British Steel Bill

HL Deb 20 June 1988 vol 498 cc498-554

2.57 p.m.

Lord Beaverbrook

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

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

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD ABERDARE in the Chair.]

Clause 1 [Vesting of property etc. of British Steel Corporation in a successor company]:

Lord Williams of Elvel moved Amendment No. 1: Page 1, line 19, at end insert ("and whose Articles of Association have been laid before Parliament prior to the appointed day.").

The noble Lord said: In the Second Reading debate on this Bill I asked the noble Lord, Lord Beaverbrook, who was winding up the debate, whether the articles of association of the successor company would be available to us. The noble Lord was kind enough to reply, and to write to me confirming his reply, that the Government would not be able to provide draft articles of association of the successor company to the Committee.

I am always grateful to the noble Lord for his attention to detail and I thank him for his letter. However, I am sure that he and Members of the Committee will realise that the question of how the articles of association of the successor company are to be framed is of paramount importance for three reasons. The first is that the articles of association of any public limited company are the guiding document of that company. Although they can be changed by shareholders as the law permits, nevertheless the articles will be ones with which the successor company will be starting, and any change thereafter would have to be approved in proper manner by a group of shareholders. Any change would take place after the company has been privatised and therefore would be open to the scrutiny which is normal in any shareholders' meeting. It is extremely important that the articles of association are right.

The second reason why the articles of association are extremely important is provided by a Written Answer given in another place on 17th May by the Chancellor of the Duchy of Lancaster. He announced that after privatisation the British Steel Corporation would have what is known as a special share—some of us call it a golden share—held by the Government and that this arrangement would ensure that the successor company could not be taken over without the agreement of the Government as special shareholder. Therefore, although there is nothing in the Bill to guarantee that the successor company once privatised cannot be taken over by a foreign competitor or a foreign conglomerate, there will be, we are told, provisions in the articles of association which have that effect. It seems to us that we should be aware of what exactly is spelt out in the articles of association which are to have that effect.

For instance, the Chancellor of the Duchy of Lancaster said in a press release which the noble Lord, Lord Beaverbrook, was kind enough to send me: It is the Government's intention that the articles of that successor company should contain a provision which would restrict individual shareholdings in the company to a maximum of 15 per cent. of the equity. This provision would be protected by a special share in the company to be held by the Government".

A number of serious questions arise from that statement. How can such shareholdings be restricted? Let us suppose that a company—with others or by itself—accumulated more than 15 per cent. in the privatised successor company. What would happen then? Would the articles provide for the triggering of the special share in the form of a voting share, which the Secretary of State of the day could then exercise? On the arrival of 15.1 per cent. of foreign shareholding what would happen to the other shareholders who suddenly saw that the Secretary of State had been able to trigger that right and gained de facto control of the company?

What would happen if there were what are known as concert parties? If Mr. A living in Zurich, Mr. B. living in New York and Mr. C. living in Jersey decided that they wished—possibly independently or possibly in an arrangement—to collect shares in the successor company, who would judge whether they were a concert party and whether they were acting together? Clearly it could not be the articles of association, because articles of association do not cover such a point. What would happen if Mr. A, Mr. B and Mr. C were hiding behind nominee shareholdings? What is an individual? The Chancellor of the Duchy of Lancaster said in the press release that the provision would restrict individual shareholdings. What is an individual? Is an individual a corporation? Is an individual a unit trust, a succession of corporations or a stable of investment trusts? What exactly does that mean?

These are complicated issues which can be seriously debated by the Committee only if it has the draft text of the articles in front of it. The noble Lord has said that for one reason or another the Government are unable to produce the articles. I accept that the procedures of government may not be as fast as they might be. However, I point to the precedent of the Gas Bill. When the British Gas Corporation was being privatised we had in front of us the draft articles of association of the successor company. Those were analogous to the articles of association that are proposed by the Chancellor of the Duchy of Lancaster because they contained analogous provisions—not exactly the same provisions—to prevent a foreign takeover. It seems to me that the Committee is labouring under something of a disadvantage in not having this fundamental document which it can investigate and dissect.

Why are the articles taking such a long time to draft? Anybody who has had anything to do with a public limited company knows that producing the articles does not amount to reinventing the wheel. Many public limited companies have articles which City lawyers could have taken out of pigeon-holes, saying, "Those are the articles of your company". Why are they taking so long to draft?

My amendment does not press the Government very far. It asks simply that the articles of association should be laid before Parliament before the appointed day. I hope the Committee will agree that this is a modest request. I am asking for a statement from the Government of what they propose to put into the articles. I am asking that the articles should be laid before Parliament before the appointed day so that we in Parliament can have an opportunity at least to discuss them according to some procedure. At the very least the articles of association of the successor company should be referred to in the Bill. We should like to know what the Government intend to put into them and to have the timetable for publication which the Government intend to follow. I beg to move.

Lord Grimond

I should like briefly to support the amendment. I have felt for some time that our control over companies, and in particular the denationalised companies, is inadequate. It is almost entirely related to the question of competition. That is why it is always raised when takeover bids are suggested. The future of companies such as British Steel is of great social importance as there could be serious effects upon communities and upon the economy in general. I cannot see why we should not be allowed to see the articles of association which will bind the successor company.

In regard to the golden share, it became apparent in reply to a Question of mine some time ago that the noble Lord, Lord Young, was not aware that independent oil companies were subject in certain cases to a golden share. He kindly wrote to me, apologised and admitted that he was wrong. However, it raises the question of how the Government view the importance of the golden share. Under what circumstances do they expect to use that power, and for what purpose?

The noble Lord, Lord Williams of Elvel, asked what would happen if more than a specified number of shares were to be held by one individual or one company. That matter has arisen and it is not at all clear to me what the Government's action would be in the case of the successor company to British Steel. I hope that we shall have answers to those points and that the Government are considering what amendments are needed to broaden the general public control over situations which constantly arise in industry when takeovers are suggested or when serious social consequences may flow from industrial decisions.

Later in the day the noble Earl, Lord Perth, will raise that matter with regard to Scotland. I have always thought that Scotland's position is particularly important in terms of fundamental industries, of which, at one time, steel was one. I am not in the least opposed to the privatisation of British Steel with proper safeguards. Like the noble Lord, Lord Williams, perhaps I may say that we are not asking for very much. We are asking that what was done in the case of British Gas should be done again.

Lord Beaverbrook

I am grateful to the noble Lords, Lord Williams and Lord Grimond. It may be helpful to the Committee if I begin by explaining briefly the position with regard to the articles of association of the successor company and the ground that they will cover. I shall then turn to the subject of the Government's special share, which is the provision in the articles that is of some interest not only to the Committee but also to many outside this Chamber.

The noble Lord, Lord Williams, asked me at Second Reading whether we would be able to make available to the Committee the draft articles of association that British Steel plc will have at privatisation, as I understand has been done in certain other recent privatisations. In the case of British Steel we shall not be able to follow that precedent. Officials in my department and at British Steel have recently begun to discuss the form and content of the articles. However, they are still some way from being ready for publication. When they are completed, they will be available for inspection in the normal way.

The noble Lord, Lord Williams, has said that the articles must be right. I agree that that is fundamental to the success of the privatisation and to the future of British Steel plc. However, it takes time. The wheels of government do not grind as fast as many of us would wish. We must live with that fact. It will take some little time to make absolutely sure that we get the articles right. For that reason, I am not able to put the articles before the Committee today.

However, I can explain now the general features that will be in the articles. I should point out to begin with that the articles to which this amendment relates—those that will apply to British Steel plc at vesting and while it remains wholly government-owned—will be very basic and simple. They will not contain the special share provisions. Those articles, which I shall call the interim articles, will be based in large measure on Table A scheduled to the Companies (Tables A to F) Regulations 1985, but with certain modifications—

Lord Morton of Shuna

Perhaps the noble Lord will give way. I am completely baffled. We were told that the Bill was to be brought in only as an enabling Bill. We are now being told that the articles of association will be very simple and based on Table A. We are told that the Government have only recently begun discussing the articles of association. Could they not have put everything together before putting the Bill before Parliament?

Lord Beaverbrook

In an ideal world, I am sure that everything would be before us. As I have explained, I am not able to bring the articles before the Committee today. Before giving way to the noble Lord, I was—

Lord Marsh

I am grateful to the noble Lord. Can he give some indication of the basic problem? As the noble Lord, Lord Williams, has said, there is nothing very unusual about articles of association, which are normally drawn up quite quickly, although these will be much more complicated. Many of us on all sides of the Chamber are bewildered as to what kind of problem is causing the delay.

3.15 p.m.

Lord Beaverbrook

Before giving way to the noble Lords, Lord Marsh and Lord Morton of Shuna, I was coming to a point which has bearing on the matter. There will not be one set of simple articles but rather two sets of articles. I shall refer to the first set of articles as the interim articles. They will be based on the Companies (Tables A to F) Regulations 1985 but with certain modifications—for example, concerning borrowing powers—to reflect the Government's ownership.

The second set of articles will be drawn up—the final articles—which will be much more comprehensive and which will apply to British Steel plc after privatisation. Those articles, while being lengthy and detailed, will almost all be similar to those that apply to any large private sector company dealing, for example, with issues such as the conduct of general meetings. The articles will reflect best private sector practice. The major provision in the articles that will be unusual is the Government's special share and the related restriction on share ownership. I shall now turn to that matter.

The noble Lord, Lord Williams, reminded us earlier that my right honourable friend the Chancellor of the Duchy of Lancaster announced in another place on 17th May that it is the Government's intention that the articles of British Steel plc shall contain a provision which will restrict individual shareholdings in the company to a maximum of 15 per cent. of the equity. That provision will be protected by a special share in the company to be held by the Government. The arrangement will thus ensure that British Steel plc cannot be taken over without the agreement of the Government as special shareholder.

It is the Government's intention that those arrangements will last for five years from the date of privatisation and that the special share will confer no other rights on the Government in respect of other provisions in the articles or in respect of voting rights. Apart from the time limit, the detailed wording of the articles dealing with those provisions is likely to be similar to earlier such provisions—for example, in the articles of the British Airports Authority.

The noble Lord, Lord Williams, asked what would happen where a holding of 15 per cent. was built up by a number of people, perhaps acting together but not declaring that they are part of the same camp. The precise terms of the article that will contain the 15 per cent. shareholding are currently being discussed with the corporation. The article will be based on precedents in previous privatisations and will take into account the issues which the noble Lord has raised this afternoon. It is of course our intention that the article should catch people acting in concert. The aim is simply to prevent takeovers during the first five years after privatisation without the consent of the Government.

Lord Williams of Elvel

Perhaps the noble Lord will clarify that. How can the articles catch people acting in concert? That is not the job of articles of association.

Lord Beaverbrook

First, the articles of association must set out the restrictions that we shall seek to apply to shareholdings over and above 15 per cent. Secondly, there are many procedures available to companies in the private sector to discover who is behind shareholdings. The City has developed many rules of that type in the last few years. There are procedures for discovering who is behind nominee shareholdings. At the end of the day, it may well be for the courts to decide whether a concert party exists. However, it is the Government's intention that the full procedures available to any other company in the private sector that wishes to find out who is behind shareholdings in its shareholders list will be available to British Steel. We expect the management of British Steel to be as diligent as any other management in any other private sector company in finding out who is behind shareholdings that are built up in the shareholders list and whether a number of shareholders are acting together.

Turning to the matter of the golden share, it is the case that in some privatisations more far-reaching limitations have been imposed, for example restricting foreign ownership or dealing with the nationality of directors. The Government's policy is to look at each case individually and on its own merits. It is important to start from the basis that it is in principle undesirable to place rules on the operation of privatised companies which do not in general apply to other companies operating in the private sector. Such rules may be justified, but they should not be imposed lightly. The purpose of privatisation is to put the privatised companies on all fours with other private sector companies.

The Government have concluded that restrictions on foreign ownership and on the nationality of directors cannot be justified in the case of British Steel. Clearly, it is the Government's wish, and indeed expectation, that the British Steel Corporation will remain a strong British company which can develop both in the UK and overseas. But we find the notion of restrictions on foreign ownership—especially where the question of takeover is not involved—to be more likely to be a hindrance than an advantage to the new company. The BSC has made it clear that it does not wish to see restrictions on overseas participation.

We cannot have it both ways. We should like the new company to expand its operations and be free to make appropriate acquisitions overseas. The UK undoubtedly benefits from a world trading situation in which such overseas investment is possible. But we cannot expect the BSC to be free to invest overseas if we ourselves have a closed market to overseas interests. Similarly if British Steel were to form a collaborative arrangement with an overseas manufacturer at some future point, or indeed was simply to expand its interests overseas, I am sure it would not wish to be prevented from considering the possibility of a board appointment from an overseas interest. The presence of a European or American director could be a considerable benefit to the company.

As far as concerns the five-year time limit, the Government consider that this is consistent with the desire to keep such provisions to the minimum necessary. The Government's general policy is that mergers and acquisitions are inevitable in a competitive economy and can certainly be a positive force. The possibility of takeover represents a necessary discipline on management to ensure that a company's resources are used to best effect. But we recognise that the transition of a nationalised industry to the private sector imposes heavy burdens on management, and that an early takeover bid, before the company had found its feet in the private sector, would be a major distraction. We do not, however, consider that there is any reason to afford British Steel indefinite protection from takeover and judge that five years is adequate.

I should like to refer to the first point raised by the noble Lord, Lord Williams, that the articles must be right. I hope that he understands that we are considering very carefully and deeply exactly what "right" means in this case. It is taking a little time and I apologise to the Committee that we have not finalised the articles of association. I hope that what I have said will go some way to convincing the Committee that the Government are taking the matter of the articles of association extremely seriously.

Lord Jay

It does not seem to me that the Minister has answered fully the points which have been made in earlier speeches. I noticed that the Minister said that there would be no restrictions on foreign ownership. I think that those were his words. The noble Lord, Lord Grimond, quite rightly said that the steel industry has not merely commercial implications but also social implications. Beyond that it has very considerable defence implications. We could not have afforded the last war let alone have won it had we not had a steel industry in this country.

I should like the Minister to answer one question. Supposing in the second phase when the company is in private ownership, the shares of the company were bought not by individuals but by a foreign government or branch of a foreign government working through nominee shareholders in Zurich or where you like. If for example, the Ministry of Defence of the Soviet Union acquired a majority shareholding through those channels, it could be argued that the Ministry of Defence of the Soviet Union was not an individual. It might perhaps be some branch of the Government of Libya—I do not know whether they have a ministry of defence but presumably they do. In those circumstances would the Government allow such a purchase to go ahead?

It rather sounded from what the Minister said that it would be left to the machinery of the City, which he admired, to hunt out the nominees behind the individual shareholders and that the Government would take no action. In the case of the Westland Company, which we all remember, no one in the City or anyone else discovered who were the real owners of the crucial shares.

Therefore, I should like to ask the Minister whether, supposing that not the Ministry of Defence of the Soviet Union but the Moscow Narodny Bank—which still has an office in the City and has plenty of money—acquired a large shareholding in what would then be the British steel industry, would the present Government allow such a purchase to go ahead and allow the bank to acquire a majority shareholding? If they would not allow it to go ahead can the Minister explain exactly by what means, by what machinery and by what legal right the Government would be able to prevent it in the later stages of privatisation?

Lord Beaverbrook

I assume that the noble Lord, Lord Jay, is referring to the period of time following the expiry of the five-year period.

Lord Jay

Certainly.

Lord Beaverbrook

He asks a number of questions concerning hypothetical situations. I said that the Government's intention is to put the privatised company on all fours with any other large private sector company. The noble Lord will be well aware of the Government's mergers and monopolies policy. Any such acquisition of shares in British Steel or any other company above a certain percentage has to be looked at by the OFT. Under the circumstances of whatever hypothetical situation the noble Lord likes to imagine of course that would be looked at. If there were a referral, the Monopolies and Mergers Commission would have to consider the public interest. If such a takeover by, say, a hostile or semi-hostile or even a friendly overseas power were to be judged against the public interest no doubt the MMC would say so. There is power to act. It is up to the MMC to judge the public interest and not the Government themselves.

Lord Jay

Is the Minister saying that if some branch of an unfriendly government such as I mentioned acquired a majority of these shares all the Government would do would be to refer it to the Monopolies Commission?

Lord Beaverbrook

The Monopolies Commission is the place in which the public interest can be considered in such an instance. It is the right place. If a reference were made the noble Lord is well aware that there could be no change in control of the company until the MMC had come to its conclusions.

Lord Marsh

The debate demonstrates the importance of the amendment. These are very big issues indeed. I declare my own position very clearly. I suspect that my interest in the articles of association would run diametrically opposed to that of many noble Lords on the Opposition Benches, but we cannot discuss the matter. I would very much regret it if the articles of association were so restrictive as to place additional impediments upon the corporation. People begin to express shock and horror at the prospect of foreign directors sitting on the board of the British Steel Corporation but I think that it would be highly beneficial in that international industry. I sit on the boards of companies in Hong Kong, Canada, the United States and France. I think that it is useful. It is the modern world. However, there is a "little Englander" view.

I should like to express the view to the Minister that the articles of association are extremely important from the point of view of both sides of the argument. As I say, many of us would find ourselves in agreement purely on the question of the need to see the articles of association. That would probably be the last point of agreement in the discussion.

Lord Beaverbrook

Of course I hear what has been said in the Committee today. I shall see what can be done to speed up the provision of any articles of association. I can make no promises today, but I shall bring the comments that have been made by the Committee to the attention of my noble friend the Secretary of State so that he is fully aware of the tide of opinion in the Chamber. I shall certainly take those views on board.

Lord Williams of Elvel

It seems to me that the Committee has begun rather badly. We have had what I regard as a wholly inadequate response from the Minister on what I thought was a relatively uncontroversial amendment. In view of the noble Lord's comments on Second Reading, I was not even asking that we should have the articles of association now. However, in the light of today's discussions, I do ask that we should have them now because, as the noble Lord, Lord Marsh, pointed out, although we may be on different sides of the argument, until we know what the argument is it is difficult to define our positions.

The noble Lord said that now there would be two sets of articles: interim articles and final articles. There is no problem at all with interim articles. It is all in the Companies Act. Any half-witted City lawyer can produce interim articles according to Tables A to F in about 30 seconds flat. There is no reason at all why they should not be produced. The final articles are the ones which interest the noble Lord, Lord Marsh, and my noble friend Lord Jay and me. All that the noble Lord can do is to say to us that the articles are likely to be similar to previous ones. He says that they are likely to be similar, that they are currently being discussed, that the wheels of government grind slowly and that in the course of time—

Lord Beaverbrook

Perhaps the noble Lord will give way. I said that the wheels of government may not grind as fast as some noble Lords would wish.

Lord Williams of Elvel

In other words, slowly! In the course of time these final articles will be produced. They will have all sorts of interesting things in them about the items to which the noble Lord, Lord Grimond, and my noble friend Lord Jay referred, such as foreign shareholders—and possibly foreign directors, as the noble Lord, Lord Marsh, said. It seems to me right that if Parliament is to agree (as it is being asked to do) to the disposal of a major nationalised company and a major public asset, we should at least know the grounds of the argument for disposing of that asset.

With great respect to the noble Lord, Lord Beaverbrook, it is no good saying that the Monopolies and Mergers Commission, after five years, will be the body that decides in the national interest whether the Moscow Narodny Bank should turn up as the majority shareholder of British Steel plc. The Secretary of State, the noble Lord, Lord Young, has stated absolutely clearly that the one criterion for the Monopolies and Mergers Commission to decide these matters is competition. He said that clearly on a number of occasions. If the Moscow Narodny Bank, as the majority shareholder of British Steel plc, can compete better than anyone else, presumably the Moscow Narodny Bank will be allowed through.

I started off with a relatively mild amendment, so it seems, but as the noble Lord, Lord Marsh, said, the discussion in the Committee has indicated that this is a much more important amendment than even I had thought. In the light of the noble Lord's remarks, I ask him to give us a clear assurance that before we come to the Report stage of this Bill, we shall have the draft final articles of British Steel plc. If he cannot give that assurance, I shall press this amendment to a Division.

Lord Beaverbrook

I have already said to the noble Lord that I am not able to give that assurance today. I have said to him that I shall draw the comments of the Committee to the attention of my noble friend in order to see what can be done about this matter; but I cannot give the noble Lord an unequivocal assurance on this point.

3.34 p.m.

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

Their Lordships divided: Contents 73; Not Contents 102.

DIVISION NO. 1
CONTENTS
Amherst, E.	David, B.
Ardwick, L.	Davies of Penrhys, L.
Attlee, E.	Dean of Beswick, L.
Aylestone, L.	Donaldson of Kingsbridge, L.
Birk, B.	Dormand of Easington, L.
Bonham-Carter, L.	Elwyn-Jones, L.
Boston of Faversham, L.	Ennals, L.
Bottomley, L.	Ewart-Biggs, B.
Briginshaw, L.	Falkland, V.
Bruce of Donington, L.	Gallacher, L.
Carmichael of Kelvingrove, L.	Galpern, L.
Cledwyn of Penrhos, L.	Graham of Edmonton, L.
Cocks of Hartcliffe, L.	Greenhill of Harrow, L.

Grimond, L.	Ponsonby of Shulbrede, L. [Teller.]
Hampton, L.
Hanworth, V.	Ritchie of Dundee, L.
Harris of Greenwich, L.	Sainsbury, L.
Houghton of Sowerby, L.	Serota, B.
Hughes, L.	Shepherd, L.
Jay, L.	Somers, L.
Jenkins of Hillhead, L.	Soper, L.
Jenkins of Putney, L.	Stallard, L.
John-Mackie, L.	Stewart of Fulham, L.
Kilmarnock, L.	Stoddart of Swindon, L.
Lawrence, L.	Strabolgi, L.
Leatherland, L.	Taylor of Blackburn, L.
Listowel, E.	Taylor of Mansfield, L.
Llewelyn Davies of Hastoe, B.	Thurlow, L.
Longford, E.	Turner of Camden, B.
McIntosh of Haringey, L.	Underhill, L.
McNair, L.	Wallace of Coslany, L.
Marsh, L.	Walston, L.
Mishcon, L.	Wigoder, L.
Morton of Shuna, L.	Williams of Elvel, L.
Mulley, L.	Wilson of Rievaulx, L.
Murray of Epping Forest, L.	Winchilsea and Nottingham, E.
Nicol, B. [Teller.]
Peston, L.

NOT-CONTENTS
Allerton, L.	Layton, L.
Arran, E.	Long, V.
Beaverbrook, L.	Lovat, L.
Beloff, L.	Lucas of Chilworth, L.
Belstead, L.	Macleod of Borve, B.
Bessborough, E.	Marley, L.
Blyth, L.	Masham of Ilton, B.
Boyd-Carpenter, L.	Merrivale, L.
Brabazon of Tara, L.	Mersey, V.
Brookeborough, V.	Mountgarret, V.
Bruce-Gardyne, L.	Mowbray and Stourton, L.
Butterworth, L.	Munster, E.
Caccia, L.	Nelson, E.
Caithness, E.	Newall, L.
Cameron of Lochbroom, L.	Norfolk, D.
Campbell of Alloway, L.	Norrie, L.
Carnock, L.	Nugent of Guildford, L.
Cathcart, E.	O'Brien of Lothbury, L.
Colnbrook, L.	Orkney, E.
Constantine of Stanmore, L.	Oxfuird, V.
Cottesloe, L.	Pender, L.
Cox, B.	Porritt, L.
Cullen of Ashbourne, L.	Portland, D.
Davidson, V. [Teller.]	Quinton, L.
De Freyne, L.	Rankeillour, L.
Denham, L. [Teller.]	Renton, L.
Dudley, E.	Rippon of Hexham, L.
Dundee, E.	Rodney, L.
Eden of Winton, L.	Saint Brides, L.
Effingham, E.	St. Davids, V.
Ellenborough, L.	Saltoun of Abernethy, Ly.
Elles, B.	Sanderson of Bowden, L.
Enniskillen, E.	Sandford, L.
Erroll of Hale, L.	Selkirk, E.
Faithfull, B.	Shannon, E.
Fortescue, E.	Skelmersdale, L.
Fraser of Kilmorack, L.	Strathcarron, L.
Gainford, L.	Strathclyde, L.
Gibson-Watt, L.	Strathcona and Mount Royal, L.
Gray of Contin, L.
Gridley, L.	Strathspey, L.
Henley, L.	Swansea, L.
Hesketh, L.	Terrington, L.
Home of the Hirsel, L.	Teviot, L.
Hood, V.	Thorneycroft, L.
Hooper, B.	Trefgarne, L.
Hylton-Foster, B.	Trumpington, B.
Johnston of Rockport, L.	Vaux of Harrowden, L.
Joseph, L.	Whitelaw, V.
Killearn, L.	Wise, L.
Kinnaird, L.	Wynford, L.
Lauderdale, E.

Resolved in the negative, and amendment disagreed to accordingly.

3.42 p.m.

Lord Carmichael of Kelvingrove moved Amendment No. 2:

Page 1, Line 19, at end insert— ("( ) Before the appointed day the Secretary of State shall lay before Parliament a report giving quantitative estimates of the advantages and disadvantages to the Exchequer, to the Corporation, to the customers and the employees of the whole and of the several parts of the Corporation, of the disposal of the successor company and its subsidiaries as a single entity or as more than one entity.").

The noble Lord said: This amendment is related to the earlier amendment. The purpose may be clearer because it is not concerned with the rules of the company. It is merely asking that before the full programme of privatisation goes ahead, the Secretary of State shall lay before Parliament a report giving an analysis of the advantages and disadvantages to the employees, the nation and the Exchequer of privatising the company as a single entity or as more than one entity.

When this amendment was put forward at Report stage in another place, the Chancellor of the Duchy of Lancaster and Minister for Trade and Industry claimed that the purpose was to preserve a steelmaking capacity in Scotland. I would not consider this a lowly purpose. I should think it an important purpose when one considers the importance of steel to Scotland in terms of jobs, infrastructure and the future supply to industry. For instance, the oil industry is now demanding more steel than it has for a number of years. There is also the very important potential benefit to industry of having a steel industry on the doorstep. It is therefore fair, reasonable and understandable that Scottish Members in particular should be anxious about the future of Ravenscraig and Dalzell. The suggestion in another place was that Ravenscraig, Shotton and Dalzell might be hived off independently with other combinations of works and plants at present within the British Steel Corporation. The Shotton-Ravenscraig-Dalzell proposal may not be the ideal solution to the problem. However, it is a good starting point to launch what to most people would be considered a reasonable way of looking at the privatisation of British Steel.

In the amendent we ask merely that a study be done so that we know whether it would be better to create a steel making monopoly in Britain or whether it would be better to have internal competiton. As the last debate clearly showed, we know nothing of the terms in which British Steel will be privatised. We know nothing of the safeguards against the creation of a monopoly. Perhaps most importantly from the view of our manufacturing industry, we know nothing about the future potential long-term capacity that the Government expect the British steel industry to have.

In the debate in another place it was quite seriously suggested that the defence against monopoly would be the importation of steel: that the British industry would have a base load and all our steel would be imported. I understand that present imports of steel are running at about 40 per cent. of our steel consumption. This seems to me to be a very high figure when one considers our balance of payments deficiencies in terms of manufactured goods. In the modern world no one expects a situation where we have absolutely no imports, in particular of the very special steels and in order to meet severe fluctations in demand. But in such a basic industry, there should be some way for the Government to give parameters for the amount of steel that we should import. In a wider context, we accept that it is reasonable to have international links and agreements, as there are already. However, 40 per cent. seems a very high figure for a nation with our history and skills in this industry.

The matter has been very well researched. In Scotland we estimate that at least 10,000 jobs will be lost if Ravenscraig and Dalzell are closed. However, in Britain, as opposed to Scotland alone, we shall have lost a major viable industry. When we look at our balance of trade in manufactured goods, I believe that we can ill afford to lose it.

It has been suggested in another place that imports, even as high as 40 per cent., are the answer to the charge of creating a monopoly in steel products. The Member for Stockton South made this point specifically. I hope that the Government will not put forward as their sole argument that an internal monopoly in Britain will be controlled by the threat of imports and nothing more.

The Bill before us gives no guide. We know that the Government intend to privatise British Steel as a single entity. As we now know, there will be no method internally of controlling that monopoly. There will be no way in which the Government can say to the new private steel industry, "We want to improve our balance of payments in manufactured goods and would like you to reduce the figure from 40 per cent. to 30 per cent., or to 20 per cent."

As I mentioned at Second Reading, we had a long discussion on the nationalisation of airports. They fall into the strategic category which to some extent British Steel falls into, industrially, militarily and in other ways. I found the support we received from the Conservative Benches quite surprising when we managed to persuade the Government that a golden share was absolutely vital in the aviation industry, particulary on airports. I am surprised that the Government have not accepted that in this case and for much longer than five years, because five years in the life of a steel plant is not very long. With no mechanism to control the monopoly, the Government are playing for the best possible price they can for the industry. If there is no real competition, the industry will be tempted to be unadventurous in expanding its product range and in its research and development, and perhaps will leave too much of that to other industries.

It would be far better to keep our monopoly at home and to make up fluctuating demand by imports, however detrimental to our balance of payments. That is what I think would be the temptation of the steel industry if it were privatised as a monopoly. To produce a privatisation measure which would allow the British steel industry to be broken up would create an internal competitive market, which is what we are told the Government's policies are all about.

The Ravenscraig-Shotton-Dalzell suggestion is only one along these lines. There may be many other possibilities. We do not know, because the Government have not made a thorough investigation. Though we in Scotland are particularly concerned with our own fears, we have on behalf of the rest of the community put forward an amendment which I believe is the least the Government can do before they go ahead with this extremely important project which could potentially take a vital industry out of the control of the nation. I beg to move.

Lord Morton of Shuna

I wish to speak in support of the amendment. At Second Reading I spoke of the fears of Scotland based on the previous statement of the management that only two strip mills were required and the lack of investment in the coke ovens at Ravenscraig and the storage capacity at Dalzell. However, I do not wish to go into that so much as to inquire what is the Government's attitude to the Arthur Young report. They give no answer and never have done except to say that Arthur Young did not receive information from the British Steel Corporation and therefore apparenty Arthur Young's management consultancy report must be regarded as rubbish.

Surely it deserves a better answer. We have not been told why the British Steel Corporation refused to give Arthur Young the information. It seemed reasonable that the members of his committee should have the information. As I see it, the difficulty of this approach of one company with two mills is that it is a minimalist approach. It is a non risk-taking approach. The BSC is taking the view that it will have two strip mills because that will give full capacity at the low point in a depression and therefore it can work on always being able to sell that and buy-in what will be needed in any upturn. The British Steel Corporation is a very big importer and stockholder. I am no economist, but this seems to me yet another example of the kind of short-term approach that the financial world in Britain has been criticised for over and over again. Perhaps from Scotland we can have the wonderful example to show us what went wrong at the aluminium smelter at Invergordon. There, for the sake of one year's electricity supply, because somebody did something wrong at Hunterston, an aluminium smelter was closed at Invergordon which now would have been a very profitable investment for the country as a whole as well as for Scottish employment.

It is surely necessary to take a long-term view rather than a short-term view especially in a cyclical industry such as the steel industry. It is the long-term view of the Arthur Young Report that it would be more profitable for Britain to have two companies. It will not do for the Government to say that this is rubbish because Arthur Young was prevented from getting information from British Steel Corporation and nobody else will get it either. This is the same kind of situation as we have had in the previous amendment which was concerned with articles of association. Parliament is being asked to approve government actions without the Government telling us why they are taking the action or even what the action will be. It is an impossible situation.

The amendment at least gives the Government some opportunity to say why they are taking the action that they are taking. I beg to move.

The Minister of State, Scottish Office (Lord Sanderson of Bowden)

The amendment raises the question of the form of privatisation which is most appropriate for the British Steel Corporation. As the Committee would expect, when we started to consider how best to privatise British Steel, we had an open mind on the best way of doing so and in particular on the form—a single entity, or two or more smaller companies—in which we could best return its activities to the private sector. In examining the options, we considered not just the future of the British Steel Corporation as an organisation, but also the interests of its employees, its customers and the taxpayer.

We explained in another place that after carefully considering all the information, the Government decided that the corporation should be privatised as one entity in its present integrated form. That is how we intend to proceed. We also indicated some of the reasons why the Government took this decision, and I shall go into those reasons in a moment. We were not, however, at liberty to reveal detailed information on the advantages and disadvantages of privatising as a single entity, or any other configuration which might be suggested. To do so would breach the commercial confidentiality of the material involved. The position has not changed. I am sure that noble Lords will understand that BSC's competitors would like nothing more than to see precise figures of BSC's present and future strategy recorded in Hansard. It has long been the practice of governments from both sides of the Committee to protect commercially confidential information of this kind. I should also add that the Committee does not need access to sensitive information to discuss the merits of privatisation of the corporation in whole or in parts; the issue can be quite sensibly debated on a general level.

Those are the immediate reasons why we cannot accept the amendment. Let me deal with some of the points raised by the noble Lords, Lord Carmichael and Lord Morton of Shuna. First, we do not accept that it is necessary to split up the corporation in order to create competition. BSC already faces considerable competition from imports which account for some 30 per cent. of BSC's products. The figure is nearer 30 per cent. than 40 per cent. I recognise that my right honourable friend the Chancellor of the Duchy of Lancaster mentioned 40 per cent., but the figure is nearer 30 per cent. of BSC's products which are coming into the country.

Lord Morton of Shuna

Can the noble Lord give me some figures to show how much of that 30 per cent. is imported by the British Steel Corporation?

Lord Sanderson of Bowden

No, I have no figures. But I shall certainly endeavour to find out.

Lord Morton of Shuna

My information is that it is very substantial.

Lord Sanderson of Bowden

Furthermore, we do not see how creating two separate United Kingdom companies along the lines suggested for example in the Arthur Young Report would increase competition. That is an important point. The companies would probably be operating in different market sectors and not competing head on. Indeed the Arthur Young Report said that the proposed Ravenscraig-Shotton and Dalzell or RSD group would occupy a niche market. Indeed it is the special coated steel market in that particular grouping.

It is clear that BSC operates in a competitive international market. I accept that to an extent the European quota regime has reduced the competitive pressure in Europe as a whole. However, that quota regime is being phased out and the Government are committed to that phasing out in the shortest possible timescale. We shall be arguing that case strongly later this week at the Industry Council in Luxembourg.

I do not agree that BSC has the ability to exercise monopoly power over the United Kingdom consumers of steel, who are free to look elsewhere for supplies. The RSD proposal would involve splitting up a commercial organisation which has proved itself successful in the marketplace, particularly of late. Resulting parts would have a most uncertain future and we do not believe that to be a responsible way to proceed. Apart from the uncertainty, it will probably be difficult, if not impossible, to sell a company such as RSD which has no track record. I know that the noble Lords opposite will understand what I mean when faced with a City valuation of a company of that kind. The Government have received no expressions of interest in RSD from outside parties. Nor has anyone proposed an alternative plant configuration. Indeed, I understand that the unions at Shotton are hostile to the RSD proposal.

For many years the British steel industry has suffered the consequences of government interference based on considerations other than the economic health of the industry. Our view is that such interference, together with its artificial solutions which defy commercial logic, is the wrong way to run the industry. That is why we are returning BSC to the private sector, where it will best prosper. In our view it would be a terrible mistake if, in a last gesture of public ownership, we imposed upon the industry a politically-driven structure that makes no commercial sense for the company, its employers, its customers or the taxpayer. We shall return shortly to the issue of Ravenscraig and the assurances given by the British Steel Corporation last December.

We all want a strong Scottish steel industry. It is the Government's view that it is in the best interests of all parts of BSC that the corporation should be privatised as a single entity. I believe that a great majority of those who have an interest in the matter accept that assessment. As I have explained, for reasons of commercial confidentiality we cannot set out all the background associated with the decision to privatise BSC as a single entity. In any case, that conclusion clearly follows from the general argument upon which I touched today. I must therefore ask the Committee to reject the amendment.

Lord Carmichael of Kelvingrove

The Minister's reply did not surprise me, although it disappointed me. As regards confidentiality, someone suggested that governments always have an excuse for not giving information. The commercial confidentiality need not be breached to give more information than is already known. I understand that the International Institute for Steel has enormous resources and that few figures are unable to be obtained. Those likely to be interested in purchasing shares in the new privatised British Steel will be able to find out a great deal about it.

My noble friend Lord Morton of Shuna mentioned the Arthur Young Report and the figures given in it. It has been suggested that those figures are not reliable. I need to check my facts, although I am fairly sure of them, but I read somewhere that Sir Ian MacGregor, who had an association with British Steel, dismissed the idea that those figures were not accurate. He said that anyone with any understanding of company law and company finance—particularly those with a great deal of experience in the accountancy side of the steel industry, as had those with Arthur Young—would be able to build an accurate picture of the industry.

There is another interesting facet to the Government's decision to privatise British Steel as a single entity. I remember that during discussions on nationalisation the Opposition fought tooth and nail the suggestion that it must be a monopoly and said that it had to be split up in some way. The Labour Government conceded that and allowed certain steel plants around Sheffield to be run independently. However, it is interesting to note that the Government, which opposed the suggestion so vehemently, have now learned many lessons from the nationalised industry and they believe that that is the correct way to run the industry. We believe that there are insufficient controls on the monopoly situation. There has been no suggestion other than the crude and brutal suggestion of foreign importation.

For the sake of the industry, and for the sake of the people of Scotland, I believe that we must test the Committee on this issue. I beg to move.

4.6 p.m.

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

Their Lordships divided: Contents 65; Not Contents 104.

DIVISION NO. 2
CONTENTS
Airedale, L.	Carmichael of Kelvingrove, L.
Amherst, L.	Cledwyn of Penrhos, L.
Ampthill, L.	Cocks of Hartcliffe, L.
Ardwick, L.	David, B.
Attlee, E.	Davies of Penrhys, L.
Aylestone, L.	Dean of Beswick, L.
Basnett, L.	Donaldson of Kingsbridge, L.
Birk, B.	Dormand of Easington, L.
Blease, L.	Ennals, L.
Boston of Faversham, L.	Ewart-Biggs, B.
Bottomley, L.	Falkland, V.
Briginshaw, L.	Gallacher, L.
Bruce of Donington, L.	Galpern, L.

Graham of Edmonton, L. [Teller.]	Nicol, B.
	Peston, L.
Grimond, L.	Ponsonby of Shulbrede, L. [Teller.]
Hampton, L.
Harris of Greenwich, L.	Ritchie of Dundee, L.
Houghton of Sowerby, L.	Scanlon, L.
Hughes, L.	Serota, B.
Jay, L.	Shepherd, L.
Jenkins of Hillhead, L.	Stallard, L.
Jenkins of Putney, L.	Stewart of Fulham, L.
John-Mackie, L.	Stoddart of Swindon, L.
Listowel, E.	Strabolgi, L.
Llewelyn Davies of Hastoe, B.	Taylor of Blackburn, L.
Lloyd of Kilgerran, L.	Taylor of Mansfield, L.
Longford, E.	Turner of Camden, B.
McIntosh of Haringey, L.	Underhill, L.
McNair, L.	Wallace of Coslany, L.
Mishcon, L.	Wigoder, L.
Morton of Shuna, L.	Williams of Elvel, L.
Mulley, L.	Winchilsea and Nottingham, E.
Murray of Epping Forest, L.

NOT-CONTENTS
Airey of Abingdon, B.	Johnston of Rockport, L.
Allerton, L.	Joseph, L.
Arran, E.	Kinnaird, L.
Auckland, L.	Lauderdale, E.
Beaverbrook, L.	Layton, L.
Beloff, L.	Long, V.
Belstead, L.	Lucas of Chilworth, L.
Bessborough, E.	Macleod of Borve, B.
Blyth, L.	Marley, L.
Boyd-Carpenter, L.	Marsh, L.
Brabazon of Tara, L.	Merrivale, L.
Brookeborough, V.	Mersey, V.
Brougham and Vaux, L.	Montgomery of Alamein, V.
Bruce-Gardyne, L.	Morris, L.
Butterworth, L.	Mountgarret, V.
Caccia, L.	Mowbray and Stourton, L.
Caithness, E.	Munster, E.
Cameron of Lochbroom, L.	Nelson, E.
Carnock, L.	Newall, L.
Colnbrook, L.	Norrie, L.
Constantine of Stanmore, L.	Nugent of Guildford, L.
Cottesloe, L.	Nugent of Guildford, L.
Cox, B.	Orkney, E.
Craigmyle, L.	Oxfuird, V.
Cullen of Ashbourne, L.	Pender, L.
Davidson, V. [Teller.]	Porritt, L.
Denham, L. [Teller.]	Portland, D.
Dundee, E.	Rankeillour, L.
Eden of Winton, L.	Renton, L.
Effingham, E.	Rippon of Hexham, L.
Elibank, L.	Rodney, L.
Ellenborough, L.	St. Davids, V.
Elles, B.	Saltoun of Abernethy, Ly.
Elliott of Morpeth, L.	Sanderson of Bowden, L.
Enniskillen, E.	Sandford, L.
Erroll of Hale, L.	Selkirk, E.
Faithfull, B.	Skelmersdale, L.
Fortescue, E.	Somers, L.
Fraser of Kilmorack, L.	Strathcarron, L.
Gainford, L.	Strathcona and Mount Royal, L.
Gibson-Watt, L.
Gray of Contin, L.	Strathspey, L.
Gridley, L.	Swansea, L.
Hanworth, V.	Terrington, L.
Hardinge of Penshurst, L.	Teviot, L.
Headfort, M.	Thorneycroft, L.
Henley, L.	Trefgarne, L.
Hesketh, L.	Trumpington, B.
Home of the Hirsel, L.	Vaux of Harrowden, L.
Hood, V.	Whitelaw, V.
Hooper, B.	Wise, L.
Hylton-Foster, B.	Wynford, L.
Ironside, L.

Resolved in the negative, and amendment disagreed to accordingly.

4.14 p.m.

Lord Williams of Elvel moved Amendment No. 3: Page 1, leave out lines 22 and 23.

The noble Lord said: This is a probing amendment designed to elicit the meaning of Clause 1(3) of the Bill as drafted. The particular words that I seek to leave out in the amendment—although of course, as I say, it is not an amendment that I shall press—refer to the liabilities, properties and rights of the corporation which will be transferred, whether or not capable of being transferred or assigned by the Corporation". In other words, the Bill as drafted gives power to the Government to transfer property rights and liabilities to the successor corporation even though contractually there may be problems in doing so.

What do I mean by the word "contractually"? I believe the corporation has a large number—I shall be looking to the noble Lord for information on this—of mortgages, liens or long leases. The one that was publicised in the corporation's annual report and which is perhaps one of the most important is the lease on the bulk iron-ore carrier "Iron Bridge". That is a lease which has been contracted by the corporation from lessors who rely on the credit of the corporation.

I assume—this is normal practice—that that lease is not assignable by the corporation without the leave of the lessors. I assume that there are a number of mortgage, lien or banking arrangements of a similar nature which the corporation has. Under this Bill as drafted, those contracts which are non-assignable without leave of whoever is granting the facility to the corporation become assignable. Therefore in the case of the "Iron Bridge", the interest of the lessor is overriden by the terms of this Bill. He thought he had been given a non-assignable lease. He thought that he enjoyed the full credit of a public corporation. He now finds, as a result of parliamentary action, that he does not enjoy that credit but he enjoys the credit of a public limited corporation which is defined in the context of shareholders' liability. In other words, his credit standing as a lessor is lowered.

It may be perfectly proper that that should happen, that by the stroke of a parliamentary pen lessors, bankers or those who hold mortgages or liens can have their credit diminished but it is a particularly serious proposition and I should be most grateful if the noble Lord could tell the Committee, first, whether I have the meaning of this Bill right, as I believe I have; and, secondly, how many leases or non-transferrable or non-assignable contracts of this nature will be affected by this clause. What exactly is the situation?

I understand that the noble Lord may not be able to answer that in the context of a ministerial answer in the Committee, but if he cannot do so I should be most grateful if he could make certain general comments about the status of the corporation's liabilities. Perhaps he will write to me with a fuller list of which contracts are assignable or not assignable, transferable or not transferable and hence are affected by this provision. I beg to move.

Lord Lloyd of Kilgerran

I should like to support the amendment of the noble Lord, Lord Williams of Elvel, and should like to probe into a different matter. It seems to me that prima facie unless those words in lines 22 and 23 are limited there is a threat to rights and property rights of employees, particularly in a field about which I believe the Committee has heard me speak on one or two occasions; namely, in the field of intellectual property rights of employees.

The so-called intellectual property rights relate to a wide range of matters—patents, trade marks, copyright and design. However, they are not rights in the same sense as mortgage rights or contractual rights to which the noble Lord, Lord Williams of Elvel, referred. Can the Minister, who by now is a great expert at least on certain aspects of property rights, clarify the position regarding employees?

If the noble Lord, Lord Carmichael, had not wound up on his amendment rather quickly I had intended to tell him that I supported one aspect of his amendment which related to the position of employees of the company. I could not understand the Minister's answer. The reason why I was rather slow in rising to my feet was that I was endeavouring to correlate what the Minister said with the amendment and the text of the Bill. I should have thought that it would be a great advantage for industrial relations if the Minister could have said something about the advantages to employees by proceeding as the Government are doing under the Bill. However, I suppose that is now past history.

Therefore, I ask the Minister to clarify the position of employees generally in relation to R&D activities and also in regard to any awards that may be given to these inventors. Will the scheme for giving awards to inventors go over to the privatised sector? What will happen to employees and their rights in the broadest sense?

Lord Morton of Shuna

Can the Minister define what the Bill means by saying: whether or not capable of being transferred or assigned by the Corporation."? My noble friend Lord Williams seems to interpret this as not capable of being transferred by the corporation without consent of the other party or parties to the arrangement. It might be thought that that is implied in the wording or it might mean that this is just some form of inalienable right of the corporation that it could not transfer, whether or not anybody gave it the power to transfer. It is not entirely clear to me what are these property rights and liabilities. No doubt the Minister knows what they are and will tell the Committee.

Lord Beaverbrook

I am grateful to noble Lords who have spoken on this amendment and to the noble Lord, Lord Williams, for outlining why he would like an explanation of what we have in mind in this clause. I will endeavour to give the background. This amendment relates to subsection (3) of Clause 1. That subsection provides that references in this Bill to property, rights and liabilities of the corporation are references to all such property, rights and liabilities, whether or not capable of being transferred or assigned by the corporation.

It may be helpful if I explain briefly the principles that underlie Clause 1, to which the subsection is directly relevant, before dealing in detail with the amendment. Clause 1 is concerned with the vesting of the property, rights and liabilities of BSC into a successor company nominated by the Secretary of State. It is the principal aim of the Bill that the corporation is, in effect, converted into a Companies Act company limited by shares and wholly owned by the Crown.

The provisions of Clause 1, supplemented by Schedule 1, seek primarily to ensure that the whole of the undertaking of the corporation is inherited by the successor company, without any discontinuity, and that as far as possible the successor company and BSC are regarded for all commercial and contractual purposes as one and the same. For example, the successor company will inherit all the liabilities of BSC and, as Schedule 1 makes clear, the general principle of continuity extends particularly to contracts of employment and pension rights. The wording of the clause is closely based on precedents in earlier privatisation Acts.

The words in subsection (3) which the amendment would delete are intended to make it clear that the reference to all the property, rights and liabilities of BSC includes everything, whether or not the corporation is contractually able to transfer or assign the asset or liability to another party. It is sometimes the case that commercial contracts contain conditions that prevent one of the parties to the contract transferring the rights under that contract to a third party. The provision in subsection (3) makes it clear that the vesting provided for in the Bill overrides any such contractual terms. This is consistent with our general aim of ensuring that the transition from corporation to plc is a smooth one. It would be very disruptive and damaging for British Steel's business if the vesting was not comprehensive in this way.

The noble Lord, Lord Williams, asked whether those affected by the vesting of their arrangements with the nationalised corporation to what would become a private sector limited company would suffer a loss of security where, for example, they have at present some form of contractual link with the corporation. The noble Lord gave the example of a contract for the lease of a ship. The vesting arrangements under Clause 1 and Schedule 1 are such that contractual arrangements and obligations of the kind mentioned by the noble Lord are not affected in any way except for the substitution of the successor company instead of the corporation.

Lord Williams of Elvel

Will the Minister accept that in credit terms a plc is less creditworthy—and, if not, will he accept that from me as a banker—than a nationalised corporation?

Lord Beaverbrook

The noble Lord anticipates me by a few moments. The noble Lord's knowledge and experience of credit rating is no doubt unsurpassable. The owners of the ship in the noble Lord's example will have the same contractual rights and obligations after vesting as before. The wording of paragraph 1 of Schedule 1 to the Bill makes it clear that that continuity applies to any agreement made, transaction effected or other thing done by, to, or in relation to the corporation which is in force or effective immediately before the appointed day. It therefore covers any liabilities arising, for example, from leases, cancellation clauses or bonds. The Government are privatising British Steel in the expectation that it will have a profitable and successful future, and will ensure that it has a balance sheet strong enough to meet its needs and obligations.

To reply to the noble Lord, surely it is in the interests of all those who have contractual arrangements with British Steel that they should be dealing with a successful and profitable corporation. The fact that it is to be in the private sector rather than the public sector is, in my opinion, not the crux of the matter. The crux of the matter is that they are dealing with a commercial company that is profitable and successful, that is expanding and has a successful future ahead of it.

Lord Morton of Shuna

We are dealing here with cases where a contract has been entered into between the British Steel Corporation and someone else on the basis that the corporation is, by contract, not permitted to assign, sell or do anything to the contract. Therefore, we have a contract between A and B. By choice, B has decided that A must remain the contracting party. Parliament merely says that for A read C, without giving B any opportunity to say, "I do not like this". That seems to fly totally in the face of all the private law of contract that I know.

Lord Beaverbrook

The noble Lord has a far greater knowledge of law than I do. However, it is a matter of logic, in the noble Lord's example, on the basis that A and C are, to all intents and purposes, essentially the same person. As I said, it is the Government's intention that there should be a transfer of the whole of the undertaking of the corporation without any discontinuity. I cannot see that the interests of any party which at the moment has a contract with British Steel should be diminished in any way.

Turning to the point made by the noble Lord, Lord Lloyd of Kilgerran, I hope that what I have already said will convince him that on the rights of employees, particularly with regard to the intellectual property of employees who have produced interesting inventions, to any copyrights that may exist, or whatever it may be, there will be continuity of all such rights and of any agreement that may exist in writing. There shall be no diminishing of the rights of anyone who has a relationship with British Steel whether as employee, supplier or customer.

4.30 p.m.

Lord Lloyd of Kilgerran

I am sorry to interrupt the noble Lord; but in certain circumstances there is no right as such of an employee, particularly in relation to an award, for his or her invention. It is most important to encourage innovation wherever possible. The Government have said that on many occasions; it is a principle they adopt. There is an award system at the British Steel Corporation. But how can one be satisfied, if an inventor with an invention has no right except to ask for a reward, that that right will be conferred on the successor company?

Lord Beaverbrook

Whatever system exists within British Steel in terms of arrangements to reward employees who come up with an idea, if a scheme exists it will continue. There is no intention to change such arrangements on the vesting of the British Steel business in the successor company.

Lord Williams of Elvel

I believe we have a difference of opinion to say the least. The noble Lord said that all the property rights and the liabilities of the corporation will be vested in the successor company. The successor company will be an extremely successful private sector company. And the credit of an extremely successful private sector company will be exactly what the credit of the corporation was before vesting.

That relies upon the premise that British Steel plc will continue to be a successful and flourishing private sector company. Neither I nor, with great respect, the noble Lord, have the first idea whether that will be the case over the next five to 10 years. A corporation with the credit standing of the Government behind it is quite a different business for a lender or a lessor that is a plc.

On the point raised by the noble Lord, Lord Lloyd of Kilgerran, there may be various kinds of awards within the British Steel Corporation which may be formal or informal. The formal ones may be vested in the procedure. But under the informal ones, in which there is no property right or liability, the employee in question may be disadvantaged by the process of vesting. It is on these points that I believe, in the first case, the noble Lord, Lord Lloyd of Kilgerran, and the Minister, and in the second case, myself and the Minister, have serious differences of opinion.

I do not intend to press the amendment. I should be grateful however if the noble Lord would ask his officials to give both matters serious consideration, The last thing we want in this Committee is to have various people, sections and groups disadvantaged as a result of the Bill.

Lord Beaverbrook

Before the noble Lord sits down, I believe that when he reads Hansard he will see that the very act of vesting will have no diminishing effect whatever on the rights of employees. The noble Lord also asked how many contracts could be affected. I shall look into the matter. The noble Lord will perhaps forgive me if I do not answer now but write to him.

Lord Lloyd of Kilgerran

Perhaps I may put another point to the Minister that he may care to consider. This is a contractual situation. Let us suppose a contractor outside the British Steel Corporation has certain contractual arrangements with the BSC and, in the course of the contract, relies upon the technical skill of an employee of the BSC. It often happens between two parties that a contract is placed because a certain man or woman on one side has particular skills. If privatisation takes place, can the Government or the British Steel Corporation ensure that the skill of the person upon whom the outside contractor relies will also go over? In other words, will there be compulsory powers to force the employee of the British Steel Corporation to remain as an employee of the other corporation? If that person leaves, then the customer-contractor will be very much disadvantaged being unable to rely upon the skill of that employee, or one-time employee, of the British Steel Corporation. That is a very practical matter with industrial concerns, particularly in research and development.

Lord Beaverbrook

The very act of vesting would have no impact that I can see on such a situation. Of course no one can give a guarantee that the particular employee would for any reason be carrying on in the same division. He might be due in any event for posting to another job; he might be run over by a bus; some other misfortune could occur. He might be retiring. Those are matters outside the control of BSC management and also of the Government. The act of vesting itself will have no effect whatever on any supplier, customer or any creditor of BSC.

Lord Williams of Elvel

I am sorry to disagree with the noble Lord, but the act of vesting does have an effect on these matters. The act of vesting is a very simple one whereby all the assets and liabilities of a nationalised public corporation operating under a statute are vested in a public limited company which operates under the Companies Act 1985. That is the difference. The role of a board of directors under the Companies Act 1985 is quite different to the role of a board of directors of a public corporation set up under statute.

A public, limited corporation introduces the notion of limited liability of shareholders. However, in this current theoretical case, where the Government remain 100 per cent. shareholders the problem is there. There is a logical and, if you like, academic but major difference of how the board of directors has to comport itself because it has to pay attention to the Companies Act rather than to the statute under which the corporation is set up. I disagree with the Minister on that point.

Lord Beaverbrook

The noble Lord, Lord Williams, and I have already disagreed regarding the credit rating of the corporation. I believe that the most important matter is that the company is successful; and that is what will secure the rights of all concerned.

Lord Williams of Elvel

I do not believe that we shall get much further if the noble Lord continues by saying the company has to be successful. Everyone agrees it has to be successful. We shall all read what has been said in this debate. I hope very much that the noble Lord asks his officials to read very carefully what I and the noble Lord, Lord Lloyd of Kilgerran said, because I believe we are getting into some very difficult areas in discussing these matters. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Perth moved Amendment No. 4:

Page 2, line 11, at end insert— ("( ) The successor company shall not dispose of any property or plant whether by sale or long lease in Scotland without the approval of the Secretary of State for Scotland.").

The noble Earl said: I am exceedingly anxious (perhaps I may say passionately anxious) that every possible step be taken to safeguard the steel industry in Scotland. My amendment aims to do just that. It stops the sale of the steel plant or property connected therewith in Scotland; that is to say, the Ravenscraig-Hunterston complex—I underline the name "Hunterston"—by the successor company without the approval of the Secretary of State for Scotland.

Recently, I was lunching with Sir Ian MacGregor—or perhaps I should say that he was lunching with me. We were discussing how best we could protect and ensure that the steel industry in Scotland continued. We both felt that it was essential so far as possible to safeguard the present set-up. It could provide a very valuable base for future development. We both agreed, and I am sure that many of your Lordships will agree, that the Scottish steel industry is of fundamental importance to Scotland. Any successor company should not be allowed to dispose of anything which could prejudice that situation.

I am haunted by the recollection of what happened some 10 or 15 years ago in relation to a company which, curiously enough, has exactly the same initials as the present British Steel Corporation. I refer to the British Sugar Corporation which was a private company. The British Sugar Corporation in its wisdom decided that it would make more profit if it closed the Scottish factory at Cupar in Fife and transferred the quotas to its English factories. What did it do? It closed down the plant in Scotland despite every effort made by the Scots, who were ready to buy it. However, the British Sugar Corporation was not ready to sell; rather it wanted to make profit. As a result the idea of growing beet in Scotland vanished for ever. We must avoid the same kind of thing happening again.

While the British Steel Corporation is a nationalised industry, this remains a political question and we can be pretty sure that such action would not be taken. However, once it becomes a private company, the situation is quite different. As I see it, we have no control at all unless something along the lines of what I have put in my amendment is accepted. It is for those reasons that I commend my amendment to your Lordships. I beg the Government to accept it; or, if they will not accept it, at the very least to say that they will give it the most serious consideration. I would prefer the former. I beg to move.

The Earl of Selkirk

My noble friend has raised a point of far-reaching significance, at least to those of us who live in Scotland. My noble friend Lord Sanderson said that he wants Scotland to play a strong element in the steel industry. There is not a word about that in the Bill. All that we hear from the Minister is that we will be on all fours with companies overseas, and that of course applies to the whole of Great Britain.

As my noble friend has said, steel in many ways has been the backbone of Scotland, probably for 150 years and possibly for 200 years. That has been due to the natural resources of the country and the people who live there. Now we have had a far-reaching revolution which has made the situation very different. The natural resources to a great extent are exhausted. We have reached a stage where communication all over the world is equal and can be phased-up in any part of the world. Transport has entirely different significance from 100 years ago. Moreover, we have seen the introduction of computers and so on.

What is going to happen? There is not the slightest indication in this Bill that the industry which has been fundamental to Scotland for a long period will continue. What will be the rules which will govern this kind of thing? This is of far-reaching significance. We have not yet seen the articles of association. There might be something in that, but I know not. The one man who is concerned both with housing and employment in Scotland is the Secretary of State. Unless he is brought in at some point I find it very hard to see how the words which my noble friend himself has used about steel continuing to play an important element in the life of Scotland can in any way be fulfilled. Frankly, I hope that we will receive a rather more concrete answer from the Government on this point than we have received so far this afternoon.

4.45 p.m.

Lord Grimond

It seems to me that recent events have pointed very strongly to two great needs in our present situation. The first concerns the method by which legislation is drafted. It is apparent that there is far too much legislation and far too little thought given to its effects. When we are told that we cannot be given the articles of association of a successor company to British Steel, although these are vital to any public discussion of the whole matter, it seems that the Government should think again, particularly as they have been talking of privatising British Steel for a very long time.

Secondly, we require a debate upon what is meant by the public interest because that point arises whenever there is a change of ownership of our companies. On each occasion it boils down to competition. I do not deny that competition is important. Indeed, it is strange that in many of the denationalisation measures competition has not been much, if any, increased. Competition, although important, is not the only matter of public interest. These changes of ownership have great social effects upon communities, the economy at large and upon defence, as has been said earlier. Moreover, by moving a company's headquarters we affect the top talents in a country like Scotland and the relationship of that company with all the auxiliaries and subsidiaries with which it may be connected.

I wholly agree that the Scottish steel industry has been of immense importance to Scotland. But how long that can continue and how exactly the state of the industry is now to be viewed are different matters. There is no doubt that historically it has been of very great importance. Secondly, the industry is of immense importance to certain communities. Thirdly, it is important to see how this industry is treated in relation to the whole argument about how Scottish affairs should be conducted.

It may be said as regards this amendment that it is not much good referring the matter to the Secretary of State for Scotland without giving him some indication of the criteria which he is to apply to the situation. Without any clearer definition of the public interest, presumably all that the Secretary of State would look at is competition. As I say, I think that is certainly inadequate. To my mind the amendment draws attention to the pressing need for some wider consideration of public interest with regard to the economic and social effects, and the effects on defence and so forth, when these changes of ownership take place. It raises very strongly the constant beheading of Scotland. I personally think that a Scottish Parliament is desirable and important but that the draining away of the lifeblood—the top lifeblood of Scotland, which has gone on for generations—is even more important.

Therefore, without necessarily entering into the question of whether or not steel should be privatised, the amendment deserves very serious consideration. If the Government can tell us that such consideration will be better supplied by other means, one might well take objection to the drafting of the amendment. They have said that certain assurances have been given about Ravenscraig and Dalzell. However, if they can point to anything in the Bill which will give Scotland the feeling that there is a real long-term consideration of its economy, the amendment may well be unnecessary. I emphasise that we need something in the Bill which looks to the longer term.

Lord Donaldson of Kingsbridge

I should like to express my support for the amendment, with this warning. It seems to me that it is a wrecking amendment. It seems to put the power to make alterations into the hands of the Secretary of State, and to take that power away from the company. In my view that is the opposite to what the Government are trying to do. I think it would be quite right to do that. However, I think that the Committee should realise that to put the matter back in to the hands of the Secretary of State—where I personally would much rather it were—is the exact opposite of privatisation.

Lord Home of the Hirsel

I accept the principle of privatisation of the steel industry and I do not wish to see that principle substantially diluted, or obstacles created in the path of the Bill's application. However, I understand the anxieties of the noble Earl, Lord Perth, taking into account the precedents of which he has spoken, especially the British Sugar Corporation. That is a precedent which we should certainly consider.

I am not sure that the amendment will ensure the best interests of the British steel industry, especially in Scotland, and I should like to hear the Government's reaction to what has been said. I am not inclined or ready to vote on the matter today.

A short time ago we disposed of an earlier amendment moved by the Opposition Front Bench. I must confess that I was left with some doubts as to whether in the case of a foreign purchase of an English or Scottish firm the Monopolies and Mergers Commission—considering the public interest— was competent to judge on a matter of national security. Again, I think that we shall have to consider that issue further. Indeed, my noble friend Lord Beaverbrook promised to consider the points made during the short debate, especially the remarks made by the noble Lord, Lord Marsh.

My noble friend Lord Perth considers that the best judge in such cases would be the Secretary of State. On the whole, I am inclined to agree with him. However, I shall listen with care to what my noble friend on the Front Bench says in reply to the amendment.

Lord Morton of Shuna

I hope that the Minister will have something encouraging to say as regards this amendment because he has certainly been pressed to do so from all sides of the Committee. The assurances we have so far received only concern the strip mill at Ravenscraig until next year and steel production—if my memory is right—for a further five years. That would follow sugar, the aluminium smelter at Invergordon and paper at Fort William. Indeed, it would not improve Scottish views of the Government—which perhaps showed their lack of encouragement last year—if yet another major industry disappeared after so many promises. Therefore I hope that public interest is recognised by the Government as being far wider than mere matters of competition law, which can go to the Monopolies and Mergers Commission.

Lord Marsh

I am sorry to inject a somewhat disharmonious note into the proceedings. Nonetheless, I should like to express the view that if the amendment were carried one would virtually have to give the industry away if one wanted anyone to underwrite it. Indeed, I think that a factory in the centre of the Sahara Desert selling central heating would be a far better bet than the Bill would be with this particular amendment in it.

Over the past 40 years every government have sought to persuade nationalised industries not to close massively uneconomic plants for one reason or another; the reasons being grouped together as social reasons. In almost every case the plant has finally closed. Further, in almost every case it has closed with a massive loss of public investment which has gone down the drain. Even worse, in virtually every case the job security of the workers in that industry was less when it was forced into closure than it would have been if it had been allowed to take part in the normal way.

One has only to look at the coal-mining industry, the railway industry and indeed every one of the nationalised industries to see that wherever they have had to divert their activities from commercial ones to seeking to apply social disciplines, the workers and the taxpayers have suffered. It does not work because one can either run a social service or a business. The two cannot be mixed together, especially in what is probably the most competitive industry in the world today—or, at least, one of the most competitive. I say all that in regard to a nationalised industry.

However, I do not understand how one can take a company to the market and invite the public to subscribe for its equity with just a marginal problem and say this. No matter what happens, for example, in a factory, whatever the shareholders or the board may decide about a plant—be it in Wales, because the social arguments that can be applied to Scotland can be equally applied to Wales, such as unemployment and many other matters—and whatever is felt commercially, the factory must not be shut down; it must be kept open.

The noble Lord, Lord Williams of Elvel, has considerable experience as a banker in such matters, and no doubt he will advise the underwriters on what a marvellous opportunity that will be for them. One would have a job to sell it to anyone—or indeed to give it away on that basis. If the Government wish to assist areas—all history shows that it does not work and governments have been trying for the past 100 years to stop areas declining, both in this country and abroad—then they should take the responsibility themselves. However, to think that one can have a private company run in the same incompetent fashion as both governments have run nationalised industries is a myth.

Lord Gray of Contin

I find myself largely in agreement with what the noble Lord, Lord Marsh, has said, although I feel emotionally attracted to what the noble Earl, Lord Perth, said. Nevertheless, on this occasion I feel that the noble Lord has let his emotions get the better of his judgment. There can be little doubt that the Scottish steel industry has done very well in recent years. It is hoped that Ravenscraig will continue to do well, and that it will produce a product for which there will be a ready market and which will make it competitive, not just throughout the United Kingdom, but competitive with competitors throughout the world.

However, should that not be the case, then in my view it would be wholly irresponsible of the Committee to include in the legislation a provision that this company would not be allowed to sell anything in Scotland without the permission of the Secretary of State. I am certain that the advice of the present Secretary of State would be wholesome; but I can think of some individuals who could become Secretary of State who might not be able to provide the kind of advice of which any company, of whatever status, would be especially appreciative.

At present we have a confrontation within the Labour Party. Indeed, no one knows what the eventual outcome of that confrontation will be. We could be faced with a Labour Party led by Mr. Benn. I put it to Members of the Committee, "Who do you think the Secretary of State for Scotland might be in those circumstances?' Would it be someone whose advice would be acceptable to noble Lords opposite, let alone the directors of the company which might take over the British Steel Corporation? Therefore I say to my noble friend that I think he should —

Lord Williams of Elvel

I am sorry to interrupt, but as the noble Lord has referred to disagreements (or whatever it was that he said was taking place within the Labour Party) can he say what would be the case should the Member of Parliament, Mr. George Younger, succeed Mrs. Thatcher as Prime Minister? In those circumstances, would there not be a rather different view on the matter?

5 p.m.

Lord Gray of Contin

I do not think that there would necessarily be a different view. My right honourable friend, to whom the noble Lord referred, has been a loyal member of the Government since 1979. I have no reason to think that he would do other than voice his views within the conventional method, which is within the Cabinet, which is observed by the Conservative Party, and accept the will of the majority of people. In any case, I suggest to my noble friend that he takes careful note of what has been said; that he reads and deliberates upon the views which have been given, but that at the end of the day he do nothing, which would include an amendment such as this, that would so weaken the legislation he seeks to put forward.

Lord Taylor of Gryfe

Anyone who lives in Scotland will grasp the significance of the amendment. A great deal of emotion and political excitement is generated on the question of the survival of Ravenscraig. It is that which is at the root of the amendment. Naturally, in Scotland when people see the privatisation process taking place they think for a moment what the consequences may be. It is to protect Scotland from the undesirable features of the centralisation—the thrust of profit as the sole consideration, a philosophy that the noble Lord, Lord Marsh, supports so eloquently—that we are apprehensive. In the amendment we are trying to build in some protection.

I say to the noble Lord, Lord Marsh, with whom for some time I shared an association in a nationalised industry, that he pushes his case too hard. That is always the trouble with the convert. He becomes far too extreme. The noble Lord said something about being unable to run a social service alongside a nationalised enterprise. We are not talking about a social service. However, I have noticed that the great commercial enterprises of this country which have survived and prospered have been enterprises which have taken social consequences and factors into consideration.

Lord Marsh

The noble Lord introduced me into his speech. Can he name me one company which has anything approaching this type of amendment in its articles of association? Of course companies, including nationalised industries, as good citizens have an obligation to behave responsibly and socially. I suggest that there are no companies, and that he has no evidence of any, which would take on board the commitment to maintain massive loss-making undertakings for social reasons. They could not survive if they did.

Lord Taylor of Gryfe

That is not what the amendment says. The amendment does not say that Ravenscraig will inevitably remain open indefinitely. All that the amendment says is that there should be a degree of protection, and that before one closes down that or any other part of the steel industry in Scotland—it is important to Scotland's industrial future—such a person would have to make a case to the Secretary of State for Scotland.

The noble Lord, Lord Gray of Contin, conjured up a bogeyman of Wedgy Benn or someone like that becoming Secretary of State for Scotland. That is not real life or real politics. Having such a reference, the Secretary of State for Scotland would examine the case. That is all that the amendment says. The proposal has symbolic importance for Scotland. I say seriously to this Chamber and to the Government, who in the last election got 10 seats out of 72, that they should occasionally be sensitive to the deep feelings on these matters that exist in Scotland.

I am not against the privatisation of British Steel. I am concerned about building in some protection, which is all the amendment seeks to do. The company would have to make a case for closing the plant. That is all the amendment says. As the Minister knows well, Ravenscraig has become a symbol of Scotland's industrial survival. We should not treat the matter lightly.

Lord Trafford

I do not wish to enter into the emotional content of the problems that have been outlined, but it seems to me that noble Lords opposite, and those noble Lords who have supported the amendment, have not answered two fundamental questions partly put by the noble Lord, Lord Marsh. The first is that if we pass an enabling Bill in preparation for privatisation the company cannot be taken to the market if we say that it is still to be partly nationalised because it will be subject to the diktat, decision or whatever of the Secretary of State for Scotland. We should then be taking a hybrid company to the market and saying, "This is not truly a private company; it will not truly have independence; it will not truly be run by its board of directors; it will have to be subject, in a large part of its undertakings, to the whim of government".

We do not need to invoke bogeymen or anything else. It could be any Secretary of State. Any different circumstances in Scotland or in the state of the English or Scottish economy might materially influence what a Secretary of State would feel. The important point is that in the company being taken it would be taken not as a private company, as has been talked about, but as a semi-public company, or at any rate a company with severe reservations.

Even if there were some way of getting over that problem, let us think of the disaster that could happen if there were a downturn in steel production or if the market and British Steel plc were not doing as well as everyone on both sides of the Committee wished. It then has not just a problem but a problem with both its feet shackled. Surely in many respects, in general terms, that has been one of the many problems that has faced much of British industry. I differ from the noble Lord, Lord Marsh, here, and say that this does not apply only to nationalised industry, although a characteristic of some parts of it over time has been that it has been unable to adapt, accommodate or change. It would therefore be reasonable to put in a similar amendment for protection for Wales, for the North-East, and so on.

No one who has read the newspapers, looked at the news or listened to speeches for any length of time could be unaware of the significance of the name Ravenscraig, especially in Scotland. I fully accept the emotional content of the argument, but if we pass the amendment we should, first, be defeating the object of the Bill and driving a coach and horses through the principles. Secondly, it would be extremely difficult to persuade an ordinary citizen to invest money in something for which there is a hidden difficulty; and, thirdly, it could be a disaster for the future success of British Steel as a whole.

Lord Williams of Elvel

Perhaps I may briefly draw the attention of the noble Lords, Lord Marsh and Lord Trafford, to the statutory framework under which BAA plc operates, because there are some severe restrictions. The noble Lord, Lord Marsh, appealed to me as a banker. I am bound to say that as a banker I took the view that BAA would never be underwritten, but even given the statutory restraint it was underwritten and it was got away.

Lord Marsh

The answer to the noble Lord, Lord Williams, is that this only goes to show how careful one has to be in educating the public before people start investing.

Lord Sanderson of Bowden

I thank the noble Earl, Lord Perth, for bringing this amendment forward. It has been a very wide-ranging debate we even got so far as a Scottish parliament at one stage. It may be appropriate if I started by reminding the Committee of what my noble friend, the Secretary of State for Trade and Industry, told the House on 3rd December last year. He said then that my right honourable friend the Chancellor of the Duchy of Lancaster had been reviewing with the corporation the previous commitment given by the Government that all five integrated plants would continue to operate until August 1988. In the light of that review, the chairman of the corporation stated that subject to market conditions, it expects that there will continue to be a commercial requirement for steelmaking and continuous casting at the corporation's five integrated plants for at least the next seven years. Perhaps I may emphaise this to the noble Lord, Lord Morton of Shuna: seven years not five years.

My noble friend commented when reporting the chairman's statement that it constituted an assurance to Ravenscraig's iron and steel making facilities for a considerable period—indeed, for a period much longer than the three year commitment that the Government were able to give in their previous reviews in 1982 and 1985. I should like to emphasise that that statement is unprecedented. The corporation had the confidence to look seven years ahead and predict, given favourable market conditions, a stable outlook for the whole of its business.

Lord Morton of Shuna

Will the noble Lord allow me to intervene? Am I not correct that in the statement last December the commitment to Ravenscraig's hot mill was to next year only?

5.15 p.m.

Lord Sanderson of Bowden

If the noble Lord, Lord Morton of Shuna, will permit me to say so, I am coming to that point somewhat later. I should also emphasise that the statement came from the corporation, not the Government. It is a much stronger statement for that, because it has not been contrived for political reasons; it is based on a hard commercial assessment of the prospects for the steel market as the corporation think it will develop, not how politicians would like it to develop.

Some noble Lords have criticised the statement because it is not a guarantee, it is not legally binding, and it is subject to market conditions. I have to say that it would be utterly irresponsible for either the corporation or the Government to pretend that they can offer guarantees about the future of an industrial undertaking, regardless of market conditions that may arise. The history of the corporation and the world steel industry in the past decade has been one of facing up to realities and adjusting to a changing market. No company and no government could give an indefinite guarantee in respect of any enterprise, and no company in the corporation's position should be subject to a statutory obligation to retain indefinitely all its facilities.

The fact is that the corporation, of its own volition has stated that in its best judgment steelmaking will continue at all five sites for at least seven years. I do not think that we can ask for more, and it is certainly more than previous political commitments, which, I should remind the House, were also made subject to market conditions. The Secretary of State for Industry, Mr. Jenkin, said in another place on 20th December 1982 that the future of steelmaking on each site depended upon future demand and output as well as efficient performance.

I must outline briefly our objections to the amendment. One of the major objections of privatising British Steel is to give the successor company freedom to take its own business decisions without having to refer to government for approval. The Government therefore cannot accept this amendment which would place just such a restraint on the successor company. It is our intention that the privatised British Steel should be, so far as possible, placed in the same position as other private sector companies, subject to no greater degree of government regulation than those other companies.

Let me now deal with the subject of Ravenscraig. I fully understand as does anyone who lives in Scotland, the noble Earl's concern for the future of Ravenscraig. It goes wide of this House and right to every part of Scotland, to Ravenscraig and the other associated Scottish plants. I recognise the importance of the steel industry as a local employer in Lanarkshire. I particularly wish to make reference to the Scottish Development Agency's priority for the county of Lanarkshire and what it is doing there at this very moment. I should make it clear, however, that the closure of Ravenscraig is not an inevitable result of privatisation. On the contrary, the corporation stated in December last year as I have already said, that, subject to market conditions, the corporation expected that there would continue to be a commercial requirement for steelmaking and continuous casting at all five integrated sites for at least a further seven years. It is the corporation's best assessment of the future for its major plants until the mid 1990s. Of course, any such assessment must be subject to market conditions, otherwise it would not be credible. However the statement was not made lightly. It is very good news for all British Steel's employees.

The question of employees was raised by the noble Lord, Lord Carmichael, earlier this afternoon. I for one know that 5,575 people (I think it is) are employed in that complex. It demonstrates a confidence in the future which has not existed for the past 20 years. The fact remains that Ravenscraig and the other plants covered by that statement remain in business on their merits, through satisfying customers and for no other reason. The only way to assure the future for Ravenscraig is for it to remain competitive in the market place.

There has been criticism that this is not a guarantee. I have to say that to ask for a guarantee is pointless. No one can guarantee the future of a commercial organisation, and those noble Lords who have been involved in industry know that only too well. History demonstrates that governments cannot wave a magic wand and ignore the market. Twenty years of public ownership have not saved British Steel from undergoing a most radical restructuring over recent years. We argue that public ownership has led to that restructuring being more concentrated and more painful than it might have been,

With reference to the aluminium smelter at Invergordon and the pulp mill in Fort William, I do not think that the noble Lord, Lord Morton of Shuna, should forget that the problems of the 1970s and the rise in inflation had quite a lot to do with the problems of electricity prices and the problems of those factories which had to shut.

It is in the best interests of Ravenscraig, like the rest of British Steel, that privatisation should proceed as soon as practicable. The British Steel Corporation is now one of the most successful steel producers in the world. Both Ravenscraig and Dalzell have reached record levels of production in recent months, and demand remains buoyant.

I wish to comment on the position of British Steel in the European context. I mentioned earlier that on Friday of this week the Industry Council is due to discuss the lifting of quotas in certain categories of product. That has a bearing on what the noble Lord, Lord Morton of Shuna, said in regard to the hot strip mill. As he quite rightly pointed out, the assurance will not go further than 1989. It is most likely that quotas will be lifted in category la, which is the hot strip. It is our belief that the removal of quotas will be to the benefit of BSC who have been constrained by their quota levels. That is good news for the hot strip mill in Ravenscraig; but it would be imprudent—to say the least—to predict with certainty what will happen to the market when quotas are removed. That is another reason why it is quite impractical to talk of guarantees and statutory obligations in respect of Scottish plants.

I ask Members of the Committee to consider the following point. What ought to be regarded surely as the best news for the steel industry, and for the people of Scotland for many years, is British Steel's commercial estimate of its future steel-making needs in Scotland. That is a much better assurance than industrial plants can usually be given, and it is a great reflection on the turnround of Ravenscraig and all who work there. I am afraid that I have to reject the amendment.

The Earl of Perth

I thank all those who have taken part in the debate and even those who have not supported the amendment. One or two noble Lords have not supported it on grounds which do not relate to the amendment at all. The noble Lord, Lord Marsh, said that one cannot keep things open. There is nothing in the amendment to ask that anything be kept open. The noble Lord, Lord Gray, made the same point.

I recognise that one cannot ensure that something is kept open and working. I am not asking for that. In the amendment I ask that the Secretary of State for Scotland should be consulted and should approve a sale—not that something cannot go on but that he should approve the sale of a plant or whatever. That is quite different.

The noble Lord, Lord Sanderson, quoted at great length the guarantees given by the existing British Steel Corporation.

Lord Sanderson of Bowden

If the noble Earl will permit me, I said assurances, not guarantees.

The Earl of Perth

I accept the correction. However, what value do those assurances have in relation to the future company? So far as I know, none. Once the company is privatised what was said before will go out of the window, or it can do.

In the amendment we say that there should not be a sale or disposal without the approval of the Secretary of State for Scotland. We may want to find some better wording, but the amendment does not refer to every small matter. The Secretary of State could quite easily give blanket approval for anything under £100,000 and say that anything below that could be disposed of without reference to him. One must recognise that he will act responsibly and reasonably.

We want to ensure that if the British Steel Corporation, for the same kind of reason as the sugar corporation, decided that it could make more money in the South it should be prevented from doing that without the approval of the Secretary of State. If the amendment does not achieve that, I am ready to listen to something else. However, to be told that the Government will not accept the amendment or think about it again is distressing and disappointing.

When I was talking to Sir Ian MacGregor he explained the great asset we have in Scotland, in Hunterston. Hunterston has a deep harbour. It can bring in iron-ore and coal from all over the world. It can convert them nearby and compete in this respect with the whole world. I am afraid that this might not suit certain people in the steel corporation. They would rather keep the investment they have made in Wales or England.

Lord Harmar-Nicholls

Does the noble Earl recognise that if this protection were given to Scotland it would have to be given to Wales and perhaps to parts of England; or does he think it can be separated.

The Earl of Perth

I think that it should apply to Scotland. We know of the enormous investment made in Wales by the steel corporation recently and the limited investment made in Scotland. However, if somebody wanted to introduce a similar amendment for Wales, I would have no objection.

Perhaps the wording of the amendment as it stands is not satisfactory. In that respect I am ready to consider something else or to ask the Government to consider something else. However, to get a flat no is not good enough. I beg the Government to consider what the noble Earl, Lord Selkirk, and the noble Lord, Lord Home of the Hirsel, said. I ask them to think again, to consider what has been said today and see whether there is not some way in which we can achieve the purpose of the amendment.

Lord Sanderson of Bowden

Before the noble Earl decides what he wants to do with the amendment, perhaps I may say that he kindly wrote to my right honourable friend the Secretary of State for Scotland recently to inform him that he would be raising this matter in Committee. I should like to quote from the letter which he will be receiving and which has now been signed. In respect of the powers that he asks should be given to the Secretary of State, the letter says: This will be a very wide-ranging control and would call for a justification based on an overriding requirement which I find difficult to conceive". I fully appreciate the sentiment behind the noble Earl's amendment, as does anyone who lives in Scotland. Where we differ is over the way forward. Having been involved in business I understand that the best place to decide these matters is in the market place. We need customers and we have customers. The British Steel Corporation is now in a much stronger position than it was in 1979. Ravenscraig and its satellites in that complex are important to Scotland. I am certain that the assurances given by the British Steel Corporation would be welcomed with open arms by many people in industry today.

Lord Hughes

What the Minister has just said raises an interesting point. He quoted a small part of a letter to the noble Earl, Lord Perth, which apparently the noble Earl has not yet received, as justification for the Secretary of State's position. Even the little part the Minister quoted said that this was a wide-ranging power which the Secretary of State did not feel was acceptable, or words to that effect. That could be interpreted as meaning that if the power was not as wide as that a different view might be brought to the matter. We cannot form an opinion of what the Secretary of State said in this letter from one sentence extracted from it.

From past experience I can say that it would be totally unheard of for a letter from the Secretary of State for Scotland to a Member of this Chamber to consist of only one sentence. One would be lucky if it were contained even in one page. I ask that after the noble Earl receives the letter the Secretary of State should publish it or that the noble Earl should be free to publish it. That might put a different complexion on what we would want to do at the next stage; although we may divide, as the Minister remains adamant that he will not accept the amendment.

Lord Sanderson of Bowden

I can conceive of where a one-sentence letter might be sent, but the noble Lord, Lord Hughes, asks whether the letter will be available. I am happy to agree that it should be placed in the Library.

Lord Hughes

The Minister says that he can conceive of a one-sentence letter coming out of the Scottish Office. I suggest that that is on the same parallel as the possibility raised by the noble Lord, Lord Gray, of Mr. Benn being the next Prime Minister.

The Earl of Perth

I am very upset to learn that a letter written to me has been quoted in this debate before I received it. That is an extraordinary thing to happen. I do not understand it. The noble Lord, Lord Sanderson, has not answered my question. Does the assurance given by the British Steel Corporation have any legal standing with the successor company? I suspect that the answer is "No". Therefore, we do not have to think about that matter.

I beg the noble Lord, having heard what has been said from many sides of the Chamber, to think again. He has not relieved my worries and the haunting dreams I have about what happened at Cupar with the British Sugar Corporation. Nothing has been said about that matter and yet the situation is almost exactly the same. I ask the noble Lord to think again. I deeply resent the fact that I have not had the letter which has been quoted.

Lord Sanderson of Bowden

Perhaps I may deal with the matter of the letter. The noble Earl will receive the letter today. However, as regards the content, I wish to underpin the point I made regarding the serious implications which would lie behind the acceptance of the amendment by the Government. For that reason, I cannot accept it. So far as the statement of December is concerned and the terms which British Steel Coporation has published, it is absolutely clear to me and, I have no doubt, to everyone else, that the terms of that statement will, when the prospectus comes to be drawn up for the issue of shares, be made known to prospective shareholders.

Lord Taylor of Gryfe

Does the Minister accept that with previous privatisations, when there has been a commitment on the part of the official opposition to renationalise, that has been contained in the prospectus which has been issued to shareholders? Does the Minister accept that that did not diminish the market response to the issue?

The Earl of Perth

I am greatly puzzled as to what I should do. I believe that I have been treated very discourteously. I say that advisedly. A letter has been quoted in this debate which I have not received. It is one of the major planks on which the refusal to consider the amendment is based. I protest about that matter.

Secondly, the noble Lord will not agree to take the issues which have been raised in our debate today and see whether something can be done to meet the worries expressed by so many in this Chamber. If he is unable to do either of those things, I shall have to divide the Committee.

5.33 p.m.

On Question, Whether the said Amendment (No. 4) shall be agreed to?

Their Lordships divided: Contents 78; Not Contents 89.

DIVISION NO. 3
CONTENTS
Airedale, L.	Jenkins of Putney, L.
Ardwick, L.	John-Mackie, L.
Attlee, E.	Kennet, L.
Aylestone, L.	Kilmarnock, L.
Basnett, L.	Listowel, E.
Belhaven and Stenton, L.	Llewelyn Davies of Hastoe, B.
Birk, B.	Longford, E.
Blease, L.	McIntosh of Haringey, L.
Blyth, L.	McNair, L.
Bottomley, L.	Mason of Barnsley, L.
Bruce of Donington, L.	Molloy, L.
Carmichael of Kelvingrove, L.	Morton of Shuna, L.
Carter, L.	Mulley, L.
Cledwyn of Penrhos, L.	Murray of Epping Forest, L.
Cocks of Hartcliffe, L.	Nicol, B.
Craigavon, V.	Northfield, L.
David, B.	Perth, E. [Teller.]
Davies of Penrhys, L.	Pitt of Hampstead, L.
Dean of Beswick, L.	Ponsonby of Shulbrede, L.
Donaldson of Kingsbridge, L.	Prys-Davies, L.
Dormand of Easington, L.	Rea, L.
Elwyn-Jones, L.	Russell of Liverpool, L.
Ewart-Biggs, B.	Saltoun of Abernethy, Ly. [Teller.]
Falkland, V.
Gallacher, L.	Scanlon, L.
Galpern, L.	Shepherd, L.
Gladwyn, L.	Somers, L.
Graham of Edmonton, L.	Stedman, B.
Grey, E.	Stewart of Fulham, L.
Grimond, L.	Stoddart of Swindon, L.
Hampton, L.	Taylor of Blackburn, L.
Hanworth, V.	Taylor of Gryfe, L.
Harris of Greenwich, L.	Taylor of Mansfield, L.
Houghton of Sowerby, L.	Turner of Camden, B.
Howie of Troon, L.	Underhill, L.
Hughes, L.	Wallace of Coslany, L.
Hylton-Foster, B.	Walston, L.
Irvine of Lairg, L.	Williams of Elvel, L.
Jay, L.	Winchilsea and Nottingham, E.
Jenkins of Hillhead, L.

NOT-CONTENTS
Alexander of Tunis, E.	Beaverbrook, L.
Allerton, L.	Beloff, L.
Arran, E.	Belstead, L.

Bessborough, E.	Kaberry of Adel, L.
Boyd-Carpenter, L.	Killearn, L.
Brabazon of Tara, L.	Lauderdale, E.
Brougham and Vaux, L.	Layton, L.
Bruce-Gardyne, L.	Long, V.
Butterworth, L.	Luke, L.
Caccia, L.	Mancroft, L.
Caithness, E.	Marley, L.
Cameron of Lochbroom, L.	Marsh, L.
Carnock, L.	Merrivale, L.
Cathcart, L.	Mersey, V.
Colnbrook, L.	Montgomery of Alamein, V.
Constantine of Stanmore, L.	Morris, L.
Cottesloe, L.	Mottistone, L.
Davidson, V. [Teller.]	Mountgarret, V.
Denham, L. [Teller.]	Munster, E.
Dilhorne, V.	Nelson, E.
Dundee, E.	Nugent of Guildford, L.
Eden of Winton, L.	Orkney, E.
Elibank, L.	Orr-Ewing, L.
Elles, B.	Oxfuird, V.
Elliott of Morpeth, L.	Pender, L.
Enniskillen, E.	Plummer of St. Marylebone, L.
Erroll of Hale, L.
Fanshawe of Richmond, L.	Prior, L.
Ferrier, L.	Rankeillour, L.
Fortescue, E.	Rodney, L.
Fraser of Kilmorack, L.	St. Davids, V.
Gardner of Parkes, B.	St. John of Fawsley, L.
Gibson-Watt, L.	Sanderson of Bowden, L.
Gray of Contin, L.	Sandford, L.
Gridley, L.	Seebohm, L.
Grimston of Westbury, L.	Sharples, B.
Hardinge of Penshurst, L.	Skelmersdale, L.
Harmar-Nicholls, L.	Strathspey, L.
Henley, L.	Sudeley, L.
Hesketh, L.	Swansea, L.
Hood, V.	Swinfen, L.
Hooper, B.	Trafford, L.
Ironside, L.	Trefgarne, L.
Johnston of Rockport, L.	Trumpington, B.
Joseph, L.	Wynford, L.

Resolved in the negative, and amendment disagreed to accordingly.

5.40 p.m.

Clause 1 agreed to.

Clause 2 [Reduction and subsequent extinguishment of Corporation's public dividend capital]:

Lord Williams of Elvel moved Amendment No. 5: Page 2, line 16, after ("direction") insert ("and shall be replaced by an equivalent amount in subordinated loan stock at the market rate of interest then prevailing").

The noble Lord said: In moving Amendment No. 5 it may be for the convenience of the Committee if I speak also to Amendment No. 6 which is consequential. The purpose is to ensure that taxpayers' money which has been put into the corporation in hard times is returned to the taxpayer on a proper basis in good times. The write-down of public dividend capital has been presented as a book-keeping transaction. I do not accept that there is such a thing as a book-keeping transaction when it comes to writing off losses of any company or corporation. Book-keeping transactions relate to transactions which have no effect on cash. There is no doubt that the British Steel Corporation, in accumulating a deficit on its profit and loss account, has lost cash. The profit and loss account at the end of the day inevitably translates into a cash loss.

We have to pay attention to the way in which those cash losses have been funded over the years. If it were simply a question of turning public dividend capital into another form of capital—preference shares or whatever—I would accept that as a book-keeping transaction. I do not accept that writing off a cash injection which has been made over the years for the purpose of subvention of losses is a mere bookkeeping transaction. Somebody has paid cash for that subvention. It is of course the Exchequer; in other words the taxpayer. If the taxpayer had not done so the corporation would have been in a position certainly of technical insolvency and probably of total insolvency.

The amendment I propose does not in any way diminish the capital resources of the corporation or the successor company. As the Committee will be perfectly well aware, in normal analytical terms—and I talk about financial analysis—subordinated loan stock forms part of the capital of the company. To replace public dividend capital by a subordinated loan stock would not diminish the capital resources of the successor corporation in the terms of financial analysis.

Whether it is replaced by subordinated loan stock, a preferred share or some other form of subordinated capital is inconsequential. I think it has to be redeemable in some form or other. Unless there is a redemption the cash that has been put into the corporation to take it through the hard years and bring it to its present successful position will have been lost to the taxpayer.

The amendment gives me an opportunity to ask the Government to elucidate some of the figures that might be in play. It is difficult to interpret the British Steel Corporation accounts which are rather obscure. It appears from the accounts that a deficit of just over £1 billion accumulated in the profit and loss account. That is a negative profit and loss reserve. It is unclear how much of the public dividend capital subscribed to the corporation which appears in the accounts simply as capital has been the result of the Exchequer funding the BSC losses. Perhaps the Minister can clarify the matter.

The main aim of the amendments is that there should be a mechanism for repaying to the taxpayer the money that the taxpayer has put into the corporation, which has now become successful. The reason I specify in the amendment that the loan stock—if it is to be loan stock—should be at the market rate then prevailing is because I do not wish to fall foul of any Community regulation which says that we should not support any privatisation by subsidy. I beg to move.

Lord Beaverbrook

It may be of assistance to the Committee if I outline the purpose of Clause 2 before turning to the amendments themselves. Subsection (1) of the clause empowers the Secretary of State to reduce the capital of the corporation by an amount that he may direct, and Subsection (3) subsequently extinguishes the remaining capital immediately before the appointed day. The successor company will then issue securities to the Secretary of State under Clause 3.

An important point to bear in mind when discussing the corporation's capital is that it consists of public dividend capital. It is not a debt repayable to the Government. A dividend is payable on it in the same way that a dividend is payable on ordinary share capital. In practice, no dividend has been paid since 1975. As can be seen from the corporation's last report and accounts, at the end of March last year the corporation had assets of approximately £3 billion and capital of approximately £4 billion. The balance was represented by an accumulated deficit on the profit and loss account of approximately £1 billion.

Lord Williams of Elvel

I am sorry to interrupt. Can the Minister clarify whether he is talking of net assets when he refers to assets?

Lord Beaverbroook

Yes, I am talking about net assets which in a company in the private sector would be those assets attributable to the ordinary shareholders. The deficit of £1 billion represents past trading losses so far not written off by previous capital reductions. It is not a debt but a historical record.

It is not sensible to transfer a company to the private sector which has capital unrepresented by assets. The company would be prevented from paying dividends to its shareholders. A Companies Act company in such a situation could apply to the court under the Companies Act for a reduction in its capital in order to write off an equal amount of realised losses and so bring its capital back into line with the assets. That route is not open to the corporation as a nationalised company. We are therefore providing for it in the Bill.

As a consequence of the capital reduction, the accumulated deficit on the profit and loss account will be eliminated. That will allow the successor company to pay dividends and ensure that it can be registered as a public limited company. I should stress that the capital reduction exercise is an accounting and not a cash transaction and corresponds fully with the provisions of the Companies Act 1985. There is no question of debts being written off, because we are not talking about debts at any stage in the process. We are concerned with money that has been used to fund past losses and rationalisation. The taxpayer has injected some £5.2 billion into BSC since 1979. At present some £3.9 billion remains on the balance-sheet as public capital. It is simply a matter of readjusting the accounts to represent better the current situation.

Amendments Nos. 5 and 6 of the noble Lord, Lord Williams, would have the effect of preventing the capital reduction by replacing the amount reduced with an equivalent amount of debt. It is sensible for the capital reduction to take place for the reasons that I have given. Moreover, it would not be appropriate to impose a liability on the successor company in the form of a debt where none had previously existed. It does not make sense to replace with a debt capital which is not represented by assets.

I fully recognise that the noble Lord is proposing that the public dividend capital that has been injected, but would not in future be represented by ordinary shares, should be represented by subordinated long-term loan stock or preference stock or by some other instrument which is perhaps not repayable or not convertible for quite a number of years. Even so, the addition of such a liability to the balance sheet is likely to result in potential investors placing a lower value on the company than they otherwise would do. The taxpayer would therefore suffer from a reduction in the proceeds arising from privatisation. It is for such reasons that companies contemplating flotations or new issues seek not to have long-term liabilities of that kind on their balance sheets.

I should just like to emphasise that I feel that taxpayers' money is not being wasted. In the past money was given to BSC, either to help it meet trading losses or to meet the costs of restructuring. There was never any intention, or any hope, that all the money would be repaid. As I said, it was given not in the form of loans but of dividend bearing capital. Let us suppose that BSC remained in the public sector. The only return to the taxpayer would be in the form of the annual dividend. As I said, no such dividend has been paid since 1975, and even if a large and regular dividend were paid from now on, it would take many years to amount to as much as might be raised from the privatisation. Taxpayers are going to get a better return on their money from privatising British Steel than they could have expected had BSC remained in the public sector.

Lord Williams of Elvel

I am grateful to the noble Lord for his response, with which on the whole I disagree. The idea that in some way funding losses is a "nothing" transaction—one puts in money and that is the end of it; nothing happens and one does not get it back—is not one that I believe would appeal to anybody who has ever operated in the commercial sector. If one funds a corporation's losses one expects to get back one's money, and with some return.

So far as concerns write-down, I fully accept that companies write down their capital. They are perfectly entitled to do so under the Companies Act. I am simply saying that instead of writing off the negative profit and loss reserve, at least part of whatever is required to balance the capital with the net assets on the other side of the balance—and I rely on the noble Lord for the figures he has given—should be reflected in some form of instrument which would allow the Exchequer or the taxpayer to regain the funds that he has put in to fund the losses over the years.

As regards the noble Lord's point that companies going to flotation try to rid themselves of long-term debt—I think that that was the expression he used or perhaps he said to avoid long-term debt—I have to say that that has simply not been my experience and I do not believe that it has been the experience of any Members of this Committee.

Lord Beaverbrook

Perhaps the noble Lord will give way. I think that I ought to explain further the point that I was making, which is that companies which are going for flotation tend to try to rid themselves of complicated possible future liabilities of that nature that might reflect an aspiration of a previous owner of the company. For instance, there might be a private sector company which has changed hands and the new owner wishes to float it but finds a situation in which the previous owner may have retained some sort of complex instrument that gives him special rights after, say, performance criteria are met. Arrangements of that kind are very often extinguished before the company is floated, the intention being to try to simplify the capital structure so that anyone buying shares on the flotation can know what he is in fact receiving.

Lord Williams of Elvel

I wholly accept the point about simplifying the capital structure but with great respect to the noble Lord that is not what he said. He said that companies would try to get rid of or eliminate long-term debt. I understand that anybody who goes to market will wish to get rid of complicated transactions in which a former owner has a residual liability. However, subordinated loan stock in the name of the Secretary of State, which is marketable and disposable, is not at all a complicated issue. It is understood and dealt with in the market every day of the week. One example of that was the £2.5 billion of debentures with which the Secretary of State loaded the British Gas Corporation when it was privatised out of the blue. That was a perfectly reasonable thing to do. I had a small quarrel with the Government on that issue earlier; nevertheless they did it. They simply placed £2.5 billion of debentures on the balance sheet. They are still there; they carry interest and no doubt the Government will have them redeemed. I do not see that that is a very serious argument.

I can conceive a capital structure for BSC, which at the moment—as the noble Lord, Lord Hesketh, will tell us since I see that he is avidly reading the annual report—is very undergeared. The noble Lord will see that once the public dividend capital is written down there will be about £100 million of debt. I regard a company in the steel industry (like the British Steel Corporation) which has £3 billion of assets and £100 million of long-term debt as a very undergeared company. I can see no reason at all why there should not be a more proper gearing structure. I am using only the same arguments as the Government used in the case of British Gas.

I do not wish to press this matter because I believe that it is something on which the Government will wish to reflect. I do not think that the arguments deduced by the noble Lord, to which I have listened with care, have any logic. I believe that the taxpayer should have some serious return. I do not believe that the imposition of the type of security that I have mentioned will lower the market worth of BSC on flotation, because anybody who intends to buy a steel company, be it Hirsh or any other steel company in Europe or the United States, will know that these are highly geared operations. I do not believe that it will lower the value. Nevertheless, having made those observations and assuring the noble Lord that I shall read carefully what he has said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 6 not moved.]

Clause 2 agreed to.

Clause 3 [Initial Government holding in the successor company]:

Lord Williams of Elvel moved Amendment No. 7: Page 2, line 42, leave out ("securities") and insert ("ordinary shares").

The noble Lord said: In moving Amendment No. 7 it may be for the convenience of the Committee if I speak also to Amendment No. 9. These amendments are essentially probing amendments.

The wording of the Bill tracks the wording that appears in the British Gas Act. The object of my amendment is to find out from the Government exactly what is meant by "securities". A moment ago I referred to the fact that in the case of British Gas, at the last moment, indeed while the Bill was in this Chamber having passed through another place, the Government announced that there would be £2.5 billion of debentures (I think that that was the figure) on the British Gas balance sheet, which would be redeemed and which would provide further opportunities for revenue for the Exchequer from privatisation. The question which lies behind this amendment is: what securities have the Government in mind?

The amendment simply states in a very simple manner an initial reaction that securities should be ordinary shares. As the sole owners, the Government are perfectly entitled to award themselves as many ordinary shares as they like. It is a question of splitting a £10 share into £5, £1 or 50p shares. This does not seem to me to be a matter of consequence. Nevertheless, if there are other forms of securities that the Secretary of State feels he may wish to award himself the Committee has a right to know what those are. I beg to move.

6 p.m.

Lord Beaverbrook

With the leave of the Committee I shall speak also to Amendments Nos. 7 and 9 together.

Under Clause 3 the Secretary of State will create the initial government holding in the successor company by directing it to issue securities to him at such times and on such terms as he wishes. He will then sell those securities in a flotation of the successor company.

The term "securities" is defined under Clause 15(1) of the Bill. That definition follows the precedent of other privatisation Acts, and Members of the Committee will see that it goes wider than shares and includes, for example, debentures and bonds. It is most likely that, as in previous privatisations, the large majority of the securities issued to the Secretary of State will be in the form of ordinary shares. The Government, however, wish to retain the option of holding securities other than shares. The use of other types of security might assist in the process of selling a controlling stake in the company to the public and therefore might increase the return to the taxpayer. That is a matter that the Government naturally would not wish to rule out at this stage.

I must stress that no decisions have yet been taken on the types and relative amounts of securities to be issued to the Secretary of State. That will be decided nearer the time of the flotation. While it is likely that ordinary shares will form the bulk of the securities, it is prudent at this stage not to foreclose any options. These amendments would impose a constraint on the Government's freedom of action.

The noble Lord, Lord Williams, raised the question of British Gas and whether the Government might wish to take cash out of British Steel prior to privatisation by using some form of debenture; for example, a short-term debenture. Decisions on changes to the capital structure of British Steel in preparation for privatisation have yet to be taken. It would be premature to give any indications as to what the outcome would be. We have not yet seen the corporation's audited accounts for its last financial year. Clearly those are of considerable importance to the capital structure decisions. I can, however, assure Members of the Committee that it is not our intention to take any steps that would damage the corporation's business or significantly impair its finances. That would not be in anyone's interests.

I hope that I have been able to explain to the noble Lord what we have in mind at this stage. No doubt he will let me know if I have not.

Lord Williams of Elvel

We seem to be in a very difficult situation on this Bill. We do not have the articles of association of the successor company. We do not know what golden share provisions there will be. We do not know what the powers of shareholders, or the conduct of directors, will be, subject to the Companies Act. We do not know what the capital structure will be. We do not know what the Government have in mind in regard to imposing financial burdens on the company except in so far as the noble Lord gives us—I mean no disrespect—slightly platitudinous remarks about not wishing to burden the company over much; and we all accept that. In Committee today, after this Bill has gone through another place, we find ourselves lacking the main elements on which to conduct a reasoned debate.

The position is quite different from our experience when the Gas Bill was before us. The articles of association were then available; the proposed capital structure of the successor company was available; and the Government made an announcement and we had a debate on what securities the Government would award to themselves in the course of privatisation. These factors were available to the Committee. Today we have none of them. I do not see how we can have a reasoned debate.

At this stage of the Bill I do not intend to pursue this matter except to say to the noble Lord that I hope very much that before we come to Report stage he will have further information that he can communicate to us so that we can have more of a debate on this very important Bill than we are able to have at the moment in default of information coming from the Government. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 8 and 9 not moved.]

Clause 3 agreed to.

Clause 4 [Government investment in securities of the successor company]:

Lord Williams of Elvel moved Amendment No. 10: Page 3, line 23, leave out ("acquire") and insert ("subscribe to").

The noble Lord said: It may be for the convenience of the Committee if I speak also to Amendments Nos. 11, 12 and 13.

This is, again, a series of rather minor amendments to try to probe the Government's intentions. As I understand it, Clause 4 as drafted will allow the Secretary of State to acquire securities of the successor company. Assuming that the acquisition is not in conflict with Clause 6, to which we shall come later, the Secretary of State may acquire either shares or loan stock, or whatever. I am seeking to ensure that if the Secretary of State does so acquire, he does it in a manner which will strengthen the finances of the company. In other words, he should subscribe rather than simply acquire.

We shall come to the underlying thrust of my arguments when we discuss the question that Clause 6 stand part. We have to be quite clear in the distinction between a Secretary of State or the Government simply awarding themselves securities at any point in time, and strengthening the finances of a company which may have got into some problem as a result of cyclical movements in the steel industry.

Amendments Nos. 12 and 13 in Clause 7 address themselves to a slightly different though related point. The statutory reserve of the successor company at the moment can be used—except for a purpose directed by the Secretary of State—only in paying up unissued shares. It seems to me that the insertion of partly paid bonus shares—which could make a rights issue to strengthen the capital of the company rather than simply a bonus issue which does nothing for the capital of the company—could make it attractive in the future. It seems to me a reasonable way of ensuring that if this reserve is to be capitalised those bonus shares should not simply be dished out to existing shareholders but could be used in part as a fund-raising exercise.

The series of amendments that I am moving is designed to ensure that what happens in the future strengthens the capital base of the company rather than shuffles it about between the Secretary of State and the public.

Lord Beaverbrook

With the leave of the Committee I shall speak also to Amendments Nos. 10, 11, 12 and 13.

The first two of these amendments relate to subsection (1) of Clause 4. That subsection empowers the Government to acquire securities, or rights to subscribe for securities, in the successor company whether or not it is wholly owned by the Government. This is in contrast to the provisions of Clause 3 that we have just discussed, which operate only while the successor company is wholly owned by the Crown.

The main purpose of Clause 4 is to enable the Government, if they retain a shareholding in the successor company after privatisation, to maintain the size of that shareholding as a proportion of the total share capital of the company. If, for example, the Government had decided to retain a 25 per cent. shareholding in British Steel plc—I must stress that this is purely hypothetical—and the privatised company some time later issued further shares as a rights issue to existing shareholders, the provisions of Clause 4 would enable the Government to take up their rights under the issue to ensure that their aggregate shareholding remained at 25 per cent.

Lord Williams of Elvel

I apologise for my interjection, but this is just the point that I was making. The Government are subscribing—this is the thrust of my amendment—rather than acquiring on the market. I am all in favour of the Government subscribing to rights issues if they wish, but acquiring on the market is a rather different matter.

Lord Beaverbrook

Yes, I believe that under a rights issue the Government would be subscribing for shares and, as the noble Lord said, they would not just be acquiring them in the market place because in circumstances of (shall we say?) grey skies for the corporation, the Government buying shares in the market would be of no benefit to the corporation, though it might benefit some of the shareholders who wish to sell.

The amendments to subsection (1) would have the effect of limiting the Government to subscribing for securities (or acquiring rights) from the successor company. The Government would be unable to acquire securities in other ways—for example, by buying them from shareholders. The present wording follows the precedent of earlier privatisation Acts. While it is perhaps unlikely in practice that the Government will wish to acquire securities other than from the company, it seems unnecessary and undesirable to restrict the ambit of the subsection in the way proposed.

The second pair of amendments relate to Clause 7(2). That subsection states that the statutory reserve may be applied by the successor company in paying up unissued shares of the company to be allotted to its members as fully paid bonus shares. The amendments would extend that application to include partly paid bonus shares. The statutory reserve is in part akin to a share premium account. One of the uses to which a share premium account may be applied, as specified in Section 130 of the Companies Act 1985, is the paying up of unissued shares to be allotted to members as fully paid bonus shares.

A company can only issue bonus shares to its current shareholders. After privatization—to the extent (if any) that the Secretary of State may be a shareholder—he may obtain bonus shares on the same basis as the other shareholders. I must emphasise that the company cannot generate new funds from the issue of fully paid bonus shares. Companies do not generally issue bonus shares to raise money. Bonus shares are issued free to shareholders out of capital reserves that represent assets that are already owned by shareholders. As the noble Lord, Lord Williams, well knows, they are a means of rearranging the balance between a company's capital reserves and it share capital. Nor could a company give money to its shareholders by this route. The value of its issued shares is diminished since the company's total value remains the same while the number of its shares has increased.

During the period before privatisation it is very unlikely that bonus shares will be issued as the Government have powers under Clause 3 to direct that shares shall be issued and Clause 7(1) provides that the amount of the statutory reserve would reflect any such directions.

6.15 p.m.

Lord Williams of Elvel

I am grateful to the noble Lord. In his reply to my Amendments Nos. 10 and 11, in words much better constructed than those which I used, he explained exactly the reason for the amendment; namely, that when issues of a rights nature are made—and if the Government wished to maintain their shareholding—the Government should be able to subscribe, and that is the proposal in my amendment. He said that it was most unlikely that the Government would wish to acquire shares on the market because that would not benefit anybody other than the selling shareholder in, I think he said, "grey times".

Lord Beaverbrook

Grey skies.

Lord Williams of Elvel

That is exactly the point that I was going to make, so there is no difference of opinion between myself and the noble Lord. All I am saying is that I consider it much better to put in the Bill exactly what the Government want to do (in other words, subscribe to shares or acquire rights to subscribe to shares) rather than have the generalised word "acquire" securities in the market. It seems to me that the noble Lord and I have no disagreement about this. He might have been moving my amendment. He was saying more or less exactly the same as I was saying.

In Amendment No. 12 I was trying to give the successor company some flexibility. I understand everything the noble Lord said about bonus shares. I know exactly how bonus shares are used and I know exactly what the effect is on the value of companies. I make only one point: when a company is successful and makes a bonus issue the market generally takes that as being a sign of greater and even further success and so the existing shares are marked up. Therefore if there is a one-for-one bonus issue the share price is not necessarily divided by half. However, that is a market phenomenon which I believe we all understand.

I was trying to give the successor company some flexibility. It is possible to have partly paid bonus shares on a rights basis. Let us say that our share on a normal rights basis would be at 100. We offer the share at 50. In other words, it is a part bonus, part rights subscription. That is a known phenomenon which is sometimes appreciated. By limiting it to fully paid bonus shares the Government are preventing the successor company from gaining a certain flexiblility in its means of raising finance which I wanted to give. Nevertheless I am sure that the Minister and his officials will look at what I am saying.

Lord Beaverbrook

I have listened carefully to what the noble Lord has said. I do not believe that there is very much between us. He is quite right. I shall study carefully what he has said and see what our reaction is to that.

Lord Williams of Elvel

I am most grateful. Perhaps I may put it this way: just because words were used in previous privatisation measures that does not mean that they should necessarily be used in this Bill. It is always good to have a conversational debate such as this so that we can tease out what could be improved in legislation of a privatisation nature. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 11 not moved.]

Clause 4 agreed to.

Clause 5 agreed to.

Clause 6 [Target investment limit for Government shareholding].

On Question, Whether Clause 6 shall stand part of the Bill?

Lord Williams of Elvel

Clause 6 brings us to the target investment limit for Government shareholding. I fully understand that there is a question of dogma involved in the clause—that the Government wish to prevent renationalisation of the successor corporation when it is sold on the market by this or any future government. That means of prevention is to ensure that for that to take place there would have to be primary legislation. I regard that as being a piece of dogma which we have to accept because the Government have a majority and have decided that that is the way things will be. But on Second Reading I mentioned that things often go wrong.

This afternoon the noble Lord has repeated many times that the British Steel Corporation is a successful industry and by implication—he certainly did not make a profit forecast: I should hate to accuse him of that—he felt that the steel corporation when privatised would go from strength to strength and all would be for the best in the best of all possible worlds.

In the wicked vale of tears in which we have to conduct our economic affairs things sometimes go wrong. Especially in the steel industry things have gone wrong, not just in the United Kingdom but in the United States of America, in Germany and all over the world at various times in various parts of the economic cycle. Steel is one of the great cyclical industries. It is an industry which provides intermediate material for so many products that when there is a downturn or even a projected downturn in the economy generally, it has an immediate effect on steel production. When that happens the stock market is no support at all. It is the worst moment to opt for a rights issue. The market is turning down and all the analysts are saying, "The steel company will have a bad year next year because we detect a softening in the market for white goods" or "Motor car sales are not as good as they might be".

In discussing this issue we seek to persuade the Government that there is some merit in leaving open the possibility of raising the target investment limit should the company which is to be privatised run into trouble. It seems quite wrong for the Government to impose on themselves a decreasing limit, as in this clause, without paying due attention to the fact that at some point in time none—of us knows when—it may be necessary for any government to step in and give support in the form of an equity capital injection to the successor company when floated on the market.

The experience of BP has shown that it is perfectly possible for any government, Labour or Conservative, to live with a shareholding of an indeterminate nature. By the word "indeterminate" I mean that there is no fixed statutory limit of the percentage of voting rights to which the shareholding must conform. BP is a classic example of a Labour government selling a part, a Conservative government selling a little more and another Conservative government selling a little more again. Apart from the last one, none of the sales caused a disturbance in the share price. Therefore it is perfectly possible for a government and the market to live with a shareholding which may fluctuate from time to time. That applies so long as the intentions are clearly spelt out but not necessarily in a statute.

Secondly—again BP is a good example—what happens when a government, by their target investment limit, decide that they must divest themselves of shares in, for example, British Steel plc, or whatever it is to be called, and between then and the time the Secretary of State fixes it by order, the market goes wrong? For example, the Secretary of State who may hold 25 per cent. of the shares makes an order stating that the holding will be 15 per cent. The order is taken on board by the market and then the Secretary of State says that within X months he will sell 10 per cent. of the company. What happens if there is a similar situation to the BP issue and that 10 per cent. lands in the hands of the quote investment office on underwriting supported at the last resort by the Bank of England? Everybody looks extremely silly. As always, we are trying to avoid the Government looking extremely silly.

I ask the noble Lord to look at the matter again to see whether, in the context of the market conditions which I have described, in the context of what has happened at BP apart from the last fiasco, and in the context of the steel industry that we have at the moment, this is a desirable clause.

Lord Beaverbrook

Clause 6 is well precedented in previous privatisation Acts, as the noble Lord, Lord Williams, is well aware. The clause provides investors with a necessary degree of assurance about the future status of the successor company. It prevents the Government from increasing their stake in the company, beyond the level they hold immediately after the flotation, without the express consent of Parliament. That is a necessary, if not an absolute, comfort to potential shareholders in the company.

We do not believe that it is necessary for the Government to retain the option of acquiring further shares without constraint in the successor company. That would leave the company under a perpetual threat of renationalisation and would have a disruptive effect. It would also set the successor company apart from other private sector companies in that the Government would have a statutory power to purchase shares in it without the consent of the company. We wish to place the company on the same footing as other private sector companies with respect to its relations with government.

In that regard it would stand on all fours with any other company whereby a large or small shareholder is placing shares in the market. If the market conditions are such that the problems are posed, the company and its shareholders are in the same position as any other publicly quoted company.

I point out to the noble Lord that should the situation ever arise where BSC wanted the Government to buy its shares, the Government have the power to do so under the Industrial Development Act 1982, if they so wish. I imagine the noble Lord has in mind a situation where the company wished or needed to raise money in the market from its shareholders. If market conditions do not permit that to be possible the directors of the company must look elsewhere —

Lord Williams of Elvel

What would happen to the target investment limit at that point?

Lord Beaverbrook

Under Clause 6 the Industrial Development Act would override the target investment limit. It applies only in respect of the provisions of this Bill.

Lord Morton of Shuna

Will the noble Lord explain how an Act of 1982 will override an Act of 1988? It appears to me unreal and contrary to constitutional theory.

Lord Beaverbrook

I am not sure that that is the case. There is no reason why the Industrial Development Act 1982 should not continue to apply in this instance. It applies to every other company in the private sector. Why should it not apply to this company?

Lord Morton of Shuna

Surely the Minister must accept that if an Act is passed in 1988 preventing British Steel plc, or whatever it is called, from doing certain things, it does not matter what an Act of 1982 or 1882 states can be done by any other company. If British Steel plc cannot do it and the Government cannot do it under this Act, it does not matter whether BP or anyone else can do it.

Lord Beaverbrook

I understand that the important point is that powers under the Industrial Development Act can be exercised only with the consent of the company. Therefore the Government could not—

Lord Williams of Elvel

I am sorry to intervene. Clause 6 spells out a target investment limit. I am glad to see that the carrier pigeon has arrived. If, through the Industrial Development Act, the Government break the target investment limit and are in violation of Clause 6, what happens then?

Lord Beaverbrook

Clause 6(1) makes it clear that the target limit applies only to provisions in this Act.

Lord Williams of Elvel

In other words, the Industrial Development Act overrides this Act.

Lord Beaverbrook

I believe that what I have said should make matters clear to the noble Lord.

Lord Morton of Shuna

In the light of the new constitutional theory that a 1982 Act overrides a 1988 Act, perhaps the Minister will explain matters in a little more detail. I should like to know more.

Lord Beaverbrook

I shall be delighted to explain the matter to the noble Lord, Lord Morton. Perhaps he will agree that I should do so in writing.

Clause 6 agreed to.

6.30 p.m.

Clause 7 [Financial structure of the successor company]:

[Amendments Nos. 12 and 13 not moved].

Lord Williams of Elvel moved Amendment No. 14: Page 5, line 9, leave out from ("shares") to end of line 20.

The noble Lord said: With the leave of the Committee, I shall speak also to Amendment No. 15, which is consequential. Amendment No. 14 is a probing amendment. It is designed to find out exactly how this proposed application in writing off the unrealised losses of a company arising from the revaluation of any fixed assets will actually work and to ask for the Government's comments on Section 263 (1) of the Companies Act 1985, which, as I understand it, is hardly consistent with the way in which this subsection is phrased.

I take it, though I may be wrong, that revaluation means upwards or downwards. Therefore I suppose, subject to correction by the noble Lord, that this revaluation which we are discussing in Clause 7(2)(a) could result in losses. However, I do not quite see on revaluation, when one has a new value in the balance sheet, how those are unrealised losses. After all, a revaluation which is brought into the account throws up a paper loss or a paper gain. If paper loss or paper gain is the definition of "unrealised" I understand it though it seems an odd expression. Therefore the amendment is designed to elicit an explanation from the noble Lord on the meaning of that rather than an attempt to change the clause itself.

Lord Beaverbrook

With the leave of the Committee I shall speak also to Amendments Nos. 14 and 15. It may be helpful to the Committee if I explain the statutory reserve briefly in general terms before dealing with those provisions of Clause 7 that these amendments would delete. It is normal for a private sector company's balance sheet to contain a mix of capital and reserves. Clause 7 provides for the creation of a statutory reserve that will be the balancing item between the nominal value of the securities issued to the Secretary of State under Clause 3 and the amount of the public dividend capital extinguished under subsection (3) of Clause 2.

The nominal value of the securities will necessarily be less than the capital extinguished. This is because a company cannot issue shares at a discount, and therefore in order to have the ability to raise new capital at any future time the market price of its shares needs to exceed their nominal value. It is common practice in these circumstances for the sale price of shares to be set at a level significantly higher than their nominal value. The reserve partly reflects this difference, therefore being similar in part to a share premium account. But it is essentially required in order to ensure that the balance sheet balances.

The amendments would delete the provisions in Clause 7 that allow the Secretary of State to direct that the statutory reserve may be applied to some extent in writing off unrealised losses arising from a revaluation of the successor company's fixed assets, and as a revenue reserve.

It has not yet been decided whether any revaluation will be undertaken. But if it is, as the Government explained when this clause was debated in another place, it is not expected that there will be any material change to the basis on which British Steel's fixed assets are recorded, and it is therefore unlikely that the revaluation would have any material effect on its total asset values. Any revaluation will have to be conducted by professional valuers and assess the value of all the company's fixed assets, to conform with Section 275 of the Companies Act 1985, if it is to lead to an unrealised loss that can subsequently be written off against the statutory reserve. I can assure the Committee that it is not the Government's intention to make large and unjustified write-offs under this provision, as has been alleged. Any reduction in asset values is likely to be relatively small and will be fully in accordance with normal accounting procedures.

It is normal for private sector companies to have both distributable (revenue) and undistributable (capital) reserves. Any revenue reserve authorised under this clause will do no more than reflect the profits the corporation has earned in recent years, with the result that the successor company's balance sheet is a more accurate depiction of the present position of the business. I must stress that the creation of reserves has no effect on the cash position of the company; the company receives no money from the Government. It is simply a matter of bringing the historical financial position, as shown in the balance sheet, up to date.

British Steel is now profitable and would have been able to credit its profit to a revenue reserve had it been able to apply to the court before now—as a private sector company certainly would have done—to reduce its capital, thereby eliminating its accumulated realised losses. BSC has not been able to do this because of its status as a public corporation. Its recent profits have therefore been set off against its accumulated realised losses.

It is important to understand that a revenue reserve is not cash. The successor company will only be able to make a distribution—that is, pay a dividend—out of cash arising from realised retained profits. There can be no question of the company in some way paying dividends out of capital; that would be illegal.

I must also state that these provisions lead to no loss of taxpayers' money. It is wrong to assume that BSC can be valued solely in relation to the numbers shown in its balance sheet. A company's worth is a matter not of balance sheet arithmetic but of investors' perception of its performance and prospects.

Lord Williams of Elvel

I am grateful to the noble Lord. In saying that I am not going to move Amendment No. 16, which comes next, I am in effect saying that I should like to read what the noble Lord said about Clause 7, whch is complex and which I believe deserves further study. I shall do that before the next stage. I am not entirely happy on first hearing with the explanation of the noble Lord but I shall reserve my position and Clause 7 will be the object of attention on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 15 and 16 not moved].

Clause 7 agreed to.

Clauses 8 to 15 agreed to.

Clause 16 [Consequential amendments, repeals and transitional provisions]:

[Amendment No. 17 not moved].

Clause 16 agreed to.

Clause 17 agreed to.

Schedule 1 [Provisions supplementary to s.1.]:

On Question, Whether Schedule 1 shall be the first schedule to the Bill?

Lord Williams of Elvel

Schedule 1 deals with the transitional provisions as to the vesting of property rights and liabilities of the corporation. Clearly I am not going to oppose the Question that Schedule 1 stand part of the Bill. The object of my giving notice of wishing to speak to Schedule 1 concerns the pension fund of the British Steel Corporation and the rights of employees under that pension fund.

I have tabled Amendment No. 18, which will deal with the rights of the employees, but I want to be quite satisfied that Schedule 1 covers the possibility of what I call pension fund stripping. Perhaps I may enlighten Members of the Committee who do not understand the expression "pension fund stripping"

What happens when a company acquires another company, when a company goes public or changes status, or when a company finds that its pension fund is in some way in surplus on an actuarial valuation of the pension fund is that either it suspends payments into the pension fund or else, in some extreme circumstances, although the tax benefits of this have now been stopped, it can strip the pension fund of its cash. I hope that the Minister can give the Committee sufficient assurance that this will not happen under the company when privatised and when the rights and obligations of pensioners and employees are transferred in the vesting process to the corporation.

Lord Beaverbrook

The noble Lord speaks specifically about pensions and other arrangements that may affect the workforce of the corporation. Indeed, the noble Lord has a separate amendment tabled which we will be discussing soon on the subject of pensions. I thought that he would bring up the matter of pension fund stripping, as he described it, on that amendment. However, perhaps I may deal with it now.

I can assure the Committee that the clear intention of Schedule 1 is that as far as possible nothing is changed as a result of vesting. As paragraph 1 of the schedule makes clear, the Government's intention is that all present agreements are taken on unchanged by the successor company. Paragraph 3 of the schedule sets out, for the avoidance of doubt, that general approach as it applies to contracts of employment and the payment of pensions.

I can make clear that there is no cause for concern for the pension fund at present. Independent actuaries have surveyed the scheme's finances and they are satisfied that there is no need to recommend change. Clearly, no indefinite guarantee can be given about any pension scheme, whether in the private or the public sector, as all such schemes depend in part on the success of their investments. However, there is no case for change at present. I understand that there is no vast surplus in the pension fund.

Lord Williams of Elvel

I am most grateful to the noble Lord for making that important statement.

Schedule 1 agreed to.

Schedule 2 [Repeals]:

On Question, Whether Schedule 2 shall be the second schedule to the Bill?

Lord Williams of Elvel

This schedule deals with repeals and I take the opportunity of raising the matter of the Iron and Steel Act 1982. I am advised that that Act contains certain provisions for consultation with employees on a regular basis. The trade unions involved in the industry are anxious that with the repeal of the appropriate section of the Iron and Steel Act the process of consultation should not be diminished. I very much hope to have from the Minister a statement similar to the one he has given on pension fund stripping that the successor corporation intends—obviously there can be no guarantees, and I understand that—to continue the same active consultation with employees as the British Steel Corporation.

Lord Beaverbrook

I am not sure that I am able to give the noble Lord quite the guarantee that he seeks but I can say that we do not wish to have the privatised British Steel Corporation dictated to by powers such as those under the Iron and Steel Act. As I have said, we wish the corporation to be on the same basis as other private sector companies.

We are privatising the corporation in order to move it from the sphere of government control. We do not accept that there will be occasions when the national interest requires the Government to direct the successor company in its activities. The national interest will be best served by British Steel being successful in the private sector. I believe it is more likely to be successful if left alone to take its own commercial decisions. I also believe that British Steel's industrial relations will be the key to its success in the private sector.

I hope and expect that the management of British Steel will carry on the excellent relations that it has now with the workforce. It would be extremely unfortunate if those relations were tampered with. I am sure that the management of British Steel will have no plans to tamper with such arrangements and the excellent relationship that it has.

However, it would not be right for British Steel to have its industrial relations policy dictated by statute; so it is necessary, we believe, to repeal that part of the Iron and Steel Act. I repeat: I am sure that the mangement is fully aware of what is necessary for good industrial relations. I am sure that British Steel plc, will, under Clause 1 and Schedule 1, inherit all the existing agreements and arrangements that the corporation has with its workforce. I am sure it will continue to consult the workforce on such issues as would any other good employer.

Lord Williams of Elvel

I am grateful to the noble Lord. The last part of his reply was considerably more encouraging than was the first part. I will therefore take the last part as being the true version of the Government's commission, and we are grateful for that.

Of course, in speaking to Schedule 2 stand part I had no intention of voting against the schedule. I felt that this was an opportunity to discuss the question of consultation within the successor corporation. I am glad that we have received some assurance on that point.

Schedule 2 agreed to.

6.45 p.m.

Schedule 3 [Transitional provisions and savings]:

Lord Williams of Elvel moved Amendment No. 18: Page 15, line 40, after ("scheme") insert ("with undiminished benefits").

The noble Lord said: As the Minister pointed out, this schedule deals with pensions and compensation payments. There is a pension scheme in place and the trade unions involved in the industry have expressed an understanding that there can be no guarantee of future pension levels. However, I felt it worth having a discussion with a view to ensuring that, though there cannot be an absolute guarantee, nevertheless it was understood that there might be some sort of undertaking that pensions would not be diminished after privatisation. Indeed, I very much hope that pensions will be improved.

There was an exchange in the other place on this matter and the Under-Secretary of State for Industry said that the unions with whom the matter had been discussed do not necessarily believe that an absolute guarantee is needed. That is partially true, but it is perhaps somewhat misleading. The unions would welcome a guarantee that there will be no diminution in the pension entitlements, though they would not wish necessarily for a guarantee that pensions could be improved. I ask the Minister to respond to that. I beg to move.

Lord Beaverbrook

I am grateful to the noble Lord, Lord Williams, for introducing this amendment. Paragraph 8 of Schedule 3, in conjunction with the vesting provisions of Clause 1 and Schedule 1, ensures continuity in respect of the corporation's pension scheme. That scheme, in common with the corporation's other property, rights and liabilities will vest unchanged in the successor company.

As the noble Lord knows, in debates in another place the Government stated that the corporation was reviewing its pension scheme. It has now completed that review and I can tell the Committee that the review has made clear that there is no reason why the pension scheme should not continue as at present. It has therefore been decided that it will remain unchanged when British Steel joins the private sector. Pensions will continue to be provided on exactly the same terms as at present, subject to and in accordance with the provisions of the existing trust deed. I think that this decision meets the concern of the noble Lord that the benefits of the scheme would not be diminished.

Lord Williams of Elvel

I am most grateful to the noble Lord for that very satisfactory response. I will read carefully what he said and take advice. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 3 agreed to.

House resumed: Bill reported without amendment.