HL Deb 22 July 1991 vol 531 cc597-616

11.4 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Reay)

My Lords. I beg to move that the Report be now received.

Moved, That the Report be now received.—(Lord Reay.)

Lord Williams of Elvel

My Lords, I hesitate to detain the noble and learned Lord the Lord Chancellor after his marathon on the previous business, but I must protest that this is an important Bill and we are receiving the Report at 11 p.m. on the Mond ay before the Recess. I believe that it is not proper for this House to consider a Bill of this importance on Report at this late hour. Having said that, I do not wish to divide the House on this Motion.

On Question, Report received.

Clause 1 [Vesting of property etc. of NRDC and NEB in a successor company]:

Lord Flowers moved Amendment No. 1.

Page 1, line 21, at end insert: ("( ) The Secretary of State shall not nominate a company for the purposes of this section unless he is satisfied that the articles of association of the company include a provision for the appointment of at least one person as a director of the company after consultation with such persons appearing to him to be representative of the Universities and Research Councils of the United Kingdom as he considers appropriate and not withstanding anything in the Companies Act 1985 no such provision shall be altered without the consent in writing of the Secretary of State.").

The noble Lord said: My Lords, when the Bill was debated in Committee at a somewhat earlier hour of the day, there was wide support for amendments which sought to provide some guarantee that the successor company would continue to carry out the business for which BTG is justly famous. The essential nature of that business concerns the development of the results of basic research into industrially profitable products and processes. Most of the research originates in the universities and their associated teaching hospitals and in the laboratories of the research councils. It is a business which takes many years, sometimes decades, to bear fruit, and the protection of intellectual property rights arising in many different fields of science is therefore a difficult matter requiring specialised experience.

The amendments to which I referred were withdrawn in the hope that the Government would think again. I gladly acknowledge that Ministers seem to have gone some way to meeting our anxieties in the latest draft of the articles of association, which in places adopt my own words. Our anxiety with the Bill as it stands is neither with the intentions of Government nor with the articles; it is with the fact that e guarantees we seek and deem essential if the company is to continue to provide services of the kind now offered, are contained in the memorandum of association and not on the face of the Bill and may therefore be changed by a vote of the shareholders.

Despite our best efforts inside and outside your Lordships' House, Ministers have been unbending in this respect and perforce I must try again. They are willing to relax the articles of association, but not the Bill itself. It seems that the Government wish to legislate by article but not by Bill, but that they cannot do. If the articles are as binding as the Government make out, the essence of them might as well feature on the face of the Bill. If they are not, then a fortiori the Bill itself should provide the guarantees we seek.

I understand very well that the Government do not wish to hedge the Bill around with a mass of narrow restrictions. That would greatly reduce the value of the company to a potential purchaser and therefore rob the taxpayer of possible gains. At the same time, one has to recognise that, in the longer term, the continuing profitability of the company, and therefore the continuing gains to the taxpayer from its activities, depends on it being able to attract the kind of business it now attracts. That means that it must continue to enjoy the trust of the research community it serves, otherwise it might as well go off and manufacture marmalade. Indeed, that might be more profitable in the short term.

Perhaps it will be argued that the amendments that we are discussing this evening are causing intolerable uncertainty for the staff of the company. But if we do not get the Bill right it would be well to remember that there are not many marmalade makers on the staff of BTG. I assume that the Government are interested in the longer-term profitability of the company, not merely in its sale price on privatisation. However, there is nothing in the Bill to justify that assumption. I am therefore seeking the minimal amendment which would permanently enshrine in the Bill some essential flavour of the work of the company.

After taking professional advice, I have come to the conclusion that the best way forward, although it is certainly a minimalist approach, is to write into the Bill something that is already in the draft articles; namely, that there shall be at least one director of the company, appointed in an appropriate manner, to represent the research community. Of course, I shall be happier if there are two such directors or more, but the phrase "at least one" at least permits the more generous interpretation already allowed by the articles of association.

Perhaps this proposed measure will slightly reduce the value of the company to a buyer who would find the presence of a representative of the research community not to his taste. That would confirm my worst fears. It is, as I have said, a matter of balancing the short-term value of the sale against the continuing profitability of the company, which depends on it being able to retain the confidence of the research community. If that confidence is retained I can assure your Lordships that there will be no shortage of prospective buyers. On the other hand, if the directors of the company are not in a position to insist that the essential characteristics of the company are to continue, the confidence of the research community will be lost.

What will then happen? Some universities—a few that are exceptionally strong in research—have already made internal arrangements to secure their own intellectual property rights and to develop the results of their research with appropriate firms of their own choosing. Even so, much of their more specialised business remains with BTG. Other universities will do likewise, or more likely will take advantage of offers of assistance from one or more of those that already have the facilities. In other words, a rival BTG will develop within the research community itself, probably in a university and since that will certainly have the confidence of its potential customers, it will attract away not only the business but also the staff of the existing BTG. That would be a shameful waste—a further stumbling block in the way of innovation for the benefit of industry and ultimately of the taxpayer.

It must be clear that thoughts such as these must be coursing through the minds of potential members of any consortium that the Government may have in mind to purchase the company. I am thinking of venture capital firms, universities and charitable foundations, all of which will be concerned about the continuing profitability of the company. If the Government refuse to concede the desirability of putting some reasons for confidence on to the face of the Bill, these people and organisations will draw their own conclusions, as will the scientists themselves.

I am the chairman of a charitable foundation that is considering whether to invest in the successor company. It will not do so in order to support the Government; that would not be a charitable action. It will do so, if at all, only because it is convinced that it would be a sound investment from its own, purely charitable point of view. I doubt, frankly, whether my fellow trustees would be impressed by the assurances so far provided by the Government, unsubstantiated as they are by the wording of the Bill. I would hazard a guess that trustees and investment committees of many other foundations will take the same line at the end of the day, no matter what interest they have shown so far.

The amendment proposed by the noble Lord, Lord Beloff, the noble Baroness, Lady Park of Monmouth, the noble Lord, Lord Kirkwood, and myself is an exceedingly modest one. It is intended to provide an indication on the face of the Bill that the essential nature of this company and its business will continue. I have heard it said that the Treasury strongly opposes any attempt to modify the Bill in this way because of the precedent it would create. We are dealing with a company that even the Government must by now realise is unique, requiring unique measures. We should not skulk behind our fears of raising precedents. I have spoken for too long and it is late. I beg to move.

Lord Peyton of Yeovil

My Lords, my first question—which I regard as a serious one—is: what is the hurry about this Bill? The Bill simply enables the Secretary of State to sell the British Technology Group to some person or persons as yet unidentified, in a future which we cannot yet see. It seems to me very odd—to use a mild adjective—that we should be here at this time of night considering such a measure.

I cannot refrain from expressing some regret that my noble friend the Leader of the House, who was so recently in his place, did not feel able to stay and share with us some of the pain which I think is attendant upon further consideration of this measure now. In supporting the noble Lord, Lord Flowers, I do not want to repeat all the arguments that he used, but I want particularly to express my intense dislike of this growing habit of governments to legislate by means of articles of association or to half legislate by such means. Articles of association, or a draft of them such as we have available to us—I do not say "before us" because we cannot amend them—are useful as an indication of what is in the Government's mind at the present time or what the Secretary of State has in his mind now. They give no assurance about the intentions of whoever may be the eventual purchasers of the company.

Perhaps I may trespass on your Lordships' indulgence for a moment to give one example of why I dislike this in detail as well as in principle. The definition of "permitted person" occurs on page 14 of the draft articles. In paragraph 5, on page 16, we see the sentence: If, to the knowledge of the directors, any person other than a permitted person is or becomes a relevant person, including, without limitation, by virtue of being deemed to be one, the directors shall give notice to all persons, other than persons referred to in paragraph 10 below, who appear to the directors to have interests in the relevant shares, and, if different, to the registered holders of those shares". If your Lordships were to go so far as to describe that as verbal garbage, I should find it exceedingly difficult to dissent. I certainly should not like in any way to give my implied approval to such material. I do not wish to dwell any further on a painful subject. I have tabled an amendment which I shall propose with reasonable brevity. I do not wish to repeat those points now. I support the amendment moved by the noble Lord.

Lord Beloff

My Lords, having put my name to the amendment, I should like to say something about it without repeating the, to my mind, convincing and detailed arguments put forward by the noble Lord, Lord Flowers. After the discussion at earlier stages of the Bill, I am surprised that it has been necessary to put down this amendment since one should have thought that the Government themselves would have been so anxious to allay the fears of the scientific community that they would have put forward this provision.

As the Minister knows, the issue is whether the British Technology Group should continue to provide the services it has provided under a different form of ownership or whether it should be treated as one of the Government's assets, available in order to stimulate the flow of petty cash. A fear, arising from statements from the Treasury or Treasury-inspired statements about the undesirability of giving precedents for other privatisation measures, is bound to be in people's minds.

The Government have had a perfectly easy and straightforward way of allaying our doubts. They could have said that they undoubtedly wish that the services which BTG provides for the scientific community should continue; that they appreciate that these services are necessarily long-term in their financial return; and that, to ensure that this is so, they will provide for appropriate directors who, being in touch with the scientific community, would know what were the opportunities which BTG might have and the dangers which it should avoid.

Therefore, I believe that it is necessary—and I think that the House will also find it so—for the Minister to explain why the Government have not acted in that way. Is it that they fundamentally disbelieve in the future potential of BTG and that they are not interested in making possible the development of inventions and discoveries made in our institutions of higher education and in our research laboratories? Alternatively, do they have some other way in which they propose to demonstrate that devotion?

As I have said before in many other contexts—and I believe it is worth repeating—the Government are on a had wicket when it comes to dealing with universities and the scientific community at present. Their record has been challenged in many respects, often on finance al grounds. However, here we have something which is, in a way, costless; namely, the nomination of a couple of directors to a future privatised company. Her Majesty's Ministers now have a chance to say, "We have been misunderstood. We are, in fact, in favour of British science. We should like to see the development to the utmost of what can be discovered by the talents of our scientists and inventors. We gladly offer this, or an alternative method". If they are unable to do so, I fear that they are, even at this time of night, making a grave political mistake.

Lord Williams of Elvel

My Lords, I support the noble Lords, Lord Flowers and Lord Beloff, in what they said. This is a test of the Government's intentions as regards BTG and its future. However, having said that I support them in principle, I must say that I have certain reservations about the text of the amendment moved by the noble Lord, Lord Flowers. It seems to me—I hope that I am not anticipating the speech about to be made by the noble Lord, Lord Reay—that to put into articles of association something which, notwithstanding anything in the Companies Act, cannot be altered unless the Secretary of State consents to it in writing, cuts across our companies legislation.

While I approve of the spirit of the amendment—and I very much hope that the noble Lord will accept that spirit—I am sure that the noble Lord will wish to take it to his own counsels to ensure that it is drafted appropriately. As the noble Lord, Lord Beloff, said, this is something which is a matter of principle for the Government. Either they wish to support BTG and its future in the transfer of technology from universities into the commercial reality or they do not.

I do not wish to pursue that argument on this amendment because I have other arguments to put forward in regard to future amendments. However, as I said, I very much hope that the noble Lord, Lord Reay, will accept the spirit of the amendment which has been offered, and that he will produce something on Third Reading which is appropriate to the parliamentary draftsmen.

Lord Butterfield

My Lords, I am convinced by the argument put forward by the noble Lord, Lord Flowers, supported on all sides of the House. I am convinced by his strong argument that the community from which the ideas will be emerging will be much happier if it believes that on the board of the company will be someone who understands the work that it is doing. It should be someone who will have contact with a wide range of people in the network of inventive science in this country. In the past the work of people in the research councils and in the universities has flowered, while others have taken the profitability because people in high places have been unaware of the possibilities for development. People in laboratories need that information to give them confidence in the body that is to be set up.

The Earl of Halsbury

My Lords, I support the amendment. The noble Lord, Lord Flowers, and I have been friends and colleagues in the same environment for approximately 30 years. It comes as natural to me to rise in his support. I have already declared my interest in this matter. However, I want your Lordships to understand why I am so dubious about what the Government are proposing. On one interpretation of their proposal they will render nugatory 10 years of my life; that is one quarter of my professional career.

The corporation was the conception of the noble Lord, Lord Wilson, who can no longer be in his place but who I was glad to see in the Chamber at Question Time. I was the midwife or chief executive of the corporation. For 10 years I appointed the young men. I was not a tree under whose shade other trees do not grow. The young men I appointed were the future managing directors of that corporation and they did very well. They took the seed that I had sowed and turned it into fruit. Each year £1½ billion worth of goods were manufactured under licence from the corporation. It had a royalty revenue of £30 million per year. I began that corporation with a total loan capital of £5 million, of which I used only £3 million. The whole amount was paid back with compound interest in the course of the years.

I believe that to be an achievement. The Government are laying an axe to the root of that tree by threatening the future potential sale of the BTG to philistine asset strippers who will stop all forward development on a large scale. On Second Reading and in Committee I told your Lordships how the next big revenue earner will be based on a product for which the authority of development was under my managing directorship 35 years ago. In some cases that is what it takes to make a major technological breakthrough.

On one view of the matter all that will come to an end. The assets will be stripped. "I'll take the cash and let the credit go—nor heed the rumble of the distant drum", is what the asset strippers will think, say and do. The distant drum will be the technological development that they have not looked forward to 35 or 40 years ahead.

Perhaps I may remind your Lordships of the normal organisation of a well-managed public liability company. The shareholders meet only once a year in annual general meeting. There they elect the directors of the company, who are thereby given the authority to manage its affairs for the next 12 months. They then report and submit their accounts. They also submit themselves on rotation for re-election by the shareholders. That is all that the shareholders have to do with the management of the company. If the Government are to find some future shareholder who will submit to those conditions they will have a long way to hike because they have already submitted themselves to a restriction that no one may own more than 15 per cent. of the shares. That is quite a big shareholding.

I have no doubt that the noble Lord who replies for the Government will say that the proposal of the noble Lord, Lord Flowers, is a bad precedent. It is not, for the simple reason that it is not even a precedent. I can give the precise precedent for what he proposes: it is the upper board structure of BP. When it was a big public company—as it still is—it had a government nominee always on its board. The reason I can speak on this with such assurance is that one of the latest government nominees—Sir Frederic Harmer—is an old friend and colleague of mine who was nominated to the meteorological committee, of which I was chairman. He represented the shipping interests. For the amusement of his wife, he and I made a tape recording of our reminiscences of our careers which included exactly how he was promoted to the board of BP as government nominee.

As in The Hunting of the Snark, one threatened its life with a railway-share, I can threaten the noble Lord's ministry with a tape recording of the precedent on which my noble friend Lord Flowers is entitled to rely.

I have been active behind the scenes in the past few weeks, testing opinion. I tested the opinion of a City company of which I am a liveryman. It was quite intrigued with the idea that it might be nominated as one of the great and the good which might hold shares in this passive owning of shares. I have discussed it with a charity which was intrigued with the idea that it might own shares. I have discussed it with the university of which I am chancellor and it is intrigued. I have discussed it with the Royal Society of Chemistry. There is a possibility that we could get together a consortium of research councils, universities, charities and City companies, all of which could be the great and the good, earning revenues from shares of which they disinvested themselves in order to invest in the future BTG. This is a viable proposition, I am convinced it could be carried through to a successful conclusion. What I want from the noble Lord, Lord Reay, on behalf of the Government, is an undertaking that they will do nothing to subvert our efforts to try to bring such a consortium into being.

11.30 p.m.

Lord Desai

My Lords, I rise at this late hour because I feel that although this is a somewhat technical matter, much cultural and historical fact hinges on it. For far too long the sad story of the British decline has hinged on the fact that there is a great contempt for knowledge, especially professional knowledge. For far too long we have thought that basic research was a luxury which the practical men did not need.

We have now reached a stage of industrial technology where that can no longer be the right answer. Basic research is vital to industrial technology. It is in the universities and nowhere else that basic research is developed. It is folly to think that one can ignore academics.

I am not a scientist, I shall never do any useful research for BTG, but I passionately believe that unless we integrate basic research into industrial technology right from the beginning in an important place we shall once again have missed the bus. The German caricature is of the professor who becomes managing director. We need to do the same. I believe that BTG has, after some difficulty, developed a good combination of university and industrial cooperation. It is important that we should not lose it.

Lord Rochester

My Lords, my noble friend Lord Kirkwood had hoped to speak on the amendment. He has had to leave in order to attend a conference in Cambridge early tomorrow morning. In his absence, I wish simply from these Benches to express my strong support for the principle underlying the amendment.

Baroness Hollis of Heigham

My Lords, I too should like to be associated with this amendment. We argued at great length at Second Reading and in Committee on the virtues and merits of BTG, especially since 1985 and the new management. The new BTG has offered the capacity to move and to draw virtues from both the public and the private sector, to be able to loop back British inventiveness into British industry, to hoard the long-term quality of research and development and to be able to move from patenting and development to exploitation in the public as well as the private interest.

These are all the distinctive virtues of BTG that the academic and research communities fear—let us hope wrongly—may be jeopardised by movement into the commercial sector, with some of the short-termism that unfortunately has been all too evident in British research and development in the private sector over the past 20 to 25 years.

It seems to me that this is now the time for the Government to give the signal back to the university community that the privileged status of the universities and research councils in terms of the articles of association should be protected and enshrined in law. If the Minister can give us that assurance tonight and can give that signal to universities, it will dispel many of the fears that universities have and the threat, if one likes, that they may have to re-invent their own version of BTG, with the implications that that will have for its asset value to future purchasers. Then it may be that BTG would have a happier and more assured commercial, entrepreneurial and public future.

Lord Reay

My Lords, in the light of some of the rather harsh words that have been directed at the Government, it may be appropriate if I summarise the safeguards which the Government have already put in place for the privatised BTG and explain the reasons for the two new measures which we announced last week.

As noble Lords will know, the Government have already announced that they will take a special share in the privatised BTG. We have done this in recognition of the need to protect BTG's independence and to continue its traditional technology transfer activities after privatisation. The special share's provisions were set out in the draft articles of association placed in the Library of the House before the Committee stage. The two key provisions are: first, the protection of a 15 per cent. limit on individual shareholdings—I said at an earlier stage that the 15 per cent. is a bench-mark figure and is not rigid and that the Government are prepared to consider higher individual shareholdings should this be necessary to attract the right consortium—and, secondly, a restriction on substantial disposals of assets above a certain level—25 per cent. of net asset value or 25 per cent. of the average income—without the special shareholder's consent. In addition, under the articles there is also provision for one director of the new company to be appointed by the universities (the CVCP) in consultation with the polytechnics.

The Government have not rested on the measures which they proposed to the House at Committee stage on 27th June. We listened carefully to the constructive points which were put forward at Committee stage about BTG's future operations. As a result, we are now proposing two further improvements to the provisions in the articles of association. These improvements are: first, a provision for the 15 per cent. limit on individual shareholdings to continue in the articles after the special share is redeemed at the end of the five-year period; and, secondly, a provision for the appointment of one director of the new company who has had wide experience in the exploitation of public sector science and technology, in addition to the director to be appointed by the CVCP

The continuation of the 15 per cent. limit on individual shareholdings will mean that the consortium structure will continue even after the special share is redeemed. The shareholding limit will remain in the articles of association, which will continue to govern the company beyond the term of the special share. This provision, as with other provisions in the article. of the company, may be changed only by a special resolution of the members, which requires a 75 per cent. vote in its favour at a general meeting.

Regarding our proposal for a director with wide experience of the development of science and technology, the exact definition of the wide experience required follows closely the wording suggested by the noble Lord, Lord Flowers, the noble Baroness, Lady Hollis of Heigham, my noble friend Lady Park of Monmouth and the noble Lord, Lord Kirkwood, in their amendment at Committee stage. We have gone beyond that amendment in one crucial respect. The provision which we have made in Article 79 would apply on an ongoing basis because it will be a requirement in the articles that the company should have a director with wide experience of and capacity in public research. The former amendment in the name of the noble Lord, Lord Flowers, would have applied only to the first set of appointments to the board. In that respect I hope that noble Lords will recognise that we have gone beyond what was proposed by the amendment which we discussed at Committee stage.

I believe that the measures of substance taken by the Government which I have described will help BTG establish itself in the private sector and will also help to ensure that its traditional technology transfer activities are continued. The package of measures we have now announced goes as far as we think is necessary to achieve those objectives without prejudicing the sale process and the necessary commercial freedom of the new company.

I turn now to Amendment No. 1. A common thread running through many noble Lords' speeches on the Bill has been the need to reflect the interests of the universities and public research establishments in some way. We had already, after Second Reading, announced provision for the right of universities to appoint a director to the board. I point out that the Government's proposal goes further than what is suggested in the amendment. The amendment refers to an appointment after consultation with the universities, whereas the Government's proposal gives the universities the direct power of appointment to the board.

In addition, as I have just explained, the Government now propose that the board of the new company should include one other person with wide experience of the commercialisation of scientific ideas from public sector research. The revised articles placed in the Library on 17th July make provision for that in Article 79. These measures have been taken in recognition of the vital contributions to BTG made over the years by universities and public sector bodies and in the expectation that those sources will continue to make important contributions to the company after privatisation. However, Amendment No. 1 also requires that the provision in the articles for there to be a universities-appointed director could not be removed or altered by the company without the written consent of the Secretary of State. In our view it would not be appropriate to adopt such a requirement. The articles can be changed by a special resolution of shareholders, requiring a 75 per cent. majority at a shareholders' general meeting. We consider that to be a perfectly adequate protection for a provision of this sort. It is not the intention of the Government to continue government involvement in the running of BTG beyond the limited provisions of the special share.

We believe that our provision for two directors from the academic world—one to be appointed by the CVCP, the other with experience in public sector science—are sensible provisions, which will do much to ensure the continuation of BTG's traditional activities and to retain the confidence of the academic world in the privatised company. No privatised company will take lightly any decision to alter such a provision in a way which could damage its standing and credibility in the eyes of the academic community on whom it will continue to depend for a large proportion of its inventions.

I also think that the noble Lord is demonstrating a certain lack of confidence in the value of the contribution which such directors are likely to make to the running of the privatised company. The Government have given them an opportunity to make a contribution to the company. It is surely up to them now to make a go of it, without any intervention from the Secretary of State.

We believe, therefore, that the normal provisions of company law should apply and not be overridden in the way proposed by the amendment.

11.45 p.m.

Lord Flowers

My Lords, I am grateful to those all around the House who have given unanimous support, as I understood it, to this amendment. The noble Lord, Lord Reay, correctly said that there are a number of measures that the Government have proposed which assist the argument that we have put forward: a 15 per cent. share, a 15 per cent. limit, a second director and increased emphasis on the 75 per cent. vote of shareholders in order to change the articles. All those things are perfectly correct and, as I said, I am grateful for the contributions that the Government have made to meet us.

However, it is wrong to say that the Government have gone further than we asked for. They have not gone as far. Those changes are changes in the articles of association. They are not changes to the Bill. Not one is a change to the Bill. My amendment is intended, as other noble Lords who signed it with me know, to produce a minimal change to the Bill itself which will give some indication that the unique characteristics of BTG will continue.

I do not have the heart at this time of the night to press the House to a Division, but, in saying that I beg leave to withdraw the amendment, I give notice that we may fight very hard on Third Reading.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No. 2:

Page I, line 21, at end insert: ("( ) The Articles of Association of the successor company shall contain inter alia the provisions set out in Schedule (Articles of Association Qt. the British Technology Group Plc) while the company is wholly owned by the Crown, and thereafter until altered by the affirmative resolution of both Houses of Parliament.").

The noble Lord said: My Lords, it may be for the convenience of the House if I speak also to Amendments Nos. 3 and 5.

I regard Amendment No. 5 as consequential on Amendment No. 2. Amendment No. 3 stands in the name of the noble Lord, Lord Peyton. Amendment No. 2 directly addresses the problem of the articles of association. When replying to the first amendment, the noble Lord, Lord Reay, put his faith in the articles of association of the company. Having listened to the arguments put forward by the Minister, I am not impressed. It is true that, under the Companies Act, once the special share, if that is written into the articles of association, has been redeemed, the articles can be changed by a special resolution. A special resolution requires only 75 per cent. of the vote. Clearly, if someone makes a hid for the company after the appropriate moment, the company will be sold because the shareholders will say that they want to amend the articles of association. I do not want to denigrate the status of ministerial assurances in your Lordships' House or in another place, but I believe that their status is less than the status of something written into the Bill. That is why I am moving the amendment.

My amendment states that the articles of association, in the particular respect referred to in Amendment No. 5, can be changed not only by a special resolution which changes all articles of association under the Companies Act, but by approval of Parliament.

With regard to Amendment No. 5, the schedule that I would like to see in the Bill specifies the conditions of the special share. It says simply that the Government maintain a special share and the special share may be redeemed only by a change in the articles, which must he approved by both Houses of Parliament on affirmative resolution. The amendment further specifies what the special share shall do: 15 per cent. of all votes at a general meeting of the company offends the conditions of the special share; disposal of more than 10 per cent. of the net asset value of the group offends against the conditions of the special share. So the special shareholder can veto any disposal or voluntary winding up—or anybody who polls more than 15 per cent. of votes at a general meeting.

When I moved this amendment in Committee, as the noble Lord, Lord Reay, is aware, it met a rather hostile response from the Government. Nevertheless, I believe that it is wise for noble Lords to reconsider this point. Unless the special share is written into the articles of association and on the face of the Bill, it has no value at all.

I do not believe that the articles of association are sufficient warranty for the company to continue in the way that it is has continued up to now and should continue in the future. It is up to Parliament to make sure that the essential provisions of what BTG will do in the private sector should be subject to a veto from the Secretary of State in respect of certain matters. I do not argue that it should be a veto across the board but that it should be a veto on certain things. Unless the Secretary of State exercises that veto, he will have to come back to Parliament, as is quite proper, and say, "I don't wish any longer to assert my authority. The company is on its way; it is doing commercially very well and does not need my protection. Therefore I propose an order which will amend the articles of association in the way that the shareholders have voted".

To be honest, it does not seem to me to be a very outrageous requirement. I just wish that the Government would accept—and here I come to Amendment No. 3, which is the amendment of the noble Lord, Lord Peyton—that the articles of association are not enough. There must be something on the face of the Bill. Having said that, I look forward to the Minister's response. I beg to move.

Lord Peyton of Yeovil

My Lords, I understand that my amendment is to be taken with the amendment of the noble Lord, Lord Williams. I should have preferred it to be taken separately, but if it is for the convenience of the House, I shall very readily deal with it now. In the event, I should like to apologise to noble Lords for the absence of my noble friend Lord Caldecote whose name is also on the amendment. But for an unexpected change of business late on in the day, M would certainly have been in the Chamber.

First, let me say that neither I nor my noble friend take any pride whatsoever in the drafting of our amendment. I am absolutely confident that someone as able and sensitive as my noble friend on the Front Bench would not even dream of using the argument that the amendment itself was flawed. I should be content—I am very easily pleased—if my noble friend on the Front Bench, on behalf of the Government, would indicate his readiness to accept this amendment in principle. I do not begin to insist upon the terminology as it appears on the Marshalled List.

The second point that I wish to make at the start is that I hope that the Government will not say, because the Treasury wants them to say it, that they are frightened of setting a precedent. That is a bogus doctrine which occasionally is voiced by Ministers who themselves are in the habit of setting precedents which not everybody would think of as being very desiratable. Therefore I have less fear of the amendment, if accepted, being the source of undesirable precedents. Ministers from time to time express the desire to keep their Bills short and tidy. We do not have to go far back in memory today to dig up a measure which no one can possibly describe as short, tidy or easy to understand.

The amendment that I wish to move contains three elements. First, it sets out to establish a special share which the Government in the latest draft of the articles are clearly prepared to accept in principle. I should like to see the principle on the face of the Bill. As I have already said—and I endorse what was said by the noble Lord, Lord Williams of Elvel—it is one thing to have an intention expressed in articles; it is quite another to have it on the face of the Bill. I do not see any reason why, in a matter of this importance, the provision should not be on the face of the Bill.

It is also the purpose of the amendment that the special share should survive for five years after privatisation. However, the Government have some objection even to putting that in the articles. Nevertheless I hope that they may have second thoughts now that they appreciate that the special share idea has some virtue.

Secondly, the amendment places an obligation on the Government to consult with the company before requiring redemption. The Government have admitted that they see no objection in principle to the notion; they just do not like putting it on the face of the Bill. I find that difficult to accept. A casual look through the Bills which come before your Lordships' House regularly and in quantity does not immediately suggest that the virtues of brevity, tidiness and simplicity always commend themselves to Ministers.

Thirdly, the amendment seeks to put on the face of the Bill that there should be a 15 per cent. limit on any one shareholding. The Government are prepared to accept that. They will allow it to continue after redemption of the special share. If the Government have accepted that provision, I cannot see for the life of me why they should not put that proposal also on the face of the Bill.

I have absolutely no allegiance to or love for the phraseology of the amendment. I shall happily withdraw the amendment if I were to hear the Government say, "We accept this very reasonable amendment in principle and we shall put it in the Bill, but we cannot accept the amendment as proposed". If the Government cannot say that, I shall need to consider the matter and return to it at a later stage.

12 midnight

The Earl of Halsbury

My Lords, I support both the noble Lords, Lord Williams of Elvel and Lord Peyton, in so far as they have this element in common: they want to see "it" on the face of the Bill. There is, however, room for argument as to what "it" should be. On the assumption that they will withdraw their amendments this evening, reserving the right to bring them forward on Third Reading in the autumn, it would benefit the House if they were to get together and could agree on a common form of wording.

One of the difficulties we face is characteristic of government bungling at this late stage in the legislative year. Typical of that was the shambles we had earlier this afternoon over the Child Support Bill, where the usual channels had to retire to have a conference about whether they could continue the debate. There never could have been a Third Reading on Thursday this week. We have to have three sitting days before Report and Third Reading, and we cannot cover Monday to Thursday in three sitting days, and so that was a bit of a bungle.

There was then the matter of the first and second editions of the memorandum and articles of association. I heard that there was a second edition only on Friday, and I had confirmation of it last Saturday. When I tried to obtain the second edition this afternoon, the Printed Paper Office did not have it; the Library had only one copy which it could not let me have; but by some mysterious channel the noble Lord, Lord Williams of Elvel, has a copy, but where he obtained it I do not know.

All that has a bad effect on morale. I ask your Lordships to believe that NRDC and BTG have always been young men's organisations. They are young men with fire in their bellies and a gleam in their eyes for the future. They are all highly redeployable into the hands of competitors, which, struck by the success that NRDC has been, are beginning to operate on an international scale, where BTG, already operating on an international scale, is to some extent hamstrung by people wanting to know, "Who are you? Who owns you, and what will you be in the future? If we make a joint partnership agreement with you, are we by some mischance making one with our competitors?" People want to know. Delay is to be deplored.

I assume that the noble Lords, Lord William and Lord Peyton, will withdraw their amendments. I hope that they will accept my invitation to get together over a form of words so that we can have "it" on the face of the Bill. I realise that the Government do not like it. They never do, but they must face the syndrome of distrust. In this context, people do not trust the Government. They do not trust the Treasury as the Government's adviser. They remember that the Government are a transitory organisation that will be replaced by another government within a twelvemonth, of the same complexion or a different complexion matters not, because there will be general post among Ministers. No undertakings given now can be valid a year from now, and so on, so we must have it on the face of the Bill. I beseech the Government to bend and yield on this matter because it is critical for the future of the whole enterprise.

Lord Reay

My Lords, Amendments Nos. 2 and 5 would have the effect of writing the special share provision onto the face of the Bill and thereby ensuring that it could never be changed without the direct approval of Parliament by affirmative resolution. To write the special share provision onto the face of the Bill has not been done before in a privatisation. The noble Lord, Lord Flowers, and—if I do not not misquote him—on another occasion the noble Lord, Lord Williams, have said that BTG is unique; but so were some of these other companies: the British Airports Authority, British Aerospace, British Gas, British Telecom, Britoil, the National Grid Company, National Grid Holdings, Rolls-Royce, BCL Consortium, Vickers, Cable and Wireless, Jaguar, Enterprise Oil, the water companies, the regional electricity companies, British Steel, Amersham and Sealink. All those companies had special shares and none of them was written into the Bill. In all cases special share provisions were written into the articles of association, as they will be in this case.

We have several objections to the proposal in these amendments.

Lord Flowers

My Lords, I and others have said that BTG is unique. The uniqueness to which we are referring is the uniquely long-term nature of its business which stretches sometimes into decades and in any case into many years. In that respect it is unique and it is that feature which calls for the special measures for which we ask.

Lord Reay

My Lords, I am sure that people intimately connected with other companies which have been previously privatised would have argued that those companies had unique qualities which should have deserved the special share provisions to be written into the Bill.

We have several objections to the proposal. In the first place, such an amendment would prevent the Government, as the owner of the company up to privatisation, from exercising their discretion to change the articles before privatisation—which, as I have indicated, they may wish to do, for example where the 15 per cent. limit on shareholdings is concerned, in order to accommodate an acceptable consortium.

In the second place, we believe that after the special share has been redeemed the company law provision that a 75 per cent. majority of shareholders is required before the articles of association can be changed provides adequate protection.

Thirdly, it would be unprecedented to interpose Parliament in such a way between a private company and its articles of association. Parliament has no place to be permanently involved in a company's routine affairs. Articles of association are a contract agreed between shareholders. They set out objectives agreed between shareholders. It should be up to shareholders to decide whether those objectives should be changed—subject to safeguards: namely, the requirement for a 75 per cent. majority and the protection of the special share during the first five years.

As regards a 10 per cent. limitation on asset disposal, in our view that would reduce it to far too small a proportion in view of the absolute size of BTG's assets and in the light of BTG's business. It would impose an unacceptable limitation on the normal conduct of the company's business. It would go far beyond what is necessary to meet worries about asset-stripping and would start to impinge on disposals—for example, of patents or equity holdings—which could be a normal part of the company's trading activities. I should add that 25 per cent. has been used in previous privatisations, even in the case of companies with much higher net assets than BIG. Such a limit is designed to prevent a sale of the whole or a substantial part of the business without involving the Government in vetting the privatised company's business affairs. A 10 per cent. limit would depart from that principle.

As regards the requirement for parliamentary approval before the special share could be redeemed, I must repeat the rationale for a special share. It is to enable the company to accomplish its transition to the private sector; it is not to provide a permanent government involvement. That is the situation which privatisation is designed to end.

We wish to privatise BTG for reasons which we went into fully on Second Reading. Among them is the wish to remove the Government's involvement from the company's day-to-day activities. A time-limited special share has a constructive part in that process in allowing for BTG's adjustment to the private sector. However, what is proposed in Amendments Nos. 2 and 5 would frustrate that process. BTG cannot be considered privatised if Parliament retains the power indefinitely to intervene in the company's business. We therefore oppose Amendments Nos. 2 and 5.

As regards Amendment No. 3 in the name of my noble friend, the point contained in paragraph (c) of that amendment—namely, a 15 per cent. limit on individual shareholdings—is a point which we have met fully. Indeed we have gone further. In the new draft articles of association placed in the Library of the House last week, Article 42 has been altered so that the 15 per cent. shareholding limit will continue even after the redemption of the special share. It will require a 75 per cent. majority vote of shareholders in a general meeting to change this article.

With regard to the requirement that certain provisions in the articles—namely, the special share provisions—should not be changed between vesting day and the day of sale, I assume that my noble friends are motivated by a fear that the Government may not put in to the final articles of association what they have told Parliament they will put into them. I can give a further assurance that the basic principles of the articles of association as they now stand, and in particular those underlying the special share provision s, will not be altered by the Government between vesting day and the day of sale. I hope such an assurance will allay somewhat the anxieties of my noble friends on that point.

I would add that I believe this assurance meets the request from BTG, in its open letter of 19th July for a commitment from the Government, implementing the draft Memorandum and Articles incorporating the key provisions safeguarding BTG's independence, integrity, impartiality and critical mass". I would also ask my noble friends to note that in its letter BTG said that if that was done, there would be no need to have these provisions on the face of the Bill". The proposal in the amendment to have a fixed five-year special share without the possibility for earlier redemption was a matter to which we gave careful thought. However, the Government decided on balance that, in order that they should be able to react to any unforeseen circumstances which might arise, it was preferable not to fetter irrevocably their discretion to redeem the special share before the five-year period is up. I can assure the House that it is not tie current intention of the Government to redeem the special share before the full five years are up. It is our expectation that the BTG special share will continue for the full five years.

There comes a point where it is not possible to impose further restrictions on a privatised company without being inconsistent with the whole purpose of privatisation, which is to free a body from government control. Noble Lords present will have seen the views of BTG on this subject in the letter from which I have already quoted. BTG's view is that, provided the current draft M&A were adopted as the Final Memorandum and Articles of the privatised BTG, then our concerns about the protection of BTG's independence and critical mass have been properly balanced against the need for BTG to behave commercially and be exposed to the rigours of the private sector. With specific reference to the amendment of the noble Lord, Lord Williams of Elvel, I would point out BTG's view that, Any amendment which meant that future changes to the M&A could only take place by reference to Parliament, would be commercially undesirable and unhelpful, because it would place constraints on BTG which its competitors would not have to suffer On that basis and in the light of the further step we have now taken to continue the 15 per cent. shareholding limit after the special share has been redeemed, I hope that the noble Lord, Lord Williams, and my noble friend will not press the amendment.

The Earl of Halsbury

My Lords, before the noble Lord sits down perhaps he will elucidate a constitutional point arising out of something that he said; namely, that the Government could not accept responsibility for intervening in the affairs of BTG for an indefinite period. Surely the Queen in Parliament has the authority to intervene in absolutely anything until the end of time.

Lord Reay

My Lords, I said that it was inconsistent with the principle and purposes of privatisation that the Government should continue to be able to interfere with the running of BTG.

Lord Williams of Elvel

My Lords, the noble Earl, Lord Halsbury, scored a valid point. If Parliament decides with Royal Assent that that is what Parliament wants, then that is what Parliament gets until a future Parliament repeals that.

With regard to the unique nature of this privatisation, the noble Lord, Lord Flowers, properly answered the point. It has nothing to do with British Gas or anything else; it is a unique and unprecedented form of privatisation. The noble Lord, Lord Reay, has not quite understood, as other noble Lords have, the difference between this privatisation and others.

As regards the question whether the articles of association should be on the face of the Bill, that we should rely on ministerial assurances that they will not change the articles before vesting, or that the articles will obtain this or that, I still hold to the view, which is a very simplistic one (I think the noble Lord, Lord Peyton also holds the view) that if it is right that Parliament wants certain things to be in the articles and it decides that there should be a continuing process of discussion between the Secretary of State and the company on how the future of the company evolves, then Parliament has the right to do that. To say that we should rely on assurances, whatever concessions the noble Lord has made in the articles of association, does not advance the argument very far.

The noble Earl, Lord Halsbury, invited me and the noble Lord, Lord Peyton, to get together to agree some form of wording for an amendment which might be introduced at Third Reading. I must tell the noble Earl that, having listened to the Minister, I do not believe that the Government are prepared to accept any wording that can be written on the face of the Bill at Third Reading or at any other stage. The noble Lord is nodding as I say that. The Government are simply not prepared to accept this measure. Although I have the most cordial relationship with the noble Lord, Lord Peyton, and he with me, I do not see us getting together and producing any wording however brilliant he and I may be. I do not see us producing any wording that the Government will accept. They do not accept the principle of having the commitment to articles of association on the face of the Bill.

As regards the BTG management letter—I stress that it is a letter from the management and not from the staff—the staff disagree with the management on the matter. I do not necessarily believe that the management and the council of BTG are wholly correct in their view. Leaving that aside, I now return to my Amendments Nos. 2 and 5. I regard Amendment No. 5 as consequential to Amendment No. 2. I have spoken to Amendment No. 3, as has the noble Lord, Lord Peyton. Nevertheless I believe that at Third Reading we may well get to a point where the noble Lord, Lord Peyton, and other noble Lords, might join with me in drafting something which we would accept, but I do not believe that the Government would accept it. That is why I believe that if we pursue this matter at Third Reading it would be a futile exercise. Therefore I wish to take the opinion of the House on Amendment No. 2.

12.18 a.m.

On Question, Whether the said amendment (No.2) shall be agreed to?

Their Lordships divided: Contents, 18; Not-Contents, 23.

Division No. 4
Beaumont of Whitley, L. Hollis of Heigham, B.
Beloff, L. Macaulay of Bragar, L.
Butterfield, L. Monkswell, L.
Carmichael of Kelvingrove, L. Peston, L.
David, B. Prys-Davies, L.
Desai, L. Rochester, L.
Flowers, L. Russell, E. [Teller.]
Graham of Edmonton, L. [Teller.] Tordoff, L.
Williams of Elvel, L.
Halsbury, E.
Ashbourne, L. Johnston of Rockport, L.
Belstead, L. Long, V.
Blatch, B. Mackay of Ardbrecknish, L.
Blyth, L. Mackay of Clashfern, L.
Brabazon of Tara, L. Marlesford, L.
Cavendish of Furness, L. Reay, L.
Davidson, V. [Teller.] Strathmore and Kinghorne, E.
Denton of Wakefield, B. Trumpington, B.
Henley, L. Ullswater, V.
Hesketh, L. [Teller.] Waddington, L.
Hooper, B. Wade of Chorlton, L.
Howe, E.

Resolved in the negative, and amendment disagreed to accordingly.

12.24 a.m.

Lord Peyton of Yeovil had given notice of his intention to move Amendment No. 3:

Page 2, line 17, at end insert: ("( ) The Articles of Association of the successor company shall at all times from vesting until the Secretary of State has disposed of the securities allotted to him under section 3 contain a provision to the effect that—

  1. (a) a special rights redeemable preference share ("Special Share") shall be issued to the Secretary of State or a person acting on behalf of the Secretary of State ("Special Shareholder"), which Special Share shall not be redeemable until 5 years after privatisation;
  2. 616
  3. (b) after the five year period referred to in paragraph (a) the Special Shareholder may require the Special Share to be redeemed after consultation with the Board of the successor company;
  4. (c) no person other than a Permitted Person may directly or indirectly own or control the right to cast on a poll 15 per cent. or more of the votes at general meetings of the successor company.").

The noble Lord said: My Lords, I have no desire to detain your Lordships for any length of time. Suffice it to say that I regret that my noble friend was unable in any way to share the dislike which has been expressed on all sides of the House for legislating by means of articles of association. I do not believe that articles of association, which are destined for the guidance of a future company, are proper material for governments to deal with.

I very much welcome what my noble friend was kind enough to say about the Government not changing the present draft of the articles. That at least gives us some comfort that we know where we now are. I do not intend to move the amendment today. However, I shall look with care and interest at what my noble friend said. I consider myself completely at liberty to put down a similar amendment and return to this important issue at Third Reading.

[Amendment No. 3 not moved.]

Clause 3 [Initial Government holding in the successor company]:

[Amendment No. 4 not moved.]

[Amendment No. 5 not moved.]

Schedule 1 [Provisions Supplementary to s.1]:

[Amendments Nos. 6 to 8 not moved.]