Lords Sitting of 23 June 1989

Preamble
The House met at eleven of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Guildford.

The Economy
Lord Dormand of Easington Lord Dormand of Easington asked Her Majesty's Government:
Whether they are satisfied with the state of the economy.
The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara)The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara): My Lords, the UK economy is performing very well. It is now well into the eighth successive year of sustained growth, at an annual average rate of over 3 per cent. Investment in 1988 was the highest ever recorded as a percentage of national income. Manufacturing productivity has risen during the 1980s faster than in any other major industralised country.
Lord Dormand of Easington: My Lords, one can believe anything if one believes that. Does the Minister recall that when we on this side of the House complain about the high level of unemployment we are constantly told that the number of unemployed is falling every month and that that is an indication of the success of the Government's policies? The Prime Minister and the Chancellor as recently as last week repeated—and I quote—that the Government's overriding objective is to bring inflation down. But inflation has been rising now for more than a year and we have been told that it will continue rising until the spring of next year. Can we therefore assume, in the light of the Government's own top priority and their own criterion, that in fact their economic policies are a miserable failure?
Lord Brabazon of Tara: No, my Lords. With regard to the noble Lord's first point about unemployment, the figure is now well below 2 million. Unemployment has fallen continuously for 34 months in a row by over 1.25 million. The fall in unemployment is the longest and largest since the war. Combating inflation must remain the Government's top priority and that is why interest rates stand where they are.
Lord Mellish: My Lords, is the Minister aware that, in replying to the Question about the economy, his Answer that everything is fine and on course has somewhat shattered some noble Lords? If that is so, can he explain the results of last Thursday? Does he recognise that high mortgage rates are destroying the hopes and dreams of the party opposite and can he say when it is likely that ordinary people who are buying their own homes will have a better chance?
Lord Brabazon of Tara: My Lords, of course one regrets the extra burden that is placed on home buyers through interest rates. However, higher inflation
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would be much more damaging. I do not accept the forecast quoted by the noble Lord, Lord Dormand that inflation will continue to rise until next spring. I believe that we shall see a fall before then.
Lord Harmar-Nicholls: My Lords, is my noble friend aware that most of his supporters would be very disappointed if he were to be satisfied with the state of the economy? There is always room for improvement. He has done an excellent job as a member of a government that have produced the results that he has outlined. One could never satisfactorily answer the deliberate political dissatisfaction that the other side feels it is its duty to express.
Lord Brabazon of Tara: My Lords, I am grateful to my noble friend for his encouraging remarks.
Lord Grimond: My Lords, we understand from the Minister's initial Answer that in fact the Government are well satisfied with the economy. But does he agree that that is a little complacent? There have been some improvements, particularly for those at the top of the pile, but are the Government really satisfied with the rate of unemployment coupled with the distribution of the increased wealth and inflation? Is it not time that they found some new remedies as clearly the current ones are failing to deal with what most people consider to be a rather unsatisfactory situation?
Lord Brabazon of Tara: My Lords, all regions in the country have benefited from the fall in unemployment. Long-term unemployment has fallen faster than unemployment as a whole, and fallen in all the regions. So far as concerns the Government's policies, their position is plain: interest rates will be kept as high as is necessary for as long as is necessary to reduce inflation.
Lord Bruce of Donington: My Lords, the Minister has expressed the Government's satisfaction. Are he and his noble friends satisfied with a situation in which this country finds itself with an increasing trade deficit presently running at over £15 billion a year? Is he genuinely satisfied with a situation in which, in order to retain short-term funds in this country to cover the deficit, the Government are being forced to put up interest rates which now cost our industry and commerce an extra annual sum of £2·5 billion? Will the Minister confirm his satisfaction with that imbalance? Does he countenance the continued incursion of overseas goods into our own markets by the steady increase in import penetration?
Lord Brabazon of Tara: My Lords, the main reason for the deficit is the surge in investment in the United Kingdom which has not been matched by an increase in saving. Capital has therefore been invested from abroad with the current account deficit as the inevitable counterpart. It may encourage noble Lords to know that only one quarter of the growth in the value of manufactured imports between 1987 and 1988 was accounted for by consumer goods, with the remainder, fully

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three-quarters, made up of goods for production and investment.
Lord Bruce of Donington: My Lords, is the noble Lord satisfied with a position where, in order to increase investment in our own industries, we are no longer capable of producing goods ourselves but have to import them from abroad?
Lord Brabazon of Tara: My Lords, manufacturing investment in this country grew by 4.5 per cent. last year to reach its highest ever level. Our manufacturing output in the first quarter of this year was at its highest ever level. I hope that the noble Lord will be encouraged by those figures.
Lord Molloy: My Lords, will the noble Lord agree that the Euro elections and the by-elections indicate that people believe that we are entering into a grave summer of discontent? It behoves all of us to prevent any serious damage to the economy. We must never do what the Conservative Party did in 1979 when the Labour Government resisted what they called irrational demands. They received no support from the Tories. The Tories used the situation as a political excuse to damage the Labour Party and the country.
Lord Brabazon of Tara: My Lords, I feel that the results of the election in 1979 and the subsequent record-breaking levels achieved by the economy speak for themselves.
Lord Cledwyn of Penrhos: My Lords, would not the noble Lord be well advised to take a rather more prudent and balanced view of the economic situation and to tell both sides of the story? Is it not the case, as my noble friend Lord Bruce has said, that the trade deficit is likely to be a record figure in our history? Does that not mean that we are living well beyond our means? What will the Government do about it?
Has the noble Lord noted that the CBI has said that a further increase in interest rates would be most profoundly damaging to British industry? These are factors that the Government must take into account. Will the noble Lord advise us what they will do about these matters?
Lord Brabazon of Tara: My Lords, I do not accept that we are living well above our means, as the noble Lord has put it. We are in a situation with a budget surplus of record-breaking proportions. Interest rates will have to remain as high as is necessary to bear down on inflation. Inflation is more damaging to industry than high interest rates.
Lord Dormand of Easington: My Lords, is the Minister aware that I am not the slightest surprised that in his Answer to me he should underplay the Government's failure to control inflation? However, will he confirm that our present rate is 8.3 per cent? Will he confirm that the average of the Group of Seven is 4.4 per cent? How does he explain the difference when this is the country that has performed the economic miracle?
Lord Brabazon of Tara: My Lords, the current underlying inflation rate, excluding mortgage interest payments, is considerably below the overall RPI. It is currently 6 per cent. It is still too high. That is why our main priority is to reduce it. It is lower at the moment than in any month under the previous Labour Government and compares with their average rate of over 15 per cent. and a peak of 27 per cent.
Baroness Oppenheim-Barnes: My Lords, does the Minister recall that in 1978 the Deputy Leader of the Labour Party called a press conference to celebrate the fact that inflation was down to 9 per cent.? If that was a cause for celebration, why are we now complaining about a rate of inflation of 8.3 per cent.?
Lord Brabazon of Tara: My Lords, my noble friend makes a very good point.
Lord Peston: My Lords, does the Minister remember that in 1974—the last time that his party left this country in a mess—the Labour Government were given a balance of payments deficit of £3·5 billion to deal with? The deficit is now £16 billion. Can he tell us the approximate size of deficit that in a year or two he will be asking the next Labour Government to clear up?
Lord Brabazon of Tara: My Lords, I fear that that question is unlikely to arise.

Deer Welfare
11.18 a.m.
Lord St. John of Fawsley Lord St. John of Fawsley asked Her Majesty's Government:
What is their policy on deer and factory farming.
The Parliamentary Under-Secretary of State, Ministry of Agriculture, Fisheries and Food (Baroness Trumpington): My Lords, the Government believe that, whatever the husbandry system employed, the welfare of the animals must be safeguarded. Following advice from the Farm Animal Welfare Council, we have recently made a welfare code for deer. This will give practical guidance to those keeping deer on how to ensure that they are properly looked after.
Lord St. John of Fawsley: My Lords, I am grateful to my noble friend for her helpful and constructive reply. Is she aware that it is now proposed to factory farm red deer in order to provide venison for supermarkets? Is it not an outrage to confine such sensitive and essentially wild creatures in conditions similar to those for pigs? Will the Government intervene to put a stop to it?
Baroness Trumpington: My Lords, it is always a pleasure for me to reply to supplementary questions asked by my noble friend the Monarch of the Glen. The Ministry's veterinary staff have already been

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asked to check on welfare should any system of continuous deer housing be employed. There are two farms where deer are known to be loose housed or have been loose housed during winter months. The state veterinary service knows of these premises and is monitoring them. No welfare problem has been found. I do not consider that this amounts to factory farming.
Lord St. John of Fawsley: My Lords, is my noble friend aware that the Monarch of the Glen knows as much about agriculture as the Queen of Sheba knows about the arts? Will she have a look at the Walford College of Agriculture in Shropshire where experiments are being carried out in this vein?
Baroness Trumpington: My Lords, speaking from a queenly position, the Government believe that all husbandry systems have advantages and disadvantages. It is not sensible to abolish the intensive system until better alternatives have been developed. We have set up the Farm Animal Welfare Council to provide independent advice on these matters. In any event, it is never in the farmer's interest to mistreat his animals. However, I shall certainly pass on the remarks of my noble friend.
Lord Grimond: My Lords, I hate to break in to these exchanges between the Monarch of the Glen and the Queen of Sheba; but is this not a wholly abhorrent proposal? I must say that I have not heard of it before, but whatever precautions are taken about the welfare of deer in factory farming, the very idea of factory farming deer must be wholly abhorrent and should in my view be forbidden.
Baroness Trumpington: My Lords, I believe that I have answered to the best of my ability the Government's position on factory farming. It is perfectly true to say that farmed deer can become very tame. However I shall pass on the noble Lord's remarks.
Lord Northfield: My Lords, why are the noble Baroness and the Ministry so relaxed, as it seems from recent parliamentary Answers, to the whole issue of the abattoir slaughter of deer? That is a procedure which most of us find absolutely abhorrent. Has she not in recent parliamentary Answers to me indicated, first, that there may be breaches in this voluntary code, and that it should be made statutory? Has she not revealed also that there are possible other infringements which have been noted, and that there are not enough veterinary inspectors in her Ministry to make sure that the code is enforced? Does not the Ministry need to be shaken up on this issue? As a first step, should it not make this voluntary code into a statutory code?
Baroness Trumpington: My Lords, the Government agreed with the Farm Animal Welfare Council's view that providing certain statutory safeguards are introduced, the welfare of deer can be satisfactorily protected. Until specific welfare legislation can be introduced, the Government have asked abattoir owners and deer farmers to observe a voluntary code of practice on abattoir slaughter.
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The state veterinary service monitors deer slaughter operations.
Lord Gallacher: My Lords, in view of the consultations that are about to begin concerning the welfare of livestock in general at slaughter, can the noble Baroness give the House an assurance that the welfare of deer at slaughter will be given special attention, and if necessary priority? As an interim measure, will the Government consider making it necessary for the slaughter of deer to take place at EC approved abattoirs, thus ensuring the presence of a qualified veterinarian?
Baroness Trumpington: My Lords, we shall certainly be looking after the welfare of deer, as indeed we look after the welfare of all animals. I repeat that it is not in owners' interests to ill-treat deer.
Lord Molloy: My Lords, will the noble Baroness ask her right honourable friend to seek the guidance and help of the British Veterinary Association in this matter?
Baroness Trumpington: My Lords, the British Veterinary Association is already fully involved in this matter.
Baroness Masham of Ilton: My Lords, are deer farms licensed, and do they have a licence to sell venison? Is it not a fact that if these animals are living in an unnatural environment, such as a factory farm, they develop more diseases than they would if they were in wild habitation?
Baroness Trumpington: My Lords, any system of farming can increase the risks of Infectious or contagious diseases spreading among animals. However, these can be offset by adopting sound farming practices.

ECOFIN: Fraud Control Proposals
11.24 a.m.
Lord Bruce of Donington Lord Bruce of Donington asked Her Majesty's Government:
What proposals they made to the EC Economic and Financial Council on 19th June regarding measures to combat fraud against Community funds; what were the specific reactions of other member states to these proposals; and what decisions were made by ECOFIN as a result.
Lord Brabazon of Tara: My Lords, the Economic and Financial Council of 19th June had a constructive discussion of fraud against the Community Budget. In particular, the council endorsed the Commission's 45 point work programme for fighting fraud and called for early action on the Commission's proposals to tighten controls in export refunds and intervention storage. The UK played a major role in achieving the progress that has been made.
Lord Bruce of Donington: My Lords, I am grateful to the noble Lord for that reply which only answers the last part of my Question. My Question, as your Lordships will know, asked what proposals Her Majesty's Government put before ECOFIN and also asked what were the reactions of the other members. The noble Lord has not answered those questions at all.
Is the noble Lord aware that in the view of many Her Majesty's Government, ever since the matter was brought to their attention some 18 months ago, have taken a very casual attitude towards the whole issue of fraud. Are we entitled to expect that in the future they will take a far more vigorous and constructive part and tell Parliament exactly what they are doing to prevent the fraud, amounting at present to some £2 billion a year?
Lord Brabazon of Tara: My Lords, I deny that the Government are taking a casual attitude to this matter. We have achieved a great deal of what we wanted to see at the ECOFIN meeting which followed from the March ECOFIN, in which the United Kingdom played a leading role. We tabled a wide range of proposals for combating fraud which was well received. The Council made a unanimous declaration which incorporated our major ideas. The June ECOFIN consolidated the progress in ways reflecting the United Kingdom ideas. In particular the Commission announced a detailed work programme for fighting fraud and proposals were announced on tightening controls in export refunds and intervention storage, exactly as the United Kingdom had asked.
Lord Campbell of Alloway: My Lords, is my noble friend aware that it was my right honourable friend the Prime Minister who took an initiative—I think about 12 months ago—but she did not receive support from any of the other member governments?
Lord Brabazon of Tara: My Lords, as I said, the Government certainly do not have a casual attitude to that matter. The whole Government, from the Prime Minister downwards, including my right honourable friend the Minister for Agriculture, take this matter extremely seriously.
Lord Elwyn-Jones: My Lords, have any prosecutions been brought in respect of frauds on Community funds? If not why not? If they have been brought, before what court and with what consequence?
Lord Brabazon of Tara: My Lords, that of course is a matter for the Commission. I believe that there have been prosecutions, but I shall have to look into the matter and write to the noble and learned Lord with the details.
Lord Cledwyn of Penrhos: My Lords, I apologise for being the third member of the Front Bench to ask a question, but that may be forgiven on a Friday morning. Does the noble Lord recall that on 13th April we debated the report of the Select Committee of this House into the whole question of fraud in the Community? Does he recall that our committee
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made several very important recommendations? One of the most important was the amending of the duties of the Committee of Auditors. Can the noble Lord say whether any of those recommendations of our committee has been implemented, because the Government spokesman at the time said that they commended these recommendations and supported them?
Lord Brabazon of Tara: My Lords, I do not have a detailed list of the recommendations which your Lordships' committee made at that time. The proposals which the UK suggested, and which were accepted, comprised a timetable of proposals in the field of export refunds and intervention storage. The Commission tabled that at ECOFIN on 19th June and there were a series of other United Kingdom-inspired measures which were accepted.
Lord Mellish: My Lords, if we are talking about Community funds and fraud, can the Minister assure me that included in the investigations will be how much these members receive? That's a bit of a lark, isn't it?
Lord Brabazon of Tara: My Lords, I am not certain that that matter actually falls within the remit of this investigation.
Lord Bruce of Donington: My Lords, in conclusion, can the noble Lord state what steps the Government are taking to increase the resources available to HM Customs and Excise and to the Fraud Squad so that we in this country may set an example to the rest of Europe in rigorously pursuing all these questions of fraud which arise within the territories of member states and do not arise in the Commission itself?
Lord Brabazon of Tara: So far as what we are doing at home is concerned, the Commission wants 5 per cent. of consignments eligible for export refunds to be checked. Our Customs already checks 7 per cent., which is in excess of the requirement. We already concentrate checks on high risk consignments and products. Additional training has been given to 4,000 officers by the Customs and Excise, and CAP liaison officers have been appointed to improve the flow of information concerning CAP fraud.
Lord Hailsham of Saint Marylebone: My Lords, can my noble friend say whether there is a coherent Community policy with regard to the courts which have jurisdiction to prosecute such offences?
Lord Brabazon of Tara: My Lords, I am afraid that I cannot answer my noble and learned friend's question. I shall write to him.

Passport Applications: Processing Delays
11.30 a.m.
Lord Campbell of Croy Lord Campbell of Croy asked Her Majesty's Government:
What are the present average delays in handling applications for British passports by post at the passport offices in London and Glasgow.
The Earl of Arran: My Lords, passport applications are processed according to the applicant's travel requirements, with priority being given to urgent cases. As a result, delay times in a given period vary considerably and averages are not recorded. The maximum processing time at present for straightforward non-urgent postal application at the London passport office is 36 working days and at Glasgow 55 working days. Most applications are processed well within these periods.
Lord Campbell of Croy: My Lords, I thank my noble friend for that Answer. It is good news that a settlement may be near, but what action can be taken to restore the situation? Can he estimate how long it will take to eliminate the present delays because the holiday plans of thousands of citizens are still at risk?
The Earl of Arran: My Lords, the Government wish to apologise for any inconvenience caused to those who wish to travel abroad but who have been delayed by not receiving a passport. It is not easy to answer precisely my noble friend's question, but an offer has been put to the unions and we hope that a settlement will be achieved shortly. However, I am bound to say that, even if the present industrial action is immediately called off, there is little prospect of a return to a normal passport issuing service until the end of the summer peak.
Lord Mishcon: My Lords, I am sure that members of the public will have noted the courtesy of the Minister in apologising, but does he believe that it is likely to restore their ruffled and almost tortured feelings about the delays which have taken place? Is it not a fact that there has now been offered to a reasonable union acting for the employees in the passport office an immediate increase of 203 staff, a review of the future staff requirements and an independent inquiry into the computer system and into facilities which are to be improved for both the public and the staff? Were not those proposals made two years ago by the union and repeated in this House? Why must the Government invite strike action before making the present concessions, thus saving the public all the inconvenience?
The Earl of Arran: My Lords, the passport department managers have proposed to the unions an increase of 203 permanent staff compared with the union claim for 381. That is on condition that the unions co-operate with a number of measures aimed at improving the future handling of the work. The CPSA staff at the Liverpool passport office have voted to accept the offer. However, demand so far this year has risen by 8.4 per cent. on last year's record levels. The manual system of passport production is outdated. Teething troubles with computer systems at Glasgow and Liverpool mean that it is not yet working to full capacity. As all noble Lords know, we are at the peak period for passport applications and we hope that normal service will be resumed as quickly as possible.
Lord Hailsham of Saint Marylebone: My Lords, is my noble friend aware that in the days before the
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First World War when my father took my mother to the Continent of Europe for their annual holiday they never needed a passport, except for Tsarist Russia? Is he also aware that in about 1945 Mr. Ernest Bevin used these memorable words:
"My idea of a foreign policy is to take a ticket from Victoria station and go where the hell I want"?
Are they not examples greatly to be imitated?
The Earl of Arran: My Lords, naturally I was unaware of the circumstances of my noble and learned friend's family. However, as he will appreciate, times have moved on since then.
Lord Bottomley: My Lords, my passport comes to an end in October. Can the Minister tell me whether I should send it in now for renewal in order to make sure that I receive it, or is that not allowed?
The Earl of Arran: My Lords, I advise the noble Lord to send his passport for renewal as soon as possible.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that the delays in the issuing of passports and the consequent gross inconvenience to the public—which considerably preceded the industrial action taken by the passport office staff—are accentuated by the insistence on the rule that the holder of a perfectly good passport, with plenty of space still left, is compelled to turn it in for destruction and replacement simply because he has held it for 10 years? Is he aware that the situation could be eased substantially if that absurd requirement were dropped?
The Earl of Arran: My Lords, a passport must be renewed after a 10-year period for a simple reason. I dare venture to say that, during the passage of time, even the face of my noble friend has changed and will continue to do so. That must be reflected in the form of a new photograph at regular intervals; in other words, every 10 years.
Lord Peston: My Lords, does the noble Earl recall that I asked the same Question two years ago and obtained an answer concerned with photographs. Has he recently looked at his own passport photograph? Is he under the impression that it bears any resemblance whatever to himself? Is not the question raised by the noble Lord, Lord Boyd-Carpenter, perfectly serious? Why can we not have permanent adult passports as we have driving licences?
The Earl of Arran: My Lords, sadly, my current passport photograph in no way compares favourably with the photograph taken 10 years ago. For that reason they must be renewed every 10 years.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that I should be prepared to sue for defamation anyone who recognised me by my passport photograph? Is he also aware that, if the photograph is so important, a great deal of time and effort would be saved if holders were asked simply

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to replace the photograph with another while keeping the whole passport and not destroying it?
The Earl of Arran: My Lords, that is a novel idea of which I had not previously heard. I cannot answer my noble friend at present because the details are probably too complicated. However, I shall consider the question and at a later date I may be able to answer him.
Lord St. John of Fawsley: My Lords, is my noble friend aware that when the passport is handed in one will receive not another blue British passport but a limp piece of vermilion plastic? Can he do something about that so that we can retain our traditional blue passport?
The Earl of Arran: My Lords, it is possible to retain the traditional passport. It will end only when computerisation is reached in all six offices throughout the United Kingdom. However, once the new passport is totally established—that is, the limp passport to which my noble friend unfairly referred—it will remain a United Kingdom passport. However, the cover will readily identify my noble friend as a citizen of a European Community country. We shall benefit from moves towards easing frontier formalities in the Community. Most important, when computerised production is fully established, there should be a more efficient issuing system.
Lord Campbell of Croy: My Lords, has my noble friend observed on his way to the Home Office the long queues stretching round the block from the Passport Office in Petty France, even at 9.00 a.m? That is tangible evidence of the frustration and anxiety now being caused.
The Earl of Arran: My Lords, I have seen those queues myself. Delay in postal applications naturally increases the number of personal callers who may be inquiring about delayed applications, lodging applications or, indeed, collecting passports. The London office deals with about 3,500 personal callers per day. It may also interest your Lordships to know that fire regulations limit the numbers in the hall to 600. Obviously, any excess must wait outside for safety reasons. Queues mainly form before the office opens at nine o'clock.
Lord Rodney: My Lords, can my noble friend explain what the rules are about obtaining a temporary passport from the post office if one is needed very urgently?
The Earl of Arran: My Lords, it is possible to go to a post office and there to obtain a British visitor's passport.

Electricity Bill
11.42 a.m.
The Parliamentary Under-Secretary of State, Department of Energy (Baroness Hooper): My Lords,
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I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Baroness Hooper.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD CULLEN OF ASHBOURNE in the Chair.]
Clause 78 [Responsibility for composite listing particulars]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 232C:
Page 57, line 11, at end insert—
("( ) This section shall not apply to the Secretary of State and his advisors.").
The noble Lord said: Here we are dealing with Clause 78 which refers to the responsibility for composite listing particulars. It may be worthwhile if I remind the Committee that flotation, when it takes place, will be of a number of companies. The area boards will probably form 12 companies; there will be two Scottish companies, as I understand it, and there will also be two generating companies, as we know them at present. In many of those cases there will be composite listing particulars; in other words, to take the Scottish companies as an example, in their listing particulars they will have a participation in the Scottish nuclear company which is itself a successor company as defined by the Bill. The area boards will have in their listing particulars participation in the National Grid company which is a successor company under the Bill. National Power will have in its accounts a participation in BNFL which, although not a successor company in the terms of the Bill, will nevertheless be an important investment which the company will have to explain to its potential shareholders.
The only company that I can see where there will be no composite listing particulars will be in the case or Power Gen but it may well be that Power Gen will have some holding in other successor companies which I have not yet spotted.
The Financial Services Act makes it quite clear where the responsibility lies for listing particulars. If I may correct the Notes on Clauses, that does not lie with the company.
The Notes on Clauses go on to say that it lies with the company, its directors and any persons who have agreed to become directors. Section 152 does not say that but says that it is the issuer himself or herself, or if the issuer is a company.
In the case of this flotation I believe that we are dealing with a secondary rather than primary issuing of securities. The securities will be held initially by the Secretary of State who will then sell them to the market. That is how I understand the procedure for flotation. It will not be for the companies themselves issuing their own securities on a primary basis to pick up money for their own treasury. The money will go to the Consolidated Fund; in other words, the Government.
Under those circumstances, the issuer is the Secretary of State and, therefore, under Section 152

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of the Financial Services Act, as the issuer is responsible for the listing particulars it must be the Secretary of State who is responsible. In other words, the Crown has to take responsibility for the listing particulars.
If we move to the composite listing particulars which I have mentioned, the Crown has therefore to take responsibility not only for the listing particulars of one area board but also for the listing particulars of the successor company in which that area board has a holding; namely, the National Grid company. Therefore, the Crown is responsible for both. The same applies to Scotland and the two successor companies which are to be floated: the Crown must take responsibility for the listing particulars not only for the two companies themselves but also for the particulars in respect of their share in the nuclear company. So in the end the Crown will be responsible. Unless it pleads some sort of immunity, which I do not understand, under the Financial Services Act, the Crown will be sued in the event of there being any damage suffered as a result of the listing particulars, as the Financial Services Act prescribes.
The same could and should be said about advisers to the Crown. We know that the Crown has recruited a merchant bank and a broker and other people to compile the listing particulars of the successor companies. In the case of Power Gen those will be simple listing particulars but in the case of all the others, they will be composite listing particulars. It is only right that the advisers to the Crown and to the Secretary of State should be fully responsible for all the information in the listing particulars document because it is on that basis, as the Financial Services Act makes it absolutely clear, that investors are to make their decisions.
I move on further. Section 47 of that Act makes it quite clear that anybody who makes a misleading statement recklessly, deliberately or otherwise is guilty of a criminal offence if it has the effect of inducing an investment transaction. Therefore, these are very serious matters. Unless the protection is enshrined in the Financial Services Act, we believe that Clause 78 should not apply to the Crown and should not apply to the Crown's advisers. They must take responsibility for all listing particulars given in all the documents for all the successor companies to be floated.
If it comes to a criminal prosecution, clearly there will be ramifications which I do not wish to go into. However, I believe that the advisers to the Crown should be absolutely clear that here they are in exactly the same situation as in the case of any issue of any securities on the London Exchange; that is, they must be extremely careful what sort of statements they make. I believe that this is a perfectly simple amendment. Although the drafting may be wrong, I have tried to explain what I mean by it. I hope that the noble Baroness will be able to accept it. I beg to move.
Lord Ezra: I consider that the noble Lord, Lord Williams of Elvel, has raised a very important point here. As a result of this Bill, we must not allow the rules appertaining to responsibility for prospectuses
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in any way to be relaxed. The fact that the Crown is issuing these prospectuses for sale should in no way mean that the rules of law in that connection should be modified. The wording of the clause to which the noble Lord referred suggests that there could be an exclusion of responsibility for listings. That is how it seems to read. It is important that anyone reading the prospectus should know who is responsible for everything contained in it. In this case it is clearly the Crown and therefore I support the amendment.
Baroness Hooper: I am unable to accept this amendment, but perhaps it would assist the Committee if I set out briefly what Clause 78 is trying to do. Its purpose is to facilitate the use of a composite prospectus, as we all understand it, for the flotation of two or more successor companies.
While the clause applies generally in this way it has been drafted with the 12 supply companies, which we intend should be sold by simultaneous sale, very much in mind. The amendment intends, as was explained, to make the Secretary of State and his advisers responsible for the whole of the prospectus. In past sales the Government have taken reponsibility for defined parts of a prospectus, but it is quite inappropriate for the Government to be responsible for the entire document, much of which will contain information lying within the personal knowledge of directors and personnel of the successor companies rather than the Government.
We believe that it is also wrong to attach responsibility under the Financial Services Act 1986 to an adviser merely because he gives advice: that is a principle clearly recognised in Section 152 of that Act. My understanding of Section 152 is that it provides, in addition to the company and its current and prospective directors, that any person who is stated in the prospectus as accepting responsibility for it, or any part of it, and any person who has authorised the contents of the prospectus, or any part of it, is legally responsible under that Act. We believe that the way in which we intend to go about it is well within that provision; so perhaps I should explain how we believe the clause will operate.
In relation to the supply companies the prospectus will contain information common to all 12 companies. The clause ensures that the prospectus can provide, where appropriate, that the resonsibility for the information relating to any one successor company which is contained in the combined prospectus lies solely with that company and its directors; and indeed, any others responsbile for the listing particulars of that company, as we discussed in Section 152. It is also ensures that those persons are not held responsible for information in the combined prospectus that relates to the other companies. That is clearly not unreasonable. The division of responsibility for the prospectus will be on lines agreed by the Stock Exchange.
I must reiterate that the information in the prospectus—the listing particulars—relates in the main to the companies subject to the offer for sale. Where information relates to other parties, including the Government, they will bear responsibility. That has been the case in all previous sales, as I said, and I can see no reason to depart from that precedent.

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The Government are in no way shirking responsibility. Of course, we expect that everybody will be extremely careful in providing the correct information. In the light of that reply, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Williams of Elvel: I am grateful to the noble Baroness, but I have to say that that is the least satisfactory reply she has given to me throughout these Committee proceedings.
This clause may be drafted with respect to the area boards but it affects the Scottish companies. The Scottish companies are successor companies. The nuclear company for Scotland is a successor company. In the case of the SSEB, which is to be floated, there will be two successor companies joined together in composit listing particulars—the SSEB company and the Scottish nuclear company. The Scottish nuclear company will be a major consolidable asset of the SSEB and there is no way to get away from that. Therefore, the directors of SSEB will have to take responsibility for a major consolidable asset; and it is consolidable precisely because the SSEB will own more than 50 per cent. of the nuclear power company.
Secondly, it is certainly true that much of the information will be in the personal knowledge of the directors and not in the knowledge of the Government. However, speaking as an adviser to an issuer, there is a perfectly good procedure which happens every day whereby a merchant bank or a stockbroker makes sure that the directors are telling the truth, the whole truth and nothing but the truth. It is known as the verification procedure. The noble Baroness, who is a lawyer, should know that lawyers put the directors on notice, go through the minutes of the meeting with them, and ask them to sign verification notes to be absolutely certain that they have told the whole truth. The Government should be doing that, because the Government are the issuers.
Thirdly, the noble Baroness said that the Government's advisers should not be responsible. If they are not responsible—and I differ with her on the interpretation of the Financial Services Act—what on earth are they doing? They are meant to stand behind the Government and say, "We think this is a satisfactory listing particular for this company". They should be absolutely clear that they have to do their verification in exactly the same way as any other adviser.
Finally, the noble Baroness seemed to say that the securities—I did not entirely understand her final sentence—relate to the company offered for sale. I believe that is what she said. Clearly that is right: the securities are shares in the company offered for sale. However, the companies offered for sale are not only the area boards; they are the area boards, the Scottish companies, National Power and Power Gen, so it is the whole lot.
The point about the area boards is significant, which is why my amendment is so relevant. The investment in the grid will be by far the largest single asset that any area board will have. After all the grid has net assets of some £5 billion. In dividing that by
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12, and even on the most generous basis, one finds that no area board has assets anywhere near its share of the grid. That is why any area board has to put into its listing particulars proper particulars on the grid. It is no good saying that the directors of the area board in question do not know about the grid and therefore can in some way relieve themselves from responsibility for that major asset. It is no answer to say that the directors of the grid can talk about the grid but not about the area boards. Somebody has to take responsibility for the whole thing. I believe that should be the issuer, and the issuer is the Crown and its advisers.
Lord Ezra: The noble Lord, Lord Williams, has made an important point. Many people will be reading these prospectuses with a view to putting their savings into these companies. At the very least they must know who is responsible for what they read and take on trust. My understanding, from the rather complex answer given by the noble Baroness, is that various people will be responsible for various parts of the prospectus. I do not find that a very satisfactory situation. I have always assumed that a prospectus is the responsiblity of the issuer and that it is the issuer's job to make sure that everything in the prospectus is valid, proper and could be defended in a court of law.
Baroness Hooper: I cherished the fond hope that I might have satisfied the noble Lord, Lord Williams, at this stage of our proceedings; but all I can say is that I am not surprised that yet again I did not succeed.
I believe that the position is quite clear. This clause relates to a composite prospectus only; that is, where two or more companies are sold at the same time. As I said, our intention in this respect is simply in relation to the 12 area successor companies.
Lord Williams of Elvel: Will the noble Baroness accept that the two Scottish successor companies will have composite listing particulars?
Baroness Hooper: Yes, I was coming to that. The Scottish boards and the generating companies will be subject to the requirements of the Financial Services Act. It is only the supply companies that will be subject to a simultaneous sale. I assure the noble Lord that the supply companies' prospectus will also contain particulars on the grid company. Where the information relates to the grid the directors of that company will be responsible for the information. The responsibility will be clearly defined in the prospectus itself, as I have said. We shall be complying with the provisions of Section 152 of the Financial Services Act. There will be verification, which will involve the Government and their advisers. Therefore there is no need to mention that in the Bill. I believe that the noble Lord's anxieties are fully covered.
12 noon.
Lord Williams of Elvel: I wonder whether the noble Baroness can help me. In the clause as drafted where

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does it say that it is only concerned with public electricity supply?
Baroness Hooper: The clause as drafted relates to "two or more successor companies". When the amendment was tabled I believe its relevance concerned the simultaneous flotation of the 12 area board companies. I now realise that the noble Lord, Lord Williams, intended his amendment to go somewhat wider than that. I believe that the provisions with which we are complying entirely fulfil our responsibility in giving the public all the information that it requires and full knowledge of those responsible.
Lord Williams of Elvel: My amendment was addressed to the clause as drafted. As drafted it very clearly specifies that it concerns composite listing particulars:
"for securities of two or more successor companies".
I cannot be responsible for the original drafting of the clause. It goes beyond the public electricity suppliers and concerns the Scottish companies. I tried to point out that I believe that the composite listing particulars may, because BNFL is a plc, go to National Power. The only company that I can see which is right outside at the moment is Power Gen. It is not just a question of public electricity suppliers. The noble Baroness may say it is, but that is not what the Bill, as drafted, says. I hope very much that she will look again at the drafting. If she is saying that the Scottish companies are to be treated in one way and the area boards in another, that should be spelled out on the face of the Bill. Perhaps the noble Baroness can help me on that.
Baroness Hooper: I believe that the clause is drafted to facilitate any simultaneous sale but that does not mean that all the sales will be simultaneous. A decision has not yet been taken as to whether the two Scottish electricity companies should have a composite prospectus, or separate prospectuses.
Lord Williams of Elvel: Perhaps I may explain the point to the Committee. I beg the noble Baroness's pardon, but it is not a question of whether there will be simultaneous flotation of the two Scottish companies. The point is that there will be two successor companies; namely, the SSEB and the Scottish nuclear company. They will be in the same prospectus. The Scottish nuclear company will be a subsidiary of the SSEB plc. Let us leave aside the north of Scotland and deal with the south of Scotland. There will be composite listing particulars at that point. Somebody has to take overall responsibility. I would like the Secretary of State to take that responsibility for the whole lot.
Baroness Hooper: The noble Lord has made it perfectly clear what he would like the Secretary of State to do. Returning to the Scottish question, both Scottish electricity companies will be responsible for the particulars as regards the nuclear subsidiary. The sale of the shares of a company which owns shares in other companies is not a sale of the shares in those other companies. At least that is my understanding. In view of the concern expressed I undertake to take this matter back for it to be looked at again. If
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necessary I shall either write to the noble Lord or have it discussed at a later stage.
Lord Williams of Elvel: I am most grateful to the noble Baroness. I humbly suggest that not only does she take it back but that she looks at the drafting to see whether the wording means what she said it means. Personally, I do not believe it does. There is still the question that I wish to be resolved as regards the role of the Secretary of State and his advisers. I say for the one hundredth time that I believe the Crown has to take responsibility. Nevertheless we have had a debate on the subject. I look forward to receiving clarification at the Report stage from the Government of what they really mean. When we know that we can start amending it. I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
Clause 78 agreed to.
Lord Peston Lord Peston moved Amendment No. 232CA:
After Clause 78, insert the following new clause
("Flotation costs to be borne by successor companies.
The Secretary of State and the Director shall ensure that all costs of promoting and underwriting floatation, including any advertising prior to floatation, shall be clearly identified and borne by the successor companies as a charge on successor company profits without extra cost to consumers.").
The noble Lord said: I regard this as an extremely serious amendment which requires discussing at some length. Before getting down to the subject I apologise to the Committee for raising a matter that troubles me slightly. In looking at the amendment itself I note the spelling of "floatation". At the side of the amendment it is spelt "Flotation". I then turn to the Bill and find that it is spelt "floatation". In the Notes on Clauses it is spelt "flotation". The further problem I have, speaking as the Opposition's Front Bench spokesman on education, is that I cannot recall what is the correct spelling or whether both are correct. Also, not having any legal knowledge, I do not know whether the Bill is imperilled in any way by having a word in it which is misspelt. I mention that matter before getting down to the business of the amendment. I have only just noticed the spelling and I would have rushed out for a dictionary. However, I was so intrigued by the previous amendment that I thought I should stay for that.
This amendment refers to the costs of promoting and underwriting flotation, however spelt. In particular I wish to identify or emphasise the advertising side of the subject. I shall explain in a moment that I have grave doubts about the extent to which we have seen advertising in connection with the privatisation programme in recent times. Apart from that the question arises, whatever the costs of flotation, including all those referred to in the amendment, whether it is at all reasonable that such costs should be borne by consumers. I argue that it is by no means obvious that such costs should be borne by them. The emphasis in the amendment is that they should be borne through the successor companies' profits. An alternative view, but one that I do not share, would be to argue that they should be borne by the taxpayer. It is not clear that one can

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argue cogently that the taxpayer gets benefits other than the crude benefits of the sums coming in.
That is the central idea. The point to which I wish most to draw attention is what has been happening about advertising as regards the privatisation of this industry. I also refer to advertising and the privatisation of water and similar industries. Recently we have seen what appears to be an enormous increase in advertising by the current nationalised electricity companies. I worry about the propriety of it. I hope the Committee accept and realise that the industry is still in public hands.
It is entirely beyond reasonable behaviour that public enterprises should be engaged however indirectly, in advertising connected with privatisation. That is a misuse of power. I go further. As some of the senior staff of the current public enterprises may expect to hold senior positions in the forthcoming private enterprises, and on past performance at much higher salaries, one can at least again query the propriety of their engaging in any activity, in particular advertising, which is not of an arm's length kind with respect to privatisation.
The sums involved are not measured in thousands of pounds or tens of thousands of pounds but in millions of pounds. We are talking about enormous sums being paid into the advertising industry. We are not talking about advertising that can be justified—there are advertising programmes which benefit the consumer in terms of providing information and so on—but about advertising of a PR and an image building kind. This is advertising of your friendly, local nuclear power station kind. I say that as someone who is not known for his opposition to nuclear power per se. My opposition here is to the misuse of funds.
Do we regard it as proper that what will become a privatised industry—I assume that will be the case if the Government's majority is maintained—but which at this time is in public ownership should incur expenses that are chargeable to the consumer? The extent of the advertising is all pervasive. One sees it in the serious press, and the Central Electricity Board has been advertising on television. I normally manage somehow to switch off, mentally if not physically, when that kind of advertising occurs. It does not get to me but I assume that there are impressionable people at whom it is aimed.
My final concern is again to do with the declaration of interest by relevant people. A number of people in the public relations game, when they are not intent on destroying the party of noble Lords opposite in election campaigns, are endeavouring to make money not merely at the present time in advertising public enterprises soon to be privatised but, I assume, hope to be the PR people who earn enormous sums when the industry is privatised. That is what they have in mind. It is a matter more of concern to noble Lords opposite than to my noble friends on these Benches. This is complicated by the fact that the privatisation of the two industries is enormously unpopular. The privatisation of water is more unpopular than the privatisation of electricity, but opinion polls have shown that the privatisation
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of electricity is unpopular. The privatisation of nuclear generation is particularly unpopular.
One asks again whether there is not at least some modicum of impropriety that at this time public sector funds—I repeat that the industry is still in public ownership—should be used with a view to making this less unpopular. It is up to noble Lords opposite to decide how they justify the use of general government funds to push government policy. We have had arguments about that. I certainly have no objection to their using their own private party funds for those purposes. However, all noble Lords ought to be concerned when funds belonging to a nationalised industry are used for these purposes.
I have ranged broadly over these matters. It is an extremely serious topic. It is one concerned with the general standard of public life in this country which I think has deteriorated. The fact that there is not broader objection to this kind of thing puzzles and worries me. I have used the amendment to draw this matter, albeit on a Friday, to the Committee's attention. I look forward to hearing the noble Baroness's justification. I beg to move.
12.15 p.m.
Lord Trafford: The noble Lord quite accurately said that he wandered broadly over the subject but he did not address or justify the wording of his amendment. He talked at great length about the propriety or otherwise of advertising in the press or on television. He has a point but there is a difficult line to draw between public service advertising—advertising in the sense that one is preparing for a flotation, however that may be spelt—and what one might call direct PR from the point of view of image building for the post-privatisation image of the successor companies. However, this is not what the amendment refers to.
The amendment says that all the costs of promoting and underwriting a flotation, including advertising prior to that—I assume that that covers all advertising back to when I am not sure because it is not stated—should be charged not just to the successor companies but to the profits of the successor companies without charge to the consumer. It is a cleverly designed amendment which seeks to avoid harming consumers by not adding to their costs or to the costs of the taxpayer. But it does not wash. In one respect it is reasonable to suggest that if a successor company and its shareholders are to benefit greatly they should bear a large part of the costs of the advertising that has led to that benefit. But the taxpayer will also benefit as a result of the advertising campaign because the price at which the industry is sold will be advanced.
I am sure that my noble friend on the Front Bench will be able to confirm some figures. For example, the famous advertising campaign for British Gas which featured Sid led to an enhancement of the price and therefore to a benefit for the taxpayer in the sense that he received a higher price. In that sense it would be unfair if this was passed away from the taxpayer as the amendment suggests, thus depriving him of some of the benefits of the sale.
On the other hand it might be equally unfair if it were to land in the lap of the consumer. There is a

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clear distinction between who is likely to profit from which type of advertising. The taxpayer or the Government will benefit from the promotion of the industry in the sense that the price at which it is sold will be elevated. To that extent they will benefit. In the sense that the industry develops by attracting interest and providing an image of efficiency and effectiveness, it could be argued that the company benefits. The amendment makes quite clear that the taxpayer is deprived but does not make clear in any specific way that I can reasonably accept that it protects the consumer.
I take the noble Lord's point as regards advertising in general terms; indeed, one has one's suspicions about the extent to which any of these campaigns are of any great value. But, for those who do estimate them, there has at least been the previous example of gas privatisation. I am sure that my noble friend can provide the relevant figures, but I believe that the sum which the Treasury eventually received runs into more than £100 million.
For those reasons I think that the amendment as it stands is flawed. I do not think that it would protect consumers in the long run and it certainly does down the taxpayer.
Lord Ezra: The noble Lord, Lord Peston, has raised an important point at this stage. For many years I was concerned with advertising in a publicly-owned enterprise. I must say that we were always most cautious of spending a lot of money which ultimately belonged to the public in merely image building, however highly we thought of our enterprise. Most of our advertising was directed specifically to selling. However, the kind of advertising which is going on now as regards the electricity and water industries is not selling; indeed, if the water industry was proposing to sell water now it would be doing something most peculiar as the authorities are in the process of stopping us from using it.
Therefore I should like to say that I have grave doubts about what is happening now in these promotional campaigns for privatisation conducted by the currently nationalised industries with the use of funds which have been placed at their disposal for other purposes. That is a very good point, even if it does not emerge precisely in those terms in the amendment. The noble Lord, Lord Peston, is absolutely right in raising what appears to me to be a degree of impropriety in what is going on at present. I have heard many people query those advertisements when they have appeared on the television screen. People have asked me, "Why are they doing this? What has this got to do with it? Why are they spending this money?
Another issue I should like to raise concerns the point made by the noble Lord, Lord Trafford. He said that he justified any advertising carried out by the Government, as opposed to the present publicly-owned authorities, on the grounds that it could enhance the value of the shares. I am very dubious as to whether that should be done. I think that in a sale of this sort one should be selling on a fair price, and not on a price which has been enhanced by an enormous amount of advertising so that at the
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end of the day people are persuaded to pay more than they should be paying. Surely that is not what he is proposing. The price which the public is asked to pay should be a fair price which is related to the assets of the business and their likely profitability under the new service. That information should be set out in the prospectus. The only sort of advertising which I think could be justified is that of a factual nature which would ensure that people are aware of what it is all about. It should also draw their attention to the issues raised in the prospectus. Anything which goes beyond that and persuades people to pay a higher price than they would otherwise for those shares cannot be justified.
Therefore I am most concerned about the purport of the intervention of the noble Lord, Lord Trafford. It seems to me that in such a case, where major public assets are being disposed of, the greatest possible care should be taken in regard to the way in which it is done and on the sort of advertising which accompanies it. I believe that the advertising on previous occasions has been excessive. I do not think that it is justified, and I think that the noble Lord, Lord Peston, is absolutely right to raise the issue in this way. I therefore support the amendment.
Baroness Gardner of Parkes: I do not support the amendment and I am sure that that fact does not surprise any Member of the Committee. I find the points which have been raised in the debate of great interest. I thought that my noble friend Lord Trafford made a valid point. It is in the public interest to obtain the best price for the sale of public assets. I do not agree with what the noble Lord, Lord Ezra, said. He said that it is unfair to persuade people that shares are worth buying and thereby perhaps raise the price slightly. We are talking about only slight differences here.
However, there are other reasons why advertising is important in terms of flotation. One is that when it is said that a share prospectus is a document which you can read in detail and study, I think that we are considering only the educated member of the public who is capable of studying the details. However, there are many ordinary people who would like to be informed as to what this is all about, what exactly they will receive for their money and what interest there is for them in acquiring such shares.
I shall not comment on the water publicity because I have also found it somewhat curious. However, the electricity industry will be sold on a rather complex basis where different supply companies will be sold separately. There will then be the transmission and the generating companies. In order for ordinary members of the public to understand exactly what the different segments are and which segment they should choose to buy shares in, or whether they should choose one or more or perhaps none, they must be fully informed. For that reason I believe that there is a need for explanation and advertising on a level other than just in a share prospectus.
Lord Ezra: I must tell the noble Baroness that I fully agree with what she just said. I said that I thought that if advertising took the form of information and explained to people what was in

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the prospectus, it was totally justified. However, what I am concerned about is the type of advertising which we see now.
Baroness Gardner of Parkes: I thank the noble Lord for his explanation. The other point is that it is extremely difficult to differentiate between advertising which is being done for the purposes of this industry and that for the gas industry. From my own knowledge of the electricity industry, I know that we must keep pretty well on form all the time. There have been studies and surveys. For example, all one has to do is to give the gas shower a big boost on television and suddenly everyone will put in a gas-powered shower. Of course, the electricity industry would be most distressed about the use of the word "power" as regards a gas shower, because it feels that it is the source of power. The electricity industry must then counter that and show what it can produce in the same way. There is constant competition all the time between those two sources of power.
Lord Peston: Perhaps I may intervene here for just a moment. I do not know whether the noble Baroness is aware of this, but she is in fact implicitly supporting the point which I made; namely, that one of the things at which one looks askance is this mutually destructive advertising by the different energy industries, often built around the minor neuroses they have, such as the use of the word "power". However, I am not certain that that is enormously helpful to her case in her endeavour to support advertising.
Baroness Gardner of Parkes: I consider that advertising is important, as I have already explained. It is also a way of teaching people how to economise on the use of their power source, whatever it may be. However, the point that I was about to make was that it is extremely difficult, and would be extremely difficult, under the terms of the amendment to differentiate between what is normal commercial advertising and what is advertising connected to the flotation. That makes acceptance of the amendment most difficult.
I should also like to ask the Minister if she would comment in her reply on the situation as regards the privatisations of British Telecom and British Gas. Who met the costs of flotation in those cases? Surely there must be a parallel and precedent already set in that connection. However, I do not support the amendment as it stands.
12.30 p.m.
Baroness Hooper: I must say that the Government cannot accept the amendment. However, we have had a most useful debate on the subject. Perhaps I may preface my remarks by providing the noble Lord, Lord Peston, with some information. I understand that flotation spelt "floatation" follows the Concise Oxford Dictionary but that the word spelt without the "a" at the beginning is commonly, but not yet authoritatively, used. Whichever spelling is used, it should have no effect whatever on the Bill.
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However, I assume in this regard that in connection with the Water Bill no such dilemma has arisen and the word has consistently been spelt "floatation".
In relation to advertising and promotion expenses which are referred to in the amendment, we believe that the Government have a duty to ensure that the taxpayer receives proper value for the sale of the industry. Promotion of the offer of sale, as well as the underwriting, will play a key role in that regard. Indeed, this has been the case rigorously pursued in all previous privatisations. The benefits from having the sale underwritten and of increasing demand through advertising the offer for sale appear as increased proceeds. That is a benefit to the taxpayer, and that is why the Government meet such costs. The advertising costs and the underwriting costs which the Government incur will be netted off from the proceeds of the sale.
The discussion has concentrated on advertising. It is essential to ensure that potential investors are fully informed of forthcoming offers for sale. That allows a proper share price to be set and therefore helps maximise proceeds for the taxpayer. Nevertheless, advertising that is designed to establish the identity of the individual companies that will result from the break up of the existing monopoly, as my noble friend Lady Gardner said, is of course proper. It is also proper that it remains the responsibility of the companies. I happened to see an advertisement recently on television made by certain area boards which dealt clearly with the benefits of energy efficiency measures. I should have thought that noble Lords would welcome that form of advertising.
Whatever the purpose and objective of the advertising, the Government are determined that all expenditure should give value for money. When considering what to spend on advertising, the Government are not just concerned with price, although, as I said, that is important to the taxpayer. They will also take account of the benefits which will flow from selling shares to millions of ordinary investors and to the industry's employees. They will take into account the fact that advertising will increase the total demand for shares and thus help to ensure that the taxpayer receives a fair return on his investment. Wider share ownership is one of the Government's great achievements.
Much has been said about the extent of advertising costs. Advertising costs are small in relation to the proceeds of a sale: only 0·7 per cent. for British Gas, for example, or 0·3 per cent. for Rolls-Royce. In the case of British Gas, as my noble friend Lord Trafford said, the advertising campaign was successful and allowed the Government to set a share price in the order of 5p above that which would otherwise have been sustainable. That resulted in an increase in proceeds of some £200 million.
To the extent that the overall marketing campaign for the offer for sale brings benefits to the industry, the cost will be shared with the industry. Our campaign is likely to be a joint one, reflecting the balance of interest between the taxpayer and industry, as has been the case with previous privatisations. The amendment also covers underwriting. Experience has shown that

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underwriting can be essential to ensure that all the shares being offered for sale are sold. Underwriting creates investor confidence that the sale will proceed and therefore be good value for money.
The proposed new clause requiring all the costs of promoting and underwriting the privatisation to be met out of the profits of the successor companies, without any additional charge to the customer, is an odd proposition. If the whole of those costs, including those that the Government incur, were to be met by the company out of its profits, that would of course be reflected in a reduction in the level of proceeds. In other words, the costs would still be met by the taxpayer, but indirectly. I cannot see any advantage in that. It is not for the Secretary of State to dictate how a private sector company's profits are used. That is a matter for the directors of the board whose decision will be endorsed by the shareholders.
As I have explained, the taxpayer will benefit from the increased demand for shares created by promotional and advertising campaigns, which, along with the underwriting of the offer, will be an important ingredient in the overall success of the flotation. It would be improper to treat those costs in the manner proposed in the amendment.
The director's involvement in all this is strange. He is the regulator of the industry's activities of electricity generation, transmission and supply. He is not concerned with how the Government sell the industry, and as for how the Secretary of State or the director are to ensure the requirements of the clause are met, that raises a query. It is not a matter for a licence condition because that is a regulatory mechanism and would therefore involve the director, who is not involved, as I have said. It is not a matter for the special share because that would involve the Secretary of State too closely in the company's internal financial affairs.
For those reasons, and the general reasons that I have given, the Government do not accept the amendment and I trust that the noble Lord will feel able to withdraw it.
The Earl of Lauderdale: Before we leave this matter, I must apologise for being called away from the Chamber on some urgent business. This point may have been covered while I was out of the Chamber: it relates to distinguishing between the taxpayer and the consumer. My noble friend just used the phrase to which she is becoming accustomed—"the balance of interest". Everything must be in the balance of interest. We must get the balance right and keep it right. The balance of interest between the consumer and the taxpayer was mentioned. They are not the same people by any manner of means. The consumers are everybody; taxpayers, except in so far as they pay indirect taxation, are not everybody.
One of the basic worries some of us have had about the Bill—I am still in favour of privatisation in principle but not this way of achieving it—and I still have, is that it will result in pushing up prices. to the consumer, whether they are industrial, who concern me most, or private.
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When my noble friend says that the taxpayer will do well out of this Bill, never mind about the consumer—that is the implication of what she said—that is a false balance. The balance is wrong. I must apologise for having missed the earlier part of my noble friend's speech but I was called away from the Chamber.
Baroness Hooper: With leave, I do not believe that that was the purport of my remarks. I emphasised that the taxpayer was important. We believe that a good price should be received from the sale. The effect of the amendment, which would push the costs entirely on to the successor companies, would have a greater consequence on the consumer than the way in which we propose the arrangements should proceed.
Lord Peston: This has been a useful discussion not least in clarifying the spelling of the word "flotation". Whatever else may have been my experience this morning, my education has been improved. I am interested to note that the Water Bill has kept to one spelling throughout whereas with electricity we have gone in for various spellings.
It will not surprise the Minister to know that, although I do not go as far as my noble friend Lord Williams of Elvel did in regard to her previous answer to his amendment, which I think he said was the worst answer he had received, this is not an answer that I find satisfactory. After listening to some of the interventions I have become more and more alarmed. The noble Lord, Lord Trafford, mentioned advertising and the share price. That takes us of course into the classic debate on the nature of advertising.
Clearly, if the advertising is designed to make the possible purchasers better informed and therefore appreciate the value of the assets more than otherwise would have been the case, it is not unreasonable. That applies generally to advertising. None of us has any doubts about advertising which enhances the consumer's or, in this case the saver's or investor's, ability to take a rational decision. The point at issue which the noble Lord, Lord Ezra, raised is that advertising goes further than that. I suppose I must accept the point—I think the noble Baroness herself raised it—that in practice it is not easy to distinguish the two types of advertising as to which is doing what. But that does not mean that it is an irrelevant consideration. It is very relevant.
On the general question of the taxpayer, we do not wish to go back over the whole of the Second Reading debate on privatisation, but we must not forget that these industries are already in public ownership. The assets are already owned by the community at large. Therefore in a sense one is selling what one owns, and one asks, "What is the net gain?". In my own view, the only relevant net gain is that privatisation would benefit the consumer. I have to argue, as I have argued before, that the taxpayer is an irrelevance in this sense. If the taxpayers receive more than they should as a result of misleading advertising, then I agree with the noble Lord, Lord Ezra, that I could not support that as a principle of public policy. I emphasise those points.

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To return to the matters which the noble Baroness, Lady Gardner of Parkes, raised, I fully accept that there is legitimate advertising. There is no argument about it. I accept that if and when the industry is privatised, some genuine questions over the new companies establishing their public image will arise. I also know in practice—again because I am not unaware of the economics—that it is hard to distinguish who bears the costs anyway. My amendment raises very complex issues. I still insist that the subject raised here is of overwhelming importance. I believe that we have seen behaviour close to the improper.
Let me say to the noble Baroness that one may refer to certain costs as being 0·75 per cent. However, 0·75 per cent. of a very large number—which is what we are talking about here, millions and millions of pounds—is also a very large number. To say that it is only a small fraction that is being spent on advertising cuts no ice whatsoever with me. Therefore, having listened to the answer, and because of the enormous importance which I attach to the matter, I must press the amendment.
12.42 p.m.
On Question, Whether the said amendment (No. 232CA) shall be agreed to?
Their Lordships divided: Contents, 41; Not-Contents, 69.

DIVISION NO. 1

CONTENTS

Addington, L.

Mulley, L.

Airedale, L.

Nicol, B.

Ardwick, L.

O'Neill of the Maine, L.

Attlee, E.

Perry of Walton, L.

Bonham-Carter, L.

Peston, L.

Bruce of Donington, L.

Pitt of Hampstead, L.

Cledwyn of Penrhos, L.

Ponsonby of Shulbrede, L. [Teller.]

Cocks of Hartcliffe, L.

Elwyn-Jones, L.

Sainsbury, L.

Ezra, L.

Saint Brides, L.

Fitt, L.

Shaughnessy, L.

Graham of Edmonton, L. [Teller.]

Strabolgi, L.

Taylor of Blackburn, L.

Hampton, L.

Tordoff, L.

Hanworth, V.

Turner of Camden, B.

Harris of Greenwich, L.

Underhill, L.

Hatch of Lusby, L.

Walston, L.

Houghton of Sowerby, L.

White, B.

Kilmarnock, L.

Williams of Elvel, L.

McNair, L.

Willis, L.

Masham of Ilton, B.

Winterbottom, L.

Mountevans, L.

NOT-CONTENTS

Abinger, L.

Carnock, L.

Alexander of Tunis, E.

Coleraine, L.

Ampthill, L.

Colwyn, L.

Arran, E.

Cottesloe, L.

Auckland, L.

Cullen of Ashbourne, L.

Beloff, L.

Davidson, V. [Teller.]

Belstead, L.

De Freyne, L.

Bessborough, E.

Denham, L. [Teller.]

Blatch, B.

Dundee, E.

Blyth, L.

Effingham, E.

Brabazon of Tara, L.

Elliot of Harwood, B.

Caithness, E.

Faithfull, B.

Campbell of Croy, L.

Fraser of Carmyllie, L.

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Gardner of Parkes, B.

Nelson, E.

Glenarthur, L.

Oppenheim-Barnes, B.

Hailsham of Saint

Oxfuird, V.

Marylebone, L.

Porritt, L.

Halsbury, E.

Reay, L.

Harmar-Nicholls, L.

Renton, L.

Henley, L.

Rodney, L.

Hesketh, L.

Romney, E.

Hives, L.

St. Davids, V.

Holderness, L.

Sanderson of Bowden, L.

Hooper, B.

Sempill, Ly,

Ironside, L.

Shannon, E.

Johnston of Rockport, L.

Skelmersdale, L.

Joseph, L.

Strathclyde, L.

Killearn, L.

Swansea, L.

Lloyd of Hampstead, L.

Swinfen, L.

Long, V.

Swinton, E.

Lucas of Chilworth, L.

Teviot, L.

Mackay of Clashfern, L.

Thomas of Gwydir, L.

Marley, L.

Trafford, L.

Merrivale, L.

Trefgarne, L.

Munster, E.

Trumpington, B.

Resolved in the negative, and amendment disagreed to accordingly.
12.50 p.m.
Clause 79 agreed to.
Clause 80 [Dissolution etc. of existing bodies]:
[Amendment No. 232D not moved.]
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 232E:
Page 58, line 28, at end insert—
("( ) All records and documents belonging to the existing bodies shall become the property of the Secretary of State unless transferred to successor companies under a transfer scheme.").
The noble Lord said: On previous occasions when official bodies have been wound up, there has been a problem regarding the future of records and documents belonging to those bodies. If I may make a personal reminiscence, I recall that when the Price Commission was wound up there was a special clause in the competition Act which achieved that winding up, which ensured that the experience of the Prices and Incomes Board, which was wound up in 1970, was not repeated. The documents of the Prices and Incomes Board were put in the charge of that board under the Act which set the board up. When the Act was passed to wind up that board, the documents were then left in limbo. It so happens that they are still in limbo in some group of files somewhere in the Government archives. Those files are unavailable until the 30 year rule applies.
The object of this amendment is simply to make sure that there is no question about where the records of the Electricity Council particularly reside and who keeps them. I assume that unless they are transferred under a transfer scheme to successor companies, they will remain in the hands of the Secretary of State and therefore be government documents with suitable confidentiality attached to them. This is really quite a simple point. However, I hope the Minister will be able to assure me that appropriate arrangements have been made or, if not, that appropriate arrangements will be made. I beg to move.
The Earl of Dundee: I appreciate the noble Lord's concern that such records and documents of the

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electricity industry as are not eventually transferred to the successor companies should be preserved by the Secretary of State. But in fact this is not something which needs to be embodied in the Bill. The main function of the residual boards after the transfer date will be to assist in perfecting any transfers of foreign property to the appropriate successor company. As each transfer of this description is completed, so the residual board can hand over any relevant documents and records to the company. The residual council has an additional function of winding up the tax affairs of the pre-reorganisation industry. Here also, we expect most of the documents and records to be passed on to the successor companies. There will therefore be only a handful of records remaining when the residual bodies are dissolved—probably only those relating to the statements of accounts to be prepared under subsection (5) of the clause.
When we get to that stage, the existing bodies will be the very merest of shells, and we do not envisage any problem in making administrative arrangements for the future custody of any remaining documents and records. In view of what I have said, and as I know that the Committee is always keen to keep to the bare minimum the legislation going onto the statute book, I hope that the noble Lord, Lord Williams, will feel able to withdraw the amendment.
Lord Williams of Elvel: I am most grateful to the noble Earl for his response. However, is he satisfied that the Electricity Council, in passing on—I hope I may use that expression—records and documents to successor companies, or indeed boards or the Secretary of State, will not reveal any commercially confidential information that the disappearing bodies may have had? That has been a problem in the past. Commercially confidential information which may be the property of the Electricity Council, which is to disappear, could be passed on to those under the privatised scheme who could make use of that information.
The Earl of Dundee: I am grateful to the noble Lord. He raises a very good point on commercially sensitive information. The residual boards and council will not be dissolved until there is nothing further for them to do. They will probably exist for some time in entirely inactive form before they are actually dissolved. The Government will make every effort to ensure that the residual bodies divest themselves of everything before the actual dissolution date. There will be no need on dissolution to deal with any property, rights and liabilities, nor with any employees. As that is the procedure, it will be clear that commercially sensitive information will not get into the wrong hands.
Lord Williams of Elvel: But how are we to be sure that there is no violation of confidential information of a commercial nature in the transfer? It is normally the case that commercial confidentiality is protected in such transfers. However, I see nothing in the Bill at the moment to ensure that that is the case.
The Earl of Dundee: The noble Lord is correct. He sees nothing in the Bill. There is nothing in the Bill,
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but I can give the noble Lord the assurance that there will be adequate protection for commercially sensitive information.
Lord Williams of Elvel: I am, as always, grateful to the noble Earl for his courtesy and his assurances. However, I am sure he will recognise that these are matters of great importance for companies, and indeed for individuals. Whatever the noble Earl says from the Government Dispatch Box I am afraid has no authority in a court of law. Unless a provision to cover this situation is written into the Bill in some form or another, a court in the course of time—this may not happen—may discover that there has been a revelation or use of some information that has been classified as commercially confidential by one of the bodies which are to disappear. If that information is used in the course of time, a court would have regard to the Bill rather than to the assurance that the noble Earl has given me. The Government would do well to have a look at this matter, and see whether or not a provision should be written on to the face of the Bill.
The Earl of Dundee: I say again to the noble Lord that any commercially confidential information will be transferred with the obligation of confidence.
Lord Williams of Elvel: Is the noble Earl saying that the obligation of confidence will be transferred to the successor companies, which by then will be privatised?
1 p.m.
Baroness Gardner of Parkes: An important point has been raised here. A point which has not been raised is that there may even be a question of confidentiality between one of the successor companies and another becuse of the great complexity of successor companies. In order to consider the matter further we need a great deal more information than is presently available.
There is also the further aspect that unless papers of this nature are kept confidential, other private generators entering the business might have access to extremely useful information which would give them an unfair competitive edge. I take the point, but I do not see that we can take it much further at this stage. However, it would be most interesting to look into the matter.
Lord Williams of Elvel: I am most grateful to the noble Baroness. She has extended the point that I made, quite rightly. To refer to the experience of the noble Baroness, it could be that the Electricity Council has information about area boards' present customers which is extremely sensitive. It may be that the area board plc—if I may use that expression—will respect the commercial confidentiality of such information. It may be that it will not. I should like to pursue the matter a little further to see whether the noble Earl is prepared to give me and the noble Baroness, Lady Gardner of Parkes, an assurance that the Government will think again about the matter.
The Earl of Dundee: I say again to the noble Lord and my noble friend Lady Gardner of Parkes that they have an extremely good point in relation to confidential information. It is my understanding that information communicated in confidence will remain confidential notwithstanding the transfers contemplated by the Bill. That is a matter of common law. The successor companies will include the new Central Services Organisation which will hold information which it would be inappropriate to transfer to individual companies.
Lord Williams of Elvel: I am most grateful for the revelation that there will be a Central Services Organisation. It is the first time that I have heard of such an organisation, which is to hold documents which are commercially confidential. Will the noble Earl elaborate on the functions of the Central Services Organisation? How long will it last? Who will be in charge? Who will staff it? What are its rules? Will it be a public body or a semi-public body? Can we have more information on the matter?
The Earl of Dundee: I do not want to take up the time of the Committee. The noble Lord has asked me to write a thesis on the Central Services Organisation. I shall certainly inform him by letter of its proposed functions.
Lord Williams of Elvel: Again, I am most grateful to the noble Earl. I always enjoy receiving letters from him. However, we have raised an important point of principle. I hope that he will send a copy of his letter to the noble Baroness, Lady Gardner, and perhaps to other Members of the Committee who will be interested in the point. In his letter would he like to set out the functions of this Central Services Organisation, who will be appointed, whether they are to be paid and whether there will be a new schedule to the Bill saying that this, that and thus will happen?
The Earl of Dundee: At this stage I should simply like to tell the noble Lord that the Central Services Orgnisation is a common services company and will carry on many of the functions of the Electricity Council.
Lord Williams of Elvel: So we now know that it will be a company. Will it be a private company? Will it be a public company? Who will be the shareholders or the shareholder? What will its articles of association be? Who will set it up? Who will be the board of directors? Please may we have more information?
The Earl of Dundee: Yes, of course. As I said earlier, I shall inform the noble Lord of those details. At this stage I should like to tell him and the Commmittee that the CSO wil deal with industrial relations, pensions, training and R&D.
Lord Williams of Elvel: I am most grateful again to the noble Earl. Is there any reference in the Bill as drafted to the CSO, as he now calls it?
The Earl of Dundee: No, there is not. The reason is that the CSO will be a private company owned by all the industry.
Lord Williams of Elvel: The CSO will take over a number of responsibilities from statutory bodies. Therefore it is quite proper that there should be in the Bill a transfer arrangement, as there is for rather larger enterprises, to this important organisation. I hope very much that the Government will bear in mind what I and the noble Baroness, Lady Gardner of Parkes, have said and consider whether this organisation should be part of the statute in some form or another. In my view it would be appropriate for there to be a schedule which would outline the functions which the noble Earl has put before us at a rather curious stage—five-past one on a Friday afternoon on the sixth day of Committee.
Nevertheless, I accept that the noble Earl needs a little time to study these matters and perhaps to receive a message or two. Perhaps he has another comment that he wishes to make on this matter.
The Earl of Dundee: I can assure the noble Lord that, as I always do, I shall take his comments very seriously. In coming back to him we shall bear this in mind.
He made a point about the lack of publicity about the CSO and said that he had not read about it in the Bill. The CSO will be treated in the Electricity Council transfer scheme, and that has been well publicised.
Lord Williams of Elvel: It may have been well publicised but it has escaped my attention and the attention of my noble friends. Nevertheless I do not want to prolong the discussion. However, I make the very serious point that, if there is to be a public organisation, the CSO, which will receive certain very important information which is commercially confidential and confidential in other respects and which will have the responsibilities that the noble Earl described, it seems to me that there should be a schedule to the Bill to describe exactly what the organisation is to do. I leave that thought with the noble Earl. In the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 80 agreed to.
Clause 81 [Compensation to members and employees of existing bodies]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 232F:
Page 58, Line 29, leave out subsection (1).
The noble Lord said: We have no particular problem with subsection (1) of Clause 81 in so far as it refers to "other members", namely employees, of existing bodies who may for one reason or another lose their jobs. We have a problem in respect of chairmen and other members of existing bodies, such as members of the council, who for some reason or another may well be paid what are known as golden handshakes.
I wonder whether the noble Earl, if he is to reply, or the noble Baroness, if she is to reply or the noble Lord, if he is to reply, could give us some idea of what kind of golden handshakes chairmen and other

445
senior members of existing bodies will be paid in compensation for loss of office. I beg to move.
Baroness Gardner of Parkes: I must declare a direct personal interest here as one of those very people. Therefore, I intend to withdraw from the Chamber during this part of the discussions. I shall read about it in Hansard.
The Earl of Dundee: I hope that it will not take me too long to say what I have to say so that my noble friend Lady Gardner of Parkes will be able to return.
Clause 81 enables the Secretary of State to pay compensation to persons serving as chairmen, members of employees of the Electricity Council and boards before the transfer date and who suffer loss of office or employment as a result of the reorganisation of the industry. The amendment of the noble Lord, Lord Williams, would mean that the Secretary of State could pay compensation only to the employees of the existing bodies and not to the chairman and other appointed members. I shall explain why we believe that this would be unfair.
The clause is to a large extent a safety net. We do not expect the power to pay compensation to be much used since the vast majority of people working in the inudustry, both employees and appointed members, will continue to do so after the transfer date.
So far as concerns the full-time existing board and council members, most of them have already been designated by my right honourable friend the Secretary of State for Energy as directors of one or other of the successor companies, such designations being subject to the passage of this legislation. They will therefore continue to serve in the industry after vesting and will suffer no loss of remuneration or pension rights. Nevertheless, the Electricity Council is being dissolved and the CEGB restructured into three companies, and there may therefore be a very few full-time appointed members who will suffer loss of office. Some of them may continue in the industry as employees, but there may be one or two who do not.
I am sure the Committee will agree that it would be very unfair for the legislation to terminate a board member's appointment prematurely without enabling the Secretary of State to compensate that member for loss of office. That would indeed be a poor reward after all their work for the industry over the years and especially during the lead up to privatisation.
The noble Lord, Lord Williams, mentioned the case of individual members. The amount of compensation will depend on the circumstances of the individual. I cannot give the Committee a specific formula that will be used. However, before seeking Treasury approval, my right honourable friend will take into account any loss of remuneration resulting from the loss of office.
In the light of what I have said I hope that the noble Lord will feel that this amendment is not necessary.
Lord Williams of Elvel: Again I am grateful to the noble Earl but I do not find his reply entirely satisfactory. There are many public bodies on which people are called to serve and do serve not because they are remunerated but because they wish to give public service. When one company is taken over by another company it is perfectly reasonable for the chairman to be sacked and given some kind of a golden handshake, although the extent of golden handshakes now beggars the imagination. However, it seems odd that the taxpayer who, indirectly through the Government and the Consolidated Fund, will receive enormous sums from privatisation, should remunerate people for loss of office just because they will not be transferred to successor companies.
I was brought up in the belief, which I think used to obtain, that if one gave one's service to a public company one did so from a sense of public duty. The assumption under subsection (1) that in some way people make their living from being on such boards must be wrong.
Furthermore, the noble Earl said that he cannot give me any indication as to the kind of formula that will be applied. Perhaps I may ask him a very direct question. The chairman of the Electricity Council will no longer hold office after privatisation because, as we know, that council will go into dissolution. What will he be paid as compensation for loss of office?
The Earl of Dundee: Taking first the noble Lord's last point about the chairman of the Electricity Council, I am sure he will understand that I cannot comment on the position of individuals. The noble Lord referred to the spirit in which the chairman and members gave their services to the boards. We are talking here of a power of the Secretary of State to compensate if he thinks it right. He is not obliged to compensate.
I think the noble Lord and the Committee will agree that it would be quite wrong if the Secretary of State were denied the power to compensate people whose services might have been given for a great many years and who have lost office, pension rights and so on. Full-time board members make their living from the industry and these boards contain many full-time executives.
1.15 p.m.
Lord Williams of Elvel: Perhaps the noble Earl can help me on further points? The word he used was "full-time". Which members of which boards make their full-time living from membership of those boards rather than seeing it as a part-time occupation like that of a non-executive director of a public company?
Secondly, can he explain how it happens that the taxpayer is required to pay compensation for loss of office to somebody who has been employed by him for a long time but who on a government initiative loses his job?
Thirdly, can he give me some further enlightenment on whether or not it is true—and I hope to draw on the noble Earl's wealth of

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experience—that, if a Secretary of State is given power to pay out money, the chances are that he will end up by paying it out?
So this is not just a pure enabling clause. The people involved will be looking to this power and the Secretary of State to perform under it.
The Earl of Dundee: With regard to the noble Lord's first point, these boards contain a core of full-time board members. I shall indeed write—
Lord Williams of Elvel: Perhaps the noble Earl will explain to me, because I am genuinely ignorant on the matter, whether those full-time members are executive or non-executive members.
The Earl of Dundee: My understanding is that there is a mixture of both. Some full-time members are executives and some are non-executive members.
Lord Williams of Elvel: I am most grateful to the noble Earl. If there are some full-time non-executive members of the board, what on earth are they doing?
The Earl of Dundee: I rather hope that the noble Lord will agree with me when I tell him that what they are doing is a very good job.
The noble Lord's second point was that when it is a question of compensation to a government employee or appointee, the rules should be different. I cannot agree with him. A job is a job. One cannot distinguish between very hard work done on the instructions or in the employment of the Government and very hard work done in another capacity. I believe that the noble Lord wishes to intervene.
Lord Williams of Elvel: Perhaps I may come back very briefly on that point. I do indeed distinguish between jobs that are done at the invitation of government which, generally speaking, are public service jobs and jobs for which people are elected by a group of shareholders to be directors of a public company. I do distinguish between them. The noble Earl may not make that distinction but I do.
The Earl of Dundee: If the noble Lord wishes to make that distinction then he is free to do so. However, I hope that on sober reflection—and by "sober" I do not mean to imply that the noble Lord is inebriated; this is early in the day and none of us has had lunch—and on considering the matter in context he will agree that it would be very unfair to make an exception of people just because they happen to be government appointees.
Perhaps I could end by picking up a point of my noble friend Lord Lauderdale who earlier on referred to the concept of balance. When he referred to that concept I thought for a moment that he might be a little unhappy about it because he remarked upon how often it had been used during the passage of this Bill. I return to the point with which I intended to begin in the context of this clause, that this is a power that we are giving to the Secretary of State. He is not obliged to compensate, but he will have that power.
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The noble Lord, Lord Williams, seemed to cast doubt on the fair-mindedness not necessarily of any particular Secretary of State but on Secretaries of State as a breed of men. Our view is that the Secretary of State will exercise proper and due discretion in this matter and that he will reward fairly those people who are deserving of reward.
Lord Williams of Elvel: I do not think that we can get much further in this debate. I do not like the idea that the Secretary of State should have total discretion to remunerate non-executive members of boards who apparently spend all their time on non-executive duties for reasons which I do not understand. They may be extremely worthy ladies or gentlemen. I find that position very odd. My experience is that once the Secretary of State is given powers to do something, in particular to pay out taxpayers' money, he will normally pay out the taxpayers' money because that is the easy way out.
I find the explanation of the noble Earl regarding the Secretary of State—whether or not he is fair minded; I have no comment on the generality of Secretaries of State, and I hope that he will not put such a comment into my mouth—to be a very curious way of discussing legislation at Committee stage. Nevertheless, we have spent enough time on this subject. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 81 agreed to.
Clause 82 [Discharge etc. of certain advances and loans made to existing bodies]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 232G:
Page 59, line 10, leave out ("Treasury") and insert ("relevant successor company").
The noble Lord said: Amendment No. 232G stands in my name and that of the noble Lord, Lord Peston. This is a relatively simple and probably a probing amendment. I am not quite sure why the Treasury should be the recipient of councils' or boards' liabilities in respect of any foreign currency loans made to the council or board. I am not quite sure why the Treasury should have power to direct that. It would seem to me that in commercial reality there is no difference between a foreign currency loan and a sterling loan. As we know, other than apparently these, which will be discharged or transferred to the Treasury, all liabilities will be transferred to successor companies. We discussed that the other day. I am quite unclear as to why foreign currency loans stand in a separate category. There may be many good reasons. I should be grateful if the Government Front Bench will help me on this matter. I beg to move.
Baroness Hooper: I am unable to accept this amendment. Therefore I was pleased to hear that the noble Lord regards it as a probing amendment.
Clause 82(2), enables the Treasury to direct the Electricity Council or a Scottish Board to prepay or transfer to the Treasury outstanding foreign loans before the transfer date. Since the noble Lord has

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put the amendment in the way that he did, it may be helpful to Members of the Committee if I explain the background to this subsection. It is the Government's objective that the successor companies should start their existence with new capital structures from the transfer date. To achieve a clean sheet on the new financial basis, it is necessary for the industry to prepay its existing long-term debt from the National Loans Fund and to prepay or transfer to the Treasury foreign currency loans. The option of transferring foreign loans to the Treasury would result in the suitable phasing of repayments to lenders by the Treasury. Indeed, the terms of some of these loans make no provision for the early repayment. Where loans are transferred, the industry would pay the Treasury the sterling equivalent of the value of the outstanding loans and the Treasury would pay the foreign lender later.
The effect of this amendment would be to remove the possibility of transferring these loans to the Treasury, but instead would allow for them to be transferred to the successor companies. This would not be consistent with the Government's policy. These loans were obtained in some cases at least, with the benefit of foreign exchange cover and an interest rate benefit provided by the Treasury, and to carry such loans into the private sector would give the companies an unfair advantage—which I am sure the noble Lord would not wish—would impose a cost on the taxpayer, and would be inconsistent with our proposal to establish the new companies on a commercial basis.
I can appreciate the concerns expressed by the noble Lord, but I hope that in the light of my explanation he will feel that his amendment has been justified, and able to withdraw this amendment.
Lord Williams of Elvel: I am as always grateful to the noble Baroness for her explanations. However, I do not think this one meets the point. We have established in an earlier part of the Bill—I refer the Committee to Clause 63—that, subject to the provisions of Clause 66,
"all property, rights and liabilities to which immediately before that date the Electricity Council was entitled or subject",
Will be transferred to successor companies. We now have foreign currency loans treated outside the ambit of that clause, as I understand it. I cannot see the difference between foreign currency loans and sterling loans for the purpose of commercial reality.
The noble Baroness said that the Treasury had offered foreign exchange cover on foreign currency loans to the Electricity Council. That is certainly true. I know it from experience. However, the Treasury has charged a premium for that. Indeed, the Treasury premium can be varied from one to whatever figure the noble Baroness likes to mention. All that the Treasury is doing is to give a foreign exchange hedge against fluctuations in the sterling value of the foreign currency loan. There is no taxpayer subsidy of necessity in this. It is simply an insurance policy which the successor company could or could not, if it wished, take out with the Treasury or anybody else.
It is a common feature of the modern financial market that if one borrows in Australian dollars,
450
swaps them into Norwegian Kroner, and swaps those back into sterling, one gets a cheaper rate of sterling. It is a perfectly sensible commercial formula. I see no reason why the Treasury should not engage in this game of providing insurance cover. I do not see that there is any question necessarily of a subsidy unless the Treasury wishes to give one. It will do so under Schedule 12 to which we shall come later. There is no question of a subsidy on the foreign currency loans.
The noble Baroness stated that the Government wished the successor companies to start off with—I believe that she said—a clean sheet. I shall be most grateful if she can help us as to what a clean sheet may mean. What will be the capital structure of successor companies? I understand that the Treasury may wish electricity stock to be redeemed or at least transferred and to become Government gilt-edged stock. That certainly would alleviate the Electricity Council, and possibly successor companies if liabilities are going to be transferred to successor companies on an appropriate basis from that financial burden. However, we have not yet heard from the Government exactly what they mean by a proper financial structure for successor companies. Since the noble Baroness has raised this point, I shall be grateful if she can give us a little more detail.
Baroness Hooper: In this case, a clean sheet refers to the sorting out of the foreign loan position. I expand upon what I said. Public sector industries have been able to borrow from foreign currency lenders such as the European Investment Bank on behalf of the official reserves. This borrowing has enjoyed an interest rate benefit and the Treasury has provided cover against exchange risks. The costs to the taxpayer would be incurred if the loans were transferred to the successor companies, by effectively subsidising the rates of interest on the loans. Treasury-assisted interest rates are appropriate to public sector bodies, but we believe not to private sector bodies.
Discussions on the capital structure of the successor companies will take place with the area boards during the summer and prior to vesting date, which perhaps goes to explain why I am not prepared to go into detail on the questions that the noble Lord has raised.
1.30 p.m.
Lord Williams of Elvel: We have moved a little further. We now know that while the Bill is before noble Lords we shall not have any idea of what the capital structure of the successor companies will be. We also know as a consequence that we have no idea of how the successor companies' balance sheets will look, what debt they will be loaded with or not loaded with as the case may be. This is different from the British Gas situation. The noble Earl, Lord Russell, and I were veterans of the passage of the Gas Bill through this Chamber and we spent quite a lot of time discussing the nature and extent of the debentures that the Government would impose on British Gas so that they could sell those debentures off to the market and receive the appropriate cash into the Consolidated Fund. In this case we have no

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idea what the Government propose for the capital structure. As the noble Baroness said, we shall not have any idea before the Bill leaves this Chamber.
I have to say this because it seems to me that I am battering against a brick wall. So far as I know, the only guarantees that the treasury has offered to Electricity Council foreign currency loans are FX cover. If there is a Treasury guarantee I fully understand that that is a gilt-edged guarantee and that it should be called when the Treasury moves out of the picture. On the other hand, FX cover is quite a different matter because everybody takes out an FX cover, if he has any sense, on any foreign currency loan, be it a private or public company, local authority or anything else. I do not see that FX cover is relevant to the point that the noble Baroness makes. However, I could be persuaded if the noble Baroness could point me to loans contracted by the Electricity Council or the CEGB which have a Treasury guarantee. In those circumstances, I should be perfectly happy that those should be redeemed or transferred to the Treasury prior to vesting.
Baroness Hooper: I shall investigate the position in an endeavour to point the noble Lord in the right direction, but I feel that it is important to say that we are at least 10 months or more away from the first sale. Indeed, the legislation has not yet been completed and so the details I have given to the Committee, on which I have tried to be helpful, or as helpful as I can, are as specific and clear as can reasonably be expected so far in advance of the first sale which, as I said, is 10 months way.
Lord Williams of Elvel: I understand. I do not wish to chide the noble Baroness for being unspecific and unclear. She has been perfectly specific and perfectly clear. What she has said in very simple words is that she will not let the Committee, or indeed your Lordships' House, have any idea of what the capital structure of the successor companies will be before the Bill leaves this place That is perfectly specific and perfectly clear. She has made the point and no doubt we shall have to return to that at later stages. If she can be more specific and more helpful at a later stage, we shall be most grateful. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 232H to 232K not moved.]
Clause 82 agreed to.
Clause 83 [Expenditure and receipts of Electricity Council]:
Lord Peston Lord Peston moved Amendment No. 232L:
Page 60, line 31, leave out ("Council") and insert ("Secretary of State").
The noble Lord said: This amendment, like one or two others we have had and one or two others to which we have yet to come, is being set down with a view to clarification. Clause 83 is a way of dealing with unresolved tax issues during the transition phase—the transition phase essentially still occurring after the transfer date. I have two or three
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questions on which I should like some clarification. First, I draw the Committee's attention to the end of the third line where occur the words;
"with the consent of the Secretary of State".
Am I right in assuming that those words pertain to everything in the clause? In other words, does everything require the consent of the Secretary of State?
The second question for clarification—there are only two, I realise—refers to the precise wording of the amendment, where the Committee will be aware that whereas the last line of the clause uses the words "Council", meaning the Electricity Council, we suggest that it should read "Secretary of State". One would like an explanation of why the word "Council" is there. Why should the council, as it were, think fit on this matter? One possible explanation is that because of the cover of the phrase "with the consent of the Secretary of State", in practice it will make no difference because it will still also mean "if the Secretary of State thinks fit". If that is so, the amendment is an irrelevance.
The second possible explanation is that it has to be there because essentially the Electricity Act 1957 still pertains at that point and the Electricity Act is about the Electricity Council. That is another possible explanation.
Alternatively and lastly, it may be the council because there is a truly substantive reason for it. Those are the clarifications that I am seeking. I should be grateful for any help that the noble Earl can give me.
The Earl of Dundee: The Committee will be aware that at present the electricity industry in England and Wales is treated as a single entity for the purpose of corporation tax, with the Electricity Council being the body assessed for the activities of the thirteen boards in addition to its own. The Government believe that—after the transfer date but for the purpose of dealing with matters arising before that date—the existing tried and tested machinery for dealing with the industry's tax affairs should be preserved to deal with any outstanding liabilities. Part of that machinery is the ability of the council to call upon the boards for contributions towards corporation tax liabilities arising from the industry's activities. That appears in Section 21 of the Elecricity Act 1957, which will be repealed on the transfer date.
Clause 83 continues this particular effect of Section 21 and it follows that it is proper for the council, rather than the Secretary of State, to have the responsibility for allocating back to the successor companies as may be appropriate any tax refunds which are received from the Inland Revenue or indeed any contributions which were requested by the council but which were not required for meeting corporation tax and related liabilities.
Noble Lords will note that this clause does not provide in subsection (1) the additional safeguard that contributions will only be called from the successor companies by the council with the Secretary of State's consent. This mirrors a feature of Section 21 of the 1957 Act. It is not expected that

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any amounts contributed will be significant. In any event, no more will be requested than is necessary to ensure that each company satisfies its fair share of pre-vesting tax liabilities.
The noble Lord, Lord Peston, inquired whether any aspect of the clause would enable the council to act independently of the Secretary of State. I hope that my remarks answer his point and assure him that in this context the Secretary of State's consent is not required. In the light of that explanation I hope that he is able to withdraw his amendment.
Baroness Gardner of Parkes: I should like to be assured that the provision would ensure or at least permit that the proportion given back to the various bodies related to the amount that they had paid. There is now a formula in accordance with which the different area boards make their contributions. They then have a discussion as to whether those who have paid more will definitely be paid back more. I do not wish to detain the Committee today but I should like to know whether an assurance can be given on that matter.
The Earl of Dundee: I can give my noble friend the assurance that that will always be the case. Where the contribution requested by the Electricity Council is very much in excess of what may be required the correct amount will always be refunded to the particular authority.
Lord Peston: I thank the Minister for that reply, particularly the comment that the sums of money involved are expected to be fairly small. With that additional clarification I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 83 agreed to.
Clause 84 [Grants towards expenditure during transitional period]:
Lord Peston Lord Peston moved Amendment No. 232M:
Page 61, leave out lines 4 and 5.
The noble Lord said: The amendment is tabled as a request for clarification. The clause refers to the incurring of expenditure during the transitional period. I have read the Notes on Clauses and looked at Clause 84. However, I cannot make head or tail of the meaning of the last two lines. Therefore, I suggest that they should be left out.
Can the Minister say whether they have any meaning or do they merely amount to the statement that a transfer scheme is a transfer scheme? In other words, what purpose is served by the words:
"and a tansfer scheme may provide for different designations for different provisions or for different purposes"?
Why does that have to be stated? Is not a transfer scheme a transfer scheme? If so, then that is exactly what it will do. I should like an explanation for the inclusion of these almost mellifluous words:
"different designations for different provisions or different purposes"
Was it the case that someone dreamed up the words and thought, "How nice, I shall put them in"? Or is any meaning to be attached to them other than that
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which anyone would infer from the words "transfer scheme"? I beg to move.
1.45 p.m.
The Earl of Dundee: It may help the Committee if I first explain the purpose of Clause 84. This is necessary to enable the Secretary of State to make, with the approval of the Treasury, grants to any existing body (that is, any electricity board or the Electricity Council) towards expenditure incurred during the transitional period between the transfer date and its dissolution.
The Bill sets out a number of areas where expenses incurred after the transfer date by the Electricity Council, the Generating Board or an area or Scottish board are to be met by the appropriate successor company. Paragraph 29(6) of Schedule 15, for instance, requires the appropriate successor company to meet expenses incurred by the council or electricity board in securing that the vesting of any foreign property, right or liability under Part II is effective under the relevant foreign law. And Paragraphs 30(4) and 31(3) of the same schedule provide that the expenses incurred by the council or an electricity board in preparing and having audited statements of accounts will be met by the appropriate successor company. These cases and the contributions under Clause 83 apart, Clause 84 enables the Secretary of State, with Treasury consent, to pay grants to any existing body towards expenditure incurred during the transitional period.
Lest any Members have doubts on the point, I should add that any grants made under this clause would be the minimum necessary to enable the existing bodies to fulfil their few remaining functions effectively before they are finally dissolved.
I turn to the amendment moved by the noble Lord, Lord Peston. It would have the effect that it would not be possible for transfer schemes to provide for different successor companies to be designated for different provisions or for different purposes.
But the present amendment would in fact go much wider than Clause 84, since Clause 84(4) provides a definition of appropriate successor company which applies to the whole of Part II. Moreover, Schedule 15 Part II provides that expressions which are used in Schedule 15 Part II have the same meanings as in Part II of the Bill.
The concept of the appropriate successor company is crucial to the working of the transfer scheme. Since the property of the CEGB is being divided among three successors we need a mechanism for linking the CEGB with its successors, and what may be appropriate in one case is not necessarily appropriate in another. Take for example site licences granted under the Nuclear Installations Act 1965. In relation to these licences a designation needs to be made for the purposes of Schedule 15, paragraph 25; National Power would be designated as the appropriate successor company as it will be the only successor to the CEGB which will receive nuclear power stations. On the other hand, paragraph 29(6) of Schedule 15 provides that expenses incurred by the residual electricity boards and the Electricity Council in transferring foreign property shall be met by the appropriate successor

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company. Here the scheme would probably designate each recipient of an item of foreign property as the appropriate successor company.
In the light of this explanation, I hope that the noble Lord will feel that his amendment is unnecessary.
Lord Peston: I thank the Minister but I find his answer to be quite amazing. I am amazed that he was even willing to read it out. If he reads the clause carefully he will see that, as set out up to that point, it contains nothing to prevent grants being made as appropriate. I agree that we need transitional arrangements, that they need to be as small as possible and that they need to fit the circumstances. However, I find it extraordinary that anyone can read the clause without the last two sentences and take it to mean that everyone must receive the same transitional amount. Without the last two sentences the clause means exactly the same and therefore they are irrelevant.
However, if the noble Lord or his advisers are in some way made happier by wasting two lines I shall not press the matter. One does one's duty of trying to improve the drafting of the Bill. I still insist that the two lines add nothing to the clause but, having made the point and done my duty as a scrutineer of the legislation, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 84 agreed to.
Clause 85 [Payments for the use of tax losses]:
On Question, Whether Clause 85 shall stand part of the Bill?
Lord Peston: Again on this clause one intervenes for the sake of clarification so that we understand what it says and so that no problems arise with it.
It is entirely right that the industry, as it goes forward, will have to deal with the problem of payment for the use of tax losses. The clause as drafted seems very broad in terms of assumptions, but it may well be that for legal reasons it has to be written in that form. I should certainly like an explanation of that.
I have two main questions in regard to this clause. In so far as there is in the normal course of industry and commerce a payment for tax losses which is perfectly normal when firms take over other firms and so on, can we be assured that the way in which tax losses will be paid for will follow commercial standard practice as regards form and the sums involved?
Secondly, the sums being paid will be paid by the area boards to the generating board, as I read the clause. However, I am not clear what the generating board then does with that money. Does it then belong to the generating board and is it transferred in some way to the subsequent generating boards? The difficulty is that we are in that peculiar limbo phase when discussing such matters as the generating board and the area board rather than the new
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generating and supply companies. Therefore, it is difficult to understand exactly what is being talked about.
I conclude by emphasising that there is nothing between us on the need to have a clause for payment for the use of tax losses. That is not the point at issue. There is nothing controversial about this. This is merely a matter of clearing up some of the technicalities. They are not irrelevant to the flotation in due course of the industry and the commercial side of who bears what costs. Therefore clarification is needed not merely for my noble friends and for myself but also for the industry relative to the private sector in due course.
Baroness Hooper: We have already discussed how the industry in England and Wales is taxed for corporation tax purposes as a single entity. Of course that has meant that, although in the past the CEGB has incurred tax losses, they have been set against profits made by the area boards. I recognise that the noble Lord appreciates that. Therefore, the consequence has been that the area boards have paid less tax to date than they would have done had they been taxed separately. For the same reasons the CEGB has not to date enjoyed the full benefit of those tax losses itself.
The successor companies will in the future be taxed separately. We believe that it is the right policy that the two sides of the industry—the supply companies on the one hand, the successor companies to the CEGB on the other—should enter the private sector in broadly the same position as if their predecessors had been taxed separately in their own right. That is the object of this clause.
That will be achieved by the order mentioned in the clause which will require the area boards to pay to the CEGB amounts specified in or determined in accordance with the order. Of course the order will need to be made before the transfer date and payments will be made once it is clear how much should be paid. Again we expect that that should be reasonably clear by the transfer date.
The clause ensures that none of the successor companies is placed at a disadvantage because of the way in which the electricity industry in England and Wales has been taxed as a separate entity. It is intended to ensure that each of the area boards is in broadly the same position on the transfer date as they would have been had they been taxed in their own right.
In answer to the specific question raised by the noble Lord, as far as I am aware standard commercial treatment in relation to tax losses will of course operate after the transfer date.
Lord Peston: I thank the noble Baroness. I was interested in the use of the words "of course". I should like to believe that. It seems to me to be up to her and to her right honourable friend the Secretary of State to make sure that the "of course" is "of course". What she said was helpful.
We have had little experience of translating a single tax entity of this sort from the public sector into the much more complicated arrangements

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which will occur in the private sector. Those of us in opposition are in no position to judge whether in practice the matter will work out quite as simply as the noble Baroness implies. I believe that when we are discussing a shareholder's interest there could be room for litigation and general argument about whether each individual company is getting a fair deal.
The purpose of the clause, which is clearly right, is to see that everybody gets a fair deal and everybody has their right share of tax losses and taxation, and about that we do not disagree. It is hard for me to press the point further other than to say that, if trouble emerges, the Government in power may find themselves having to deal with the matter. However, to reiterate an earlier remark, we on this side have done our duty in pointing out the complexities of these matters and have given the relevant words of warning.
Clause 85 agreed to.
Clause 86 agreed to.
Schedule 11 [Taxation provisions]:
The Deputy Chairman of Committees (The Viscount of Oxfuird): I must inform the Committee that, if Amendment No. 233ZA is agreed to, I cannot call Amendment No. 233.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 233ZA:
Page 112, line 23, leave out ("or parts of trades of").
The noble Lord said: It may be for the convenience of the Committee if I also speak to Amendment No. 233ZB. The Taxes Act is quite clear, and indeed the practice of the Inland Revenue is quite clear, on the transfer of tax loss carried forward to other companies. They are quite clear on the point that there must be a trade which is similar or in some constructions identical to that carried on by the previous company in order for the tax loss to be enjoyed by the successor.
The object of Amendment No. 233ZA is to determine what is meant in Schedule 11 by the words "parts of trades". It has always seemed to me—and I have had some experience, together with tax advisers, of calculating what tax loss carried forward should be available—that there is either a trade or not a trade. It is very difficult to establish what is part of a trade. This is the first time that I have come across that expression in tax legislation and I should be very grateful if the noble Baroness could tell me what those words mean.
As regards Amendment No. 233ZB, the addition of the National Grid company seems to me almost a drafting point because there will be parts of the grid operation which may be transferred to National Power and parts of the grid operation which may be transferred in the step down to area boards. I am unclear on whether that includes the activities of those parts that constitute a trade that shall be for the purposes of tax loss carried forward relevant to that area board.
These are probing amendments, as indeed are most of the amendments to Schedule 11. I beg to move.
2 p.m.
Baroness Hooper: I recognise that the noble Lord's intention is to obtain information and I shall endeavour to give as much apposite Information as possible. Perhaps I should start by saying that the aim behind Schedule 11 is to preserve continuity. Therefore, the opening paragraphs to paragraph 1 provide, among other things, for that continuity in regard to taxation of the trading profits of the industry. They do so by specifying that each successor company should be deemed at all times to have been carrying on as a separate trade the trade or part of a trade which it inherits from its predecessor. In this respect the noble Lord's amendment would be perfectly acceptable as regards the successor companies of the area boards because they will inherit a specific entity trade, whereas the CEGB is being transferred in three parts, and it is in that respect that the expression "parts of trades" is required.
Paragraph 1(2) provides that, except in the case of an area board, unallowed tax losses and expenditure by reference to which capital allowances may be made are to be apportioned among the successor companies in the manner specified in the transferor's transfer scheme. In short, this paragraph is fundamental to ensuring fairness and continuity to the successor companies.
The first amendment is designed to prevent continuity—the continuity which we seek to encourage in the taxation of the trading profits of an existing body whose trade is to be split, as will be the case on the generating side, into two or more successor companies. The amendment would therefore place a fundamental and unacceptable barrier in the way of the Electricity Council, the CEGB and the Scottish boards' transfer schemes.
Amendment No. 233ZB seems to be designed specifically to deny the National Grid company the benefit of any tax losses or capital allowances attributable to the business that it will inherit. The National Grid will indeed, as the noble Lord reminded us, be owned by the area boards but its tax position must be derived from the CEGB. Quite simply, it is inheriting part of the CEGB's trade and for that reason the amendment would hit unfairly on it.
I hope that that explanation clarifies the situation and that the noble Lord will feel able to withdraw his amendment.
Lord Williams of Elvel: I am, as always, grateful to the noble Baroness for her courteous explanation of what the Government have in mind, but I still do not have a definition of what 'parts of trades" means. I can understand that the CEGB carries on a trade. It may carry on a number of trades. It may carry on the trade of generating or transmitting, or trades of which we know not. The Inland Revenue makes a clear distinction between one trade and another and it has some perfectly clear ideas—or reasonably clear ideas, though they are subject to dispute from time to time—on whether trade A is the same as trade B. What I have never seen in any tax legislation is the phrase "parts of trades".

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If your trade is generating or transmitting, that is your trade. I do not understand how there can be part of a transmitting trade or part of a generating trade; or, indeed, part of any other trade. If the noble Baroness could enlighten me I should be most grateful. Perhaps she could also define how the legislation will be determined for the guidance of the courts and, indeed, the Inland Revenue. How is a trade to be split up among its different parts? I do not believe that anyone—except perhaps the Inland Revenue—would say that the CEGB is carrying on one trade. The Inland Revenue might say that on the basis of the general operations of the CEGB, but I do not see why, when the CEGB is split up between successor companies, there cannot be clearly identified trades which would carry with them, as is the normal practice when a company is split up, an apportionment of tax losses which refer to the trades that are apportioned to the different successor bodies. What is the definition of "parts of trades"? Perhaps the noble Baroness can tell the Committee.
I do not particularly press my second amendment regarding the National Grid. It seemed to me that the National Grid might be handing over to the area boards some transforming facilities which might be a transforming trade—if that is a trade under the definition of the Inland Revenue—and that could be usefully put into paragraph 1(2) of the schedule. However, I do not insist and I accept that there may be problems in incorporating my amendment.
My main amendment, Amendment No. 233ZA, seeks from the Government, in proper advice, the definition of "parts of trades" and nothing I have heard from the noble Baroness gives us that definition. I shall be grateful if she can assist us.
Baroness Hooper: I am not entirely clear why the noble Lord is having so much difficulty with this amendment. Regarding the CEGB and the two generating companies, it seems that there is a case where part of a trade is being passed on. Nevertheless, I am assured that it is not a question of splitting up individual trades such as transmission. What we are doing is simply splitting up the CEGB's aggregate trading position. I hope that helps.
Lord Williams of Elvel: Quite obviously I have not explained myself clearly to the noble Baroness. From the point of view of the Inland Revenue, the CEGB may carry on several trades or it may carry on one. I suspect that in splitting up the Inland Revenue will decide that there are several trades. I put myself in the position of the Inland Revenue and say that there is the trade of generating; there is the trade of transmitting; and there is probably the trade of selling electricity to industrial customers direct from the generating facility. These are trades and not parts of them. I have a certain experience of tax law. These reconstructions are very complicated in tax terms both in the private and public sector.
I can understand where a trade is transferred and then it is for the Inland Revenue to decide whether it is the same trade as the successor body indulges in and therefore the tax loss carried forward can work. If the Inland Revenue decide against that then
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the tax loss carry forward does not work. What I cannot understand is "or parts of trades" because in my experience the Inland Revenue has no experience of such provisions. I have been involved in many reconstructions and I would have loved to have had parts of a trade split between company A and company B. Unfortunately, I have been unable to do this. I wonder whether the noble Baroness can help me a little more.
Baroness Hooper: The noble Lord has made himself perfectly clear on this matter. I recognise that his objection is to "or parts of trades". I shall look into the problem again and refer to it later, should further clarification be necessary.
Lord Williams of Elvel: I am most grateful to the noble Baroness. The Income and Corporation Taxes Act does not refer to "or parts of trades". If the Government are now going to write into the Bill those words then they will have to write them into the Income and Corporation Taxes Act. The Treasury may feel that that is perhaps not the right thing to do. I am trying to help the Government over this matter so that they do not open up a tremendous railway channel through which we can run when we are considering the reconstruction of private companies. It is in a spirit of total co-operation with the Government that I make these observations. I wonder whether the noble Baroness wishes to add anything to what I have said.
Baroness Hooper: All the provisions in the schedule are the outcome and product of full consultation with the Inland Revenue. It agreed to this provision and to the schedule as a whole. I am not sure whether that reassures the noble Lord.
Lord Williams of Elvel: It gives me great encouragement for my future professional activities. If the words "or parts of trades" are admitted into this Bill, then we shall have to admit the same into the Income and Corporation Taxes Act. That will give great comfort to all kinds of people who are my friends. I have no doubt that the noble Baroness might wish to reconsider this point. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Earl of Dundee The Earl of Dundee moved Amendment No. 233:
Page 112, line 23, leave out second ("of").
The noble Earl said: This is rather an important amendment. I ask the Committee to read Schedule 11 at page 112, line 23. The first line of paragraph 1(1)(a) contains the word "of" twice. The second "of" is entirely superfluous. This amendment deletes the second "of" in order to put the matter right.
Lord Williams of Elvel: Why does the noble Earl believe this to be a very important amendment?
The Earl of Dundee: For the simple reason that every government amendment is important.
On Question, amendment agreed to.
[Amendment No. 233ZB not moved.]
2.15 p.m.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 232ZC:
Page 112, line 39, leave out ("unallowed").
The noble Lord said: The question of unallowed tax losses is an interesting one. I should be grateful if the noble Baroness could tell me exactly what is meant by "unallowed" as opposed to "allowed tax losses". I beg to move.
Baroness Hooper: Sub-paragraph (2) of paragraph 1 enables tax losses and capital expenditure to be apportioned among the successor companies in accordance with the terms of a transferor's transfer scheme. The legislation actually uses the term "unallowed tax losses". That expression is defined in sub-paragraph (5). That term encompasses, in laymen's terms, losses and other tax reliefs which are allowable for tax purposes but have not yet, taking the present, actually been allowed. In other words, they have not yet been absorbed by taxable profits. It is because such amounts have not been allowed to any person that they are to be apportioned among the relevant successor companies. In turn, this is a further strand in ensuring that continuity can be brought to the tax affairs of the industry. It may be that the amendment is based on the assumption that an "unallowed" tax loss is one which would not ordinarily be allowable to any person. I can assure the noble Lord that that is not the case.
Lord Williams of Elvel: I am grateful to the noble Baroness. Sub-paragraph (5) to which we shall return in later amendments defines "unallowed tax losses", but the tax losses which will be transferred or apportioned under sub-paragraph (2) seem in theory to lie outside the unallowed tax losses which are defined in sub-paragraph (5). In other words, there are tax losses which are putative tax losses, which I think is what the noble Baroness was saying. They may have been not allowed because they have not been taken against profits but are putatively taken against profits.
It is a curious expression to say that these are "unallowed" because "unallowed" is a past participle and means that they have not been allowed. If the Government were to say in amending the Bill that they were not allowed for certain purposes, or have not been allowed for certain purposes or can be allowed under certain circumstances, that would make the whole matter a little clearer. However, I shall not pursue it because I do not think it is a matter on which the noble Baroness can helpfully comment further. I offer this as a query which tax lawyers will have when they come to look at the provision. I beg leave to withdraw the amendent.
Amendment, by leave, withdrawn.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 233ZD:
Page 112, line 48, ("in") insert ("or were acquired by").
The noble Lord said: This is a small drafting amendment to sub-paragraph (3)(a) of the schedule.
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There is a possibility that in the transactions that take place in the whole concept of a transfer scheme may be cash transactions between one successor company and another. We have already established that in the case of paying for tax loss carry forwards there will be a cash transaction between the area boards and the CEGB, as the noble Baroness explained to my noble friend Lord Peston. In a qualifying transfer or two or more successive qualifying transfers—we can see as we go through the Bill how transfers can be changed in one way or another—there may be acquisitions as opposed to transfers which could be made an acquisition—a cash payment for a certain asset which has allowable tax losses. I offer this as a technical and complex drafting amendment for the Government to consider. I beg to move.
Baroness Hooper: I am grateful to the noble Lord for the spirit in which he has moved this amendment, and those preceding it. Paragraph 1(3) of the schedule applies in a situation where any assets or liabilities of an existing body in England and Wales which are transferred by the Bill to a successor company become vested in that body by virtue of a transfer from another existing body (or two more successive transfers between existing bodies). In other words, it applies where assets and liabilities became vested (for tax purposes) in the Electricity Council some time before they were acquired by the body by which they were transferred on the transfer date. This provision therefore has the effect that the particular assets and liabilities will be treated as having been assets and liabilities of the relevant successor company since,
"the time when they became vested in the original transferor"
that is, the first existing body to whom the assets and liabilities were vested.
Property, rights and liabilities which are, "acquired by" a person will, of necessity, be "vested in" that person. In the present context, there is no material distinction between the two expressions. Accordingly, the insertion of the words "or were acquired by" would seem to have no effect. It would, however, make the drafting of paragraph 1(3)(a) confusing and create an inconsistency between that provision and paragraph 1(1)(c), which also speaks of the time when property, rights and liabilities became "vested in" a body. I think that the important factor here is consistency.
Lord Williams of Elvel: I accept the fact that perhaps there should have been a consequential amendment, or that I should have moved an amendment as regards paragraph 1(1)(c) which would have been consistent with the amendment I now move. However, I do not think that I have quite managed to get my point across to the noble Baroness.
There will be transfer schemes which may or may not be modified. Indeed, they can be of various natures. However, the main object of such schemes—and I understand what the noble Baroness said—will be to vest in plcs certain assets, rights and liabilities of public corporations. That is perfectly understood.

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However, there is a situation which could arise at the point of a modification of a transfer scheme, or indeed as regards the transfer scheme itself. For example, the grid may have to make a payment to National Power for the transforming station which is at present within the site of the Hinkley Point nuclear Magnox, AGR and subsequently PWR. In other words, there is a transforming station inside the perimeter of the site. The legal complications of dealing with just who owns that station are most difficult. Indeed lawyers and other people are spending many thousands of pounds in determining how that will happen.
In such a situation it could be that the grid would say to National Power, "We cannot agree on the legal basis of the lease"—that is what they are discussing now—"we should like to pay you a certain sum of money". At that point, in my view, it would become an acquisition of an asset. That is the point to which my amendment addresses itself. Such a situation could arise all over England and Wales and possibly in Scotland. It is purely a drafting point; I am not saying that it is a point of principle. I am merely trying to help with the drafting to ensure that nothing is left out.
Baroness Hooper: I think that in the circumstances I should say that I am grateful to the noble Lord for raising the issue. I shall of course look into the matter to ensure that we are confident that our drafting covers the point referred to.
Lord Williams of Elvel: I am most grateful. Perhaps the noble Baroness will be kind enough to write to me on the subject. But if she feels that I have a substantive point here, perhaps she will return to the matter at a later stage when she can put forward her view by way of amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 233ZM:
Page 113, line 13, after second ("period") insert ("with for subsequent material changes").
The noble Lord said: Again, this is a technical amendment. I apologise to the Minister for speaking to a number of technical amendments on tax problems. We are dealing with the final accounting period which is the last complete accounting period of the relevant body. We have now come to the end of the financial year 1988–89, and we have probably come to the end of the last complete accounting period before vesting.
It may well be that the Government fail to get their Bill through and that there will be another complete accounting period ending on 5th April 1990. Let us assume that the Government manage to get their Bill through Committee and its remaining stages in this place and another place. Here we are in late June discussing events that have taken place and are recorded in a balance sheet at end of March/early April of this year. The questions that arise from that arise in every commercial restructuring transaction in which I and others have
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been involved. What happens to post-balance sheet events? The balance sheet, as the Committee will understand, is a photograph of a financial situation at midnight at a point of time at the end of a year. That photograph is a still photograph. It is not a movie. Many things may happen subsequently.
Some allowance—I have argued this point previously—should be made, in determining how the tax loss carry forward should be treated, for material post-balance sheet events. Let me give an example. If tomorrow all the nuclear power stations in the United Kingdom blew up, which Heaven forfend, that would be a material post-balance sheet event so far as the CEGB is concerned. The tax losses resulting from that would be enormous. It is odd that no provision—I use an extreme case to demonstrate my point—is made in the schedule for such material post-balance sheet events.
I hope that I have made my point as clear as is possible. I could illustrate it with thousands of other examples. I have taken the most extreme illustration to make the point. I hope that the Minister will be able to respond to it. I beg to move.
Baroness Hooper: Sub-paragraph (6) of paragraph 1 of the schedule gives effect to the taxation rules in that paragraph in relation to accounting periods beginning after the final accounting period. The term "the final accounting period" as used in paragraph 1 is defined as the last accounting period of the Electricity Council or, in the case of an existing body in Scotland, of that body, ending before the transfer date. The effect of the amendment would be to extend the definition to
"the last complete accounting period with adjustments for subsequent material changes"
ending before the transfer date.
I feel sure that the Committee will have appreciated by now that the definition of "the final accounting period" is a definition of a period of time. Tacking on to a description of a period of time a reference to adjustments for subsequent material changes does not produce a sensible result.
I can, however, reassure the noble Lord, Lord Williams, on two points. First, any adjustments to the substance of the accounts for the final accounting period made after the end of that period will be taken into account for the purposes of the rules set out in paragraph 1, if relevant, or for that matter for any other purposes. The provisions on continuity of accounts which we discussed on Monday in relation to Clause 72 will actually facilitate that, by allowing the successor companies in their accounts to treat things done by their predecessors as having been done by themselves. Secondly, there is no question of an adjustment to the accounting period itself. On the assumption that the transfer date is 1st January 1990, the first accounting period to which paragraph 1 would apply would be the 12 months beginning on 1st April 1989.
I believe that my noble friend Lord Sanderson of Bowden said on Monday that any material events taking place after 1st April 1989 either to the balance sheet or to the profit and loss account would, by virtue of Clause 72, be fully dealt with in the opening

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accounts of the successor companies. So I had hoped that that had been made clear.
The question of asset valuation will be raised with the boards during discussion on capital structure later this year and any adjustments will be reflected in the opening accounts of the successor companies and the appropriate prospectus. I hope that this information has been helpful to the noble Lord.
2.30 p.m.
Lord Williams of Elvel: I am grateful to the noble Baroness, her reply has been helpful. On reflection, my amendment was in the wrong place and she was quite right to point that out. I apologise for that. Nevertheless, having heard what the noble Lord, Lord Sanderson of Bowden, said, I have great difficulty in reconciling the closing accounts of the previous or existing bodies with the opening accounts of the successor bodies. The opening accounts of the successor bodies will be at midnight plus one second, after the closing accounts of the existing bodies which will be at midnight minus one second, or virtually instantaneously.
There is nothing that the opening accounts of the successor bodies can do other than reflect the position as it was at midnight when the last accounting period closed. Any attempt to alter the accounts at that crucial point would run up against all sorts of problems of accounting principles and practice.
It is the case that post-balance sheet events in the case of a commercial company can be commented upon before the accounts are signed so that any diminution in the value of assets—that is really what I am talking about—or any material change in the profit and loss situation would be reflected at the time when the accounts are signed and produced to the general meeting of the company.
After what the noble Lord, Lord Sanderson, said the other day, I do not quite see how that will happen in this instance. But no doubt the noble Baroness can enlighten me on the procedure that will be followed. Nevertheless, my point remains that we are dealing here with tax loss carry forwards; tax loss carry forwards are determined at the date at which the balance sheet is struck. The tax computations are submitted on the basis of an end year balance sheet and the Revenue receive the tax computations on the balance sheet as adjusted for all kinds of things as at the end of the year at which the balance sheet is struck.
All I am concerned to do is to make sure that material changes which the noble Lord, Lord Sanderson, and I discussed the other day are reflected in any tax loss carried forward and which may be apportioned to one successor body or another.
Baroness Hooper: I must reiterate that any adjustments to the substance of the accounts for the electricity boards will be taken into consideration in the opening accounts of the successor companies. These will show those portions of the closing accounts inherited by the appropriate successor and indicate any material changes that have taken place
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since 31st March 1989. I believe that we have made it clear that we propose that the opening accounts and the flotation documentation will give equal exposure; in other words, they will go side by side with current cost and historic account information. That should make the position clear, both in relation to the public sector inheritance and the private sector practices to be undertaken in the future.
Lord Williams of Elvel: I think we have got about as far as we can get on this. Current cost accounting is wholly relevant to the point I am trying to make. Nevertheless, I should be grateful if the noble Baroness will study our exchanges, and if she has any further comment on the questions I have asked perhaps she will be kind enough to write to me. We shall consider whether to return to this point at a later stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 233ZE:
Page 113, leave out lines 24 and 25.
The noble Lord said: I should be grateful for a simple explanation from the Government as regards exactly how Section 512(2) of the 1988 Act has relevance to construing the terms in this heading. I beg to move.
Baroness Hooper: I believe the noble Lord is referring to Section 511(2), not Section 512(2).
Lord Williams of Elvel: That is correct, and I apologise to the noble Baroness:
Baroness Hooper: I would have been in something of a dilemma had it been otherwise. Section 511(2) has the effect that any trade carried on by an area board or the generating board is treated for the purposes of the Corporation Tax Acts as part of a trade carried on by the Electricity Council; that any property, rights or liabilities of such a board is treated for those purposes as property, rights or liabilities of the Electricity Council; and that anything done by or to such a board is deemed for those purposes to have been done by or to the Electricity Council.
The Committee may have noticed that Section 511(1) to (3) and (6) are proposed for repeal in Schedule 16. The Committee may have thought that the repeal would be effected on the transfer date, when the electricity industry undertakings are transferred from the statutory bodies to the successor bodies. I can understand why that may have been the impression, but I have to say that is not how we intend to proceed.
I remind the Committee that Clause 63(6) excludes from the Electricity Council transfer scheme the rights and liabilities of the council with respect to corporation tax. Our intention is that the council should wind up all pre-transfer date corporation tax affairs. In order to achieve that, we have to do two things. First, we have to ensure that the corporation tax rights and liabilities remain with the council—that is achieved by Clause 63(6). Secondly, we have to ensure that the council remains

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the taxpayer in respect of pre-transfer date corporation tax affairs until these are all wound up. That we propose to achieve by simply not commencing the repeal of Section 511 until that has been done.
Thus, when paragraph 1 of Schedule 11 comes into force on the transfer date, Section 511(2) will still be in force. Unless that subsection is disregarded, paragraph 1(1) will have no effect as regards the industry in England and Wales. That is because, for the purposes of the Corporation Tax Acts, the area boards and the generating board do not carry on trades and do not have any property, rights or liabilities. Neither would the CEGB have its own unallowed tax losses and expenditure for apportionment in accordance with paragraph 1(2). Similarly, the provisions contained in sub-paragraphs (3) and (4) would not have the intended effect.
To summarise, without the lines referred to in this amendment, paragraph 1 would simply be meaningless.
Lord Williams of Elvel: I am most grateful to the noble Baroness. Some of us would say that paragraph 1 is meaningless anyway. Leaving that aside, I shall read carefully what she has said. She has given a very full explanation. It may be that I shall wish to come back to this matter at a later stage, but in the meantime I beg to leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 233ZF not moved.]
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 233ZG:
Page 114, line 14, leave out ("A/B") and insert ("A/B-C").
The noble Lord said: It may be for the convenience of the Committee if in moving Amendment No. 233ZG I also speak to Amendment No. 233ZH. The amendments deal with the formula which controls the division between the successor bodies of the unallowed capital losses of the Electricity Council.
It seems to me that in this formula the greater the unallowed capital losses of the successor bodies the more they will benefit from unallowed capital losses of the Electricity Council. Therefore the object of the amendment is to introduce a corrective element to make sure that the apportionment is fairer. I beg to move.
Baroness Hooper: Again I must ask the Committee to bear with a rather technical explanation.
Paragraph 4(2) of the schedule provides for the division of the unallowed capital losses of the industry in England and Wales among the existing bodies. The objective of the amendments appears to be to reduce the amount of losses to be divided in this way and then inherited by the successor companies. They do so by providing for the deduction from the unallowed capital losses which have accrued to the industry before the transfer date of an amount equal to the unrealised (and, therefore,
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untaxed) gains made by the industry prior to that date. The intention seems to be that only this reduced amount of losses should be inherited by the successor companies.
At first sight it may seem fair that the amount of capital losses inherited by a successor company should be reduced by the amount of untaxed capital gains which it inherits. However, I must remind the Committee that capital gains are charged to tax only when they are realised when an asset is old (just as capital losses are allowable for tax purposes only when realised). The successor companies will therefore pay tax on those untaxed gains as and when the assets on which those gains have accrued are disposed of and the gains are realised.
It would be wrong in principle for the amount of (but as yet unallowed) capital losses inherited by a successor company to be reduced by the amount of unrealised gains which it inherits. It would be contrary to one of the fundamental principles underlying Schedule 11, which I understand the noble Lord, Lord Williams, recognises, if we were to accept the amendments. It would have the result that the successor companies would be placed in a worse position than the existing bodies. I hope that the noble Lord is satisfied with that explanation and will accordingly withdraw his amendment.
Lord Williams of Elvel: I am grateful to the Minister for her explanation. I am not entirely satisfied because I do not think that that accords with normal commercial practice. Nevertheless I do not wish to detain the Committee at this late stage. I shall read her comments and if necessary come back at a later stage. I beg leave to withdraw the am0endment.
Amendment, by leave, withdrawn.
[Amendments Nos. 233ZH to 233ZL not moved.]
2.45 p.m.
On Question, Whether Schedule 11, as amended, shall be agreed to?
Lord Williams of Elvel: I wonder whether the noble Lord, Lord Sanderson of Bowden, would like to comment on paragraph 8 of this schedule. I did not wish to move the amendment but I am rather perplexed by this paragraph of the schedule. The whole question of the extinguishment of liabilities and the restriction of tax losses baffles me slightly. I did not wish to put my doubts in the form of an amendment but if the opposite Benches are able to help me on exactly what that means, I should be most grateful.
The Minister of State, Scottish Office (Lord Sanderson of Bowden): Even though the noble Lord has not moved Amendment No. 233ZK I shall say a few words on this matter because I think that it is important to understand this section. The amendment would result in the application of Section 400 of the Income and Corporation Taxes Act 1988 and could both place the Scottish electricity supply industry in an uncompetitive position and disturb the necessary balance between the north of Scotland and the south of Scotland companies.

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Where the extinguishment of debt produces an increase in reserves which is not applied to the issue of shares, the consequent reduction of inherited tax losses which would flow from the application of Section 400 of the ICT Act could result in an overhang of negative tax losses to carry forward into the private sector.
We believe that that would be a wholly abnormal burden to place on newly privatised companies and would place them at a competitive disadvantage. The disapplication of Section 400 of the ICT Act of 1988 is well precedented in the British Steel Act.
The point on which the noble Lord might like to have an explanation is the one which relates to the arrangements. As it stands, paragraph 8 of Schedule 11 instead gives the Secretary of State a discretion to determine the extent of the tax losses to be written off following the extinguishment of the Scottish successor companies' debt under Clause 76 of the Bill, which we have already debated. It will also give the Secretary of State the power to apportion the remaining tax losses between the Scottish successor companies. This provision is necessary in particular to ensure equitable treatment for the two Scottish electricity companies once ownership of the Scottish nuclear company has been transferred to them.
The point here is that the successor to the South of Scotland Electricity Board has a majority stake and the North Board has a minority stake. If we did not provide for that situation with the nuclear company being jointly owned on a majority and minority stake basis, it would be quite difficult because of the differential tax treatment.
Lord Williams of Elvel: I am most grateful to the Minister. Does it mean that the North Board when privatised will have the benefit of some of the tax loss carry forwards which would properly accrue to the South Board, which at the moment is the 100 per cent. owner of the nuclear plants in Scotland?
Lord Sanderson of Bowden: Yes; the situation is that the new nuclear company will be jointly owned in the ratio 75 per cent. to 25 per cent. In arranging the tax loss position, which will be beneficial to the Scottish companies as a whole, that is indeed the case.
Lord Williams of Elvel: The normal rules whereby such losses are not available other than on a wholly grouped basis will not apply. By "wholly grouped" I mean from 75 per cent. to 80 per cent.
Lord Sanderson of Bowden: This question is related to the fact that the North Bord—which will have tax losses itself—will be able to benefit under these arrangements. If we did not make a provision in this paragraph it would not be able so to do.
Schedule 11, as amended agreed to.
Clause 87 agreed to.
Clause 88 [Abolition of central guarantee fund]:
Lord Peston Lord Peston moved Amendment No. 233ZN:
Page 62, line 21, leave out ("the appropriate proportions") and insert ("proportions decided by the Secretary of State").
The noble Lord said: With the permission of the Committee, I speak also to Amendment No. 233ZP. As always with this class of amendment, one is seeking clarification as well as making a substantive point. There is nothing between us on the main question of the abolition of the central guarantee fund. It ceases to be appropriate; and one is simply going through a procedure to deal with that. I take it that the fund is in credit at this moment. We are therefore talking about significant or positive sums of money.
Essentially the Government would like to see the generating and area boards split themselves up; but, failing that, the Secretary of State can do the job. Therefore the Bill provides for this slightly elliptical procedure. It defines something called appropriate proportions and then agrees that appropriate proportions are whatever the groups agree to do, or, failing that, whatever the Secretary of State says.
Our amendment simplifies the procedure. It simply provides that the Secretary of State undertakes the job in the first place. It seems to us to be slightly more sensible. I cannot see any grounds why one would want the generating and area boards to sort this out and agree among themselves. It is an obvious task that, taking advice, the Secretary of State could do, and there would be no fuss whatsoever. In the way that we have put forward our amendment, it provides for a slightly more sensible way of achieving exactly what the Government have in mind.
To reiterate my earlier point, as I always do: we are participating solely to help the Government produce a better Bill. I commend this amendment to Members of the Committee.
Baroness Hooper: Again, I welcome the spirit in which the amendment is moved. Perhaps it would help if I said a few words about the background to this clause.
The central guarantee fund was set up by the Electricity Act 1957 to guarantee the payment of interest on, or the redemption or repayment of, any British electricity stock, government advances or temporary or other loans, or for the repayment of any sums issued in fulfilment of Treasury guarantees. The CEGB and the area boards have contributed annually to the fund, which—I can confirm to the noble Lord, Lord Peston—currently stands at about £16 million. It is therefore indeed in credit.
After privatisation, the boards will have no recourse to government borrowing or Treasury guarantees. And, as we have discussed under the last clause, the rights and liabilities under the terms of issue of British electricity stock will be transferred to the Treasury. The reason for the fund's existence will therefore have completely disappeared. I realise that the noble Lord recognises that.
Clause 88 therefore provides for the fund to be wound up and redistributed to the CEGB and the area boards. The boards are allowed to agree the proportions in which the fund is to be redistributed, provided they do so not less than four weeks before the transfer date. If they have not agreed the proportions by then, the Secretary of State will

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determine the division. Indeed, it has already been agreed that the boards will share out the £16 million in the fund on the basis of the sums which they originally paid into the fund.
The amendment as explained by the noble Lord, Lord Peston, would mean that it would be the responsibility of the Secretary of State to decide how the fund should be divided entirely. But the boards will be those who have all the records and information about their contributions to the fund, and that is the material necessary to enable them to agree the division quickly among themselves. We therefore believe that it is only if they cannot agree that the Secretary of State should intervene and make the division himself. The clause as it stands offers the simplest and most straightforward route for dealing with this redistribution.
Lord Peston: I thank the noble Baroness for her answer. However, I apologise because I have one other question that I forgot to ask for the record just as a matter of history. Does she know whether the fund has ever been used? Did it ever serve any purpose other than a psychological one? That is just to complete the record. I do not need an answer at this moment. Did I also understand her to say that the agreement referred to in subsection (2)(a) of the clause in a sense is already agreed? We are about to pass into law the need to agree, but I thought the noble Baroness said that they already have agreed essentially to get back what they put in plus interest. I thought she said that that is what will happen. So in a sense my concern and in a curious way her concern are both irrelevant. Perhaps the noble Baroness will confirm that too.
Baroness Hooper: Yes, it is my understanding that the method of how the redistribution will be made is the subject of agreement. I accept the noble Lord's point.
Lord Peston: On the implicit assumption that at some point I shall be told briefly about the history of the fund, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 233ZP not moved].
Clause 88 agreed to.
Clause 89 [Parliamentary disqualification]:
Lord Peston Lord Peston moved Amendment No. 233ZQ:
Page 62, line 34, leave out from ("1989)") to end of line 36.
The noble Lord said: This amendment is to seek some degree of clarification as to who or what kind of people are being disqualified. The clause reads:
"Director of a successor company (within the meaning of Part II of the Electricity Act 1989)"—
which is the current Bill. One wonders whether the words, following the word "being", which we seek to leave out, really add anything or are they simply a repetition of what is already there?
It is possible that for legal reasons one always adds the words "being a director nominated" etc., but do
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those words starting "being a director" add anything to the earlier phrase "director of a successor company"? My reading of it is that they do not. The amendment simply asks for clarification.
3 p.m.
The Earl of Dundee: I am grateful to the noble Lord for moving his amendment which enables me to explain the purpose behind Clause 89. The constitutional practice is that Members of Parliament and Members of the Northern Ireland Assembly should not hold paid offices in the Crown's patronage. The successor companies will be formed by the Crown and, while they remain owned by the Crown—that is to say, while their shares are held by the Crown—their directors may be nominated, appointed or reappointed by a person acting on behalf of the Crown. Clause 89 therefore provides that a director of any of the successor companies appointed by a Minister of the Crown or by a person acting on behalf of the Crown, should not be a Member of Parliament or a Member of the Northern Ireland Assembly.
The amendment proposed by the noble Lord would go further. It would prevent future directors of the successor companies—directors appointed by the companies themselves, and in accordance with normal Companies Act requirements, and not appointed by a Minister of the Crown or by a person acting on behalf of the Crown should not be a Member of Parliament or a Member of the Northern Ireland Assembly.
I cannot see that it would be right to infringe the rights of persons who will be successor company directors in this way. Directors of other private sector companies are eligible to be Members of Parliament or Members of the Northern Ireland Assembly. I fail to see why, once the electricity supply industry is in the private sector, directors of successor companies not appointed by a Minister of the Crown should not enjoy the same rights as the vast majority of other company directors.
The noble Lord, Lord Peston, asked whether the words in brackets added anything. They do because they restrict the meaning of the preceding words to the directors who are nominated or appointed by the Crown.
Lord Peston: I thank the Minister for that reply. I could rise to the bait and begin a fractious argument about Members of Parliament being directors of newly privatised companies. However, I do not believe that Members of the Committee would welcome that exercise in the middle of Friday afternoon. I should like to go on record as saying that I could put forward a good case for saying that it would be slightly inappropriate for Members of Parliament to be directors of privatised companies, at least in the early days. I believe that my noble friend Lord Williams would join me in that. I appreciate that the noble Earl was slightly taunting me and I refuse to be drawn on the issue. I have made the appropriate point and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 89 agreed to.
Clause 90 [Construction of references to property, rights and liabilities]:
[Amendment No. 233ZR not moved.]
Clause 90 agreed to.
Clause 91 [Other interpretation of Part II]:
Lord Peston Lord Peston moved Amendment No. 233ZS:
Page 63, line 45, leave out ("a") and insert ("the").
The noble Lord said: The amendment is another example of our anxiety to improve the Bill. Our reading of the relevant line is that the Government meant "the" rather than "a"; the definite article rather than the indefinite.
In anticipation that the Government may have introduced precisely this amendment we tabled it in this form. It is a drafting amendment which we commend to the Government. I beg to move.
The Earl of Dundee: I thank the noble Lords, Lord Peston and Lord Williams, for their close scrutiny of the draftsmanship of the Bill for which my noble friend Lady Hooper and I are always extremely grateful, even though we may not always be able to agree. In this case the proposed amendment would ensure consistency with the drafting used in Clause 63 where "transmission company" first appears. Therefore, it gives me great pleasure to accept the amendment.
On Question, amendment agreed to.
Clause 91, as amended, agreed to.
Clause 92 [Directions for preserving security of electricity supplies etc.]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendsments Nos 233A to 233J:
Page 64, line 9, leave out from ("may") to ("give") in line 10.
Page 64, line 10, leave out ("that") and insert ("a").
Page 64 line 10, after ("person") insert ("to whom this section applies").
Page 64 line 10, after ("general") insert ("or particular").
Page 64, line 19, leave out ("after consultation with a person to whom this section applies").
Page 64, line 20, leave out ("that") and insert ("a").
Page 64, line 20, after ("person") insert ("to whom this section applies").
Page 64, leave out line 28.
Page 64, line 38, after ("supplies") insert ("or endanger the safety of the public").
The noble Lord said: These amendments to Clause 92 are consequential on Amendment No. 129B which was accepted by the Committee at an earlier stage. I beg to move.
On Question, amendments agreed to.
Clause 92, as amended, agreed to.
The Earl of Dundee: I beg to move that the House be now resumed.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
House adjourned at five minutes past three o'clock.