HL Deb 19 June 1989 vol 509 cc86-113

House again in Committee on Clause 67.

[Amendment No. 228A had been withdrawn from the Marshalled List.]

[Amendment No. 228AA not moved.]

Clause 67 agreed to.

Lord Peston moved Amendment No. 228B: After Clause 67, insert the following new clause:

("The "special share".

.—(1) In addition to securites issued under section 67 above, each successor company nominated for the purposes of section 62(1), 63(1) or (2) or 64(1) above shall issue one share to be known as the special share. The special share may only be issued to, held by and transferred to a special shareholder who shall be one of Her Majesty's Secretaries of State, another Minister of the Crown, the Solicitor for the affairs of Her Majesty's Treasury or any other person acting on behalf of the Crown.

(2) The rights and powers attached to the special share shall be as set out in the articles of association of a successor company and, notwithstanding any provision to the contrary in those articles, any variation of those rights and powers shall be effective only with the consent in writing of the shareholder and without such consent shall not be done or caused to be done.

(3) Subject to the provisions of this Act the special shareholder may, after consulting a company, by order require the company to redeem the special share at par at any time by giving notice to the company and delivering to it the relevant share certificate.

(4) No order shall be made under this section unless a draft of the order has been laid before and approved by resolutions of both Houses of Parliament.

(5) in this section— successor company" has the meaning given by section 67(1) above "special share" and "special shareholder" have the meaning given in subsection (1) above.").

The noble Lord said: The purpose of the amendment is to clarify precisely how all kinds of companies can be bought and sold and the role that the Government should play in that. We are beginning to have an understanding of the industry as it will look on day 1 of privatisation. There are certain areas which need clarification and little by little we are obtaining that. However, the controls which may remain as the industry develops are unclear.

Assuming that the drafting is correct, our amendment relates to all forms of privatised companies which will exist; namely, generating, transmission and supply companies. It also relates to what will happen thereafter and whether the Government believe that there is any need for the public interest to be exercised in terms of subsequent ownership of those companies and so forth.

The amendment has not been tabled in this precise way for detailed scrutiny as regards parliamentary drafting. It has been tabled with a view to reading the Government's mind. In other words, we can agree to disagree on the subject of privatisation per se—and I do not wish to cover that ground again. However, when discussing earlier amendments, particularly that dealt with immediately before the break, it became apparent that there is concern about the way in which the system will emerge. I am concerned to clarify the way in which the system will emerge in terms of ownership; but that is not irrelevant to the way in which it will emerge in terms of control.

The case for a special share is that it gives the Government a degree of control and some locus for intervention. Whether or not the amendment is correctly drafted, it is intended to allow the Government to limit others who might buy any of the companies that we are discussing. That is the reason for tabling the amendment and we are hoping for clarification. We are not asking the Government to engage in a ludicrous forecast of where we shall be in 25 years' time. We are rather concerned with principles. I assume that the Government and their advisers have thought about these matters and we should like to know a little about that. I beg to move.

Baroness Hooper

The noble Lord, Lord Peston, invited me to comment on our intentions in relation to the special shares and I shall endeavour to oblige. I begin by making a couple of general comments about the special shares and the mechanics of their operation.

Special shares in privatised companies are shares having special rights which are retained by the Government. Their purpose and effect is to restrict certain specified matters from occurring without the Government's consent and/or to confer upon the Government certain other rights. Generally speaking, the desirability of that is in line with earlier discussions.

A single share is created in the privatised company and has attached to it special rights. It is normally held by the sponsoring Secretary of State or the Treasury Solicitor (as nominee of either a Minister or the Treasury). The articles of association of the company state that certain specified matters are deemed to constitute a variation of the rights attached to the special share. Under the Companies Act 1985 rights attached to a particular class of share cannot be varied unless (inter alia) the holders of 75 per cent. of the shares of that class consent to the variation. Since the special share constitutes a class of share on its own its rights cannot be varied without the Government's consent. In this way the Government's power to prevent certain specified matters from occurring is effectively entrenched.

The Government have made clear that they intend to take a special share in all those successor companies which are to be floated. In addition, the pivotal importance of the National Grid in the new industry structure makes it appropriate that the Secretary of State should retain a special share in the National Grid companies. These special shares would protect a provision in the articles of association of the relevant companies aimed at preventing a person or group of persons acting in concert from acquiring 15 per cent. or more of the company's voting share capital.

We are introducing increased competition into electricity supply. It is not the Government's intention that all successor companies should be protected from all market pressures for all time. For example, in the case of each successor to the area boards, we have decided that the involvement of the Government as special shareholder should fall away after five years. In the following five years, it would be for ordinary shareholders to decide whether the company's articles of association should be amended to permit a takeover. At the end of that period we believe that the special limitations on ownership of shares should fall away. The Government do, of course, have other powers to regulate takeovers, principally under the Fair Trading Act 1973.

With the two generating companies to be formed out of the CEGB and the two Scottish electricity companies, the position is slightly different. Each of these companies will control a substantial proportion of generating capacity in Great Britain. Three out of four of these companies will exercise control over nuclear generating assets. We do not believe that the special shares in these companies, nor indeed those for the grid companies which I described earlier, should be time limited.

I hope that Members of the Committee will gain some reassurances from this statement of our broad policy intentions. I shall now turn to the specific amendment and explain why we do not consider that the new clause is desirable. I make no comment on the drafting.

The first reason is that the proposed amendment is in the view of the Government too blanket in nature in that it would require special shares in all successor companies. This is unnecessary. For example, we are not planning for special shares in relation to the successors to the Electricity Council, as described in Clause 63(2). These will be private companies wholly owned by those companies which we propose to float after the enactment of the Bill. As I have already confirmed, we do not intend for there to be special shares in all those successors which are to be floated so there would be incompatability there.

Secondly, and this relates to my statement that the Government intend that the special share for the supply companies should be redeemed after five years, the amendment could prevent this from happening unless the Government return to Parliament for approval. This would not appear the most sensible use of parliamentary time when it is fully aware of our intention.

I hope that with that explanation the noble Lord will feel able to withdraw the proposed new clause.

Lord Peston

I thank the noble Baroness. I hope that she will bear with me a little longer if I ask her for clarification on one or two specific points so that we can understand this. Perhaps I may start with the most obvious point. Let us assume that after a while, as a result of the buying and selling of shares, someone or some company owns two or three, and possibly even adjacent, suppliers or area boards. That would certainly raise very serious competition issues. Do I understand from the noble Baroness that the Government do not deem it appropriate that special shares should have been in existence to prevent that happening and that the Government would instead rely on the Fair Trading Act as a way of dealing with such an obvious move in the direction of monopoly and away from competition? That is one question on which I should welcome clarification from the noble Baroness, although she has probably answered that to some extent when she mentioned the Fair Trading Act.

The other question concerns generation, not least nuclear generation; namely, whether in this way or any other way the Government are retaining any powers to prevent foreign ownership of our generating capacity. Do they believe that that is a relevant matter? If it is relevant but is not to be dealt with by special shares in any form, what other way do we have of dealing with the matter?

I should like to know the Government's thinking on those matters. That sort of consideration was the purpose of my amendment, so perhaps the noble Baroness will just take another moment or two to throw some light on that.

Baroness Hooper

I believe that I can cope with the noble Lord's two questions. He is quite right. As regards the public electricity supply companies, as I said, the special share will go after the first five years and then there will be the 75 per cent. requirement for a resolution covering the next five years. That is to protect them during the transitional period when one appreciates that there are many complexities with which the new companies will have to deal. Thereafter, they will be subject to the Fair Trading Act for a Monopolies and Mergers Commission reference in the normal way.

On the foreign ownership of shares in generating companies, of course to have any restriction would be inconsistent with the Treaty of Rome but, as I said, the shares in the generating companies are timeless shares for the more strategic reasons involved in the activities of those companies. They are timeless but not everlasting. Timeless shares are in order to protect the strategic situation.

Lord Peston

At this time of night I certainly shall not fall into the trap of discussing the philosophy of timeless versus everlasting. I thank the noble Baroness for her excellent and interesting answer and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 68 [Government investment in securities of the companies]:

8.45 p.m.

Lord Peston moved Amendment No. 228C: Page 50, line 26, after ("time") insert ("and subject to the provisions of the Take-over Code").

The noble Lord said: Again this amendment seeks clarification. I simply wish to ask a straighforward question of the noble Baroness. Either the Treasury or the Secretary of State can acquire shares in a successor company. Under the Takeover Panel, if anybody takes shares in any company up to, I believe, 29.5 per cent. or this side of 30 per cent., they are then obliged to make a bid for the whole company.

I cannot believe that, if the Treasury were to stumble on acquiring some shares which happened to drift up to the level which brings the Takeover Panel into play, it would have in mind taking over the company. That is not the way that the Treasury behaves. If it wants to take over a company, it simply nationalises it. However, on reading the Bill, these companies and any dealings in their shares must be dealt with in the correct way, which includes taking some cognisance of the existence of the Takeover Panel and its code. Therefore, we have tabled this amendment to ask whether the Government have considered that aspect and, if so, what is the answer.

Baroness Hooper

The City code on takeovers and mergers regulates the acquisition of shares to avoid a person or group of persons acting in concert from obtaining creeping control of a public company. It requires that when a person or group acquires more than a fixed percentage of a company's voting shares or rights, an offer must be made for the remaining voting shares.

In practice, however, this will have little relevance to any government holdings in successor companies in the electricity industry. This is because Clause 70 ensures that the proportion of issued voting rights held by the Treasury or the Secretary of State does not exceed a specified limit (known as the target investment limit) of not more than 0.5 per cent higher than the Government's holding of voting rights remaining after flotation. This limit cannot be increased. It is therefore difficult, if not impossible, to envisage any situation in which this basic provision of the code could apply.

I hope that that reassures the noble Lord that the Government have considered that situation and have made the necessary safeguards.

Lord Peston

I thank the noble Baroness. I partly had in mind—and this appears in Clause 70—that it is recognised that the Treasury could end up beyond the target by sheer chance and I shall come on to that in a moment. However, from what the noble Baroness said, I take it that the Treasury would not feel obliged in those circumstances to make a bid for the company because it never intended that to happen and that therefore in the ordinary sense the takeover code would not apply. Subject to that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 68 agreed to.

Clause 69 [Exercise of functions through nominees]:

[Amendments Nos. 228D and 228E not moved.]

Clause 69 agreed to.

Clause 70 [Target investment limit for Government shareholding]:

[Amendments Nos. 229 to 231 not moved.]

Lord Peston moved Amendment No. 231A: Page 51, line 23, leave out ("0/") insert ("50").

The noble Lord said: I should like to speak also to Amendments Nos. 231B and 231C. Amendment No. 231A is tabled for the purpose of clarification. There are many aspects of the target investment limit that are worth exploring, but I am not sure that this is the time to do that. I assume that, in setting these target limits, the Government have in mind not providing the machinery—since the noble Baroness referred to creeping takeovers—for creeping nationalisation. If we did not have this clause, the Treasury could rapidily find itself again the owner of one or more of these companies, with no trouble whatsoever, without primary legislation. I assume that that is the purpose of the target investment limit.

I should like to know whether there is any specific meaning attaching to the 0.5 per cent. Is it the equivalent of a very small number or is there a subtle aspect of 0.5 per cent. that has eluded me? I assume that it means that it must not exceed by a very small amount the ordinary voting rights and so on. I should like to know where the number comes from. Does it have any magic significance or am I right in assuming that it does not have such significance?

Baroness Hooper

Since these amendments would enable a future government to regain a controlling interest in a successor company through the acquisition of shares, it is hardly surprising that we find it unacceptable.

Clause 70 is a well precedented measure which is designed to ensure that a future government cannot seek to renationalise a successor company, once it has been sold, simply by buying shares in the market. The clause as drafted ensures that ownership could only be regained after the passing of further primary legislation. That should please your Lordships because it will involve a parliamentary procedure.

This Government firmly believe that this is the right way forward and that the Committee should reject proposals which could permit any government renationalisation through share acquisition in the market, as would be possible if these amendments were accepted.

Our provision is based on experience. Therefore the setting of the level at 0.5 per cent. above the percentage level of the voting rights carried by the Government's shareholding is a new provision. We are building on the experience of previous share sales. In major sales with large numbers of applicants it has proved very difficult to determine exactly how many shares are owned by the Secretary of State when the order setting the first level is made, because of unresolved queries on the share register in the first six months after the flotation. This provision will give the Secretary of State a margin of 0.5 per cent. to cover any uncertainties on the register.

The target investment limit may be reduced, but not increased, by further orders and no orders may be revoked except by an order fixing a new reduced limit. I hope that that helps to resolve the noble Lord's query.

Lord Renton

Before the noble Lord replies or decides to withdraw the amendment, I wonder if I may now at last do something that I have been longing to do ever since we embarked on the discussion of Part II; that is, to express wonder and surprise that the Secretary of State, who is after all a Cabinet Minister responsible to Parliament, is made to share his responsibility and to get the consent of the Treasury in every step that he takes throughout Part II. It really is extraordinary. I think that the most remarkable example is in Clause 67(2), which states: The Secretary of State shall not give a direction under subsection (1) above in relation to a successor company at a time when the company has ceased to be wholly owned by the Crown". In subsection (5) we find that he is not allowed to, exercise any power conferred on him by this section, or dispose of any securities issued or of any rights to securities initially allotted to him in pursuance of this section, without the consent of the Treasury. In Clause 70 we find that if anything is done as a result of anything done under subsection (6)—which I need not read out because it is there for all to see— it shall be the duty of the Treasury or, as the case may be, the Secretary of State to comply with subsection (5) above as soon after that time as is reasonably practicable". Subsection (5) refers to something being the duty already of the Treasury and the Secretary of State. I really do think that one must draw attention to the fact that, apart from the inherent complexity of the subject matter of these clauses—an inherent complexity which in my opinion cannot be avoided—it is regrettable that the drafting and the administration of it is to be confused by the fact that the Secretary of State is not allowed to act on his own initiative and on his own responsibility; at every turn he has to obtain the consent of the Treasury. I think that in Part II there are over 20 references to obtaining the consent of the Treasury. This is a matter that some of us have often referred to in another context. Here there is a slightly greater justification for intervention by the Treasury, but not to the extent indicated.

We have to bear in mind, quite rightly, that the Treasury is to be enabled to buy shares or obtain shares at the original issue, but I should have thought that we could perfectly well have legislated to that last-mentioned effect without having to have the Treasury intervening in every decision throughout the application of Part II of the Bill.

I cannot expect my noble friend on the Front Bench without notice—and I have have not given her notice—to reply to what I am saying. All that I wish to do at this stage is to point out the extra complication, the unnecessary involvement, of getting the consent of the Treasury at every turn, and also point out the really rather extraordinary way in which at times the Treasury is asked to give its own consent to what it has already done.

9 p.m.

Lord Dean of Beswick

I was interested to hear the last point made forcefully and lucidly by the noble Lord, Lord Renton, regarding the approval which on almost every occasion would need to be sought by the Secretary of State from the Treasury to allow financial dealings of this kind to take place. In some respects I find that a little strange. Historically and at present—I am not criticising any particular colour of government—where sums of money are involved it has almost become copper bottomed that, where public money is involved, to a certain degree dealings do not take place without the consent of the Treasury. We are told that unless events take place outside the public sector borrowing requirement, they can trigger all kinds of reactions. I shall be less than surprised if that is what happens. In addition, Secretaries of State change. It may be that the large displays of political hiccups that took place on Thursday of last week will result in changes in Secretaries of State. It may well be that the Secretary of State who started this controversial Bill on its passage in another place may not be the Secretary of Slate by the time the Bill returns there.

It is wrong to assume that all Secretaries of State, irrespective of their political colour, behave with foreseeable consistency. They do not. On that basis I believe that the noble Lord, Lord Renton, is dealing with a situation that he knows has happened far too often in the past. I cannot foresee a similar state of affairs as regards this Bill where the procedure will be any different. In speaking to this amendment the noble Baroness, in her usual charming and lucid way, explained to the Committee what might happen as regards this amendment. She said that primary legislation will be required to alter what is in the Bill. One naturally accepts that. The political arena is always filled with uncertainties. What was a certainty a few months ago and whatever the Government did which was irreversible in the very near future may be questioned. I am speaking only as an individual member of my own party. It may be that if there is a change of government these particular arrangements would be quickly called into question.

As regards priorities for time in which to bring in primary legislation to alter this Bill, so that we do not live all the time in Cloud-cuckoo-land, it may well be decided that the Bill needs altering. It is as well that we have had this debate on these amendments to put the situation in its right perspective. My noble friend Lord Peston, in speaking about this amendment earlier, asked the Minister what the clause meant as it stood and what the amendment was trying to do. I believe that the Minister gave a quite clear exposition. Anyone who believes that legislation which is going through now is guaranteed for all time in my opinion is whistling in Cloud-cuckoo-land. There are some things that a future Labour Government may have to revise and reverse as quickly as possible.

Somebody should make that caveat here and now. I believe it is a distinct possibility that has been brought nearer by what happened last Thursday. Anyone who totally disregards what happened then is very naive indeed.

Baroness Hooper

If a future government wish to change the proposals contained in this Bill in whatever form it is eventually passed, they can do so by introducing primary legislation. I fully recognise the argument of the noble Lord, Lord Dean of Beswick. One of the major purposes of this Bill is to reduce government influence on the electricity industry. Therefore we believe it is right that this clause should restrict future government investment in the successor companies.

Turning to the matters raised by my noble friend Lord Renton, if I do not fully answer his question I shall certainly undertake to write to him. I understand that the involvement of the Treasury in the way proposed is quite normal practice. It allows a sensible and practical flexibility. For example in the event of a partial sale the balance of the shares would probably be passed to the Treasury, as was the case with British Telecom. So it is right that the Treasury is involved in the exercise of these powers. Perhaps I may add that there is a saying that behind every good man is a good woman and behind every Government Minister is the Treasury.

Lord Peston

I believe it is very unfair of the noble Lord, Lord Renton, to raise this extremely fascinating subject of Treasury control. Much as I would wish to occupy a good deal of the remaining part of this evening dealing with that subject, I shall refrain from doing so. That is not because I am not interested or that I feel what he said is unimportant. It is simply because it will take so long.

Looking at the Bill the matter is worse than he said. The Bill is not simply in terms of "the Secretary of State with permission of the Treasury". There is a good deal of "the Treasury will" or, if he is lucky, "the Secretary of State with the permission of the Treasury". Often the Treasury position takes pride of place. One can argue backwards and forwards on that subject, but I shall refrain. I thank the noble Baroness for her clarification. When the time comes for us to argue that there is a greater case for public involvement in this industry that may require the purchase of shares, I agree that that should be done explicitly using primary legislation rather than by stealth.

My only parting shot on this point is that it is a curiosity of the history of our country that quite a few of the industries that ended up in public ownership did so not through ideology—the famous 1945 Labour Government cases—but through sheer chance. The Government of the day had to step in either to save the industry or something happened during the war to make intervention necessary.

I used to lecture my students on precisely this point. I said that much of what was called socialism arose because a government—often not a Labour Government—had to do something to solve a crisis. I am not clear that Clause 7 as it stands would prevent a government doing that. If a supply company found itself in great financial difficulties I hope that there would be a way in which the Government could step in, at least temporarily, in order to save it. My main purpose in moving the amendment was to get the Government's answer for clarification. Having got that most admirably, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 231B and 231C not moved.]

Clause 70 agreed to.

[Amendment No. 232 not moved.]

Clause 71 [Statutory reserves]:

Lord Williams of Elvel moved Amendment No. 232ZA: Page 52, line 21, at end insert ("calculated by reference to generally accepted accounting principles").

The noble Lord said: It may be for the convenience of the Committee if I speak also to Amendments Nos. 232ZB and 232ZC. They do not entirely deal with the same question but I shall cover all three questions in my introduction. In Clause 71 we come to an important part of the account procedures which will set up the new successor companies. Under the guise of "statutory reserves", which is the rubric to the clause, there is concealed all the accounting principles which will go to make up the capital of these companies.

Amendment No. 232ZA is designed to make sure that the accumulated realised profits of the transferor should be calculated by reference to what are now known—after the passage through this Chamber of the Companies Bill but not previously—as generally accepted accounting principles. Had I had the option I would have said "according to accounting standards set up by the Accounting Standards Committee of the ICA". However, as the Committee will be aware, the Dearing Committee has reported on accounting standards, and in another place at this very moment amendments have been tabled by the Government to the Companies Bill which ensure that accounting standards, as we used to know them, have some statutory backing. It is unclear from the amendments that have been tabled because they have not been fully debated in another place.

It is extremely important that the reserves—the surplus over share capital—of the successor companies should be calculated by the accounting standards which are normally in use in the private sector. They should not only be calculated in that manner but they should be consistent as between one successor company and another. The accounting standards that we have at the moment are not wholly consistent on some points of depreciation, current cost accounting and other matters. These can be debated at length if Members of the Committee so desire. What is crucial is that the finances of the successor companies should be established on the same basis between one successor company and another and that they should be established on the same basis as other private sector companies.

On the Bill as drafted it is far from clear that that is the case at the moment. The CEGB and the area boards do not use in their accounting practices the accounting standards set up by the accounting standards committee of the Institute of Chartered Accountants in England and Wales. Variations have been introduced because these are at the moment public corporations. When they become plcs they should be required to use whatever generally accepted accounting principles are in force. Clearly they would probably do so; but they must do so—and the calculations of reserves must be properly made—on the basis of historic accounting along the lines of the principle set up by the Accounting Standards Committee. I say that because not to do so would be to bias the capital of the successor companies in a way which is not comprehensible to the market. That is basically the thrust of Amendment No. 232ZA.

Amendment No. 232ZB argues a different point. It is a point which we discussed when the British Steel Bill was before this Chamber. A company having a statutory reserve shall not apply it, as at present drafted in subsection (2), except in paying up unissued shares to be allotted to members of the company; in other words, to be allotted in paying up what used to be called a scrip issue and what is now called a bonus issue.

I moved a similar amendment to this one during the passage of the British Steel Bill. I think that it found some favour with the Government at the time. It was not just a question of allotting fully paid up shares. Partly paid up shares could also be a possibility in this connection where one had part of the reserves paying up—that is, part of the shares which are on issue—and the other part subscribed by the market or whoever it may be.

Amendment No. 232ZC is to my mind almost incomprehensible. I should like to hear an explanation from the Government as to what subsection (3) is really about. If it is about what I think it is about, I will probably wish to oppose it.

However, if the Government can persuade me that it is not about what I think it is about—namely, the release of statutory reserves under certain circumstances by payment of a dividend—I shall accept what they say.

As I say, although I have accepted the grouping of these three amendments, they cover substantially different points. I should be most grateful if the Minister could reply to them seriatim so that we can debate each issue, even though they are grouped together. I beg to move.

9.15 p.m.

Lord Sanderson of Bowden

The main purpose of this clause to to enable a successor company to be given an appropriate combination of distributable and non-distributable reserves. Many private sector companies have non-distributable reserves such as share premium accounts stemming from past share issues. There may well be a need to direct successor companies to create non-distributable reserves to place them on the same footing as existing private sector companies.

The clause has analogues in other privatisation legislation: it seeks to replicate private sector arrangements by enabling the Secretary of State to determine that a proportion of the accumulated realised profits of the transfer company should be carried to a statutory reserve of the successor company. This is a reserve which would only be available in order to issue fully paid bonus shares to members of the company and could not be paid to shareholders.

In the case of a supply company, the specified sum shall not exceed the accumulated realised profits of the area board concerned. Clearly the board's profits will have been calculated in accordance with accepted accounting principles and audited by qualified accountants.

Lord Williams of Elvel

I am sorry to interrupt the noble Lord, but can he give me an assurance that all area boards calculate their profits by the accounting standards set by the ICA?

Lord Sanderson of Bowden

Having checked the matter, I can give the noble Lord the assurance that this will be the practice in the future.

Lord Williams of Elvel

With respect, we are not talking about the practice in the future; we are talking about accumulated profit from the past.

Lord Sanderson of Bowden

I shall have to answer that question in the negative at this stage. However, noble Lords may be reassured to know that the Secretary of State's accounts directive to the industry specifically requires a true and fair view of the profit and loss and the state of affairs and source and application of funds of the council, boards and subsidiaries.

In so far as it is appropriate to nationalised industries, the accounts directive also requires the industry's accounts to meet the accounts requirements of various Companies Acts, the accounts disclosure requirements of the Stock Exchange listing agreement and the best commercial accounting practices (including statements of standard accounting practice issued by the member bodies of the Consultative Committee of Accounting Bodies). In the light of this, I can see no necessity to detail such matters in the clause itself.

The statutory reserve created by subsection (1) will be in some ways analogous to a private sector share premium account, which the noble Lord mentioned. It is right that the use to which it can be put should be the same as the main use to which a share premium account can be put. In this connection the Companies Act 1985 (Section 130(2)) permits share premium accounts to be used for the purpose of allotting fully paid up bonus shares.

I note what the noble Lord said but that is what is contained in the Companies Act 1985. Parliament obviously thought it was correct, when passing that provision of that Act, that the general run of companies should be allowed to use share premium account money in paying up fully paid bonus shares but not partly paid bonus shares. I should have thought that we should not make any different provision for the electricity companies.

Subsection (3), which the noble Lord seeks to delete, clarifies the treatment of statutory reserves for the purposes of the Companies Act 1985. I believe that it is entirely right that this clarification should remain in the clause. I hope that, with this explanation, the noble Lord will see fit to withdraw his amendment.

Lord Williams of Elvel

As always, I am grateful to the noble Lord for his interpretation of accounting procedures. As I understand it, he says that in some ways what is being set up as the statutory reserve is the equivalent to a share premium account. "In some ways" is a rather curious expression. I accept that a share premium account is a non-distributable reserve and can only be used for a bonus issue on a fully paid share. Nevertheless, I still have to come back to the noble Lord and ask: have the accumulated realised profits of the transferor been calculated at this time on the point of transfer by reference to generally accepted accounting principles?

The noble Lord says that the answer is no. Then I wish he would say that the prospectus will reconstitute the accounts of the transferee successor companies and make sure that they are so calculated and that the whole thing is transparent. Otherwise it is nonsense.

Lord Sanderson of Bowden

As I understand it, the explanation I have given is a true and fair picture of the points which the noble Lord sought in moving the amendments. He sought an assurance that all accounts would measure their accumulated profits by reference to ICAs. No assurance is possible. As I have said, the Secretary of State's accounts directive requires the industry's accounts to meet various private sector accounting standards, in so far as they are appropriate to nationalised industries. There are differences. If the noble Lord finds it helpful, I shall of course write to him about those differences.

I hope that this explanation of why we seek in this clause to follow through the points that are in the clause, which obviously do not meet with the noble Lord's approval, will satisfy the noble Lord. If not, then I am afraid that I shall have to resist the amendment.

Lord Williams of Elvel

I am grateful to the noble Lord. They do not meet with my approval but that is neither here nor there. I simply wish to establish what the basis of the statutory reserve will be. The noble Lord said, "In some ways it will resemble a share premium account in a private company". The share premium account in a private company is established according to generally accepted accounting principles. The noble Lord has said that generally accepted accounting principles have not applied in the past. Therefore it will be up to the Secretary of State to decide what will be in the account.

I fully accept that. All I am asking the noble Lord is, will he please ensure that, in the prospectus which will be issued for successor companies, the accounts of the successor companies are re-worked, regardless of what the Secretary of State says about accounts of nationalised industries, in the manner in which a private company would have to do it, in order to set up a proper share premium type of account when the companies were first vested and then floated? If the noble Lord can give me that assurance, I shall be very happy. If he cannot give me that assurance, I ask him to consider the matter further.

Lord Sanderson of Bowden

I cannot give the noble Lord an assurance on such an important point without checking out very carefully the substance of my reply to his direct question. However, of course I shall look at the matter and write to the noble Lord.

Lord Williams of Elvel

I am grateful to the noble Lord. However, I should have thought that by this stage of the Bill and at this point in the Committee stage, the Government would have responses to these points. After all, the Bill has been around for quite a long time. We need to know how the finances of successor companies will be constituted. I am grateful to the noble Lord for his offer to write to me, but I shall reserve my position, and I may well come back on Report with further amendments, should that be appropriate. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 232ZE not moved.]

Lord Williams of Elvel had given notice of his intention to move Amendment No. 232ZC. Page 52, line 37, leave out subsection (3).

The noble Lord said: Before I finish on this topic, I wish to ask the noble Lord whether in his letter—I presume to believe that I have some expertise in this matter—he will kindly explain to me exactly what subsection (3) of Clause 71 means. I shall not move the amendment.

[Amendment No. 232ZC not moved.]

Clause 71 agreed to.

Clause 72 [Statutory accounts]:

Lord Williams of Elvel moved Amendment No. 232ZD: Page 52, line 49, after ("1985") insert ("as amended by the Companies Act 1989").

The noble Lord said: I simply tabled this amendment to obtain an assurance that the reference to the Companies Act 1985 would include the words, after "the Companies Act 1985": as amended by the Companies Act 1989". That assumes that the latter piece of legislation becomes an Act. I beg to move.

Lord Sanderson of Bowden

It is indeed true that the Companies Bill would make substantial amendments to Part VII of the Companies Act 1985, which deals with company accounts. The noble Lord is therefore quite right in his presumption that, if and when the Companies Bill is enacted and Part I of that Bill comes into force, companies will be required to prepare accounts for the purpose of the Companies Act 1985 as amended by the Companies Act 1989". However, the noble Lord's amendment is unnecessary, as the Interpretation Act 1978 already does the job for us. Section 20 of the Interpretation Act provides that where an Act refers to another Act, those references are to be references to that other Act, as amended. I trust the noble Lord is satisfied with that explanation.

Lord Williams of Elvel

I am grateful to the noble Lord for that explanation. Can I then assume that the provision which is at the moment contained in the Companies Bill, that political contributions should be subject to shareholder resolution, will form part of the Companies Act 1985, and if the successor companies wish to follow that procedure, if it is still in the Bill, that will be imposed on them?

Lord Sanderson of Bowden

That must be the case. However, of course, the Bill has not yet become an Act.

Lord Williams of Elvel

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No. 232ZE: Page 53, line 6, leave out ("immediately before") and insert ("at").

The noble Lord said: It is normally the case in accounting practice that the balance sheet is constructed at the end of the year, rather than immediately before the end of the year; in other words, it is midnight on the night when the accounting year ends that the curtain drops, and any transactions that take place up to midnight appear on the balance sheet at the end of the year, and not those immediately before. "Immediately before" seems to me a very odd expression to use because we are not quite sure what "immediately" may mean. If it were "at" the end of the year we should all be quite clear as to what it means. I beg to move.

9.30 p.m.

Lord Renton

This is a very small drafting point. It is arguable in my opinion that the amendment is not necessary, but it would be much better if it were made.

Lord Sanderson of Bowden

Subsection (2) of Clause 72 provides that, for the purposes of the statutory accounts of a successor company, the vesting of an area board's undertaking in a supply company shall be taken to have occurred "immediately after" the end of the area board's last complete accounting year to end before the transfer date, and to have been a vesting of the board's property, rights and liabilities as they existed "immediately before" that time. The amendment would substitute the word "at" for the words "immediately before".

In terms of substance, the amendment appears to be intended to achieve the same effect as the words in the Bill. It may be that the noble Lord wishes to substitute more everyday language for that used in the Bill. However, I must point out to him that the amendment is technically defective because it assumes that the property etc. that is to be vested in the successor company can be defined as at the very same moment that the vesting takes place. But we have two steps here, not one: first, the property etc. to be transferred must be defined; and only then can it be transferred. The draftsman has taken some care to reflect this process by assigning each of the two steps to its own moment of time, albeit that those moments are separated by a very small space of time. In this way the draftsman has, I believe, attained logic and clarity, though at the necessary cost of departing somewhat from the conventions of ordinary langauge.

I hope that the noble Lord sees our point and accepts the explanation as to why it is unnecessary to change the wording.

Lord Williams of Elvel

I am, as always, grateful to the noble Lord; but I do not believe that the draftsman has either logic or principle on his side. One can have an event which takes place after a paint in time, which is at the year end, immediately after the end; but there should be a position at the year end. On the other hand, one can have events which take place at the year end which can respond to events which have taken place immediately before the year end. What one cannot have is something which is immediately before and something which is immediately after the year end.

Lord Renton

It seems to me that "immediately before" could mean two seconds before. There is no difference and cannot be any difference in logic between saying that and saying "at the end". It is quite ridiculous in my opinion.

Lord Sanderson of Bowden

This is an argument which I believe needs to be looked at. It may be that my own form of logic differs from that of the noble Lord, Lord Williams of Elvel. I am perfectly prepared to look to see whether logic is on my side, or on his side, having read what he said. If necessary, we shall come back to this issue at a later stage.

Lord Williams of Elvel

I am most grateful to the noble Lord. However, I emphasise that "at the year end" is a recognised accounting principle. "Immediately before the year end" is not a recognised accounting principle. If the noble Lord could look at the drafting again, I should be grateful. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No. 232ZF: Page 53, line 17, at end insert ("adjusted for material post-balance sheet events").

The noble Lord said: This is an amendment of much greater consequence than the previous drafting amendment because it seeks to allow adjustment to the year-end accounts for material post-balance sheet events. Anyone who is a director of a public company knows perfectly well that a balance sheet is struck at the end of the year—if I may use that expression—and that subsequent to balance sheet date various things occur. We understand that vesting will not take place immediately at the end of the year in question but at some subsequent stage. However, if vesting is to occur and flotation is to occur at some subsequent stage, it seems only right that the true and fair view to which the noble Lord, Lord Sanderson, referred should reflect material post-balance sheet events. It would be quite absurd if a supply company or successor company had events that took place after the year end which materially affected its financial situation and were not incorporaed into the statutory accounts on which the vesting is to take place. I beg to move.

Lord Sanderson of Bowden

I fully understand the thrust of the noble Lord's amendment at this stage. Perhaps it will be helpful if I explain why we feel that he is perhaps not correct in his interpretation of what we intend.

It is our intention that the vesting of the property, rights and liabilities of the area boards in their successor supply companies will take place during the course of the current financial year of the boards. Clause 72 is a standard privatisation provision which seeks to ensure continuity between the accounts of the area board and those of its successor company and to avoid the need for both to prepare accounts in respect of the same financial year.

The clause operates by deeming, for accounts purposes only, the property, rights and liabilities of an area board to have been vested in its successor immediately after the end of the last complete accounting year of the area board to end before the transfer date. According to our intentions, that notional vesting would be considered to have taken place on 1st April 1989. The accounts of the successor company for the 1989–90 financial year will then cover the full 12-month period commencing on 1st April 1989.

The noble Lord may be concerned that there can arise a gap—I believe that that is the thrust of his argument—between the closing of the accounts of the area board and the opening accounts of its successor through which material events may in some way fall. But I can assure him that that is not the case. Material events taking place after 1st April 1989 will by virtue of Clause 72 be fully dealt with in the opening accounts of the successor supply companies.

I hope that, as a result of that explanation, the noble Lord will realise that the amendment is unnecessary.

Lord Williams of Elvel

I am most grateful to the noble Lord. I was referring to material post-balance sheet events. He is now talking about all material events subsequent to the year end. So we must assume that the opening accounts after vesting will reflect profit and loss material variations, that there will be a clawback on the previous year's accounts when a prospectus comes out, as it will do, and that all material events will be built into the new company accounts as at the opening date of 1st April 1989. If that is what I understand the noble Lord to say—he appears to be nodding and saying "Yes, that is the way it will be"—I am grateful to hear it. My next amendment will serve to clarify exactly what material events we might be talking about. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No. 232ZG: Page 53, line 25, leave out ("revaluing").

The noble Lord said: I am grateful to the noble Lord, Lord Sanderson, for supplying us with so much information about the closing accounts of the previous companies and the opening accounts of the successor companies.

We come now to the question of revaluing assets. It is perfectly normal that there should be a revaluation of assets under certain circumstances and in manners that are prescribed by the Accounting Standards Committee of the Institute of Chartered Accountants in England and Wales and probably by the Institute of Chartered Accountants of Scotland, although I understand that the two bodies will shortly merge.

The point of my amendment is that we must know fairly quickly—because we have gone past 1st April 1989—exactly on what basis the valuation of the assets of the suppliers will be made. Are they to be allowed to revalue on vesting in the way that a private or public company might revalue, depending on directors' valuations? Will they be issued by some governmental agency of some kind a directive on how to do this? Will they revalue their assets on a replacement basis, on a current cost basis or whatever?

A whole host of questions is raised on which I think that the noble Lord in his wisdom may wish to enlighten us. I beg to move.

Lord Sanderson of Bowden

I am grateful to the noble Lord for raising this matter of revaluation. It is our intention that the vesting of the property, rights and liabilities of the Electricity Council and the electricity boards in their successor companies will take place during the course of the current financial year of the boards.

Clause 72 is a provision which has appeared in a more or less similar form in a number of previous privatisation statutes. Examples are Section 66, subsections (4) to (6), of the Telecommunications Act 1984; Section 55, subsections (4) to (6), of the Gas Act 1986; and Section 4, subsections (4) to (7), of the British Aerospace Act 1980. It seeks to ensure continuity between the accounts of a statutory corporation—the Electricity Council and the electricity boards—and those of its successor company. company.

The clause operates by deeming, for accounts purposes only, when property, rights and liabilities are to be taken as having transferred to the successor company; and by then requiring the accounts of the successor company to cover the full financial year in which the transfer took place as though the revelant property had transferred immediately after the end of the transferor's last complete financial year to end before the transfer date.

Clause 72(4)(a) says that, in the case of a supply company, this requirement shall apply to "anything done" by the transferor; and inside the brackets it then gives various examples of which revaluing is just one. I am advised that this means that the amendment would not in fact work, since even if deleted from inside the brackets that would not prevent "revaluing" being a "thing done" and so caught by the general provisions.

Drafting matters apart, however, I would submit that it is only sensible that this provision should apply to revaluations as to the other matters which might be potential sources of discontinuity between the accounts of a transferor and a successor company. It is clearly important that the assets of the electricity industry should be properly valued for flotation purposes and the Government will ensure that that is done.

In the light of that explanation I hope that the noble Lord will see that in this clause we are covering the very important point, which I fully understand, that revaluation must be carried through and, as I say, the Government will ensure that that is done.

Lord Williams of Elvel

I was very clear on what the Minister was saying until his last sentence. His last sentence was: revaluation must take place and we shall ensure that it will be done. I understood him to say that there should be no discontinuity between the accounts of the transferor companies and the successor companies. If it means anything, it means that assets valued by the transferor companies on the basis on which they value them will be valued in exactly the same way by the successor companies. If it does not mean that, I do not understand English. I understand from the noble Lord that that is what he says. That is quite different from saying that revaluation must be done.

Lord Sanderson of Bowden

Perhaps I had better just clear up this matter. I understand what I said—the meaning of what I said was that the assets must be properly valued.

Lord Williams of Elvel

Again, I appreciate that the noble Lord is correcting himself slightly, but as I understood him—and I am sorry to repeat my words—he said that there should be no discontinuity between the accounts of the transferor companies and the successor companies. We are at one on that. Therefore the revaluation of the assets at the point of vesting is not what the noble Lord has in mind. There may or may not be a subsequent revaluation of those assets prior to flotation. I am asking for the basis on which such revaluation, if it were to occur, would take place.

9.45 p.m.

Baroness Gardner of Parkes

I do not know whether this point would be helpful to the Committee or whether it has already been covered. In nationalised industries accounts have always been prepared on a current costs accounting basis, but accounts are being prepared on both historic cost and current cost bases so that there would be no problem with the transfer.

Lord Williams of Elvel

I am grateful to the noble Baroness. I am fully aware of that. Oddly enough, accounts have not always been prepared on a current cost accounting basis. It has been only in the past few years that that is the case. Historically it is historic cost accounting. Neither the Stock Exchange nor indeed the revenue accept current cost accounting as a basis. It is historic cost accounting. I ask the question: on what basis will these assets be revalued? I believe that we are entitled to an answer.

Lord Sanderson of Bowden

Having explained to the noble Lord what I thought to be the basis of the argument that the Government put forward, and having given the examples of what has taken place in previous privatisations, I should have thought that it was enough to satisfy the situation. The Government have no intention of changing the basis on which they operate in this area.

Lord Williams of Elvel

Do I understand therefore that assets will not be revalued? Will the assets that are recorded in the accounts of the transferor companies, be they current cost or historic cost accounting, be translated straight into the vesting companies and straight into flotation? This is a point of very great importance.

Lord Sanderson of Bowden

I return to the point that I made. It is clearly important that the assets of the electricity industry should be properly valued for flotation purposes. The Government will ensure that that is done. That noble Lord, Lord Williams, speaks about no discontinuity of accounts.

Lord Williams of Elvel

It was not my expression. It was the expression of the noble Lord.

Lord Sanderson of Bowden

Clause 71 deals with this in a technical sense. There are no gaps through which events can fall between 1st April this year and 1st January 1990. This clause does not require valuation and assets will be properly valued, as I have indeed said.

Lord Williams of Elvel

We have had a full discussion on this point. We shall return to it when we come to the questions of flotation in a later part of the Bill. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 232ZH not moved.]

Clause 72 agreed to.

Clause 73 agreed to.

Clause 74 [Government lending to the companies]:

Lord Williams of Elvel moved Amendment No. 232ZJ: Page 54, line 20, at end insert ("but in any event before the company ceases to be wholly owned by the Crown").

The noble Lord said: This amendment stands in my name and that of the noble Lord, Lord Peston. We are dealing with government lending to successor companies. We learn in Clause 74(1) that, subject to the provisions of Clause 77, the Secretary of State may with the approval of the Treasury, as always, make such loans of such amounts as he thinks fit.

My amendment addresses this question. At what point will the loans made by the Secretary of State to successor companies be repaid? My argument is that on privatisation there should be no loans outstanding from the Secretary of State to successor companies. They should be repaid when the company ceases to be wholly owned by the Crown. If the Government have any different view on that, I should be glad to hear it. I beg to move.

Lord Sanderson of Bowden

Subsection (1) enables the loans to be made to successor companies only when they are wholly owned by the Crown. Subsection (3) enables such loans to be made from the National Loans Fund. It is government policy that loans from the NLF are not available to the private sector. Subsection (2) enables the Secretary of State to stipulate the time when a loan is to be repaid as well as the method of repayment and the interest payable until repayment. Therefore, under the powers already available, the terms of any loan will make it clear that the loan will be repaid before the company ceases to be wholly owned by the Crown. In the light of that explanation, I hope that the noble Lord will consider withdrawing his amendment.

Lord Williams of Elvel

I am grateful to the noble Lord. However I do not read the clause in the way that he reads it. Clause 74(1) reads: the Secretary of State may … make loans … to any successor company which is for the time being wholly owned by the Crown". In other words during the period in which a company is wholly owned by the Crown, the Secretary of State may make a loan. The clause does not go on to say, as I understand it, that when the Crown ceases to be the total owner of the company the loan shall be repaid. I may have misinterpreted the clause. Subsection (2) simply states that the loan, shall be paid to him … at such times", and so on.

Lord Sanderson of Bowden

I believe that what I have said covers this point. I am looking closely at Clause 74(2), but I rest my case on the fact that the Government's policy that loans from the NLF are not available to the private sector covers this matter. I should have thought that that explanation would be sufficient to set the noble Lord's mind at rest.

Baroness Gardner of Parkes

Listening to these comments from both sides, I believe that noble Lords are slightly at cross purposes. Subsection (1) is quite clear. Subsection (2) leads me to support the view taken by the noble Lord, Lord Williams, that it does not say when a loan is to be repaid. What the Minister has said does not indicate that it cannot be repaid at a later date either. Why there should be a need to repay earlier I am not sure. I am not sure why the noble Lord, Lord Williams, believes a loan should be repaid earlier, but I do not believe that there is any obligation under subsection (2) to repay a loan at the moment when the company is wholly owned by the Crown. Some debt may be allowed to continue and be repaid under subsection (2) at such time and by such methods as the clause directs. It seems to me to be fairly open as to how the loan shall be repaid. The loan could be from the National Loans Fund during a time of eligibility, but yet not necessarily repaid during the time of total ownership.

Lord Williams of Elvel

I am grateful to the noble Baroness, Lady Gardner, because she has exactly expressed the point I was trying to make that the availability is open to any company while it is wholly owned, but there is no necessity to repay a loan. The noble Baroness went on to say quite properly that she wonders why I want it repaid when the company ceases to be wholly owned by the Crown. On the other hand the noble Lord, Lord Sanderson, says that it is not the job of the Government to make loans to private companies. There seems to me to be a conflict in the drafting. I should like that conflict resolved.

Lord Sanderson of Bowden

I should make perfectly clear the fact that it is the Government's firm policy that all NLF loans should be repaid or extinguished before flotation and the clause allows for that. I thought that I had made that clear in my original reply to the amendment.

Lord Williams of Elvel

I am sure that the noble Lord is right is saying that the clause allows for that. However, the clause does not insist on it, as was made perfectly clear by the noble Baroness, Lady Gardner, in her intervention. Is the Minister saying that the noble Baroness and I are wrong in our interpretation?

Lord Sanderson of Bowden

Time and again, I have made perfectly clear that the Secretary of State may direct that loans must be repaid by a certain date or in a certain way and may specify the rates of interest to be paid. I believe that that is inherent in the clause.

I believe that that is sufficient explanation but of course I shall look again at what the noble Lord has said. However, I believe that I have made the case quite clear as contained in the clause already drafted.

Lord Williams of Elvel

I hope that the noble Lord will look again at the drafting of the clause. I believe that the noble Baroness, Lady Gardner, and I are at one on this purely drafting point. The intentions of the two sides are the same but I do not believe that the clause as drafted succeeds in realising those intentions. I hope that the noble Lord will accept that. I beg leave to withdraw the amendment.

Amendment, by leave withdrawn.

Clause 74 agreed to.

Clause 75 [Treasury guarantees for loans made to the companies]:

Lord Williams of Elvel moved Amendment No. 232ZK: Page 54, line 40, leave out from ("on") to ("with") in line 41.

The noble Lord said: I am not entirely clear about the meaning of the words I propose to omit. I should be grateful if the noble Lord could explain the meaning of the words: and the discharge of any other financial obligation in connection with".

I beg to move.

Lord Sanderson of Bowden

It is necessary for the Treasury to guarantee not only the payment of principal and interest but also other financial obligations such as any management charges or premia arising from early repayment. I hope that that is sufficient explanation.

Lord Williams of Elvel

I understand that the only financial obligations referred to in this rather curious phrase are commissions, early payment penalties and early repayment premia. Is that the sum of it?

Lord Sanderson of Bowden

Section 4 of the Miscellaneous Financial Provisions Act 1973 extended a number of existing statutes, including the Electricity Act 1957, to include other financial obligations. When loans are covered by Treasury guarantee they can be obtained at an advantageous rate. Removing this area of guarantee could make loans either more expensive or more difficult to obtain. The whole point is that other financial obligations, such as any management charges or premia arising from earlier repayment, are covered by this part of the clause.

Lord Williams of Elvel

I am not sure whether the noble Lord answered my specific question. We are talking about early repayment premia, commissions and early payment penalties. If that is the case, and if that is all we are talking about, I am glad and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 75 agreed to.

10 p.m.

Clause 76 [Conversion of certain loans etc. to the Scottish companies]:

Lord Williams of Elvel moved Amendment No. 232ZL: Page 55, line 37, after ("value") insert ("or attributable net asset value whichever is the greatest").

The noble Lord said: Again, we revert to the statutory accounts of a company and in this case a Scottish company. The question I ask is whether the nominal value is the right parameter to fix in respect of a company to which securities are issued by virtue of subsection (2)(c) and whether it should not be the net asset value of the securities, whichever is the greater, because obviously it may well be that the net value is lower than the nominal value of the securities. I offer this as a contribution to the intellectual debate which I am sure the noble Lord is enjoying and I seek a response from the Government. I beg to move.

Lord Sanderson of Bowden

The two Scottish boards currently have debt of around £2.7 billion, which arises from successive investments which they have made in new plant. The first step in arriving at a capital structure appropriate to the new companies will involve the transfer of the Scottish nuclear company into the ownership of the two Scottish electricity companies, which will each receive a relevant proportion of shares in Scottish nuclear issued under Clause 64.

Clause 76 has no bearing on the valuation of those SNL shares in the parent company accounts. Shortly after vesting we shall extinguish the amount owed by the nuclear subsidiary to the National Loans Fund and replace them by securities issued direct to its parent companies. The Bill currently provides that the securities received by the parent companies from Scottish nuclear should be valued in the parent company accounts at the nominal value issued by SNL. That will allow for the replacement of SNL's extinguished liabilities pound for pound in the books of the parent company. It is not the Government's intention to create reserves in SNL so that valuation at the nominal value of each share as the Bill currently provides will achieve the same end as that sought by the noble Lord, Lord Williams.

Although I know that there are other related amendments which the noble Lord will wish to move and speak to, I hope that my explanation answers this amendment. Therefore, I hope that the noble Lord will withdraw his amendment.

Lord Williams of Elvel

Perhaps I may ask the noble Lord what happens if, under Schedule 12, assistance is given for decommissioning and that assistance is in the form of a loan rather than a grant. That may not happen in the case of Scottish boards because there may be no plants coming up for decommissioning. However, it will happen elsewhere and I take the opportunity of ventilating the point on this amendment. If there is a large loan given by the Secretary of State under Schedule 12 for decommissioning, that may wipe out the nominal value of the shares in question and may reduce the equity of any supply company to zero or indeed minus zero. How will that be treated in the accounts of the companies when they come to be floated?

Lord Sanderson of Bowden

Presumably the answer which the noble Lord seeks refers to the Scottish nuclear company, which of course will be owned in the appropriate proportions by the two Scottish companies—75 per cent. and 25 per cent. I believe that the loans under Schedule 12 are outside the scope of this clause. Therefore, I do not believe that it is relevant to raise that particular matter relating to Schedule 12 in this case.

Lord Tordoff

Before the noble Lord finally replies to this, I hate to insert a technicality but should the amendment not read "whichever is the greater"?

Lord Williams of Elvel

The noble Lord, Lord Tordoff, is, as always, a student of grammar and he is right. I apologise; it should be "greater".

I accept that the question I raised is not appropriate under this amendment. I simply raised it as a marker for the noble Lord and the Government Front Bench that we shall be returning to this subject in due course with some force. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 232ZM and 232ZN not moved.]

Lord Williams of Elvel moved Amendment No. 232ZP: Page 56, line 20, leave out ("express or implied").

The noble Lord said: This amendment is in the name of my noble friend Lord Peston and myself. I am uncertain as to the meaning of "express or implied". I can never quite understand what are the implied terms of a loan. I have always assumed that when I contract a loan as a lender or borrower the terms of the loan are pretty well specified. I shall be glad of an explanation from the noble Lord. I beg to move.

Lord Sanderson of Bowden

The drafting of subsection (7) of Clause 76, to which the amendment refers, again corresponds to parallel clauses in the British Steel Act and the Water Bill. It would be inappropriate to require that the terms of any debentures issued should correspond to any early repayment terms applying to the loans which they replaced. The amendment before the Committee does not appear to take issue with that contention and I fail to see why implied early repayment terms should not be disregarded for this purpose in just the same way as any express terms.

If the main purpose is to be achieved, the removal of reference to implied early repayment terms might indicate that express terms should be ignored while implied terms should be respected. I believe that that would make nonsense of the provisions.

Lord Williams of Elvel

Perhaps I may put a question directly. What is the meaning of "implied terms of the loan"?

Lord Sanderson of Bowden

My understanding is that "implied" in this case means that the terms of the loan are those which are agreed at the time. However, I should like to consider the term and write to the noble Lord with a full explanation of why "implied" is used in this case.

Lord Tordoff

Before the noble Lord sits down, will he also look at the word "express" to see whether it should not be "expressed"?

Lord Sanderson of Bowden

I understand that "implied terms" mean any terms which imply the possibility of early repayment. I hope that that answers the noble Lord.

Lord Williams of Elvel

The noble Lord cannot get away with that. "Implied" means "implied" and I understand that. Perhaps the noble Lord will write to me and also consider the suggestion made by the noble Lord, Lord Tordoff, that "express terms" implies that they are fast terms, whereas "expressed terms" implies explicit terms. Perhaps he will consider the matter and write to me with a copy to the noble Lord, Lord Tordoff. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Dundee moved Amendment No. 232A:

Page 56, line 34, at end insert— ("(10) In this section and section 77 below "successor company in Scotland" means a company nominated for the purposes of section 64(1) above.").

The noble Earl said: This amendment has already been spoken to. I beg to move.

On Question, amendment agreed to.

Clause 76, as amended, agreed to.

Clause 77 [Financial limits on borrowings etc]:

The Earl of Dundee moved Amendment No. 232B:

Page 56, line 48, at end insert— ("(3) In this section "successor company in England and Wales" means a company nominated for the purposes of section 62(1) or 63(1) or (2) above.").

The noble Earl said: This amendment has already been spoken to. I beg to move.

On Question, amendment agreed to.

Clause 77, as amended, agreed to.

The Earl of Dundee

I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.