of the Royal Ordnance factories, many aspects of terms and conditions have been only very briefly addressed in these debates. For example, in spite of the unions having submitted detailed comments on the management's consultative document relating to redundancy procedures, no joint discussions have yet been held on the details of the redundancy procedure, although we know that, in this area too, the ROF management want to change the existing redundancy procedure agreement for non-industrial mobile employees. If that is true, will the Minister tell us precisely why? I hope that the Minister can help us before we decide whether or not to press these amendments to a Division.

Lord Trefgarne

My Lords, I have read very carefully the speech of the noble Lord when he moved this amendment in Committee, and I have listened equally carefully to what he has said today.

The amendment requires, in effect, that the contract of employment of those civil servants who are to transfer will be terminated at vesting day and a new contract, identical to the former contract, will be made immediately with the company. That is it in a nutshell. The Government's position is, as it always has been, that the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) will apply to this transfer. There can be no reasonable doubt about that. The Royal Ordnance factories are unquestionably an undertaking; and if they are not also a commercial undertaking then on what basis is it that we have, throughout the proceedings on this Bill, been congratulating the organisation on its excellent profit record over the past 10 years? Of course, TUPE applies to the transfer of employment. The effect of this is that there need be no new contract of employment because the old one continues without a break from the former employer to the new employer. The terms and conditions of the contract of employment with the new employer are therefore identical to those of the contract with the old employer, because it is exactly the same contract.

There is, therefore, no need for the old contract to be terminated, only to be replaced by another on more or less identical terms. To attempt to insert such a provision into the Bill would not only be superfluous but would be taking the risk that what is now fixed and certain under its existing provisions would become uncertain and problematical, because of the need to interpret a wholly new provision. Who, for example, is to say that the new terms and conditions are "no less favourable" than the old terms and conditions? It might well he necessary to bring the matter before a court in order to get a definitive answer. This would surely be a most dismal way in which to start the new company in business.

There are two exceptions to the general principle that I have mentioned, and I am sure that the noble Lord is well aware of both of them. First, there may have to be some minor differences in the terms and conditions following the transfer, because the transfer is from employment under the Crown. Some aspects of such employment are simply not applicable to employment in the private sector. Sub-paragraph (2) of paragraph 2 of the second schedule to the Bill deals with this point, and requires, in effect, that these changes be kept to the absolute minimum necessary to make the transfer of employment effective. The second exception relates to pensions. TUPE expressly does not apply to superannuation schemes. But the company will be providing a pension scheme which is equivalent to the principal Civil Service pension scheme. There is an amendment about this, which we shall come to later, and perhaps I need to say no more about that matter for the moment.

Now it may be, as the noble Lord has suggested, that the company would like to change some of the terms and conditions of employment of the transferring employees. Of course they can do this with the agreement of the workforce; if they do it without that agreement there may be a risk that the employees will take some action of their own. This is a commonplace of industrial relations. Both the company and the unions will be aware of the position. I do not believe that the company would want to risk any major upset immediately after vesting day, and I cannot think that there would be any attempt to alter unilaterally the terms and conditions of employment to the material detriment of the workforce.

Finally, let me say again that with regard to the employees of the former PERME establishments—the noble Lord referred to these in his speech—they are now employed in the Royal Ordance factories and will therefore transfer with the "undertaking". TUPE will apply to them as to all other employees.

I am not sure what more I can say to reassure the noble Lord that not only is this amendment unnecessary—because the Bill already provides for all the matters about which he has expressed concern—but would actually be confusing and against the interests of those he is seeking to protect. Perhaps, however, I could say a little about redundancies, to which the noble Lord referred. The Government have consistently made clear that ROF employment levels have always depended upon the state of their order book. In this respect, the ROFs are no different from any other manufacturing organisation. It is true that at some factories forecast workloads are giving cause for serious concern and it is likely that numbers will have to be reduced, though all possibilities for additional work are being explored. No final decisions have been taken, hut, if and when it becomes clear that a redundancy is inevitable, an appropriate announcement will be made. The Government, like any reasonable employer, wish to be absolutely sure that a redundancy is unavoidable before deciding that one should be declared.

I should like to make just one point clear. We are debating today a Bill which will incorporate the Royal Ordnance factories into a limited company with the objective of introducing private capital into them in due course. There is a clear distinction which must be drawn between our plans for privatisation, which will not give rise to redundancies, and our concerns which have arisen because of the fall in the forecast workload at certain ROFs. The two are quite unrelated and must not be construed in any other way.

The noble Lord also asked me about redundancy compensation. I should like to clarify the position in this way. If the redundancies take place before vesting day, redundant employees will be entitled to redundancy compensation in accordance with Civil Service rules. After vesting day, compensation will be in accordance with the company's terms, under which the levels of compensation will be the same—I emphasise that they will be the same—as those for mobile and non-mobile civil servants respectively.

I hope that I have been able to give the noble Lord some reassurance on these points. No announcements of these redundancies have yet been made and certainly none will be made until we have considered the matter most carefully and have ensured that only those redundancies which are absolutely essential are announced. My right honourable friend the Minister of State, to whom the noble Lord referred just now, is at this very moment on a sales trip to the Arabian Gulf. Who knows, it may be as a result of that trip that new work will come to the ROFs which will be of assistance in the circumstances we are presently discussing. I hope that the noble Lord will be reassured by what I have said and will not want to press his amendment.

Lord Graham of Edmonton

My Lords, I am grateful to the Minister and do not intend to press this matter to a Division. That does not mean to say that this debate has not been valuable or that it is exhausted. I have been at pains to have the Minister say in precise terms that the terms under which an employee is compensated for redundancy will remain the same after vesting day as before. The Minister has sought to reassure me by pointing out that the same contract and the same terms will be transferred. But it is perfectly possible that the new company—which is not the old management—will take a different view. The Minister says that that can only be done at the risk to the company of industrial disputes. That could of course very well be the avenue which employees may collectively have to explore after vesting day. The Minister can fairly say that up until vesting day the Government can control matters but that after vesting day. they cannot do so. We are arguing that the Minister has a responsibility to ensure by some mechanism, by writing on the face of the Bill, that after vesting day such protection is written in.

The Minister is aware that under TUPE 81 redundancies can be for economic, technical or organisational reasons. The circumstances in question are not covered by the TUPE 81 protection. It is perfectly possible for a new form of management to argue that the redundancies can be made on those grounds. We are very concerned. The Minister ought to be fully aware that the trade unions have formed the view that in the discussions taking place with ROF management it has become increasingly clear, particularly for non-industrial employees, that many changes are being planned and that most of them will be detrimental. I realise that that is a serious statement to make. But if the impression gained by the negotiators is that detrimental changes are in the minds of the current management, then the Minister will understand why we are pressing this matter.

Perhaps I may give the Minister one illustration and see whether his friends in the Box will be able to help us at this time. The Civil Service Appeal Board cannot be used after vesting day because the employees will no longer be civil servants. But the ROF management has refused to set up similar company appeals machinery and has also refused the unions' claim for the right of access to appeal to the chairman on the most serious disciplinary cases. Instead, ROF management want to restrict all appeals against downgrading, dismissal, etc., to the four divisional managing directors. This is totally unacceptable to the unions and it would represent a severe detriment as compared with the present civil service position.

If that is one illustration of what the Minister believes could take place—and I am not saying that he would be sanguine about it—then if the unions starkly pinpoint this as a change that would be detrimental in the future, surely the Minister ought to be very concerned. We believe that after vesting day, ROF management will renege on existing agreements for non-industrial employees covering conditions such as flexible working hours. They will try to force non-industrial employees to take annual holidays during the two weeks when a factory is closed.

I must say to the Minister that the people who talk to me are responsible people. These are their views, born out of the discussions in which they have been engaged for the past six to nine months. They are very unhappy about what they consider to be the position in which their members are likely to be left after vesting day. I wonder whether the Minister can say anything at this stage before I formally withdraw the amendment.

Lord Trefgarne

My Lords, if the House will allow me to intervene again, there is not much I can add to that which I have already said—except to emphasise that if changes to the contract of employement are to be made in respect of employees (whether they be industrial or non-industrial) after vesting day, then that will be a matter for agreement between the trade unions and the company. In my view, the trade unions are fully protected against the anxieties which they have expressed because if they feel aggrieved, they will have the remedy of the procedures to which I have already referred. I hope that. upon reflection. they, too, will accept that we have gone a long way—in fact, the whole way—to meet the anxieties that they have expressed.

Lord Graham of Edmonton

My Lords, the Minister ought to recognise that given the authority of Parliament, the passage of this Bill, vesting day, and all the other paraphernalia which will be absolute, then these things will be done. If I am properly advised that the better passage of the transfer is being inhibited somewhat by the present management of the ROFs in satisfying the trade union negotiators. who wish to protect their members, then of course the vesting day will happen and that will be the end of it. But the Government will be responsible for having stood aside and not ensuring, as they have the power and authority to do now, that the trade unions will be able to say to their members. "Not only have we got the best deal that we can but we have achieved a proper settlement of your fears".

I realise which stage of the Bill we have reached. We are in the hands of the management, over whom the Minister has sovereignty in respect of guidance and advice. There are people listening to this debate and who will read about it who will be continuing those discussions. I hope very much that the Minister will make sure that the trade union negotiators will be able to be more helpful than they might have been otherwise. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 13 and 14 not moved.]

Lord Skelmersdale

My Lords, this might be the appropriate moment to have a break in our proceedings. I therefore beg to move that the House do adjourn during pleasure until 7.55 p.m.

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

[The Sitting was suspended from 7.9 to 7.55 p.m.]

Lord Stoddart of Swindon

moved Amendment No. 15: Page 16, line 8, at end insert— ("( ) Where, in any redundancy arising prior to the transfer date, the field of redundancy would have been the whole of the Ministry of Defence. then after the transfer date the field of redundancy shall be taken to be the whole company as defined by section 1(1)(a)."). The noble Lord said: My Lords, I beg to move Amendment No. 15, which stands in my name and in the names of my noble friend Lord Graham of Edmonton and the noble Lord, Lord Lloyd of Kilgerran. I shall read out this amendment, because I want to emphasise it. It reads: Where, in any redundancy arising prior to the transfer date, the field of redundancy would have been the whole of the Ministry of Defence, than after the transfer date the field of redundancy shall be taken to be the whole company as defined by section 1(1)(a)". This amendment has been tabled because, as has been referred to in previous debates, no real progress has been made in negotiating new redundancy procedures; that is, as opposed to compensation. We are talking about redundancy. No new redundancy procedures have been agreed for non-industrial employees in the Royal Ordnance factories, but management has apparently said that it intends to introduce a major change to the redundancy procedures post-vesting day in that, instead of the field of redundancy being all the ROFs it is intended to limit it to a single site. That really is a major change and a major worsening of the conditions of service for non-industrial staff.

At the present time, for non-industrial mobile grades the field of redundancy is usually not just the ROFs themselves but the whole of the Ministry of Defence. This means that when considering pre-redundancy steps, such as canvassing for volunteers for premature retirement terms or laying off casual employees, action has to be taken across the whole of the Ministry of Defence, including the Royal Ordnance factories. This creates vacancies into which the mobile non-industrial staff currently working in the areas where there are staff surpluses can be moved. That gives these grades of staff an immense advantage, with great opportunities to transfer to other employment in the same or an improved grade.

Apparently the ROF management want to limit the field of redundancy for mobile employees not to the company as a whole, which in any event is sufficient a detriment as compared with the whole of the Ministry of Defence, but to a single factory. At worst, that could mean that an engineer may be declared surplus or redundant at one factory while there may be a suitable vacancy at another factory to which he would previously have been guaranteed a move, and yet in future such a move will be entirely at the discretion of management. There will be no right of transfer at all. It will be entirely at the discretion of management. That in my view is patently unfair and amounts to a severe worsening of the terms for mobile nonindustrial ROF employees.

The amendment seeks to do the minimum possible by writing into the Bill that for mobile employees, where the field of redundancy would have been the whole of the MOD, post-vesting day it will be the whole company. It seems to me that that is an entirely reasonable amendment to propose to the House, and indeed for the Minister to accept. I feel quite sure that he wants to ensure that the staff who are transferred get the best possible conditions in all the circumstances. It is patently clear from what I have said—and I feel quite sure that the Minister will confirm what I have said—that the position and conditions of service for certain grades of staff at present employed by the ROF will be severely worsened as a result of the operation of the Bill. I therefore hope that the Minister will feel able either to accept the amendment or to give me assurances that he will take other action to protect the position of the staff to whom I have referred. I beg to move.

Lord Trefgarne

My Lords, this is a slightly arcane point, but an important one nonetheless. I hope that your Lordships will forgive me if I try to explain it at a little length, because I believe that I can assuage the fears of the noble Lord. I understand perfectly the point which the noble Lord has made, and I have considerable sympathy with it. However, I do not believe that it is necessary to make this amendment to the Bill. The point is already provided for and covered earlier in Schedule 2.

It is a commonplace by now that the provisions of TUPE 1981 apply to the transfer of employees to the new company, and the effect of TUPE is that the contract of employment continues unchanged from the one employment to the other as though the contract had been made originally with the transferee employer. But this transfer is unusual in that it is a transfer from Crown employment to private employment, and there are some terms and conditions of the former employment which may not be readily transferable to the latter. This possibility is specifically recognised by sub-paragraph (2) of paragraph 2 of Schedule 2. It says there that TUPE, shall have effect as nearly as the circumstances permit, having regard for the fact that the transfer is from Her Majesty or a Minister". The intention behind this provision is that if there are any changes which need to be made in the contract of employment by reason of the fact that the transfer is from employment under the Crown, such changes shall be kept to the absolute minimum necessary to give practical effect to the transfer.

At the moment non-industrial mobile employees in the Royal Ordnance factories who are declared redundant under normal Civil Service procedures can expect to be considered for employment elsewhere in any part of the Ministry of Defence. Thus the so-called "field of redundancy" is the entire department. Under the same procedures, non-mobile non-industrial civil servants—who are primarily clerical staff—would, if possible, be redeployed to any MoD establishment within daily travelling distance of their home, and they would also be able to volunteer for transfer to vacancies in other Government departments. The position of industrial civil servants, who are all non-mobile, is slightly less favourable in that they can be considered for a different job in their current factory or for any vacancy at other MoD establishments within easy travelling distance; but they do not have the same degree of expectation that a job will be found for them.

It is therefore clear that after vesting day the position of all employees with regard to the field of redundancy must be different. Being no longer employed in the Civil Service, they cannot, if they are declared redundant, expect to move back into the Ministry of Defence. The field of redundancy will, inevitably, be narrower than formerly. Perhaps I should emphasise that there will be no reason why such an employee should not apply for reinstatement within the Ministry of Defence. I am saying only that he cannot have an automatic right to be considered for a straight transfer into one or other part of the department. But the degree to which the position of the various groups of former civil servants will be changed will vary. For non-mobile non-industrials, and for all industrials, the difference will not be very great, and will be no more than is consistent with the transfer of their employment from the Civil Service to the employment of the company. Their unit of redundancy will, after vesting day, be the particular factory.

Most affected by the change will be the former mobile non-industrial civil servants whose field of redundancy formerly embraced the entire Ministry of Defence. Their transfer to the employment of the new company inevitably entails a considerable narrowing of that entitlement. But sub-paragraph (2) of paragraph 2 of Schedule 2 requires that such changes be kept to the minimum necessary in the circumstances. Now I think it must follow that, although the field of redundancy for mobile non-industrial employees has inevitably to be narrowed to encompass only the company organisation, it does not have to be narrowed further than to encompass the whole of the company organisation. So far as concerns such employees, therefore, in order to comply with the provisions of the sub-paragraph. it must be the entire company organisation which constitutes the field of redundancy in respect of any redundancy declared after vesting day.

The terms of this amendment are such that it would affect only former mobile non-industrial civil servants, and its intention is, for the reasons I have mentioned, already secured by the provisions of the Bill. I do not think there can be any doubt about this. It may of course be that the company would like to alter this situation, but this would entail an alteration in the terms and conditions of the contract of employment of former mobile non-industrial civil servants as it will apply after vesting day.

Any employer may from time to time wish to change some of the terms and conditions of employment of his workforce. A sensible employer will discuss such changs with the employees' representatives, and the object of such discussions will naturally be to reach an agreement on the proposed changes. If an agreement is secured, all is fine. If not, the employer has to consider whether or not to make the changes anyway; and if he does make them the employees have to consider what they are going to do about it. If the changes are materially detrimental, they may have a remedy under the employment protection legislation or under the general law. That is all part and parcel of normal industrial relations. There is nothing exceptional about that.

After vesting day this company will be in exactly the same position as any other company—neither better nor worse. These general principles will apply to it as to any other company. If after vesting day the company wishes to change the field of redundancy for the former mobile non-industrial civil servants, it will no doubt bear these matters in mind. But it would not be right to fetter the company's commercial freedom of action in that respect by making this amendment to the Bill.

I therefore have to resist this amendment, though I fully understand the concerns which prompted it. In the light of what I have said, I hope that the noble Lord will be reassured.

Lord Stoddart of Swindon

My Lords, quite naturally, I should prefer the amendment to be written into the Bill. but I must confess that I think that the Minister has given a lot more information. Indeed, as far as I could see, he was giving the assurance that for mobile non-industrial staff the field of redundancy would not, as I suggested in my opening remarks, be limited to a single factory but must apply to the whole of the ROF company. That is what I understood him to say.

Lord Trefgarne

My Lords, if the noble Lord would allow me, yes that is indeed what I said. Unless it is after vesting day that the company get an agreed change to the terms and conditions which apply—in which case of course some different arrangement would be in operation—or, if they chose to impose the changes unilaterally, as I indicated, they would be open to consideration of the application of the employment protection legislation or even the general law.

Lord Stoddart of Swindon

My Lords, yes. I should certainly like to study in greater detail what the noble Lord the Minister has said. I am certainly to some degree reassured by what he has said, particularly since it seems that such employees may have a remedy at law. Under those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.11 p.m.

Lord Graham of Edmonton

moved Amendment No. 16: Page 16, line 36, at end insert— ("(8) Any company or companies established pursuant to a scheme made under section 1(1)(a) shall consult and agree with the recognised trade unions on the setting up and the maintenance of suitable machinery to negotiate upon and settle the terms and conditions of employment to provide for reference to arbitration in default of settlement and to discuss other matters of mutual interest to the company or companies and their employees including efficiency in the work of the company or companies."). The noble Lord said: My Lords, I beg to move the amendment standing in the Marshalled List in my name and that of my noble friends. We come once again to the recognised procedures which currently govern the relationship between the Royal Ordnance factories and the trade unions. I particularly draw the Minister's attention to the first words in the amendment: shall consult and agree with the recognised trade unions on the setting up and the maintenance of suitable machinery to negotiate upon and settle the terms and conditions of employment". The Minister will acknowledge that in earlier debates we have expressed not merely our unease but what we have been given to understand is the unhappiness of the trade union negotiators at the progress which is being made. On the other hand the Minister has had another version of the same events. He has assured the House that progress is being made. He then concludes these points by saying that he very much hopes that settlements will be reached.

Quite frankly, for future industrial relations it will not be good enough to leave these matters on the basis of hope. The Minister has also said, in response to my noble friend, in the debate just concluded, that it would not be right to fetter the company's commercial freedom. The Minister clearly has to make a choice. He has decided not to fetter the company's commercial freedom but to inhibit and restrict—if that he the price for that commercial freedom—the existing rights, conditions and procedures of the trade unions. We are appalled at what we consider to be the purport of the premise upon which they have built that case. The Minister may say that that is not the situation, but it is the way it has been given to us.

The aim of this amendment is to write into the legislation the requirements for the new ROF management to negotiate and agree suitable and acceptable joint bargaining machinery to replace the existing Whitley Councils. We do not think that that is unreasonable. It may very well fetter the commercial freedom of the company but it is not unreasonable if the Minister wants to get a happy settlement.

Secondly, the amendment seeks to write into the Bill the requirement that arbitration will be available to the parties in the event of a failure to reach a negotiated settlement. We may have it wrong. The amendments that we move have been given to us from an impeccable source from the point of view of what the trade unions and their members would like. The House is very mindful of the protracted negotiations that have been going on in another major industrial dispute at the present time and the difficulties that there are in attempting to resolve something which has caused a dispute. We honestly cannot see any reason why the Minister should not be prepared to accept these amendments.

Perhaps I may take the Minister to page 16, though not to line 36, where these words are going to be written in, but to paragraph 3(1), which deals with redundancy procedures. I raise this because it is legitimate under the heading of seeking to settle terms and conditions. The Minister may very well have a point if he can see little difficulty in reaching a settlement with the trade unions on the levels of compensation for redundancy. But there is a whole new field raised from the procedures which need to be followed. I am told that there is little progress being made.

I quote to the Minister a letter which I have here and which was sent by the Royal Ordnance Factory Procurement Executive to the MoD Council of Civil Service Unions. In the letter, Mr. Bill Meakin, who is of course well known to the Minister, wrote on 3rd September and he said to the recipient of this letter, Mr. T. G. Robson, You lay great stress on the TUPE 81 and the commitment of the Minister of State to its contents. I, with you, share that same broad commitment but on this issue we are moving into unchartered waters and I would be happy for this issue to be covered by the Working Party chaired by Alan Gibson which is currently discussing our consultative procedures post-incorporation". That letter was written six weeks ago. To the best of my knowledge there has been no progress and no discussions have flowed from that. It appears to us, and the unions are consequently frustrated, that the Government representatives, whether or not through lethargy, whether there is an ulterior motive, whatever is happening, seem to be unwilling as well as unable to move closer together in order to get settlement on this particular point.

We are authorised to say that of course noises have been made. On the question of joint bargaining machinery at company level and at local level, there seems to have been a broad understanding since we discussed these matters in July. An understanding has been reached as far as joint negotiating machinery at divisional level is concerned. However, in spite of pressure, understandings have not been transformed into words nor even formally into writing, never mind writing them into the Bill. Nor, we are told, has any agreement been reached on the arbitration machinery to be established in the light of the TUPE 81 regulations.

We are very unhappy. However, the Minister can be helpful if he takes guidance and is able to tell the House or can confirm the unions' understanding that four new divisions will also establish division level joint machinery. In other words, my information is that an understanding has been reached that there can be company and factory level negotiating machinery.

If the Minister could even indicate, either by assent or in a form of words, that he supports the suggestion that there should be four new divisions—and there are four new divisions talked about—but that there will also be established a divisional level joint machinery, I think that would be helpful. It would also be helpful if the Minister could make a statement reaffirming the Government's commitment to the principle of the transfer of agreements under the TUPE regulations, particularly in the context of the existing arbitration agreement.

I know that the Minister is taking careful note of what I believe will be easily accepted. In other words, if the existing arbitration agreements are understood to be capable of being facilitated by the TUPE regulations, then I think that shall be going a very long way to providing the trade unions with at least the assurance that, as far as the Government are concerned, they intend these matters to be easily transferred from the public sector to the private sector when this situation occurs. In our view this would be very helpful. I very much hope that, after the Minister has given further consideration to Ahe advice which is to hand, he may be able to say something helpful. I beg to move.

Lord Trefgarne

My Lords, I have listened with interest to what the noble Lord has had to say in support of the amendment, but it seems to me, if I may say so with respect, that he has not really suggested that the amendment would achieve anything at all. Perhaps he was really seeking not to achieve a change in the Bill but rather to probe what the Government had in mind. I do not apologise for drawing attention once again to the provisions of TUPE 81. It is a key document in this exercise because so much of the employees' position after vesting day rests on it. In so far as the present negotiating and arbitration machinery and procedures are part of the terms and conditions of employment in the Civil Service—many of them are, of course—they will continue to be part of the terms and conditions of employment with the new company. I shall say that again. So far as the present negotiating and arbitration machinery and procedures are part of the terms and conditions of employment in the Civil Service, they will continue to be part of the terms and conditions of employment with the new company.

Of course, some changes may need to be made because the employees will no longer be employed in the Civil Service, and such things as the departmental Whitley Council will no longer be available to them. But, in accordance with sub-paragraph (2) of paragraph 2 of the second schedule to the Bill, TUPE is to take effect as nearly as the circumstances permit. This means that only those changes may be made to the contract of service that are absolutely necessary in the circumstances so as to give proper effect to the transfer.

It seems to me that this amendment is seeking to achieve, by writing a provision into the Bill, something that the trade unions as representatives of the work force will have to secure for themselves in any event, whether or not this amendment is made. The amendment does not say what machinery and procedures are to be agreed between the unions and the company, but only that they shall be suitable. What is suitable must depend on what the unions want and are able to negotiate. This would be so even if we were to adopt this amendment. It would therefore serve no useful purpose and to put it into the Bill would achieve nothing. The trade unions cannot escape their responsibility to negotiate with the company on behalf of the employees all matters of common interest as they arise. We cannot in the Bill or elsewhere fetter either the work force or the company by stipulating what each side shall do in the matter of industrial negotiations. The unions must decide what they want and press for it in the usual way of these matters.

I do not know what more I can say. I am sure that the noble Lord is weary of hearing me say that it is all in the Bill already, but so it is, even, I fear, if he is not persuaded by it. Perhaps, on consideration, he will feel able to withdraw the amendment.

Lord Graham of Edmonton

My Lords, it is my intention to withdraw the amendment, but I am appalled at the Minister's belief that leaving the trade unions to press their case, as they are fully capable of doing, will resolve the matter. At the end of the day, if they are not as satisfied as is the Minister that the Bill and the arrangements under TUPE 81 fully meet their fears and their ambitions—and they do take that view—what the Minister is saying is that they have their rights. They have their rights so long as they are in play. But once the Government bring down the chopper, once this Bill becomes an Act and the Government, following vesting day, call all the shots, then the trade unions will be written out of the scenario. If the Minister shakes his head, I would be grateful to hear how, after the Bill becomes an Act and following vesting day, the trade unions can operate other than through using their normal industrial procedures of ultimately threatening to withdraw their labour, if that is open to them.

Lord Trefgarne

My Lords, if I have your Lordships' permission to speak again, I think that I can really help the noble Lord. If, after vesting day, an employee takes the view that he does not have, as nearly as can be arranged, having regard to the fact that the new company does not involve employment under the Crown, terms and conditions as nearly equivalent as they possibly can be, he is entitled to take the matter to the industrial tribunal or, indeed, to some other form of court. It seems to me at least—I confess that I am not a lawyer in regard to this matter or any other—that that would amount to constructive dismissal, and there are proper legal remedies in that situation.

Lord Graham of Edmonton

My Lords, I am grateful, but we are talking about making clearer the continuation of the existing negotiating and arbitration rights and procedures. The Minister tells us that he is satisfied that in so far as the people concerned are covered by their membership of existing Civil Service provisions, they shall continue. What the unions tell us is that they are experiencing great difficulty in trying to spell out these matters, though perhaps not in the Bill itself. We are here tonight because we are told that the normal process that one should expect—that is, understandings translated into words which can then be used afterwards—is not forthcoming. So we are forced to the clumsy device of having to write into the Bill what we recognise is a poor substitute for the normal and sensible way of making progress.

The trade unions are saying to us that in the absence of interpretation governing procedures for negotiation of what would be sensible, they are forced to seek redress through parliamentary representation. The Minister tells us that he is satisfied that after vesting day, if the procedures are inadequate, the trade unions will be capable of looking after themselves and their members. Of course, that is so. But it is a sad way to launch something. It should be possible to launch it in less unhappy circumstances. There is still time. I have to tell the Minister that despite what he advices, the trade unions and trade unionists are very unhappy—and not only about the Bill itself. They are opposed to privatisation. But they are also very unhappy that they have been unable to secure to their satisfaction the protection of their existing rights. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.28 p.m.

Lord Stoddart of Swindon

moved Amendment No. 17: Page 16, line 37, leave out paragraph 3 and insert— ("3. Any company or companies established under a scheme made pursuant to section 1(1)(a) shall from the appointed day provide for redundancy compensation which is no less favourable than the compensation which would have been paid in the event of their redundancy from the civil service of the State.") The noble Lord said: My Lords, the amendment seeks to write into the Bill the commitment that has already been given by Ministers on a number of occasions that, in the event of redundancies having to be declared by the new company, then the compensation payments will be at precisely the same level as if the ROF employees had remained in the Civil Service. That is what the amendment seeks to do. I would have thought that there was no difficulty about the Minister accepting it. While the unions have welcomed ministerial assurances on redundancy compensation levels, written assurances requested from the Minister of State for Defence Procurement, Mr Adam Butler, and promised at a meeting on 4th October are still outstanding. The written assurances have still not been recieved. In particular, it would be useful if the Minister could inform the House of how the assurances given to the unions will actually he implemented in the event of redundancies being necessary, post vesting day.

The second purpose of the amendment is to delete paragraph 3(1) of Schedule 2. As presently drafted, it is not clear, since it seeks to remove existing agreed redundancy procedures for staff transferred from the Civil Service to ROFs under a scheme as set out in Clause 1(1) of the Bill. Such a removal seems to fly in the face of all earlier ministerial assurances that ROF staff will be protected by the transfer of existing agreements under TUPE 81. The procedural aspect of the existing redundancy agreements is just as important, particularly for the non-industrial mobile grades of staff, as is the agreement on redundancy compensation levels. For example, is it really the Government's intention, through this paragraph, to avoid the transfer to the new company of the long-established agreement that in the event of a formal redundancy being declared then the order of discharge will be on the basis of the last in, first out? It would be very useful if the Minister could explain the true intent of paragraph 3(1).

Paragraph 3(2) of Schedule 2 is equally unacceptable since it denies to ROF employees the right to receive redundancy payments at the time of the loss of their status as civil servants. We discussed this matter in Committee and the noble Lord the Minister called it technical redundancy. At col. 1723, of Hansard of 19th July, he said: It is therefore clear common sense, and paragraph 3 spells it out in law, that the mere fact of the transfer does not give rise to an entitlement to redundancy payments". However, my noble friend Lord Graham of Edmonton, in his inimitable way, was right on the ball, and in col. 1725 he responded by saying that in fact civil servants have a right, under the Superannuation Act 1972, to redundancy compensation if they lose their Civil Service status. Common sense, then, really has nothing to do with it. The 1972 Act established a legal entitlement which the Government are now seeking to remove. This can hardly be said to square up with the Minister's repeated assurances that ROF employees will not suffer a detriment as a result of the transfer. Here is an immediate example of a detriment being suffered.

It seems to me that there is still grave worry in the minds of Civil Service employees and their unions about the operation of this schedule, particularly in relation to redundancy and compensation payments. We are seeking to be helpful to the Government and indeed to the people employed at ROFs. The best way that the Government and the employees can be helped is for something to be written firmly into the Bill. That is the safeguard for the employees, and the Government would honour, without any shadow of doubt at all, the promises and the assurances that they had given. I hope therefore in these circumstances, that at this stage the noble Lord the Minister will feel not only able but even glad to accept the amendment. I beg to move.

Lord Lloyd of Kilgerran

My Lords, the noble Lord, Lord Stoddart, and the noble Lord, Lord Graham, have far more experience of these matters than I have. My contribution is made as a result of what will be termed hearsay. It seems to me that this amendment would get the Government out of some difficulties. It seems very fair that the compensation payments should be at precisely the same level as if the ROF employees had remained in the Civil Service. There may be redundancies when the new company is formed. Questions about loss of redundancy were raised by the noble Lord, Lord Graham, through his knowledge of what was happening in the Enfield area. Immediately after the company is formed there may be a number of redundancies. It seems to me fair therefore that the compensation payments at that time should be precisely the same as if they had remained in the Civil Service.

There is a second point. At the Committee stage the noble Lord, Lord Graham, referred to the Superannuation Act 1972. Redundancies will occur with the new company at a time when employees have lost their Civil Service status—immediately afterwards. Surely in those circumstances the general provisions of the Superannuation Act 1972 should apply, even in a discretionary manner. It seems to me that, as the noble Lord, Lord Stoddart, indicated, this amendment would help the Government to deal with difficulties arising with certain redundancies.

Lord Trefgarne

My Lords, this same amendment was moved in Committee by I think the noble Lord, Lord Diamond; and the noble Lord, Lord Graham, was interested in the matter at that time. I have since written to both noble Lords about the legal position regarding redundancy compensation as affected by the provisions of TUPE, about which the noble Lord, Lord Diamond, expressed concern.

Lord Lloyd of Kilgerran

My Lords, I am sorry to interrupt the noble Lord, but I have not seen that correspondence. I have not been given that correspondence by the noble Lord, Lord Diamond.

Lord Trefgarne

My Lords, I am sorry that that has not happened; but I hope that what I now have to say will reassure the noble Lord.

I understand that, since our Committee stage, there has been a further decision of the Scottish tribunal casting doubt on the earlier decisions which so concerned the noble Lord. I think therefore that the legal position is not now in doubt. If a genuine redundancy occurs after vesting day, whether a long time or a short time after, redundancy compensation will be payable, no matter what the circumstances giving rise to the redundancy. The effect of TUPE will, as has been stated many times already, be to ensure that the terms and conditions of the new employment entitle employees to redundancy compensation at the same rate as they were entitled to in the former employment. Accordingly, in the event of any such redundancy after vesting day, redundancy compensation would still be payable at Civil Service levels. This being the case, it seems to me quite clear that this amendment is superfluous.

Lord Lloyd of Kilgerran

My Lords, I am sorry to interrupt the noble Lord, but he referred to Scottish cases. I want to refer to what the Minister said on 19th July, at col. 1724 of Hansard. He was replying to the noble Lord, Lord Diamond, about the court cases. The Minister said: I should like to consider those a little further. But, at first sight. I am advised that they are Scottish cases of somewhat doubtful authority. There is, I understand, an English judgment that is inconsistent with them. I understand the Minister is saying now that he is relying on the Scottish judgments as being good law.

Lord Trefgarne

My Lords, I am now able to tell the noble Lord that, as I understand it, the Scottish cases have been totally discredited and nobody now relies upon them. I hope that that is not lèse-majestè of the Scottish court; but. as I am advised, that is the position.

I am aware however that despite the assurances frequently given by the Government to this effect, the trades union wish to have some specific and concrete reassurances that it is so. I can think of no better assurance than this: that if it is a term or condition of the contract of employment that redundancy compensation shall be payable at a particular level the company will be under a legal obligation to pay it at that level—an obligation which, by definition, can in the last resort be enforced in a court of law. Far be it from me to encourage litigation, but a legal obligation is a legal obligation. I do not see that there can be any more certain assurance than that.

I appreciate that the subject matter of this amendment is one of the most important considerations for the employees out of all the many considerations arising out of the transfer. I have every sympathy with the intention behind this amendment. But it is quite unnecessary to make this amendment to the Bill. It is all there in the Bill already. In the light of this, I feel bound to suggest to the noble Lord that he really ought to withdraw his amendment.

Before I sit down, I should just say that I have been talking about a redundancy occurring after vesting day. There will of course be no redundancy arising out of the transfer itself. That is because the contract of employment does not terminate by reason of the transfer, but continues as though it had been made originally with the new employer. In such circumstances, there can be no redundancy. Paragraph 3 of Schedule 2 to the Bill is put in because by a quirk of drafting of the Principal Civil Service Pension Scheme if it were not there an entitlement to redundancy compensation might arise even though there will In fact be no redundancy. Paragraph 3 of Schedule 2 is therefore necessary. This amendment is not.

Lord Stoddart of Swindon

My Lords, I must say that I am very encouraged by what the Minister has said. As I understand it, what he was saying—and let me repeat it—was that there will be a legal obligation on the successor company to pay redundancy compensation on no less favourable terms than they would have received had they been still in the Civil Service. Under those circumstances I should like to consider again—and indeed the trade unions would wish to consider again—what the noble Lord has said and I therefore beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.41 p.m.

Lord Graham of Edmonton

moved Amendment No. 18: Page 16, line 49. at end insert— ("( ) Any company or companies established under a scheme made pursuant to section 1(1)(a) shall on the appointed day set up a pension scheme for all those persons transferring from the civil service of the State and for all other persons employed by the company or companies, the provisions, contributions and benefits of which are no less favourable (both as to treating previous service as reckonable service and otherwise) than the provisions. as then in force of the Principal Civil Service Pension Scheme as governed by the Pensions (Increase) Act 1971."). The noble Lord said: My Lords, I beg to move Amendment No. 18 which stands in my name and that of my noble friend and the noble Lord, Lord Lloyd of Kilgerran. The purpose of the amendment is reasonably clear but it may be helpful if I spell out what it seeks to do. First, it seeks to write into the Bill that there will be a single company pension scheme covering all staff transferred from the Civil Service and all other employees including those recruited after vesting day. Secondly, it seeks to ensure that the new company pension scheme is no less favourable than the terms of the Principal Civil Service Pension Scheme. Thirdly, it seeks to ensure that the index-linking provisions for many categories of public sector employees as established under the Pensions (Increase) Act 1971 will equally apply to the new company pension scheme.

We now come to the point that was raised by my noble friend Lord Stoddart in the debate on an earlier amendment; namely, the creation of two separate schemes. The problem for the trade unions as regards being more helpful or responsive in these matters is that to date they have been provided with no details of the rules, funding etc. of the second proposed pension scheme.

One of the main arguments used by the ROF management in support of having a second, inferior pension scheme for new entrants is that the scheme for transferred staff based on the PCSPS will be a very "expensive" one. Such a statement does not instil very much confidence into the staff that the transfer will be in no less favourable conditions.

We have already had a discussion on redundancy and pensions and although we are correctly talking in these amendments about the details of the pension arrangements, nevertheless we are very unhappy at the inclusion from time to time of paragraphs in Schedule 2 which do not make sense. For example, on page 16 at paragraph 3(1) I refer again to that to which I referred earlier in relation to the redundancy procedures where it says: none of the agreed redundancy procedures applicable to persons employed in that service shall apply to him. (2) Where— and then it goes on. Frankly, we are sometimes puzzled on the one hand at why the Government refuse to include matters that will be helpful to the unions and yet on the other hand consider it proper to include in the Bill matters the necessity of which is not clear to the trade unions. Although it may not he wholly relevant to this amendment I am anxious for the Minister to find an opportunity before the House concludes this stage of the Bill to deal particularly with why those redundancy procedure matters are included in Schedule 2.

The main purpose of these amendments is to deal with pension matters. During the discussions since last July on the scheme for transferred staff, considerable progress has been made on the detailed rules of the scheme and other matters, but unfortunately the issue of full index-linking in line with the Pensions (Increase) Act 1971 remains outstanding. The unions put their detailed arguments to Mr. Pattie when he was Minister of State, and more recently to the new Minister, Mr. Adam Butler. On both occasions they stressed that they were simply asking the Government to stand by the repeated pledge given to the ROF workforce of "no less favourable" treatment by treating the transferred staff pension scheme in precisely the same way as the PCSPS is treated under the Act.

If the Minister is able to say—and I think he has gone some considerable way—that existing rights in respect of redundancies would be, as far as he was capable of assuring the House in a form of words, transferred and fully enjoyed on the transfer (and we take the point that after vesting day he may not be wholly sovereign over what happens), if the Minister is able to say that he intends to transfer all the existing rights as regards redundancy, we are asking him either to accept the amendments or to tell us that all the existing rights in respect of pensions—and I repeat, "all of them"—will be transferred and will be part of the package when the vesting of liabilities takes place, and that those details will be part of an understanding, a memorandum, an agreement or a form of words. We appreciate that words on the face of a Bill are not always the best way in which to deal with matters. If the Minister could deal with those points I am certain that it would be helpful.

The unions understand and welcome the statements from actuaries as to what level of index-linking the proposed pension contribution rate will fund. However, these actuarial statements do not fulfil the repeated pledge from Ministers for "no less favourable" treatment. The honouring of that pledge is, quite simply, all what the unions and their members are seeking—the honouring of a pledge that there will he no less favourable treatment in the future than in the past. I beg to move.

Lord Trefgarne

My Lords, I have listened carefully to what the noble Lord has said in support of this amendment, which is very much the same as we heard during the Committee stage, though that does not make it any less relevant. I am afraid that that means that what I say is also very much in accordance with what I said at that time.

I should like to deal first with what may seem to be a subsidiary point. The amendment proposes that there should be one pension scheme both for those transferring from the Civil Service to the employment of the new company and for those joining the new company after vesting day. I accept that there is something to be said for the arguments which have, at one time or another, been advanced to justify this. It is, I believe, preferable, all other things being equal, that all employees of the same organisation—at any rate, all employees having the same status—should enjoy the same terms and conditions of service.

Those employees who will transfer from the Civil Service will do so by virtue of the provisions of a scheme made under this Bill. They clearly have a moral entitlement to enjoy the same pensions benefit after the transfer as they did before it. I say advisedly a "moral" entitlement, because it is not a legal entitlement. The provisions of TUPE 81 expressly exclude the right to carry over into the new employment the same pension rights which they enjoyed in the old. All the same, if the pension scheme provided by the new employer were materially worse than that provided by the former employer, the employees concerned might well have a claim against the old employer for constructive dismissal.

In these circumstances, the Government have undertaken that the company will provide for transferred employees a pension scheme which is comparable to the Principal Civil Service Pension Scheme. But there is no such obligation in respect of employees who join the company after vesting day, and do not transfer from the Civil Service. They will be offered terms and conditions of employment which include a pension scheme based on different criteria and providing different benefits from that to which the transferred employees are entitled. It is up to the applicant for employment with the company to decide, on the basis of the offer of employment made to him, whether or not he will accept that offer. No one will compel him to come to work for the new company. and there is therefore no obligation on the company to provide a pension scheme to a particular standard.

Even so, I would accept that it would be desirable, if reasonably possible, to provide the same benefit for newly joined employees. But the burden of providing a fully index-linked pension scheme in line with the Pensions (Increase) Act 1971 is somewhat higher than the burden of providing a pension scheme which accords with the best industrial practice, It is, of course, a burden which, in respect of the transferring employees, will diminish in time, as such employees leave the service of the company. To increase the burden by extending the same benefits to newly joined employees, and thus to perpetuate it, would be to saddle the company with a financial obligation which would be bound to affect it adversely in relation to its competitors. We wish this company to be able to compete on equal terms with existing firms in the defence industry. We therefore do not intend to force on the company an obligation of this kind.

May I now turn to the scheme for transferring employees. The Government have made clear on many occasions that the benefits of this scheme will be comparable to those of the principal Civil Service pension scheme, and will be index-linked in line with the 1971 Act. Since we discussed this amendment in Committee the trade unions have been able to satisfy themselves on a number of technical points arising in connection with the proposed new company pension scheme. I accept that there is still an outstanding issue relating to the remote, and entirely hypothetical, possibility that there could be economic circumstances so adverse that the company will not be able to maintain payment of index-linked pensions to retired former employees, but yet in which the principal Civil Service pension scheme will continue to be index-linked in accordance with the 1971 Act. I have said that this possibility is remote and hypothetical. We shall do what we can to meet the concerns of the trade unions, but I am bound to say that the Government do not consider that the existence of these remote and hypothetical circumstances constitutes a material worsening of the terms and conditions of employment.

I fear that nothing that I can say on this issue will totally satisfy noble Lords opposite. However, I hope that the noble Lord will see the Government's position, which I have represented to your Lordships tonight. If the noble Lord feels like pressing his amendment, I fear that I shall have to ask your Lordships to reject it.

Lord Graham of Edmonton

My Lords, I can assure the noble Lord that I feel like pressing the amendment, but whether or not I shall is another matter. The Minister really dodges the issue. If an employee, wherever he works and whatever the justice or equity of what he is enjoying may be, is to have his benefits diminished by the transfer of his employer from the state to the private sector, he is entitled to say, "I am entitled to continue to enjoy that which I have". Other people are entitled to say, "You had a benefit". Beyond that I believe the Minister used the term "good industrial practice". In other words, it is not normally prudent in some circumstances for that particular benefit to be enjoyed in the generality.

However, we are not talking about the generality. We are simply asking the Minister to ensure that these matters are fully taken into account. When we were talking earlier about securing the provision of spare capacity and discussing the question of making sure that the nation's interests were protected when contracts were drawn up and when negotiations took place between the new manager and the suppliers, the Minister could see nothing wrong in these matters being taken into account.

I am simply saying that if the national interest and the interest of management can be protected, which is proper, why cannot the interests of the employees be protected in the same way? Quite frankly, we are very dissatisfied. I think that the trade unions will appreciate that we have taken these matters as far as we can. There is no great purpose in pursuing the matter. The Minister has made it quite clear that the ability of the trade unions to interpret statements which are made by this Government along the lines that there will be no detriment do not mean that at all. An employee who in the future will look forward to the loss of a benefit will certainly look upon that loss as a detriment. The Minister must understand that the term "no less favourable conditions" which has been bandied about by him for the past nine months, will now be seen to be a sham, because the condition that trade unionists have enjoyed in respect of their pensions has not been fully guaranteed and written into the new arrangements.

I think it is very sad that the Government are not prepared to take steps to do what I believe the Minister said—to fetter the commercial freedom of the new shareholders and the companies to take away some of the rights enjoyed by trade unionists. Those matters will be seen by the employees for what they are. They have not been deceived. I do not think they have ever fully accepted that when the Minister and his colleagues said "no detriment" and "no less favourable conditions", in effect, it meant a full protection of that which they enjoyed. I think that is very sad. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 3 [Special constables]:

8.58 p.m.

Lord Stoddart of Swindon

moved Amendment No. 19: Page 17, line 19, at end insert— ("(3) For the purposes of sub-paragraphs (4), (5) and (6) below "the relevant premises" shall be those falling within subparagraph (2). (4) The Secretary of State may by order made by statutory instrument impose conditions upon the appointment of any person to be a special constable (such appointment being made under section 3 of the Special Constables Act 1923) in respect of, in and within 15 miles of the relevant premises. (5) Any such orders made under sub-paragraph (4) above shall provide for—

1. (a) a code of discipline applicable to that constable including restrictions on the unilateral withdrawal or suspension of labour by such a person ("no strike agreement");
2. (b) the vetting and security clearance of persons intending to be special constables such as to ensure that any appointment of such a person to be a special constable does not endanger national security or persons employed at the relevant premises or property therein;
3. (c) a prescribed level of police supervision;
4. (d) the appointment of a full-time director of security in respect of the relevant premises;
5. (e) a minimum training period of any person intending to be a special constable: and
6. (f) the content of such training.

(6) Compliance with any order made under sub-paragraph (4) in respect of any purported appointment of a person to be a special constable in and within 15 miles of the relevant premises shall be a condition precedent to the validity of the appointment."). The noble Lord said: My Lords, I beg to move Amendment No. 19. I hope that it will be convenient to your Lordships if, together with Amendment No. 19, we take Amendment No. 20. Amendment No. 20: Page 17, line 41, at end insert— ("3A. For the purposes of section 54 of the Firearms Act 1968 any person appointed to be a special constable in and within 15 miles of premises falling within paragraph 1(2) shall be deemed to be a person in the service of Her Majesty. 3B. Any person or body of persons whether corporate or not maintaining a body of special constable in and within 15 miles of premises falling within paragraph 1(2) shall be deemed to be an "authority" for the purposes of section 7 of the Police Act 1976. Any person deemed to be an authority by reason only of this Schedule shall make an arrangement, to be approved by the Secretary of State, with the Police Complaints Board for the discharge by the board of functions corresponding to those conferred on the Board by the provisions of the Police Act 1976, in relation to any special constables maintained by such authority. The making of such an approved arrangement shall be a condition precedent to the validity of the appointment of any special constable maintained by any such authority. 3C. Any authority obliged by virtue only of the provisions of paragraph 3B above to make an approved arrangement with the Police Complaints Board shall also be obliged to make the following arrangements to be approved by the Secretary of State—

1. (a) an arrangement as to the planning for and maintenance of reserve forces in the vicinity of any premises falling within paragraph 1(2), with the Chief Constable of the area in which any particular premises to which paragraph 1(2) applies; and
2. (b) an arrangement with the Chief Constable mentioned in head (a) above for the reciprocal use of facilities available to either party for the combat of terrorism or subversion.

The making of such approved arrangements shall be a condition precedent to the validity of the appointment of any special constable maintained by that authority."). Towards the end of the Second Reading debate I spoke about security at the Royal Ordnance factories after privatisation. Indeed, that was shortly after the new Schedule 3 had been introduced into the Bill and, of course, passed by the House of Commons. We did not, in fact, table any amendments at Committee stage, but we have felt it necessary and desirable to put down these amendments which are important and very substantial. The reason we have tabled them is that we believe that when ROFs are privatised the Ministry of Defence Police should continue to be responsible for security. Indeed, we believe that that is essential under all the circumstancs, and I shall return to many of the reasons in a moment.

However, in introducing the amendments as listed, it is I think essential briefly to outline some of the background information relating to the current position involving the Ministry of Defence Police and the ROFs. As noble Lords will know, the MDP force is presently responsible for the policing and security of all Royal Ordnance factories. Upon introducing privatisation measures in 1982, the Government then considered it inappropriate for the MDP to remain policing ROFs after vesting day, and the intention by the Government clearly was to replace the MDP with contract security guards, or alternatively an in-house company guard force. During the Second Reading I discussed that and tried to show that privatisation would be an absurd proposal.

However, as this Bill progressed through the various Committee stages in the House of Commons pressure from Members of Parliament, the Defence Police Federation, trade unions and others was brought to bear upon the Government to reconsider their decision to replace the MDP. In fact. fortunately the Government did reconsider, and they rapidly introduced legislation in the form of Schedule 3 to allow retention of the MDP at the ROFs for an indefinite period. Legislation was necessary because of the legal status of the ROFs after vesting day, in that the ROFs would no longer belong to MoD but would become private property under the control and authority of the new ROF PLC management.

This legislation was welcomed and, indeed, as we know, was subsequently included in the Bill at Report stage in the Commons on 17th May 1984. However, it soon became apparent that it was, and still is, the long-term objective of the present Government to replace the MDP at certain factories, and to continue policing, perhaps indefinitely, at others, all as yet unidentified. This was plain from comments by Ministers at the Report stage which suggested that a new company guard force would be set up and that the MDP would play an important role in the vetting, training and supervision of the new guard force. The Defence Police Federation was strongly opposed to any MDP involvement in the setting up of a company guard force, and this sentiment was unanimously endorsed at their annual conference a few weeks ago.

The schedule provides that until further legislation becomes operative and therefore there is further consideration by both Houses of Parliament the MoD police will continue to operate the same functions as presently in respect of premises where ordnance is manufactured or developed. It does not, however, prevent the development of private security or a company guard force by ROF Limited or some other company. It therefore leaves open to further departmental control the degree to which MDP subsequently in fact police these areas.

In short, what the schedule provides is that the constables have the power to police the areas. It does not provide that they—that is, the MDP—will actually police them. That is what we are concerned about. There is in fact genuine fear that at some future date it may be decided to swear as a special constable any person engaged as a member of the company guard force guarding an individual establishment. Therefore, we take the view that it is essential that the MDP, and no other body, provide the ROFs with policing and security arrangements. The best way to ensure that MDP continue their role would be to accept the amendments which are in fact before us tonight. It follows that we must be absolutely clear that in the future, as in the past, ROFs are policed entirely by MDP.

Since we had our debate at Second Reading, and since we had the Committee stage of this Bill, there have been two significant developments—very significant developments— indeed—which affect the policing, and the future policing, of ROF establishments. One of them was the publication on 26th July of the second report from the House of Commons Defence Committee. This is a very significant report indeed. But, of course, we did not have the opportunity during our Committee stage on 19th July to consider what the House of Commons Defence Committee had to say. I feel quite sure that if we had seen that document before the 19th July, before our Committee stage, we would have been in a position and ready at that stage to put down the amendments which are before the House tonight.

Although I realise that the Minister is understandably tired, and that he has been through a great deal (and I mean this seriously) over the last few days—and we sympathise with him—nevertheless I make no apology for referring to the House of Commons Defence Committee report. Indeed, I shall quote from it at fair length because, of course, this is the first opportunity that Parliament has had to consider this report, or part of it.

If we look at the Defence Committee's report, at paragraph 45 they say: The eleven ROFs which are to be privatised vary in size and manufacture products ranging from bullets to tanks. The preface to the ROFs' 1982–83 Annual Report states: 'Many have facilities which are unique within the United Kingdom'. There is no doubt about the major security threat to these facilities. While nobody is going to steal a Challenger tank, the ROFs' range of arms. explosives and ammunition offers immense attractions to terrorist or extremist organisations. Some ROF products have an independent value; others would have lethal potential only if combined with products from a different factory. In either case, they need to be properly protected.". In paragraph 47 it is said: In talking about threats and the calculated risks involved in meeting them, it should be emphasised that the level of the threat changes continuously, but that the nature of the threat remains broadly the same". In paragraph 49 the Defence Committee says: Despite their relatively small numbers, the MDP are uniquely suited to guard the ROFs at the present time, since they possess constabulary powers on MOD property. They enjoy the confidence of the work force in exercising stop-and-search powers and their police training equips them to deal with the thefts and attempts at theft which are likely to occur at any large industrial premises". At paragraph 50 it goes on to say: MDP are empowered to use firearms. Although they do not carry them in the course of their normal duties at the ROFs, they can draw them when circumstances demand it and there are armouries at each factory". These are some of the things that the Defence Committee is saying. Indeed, these are the points which were made by the Opposition at Second Reading.

In paragraph 54 it says: None of these so-called 'list X' companies"— this refers to other armament factories such as those of GEC and British Aerospace— is guarded by MDP, yet they house classified documents and material. Ministers then appear to have concluded that the security arrangements at those companies would be suitable for the ROFs. In our view, this was the wrong conclusion". That is what the House of Commons Defence Committee has said.

In paragraph 55 it goes on to say: In stating our disagreement so flatly, we must remind the House of important distinctions between the ROFs and firms like British Aerospace. Although sensitive materials are stored at both, their products are quite different and the threat they face is also different. At the level of broad generalisation, one could summarise the differences like this. The turnover and technical expertise of the list X companies are very great. so they are obvious targets for both sabotage and espionage, but most of them have little to offer a terrorist". At paragraph 56 it is stated: We are, therefore, reluctant to make categorical statements about how the ROFs should be guarded. Armed MDP with constabulary powers are not the only solution in every case. Improvements in the physical security could be made to offset their withdrawal from some less sensitive factories. We do however, regard Ministers' equation of the ROFs with list X companies as simplistic". I am being perfectly fair in my quotations. In ignoring the differences in the threat and proposing to remove what has so far been judged a necessary element in the response to the threat—the availability of arms on-site—they have sent quite the wrong signals to the outside world". I repeat, quite the wrong signals to the outside world". That is a very important paragraph, which I hope the House and the Minister will take note of.

Those are some of the things that the Defence Committee said. In paragraph 64 it goes on to say that, The private security industry is a large, unregulated industry in which standards vary greatly between firms". In paragraph 65 it says: Pay throughout the industry is low and the turnover of manpower is high in consequence. An average wage of £1.60 an hour was quoted to us. although rates would exceed that in some firms". The report goes on and undermines the whole of the Government's case for an ROF guard force and, indeed, comes generally and firmly to the conclusion that the ROFs should continue to be guarded by the Ministry of Defence Police. Indeed, in the summary of recommendations in Part III it says: we believe that the MDP, who currently guard the ROFs, are ideally suited to counter the threat; they can be armed and have constabulary powers which equip them to deal with the different types of attempted theft which may occur". I could have quoted at much greater length from that document, but I think that I have quoted enough to show that the House of Commons Defence Committee is, in fact, on the side of the amendments before us tonight. Although the committee understands the Government's point of view and may suggest that other solutions are available, in its view the best possible solution and the safest possible solution is to continue to allow the Ministry of Defence police to guard and police ROF factories, whatever their future status may be. I think that that is a very important point that the Minister has to take into account.

At Second Reading, I drew attention to the declaration of the London Economic Summit in 1984. I think it is right that I should draw attention to it again this evening. Item 4 of the declaration says that the Ministers, the Prime Ministers and the heads of state at the meeting were disturbed to note the ease with which terrorists move across international boundaries and gain access to weapons, explosives, training and finance. They noted that ease, and their recommendation was that there should be scrutiny by each country of gaps in its national legislation which might be exploited by terrorists. At the moment, so far as we can see in regard to the guarding of the ROFs, the gaps, if any, are as narrow as possible. What we want to ensure by our amendments is that we do not create or open up gaps. Again I submit, bearing in mind all the circumstances, that it would be better if we ensured by passing these amendments that the MDP continue to guard our ROF establishments.

There is another significant event which has occurred since our Committee stage of 19th July. I almost wonder whether I should raise it tonight but I feel obliged to do so, and indeed I feel that I have a responsibility to raise it. I refer to the event which took place at the Conservative Party conference in the early hours of Friday morning. There was a disgraceful, disgusting terrorist act perpetrated by some sub-human, vicious people which created danger for our country as well as bereavement for many of our people and injury to some— including well known and well-liked Members of the Cabinet. I believe that that incident showed quite clearly that we need to counter and to guard against terrorism at every stage and to close gaps by which terrorists might be able to get hold of weapons and explosives. One of the places in this country where they might get weapons and explosives is the Royal Ordnance factories. It is quite true that there are other sources of supply, but if those other sources dried up or became very much more difficult to penetrate it could very well be that our own ROF factories would become a target.

Therefore, for the reasons that the House of Commons Defence Committee gave in its second report and for the reasons of the dreadful experience which Ministers and ordinary, decent people attending the Tory Party conference had early on last Friday morning, we cannot afford to take risks with our security. I hope therefore that the Minister will either accept the amendments which we have put down at this stage or, if he feels unable to accept them tonight, that he will say he will go away and consider them very seriously indeed. Then, having seriously considered them perhaps we can have a further discussion at Third Reading. However, I urge him to take this matter very seriously. The country demands it.

9.20 p.m.

Lord Trefgarne

My Lords, I am bound to say that I find myself in some difficulty at this moment because it seems to me that the noble Lord's remarks were addressed to Amendment No. 21, which is specifically on the question of where the Ministry of Defence Police ought to be deployed, while the amendment we are actually considering is Amendment No. 19, coupled with Amendment No. 20, and they cover rather a different topic. However, let me reply to the speech which the noble Lord has made, which is really addressed to the issue of whether and where the Ministry of Defence Police ought to be deployed.

It is clear that the purpose of what the noble Lord is proposing is to require the Ministry of Defence Police to remain at all the ROF sites in perpetuity. Amendment No. 21, in particular, refers to special constables but I should say that the practical application of the Special Constables Act 1923 means that all such constables are recruited into the MoD Police: in other words, all MoD Police are special constables. We would not wish to see a separate departmental police force set up for the specific purpose of guarding the ROFs. As your Lordships are aware, the Government announced in another place their decision to provide in this Bill for the MoD Police to remain at ROF sites after vesting day, where this was specifically considered to be appropriate in the light of threats at particular sites.

Schedule 3 to the Bill was added at Report stage in another place to give the Secretary of State the ability to retain the MoD Police at such sites with their full police powers, including the ability to bear and use firearms. As we made clear at the time, the schedule was drafted to allow the Secretary of State flexibility in determining at which sites such a police presence would be necessary. This amendment removes that flexibility and I have to say that we therefore find it unacceptable for that reason. We have been at pains to point out that the degree of threat varies from site to site within the ROFs. Some factories contain materials which may be of great use to terrorists but others—for example, those making tanks—do not constitute a serious terrorist target.

The Government certainly accept the need to maintain adequate levels of security to counter both the terrorist threat and the risk of theft, but we also firmly believe that the response must match the level of threat at each site. Where we can dispense with the full police powers of the MoD Police we shall replace them with company guard-force personnel, recruited specifically to a single company guard-force and given adequate training. Where we consider the threat to be serious enough to warrant full police powers for security personnel, the MoD Police will remain.

The Defence Committee of another place in their report of July this year on physical security at MoD installations recognised the sense of this policy. They accepted that the ROFs need to be graded in order of sensitivity and that at factories producing items of no interest to terrorists armed MoD Police can reasonably be dispensed with. I think it is clear that there is no real case for maintaining a permanent MoD Police presence at all sites once the ROFs have passed out of MoD hands.

Again the Government have pointed out that they will continue to monitor security arrangements at ROF locations after the new company has been set up, in the same way as they do with other defence contractors. We are therefore confident that we can maintain the required level of security at each site, whether sites are guarded by MoD Police or by a company guard-force.

Schedule 3 as it stands gives us the flexibility to make case by case decisions about the suitability of continuing to employ the MoD Police at various sites—a flexibility which was seen as sensible by both sides in the other place. Therefore I ask your Lordships to recognise the need for this flexibility. In the light of these considerations, I invite the noble Lord to withdraw his amendment.

Lord Stoddart of Swindon

My Lords, I am extremely disappointed with the Minister's reply. He believes that there should be flexibility in relation to the Royal Ordnance factories. I do not believe that there should be such flexilbility. The Royal Ordnance factories, which at present are quite rightly guarded by Ministry of Defence Police, will probably continue to make the same things as they do now—and perhaps even more dangerous things. If it is necessary and desirable for the Ministry of Defence Police to be in post now guarding those factories, I believe that when they change their status it will be not less necessary but more necessary for the Ministry of Defence Police to continue to guard them. Therefore, I do not believe that the Minister's reply is satisfactory.

I said at the outset that both I and the Opposition have confidence in the abilities of the MDP. We are satisfied that they have proved their worth over a very long period of time. We are not sure that any alternative will prove its worth and the fact that it does not may be disastrous for security. Therefore, we as an Opposition remain of the view that when the Royal Ordnance factories are privatised there should be a condition that the guarding of those establishments should continue to be undertaken by a force under Government control—the Ministry of Defence Police.

There is another amendment to be discussed. The Minister may see sense at that stage. In the light of what has been said this evening and in the light of all the circumstances, the happenings and the future implications for terrorism, I believe that the Minister ought to go away and think again about the whole matter. Since I am a kind man, I shall withdraw the amendment in order to give that opportunity to the Minister. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 29 Not Moved.]

9.28 p.m.

Lord Graham of Edmonton

moved Amendment No. 21: Page 17. line 47, at end insert— (" . After the coming into force of any scheme made under this Act no guard force deployed at any premises falling within paragraph 1(2) shall consist of persons other than special constables appointed in accordance with section 3 of the Special Constables Act 1923."). The noble Lord said: My Lords, having taken the Minister's advice about grouping together Amendments Nos. 19 and 20 and taking Amendment No. 21 separately, my noble friend quite fairly stressed the genesis of Amendment No. 21 in his concluding remarks. We seriously suggest to the Government that since they changed their mind about the matter in the earlier part of this year there is an opportunity for the Government over the next few days to reconsider the future scenario, in view of the report and of the events last week in Brighton.

In moving Amendment No. 21, which I am very pleased to do, may I say that it reinforces our apprehension that the intention of the Government is to save money wherever they can, and that they have been engaged in saving money—particularly in respect of MoD police. The Minister can dress this up as to guards being superfluous in certain circumstances but we need to remind ourselves time and time again that where it is a question of national security—and certainly of the personal security of Ministers and the like—the Government ought not to allow themselves to be accused of the fact that a disaster can be traced back to an attempt to save money.

I will again make reference to the very valuable second report from the Defence Committee. Paragraph 44 states: The Government has so far asked the House to consider two different proposals for the future security of the ROFs. The first proposal crystallised late in 1983 and, in our view, was extremely ill-considered. Its full inadequacy was starkly exposed when we questioned Ministry officials in public session on 11 April and its obituary was duly announced in Standing Committee on 1 May, only eight parliamentary sitting days later". I have to say that I shall have little faith if I am told that the changes which the Government made would have been made had it not been for the fact that Ministers and officials were subjected to the kind of probing which we in this House all understand a Defence Committee can make.

We now have a situation where there is not an intention to privatise wholly the defence of ROFs. In effect, this matter has been put in storage of one kind or another. We raise with the Minister very seriously the question of whether he is open to persuasion by the people at the sharp end; that is, the Defence Police Federation itself. Despite the Minister's experience, and with all the access to advice that he has among civil servants and serving officers, the defence police themselves are entitled to feel that they are being adequately consulted. I can tell the Minister that they feel they are not being adequately consulted. I will quote for the record a letter that was sent to the Secretary of State, the right honourable Michael Heseltine, by the Defence Police Federation as late as 30th July. The significance of the date is that this letter was written after the publication of the report. It states: On many an occasion, as our evidence both oral and written to the Commons Committee would show, this Federation has told anybody that would listen what the consequences could be. politically and domestically, if the programme for cash saving on MoD Police complementing was to be the criterion, as opposed to the national need for security and law enforcement at MoD establishments; alas, it all fell on deaf ears". This can be challenged, as to whether it has been the Government's motive to save money. But the noble Baroness, Lady Vickers, put her finger on one of the prime motivations of the Bill, which was to reduce the number of civil servants. I simply say to the House and to the Minister that it is shabby in the extreme if the defence of the realm is to be seen increasingly by this Government as something that can be viewed in the same way as the privatisation of hospital catering or transport facilities. It is shabby if the same criterion of saving money—not cutting out waste or inefficiency—is to apply. Let me quote another extract from the federation's letter of 30th July: On Friday the 20th July 1984. just 5 days before the public release of the report, I was presented with a proposed redistribution of the MoD Police at"— and, in deference to all considerations, I will not include the reference to the precise location— I take the liberty of attaching a copy of the document … You will note that the recommendations contained in the DAMA.IE report are absolutely contrary to the views put forward by the Director of Defence Security when he addressed the House of Commons Defence Select Committee, stating the aims in complementing for the MOD Police. Many of the sites referred to in the … report contain large amounts of explosives, ammunition, small arms and rockets, etc, and the Estates referred to are populated by the families of soldiers who on many occasions are serving away from home in such places as Northern Ireland; to deprive these people of police cover on cost grounds I am certain is not this government's intention. It is inconceivable that a report can say on one hand that the MOD Police have become a very pofessional and efficient police force, and then follow this by saying that they should be replaced by Watchgrades on a cost basis—it is hard to believe until one realises that the persons responsible for such recommendations have not the slightest knowledge of police tasks or national responsibility needs. The fact of the matter is that the responsibility for police complementing since the removal of police accounting from central funds to a user department's I of E devolves on ordinary complementing review teams and not on the Director of Defence Security". I have read that at length because I want the Minister fully to take on board that if there are tragedies of one kind or another in the future arising from this dreadful circumstance in which we find ourselves and it can he traced back to a shortfall in proper personnel guarding our national interests, then the responsibility will lie directly on the shoulders of Ministers who authorise the removal from sites.

I simply make one other allusion. The Royal Small Arms Factory, Enfield, was singled out in the report to which I have alluded. That was alluded to as a sad state of policing and oversight. It may have been right or wrong, and I accept that, because colleagues in another place looked at the situation. The Minister announced within a matter of days that a fuller complement than that which had existed hitherto was in hand. I happen to know that there was an enormous flurry in defence establishments in and around Enfield and people were taken away from one situation in order to make sure that when the balloon went up so far as Enfield was concerned the situation would be a lot better.

We are playing not only, and literally, with dynamite but with people's lives. At the end of the day it comes down to this. When there is a question of saving money—and one can see that as a possible consequence of saving money not only the lives of the police and the people who work in the establishment but the lives of the population around can be put at risk—I think that that is a price the Minister ought not to be prepared to accept. When the Minister and his colleagues have the opportunity of considering this matter, whether it is by urgent consultations with the MoD Police or whether it is in regard to a changed form of words, it will be quite clear that the germ or possibility of a disaster is being bred by the Government's unwillingness to recognise that it is not worth a candle to change the existing arrangements. I very much hope that the Minister will be able to say something helpful, not just tonight but also again before Third Reading.

Lord Trefgarne

My Lords, I must confess I have been somewhat puzzled by the speeches that I have heard. The noble Lord, Lord Stoddart, in speaking to Amendment No. 19, and I think Amendment No. 20, said not one word to do with either of those amendments that I could detect. He made a speech which I think could reasonably be said to be in support of Amendment No. 21 and I thereupon replied to Amendment No. 21. The noble Lord, Lord Graham, then made another speech on what was effectively Amendment No. 21. Therefore, in my view I have been asked to reply twice to the same amendment and I am not sure that I regard that as wholly satisfactory.

I understand, of course, that noble Lords have a genuine anxiety about these matters, but I want to say that Schedule 3 to the Bill was specifically added to enable Ministry of Defence Police to remain at ROF sites, where necessary, with their full powers. I do not think that anybody—even the noble Lord, Lord Graham—really suggests that it is necessary for MoD police to remain at the ROFs in every circumstance. Clearly there are some factories in the ROF system which do not pose the same threat as others. I think that we are entitled to say that it is not necessary to anticipate providing MoD police in perpetuity at those factories.

I do not think that there is much more I can say in reply to the noble Lord's speech that I have not already said in reply to the 30-minute speech which the noble Lord, Lord Stoddart, deployed to your Lordships on Amendment No. 19—although I think that it was really aimed at Amendment No. 21. We have responded to the anxieties of the House of Commons Defence Committee. In fact we did so before it even presented its report, in the light of some of the considerations and discussions that it had. We have not been tardy in responding to what it suggested. I hope that your Lordships will give us credit for that.

Lord Graham of Edmonton

My Lords, the Minister is entitled to feel weary at having to make the same case or put forward the same defence again. I thought that we had come to an understanding about the reason for that. The Minister can rest assured that if it had been the more proper procedure we could have had a speech on this amendment just as long as that on Amendments Nos. 19 and 20. The geneses of the solutions posed in both instances hang together. Amendments Nos. 19 and 20 attempted to spell out how the future organisation of the policing of the ROFs should take place. The Minister is rightly a little touchy about the criticisms made, not of himself but of the general oversight and, of course, of his Government. He has failed completely to answer the charge that I make that a great deal of the department's attitude to past and future policing of the ROFs has more to do with saving money than the security of the establishments. I make that charge quite seriously.

Lord Trefgarne

My Lords, it is a very grave charge.

Lord Graham of Edmonton

My Lords, it is a very grave charge.

Lord Trefgarne

And quite without foundation.

Lord Graham of Edmonton

My Lords, the Minister may feel that it is without foundation. I rest my case partly on the views of the Defence Police Federation, which I quoted. We see other moves and manoeuvres by the Government to seek savings. We may be told that the same criteria for reducing manpower levels do not apply, and I will certainly argue that point at length on some other occasion with the Minister.

However, the Minister is entitled to say that on a close scrutiny it may be shown that this may not be necessary at certain establishments which are at present peopled and managed by the MOD and over which it has oversight. I hope that such close scrutiny will be undertaken in consultation with, alongside and subsequently with the approval of, the Defence Police Federation. After all, it has a wealth of experience behind it in precisely that situation. The fact that local police commanders are to be involved and consulted is another safeguard.

We are completely dissatisfied with the Government's attitude. We clearly wish to consider with others outside whether there is any purpose in coming back to the matter again at the concluding stages of the Bill in this House. But in the circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

House adjourned at a quarter before ten o'clock.