HL Deb 09 June 1986 vol 476 cc23-61

4.7 p.m.

The Minister of State for Defence Procurement (Lord Trefgarne)

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Trefgarne.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD ABERDARE in the Chair.]

Clause 1 [Transfer of persons engaged in dockyard services transferred to private sector]:

Lord Graham of Edmonton moved Amendment No. 1:

Page 1, line 5, after ("services") insert ("excluding any work with either radiological or nuclear implications").

The noble Lord said: If this amendment were to be accepted, the clause would read: This section applies in relation to such services excluding any work with either radiological or nuclear implications for or in connection with ships or vessels", etc. The note in the margin relating to this clause is also helpful. It reads: Transfer of persons engaged in dockyard services transferred to private sector".

Our purpose in this amendment is to say to the Government that whatever else they feel is best for the management of our dockyards, we believe that they should leave well alone so far as the nuclear aspects are concerned. Although the debate takes place in the shadow of Chernobyl, it is right, in the national interest, that we should debate the whole issue of radiological and nuclear safety. The Government may very well say that that is part of a piece and that the dockyards are the dockyards. They may argue that they want the dockyards to be managed differently and that it is not possible to separate the management of a part from the whole. I believe, however, that there is a powerful case for saying that the Government should think seriously about the matter.

We need to look at the kind of arrangements which the Government have felt proper and necessary in order to satisfy not only their own standards but also the civil population who live primarily in the Devonport and Plymouth areas, and of course at Rosyth. This is the present position. Take Devonport, for instance. Devonport is the home port and operating base for some 40 service ships, 10 nuclear submarines and numerous small craft. It provides a full range of support services for these vessels, ranging from accommodation, logistic support and recreational facilities to maintenance, refit and repair facilities. With the presence of nuclear submarine reactor plants it is necessary to ensure that the conduct of these diverse activities in the naval base does not have adverse implications for nuclear and radiological safety.

The essence of nuclear and radiological safety requires that there shall be, at present, in situ, a structured organisation with clearly defined responsibilities and lines of responsibility for the various aspects of nuclear and radiological safety; and awareness and understanding on the part of the members of the organisation of their responsibilities for nuclear and radiological safety; full administrative control of the tasks, with the requirements clearly defined in authoritative documents; and complete adherence to those administrative controls by the members of the organisation when executing tasks with nuclear and radiological safety implications. It requires an adequately manned organisation in which members' training, briefing and experience makes them competent to fulfil their responsibilities. I stress the last point.

The authorities within the nuclear base mainly involved in the operation, maintenance and repair of nuclear submarines are the captain, second submarine squadron; the captain, fleet maintenance; and the dockyard company. In addition, the captain of the port and the principal supply and transport officer provide support to nuclear submarines. All share nuclear submarine support facilities within the naval base, which comprise four fully-equipped tidal experts for the support of up to eight operational submarines, the north lock facility and the submarine refit complex. Can the Minister satisfy the Committee that by changing the arrangements for the management of the dockyards he is satisfied that the safety of those who live and work there can be assured? Unless this amendment is carried there will be literally no change. If there is to be no change then the question has to be asked: how can the Government be satisfied that those who will take on the new management responsibilities will be able to add to their experience the additional veneer needed to do this?

There is a definition of nuclear and radiological safety. Nuclear safety is defined as the state achieved when both probability and potential consequences of a nuclear accident have been reduced to acceptably low levels by sound organisation and good disciplines in design, construction, operation, maintenance, repair and training. Radiological safety, for the purpose of this situation, is defined as the establishment and maintenance of a safe environment and working conditions where there is potential for exposure to ionising radiations. I want the Minister in his response, and anyone else who will deal with this, to explain to me why it is necessary to transfer out of the existing arrangements those employees who are currently undertaking this crucial aspect of national safety. Why do they need to be included in this?

There is a very real basic issue here. At the moment in this country the people rest assured that when it comes to matters nuclear they are best left in the hands of the Government. I may have got this wrong, as I do from time to time, but I should like the Minister to tell the Committee whether he is satisfied that the arrangements for the change are such that whoever will become the recipient of the contract is able to fulfil the kind of obligations and responsibilities that I have outlined.

In a year or two we may have someone with responsibility—and that must be the Government—and someone, once removed, who is the managing company, with the job of managing the undertaking. I want the Minister to tell us how he has resolved the possibilities of conflict. There are possibilities of conflict not only in communication—where there is misunderstanding and the terrible accidents that we hear about in the nuclear field—but, sadly, in the breakdown of communications and understanding. As well as wanting to pin down who should be doing what, there is the question of the manner in which people are made aware of their responsibilities.

I also want the Minister to say something about the steps that he and his colleagues are taking to ensure that those who are tendering are competent to carry out these enormous responsibilities. I raised the point at Second Reading, but the Minister was unable to deal with that directly. However, I had been told that one of the potential tenderers had in effect sought from the MoD ways in which some kind of a crash programme might be provided for their employees to make sure that they were competent in the safety aspects of nuclear matters. We do not want crash or hurried programmes. The people of this country are entitled to be assured about whatever political imperatives the Government seek to serve by this change. I should have thought that there could be much argument on the political issues as to whether the past management has been successful, whether there has been waste, or whether matters can be done in a better way. We want some answers to those questions.

I have raised the issue about how nuclear safety is achieved in the bases at present. I want the Minister to tell us whether he can see any changes. It can be achieved by clearly defined individual responsibilities, matched where appropriate by the necessary authority; co-ordination to avoid concurrent activities which are incompatible for reasons of nuclear safety; comprehensive controls on all work and other activities with a bearing on nuclear safety; nuclear submarine support facilities for which the standards of design, operation and maintenance are adequate for nuclear safety; assessment of nuclear submarine berths to ensure that they are acceptable for public safety in the very unlikely event of a nuclear accident; adequately qualified and experienced personnel in all positions of responsibility with a bearing on nuclear safety; and an adequate standard of management including verification by managers of nuclear safety standards in their organisation, department, division or branch.

Therefore, I hope that I have raised the amendment in a properly serious tone, without causing too much alarm. In transferring management there is a major inbuilt separate area. I do not think that the Minister has paid sufficient attention (clearly, he has had little opportunity to do so until this Committee stage) to telling us that he is satisfied that future arrangements will be at least as adequate as those which we already have. If he tells us that in some way or another this amendment is either defective or unnecessary, I shall be very well satisfied with that answer. However if he simply tell us that he has his fingers crossed, and that he hopes—

Lord Trefgarne

Come on!

Lord Graham of Edmonton

The Minister says "Come on". If the noble Lord is able to assure the Committee that, with the arrangements that he and his colleagues have in mind, there is not the slightest possibility that in future the management of nuclear and radiological safety will not be as satisfactory as it has been in the past, I believe that many people, including myself, will at least be satisfied with that aspect of the Bill. I beg to move.

Lord Denning

I would not support this amendment. In its width it takes out pretty well the whole work of the dockyards. Let me take, first, work with nuclear implications; that would cut out all the work on nuclear submarines, which are one of the most important parts of a dockyard's work. To take out radiological implications would cut out radar, exocets and missiles, all of which have radiological implications. If you take out that work, you take out a great deal of a dockyard's work. So I believe that this amendment goes much too far.

If one looks at the contract proposed, whatever company takes it over, one sees that there are areas which exclude plant and so forth, which have no doubt been well thought out by the ministry, so any really dangerous work can be cut out. However, there is ample provision in the contract for that, and I should have thought that this amendment goes much too far.

Lord Mayhew

I think that there is a great deal of logic in what the noble and learned Lord has just said. Indeed, this would be a savage blow to Devonport. Nevertheless, I am still very grateful to the noble Lord, Lord Graham, for raising this question, for asking for assurances from the Minister and for elucidating a number of points on the question of safety and the qualifications of the would-be contractors.

There seem to be two different subjects here. There is the subject of safety and there is the subject of qualifications for refitting nuclear submarines. On the question of safety, if I understand it right, there will be no change. I should like an assurance from the Minister that the same people will be enforcing the strictest possible safety measures in the future as was the case before.

On the question of the qualifications of would-be contractors, it seems to me that the noble Lord, Lord Graham, is perfectly right: we need to be absolutely sure that those who are taking over this contract have experience in this field. I imagine that the very great majority of those who are now working in the nuclear field in the dockyard will remain. I see nothing in the Bill which would lead to any of them losing their jobs; at least, only a minute and insignificant number of them may lose their jobs. However, what is introduced is top management. I am sure that we would all like to be quite specifically assured by the Minister that no contract will be given to any would-be contractor who does not have experience and a good record in handling either nuclear weapons or nuclear propulsion. Otherwise, it would be wholly anomalous. I am grateful to the noble Lord, Lord Graham, for putting down this amendment in order that the Minister may explain the Government's position.

Baroness Vickers

I also am grateful to the noble Lord, Lord Graham, for tabling this amendment, and to the noble and learned Lord, Lord Denning. The noble and learned Lord took the trouble to visit Devonport and to see for himself exactly what was going on; he listened to lectures and asked a great many questions. Therefore, he is fully informed about that dockyard anyhow. This makes a lot of difference to Devonport, which has been in existence for 300 years and which has provided the livelihood not only of the people who work there, but of the whole City of Plymouth. The difference between Rosyth and Devonport is that Rosyth has a separate area for the Navy and a separate area for the dockyard. That does not apply to Devonport, which is a very much more complicated area. It is very big organisation, stretching over three miles, and that is something which people have to take into consideration when they think of tendering for this contract.

I am afraid that I do not agree with the noble Lord, Lord Graham. I do not believe that it is possible to exclude radiological and nuclear work from the remit of this Bill. No modern dockyard can manage without some high technology. However, I think that the Government owe it to the Committee, the Navy and the people of Plymouth and Rosyth to ensure that, as the noble Lord said, they proceed with an agency management team and that the incoming managers have the necessary expertise to take over this highly complex side of the dockyard's work. I agree with the noble Lord on that. For this reason, I believe that the Government should give serious consideration to the bid for the management contract for the Devonport dockyard by the existing management team. They are the people who really know what is going on and who have been working this dockyard for several years; they have the expertise. The organisation is at present led by the managing director, David Johnston, and he and his team obviously possess the necessary expertise to do this. Although I should prefer to see the running of the dockyard as a Government-owned plc, I firmly believe that they present the best choice for the future of Devonport.

I know that there is another amendment which deals with this particular matter, but this amendment calls in question the involvement of foreign companies making bids for the dockyard. I do not wish to see the American Foster Wheeler company take over the radiological and nuclear work that is carried out in the dockyard unless they can prove to us, to the Minister and to the Navy itself, that they really are expert in this work.

4.30 p.m.

Lord Mulley

I should like to support the amendment and the views of my noble friend Lord Graham. I accept at once that this would mean a dramatic change in the nature of the Bill and in what the Government propose. It is because I want to see a dramatic change in the Government's attitude that I support this amendment. Having regard to the problems that we have seen in the Soviet Union, quite apart from the military aspects of nuclear weapons, which are dealt with by the dockyard in Rosyth, one can assume that this could safely be given to a commercial contractor only if the people who are now doing the job continue to do it.

As noble Lords will know, at the end of each particular journey a Polaris submarine is dealt with by civil personnel. I think that we are unique in being the only power with nuclear weaponry which is in the charge of civilian employees. The uniformed services in the United States and France deal with nuclear weaponry. I cannot speak from knowledge of what is done in the Soviet Union, but I should be very surprised indeed if they do not exercise the utmost safety with regard to their military nuclear weapons.

It can make sense to go forward with these commercial contracts only if the same personnel, the same management and the same arrangements continue as now. If that is the case, why are we having the Bill? Why are we having all these arrangements? There is no reason to assume that in the new circumstances the same dedicated and skilled personnel on whom we have depended for so long will not continue to be there. I remember having difficulty myself for a short time when there was industrial action and I had to put the sailors in to deal with the temporary situation of a Polaris in order to maintain the position of always having one boat on duty.

Of course, it is a matter of great discussion and dispute as to whether we will continue in the military nuclear role in that way, but we must assume that that is at least a possibility. I do not think anyone would expect nuclear propulsion to end. Nuclear-powered submarines in any event will continue—or so I imagine.

While I do not take the view that because of the tragedy in the Soviet Union at Chernobyl we should immediately stop all nuclear activity, I do believe—and I always have believed—that because of the enormous risks involved with radiological leakage and possible accidents through incompetence it may well happen that problems will arise, even with all the best safety measures. Certainly the prospect of a contractor being satisfied, as my noble friend said on Second Reading, with sending his people on a two-week course would terrify me if I thought that the nuclear refits, the nuclear weapons of the Navy, were going to be entrusted to people with two weeks' training in how to handle these very dangerous things. Admittedly, it would make a nonsense of what the Government propose. We accept that, and we have proposals to make better arrangements, I suggest, than, those now proposed. Unless we get an assurance, which I cannot see being given, that the same people will continue to do the same work (otherwise, why have the Bill?) I urge the Committee to support this amendment.

Lord Ironside

I am one of those who do not support the amendment, but before saying something about it I have an interest to declare in that I am connected with one of the companies which was invited to tender. As the noble and learned Lord, Lord Denning, said, I think, the nuclear submarine refit complexes in a dockyard are in fact a major part of ship repair, maintenance and servicing, and one has only to go to Devonport to see this. We live in the time of the submarine and of anti-submarine warfare.

At Devonport I spent something like eight hours in the refit centre, because I was locked in with the rest of the party from the industry who visited the dockyard to see what the management structure was like, what the facilities were like and what the prospects of the contract were. As the noble and learned Lord said, there is adequate provision in the Term Contract, and in the conditions of contract for the Government to be satisfied that the contractor they choose will be competent. There are companies in this country who are competent in nuclear design, in installation, in handling, in decontamination, and in nuclear health physics.

The company I am connected with have had the task of decontaminating HM Dockyard in Chatham, and I believe that this has been done successfully. I hope that the company will be accorded a degree of success in having done this and in having shown that the dockyard has been cleared of contamination.

I am sure that the company which is chosen as the winner at each of the dockyards, therefore, will be able to satisfy the Government that it is competent. I do not set much store by this story that one of the companies—perhaps a company in one of the consortia which have been set up—wanted to have a crash programme in nuclear physics, and that sort of thing. All I can say is that probably the company was seeking some advice to see what detail was involved within the dockyard and within the submarine refit complex, to assure itself that it would be able to comply.

Personally, I am very happy to leave this issue in the hands of the Government when they come round to selecting the contractor. Therefore, I see no need to support this particular amendment.

Lord Trefgarne

The effect of the amendment would, I suggest, be twofold. It would rule out refits of nuclear submarines not only by a commercially managed dockyard company but also, of course, by the government-owned public limited company if for any reason that option were adopted by the Government. That cannot be either sensible or what the noble Lord, or any other noble Lord who supports that option, would actually want. Alternatively, it would be necessary if the amendment were accepted either for nuclear work to be carried out by the only other contender, Vickers of Barrow, or for each dockyard to be split up, with responsibility for the nuclear work remaining under direct government operation while the remainder of the work (which the noble Lord is not suggesting should be similarly denied to the dockyard company) would be under commercial management.

I have to tell the noble Lord, Lord Graham of Edmonton, that concern has always been expressed by the Opposition in another place and by the trade unions representing employees in the Ministry of Defence that the dockyards should not be split into several units. For our part we have said that under our proposals we have no such intentions.

That said, I can of course understand why nuclear-related work should be a matter of particular concern. It is right that it should be. With your Lordships' permission, therefore, I will outline the arrangements which will be made, and I hope I shall be able to satisfy your Lordships that nuclear safety will be as high a priority under commercial management as it is now.

Perhaps the most important point is that the companies managing the dockyards will be required to operate under a nuclear site licence. As we have said before, that is not some sort of gentleman's agreement. It is a requirement imposed upon the company under the Nuclear Installations Act 1965. My department has been involved in very detailed discussions with the Nuclear Installations Inspectorate on this matter. The dockyard contractors will be responsible to the Health and Safety Executive for ensuring that the requirements in connection with radiation protection for the dockyard workforce are fully met under the terms of the Ionising Radiations Regulations 1985.

It has been said by those who are opposed in principle to the Government's plans that none of the companies which have expressed an interest in managing the dockyards has any experience in nuclear matters. I think my noble friend Lord Ironside countered that proposition. But perhaps I may add that Vickers Shipbuilding and Engineering Limited actually construct nuclear submarines. Foster Wheeler, who were in the mind of my noble friend Lady Vickers, have, as a member of Rolls-Royce and Associates, been associated with nuclear propulsion systems. Babcock, the nuclear plant engineers, have been associated with the Trident weapon system. Balfour Beatty have constructed nuclear power stations, and have been responsible for nuclear waste management. The Weir Group have experience of steam and water systems for nuclear plants. Devonport Dockyard Limited—again much in the mind of my noble friend—are the company formed by senior managers at the dockyard, and their experience is not in question.

It is easy for people to suggest that nuclear work should be in government hands. But the facts I have given speak for themselves, and we should not forget the experience of other parts of industry—British Aerospace, GEC, NEI and others—which have experience in nuclear matters. When considering the dockyards it is important not to forget that the workforce which at present refits and repairs nuclear submarines will still do so after April 1987. It is commercial management that we are proposing to introduce.

I should say that the port admirals (or the naval base commanders, as they will be known) will be responsible for ensuring that the necessary standards of nuclear safety that are maintained throughout the naval base will continue unchanged. The current roles of the director-general, submarines, both as design authority and central plant control authority, and the role of chairman, naval nuclear technical safety panel, will continue unchanged. My department will retain responsibility for the transportation of new and used reactor cores and will retain existing approvals for disposal of radioactive waste.

In summary, in areas where my department retains responsibility the current high standards will continue. In areas where the contractors are to be responsible the current high standards will still be maintained, but they will be answerable to the Nuclear Installation Inspectorate of the Health and Safety Executive, and will be subject to the laws of the land.

For all those reasons, quite apart from the doubts I expressed earlier about the noble Lord's amendment meaning that even a government-owned plc could not refit nuclear submarines and that it could mean splitting up the dockyards, which of course nobody wants to see, I hope that the noble Lord will feel reassured and so will not wish to press his amendment.

Lord Lloyd of Kilgerran

I listened carefully to the arguments produced by the Minister in regard to this matter, and I wondered whether he has given full consideration to the scope of this Bill. The Title of the Bill says that this is, An Act to make provision in connection with any arrangements that may be made by the Secretary of State for or with a view to the provision by contractors"— and now I come to the important words— of certain dockyard services". The Explanatory Memorandum in its third line says: This Bill concerns arrangements which the Secretary of State may make for certain services carried out at the dockyards of Devonport and Rosyth to be provided under contract". The argument of the Minister, so far as I understand it, is that the word "certain" in relation to certain dockyard services means that the whole of the dockyard services will be assigned to be dealt with by contractors. If one reads the Bill, one sees that the Government themselves have in mind some limitation, so that some of those services now undertaken in the dockyards should be reserved in some way to the dockyards as they are now.

Having regard to the vital importance, for both safety and marketing reasons, of nuclear and radiological matters, surely these are some of the services about which at any rate in the initial operation of this Bill the Government should be careful before handing over to contractors. However good the contractor with which the noble Lord, Lord Ironside, is concerned, and however wide the contractor's experience in this matter, there are large numbers of applications by contractors who have no knowledge of this important aspect.

I have had the privilege of travelling under water in a hunter submarine driven by nuclear power. These hunter submarines have been driven by nuclear power for 15 years, or even longer. Dealing with nuclear power, nuclear engines, and developments in nuclear engines is one of the aspects of services which the Government would not want the dockyards just to hand over to contractors without the great safety regulations which they have called to mind—the 1965 nuclear licence and of course the ionisation regulations of 1985.

The Government themselves visualise in this Bill that only certain services will be handed over to contractors. Is not this aspect of radiological work and certainly work with nuclear implications the kind of work that at any rate at the beginning of carrying the Bill into effect—say, for two or three years—should still be reserved to the dockyards, as this amendment suggests? I support the amendment on those grounds.

4.45 p.m.

Viscount Trenchard

The noble Lord, Lord Lloyd of Kilgerran, prompts me to say that, certainly in the years during which I had any experience, it was not by any means always true that either service personnel or civil servants in the Ministry of Defence proved that their reliability in maintenance was greater than that of many of those who had actually made the equipment. The Minister has mentioned the number of contractors who have experience in this field.

I should not like to argue the toss on a monopoly of great care being on the side of public civil servants or service personnel. I am not in any way condemning them; they are conscientious people—but so are companies which are subject to the controls that my noble friend the Minister mentioned. That alone satisfies me. But in addition to the controls he has specifically mentioned, and the things which the navy will continue to control, I would point out to the noble Lord, Lord Loyd of Kilgerran, that the whole aspect of product liability, of commercial liability, in every field has changed out of all recognition in the past 10 years, as well he knows. No commercial company in any field today can afford to take a single risk that may affect innocent workers, consumers, or what have you.

Lord Lloyd of Kilgerran

Perhaps I may say what a privilege it is to have inspired the noble Viscount, Lord Trenchard, to enter into this debate at Committee stage. May I say, with great respect to him, that what he is saying, in effect, is that the dockyards at present dealing with nuclear matters are not as efficient as British industry? With great respect, that is a generalisation to which I am sure the noble Viscount would not wish to adhere.

Viscount Trenchard

With great respect, if the noble Lord will read Hansard, he will see that I said nothing of the kind.

Lord Lloyd of Kilgerran

I am obliged to the noble Viscount for clarifying that position. I thought he was making a great case for the effectiveness of British industry in this field, and that therefore the Government are satisfied that by this transfer the implications raised by the noble Lord, Lord Graham, are irrelevant.

I come back to my main point. The Government had in mind transferring only certain services, and I should have thought that the services related to nuclear matters, which the dockyards are carrying out with such efficiency at the present time, should remain with the dockyards, as implied by the amendment of the noble Lord, Lord Graham.

Lord Crawshaw of Aintree

The amendment moved by the noble Lord, Lord Graham, is important. It involves nuclear measures, and not everyone is an expert on them. If the amendment were passed, and we faced the alternative that the Minister has given of the possibility of such things having to be done elsewhere, of course that would be a tragedy for Devonport. If there is any possibility of that happening, I certainly could not support it, because there are so many implications of this Bill which are not going to be to the benefit of Devonport that I do not want to add another one to them.

I believe that the point that has been raised is important because there is no guarantee that we will have continuity of service with people who have been transferred. If we do not get continuity of service, it may well be that we do not have the expertise and it may well he necessary to send ships to other places for refits. In those circumstances, I could not possibly support this amendment if it brings any danger at all of this work being moved from Devonport.

Lord Graham of Edmonton

I am grateful to all noble Lords who have contributed. Perhaps I did not take sufficient care in my opening speech to say in essence what it was we were seeking to achieve by this amendment. In essence, whatever other changes are envisaged in the Bill, this amendment seeks to leave untouched the arrangements in the dockyards for servicing our nuclear and radiological installations. In other words (and the noble Lord makes a fair point) that means splitting up the dockyards. That is right. What I am saying is that it is preferable to split up the dockyards than to transfer to a non-governmental agency the control, supervision and management of nuclear and radiological safety.

I understand the Minister and his noble friends saying, "Be assured! There are no problems". I certainly did not take (as did the noble Lord. Lord Lloyd of Kilgerran) the remarks of the noble Viscount, Lord Trenchard, as in any way casting aspersions on the integrity or the ability of public servants. I stand on the fact that their record in this matter, as I know it, is impeccable. But the noble Viscount, Lord Trenchard, from his own experience introduced a nuance for a purpose; and that was simply to say that if I was introducing uncertainty as to whether I would put all of these eggs in the private contractor's basket, he was entitled to say that all may not have been well in the previous arrangements.

He did not specify, and I understand that. It is absolutely true. You have only to watch the current space programme, or the tragedies in Russia, in a tightly government-controlled nuclear situation. There is no guarantee whatever of the form of management or control. I have here a long list of the ways in which those responsible will be dealing with these matters. I have Annexe 2 to Annexe 9.1 in relation to nuclear safety at Devonport. There are a mass of provisions under which people who will become involved in taking over these things will have to satisfy the Government, the various levels and tiers, and so forth. I understand that. The first contribution that was made was that the noble Lord was satisfied that the Government would make sure that in the contract there were sufficient controls and disciplines so that the Government could satisfy us that they had taken all reasonable precautions.

I think that we have simply got to introduce the vexed question of nexus. The prime nexus in these matters of the people that we shall be dealing with is profit. That is their prime nexus. The reason they are in business is to make money. The reason we are in business is to try to look after the safety of the nation. If I am told that, given a choice between safety or making money, it always will be losing money and maintaining safety, I should be astounded; because these are calculations. Calculations are made. They are called commercial judgments. And there will be opportunities where, because the cash nexus comes in, that consideration in the future will be present whereas it was not present in the past. You might say that that was a wrong thing; that there ought to have been more efficiency, more discipline; that there ought to have been more concern about the costs in these things. And that may be a fair point.

What I am arguing for is that it is not right and proper to take away from an existing arrangement; and that is the servicing, control and management of our radiological and nuclear installations being as they are. I do not make a case in general for maintaining, as we shall on later amendments, that we should make no change whatsoever. We are opposed to the Bill but we are trying to alter it in various ways by other amendments and we shall come to those.

I simply say that, so far as nuclear and radiological installations are concerned, there is a different situation. Of course, the last thing I would want to decry is the efforts of companies—and I made a quick note: Vickers, Wheelers, the Weir Group and Babcock. They are all highly respectable and very efficient, very cost-conscious and very safety- conscious people. They have some experience. But no one has the collective experience of the Government. They all have a little bit of a little bit and they may be the experts in parts, but no one has the experience of doing what we are talking about in this amendment that the Government and the MoD have. No one has it, although they may aspire to it. In the meantime, I repeat that we must keep our fingers crossed. If there is to be insistence, then there could be delay and procrastination. I am satisfied that this is a proper amendment.

4.56 p.m.

On Question, Whether the said Amendment (No. 1) shall be agreed to?

Their Lordships divided: Contents, 50; Not-Contents, 101.

Ardwick, L. Jenkins of Putney, L.
Barnett, L. John-Mackie, L.
Birk, B. Kilbracken, L.
Blyton, L. Listowel, E.
Bottomley, L. Llewelyn-Davies of Hastoe, B.
Brockway, L. Longford, E.
Bruce of Donington, L. Lovell-Davis, L.
Caradon, L. Melchett, L.
Carmichael of Kelvingrove, L. Molloy, L.
Cledwyn of Penrhos, L. Mulley, L.
David, B. [Teller.] Nicol, B.
Davies of Penrhys, L. Oram, L.
Dean of Beswick, L. Phillips, B.
Denington, B. Pitt of Hampstead, L.
Elwyn-Jones, L. Ponsonby of Shulbrede, L. [Teller.]
Ennals, L.
Ewart-Biggs, B. Shepherd, L.
Falkender, B. Stallard, L.
Fisher of Rednal, B. Stewart of Fulham, L.
Gallacher, L. Stoddart of Swindon, L.
Graham of Edmonton, L. Strabolgi, L.
Hatch of Lusby, L. Taylor of Mansfield, L.
Hughes, L. Underhill, L.
Irving of Dartford, L. Wallace of Coslany, L.
Jacques, L. Wells-Pestell, L.
Jeger, B.
Aldington, L. Drumalbyn, L.
Ampthill, L. Dundee, E.
Auckland, L. Eccles, V.
Belhaven and Stenton, L. Ellenborough, L.
Belstead, L. Elliott of Morpeth, L.
Birdwood, L. Elton, L.
Boyd-Carpenter, L. Faithfull, B.
Brabazon of Tara, L. Fanshawe of Richmond, L.
Brookes, L. Fortescue, E.
Brougham and Vaux, L. Fraser of Kilmorack, L.
Broxbourne, L. Gainford, L.
Butterworth, L. Gardner of Parkes, B.
Caithness, E. Gibson-Watt, L.
Cameron of Lochbroom, L. Glanusk, L.
Campbell of Alloway, L. Glenarthur, L.
Campbell of Croy, L. Halisham of Saint Marylebone, L.
Coleraine, L.
Constantine of Stanmore, L. Holderness, L.
Cox, B. Home of the Hirsel, L.
Cullen of Ashbourne, L. Hooper, B.
Dacre of Glanton, L. Hylton-Foster, B.
Davidson, V. Ironside, L.
De Freyne, L. Killearn, L.
Denham, L. [Teller.] Kimball, L.
Denning, L. Kinloss, Ly.
Dilhorne, V. Kinnaird, L.
Layton, L. Romney, E.
Long, V. St. Aldwyn, E.
Lurgan, L. St. Davids, V.
McAlpine of Moffat, L. Sandford, L.
Macleod of Borve, B. Seebohm, L.
Mancroft, L. Selkirk, E.
Manton, L. Sempill, Ly.
Margadale, L. Shannon, E.
Marley, L. Skelmersdale, L.
Massereene and Ferrard, V. Strathspey, L.
Maude of Stratford-upon- Sudeley, L.
Avon, L. Swinton, E. [Teller.]
Merrivale, L. Thorneycroft, L.
Mersey, V. Trefgarne, L.
Middleton, L. Trenchard, V.
Molson, L. Trumpington, B.
Morris, L. Ullswater, V.
Newall, L. Vaux of Harrowden, L.
Pender, L. Vickers, B.
Peyton of Yeovil, L. Vinson, L.
Porritt, L. Vivian, L.
Portland, D. Ward of Witley, V.
Rankeillour, L. Westbury, L.
Rawlinson of Ewell, L. Young, B.
Reigate, L. Ypres, E.
Renton, L.

Resolved in the negative, and amendment disagreed to accordingly.

5.4 p.m.

Lord Mulley moved Amendment No. 2:

Page 1, line 17, at end insert— ("( ) An order under subsection (1) above shall not be made until the Secretary of State has established a scheme to operate such dockyards under a trading fund and such a fund has been in operation for two years.").

The noble Lord said: I beg to move Amendment No. 2. With it, it may be convenient to discuss the consequential amendment, No. 21, which simply defines what is meant by the trading fund. We established for the Royal Ordnance factories the very satisfactory system of a trading fund, and I personally much regret that the Government, with their passion for privatising everything they can lay their hands on, have seen fit at least to prepare for the privatisation of our Ordnance factories, some of which go back several hundred years. I think we must be the only country which is going to put the whole of our faith on the supplying of our armed forces on international contracts. Perhaps it is fortunate that Argentina seems to have done that and that therefore several of our ships are still in service, whereas if the explosives had worked they would not have been.

Frankly I think it is an impossible situation for the basic support of our services, whether it is the provision of small arms in the ordnance factories or, very significantly, the servicing and refitting of our Royal Navy. That is a vital matter for the defence of the nation; and to take the kinds of risks involved in any arrangement that puts it outside governmental control is in my view to be opposed and regretted.

The trading fund concept, as I said, has worked in the Royal Ordnance factories by giving a commercial standard and having commercial management. I accept that it is much easier in that context because the Royal Ordnance factories were able to quote for a contract for producing so many weapons or so many rounds of ammunition and so on, whereas the nature of the dockyards is more complicated.

As was explained by several speakers on Second Reading, until the actual ship or submarine goes to the dockyard and is taken apart it is not at all clear what the full extent of the necessary repairs is likely to be. First, there has to be the stripping down of the necessary parts of the ship or submarine, and then someone has to come in and give a certificate of what has to be done. Then there has to be an estimate given for that. So I think it is going to be a very lengthy and, it seems to me, commercially unsatisfactory procedure. On the other hand, with a government-owned organisation such as the trading fund you would have the commercial management and yet there would not be the element of having to have a price in advance for every aspect of the work which is likely to be involved.

In the same way, as I mentioned on Second Reading, if you have faith in your garage mechanic who services your car you do not have to get an independent estimate if he rings you up and says, "Frankly, it is not just a service that you need; you will soon need a new clutch". You do not then get someone in to give an estimate of the extent of the work and ask for the price, and then go round to get a price from somebody else. You would never get your car back in service if you did that. If you cannot trust the garage you find a garage that you can trust, and if you have your own garage—which is really what the Government would have if they had their own trading fund—that would seem to me to be a much more satisfactory basis.

Of course I accept that it would be rather better perhaps not to have a trading fund but to have a government organisation, such as, say, the Manpower Services Commission or something else, if they want to get the organisation of the dockyards subject to public control—and the Public Accounts Committee have had some very forthright words to say about the lack of public accountability that may stem from the proposals in this Bill—but an organisation removed from the restrictions of the Civil Service regulations. That is one of the problems where you have highly skilled people dealing with radiological and nuclear matters. I could not have voted for the first amendment, if I had not been satisfied that by a trading fund, or something similar we could make a proper arrangement and separate management from Civil Service restraints, although you never completely get the dockyards away from either the Treasury or the Navy. That is because the Navy has to get its money from the Treasury and the amount that it will have to spend in a year will be governed by the Ministry of Defence Vote.

There have been all the problems that have arisen over the years, because of Treasury control, the rates of particular grades of the Civil Service and also, if I may be blunt, the decisions of the Navy, often for very good operational reasons, whereby a ship that is in the plan, for which spares and manpower have been set aside to do a particular job, is withdrawn at the last minute, or indeed another ship which urgently and unexpectedly requires attention is brought in and asked to have priority. You cannot run a commercial organisation on that kind of basis. But if the commercial considerations are coming first, the Royal Navy and the defence of the realm will have to take second place, which is not a proposition that I find at all attractive. For that reason, I beg to move.

Lord Denning

The trading fund is only one of several options your Lordships have to consider, and I hope you will bear with me if I tell you something of the other options, because your Lordships will have to decide which option should be accepted. May I say that the Bill gives no clue whatever to the options. As I said on Second Reading, it is very obscure. None of your Lordships reading the Bill or, I venture to think, reading any of the amendments could understand in the least what the options are which your Lordships have to consider. The Bill is concerned with only one thing—the compulsory transfer of the workforce against their will to a new organisation. All its provisions apply to the compulsory transfer of the workforce to a new organisation.

I should like to tell the Committee why the Bill is so confined. It is because of the constitutional position of the Royal Navy and the royal dockyards, too. Their constitutional position is that they depend not on the will of Parliament. They are owned, run and managed by the Crown, under the Royal prerogative of the Crown as it has come down through the centuries. That is why it is called the Royal Navy. That is why it is called the Royal Dockyard. May I just say that the Royal prerogative gives great power to the Crown, and by that I mean the Ministry of Defence. They own all the assets. They own the quays, the plants, the jetties and everything else in the dockyards and, by virtue of that Royal prerogative, they can sell, lease or lend whatever they like of those assets.

One qualification in ancient days, in the time of Charles I, was that he claimed that the Royal prerogative in respect of the fleet extended not only to maintaining and running our fleet, but also to levying taxes himself. In order to run the fleet, he sought to levy a tax which was called Ship Money. A great Member of the other House, John Hampden, objected to that. He said that even the Crown could not levy taxes on its own authority. That could be done only by the authority of Parliament. I am afraid that John Hampden's contention was over-ruled. The judges of that day held that the Royal prerogative extended even to levying money for the defence of the realm for the fleet. It was only some 200 years later that the Bill of Rights said, "No, not even the Crown can levy money without the authority of Parliament". That is why, to this day, if the Ministry of Defence need money, they have to get it on the Vote of the Commons. It is the Commons who eventually pay money and tell the Ministry of Defence, "You can have this money for the defence of the realm".

5.15 p.m.

But there is one other exception to the prerogative, and that relates to the workforce. On that, I go back to a modern case in the common law which says that none of the workforce can be transferred to another employer without their consent. That was made clear by Lord Aitken in the great case of Nokes v. Doncaster Colliery in 1940 Appeal Cases at page 1014. He said: Every person has the right to choose for himself whom he will serve. That right of choice constitutes the main difference between a servant and a serf". So there even the Crown cannot transfer the workforce of the Royal Dockyard compulsorily, unless Parliament approves of that transfer.

It is for that reason that the Bill is brought before this House, to enable the Crown to transfer the men compulsorily without their consent to a new employer. Let us face it—that is the reason for the Bill, and it is especially appropriate in regard to the workforce at the Royal Dockyard at Devonport. I have been there and I know that from generation to generation for the last 200 years they have been in the service of the Crown, and proud they are of it. They told me that their fathers and grandfathers have worked in the Royal Dockyard, and how proud they are of it. They are not to be transferred to another employer, such as a company under the Companies Act, without their consent unless it is done by the authority of Parliament. That is why the Bill has to come to this House. The sole reason is to enable the Government to transfer them to a new company without their consent.

I have stated the basic constitutional position. There are four options which arise under the discussions, and maybe under the Bill, as to when and how this compulsory transfer is to be made. The first option is outright privatisation by selling the whole of the dockyard to a purchasing company and transferring all the workforce to that company. That is open to the Government and to the Bill as it stands, but it should be ruled out absolutely for both strategic and national reasons. If the Crown should contemplate it, I would quote against them the words which Shakespeare put into the mouth of John of Gaunt: This land of such dear souls, this dear dear land … Is now leased out, I die pronouncing it, Like to a tenement or pelting farm". We must rule out altogether outright privatisation. We must rule out the Government being able to sell our great royal dockyards lock, stock and barrel to someone else.

The second option is what we have under this amendment—the trading fund. That is a very attractive submission because a trading fund does not involve any transfer of the workforce. A trading fund is set up under the trading funds legislation of 1971. It has been done in regard to the ordnance people. It involves accounting or financing. You have, so to speak, a loan to the fund out of which the fund pays the expenses and then the fund organises the dockyard so far as it can on a customer-supplier basis. It pays out and makes the accounts. The essential thing is that it is run as it was before but managed as far as it can be commercially. The important thing is that the men remain servants of the Crown or, as is sometimes said, civil servants.

That is a very attractive proposition because you do not need to transfer the workforce at all. You do not need to do anything without their consent. You can get it done commercially. It is a most attractive proposition. But it has been ruled out by the Government, and I can understand why—and I have been down to Devonport. It is because the civil servant's hand is almost a dead hand on development and enterprise in a dockyard. I am afraid that it is all the red tape and the rules that we have been used to all the time. I sympathise with the Government. Although the trading fund has its attractions, especially in regard to the workforce, nevertheless if the dockyards are to progress the Government take the view—and there is a lot to be said for it—that we cannot go along with that old civil servant machinery. All those I have spoken to agree that change is necessary. We must get away from the Civil Service attitude. The Government say that it must be reorganised and there must be a restructuring. As my noble friend Lord Trefgarne said on Second Reading, fundamental change in the dockyards is necessary if their long-term future is to be assured. "Fundamental change"—and I am afraid that the trading fund is not sufficiently fundamental enough. That is only the second option.

I go to the third. This has the forefront in the Bill. It is to have what I may call a two-tier structure of limited companies. One company will take the assets—all the cranes and jibs. It will have a licence for perhaps seven years to operate all that plant and equipment. It would be a licence quite often determinable earlier on, but that is all the company which operates the assets would have. There would be another company the only function of which would be to employ the workforce not merely on licence for seven years but permanently, indefinitely. I shall bring in later amendments, but I think that this proposal, this third option, is not in accordance with Community law. I shall develop that point when I come to move my amendments.

But I want to tell the Committee of that third option not only to say that I object to it in point of law but also to say this—and I give this parallel. They are really seeking to separate the company which runs and operates the dockyard from the workforce. I say that they are both one undertaking—the assets and the plant and the men who work it. How can you separate it? Both must be transferred to one company and to no one else. As I said in my illustration, it is like a beehive. It must be transferred as a whole, or not at all. You cannot transfer the hive to one beekeeper and the bees to another. You must transfer bees and hive together to one beekeeper. That third option of a transfer of the assets to one company and the servants, the workforce, to another is out in my opinion, and I hope to show it when I come to my amendments. If so, I come to the fourth option, which is much simpler.

The fourth option is to have only one company—a commercial company—to take over the dockyard undertaking. That is much desired and advocated by the Government. Let there be one company. The Goverment say, "We are not going to transfer any of the assets to that company. We are not going to sell them the assets. We are not going to let them own it. We are not even going to give them a lease". The Government, quite rightly for strategic reasons, say "We are only giving them a licence, a licence to operate the plant and so on, and also to employ the men for the period of the licence." There it is. It is not at all a bad proposition. The licence would be for seven years at most. It could easily be determinable earlier if there was any emergency or the threat of it, or if the contractor did not refit the ship in time.

In a way, it is almost an experiment. When the licence comes to an end, the workforce simply reverts to where it was before. That is the fourth option. It has advantages. It would enable the Government to try it out for a number of years. If successful, the licence can be extended indefinitely to that one company or to a successor company. If it is not successful, the workforce would be protected by reverting to government service. That is the fourth option, and I shall come back to it later.

The fourth option has the advantage of there being one company. It is most vital, if you can, to get the workforce to co-operate. If any of these options are not accepted by the workforce, it can disrupt enormously the work in the dockyard. The workforce can delay it. The ship would not be refitted to time, and the like. As far as it is possible, any option ought at least to have the acquiescence of the workforce; otherwise, it is bound to disrupt the whole option.

To secure as much co-operation as one can from the workforce, would it not be as well to go to that modern but very well-tried device of worker shares? One remembers how, in the case of the National Freight Corporation, people protested at the beginning, but how successful it was! The workers have a stake in the company itself and they have an incentive to work hard and to make profit. It has not only been proved by experience, but also it has been encouraged by the Companies Act. In provision after provision in the Companies Act it is provided that the directors shall do all that they can to involve the workforce in the policies and affairs of the company, in particular by the issuing of shares.

If one has the fourth option of one company taking over for a licensed period, and one has worker shares, one may achieve if not full co-operation, then at least the acquiescence of the workforce. It is essential to achieve that; otherwise they will not go with the scheme and the whole thing will fail. I suggest therefore that the fourth option needs consideration.

I shall return to that point when we reach my own amendments, but I may say that all the later amendments make sense with the fourth option. Indeed, the very next amendment is about worker shares. There are other amendments on the question of whether or not the company should be government owned. All those matters will be dealt with in later amendments, but I stress that the proper option to be taken is not the two-tier option that the Government are advocating in this Bill but the fourth option of one Companies Act company taking over for a licensed period. We can talk later about how that company is to be controlled, whether it is to be Government-controlled, or whether there are to be worker shares. All that can be decided later.

I have outlined the whole problem, and I am afraid that I have to say to the noble Lord, Lord Graham, that as much as I sympathise with the suggestion of a trading fund, and although there is much to commend it, I feel that the Government's reasonings against it may prevail. At all events I am afraid that I would not support the amendment, as it stands, to go over to a trading fund.

5.30 p.m.

Lord Trefgarne

Under this amendment the dockyards would have to be operated under a trading fund for at least two years before the provisions of the Dockyard Services Bill could be put into force. The trading fund was, of course, one of the options that we set out in the open government document that we issued in April 1985. As the other amendment suggests, the trading fund concept, which is essentially a financial arrangement, was created by the Government Trading Funds Act 1973. As the Committee may know, that Act specifically refers to the Royal Dockyards. No other legislation would, therefore, have been required to create a dockyard trading fund.

Since successive reports over the past 15 or more years have agreed that fundamental change was needed in the way that the dockyards are run, one surely has the right to wonder why the previous Government did not introduce the trading fund concept in the dockyards over the years 1973 to 1979. Why, if they decided not to do so then, do they propose it now? We know, of course, that it is the option preferred by the trade unions; it is certainly the option that involves the least change from the present arrangements and one that ensures that the workforce remains in the Civil Service.

I do not for one moment suggest that the trading fund concept is flawed. I do, however, say that in the context of the dockyards it is not sensible for the organisation to have to operate within the Civil Service. The Committee will recall that in moving the Second Reading I said that the annual trading turnover of the dockyards is £400 million; that, by anyone's reckoning, that is an enormous industrial undertaking; and that it is not one that lends itself to working within the restrictions that the Civil Service machine necessarily imposes.

During the Second Reading debate the noble and gallant Lords, Lord Lewin and Lord Hill-Norton, were as one in arguing against the dockyard workforce remaining in the Civil Service. The noble and learned Lord, Lord Denning, agreed with those sentiments then and has agreed with them today, and the option preferred by my noble friend Lady Vickers, who has not yet spoken, would entail a workforce outside the Civil Service.

The amendment continues to propose the line of least change—a trading fund—with the workforce necessarily remaining inside the Civil Service. But under this amendment we would have another two years (to add to all the earlier ones) when management would not have full local autonomy; another two years when the dockyards would not have the full benefit of a commercially disciplined environment; another two years when the relationship between customer and supplier, though perhaps sharper than at present, would not be on a contractual basis; another two years without the structure to encourage diversification and entrepreneurial zeal to attract new work; and another two years working under the restraints necessarily imposed by operating within the Civil Service.

I hope that the noble and learned Lord, Lord Denning, will forgive me if I do not at this moment deal with the details of the four options that he put to the Committee. I will be ready to respond in a little while, when we reach the relevant amendments. In the meantime I hope that the Committee will reject the present proposal.

Lord Mayhew

The noble Lord the Minister says correctly that this is the option that involves the least change. That is certainly true. The amendment is also put forward with a reference to two years, in the sense that it is something that one might try without necessarily prejudicing, for instance, the fourth option that the noble and learned Lord, Lord Denning, has so eloquently recommended to the Committee.

Is it necessarily foolish to suggest a period in which we apply to the dockyards the same system that worked with remarkable success wth the ROFs? It would to some degree increase the distance between the customer and the supplier. It would to some degree increase accountability, and it would to some degree increase freedom of management. It would involve some of the changes involved in the other options; for example, a new system of accounting management.

It seems to me not necessarily foolish to proceed on that well-known and recommended (by a number of reports) option, without prejudicing a later decision. Judging by experience, I thought that it was good Conservative philosophy that I was preaching, that one should not go first of all for the most drastic solution—the fourth option—but that one would experiment and go empirically. We have a lot of experience of the trading funds.

I would say this, too. It would be easier to judge between the options if the Government would only give some indication of their comparative costs. We still do not know what would be the savings and the extra costs of the government scheme. We have not been told. Therefore we cannot make a comparison if we are not told the cost of the alternative, the trading fund scheme. Why should not the Government estimate the savings of the trading fund? We have had a lot of experience. After all, the Government are making their case for this Bill on efficiency and cost saving and yet say they cannot judge between these different options on the basis of cost because they cannot work out the costs. We shall come to this point again on a further amendment relating to cost.

In the meantime, I think my noble friends would wish me to say that we do not necessarily regard this amendment as the best solution but we do not see any harm in starting this way without prejudicing option four which the noble and learned Lord, Lord Denning, recommended.

Lord Crawshaw

My solution would be a plc, but that does not seem possible at the moment. This amendment has some merit in it. I certainly would be prepared to support it and I urge my colleagues to do the same. Possibly it seems to have more merit because it has so many more attractions than the scheme the Government are putting forward. I must say that it appals me to think that the company will be comprised of bodies and nothing else. There was a time in Liverpool when we ran the docks on bodies—the "welt" system in which people went round and hired men day by day. This will not be day by day but the fact remains that the Government's legislation means that from time to time these people will be taken over, or possibly taken over, by someone else. I cannot for the life of me think that that will result in a settled workforce.

Of what exactly is this company to comprise? It is apparently to be a company of people without assets, because those will be in the principal company, the contracting company. That has already been pointed out and the noble Lord, Lord Trefgarne, has discussed this matter with the noble and learned Lord, Lord Denning. There are complications because the legislation might be cutting across European Community legislation. It may well be that some of the matters we are assuming will not apply. I believe there will be a lot of confusion arising from the manner in which the Government are putting this project into operation.

While the amendment before us is not my idea of a solution, it is certainly an improvement on the Government's proposals. It would certainly bring less trouble to the dockyards. I urge the Minister to realise that. I know that the noble Lord the Minister has tried to satisfy the fears of the dock workers, but they are not satisfied. I cannot think of anything worse than going into an enterprise with people who feel that their interests have not been safeguarded. The system that the Government are using is open to doubt. The amendment has been proposed to tell us that something does not exist; and we have to pretend that it does exist. Whether that is a contravention of European legislation which deals with the transfer of people in industry I am not 100 per cent. certain, but it certainly opens up the possibility that there might be objection in the courts to the manner in which the Government are implementing this Bill.

Although I am not 100 per cent. behind the amendment, I certainly support it in preference to what the Government are proposing. There is not the slightest reason why it should be on a permanent basis. Why not give the scheme a couple of years to see how it operates and to see what changes are required and whether a plc would be the answer? It is an option worth considering and I urge my colleagues to support the amendment.

Viscount Trenchard

May I briefly, with two years' experience of the Royal Ordnance factories working under a trading fund, complicate the problem by saying that this is certainly not a perfect option? The noble and learned Lord, Lord Denning, put his finger on the problems of the trading fund. I certainly have experience that those problems existed in a changing age. The safety, wellbeing and future of the Royal Ordnance factories and of the equipment they supply—and, thus, of the services; the army in particular—would not be safeguarded under the continuity of the trading fund operation.

I say to the noble Lord, Lord Mulley, that I understand and sympathise with his car analogy, where the car firm tells him that something needs repairing but he does not know whether it does. I am frequently in the same position. I am told that my brake linings are down to 80 per cent. but sometimes I do not have them done and I find that they are still 80 per cent. worn on the next service.

However, we are not talking about that aspect. The continuity people in the MoD are there, The technical staff of the Royal Navy are there. I had a lot to criticise when I was at the MoD about the lack of continuity of key staff in the procurement executive and elsewhere—both service officers and civil servants. Those who have sung the praises of the existing system—and by no means everyone has—should realise that people in key jobs who actually control quality and safety are, on average, there for three years. I believe that on the whole private enterprise has a greater record in the area of continuity in key skilled positions. I mention that in passing but I intervened on this amendment on the trading fund to say that, for the reasons advanced by the noble and learned Lord, Lord Denning, I do not believe that the trading fund option is a sound option.

5.45 p.m.

Lord Graham of Edmonton

I have only a few comments before my noble friend reaches his final conclusion. The Minister made a fair point as to why, given the authority of the 1973 Act, we did not come quicker to the concept that a trading fund solution for the dockyards was the answer. Surely the Minister must acknowledge that the first experiment, or experience, was the Royal Ordnance factories which came following the 1973 Act. The period up to 1979 was not a long period—

Lord Trefgarne

It seemed long.

Lord Graham of Edmonton

It may have seemed long to the Minister, but not half as long as the subsequent period has been to me. We now have a situation where the options are open. The noble and learned Lord, Lord Denning, quite fairly and comprehensively told us what are those options. The Minister fairly referred to the workforce. The noble and learned Lord, Lord Denning, pointed out how crucial is the workforce. It is not that the workforce would be unhappy with any other solution. The workers are realistic and are saying that their preferred solution would be the trading fund. In other words, given that there has to be change of a fundamental nature and I say it should be to a trading fund. Although people are pooh-poohing how fundamental it is, it is a fundamental change from the present.

Not only is the workforce on this side, but I have here a transcript of a presentation by Plymouth City Council to the Defence Standing Committee on 5th February. The concluding remarks by Councillor Creber, who is the leader of Plymouth City Council, were: We believe that the introduction of a commercial accounting concept coupled with the separation of client and contractor—along the lines of the DLO legislation for local authorities—and a more vigorous marketing approach would place the dockyards on a firm platform that will carry us through to the next century and ensure that the Defence of the Nation is not in any way placed at risk. Failing this approach we could support the Trading Fund concept as the forerunner to the establishment of a Companies Act company". Overall we are opposed to commercial management for the reasons we have outlined. We could all support the trading fund concept. It was the result of a deputation from all the political interests and many others. But if the Minister wishes, not disrespectfully, to put aside the views of the workforce and the local community, so be it. There are other powerful reasons which no doubt he will advance. When his colleague the noble Earl, Lord Gowrie, introduced the Government Trading Funds Bill on 26th July 1973, the noble Earl explained why the Royal dockyards were a candidate for trading fund status and why this was written on the face of the 1973 Bill: The Government consider that trading funds may be appropriate for organisations which have two principal characteristics. The first would be in situations where trading activities form a significant part of their functions, as in the examples I gave; secondly, where the nature of their activities overall is such that the Government consider that they ought nevertheless to remain the direct responsibility of Ministers and not be hived-off as statutorily distinct bodies … But we thought that it would help Parliament if we named on the face of the Bill the organisations for which trading funds are being seriously considered".—[Official Report, 26/7/73; cols. 1951–52.] To be fair, the Minister did not dismiss the concept of a trading fund; he declined it in the circumstances prevailing at that time. I simply remind the Committee that the former Secretary of State Mr. Michael Heseltine also spoke about the future operation of the dockyards, and a trading fund would meet the three criteria which he outlined: it would establish a proper customer-supplier relationship between the dockyard and the Navy; it would mean that managers could be given the freedom to manage; and it would ensure the introduction of improved accounting procedures. It would also mean that the vital strategic assets of the dockyards could be retained under direct parliamentary control. Those are all powerful reasons which are enshrined in the concept of the trading fund.

Lord Mulley

I think that there is a lot of misunderstanding about what the amendment actually proposes. First of all, it proposes only that there shall be the experiment of a trading fund. As my noble friend Lord Graham of Edmonton has just underlined, a trading fund was proposed under an Act brought forward by an earlier Conservative Government. The noble Lord the Minister asked why the Labour Administration did not introduce such a measure in the royal dockyards, and certainly in my time we did not. I accept that we did not. It is not an ideal arrangement; but we did not propose to give away the control of the Royal Navy's servicing and support of the fleet. What would have been the situation at the time of the Falklands if we had had this kind of half-baked scheme, which I think no one but the former Secretary of State could possibly have devised. I think I said at Second Reading of the Bill that it was not perhaps insignificant that none of the Members in the other place who had held office in the Ministry of Defence, including the former Secretary of State himself, had found it convenient to be there to support the Third Reading of the Bill. Certainly former Navy Ministers spoke and voted against it.

In my view the Government's proposal is not workable. I venture to repeat the analogy with the garage. The nature of the work that the Royal dockyards are often called upon to do is not dissimilar. If one has the misfortune to have to take one's car to a garage because of an accident and there is a claim to be made against an insurance company, one encounters the familiar procedure whereby the car has to be prepared for an independent examination by an independent assessor, and that of course costs the insurance company a fee. There is also a tremendous delay. The procedure is not really thought to be satisfactory either by the garage trade or by the motorist. I have never yet heard anyone suggest that as a result of this marvellous arrangement the insurance companies find that repairs are carried out more economically and more efficiently than they would be if the individual motorist had taken his car into the garage under his own steam. In fact, I have often heard it suggested that the insurance companies are taken to the cleaners. I am wondering whether that may be the case under these commercial arrangements that are proposed in the Bill.

I paid great regard to what the noble and learned Lord, Lord Denning, said. Perhaps I may be blunt with him: if he waits and votes only for his own preferred alternative and does not support any of the other amendments, he might find that when he puts his own amendment to the test, he does not have many friends. I can give him an absolute undertaking that if, as I hope, the Committee approves this amendment but subsequently the Government give enthusiastic approval and support to the proposal of the noble Lord, Lord Denning, (which I certainly shall support whatever the noble Lord may do in the meantime) for a company that is owned 51 per cent. by the Government and 49 per cent. by the dockyard workers, and if the Committee accepts that proposal, I shall immediately undertake to table an amendment on Report to remove the amendment that will now be carried. So the noble and learned Lord should not be concerned that this will in any way stand in the way of the Committee's consideration of other matters. It is the strange way, oddly enough, that we do business. We have to consider the options one by one as they come along.

Lord Graham of Edmonton

It is a fair offer.

Lord Mulley

It is quite clear that there are risks in having to have a price for everything. I do not see how a contractor can reasonably be expected to undertake to service a submarine or a ship without having a contract price. Certainly we have not been told of the savings, and under the trading fund I am certain that there will be savings.

I am sorry to differ from the noble Viscount, Lord Trenchard, but it is not true that the trading fund arrangements for the Royal Ordnance factories were unsatisfactory. They operated not only commercially with regard to their relationships with the Ministry of Defence, but in the face of competition they also secured very substantial overseas contracts for ammunition, for example. There was also of course the very notable contract, which events in Iran prematurely terminated, which was one of the biggest overseas contracts that has ever been obtained by British industry.

In fact, if the Royal dockyards remain Civil Service managed and subject to bureaucracy, that is the responsibility of the Ministers at present. They could change that situation tomorrow if they wanted to. They do not have to wait for an Act of Parliament or to set up companies, or whatever. In fact, as was done in the Royal Ordnance factories, they can insist on proper commercial management; and if need he without any Acts of Parliament they can have a different system of industrial wage control, just as was done in the Royal Ordnance factories. They do not need to shelter behind Civil Service red tape as a basis for bringing forward this scheme.

Like everyone else, I agree that changes in the operation of the Royal dockyards are desirable and that the Royal dockyards are not as efficient as they might be. It is also true to say that they did not know—just as the Ministry of Defence does not know—sometimes from one month to the next the amount of money that was available for the current financial year, and that the navy, probably for good reason, changed its mind about the kind of work that it sent. It means that people are standing about because they have been organised to be ready to do a job and that job has been taken away from them because the ship has not turned up.

It is not true that the dockyards are grossly inefficient. As I said on Second Reading in the presence of the former Chief of Naval Staff, the noble and gallant Lord, Lord Lewin, we agreed to send some submarines out to commercial yards for refit because at that time the dockyards were heavily overloaded. We had to pay substantially more—almost double, I think, but I should not like to be specific on the amount—to the commercial yards for the refit of a submarine of a particular class. The royal dockyards have not been the most perfect undertaking, but they have also been greatly maligned.

The trading fund is worth trying. As I said, it is only a limited experiment. We can go forward and perhaps prescribe what your Lordships may feel is a better or an ideal solution. That could be ready to be put into operation in place of the amendment or after that proposal had been given a two-year trial. For those reasons I ask the Committee to support the amendment.

Viscount Trenchard

Just before the Committee comes to a decision, let me say to the noble Lords, Lord Mulley and Lord Graham, that at the end of my period the management of the ROFs, one and all, were saying that there were restraints—restraints on employment and on commercial activities of one kind and another. I in no way meant to reflect adversely on the success of the ROFs in selling British equipment in various parts of the world. I can only plead to the noble Lord, Lord Mulley, that, in spite of trying quite hard, I was unable to remove the dead hand of the Civil Service rules in relation to a trading fund and was unable to satisfy the management of the ROFs and to give them the freedom which I believe that in the case of the dockyards the Government's arrangements will do.

Lord Mulley

The noble Viscount must also share some of the responsibility for imposing the restraints. It does not need an Act of Parliament. I know that there are problems, but if Civil Service or Treasury rules stand in the way, they can be changed.

6.2 p.m.

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

Their Lordships divided: Contents, 78; Not-Contents, 101.

Airedale, L. John-Mackie, L.
Ardwick, L. Kilmarnock, L.
Attlee, E. Kirkhill, L.
Banks, L. Listowel, E.
Barnett, L. Llewelyn-Davies of Hastoe, B.
Birk, B. Lloyd of Kilgerran, L.
Blyton, L. Longford, E.
Brockway, L. Lovell-Davis, L.
Bruce of Donington, L. McIntosh of Haringey, L.
Carmichael of Kelvingrove, L. McNair, L.
Chitnis, L. Mayhew, L.
Cledwyn of Penrhos, L. Melchett, L.
Crawshaw of Aintree, L. Mulley, L.
David, B. [Teller.] Nicol, B.
Davies of Penrhys, L. Northfield, L.
Dean of Beswick, L. Oram, L.
Denington, B. Phillips, B.
Diamond, L. Pitt of Hampstead, L.
Donoughue, L. Ponsonby of Shulbrede, L. [Teller.]
Elwyn-Jones, L.
Ennals, L. Seear, B.
Ewart-Biggs, B. Shepherd, L.
Ezra, L. Stallard, L.
Falkender, B. Stedman, B.
Fisher of Rednal, B. Stewart of Fulham, L.
Gallacher, L. Stoddart of Swindon, L.
Gladwyn, L. Strabolgi, L.
Graham of Edmonton, L. Taylor of Blackburn, L.
Grey, E. Taylor of Gryfe, L.
Grimond, L. Taylor of Mansfield, L.
Hampton, L. Underhill, L.
Hanworth, V. Wells-Pestell, L.
Harris of Greenwich, L. Whaddon, L.
Hatch of Lusby, L. White, B.
Houghton of Sowerby, L. Wigoder, L.
Hughes, L. Williams of Elvel, L.
Irving of Dartford, L. Winchilsea and Nottingham, E.
Jacques, L.
Jeger, B. Young of Darlington, L.
Jenkins of Putney, L. Ypres, E.
Ailesbury, M. Gardner of Parkes, B.
Aldington, L. Gibson-Watt, L.
Ashbourne, L. Glanusk, L.
Belhaven and Stenton, L. Glenarthur, L.
Belstead, L. Grimston of Westbury, L.
Boyd-Carpenter, L. Hailsham of Saint Marylebone, L.
Brabazon of Tara, L.
Brookes, L. Henderson of Brompton, L.
Brougham and Vaux, L. Holderness, L.
Broxbourne, L. Home of the Hirsel, L.
Butterworth, L. Hooper, B.
Caithness, E. Hylton-Foster, B.
Campbell of Alloway, L. Ironside, L.
Cathcart, E. Kaberry of Adel, L.
Carthcart, E. Kimball, L.
Coleraine, L. Kinloss, Ly.
Colville of Culross, V. Layton, L.
Constantine of Stanmore, L. Lindsey and Abingdon, E.
Cox, B. Long, V.
Craigavon, V. Lyell, L.
Craigmyle, L. McAlpine of Moffat, L.
Cullen of Ashbourne, L. Macleod of Borve, B.
Dacre of Glanton, L. Mancroft, L.
Davidson, V. Margadale, L.
Denham, L. [Teller.] Marley, L.
Denning, L. Marshall of Leeds, L.
Derwent, L. Massereene and Ferrard, V.
Dilhorne, V. Merrivale, L.
Drumalbyn, L. Mersey, V.
Elliot of Harwood, B. Middleton, L.
Elliott of Morpeth, L. Molson, L.
Elton, L. Morris, L.
Faithfull, B. Mottistone, L.
Fortescue, E. Mountevans, L.
Fraser of Kilmorack, L. Munster, E.
Newall, L. Strathclyde, L.
Orr-Ewing, L. Sudeley, L.
Pender, L. Swansea, L.
Peyton of Yeovil, L. Swinfen, L.
Rankeillour, L. Swinton, E. [Teller.]
Reigate, L. Thomas of Swynnerton, L.
Renton, L. Thorneycroft, L.
Romney, E. Trefgarne, L.
St. Aldwyn, E. Trenchard, V.
St. Davids, V. Trumpington, B.
Saltoun of Abernethy, Ly. Ullswater, V.
Sanderson of Bowden, L. Vaux of Harrowden, L.
Sandford, L. Vickers, B.
Selkirk, E. Vivian, L.
Shannon, E. Ward of Witley, V.
Skelmersdale, L. Westbury, L.

Resolved in the negative, and amendment disagreed to accordingly.

6.10 p.m.

Lord Crawshaw of Aintree moved Amendment No. 3:

Page 2, line 6, after ("apply") insert ("and in which the Secretary of State shall have a majority shareholding, with no less than 50% of the remaining shares to be sold and or given to the qualified dockyard service employees,").

The noble Lord said: With this amendment, we are taking Amendments Nos. 6, 7 and 8. The object of the amendment is to try to give the workforce a special interest in the place in which it works. It is the type of argument that goes on in most political parties; it is not confined to one. It makes sense to let people be shareholders in the company in which they are employed. There is no doubt that whatever arrangements are made for the dockyards there will be a certain lowering of morale. I feel we must make every effort to restore that morale and ensure we have a competent and reliable workforce.

There have been many arguments about whether the workforce has been competent and reliable, but I do not go along with them. I am a great believer in what is said about the army: there are only bad officers; there are no bad men. I think that much of our industrial trouble is caused by management and not by the workforce.

This is one of several amendments on the same lines which have been moved. There are as many permutations as there are noble Lords in the Committee as to how the objective could be achieved. I suggest that the Secretary of State should have the majority shareholding and that not less than 50 per cent. of the remaining shares should be sold or given to qualified dockyard service employees. Some people feel that such shares should be given. There is a place for that idea as well. I think that they can be given in certain circumstances, but I also believe there should be an opportunity for people in an industry to purchase shares so that they have a vested interest in the industry. There is a third element, because shares would be available to the general public.

From my experience in industry, I feel that all too often businesses fail because the workforce has insufficient motivation. One way to give motivation is to make people feel that their industry will be profitable, not necessarily only through the wages that the employees take but in the investments that they may have in the industry. I have in mind companies which have done just that over many years. I may lose votes in the Lobby if I say that this is one of the planks of both the Liberal and the Social Democratic parties' platforms. I think that the idea extends to the other side of the Committee as well. I say that because the proposal is reasonable. It is one that should be accepted on both sides of the Committee. People are likely to be more motivated if they have a personal stake in the industry in which they work. All too often they are cogs in a wheel. The amendment seeks to restore some of the lowered morale which I am certain will result from the legislation. I beg to move.

Lord Denning

This is an important point. It proceeds on the basis of the fourth option that I mentioned—that there should be one company which should have the assets, have the use of the assets and also employ the workforce. I do not mind for the moment whether or not the company is government-owned. The important point of principle is that there should be workers' shares because then the workers would be much more likely to co-operate in the transfer. It will give them a stake in the company and an incentive for which to work.

I shall repeat what was said by Mr. Redwood in his statement about the National Freight Corporation: The National Freight Corporation showed that ordinary groups of employees were interested in acquiring a stake in their business: and once they had acquired it attitudes began to change and they felt the excitement and responsibility which shared ownership can bring". Is that not particularly applicable here where the workforce has been in the dockyard for centuries? Fathers and grandfathers worked there. The workforce is being compulsorily transferred to a new company. Surely we should do everything that we can to get the workforce on the company's side and to co-operate; otherwise by disruptive action of one kind or another it can make the continuance of that company almost impossible. The Government have expressed no view on the proposal. I hope that the Government will ensure that there is a substantial proportion of workers' shares, however the company is formed.

Another point which arises on the amendments is whether the company should be government-owned. In other words, should the Government own the majority of the shares and the workers the rest or should a great outside company such as Vickers own the shares? That is a very nice point. If possible, I should prefer the company to be government-owned. We are much more likely to obtain the co-operation of the workforce in those circumstances. However, I shall not prejudge that point at the moment.

The Government are going to consider tenders from outside companies and see whether they will come in with an appropriate tender. I am prepared to let that go forward to see whether companies will tender. I hope that a condition of the tenderer will be that, whatever new company is formed by the parent company, there should be a substantial number of workers' shares. A substantial number should be given free but there should also be preference shares so that in this big change the company will get the workforce on its side.

I support all the amendments. I should be grateful if the Government would say that they will carefully consider including a stipulation that there should be a substantial proportion of workers' shares in any proposed company. There is also the question of government control versus that of an outside company.

Lord Grimond

I support the amendments moved by my noble friend. The arguments in support of employee ownership are widely known and have often been rehearsed in the Chamber. I do not think that it is necessary to add much to the speech of my noble friend or to go over the arguments again.

I should like, however, to mention three points. The first is that these Bills concerned with the denationalisation of industries in government control provide an admirable opportunity for spreading wealth, ownership and interest in industry—an opportunity, I regret to say, that the Government have by no means always taken. Secondly, modern technology is resulting in a concentration of wealth and in the accumulation of wealth by the owners of capital, to some extent to the disadvantage of labour. It is extremely important, if we are to have a successful industrial society, that everyone should share in the increasing rewards of capital ownership, more particularly those working in the services and the industries.

Thirdly, if the Government, as they constantly say, regard wage restraint as being all-important to the running of the economy, not only have they to exercise restraint at the top—it has, I may say, been notably absent—but they have also to look at means of remunerating labour other than through annual automatic increases in wages. For those three reasons and for many other reasons, some of them advanced by my noble friend and others that are well known to the Government, I would urge the Government to accept the amendment.

Lord Graham of Edmonton

I would simply say to the noble Lord the Minister that the thrust of the amendment certainly commends itself to those on these Benches. The Minister is in fact invited to consider ways in which the workforce can feel even more that they are part of the action than they have been in the past. That is an laudable objective.

Lord Trefgarne

It is an objective, if I may say so at the outset, that I very much share. I too am greatly attracted to the notion that workers should have a share in the enterprise for which they work for all the reasons that have been enumerated this evening and on other occasions.

The noble Lord, Lord Crawshaw, proposed in his amendment, as I understand it, that the workers should have a share in what are in effect the physical assets of the dockyard. That is not quite the method that we have chosen in bringing forward this scheme. We have taken the view that the assets—that is to say, the docks, the cranes, the jetties and all the equipment that goes to make up the dockyards—should remain in public ownership because of the strategic importance that they represent to the maintenance of the fleet and to its effectiveness. For that reason, we have not proposed that shares in the physical assets, if I can so describe them, should be offered to anyone, including the workforce, any more than we have ever proposed that there should be shares in the very ships of the Royal Navy. That is not something that we would contemplate.

I now turn to the remarks of the noble and learned Lord, Lord Denning, made on this amendment and earlier. The noble and learned Lord will, I dare say, on a later amendment deploy in more detail his concern about the two-company concept contained in the provisions of the Bill as presently drafted. I must confess that having listened to the noble and learned Lord in private, I have been able to give the matter a little thought. I find considerable force in the arguments that the noble and learned Lord has deployed in connection with the two-company or one-company concept. That is not to say that I find any flaws in what the Government are proposing. Nonetheless, I feel that the alternative proposals enshrined in the amendments of the noble and learned Lord deserve examination. At an appropriate moment I shall be willing to undertake that that examination should take place between now and the next stage, the Report stage, of the Bill.

As to whether the company, be it one or two, should be government owned or contractor owned, that is a slightly different point. The government view has always been that we would prefer to see this a contractor operated enterprise but that the government operated alternative is one that we would be prepared to consider if we did not receive satisfactory bids in the competition that we propose to conduct. If we were to move, in the fullness of time, to a single company structure, then I can certainly give an assurance that we would want to make sure that the employees in the dockyard had a proper share in that enterprise. I hope that this will reassure the noble Lord, Lord Crawshaw, and other noble Lords who have set their names to other amendments on a similar theme in this grouping.

I had understood that it would be for the Committee's convenience if we were to be now considering Amendments Nos. 3, 6 and 8 along with Amendment No. 7 of the noble and learned Lord, Lord Denning, more or less simultaneously. On the basis that we are discussing those four amendments, I do not think that the precise proposal contained in those amendments is directly appropriate if we are to sustain the two-company structure that is presently enshrined in the Bill. But if, in the fullness of time and in consultation with the noble and learned Lord, Lord Denning, we can move to a single company structure—I do not reject that proposition out of hand—I shall certainly undertake that there is proper provision in that single company structure for a share to be held by the employees.

Lord Crawshaw of Aintree

The noble Lord the Minister is always courteous. He is even more courteous when offering at least something in response to the debate. Having regard to the helpful remarks that the Minister has made, I would ask leave to withdraw the amendment.

Lord Denning

I should just like to say how much I welcome what the noble Lord the Minister has said. In a way workers' shares depend, as the noble Lord, Lord Trefgarne, says, on there being one company. If one company is to take the licence and make profits, the Government will consider very favourably the scheme whereby preference is given to workers' shares. I am most grateful for that. I look forward to seeing what the proposition really comes to. As to whether it should be government owned or under outside ownership, I agreed that I would not insist one way or the other at the moment, so long as we have one company. That matter will be reached on a later amendment.

Baroness Seear

Since we on these Benches have been advocating these schemes for the past 60 years, we find it extremely gratifying that the Conservative Benches have at last seen the light. I also wish to say what a relief it is to hear from the lips of the Minister himself, and to have it on the record, that the Government do not intend to sell the Royal Navy.

Amendment, by leave, withdrawn.

6.30 p.m.

Lord Denning moved Amendment No. 4:

Page 2, line 9, leave out ("(disregarding their services for this purpose)").

The noble and learned Lord said: We come now to the real difficulty in point of law. I do not know how far the Committee will bear with me. I shall try to make it a simple as I can. It really depends on the question of two companies. The two-company business is found at line 9 on page 2. When arrangements are made for the transfer of the dockyard undertaking, the words of the Bill are, disregarding their services for this purpose". In other words, one disposes of the dockyard undertaking without disposing of the services. This shows that two companies are in mind.

When it comes to the transfer of services—I do not know whether the Committee will understand this—subsection (4), at lines 22 and 23, states that, the services of any of the qualified dockyard service employees without more".

Let me explain. It is proposed to have one company that will operate the dockyard and take a licence of the assets for seven years or less. That is determinable. They will have another company which will employ the workforce and in a way do nothing else but employ the workforce. Clearly, if this goes forward, the workforce cannot operate at all because the one company would have only the assets, and the other company the employment. The option would not work.

Perhaps I may turn to the legal point. At first, and throughout, the Government have thought that this would be governed by the terms and conditions of employment regulations under the Transfer of Undertakings (Protection of Employment) Regulations 1981. They assumed that that would apply to this transfer. I do not know whether they can even have read this regulation. It says: 'Undertaking' includes any trade or business but does not include any undertaking or part of an undertaking which is not in the nature of a commercial venture". Is one going to say that this dockyard at Devonport was of a commercial nature? The explanatory note talks of the fact that these regulations apply to transfers of commercial undertakings. What is plain is that the dockyard at Plymouth was not a commercial undertaking. It was not in the nature of a commercial venture. Those regulations do not apply at all in my view. I challenge any lawyer to say to the contrary. I am quite sure that the dockyard was "not in the nature of a commercial venture" as I know its meaning. Those 1981 regulations do not apply at all.

However, in the amendment, and in the one which will be put forward by my noble friend Lord Trefgarne, they try to get over that by making all kinds of alterations about the services of this workforce. They include the words "without more", and say that should be capable of being a business—how absurd, I say—and capable of being transferred. I say that that is almost nonsense.

However, my point against this amendment is with regard to our European Community law. By the 1972 Act that is now part of our law. It is all contained in Council Directive 77/187. That makes it quite plain that it applies to a transfer of an undertaking. It does not apply to a part of it that is severed off. When an undertaking is transferred it is quite clear that it must mean the whole. I shall not go into the details of it but that directive governs, and if anything in our law is inconsistent with it, the directive takes precedence. That was established earlier this year. Noble Lords will remember that we used to have differing pensions for men and women at the ages of 65 and 60. The European Commission issued a directive about equal treatment for men and women. The European Court held that our law was inconsistent with the directive and therefore the directive governed. That was the trouble about which we read in the papers: we have to adjust matters so that men and women are entitled to have pensions at the same age. That is the European Community law.

My point is that these attempts by the Government in these amendments are contrary to the European directive. The European directive will govern and will make it quite plain that when these men are transferred in this way they are transferred to the one undertaking. That is a legal point.

Baroness Seear

For the record, may I ask the noble and learned Lord to tell us whether the European Court findings had to deal with the compulsory retirement ages of men and women, or with the age of pensions—because it is not the same? I think that the noble and learned Lord referred to the pension age.

Lord Denning

I think that it deals with retirement ages but I do not have the report with me. I have studied it very carefully. From my point of view the important matter is that the European directive takes precedence over anything in our law, even on our statute, which is inconsistent with it. That is plainly the result of that case. I have read the judgment. The European directive which I have quoted takes precedence even over the 1981 regulations, or whatever the Government include. I therefore say that on the European directive the only matter that can be transferred is the whole undertaking, and one part of it cannot be transferred without the other. It is very much a legal argument.

I would only add that this European directive and its provisions can be enforced by any individual applying to our own national courts. I must warn the Government that if they go ahead with this two-company structure with these provisions which I think are inconsistent with the European directive, any trade union or employee could go to the courts and say, "You are not obeying the directive," and could put a cat among the pigeons with regard to the Government and this Bill.

In private conversations with the Minister I have indicated these points. In view of the difficulties I was glad to hear him say that they will give careful consideration as to whether they will stick to the new company structure, or consider the one-company structure. The arguments are very much legal ones, but those are my submissions. I should like to know what the Minister says about them.

Lord Trefgarne

It seems to me that this group of amendments—Amendments Nos. 4, 5 and 15—proposed by the noble and learned Lord have two propositions at their basis. The first proposition is that because of the two-company structure that we propose the applicability of the European Council directive is called into question. I am bound to say that I do not share that view. However, for that, and in particular for other reasons, I have been considering, as I have already indicated, whether we should not look more carefully at a single company structure. If we were to do that I think that the noble and learned Lord would agree that his anxiety about the applicability of the European Council directive would fall away.

Lord Denning

I quite agree that, if we had the one-company structure, all would be well and good.

Lord Trefgarne

I am reassured to hear that. That will certainly be one of the factors I take into account in deciding whether we should proceed in that direction. Let me say at once that I am attracted to what the noble and learned Lord says about a one-company structure. I shall be considering it in that frame of mind.

The other proposition which is enshrined in these amendments is the applicability of the so-called TUPE Regulations of 1981. The noble and learned Lord's anxiety on that point stemmed from his doubts as to whether the dockyards in their present guise were a commercial undertaking in the true sense of that expression.

The purpose of our wanting to apply these regulations is to ensure that when the dockyard workers transfer to the new enterprise, whether it is in a one-company or a two-company structure, they enjoy proper terms and conditions in their new employment. It was in their interests that we thought it right that these arrangements should apply. Therefore, I hope that the noble and learned Lord, Lord Denning, will be reassured by the amendment which in due course I shall propose as Amendment No. 14, which I hope will get over the difficulty in that particular regard.

I believe that there was also some doubt in the noble and learned Lord's mind as to whether the two-company structure did not contribute to the difficulties about the relevance of the TUPE Regulations. Therefore, if we move to the one-company structure, and if at the same time I speak to Amendment No. 14 on the Marshalled List, which is to be moved in due course, I hope that I shall also have dispelled the noble and learned Lord's doubts on that score.

Lord Denning

I should like to say that I am very gratified by what the Minister has just said. It seems to me that a one-company structure is the only permissible one in law, and if that takes place I think that the transfer of undertakings can be operated accordingly. I am not sure about the wording of the amendment as it stands at the moment because it may need variation.

Lord Trefgarne

If the Committee will allow me to move Amendment No. 14 and in due course accept it, and if it then proves to be inappropriate, we could change it when we came to change the structure arrangements, if that is what is decided upon.

The Deputy Chairman of Committees (Lord Renton)

Does the noble and learned Lord seek leave to withdraw his amendment?

Lord Denning

I beg leave to withdraw the amendment because of the undertaking which the Minister has given.

Amendment, by leave, withdrawn.

[Amendments Nos. 5 to 8 not moved.]

Baroness Vickers moved Amendment No. 9:

Page 2, line 14, at end insert— ("( ) A contract under which a company provides designated dockyard services at a dockyard shall be for a period not less than fifteen years.").

The noble Baroness said: This amendment seeks to enforce a longer contract period than that proposed by the Government. Although I do not believe that the agency management scheme represents the best possible option for the future control of the royal dockyards, I feel that if the Government cannot be persuaded to decide now to adopt their fall-back option of a plc then the only alternative is to lengthen the contract period to permit some stability and long-term planning at the dockyards.

The Government wish to review the contract after five years, and there is no reason why a 15-year term cannot be reviewed at five-year intervals. It is difficult to understand how an industrial site as large and complicated as Devonport dockyard can be managed on a seven-year contract when there will obviously be an enormous amount of work which will overlap such a short period.

Furthermore, since I do not believe that managing the dockyard on an agency contract will offer the best service for the navy, the people of Plymouth or the country as a whole, I hope that the Government will accept this amendment so that if they insist on pursuing this option in the Bill they will at least allow the, new commercial managers to take a more longterm view of the scheme and not to think solely of short-term profitability. I beg to move.

Lord Denning

From my point of view this is really a probing amendment because of the anxiety to know what the licence will be for. At the moment the Government propose that it should be seven years, determinable in appropriate circumstances. Is that too short a time to enable the contractor to come in and see whether the experiment has worked? On the other hand, will 15 years be too long? After all, this is rather experimental. We want to see whether or not the experiment will be successful. Apparently the Government have opted for seven years. If the Government have convincing reasons for seven years, all well and good. However, this is a difficult problem. The Government must keep control. The licence mist be determinable; the Government have to see how it works. Whether it should be 15 years, seven years or even less than seven years is almost a matter of judgment. I should like to suggest 15 years but I should like to know why the Government think that a period of seven years is best.

6.45 p.m.

Lord Ironside

I should like to make some comments on this amendment. I was surprised at this very long period of 15 years being suggested, because in fact one introduces more risk elements into this longer period and therefore certainly one would need a trial period to begin with to see how the operation fared. We are treading new territory here with the dockyards after such a long saga of knowing them as they have been, and I think that we are somewhat inspired by the American experience, which has existed with the GOCO contracts—the government-owned contractor operated schemes—which run pretty well over there. They have their troubles as well, and new territory is being trodden there.

However, I should have said that five years is too short a period. I think that seven years is a compromise, but as an industrialist I should like to have seen a longer period, with perhaps an introductory trial period which would involve certain non-risk elements of the contract being put to trial. Then, perhaps after two years, the successful contractor could commit himself on a risk-basis for the rest of the time. However, I do not think it is necessary here to stipulate the length of the contract or the Term Contract in the enabling Bill. I believe that that needs to be specified elsewhere: in the invitation to tender and in the regulations for the terms of the contract; but it is not necessary to specify it in the enabling legislation.

Lord Graham of Edmonton

I know that the Minister will tell the Committee how the magic figure of seven years was chosen as opposed to five or nine years. Clearly, there must have been factors which led to that decision: experience, consultation, or even a hunch must all have come into the consideration. However, someone must have said that seven years was right, taking into account a number of factors, because, although the contractor will not have to provide an enormous amount of fixed stock and fixed assets, he will have to do a lot of planning, find a lot of money and go to a lot of trouble.

Although I respect the comments of the previous speaker, that from his experience more risks will be introduced if it were a 15-year period, the noble Lord did say that he thought a period in excess of seven years was preferable to seven years—in other words, seven years must be a compromise between a longer period and a shorter period. Therefore, from the noble Lord's experience, judgment and nous he has in mind an optimum figure. I hope that the Minister will tell us the raison d'être for the seven years.

However, at the end of the day the proof of the pudding is in the eating. Perhaps the Minister will tell us how many people nibbled or, to put it mildly, how many people have shown an interest. Can the noble Lord the Minister tell us whether the period of the contract has been a material factor, or whether some people have said to him "If it were longer or shorter, I would be more interested"? I wonder whether the noble Lord the Minister in fact can tell us if people have shown an interest and then, later in the day, have pulled out; in other words, have not proceeded with their interest. Can it be that they have been shown more or have seen more than the public? Is what is available to us in the Library the totality of what is available to those who participate? Are there any secret annexes, for instance, or any silent memoranda that others know about but we do not?

Can the noble Lord tell us whether there are factors militating against people proceeding, which I could understand from a commercial point of view but cannot understand unless I know about them? I take the points made by those who represent the city of Plymouth. The noble Baroness, Lady Vickers, quite rightly pointed out that it is not only a question of the contractor having stability but of the community having some stability. We are talking in terms of seven years as being the right figure, but the noble Baroness has told us that she feels—and I am sure she has been advised—there are those who think longer than seven years would be a better period. I am not able, as others are, to apply commercial experience, because I do not have the same commercial experience as they have. But I would have thought that once the noble Lord the Minister and his colleagues, by whatever yardstick they use, can come to the view that some consortium has as much of the right things as is possible, you can then say, "We put our trust in you with all the various documents and controls we have got, so away you go". I am tempted to believe that this amendment has a great deal of merit in it, and I will listen very carefully to what the noble Lord the Minister has to say.

Lord Ashbourne

Before the noble Lord the Minister replies, I should like to support this amendment. If this Bill becomes law in the form that the Government clearly envisage, I feel that seven years is much too short a period. Running a dockyard is not like running a commercial enterprise or commercial shipyard, and never will be, because there is the defence of the realm at stake and all the arguments which are well known in this Committee.

I made a lot of inquiries on Friday evening of senior dockyard personnel, who were all unanimous in their view that a period of 15 or 20 years, or something of that nature, was very much more appropriate than the seven years proposed in this Bill. It would take any commercial enterprise two or three years to get into the machinations of running a dockyard; then there would be three years of running it, hopefully in an efficient manner; and then maybe in the last two years they would be running down as they saw the end of the line coming. Maybe they would not think of tendering again for a second period. So I believe that if the Bill goes through in the way the Government are envisaging, then a longer period than seven years, a period in the nature of 15 to 20 years, would be greatly to be commended.

Lord Trefgarne

Perhaps I might explain why we have felt it right to set the length of the initial contract at each dockyard at seven years. Originally, we had thought of a five-year contract, but on reflection we felt that, after a necessary settling-in period during which time the commercial managers would be familiarising themselves with the system, making improvements in the way the dockyards operate and generally increasing efficiency (for which most people feel there is ample scope), the company should be allowed a full five-year period to consolidate their plans. For our part we expect increasingly to negotiate work on a fixed price basis, and we are confident that over the seven-year contract the benefits to the Royal Navy in terms of an improved service and to the taxpayer in terms of costs will be obvious to all.

During the term of their contracts with the department the companies at the dockyards will be competing with each other and with other ship repair companies for an increasing non-core naval programme. But the two dockyards will be, as it were, guaranteed a substantial amount of non-competitive work—the "core programme", as it is known. While my department will be ensuring tight contracts for this work, it will be, as I have said, non-competitive. It is, therefore, important that the Government should be able to consider a fresh competition every so often for the term contract. This should ensure that even for the non-competitive work the companies will negotiate realistic prices. They will have to consider that if they do not or if they are not able to provide as good a service as we believe they could, they could lose the contract at the break point.

The Government believe that a seven-year renewable contract strikes the right balance for the companies and for the Royal Navy. Before I ask the noble and learned Lord to withdraw the amendment, may I reply to the point put to me by the noble Lord, Lord Graham of Edmonton, when he asked which companies were interested in tendering for these dockyard contracts. The firms are the Devonport Dockyard Limited, Foster Wheeler in association with BSEL, Babcock and Thorn in association, Balfour Beattie and the Weir Group in association, and Press Offshore. As the noble Lord will be aware, Trafalgar House in association with Plessey and A and P Appledore have withdrawn for commercial reasons, as have NEI. I should say there is no pressure for more than seven years from these interested parties but strong pressure to offer a little more than five, and that is what we have done.

Lord Denning

In view of what the noble Lord the Minister has said, it seems quite right to withdraw the amendment. The reasons in favour of seven years are good. I would not say they are compelling but, on the other hand, they are quite sufficient, so I will not press the amendment.

Lord Graham of Edmonton

Before we proceed, may I say that my attention was momentarily distracted when I believe the noble Lord the Minister answered one of my points; namely, whether any contractors who had originally showed some interest and had made progress had decided to withdraw late in the day. I was given, and appreciate, a list of those still in, and I took the point that they wanted more than five years, which is why we have seven years; but was there anyone actually involved who decided to withdraw late in the day?

Lord Trefgarne

Yes. As is well known, I think, NEI and the Trafalgar House Group, together with Plessey and A and P Appledore, have withdrawn.

Amendment, by leave, withdrawn.

Lord Denham

I beg to move that the House do now resume. I think it will be helpful if I say that we shall not come back to this particular Bill before 7.45.

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

House resumed.