§ 4.54 p.m.
§ House again in Committee on Clause 69.
§ The Earl of Caithness moved amendment No. 218A:
§ [Printed earlier.]
§ The noble Earl said: I beg to move this amendment. I spoke to this earlier, on Amendment No. 217C.
§ On Question, amendment agreed to.
§
Following is the text of the amendment (No. 218A):
Page 71, line 4, leave out ("other than transferred activities").
§ The Earl of Caithness moved Amendment No. 218B:
§ [Printed earlier.]
§ The noble Lord said: With the leave of the Committee I should like to move Amendments Nos. 218B, 218C, 218D and 218E together. [Printed earlier.] I spoke to this amendment earlier, on Amendment No. 215A. I beg to move.
§ On Question, amendments agreed to.
§
Following is the text of the amendments (Nos. 218B, 218C, 218D and 218E):
Page 71, line 6, at end insert ("or permit any body corporate which is its subsidiary to engage in any such activities").
Page 71, leave out lines 7 to 9 and insert—
("(b) does not—
with the exception in each case of borrowing by way of temporary loan or overdraft; and").Page 71, line 10, after ("not") insert ("(i)").
Page 71, line 11, at end insert—
("; or
(ii) permit any body corporate which is its subsidiary to raise money by the issue of shares or stock to any person other than the company.").
§ [Amendment No. 219 not moved.]
1232§ The Earl of Caithness moved Amendments Nos. 219A and 219B.
§ [Printed earlier.]
§ The noble Lord said: I beg to move Amendments Nos. 219A and 219B. I spoke to these amendments earlier, on Amendment No. 217C.
§ On Question, amendments agreed to.
§
Following is the text of the amendments (Nos. 219A and 219B):
Page 71, line 17, leave out ("other than transferred activities").
Page 71, line 22, leave out subsection (5) and insert—
("(5) Subsection (3)(a) above shall not apply—
§ [Amendment No. 220 had been withdrawn from the Marshalled List.]
§ On Question, Whether Clause 69, as amended, shall stand part of the Bill?
§ Lord SandfordThe Marshalled List indicates that I had intended to speak to the effect that this clause should not stand part of the Bill, but in the course of speaking to Amendment No. 218 I was satisfied, for the time being, by my noble friend. However, I understand that there may be other noble Lords who may wish to speak on the Motion, that this clause stand part of the Bill.
§ Clause 69, as amended, agreed to.
§ [Amendment No. 220A not moved.]
§ Clause 70 [Disabilities of directors of public transport companies]:
§
The Earl of Caithness moved Amendment No. 220B:
Page 71, line 39, leave out ("a paid employee of the company") and insert ("paid for acting as such or is an employee of the public transport company or a subsidiary of the public transport company").
§
The noble Earl said: I beg to move Amendment No. 220B and at the same time, with the leave of the Committee, I should like to speak to Amendments Nos. 220C, 220D, 220E, 220F, 220G and 220H.
Amendment No. 220C: Page 72, line 6, after ("council") insert ("(a)").
Amendment No. 220D: Page 72, line 7, leave out from ("with") to ("vote") in line 9 and insert—
(", or any other matter relating to the activities of, the public transport company or a subsidiary of that company; or (b)").
Amendment No. 220E: Page 72, line 36, leave out from beginning to ("was") in line 1 of page 73 and insert (", or any other matter relating to the activities of, the company concerned").
Amendment No. 220F: Page 73, line 11, leave out from ("with") to ("is") in line 12 and insert (", or any other matter relating to the activities of, the public transport company or a subsidiary of that company").
Amendment No. 220G: Page 73, line 35, leave out from ("with") to ("by") in line 36 and insert (", or in any other matter relating to the activities of, the public transport company or a subsidiary of that company").
1233
Amendment No. 220H: Page 73, line 37, at end insert ("or in a subsidiary of that company.
(12) The provisions of this section shall apply in relation to a director of a subsidiary of a public transport company as they apply in relation to a director of such a company.").
§ These amendments have two main purposes. First, they apply the provisions of the clause to directors of any subsidiary of a public transport company. Secondly, they clarify subsection (1) of the clause to apply to all directors of public transport companies or their subsidiaries who are either paid as directors or are employees of the public transport companies or their subsidiaries. As drafted, the clause does not apply to directors of subsidiaries of public transport companies and it is not apparent on the face of the clause that a director paid as a director as distinct from a director employed by the company would be disqualified from being a member of the controlling authority. These amendments put these deficiencies right. I beg to move.
§ On Question, amendment agreed to.
§ The Earl of Caithness moved Amendments Nos. 220C to 220H.
§ [Printed above.]
§ The noble Earl said: I beg to move.
§ On Question, amendments agreed to.
§ Clause 70, as amended, agreed to.
§ [Amendment No. 221 had been withdrawn from the Marshalled List.]
§ Clause 71 [Powers of investment and disposal in relation to public transport companies]:
§ The Earl of Caithness moved Amendment No. 221A.
§ [Printed 18/7/85; col. 978.]
§ The noble Earl said: I beg to move this amendment. I spoke to it earlier on Amendment No. 211CN.
§ On Question, amendment agreed to.
§
Following is the text of the amendment (No. 221A):
Page 74, line 3, leave out from ("company") to ("any") in line 4 and insert ("so formed by way of consideration for").
§ [Amendments Nos. 222 and 223 had been withdrawn from the Marshalled List.]
§ The Earl of Caithness moved Amendments Nos. 223A and 224A:
§ [Printed earlier.]
§ The noble Earl said: I spoke to both these amendments with Amendment No. 215A. I beg to move.
§ On Question, amendments agreed to.
§
Following is the text of the amendments (Nos. 223A and 224A):
Page 74, leave out lines 12 and 13 and insert ("such shares or other securities").
Page 74, line 18, leave out from beginning to ("which") in line 20 and insert—
§ [Amendments Nos. 224 and 225 had been withdrawn from the Marshalled List.]
§ Clause 71, as amended, agreed to.
§ Clause 72 [Application of local authority financial controls to public transport companies]:
§ 5 p.m.
§
Lord Sandford moved Amendment No. 225A:
Page 74, line 33, leave out subsections (1) to (3).
§
The noble Lord said: I wish at the same time to speak to Amendment No. 229A and to try to include in my remarks the four amendments which would have been moved by my noble friend Lady Vickers, Amendments Nos. 226 to 229.
Amendment No. 226: Page 74, line 37, leave out ("any") and insert ("no").
Amendment No. 127: Page 74, line 40, leave out ("any" and insert ("no").
Amendment No. 228: Page 74, line 43, leave out ("any") and insert ("no").
Amendment No. 229: Page 75, line 1, leave out ("any") and insert ("no").
Amendment No. 229A: Page 75, line 40, leave out subsections (7) and (8).
§ This is the moment when we come to what one could probably regard as the worst feature of this very unsatisfactory arrangement which is proposed for the structure of the municipal bus companies in the situation created by the Bill. The bus operating body is given the status of a Companies Act company, and it might be expecting the freedom of such a company to operate according to its purposes and within the terms of its memorandum. But in fact for the purposes of capital expenditure it is still regarded as part of the local authority, and so we have a company which ends up in the worst of both worlds. While it ceases to be a department of the city council, its capital expenditure is treated as if it were.
§ The capital expenditure controls of a city council these days are so bizarre as to be hardly believable by people who are not familiar with the state that local government finance has got into. There was a time when one had to seek approval for the capital that one wished to borrow in order to finance the activities of a local authority. Those days are long past. Now even the capital one already has cannot be spent without the authority of the Department of the Environment, which is in turn controlled by the Treasury.
§ It is impossible to see how what is nominally a private company, designed to be free to enter the world of deregulation and full-blooded competition with the private sector, can possibly operate fairly and effectively in that new environment when it does not have access to any capital which it can call its own. The capital which is available in the local authority cannot be applied to it without the approval of the Secretary of State. It cannot go into the market to raise capital of it own because it is reliant on its parent local authority for that; and its local authority cannot 1235 provide capital for it, even when authorised to do so by the Secretary of State, without setting the needs of the bus company side by side with all the other needs of the local authority, of which probably the most important is housing. Everybody knows that all housing authorities these days have enormous priorities building up.
§ The municipal bus company is in an impossible situation. The amendment at this stage is not designed for pressing but just to elicit from whichever of my noble friends on the Front Bench is to answer some explanation of why the Government have landed these unfortunate municipal bus companies in this situation and how on earth they think they can operate effectively, as they obviously hope they will. I see no possibility of them being able to operate effectively in a state of deregulation and private enterprise. It may well be that this clause has been designed in order to oblige the local authorities to privatise their bus companies, but it would be much simpler to have said so on the face of the Bill and to have avoided all this complication. It simply will not work. I beg to move.
§ The Deputy Chairman of Committees (Lord Cullen of Ashbourne)If this amendment is agreed to, I shall not be able to call Amendments Nos. 226 to 229.
§ Baroness Carnegy of LourMy noble friend said earlier that it would have been so much better to privatise the buses altogether. I do not know whether he was expressing a view held by the association which he chairs, but I do not think that the Scottish authorities which run buses—which, as it happens, are all regions—would agree to that at all. They argue that they do not want this arrangement; they want the status quo. I should have thought, though, that they would have preferred this arrangement to total privatisation. I have not consulted them about that because my noble friend's argument has been enunciated only today.
Therefore, I should have thought that this option has seriously to be explored. If one is to have a halfway house or a hybrid arrangement, where losses are covered by the ratepayer and the taxpayer, and if the bus company gets into difficulties it will be for the local authority to sort it out, one cannot give the hybrid company the freedom of an ordinary company. That simply is not possible.
I am not an expert on this at all. I am simply thinking back to my time as a councillor. The borrowing required for capital expenditure should be treated like the borrowing of a local authority and put into its capital plan forward just as any other local authority expenditure is. Losses should likewise be dealt with in the same way as any other local authority project which loses money. It seems to me that on behalf of local authorities my noble friend is trying to have his cake and eat it. I see why local authorities prefer the status quo. I am very surprised that they would want to see their bus undertakings separated completely. One cannot expect to have the advantages of a separate company in one direction and not in another.
§ Lord ShepherdIf I might use the jargon that has been developing in our debates on this Bill, I suspect that the noble Baroness has fallen into this trap. Some 1236 who use the term "privatisation" do not mean putting the service into the private sector. It is merely a changed relationship from a PTE or PTA municipal bus operation.
I support the amendment. I believe that it is necessary for the benefit of those who have to run commercial companies on a fair competitive basis. The Notes on Clauses state:
Subsection (1) provides that payments, acquisitions, disposals, receipts, contracts, liabilities, termination of interests and repayments in relation to an undertaking or a public transport company shall be treated as if they were made by the controlling authority".That is not what I expected when I read the White Paper regarding the setting up of these transport companies. The purpose of setting up these public transport companies was to put them at an arm's length from the authority which was the tendering authority, in other words divorcing those authorities who tendered and provided subsidy from the operational side of the business.As I see these various clauses, I think an executive in a company will be in very great difficulties. All his revenue, his profit at the end of the year, will go direct to the authority, As a quid pro quo he will then have to look to the authority for moneys for the purchase of new vehicles and other forms of capital expenditure. Some companies may have some 50 or 60 vehicles, which seems to be about the average for the municipal authorities. These are fair assets, which not only will have to be serviced but will have to be replaced. I am quite clear that the basic principle in relation to capital expenditure is that so far as possible it should come from revenue, from profit and that the company should create profit in order to replace its assets. If it is not so, then of course there cannot be fair competition because those in the private sector will have to perform that way.
I am not sure whether the noble Lord should pursue these amendments to a division. Certainly we should like to hear from the Minister. I hope that between now and Report stage the Government, while perhaps allowing this hybrid situation to remain in the Bill, will look very carefully to see whether there are ways in which it can be made easier. Yes, maybe they can offer an inducement for local authorities to create what I call the PLC approach, which is the setting up of freestanding transport companies, as I understand them to be.
I believe that if that were done, there would be a far better performance and certainly a far better approach of management to the companies than there would be within this morass of administration. I was going to say "administrative nonsense"; however, I understand why the Government went for this hybrid approach. I think it is the least satisfactory. When the Minister replies to the noble Lord, Lord Sandford, I hope that he will at least be willing to undertake to see whether there are ways and means by which this free-standing PLC approach about which I have spoken can be achieved or, to go further, encouraged as a solution to the problem.
§ 5.15 p.m.
§ Lord TrefgarneI have listened very carefully to the arguments that my noble friend Lord Sandford, 1237 supported by the noble Lord, Lord Shepherd, has put forward for removing the public sector capital controls which the Bill proposes for the new public transport companies. The amendments are of course in keeping with those which were moved to Clause 69 and reflect the desire to ensure that new companies will be able to stand on their own feet and compete successfully without being hampered through capital or other controls.
I have to say that while I side with my noble friend in wanting these companies to stand on their own two feet, I do not think that we can possibly go so far as to disapply the important provisions of this clause. Nor, thankfully, do I think there is any reason for us to do so. I hope that I may be able to convince my noble friend on that.
First, I would ask the Committee to consider the status of these companies. They are, I think we will agree, in the public sector. In these circumstances, two facts must be taken into account. First, the companies will undoubtedly be regarded as contributors to public sector spending, which for reasons which we probably do not want to go into now the Government, as managers of the economy, have to see properly accounted for in the control system. Secondly, it would be quite open for the authorities effectively to have the best of both worlds if, as is proposed in the amendments of the noble Baroness, Lady Vickers, this company's profits increased the amount of prescribed expenditure which the local authority could make while the amount of capital expenditure by the company did not reduce their allocation, this would effectively allow authorities to augment their expenditure. I should not wish to precipitate a wider debate on that subject, but I hope the Committee will agree that that is not something we should want to do lightly in this Bill.
I should also like the Committee to consider the advantages for a public transport company in its relationship with the controlling authority which I mentioned on Clause 69 and which, if I may say so, I do not think we should forget. It has, for example, a ready and regular source of finance. It is also likely that its borrowing through the authority may well be at the normal rates which apply to local authority borrowing, which the Committee will know are not always available to other borrowers.
Against this, there is of course the overall limit on the local authority's capital expenditure, which the amendments we have before us seek to disapply from the companies; and I know that some people fear that the balance here may not lie in the company's favour, particularly if an irresponsible local authority seeks to deny the bus company its proper priority. I suppose we have to acknowledge that—in extreme cases—there is a possibility of this happening. But I have to say that nothing in this clause removes the control over the situation from the local authorities themselves. If they make capital resources available to their company—as they do effectively now, and as I have no doubt most will continue to do—there is no reason whatsoever why the provisions of this clause should pose any difficulty for the companies. They will have facilities which some other borrowers would dearly love to have available to them.
1238 Ultimately, I think we must also bear in mind again that the local authorities are always free to seek consent to dispose of their controlling shareholding and so place the company firmly outside these capital controls and into the private sector. This clause does not seek to force the local authority's hand in either direction. All it does is to say that, while the companies are in the public sector, it is inevitable that the capital controls which we have discussed should apply. I hope my noble friend will feel able to accept that. I have to tell my noble friend that I think there is a good deal between us on this matter and I do not feel that I can come towards him in any way.
§ Lord SandfordNo; that is certainly so. If the debate we have had for the past hour or so has achieved nothing else, it has certainly achieved that. It is because of that, coupled with the fact that the situation in which the municipal bus companies is so unsatisfactory and so different from that which they might have been led to expect by the White Paper, that inevitably—and I say this to my noble friend—it is not so much that it is their policy to privatise themselves but it is the only way in which they can extricate themselves or avoid becoming entangled in this unsatisfactory situation. It is my own, so to speak, private opinion at this stage that many of them will see this to be the case. Maybe in the long run it will be the best way for the municipal bus companies to go. However, if it is not what the Government intended, it is odd and ironic that that should be the effect.
The White Paper, if I may remind the Committee, said:
The company will also be able to seek capital (whether equity or borrowing) from the market in the usual way".They will not be able to do anything of the kind: and even if they got it, they would not be free to spend it. That is the situation that local government is in. You cannot spend the money you have got, and you cannot borrow what you need. To form a company in the private sector and to call it a Companies Act company and then expect it to operate effectively against full-blooded competition in that situation is absolutely absurd. We have established that there is a great gulf between us—and there certainly is. What will be the effect as municipal bus companies reflect on it during the Recess, I cannot say; but, clearly, one possibility is that set out in the White Paper. It would be open to councils to privatise the company if they wished. Of course, the Labour-controlled bus companies will not want to do any such thing. However, they may well be forced into that situation, which is an unwarranted intrusion into the independence of local government. I believe that we have exhausted the possibilities on this amendment. I beg leave to withdraw it.
§ Lord TrefgarneJust before my noble friend does that, I imagine that he plans to reflect on what has been said and perhaps return to the matter at Report stage later in the year. I have to tell him in plain terms that I doubt that there will be any difference in the Government's position—in fact, I am certain there will be none—if we consider this matter at a later stage. I invite my noble friend to consider, therefore, whether he should really withdraw the amendment in those circumstances, or whether it would not be better if he sought the view of the Committee.
§ Lord ShepherdI have been under some pressure from my noble friends. We have had one long Statement; we have made very little progress on the Bill; and we are now to have another statement. The noble Lord has certainly provoked me into a good deal of debate, but I had intended to restrain myself. The noble Lord wishes to withdraw the amendment. What the Minister has said is quite unsatisfactory. It will be a question for your Lordships' House at a later stage to decide whether it believes that the noble Lord, Lord Sandford, is right, or the noble Lord, Lord Trefgarne.
The threat that the noble Lord, Lord Trefgarne, puts to the Committee and to its Members is, if I may say so, a very dangerous way of going about a Committee stage. If he wishes to take that view, we shall do what occurred many years back in the past, when noble Lords were a great deal smaller in number. We divided on every amendment. If, as the noble Lord nearly suggested, we cannot withdraw amendments when we wish, we shall divide on all amendments. Were that to happen, I do not know where your Lordships' Committee would be.
§ Lord SandfordI shall not respond to that, if my noble friend will forgive me. It is not the right tactics to press amendments at the Committee stage on a Bill that is so ill constructed. I do not despair at all, wide as the gulf is, of at least having some effect on the thinking of my noble friends between now and October.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 226 to 229 not moved.]
§ Lord Brabazon of TaraI beg to move that the House do now resume.
§ Moved accordingly, and on Question, Motion agreed to.
§ House resumed.