§ 8.25 p.m.
§ House again in Committee on Clause 51.
§ [Amendments Nos. 144H and 144J not moved.]
Lord Diamond moved Amendment No. 144JA:
Page 51, line 17, after ("value") insert ("per share").
The noble Lord said: In moving this amendment it will perhaps be convenient if we also discuss Amendment No. 144JB. The purpose of the amendment is to make clear that the clause as amended says:
Shares issued in pursuance of this section—
… shall be of such nominal value per share as the Secretary of State may direct".
There is no problem about that. It then goes on to say:
and shall amount in total to the value of the net assets of the Corporation as shown in its latest audited Balance Sheet as adjusted";
and there follow a few words to show how you adjust it. That is pure accountancy.
§ The amendment seeks to assure that the value of the company, for the purposes of the flotation, shall be at least the value of the net assets as valued on the balance sheet brought up to date. That is a very reasonable request. It is to make sure that the country gets at least the cost price, as it were, of the net assets in this flotation.
§ As every noble Lord who is familiar with the City knows, all companies and all company chairmen keep 332 an eye on their share quotations. When the share quotation gets below the net asset value, they become very concerned and worried about what might happen in the way of predators and in the way of credit. It is accepted all round (is it not?) that the net asset value is a minimum value. It allows nothing for goodwill, for profits or for future profits. It allows nothing for the fact that this company is going to be the sole purveyor of gas to 16.5 million households in the future. It allows nothing for that enormously valuable goodwill and for that asset. It simply says that the asset of the old company is the minimum price that you can get.
§ I cannot imagine that the Government would want to get less than that. However, we wish to protect the public purse and to protect the Chancellor. We do not want the Chancellor pressurised into a position where he has to consider for a moment selling this enormously valuable company at less than its net asset value. In view of the time and in view of the fact that we started, unfortunately, 25 minutes late, I shall say no more at the moment. I beg to move.
§ 8.30 p.m.
§ Lord Belstead
On the first amendment, this is a question of drafting. My advice is that it is quite clear that the text is referring to the value of the shares per share. The proposed amendment is therefore not necessary. If one looks at the text the value refers back to the shares, on the drafting. I was not surprised to receive advice that this is not a necessary amendment.
The second is a substantial amendment. It is matter which has been discussed before, and indeed earlier on this afternoon. The Government have consistently made clear their view that valuing companies on the basis of the current replacement cost of their assets is not the way to go about things. The company's value should be seen as the value of the business to investors and depends on a number of factors including the profitability of the company, the profitability of other companies in the same market sector and the overall state of the market.
I am sorry if the noble Lord and the Government do not agree on this but I am afraid that we do not agree with this amendment.
§ Lord Stoddart of Swindon
Did I understand the noble Lord to say that it is now the Government view that replacement cost is not a good basis for valuing companies? I find that very surprising because gas consumers have been paying prices based on replacement cost over a long period of time. The gas consumers—who have had their gas prices raised in order that they can suit the balance sheet, which is related to replacement cost—having paid extra prices now find that the Government have changed their minds. As taxpayers they will get only half the value upon which they have been paying increased prices. I find that amazing and scandalous.
§ Lord Belstead
All I can add is that I am surprised that the noble Lord says that. The value of a business must surely be judged by reference to the income that can be generated from its assets or by the value of its assets if they are sold individually on the open market, rather than the accounting value computed by adding together the replacement cost of the assets. I am sorry, but if the noble Lord thinks that, the Government do not.
Lord Bruce of Donington
This is quite intolerable. For many years now the Government themselves have been insisting with regard to nationalised industries that the accounts shall be presented on a current cost accounting basis. I can give the noble Lord many examples, particularly during the early stages of the Local Government Finance (No. 2) Bill which had to be abandoned because of an intervening general election, where the Government, from that very Bench, were producing argument after argument in favour of the validity of current cost accounting methods. They were arguments with which many of us did not agree. Nevertheless, that was the view of the Government and they took it for very obvious reasons. They wanted to put the squeeze on nationalised industries, and impose targets of performance on them that were based upon current cost accounting. They did that because they wanted to tighten their credit control, their loan control, over the nationalised industries. I do not know whether they have departed from this practice since the days of the noble Lord, Lord Cockfield, who was an expert exponent of the art where the indebtedness of nationalised industries featured as part of the public sector borrowing requirement. We all know this. What has happened, as my noble friend Lord Stoddart has said, is that over the years this continuous basis has been adopted. The result is that very considerable reserves will now accrue which will come back to the company and which will be available for dividend distribution by the new British Gas plc. That means a transfer, as a result of this manoeuvre, of hundreds of millions back into the P and L account, all of which has been taken from the consumers. My noble friend Lord Williams of Elvel referred to exactly the same phenomenon in the course of an argument during a previous amendment.
This two-facedness will not do. We all know what the Government have done. The Government have consistently insisted on the presentation of a P and L account on a current cost accounting basis because they wanted to show to the public that nationalised industries were not as profitable as the remainder of industry. This is what they wanted to do. Now that they want to turn gas over to private enterprise, and to privatise, they switch back to historic cost accounting, which, for the current year, will show profits of £400 million greater than the profits which have accrued from current cost accounting.
The manoeuvre is transparent. I sincerely hope that my noble friends will support the amendment.
§ Lord Belstead
The noble Lord talks about transparent manoeuvre. What the noble Lord, Lord Bruce, has omitted to say is that we are talking about the net asset value being a suitable basis or not for valuation on a flotation. The noble Lord, Lord Diamond, talked about this earlier. As I understood the noble Lord, he said that company directors ought to be concerned if their share price drops below the net asset value. I would agree. That is indeed the case if that net asset value is calculated on the basis of what would be realised on disposal of those assets, since a new owner could then take the company over and dispose of the assets.
However, the figures in the British Gas balance sheet are on a replacement cost basis. They are not the value on disposal. They are therefore not, in the view of the 334 Government, a suitable basis for valuation or a flotation.
Lord Bruce of Donington
Will the noble Lord agree that that is not quite accurate? In the current balance sheet they are expressed at replacement cost net of depreciation.
§ Lord Diamond
The trouble is that the Minister has not said one word about the alternative way of looking at this; namely, giving an indication of the minimum figure at which the Government would be willing to sell. We are privatising a huge industry. The Minister is not giving us the slightest indication of what the price is going to be. We have suggested a way of arriving at the minimum. There is nothing to prevent selling at more than this. These words mean the minimum. I am afraid that it is totally unacceptable. I am grateful to the noble Lord for what he said about Amendment No. 144JA; namely, that the Bill already means what this amendment makes clear. I therefore have no need to pursue that. But when we come to it in a moment, I shall seek to take the view of the House on Amendment No. 144JB. I therefore beg leave to withdraw Amendment No. 144JA.
§ Amendment, by leave, withdrawn.
§ Lord Diamond moved Amendment No. 144JB:
Page 51, line 18, after ("direct") insert—
("( ) shall amount in total to the value of the net assets of the Corporation as shown on its latest audited Balance Sheet as adjusted (to the nearest million pounds) in respect of variations in assets and liabilities occurring between the date of the Balance Sheet and the transfer date;").
§ The noble Lord said: We have already discussed the amendment. I beg to move.
§ 8.39 p.m.
§ On Question, Whether the said amendment (No. 144JB) shall be agreed to?
§ Their Lordships divided: Contents, 35; Not-Contents, 52.335
|DIVISION NO. 7|
|Airedale, L.||Kilmarnock, L.|
|Blease, L.||McNair, L. [Teller.]|
|Bruce of Donington, L.||Molloy, L.|
|Chandos, V.||Mulley, L.|
|Cledwyn of Penrhos, L.||Nicol, B.|
|Crawshaw of Aintree, L.||Phillips, B.|
|David, B. [Teller.]||Ponsonby of Shulbrede, L.|
|Diamond, L.||Prys-Davies, L.|
|Donoughue, L.||Seear, B.|
|Elwyn-Jones, L.||Simon, V.|
|Ezra, L.||Stoddart of Swindon, L.|
|Falkland, V.||Taylor of Blackburn, L.|
|Gallacher, L.||Underhill, L.|
|Graham of Edmonton, L.||Whaddon, L.|
|Harris of Greenwich, L.||White, B.|
|Houghton of Sowerby, L.||Williams of Elvel, L.|
|John-Mackie, L.||Wilson of Langside, L.|
|Abinger, L.||Brougham and Vaux, L.|
|Allenby of Megiddo, V.||Caithness, E.|
|Ashbourne, L.||Campbell of Croy, L.|
|Auckland, L.||Carnegy of Lour, B.|
|Bauer, L.||Coleraine, L.|
|Belstead, L.||Constantine of Stanmore, L.|
|Brabazon of Tara, L.||Cork and Orrery, E.|
|Craigavon, V.||Mersey, V.|
|Davidson, V.||Morris, L.|
|De La Warr, E.||Murton of Lindisfarne, L.|
|Denham, L. [Teller.]||Pender, L.|
|Elliott of Morpeth, L.||Plummer of St. Marylebone, L.|
|Glanusk, L.||Rochdale, V.|
|Gray of Contin, L.||Saltoun of Abernethy, Ly.|
|Greenway, L.||Sanderson of Bowden, L.|
|Hives, L.||Skelmersdale, L.|
|Hooper, B.||Stodart of Leaston, L.|
|Kaberry of Adel, L.||Strathclyde, L.|
|Kimball, L.||Swinfen, L.|
|Layton, L.||Swinton, E. [Teller.]|
|Lindsey and Abingdon, E.||Thorneycroft, L.|
|Long, V.||Trefgarne, L.|
|Lyell, L.||Ullswater, V.|
|Margadale, L.||Vinson, L.|
|Masham of Ilton, B.||Zouche of Haryngworth, L.|
|Maude of Stratford-upon-Avon, L.|
§ Resolved in the negative, and amendment disagreed to accordingly.
§ [Amendments Nos. 144K and 144L not moved.]
§ 8.47 p.m.
§ Lord Williams of Elvel moved Amendment No. 144M:
§ Page 51, line 26, at end insert ("which shall only be given if the disposal follows the provisions contained in Schedule (Arrangements for Disposal of Securities of Successor Company) to this Act.").
§ The noble Lord said: I beg to move Amendment No. 144M. It may be for the convenience of the Committee if I also speak to Amendments Nos. 144R and 144Y. The object of the paving amendment, Amendment No. 144M, and the new schedule, which is Amendment No. 144Y, is to ensure that the highest possible price be received by the Government acting in their fiduciary capacity as representative of the taxpayer when the successor company is finally floated.
§ I believe that all Members of the Committee would wish to ensure that the episode of the British Telecom flotation can never happen again. In our view the reason that the Telecom flotation went wrong was twofold. First, it was necessary for the purposes of the New York flotation to fix a price, such being the practice in New York, which went into the preliminary prospectus, known in the jargon as the "red herring". Once that price had been fixed, it became impossible to change it. The result was that when the market moved upwards, it was quite quickly found that the price which had been fixed for the New York flotation, which consequently had to be fixed for the London flotation, could not be changed.
§ The result was the episode about which we all know: that the price at which British Telecom was finally floated on the impact day was unrealistic in terms of what the market on that day would have been prepared to pay. I do not think that there is any disagreement about that in your Lordships' Committee.
§ The only way to avoid such a problem occurring again is the method we describe in the new schedule which is in Amendment No. 144Y. I hope your Lordships will accept my view that just because an issue goes to a premium in dealings after the issue date, this does not mean it is necessarily a success. In many 336 quarters, in the City of London and elsewhere, if you float a company at a price of, say, 100 and dealings start at 120, then there is a lot of shouting and hurraying, saying, "This is a great success". If the vendor is to receive the fair, highest possible price, the correct premium in dealings after the issue date is zero. Dealings should be at the issue price.
§ Under the normal arrangements for offer for sale in the United Kingdom, it is very difficult to achieve that position. There is a price at which an offer is underwritten, and there are no arrangements for tendering other than at the price which is underwritten, minus the commissions. This means—and we have seen it not only in British Telecom but in all sorts of other issues—that if it is a success the issue goes to a heavy premium; if it is a failure it is left to the underwriting institutions.
§ There have been two examples of straightforward tenders in privatisation. One was Enterprise Oil and the other was Britoil, both of which were unsuccessful tenders because they were tenders not underwritten against a rising oil price. It happened that in the tender period the oil price went against both those companies. The successful tender which has taken place and which I put forward to your Lordships' Committee as a model for the tender of British Gas, was the tender for Reuters which took place both in London and in New York. The way it was done was relatively simple, although the technicalities are extremely complex. But for the purposes of the New York market where a fixed price or a range must be indicated in the preliminary or pathfinder prospectus, there was a range. In the case of Reuters it was the dollar equivalent of 200p to 235p.
§ New York institutions were quite prepared to underwrite the securities being offered on the basis that the striking price in the tender would be in that range. There was provision in that prospectus for a change of the range should the market turn differently during the underwriting period, and there was an arrangement in the prospectus that if that range were to change there would be an announcement and the underwriting institutions in New York would take appropriate note of that.
§ An offer for sale by tender, assuming it is underwritten, does allow various classes of shareholders to be allotted in full at the striking price. If the Government are intent on encouraging wider share ownership, it is perfectly possible to say that all applications for under 1,000 shares, or whatever it might be, can be satisfied in full. It is perfectly possible to say that applications from employees at the striking price will be satisfied in full. It is perfectly possible, equally, under a tender system to place firm with institutions on priority, and claw back those shares again if the tender shows that there is a requirement from the priority shareholders, like small shareholders or employees, which cannot be satisfied in the normal course of events.
§ In other words, it is our view that the tender mechanism is the best mechanism for this particular type of issue. It is not only the best mechanism, in our view; it is also the fairest mechanism and the mechanism that will be seen to be fair by the outside world; nobody will be able to complain either that the issue has flopped or that it has gone to a high premium, 337 or that fortunes have been made in the first few hours. The striking price will be the price at which the market will clear.
§ If I may turn for a moment to the details of the Schedule which is in Amendment No. 144Y, I think we are agreed that the Government should seek to achieve what is specified in paragraph 1 of the new schedule: the highest possible price on the disposal of the securities of the successor company. I believe that that is a position which the noble Lord, Lord Brabazon of Tara, stated quite clearly earlier on.
§ If I turn to paragraph 2 of the schedule, in the draft articles of association the 15 per cent. rule on foreign ownership is established by the special share arrangements, and there is nothing in paragraph 2 which contravenes anything which the Government intend in the articles of association.
§ There is a let-out clause in paragraph 3. It may well be that all my arguments are wrong, and that the arguments of other people in the City of London are wrong. It may be that the Government have better arguments, so that they can come before a Joint Committee of the Houses of Parliament to satisfy that committee that the arguments are wrong and that they have found a better way of doing it. I say this genuinely because there may well be a possibility—indeed, there is a certain amount of talk in the City of London about this possibility—that a half-tender, a half-fixed underwriting, might be the right way to go about this flotation, which would be a new technique not yet tried but which is under study in one or two cases. This could be something which the Government, and the advisers to the Government, might wish to persuade Parliament is the right way to go about it.
§ Paragraph 5 simply reiterates in effect the objective of paragraph 1, that individuals and corporations have a right to tender under paragraph 4 but the price to the Government is what matters.
§ I do not want to go into very great detail at this time in your Lordships' Committee because we still have much business to do, but I would ask the Government to give full consideration to the points that I have made, to look particularly at the Reuters tender offering which was made and which was successful, and to see whether they agree with us that this is the right way to float British Gas plc. I beg to move.
§ Lord Sanderson of Bowden
Before we go any further, could I have clarification of what the noble Lord, Lord Williams, is seeking in paragraph 2—Not more than 15 per cent. of the voting rights of the successor company … shall be benficially owned or controlled … by nonresidents …?Is that in total, or in any one particular holding?
§ Lord Williams of Elvel
I am grateful to the noble Lord, Lord Sanderson. It is in total, and not one holding.
§ 9 p.m.
§ Lord Belstead
This is an important group of amendments. The new schedule in Amendment No. 144Y puts forward a number of propositions which the noble Lord, Lord Williams, just went through in relation to the disposal of securities when the flotation 338 of British Gas happens. Subject to this main part of the amendment, disposal must achieve the highest possible price, no more than 15 per cent. of the shares should be in foreign ownership—that relates to the question asked by the noble Lord, Lord Sanderson; the disposal shall be by tender unless it is agreed by a Joint Committee of both Houses of Parliament that this would not achieve the highest possible price, and that in considering which individuals or corporations may buy the securities my right honourable friend's sole consideration should be the price offered for the shares.
May I follow the noble Lord in trying to be brief and concentrate on only two of those points; the question of tender and the question of foreign ownership. The requirement to sell the shares in the company in a formal tender, with an obligation to allocate shares to the highest bidder, would mean selling the company in a totally novel way which we could not practically aim to achieve. I say that in the context of privatisations. Selling shares by tender is a procedure which I doubt the small investor would feel able to apply for.
The Department of Energy and its advisers are carefully reviewing all possible methods of sale and will consider carefully the recommendations of the Public Accounts Committee in their three reports into privatisation sales, but in this connection may I remind the Committee that there has been no criticism by the Public Acccounts Committee of the use of the fixed price method in the case of British Telecom. In general the kind of modified tender sales which have been used are more suited to smaller sales where the issue is difficult to price. But once again we have the difficulty that they are not an entirely straightforward method so far as smaller investors are concerned.
I give an assurance to the noble Lord, Lord Williams, that the Government and their advisers will take full account of all the relevant experience in the past, including, when appropriate, the sales such as the sale of Reuters which the noble Lord described briefly. But I make these two simple points on the question of tender. If we are to take the amendment at its face value and say that the flotation shall be by tender, the small investor of the kind about whom the noble Lord, Lord Stoddart, was talking before the dinner break, is not going to get involved in any numbers at all. Even in the case of the modified tender, that is not so easy for the small investor as would be a fixed price, although I assure the noble Lord that the Government's mind is by no means closed and we have taken into account what the noble Lord has said on this.
The other point is the imposition of a restriction of 15 per cent. on foreign ownership. I am advised that restrictions on the sale of shares to foreign persons, or companies, in this Bill would not be permissible under the Treaty of Rome. Even though this is an argument—indeed it is a provision—which has appeared in certain other Bills, in this Bill we believe that it would not be permissible. Even in the event of a decision not to sell any British Gas shares overseas in the flotation, we could not prevent sales to people from abroad purchasing in the United Kingdom market.
Indeed, I wonder whether we would want to. After all, we are today the second highest holder of net overseas assets, I believe, in the world compared with 339 all other countries, and we are attracting into this country investment, particularly from the United States and Japan, which is competitive with practically every other country in the world. I believe that Japanese investment in this country is higher than in any other European Community country, and that is good for jobs and for the economy of the country.
I believe that we should attach considerable importance to maximising the proceeds from the sale, and there is no doubt that overseas sales broaden the market and potentially increase the sale proceeds. Where I come much nearer to the noble Lord is in saying that the Government recognise that the important thing to do is to guard against any dominant influence over the company's affairs being exerted by any one organisation or group buying shares in concert, whether they are foreign or British. But the special share, together with the 15 per cent. limitation on share holdings, will I think achieve this.
Particularly going back to the first part of the amendment, although I know that this is a matter to which the noble Lord, Lord Williams, attaches importance—and the noble Lord spoke about it on Second Reading and has mentioned it since—I think that, for the reasons I have attempted to deploy, the amendment as it stands is not one we can accept.
§ Lord Williams of Elvel
I am grateful to the noble Lord for his response. He dealt with two points. First, the foreign ownership point. I do not feel particularly strongly about the foreign ownership element in this schedule. This is not really the main point of the argument. I just note in passing that a lot of this stuff about net overseas assets in the possession of the United Kingdom being good for jobs has nothing to do with whether these shares in British Gas are sold to foreigners or not. It is an argument that has no relevance whatsoever. Nevertheless, I do not think that the foreign ownership point is central to the point that I am making.
The noble Lord made another point about tendering which is that the small shareholders would feel inhibited in some way from applying for shares. I have heard this argument advanced before by people in the City of London. I have no evidence at all that this argument is right or wrong. The noble Lord may be right; the noble Lord may be wrong. I have no evidence, and nobody I have ever talked to has any evidence on the subject.
We assume, judging from the newspaper articles that we read almost every day, that there is going to be the same amount of—and I think my noble friend Lord Stoddart mentioned this—hype on British Gas as there was on British Telecom. If you have an advertisement on television every day for six weeks, I can guarantee that small shareholders will start applying for British Gas. If you do not have advertisements like that, if you do not market it like that, they will not.
This has nothing to do with the method of offer, because—and here I return to the central point I made which I do not think the noble Lord quite appreciated—in the initial pathfinder prospectus, the red herring in New York, a range of prices is immediately established. You can go on television and 340 say to all the world, "This is the sort of price range we are going to be in". I gave the figures, which were 200, 235, in the case of Reuters. I simply do not believe that argument about the small shareholder. However, having regard to the late hour and that we have a lot of business to do, and I accept that the noble Lord and his advisers are going to look at it, I beg leave to withdraw this amendment.
§ Amendment, by leave, withdrawn.
§ Viscount Chandos moved Amendment No. 144MZA:
Page 51, line 26, at end insert—
("( ) The Treasury, in consultation with the Bank of England, shall be responsible for ensuring that the disposal of any such securities shall not interfere with or inhibit the fund-raising activities of other companies already listed on the London Stock Exchange and that the reasonable financing requirements of those companies shall take precedence over the disposal of any securities in the successor company.").
§ The noble Viscount said: I should perhaps begin by repeating a statement declaring an interest on the grounds that I last made it at a quarter to four in the morning and not all the Committee had the privilege of hearing it. I am a director of the bank advising the British Gas Corporation.
§ The justifications advanced by the Government over the past seven years for their privatisation programme have been many and varied: the widening of consumer choice, as the noble Lord, Lord Bruce-Gardyne, alighted on this afternoon; the promotion of greater efficiency in the corporation concerned; the widening of share ownership generally and by employees in particular; and the raising of revenue for the Government. Even the supporters of the Government, such as the noble Lord, Lord Bruce-Gardyne, do not always agree with all these justifications all of the time, while those of us on these Benches are even more critical, but constructively critical, of the reasons advanced. On these Benches we believe that the sale of some public corporations has been beneficial to their employees, to consumers and to the country as a whole, and some have not, and some will not be, as we believe is the case with British Gas.
§ The amendment I have moved this evening is intended to bring to the Committee's attention one danger posed by the disposal of shares in the successor company to British Gas and in particular by their disposal as part of a large, continuing and accelerating programme of public sector asset sales by the Government. The irony is that this massive programme of privatisation is now creating an obstacle to the private sector's orderly, cheap and efficient financing, the ensuring of which was one of the earliest objectives of that very privatisation programme. I shall not risk irritating the noble Lord, Lord Boyd-Carpenter, by harking back to the truths which he regards as cliches, other than by saying that there are good economic and financial grounds for regarding the sale of Government assets as not being a substitute for reduced Government expenditure or increased taxation. So the presentation of the public sector borrowing requirement as being measured after the sale of public assets is misleading and misguided, presenting to the electorate a picture of supposed fiscal rectitude which cannot in reality be justified. That 341 definitional measurement of fiscal rectitude may in turn be misguided. But if it is the standard by which the Government wish to be judged then let the Government at least be consistent in the presentation of their accounts to Parliament and to the nation.
§ I began by reminding the Committee of this inconsistency because any analysis of the Government's actual deficit in recent years, and that projected for future years, will show a clear and definite trend whereby less and less of that deficit is being financed through the sale of Government debt and more and more is being financed through the sale of shares in companies which were previously Government owned. One of the Government's constant campaigns in recent years has been to encourage companies to raise long-term finance through the issue of loan stock, debentures and bonds rather than through bank borrowing, and the reduction of the Government's own use of the debt market has been seen as an important factor in stimulating such a move.
§ Once more it is possible to question the validity of the concept of crowding out; for example, by looking at the the vibrant and successful corporate bond market in America throughout the time the US Government have been raising more than 200 billion dollars a year at interest rates consistently lower than in the UK. But even if one could be certain that the reduction of Government borrowing in the debt market was a necessary precondition for the revival of the corporate bond market in this country, this should not be pursued regardless of the consequential effects in other sectors of the market. The effect of the privatisation programme is that the Government, in order to avoid crowding out corporate fund raising in the debt market, are instead risking far worse crowding out of corporate fund raising in the equity markets, which are so much more important to those companies. The privatisation tail is wagging the industrial dog.
§ The Bank of England is responsible through the Control of Borrowing Order for ensuring an orderly UK capital market, and in an increasingly complex and internationally inter mingled market it performs this duty with great skill and subtlety; but with every month that has passed more and more economists and analysts within the City and outside have found that the forecast call on institutional liquidity, resulting from the projected sale of British Gas, of the water authorities and of other corporations thereafter, represents a major and potentially depressing factor in the expected performance of the United Kingdom equity market.
§ Furthermore, the heavy programme of fund raising by companies in recent weeks, be they manufacturing companies, retailing and service companies or financial institutions, has been widely reported as being caused by their desire to raise the necessary finance before the autumn, when the sale of British Gas is expected. I would suggest to the Committee that a major manufacturing company that might employ tens of thousands of people would find extreme difficulty in being given a place in the rights issue queue operated by the Bank of England in the last part of this year whatever its requirements and circumstances. Moreover, there is a risk that for a 342 substantial period thereafter, and even before, it will be more difficult and more expensive for such a company and all others to raise equity finance.
§ I should like to believe that the professional judgment and expertise of the Bank of England could be regarded as sufficient protection for the interests of other companies and that existing procedures were adequate to ensure this. But the ruthless disregard for every type of legitimate interest that the Government have shown thoughout the conduct of this Bill unfortunately does not promote any degree of faith that this would be the case. The independence of the Bank of England may not be able to withstand the Government's desperate determination to sell British Gas whatever the market conditions, as we have discussed before, and whatever the impact on the financing plans of other companies. For that reason, I believe that it is correct for this Bill to be amended to ensure that the political interest and ideological obsession of the Government do not damage the financial strength of British industry. I beg to move.
§ 9.15 p.m.
Lord Bruce of Donington
We on this side of the Committee should like to support this amendment but it will not be necessary for us to repeat the very cogent reasons that have been put forward by the noble Viscount, Lord Chandos, to which I think we would add only this. The Government's philosophy has always been a belief in free competition. Yet in this Bill, as in the Bill for British Telecom, they took powers to exempt themselves from the requirements of the Companies Act in relation to the making of prospectuses, and indeed the offer for sale of shares in companies, by which all other companies, other than British Telecom and apparently this one, remain constrained.
At the present time the Government have in mind a campaign which is described in today's edition of The Times in the following words:Domestic gas users are to be offered big incentives to buy shares in British Gas when it is floated on the Stock Exchange in November. The Government is planning to introduce a voucher scheme which will entitle purchasers of British Gas shares to a discount on their gas bills".At the same time they are going to accompany it, on the same lines as with British Telecom, by mass advertising of British Gas. They are going to do everything they can, completely outside the provisions of the Companies Act relating to prospectuses, to make quite sure that this issue goes.
Is that fair competition between this flotation and that of other companies who for other purposes are seeking to raise money on the London Stock Exchange for the purpose of the legitimate financing of their own activities? I am told that there is a limited amount of finance available. Otherwise, we should not hear all this talk of crowding out to which the Government treat us from time to time. One of the effects of this amendment would be to require the Government to comply with the provisions of the Companies Act relating to the contents and issue of prospectuses in exactly the same way as is required of every other company in the United Kingdom. This is what it would require, and this is very fair.
343 There is another point too. The particular method by which the Government propose to do this—a method which, of course, has been leaked once again by way of kite flying—is one which is going to cost money for those of the 16 million consumers who cannot in any way afford to buy British Gas shares. They do not have the money to do so. The noble Lord seems to be under the illusion that at the present time every adult has adequate funds to invest in the Stock Exchange. That is not so, as the noble Lord should well know if he examines the figures produced by the Treasury and reproduced in Hansard of another place, showing the distribution of wealth in the United Kingdom. The fairest way of going about this would be for the Treasury to subject itself to the same disciplines as those of limited companies under the provisions of the Companies Acts, and the reason we support this amendment is that it would do just exactly that.
§ Lord Brabazon of Tara
I am aware of the concern expressed by the noble Viscount, Lord Chandos, that an issue of the size of British Gas might impact adversely on the normal fund-raising activities of other quoted companies. I have to say that I do not believe his fears are justified. The Government plan their privatisation programme well in advance and those plans are known and understood by those involved in both the UK and overseas markets.
The noble Viscount referred to the Bank of England, which has for many years, as agent for the Treasury, supervised the timing of all new issues and other fund raising activities to ensure that the demands on the London market at any particular time are not unreasonable. It would therefore be nonsense, for instance, to put pressure on the market by attempting to dispose of British Gas and British Airways at the same time. Moreover, such clashes, by overstretching the absorbative capacity of small investors, would be inconsistent with the Government's objective of securing a wider spread of share ownership among the public at large.
But granted that such clashes are avoided, there is no evidence that investment in share issues such as British Telecom or Jaguar has led to distortion of the market or shortage of funds for other companies seeking to raise money by share issues or by recourse to normal sources of finance. I find it difficult to accept the noble Viscount's argument—
§ Lord Stoddart of Swindon
May I just ask the noble Lord a question, because he mentioned British Telecom? This issue is of a much greater order than British Telecom. We were talking, I think, about £2 billion in the case of British Telecom. Here we are talking about £5 billion to £6 billion and the situation is surely very much different.
§ Lord Brabazon of Tara
Yes, I quite accept that it is different. But I do not think anybody would suggest that the whole £5 billion to £6 billion should be raised at one go. I think that is taken for granted—
§ Lord Brabazon of Tara
If the noble Lord wishes to intervene, perhaps he would do so from other than a 344 sedentary position. Perhaps I may continue with my theme. The noble Viscount referred to the extensive fund raising which has taken place in the last few months. I have to say that this is despite the fact that the market well knows that this issue is coming along and, therefore, I think that that totally refutes that argument.
As I have stated before, the Government's objective will be to get the best possible price for British Gas shares. The noble Lord, Lord Bruce of Donington, talked of what is reported in the press today about a possible discount on gas bills and the Government doing everything they can to make the issue a success. I would say to the noble Lord that that is entirely in line with Amendment No. 144Y, paragraph 1, which we have just been talking about and which asks the Government to ensure that the highest possible price is received by the taxpayer. So I cannot see any consistency in the argument of the noble Lord.
The Bank of England already takes care of the concerns which the noble Viscount expresses in his amendment and, therefore, I think that to have an amendment such as this put on the face of the Bill would be thoroughly undesirable. I must also say on looking at the amendment that I should have thought it was an absolute recipe for litigation of any sort, where any company could come along and say, "Hello, we have not been able to raise the amount of money which we might have wanted to raise because British Gas is coming to the market". It would be an absolute recipe for disaster and a whole lot of specious claims.
§ Lord Williams of Elvel
I was most interested to hear from the noble Lord that the Government intended to make the British Gas issue in a series of tranches. This is not the time to pursue this point, but he will be coming back to it on Report because it is something which I think your Lordships would wish to hear more about.
§ Viscount Chandos
I find it difficult to accept the suggestion of the noble Lord the Minister that the financing programme of companies in recent weeks was a demonstration of the fear that the privatisation programme over the next two years would create difficulties in the equity market for other companies. The privatisation programme to date has been more limited than the aggregate that is now being talked of by the Government to be achieved before the date of the next general election. It is that change in degree and scale which has caused the greatest comment among analysts and economists in the City, many of whom are in other respects strong supporters of the Government's policies. It is simply not possible to decry those fears as being ill-founded.
I suggested in my opening comments that I regard the Bank of England's supervision of the capital markets as being first class. None the less, it has not to the same extent as I suspect it will have to in the future had to contend with a government selling increasing amounts of shares where there is a strong political objective on the part of the vendor to achieve those sales before the next election. Nothing the noble Lord the Minister has said can have done anything to allay those fears either on this side of the Committee or 345 among those commentators in the City and elsewhere who have raised them independently of myself. However, as the time is now quite late—
§ Lord Sanderson of Bowden
Before the noble Viscount decides what to do with his amendment perhaps I may ask him this question. Do I take it, as it looks very clear from this amendment, that he does not believe in privatisation, or does he believe in privatisation? It seems that the terms of this amendment leave a wide open door to anyone to object to the privatisation of British Gas at any time.
§ Viscount Chandos
I said at the beginning of my comments that I and I think my colleagues on these Benches have supported some instances of privatisation and would do so again in the future. It is quite possible to imagine public corporations being sold in tranches or of a size and with a regularity that does not interfere with the financing requirements of the hundreds and thousands of companies that are already in the private sector. What I have been suggesting is that the sale of British Gas and the sale of the other public corporations, such as the water authorities, that is being discussed in the time scale of the next two years is sufficient to cause serious disruption of the equity markets of this country. Despite that, as the time is late and a number of Divisions have already been called, sadly unsuccessfully, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 9.30 p.m.
Lord Diamond moved Amendment No. 144MA:
Page 51, line 30, leave out ("the Consolidated Fund") and insert ("a fund controlled by the Treasury designated the Consolidated Capital Fund.
( ) Payments out of the Consolidated Capital Fund (up to a maximum of twenty per cent. in each subsequent fiscal year) may only he made for purposes certified by the Comptroller and Auditor General as being the bona fide creation of new national assets and subject to the approval by the House of Commons of detailed estimates submitted to them.")
§ The noble Lord said: What the clause provides for at the moment is the usual position—that any money received by way of dividends or sale of securities shall be paid into the Consolidated Fund. There is no particular objection to that, except that once it gets into the Consolidated Fund it gets lost, it disappears. It is used for current purposes and we get the classical situation of the family silver being used to pay for the groceries.
§ What the amendment seeks to do is to save the nation's assets. There is no possible objection to nations, trusts or individuals selling one asset and replacing it with another asset if they want to do that. In their view, it may be beneficial to do so. What the amendment proposes is quite simple. Instead of the assets being paid into an undesignated consolidated fund, there would be started a new fund for capital purposes called the Consolidated Capital Fund. It would be looked after by the Treasury in the ordinary way, and any sales of capital assets would go into that capital fund.346
Would the assets stay in that fund for ever? No, because if one looks further on in the amendment, one sees what will happen to the money in that fund:
Payments out of the Consolidated Capital Fund … may only be made for purposes certified by the Comptroller and Auditor General as being the bona fide creation of new national assets and subject to the approval by the House of Commons of detailed estimates submitted to them.
So the capital fund that is derived from the sale of the nation's assets can only be used for the creation of new assets.
§ That is secured by having a certificate by an independent and informed authority—namely, the Comptroller and Auditor General. The words "bonafide creation" are necessarily incurred so that the Government do not attempt, and so that any government do not attempt, to deceive the nation by using the funds for purposes that would have arisen anyway on the creation of small assets. They have to be used quite definitely for the bona fide creation of new assets.
In the ordinary way, just as payments out of the Consolidated Fund can only be made on the basis of detailed estimates submitted to the House of Commons, so could the payments out of the capital fund. The reason why the amendment includes the words,
up to a maximum of twenty per cent. in each subsequent fiscal year
is that we are impressed by the logic of the Government, who have said to every local authority, "You may sell your capital assets and may use the funds—up to 20 per cent. per year—in the purchase of further local government assets". That is a reasonable way of spreading the use of that money over a period of time. It would not all be spent immediately, and it would not be right that it should be so spent.
§ Here is a simple provision that will enable the Government to do what they have never been able to do so far, but which in view of the behaviour of the present Government, in selling asset after asset of the nation month after month, becomes necessary; namely, having what every normal business has, which is the separation along the lines of that which the noble Earl, Lord Stockton, recommended in his maiden speech. I refer to the separation between income and capital. One has one consolidated account for ordinary purposes, income purposes, revenue purposes—and one has another account for capital purposes. It is used in that way. It is very simple. It is what every business has. It is something that the Government should have had a long time ago, and it is something that they should now have to do in order to protect their stock of assets. I beg to move.
§ Lord Gray of Contin
This is a novel thought, straight from the mind of a former Chief Secretary of the Treasury. I wonder what the noble Lord's reaction would have been, when he was Chief Secretary of the Treasury, if somebody had suggested that government sales of any kind should be thus treated. I know that, sadly, the noble Lord's Government were not inclined to privatise in the way that this Government are. Indeed, we might not have been in the difficulties that we were in at that time, in the late 1970s, if the noble Lord's Government had acknowl- 347 edged the potential of some of their assets. However, I wonder what the noble Lord's attitude would have been today. I do not believe that it would be very different from that of any other Chief Secretary of the Treasury.
The Consolidated Fund is that little pot of gold which Chief Secretaries guard to the end. It is a general principle that Government revenue should be paid into the Consolidated Fund. This is true of all sources of Government income, including the major revenue earners such as income tax and VAT. It has often been argued in my part of the country, in Scotland, that if all the money paid by Scots into the road fund had been spent on roads in Scotland we might not have had some of the criticisms that we have had in the past. But that is not the way of the Treasury and the ex-Chief Secretary knows that very well indeed. It is equally true of relatively minor sources such as the authorisation fees to be paid by gas suppliers to the Secretary of State or director under Clause 7 or Clause 8 of the Bill. Establishment of a special purpose fund in this way would therefore run counter to the traditions of government accounting developed over many years and which have worked satisfactorily.
We all know of the problems which a Labour Chief Secretary would have. The most difficult jobs in a Labour Government must be Chief Secretary, Chancellor of the Exchequer and Minister of Defence. Any one of the three positions must be a tremendous load on the shoulders of the occupant.
Payments out of the Consolidated Fund have, of course, to be voted by Parliament on the basis of estimates submitted to it—either the main supply estimates presented with the Budget or supplementary estimates presented throughout the year. So far as principles are concerned, therefore, the existing arrangements adequately safeguard Parliament's right to determine the purposes to which government expenditure should be directed.
I listened very carefully to what the noble Lord had to say. He is never short of ideas. However much we may disagree with him we must acknowledge that he has a most fertile mind. Sadly those ideas do not always fall into line with this Government's obejectives. In this case he has not provided something which could in any circumstances be acceptable to us. Therefore, I must ask him to withdraw his amendment, for the time being at least.
§ Lord Stoddart of Swindon
Before the noble Lord, Lord Diamond, decides what to do about his amendment, I should like to say to the noble Lord, Lord Gray, that he was being most unfair to the noble Lord, Lord Diamond, and, indeed, to the last Labour Government. We all appreciate—indeed, we have come to appreciate it very much during the debates on this Bill—that the noble Lord, Lord Diamond, is a ex-Chief Secretary to the Treasury. Indeed, his interventions in the debates have been most valuable, not only because of his personal qualities and expertise in accountancy but also because of the experience he had as Chief Secretary.
I have no doubt that the noble Lord, Lord Gray, is thinking that the noble Lord, Lord Diamond, if chief Secretary now, would understand and wish to 348 perpetuate the doctrine of no hypothecation of revenue. That is full understood by all parliamentarians; but the noble Lord, Lord Diamond, is not suggesting anything to the contrary by this amendment. What he has done—and this came from his experience—is to provide a new idea; a new way in which capital assets from the sale of public assets can be used not for immediate tax reliefs but for the good of the country or, in other words, to provide employment opportunities, for example, for those extra two and a quarter million people who have been put on the dole since 1979, when this Government took office.
So in fact the fertile mind of the noble Lord, Lord Diamond, has shown the Government a way to escape from the accusations which we and other people have made against them. One of the main points of our opposition has been that this is a Bill to privatise British Gas not because it is inefficient and does not make money (it is efficient and it does make money) but simply and solely in order to obtain money to bribe the electorate before the next election. In actual fact, accepting the amendment of the noble Lord, Lord Diamond, is a marvellous way of convincing us that we are wrong. If they did that, the main plank of our argument would be taken away from us. The Government would benefit because they would be cleaner than they appear to be at present; and it would also be good for the country in that every year 20 per cent. of this capital fund would be put into the rebuilding of industry or rebuilding of infrastructure. Frankly, I think that the noble Lord, Lord Diamond, is to be congratulated on his amendment and that the Government will be wise to accept it. I am sorry that so far they have not done so.
§ Lord Gray of Contin
As always, I was interested in what the noble Lord, Lord Stoddart, had to say, but before the noble Lord, Lord Diamond, decides what he will do about this amendment I should like to put one question to him. I suspect that he actually did have an opportunity of trying out this experiment—
§ Lord Gray of Contin
Oh, yes. Just let me finish. I suspect that he had an opportunity to try out this experiment or to influence his party to try it out, because, if my memory serves me correctly, in 1977, long after which time the noble Lord had ceased to be Chief Secretary to the Treasury but when he was still a member of the Labour Party, his Government sold a massive tranche of BP shares. Did he suggest to his Government at that time that they should put that money into a special fund, or did he acquiesce in the idea that it should go into the Consolidated Fund? That is an interesting thought, and perhaps the noble Lord might be able to enlighten us.
§ 9.45 p.m.
§ Lord Diamond
Let me answer the question immediately. I hope the noble Lord will not take offence if I preface my answer by saying that he is the person who is paid to answer questions and I am not a person who is paid to answer questions. At that period I had the privilege of being the full-time chairman of the Royal Commission on the Distribution of Income and Wealth, and I kept my mouth shut 349 completely in your Lordships' House. I was not concerned with anything other than that, and if I am asked whether I approved of the way in which the then Labour Government acted in relation to that money I should have to look into all the facts. I do not think that I could answer without having ascertained all the relevant facts.
However, the noble Lord the Minister twitted me about the situation which existed at the time I was Chief Secretary. He asked me what I might have imagined if this had happened when I was Chief Secretary. I gladly answer. I shall tell the noble Lord that for the six years from 1964 to 1970, when I was Chief Secretary, I could not have imagined—and he has been good enough to say that I have a fertile imagination—a situation in which unemployment would rise to seven times the maximum that it was during those six years. I could not have imagined it.
It was accepted philosophy that if unemployment went over 1 million there would be a revolution, and now it is over 4 million. I could not have imagined that. I could not have imagined that the basic rate of interest would have been three times what it was at any time during the period when I had any responsibility in that field. I could not have imagined that any Tory Government would be so irresponsible and unaware of how to manage the economy and to act as a trustee of the nation's assets that they would proceed to dissipate them in the disgraceful way that they have done over these years.
I say to all noble Lords on that side of the Committee that I am astonished at the way that they accept that their Government can sell capital assets and replace them with nothing, year after year. The only senior Conservative politician who has objected has been the noble Earl, Lord Stockton. That is what I say in reply to the noble Lord who twits me about the position when I was Chief Secretary.
That situation never arose because no Government ever for one second contemplated that we should so alter the form of accounts—we had below the line and above the line, the noble Lord will remember—as to deceive the nation as to what we were doing with the money. That could not have arisen then. We acted with propriety. We distinguished between capital and revenue, as every businessman does and as every noble Lord on the other side who has responsibilities in industry also insists on doing. We distinguished between the two.
I suggest now in this situation where the Government are compelling the country to accept the change, with their enormous majorities in both Houses of Parliament, that they might for one moment think about what is the proper and responsible way to look after the nation's assets and adopt the simple device of having a capital as well as an income fund, as all trusts are compelled to do. Every single piece of trust legislation has that division.
The noble Lord may interrupt me if he wishes to suggest that I am wrong. I assert that under trustee legislation every trust fund must be divided in that way. Here are the biggest trustees of all sitting on that Bench, insisting that the Chancellor of the Exchequer may breach the natural trust of looking after the nation's assets by spending and dissipating them in 350 that way. If this provision were adopted it would prevent that.
The noble Lord was wasting the time of the Committee when he talked about how the House of Commons has to vote that money. I have provided for that in the amendment. He went on to say that the House of Commons was already in control of the situation. It is not. That is, like every single statement that the noble Lord has made in answer to my points, wholly wrong. The House of Commons is not in control of that; it is in control of expenditure and not of income. The income is paid into the Consolidated Fund.
What can a Member of the House of Commons do if he wants the Government to spend more on the infrastructure? As the noble Lord knows, he can do nothing. All the Back-Benchers on the Tory side, the Labour side and everybody else put together can do nothing. It is in the Government's gift as to whether expenditure is initiated. The noble Lord knows that. If in the other place the whole House wanted to rebel against the Government and say, "Please reduce unemployment by spending money on the infrastructure", they could not achieve that, no matter how many votes they won. They could throw the Government out of office on a vote of no confidence, but they could not achieve expenditure on capital assets because it is not within the powers of a Back-Bencher to initiate government expenditure. Here is a method to protect the Government's assets.
The only reason that I do not insist on testing the opinion of the Committee at this stage is that it is very, very late and we are terribly pressed to get through the Bill by a given hour. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 144N not moved.]
§ Clause 51 agreed to.
§ [Amendments Nos. 144P to 144R not moved.]
§ Clause 52 agreed to.
§ [Amendments Nos. 144S and 144T not moved.]
§ Clause 53 agreed to.
§ Clause 54 [Target investment limit for Government shareholding]:
Lord Williams of Elvel moved Amendment No. 144U:
Page 53, line 2, leave out ("six months after") and insert ("the date on which").
§ The noble Lord said: It will be for the convenience of the Committee if I speak also to Amendment No. 144V. There are two points on these amendments. The first relates to the time period in the Bill as drafted that is allowed to elapse before the Secretary of State commits himself to an order fixing the target investment limit. I am sure that the Government will agree that it is necessary to ensure that there is an orderly market in the shares of British Gas plc after flotation. One thing that destroys an orderly market is to have an overhang.
§ This is a slightly financial type of amendment. If the Secretary of State were obliged to fix his target 351 investment limit on the point of flotation instead of waiting for six months that would ensure that the market does not have that overhang. I think the amendment is reasonable. It is not political; it is purely technical and I hope that the noble Lord, Lord Brabazon, will take that on board.
§ Amendment No. 144V is of a slightly different nature. Under the Bill as drafted, the Secretary of State is obliged, if he fixes a new target investment limit, to ensure that that new limit is lower than the one it replaces. We see no reason for that provision. We should like to give the Secretary of State freedom of action because, who knows, in the future there may be different Secretaries of State who wish to raise the target investment limit in British Gas plc. For that reason, and very quickly because it is late and the Committee still has a great deal of work to do, I beg to move.
§ Lord Brabazon of Tara
I am tempted to take these amendments briefly. The purpose of the first (the six-month limit), and there is no dispute on this, is merely a requirement to set the target investment limit immediately, and it would remove the Secretary of State's flexibility and could give rise to practical difficulties in relation to the need, for example, to retain a short-term float of shares which could be allotted to deserving cases, such as lost application forms, during an interim period following the allocation. Those would revert to the Secretary of State if the float were not exhausted.
The arrangement that the noble Lord proposes would, I opine, not work because there might need to be a certain number of shares to be used for the purpose that I have described.
As regards the second amendment, where the noble Lord seeks to enable the Secretary of State to set a higher target investment limit if he chooses, it would run completely counter to the purpose of the clause. As I have already explained, the object is to reduce the level of Government ownership, in line with the overall objective of the proposed sale of shares to take British Gas from Government control and to provide for genuine public ownership and ensure that the 352 Government do not seek to regain a controlling interest in the company once sold. It would defeat the purpose of the target investment limit if it could be raised by order of the Secretary of State.
The target investment limit will in effect prevent shares being bought by the Secretary of State. It is not therefore concerned with further sales or any overhang of shares. I hope that the noble Lord may be able to accept the first explanation. As to the second, I appreciate that there will be a difference between us. I am afraid, however, that I cannot accept the amendment.
§ Lord Williams of Elvel
I am grateful to the noble Lord. Will he kindly give me an assurance that the six-month time period will be looked at again? This is not a political point; it is a purely technical point. The noble Lord may find that my arguments are a little more persuasive than they appear at this hour of the night when the officials look at the matter again. I believe that, if it is left at six months, there will be a serious overhang in the market when no one is certain in the market how far the Secretary of State is going to go in fixing the new limit. I believe that this will be a problem. I am trying to help the Government.
No doubt, the setting of new limits as we go forward has something to do with what the noble Lord said a few moments ago about selling British Gas in tranches. We look forward to having further discussions on Report.
§ Lord Brabazon of Tara
I shall certainly look at the first point that the noble Lord makes and write to him. If there is any way in which the Bill can be improved by taking account of the suggestions that the noble Lord has made, we shall be delighted to do so.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 144V and I44ZZA not moved.]
§ Clause 54 agreed to.353
§ Lord Diamond moved Amendment No. 144VZA:
§ After Clause 54, insert the following new clause:
§ ("Rate of dividend on ordinary shares.
§ .—(1) The Secretary of State with the consent of the Treasury shall decide the maximum rate of dividend on ordinary shares payable by the successor company and shall, after every subsequent period of five years, review the position and, with the consent of the Treasury, decide the maximum rate for the ensuing five years.
§ (2) In reaching the decisions referred to in subsection (1) above the Secretary of State shall have regard to the need to maintain a fair balance between the interests of the shareholders and of the consumers of the products of the successor company.
§ (3) The decisions referred to in subsection (1) above shall be implemented by order subject to approval by both Houses of Parliament.")
§ The noble Lord said: This amendment, as opposed to the previous amendment that I had the opportunity of moving, is not, as the Minister was good enough to say then, a novel idea. There is nothing novel at all about this amendment. I am going back to ancient history and precedent. The amendment proposes that the Secretary of State, with the consent of the Treasury, shall decide the maximum rate of dividend on ordinary shares payable by the successor company. This limitation of dividends was absolutely standard, as noble Lords will recollect, with all utility companies. Why?—because you have to reconcile the philosophy of maximising profit in the interest of the shareholder and maximising service in the interest of the consumer. You have to marry those two philosophies where you have a monopoly affecting the consumer on a large scale. That is what utilities were. They had their monopoly. Some exist now—for example, some water companies. The water company that supplies me with my water is such a one. You have the situation where a fair balance between these two philosophies has been arrived at. You get a dividend, but it is a limited dividend. So the consumer is looked after as well as the shareholder.
§ We are moving over from a public monopoly where the motivation is service to a private monopoly where the motivation is profit. Therefore, the interests of the shareholder are predominant unless the consumer is protected. We spent a great deal of time on Part I of the Bill trying to devise better protection for the consumer. Here I am saying, why not do what we always used to do and to a certain extent still do and have a method of restricting slightly the principle of maximisation of profit so that the consumer, who would otherwise be inadequately represented, can have his interest represented as well?
§ That was the philosophy behind the limitation of dividends on all the utilities, for example, which went into constituting British Gas Corporation which will now be privatised. It will be privatised as one organisation. It may be right in terms of maximum efficiency. I do not know enough about it to say yea or nay, but that argument has taken place and the British Gas Corporation has won the argument to satisfy the Government that it should be continued as a single integrated organisation.
§ That is well and good. But one still has the situation where with the private monopoly the consumer is put at a disadvantage unless there is a suitable small brake placed on the principle of maximisation of profit. This 354 has been done over the years, but I am suggesting that it could be improved. The amendment therefore proposes that the Secretary of State shall decide on a maximum rate of dividend on ordinary shares payable by the successor company—that is the dividend limitation—and shall, after every subsequent period of five years, review the position and decide the maximum rate for the ensuing five years.
§ In short, I am not saying to any private enterprise company, "This will be your maximum dividend for all time." I am saying, "This will be your maximum dividend for five years. If your behaviour over the next five years is such as to satisfy the Secretary of State, then you may be able to persuade him to alter in your favour, if you like, the maximum rate of dividend for the following five years."
§ I am not saying that—as was the case in all utility company capital structures, and is the case in a number of utility companies that remain today—the accumulation of profits in reserves is also limited. If one makes a profit and has a limitation on the distribution of profits, what will one do with the profit left over? I was familiar with this when I had to look after that side of the Treasury business when we had dividend limitation. What does one do with the amount left over? Does one limit it or allow the companies to accumulate it? In existing utilities there is a limitation on the accumulation of undistributed profit; that also applied in utilities which no longer exist.
§ I am not proposing that that should apply here. I am proposing that there should be greater encouragement for the shareholder through knowing that there is no limitation on the accumulation of profit. It is perhaps erring slightly too far in favour of the shareholder, but I have to deal with the Committee as I find it. I have to convince the Government to move a small way if they will not move the full distance. I am proposing that there should be dividend limitation, but for only five years and reviewed every five years. I am not proposing that there should be limitation on the accumulation of undistributed profits. There is therefore every encouragement for the new gas plc to be efficient, to make as much profit as possible through efficiency, but not to rest on its laurels, because it will be reviewed every five years.
§ I think that this is a way forward. It is a way that tries to marry the two principles which are represented on the two sides of the Committee. It is a fair half-way house. I think that it would work very well. I beg to move.
§ 10 p.m.
Lord Bruce of Donington
For our part, we should like to commend this amendment to the Government on grounds of prudent finance and prudent administration. The position of the consumer vis-à-vis the shareholder will of course be dealt with very largely, and certainly in the short-term, by the figure that is put upon the efficiency factor incorporated in the price determination formula. This is the way in which the short-term position of the consumer can be safeguarded, provided that the efficiency factor is put 355 sufficiently high, without of course damaging the company, to ensure consumer protection against any undue increases in price that arise following privatisation and following the removal from the corporation (which then, of course, is a plc) of the political constraints that have exercised some influence, and which continue to exercise some influence, over the corporation itself.
I think that the noble Lord, Lord Diamond, would agree that in the main his proposal deals with the other aspect of the matter. Quite clearly, any restriction on the amount of dividend distributed has little impact upon the total equity capital and income rights together of the shareholder, because what is not distributed in dividend remains to the credit of the reserves and therefore in the worth of the shareholding.
The amendment ensures that a tendency in the case of this monopoly—and it will be a private monopoly—to go for undue dividend distribution for the purposes of keeping up the share price and satisfying the short-term interests of shareholders shall not result in starving the company of its own reserves, which it could use on research and development, as extra working capital, or whatever it might be. As Members of the Committee know perfectly well, it is a very unsound policy indeed to distribute all your profits as dividends, even after making due allowance for depreciation and so on. Provision has to be made for research and development, and provision has to be made in the case of an expanding business for additional working capital.
This amendment tries to ensure a broad public attitude—the attitude of sound public finance in industry and administration—notwithstanding the temptation afforded by privatisation and shareholder pressures on the directors of the privatised company, which will undoubtedly ensue. There are references in today's press to the growing tendency to have regard to short-term interests and high dividends in order to ensure that a public policy is pursued with the minimum of constraint over a monopoly which will not now be under political control but which will be entirely in private hands.
§ Lord Brabazon of Tara
As the noble Lord, Lord Diamond, explained, the amendment seeks to give the Secretary of State control over the maximum rate of dividend payable on ordinary shares by the successor company. The whole purpose of privatisation is to free British Gas from interference by government in its affairs, to which it is subject at present, and to provide for real public ownership so that consumers and others can take a personal stake in the industry whose services they use.
It is therefore right that British Gas, like any other private sector company, should be able to decide on the appropriate level of dividend and that investors should be able to benefit from their investment through dividends related to the company's performance and not subject to artificial constraints imposed by the Government.
356 The noble Lord, Lord Diamond, spoke about the protection of the consumer in a public monopoly. We have been over these arguments on many occasions during the last six and a half days of consideration of this Bill. This is a highly regulated regime we are imposing on British Gas so far as the tariff customer is concerned. As we have indicated on many occasions, the contract and industrial customer has no wish to be a part of this regulated regime and is quite happy with the arrangements we have set.
The noble Lord, Lord Bruce of Donington, spoke about the efficiency factor in the price formula. This, I have to say, is a decision which the Government have made after a great deal of thought. We believe that price control, not profit control, is by far the best way of ensuring the best both for the shareholders and for the consumers. What the amendment of the noble Lord, Lord Diamond, really seeks to introduce is profit control. Profit control gives no incentive for the company to improve upon its efficiency. Therefore, we have introduced this strict formula of price control so far as the tariff customer is concerned.
Turning now to the point which the noble Lord made that he would not restrict profits, only dividends, I quite accept that. In my opinion, this would only lead to the accumulation of massive reserves by the company's management, which I do not believe would encourage efficiency on their part. I cannot accept that this would be in the interests of either consumers or shareholders. The noble Lord, Lord Diamond, said that dividend control was not a novel idea. I realise that it is not a novel idea, because it was one of the first things which this Government removed when they came into office in 1979. Therefore, I do not think the noble Lord will be surprised that we cannot accept this amendment.
§ Lord Diamond
I wish the Government Ministers would get some of their facts right, because it would save so much time. The Government did not remove dividend control. There are utility companies existing today supplying water with dividend limitations. I do not know what the noble Lord the Minister is talking about, or who briefed him to make that statement. They are carrying on today. The noble Lord said he wants this new company to run as all other companies run.
All other utility companies supplying utility products in this way, and with a monopoly, have had, and the few remaining ones still have, dividend limitation. I am asking for the normal; it is the Government who are insisting on the abnormal.
The Government say that the proposal I make is profit control. I just do not know what words mean if the Government really believe that. I have especially said there is no profit control: there is limitation on the distribution of profit; there is no limitation on the retention of profit. I said it, and the amendment itself says it.
It really is heartbreaking that the Government are not prepared to treat seriously any single amendment we have moved on this Bill from the word "go". The consumer is not adequately protected. Our whole argument has been that the method of regulation is totally inadequate. The noble Lord the Minister comes along and says there will be a vast accumulation of 357 profits and that is not an encouragement to efficiency. No, it is an encouragement to reducing the price. If you do not want to make such profits you reduce the price to the consumer; that is the philosophy behind the dividend limitation in utility companies at the present day as I am standing here addressing your Lordships. We must be living in totally different worlds. I get my water every day from a company which has its dividend limitation. So I can only say that the Government are not treating any of our amendments seriously. I give up in despair, and beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 55 agreed to.
§ Clause 56 [Temporary restrictions on successor company's borrowings, etc.]:
§ 10.15 p.m.
§ On Question, Whether Clause 56 shall stand part of the Bill?
§ Lord Stoddart of Swindon
The Committee will note that we gave notice of our intention to oppose the Question, That Clause 56 stand part of the Bill. We put down no amendments to the clause but it is an important clause and we had intended to have a debate.
However, time is getting on and we have given our undertaking that we shall finish the Committee stage of this Bill by 11 o'clock, and we intend to see that that undertaking is honoured. But I want to make the point that it has not been possible for us to probe and examine this Bill in the way that we should have liked to. Having made that point, I now sit down and will allow Clause 56 to proceed without a Division.
§ Clause 56 agreed to.
§ Clause 57 agreed to.
§ Lord Bruce of Donington moved Amendment No. 144VA:
§ After Clause 57, insert the following new clause:
§ ("Pre-transfer provisions relating to the Corporation.
§ .The accounts for the Corporation for the year ended 31st March 1986 and for each succeeding completed year prior to "the transfer date" provided for in section 49 of this Act and for the period from the last completed year until "the transfer date" shall be prepared under the same current cost accounting principles as those used in the preparation, presentation and publication of the Corporation's accounts for the year ended 31st March 1985 and shall include, in addition to those particulars required by the Companies Act 1985 section 228 and where applicable section 229 of that Act, detailed statements comparable with those contained in the Corporation Annual Report and Accounts for 1984–85, with the following sub-heads:
- (a) ten year financial summary to and including the end of the year covered by the accounts submitted;
- (b) statistics for the industry for each of the ten years up to and including the end of the year covered by the accounts submitted;
- (c) statistics for the Regions for the year covered by the accounts submitted;
- (d) performance ratios for each year for the ten year period to and including the year covered by the accounts submitted.")
§ The noble Lord said: In order to save the time that was lost by the Government's half-hour underestimate of the business taken at 7 o'clock, and in view of our undertaking, with the Committee's permission I shall 358 discuss this amendment with 144VB and 144VC, even though they would normally have been due for separate consideration.
§ I am aware that particularly at this time of night, and perhaps even in broad daylight at a more reasonable hour, it is difficult to discuss matters of accounts. Accounts are not the most interesting subject to induce a sense of ecstacy in Members of the Back Benches on either side of the Committee, unless of course they have a specialist interest in these matters. Because of the existing composition of the Committee, I assume that there is an intense interest in accounting matters among those who are present this evening.
§ The purpose of the first amendment is clear. We have had no indication from the Government yet as to when the transfer date covering the transfer of the assets and liabilities of the corporation to the successor company is going to be. There have been many rumours. What this first amendment seeks is to ensure that for each completed year up to the date of transfer and after 31st March 1985—which therefore includes the year ended 31st March 1986—and for each succeeding completed year before transfer date, or if the transfer date comes before the completion of another year, accounts are presented in the same form as the accounts that have been presented for the year 1984–85.
§ I should have thought that this was a modest and reasonable amendment. Any director of a company, or any person in public life who has become accustomed to the desirability of the presentation of accounts on the basis of consistency, which is the accepted standard practice thoughout the industrial world and the City of London and adopted by all professional accounting bodies, would regard this as being a desirable thing to do. It may well be that the friends of privatisation, who are so ideologically hidebound, think themselves quite free to abandon ordinary commercial standards, industrial standards and accounting standards. They have shown a degree of eccentricity in this respect, as I have explained before, whenever it has suited their purpose.
§ But there is an additional reason for moving Amendment No. 144VA, because the accounts as published by the corporation for the year 1984–85 contain a great deal of valuable information which strict compliance with the Companies Act 1985 does not require. It publishes much information which is surplus from the point of view of the rigid requirements of the Companies Act. The corporation is under no legal obligation at the present time to give all this additional information that has been of such value to the country as a whole, or those sections of the community who see it as their task (self-appointed or otherwise) to have some regard to the public interest. So the amendment provides, as the Committee will note, that the various particulars that I have ventured to set out, and which any of the Committee will see already reproduced in the accounts for the year 1984–85, are continued on until the transfer date.
§ The next amendment carries the same principle forward. It endeavours to impose a responsibility on the successor company for publishing its accounts in exactly the same way. This matter was dealt with by the energy committee in another place in its first 359 report, The Regulation of the Gas Industry, House of Commons Paper No. 15.
These are the conclusions at which the energy committee in another place arrived and which are set out at paragraph 71 of its report, on page xxviii. I quote:
In its comments upon the evidence of the Electricity Council, BGC disputed the Council's suggestion that after privatisation it should … be subject to any accounting requirements other than those applying to any other private sector company".
That refers to the statutory provisions under the Companies Act 1985. The quotation continues:
We reject this argument on two grounds. Firstly, British Gas will not, by and large, be competing with other private sector companies but with nationalised energy suppliers. Secondly, its continuing effective statutory monopoly in the gas tariff market, and the legacy of its historically privileged position, means that it will not be comparable to normal private sector companies. It can retain customers with relatively little effort and obtain profits with relatively little risk. In return for this privilege it must accept that it is required to demonstrate openly that it is acting for the public good, as must other monopoly energy suppliers".
I should like to refer the Committee, if I may, to the further observation that has been made by the Electricity Council. At page 182 of the same report, which covers the memoranda submitted to the energy committee and whose conclusions I have already dealt with in my earlier quotation, the Electricity Council says this:
With the exception of the Scottish Electricity Boards, both industries' published accounts are on a current cost basis and show separately the results of their trading activities. After privatisation, comparisons between the industries will continue to be made; therefore, the published accounts of the successor company to the BGC should be on the same basis and in the same format as that currently adopted by the Corporation".
§ So I present the Committee with the considered view of the all-party committee in the other place and with the extract from the memoranda which was carefully considered by the committee in another place and upon which its opinion was grounded. I hope therefore that the Committee will acquit me in any way of being partisan about this matter. There is no question of party politics being involved in it. It is purely a question of good administration.
§ The other parts of Amendment I44VB endeavour to put some further requirements on the new successor company from accounting standpoints than are already the responsibility of British Gas. The reasons for that are very simple. The amendment itself—and for the purpose of saving time, I shall not read it aloud which I am quite sure the noble Lord will appreciate—seeks to have reproduced in the published accounts those vital statistics that will be used by the director general in determining the mathematical outcome of the application of the price-fixing formula. So the directors' own calculations and own conclusions can be checked and can be commented upon on the basis of the published accounts of the new successor company. These additional requirements, which are in fact very minor in a way because they arise only from an analysis which any spreadsheet or computerised spreadsheet will show very quickly and throw up almost instantaneously, impose no particular responsibility on the new British Gas plc.
§ The third amendment deals with the whole question of transparency and impinges once again on the 360 necessity for the transactions that are involved in this whole sordid business to be made as open as possible. We know quite well that the Government very much prefer to keep everything under a mist of ambiguity which the friendliness of their own media of course faithfully conceal from the British public. But at least perhaps those independent journals that are still capable of producing news and facts that are unpalatable to the Government will be able to obtain the information that they require.
Amendment 144VC provides that, in continuation of what I have already put forward in the other two amendments:
All the property, rights and liabilities passing from the Corporation to the successor company under the provisions of section 49 of this Act shall be transferred at the value stated in the Accounts of the Corporation as at the transfer date.
This is normal commercial practice on the takeover by one company of another and it ought to present the Government with no particular difficulty unless it reveals too much.
Then it stipulates:
Within three months from the transfer date or within the period from the transfer date until the first exercise by the Secretary of State of his powers under section 54(5) of this Act, whichever is the less, the Corporation shall prepare, present and publish a statement of affairs showing it financial position immediately following the transfer date".
So we know exactly the opening position accounting-wise of the successor company.
The amendment continues:
At the conclusion of the transitional period provided for under section 57 of this Act the Corporation shall prepare, present and publish a full account showing its transactions up that date from the date
with which the previous subsection dealt.
§ I am well aware that all this sounds very complicated indeed, but there is, in fact, no complication at all. It seeks to lay open to the public gaze, particularly to independent newspapers like the Financial Times—which I am happy to say is still almost unique in having a reputation for complete veracity—and to the discerning individual, who may be interested in public affairs and may not always care to rely on leaked Government statements or blanket statements of ambiguity, the facts about what has happened. So, as I said, the last amendment provides in respect of each critical date—the transfer date and the first flotation date—a complete statement of the accounting position, and of the transactions that have taken place between the dates, so that everybody knows what is happening.
§ I fear that I have detained the Committee a little long on these three amendments. I am afraid that I cannot apologise for that, because these accounting matters are a little complicated and one's powers of exposition on matters in which one is professionally engaged on a day-to-day basis very often result in utterances in some kind of code, but I have tried to avoid that by explaining these amendments in comparatively simple terms. I sincerely hope that the amendments will find favour with your Lordships. I beg to move.
§ Lord Belstead
The noble Lord has moved Amendment No. 144VA and spoken to two other 361 amendments. They are of some complexity and I shall do my best briefly to reply to the noble Lord's thorough exposition of his case. The first amendment, on which the other two really hang, is an attempt by the noble Lord to ensure that there shall be absolute and transparent honesty in the accounts of the corporation in the run-up to privatisation.
I would just say on Amendment No. 144VA that the attempt here to require the corporation to prepare accounts for the year ended 31st March 1986 and any subsequent period in accordance with a prescribed accounting principle—namely, current cost convention—and also to require that these accounts should include prescribed detailed financial statements, statistics and ratios, goes well beyond the Companies Act requirements. The amendment would put in place statutory requirements where none existed in the past, as the noble Lord said, and which would be unacceptable because they are far more stringent than those which currently apply to other statutory bodies.
I do not believe it would be right to accept the amendment for a further reason; that is, that the timetable for the passage of the Bill, and for when it receives Royal Assent, is a matter for Parliament. Should this take place after the publication of the corporation's annual report and accounts for the year ended 31st March 1986 the amendment would effectively introduce retrospective legislation. At any rate, the preparation of that annual report and accounts, in compliance with the requirements of the 1972 Act and the directions given by my right honourable friend, is already at an advanced stage. I should like to make it crystal clear in replying to the noble Lord that these accounts can be expected to include relevant and useful detailed statistics, ratios and supplementary financial statements for an appropriate number of years.
The noble Lord said that the second amendment carried on the logic of the first amendment so far as the successor company is concerned. Yes, indeed it does, but if I may say so I do not think it is appropriate for us to state in primary legislation whether the historic or current cost accounting basis should be used by a private sector company. Condition 2 of the draft authorisation requires British Gas to draw up accounts for the gas supply business as a whole, and gives a clear role to the director in scrutinising the allocation of cost between the gas supply business and any other business British Gas undertakes. This will ensure that proper accounts are drawn up which represent a true and fair view of the gas supply business, separate from the other activities that British Gas undertakes, such as appliance trading. The condition also requires the accounts to be audited—an important point overlooked in the amendment.
But in undertaking activities outside gas supply, such as appliance trading, British Gas will be in competition with other companies. We have previously been over the ground that regulation ought to be confined here to where it is needed—namely, to gas supply. It is inconsistent with this approach to seek to regulate the accounts relating to activities outside gas supply, as this amendment would seek to do. The amendment would also require separate accounts for tariff and non-tariff sectors of the market. The noble Lord will forgive me if I say that we have been over this 362 ground more than once in the past and the noble Lord is familiar with the reasons why the Government have resisted that suggestion.
Finally, the noble Lord has put forward a very complicated amendment which is divided into three parts. Perhaps I may reply only to the first part of it. The effect of Amendment No. 144VC would be that all the property rights and liabilities passing from the corporation to the successor company would be transferred on the basis of their values as at the transfer date and would be recorded in the accounting records of the successor company at these values. This is contrary to what is provided in the Bill as drafted, and I would just make clear that Clause 55(4) of the Bill provides that for the purposes of any statutory accounts of the successor company the vesting shall be deemed to have been effected immediately after the end of the last complete financial year of the corporation ending before the transfer date, and that the value of any asset or liability vested shall be taken as the value assigned to it in the accounts of the corporation at that date.
I should like to think that the answers to the three amendments which the noble Lord has put to the Government, although I know they do not go down the same road as the noble Lord would wish, do show that we are making provision in the Bill and in the authorisation for accounts which will accord with what the noble Lord wants, which is a clear demonstration of what the facts are in the company at the moment of privatisation.
Lord Bruce of Donington
I thank the noble Lord for the tone and tenor of his remarks in reply to the representations I ventured to make on behalf of these three amendments. I am not at all surprised that the noble Lord speaking for the Government has been unable to accept the amendments. I fear that until a little more mature consideration has been given by those who advise him to exactly what I said, to exactly what the arguments are and to precisely what the implications are, it would be quite useless for me to argue further with the noble Lord.
The noble Lord, or, rather the Government (because I cannot attribute these characteristics to the noble Lord as being personal ones, any more than I should wish to do so to the noble Lord who has also been dealing with the matter; I speak of the Government as a whole) have treated the Committee with contempt in regard to this Bill. They have relied entirely on their majority, a very large number of whom have not graced the Committee with their presence except at Division time. The Government have been impervious to any logical argument that has been put forward. They have their briefs, and it has been the brief and nothing but the brief.
It would therefore be useless for me to argue further with the noble Lord, and in view of the time I do not propose to do so. However, I should like to express my complete contempt of the attitude of the Government towards this Bill. Judging from the way that they have ventured to deal with the Bill not only in this Committee but also in another place they must think that the Opposition and the public outside are complete idiots. I shall take the opportunity once again to press these matters at a later stage in the Bill, 363 in the hope that by that time the noble Lord will have taken further instructions as to what his responses should be. In the meantime I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 144VB and 144VC not moved.]
§ Clause 58 [Statements in connection with flotation]:
§ On Question, Whether Clause 58 shall stand part of the Bill?
§ Lord Williams of Elvel
I seek very quick clarification from the noble Lord on Clause 58. I have warned the noble Lord that I would be seeking such clarification. Clause 58 refers to the immunities that are granted under the Bill as drafted to various people. They are the Crown, agents of the Crown, those acting on behalf of the Crown, directors of the company, persons responsible for the preparation of, or of any part of, the listing particulars, and so on. All that is perfectly clear. The clause states that those immunities shall apply provided that the Council of the Stock Exchange has agreed the prospectus. The Council of the Stock Exchange really is the place where the buck stops.
Under the Financial Services Bill that is being debated in another place at the moment it is the Government's proposal that the Stock Exchange shall equally be granted immunity from civil proceedings. If the Stock Exchange is granted immunity from civil proceedings by the Financial Services Bill, then I ask this question: If there is a misleading prospectus, or if there is a misleading mini-prospectus, who does one sue?
§ Lord Gray of Contin
I am most grateful to the noble Lord for having the courtesy to warn my noble friend that he intended to raise this question. That has given me an opportunity to examine the matter and take advice. The answer is quite simple. Clause 58 gives exemption from liability only where the mini-prospectus is not misleading if read with the full listing particulars. If it is misleading, there is no immunity. The clause does not affect liability for statements made in the full prospectus. If those statements were shown to be misleading, liability would follow for those making the statements in the normal way.
The purpose of Clause 58 is, however, to permit the publication of a summary of the full prospectus for marketing purposes, and to ensure—so long as that summary, taken together with the full prospectus, would not be misleading—that no liability arises merely because it is a summary. However, if the summary and the prospectus taken together mislead, liability remains in the normal way. I hope that explanation answers the noble Lord's query and that it will enable him to allow Clause 58 to stand part of the Bill.
§ Lord Williams of Elvel
I am most grateful to the noble Lord. In fact it does not finally answer my query, but perhaps I may take up the matter with the noble 364 Lord privately and have a conversation about it. It is a very important point.
§ Clause 58 agreed to.
§ Clause 59 agreed to.
§ Clause 60 [Tax provisions]:
§ [Amendment No. 144W not moved.]
§ Clause 60 agreed to.
§ [Amendments Nos. 144X and 144Y not moved.]
§ Schedule 6 agreed to.
§ Clause 61 [Interpretation etc. of Part II]:
§ [Amendment No. 144Z not moved.]
§ Clause 61 agreed to.
§ [Amendment No. 145 not moved.]
§ Clauses 62 and 63 agreed to.
§ 10.45 p.m.
§ Lord Ezra moved Amendment No. 146:
§ After Clause 63, insert the following new clause:
§ ("Right of vendor of gas not to supply certain information.
§ .—(1) A potential vendor of natural gas to a public gas supplier may elect not to supply certain information to the public gas supplier, for the purposes of relevant negotiations, provided—
- (a) that the public gas supplier would be able to obtain an unfair commercial advantage from the said information, if he was in possession of it;
- (b) that the vendor has the information's conclusions verified by an independent expert; and
- (c) that these conclusions are communicated by the said expert to the public gas supplier.
§ (2) The said expert must be agreed between the parties and approved by the Secretary of State.
§ (3) In the event of the public gas supplier, by reason of such election, discriminating against such potential vendor in any matter, he shall be guilty of an anti-competitive practice, as specified in the Competition Act 1980 and the matters covered by this provision include, without limitation—
- (a) the conduct or further conduct of the relevant negotiations; and
- (b) the agreement or award of any contract to cover the whole or part of the natural gas to which the information relates.")
§ The noble Lord said: This amendment is designed to strengthen the impact of Clause 63. It deals with information which could be used to create an unfair competitive situation. The difficulty with Clause 63 is that the information is passed in the first place and restrictions on its use are then imposed. The purpose of the amendment is to ensure that in certain circumstances when a potential vendor of natural gas to a public gas supplier feels that he has to pass to the gas supplier certain information which is relevant to the negotiations he is undertaking for the sale of the natural gas, such information is not used to unfair commercial advantage. Therefore, the proposal is made that in those circumstances the information should be passed to an independent expert who would be agreed by the parties concerned and approved by the Secretary of State.
§ I am aware of the fact that a number of enterprises involved in the exploration and production of natural gas, both onshore and offshore, are concerned about the situation which could arise from the new gas corporation plc having a dual capacity—namely, as far 365 and away the biggest purchaser of natural gas for resale on the one hand and being involved in the exploration for natural gas on the other; and probably also for oil.
§ I suggest to the noble Lords opposite that this new clause is a reasonable extension of the measures in Clause 63 to ensure that there shall be fair competition in those circumstances. I very much hope that they will enable us to depart from these lengthy deliberations with a slightly lighter step than we otherwise might by saying that they will consider this, the penultimate amendment on the Marshalled List. I beg to move.
§ Lord Belstead
As the noble Lord recognises, Clause 63 has been included in the Bill to deal with the problem which he outlined. It will enable my right honourable friend to give a direction to a public gas supplier to ensure that no unfair commercial advantage is gained from information acquired in the course of gas purchase negotiations. The intention of the Government is to give a direction to British Gas which requires the company not to pass on geological and geophysical data obtained during gas purchase negotiations to people in the company or any associate company who are involved in obtaining licences or interests in licences, and the direction will apply to all negotiations for gas supply.
The proposed new clause of the noble Lord would add to these arrangements a right for companies to choose not to make information available to British Gas at all. Of course there is nothing in the Bill or the law as its stands at present which requires companies to give information to British Gas against their will. The Government are indeed aware that some companies have their own in-house rules about the types of information that they are not prepared to reveal to British Gas. But I think that we need to recognise that it is of genuine importance for British Gas that it should be an informed buyer. The contracts that it concludes with gas producers typically require it to buy all the gas that can be produced from the field in question, and it is therefore of the first importance that it should be satisfied about the quantity of gas that is likely to be produced from the field and also that the field will produce at the annual levels and at the swing promised by the producing company. If British Gas were prevented from satisfying itself in this way, there would be a greater degree of uncertainty about its future gas supplies. It is for these reasons that we have Clause 63 in the Bill.
May I just add that I realise that the new clause provides that if a company chooses not to provide information it will provide British Gas instead with the conclusions to be derived from the information, verified by an independent expert. I am uneasy about this provision. Certainly, as a result of the discussions that we have had this evening, we shall have a look at it but I am sure that the noble Lord will recognise that there may be circumstances in which an expert acting in a go-between role, though he has a valuable part to play, can also be fallible. The answers which experts give can depend on the precise questions that they are asked, and confidence in their judgments is bound to be diminished when there is no opportunity to test and question their judgments against the raw data on which they are based.
366 It is for those reasons that I feel I must say that in Clause 63 we have put into the Bill something which is of value, and we should certainly hesitate hard and long before departing from it.
At the end of this very long Committee stage, it would be churlish of me to say to the noble Lord, Lord Ezra, who has been here from the beginning to the end of these proceedings, that I shall not look very carefully at what he has said, but I hope that perhaps on his side he will look carefully at the Government case also.
§ Lord Diamond
As this is in fact the penultimate amendment on the Marshalled List and is the last amendment on that list to be moved, may I say first of all on behalf of these Benches that we are very grateful to all the Ministers who have taken part in this long Committee stage and who have been here? I cannot go so far as to say that they have listened to the arguments, but they have been here and for that we are grateful. I can congratulate them on their intense loyalty to the Government. Every amendment where the brief was headed "Resist" has been resisted with the utmost vigour and obstinacy.
If I may now be serious, I started the proceedings today by making it clear that so far as these Benches were concerned, we should terminate proceedings by 11 o'clock. Clearly we shall be doing that, albeit difficulties were added to that already immensely difficult task by the dinner break extending for an extra 22 minutes.
Although one would have thought from listening to the responses of the Government for the last 20 minutes or so that they were listening to the arguments—and although for the whole of the period that we have been honoured with the presence of the Leader and the Deputy Leader of the House, the Ministers have been particularly courteous—I hope that the Leader of the House will be good enough to instruct someone to analyse today's proceedings for him, because I am hound to say that so far as I am concerned I do not think that the Government have treated our amendments seriously at all. They have not read them, they have not been prepared for them, they have not dealt with the essential points; and I think that they have relied on my foolishness in saying at the start of the proceedings that they would be brought to an end by 11 o'clock. I feel that very seriously, and it would be wrong of me to hide that from the Committee.
Having expressed my gratitude to the Ministers, I leave it to my noble friend to decide what he will do on this amendment.
§ Lord Stoddart of Swindon
I agree with the sentiments of the noble Lord, Lord Diamond. I agree with him very much in thanking noble Lords opposite for their attendance and for the courteous way in which they have replied to the many debates on the Bill. But like the noble Lord I have to express my complete dissatisfaction with the replies and the attention given to our arguments.
The Leader of the House is here. He has not been here throughout, and we understand that. He has many things to do, and we appreciate what he does for 367 the House. I ask him to take due note when he reads Hansard of the co-operation of all sides of the Committee in drawing the debate to a close at 11 o'clock. We have withdrawn very many amendments that were important, and we shall come back to them. It is a complicated Bill and it needs time to probe it. We have not had sufficient time to do so. We shall come back to the Bill full of vigour and with many amendments at the Report stage.
§ Lord Ezra
I was pleased to note that the noble Lord, Lord Belstead, said that he would take Amendment No. 146 away and have a look at it. In so doing I ask him to bear in mind the concern on the part of potential vendors of natural gas about the difficult position in which they may be put in dealing with such a powerful, dual-functioning organisation as the new British Gas plc. They feel that the proposal for the intervention of an independent expert in certain cases would be fair to both sides. In seeking to sell the gas they will have to reveal to somebody the relevant technical information. In certain cases where that geological information could be misused, they would like to do so through a third party approved by all concerned. With those remarks I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 64 [Provisions as to orders]:
§ [Amendment No. 147 not moved.]
§ Clause 64 agreed to.
§ Remaining clauses and schedules agreed to.
§ House resumed: Bill reported with an amendment.