Transport (Scotland) Bill

HL Deb 03 July 1989 vol 509 cc994-1011

4.40 p.m.

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

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 Sanderson of Bowden.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD STRABOLGI in the Chair.]

Clause 1 [Transfer of operations of the Group]:

Lord Carmichael of Kelvingrove moved Amendment No. 1: Page 1, line 10, after ("programme") insert (" which he will lay before Parliament for approval").

The noble Lord said: For the convenience of the Committee, I should like to speak to Amendments Nos. 1, 2 and 3. This follows the procedure in relation to similar amendments in another place, where the Bill went through without a single amendment being accepted. I do not intend to delay the House although I expect to receive some answers from the Minister regarding matters that were not dealt with in the other place to my satisfaction, at least when I reread the proceedings.

The amendments deal with the likelihood—or, in some English experiences, the certainty—that the Bill will be used by unscrupulous buyers to indulge in very lucrative but destructive asset-stripping. At Second Reading I referred to the Hampshire Bus buy-out by Stagecoach. The assets were sold off to the greater good of the buyer. There was an almost criminal neglect by the Government to provide for the defence of the public purse in the English Bill.

The Minister will be aware that Amendment No. 2 differs from the amendment moved in the other place during Report stage. In this House we ask that the Secretary of State and not the employees should approve any sale of assets within five years. Although we would prefer that the employees were involved, we could, if the Secretary of State had to approve and notify Parliament, question in Parliament the reasons for the selling off of the assets. This sale of assets in many cases could be perfectly legitimate. It could be to the benefit of bus services and to the people who use the services who, I stress, in the past provided the money to build up those assets.

Amendment, No. 1 is aimed at starting on a proper footing the process of selling off the bus group. If the Secretary of State has reached a decision on how this most important process for the future of transport in Scotland should proceed, it is only right that Parliament should know about it and be able in its collective wisdom to assist the Secretary of State in his mission to carry out what we think is an ill thought-out concept. Nevertheless, the Bill may be improved by Parliament helping the Secretary of State.

Amendment No. 2 is in many ways the important amendment in this group. Following Report stage in another place I looked at this matter carefully. I am sure that the Minister will accept that we require better answers than those that were given in the other place. I make no apologies for covering the same arguments. The Scottish people should be made fully aware that the Government have been warned of the dangers of asset-stripping. We have made attempts at every stage in the other place and in this Chamber during the passage of the Bill to propose measures that could prevent asset-stripping. The Government may be complacent as to whether this will happen in Scotland. If it does happen, it could have a devastating effect on the Government's already very weak grip on Scottish public opinion. Other examples will no doubt be brought forward from the English experience and we shall be able to point these out to the people of Scotland.

In order to remind ourselves of the dangers, I should like to run through the basic facts of the Hampshire Bus case. I do not believe that this can be often enough explained. Hampshire Bus was sold to Stagecoach for £2.1 million. Within two weeks, Stagecoach sold the City bus station and the coach station for £4.1 million. It then sold half the bus fleet for £1 million. Therefore, having bought the company for £2.1 million, within weeks it sold part of it for £5.1 million. The bus-using public had to queue in the rain until Southampton City Council spent £138,000 of ratepayers' money to build sheltered stands. Can the Minister assure us that this will not happen in Scotland? If it does, where in the Bill are there any reassurances? Will the Secretary of State defend the valuable St. Andrew's Square bus station in Edinburgh, the two Glasgow stations or those in Stirling, Aberdeen and a host of Scottish cities and towns?

It is preposterous that the Bill does not protect the public purse, when the English experience shows what the Bill allowed people to do. Hampshire Bus is the worst example that has so far come to light, but there will be others. If an amendment is not made to the Bill there will certainly be many instances in Scotland.

The third amendment in this group attempts to defend the travelling public from a private monopoly situation. I have no objection to the way in which Stagecoach runs its business. I do not know enough about the company, although I have heard and read stories. However, I am sure it is an efficient group. It has said quite plainly that it intends to bid for every part of the Scottish Bus group. Is the Minister happy about this situation? If so, where is the competition to come from in years ahead? If Stagecoach buys all the Scottish bus companies it will have a monopoly throughout Scotland. That is quite contrary to what the Government said was the purpose of the Bill. I agree that there may be a monopoly in terms of the Scottish Bus group or some of the local authority buses, but they are answerable through their boards to the Secretary of State and, ultimately, to Parliament. The local bus organisations like Clyde and Lothian are all ultimately responsible to the elected councils. If there is a monopoly situation in which Stagecoach succeeds in buying a fair proportion of the Scottish buses, particularly in adjoining areas, then we shall have no defence at all. I hope that the Minister will be able to give some assurance on the three important points raised in these amendments. I beg to move.

Baroness Carnegy of Lour

I was unable to be present at Second Reading of this Bill, but I welcome it very much. I believe that bus travellers in Scotland will welcome it enormously once they get the benefit of local private operators who are free to run buses in the way which local people want and to which local people can respond.

I agree with the comments of the noble Lord, Lord Carmichael of Kelvingrove, about the importance of new operators not being swallowed up in one big company. That will put us back where we started. I shall listen with great interest to what my noble friend has to say about it.

As regards Amendment No. 2, the noble Lord is suggesting that it shall not be possible for a private bus operator who buys one of the local companies to sell it again within five years. I wonder what will happen if the company is proved to be a flop and it cannot cope. If the company wanted to sell to another company that could cope, it would be at the mercy of the Secretary of State who might refuse to allow the sale for one reason or another. That would not suit the local travelling public, who would have a company that was not operating very well. I wonder whether that is not tying the hand of the new company too much, and whether it would not so reduce the attractiveness of the company to potential buyers that no one would be willing to purchase it.

Lord Sanderson of Bowden

I thank the noble Lord, Lord Carmichael, for speaking to the first three amendments en bloc because, as he has said, they do hang together.

The first amendment seeks to require the disposal programme for the Scottish Bus Group to be approved by Parliament. I should like to remind the Committee of the background to the development of the disposal programme. My right honourable friend the Secretary of State for Scotland has already made clear the basis on which the Scottish Bus Group will be offered for sale. It will be sold in 11 units. Clause 2 of the Bill sets out the Secretary of State's main objective in preparing the disposal programme, namely, to promote sustained and fair competition in the bus industry. He is also required to have regard to the encouragement of employee participation and to the net proceeds of sales. We have made it clear that we attach great importance to the encouragement of bids involving a high level of employee participation. This the noble Lord knows, because I said so at Second Reading.

The programme will contain a statement of the general approach to be adopted in carrying out disposals, including a timetable and a description of any measures required in preparation for disposals. The programme will state the units to be offered for sale and indicate the detailed arrangements for inviting and considering bids. In particular, it will set out the basis on which a preference will be given to bids involving significant employee participation. It will deal with safeguards relating to property disposals—I shall return to this important issue in a moment—and the number of companies one buyer can acquire. Bids will be invited on the basis of information memoranda to be issued at the time of sale by the Scottish Transport Group.

The programme will also state that prospective purchasers, in making bids, will require to show their intentions for pensions arrangements and travel concessions for employees, and their policy towards the disabled and other vulnerable groups. No disposal will be recommended by the Scottish Transport Group until an interested management-employee buy-out team has had sufficient time to mount a bid.

In the light of these undertakings which have been given about the contents of the disposal programme, and the fact that it will be published, I do not think that, as regards the first amendment, parliamentary approval should be asked for. I believe this mirrors the legislation in the Transport Act 1985, where legislation did not require the disposal programme to be approved by Parliament.

The noble Lord, Lord Carmichael, went on to deal with the second amendment, with which I wish to deal at some length.He has asked that the business should not be resold within a period of five years with the consent of the Secretary of State. The amendment states: It shall be a condition of purchase for any undertaking proposed for sale under this section that the business shall not be resold within a period of 5 years with the consent"— I presume the noble Lord means, without the consent of the Secretary of State'"?

Lord Carmichael of Kelvingrove

The Minister must be working from an earlier Marshalled List. There is a correction on the latest Marshalled List pointing out that the business shall not be resold, without the consent of the Secretary of State".

Lord Sanderson of Bowden

So there is. I apologise. I acknowledge that, as experience after privatisation with former subsidiaries of the National Bus Company suggests, there may well be pressures which could result in some subsequent resales after privatisation. I do not think that it is realistic to try to legislate against these. For one thing, the amendment would do no more than delay re-sales and would not ultimately prevent them from taking place. Furthermore, any such limitation would be a restriction on the competitive freedom of a company after privatisation which did not apply to companies with which it was competing. Such a restriction might, for example, make it more difficult for the company to raise new capital to expand its operations It might, therefore, be counterproductive in terms of the objective which underlies the amendment. I would also remind tie Committee that safeguards against the development of monopolies already exist in competition law, which applies just as much to the bus industry as it does to other industries.

The Director General of the Office of Fair Trading can refer matters to the Monopolies and Mergers Commission. I wish to take that matter a little further. Following a reference, and a report by the MMC to the Secretary of State for Trade and Industry, he can ask the director general to seek undertakings from the persons concerned about how they will act in future. If necessary, the Secretary of State can make an order, and such an order can require the reversal of a merger between companies. As regards the bus company, following the privatisation of NBC, the OFT has monitored the situation closely and has taken action where it has considered this to be necessary. For example, in a case involving a merger between companies involved in providing bus services in the Bristol area, reference was made by the OFT to the MMC. The OFT is currently investigating the recent takeover of bus companies in the North-West of England by Stagecoach, the company to which the noble Lord referred.

There are thus very positive safeguards already in place against the establishment of monoplies in the bus industry as in other sectors of the economy. The noble Lord mentioned the Hampshire bus situation. I am aware of the general background of the purchase of Hampshire Bus by Stagecoach. Here we feel it is essential that property assets are properly valued and that measures are taken to prevent them being sold off after privatisation at a large profit. Specialist property advisers have been appointed by the Scottish Transport Group to value all the properties of the bus group and to advise on the best treatment of those properties in the course of sale. Property advisers will also be appointed by the Secretary of State.

There are a number of options for dealing with properties. The first is to take out the property from the company and sell it separately, which might apply to property that is not essential for the running of the bus undertaking. A second option is to sell the property with the company, but to ensure that the price received fully reflects the range of values for the assets. A third option is to sell the property with the company, but with a legal charge on the property which ensures that it is subsequently sold within a specified period for development purposes and that the Government will receive a specified share of the development proceeds. A fourth option would be to dispose of an operational property separately from the company, but with a long lease arrangement to allow the company to use it to prevent early disposal for development.

We shall be considering all these options very carefully in the light of the advice that the group will be getting from its property advisers and from the Secretary of State's property advisers, and will take appropriate action.

As well as the competition legislation—I know very well of the genuine fear that the noble Lord has about what he calls asset stripping—I wish to refer to a very important part of the plans that my right honourable friend wishes to approve. I have mentioned that management-employee buyouts are a means by which we wish to see employees participating in the future of their own companies.

It is usual in the case of MEBOs for the team involved to set up a new company to purchase the whole of the issued share capital of the company being sold. In this way they can set up whatever shareholding arrangements in the new company they consider appropriate. The company could make provision in its articles of association to limit the ability of shareholders to dispose of shares outside existing groupings of shareholders by, for example, establishing pre-emption arrangements under which shares would require to be offered in the first instance to the existing shareholders. Articles of association can be changed only if 75 per cent. of the shareholders vote to do so. The structure of shareholding arrangements will be considered at the time of drawing up the disposals programme. The Secretary of State will be taking into account these matters when considering bids in the light of competition objectives. I hope therefore that the noble Lord understands that we are taking this matter very seriously indeed.

The last amendment in this group states: In giving effect to subsection (1) above, no single buyer may own more than two of the subsidiaries set up for disposal". This amendment not only seeks to limit to two the number of bus subsidiaries one purchaser could acquire under the disposals programme, but also appears to require no purchaser to own more than two of the companies disposed of for all time. I think that that is what the noble Lord means. On reading the amendment, that appears to be what he has in mind.

I fully appreciate the noble Lord's intention. The main aim of the Government's privatisation policy is to increase competition and hence efficiency and responsiveness to the consumer. The Secretary of State decided that nine bus operating companies, together with a coaching firm Scottish City Link and SBG Engineering Company, would provide the best balance between competition and stability in the Scottish bus industry. For competitive reasons we decided that it would not be appropriate to privatise Scottish Bus Group as one entity and would clearly not wish a single buyer to purchase several SBG companies.

As regards outside bids, we would not wish a single buyer to purchase several companies. In the NBC privatisation the maximum number of operating companies sold to a single buyer was four. Applying a similar proportion to the SBG subsidiaries, any single purchaser would be limited to one subsidiary, but any such limitation will depend partly on which companies are involved and where they operate. Prospective purchasers could set up separate companies so as to be able to acquire more than one subsidiary, or there could be links between purchasers.

Each case therefore requries to be considered on its merits at the time of sale. It is necessary to examine who the prospective purchasers are and what links they may have with other bus companies. I agree that there is a need to avoid a single buyer acquiring too many bus companies—there is nothing between us on that—but I do not think that legislation on this point is the best course. Having heard my explanation of the three amendments, I hope that the noble Lord will consider withdrawing them.

5 p.m.

Lord Tordoff

The noble Lord, Lord Sanderson of Bowden, is, as usual, persuasive. I have no doubt that the noble Lord, Lord Carmichael, will recognise that the amendments are not necessarily the best that could have been produced by a government draftsman. I spoke at Second Reading on some of these matters. I am somewhat reassured by what the Minister said. However, he has not reassured the Committee in relation to the Hampshire example given by the noble Lord, Lord Carmichael. If it could happen in Hampshire, what is different about Scotland?

Are the Government saying that they are taking a different view in relation to the Transport (Scotland) Bill from the position which exists in England? I detected from what the noble Lord said that that might be the case, but simple folk like me need to have it spelt out in words of one syllable. We need to be assured that in bringing forward this Bill for Scotland the Government have learnt from their mistakes in relation to buses in England.

People are worried about a monopoly. Indeed, the Government are always worried about monopolies in public undertakings. The Labour Party is always worried about monopolies in private undertakings. I hope that we on these Benches can take a slightly more dispassionate view. There is always a tendency towards monopoly in circumstances of this kind. The very workings of the market tend towards monopoly. I accept what the noble Lord said about the mechanisms of the Monopolies and Mergers Commission operating in this respect, but the potential for asset stripping is of a different order. The evidence so far clearly points towards the danger of asset stripping. Can the Minister give more reassurance that this will not happen in Scotland?

Lord Underhill

As a non-Scot perhaps I may intervene for a moment, in the light of what the Minister said about the National Bus Company. He should add some further points and give some assurances. Are there not instances of former National Bus Company regional units buying up or amalgamating with other units of the NBC? Is there any guarantee under the Bill that this will be avoided with the dissolution of the Scottish Bus Group? There are a number of instances of regional units of the NBC taking over or merging with other regional units of the NBC. I believe that the Minister wants to avoid that happening, but can he give further assurances before my noble friend replies?

The Earl of Perth

The Minister certainly satisfied me on Amendments Nos. 1 and 3, but on Amendment No. 2 he set out four safeguards against a wrong happening. It may well be that one of them is effective. However, why cannot we have one further safeguard to avoid the risk of someone pulling a fast one against the Government or the local authority? We have in the past seen examples of bad deals. It has generally been by the Government or the local authority. The further safeguard proposed in the amendment might be worth considering.

Lord Carmichael of Kelvingrove

I agree with the noble Lord, Lord Tordoff, that the Minister is persuasive. He assured us that were he in charge everything would be absolutely all right and that there would be nothing even faintly shady. However, I still felt uneasy at the end of his speech. The noble Earl, Lord Perth, said that we can accept the Minister's recommendation in regard to Amendments Nos. 1 and 3, but his explanation was woefully inadequate in regard to Amendment No. 2.

The noble Baroness, Lady Carnegy, said that the Secretary of State could frustrate a failing company. That is not how we expect Secretaries of State to behave. The difference between the Secretary of State and a private company is that he is in the limelight and can be questioned in Parliament. If he were doing something as silly or as evil as to frustrate a company he would soon be exposed. If he were trying deliberately to run a company into the ground in order to get assets—for what purpose, I am not sure—it would soon be found out. The noble Baroness did not quite grasp the point about which we were concerned. We are trying to right a serious wrong that has been created in England and could be created in Scotland.

The noble Lord said that five years is too long a period. It is quantitatively and qualitatively considerably better than two weeks. The disgraceful case in Hampshire illustrated that almost anything is better than that. The Secretary of State is ultimately responsible to Parliament and the press are able to examine his actions carefully.

I accept the Minister's assurances but they are not written on the face of the Bill. Unfortunately, some of the people in the bus industry and those who are coming into the industry are the kind of people who will read the Bill without thinking of the nice words and the kind intentions of the Ministers or the politicians. That certainly applied to some of the people who were in the industry and who caused it to be regulated about 50 years ago. It seems absolutely imperative that the Minister decides or makes clear to the Secretary of State that one or more of these safeguards, at least as regards property, must be put forward before this sale will be trusted by the people of Scotland.

Further, to make the political point, it will not take much to topple over into the brink what is left of the Minister's party in Scotland. I am sure that he is well aware of that fact. The Government have done a great deal as regards Prestwick to help matters in one corner of Scotland. Therefore could they not do a little in respect of the buses to help those in the other corner?

Lord Sanderson of Bowden

I must return the compliment and say to the noble Lord that he is most persuasive. I am glad that he recognises the work that we have done in Prestwick, although I doubt whether that is recognised by all quarters of this Chamber. Two main points emerge from the discussion and I must say that I am grateful to those noble Lords who have taken part. First, there is the question of what can be summed up in the phrase "asset stripping of property". Secondly, there is the general point made by the noble Lord, Lord Underhill, as to whether we have learnt any lessons from the NBC privatisation. As regards the latter, I believe that the answer is, yes.

Perhaps I may give a further example. We have talked about the Stagecoach takeover of Ribble and the fact that that matter is before the Office of Fair Trading. It would therefore be wrong for me to comment on it. However, there has also been the question of Badger Line Holdings Limited and Midland Red West Holdings Limited. Of course that matter went before the MMC. The report has now been published and it will of course go to the Secretary of State for Transport in England. I understand the commission concluded that there was no material loss of potential competition in the provision of commercial services. However, the report indicated that the merger may be expected to operate against the public interest with respect to competitive tendering for local authority supported services. The report recommends that the Director General of Fair Trading shall seek undertakings from the holding company concerned as to its future behaviour in regard to tendered services and that if such undertakings were not forthcoming the merger should not be allowed and divestment should take place. I understand that discussions are still continuing on the procedure for fair tendering.

I think that the latter gives point to the general remarks I made as regards the fact that there is the law on competitive tendering, and so on, upon which we can fall back. However, what is worrying noble Lords, especially the noble Earl, Lord Perth, and the noble Lord, Lord Tordoff, is the question of asset stripping. I hoped that what I had already said indicated, without me having to elaborate on the matter, that we in Scotland have looked carefully at the problems which have arisen over asset stripping.

One option in property disposals is to place a legal charge on the subsequent disposal of the property. Therefore the Scottish Transport Group or, after its dissolution, the Secretary of State, can share in development proceeds. Such an arrangement was used in many cases in the NBC privatisation. We shall use that method where appropriate in the Scottish Bus Group sales. I hope that, by indicating that we are very alert to that point—quite apart from the general remarks made by the noble Lord, Lord Carmichael, about how sensitive the Government's position may be in Scotland on that issue—by reinforcing what I said earlier and by giving the noble Lord, Lord Tordoff, this particular answer, the noble Earl, Lord Perth, will understand that I have set the scenario by which we fully understand the difficulties which may arise. That applies not just to me, but also to my colleagues. As I said, we fully understand the difficulties as regards the disposal of property. I trust that the answers I have given will mean that noble Lords will not think it necessary to press these amendments.

Lord Carmichael of Kelvingrove

I thank the Minister for the care he has taken over his reply to these amendments. We shall, however, have another chance to look at the matter. I think he will agree, especially as regards the points made about the protection of assets, that we need to consider the issues raised at leisure and to read in Hansard what has been said. We may perhaps return to these issues at a later stage of the Bill's proceedings. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 2 and 3 not moved.]

Clause 1 agreed to.

Clause 2 agreed to.

Clause 3 [Implementation of the programme]:

Lord Carmichael of Kelvingrove moved Amendment No. 4:

Page 3, line 12, at end insert— ("( ) Any financial assistance made available for management or employees buyouts shall be available for up to three buyout attempts by existing management or employees within any one of the undertakings created by the Act.").

The noble Lord said: Clause 2(2)(a) provides for the Secretary of State to help those in management or otherwise employed in an undertaking to acquire a controlling interest in that undertaking. The Secretary of State has spelt out the amount of assistance which he intends to underwrite. It comes to 75 per cent. of professional fees up to the sum of £65,000—that is to say, the Secretary of State will give assistance for one bid per company for one employee/management buy-out. The money will be required to be repaid if the bid is successful. Therefore, at the very worst we are talking about the Secretary of State perhaps paying out the maximum amount in respect of two bids for any one company. We all know that it is unlikely there will be more than two employee/management bids for more than two or three companies.

That provision is helpful so far as it goes. However, it has been suggested that there could possibly be more than one employee/management buy-out. It has also been suggested that some managements will not want to have employees involved in the new organisation and that it may be just as likely that some employees will feel that they could do a better job by buying the company and installing their own management team from outside, or even from among themselves.

To allow for such a situation we are asking, by way of the amendment, that more than one employee/management bid should be given financial support. I would not expect more than one such bid to be made in all cases—only perhaps in a few cases, if any. However, surely there is a principle involved here. Without this amendment the Scottish Office will need to make a decision very early in the sell-off programme as to which bid it should support. Once the office decides to support one bid it has virtually killed the other one. The sum of £47,000 would need to be raised. Of course, it could be considerably more but even the sum of £47,000 would be a big help towards obtaining an assessment and ensuring that a proper bid is worked out for the company. In other words, before a fully developed tender and firm offer have been prepared by professionals for the groups trying to bid for the services, the Government will be forced to smile at one group and reject the bid of the other.

I believe that a total purchase price of about £300 million has been agreed, although, as an aside, we shall not be told anything other than the total that is received for the Scottish Bus Group. I am not sure that that has been decided. I believe that it was suggested by the Minister in another place that he would think of giving the total. I do not see why the public should not be told the price of each company after the deal has been made. Scotland is the sort of place where people will soon know what has been paid. I do not see why the Government should not let us know the price as soon as the bids are accepted. With a capital valuation of about £3 million, the figure seems small beer if multiple buy-outs of the assets are made. The Government seem to be already pre-judging the bids from inside the industry.

I may be unfair but from reading the speech the Minister made in another place it seemed that seminars would be held for managers who are interested in bidding, but not for employees. The employees will be putting a relatively higher proportion of their worldly goods into buying if it is decided that they will participate, but they will only be able to see some nice glossy video presentations. I find that unacceptable.

The Government seem to be favouring the idea of management buy-outs. The Government's intention to treat the companies' business performance and assets as confidential may be more of a hardship to the employees than to the management, because in the nature of things managements will have more figures available to them than will the employees, should the employees decide to go on their own.

Will the Minister comment on the Government's attitude to the financial backing for employee buy-outs? It has been drawn to my attention that financial backing from outside organisations, including other bus operators, banks and financial companies, will be considered by the Government not to be bona fide worker-management buy-outs. I do not know where their money will come from. If outside finance is introduced, the bid will not be defined as internal.

It has been drawn to my attention that the Luton and District Bus Company, which is the first successful employee buy-out, has agreed to invest up to 15 per cent. of the finance required. That would apparently disqualify Western Clydeside employees' bid from being an internal bid. I have only recently been told that. This is a wee bit like the famous case of additionality, about which we heard so much a few months ago at one of the by-elections. Although I have not expressed the point as well as I should like to have done, I am sure that the Minister understands what I am getting at. The amendment would be of considerable help in giving substance to the promise that encouragement would be given to employee, management or employee-management buy-outs. It would not be expensive for the Government. I beg to move.

Lord Sanderson of Bowden

As the noble Lord said, this amendment seeks to require the group to make any financial assistance offered to management-employee buy-out teams available to up to three buy-out attempts in any one company.

As already announced, assistance will be made available by the Scottish Transport Group in the form of an underwriting of 75 per cent. of the costs of the professional fees required to mount a bid up to £65,000, that is a maximum assistance of £48,750. The assistance will require to be repaid in the event of the bid being successful. This will be made available to one management-employee team per company.

In eight out of the 11 subsidiaries for sale, financial assistance has now been offered by the Scottish Transport Group to management-employee teams. Assistance has not yet been offered in the case of Western Clydeside, Citylink and SBG Engineering. In the case of Western Clydeside, no decision has yet been made because the company's workforce is divided between a MEBO (management-employee buy-out) bid and an EBO (an employee buy-out) proposal, and we wish to give time to see whether a unified internal bid may in due course be forthcoming. I must point out to the noble Lord that there is no disqualification for an EBO receiving the money. That is a point that he wished to have clarified.

The best chance of success for a management-employee bid will arise if it is the only such bid from within the company. The difference between us here is not so much on financial grounds—as the noble Lord said, it is not a great deal of money—but on a point of principle where we take a different view from him. A single co-ordinated bid is more likely to compete effectively with outside bids in terms of the financial backing it was able to raise and the price it could offer, than would separate bids from different parts of the workforce. To offer financial assistance to more than one internal team could therefore be counter-productive in the extent to which the objective of encouraging employee participation might ultimately be successful. I should make it clear that any offer of financial assistance to a buy-out team will not confer any official or preferred bidder status to that team.

I must emphasise that there is no prejudgment in this matter. All bids, from whatever source, for a company will be given equal consideration on the basis of the merits of the bids, irrespective of whether they have received financial assistance. The fact that financial assistance may or may not have been paid is therefore not a relevant factor in the consideration of bids.

In view of the fact that this matter comes down to one particular area of concern for the noble Lord, I should like to comment briefly o a the Western Clydeside situation. It is entirely possible that in due course there will be more than one employee-based bid for Western Clydeside. A choice may have to be made with regard to financial assistance. If that happens, and I hope that it does not, I can assure the Committee that each bid will be given full consideration irrespective of whether it has received financial assistance, and that preference will be shown to any bid involving significant employees' participation. That is the fundamental point that I wish to make.

The noble Lord asked about the publication of sale proceeds. This brings us back to a point I made on Second Reading. As he said, we have said that we would publish the total proceeds of the sales. The suggestion that the amount paid for each company should be published raises difficult problems of commercial confidentiality. During the privatisation process it would clearly not be a good idea to publish what had been received for each company, because that could well affect prices at subsequent sales.

That is a real point of difficulty. It might lead to less satisfactory prices, as the process of privatisation proceeded. Publishing the prices once the sales were completed, which the noble Lord asked for, also raises problems of commercial confidentiality because the companies involved might well be concerned that the price they paid for the business should not be revealed to their competitors. As the noble Lord says, that may become known but it will certainly not come from the Government.

The noble Lord mentioned seminars and videos. It is inevitable that the management will take the lead in developing buy-outs. But that does not mean that the employees cannot participate fully. As I have already said, we have made it clear that a preference will be given to bids with substantial employee participation. That would not include management only buy-outs. I fully understand the point that the noble Lord makes; I understand who might have put the matter to him. However, I hope that with this explanation he is reassured that on a point of principle we feel that it is better that the money should go to one operation in any particular company rather than spreading it.

5.30 p.m.

Lord Carmichael of Kelvingrove

In some respects the Minister has helped, but in others he has clouded the issues. I understand the question of the divulging of prices during the process but I am not sure how long afterwards matters should still be commercially confidential. I am always a little worried about commercial confidentiality; it is a phrase which is considerably abused.

As regards management/employee buy-outs and employees only buy-outs or management only buy-outs, I can see the danger that there could be a split company. However some evaluation must be made as to which is the real buy-out. I do not know how those outside St. Andrew's House will be able to feel that a fair decision has been made. We may find one or two particularly strong people in the management team who will go their own way, separately from the rest of the management team, gathering just enough employees to make a respectable bid. Another group may be more in tune with and more acceptable to the workforce; it may come forward and want to make a bid as well. So there could be two perfectly legitimate groups trying to obtain a decision. I do not see how we can know whether the Scottish Office is making the decision on the basis of favouritism or the strength of particular individuals.

I can give examples where individuals have been able to play the system rather better than others. I am not saying that they were evil; they were wise individuals, able to play the system better than those who in other ways were just as good.

I still find it slightly worrying that at the end of the day the Secretary of State will decide or—let us be honest, since there will be a great deal of material to wade through—the Secretary of State will take advice from the people in the Scottish Office as to which decision to make. I hope that the Minister will give the example which I have tried to put forward a little more thought before we reach the Report stage of the Bill. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 agreed to.

Clauses 4 to 6 agreed to.

Clause 7 [Transfer of shipping companies]:

Lord Sanderson of Bowden moved Amendment No. 5:

Page 5, line 4, at end insert— ("(2A) An order appointing a day under subsection (2) above may make such amendments or repeals of any enactment (including an enactment contained in a local or private Act and any order, regulation or other instrument having effect by virtue of an Act) pertaining to the Group as appear to the Secretary of State to be necessary or expedient in consequence of the transfer.").

The noble Lord said: The main purpose of this amendment is to ensure that existing powers vested in the Scottish Transport Group to act as a harbour authority may be vested in Caledonian MacBrayne when it is transferred to the Secretary of State's ownership. At present in a number of ferry terminals throughout the west coast the Scottish Transport Group is the formally appointed harbour authority, although day-to-day functions are carried out by CalMac which is a wholly owned subsidiary. It would clearly be anomalous to leave STG with harbour powers when it was no longer responsible for shipping services. I beg to move.

On Question, amendment agreed to.

Lord Carmichael of Kelvingrove moved Amendment No. 6:

Page 5, line 11, at end insert— ("(4A) The Secretary of State shall ensure that the interests of users, local people, and employers are given representation equal to that of commercial and management interests on the Board of Caledonian MacBrayne Limited.").

The noble Lord said: The purpose of this amendment is self-evident. It was fully discussed at the Committee and Report stages in another place and concerns the composition of the board of Caledonian MacBrayne Limited. I stress that I am not discussing the advisory groups or the users' committees, I am speaking specifically about the board of Caledonian MacBrayne.

I believe that it is true that we all accept that a good strong board is needed for CalMac. No one doubts that there must be experienced commercial control within the board and I want that as well. I do not want a board controlled by a group of people who are there because they are nice or because they happen to live in the area.

Recent history however has taught us that those boards are bodies which have non-executive directors, usually one of whom, to put it bluntly, is a Tory-placed man or woman. One cannot perhaps be quite as explicit in this Chamber as some of my colleagues were in another place, particularly those who know the Western Isles. They were a little fed up with quite unrepresentative people being put on boards and quangos to look after the Highlands and Islands.

We want people from the area on the executive boards, provided we can get the calibre of people, but basically we want people on the non-executive boards from the area. They should be people with interests in the area and a following there. They should be people of strength in the area and with knowledge of the area. Again, I must stress that only one in five of the electors in Scotland vote Tory. It is an affront and an insult to the mass of Scottish people that time and time again places are found for people who are quite unrepresentative but who come from a particular wing, usually the wing that is "one of us" in the Conservative Party in Scotland. I hope that in the case of the Highlands and Islands where there are no Conservative Members at all, the Minister will see to it that party political considerations are not involved in the management of Caledonian MacBrayne in the islands. I stress that I am speaking of the non-executive side. I beg to move.

Lord Tordoff

The only quarrel I have with the amendment is the use of the word "equal", otherwise I go along with it. If one is making a general premise that non-executive directors should be equal to executive directors on boards, that is a different argument. I feel that there is an argument for that but it should not be incorporated on the face of the Bill.

I certainly support the noble Lord, Lord Carmichael of Kelvingrove, in saying that local representation is important and that the people who are to serve on the boards should have a local base. I do not wish to get deeply involved in the matter of government party placement on quangos, although it certainly exists and has existed more with this Government than any other in living memory. It ought to be stopped now. However, that is not what the Bill is about.

I support the principle of the interests and views of local people and of local companies having some proper representation on the board along with the commercial management interest. But I cannot support the concept necessarily of equal representation.

Lord Sanderson of Bowden

I fear that the noble Lord, Lord Carmichael, and I have been here before. There are shades of the Housing Act in the amendment and I think we debated the point at the time of that Bill.

The object of the amendment is to require the Secretary of State to ensure that the interests of users—local people and employers—are given representation equal to that of commercial and management interests on the board of Caledonian MacBrayne. The Secretary of State is at present considering the membership of the new Caledonian MacBrayne board. That is, geographically, perhaps not an easy task, but it is easier than reflecting in the Scottish Transport Group board the CalMac interest. I expect the noble Lord will understand what I mean by that.

We expect the board to consist of around six to nine members and each member will be appointed for the contribution he or she can make. The Secretary of State has made it clear that he will appoint some people with first-hand knowledge of the islands served and their needs, and it is therefore likely that the membership will include some people who are resident in the islands and who as a consequence are regular users of the ferries. I have no doubt about that. An important part of the members' jobs will involve being able to assess how good or bad the ferries are.

However, we feel it would be unnecessarily restrictive for the Secretary of State to appoint a range of members who would work together in the best interests of both the company and the travelling public if the Act were to specify equal representation for the categories of people suggested in the amendment. It will be very important for the board to contain a significant level of commercial, financial and shipping expertise as well as a first-hand knowledge of the islands. Individual members might well combine these qualifications, and setting aside specific places for particular interests could easily result in the exclusion of people with a valuable contribution to make. To cater for a range of categorised interests could also involve the creation of a larger, more unwieldy board which might be split by localised issues.

In making appointments to the board, it remains our intention to strike a proper balance between the commercial expertise needed to run a modern business and the local knowledge and commitment required to best serve the interests of ferry users. The noble Lord knows that, under the arrangements, this will mean an emphasis on longer-haul ferries that travel to the outer islands. We believe the amendment would inhibit the Secretary of State's ability to achieve such a balance. As the Minister responsible for the Highlands—I refer now to the Highlands and Islands Development Board which is my responsibility—I reject the charge that the non-executives on that board do not reflect the feelings of those who work in the area. I happen to think that they do that extremely well. I say personally, with my responsibility for 1he Highlands and Islands, that the non-executive members of the CalMac board will be able to reflect that same commitment when the Secretary of State has been able to persuade the right people to join it.

Lord Carmichael of Kelvingrove

We shall all await with great interest the appointment of the board. I am sure that a number of Members of the Committee on both sides of the Chamber will pu1 their names forward. However, we shall await with great interest the appointment of the board. Perhaps we shall return to this issue on a later occasion. The Minister is so reasonable that it is difficult to object to many of the things he says. He makes his remarks with the best of intentions. I can only hope that the provisions are carried out with the best of intentions by others. I beg leave to wihdraw the amendment.

Amendment, by leave, withdrawn.

Lord Sanderson of Bowden moved Amendment No. 7: Page 5, line 13, leave out second ("by") and insert ("in pursuance of").

The noble Lord said: This subsection specifies the parliamentary procedure for an order appointing a day for the transfer of the securities of the shipping companies to the Secretary of State. The amendment is a drafting one whose purpose is to bring the wording into line with normal practice in references in legislation to such parliamentary procedure. I beg to move.

On Question, amendment agreed to.

Clause 7, as amended, agreed to.

Clauses 8 to 13 agreed to.

Clause 14 [Dissolution of the Group]:

5.45 p.m.

Lord Sanderson of Bowden moved Amendment No. 8: Page 8, line 12, after ("order") insert ("made by statutory Instrument").

The noble Lord said: When the disposal programme for the Scottish Bus Goup has been completed and Caledonian MacBrayne transferred to the Secretary of State's ownership, the Scottish Transport Group will be wound up. This will be done by order, and Clause 14 specifies that the order may contain any necessary provisions for this purpose. It is appropriate that such an order should be brought to the attention of Parliament and published, and it is therefore necessary to make the order by statutory instrument. The amendment provides for this to be done. I beg to move.

On Question, amendment agreed to.

Lord Sanderson of Bowden moved Amendment No. 9: Page 8, line 33, leave out ("or any other Act") and insert ("Act or any other enactment (including an enactment contained in any local or private Act and any order, regulation or other instrument having effect by virtue of an Act)").

The noble Lord said: The main purpose of this amendment taken with government Amendment No. 5 is to ensure that any remaining powers vested in the Scottish Transport Group to act as a harbour authority may be provided for after the group is dissolved. As I have already explained, it is intended to transfer these powers to Caledonian MacBrayne under Clause 7 when the company is transferred to the Secretary of State's ownership. Should, however, this not be done for any reason, or if there were any remaining outstanding matters in private or secondary legislation pertaining to the Scottish Transport Group at the time of dissolution, this amendment will ensure that the appropriate provision may be made. I beg to move.

On Question, amendment agreed to.

Clause 14, as amended, agreed to.

Remaining clauses agreed to.

House resumed: Bill reported with amendments.