HL Deb 15 January 1985 vol 458 cc888-93

4.7 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth)

My Lords, it may be for the convenience of the House if I now repeat, with the leave of the House, a Statement on British Aerospace which is being made in another place by my right honourable friend the Secretary of State for Trade and Industry. The Statement is as follows:

"With permission, Mr. Speaker, I should like to make a statement about the Government's residual shareholding in British Aerospace plc.

"My right honourable and learned friend the Chief Secretary to the Treasury told the House on 14th March last year that it was the Government's policy to sell minority residual shareholdings in privatised companies as the circumstances of the companies, the prospectus undertakings and market conditions permit. In pursuit of that policy, the Government have now decided to sell our residual shareholding in British Aerospace. Since 1981, when it became the first nationalised industry to be denationalised, British Aerospace has been operating successfully in the private sector. We intend, subject to satisfactory market conditions, to offer for sale all our shares in British Aerospace (48.43 per cent. of the company's issued share capital) in the spring or early summer of this year.

"The company has agreed that, before the sale is made, it will recommend to shareholders a resolution providing for the Government to retain a special share in the company. The purpose of this special share will be to ensure that no change may be made without Government consent to the provisions of the company's articles of association which restrict the foreign ownership of shares in the company and require the directors to be British nationals. When British Aerospace was privatised, the Government said they would retain at least 25 per cent. of the shares in the company so as to be able to block any changes to those articles. This Government shareholding will be rendered unnecessary by the issue of the special share which will have the same blocking effect. We will also have the right to nominate a director to the company.

"It is the company's intention to raise new equity capital at the same time as the Government's shares are sold. The British Aerospace chairman, Sir Austin Pearce, is making a statement about this this afternoon. Subject to the approval as necessary of the company's shareholders, it is intended that the offer for sale should take the form of a simultaneous offering of the Government's existing shares and new shares issued by the company."

My Lords, that concludes the Statement.

Lord Bruce of Donington

My Lords, we are indebted to the noble Lord for having repeated the Statement. It is a somewhat surprising one. The 50p shares in British Aerospace were yesterday quoted at £3.68 per share—a drop of 15 points on the day before. One wonders at what price the shares are going to be offered to the public. If they are offered to the public at the same time as a new issue is raised it should be quite clear that the sale will be part of what might be conceived as a slightly watering-down situation.

What has impelled this sudden sale, which at yesterday's quoted price is going to produce only about £92 million? What do the Government want £92 million for at this juncture? Are they getting short of petty cash, or something? What good does it do? What extra impetus to existing businesses in the United Kingdom does this swap of ownership give? What new surge of enterprise does it insert in the British manufacturing economy? Of what conceivable benefit is it, even to the Government themselves, to sell off part of their shareholding in a successful company in respect of which they presumably hope to get dividends? Why the sudden need for £92 million? Is it because the Chancellor of the Exchequer, following the somewhat bizarre announcement of yesterday, is scraping around to get money so that he may at any rate partially honour his promise to reduce taxation? Is that one of the reasons?

Why the desire suddenly to get £92 million? Is it, alternatively, to make up for the money that would have been received by the projected privatisation of British Airways, which has apparently run into difficulties owing to the apparent inability of BA to come to a settlement with the receiver of Laker's? What is the reason? Why the panic? Surely the Government have not been knocked so far off their perch that they need to scrape around in this way. What conceivable financial advantage accrues to the taxpayer as a result of it? What happens to the £92 million? If it is going into research and development aid, or something of that kind, or if it goes into capital projects, all well and good. What do they want it for? As I say, we on this side of the House regard this Statement as an exhibition of minor panic. Why should this be? Perhaps the Government will explain.

4.13 p.m.

Lord Taylor of Gryfe

My Lords, while we on these Benches take a fairly pragmatic view of the question of privatisation and sales of Government assets—we try to view these matters in the light of good housekeeping on the part of the taxpayer—I must say that on these terms we share some of the anxieties that have been expressed by the noble Lord, Lord Bruce of Donington. We should like to know why this is being done. Is it really just to finance tax cuts in the next Budget? If that is so, it represents very bad housekeeping, because you are selling assets in a company which has a very successful record under its present régime. I have here the balance sheet of British Aerospace and I notice that last year the profits after taxation had increased to £82 million, as against £23 million in the previous year, and that the earnings per share, on a net basis, had increased to 41.1 pence as against 11.5 pence in the previous year. It does not represent good housekeeping in any company—and we in this House are custodians of the nation's assets—to sell off

I should like to inquire, too, about the point raised by the noble Lord, Lord Bruce of Donington, on the price the Government expect to realise on the shares. I know they cannot give an undertaking today that it will be so-and-so, but if you look at the record of this company you will see that when 50 per cent. of this company was privatised it was floated at 150 pence per share in 1981. Within six months that had gone to 250 pence. It was a good day for the stags. Similarly, in yesterday's Financial Times this company is quoted at 368 pence per share, even in the slightly depressed state of the market at the present time, and its recent nervousness.

If the Government are going to issue these Government shares at the same time as the company is going to issue additional capital an obvious dilution takes place, and I should be interested to know just what the Minister has in mind as to the total amount of money that is going to be realised by this exercise. I notice that they are going to retain the golden share. But the golden shares provision is only to prevent foreign ownership of the company. I wonder how far the golden shares' powers might be exercised in the nation's interests or even on the social obligations of this company. We are now dealing with a company with 80,000 employees, with a very substantial export performance, and half of its business in defence contracts. Is it safe on the part of the nation to float off this company entirely to shareholders who will be concerned exclusively about the return on their invested capital? If the Government would give us the assurances we have sought in this regard it might help us to understand the strategy they have in mind.

4.17 p.m.

Lord Lucas of Chilworth

My Lords, I am grateful to the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Taylor of Gryfe, for their reception of the Statement which I have just repeated. There is no panic in the Government's announcement. We have, as a matter of policy, made it clear that we wish to dispose of secondary interests in privatised companies. Consideration of this matter has been going on for some months, and in the light of speculation on the markets in recent days it was decided to make the Statement today. It is intended that the sale will probably be effected in the late spring or early summer; that is very much dependent upon the market.

I am not too sure exactly where the noble Lord. Lord Bruce of Donington, got his figures, but my understanding is that before the suspension of shares on the market this morning the British Government's stake in the company was something of the order of £350 million. Further speculation about what the company wishes to do could only have an unsettling effect on the company, and that indeed might have an adverse effect on the extraordinarily successful operation of the company—that success which the noble Lord. Lord Taylor of Gryfe, has emphasised.

In reply to the rather disconnected comments by the noble Lord, Lord Bruce of Donington, in regard to what has been happening in the market in recent days, I can perhaps say that in this respect it is business as usual. We are giving due notice that we are in business as usual. The noble Lord, Lord Taylor of Gryfe, asked about the price. I cannot tell what the price will be, and he acknowledged that. Perhaps I can repeat one piece of the Statement. I quote again: the Chief Secretary to the Treasury told the House on 14th March last year that it was the Government's policy to sell minority residual shareholdings in privatised companies as the circumstances of the companies, the prospectus undertakings and market conditions permit". I do not think that I can go any further in answering the noble Lord, Lord Taylor of Gryfe, on that matter.

The noble Lord asked specifically about the special share, the golden share. That share is specifically to ensure that ownership of the company does not fall into foreign hands. It also maintains the necessity for all the directors to be of British nationality. At the same time it retains the Government's right to nominate a director. With those safeguards, I think that it could be seen that there is no danger of the company not being able to fulfil the very successful role it played even before nationalisation in attending to the defence requirements of this country.

Lord Boyd-Carpenter

My Lords, while welcoming the announcement of a further step towards privatisation, particularly in the light of the great success of this company when predominantly privatised (as was so helpfully brought out by the noble Lord, Lord Taylor of Gryfe), I should like to ask my noble friend a little more about the blocking mechanism or the golden share. Is that a power which can be exercised only in the event of a proposal either to turn the company into a foreign held company or to alter the articles in that respect; or is it a power which, in the discretion of the Government. can be exercised in any circumstances? I should be very grateful if my noble friend would describe the details of the power. Is it a share with voting rights equivalent to all the other shares, or is it some specially restricted blocking mechanism related only to proposals to amend the articles?

Lord Lucas of Chilworth

My Lords, I am grateful to my noble friend Lord Boyd-Carpenter for asking his question because it gives me the opportunity to set down the record. The share does not rank as other shares. It is not intended that the Government will sell their 48.43 per cent. until such time as by resolution of the shareholders the special share is created. In other words, there will be no period at which the Government's blocking mechanism will be lost. That blocking mechanism is designed to ensure that no more than 15 per cent. of the entire issued shares of the company may be held by foreigners. In that way the company will be retained by British shareholders. It is also intended by this mechanism that all the directors of the company will be of British nationality. It is only with respect to the articles of association that are concerned with those matters that the blocking mechanism is available to the Government, and the Government will retain the right to use that blocking mechanism if they see fit.

Lord Bruce of Donington

My Lords, will the noble Lord clarify one or two points? As regards the golden share, may we take it that the blocking mechanism would be used in the event of a British company seeking to take over British Aerospace? If so, under what circumstances and under what criteria would the Government consider using it, bearing in mind of course that changes in ownership are quite irrelevant to the performance of the company concerned or indeed its public activities? They are merely changes in ownership; that is all. Will the noble Lord also kindly answer the question put to him by the noble Lord, Lord Taylor of Gryfe, in regard to his suspicion of a dilution of capital taking place on the occasion of the issue of new shares and the sale of the Government's own holding which I should have thought at £3.68 amounts to some £177 million?

Lord Lucas of Chilworth

My Lords, as regards British Aerospace falling into the hands of another company or another body, my understanding is that if that company were English, it would be subjected to the provisions of the Fair Trading Act and it might involve a reference to the Monopolies and Mergers Commission. In so far as it falls under the control of a foreign company, that is where the blocking mechanism would apply. As regards the underlining of Lord Taylor's question, I understand that the chairman of British Aerospace probably released a statement a short while ago in which he said that the company, in seeking to raise further equity on the market, is not intending to expand the equity capital by more than 25 per cent. Of course I think one must accept that the amount of shares that the company offer—and it will be a joint offer with our own as well—is for the commercial consideration of the company. It is a matter of convenience both to the company and, indeed, to the Government that the sale of both those shares and the Government's holding should be at the same time.

Lord Morris

My Lords, I should like to ask my noble friend whether I am right in thinking that the fundamental reason why Her Majesty's Government have decided to sell their minority interest in British Aerospace lies behind the philosophy—with which I happen to agree entirely—that it is not the business of Government to be in business. Furthermore, have Her Majesty's Government considered the measure of protection that is afforded to minority shareholders, which Her Majesty's Government will remain, by virtue of Section 210 of the Companies Act 1948, which is the section designed for the protection of minorities' interests?

Lord Lucas of Chilworth

My Lords, I am grateful to my noble friend Lord Morris for his questions. In general, yes, the decision to dispose of the Government's interests in the company accords with our general philosophy in that matter.

Lord Diamond

My Lords, can the noble Lord explain what is the general philosophy in that matter, other than scraping the barrel to find whatever money they can and continuing the process of selling the family silver in order to pay for the groceries? I can understand no other reason myself. It is not a question of privatisation; it is a question of realisation of shares for cash. It is very simple indeed. Privatisation is totally irrelevant to the announcement that the Government have just made.

Will the noble Lord also say what is the reason why the Government are proposing to reduce their power of control of the situation which they at present possess? At present they have an interest in shares which enables them to control, and, if necessary, prevent, the alteration of any single article. The Government's proposal is that the golden share should enable them to control two articles. Why are the Government giving up control of all the other articles of association?

Lord Lucas of Chilworth

My Lords, the noble Lord, Lord Diamond, has asked a number of questions. First, it is not necessary—as I think my noble friend Lord Boyd-Carpenter spelled out—to control the company by necessarily having 48.43 per cent. of the shares. The general philosophy underlined by my noble friend Lord Morris was, I should have thought, the answer. Instead of saying, "What is the value of privatisation?", one might actually say, "What is the value of keeping a national interest in that company?", which has done so expressly well, as underlined by the noble Lord, Lord Taylor, when he quoted from the company's accounts. There can be no value to us in holding it. The company can he free and can go about its business in a more commercial manner.

There is no question of scraping barrels at all. We do not feel that there is value in the Government continuing to hold 48.43 per cent. of the shares. We can look after those two interests. The so-called blocking mechanism concerning the articles of association, to which the noble Lord, Lord Diamond, referred, is where we think we should hold an interest. That is why we have the special share arrangement with the company.

Lord Morris

My Lords, my natural demurity makes me hesitate to press my noble friend, but he did not answer in any way my question with regard to Section 210 of the Companies Act 1948. I understand the reason why. May I ask whether my noble friend would be good enough to write to me on that matter?

Lord Lucas of Chilworth

My Lords, of course, I shall be happy to expand and write to my noble friend. As is the arrangement in your Lordships' House when a letter is promised to a noble Lord, a copy will also he laid in the Library.