The Rover Group (Hansard, 14 July 1988)

HL Deb 14 July 1988 vol 499 cc981-9 981

§ 6.43 p.m.

§ The Secretary of State for Trade and Industry (Lord Young of Graffham)
My Lords, yesterday I informed the House that the European Commission had decided the outline terms governing the state aid for the proposed British Aerospace acquisition of the Government's shareholding in Rover Group. I also explained that BAe had asked for more time to consider the implications of other conditions attached to the Commission's decision.
I should make clear that the points of difficulty for BAe were not related to the basic financial framework of the deal which was acceptable in principle to BAe and which has not changed since yesterday. The issue was the commercial flexibility available to BAe in complying with the Commission's decision. I am however glad to report that talks with the Commission this morning have clarified the position in terms satisfactory to the BAe board.
As I informed the House yesterday, the Commission has approved the final terms of the acquisition after certain changes in the structure and scale of the March agreement. In making this judgment, the Commission has recognised the important implications for competition and restructuring in the European vehicles market through the return of Rover Group to the private sector. It has also taken note of the prospects for the development of the company, on the basis of Rover Group management's plans which BAe has endorsed.
Under the revised arrangements it has been agreed that some residual items of trading debt should remain on the balance sheet. The revised terms also take account of the continuing improvement in Rover Group's financial performance since the talks with BAe were launched. I am sure the House will have welcomed the improvement in the half-year results which Rover Group announced today. These show a profit before interest of £28.8million compared with a loss of £10 million for the same period last year.
On this basis, BAe will still pay £150 million for the Government's shareholding in Rover Group. The precise timing of the payment will follow the clarification of certain tax matters arising out of the change of ownership of the company. The Government, BAe and the Commission have also agreed a new cash injection of £547 million comprising £469 million in recognition of historic debt and £78 million to support part of the Rover Group's investment programme in the assisted areas.
In addition, we have agreed material changes to the tax provisions of the March agreement. There has been no change in the provision that only £500 million of Rover's existing trading losses will be available after it has been acquired by British Aerospace. But we have agreed to remove two other tax restrictions which were in the earlier agreement. These will give the BAe group the same freedom as any other company has under tax law to utilise some £200 million of Rover Group's capital losses and up to £300 million of disclaimed capital allowances. Estimating the value of these tax benefits is a matter for BAe, though they are clearly very significant.
982 I should like to pay tribute to the contribution made by Graham Day, his management team and workforce whose skills and hard work have permitted the return of 18 Rover Group businesses to private ownership since May 1986. They have now raised the performance of Rover Group to the point where it can look with confidence at its final return to the disciplines of the market place, as part of one of the major engineering groups in Europe.
I am certain the return of Rover Group to the private sector will prove to be in the best interests of the company, its employees and dealers as well as the many thousands of others in the supplying industries whose livelihood depends upon the health of Rover Group. The deal also means that, subject only to approval at an extraordinary general meeting of British Aerospace, we shall have returned to the private sector the last of the constituent parts of what was once British Leyland.

§ 6.47 p.m.

§ Lord Williams of Elvel
My Lords, the House will be yet again grateful to the noble Lord for his Statement on the Rover Group, which I believe is the third Statement we have had in this somewhat bizarre soap opera.
The Statement to a certain extent follows and confirms our impression that yesterday there was a serious difference of opinion between British Aerospace and the Government, and possibly the Commission, which has now been resolved. My first question to the noble Lord is: can he tell us exactly what was the point at issue? If the British Aerospace board had accepted the financial terms of the Commission was it, as we have read in the press this morning, that the hoard was worried that the Commission was proposing to look over its shoulders at the Rover Group's corporate plan after acquisition?
I also ask the noble Lord whether the Commission in any way departed from the statement it issued today that it would not change the terms on which it agreed to this transaction? It is of great importance to know who gave what, and where, in order to get this deal finally put to bed. I should be grateful if the noble Lord will tell us whether it was the company, the Commission or the Government.
The sentence that I am particularly concentrating on occurs on the first page of the Statement. but for the benefit of your Lordships I shall read it out again: I am however glad to report that talks with the Commission this morning have clarified the position in terms satisfactory to the BAe board.". That seems to be the fundamental point upon which we need further comment from the noble Lord. I ask the noble Lord what is meant by the expression: The precise timing of the payment will follow the clarification of certain tax matters arising out of the change of ownership of the company. That relates to the payment of £150 million to the Government for their shareholding in the Rover Group. The noble Lord will know from our exchange yesterday that we have certain serious doubts about the potential—it is only the potential—legality of what is happening.
We are concerned about the potential precedent that might be created if the Inland Revenue were to 983 give clearance as regards this particular matter, whereas it would not normally give it to a private sector company. We should like that point finally cleared up. Can the Minister also give the House an estimate—I recognise that he will say it is for British Aerospace to do so—of the benefits of the Rover Group capital losses and the disclaimed capital allowances that are now in the deal, whereas they were not part of it before? There must be some figure that British Aerospace has communicated to the Department of Trade and Industry and I believe that it would be appropriate for your Lordships to have it.
Lastly, I note from the Statement that this deal is now subject to an extraordinary general meeting of the shareholders of British Aerospace, as is proper under company law. We must assume that there will be no inducements given to institutional shareholders, or any other shareholders of British Aerospace, in order to secure their favourable vote. We must assume that the inducements have already been given to practically everybody capable of being induced, and that the shareholders will have to make up their minds without further encouragement. The word today is that the shareholders may not be as happy as the Government might like. If the shareholders decide that they do not like this particular transaction, can we be given an assurance from the noble Lord that the Government will stop these adventures and allow the Rover Group to remain as it is without further adventures in all directions of the kind which it has been taking?

§ Lord Hooson
My Lords, I thank the noble Lord for his Statement. Is he aware that on the six o'clock news the contents of this Statement were relayed to the British public? Does the Minister not agree that that is a grave discourtesy to this House?
Turning to the contents of the Statement itself, does the noble Lord not agree that for British Aerospace to shy away at the 11th hour from this deal suggests that there was more to it than mere uncertainty about its commercial flexibility regarding the monitoring processes of the Commission? Can the noble Lord tell the House when the removal of the two tax restrictions was agreed? Was it agreed between the making of the Statement yesterday and the Statement the noble Lord made today? Can the Minister tell us what is the value arising from the removal of those two restrictions?
I appreciate that the noble Lord might have difficulty in quantifying it exactly; but he is obviously of the opinion that it is a very considerable sum. Does it not make up to a very large extent the difference between the original money offered to British Aerospace and the amended figure approved by the Commission? As regards the timing of the payment, can the Minister tell the House whether the timing has been amended; namely, that there is a different formula to be applied now for the payment of £150 million by British Aerospace? When the noble Lord said that he thought that the deal was to the benefit of the Rover Group and its shareholders and workforce, is the Minister equally satisfied that it is to the benefit of British Aerospace and the British public at large?

984

§ Lord Young of Graffham
My Lords, I am grateful to the noble Lord, Lord Williams of Elvel, who asked me what was the problem. That matter was covered in my Statement. The board of British Aerospace, very prudently, wanted to be sure that there was commercial flexibility available to the board in complying with the decision of the Commission. I am sure that all noble Lords will be aware that it was only yesterday morning that the Commission decided this case. British Aerospace very prudently wanted to make sure that it would have sufficient commercial flexibility for the future within the company. That would be consistent with their responsibilities. In answer to another question asked by the noble Lord, and as my Statement said, the talks in Brussels this morning clarified those points to the satisfaction of British Aerospace. Those matters were causing it some doubts. The matter now proceeds.
The noble Lord, Lord Williams, asked me whether there was any change in the terms. In my Statement I stated the position very clearly and I shall repeat it again: I should make clear that the points of difficulty for BAe were not related to the basic financial framework of the deal which was acceptable in principle to BAe and which has not changed since yesterday". That applies to all of the terms of the deal. That statement also applies to a point raised by the noble Lord, Lord Hooson; namely, to the timing and matters of tax. All those conditions remain unchanged. The cause of the delay was the prudent desire on the part of the board of British Aerospace to make sure that it had read all the fine print.
The noble Lord, Lord Williams, asked me about tax. It was yesterday that the noble Lord gave me a little lecture about Section 768 concerning the need to ensure that one has followed satisfactorily the formulas in transferring the ownership of companies and ensuring that one still has the use of tax losses. As I said yesterday to your Lordships—and I repeat again for the benefit of noble Lords opposite—the law of the land is followed in this matter. There is nothing unusual: there are no changes and these are the normal tax rules that the Inland Revenue apply to every company in the land. It would be surprising if the Government did anything other than follow their own tax laws. I am happy to assure the noble Lord, Lord Williams of Elvel, that, with the recommendation of the board of directors of British Aerospace, I have every reason to suppose that it has confidence that the outcome of the extraordinary general meeting will be satisfactory. That is a matter for the company alone.
The noble Lord, Lord Hooson, must have seen a different six o'clock news from the one that I saw. To my knowledge the news at six o'clock stated only that I was coming to your Lordships' House to announce my decision. If there was anything else in the news, I am surprised and I shall stand corrected. I shall find it surprising indeed if anyone else had information at that time since it was only a few minutes ago that we were in a position to clear this agreement. I shall check on the position. I am happy to tell the noble Lord that there was no change in timing. The only change that occurred between yesterday and today is that British Aerospace has confirmed and clarified the position in terms which are satisfactory to it.

985

§ Lord Hooson
My Lords, I simply wish to clarify to the House that I was informed by our Chief Whip that this matter had appeared on the news. Obviously, it can be investigated further.

§ Lord Young of Graffham
My Lords, I watch the news very carefully; but I have always found it better to rely upon first-hand evidence in such matters. At that particular time the question was being asked during the programme as to which way the decision was to go. A report was made to the effect that I was expected to come to your Lordships' House at that time.

§ Lord Diamond
My Lords, we are grateful to the noble Lord for informing the House so quickly. We are glad that the matter has been finally resolved in the belief that this will mean securing for this country a motor car manufacturing industry without which no country's economy is strong.
There is, however, one aspect of the agreement which keeps on cropping up and which is bound to cause unease. There are so many references to the tax position that it would appear that this is a tax deal rather than any other kind of deal. I was grateful to hear the noble Lord say that these matters are being subjected to the tax law of the country in the same way as any other company's matters are subjected. It was a considerable relief to hear that.
However, I cannot understand the provision that only a certain part of Rover's trading losses would be available after it has been acquired. Does "available" mean available as tax losses in the normal way? If so, how do the Government, who, as the noble Lord has made clear, arc subject to the same tax laws as the rest of us, secure a provision of that kind? While the noble Lord is dealing with the tax aspects of the matter, can he also say what is meant by a new cash injection of £547 million? Who is injecting the cash? I take it that it is the Government, but the Statement is not at all clear about that.

§ 7 p.m.

§ Lord Young of Graffham
My Lords, I am grateful to the noble Lord, Lord Diamond. Of course the Government follow the normal tax laws of the land. Noble Lords opposite questioned whether we would, but I am happy once again to give the assurance that this is a society in which the rule of law applies, and that rule applies to government as it applies to everybody in the land. I assure the noble Lord, Lord Diamond, that the trading tax losses are limited to £500 million because such has been the glorious experience of the nationalised industry sector that the Rover Group had available to it when we first announced this deal no less than £1,600 million of tax losses. The first arrangement in the March agreement was to limit the availability of the trading losses to £500 million as part of work we were doing on behalf of the taxpayer. That agreement still applies and continues. But part of the arrangements now, reflected in a lower cash injection, is to release part of the capital losses and capital allowances.
The new cash injection of £547 million being paid by the Government to Rover comprises £469 million in recognition of historic debt and some £78 million 986 as an advance payment under regional selective assistance in respect of work which will be done in assisted areas but otherwise in the normal way. That will end with this payment and as the matter becomes completed it will result in the Varley-Marshall assurances which now exceed some £1.6 billion or £1.7 billion falling away, and the Government and the taxpayer will be relieved of this great potential liability.

§ Lord Stoddart of Swindon
My Lords, I listened carefully to the noble Lord's Statement and I also watched most of the news bulletins last night. I heard Commissioner Sutherland say that the agreement that was reached was unalterable. Does the Statement mean that the agreement has been altered, or merely clarified, to the satisfaction of British Aerospace?
Secondly, hearing in mind the Government's philosophy of non-interference with private industry, which was further enunciated by the noble Lord, Lord Beaverbrook, at Question Time today. is the noble Lord happy that British Aerospace. having taken over the Rover Group, should now be subject to supervision by an unelected junta—call it what you like—sitting in a foreign capital? Would he do that if the Commission had not been involved? Would he insist on government involvement in Rover after it had been taken over by another private firm?
We are entitled to know the facts. The workers in Rover and British Aerospace are entitled to know just how far they are to be supervised, not by the shareholders and not by their board, but by a group of bureaucrats who perhaps do not know anything about this industry or, for that matter, any other industry?

§ Lord Young of Graffham
My Lords, I am grateful to the noble Lord, Lord Stoddart. I am not sure whether he is aware of the fact that some years ago we signed the Treaty of Rome and are now part of the European Community. The foreign junta to which he referred is something of which we are part. If the noble Lord wishes, I shall send him some literature on the impending single market in Europe which may have come to his attention. Of course we are part of that. We are bound by Community law and this law has an important purpose.
The noble Lord and the car workers not only at Rover but at all the car companies in the United Kingdom would be concerned if foreign nationalised car companies—foreign in the sense of being part of the European Community—could receive any amount of state subsidies from their own governments and therefore undermine our share of the market. The work done by the Commission in Brussels ensures that there are level playing fields and that all the car companies in Europe get about the same level of state aid from their national governments in order to ensure that there is a fair and competitive market. It is always difficult when bureaucrats supervise companies. That is why my department no longer enters into planning agreements throughout industry, as it did a dozen years ago. That is all to the better and it shows in the industrial state of the nation today. The Commission 987 will ensure—and we will provide it with the information from time to time—that the investment programme of Rover is followed through, and that it is followed through in ways which the management plan for the board has already provided. It is no more than the normal follow-through that occurs when any state aid programme is carried out. It has happened to British Steel all the way through and it happens on most of these programmes. It is a necessary part of ensuring that the level playing fields are regularly mown.

§ Lord Williams of Elvel
My Lords, as a matter of elucidation, will the noble Lord reply to the question which the noble Lord, Lord Hooson, and I asked about the effect of the release of the Rover Groups' capital losses and up to £300 million of disclaimed capital allowances? I recognise that it may be an estimated number but the noble Lord must have some figure that he can give the House.
Secondly, the noble Lord insists that all this is within the tax law. Can he tell us under which section of tax law—I do not say that I do not agree with what he has done—the entitlement to tax loss carry forward is limited?

§ Lord Young of Graffham
My Lords, I can deal with the second part of the noble Lord's question. It will be limited by contract. It is part of the agreement between the Government and Rover Group to limit down to £500 million. The trading losses will be limited to £500 million. That is the only way in which that can be provided. It is part of the tax law of the land. It is only of use to Rover and not of use to British Aerospace unless British Aerospace were to be in the business of manufacturing motor cars. That is quite clear.
The benefit of the other capital losses is a matter for British Aerospace. British Aerospace is the one to value that. It is not for the Government to value those tax benefits. That is something for British Aerospace and British Aerospace alone to do.

§ Lord Hatch of Lusby
My Lords, is it not the case that the publication of the Rover half-year returns demonstrates how a nationalised company can succeed? Can the noble Lord tell the House just how much money the taxpayer has been saved as a result of the intervention of the European Commission as against the taxpayers' money which the Government previously intended to pay on this issue?

§ Lord Young of Graffham
My Lords, I should like to pay great tribute to Mr. Graham Day, to the board and to everyone in the Rover Group, for the splendid results they achieved for the half year. I have the privilege of driving a Rover car. I believe that it is a marvellous vehicle and I wish to pay tribute to it. I think that the company has a great future in the private sector. However, that is not a tribute to its past in the nationalised industry sector because after this transaction is concluded the whole of BL will have cost the taxpayer some £3.4 billion. That does not seem to me to be a great tribute to the nationalised industry sector.
988 It is true that the deal, which has changed considerably since we first went to Commissioner Sutherland, involves a lower cash injection. The cash injection is some £253 million less than it would have been. It now involves a substantial release of tax benefits and also reflects the fact that there has been a substantial improvement in Rover's trading position.
Noble Lords may recall that a year ago when a similar matter went to Brussels there was a reduction of about £70 million—in fact, rather more than £70 million—as a result of the process of going there. I must confess that I was not unaware of the matter before I first went there.

§ Lord Williams of Elvel
My Lords, on a matter of elucidation, is the noble Lord saying that the Commission has cut back on the cash injection and that the Government have made it up by tax relief on the other side?

§ Lord Young of Graffham
My Lords, no; that is not what I am saying. I am merely reporting the difference in figures. At the end of the day, it is a matter of judgment for the board of British Aerospace.

§ Lord Shepherd
My Lords, perhaps I may make an appeal to the Leader of the House. The Secretary of State has fulfilled his obligations and his undertaking to the House that at the earliest opportunity he would report to us in regard to this matter. The question now is whether this is the time when and whether these are the circumstances where this most important issue should be left.
I wonder whether the Leader of the House would consider, through the usual channels, whether this is a matter that could be developed more profitably through a debate—I agree it is at short notice—recognising the difficulties of the Secretary of State, BAe and the Rover Group. We have a Secretary of State here who is directly responsible at this relatively late hour of the evening; we had no prior knowledge that a Statement would be made—a Statement of great major significance. So quite clearly we should consider whether this should be the end of the process.
As I said, I appeal to the Leader of the House—through the usual channels— to consider whether there should not be an opportunity for a debate on the matter and an opportunity for reflection upon the points which have been made by the Secretary of State and other noble Lords. In the interests of both the Secretary of State and I believe this House, because we have the Secretary of State in the House, I wonder whether we ought not to ask the Leader of the House to try to find time for a debate.

§ The Lord Privy Seal (Lord Belstead)
My Lords, I am most grateful to the noble Lord, Lord Shepherd, for saying that my noble friend the Secretary of State has indeed discharged his undertaking to the House by coming to the House today and making the Statement that he has just made. That is the first thing I ought to say.
989 Secondly, I think that we would be going well beyond our own rules of procedure if we were to continue with what is rapidly becoming a mini debate, although I well understand the interest of noble Lords opposite and other noble Lords on all sides of' the House.
Thirdly, I should say that of course I shall consult with the Whips on all sides of the House and use the usual channels to see whether it is possible to have a discussion on the matter. However, I must not mislead your Lordships. As a result of the statement which was made today about the House rising on 29th July for the Summer Recess, we have a congested timetable but we shall, nevertheless, do our best. However, I cannot give an undertaking to the House that we can definitely find time for a debate; I can only give an undertaking that I shall use my best endeavours to do so through the usual channels.

§ Lord Tordoff
My Lords, before the debate is terminated, I think it would be proper for me to say a word about the exchange between the noble Lord, Lord Hooson, and the Secretary of State on the question of the six o'clock news. I must say straight away that I did not see the six o'clock news either. I was informed by what I suppose is called the "usual reliable source" and I passed the information on to my noble friend. If I was misinformed and thereby misinformed him, so that what was said in the House was not true, then I apologise unreservedly.
I shall of course check out my source to find out whether it was perhaps another channel or another part of the media—as the Secretary of State rather aptly pointed out. However, if I am wrong then of course I apologise.

§ Lord Young of Graffham
My Lords, I am most grateful to the noble Lord for what he has said. I shall also check the matter because it would be a grave misuse of privilege if any information were to come other than first to your Lordships' House. I readily understand that and I shall look into the matter. I am fairly certain in my own mind that it did not, but the evidence will obviously clear up the matter.

§ Lord Stoddart of Swindon
My Lords, just before we finish this debate perhaps I may say a brief word.

§ Lord Beaverbrook
Oh no!

§ Lord Stoddart of Swindon
Oh yes! The noble Lord, Lord Young, cast some doubt as to whether I knew that we were in the European Community and that we had passed the Single European Act. I just want to draw his atention to the fact that the noble Lord, Lord Bruce, and I opposed that Act from this Front Bench.

§ Lord Young of Graffham
My Lords, when the noble Lord referred to the Commission in Brussels as a "foreign junta" it led me to suppose that at the time he may not have been totally in favour of it.