HL Deb 13 May 1985 vol 463 cc929-34

5.33 p.m.

Lord Lucas of Chilworth

My Lords, with the leave of the House and for your Lordships' convenience, I should like to repeat a Statement on British Aerospace which is being made in another place by my honourable friend the Minister of State for Industry and Information Technology. The Statement is as follows:

"With permission, Mr. Speaker, I should like to make a Statement about the outcome of the joint offer of shares in British Aerospace by the Government and the company.

"Approximately 264,000 applications were received from the general public (excluding institutional priority applications) for a total of approximately 790 million ordinary shares.

"Preferential applications were received from shareholders for approximately 23 million shares and from employees for approximately 3 million shares. All the valid applications will be allocated in full.

"Valid applications from the general public for up to 20,000 shares will be allocated a minim um of 100 shares and a maximum of 275 shares depending on the number of shares applied for. No allocation will be made in respect of public applications for more than 20,000 shares. On this basis, allocations will be made to some 260,000 applicants for a total of some 40 million shares.

"As announced on 1st May, approximately 80.8 million shares, 55 per cent. of the total offered shares, have been allocated to institutional priority applicants.

"It is expected that dealings in renounceable letters of acceptance in respect of the offered shares will commence tomorrow."

My Lords, that concludes the Statement.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord for having repeated the Statement made in another place. It is quite clear from the Statement—and of course a number of matters are not yet clear—that the Government are in very urgent need of the money. At the time that British Aerospace was privatised the Government pledged themselves, for what pledges from the Government are worth, that they would retain a 25 per cent. holding. They have now decided to retain a mere one golden share. It is very difficult to know from some of the statements that have been made over the past month when the disposal was originally decided, but quite clearly the Government could not wait until the troubles of British Aerospace were out of the way before they did it; and so now they have raised the money.

What the Statement does not say is how much money the Government received or are to receive gross as a result of the sale of their shareholding. One thing, however, is very clear—the issue was very considerably over-subscribed. It would be interesting therefore to know what was the cost to the British taxpayer of the sale of these shares which the Government are holding in trust on behalf of the general public. We should like to know the costs that have gone out in respect of this.

The Statement, in so far as it refers to the various percentages of the issue that are going to be held by various classifications, is not at all clear. It would have been far better to state the number of shares classified under the same terms, as I observe British Aerospace did at page 57 of its accounts for the year ending 31st December 1984, from which it was clear that at that date and prior to this issue ordinary individual shareholders held 4.85 per cent. of the total issue; institutions held 44 per cent.; and the trustees of the employees' shares held 1.78 per cent.

Will the noble Lord confirm—I am working on the basis of the figures that have been put in the Statement—that, after all the shares have been issued, the institutional shareholders will hold more than 70 per cent. of the company's reconstructed shareholding and that between 4 per cent. and 5 per cent.—and possibly even 4 per cent.—will be held by employees, with the balance being held by what are termed the general public, bearing in mind that as of 31st December the general public, in terms of individual shareholders, held only 4.85 per cent.?

Is it not clear that this is once again an exercise which is being carried out not for the benefit of British Aerospace itself; that all the talk about advantages to the shareholders is in comparative terms a lot of moonshine; and that all that has really happened is that the Government, as in so many other cases, are busy selling the furniture to pay the rent? Is not their real purpose to provide additional finance so that in due time, together with the proceeds that may possibly come from British Gas, the Government will be able to finance very large tax cuts as a run-up to the next general election?

Lord Diamond

My Lords, we, too, are most grateful to the Minister for repeating the Statement. Although it is perfectly obvious and well established by now that the only possible advantage which can come from this exercise is to the Government's coffers, and that it follows on their well established procedure of scratching around for money wherever it can be found, nevertheless this is perhaps not the occasion to dwell on that aspect but rather on the aspect of the number of shares issued and applied for.

We are very glad that it has been decided that so far as employees' applications are concerned, those applications will be allotted in full. In regard to the institutions, I have one question to put, which I will come to in a moment. First, can the noble Lord say by how many times the offer has been over-subscribed? By that I mean the offer excluding those shares offered to institutions; that is to say, as to the 45 per cent. offered to the public at large, by how many times was that block of shares over-subscribed?

My question with regard to the institutions is this: inasmuch as the country will judge whether this offer was effective in a way that will improve the nation's interests, the public will want to know how the institutions come out of it. Can the noble Lord therefore say, first, what remuneration the institutions have received for the services they provided; and, secondly, what profit they stand to make out of the shares which have been allocated to them and which would seem to me to be no less than £40 million?

5.42 p.m.

Lord Lucas of Chilworth

My Lords, I am grateful to the noble Lords, Lord Bruce of Donington and Lord Diamond, for their reception of this Statement.

I recall that the noble Lord, Lord Bruce of Donington, made exactly the same remarks in January of this year when I repeated a Statement in which we announced our intention to sell the remainder of our shares. I can do no more than remind the noble Lord of that exchange, rather than turn up Hansard and repeat exactly what I said in response on that occasion.

The noble Lord, Lord Bruce of Donington, will know that we dealt with the matter of the 25 per cent. shareholding in relation to the golden share. In 1981 we said that we were going to keep that amount of shares simply in order to ensure that the company would be retained in British hands. In the 1985 announcement we said specifically that we would hold no ordinary shares but would hold the special share especially to ensure the provisions of the company's articles in relation to United Kingdom control of the company. I repeat that the golden share should provide that no more than 15 per cent. of the voting shares in the company may be foreign held. Secondly, it will safeguard those of the company's articles requiring the directors to be British citizens. And lastly, it will retain the right relating to the nomination of the Government's director.

The noble Lord, Lord Bruce of Donington, asked me, as did the noble Lord, Lord Diamond, what the Government's gross receipts would be. At the selling price of 375 pence, which was the closing price less 5 per cent. on 30th April, it is estimated that the Government's proceeds will be a gross £363 million. It is not possible to pinpoint at this stage exactly the cost to the Government but it will be of the order of £14 million.

Both noble Lords asked also what good this will do to anybody, other than to add money to the Government's coffers. The Government believe that the normal pressures of the commercial market are the most effective spur to greater efficiency and competitiveness. British Aerospace has operated profitably and has competed successfully in international markets during the four years that it has been in the private sector. The retention of the Government's shareholding in these circumstances would serve no purpose. The restoration of the company to full private ownership can only give a further spur to its efficiency and competitiveness.

To underline that belief, I will mention four figures. Sales in 1980 were £1,423 million. After partial privatisation, sales rose in 1984 to £2,468 million. Profit before taxation in 1980 was £53 million, and in 1984 it was £120 million. There is no doubt in my mind nor in the mind of British Aerospace that it will continue unhindered in its pursuit of excellence and of profitability.

The noble Lord, Lord Diamond, asked specifically about the level of over-subscription in relation to the shares available to the general public. After 55 per cent. of the offer had been placed with institutions, and after the preferential applications from shareholders and employees have been satisfied, the issue was oversubscribed about 19 times.

I believe that I have now answered the questions raised by the noble Lords, Lord Bruce of Donington and Lord Diamond; if I have not done so I have no doubt that they will return to them.

Lord Boyd-Carpenter

My Lords, is my noble friend aware that many of us will feel that the manifest sourness of the observations made by the noble Lord, Lord Bruce of Donington, derives from his disappointment at the manifest success of this share issue? Is my noble friend aware also that many of us on this side of the House fully share the views of the noble Lord, Lord Diamond, that it is enormously satisfactory that the applications made by employees for shares have been met in full? Many of us share the noble Lord's view that this is in any industry one of the most valuable aspects of good management and good morale.

Is my noble friend further aware that all of us would want to wish this great and important company success now that it is fully privatised and that we believe that, particularly with the HS. 146 aircraft, it is a winner?

Lord Lucas of Chilworth

My Lords, I am most grateful to my noble friend Lord Boyd-Carpenter. I was aware of some of the points he made but I am most grateful to him for informing me of others. Certainly the over-subscription—particularly by the general public—indicates that the public have great confidence in the company. Indeed, it indicates that the general public are following the Government's philosophy of wider share ownership. It is of course a great pity that there could not have been made available even more shares to satisfy that market.

Lord Beswick

My Lords, may I ask the Minister—in all kindness, as I quite like him—not to repeat again the figures he gave for the sales of hardware? In this business, one does not sell hardware until three or four years after money has been put into design, research, and re-equipping. One cannot prove a political theory with the figures which the Minister gave to the House.

The noble Lord was trying to prove the success of a particular form of ownership by reporting an increase in sales. I am telling him that those sales were made possible by the investment, design and research which had taken place three or four years beforehand.

Having said that, I must say to the noble Lord that I draw a sharp distinction between the two lots of shares offered—the two sources of shares. There was a difference in the philosophy and in the purpose. But once those two lots of shares were put together, did we not see a completely different technique in marketing? I speak of the volume of advertising and of the commissions being offered. Did they not represent a new dimension in share marketing? If the Minister cannot provide any actual figures as to the cost of the operation, then can he say how it might compare with a normal sale of shares of a company?

Lord Lucas of Chilworth

My Lords, I had no wish to mislead the noble Lord, Lord Beswick; nor, indeed the House. I was merely illustrating a set of figures which is available in the report and accounts of the company showing what has happened since 1980 and what happened in 1984. I accept, of course, as will anybody who has any knowledge of business, that there is a long lead time from an investment and a design concept into profitability. I was seeking to establish that the company has gone along very successfully. There has been no drop in its endeavours, its sales, its exports or its profitability since it was announced that the company was to be privatised. If this proposal had been anathema to the stockholders, the employees, and management, one might have expected a drop, but there has not been such a drop. I expect the company to go from strength to strength and I am quite sure it will. Let me assure the noble Lord that the Government have no intention of withdrawing the close support that they have had with the company while the Government have been a shareholder.

The noble Lord suggested that because one-third of the shares were a new issue by British Aerospace—two-thirds being the Government's—there was something rather odd. It was certainly a joint venture. The company wish to increase its capital by an amount and the Government want to dispose of their shares. I explained this in January. It seemed a good idea that the two objectives should be joined. In so far as marketing is concerned, if we continued marketing companies, goods, and shares in the same way year after year, we would advance nowhere at all. I welcome the fact that the stock market is sufficiently flexible and alive to accept the new and differing opportunities that a share issue of this kind presents.

As regards my all-embracing figure of about £14 million worth of costs to the Government, I do not know what the British Aerospace costs are. That is their business, rightly and properly. No doubt the figures will appear in the annual report. If the noble Lord wishes me to identify certain areas in that £14 million, I will be pleased to do so.

Lord Oram

My Lords, have any special precautions been taken to avoid the necessity of calling in the Fraud Squad, as in the case of British Telecom?

Lord Lucas of Chilworth

My Lords, certainly scrutiny has taken place to ensure that no improper applications have been made or been improperly dealt with. If we subsequently find that such improprieties have taken place, no doubt the normal course will prevail.

Lord Molloy

My Lords, may I briefly comment on one remark made by the Minister, as he would expect me to do? He said that this share issue was to the advantage of a proportion of the British people; the shareholders and the employees. He omitted to say that this success has been paid for by all the British people and that now the British people are being denied the fruits of their endeavours. In typical Tory philosophy only a few will gain any benefit.

Lord Lucas of Chilworth

My Lords, I cannot agree with the noble Lord, Lord Molloy. He turns things round, and has not asked a question. He has made a statement with which I thoroughly disagree.

Lord Bruce of Donington

My Lords, will the noble Lord please answer the question which I put to him? I asked whether he would confirm that when the issue was complete the institutions—and by institutions I mean those defined on page 57 of the last accounts—will hold over 70 per cent. of the equity and that the staff will hold under 5 per cent. of the total equity?

Lord Lucas of Chilworth

My Lords, I cannot confirm that because I do not have the necessary figures to do the arithmetic. If the noble Lord's figures are correct, I can see nothing wrong with either of them.