§ 4 p.m.
§ The Parliamentary Under-Secretary of State, Department of the Environment (Lord Hesketh)
My Lords, I beg to move that this Bill be now read a second time.
Today we are to debate a Bill to allow the privatisation of two parts of the Civil Service, the Property Services Agency and the Crown Suppliers. However, before I introduce the Bill itself to the House I think it would be helpful if I set the scene by describing how it is that these privatisation proposals have come to the fore at this time.
The debate in another place revealed a good deal of misunderstanding of the existing policies and practices of government in the fields of work covered by these two bodies and unless the background is clear it is naturally more difficult for the House to form a view on the proposals which we are today to consider.
Let me describe first the major functions of the two agencies. The Property Services Agency was created in the early 1960s with the task of managing the government estate and of managing or undertaking directly the building construction and maintenance work which is required by central government. Although the PSA itself has evolved 987 over the years, in essence it has always combined two main functions: the role of a major property company, acting as a landlord to other government departments, and the role of a major professional and technical consultancy in the field of building and estate management.
As a consultancy it employs a large staff drawn from all the building and engineering professions, such as architects, civil and mechanical and electrical engineers, quantity surveyors and so on. In recent years the PSA has managed government building work amounting in expenditure terms to about £3.5 billion a year. The great bulk of the actual building work is undertaken by contractors employed by the PSA, although the PSA does have a direct labour force of its own which deals predominantly with maintenance and minor works projects. The PSA also employs external professional consultants extensively. About 70 per cent. of its design and project management work has been placed with the private sector in this way in recent years.
Although the PSA has undertaken the building work for the majority of government departments, some departments have had specialised teams of their own. For example the PSA does not undertake the hospital building programme for the Department of Health, or the building of embassies for the Foreign and Commonwealth Office or work for the Department of Transport on road building. The Crown Suppliers is part of the PSA for management purposes but operates as an independent business with its own trading fund. It supplies a wide range of furniture, furnishings, floorcoverings, domestic appliances, and other products and equipment, to the public sector. It also operates a vehicle hire and document delivery service.
Early in the 1980s the Government decided that the method of working under which major central agencies like the PSA and the Crown Suppliers provided their services on an allied basis to other departments at no cost to departmental votes, needed to be radically rethought. In 1981 the Government had introduced a new principle into the management of government spending—the financial management initiative. In essence this involved placing responsibility for ensuring value for money with the end-user, not with some central watchdog department like the Treasury or the PSA.
Applying these principles to the fields of activity of the PSA and the Crown Suppliers implied that there had to be a clear separation of roles—a separation between the role of customer and the role of supplier. Under the new regime the customer departments would be given the budget for building works, just as they had a budget for staff costs or other purchases. When they needed some building works, they would, after commissioning appropriate professional advice, decide like any other client what they could afford and commission the supplier to provide it. Because the customer would now be the person responsible for ensuring value for money, he would need the freedom to shop around to obtain the best price. No shopper could guarantee that he had spent wisely if he was forced always to use the same store.
988 To provide this element of choice, the Government decided that departments must be given the freedom to choose whether or not to use the Crown Suppliers and the PSA. In the jargon of government, departments would be "untied". Thus although the PSA and the Crown Suppliers would be starting from a position in which they had a virtual monopoly of large areas of government work they would quickly face competition and would in future only retain work to the extent that their services were competitive with those offered by other companies or consultants.
These changes have been progressively introduced over the last two to three years, and will be completely in place by 1st April 1990. At that same date the PSA's main governmental functions will be separated out and put into a new command within the Department of the Environment to be called Property Holdings. This will be responsible primarily for the role of landlord for the Government's civil estate, but it will also provide a centre of expertise within the Government which will offer advice and assistance to other departments as they pick up their new responsibilities for becoming competent and intelligent customers for works services.
Once Property Holdings is removed, the remaining functions of the PSA—all things which are not inherently governmental in nature—will be provided on a competitive commercial service to clients. These commercial activities comprise the large majority of the existing activities of the PSA. It is these and these alone which will eventually be privatised. We are not privatising a "function of government", as some have tried to maintain.
With that brief background, I would first like to emphasise to the House what this Bill is not about. It is not about the process, or consequences, of untying. Those policies have been in train for several years and are now reaching fruition. It is not about the landlord function of government, or the management of the Government's large holdings of land. Those functions belong to the various departments of government, and particularly to Property Holdings for a large part of the civil estate and to the Ministry of Defence. It is not about arrangements for security of government establishments, or government employees, because those responsibilities lie now, and will lie in the future, with the respective departments of government. The role of the PSA—or of any other consultant that they choose to employ in place of the PSA—is to provide security systems that comply with what the customer departments decide they themselves need.
What then is the purpose of the Bill? It is simply to convert two public organisations which have been given purely commercial roles into organisations within the private sector. That is the place for commercial organisations.
As I have explained, the process of untying means that both the Crown Suppliers and the PSA already face increasing competition within their traditional market areas of providing services to government departments. If they were limited for the long term 989 to that market place, their organisations would inevitably decline. To avoid that, the Government have already agreed that as a prelude to privatisation they should be allowed to compete on fair and equal terms within wider markets outside government. But even that will not be sufficient to ensure their continuing health, because operating within the public sector inevitably imposes extra restraints on an organisation. They will only truly begin to have the freedom to compete on fair and equal terms when they are truly on the same commercial footing as their competitors.
The Crown Suppliers has been a highly successful public sector organisation, running as a trading fund since 1976. It has changed its structure over the last year to reflect and facilitate the coming privatisation and has begun to market its services to the private sector. The organisation has been largely untied since 1987 and so has extensive experience of competing for its business. It has become more marketing-led to respond to that challenge.
The Government intend to privatise the Crown Suppliers within the coming months, and the sale process is well under way. Potential bidders have been subject to a pre-qualifying review. Bids have now been received and are being considered against the Government's objectives for the sale. These objectives are threefold: to obtain a fair return to the taxpayer; to protect the interests of the staff; and to sell to purchasers who have the intention and the ability to develop the business to provide a continuing source of competitive supplies for the public sector.
The PSA cannot be privatised until it has been restructured from a government department into a commercial entity, with all the accounting and management information systems that that implies. The earliest practicable date for privatisation of the PSA is therefore the latter part of 1992. But in the case of both organizations—the PSA and the Crown Suppliers—the Government believe that the freedoms of the private sector should be made available just as soon as that is practicable for the business concerned.
I turn now to the provisions of the Bill. It is a short Bill, and the various provisions have been precedented in earlier privatisations. The first clause allows assets and liabilities to be transferred by means of a scheme, or schemes, from the Secretary of State to wholly-owned government companies. The process of privatisation will then involve the sale of the shares in these companies. A flotation on the Stock Market is not envisaged in either case, and the Government will seek tender bids from trade buyers, or possibly there may be bids from a management buy-out, or a management buy-out combined with employee participation.
Clause 2 is necessary to deal with an unusual feature of the Civil Service pension scheme. It will ensure that when staff are transferred with the company to the private sector and therefore leave the Civil Service pension scheme they are not thereby deemed to have been made redundant. That would clearly be nonsensical, since they will during the 990 transfer retain their jobs and terms and conditions of employment. Of course the clause does not remove any pension rights to which the staff are reasonably entitled. I shall return to that in a moment. Clause 3 deals with various financial provisions concerned with the government-owned companies that are to form the medium of the privatisation. The remaining clauses are fairly self-explanatory.
I should like to say something about the effects on staff. The consequences of the privatisations will be to transfer 20,000 or more people from the Civil Service to private sector employment, and the Government, as a good employer, and the employees themselves, are naturally very concerned to ensure that the various rights of the staff are preserved during and after the change. However, in practice, the staff rights are protected by both UK and European Community law. This is achieved in the United Kingdom through the Transfer of Undertakings (Protection of Employment) Regulations 1981—the so-called "TUPE regulations". These require that all terms and conditions of employment, including severance entitlements, will be transferred as identically as is possible from the Government as employer to the new companies.
The TUPE regulations do not apply to pensions, for the very good reason that there are many different ways in which suitable pension entitlements can be provided. But the pensions are also protected by employment law, since unless the employee receives broadly comparable pension terms he could claim that he had been "constructively dismissed" by his employer. In practice the Government will deal with transferring pension entitlements by discussing with the buyers the pension arrangements that they propose to provide. The Government will have these examined by the Government actuary. If the pension terms are not broadly comparable, the Government will negotiate with the buyer to achieve an improvement, either in the pension itself, or in other terms and conditions of service. Finally, if all those avenues fail to achieve a satisfactory result, the Government would compensate the staff for any disadvantage.
It is not possible to be more precise about these arrangements at this stage. But that is only because they depend on having detailed proposals to look at from a buyer before they can be finalised. When the time comes there will be consultations with the trades unions about what is proposed. I can tell the House that staff have been given very firm assurances by Ministers in another place that the staff of PSA and the Crown Suppliers will not be disadvantaged as a result of privatisation.
In conclusion I have explained how, as a result of past government policies, the PSA and the Crown Suppliers now find themselves as commercial organisations operating within the confines of the public sector. The success of the Government's previous privatisations shows how companies can leap ahead when the burdens of public sector operation are removed. The PSA and the Crown Suppliers need, and deserve, these freedoms to compete on level terms with other consultancies 991 and companies. The Government are confident that, with their enormous range of skills and experience, both the PSA and the Crown Suppliers will be a powerful force to be reckoned with, and that they will flourish in the new world. I beg to move.
Moved, That the Bill be now read a second time.—(Lord Hesketh.)
§ 4.13 p.m.
§ Lord Graham of Edmonton
My Lords, while the House can be grateful to the Minister for the care and clarity with which he has introduced the Bill, I believe that the measure is a good example of the saying, "If at first you don't succeed, try, try and try again". It is also, sadly, an example of a Government hell-bent on privatising a publicly-owned service for purely doctrinal purposes. To that end the Government have twisted and fiddled the facts, have kicked their public servants in a sensitive place and have ignored the security of the realm—all to achieve two shabby aims. First, they wish to be seen to reduce the number of civil servants, even if they are only moved sideways on to someone else's payroll or the dole. Secondly, they wish to place the business now undertaken by the Crown Suppliers into the hands of those who will be anxious to assist the Tory Party in return for help from the Tory Government.
This is as squalid an example of flogging off a public asset for political purposes as we shall see in many a long day. I intend to demonstrate why I hold that view. Without both of those government imperatives, it is certain that it is neither necessary nor desirable to transfer either of these successful public services to the private sector. It is claptrap for the Minister to tell the House that this so-called untying is all to do with freedom, decentralisation or giving state employees a share of the action. That is rich coming from a Government who have gathered powers from all round the life of the nation. The Government have grabbed and pinched those powers. They have bludgeoned and frightened opponents, bullied them and very often stamped them into the ground. It is a sham, a charade and a deceit to cloak their real intention, which is to give away a part of the public realm, with the laudable aim of assisting the nation towards a democratic solution.
There is a history to these matters. As I would have expected, the Minister has given a partial view. He has left out a number of matters. However, certain parts and periods of history deserve to have the spotlight shined upon them. Let us start with the reticence on the part of the Government to reveal details of land and buildings which can form part of a parcel sold to the highest bidder. Will the Minister explain what his ministerial colleague meant when he said in Standing Committee D at column 324 that he would not,wish to include in the Bill any measure that would be an unnecessary encumbrance upon a major purchaser, as it might have the effect of depressing the price and value of the assets"?Will the Minister tell the House what his colleague meant by that remark? Will it, for instance, affect such matters as management agreements and SSSIs? There is not only the matter of failing to estimate 992 or make provision for unexploited potential. The Minister will know that I live in Enfield. The scandal of selling off land cheaply—for instance that attached to the small arms factory at Enfield—is very fresh in my mind. That land was sold off for pennies; it turned out to be worth millions of pounds. The Minister may well say that such matters do not concern us in this Bill. However, I believe that the taxpayer and the general public are now sensitive to the cavalier way in which this Government are hell-bent upon diminishing the public realm, even though it may mean that at the end of the day someone will become very rich.
There is now a history to show how the Government persuade the public that it is in their interests to buy something which they already own. The Minister has been coy about the precise manner in which this part of the public estate will be got rid of. However, if we look at the costs that have been garnered by the City, by public relations companies and by many others when other privatisations have taken place, we are entitled to be concerned. When British Telecom was privatised £263 million was spent by the Government. When British Gas was privatised £360 million was spent. In the case of British Airways £42 million was spent; on the Rolls Royce privatisation £29 million was spent. When the water industry was privatised £370 million was spent. Those are not the costs of the assets but the costs of selling the assets to the public. This may be a mini or minor privatisation: nevertheless, we are entitled to ask the Minister what provisions are made in the accounts or in the books as regards how much the public will pay to sell off their assets.
The Minister may hope that the public will believe that this is an exercise in creating many more small investors and that the taxpayer will be relieved. The Minister should tell us who will benefit. We know from previous privatisations that the people who have benefited most are stockbrokers, merchant banks, public relations companies, advertising and financial consultants and other such people. We want to know who the Minister expects to climb aboard this particular gravy train.
The Minister has told us that there is a road to privatisation. Perhaps I may remind the Minister that on 27th March 1985 when Mr. Patrick Jenkin, now the noble Lord, Lord Jenkin, announced a review, he said:The decision about the future of the organisation will take account of the views of the staff and their union representatives who will be fully consulted during the course of the review".—[Official Report, Commons. 27/3/85; col. 240.]The Minister should know that not one trade union or staff association is happy with either the method or the outcome of the consultation. On 25th July 1986 the then Minister, Sir George Young, announced that the review team had concluded,On the information available to them that whilst privatisation would be possible, it would not in their view be in the public interest".The Minister has told us nothing about that matter.
In December 1986 it was announced that the PSA had appointed a consortium comprising Coopers & Lybrand and Samuel Montagu to carry out a 993 feasibility study. In this House the noble Lord, Lord Belstead said:I agree with the noble Lord that the Crown Suppliers has met its financial targets and has generally performed satisfactorily'.—[Official Report, 7/12/87; col. 3.]It is very sad that two attempts have failed to come up with what the Minister and his colleagues wanted.
What did they do? They simply announced that they would bring about the privatisation and seek somebody who was willing not to say whether or not it was desirable, but to indicate how it was to be done. That is a very shabby state of affairs.
The Government have made out a case but they have not convinced the employees. Once again taxpayers are to be invited to buy their own assets while employees will be affected adversely.
The PSA cannot be sold until the Government are able to assess the sale price accurately and so ensure good value for taxpayers' money. The Government will not be able to make an accurate assessment until the PSA has one full year's audited commercial accounts. The PSA cannot introduce a system of commercial accounts until 1st April 1991. Thus the PSA cannot be sold until mid-1992 at the earliest. In effect the Minister gave that timescale in his speech.
I should like to remind the Minister of what the National Union of Civil and Public Servants has called the "human factor". Many of the staff who are affected, particularly the 5,000 PSA staff in the executive, administrative and support grades, were recruited with the promise of a career in the Civil Service. They are in the PSA at this time purely as a matter of career progression. Many arrived from other parts of government and until recently all expected to continue their careers in another part of the Civil Service.
However, both the PSA Minister, Mr. Christopher Chope, and his newly appointed chief executive, Mr. Patrick Brown, have said that they will not allow all executive members of staff who wish to remain in the Civil Service to leave PSA before privatisation. In other words, many such staff will be forced into the private sector against their will and in flagrant disregard of the promise of a Civil Service career. Will the Minister answer that point in the course of his reply to the debate?
The union to which I referred says that the Minister has gone back on his word. Both he and Mr. Brown wish to enact one of the provisions of the Bill sooner rather than later. They wish to set PSA up as a government-owned company on 1st April next year. On that day, therefore, all PSA staff will cease to be civil servants and will become company employees. There will not be time over the next 12 months to relocate all of those who wish to leave the PSA for other Civil Service work. Even if there were, the PSA could not relocate them all and still manage its business.
Why do the Minister and Mr. Brown suddenly wish to rush through the formation of the Government-owned company and thus remove the PSA's workforce from the Civil Service? It is not for the purpose of introducing new pay, promotion and 994 other arrangements which are more suited to a building firm than a Civil Service agency. Mr. Brown—and I am told that he wishes to buy the PSA—will introduce new arrangements before the company is formed so that a transfer can take place under the Transfer of Undertakings (Protection of Employment) Regulations 1981—TUPE. This is a question of,To be, or not to be: that is the question".That is the best that I can do on a Monday afternoon. The Minister ought to be very concerned about the matter.
I do not deny that the Government and the Minister believe that they are doing the right thing in applying the regulations. However, what steps will the Minister and his advisers take to ensure that the interests of the employees are protected? What steps can he take to ensure that the sensitivities and anxieties of good state civil servants are taken into account once the transfer has taken place?
The Minister wants neither to make surplus PSA staff redundant within the Civil Service nor to cause the Civil Service the administrative burden of relocating surplus staff. Mr. Brown—who, I repeat, wishes to lead a management buy out—does not want, as the eventual new owner, to be landed with a large redundancy bill. Thus the majority of the redundancies will be made in the period of the government-owned company. The Bill allows the Secretary of State to write off all debts and liabilities, including redundancy costs, before the sale. That is why a Member in another place, Mr. Tam Dalyell, was moved to refer to those intentions as "callous and barbarian". The Minister is called upon to justify to 20,000 civil servants why they are being very badly treated in this matter.
I turn now to the question of national security. Nothing that has been said by the Minister today or by his colleagues elsewhere properly addresses that question. The Minister knows that the PSA has been responsible for giving guidance and advice to a range of government departments. It is all very well for the Minister to say that that responsibility will continue to be within the purview of the separate departments. The Minister needs to justify his confidence that the work of the PSA over the years in ensuring that its design and architectural work was satisfactory from a security point of view and the vetting of all of its employees will be dealt with satisfactorily in future. The Minister needs to say a great deal more about the security aspect.
I am also an Opposition spokesman on Northern Ireland and on defence. I was proud to serve in the Royal Marines during the war. Therefore, what happened at the Deal barracks less than a year ago is very much in my mind. The Minister must understand that when we talk of security we are not talking simply of somebody else doing the job and being able to board this particular gravy train. We are concerned about blood and flesh.
Can the Minister explain the reason for excluding all ministerial cars and private residences from the security arrangements? Apparently, security arrangements will be passed to the private realm, except in the case of ministerial cars and residences. We need to hear from the Minister the justification 995 for that proposal. We shall return to the security aspect in Committee.
The Bill is a further example of the triumph of ideology over plain common sense. The services have been scrutinised, not once but twice, by independent scrutineers neither of whom recommended the action proposed in the Bill. The Bill is the product of a further set of consultants who did not recommend the action taken in the Bill but who were asked to deliver a scheme of what, when and how but not why. That question was pre-empted by the Government who merely asked for a scheme which would fit in with their ideology.
People outside the House will agree with me that it is a mad, bad and sad Bill. It will bring trouble to many quarters, not least to fine public servants, and worries in respect of our national security. However the Minister rests content on the fact that it will bring cash to Tory supporters and the Tory Party, which is why we condemn it and will seek to improve it when we have the chance to do so in Committee. I feel better now!
§ 4.31 p.m.
The Viscount of Falkland
My Lords, it will come as no surprise to the House or the Minister that we on these Benches do not feel as vehemently about the Bill's basic proposals as the noble Lord, Lord Graham of Edmonton; nevertheless, we have some misgivings about parts of the Bill. I shall be interested to hear the Minister's reactions to those misgivings.
The Government propose that some of the business of the Crown Suppliers and the Property Services Agency shall be transferred to a division of the Department of the Environment called Property Holdings, and remain in the public sector. The remainder will be formed into private sector companies whose shares will be subsequently available on the market.
The source of our misgivings lies primarily with which business is to move into the private sector and which is to be retained. We need to be clear about which criteria will be considered when that decision is made. The Government, perhaps carried away by their enthusiasm to privatise, have put too much weight on one of those criteria and neglected others. I do not doubt the benefits of giving the financial responsiblity to the user departments, but there are other criteria by which to judge the potential benefits of privatisation which do not throw such a rosy light on the Government's proposals.
Today I should like to concentrate on the two most important criteria. We are told that one of the aims of privatisation is to reduce costs to the taxpayer. However, may it not have the opposite effect? Once the PSA and the Crown Suppliers are privatised their duty will be to do the best for their shareholders, whereas their duty now is to do their best for the taxpayer. User departments will therefore be unable to rely on them acting in their best interests and will have to establish within their departments what were described in another place as mini PSAs. They will evaluate and supervise services being offered by the new privatised PSA 996 and its competitors and carry out some of the work currently done by the PSA.
The Ministry of Defence alone is said to be taking on a further 700 to 800 staff. Other Government departments will no doubt find that they will have to take on extra accountants, consultants, engineers, architects, supervisory staff and so forth. We are concerned that those areas of the PSA's work which are more efficiently run as a central public service to departments should remain in the public sector. It is easy to imagine that with procurement, for example, one body buying for all Government departments could arrange a better deal with a supplier because of the advantage of bulk buying and because otherwise there may be an unnecessary duplication of work in finding the best supplier and arranging the ultimate deal. Privatisation to the extent proposed will not necessarily lead to the most efficient use of taxpayers' money. We shall be interested to hear the Minister's views on that point.
Secondly—and this is the area touched on by the noble Lord, Lord Graham—there is the security criterion. The majority of the PSA's work is security sensitive. The Minister assured members of my party in another place that privatisation would not affect security and yet failed to provide a sufficient answer as to why, if that is the case, security work on Minister's homes and cars is not to be privatised for security reasons while work on military and married quarters will be privatised.
Many of us in your Lordships' House have an interest in servicemen and their families through sons or other relatives who are in Her Majesty's Services. There is no doubt that they will be targets for terrorist attack if security is not strong. They deserve to have their security regarded as highly as that of Ministers. That is a part of the Bill upon which we would welcome the Minister's reassurance. Either privatisation jeopardises security, in which case no security work should be privatised, or it does not, in which case why are not the Government privatising it all?
As the Bill passes through your Lordships' House we must carefully consider the security implications, as the noble Lord, Lord Graham said. Where prudence dictates that we amend the Bill we must do so to restrict the privatisation of security-related services.
Finally, although it is not a point which is basically against privatisation but rather deals with how it is carried out, we must ensure that the current staff of the PSA and the Crown Suppliers are treated fairly. That point was dealt with at some length by the noble Lord, Lord Graham. We agree with the thrust of his arguments, although our fears may not be as great as those that he expressed. It seems proper that if the staff are to retain their jobs they should not receive redundancy pay just because the department moves from the public to the private sector. However, we must ensure that once they are in the private sector their current redundancy entitlements and pensions are guaranteed against any detrimental change by the new owner.
Perhaps the Treasury could underwrite the terms, as it did with the privatisation of the Royal Ordnance 997 factories and the dockyards. That matter is important because we have no doubt that many employees will lose their jobs. Whether that is the result of privatisation or untying is not the point. The point is that many employees may lose their jobs once they are in the private sector. They should not be treated worse than if they had lost them before the company was privatised.
It was not good enough for the Minister in another place to say that this case is different from that of the docks because he expected the PSA and the Crown Suppliers to succeed commercially. What if they do not succeed? There is no law written from on high which says that they will succeed. We hope that they will. What harm can there be in providing a safety net for the staff in case of failure? Those are the issues which concern us. If they are resolved satisfactorily, we would have no qualms in supporting the Bill.
§ 4.39 p.m.
§ Lord Boyd-Carpenter
My Lords, unlike the noble Lord, Lord Graham of Edmonton, I welcome the Bill as part of the steady progress which the Government have achieved over the years in moving activities from the public to the private sector. We now have great experience of the practical results of that movement. There is no doubt on the evidence that that move has been greatly to the public benefit. I shall quote only—I could quote many examples—by way of example the extraordinary change in Cable and Wireless, whose profit earning has multiplied by five since it moved from the public to the private sector, although it is excelled in that respect by the National Freight Corporation, whose profit earning has multiplied six times during that process. Therefore it is not enough for the noble Lord, Lord Graham, to say that a proposal for a further step in that direction can be dismissed as doctrinaire. Of course what he means by "doctrinaire" is a policy with which he happens to disagree. As a good and loyal member of the Labour Party he believes in public ownership. That is an exercise of faith which one cannot but admire. Noble Lords will know that faith has been defined as believing in what you know is not true.
Every possible factual demonstration over the years has shown that public ownership is much less efficient, gives less good service and costs more than operation in the private sector. The reasons are perfectly obvious. In the public sector competition is barred. There is no stimulus to efficiency, to delivering the goods and to keeping costs to the level of competition in the knowledge that if you do not compete you will lose the work and you and your staff will lose their jobs. That is the enormously effective stimulus of competition in the private sector.
There is also the fact that in the public sector for any investment that you wish to make you have to join the queue with other government departments in respect of rights to that public investment. I know a little about this matter because, as noble Lords may recall. I had two stints at the Treasury and had to deal with identical matters. It is undoubtedly the 998 case that in the public sector an enterprise has not only to judge whether it wants to make an investment—whether that investment will be profitable and produce returns—but also to judge how it will stand in the public queue.
Once it is in private hands, the enterprise makes its own judgment as to the sense or otherwise of an investment and then seeks the judgment of the market as to whether and on what terms it can raise the funds. There is an enormous advantage—we have seen this in other directions, such as the British Airports Authority—in leaving decisions as to investment to the body itself rather than tying it down to the queue for investment in the public sector.
Therefore I reject all the adjectives which the noble Lord used, and which I jotted down as quickly as I could, such as "squalid". "hell bent", "pinched", "bludgeoned", "given away" and even that wonderful phrase "the spotlight to be shone on them". The only light that he shone on them, if I may say so, was a red light. Of course it is quite clear that with the noble Lord what we are up against is not a quiet consideration of the merits of these proposals but—I throw the phrase back at him—a doctrinaire belief in public ownership whatever the circumstances and whatever the experience.
§ Lord Graham of Edmonton
My Lords, perhaps the noble Lord will give way. I followed closely what the Minister—the noble Lord—said. Will he not take on board that, after two independent inquiries into viability, profitability and performance, they were given a clean bill of health not only by the noble Lord, Lord Belstead, but also by Ministers in another place? Is that not an indication that, when there has been a cool, hard look at the performance of these bodies, they have passed the test with flying colours?
§ Lord Boyd-Carpenter
My Lords, I think that the noble Lord has misled himself but he must not mislead the House. As I understand it, those reports related only to Crown Suppliers and not to the major activity of the PSA. Therefore it is quite wrong to say, as he has been saying to the House, that the PSA was given such a clean bill of health as he ventured to suggest. That is really not the case. That relates simply to the Crown Suppliers.
It darkens counsel to indulge in such extremes of emotion and excitement as the noble Lord, Lord Graham, was very happy to wallow in during the course of his speech. I often wonder whether he has in fact had to deal with the PSA. I have had to deal with it over the years in a variety of jobs. Indeed, I have had a very recent experience of it. The presence of the noble Lord, Lord Ampthill, reminds me that the refreshment sub-committee of this House has had the problem of dealing with it. Discretion prevents me from going into any detail of that, but, if the noble Lord would like a private conversation on the subject, he will discover that I have a supply of adjectives which are nearly as comprehensive and almost as violent as his own.
The fact is—I make no reflection on the people who now run the PSA—that a publicly-owned body such as the PSA, sheltered over the years from 999 competition, simply does not give the service, have the competitive edge, keep prices down and, above all, give the speed of action and delivery which one receives in the private sector.
§ Lord Somers
My Lords, perhaps the noble Lord will enable me to interrupt him for one moment. He mentioned the element of competition in privatisation. When I first heard of the idea of privatising, I must say that it appealed to me very much. But why have the Government privatised all those industries in which there can be no competition—industries such as gas, electricity, water and various others? In those industries there cannot possibly be any competition. They will all be simple private monopolies instead of public ones. I wonder when they will privatise the Cabinet.
§ Lord Boyd-Carpenter
My Lords, if I were to enter into debate with the noble Lord on the gas and electricity Bills, among other things, I should detain your Lordships until a rather late hour this evening. In point of fact if he looks at those Bills and reads the speeches made about them, the noble Lord will see that very considerable efforts have been made in respect of both those activities to introduce elements of competition. He will find that the Government share his concern to see an element of competition there.
I hope that the noble Lord will allow me to come back to the Bill that we are discussing at present. Here it is proposed that each government department which has work to do instead of being tied to the PSA—tied to the PSA's timetable and its prices—will be able to go out and look at various bids and offers from the building and construction industry generally. Faced with that stimulus, it may be that the PSA in its new form will be able to compete effectively. I do not dismiss that possibility for a moment. However, if it does do that work for any of the departments, it will be subject to the wholesome element of competition. Equally those departments will be able to go out and select whichever contractor, builder or operator they think appropriate to their needs and whichever provides the most economical, sensible and practical offer.
§ Lord Graham of Edmonton
My Lords, perhaps the Minister will again give way. Does he believe that instead of having one central organisation—the PSA—to have, for instance, 12 mini-PSAs within each department is the best use of resources and is likely to be in the best interests of the taxpayer at the end of the day? Is he really saying that?
§ Lord Boyd-Carpenter
My Lords, I am so glad that the noble Lord keeps re-promoting me to Minister. I am not sure whether or not from him that is intended as a compliment but it is a little distracting. Of course his question is utterly irrelevant. No one is proposing to have 12 mini-PSAs in every department. Each department will have its own section which goes out to contract. There will be one section in each department and not 12 sections.
§ Lord Boyd-Carpenter
My Lords, the noble Lord is now putting forward a totally different point. It is very difficult to pin him down because his mental and physical agility are such that when he has made a thoroughly bad point he leaps away in order to make another, from a different angle. He in fact said that each department would have 12 mini-PSAs. Now that I have drawn his attention to that blatant error, he tries to ride off in some other direction.
I come back to the point that I was making. I do not think that the noble Lord has had any experience of dealing with the PSA. If he had, his unqualified enthusiasm for it might not be so manifest.
I have only one other point. The noble Lord made a great issue about security. Everybody shares his concern about security in this day and age. However, his was an extraordinary reference to the tragedy at Deal. That had nothing to do with this issue and happened during the operation of the present system. Sadly enough, the present system did not prevent it. Is the noble Lord rising again?
§ Lord Graham of Edmonton
My Lords, does the ex-Minister agree with me that the relevance of Deal was that a private security firm was being used? The Government are keen on putting out contracts to the private sector. In my view what happened at Deal arose in part through a dereliction by the private sector.
§ Lord Boyd-Carpenter
My Lords, that has nothing whatever to do with the Bill. The Bill has nothing to do with the operation of the private sector except in the building and construction area of the PSA. That is what we are concerned with here. That is the only matter on which noble Lords will be deciding. To speak of other issues—with which one could deal if time permitted—is to distract the House from the main point. The noble Lord has now admitted that in the context of the PSA's work and the putting out of that work to contract the events at Deal are wholly irrelevant.
I welcome the Bill. I welcome the fact that many members of the staff, for whom the noble Lord expressed concern, will have the opportunity of becoming shareholders in the new company. That is a thoroughly wholesome development. Your Lordships know that companies or activities in which the workers have the opportunity to be and are shareholders have generally a spirit, morale and keenness that is perhaps less noticeable elsewhere. This Bill gives such an opportunity. It is perhaps worth remembering that one of the results of the Government's privatisation policy has been to increase enormously the number of shareholders. Indeed, since 1979—not solely, but in part as a result of that policy—the number of shareholders in this country has trebled from 3 million to 9 million. That is one of the most wholesome economic and social developments of our time. The Bill will make its own further contribution in that direction. I hope that noble Lords will give it not only a Second Reading but also enthusiastic support through all its stages.
§ 4.55 p.m.
§ Lord Stoddart of Swindon
My Lords, follow that! I think that the present Government must have a death wish. Just at the present time they are suffering from severe economic and political problems. The Government have the political problem of dealing with the public outcry against the poll tax. Interest rates are at a record level. Mortgage rates are at a record level. The balance of payments problem is the worst ever on record and running at £20 billion; and over the weekend Mr. Peter Walker resigned. Amid all that, the Government bring forward in this Chamber this silly, unnecessary Bill. Bearing in mind the real problems that the Government face, one would have thought that they would have wanted to clear the decks of the nonsense of these silly privatisations and to have dealt with the real problems that face the nation at the present time. We can only conclude that, like Nero who is reputed to have fiddled while Rome burned, the Government are fiddling while the economy and the political life of the country collapses.
In a very structured speech of his usual high quality, the noble Lord, Lord Boyd-Carpenter, sought to show that it would be a very good thing if these organisations were privatised because all the privatisations so far had been successful. But let us consider the basis on which they were successful. Let us consider the electricity industry, for example, at the present time. I worked for it for 19 years. It has been under public ownership for a very long period of time. During that period it provided security of supply to electricity consumers up and down the country, having extended electricity supplies to the rural areas as well as the urban areas, and consistently having turned out high profits since it was nationalised in 1951.
It is an industry that has been highly successful under public ownership. But the noble Lord says that because there should be competition it is to be privatised. How on earth we shall have real competition in the electricity supply industry I do not know, neither does the noble Lord, and neither do the Government. It seems to me that as in the case of these two organisations, the Government are privatising simply and solely because they dogmatically believe that the industry should be privatised.
The electricity supply industry will make higher profits under private ownership because the Government have decreed that it shall make higher profits under private ownership. They have decreed that because, first, prices were increased by 15 per cent., and it is intended to increase them further this year in line with the cost of living. What is more, as in the case of other organisations, in particular the water industry, huge amounts of capital will be written off so that the new, privatised companies will not have to bear the same burden of debt that the publicly-owned organisations had to bear. Again in the case of the electricity supply industry, the part of the industry which cannot make a profit—the nuclear side—has been taken out of the privatised business and will remain in the public sector. I do not know how the noble Lord can justify his faith in 1002 privitisation when the Government are not providing a proper and even playing field.
We all accept the fact that competition is a guide, and we know that it enables the market to be tested. However, I suggest that, if the noble Lord, Lord Boyd-Carpenter, imagines that all private industries are efficient while all public industries are inefficient, he does not live in the real world. Anyone who has recently tried to deal with a private builder knows perfectly well how efficient that section of private industry is. One can go through a long list of privately-owned industries and organisations which are highly costly and inefficient. Therefore, I hope that we shall hear no more nonsense about industries being inefficient solely and simply because they are in the public sector.
My noble friend Lord Graham of Edmonton and the noble Viscount, Lord Falkland, made the case for the retention of the PSA and the Crown Suppliers organisation within the public sector. I wonder whether ICI has an organisation similar to the PSA. It would be odd if it did not because that is the case in the CEGB and other industries. It would be odd if a company as large as ICI did not have an organisation such as the PSA to undertake major construction and maintenance works. It would also be most odd if ICI allowed every department to tender for the purchase of all its commodities. That certainly did not happen within the CEGB where I worked. It would be madness in a company with the buying power of ICI or in a government organisation. Therefore, there is a good case for maintaining organisations such as the PSA and the Crown Agents within the public sector. Even at this late stage, and bearing in mind the problems that they face, I hope that the Government will have second thoughts.
The reason that I wished to speak in the debate was to draw attention to the staff and the safeguard of their interests. I am a member of the EETPU; that is the electricians' and plumbers' trade union. It is held in high regard by Her Majesty's Government; so much so that the Prime Minister recommended the elevation of its general secretary to this House and the Queen agreed. However, I assure the noble Lord that the EETPU does not agree with the privatisation.
It is most concerned about the interests of its members and about their jobs and conditions of service. It does not appear to the union, nor to me, that they will be properly safeguarded. I understand that at the Teddington National Physical Laboratory, where 1,000 electricians and plumbers are employed, 50 jobs have already been lost due to maintenance work being transferred from the PSA to the private sector. Therefore, jobs are already being lost as a result of the Bill.
The noble Viscount, Lord Falkland, was right in saying that when people join the Civil Service they expect to remain in the Civil Service. Perhaps at a difficult time in their lives they do not expect to be transferred to the private sector. They are entitled to expect that their conditions of service will be maintained. They are also entitled to expect that those conditions will be no worse after transfer. Yet there are no real guarantees what the pension scheme 1003 in the private organisation will be, and that it will remain as good as that in the Civil Service.
The noble Lord will know that trade unions, including mine, are concerned about the redundancy payment scheme which at present is included in the pension scheme. There is no doubt that it must have been included in the scheme for good reasons; probably because it will assist redundancy arrangements for the staff and the employers. It will assist the better administration of the scheme and provide a better deal for employees who may be made redundant.
The position of people within the service should be safeguarded to a better extent than is provided for in the Bill. I hope that before the Bill reaches the statute book the Government will have further discussions with the trade unions in order to ascertain whether proper agreements can be reached. However, as I have already said, it would be far better if the Government dropped the Bill and carried on with the real business of governing the country properly.
§ 5.7 p.m.
§ The Parliamentary Under-Secretary of State, Department of the Environment (Lord Hesketh)
My Lords, I have listened carefully to the speeches which your Lordships have made during this wide-ranging and interesting debate. As I explained at the start of these proceedings, the Bill now before your Lordships' House is short and its provisions have been precedented in earlier privatisations. Nevertheless, despite its brevity, it is an important Bill, forming a logical extension to the Government's privatisation policy.
The activities of the PSA and Crown Suppliers are essentially of a commercial nature and we believe that they can be carried out more efficiently in the private sector. Departments are already exercising freedoms to test the market and the effects of untying will be felt as the process is extended during 1990 and beyond. In order to compensate for any loss of government business, both organisations must have the freedom to compete in wider markets. It is wrong to imply, as the trade unions have done, that the new arrangements of devolved responsibility will be more costly for the taxpayer and less effective. Substantial advantages will flow from pinning increased financial responsibility upon the clients and placing competitive pressure on the service providers. We believe that the existing successes of PSA and the Crown Suppliers can improve only when they are free from the confines of the public sector.
I should like to take this opportunity to reiterate statements made in another place about the effects of these privatisations on security arrangments. They were raised by the noble Viscount, Lord Falkland, and I shall return to the specific points. The Government have stated categorically that nothing will be done under the Bill against security advice and that privatisation will not put security at risk.
The level and nature of security risks faced by client departments is for them to assess, as are the requirements that flow from their assessments.
1004 However, I hope that your Lordships will accept that the public sector has no monopoly of people who can be relied upon to protect national security or the security of particular locations. The private sector already handles a greater proportion of sensitive work than the proportion which is carried out in-house by government.
I should also like to clarify the position on staffing issues; in particular, a misunderstanding appears to have arisen among the staff about the purpose of Clause 2 of the Bill. Clause 2 contains standard provisions which have appeared in all recent legislation dealing with the privatisation of undertakings whose employees were members of the principal Civil Service Pension Scheme. The Government do not believe that it would be justifiable to pay redundancy compensation to staff who will be transferred with their jobs to the private sector. I shall refer to the matter specifically later and I am certain that we shall return to it at some length in Committee.
Staff and their trade unions have referred to severance entitlements and to guarantees from public funds. On the terms themselves the staff of TCS have been given assurances that the purchasers will be required to provide redundancy terms which are, as far as possible, identical to those they have at present. Representation from trade unions about guarantees are of course being considered. However, we believe that fears about the security of redundancy entitlements are greatly exaggerated. During the sale competition we shall be giving preference to potential purchasers who demonstrate a willingness and ability to run the businesses as going concerns and who also have the necessary financial robustness to do so. One of the criteria for selecting the purchaser will be an assessment of his ability to finance any redundancies which become necessary after privatisation.
§ Lord Stoddart of Swindon
My Lords, I appreciate that the Government will negotiate with these firms and I understand the desirability of doing so. But what happens if the firms go bankrupt? All the assurances in the world will not then protect the former civil servants from the results of the bankruptcy of their firm.
§ Lord Hesketh
I was going to come to that specifically when dealing with the remarks of the noble Lord, Lord Stoddart. However, the essential reason why we are taking so much trouble at the start is to choose the right firms because at the end of the day there is always a remote possibility that there could be a financial failure. The reason we are going to such enormous trouble at the start is to select a firm or firms where that possibility is reduced to an absolute minimum. However, I shall return to that later.
On pensions, there have already been made in another place during the passage of the Bill statements designed to give staff as much reassurance as possible at this stage of the privatisation. We hope that as the sale proceeds we shall be able to give firmer assurances.
1005 In the case of TCS, those who have been invited to bid are aware that we shall expect them to offer pension terms comparable to the Civil Service scheme. The Government Actuary will be analysing the terms offered and if necessary we shall seek negotiations with prospective purchasers to improve the pension terms or other terms and conditions of employment. A payment to the staff to compensate them for any remaining disadvantage will be seen very much as a last resort.
Your Lordships will appreciate that the sale of the PSA is still some way off. However, it is quite likely that the PSA will be established as a wholly-owned government company which will trade for a period before privatisation.
§ Lord Graham of Edmonton
I take on board the noble Lord's point that he will deal with specific matters later. Does the Minister not understand that he and his colleagues may take every precaution and be satisfied that the new employer intends to do all sorts of things? However, after day one of the TUPE arrangements the employees are wholly at the mercy of the new employers. If those new employers decide to change their methods and tactics, what recourse is there after the employee has ceased to be protected by the state? What protection does he have from a new employer who decides to change his conditions?
§ Lord Hesketh
My Lords, I shall come to that later. I have received the message loud and clear from both noble Lords.
If what I described earlier happens, the new pension scheme will have to be provided anyway when the PSA begins to trade as a government-owned company. Thus, the issue of comparability will be settled at that stage rather than at the privatisation itself.
I turn now to individual points made by noble Lords. The noble Lord, Lord Graham, initially referred to environmental matters. There was some uncertainty at an earlier stage about the amount of land involved. That issue has now been resolved. The land included in the privatisations will be the land occupied by the PSA services and TCS for operational reasons. There are four freehold buildings in the sole occupation of TCS and, for the PSA, the exact operational accommodation requirements will not be entirely settled until nearer the point of sale. There are 17 freehold properties which are in the sole occupation of the PSA, amounting in total to a building area of some 30,000 square metres and a total site area of less than 12 hectares. Only three sites exceed one hectare individually. I have inquired whether any of the sites might have unusual environmental significance but none is thought to do so because most of the sites are in built-up areas.
Security was mentioned by many noble Lords. The Government have stated categorically that under this Bill nothing will be done which will in any way compromise security. However, it is important to remember that already a great deal of security is carried out privately and, more important than that, that the departments are responsible for 1006 setting the standards of security that they require. That is the important feature. It is not the PSA but the departments which are responsible as clients for stipulating the level of security required for a specific site or for a specific group of individuals.
The matter of the government car service was drawn to your Lordships' attention by the noble Viscount, Lord Falkland. Of course, most of the armed forces are resident on military installations. To date most government ministers are not required to be accommodated in barrack-like accommodation and live in perfectly ordinary houses and flats distributed throughout the capital. Because of those security considerations, it was thought appropriate to keep the government car service intact as it is at present.
The noble Lord, Lord Graham of Edmonton, referred to the clean bill of health. The question of whether or not to privatise the Crown Suppliers service is a complex one which we considered very carefully, taking full account not only of what the two reports said but also of the likely impact of untying on government departments' own procurement practices and on TCS's business. Transferring out the TCS activities which are not suitable for privatisation and restructuring the remainder, we believe will leave us with a commercial organisation which will be able to operate more efficiently in the private sector. Privatisation will secure on a continuing basis competitive supplies for the public sector and the best prospects for the majority of TC'S staff.
The noble Lord, Lord Graham, was concerned about inadequate consultations with the trade unions. My right honourable friend the Secretary of State will be under an obligation arising from Regulation 10 of TUPE to consult the unions about the proposed privatisation. I assure your Lordships that that obligation is taken very seriously by the Government and that sufficient time will be allowed for proper consultation. It is difficult to know at this stage how long will be required as that will depend upon the nature and complexity of the issues being discussed.
§ Lord Graham of Edmonton
My Lords, in the case to which I have returned more than once—that is, the behaviour of a new employer after TUPE becomes operable—will the Government not concede that no change should be made in the terms under which an employee is transferred out of the public sector into the private sector without proper consultation and agreement with the trade unions?
§ Lord Hesketh
My Lords, that is what I have just said. We shall consult very fully with the trade unions on this. I fear that the noble Lord, Lord Graham, will never feel that consultations which the Government believe to be fair and reasonable are, from his point of view, fair and reasonable. It is fair to say that we shall disagree on that throughout this Bill whether we like it or not.
The noble Viscount, Lord Falkland, and other noble Lords referred to the possibility of creating mini-PSAs as a result of privatising the major PSA. Departments will be closely aware that they must 1007 achieve value for money and will not expect to find Secretaries of State creating mini-PSAs. I am sure that the National Audit Office and, even more importantly, the Select Committee in another place will be keeping a very close eye on that possibility.
The matter of compulsory transfer was raised. I am sure that your Lordships will be aware that the PSA will be inquiring of all its employees whether they wish to make a transfer and, where it is possible to do that, that will take place. However, it is also important that the PSA shall be a sustainable organisation as it becomes a new entity. Obviously every effort will be made, to provide, if it is possible, for the avoidance of compulsory transfer for those who do not wish to go across.
The noble Lord, Lord Stoddart, gave a very interesting and comprehensive rendition of his feelings with regard to privatisation generally. I am sure, however, that your Lordships would not require, request, expect or in any way desire me to reply to the very broad and great issues to which he referred; for I fear that if I did so many noble Lords who feel they have important matters to come after this Bill would be extremely upset. However, as always, I listened with great interest.
The noble Lord, Lord Graham, was concerned about the selling of the business on the cheap. In a way I think there is a slight dichotomy here, because he is caught between accusing the Government of selling on the cheap and at the same time saying that the Government could consider accepting a lower offer to provide better protection for the employees.
§ Lord Graham of Edmonton
My Lords, I certainly did not pose that one way in which one could adequately protect the interests of employees is for the Government to accept a lower offer, unless the Minister is saying that by that device it would be possible for the new employer to accept conditions and liabilities that are acceptable to employees. That would be right. However, the Minister has failed to answer the point made by the noble Viscount, Lord Falkland, that, when the dockyards and ordnance factories were privatised, the Government, with Treasury approval, guaranteed comparable pensions, whereas they have not only failed but have refused to give comparable guarantees in this instance. Why?
§ Lord Hesketh
My Lords, every privatisation is different. I always feel that there is a slight misunderstanding on the Benches opposite—a belief that privatisation is either a fixed plan or some form of ideology. It is not. It is a developing process and that is why each privatisation is slightly different.
The noble Lord, Lord Stoddart, along with the noble Lord, Lord Graham, raised a point with regard to the terms and conditions of an ex-civil servant in his new position. In fact the trade unions have suggested that an employer can impose any new terms and conditions on his employees with impunity. They are particularly concerned that that could be done in respect of redundancy terms. However, an employer could not do that. The general principle of law is that fundamental terms and 1008 conditions, which include rights to severance payments, cannot be altered without the agreement of the employee.
The noble Lord, Lord Graham, and others drew attention to the publicity relating to the sale of these two organisations. First, the noble Lord, Lord Graham, reeled off a considerable number of facts and figures with regard to the publicity costs of previous privatisations. The important point to remember is that we are not talking of a stock market listing; we are talking of a private sale. We are not talking about the public needing to be informed on a wide and great scale about the potential privatisation that lies ahead. We are talking of very simple arrangements that do not require tremendous organisations of disposal to be erected. That matter therefore does not arise.
Secondly, the noble Lord, Lord Graham, referred to stockbrokers as being the only beneficiaries of privatisation. There are many shareholders who are beneficiaries. I referred in my opening remarks to the possibility of management buy-outs, in which case the beneficiaries would be those civil servants who were moving into a new world, the result of the privatisation that this new Bill introduces. Those who will benefit in that case will be the employees themselves. I need only draw your Lordships' attention to the extraordinary success of the National Freight Consortium since its privatisation to show where employees have benefited on an enormous scale as a result of being given rein to show what they can do.
Finally, I should like to repeat to your Lordships' House the assurances which were given in another place to the staff of the PSA and TCS with regard to conditions of service—assurances that staff will not be disadvantaged as a result of the privatisation. I look forward strongly but at the same time with a certain sensitivity to a lively Committee stage with the noble Lord, Lord Graham, putting his case volubly, and I strongly commend the Bill to your Lordships' House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.