Royal Ordnance: Site Values (Hansard, 2 November 1988)

§ The Minister of State for Defence Procurement (Lord Trefgarne)
My Lords, British Aerospace paid £190 million for Royal Ordnance following a keenly fought competition. It has made clear its intention to promote the efficiency of Royal Ordnance by all appropriate means rather than just to dispose of the business site by site. We warmly welcome the prospect of a revitalised and profitable Royal Ordnance competing effectively for MOD business and in world markets.

§ Lord Graham of Edmonton
My Lords, does the Minister recall telling me on 20th October last year, when I alleged that the Enfield small arms factory site was valued in excess of £100 million, that he had valued the site—a site with hundreds of acres of development potential—at £1.5 million? Now that it is crystal clear that the Minister has been complacent, careless and plain deceived, or all three, is he not ashamed to be involved in the shabby and shoddy theft of taxpayers' money and the lining of the pockets of private shareholders at public expense?

§ Lord Trefgarne
My Lords, I am afraid that I have to reject all that rubbish. The exorbitant prices recently suggested for that site and others are the figment of the imagination of some City analyst, no doubt assisted by a personal computer and a souped-up Ford Sierra. They bear no relation to reality. They are inflated prices which were, I dare say, intended to chalk up the price of British Aerospace shares. Happily, the British investor on the Stock Exchange is not gullible. I am sorry that the noble Lord is.

§ Lord Cledwyn of Penrhos
My Lords, is the Minister aware that the charge he has made against my noble friend, namely, that he was talking rubbish, is unworthy of the noble Lord? Is he aware that public opinion is deeply disturbed by what has happened in relation to the Royal Ordnance Factories and that many people believe that it is a serious condemnation of the Government's whole privatisation policy? Is he aware that the Government's policy has been sharply criticised by the Public Accounts Committee of another place? Does he agree that the factories at Waltham Abbey and Enfield have been valued at £450 million? The late Lord Stockton said that the Government were selling the silver. Does not this matter prove that the late Lord Stockton was absolutely right? Does the Minister agree that the Government—

§ Lord Denham
My Lords—

§ Lord Cledwyn of Penrhos
My Lords, I am not prepared to give way to the noble Lord. He is far too ready to interrupt at the drop of a hat when interruption is totally unjustified. Will the Minister say how he defends the Government's policy which, in the opinion of the great majority of the people of this country, is at present indefensible?

§ Lord Trefgarne
My Lords, I am afraid that the disquiet on this matter that has been generated—I accept that there has been some disquiet—is the result of the wholly misinformed comment to which I referred a moment ago. I accept that the Public Accounts Committee has also expressed some disquiet. I therefore welcome the fact that the Comptroller and Auditor General will further advise the committee.

§ Lord Peyton of Yeovil
My Lords, is my noble friend aware that his rejection of the torrent of adjectives thrown at him by the noble Lord opposite seems to some of us eminently reasonable?

§ Lord Trefgarne
My Lords, I am grateful for my noble friend's support.

§ Lord Stoddart of Swindon
My Lords, if the City analyst with his computer and his souped-up Sierra proves to be correct, will the Government believe that British Aerospace has a moral responsibility to repay to the Government and the taxpayer the excess profits which it has made?

§ Lord Trefgarne
My Lords, I understand that the City analyst to whom I referred has already recanted, so the second part of the noble Lord's question does not arise.

A noble Lord
Rubbish!

§ Lord Simon of Glaisdale
My Lords, is it not altogether premature to discuss this issue? Is it not open to the Secretary of State to call in any planning application that is made and make a fair decision on it in the light of all the circumstances, including the green belt issue and the possibility of devoting part of the area to open space?

§ Lord Trefgarne
My Lords, it is certainly open to the Secretary of State for the Environment to call in a planning application. I understand that no such application has been made in respect of the Enfield site, but an application was made some time ago in respect of the Waltham Abbey site which was rejected.

§ Lord Jay
My Lords, if British Aerospace knew in advance that planning permission was likely to be given on the sites and the Ministry of Defence did not, is that not another case of insider trading?

Noble Lords
Hear, hear!

§ Lord Trefgarne
My Lords, British Aerospace had no reason to believe that then, any more than it does now.

§ Lord Harmar-Nicholls
My Lords, if British Aerospace knew of that possibility, was that information not open to everyone else? Is it not a fact that, with that knowledge generally available, British Aerospace submitted the best bid which came on to the market?

§ Lord Trefgarne
My Lords, it is certainly the case that British Aerospace was the winner of the competition so far as concerns Royal Ordnance. Originally 17 other organisations expressed interest; in the end there was a short list of six, which was finally reduced to two. All of those 17, reduced to two, knew the facts of the matter.

§ Lord Taylor of Gryfe
My Lords, while the Minister accepts that British Aerospace was the winner in the bid, is it not customary to put on a reserve price before disposal, as the Government appear to be doing in the case of the Girobank? Would it not have been wise for the ministry to make a valuation of the sites based on planning applications being approved before it disposed of the assets?

§ Lord Trefgarne
My Lords, Royal Ordnance was disposed of as a going concern. That therefore included all the Royal Ordnance sites in operation at the time on the basis of the activity presently being carried on at those sites. We did of course have a valuation of the sites on that basis before we disposed of Royal Ordnance. A very senior and respected firm of valuers advised the Government and the merchant bankers who were advising us on that matter. I remain convinced that we obtained a perfectly proper price when we disposed of Royal Ordnance.

§ Lord Dean of Beswick
My Lords, can the Minister confirm or deny whether this deal has been brought to the attention of the Auditor General by the Public Accounts Committee of another place? If that is the case, is there not considerable reason for disquiet about that procedure having been adopted?

§ Lord Trefgarne
My Lords, I believe that that is not the case. The Comptroller and Auditor General is the servant of the Public Accounts Committee and through that committee the House of Commons. He is frequently called in to advise the PAC on various matters and I very much welcome the fact that he has again been so called in on this occasion.

§ Lord Sefton of Garston
My Lords, in view of the Minister's reply to the first Question and the fact that he disparaged the City analyst's so-called valuation, has he himself taken any steps to value the site?

§ Lord Trefgarne
My Lords, as I said in answer to an earlier question from the noble Lord, Lord Taylor of Gryfe, the Government received advice from a very respected firm of City valuers. The firm is called Weatherall, Green & Smith, with whom the noble Lord is no doubt familiar.

§ Lord Sefton of Garston
My Lords, I apologise. The Minister has missed my point. That was a valuation of the site before it was sold. I am asking whether he has taken any steps to value the site without the factory on it.

§ Lord Trefgarne
My Lords, the valuation to which I referred was of course primarily concerned with the sites continuing in their existing use. It was on that basis that we disposed of Royal Ordnance. However, the valuers took into account the possibility of some alternative use in appropriate cases.

§ Lord Graham of Edmonton
My Lords, will the Minister accept that I, like the noble Lord, will rest content with the outcome of the consideration by the Public Accounts Committee and the Auditor General as to whether the Minister obtained a fair value for the assets? But is this not a case of the Government being more concerned with flogging assets than looking after the interests of the taxpayers and the workers?

Noble Lords
Hear, hear!

§ Lord Trefgarne
My Lords, on the contrary, it was essential that Royal Ordnance was made an efficient and competitive business. Before we put Royal Ordnance into the private sector it was far from competitive. It was singularly failing in world markets and singularly failing to supply the Ministry of Defence on a cost-effective basis. It was the most expensive supplier in the world. I am very happy to be able to say that now that it is in the private sector Royal Ordnance is performing very much better.

§ Lord Parry
My Lords, will the Minister accept that it is a weakness that some of us recognise in the economic system that, when assessments are made of the value of a company, emphasis is always placed on 188 profit or lack of it and that there is never a true assessment of the value of the assets held by that company?

§ Lord Trefgarne
My Lords, we were well aware of the asset value of Royal Ordnance on the basis of existing use, as I said. When we planned to dispose of Royal Ordnance a couple of years ago by means of a flotation on the stock market the sum that we expected to obtain at that time was about £100 million. In the event we got £198 million. I think that that is a very satisfactory outcome.

§ Lord Denham
My Lords, I wonder whether the noble Lord, Lord Carter, will give way for one moment and then I shall give way to him. We have now been 20 minutes on two Questions. If the noble Lord would put his Question and my noble friend would reply, I hope that the House might agree that we should go on to the next Question.

§ Lord Carter
My Lords, in his first reply the Minister referred to the keen competition for this company and in a later reply he said that that was reduced to two bidders. Can he confirm a press report that the winning bidder was able to pitch its price just above the figure at which the under-bidder would have been required to call an extraordinary general meeting to obtain the permission of shareholders for the bid?

§ Lord Trefgarne
My Lords, the bids of the two final bidders were confidential. Neither was aware of the figure submitted by the other. Therefore it was not necessary for them to pitch their bids at a particular level as the noble Lord suggests.

§ Lord Carter
My Lords, the successful bidder only needed to read the articles of association of the under-bidder to enable it to pitch its figure just above the point required.

§ Lord Trefgarne
My Lords, for all British Aerospace knew, GKN might have lodged a bid subject to the approval of its shareholders.