Dockyard Services Bill

HL Deb 09 June 1986 vol 476 cc72-112

7.44 p.m.

House again in Committee on Clause 1.

Lord Lloyd of Kilgerran moved Amendment No. 10:

Page 2, line 18, at end insert ("but no company formed under this subsection will have any title to the intellectual property rights currently held in the Dockyards, and all such rights will remain the property of the Ministry of Defence.")

The noble Lord said: I must make a confession, in that in the discussions outside the Committee I was responsible for this amendment. I am so sorry that my name was not put on it. In view of my experience of intellectual property—I must remind Members of the Committee that intellectual property is rather a pompous term for patents, trademarks, know-how, copyright and designs—it seemed to me that the Government might get themselves into difficulties in relation to these rights if they attempted to assign those rights at this stage to a company. They may be in respect of patent rights, they may be secret patents, they may be licences where there are a lot of commercial firms and where difficulties may arise. There will be thousands of drawings in the hands of the dockyards, and copyright questions will arise.

I do not think that I need go on much longer in moving this amendment. I could explain further details and further difficulties but as the amendment is really a probing amendment I should just like to know what the Government are presuming to do in regard to all these intellectual property rights and whether they will agree that it would be preferable, at least at the present time, to have the property remain in the hands of the Ministry of Defence. I beg to move.

Lord Denning

This amendment is admirably designed but I am afraid that it is unnecessary. I have examined the contract—goodness knows how many pages there are. There are three or four pages to protect these intellectual property rights both existing property rights and future ones. I cannot say that I have studied every detail but it seems to me that the contract protects the Government, the authority and all concerned very well in regard to intellectual property rights. I think that this is probably unnecessary.

Lord Trefgarne

I am beginning to feel a little redundant because the noble and learned Lord is quite right. One that basis, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Lloyd of Kilgerran

In view of the speech made by the noble and learned Lord, I must make another confession. I had not read the licence and did not realise that that was in the licence and that the matter was covered. I therefore ask the leave of the Committee to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Graham of Edmonton moved Amendment No. 11:

Page 2, line 18, at end insert— ("( ) A company formed under subsection (3) above shall maintain a system of apprentice training at a level of quality and quantity as determined by the Secretary of State.").

The noble Lord said: This amendment, standing in the name of the noble Lord, Lord Crawshaw of Aintree, and myself, deals with a very important aspect of the situation. We are all concerned about apprenticeships. Sadly, it is a declining industry. At one time most crafts and trades and many that perhaps did not aspire to that title were keen to ensure that apprenticeships were available. The Minister may seek to assure us that there is no need to be so specific and visible in our desire but in the dockyards there has been a strong and proud record of providing apprenticeships.

A dockyard apprenticeship has always been a prized training; it is not merely prized by the apprentice himself but it is looked upon by the community, certainly in Plymouth, with a great deal of pride and satisfaction. The record shows that many ex-apprentices are at the top of the tree that they sought to climb once they had served their time.

The apprenticeship system has undergone a change. At one time it lasted for seven years but now, by and large, the average term of an apprenticeship is four years. From the document that I have before me, I am informed that there are still a great many skills that are currently the subject of apprenticeships. They include electrical fitter, engine fitter, turner, shipwright, plumber, boilermaker, riveter, coppersmith, painter, founder, smith, hosemaker, pattern maker, mason, saltmaker, colour maker, joiner, welder, burner and caulker.

Those are clearly all seen by the admiralty as being trades and skills that need to be maintained. The purpose of this simple amendment is to ask the Minister what steps the Government are taking, and what steps they could be willing to take, to ensure that devotion to the maintenance of quality will be written into the arrangements for the future.

I may say that it is not just a question of the management's wishes because the trade unions themselves, which have undergone a sea change in their structure and organisation over the past 30 or 40 years, are as jealous as anybody else about the need to maintain the present situation. I am told that the number of apprentices who are to be trained in any given period is not merely determined arbitrarily by the management or by the Admiralty, or even by taking a look at the dole queue. The number chosen is the result of sensible and realistic negotiations between the trade unions and the MoD.

In this amendment, we are seeking to maintain the standing and stature of the naval dockyards. That is to say, whatever may happen to them managerially, we want them to be places in which people will not only be proud to work but will be proud to say they were trained. We are also concerned that the chosen companies will undertake that responsibility.

I am sorry to have to say that my experience in the sphere of building, for instance, was that the large companies had a poorer record by comparison with the smaller companies in their devotion to finding apprentices. In other words, the large companies tend to say, "Somebody else can train them but we will pay them, and pay them well, and look after them". If that were to happen in this case, not only would it be sad from the point of view from the industry but it would also be sad for the nation. There are considerations other than simply the viability or the economcs of the situation. I hope that the Minister will be able to say something helpful. I beg to move.

Lord Denning

This aspect, too, is covered by the contract. There are several pages—it is a very long document—but, summarised, it comes to this. The contractor will be required to complete all existing apprenticeships that are running on vesting day. The contractor will also be required to sustain apprentice training to levels and standards that will retain a viable dockyard workforce here and provide the Ministry with a supply of engineers and technicians. It takes several pages of the contract to say that, but it probably covers the position.

Lord Ironside

The noble and learned Lord, Lord Denning, has already made some of the points that I was going to make. In fact, I see that the matter is laid down in the invitation to tender documents. I see also that the requirement at Devonport will be 200 apprentices and about 150 at Rosyth. That is somewhat smaller than the requirements as they exist at present.

Negotiations will take place between the MoD and the succesful contractor on the size of the intake for the future. I am wondering how serious those negotiations will be. I see also that there are certain apprentices who are trained under the Ministry's deeds of appenticeship.Those apprentices meet the particular requirements of the Ministry of Defence. Will my noble friend the Minister say a little bit more about that aspect of the apprenticeship scheme?

Baroness Vickers

For over 30 years I have been working to get apprentices more and more accepted in the dockyard. We have been very successful in getting girls accepted there. In fact, one of them is now a manager. She has a very interesting history. She came from Uganda as a refugee and went into Chatham dockyard. She then got married and went down to Devonport, and has now become a manager. They really have proved their worth.

One point that worries me is whether the dockyard will recruit just enough people to work there. Previously, the dockyard trained more than it needed because the apprentices could then get jobs anywhere in Great Britain. It is thought that if the dockyard does train more apprentices than it needs, then those apprentices could eventually set up small businesses in the area of Devon and Cornwall, where small businesses are very badly needed. I suggest that the apprentices are not limited to a certain number. There should be the number required for the dockyard, and then some more should be well trained, as they used to be in the old days, so that they may go out and set up businesses for themselves.

Lord Crawshaw of Aintree

I was very concerned about apprenticeship training, having regard for the fact that it has a tremendous impact on the workforce in the areas affected, because they are areas of high unemployment. When I set down the amendment that is in my name and that of my noble friend, I had not had an opportunity to study Annex 12, which deals with apprenticeship training. It sets out all the different skills in which the dockyards will be required to train people. It satisfies me that provision is made there for the required people. However, the amendment makes mention of, A level of quality and quantity as determined by the Secretary of State". The annex uses the wording, would agree with the authority from time to time". Will the Minister say what might happen if the authority considers that there ought to be more apprentices training in a particular skill whereas the people who are actually running the enterprise do not agree? There is also the point that at the end of the seven-year period, it will be just as important to ensure the continuity of apprenticeships. The apprentices are of course not only required for the yards themselves but also for other areas of the MoD.

Lord Trefgarne

Not for the first time the noble and learned Lord, Lord Denning, has got it right, when he told the Committee that this is essentially a matter for the contract, as the noble Lord, Lord Crawshaw, has recognised. The numbers will primarily be determined by the contractors and will relate to the requirements of the contract of work that they have. They will also have to be to the satisfaction of the Secretary of State. So if the contractors try to use too few, then the Secretary of State will clearly prevail.

The noble Lord, Lord Crawshaw, touched on another point. It is also the case that such apprentices are often required in other parts of the Ministry of Defence. We hope and expect that apprentices will continue to be trained in the dockyards, and it will of course be for the Ministry of Defence to meet the additional costs of those particular apprentices. In the light of those assurances, I hope it will be recognised that the amendment is unnecessary.

8 p.m.

Lord Graham of Edmonton

I am grateful to the Minister and in particular to the noble and learned Lord, Lord Denning, for drawing attention to that fact. However, can the Minister tell us what is the status of the contract from the point of view of enforceability? If someone accepts a contract which clearly lays down that there needs to be a programme of apprentice training and then for one reason or another does not fulfil it, what will then happen? This could be due to the unsuitability of possible applicants, a change in the labour market, the wages that are offered; all sorts of reasons can militate. Not least of these could be the lack of desire on the part of the contractor to take on apprentices and spend the money because apprentices, although lowly paid, cost the employer a great deal of money. I am simply saying to the Minister that, having got it right at the beginning by putting in the terms of a contract, what will happen if subsequently the person who signed the contract is unable or unwilling to fulfil it?

Lord Trefgarne

The ultimate sanction in the possession of the Ministry of Defence is to terminate the contract, although I am not suggesting that that would be the right course on a comparatively small matter. I do not think there will be any difficulty. I am sure that the Government's view is shared throughout the Committee—that we should have the maximum number of apprentices that we can afford and are appropriate. There will be additional apprentices in the dockyards for eventual work in other parts of the Ministry of Defence who will be paid for separately under the contractual arrangements to which I have referred. In addition to the terms of the contract the annual intake of apprentices will also be a matter on which the Secretary of State's view will be relevant, and so I do not believe that there is any cause for concern.

Baroness Seear

I am sure that the Minister will bear in mind that some of the old-fashioned apprenticeship schemes are not necessarily what is required in the light of modern needs and modern training programmes. In fact, a great many people would rather see a much revised form of training than the perpetuation of old-style aprenticeships.

Lord Trefgarne

The noble Baroness, Lady Seear, puts her finger on a useful point, but I was addressing my reply to the amendment on the Marshalled List.

Lord Graham of Edmonton

The noble Lord the Minister satisfies me substantially, but my understanding is that each trade specification is assessed jointly by management and the trade unions concerned. Can the Minister tell the Committee whether in the future there is a part to be played by established trade union machinery? I am not referring to negotiations and wages, but there must be some kind of current raison d'être for these things. Can the Minister tell the Committee whether, in his mind, that kind of arrangement will continue where the trade unions have an input? I am talking not about control or negotiation but about discussion because clearly the unions will have to be realistic and they will have something to say.

Lord Trefgarne

Yes, I am certain that in reaching a view on the number of apprentices that are appropri- ate, either initially or in respect of the annual intake, the views of the trade unions will very much be taken into account.

The Earl of Selkirk

I make one observation. Of all the arrangements in our country today apprentice training is one of the greatest lacks; there is a terrible lack of apprentice training. My noble friend the Minister says that it goes into the contract and the noble and learned Lord said the same. But would it not be worthwhile saying that Parliament regards this as an integral and essential element? That would give it a status. As was said, what happens if they do not do it? Will the ministry break off the whole contract because there are too few apprentices? I can see that there is a perfectly good answer in that it is all in the contract, but people do not always fulfil contracts. There is a status in this. Apprentice training is of vital importance and it is deeply lacking at present.

Lord Trefgarne

I do not disagree with my noble friend about the importance of this matter, but I suggest to him that we need to maintain a degree of flexibility and to write these things in concrete in the statute is not necessarily the best way to achieve that. The contract is a matter which will be discussed between the two parties from time to time. It will run for a period of seven years, as we have already discussed, and will therefore be amenable to change in the light of the circumstances prevailing at the time it is renewed. I hope that, on reflection, my noble friend will agree that to set this in statute would be a departure from the necessary flexibility we are aiming to achieve in these arrangements.

I have given some clear assurances about what will be in the contract. I have made it clear that the views of my right honourable friend the Secretary of State, ors whoever may be the Secretary of State, will in the end determine the number of apprentices taken into the dockyards in this way. I hope my noble friend will be satisfied with that.

Lord Graham of Edmonton

So far as I am concerned I take the Minister's assurances at their face value. He understands that there is every intention on the part of those who are concerned with scrutinising the contract that it will be fulfilled and met. If it is met, there is no problem. However, I have already pointed out a number of ways in which problems can arise. Ministers are always loath to write on the face of a Bill what are small commitments compared to the totality of the Bill. Of course, it begins to look a hotch-potch. I am anxious that those who are concerned in Plymouth and Rosyth, and particularly in the trade unions affected, will carefully read what the Minister said, and if they are not satisfied, and I understand that dissatisfaction, I shall certainly come back with a comparable amendment on Report. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 12 not moved.]

Lord Graham of Edmonton moved Amendment No. 13:

Page 2, line 18, at end insert— (" ( ) A company formed under subsection (2) above shall have a duty to consult and agree with the recognised trade unions as to the setting up and maintenance of suitable machinery to negotiate upon and settle terms and conditions of employment, to provide reference to arbitration in default of settlement and to discuss other matters of mutual interest to the company and their employees.")

The noble Lord said: Again, this amendment may be seen by the Minister to be one that need not be written on the face of the Bill because he is satisfied that somewhere, even in the contract, there is something that takes it into account. Our concern here is that as part of the Ministry of Defence within the Civil Service the Royal dockyards are covered by the Whitley arrangements. The amendment seeks to ensure that suitable and acceptable joint negotiating and consulting machinery is established by the new company or companies after commercial management is introduced. The present Whitley arrangements ensure that management and recognised trade unions, both industrial and non-industrial, meet on a regular basis to consider problems of mutual concern and to deliberate on their resolution.

These meetings not only discuss a range of matters which are fairly well known but are also concerned with such matters as health and safety. We are not talking only about formal arrangements. The amendment refers to "consult and agree" and "suitable machinery", and this can often be informal as well as formal. We are not concerned about the arbitration agreements because those are fairly heavily bound inside Civil Service procedures.

Ministers have said that there are negotiating and consulting arrangements, particularly with the transfer under TUPE '81, and we have already had a go at that. We have seen how that has had to be revised in the light of our earlier debates. What we seek is to satisfy the trade unions, and I make no bones about that. The trade unions are worried that in the future something which they have now—settled, joint negotiating, consultative and arbitration machinery—is somehow at risk.

If the Minister can satisfy me that he understands their anxieties and will also assure them that there are arrangements enshrined in documents (which I ought to have seen but have not) or set out in some other way, then I am absolutely certain that they will be relieved at least about the point that I am seeking to make in this amendment. I beg to move.

Lord Denning

I should like to say just a few words. This provision is very desirable in practice, but I doubt whether it is necessary to write it into a statute, because under the provisions of the Transfer of Undertaking Regulations the collective agreements are continued after the transfer; and if they are continued subject to any negotiation, it follows that in order to be varied at all there must be consultation and machinery for consultation. It is a desirable provision but I doubt whether it is necessary to put it in the statute.

The Parliamentary Under-Secretary of State, Home Office (Lord Glenarthur)

The Government are of course conscious of the concern expressed by the workforce and their union representatives about the future machinery for industrial relations in the new companies, and I think that has been made clear at a number of discussions at all levels in the Ministry of Defence. The machinery for consultation in the Civil Service is comprehensive and well established. It is quite understandable that the unions and staff should wish to see a continuation of that machinery in the new dockyard companies; but there will have to be some changes, and I doubt whether anyone imagines for one minute that this will not be the case.

The present Civil Service machinery for negotiation and consultation to which the noble Lord has referred—the Whitley system—is quite highly centralised and structured. Pay and conditions are negotiated centrally with the Treasury and the MPO for both industrial and non-industrial civil servants. Within the Ministry of Defence the Whitley structure centres on the two major departmental committees for the industrial and non-industrial staffs. In the dockyards the naval base Whitley structures play an important role, as do the two major functional committees. Under commercial management these links will no longer exist and there will be a need for wider discussions in the dockyard companies about pay and other major terms and conditions. These matters will no longer depend on central agreements concluded in London.

Yet it is certainly the Government's wish to see proper industrial relations machinery operating in the new companies. That is why we have expressly included in the invitation to tender which was issued to the companies in April (a copy of which is available in the Library) an indication that the contractor will be expected, in consultation with the existing recognised trades unions, to adapt the existing Civil Service machinery to obtain the most appropriate structure for the new organisation and to maintain that structure in being; and when tenders are submitted and are being evaluated within the Ministry, bidders' proposals for industrial relations policy and machinery will be assessed and will play a significant part in that evaluation. So I hope that the noble Lord will be in no doubt that the Government wish to see the new companies with proper, workable industrial relations policies and practices, and that they should be in place by vesting day.

I understand and have some sympathy with the spirit behind this amendment. Just as much as the noble Lord, we wish to see a company with good, workable and working industrial relations policy and practice; but, equally, I cannot readily agree to the form in which that spirit is expressed in this amendment. It is our firm view that good industrial relations must grow out of discussion, consultation and negotiation between managers and trades unions—rather in the way that the noble and learned Lord, Lord Denning, suggested that they should—and not from a formulation of duty embodied in an Act of Parliament.

I think that that gives some assurance. Certainly I think it adds to what the noble and learned Lord has just said, and I hope that the noble Lord will feel able to withdraw his Amendment.

8.15 p.m.

Lord Mulley

There seems to be some confusion here because the noble and learned Lord, Lord Denning, said that as a matter of automaticity the existing agreements would carry forward. I am afraid that in my view the noble and learned Lord is mistaken, and that has been confirmed by the Minister. They will not. The existing agreements will not become part of the new arrangement by virtue of the fact that they are in some tender documents.

It is quite clear that the Government, happily, will do the right thing and insist that proper negotiations, and so on, should take place. I do not understand why all this has to be done in such a hole-in-the-corner way. If the intentions are as good and laudable as they sound, why on earth can they not be put in the statute? As it happens, I agree with the noble Lord in believing that the best way to get good industrial relations is by negotiation between the workpeople, their representatives and the employers; but that is not the way that the present Government have dealt with industrial relations. There is no strike of more than about three people that probably will not end up in a court of law—and judging by the decisions that some of the judges have been giving, any darned thing can happen as a consequence of these procedures. Practically every industrial relations dispute now goes to the courts.

Therefore, it is important that the courts should at least have some definite status derived from statute, as otherwise it will happen as we have just seen in another matter concerning hippies, where a judge appeared to be saying that the hippies could stay where they were for seven days and then, after a press conference, saying that he did not mean seven days but that they should leave tomorrow. That is the same sort of situation that is developing in the field of industrial relations. If it gets into the judiciary, goodness knows what will happen. Therefore, I think we need a clear statement about this matter. If these words are not right, then perhaps the noble Lord the Minister will give an undertaking to produce a version of his own at the next stage of the Bill, and then I expect that my noble friend will agree. I hope that the noble Minister will say that his excellent words can be incorporated in a suitable amendment to the Bill.

Lord Graham of Edmonton

I am grateful to the Members of the Committee who have spoken, and to the Minister. I accept his understanding absolutely. The problem is that two years ago the Minister who is now sitting next to him gave comparable assurances when we were dealing with the privatisation of the Royal Ordnance factories. They were the same kind of assurances: that discussions were in train between management and trades unions which were certain to lead to understandings and agreements. I have to tell the Minister that two years later no such agreements on procedure, machinery and consultation have yet been reached.

The Minister is asking us to understand that when he says, "It is our intention and our endeavour, and we understand …", we have to contemplate the possibility that two or three years later there will be no agreement on how to set about it. I say to the Minister that this is not a matter on which we intend to divide the Committee tonight. But, interestingly, the noble and learned Lord, Lord Denning, says that everything that is currently in vogue will automatically be enshrined under the assurances tonight because of the 1981 TUPE Regulations. Clearly the Minister has his brief. He pointed out that there would need to be negotiations, and everyone accepted that some things would have to be changed. But whatever are the things that the Minister might accept have to be changed may not necessarily be the same things as the trade unions accept will have to be changed, and vice versa. Unhappily, we are in an area where we cannot negotiate. We cannot negotiate across the Floor of this Chamber between trades unions and management. Of course we cannot. All that we can do is to use the opportunity that we have been given tonight and will have in the two subsequent stages to the Bill.

I say to the Minister that in my view the suggestion of the noble Lord, Lord Mulley, is one that needs to be considered. It is something very important, but which is no more than something which has the validity and status of a communication from the appropriate Minister (or his senior civil servant) to the body which looks after the combined trade union interests stating the Government's intentions. That, at least, will be something more than they have now. I hope that the Minister will say something helpful before we move on.

Lord Glenarthur

I note the noble Lord's point of view. As I said, the intention is that the modifications to which I referred should be the minimum to reflect the structural change. Should the new employer wish to change the machinery significantly, he will have to negotiate and he will have to negotiate with the trade unions.

It is the Government's view that the conduct of industrial relations within a dockyard company is a matter for that company—for its managers, its unions and its employees. It must be clear to the noble Lord that the driving thrust behind the introduction of commercial management is the need to free the dockyards from the centralised constraining restrictions of the Civil Service system. To seek to base the industrial relations machinery and policy in statute, as the amendment does, would effectively be a continuation of those restrictions. I believe that there is logic in what I have said. There is a need to negotiate if substantial, change is contemplated, and that is precisely what would take place. But I do not believe that it is necessary to go so far as both noble Lords have suggested.

Lord Graham of Edmonton

We have only asked the Minister to write or to authorise a letter to spell this out. People outside the House can read in Hansard what he said, but we need more than that to satisfy the anxiety of the trade unions.

Lord Mulley

I am sure that my noble friend is aware that when a matter comes before the courts, as all too unhappily industrial relations matters do now, what a Minister says in this House or in another place is of no relevance. The judges are concerned only with the statute as it emanates from Royal Assent. If there is nothing in the statute, what the Minister may say in a letter or on the Floor of the Chamber is of no relevance and no help at all.

Lord Glenarthur

If a letter will make a substantial difference—I cannot believe that it—

Lord Mulley

No, It will not.

Lord Glenarthur

The noble Lord says that it will not. I rather agree with him. What is said here is as much as can be put in a letter. If the noble Lord, Lord Graham, would like to discuss this, I can facilitate an arrangement whereby the terms of such a letter can be discussed. Beyond that, I cannot go.

Lord Graham of Edmonton

I assure the Minister that it is not my intention tonight to press this amendment. But those outside the Chamber advise me that the matter should be taken further. We understand the reality of parliamentary arithmetic and we shall not waste the time of the Committee or do anything which at the end of the day may be counterproductive. A sensible atmosphere has pervaded the Committee this evening. We wish to demonstrate that we are as full of good intentions as is the Minister. I accept his offer that, so far as he can—and I realise there are limits to how far he can go—he will attempt to satisfy the worries of those outside the Chamber by a letter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Trefgarne moved Amendment No. 14:

Page 2, line 19, leave out subsection (4) and insert— ("(4) The Transfer of Undertakings (Protection of Employment) Regulations 1981 shall apply to the transfer of the dockyard undertaking or any part of it whether or not, apart from this provision, the undertaking would be treated as an undertaking in the nature of a commercial venture for the purposes of those Regulations, and, for those purposes, the services of the qualified dockyard service employees without more shall be treated as a part of that undertaking capable of being transferred as a business whether or not the company which is to become their employer also provides designated dockyard services.").

The noble Lord said: Earlier when we discussed the applicability of the Transfer of Undertakings (Protection of Employment) Regulations 1981, the noble and learned Lord, Lord Denning, indicated that he was not entirely happy that they were applicable as they stood. I am bound to say that the Government do not share that view, but I accept that there is room for more than one respectable view on the matter. In order to assuage his anxieties and I dare say those of others, I agreed to bring forward this amendment to put the matter beyond any possible doubt. I beg to move.

Lord Denning

In view of our previous discussion we are, I hope, in future to deal with one company and not two. In those circumstances, although I do not object to the principle underlying the amendment it will have to be varied. The words, the services of the qualified dockyard service employees without more still bring in the concept of two companies, one for the employees and the other for the assets. I do not object to the motive underlying the amendment. I hope that it will be amended accordingly so as to deal with what I hope will be the new situation of one company.

Lord Mulley

Can the Minister give us a firm undertaking now that he is to introduce amendments for one company only? That will facilitate our consideration of what we might wish to put down at the next stage of the Bill.

Lord Trefgarne

I have not yet given that assurance in terms, but I have said that I am attracted to the argument deployed by the noble and learned Lord. I need still to overcome one or two difficulties before we can proceed in that way, but I hope to be able to do that, and I shall certainly want to do so in consultation with the noble and learned Lord.

Lord Mulley

We have great faith in the Minister's ability to overcome such difficulties. He seems to have his mind and heart set in the right direction, and I am sure that he will get there in the end.

The Earl of Selkirk

The amendment seems particularly to satisfy the noble and learned Lord, but one aspect is not mentioned. What about the Royal Corps of Naval Constructors? Where do they stand in all this? They serve the Ministry of Defence; they serve in Bath, in the dockyards and sometimes at sea. Will they be transferred if they have an appointment in the dockyards; or how do they stand? They are probably the most highly educated people as a body in this country. They are the core of the naval constructors. They are where the bases work from. Where do they stand? Neither the Bill nor anything else mentions them. Can the noble Lord tell us something about them?

Lord Trefgarne

The Bill says nothing about them because they are in no way affected by it.

The Earl of Selkirk

May I ask what that means? Does it mean that if they are working in the dockyards they will be transferred or that they are excepted from transfer? I think that we really ought to know that.

Lord Trefgarne

The Royal Corps of Naval Constructors are civil servants and they are not affected by the Bill.

The Earl of Selkirk

The dockyard workers, of course, are also civil servants.

Lord Trefgarne

They are affected.

Lord Denning

May I suggest a way out? Why not at the moment withdraw Amendments Nos. 14 and 15 and let appropriate new amendments be put in when we are considering the new set-up?

Lord Trefgarne

If the Committee is content, I should prefer the amendment to be agreed to as is proposed. I recognise that it may need changing, but at least I shall have something in the Bill which gets us a little way down the road.

Lord Denning

Very well; I shall not object furthes.

On Question, amendment agreed to.

Lord Denning moved Amendment No. 15:

Page 2, line 19, leave out subsection (4) and insert— ("(4) The provision of European Community Law contained in Council Directive 77/187 shall apply to the transfer of the dockyard undertaking to another company; and shall take precedence over any regulation or enactment which fails to implement the Directive correctly.")

The noble and learned Lord said: In view of what the Minister said, I should rather like this amendment to go in too, because I am only stating in it what is the law of the land: The provision of European Community Law contained in Council Directive 77/187 shall apply to the transfer of the dockyard undertaking to another company; and shall take precedence over any regulation or enactment which fails to implement the Directive correctly". That is simply a statement of the law as I understand it to be. If the Minister is going on with his Amendment No. 14, I should like to go on with my Amendment No. 15 for the time being until we see the new procedure. I beg to move.

Lord Trefgarne

To be truthful, I am not fully briefed to counter the amendment of the noble and learned Lord. I am therefore inclined to suggest that, the Committee having accepted my amendment, it ought to accept that of the noble and learned Lord, but with the same proviso as he attached to mine: namely, that we may need to change it.

Lord Denning

That is a very acceptable solution.

Lord Mulley

The amendment underlines the point that I was trying to put earlier: it puts industrial relations in the dockyards in the lap of the courts because only the courts can decide whether this or that was done correctly.

Lord Trefgarne

I have not for a moment indicated satisfaction with the amendment moved by the noble and learned Lord, but in the interests of harmony and in sweetness and light I thought that the best thing to do at this stage was to agree with what the noble and learned Lord proposed with the proviso that we may well have to look at it again when we get to the next stage, in the light of whatever other arrangements we may then propose.

Lord Denning

I quite agree.

On Question, amendment agreed to.

8.30 p.m.

Lord Graham of Edmonton moved Amendment No. 16:

Page 2, line 26, at end insert ("and all employees of the company or any future company shall be employed on terms and conditions no less favourable than those applicable to the civil service of the Crown.").

The noble Lord said: The noble Lord the Minister may feel that this amendment is unnecessary because the Government are full of good intentions. The Bill is short on clauses and subsections but it is full of good intentions. The purpose of the amendment is to seek to ensure that the terms and conditions of service of dockyard employees are not worsened as a result of privatisation.

The noble Lord the Minister has already pointed out that once the Government disappear as a direct negotiator with dockyard workers, terms and conditions of service are matters for discussion and determination between the employer—the contractor—and the employee—the trade unions. TUPE '81 will apply only on vesting day. As the noble Lord has pointed out, after vesting day we are into a new ball game. The trade unions and the workforce want some guarantees from the Government that they will not be at the contractors' mercy.

If the Committee trusts the contractors to be good employers, nine times out of ten it will be right. If a contractor in the Royal dockyards once gets it wrong we may be in serious difficulties. We are talking about pay, overtime, shift work payments, the age of retirement, travel and subsistence payments, leave and holiday entitlements, working hours and recruitment, promotion and appointment procedures. The trade unions see all those things as part of what is categorised as "terms and conditions".

We want to hear from the Minister how he sees the future after vesting day for the people who serve him, the dockyards and the nation so well. It has been suggested that TUPE 1981 may not be applicable on the changeover of a contract. The main criteria for deciding which company is to win a new contract will be the lowest pay and the fewest employees, or possibly both.

The amendment is necessary to set a minimum level for conditions of service in that respect. These are the genuine and heartfelt worries of a group of people who are realists. In Plymouth, where the workforce has suffered catastrophic losses, they need to be. The community has suffered from tens of thousands of people being made unemployed. People are realists, but they are asking their present employers, "Will you try to ensure that after you have gone our pay and conditions are not worsened?" I beg to move.

Lord Glenarthur

Once again, the noble Lord, Lord Graham, has put forward an amendment which he has argued is in the best interests of the workforce and which may, on the face of it, appear to be a proper step to take in the protection of its interests. The Government are well aware of the concerns of the dockyard employees. A major aspect of the apprehension that the employees feel is the future prospects for their terms and conditions of employment—the type of matter to which the noble Lord referred.

I shall briefly outline the position. Under TUPE, the terms and conditions of service which have been built up over the years will not be lost because of the change to commercial management. They will transfer to the new companies with the exception of some terms and conditions, for example, restrictions on political activities specific to Crown service.

On vesting day, the terms and conditions of the new companies will, to all intents and purposes, be those applying immediately before. TUPE also provides for continuity of employment, collective agreements and trade union recognition to transfer to the new employer. The regulations also provide that all employees in employment transfer. The new employer cannot pick and choose whom he wishes to take on. The regulations provide a very real degree of protection for employees and their terms and conditions of service at the time of transfer.

The point has been made that the regulations provide no lasting guarantee or protection of terms and conditions of service. That was very much the thrust of the noble Lord's concern. They do not and, indeed, they are not designed to do so. It would be a strange organisation where the whole basis of the employment contract was subject to an overriding limitation on its development and action, and yet that is what the noble Lord's amendment seeks to do. It does not only place a limitation, it makes that limitation a statutory one.

After vesting day, the dockyards will no longer be part of the Civil Service. It would be absurd to link their terms and conditions of employment to a previous organisation's structure, particularly to one which I believe is unsuitable because it exerts restraints militating against the operation of the organisation and its full potential.

Irrespective of the understandable intentions behind it, the amendment would impose upon the dockyards the self same centralised constraints from which they need to be released. In the new dockyard companies, as in any other, it is for the managers of the company to manage all aspects of their enterprise with the fullest possible responsibility and authority. The amendment would erode and limit that authority—that right to manage—by imposing a statutory link with an organisation of which the company is no longer a part. It cuts across the fundamental tenet of commercial management, and it could be a most rigorous straitjacket upon the new companies which would ultimately work to their disadvantage and to the disadvantage of those who work for them.

I hope that that is helpful to the noble Lord. When he said that TUPE was not applicable for changeover of contract—I think that those were the words he used—

Lord Graham of Edmonton

Yes.

Lord Glenarthur

—he is correct. There is no transfer of undertaking when contracts change and the employer—that is to say, the company—remains the same. I hope that the noble Lord will see the force of that argument and will not press his amendment.

Lord Denning

I should like to endorse all that the noble Lord the Minister has said except that instead of the word "TUPE"—I hate that word—it should be the Community law directive, which comes to the same thing. Whichever it is, the employee's position should be protected as far as possible by the regulations or the directive. We do not need this amendment.

Lord Graham of Edmonton

The noble Lord the Minister rests his case on the right of future management to manage. I have listed the matters upon which the current management has felt it proper to have agreements with the trade unions—pay, overtime, and travel to work. I do not believe that we are contemplating an enhancement of those terms when future management has the right to manage. The right to manage means, if not a licence to reduce, certainly the freedom to reduce. Without the guarantee that I am seeking to put into the Bill, the workers' conditions are worth nothing. I intend to press the amendment.

8.40 p.m.

On Question, Whether the said amendment (No. 16) shall be agreed to?

Their Lordships divided: Contents, 24; Not-Contents, 54.

DIVISION NO. 3
CONTENTS
Airedale, L.	McNair, L.
Barnett, L.	Mayhew, L.
Brockway, L.	Mulley, L.
Brooks of Tremorfa, L.	Nicol, B. [Teller.]
Carmichael of Kelvingrove, L.	Pitt of Hampstead, L.
Crawshaw of Aintree, L.	Prys-Davies, L.
Elwyn-Jones, L.	Seear, B.
Graham of Edmonton, L. [Teller.]	Stewart of Fulham, L.
	Stoddart of Swindon, L.
Hatch of Lusby, L.	Strabolgi, L.
Jeger, B.	Underhill, L.
John-Mackie, L.	Ypres, E.
Kilmarnock, L.

NOT-CONTENTS
Ashbourne, L.	Hailsham of Saint Marylebone, L.
Belstead, L.
Brabazon of Tara, L.	Hooper, B.
Brookes, L.	Lawrence, L.
Brougham and Vaux, L.	Layton, L.
Butterworth, L.	Lindsey and Abingdon, E.
Caithness, E.	Long, V.
Cameron of Lochbroom, L.	Lucas of Chilworth, L.
Cathcart, E.	Lyell, L.
Craigavon, V.	Margadale, L.
Craigmyle, L.	Middleton, L.
Cullen of Ashbourne, L.	Morris, L.
Davidson, V.	Mottistone, L.
Denham, L. [Teller.]	Mountevans, L.
Denning, L.	Mountgarret, V.
Elliot of Harwood, B.	Napier and Ettrick, L.
Elliott of Morpeth, L.	Norrie, L.
Elton, L.	Orkney, E.
Faithfull, B.	Peyton of Yeovil, L.
Ferrers, E.	Rankeillour, L.
Gibson-Watt, L.	Renton, L.
Glenarthur, L.	Saltoun of Abernethy, Ly.
Greenway, L.	Sanderson of Bowden, L.
Grimston of Westbury, L.	Selkirk, E.

Skelmersdale, L.	Vaux of Harrowden, L.
Swinton, E. [Teller.]	Vickers, B.
Trefgarne, L.	Vinson, L.
Trumpington, B.

Resolved in the negative, and amendment disagreed to accordingly.

8.47 p.m.

Baroness Vickers moved Amendment No. 17:

Page 2, line 40, at end insert— ("( ) The power to make an order under subsection (1) above shall not be exercised by the Secretary of State in respect of any dockyard and any services until not less than five years have elapsed from the date on which, in respect of that dockyard and those services, he has concluded the experiment of forming a company under the Companies Acts and conferring on that company powers to operate such services at that dockyard.").

The noble Baroness said: This amendment is designed to delay the introduction of the agency management scheme until the dockyards have been run as plcs for a five-year period. I hope that this would be sufficient time for the Government to realise some of the potential gains of this scheme in terms of improved efficiency, commercial management and accounting practices, and most importantly the increased motivation of the workforce if they were to be offered a share in the new company.

Therefore, this amendment does not seek to change the Bill drastically. It aims purely to allow for the running of the dockyards under a proven commercial scheme before the Government look at their experimental agency management scheme.

The management of the dockyards as Companies Acts companies—plcs—is a proposal which I believe the Government should look at seriously in view of the weight of evidence in favour of it. The amount of support which this proposal attracted at Second Reading from such eminent and noble Lords as the noble and learned Lord, Lord Denning, and the noble and gallant Lord, Lord Hill-Norton, will, I hope, have demonstrated to the Government that the majority of people who have studied the effects of this Bill in detail have concluded that the plc option offers by far the best solution. I beg to move.

Lord Denning

I am sorry in a way that my name appears on the amendment, now that I have read it carefully. Look at the last words. The amendment contemplates the experiment of forming a company and conferring upon that company powers for five years. But that cannot be done until the Secretary of State has made an order. Therefore, the opening words providing that he shall not make an order unless certain conditions are satisfied do not apply in relation to the closing words. I am afraid that the experiment is already provided for in what we have heard. Let there be the licence by the company for the seven years. That is the experiment. I am afraid, therefore, that although my name is attached to the amendment I cannot support it.

Lord Trefgarne

I am afraid that I can only reiterate what the noble and learned Lord has said. This amendment suffers from a fatal flaw. In those circumstances I hope that my noble friend will withdraw it.

Baroness Vickers

I thought that perhaps the other two noble Lords whose names are attached to the amendment might have wished to say something. I now wish to withdraw the amendment. I regret to say that I feel very let down.

Amendment, by leave, withdrawn.

Lord Mayhew moved Amendment No. 18:

Page 2, line 41, leave out from beginning to ("the") in line 43 and insert— ("( ) No order shall be made under subsection (1) above unless a draft of the order has been laid before and approved by a resolution of both Houses of Parliament. ( )").

The noble Lord said: This Bill allows the Secretary of State to do anything he likes with the £700 million worth of public property. He can form an employment company, an operating company, or a single government-owned plc. It is obviously right that Parliament should have another look at the decision of the Government in this field before they act.

We have had a very encouraging series of comments by the Minister about his feelings for the future. We have had the undertakings that he will think very carefully again about having a single company. I believe he said that he will discuss this with the fount of all wisdom—the noble and learned Lord, Lord Denning.

However, as I understand it, according to the Bill, the Minister could have his discussion with the noble and learned Lord and decide on a quite different approach involving a single government-owned company. According to the Bill, he could go off and do it without even informing us—although he is too courteous to do that. But obviously Parliament should have another look at this before the Government act on it. We have therefore put down this amendment for the purpose of saying that no order under the subsection shall have effect until approved by resolution of each House. This seems to me absolutely necessary, normal, and acceptable in the circumstances. I hope that the noble Lord will look favourably at it. I beg to move.

Lord Denning

My name is attached to the next amendment which is on the same lines. This is an important amendment because noble Lords can see what will happen. The Government have to decide which option they will take. In particular, I hope that they will decide on the one-company option, taking a licence for seven years, with the workforce affected accordingly.

There is an important question still to be resolved by the Government: is it to be a government-owned company or an outside, perhaps a very strong, commercial company? The effect on the workforce will be great. One wants a company which will carry the workforce with it. Therefore, before Parliament gives its assent to the option which is exercised, or to the company which will carry out the contract—in other words, before the whole procedure is set in motion—surely Parliament itself, not the Secretary of State, should decide the issue.

I would suggest that it can be reported to Parliament. For instance, the Secretary of State could make a draft order always provided that Parliament has been previously informed of the nature of the project, which would transfer the workforce to the new company. The workforce and Parliament ought to know whether it is to be a government-owned company or whether it is not to be government owned but an outside company. The workforce which is being transferred ought to know, and in those circumstances the information ought to be given to the House before the order is made. I would therefore support both Amendments Nos. 18 and 19.

Lord Graham of Edmonton

I hope that the Minister will accept the sense of what we are trying to say. The methods of procedure followed in this Chamber primarily involve majorities and not necessarily force of argument, and if the Government have got this right and have the parliamentary approval that they need, what we say to the Minister is, "Before you proceed, tell us what you have done with the authority that we have given you". The noble and learned Lord, Lord Denning—as he very often does—perceptively drew attention to one or two areas about which we need to be satisfied. The Secretary of State will then be able to persuade us in presenting the orders that he has faithfully kept to the provisions of the Bill, the undertakings, the contract and so on.

We are saying: treat those who serve in Parliament as parliamentarians with a part to play. We are not simply here to vote something through, but also to approve that which has been done. The Minister may very well say that if every Bill has to come back, every time there is a trigger mechanism, to get approval, it will take a long time. If it takes a long time, it is a question of business management. We are not talking about a tuppeny-ha'penny undertaking. We are talking about the Royal dockyards, thousands of people's employment, and the safety of the nation. We are saying to the Minister, "Come back and let both Houses see what you have done. If what you have done is in accordance with the remit that you have sought, we should imagine that you would get approval".

9 p.m.

Lord Trefgarne

With the Committee's permission I shall speak to Amendments Nos. 18 and 19. These amendments seek to provide that any order made under Clause 1(1) of the Bill should be subject to an affirmative resolution of both Houses of Parliament. It may be helpful to the Committee if I set out what we intend that such an order will contain and why therefore I believe that these two amendments are unnecessary.

We intend that orders—one in respect of each dockyard—will, subject to the Bill receiving Royal Assent, be laid before Parliament in the autumn. These orders will first designate the dockyards to which the arrangements for which this Bill provides will apply; that is, the Royal dockyards at Devonport and Rosyth.

The orders will also designate the services, for or in connection with ships or vessels or related establishments in the service of the Crown", provided at the dockyards. These are the services which we intend will be provided by a company under contract with the Secretary of State. There is no particular mystery about what these services will be. If I may, I shall remind the Committee of a Written Answer given in another place by my right honourable friend the Under-Secretary of State for Defence Procurement on 20th December which set out the main categories of services provided by the dockyards.

My honourable friend listed five main categories as follows: the refit, repair, maintenance and modernisation of Royal Navy vessels; the overhaul and testing of naval equipments including those to be returned to the Director General of Stores and Transport (Navy) for stock and subsequent issue to the Royal Navy; the installation and maintenance of machinery and equipment in naval establishments; the provision of utility services to Royal Navy vessels alongside in the naval base and to adjacent naval shore establishments; and manufacture of some items of ships' equipment. It is our intention that the orders will designate the dockyard services in terms similar to those.

The designation of dockyard services in this way will, by implication, also provide a definition of the "qualified dockyard service employees" to which Clause 1(1) also refers. They are those employed in, or in connection with, the provision by the Crown of designated dockyard services at the dockyard on a particular day, which would be the vesting day, in April 1987.

At this point may I, in parenthesis, correct something which I said to my noble friend Lord Selkirk a few moments ago when he asked about the position of the members of the Royal Corps of Naval Constructors? As I said in answer to my noble friend, generally speaking the members of the corps are not affected by the provisions of this Bill, but it happens that there are a small number of them working in the dockyards, and they will be treated in the same way as other dockyard employees when and if the Bill receives its Royal Assent.

Therefore the message is a very simple one. Although the orders which will be made will be a formal step in the implementation of the policy set out in the Bill, they will contain very little information of which the Committee is not already aware. Therefore it would simply not make sense to provide in the Bill that the orders must be subject to an affirmative resolution of both Houses. These amendments are therefore unnecessary, given the procedures which already exist for noble Lords to consider such orders, and I hope that they will not be pressed.

Lord Mayhew

I think that this is probably a matter to which we can return on Report when we know what the Government's position is. A number of these amendments which we are now discussing have, I think, a slightly hypothetical and academic feel about them. If the noble Lord, Lord Graham, is of the same mind, my feeling would be that we might come back to this on Report.

The Earl of Selkirk

Perhaps I may ask my noble friend one question. In the list of duties of a dockyard he did not mention the construction of ships. In future, is it the intention that dockyards should never construct ships? I am not objecting to it; I am only asking for information.

Lord Trefgarne

I am certainly not aware of any circumstances in which it would be thought appropriate to construct ships in the dockyards. After all, we have a considerable range of naval shipbuilding enterprises, which are more than able and willing to fulfil our requirements in this area. Therefore, without taking further advice, I think the answer is that we have no intention that such a thing should happen.

The Earl of Selkirk

I must express the view that until quite recently ships have been constructed in dockyards.

Lord Mayhew

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Earl Cathcart): I understand that Amendment No. 19 is not moved.

Baroness Vickers

No; I am moving it.

Baroness Vickers had given notice of her intention to move Amendment No. 19:

Page 2, line 41, leave out from beginning to ("House") in line 43 and insert— ("( ) No order under this section shall have effect until approved by a resolution of each").

The noble Baroness said: I hope that I do not get into such trouble as I did over the previous amendment. This amendment seeks to take away from the Secretary of State the choice as to which option the Government decide upon within this Bill.

Lord Trefgarne

I hope that my noble friend will not mind being interrupted, but I said just now that I was replying to both amendments and I had understood it to have been agreed that both Amendments Nos. 18 and 19 would be taken together.

Lord Denning

Yes: I am afraid that I too understood that.

[Amendment No. 19 not moved.]

Lord Denning moved Amendment No. 20:

Page 3, line 3, at end insert— ("( ) Before making an order under this section the Secretary of State shall consult those persons or bodies appearing to him to be representative of those having an interest in the provision of dockyard services.").

The noble and learned Lord said: I just want to say a few words on this amendment. Up to this stage there has been good consultation between the Government, the trade unions and all those concerned. There was an excellent document issued by the Government on consulting them.

On the other hand, one would suggest that before the actual order is made it would be desirable particularly to consult the workforce as to the proposals to make an order, telling the workforce in particular the nature of the company to which they would be compulsorily transferred, the nature of the shareholding which they would have, and so forth, and consulting them about it so as to get their cooperation. It may be that the Secretary of State would do all that without provision in the statute. However, I should be glad if we could be given some assurance that there would be consultations on all material points right up to the time when an order is made. I beg to move.

Lord Glenarthur

As the noble and learned Lord has described, this amendment seeks to require the Secretary of State to consult persons or bodies before making an order under the Bill. No one could argue with the proposition that those involved should be consulted before a change of this significance is introduced—particularly those who work in the organisations affected.

However, as the noble and learned Lord has indicated, this is precisely what has happened since the proposals were announced to change the way in which the Royal Dockyards are managed. Perhaps I may describe in a little detail the consultation which has taken place.

When my right honourable friend the then Secretary of State first announced his intention to introduce new management methods into the dockyards in April last year, a consultative document was issued to the trade unions and to every employee at the dockyards. Also, an open government document was published, available to all. These documents described the three options which the Government were considering—full privatisation, commercial management, the favoured option, and the setting up of a trading fund—and made it clear that the Government invited comments from all those who wished to make their views known.

Three months were set aside for comments to be sent to the Ministry of Defence, and it was only after this period had elapsed that, in the light of the comments received, a final decision was made to proceed with commercial management; that decision was announced in July 1985.

Since that time considerable emphasis has been laid on the need to consult the trade unions in the Ministry of Defence. A number of working groups were constituted to examine specific aspects of commercial management, and when they had reported a comprehensive consultative document was issued on their findings and recommendations. In addition to this, a number of consultative documents have been published on individual issues, including, for example, pensions and staff records; and others are in course of preparation.

We have also consistently offered consultative meetings with the unions. The non-industrial trade unions have talked with MoD management on occasion, but it is a matter of regret to the Government that the industrial unions have repeatedly declined to sit round the table. But even so there has been discussion other than at the central Ministry of Defence level. Management and unions have met at the local Whitley committees in the dockyards at Rosyth and Devonport, and at the Ministry of Defence and Civil Service functional committees in Bath. We have also made sure that information has been given to the workforce. Regular articles have appeared in the dockyard newspapers, and a bulletin is published, available to all dockyard employees, specifically devoted to reporting developments in the move towards commercial management.

I have devoted some time to the detail of the consultative procedures we have followed, and to their substance. But I hope that this has served to illustrate the attention which has been devoted to what I agree is an important aspect of the introduction of commercial management into the dockyards.

The amendment asks us to institute the very practice that we have sought diligently to undertake since the proposals were first set out, and it asks the Secretary of State to consult representatives of (I quote from the amendment), those having an interest in the provision of dockyard services. Who are those who have such an interest? Not, I think, just the unions. But who else is included in the group of those who have an interest in the dockyard services—contractors, the shipbuilding industry, our NATO allies? No. In our open government document, we have sought a broad spectrum of comments, and have taken a considered view on the way ahead for this vital element of the support of the defence effort. That way ahead is management outside the Civil Service.

The Government have sought to consult interested parties throughout this period of transition and will continue to ensure that the workforce is kept informed of progress and that its representatives, the unions, are properly consulted. However, to place on the statute book a specific duty to consult the unions is, as I have described, unnecessary. To extend that duty to an essentially undefined group of interests, which is what would be achieved by this amendment, is, I suggest to the noble and learned Lord, undesirable, and I hope that he will see fit to withdraw his amendment.

Lord Denning

I am very grateful for what the noble Lord the Minister has said. I readily acknowledge that there has been full and good consultation up to this point. I am equally glad of the assurance that this will continue. Good consultation on all material matters which are developing should continue right up to the moment when the order is made, so far as is necessary. So while I withdraw the amendment, I am glad of the assurance which the noble Lord the Minister has given.

Amendment, by leave, withdrawn.

[Amendment No. 21 not moved.]

Clause 1, as amended, agreed to.

Lord Barnett moved Amendment No. 22:

After Clause 1, insert the following new clause:

("Inspection of accounts by Comptroller and Auditor General.

.—(1) Subject to subsection (2) below the accounts of a dockyard contractor shall be open to the inspection of the Comptroller and Auditor General.

(2) Subsection (1) above applies in respect of the accounts of a dockyard contractor only so far as those accounts relate to—

1. (a) the provision of designated dockyard services at a designated dockyard under contract with the Secretary of State; or
2. (b) the employment of the qualified dockyard service employees under section 1 above so as to enable those services to be provided, whether by a company or by the Secretary of State.").

The noble Lord said: I beg to move Amendment No. 22, standing in my name. I am grateful to the noble Baroness, Lady Vickers, and the noble Lord, Lord Mayhew, for adding their names to the amendment.

I should make it clear that, while I speak from the Opposition Dispatch Box, I do so to an amendment which is entirely non-party political, and stems from a recommendation—I do not know why the noble Lord the Minister said "Tsch", or whatever it was he said—from the all-party Public Accounts Committee, on which I had the honour and privilege to serve as chairman for four years. As the Public Accounts Committee has made clear, it is concerned with value for money with which not only the Public Accounts Committee and I myself, but I hope also your Lordship's Committee and indeed the Government, are equally concerned. The fact is that, like the Public Accounts Committee, I make no comment about the government proposals in the Bill as such but refer to the proposed arrangements for the commercial management as set out in the Bill: that is to say that, under present arrangements, while the assets of the Royal dockyard should remain in public ownership, they should be managed by private companies contracting to employ the staff and provide dockyard services.

Under present arrangements, the Comptroller and Auditor General has full access to all the books of account and the costing records of the Royal dockyard. In future, under the terms of the Bill, he will have access, first to the MoD records of contract negotiations and performance; secondly, to MoD records relating to publicly owned assets maintained by the contractors; and thirdly, to the contractors' records relevant to the custody and protection of those assets.

The existing access of the Comptroller and Auditor General and his proposed access flow from his responsibility to audit the appropriation accounts, which, in turn, through Section 6(3)(a) of the National Audit Act, 1983, gives him power to conduct valuefor-money audit under Section 6(1) of the 1983 Act. Access in future will be by agreement with the contractor according to a standard form relating to access to records of publicly owned assets. Under the proposed arrangements the Comptroller and Auditor General would not have access to the commercial managers' books of accounts and costing records. Therefore, he would be unable to provide direct assurance to Parliament on the management and use of resources in the yards, the actual costs of individual refits or the reasons for any cost increases or delays. He would not be able to present to Parliament the type of report he made in 1984 under House of Commons Paper 277 of the 1983–84 on the Control of Dockyard Operations and Manpower which led to the present interest of the Public Accounts Committee in dockyard matters, including the results of the National Audit Office examination of use of labour in the dockyards, control of overtime, productivity, deficiencies in management, control of work, and management information.

Accordingly, my objective in the amendment is to secure power for the Comptroller and Auditor General to inspect the accounts and costing records of any company to which Clause 1 of the Bill applies so that he may be able to report to Parliament on the economy, efficiency and effectiveness with which such a company has used public resources, both capital and current, in the provision of dockyard services, and current resources would include payments made by the Ministry of Defence for work done.

As I understand it, the Ministry of Defence case is that the Comptroller and Auditor General would have access to all the Ministry of Defence records and the contractors' records relevant to the custody and protection of publicly-owned assets. The Ministry of Defence believe—and I am assuming that this is the Government case—that the Comptroller and Auditor General will therefore be able to give Parliament a full assurance. But the all-party Public Accounts Committee take a different view, and it is worth reporting to the Committee just what this all-party committee said. I refer to the 21st Report of Session 1985–86 issued on 21st April, 1986, paragraphs 24, 25 and 26: The Committee, however, look very unfavourably upon access to records at one remove which will make them much more dependent on the Ministry of Defence rather than the original sources of information. We therefore asked the Comptroller and Auditor General what he could do under the current arrangements to provide direct assurance to Parliament on Dockyard operations that he will not be able to do under the commercial management arrangements. He told us that the extent of his assurance would depend very much on the effectiveness of the Ministry of Defence's own monitoring and the extent to which they achieve true competition in fixing prices. In other words, as I said, He would no longer have full access to the books of accounts and costing records of the yards and would therefore not be able to give any direct assurance on the management and use of resources, the actual cost of refits and the reasons for delays or increases in costs. That is the Public Accounts Committee's view. They go on to say: While noting the Ministry of Defence's views based on the analogy of the existing arrangements for access to defence contractors' records, we regard the change to commercial management in the dockyards as creating a new situation which falls far short of privatisation. MoD will retain ownership of the assets and there will be only a limited amount of true competition. We are also not convinced by the Ministry of Defence argument that the Comptroller and Auditor General's access would deter potential contractors from taking further interest in the business because of the prospect of Parliament becoming much more closely involved in the day-to-day details of their operations than is the case now. They go on to say: In this respect, we consider it relevant that in the United States the General Accounting Office, the United States equivalent of the National Audit Office, has for many years had access to defence contractors' records relating to contracts placed without competition. We are not aware that there is any shortage of contractors willing to accept United States Government contracts. It is hardly surprising, as we know.

We come finally to paragraph 26 of the report, where the Public Accounts Committee say: We therefore remain convinced that it is essential for the Comptroller and Auditor General to have access to the contractors' accounts and costing records to provide Parliament with an independent assessment of the success or otherwise of commercial management in securing value for money. We think this could be best achieved by allowing the C and AG access to contractors' books of accounts and costing records so that he can report to Parliament on the economy, efficiency and effectiveness with which public resources, both capital and current, have been used in the provision of Dockyard services. Accordingly, we recommend that the Dockyard Services Bill currently before Parliament should be suitably amended to make provision for the C and AG to inspect the relevant accounts and costing records of any company to which Clause 1 of the Bill applies.

As I understand it, the Bill was brought through rather quickly in the House of Commons and members of the Public Accounts Committee and the chairman did not have an opportunity of moving the amendment I now move this evening. Whether or not that be true, the fact is that what I move tonight has the unanimous support of the all-party Public Accounts Committee. It is clear that the Public Accounts Committee take a very different view from that of the Government. I hope that the Government will not stick to the somewhat rigid and inflexible view that they have taken in the past.

As I said at the outset, this is not a party political matter. I hope that the Committee and the Government will agree with the Public Accounts Committee and that the case of the Public Accounts Committee for this amendment applies whatever the Government do about the company and who controls the company. We are not talking about that kind of matter. We are talking about how Parliament should have proper access through the Comptroller and Auditor General as to whether we, on behalf of the public, are getting full value for money in this particular regard. I hope that the Committee and the Government will accept the amendment. I beg to move.

Lord Trefgarne

The principal aim of this Bill is to introduce commercial practice into the royal dockyards. While your Lordships may have different ideas on how such changes should be made, the common thread which has run through the debates here, in another place and during the consultation phase has been that the dockyards must adopt a more commercial approach. Under our proposals, the management of the dockyards would be procured from the private sector under contract with my right honourable friend, and it would be appropriate in these circumstances for the accounting and auditing arrangements to follow as far as possible those for any other item or service purchased by the Ministry of Defence.

We wish to treat the commercial managers of the dockyards as any other defence contractor. The amendment proposed by the noble Lord, Lord Barnett, would allow the Comptroller and Auditor General—the C and AG, as he is usually known—access to the books and records of the commercial companies managing the dockyards, and any information which he obtained as a result presumably would be used as the basis of a report to Parliament.

This would be an entirely new departure in terms of the relationship between the Government and their contractors, and is one to which the Government are firmly opposed. The C and AG does not normally have access to the books and records of Government contractors but relies on the information he is able to obtain from his examination of the books and records of the relevant Government department. In the view of the Government, access by the C and AG to the books and records of contractors would have a deterrent effect on those contractors, who would face the possiblity of Parliament inquiring into matters which the company would regard as entirely its own commercial concern. Such an arrangement would be wholly inconsistent with the introduction of commercial practices.

The Government recognise the concern expressed by the Public Accounts Committee in their 21st Report, but we do not agree that effective accountability to Parliament requires access by the C and AG to the books of the commercial managers of the dockyards. The Ministry of Defence will need for its own planning and monitoring purposes to obtain information about the commercial managers' performance. For example, my department's files will contain details of contracts left with the dockyards, including full information on pricing for all noncompetitive work.

Our files will also contain full information about Ministry of Defence assets used by the dockyards and information obtained from the commercial managers about their stores accounts. The C and AG will have full access to all this information through his inspection of the Ministry of Defence files, which will contain as much, if no more, information about the dockyards as about any other defence contractor. He will be able to examine everything for which the Ministry of Defence will be accountable, including the effectiveness of the Ministry's own monitoring arrangements. But this does not extend to examination of the contractors' pursuit of their own and their shareholders' interests in their contract with the Ministry of Defence. Nor should it.

In conclusion, I must emphasise that the whole point of this Bill is to change the nature of dockyard management. As part of the change, arrangements for the Comptroller and Auditor General's access will change from those which are appropriate for Ministry of Defence management to those which are appropriate for private sector management in a contractual relationship with the MoD. This does not mean secondhand, second-class access: it simply means the same access as in the case of any other defence contractor. The CAG will continue to have access to my department's files and these will contain detailed information about the use of Ministry of Defence assets and the pricing of non-competitive contracts in which the Public Accounts Committee has expressed particular interest. In the light of those considerations I hope that the noble Lord will not wish to press his amendment.

Lord Mayhew

The noble Lord has assumed, as did the noble Lord, Lord Barnett, that the Government were going to proceed in the manner in which they have so far intended to proceed; namely, by offering contracts to a commercial manager to manage the dockyards. I am not sure that I was wholly with the noble Lord, Lord Barnett, when he said that the complaints which he very justly advanced in respect of the arrangements for public supervision of a management company would not need to be different for, in the case of a single company, a single government-owned company. I think in fact they would be different. Nevertheless, the argument so far has been on the basis of the need for CAG supervision of a management agency with a contract with the MoD.

Here I was not persuaded by the Minister. I do not think it is right to say that the arrangements should be the same as for any other defence contractor because we are in a quite different situation with huge amounts of public property being used—£700 million worth of assets. It is not just the same as public accountability for any other defence contractor. The Minister is at odds here with both the Comptroller and Auditor General and the Public Accounts Committee. I do not need to quote all of it, but the CAG complains as follows: I would have access only to the details of performance on individual contracts and to records of publicly-owned assets which DGSR will maintain. I should not, however, have access to the contractor's books of account and costing records, as suggested by the Committee". I do not see why the Minister should not accede to the very reasonable requests of the Public Accounts Committee, the Comptroller and Auditor General and of all three Opposition parties in the Committee. It seems to be a reasonable request and I think he should accept the amendment.

Lord Mulley

I, too, was surprised by the Minister's response. I should have thought that in any event the situation will be changed if, as we hope and believe, we are going to have one company instead of two. But apart from that consideration—if I may have the Minister's attention—I should like to put to him the proposition that the defence of the realm, the support for the Royal Navy, is a rather more important matter than following the normal commercial accountancy practices of the private sector, not least because this is a unique case where the Government are providing and financing all the assets by means of which the services are to be provided. Certainly, if there is going to be one company, maybe the whole situation in any case will be changed, and if the Government have a holding in it, the Comptroller and Auditor General will have access to the company records where the Government hold a majority shareholding, as we understand may be the case when the Minister brings forward his new amendments.

I would ask in any event, even if he can go no further tonight, that at least before taking on board a total opposition to the all-party Public Accounts Committee, the Comptroller and Auditor General and, I suspect, a large body of opinion in this Committee, the noble Lord the Minister will give an undertaking that he will consider the whole of this question again.

Lord Barnett

I must say, to put it mildly, that I was somewhat disappointed at the Minister's reply, I thought I had already quoted extensively, in advance, what he was going to say. I had not seen his brief. It is rather a pity that he then proceeded to read it out after I quoted what I expected him to say, and then quoted the Public Accounts Committee response at the time. The Minister talked about introducing commercial practice and said that it would therefore be wrong to accept this amendment. But I made it absolutely crystal clear that neither I, nor, I imagine, the noble Lord and the noble Baroness who supported my amendment, in any way wanted to do anything about the principle of the Government's Bill in relation to commercial practice.

We were not talking about that. We were talking about the whole question of whether on an important matter like this, where a major and substantial all-party Committee in another place has recommended unanimously that there should be access by the Comptroller and Auditor General, in the interests of value for money, effectiveness and economy in this important field, that should be acceptable to the Government.

The Minister said here this evening that the C and AG would not normally have access, but, with the greatest possible respect to the Minister, this is not a normal situation. Whether or not you have a single company with majority interests or minority interests, the principle involved here is that Parliament, through the Comptroller and Auditor General and the Public Accounts Committee, should be able to obtain satisfactory assurances as to whether there is value for money, economy and efficiency in this vital area. That is all that is being asked. It has nothing to do with whether or not the commercial practice should apply as the Bill wants it to do.

Indeed, I quoted from the Public Accounts Committee's report that stated that in the United States, the General Accounting Office—and there is no better example of a country where they are concerned with best commercial practice—the equivalent of the Comptroller and Auditor General has for many years had access to the records of contracts placed without competition, and in no way did that affect contractors applying for contracts. In no way did it inhibit anybody in the private sector from applying to obtain contracts in the best commercial practice.

So I am very surprised that the Minister read his brief without throwing it out himself. But, as he was not prepared to throw it out, whatever the situation in relation to a company—whether the Government in due course have a majority or a minority interest—if the Committee accepts the principle of this amendment, as I hope it will, then, whatever happens hereafter, the Government will be compelled to accept the important recommendations of the Public Accounts Committee, and there will be proper access for the Comptroller and Auditor General so that Parliament can properly assess with confidence and give a proper assurance. Therefore, in no way would I wish to withdraw this amendment.

9.33 p.m.

On Question, Whether the said amendment (No. 22) shall be agreed to?

Their Lordships divided: Contents, 18; Not-Contents, 37.

DIVISION NO. 4
CONTENTS
Airedale, L.	McNair, L.
Barnett, L.	Mayhew, L.
Brockway, L.	Mulley, L.
Crawshaw of Aintree, L.	Pitt of Hampstead, L.
Dean of Beswick, L. [Teller.]	Prys-Davies, L.
Denning, L.	Stoddart of Swindon, L. [Teller.]
Elwyn-Jones, L.
Graham of Edmonton, L.	White, B.
Greenway, L.	Ypres, E.
Houghton of Sowerby, L.

NOT-CONTENTS
Belstead, L.	Hooper, B.
Brabazon of Tara, L.	Layton, L.
Brougham and Vaux, L.	Lindsey and Abingdon, E.
Butterworth, L.	Long, V.
Caithness, E.	Lucas of Chilworth, L.
Cameron of Lochbroom, L.	Lyell, L.
Cathcart, E.	Margadale, L.
Craigavon, V.	Morris, L.
Craigmyle, L.	Mountgarret, V.
Cullen of Ashbourne, L.	Peyton of Yeovil, L.
Davidson, V.	Renton, L.
Denham, L. [Teller.]	Saltoun of Abernethy, Ly.
Elliot of Harwood, B.	Selkirk, E.
Elliott of Morpeth, L.	Skelmersdale, L.
Elton, L.	Swinton, E. [Teller.]
Ferrers, E.	Trefgarne, L.
Gibson-Watt, L.	Trumpington, B.
Glenarthur, L.	Vaux of Harrowden, L.
Grimston of Westbury, L.

Resolved in the negative, and amendment disagreed to accordingly.

9.41 p.m.

Lord Denning moved Amendment No. 23:

After Clause 1, insert the following new clause:

("Annual balance sheet etc.

.—(1) Every company which in any financial year provides any of the designated dockyard services shall prepare the documents mentioned in subsection (2) below not later than 30th September in the financial year following that year.

(2) The documents are—

1. (a) a balance sheet;
2. (b) a revenue account;
3. (c) a statement of rate of return.

(3) The balance sheet must show a true and fair view of the state of affairs of the company at the end of the financial year to which it relates, in respect of designated dockyard services provided by them in that year.

(4) A revenue account must show a true and fair view of the financial result of the company having undertaken, in the financial year to which it relates, each description of designated dockyard services to which it relates.

(5) A statement of rate of return must give such information as is necessary to show whether, in respect of the financial year to which it relates, the company have complied with section (Rate of return) below.").

The noble and learned Lord said: Perhaps I may speak also to Amendments Nos. 24 and 25. The object of all the amendments is to secure annual returns and that the contractors do not make too much money out of the Government during the experimental period.

I will give the Committee an illustration. Seventy per cent. of the work that is to be done in the dockyard is what is called the core programme, which the navy is bound to give to the dockyard, whatever may be the price, for the repair and refitting of ships. So although they may pass accounts as between customer and supplier, there is no competition. The navy must have 70 per cent. of the work done at the price stipulated by the contractor. There is then the other 30 per cent. of the work, which may be competed for outside.

Just think of the temptation on those contractors when they are making out their returns. They have to pay £23 million a year in licence fees. They may say, "It is easy to get that back, by charging the navy for the core contract. We will get all that licence fee repaid by the navy or the Ministry out of the core contract. We will then make our profit by undercutting the others on the 30 per cent. of the work for which they can tender".

I suggest that in order to secure that the navy or the Ministry does not pay too much during the experimental period, it would be an excellent arrangement to have annual returns showing the balance sheet and the rate of return, which will reveal to the Ministry exactly what is happening and ensure the the navy is not paying too much for its core programme. That is my submission: during an experimental period, why not have annual returns? I beg to move.

Baroness Vickers

I support the noble and learned Lord with regard to these amendments. They are intended to enforce open book accounting procedures on the agency management company. It is common practice for nationalised industries and direct labour organisations to produce an annual balance sheet, a revenue account, and a statement of a rate of return. It is essential that that rate of return should be positive when compared with the capital employed for carrying out the work at the dockyards. It is only by allowing public scrutiny of the agency manager's accounts that Parliament will be able to judge the success of the experimental scheme.

Lord Trefgarne

These three clauses are somewhat lengthy and detailed. I am not sure whether their wording owes its existence to some other Bill or whether it has been tailor-made for this particular one. Whatever it may be, I believe they are largely unnecessary. Whatever type of company is set up by my right honourable friend the Secretary of State, it would be under the authority of Clause 1(3) of this Bill; and as the Committee will see, the word "company" in this context is defined in Clause 1(8) as, a company formed under the Companies Acts". The Companies Acts require all companies to provide financial information of the kind covered in the first of these three new clauses, though not in the specific form in which the first (or the third) new clause suggests. If the Companies Acts are proper for all other Companies Acts companies (many of which are engaged in defence work just as vital for our security as the dockyards) they should similarly be good for the companies managing the dockyards. That is, I believe, a fundamental objection to the greater part of these new clauses.

It goes without saying that my department will be negotiating contracts for individual ship refits or repair work which are as advantageous to the taxpayer as possible. For much of the non-competitive work my department will, as I said earlier in connection with another amendment, have access to the accounts of the contractor, and profit margins and rates of return will be known. And what is known to my department will be known to Parliament—either by virtue of the Comptroller and Auditor General or through the medium of an annual report which will be produced by my department on the previous year's dealings with the various ship refit and repair companies. For noncompetitive contracts, there are agreed profit formulae.

My other concern relates to the second of this group of new clauses, which provides that companies providing designated dockyard services shall secure from those services whatever positive rate of return is set by the Secretary of State. Again, I have to return to the question of a commercial approach. It would be most unusual for the Secretary of State to prescribe a rate of return on what would be a private company's operations. While it may well be reasonable in certain circumstances for the rate of return of a company to be based, as it were, on capital employed, that would not be particularly appropriate for the dockyards, where the Government will retain ownership of the assets with the contractor using them under licence.

Finally on this group of new clauses I should say that even if for any reason the Government decided to adopt their fall-back option of a Government-owned plc at each or either dockyard, these new clauses would still not be relevant because we would still replicate a commercial contractor as closely as possible. Any controls and targets set for the Government-owned plc would be drawn up in the form of a memorandum of understanding between the Secretary of State and the chairman of the Government-owned plc.

These are complicated issues. I have tried to set out what I see as fundamental objections to the provisions of these new clauses. I hope that in the light of what I have said the noble and learned Lord, Lord Denning, my noble friend Lady Vickers and other noble Lords will agree that these new clauses should not be pressed.

Lord Denning

I thank the Minister for his explanation. In the circumstances, I will not press the amendment any further.

The Earl of Selkirk

May I ask one question? My noble friend the Minister used two phrases. He referred to "private company" and to "public limited company". The returns from these two types of company are very different indeed. The publicity for the accounts of a public limited company is much wider than for a private company. Does my noble friend intend that it should be a public limited company or a private company?

Lord Trefgarne

If we are speaking about the contractor it depends on which contractor is sucessful in the competition and is awarded the contract. I would expect it to be a plc, a public limited company, but I could not rule out the possibility that it might not be.

Lord Denning

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 24 and 25 not moved.]

Clause 2 [Provisions as regards premises used for transferred services]:

[Amendment No. 26 not moved.]

Clause 2 agreed to.

9.45 p.m.

Lord Graham of Edmonton moved Amendment No. 27:

After Clause 2, insert the following new clause:

("Pension Rights

. Where in pursuance of the arrangements made under section 1(2) above a qualified dockyard service employee ceases to be employed in the civil service of the Crown and becomes employed by a company, all pension arrangements made by such a company shall be equivalent in all respects to such pension arrangements as applied in the civil service of the Crown and shall be applicable to all dockyard company employees.")

The noble Lord said: The Committee will be aware of the anxieties which are in the minds of employees in the dockyards and which we have sought to put before the Committee. None of these can be better illustrated than in the question of pension rights. The purpose of this amendment is to ensure that dockyard employees who are compulsorily transferred from the Civil Service to the new dockyard companies will have pension benefits which are no less favourable than those that are provided under the principal Civil Service pension scheme. We want to see this matter enshrined in the Bill itself.

Some two years ago we had the experience of the ROF Bill, when the Minister and I had long tussles. Far from satisfactory situations have arisen. For instance, when these matters were debated in relation to the Royal Ordnance factories, somewhat substantially along these lines, we were told that the employees would be offered the same benefits as in the Civil Service and that they would not suffer any detriment. I now understand that the Government admit that they will suffer some detriment. I am told that an ex gratia payment of £100 per man has been mentioned. I appreciate that the Minister may need some advice on this point which has now emerged. I simply ask him and his advisers to take on board the experience of the trade unions which look after civil servants in the dockyards. They are the same trade unions as those which look after their members in the Royal Ordnance factories, and they will have some very unhappy memories and experiences to guide them when they come to this situation.

The Minister needs to say a great deal more about how TUPE 1981 will be applicable here, because I understand that it does not apply to pensions. We already have our queries about the exact weight and worth of TUPE 1981, but I shall not raise that matter at the moment. However, if in fact TUPE 1981 does not apply to pensions and that is the position, I think we are entitled to some answers from the Minister. The Minister said that there will be a separate new entrants scheme in the dockyard companies. The intention is to set up an inferior pension scheme for new recruits. The trade unions which will be representing all dockyard employees after privatisation strongly oppose the notion of two pension schemes for staff who will largely have the same terms and conditions of employment and who will be working alongside each other and doing the same work.

We also think that it is of crucial importance to ensure that the pensions of those who will retire after privatisation are protected. The means of doing so is through application of the index linking provisions of the 1971 Pensions (Increase) Act. The 1971 Act, which was introduced with all-party support, applies to a wide range of public sector employees: police, the armed forces, teachers, nurses, judges and, indeed, Members of Parliament. We do not want two standards. Certainly we do not want to deny the same benefits to employees of the Crown—which is what dockyard workers are—or to give them benefits inferior to those that are enjoyed by Members of Parliament, for instance.

I very much hope that the Minister will be able to accept the amendment, or at least be able to satisfy those outside the Chamber that there is a parity guarantee for the new pension rights. Otherwise the people affected will lose out, and we do not want anyone to feel that he has lost out.

We are talking about hard-working and comparatively low-paid people, for whom I think a pension figures large. We are all concerned about our pension entitlement, but the pension rights of people at that level of income and standard of living are more important than they may be to others. If the Minister is concerned that the changeover, however and whenever it comes, is in the best spirit, he needs to apply himself to the worries that the workers have about protecting their pension rights. I beg to move.

Lord Crawshaw of Aintree

I have here Annexe 6/3 which deals with pensions and there are one or two questions that I should like the Minister to answer when he replies. Two schemes are to be set up. I take it that one is to deal with the civil servants who are transferring, and that will be funded. I also take it that people who come into the employment subsequently will be funded by themselves and by the company. But I am a little confused by paragraph 13: Terms of Scheme for New Entrants". I rather thought that they would be completely different—different scales and all the rest—but the provision reads: The terms of the New Entrant scheme shall be consistent as far as possible with those of other employees of the Contractor". If that is so, I cannot quite understand why we have two schemes. Are we setting up two schemes, one inferior to the other, as my noble friend indicated? That provision seems to suggest that anybody coming into the scheme the day after vesting day will have the same terms as the other employees of the contractor. At that stage the other employees would be funded for what they had already paid into the pension fund and that would be transferred into the new fund. That is the first question.

My second question is also about index linking. I also want to know whether index linking will apply to those who retire after the transfer. My other question is this. What is the situation if there is a default by the employer on funding the pension scheme? That can happen, but we are dealing with people who are being severed from their employment and in ordinary circumstances they would have been paid redundancy or something else. But they are not getting that. It is therefore most important to ensure that if an employer defaults, that money is made up. If it is not, it will be an injustice to the people who had served previously and were being transferred to the new company. I cannot keep going any longer; I think that the answers are arriving.

Lord Glenarthur

The proposed new clause seeks to link the pension arrangements for the new companies permanently to the Principal Civil Service Pension Scheme. Let me make the position on pensions quite clear. Employees who transfer into the new companies will on vesting day no longer be civil servants and so will have to leave the Principal Civil Service Pension Scheme, which I think that the noble Lord, Lord Crawshaw, understands.

As was the case in the privatisation of the ROFs, the Government have undertaken to set up pension schemes for employees transferring from the dockyards which replicate as closely as possible the provisions of the Principal Civil Service Pension Scheme. That means that the schemes—and there will be one for each dockyard—will have the same retirement age, benefit calculation and index linking as the PCSPS.

As is common practice in the private sector, the funds will be managed by boards of trustees with representatives from the company and the employees and also a government nominee. The board of trustees will have the responsibility for managing the fund and will make desisions about investment policy, benefits and the rules of the scheme.

The new clause seeks to cut across the duties of the trustees by placing upon them a statutory requirement to keep the benefits of the schemes at a certain level. That is not compatible with a private sector pension scheme nor with the Government's intention to allow the dockyard companies to function as independent commercial organisations. No one should think that we do not recognise the need to make provision for the pension arrangements of the dockyard workforce. We intend to see that the pension schemes are set up with funding arrangements that are sufficient to meet their liabilities, but we do not propose, as we did not with the Royal Ordnance plc, to guarantee or underwrite their funds. We intend that they should be run in the same way as other private sector funds.

The noble Lord, Lord Graham of Edmonton, asked about the f100 figure. That offer of an ex gratia payment does not imply detriment. It is—and the unions are well aware of this—a sum in recognition of a remote risk. We do not accept that there is detriment in the Royal Ordnance plc scheme.

If I may expand a little for the noble Lord, Lord Crawshaw of Aintree, I would say that there will be four schemes. There will be two at each yard—one for transferred ex-civil servants and one for new entrants. I hope that that clarifies the point for the noble Lord. The transferred scheme will be index-linked in the same way as is the PCSPS. I hope that that is a measure of reassurance for him.

We are convinced that the dockyards should be properly run as private sector companies outside the Civil Service. Maintaining links with the Civil Service in the explicit manner that the amendment tries to do would run entirely counter to that intention. I cannot therefore accept the new clause. I hope that the noble Lord will see fit to withdraw it.

10 p.m.

Lord Graham of Edmonton

I intend to withdraw the amendment. Will the noble Lord the Minister confirm the point made by the noble Lord, Lord Crawshaw, and myself: there will be two different forms of pension scheme, one superior and one inferior? New employees will be members of a fund which is different from that of those who have transferred. If that is to be the position, one assumes that people making the same contributions, doing the same work, and having the same skills will receive different pensions because they are members of two different funds.

We received an assurance two years ago about the Royal Ordnance factories. It was not a guarantee, but a "no detriment" assurance. It resulted in a payment of £100, which was called a "remote risk" payment. The noble Lord the Minister may use whatever terms he likes, but the people who are affected see it as an attempt to make up a shortfall from that about which the noble Lord and his colleagues gave an assurance. It was not a cast-iron assurance, but they said there would be no detriment. I should like the noble Lord's observations on those two points.

Lord Glenarthur

Obviously those workers who join later cannot join under the original scheme; it would not be feasible for them to do so. The employees transferring will, as I have said, have to leave the PCSPS. They will have the option, in the way that I have described, of leaving their accrued pensions in the PCSPS or transferring them to the new scheme in their dockyard. For those who choose the latter course, a transfer payment covering past service will be made from the PCSPS into the new scheme. Thereafter, those schemes will be funded by contributions, probably jointly, from employer and employee.

The overall intention is that the schemes will be set up with rules and benefits as close as possible to the PCSPS with an initial transfer value and a contribution rate sufficient to meet the liabilities placed upon them. Thereafter, the management of the scheme, in the way that I have described, will, as is the case generally in the private sector, be for the trustees. It is they who will be responsible for the investment policies, the benefits, the rules and all that type of thing. I do not believe that the noble Lord need have a concern about that. There are those who will join after. They will be as closely allied to the PCSPS as is possible. I hope that that will meet his concern.

Lord Graham of Edmonton

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Graham of Edmonton moved Amendment No. 28:

After Clause 2, insert the following new clause:

("Redundancy fund.

. In pursuance of the arrangements made under section 1(2) above the Secretary of State shall ensure that the redundancy provisions applicable to all employees of any dockyard company shall be equivalent to those presently embodied in the Principal Civil Service Pension Scheme and will set up out of moneys provided by Parliament a redundancy fund for the benefit of all qualified dockyard employees declared redundant after the transfer of the dockyard undertaking.")

The noble Lord said: This amendment deals with the arrangements for redundancy. The Minister who dealt with these matters in another place, Mr. Norman Lamont, said on 8th April that, the overall intention will be to set up a scheme paying redundancy benefits either exactly the same or of equivalent value, and reckonable service accrued under the Crown will not be lost".—[Official Report, Commons 8/4/86, col. 106.]

The amendment seeks to enshrine the assurance of the Minister in the Bill. Ministers have repeatedly said that they want to introduce risk pricing for contracts to refit warships in the dockyards. This must mean that the dockyard companies could get into financial difficulties. The Minister and his advisers can confirm what I have been told—that the redundancy fund set up in the Royal Ordnance factories is now bankrupt. The fund cannot afford to make non-industrial workers redundant. To the extent that one wishes to see people kept in work, that is fine. The redundancy option these days is a fact of life. So if in the overall package of a sale to the workforce there is a redundancy option, dockyard workers want to know exactly what it is. I shall be glad therefore if the Minister will confirm what has happened in the case of the ROF's. Frankly, we cannot ignore what has happened. There is so much from which we can gain experience.

The Ministry of Defence has also given evidence to the Public Accounts Committee suggesting a further reduction in the number of dockyard employees following privatisation. Without a guarantee in the Bill, it is possible that redundancy compensation would be at reduced levels. We know from discussion on the Wages Bill, in which some of us took part last Friday and therefore know all about, that the Government are not beyond making alterations to redundancy payments. In that instance, they took away the contribution by the Government to a percentage of the amount and left this to employers. There are rights, but there is no underwritten sum of money from the Government.

The dockyard workers are saying that they need better assurances. Without those, there is little that they can do except scream blue murder and get Members of your Lordships' House to make a nuisance of themselves with the Minister. We are not unmindful of the limits of our powers. If, however, the Minister wants satisfactory industrial relations in the dockyards, he needs to deal with this point.

The crucial factor is the ability of the contractor to pay redundancy compensation at present levels. I would be glad if the Minister can tell us how he proposes, in a long list of things that he says the contractor will have to do, to get the contractor to take on his obligations as a fair-minded employer in respect of redundancy. I beg to move.

Lord Crawshaw of Aintree

In supporting the noble Lord, I shall be brief. We shall be dealing with people, for the most part, who have been transferred from one undertaking to another and who, in ordinary circumstances, would possibly have been entitled to redundancy payment. Having regard to the fact that they will not be getting redundancy payment, I think it behoves this Committee to make sure that if they require that redundancy payment at any future time the funds will be there to meet it. We know that it will be a cut price business running these dockyards. It is a commercial enterprise, and people can lose money. The situation may well arise where redundancy payments have to be reduced. I think that would be iniquitous, particularly in respect of those who at the present time would be guaranteed those redundancy payments if they were made redundant.

Lord Glenarthur

Of all the changes facing the workforce, the Government are certainly aware that the question of redundancy arrangements figures prominently as a matter of concern for them. Before turning to the question of funding, let me set out the position regarding the redundancy arrangements in the new companies. Under the TUPE regulations the Ministry of Defence redundancy procedures will transfer to the new company. These cover such matters as periods of notice, orders of discharge, and so on, although there will have to be some changes —for instance, in respect of the field of redundancy—to reflect the fact that the companies are separate entities outside the Civil Service.

The invitation to tender refers to the procedures, to their transfer, and sets out the Ministry of Defence manuals in which those procedures are contained. The invitation to tender also makes it clear that the company will have to pay redundancy compensation which is of at least equivalent value to that payable under the present Civil Service arrangements. Any changes that the contractor might wish to make will have to be in consultation with the unions. The prospective contractors are in no doubt about their obligations in this matter. There will need to be changes in the funding arrangements. Currently the Civil Service redundancy scheme is embodied in the Principal Civil Service Pensions Scheme. Inland Revenue regulations prohibit the payment of redundancy compensation from private pension schemes. Therefore, as is the case in the private sector, redundancy payments in the new companies will have to be made from company funds to any staff made redundant after vesting day.

It is the Government's intention that the dockyard companies should behave as fully commercial organisations, as has been made clear on many occasions. But they should be subject as far as possible to the full range of commercial disciplines. In considering, therefore, the need for any redundancies they should assess and balance the costs of savings and incorporate these projections in their business planning.

The noble Lord, Lord Graham, referred to what he called the Royal Ordnance factories' redundancy funds. There was, and there is, no redundancy fund for our Royal Ordnance plc. The company was capitalised to take account of its forecast liabilities and assets, and redundancies paid from revenue was a factor included in this assessment. The same kind of thing would apply to those companies which may at the end of the day be responsible for the dockyards. That would also be taken into account in assessment of the tenders.

The costs to which I referred will be included as overhead charges in their price to the customers, and hence to the Ministry of Defence. But it is essential that the assessment of any future redundancies is carried out on commercial grounds against the background of their overall business plan. For this reason I cannot agree that the new clause is appropriate. First, it attempts to bind the redundancy arrangements in the new companies statutorily to those of the Civil Service. This is another example of a measure which would restrict the responsibility of the new management to manage the terms and conditions of their company. The same is true of the second aspect of the new clause. The setting up of a redundancy fund, as envisaged, would represent a Government underwriting which, no matter how laudable the intentions behind it, would cut across the need for the dockyard companies to act as commercial organisations separate from the Government and from the Civil Service machine. Accordingly, I hope that the noble Lord will not press his amendment.

Lord Graham of Edmonton

I do not intend to press my amendment, not least because there are matters upon which the Committee will await with interest the actions of the Minister concerning amendments which we expect to table at the Report stage. There could very well be aspects of this which we would want to raise then.

I am bound to say that the Minister has done nothing to assuage the fears of the workers that they will be in a worse position in the future in comparison with the rights and perhaps privileges which they enjoy at present as civil servants. However, there is no point in delaying the matter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 29 and 30 not moved.]

Clauses 3 and 4 agreed to.

House resumed: Bill reported with amendments.