British Technology Group Bill

HL Deb 03 June 1991 vol 529 cc436-63

3.5 p.m.

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

My Lords, I beg to move that the Bill be now read a second time.

The British Technology Group Bill is an enabling Bill which will permit the British Technology Group to take its place in the private sector where we think it belongs. BTG was formed in 1981 by the amalgamation of the National Research Development Corporation, founded in 1947, and the National Enterprise Board, which was established in 1975. It was charged with the primary task of translating new research ideas into commercial products. To this end, the technology transfer activities of the NRDC were developed and the role of the NEB was restricted to disposing of its existing portfolio of investments. At present the NEB is, in effect, a defunct shell (with one solitary, possibly undisposable, remaining investment) and technology transfer has become the predominant business of BTG.

Technology transfer is the movement of research ideas to an environment where they can be commercially exploited. BTG achieves this by seeking out innovations from a broad range of inventors, assisting with development, patenting where appropriate, and licensing the resulting intellectual property to industry worldwide. BTG does this with a staff of 210 worldwide and generates a turnover of around £30 million a year.

BTG is a profit-making, commercial organisation, which has been self-financing for 20 years. No element of public subsidy figures in the books. Indeed, BTG has paid dividends totalling over £30 million to the Exchequer since its formation and made tax payments during the same period of approximately £36 million. Nor has the Exchequer been the only beneficiary. Revenues generated by licensing are shared by agreement with inventors on a 50/50 basis. In 1990 BTG returned £13.1 million to the academic sector by way of revenue sharing and other moneys.

Until 1985 BTG enjoyed the right of first refusal of all publicly funded inventions when this monopoly was ended. Since then universities have been able to choose the route by which their research could be exploited. However, the ending of this monopoly did not result in the flow of technology to BTG drying up. On the contrary, it has increased since that time. In 1986 BTG registered 355 inventions; and by 1990 that figure had risen to 524.

This increase, however, has been accounted for largely by the private sector. In 1985, 9 per cent. of BTG's business came from inventions in the private sector and 66 per cent. from the academic world. By 1990 this had shifted to 42 per cent. from the private sector and 46 per cent. from universities and polytechnics. Some of the technologies taken on by BTG have enjoyed spectacular success. Pyrethrin pesticides have generated revenues of £94 million, the cephalosporin antibiotics a further £152 million and, more recently, exploitation of magnetic resonance imaging (MRI) has produced £27 million, with more to come.

However, although BTG is a successful business, its activities are small when viewed in the context of the total volume of research and development in the United Kingdom. In 1990 BTG put £11 million into R&D compared with a total for the economy as a whole of £11.4 billion (made up of £4.5 billion by the Government and £6.9 billion by industry). BTG thus accounts for around 0.096 per cent., or less than one-tenth of 1 per cent., of national R&D efforts. Turnover of £30 million in 1990 compares with turnover of £21 million in 1979.

BTG's profitability has come from a commercial approach when dealing with both the innovative suppliers of technology and the industrial licensees. It is business criteria, not public interest considerations, which are taken into account when deciding which inventions to take on and which licensing arrangements to enter into.

It can be seen from what I have said that BTG has been operating more and more like any of the other technology transfer businesses that have grown up in the private sector. It has therefore become more and more unnatural to burden it with limitations which derive from its position as a public sector body. For as a public sector organisation it is obliged to operate within severely restrictive constraints. All investments above — ¼ million have to be approved by Ministers. Indeed, one of my first ministerial acts was to consider whether or not to give approval to one such investment by BTG. The salaries of board members and of senior management are set by the DTI. In addition the organisation is saddled with the extremely low external borrowing limit—even with ministerial approval—of £250,000. The rigidity imposed by these restrictions is bound to be a severe impediment in the way of the development and growth of such a business in today's markets.

It is also the case that BTG wants to develop as an international business. Some 70 per cent. of BTG's revenue now comes from overseas, with roughly 40 per cent. coming from the USA and 20 per cent. from Japan. But here again BTG's status as a public sector organisation has been found to be an obstacle to the development of the business. It has cast a shadow over prospective deals in France, Spain and the USA.

Some have said that the rules should be changed. But BTG is a public body which has to be accountable in the normal way for a body in the public sector. We cannot have one rule for BTG and another rule for the rest. In short BTG will be able to take up more opportunities, more quickly, both here and abroad, and provide better services to both suppliers and buyers of technology once it has been placed in the private sector.

Let me turn to the clauses of the Bill. Clause 1 is the key clause in the Bill. It vests all the property, rights and liabilities of the National Research Development Corporation and the National Enterprise Board into a Companies Act company, which is referred to throughout the Bill as the successor company. All the shares in the successor company will be owned by the Government. My right honourable friend the Secretary of State will then be in a position, with Treasury consent, to privatise BTG by selling the government shares in the successor company. Clause 2 extinguishes the corporation's statutory reserve and the board's public dividend capital to be replaced by the government's shareholding. Clause 3 provides for the creation of this initial Government shareholding in the successor company.

Clauses 4 to 6 deal with the subsequent treatment of this government shareholding and its sale. Clause 4 is essentially a contingent provision which allows the Government, with the consent of the Treasury, to obtain further securities in the successor company, if this should prove necessary; and Clause 5 empowers the Government to appoint nominees to hold its securities. Clause 6 will limit the government shareholding, as a proportion of all the ordinary voting rights, to the level at which it stands after privatisation. Clause 7 provides for the creation of a statutory reserve, and thus for the establishment of an appropriate mix of securities and reserves, and also for continuity of accounts.

Clause 8 provides for loans to be made by the Government to the successor company, should the need arise, in the period between vesting and privatisation. If this power were used, such loans would have to be repaid before privatisation. But I should add that at present BTG has no outstanding loans from government of any kind; nor does the Bill in any way involve subsidies or the writing off of debts. Clause 9 is another contingent provision, which empowers the Government to restrict the successor company's borrowing in the national interest by means of a provision in the articles of association of the successor company. Clause 10 provides for both the corporation and the board to continue, if necessary, for some time after the successor company is established. This could be necessary in order for them to assist with the transfer of all their assets to the successor company.

Clause 11 deals with tax matters and Clauses 12 to 17 make further supplementary provisions of a technical nature, which I will not delay your Lordships by describing. However, for those who are interested, my department has made available in the Printed Paper Office detailed Notes on Clauses explaining the provisions of the Bill.

Turning to the schedules to the Bill, Schedule 1 provides for the corporation and the board to do anything necessary to assist in the vesting of their property, rights and liabilities in the successor company. It also, most importantly, makes it clear that all existing agreements and contracts, including those affecting employees and their pensions, will continue in force after vesting, and that the only effect of the Bill on such agreements and contracts will be to substitute the name of the successor company for that of the corporation and board. Continuity in the business and employment affairs of BTG is an important issue, and Schedule 1 is designed to deal with it. Schedule 2 provides for the repeal of all legislation which currently regulates or refers to the corporation or the board, and Schedule 3 makes various transitional provisions.

I should now like to leave the provisions of the Bill which will pave the way for the privatisation of BTG, and turn to the question of how that privatisation is to be achieved. Noble Lords will be aware that my honourable friend the Minister for Corporate Affairs announced in another place on 12th February that the Government had appointed Price Waterhouse to provide the Government with financial advice on the options for sale open to the Government.

Price Waterhouse has now delivered its report on the options for privatising BTG, and that report is being studied by my right honourable friend the Secretary of State. No sale option has been ruled out at this stage. The Government share the concerns of those who want to see BTG's activities continued after privatisation. At the same time the Government see it as their duty to maximise the return to the taxpayer. Accordingly Her Majesty's Government will endeavour to maximise the net return to the taxpayer, consistent with a good prospect of the continuation of BTG's technology transfer activities. How best to ensure this continuation whether it should be by way of the articles of association or in the contract of sale or by some other means—will to a large extent depend on the nature and identity of the purchaser. Whether the Government should retain a special or golden share to safeguard certain provisions in the articles of association of the successor company for a limited period is likewise a matter which the Government are presently considering. In doing so we will need to bear in mind our position in European Community discussions on unequal voting structures under the proposed fifth company law directive. As far as the timing of the privatisation is concerned, this will take place as soon as practicable after the Bill becomes law.

It has been alleged in some quarters that the Government's wish to privatise BTG demonstrates a desire on the part of the Government to wash their hands of any future involvement in British technology. Nothing could be further from the truth. The Government place great emphasis on the need for innovation. My right honourable friend the Secretary of State gave an important speech on this topic on 21st May at Warwick University. In it my right honourable friend identified competition as being the main motive force behind innovation. He also singled out as a particular British weakness our failure to exploit commercially the huge investment in the public sector science base. The Government have given priority to this field, seeking where they can to create the right environment for innovation and its commercial exploitation. The Government spend some £3 billion a year on civil R&D, and of this the DTI expects to have spent more than £300 million to encourage industrial R&D and technology transfer in 1990–91.

In fact, far from this Government having neglected technology, UK government funded R&D as a percentage of GDP is on the same level as that of Germany and the USA, and at twice the level of Japan. What has tended to be low by international standards has been British industry's investment in R&D. In 1983 this stood at 0.9 per cent. of GDP compared to 1.3 per cent. of GDP in the USA. But this is something that has been rising fast. Between 1983 and 1989 British industry's own funding of R&D grew by 50 per cent. in real terms. This is a development this Government will continue to encourage.

In conclusion, there was once no doubt a need for BTG to be in the public sector. There is no longer such a need. The universities and other public sector organisations have now many other ways of exploiting their inventions. Many have successfully set up their own companies or have created joint ventures or reached other agreements with industry. As I hope I have shown, privatisation will give BTG a chance to burst out of the shackles which have held it back. BTG is on course to provide a modest but not insignificant addition to the long and proud trail of companies, now approaching 50 strong, whose progress from the public to the private sector has formed one of the success stories of the past decade. I beg to move.

Moved, That the Bill be now read a second time. —(Lord Reay.)

3.20 p.m.

Lord Williams of Elvel

My Lords, my first duty is to congratulate the noble Lord, Lord Reay, on his first appearance at the Dispatch Box as the Parliamentary Under-Secretary of State at the Department of Trade and Industry. I congratulate him most sincerely and I wish him every reasonable success in his endeavours. I hope the House will not think me churlish if I inform the noble Lord that he is the fifth Minister from the DTI that I have had the honour to address across the Table since I commenced my responsibilities as the Opposition spokesman for trade and industry in 1986. Your Lordships will be quick to work out that the average tenure of office for a Minister on the Benches opposite within the Department of Trade and Industry is one year. Arithmetically, therefore, the noble Lord's term of office will end in June 1992. That may be an interesting date for all of us.

I am sorry that the Minister had to introduce a Bill in such defensive terms. It is a Bill which in itself is difficult to justify. I shall come later to why it is difficult to justify. The noble Lord devoted a great deal of his speech to defending the Government's record on research and development. Indeed, it was not the Government's record but industry's record. He said that everything was getting better. As numbers of reports flowing from your Lordships' Select Committee have not failed to point out, over the past several years the Government have had a very poor record on this issue. It is sad that at this particular time the Government should introduce this Bill which will make that record worse.

I agree with the Minister that over the years the British Technology Group has performed what I regard as an essential service. It is a technology transfer service for the British research community —for academic research and publicly-funded research. Everyone would agree that it has done so extremely well, without any direct charge to the Exchequer. A patent is registered. The return is 50 per cent. to BTG and 50 per cent. to the inventor. The funds for the development of the invention are put in by BTG on the back of successful patents which BTG holds.

Large companies obviously have their own facilities for doing that. One of their inventors in a laboratory creates a new product. Nobody knows at that point whether or not it is a commercially viable product. However, large companies have facilities for drafting patent applications and for the development of ideas to the point where they are commercially saleable. They have money and the lawyers to enforce the licences which are given to industry under those patents. Therefore, in the case of large companies I agree with the noble Lord that BTG has no particular function.

However, in the case of individuals, whether in universities, government laboratories, polytechnics or involved in research funded by research councils, no such facilities exist automatically. In his speech the Minister said that a number of companies have grown up. There have been joint ventures between universities and private enterprise and a certain number of patent agencies have become expert in this business. However, to my knowledge none of those companies offers as comprehensive a facility as BTG.

There is encouragement for the research community not only to continue with research but to feel that they can enjoy the financial fruits of their research and receive a proper reward. At the same time there is no cost to the Exchequer. Indeed, BTG has built up substantial financial reserves which will be useful in the exploitation of future patents. Some 8,200 patents have been accumulated by BTG since its foundation under the noble Earl, Lord Halsbury, in 1949.

What happens elsewhere? In the EC, on the whole those services are provided by state-owned or state-subsidised entities. France has a state-owned enterprise called ANVAR which provides technology transfer in the same way as BTG. Germany has the Frauershofer Gesellschaft, which is heavily subsidised by the government. Denmark has a public body which does the same thing. Even Japan has formed a body on the lines of our old NRDC. The question that your Lordships have to ask yourselves is why it is proposed to privatise in the first place.

In previous privatisation Bills it has been argued that there will be increased competition. However, as the Minister himself pointed out, since 1985 there has already been increased competition and anyone has the right to set up in competition with BTG. Therefore, that cannot be a serious argument for this proposal.

Will there be greater access to funds for the development of scientific inventions? That is not needed. BTG has plenty of reserves and a good cash flow from existing successful patents. Will there be a substantial return to the Treasury? By any reasonable estimate the Treasury will cash in £35 million to £40 million on the sale of this enterprise, which in the context of the public accounts is nothing more than peanuts.

So why are the Government pressing this? Perhaps the answer to that question came in Standing Committee in the other place when it was admitted by the government spokesman that it was the management of BTG which was pressing for it. The noble Lord went some way towards acknowledging that when he said that it would be free from the shackles of government control and all the usual things that we hear in relation to privatisations.

We have in front of us a Bill which enables the Government to sell off an asset which is reasonably valuable in financial terms but which is immensely valuable in terms of research in the academic community. The Government propose to do so without having consulted the inventors who have patents with BTG, without having consulted the staff, without having consulted the Committee of Vice-Chancellors and Principals and knowing now that 75 per cent. of BTG staff oppose privatisation.

The Government have to put forward some serious arguments in favour of privatisation. I assume that the serious arguments were contained in a report which was commissioned from Coopers and Lybrand in 1988. I am told that that report was submitted to the Government some time ago. I have asked a Question for Written Answer as to whether that report will be published. I am told that it contains commercially sensitive information. I should like to ask the Minister today whether he will publish that report before we reach Committee stage, omitting the commercially sensitive information and publishing only the conclusions. I believe that the conclusions will tell against the Government.

If the Government are determined to privatise and to go ahead on whatever basis may be convenient for them, let us look at the Bill before us. It is, after all, only an enabling Bill. It simply provides for vesting. Certain ministerial assurances were given in another place. I am bound to say that some of those assurances were pretty odd. Mr. Leigh said: It will be for the new owners to decide exactly how to go about running the business".—[Official Report, Commons. 16/4/91; col. 196.]

Mr. Leigh said that there will be a short interval between vesting and sale. He said that there can be no undertaking about what will happen in five years' time.

Before the noble Lord goes further with this Bill, I should like to put it to him that your Lordships will require certain categorical assurances before vesting. The only assurances that are categorical are those which are on the face of the Bill. Once vesting has taken place, as the Government say and as the noble Lord repeated, the interval between vesting and sale will be short. We shall want to be sure that the independence and integrity of the business remains. The only way to ensure that is to have some residual role for the Secretary of State. ,

We shall want to be sure that' there can be no question of asset stripping and patents being sold off without any consultation with the inventors, solely for the purpose of short-term profits. We shall want to make sure that there is no trade sale. We shall want to make sure that the articles of association of the company in which the organisation is to be vested are published before the Bill leaves your Lordships' House .

Finally, we shall want to make sure that the protection of the staff, to which the Minister referred, will be properly enshrined in the Bill because they are the real asset of the BTG. It is not enough just to talk about employees' pension rights and entitlements. All that must happen before vesting because once vesting has taken place Parliament will cease to have any control over what the Government do. If we pass the Bill in its present form, we shall pass a blank prospectus.

The Minister devoted part of his speech to the form of privatisation. I tried to take notes while he was speaking, but I did not get the impression from my notes—I remain to be corrected by the noble Lord when he winds up—that the Government's thinking had moved forward since the Third Reading of the Bill in another place. He told us that they would ensure that there was a good prospect that the new, privatised organisation would carry on the business of BTG as it exists at the moment. He told us that there was a good prospect—not a very good prospect, not an excellent prospect, not a sure prospect, but a good prospect. He told us that the Government were committed to innovation. I have read the speech made by the Secretary of State at Warwick and confess that I did not find in it anything particularly novel or interesting.

We have heard talk of the Committee of Vice-Chancellors and Principals having a small stake in the new enterprise. We have heard talk of a trust and of a financial institution taking over the whole thing. I do not know where we are at the moment, but I hope that the Minister it is his difficult task—will be able: to reassure your Lordships before the Bill leaves our House that the Government's thoughts on those matters are much clearer than they appear to be at the moment.

Nothing that I have said should be taken to imply that we are in any sense in favour of the Bill. For a Government who profess an interest in technological advance, research and development, pushing forward the leading edge of technology and knowledge, this is fundamentally a retrograde measure. Their record on the subject is bad enough without now introducing a new element of uncertainty into the area of university academic development and its commercial application.

The problem is that the proposal is ill-thought out and, as such, extremely damaging. My advice to the Minister as regards this, his first Bill—I am trying to be sympathetic to his role—is therefore to consider precisely what amendments to the Bill he is prepared to accept so that your Lordships may know exactly what vie are approving when the Bill leaves this House. However, unless and until he can give us that reassurance and can tell us fully, cleanly and clearly exactly what the Government intend to do by way of sale, my second piece of advice to him is to drop the Bill entirely and come back to us when he is properly prepared.

3.34 p.m.

Lord Meston

My Lords, we too thank the Minister for his explanation of the Bill. This is a Bill in respect of which we must listen carefully to what the Government tell us of their intentions because the Bill itself tells us so little. It deals merely with the mechanics of the transfer of the group's assets and liabilities to the successor company. Reading the Bill, one learns nothing about the future of the group, save that it is obscure. Even now, having heard the Minister and read the debates in another place, we know little about the shape, functions or objectives of the new company. No model is put before us and I strongly suspect that no model will be put before us.

It is common ground that the work done by the group is of considerable value to the research community, that the group is both profitable and successful in what it does and that it has been truly competitive since 1985. I do not propose to argue the pros and cons of privatisation. Opinions are apparently divided even within the group itself, although I doubt whether much positive good can come of it in this case. I join with the noble Lord, Lord Williams of Elvel, in asking why the Government are so coy about giving us even edited highlights of the Coopers and Lybrand report. Putting aside partisan and dogmatic arguments, it behoves us to listen to and ventilate the concerns of those who know best the work of the group and the true value of its experience, expertise and organisational strengths. Those who know best are those most directly affected by what is proposed: the universities and other research bodies and the staff of the BTG.

We shall not persuade the Government not to privatise. My own profession tried to argue that, "If it ain't bust, don't fix it". Reading the calls surrounding the Bill to respect the integrity, impartiality and independence of the group, I was inescapably reminded of the calls of the legal profession when faced with recent reforms not seen to be for the better. That led me on to wonder whether, as with the legal profession, the best of the old could be ensured by a variant of the cab rank rule so that the successor company was obliged to support the kind of work which the BTG now does well and which the successor company might otherwise shed or allow to wither.

The concern that has been expressed is not about what the Bill says but about the great deal that it does not say. That concern does not appear to have been allayed by the generalities expressed in another place. It is a concern produced by entirely reasonable fear of the unknown. Under the Bill this valuable organisation will, on an unknown day, become the property of an unknown company or of unknown nominees. There is to be merely consultation with the existing board and corporation, the process of which might be cursory and the result of which will not be binding. It is perfectly natural for fear of the unknown to he fear of the worst—the worst being sale to a ruthless asset-stripping monopoly. Furthermore, the whole procedure under the Bill will depend on a series of ministerial orders and directions. The sense of uncertainty cannot be good for the business of the group or the morale of its staff who must be quite dismayed to find themselves in the political arena.

I do not propose to take time on Second Reading with the detail of the Bill, but I ask the Minister why it is necessary to have in Clause 1(5) provision for an order to revoke or vary the appointed day or nomination of a company for the purposes of the Bill. Is it envisaged that the day will be appointed or a company nominated and then, before the decision is put into effect, the Government will have second thoughts and will want to revoke or vary the order? What on earth is envisaged by that provision?

If it is common ground that the group's work is of value and in the public interest, we should not allow the group to be sold unconditionally to the highest bidder. I therefore suggest that the more important decisions to be made under the Bill should be brought to Parliament under the affirmative resolution procedure for the Government to explain their thinking and the merits of any specific transactions then proposed.

I join with the noble Lord, Lord Williams, in urging a number of safeguards. There should be long-term safeguards for the future to ensure that the breadth, quantity and quality of the group's work is preserved. The Government and anyone who has read about the proposals will know the anxiety to have some formal preservation of the role of the universities and similar bodies in whatever future organisation comes into being.

The Government will also know of the considerable anxiety to protect and encourage speculative and innovatory research which may not be specific to the needs or interests of the commercial backer or may not be short term enough for such a backer. Surely we must protect such research, which may not require considerable funding. It is research which indeed quite often requires comparatively modest funding in its early stages but funding which is not available elsewhere.

When one asks what guarantees there will be, one can see nothing on the face of the Bill and find little reassurance from the generalities expressed by the Government. If there are no guarantees and safeguards, there should be; and they should be on the face of the Bill. Surely the time is fast coming, if it has not already arrived, when it is not enough for the Government to say that they have an open mind and have ruled out no options. That was the refrain in another place and it appears to have been taken up by the noble Lord the Minister in this House.

The time has come when the Government must crystallise their thinking and allow assurances to be in enforceable form on the face of the Bill. This is a piece of the family silver which is useful as well as valuable.

3.41 p.m.

The Earl of Halsbury

My Lords, in addressing your Lordships' House on the subject of this Bill, which I welcome, it might be helpful if I indulge in a little narrative about the climate into which the National Research Development Corporation was born. It was born in the aftermath of the groundnut fiasco. None of your Lordships under the age of 60 has probably any political recollection of that fiasco. It was an over-ambitious scheme sponsored by the government of the day to grow monkey-nuts in Tanganyika. No pilot study was ever undertaken. The scheme was launched prematurely and failed dismally at considerable cost to the public purse.

In the aftermath of the atmosphere of distrust of government interference in industrial matters, it became the responsibility of the then President of the Board of Trade, Mr. Harold Wilson, now the noble Lord, Lord Wilson of Rievaulx, whom I was glad to see in his place at Question Time. No doubt he will read this debate tomorrow, since he is not present at the moment. Because of that general atmosphere of distrust, the Government made concessions concerning the form of the Development of Inventions Act, which proved very embarrassing later on, and there was an amending Act which made my life a lot easier.

The usual protocol when setting up a quango is for the Minister and his advisers to approach a potential chairman to secure his willingness to act. The chairman and the ministry then proceed to choose a board and the board appoints a managing director from among its number. That normal protocol failed in the case of the Development of Inventions Act because no one thought suitable to be a chairman was willing to take on the job in the prevailing atmosphere of distrust. However, it was agreed that I might be a suitable person to act as managing director and I was therefore given the unusual position of managing director designate and adviser to the Board of Trade on matters connected with the formation of the National Research Development Corporation.

That was very acceptable to me. With the President of the Board of Trade I was able to pick a team with which I thought I would work well and which would work well with me. We held our first board meeting on 28th June and on 30th June I flew to America to license IBM on the Manchester University computer patents. All the early IBM machines were made under licence from the National Research and Development Corporation under an agreement which I negotiated.

One of the embarrassments was that the amendment accepted by the President of the Board of Trade was that development should be entrusted to a firm engaged in the industry concerned. Nobody foresaw that there might be no "industry concerned". There was no computer industry into which I could, as it were, feed our computer patents. Three computers were under construction: one at Manchester University, one at Cambridge University and a small one at Birkbeck College. The last mentioned left no descendants; the other two did.

There being no firm engaged in the industry concerned, what was I to do? I stretched my terms of reference to the utmost. I shall deal with that point later, but I was rapped over the knuckles on various occasions. The relationship between the Government and the NRDC was never a love relationship. Each was somewhat of an embarrassment to the other. A divorce is now proposed. The Government want it, the directors of BTG want it and I, too, bless it. In the event of the divorce I can only say: BTG is dead, long live BTG plc! The question is not so much one of a divorce but of a remarriage. We must arrange the remarriage in such a way that NRDC, renamed BTG for all practical purposes, will continue.

I have received notice of a very constructive suggestion by the Committee of Vice-Chancellors and Principals, to the effect that the future shareholding in NRDC should be a consortium of academic entities. I hope that the Government will seriously consider that creative suggestion and respond in favourable terms to my plea that it should be taken seriously.

A little while ago BTG was given a directive which has been met completely. I shall not offer too many figures to your Lordships. I take these from the last published annual report. The products made under licence from NRDC-BTG now reach an annual turnover of £1.5 billion. The revenues accruing to BTG are £29.5 million. Profits were £9.5 million, after recirculating £13.5 million to the sources of their inventions either as development contracts for the future or as royalties earned by the inventors under agreements in which royalties are split between them. I was a party to the very first model agreement on those lines. The dividend to the Government last year was approximately £4 million. It is therefore a going concern.

On 16th April last, the Minister in charge of the Bill made the point, which was reiterated by the noble Lord, Lord Williams of Elvel, that: It will he for the new owners to decide exactly how to go about running the business and what areas to expand into". [Official Report, Commons, 16/4/91; col. 196.]

That is utter rubbish. Shareholders do not tell directcrs how to manage a business. They cannot; they are a continually labile population. They appoint the directors to run the business in their interests. Can one imagine the shareholders in the Ford Motor Company telling the management of the company what the next model of the Ford Escort ought to be like? They would never come to any agreement at all. The statement is complete rubbish.

With regard to the second marriage, on the due date the Government will use their powers to become a shareholder. To do that they must write the articles of association. One cannot have a public limited company without a memorandum and articles of association. So in due course the Government must do that. About what then are we anxious? We are anxious that the Government will in fact themselves choose the next marriage behind the scenes, back stage, and will then concert the memorandum and articles of association with the future spouse. Parliament will then be landed with a fait accompli that nothing can shift. That is not good enough. The staff are anxious on all these counts. Anxiety is not good for morale. Lowered morale is not good for heightened performance. For all those reasons, while I bless the Bill, I must put the Minister on notice that I may have amend-rents to propose in Committee.

I now turn to another matter on which I have to declare an interest. I am a pensioner of the old NRDC. It pays me a pension of approximately £4,000 a year. I have the status of a retired public servant. Every other pensioner has that same status. That means that whatever provision is made to counter inflation for retired public servants NRDC can follow suit. When I refer to NRDC, it is habit. BTG is a merger of the NRDC and the NEB. As the noble Lord, Lord Reay, pointed out, NRDC has proved the dominant factor in that merger.

I wish to continue to be treated as a retired public servant. I served that body for 10 years. I left on my tenth year because I did not seem to have an option between staying on for 25 years or redeploying myself aged 50. One cannot redeploy oneself as one's age increases. It seemed to me that it was not in the public interest for anyone to occupy the position of chief executive for a quarter of a century. One is bound to end up in a condition of complacency. I did not think that it was fair to me to bind myself to continue when I could not have a chance of redeploying myself until after 50. I told everyone that I would leave after 10 years. No one believed me. They were all taken by surprise when I handed in my notice.

I speak not only as probably the senior pensioner of NRDC but on behalf of all other pensioners. They want a guarantee from the Government that their status will be preserved.

The pension fund—an independent trust—is in good health. The actuarial evaluation of its liabilities is considerably overpassed by the value of its assets. There is no particular danger of the trustees not being able to meet their obligations. What is at stake is this: what are those obligations? Do we continue as retired public servants with the benefit of whatever other public servants receive as funded by their pension fund; or do we not? In speaking in these terms, I have declared my interest in the matter. I wish to continue as a retired public servant. Why should I not? I have been a public servant for very much longer than those years because I have done many voluntary jobs for many years and have enjoyed them.

I am afraid that I have spoken one minute over the 10 minutes that I allow myself on these occasions. I hope that what I have said will inform the debate and enable your Lordships to form a just judgment of the merits and demerits of what is now before us.

3.53 p.m.

Lord Beloff

My Lords, I too am unable to speak against the principle of privatisation, as was the noble Lord, Lord Williams of Elvel, but more particularly since I attach, as he knows, more importance than he does to getting rid wherever possible of the dead hand of the Treasury from innovation. However, that does not mean that I am without reservations on the Bill which are not dissimilar to those which have been voiced by noble Lords who have spoken.

The Government have either not made up their mind what they wish to do in the future, or they have made up their mind but do not wish to reveal it. One of those alternatives must be the case, otherwise we would have before us a detailed account of what the successor company is likely to be, its obligations to government and society at large, and the safeguards in its articles of association.

Why should these details be kept secret? Are the Government torn between their fidelity, expressed by the Secretary of State, to the idea that Britain ought to do more and be better in the field of industrial technological innovation and the hope—again the Treasury's ugly head rears itself —that they might receive a little more money from some buyer who was prepared to be an asset stripper on a large scale? That might be a buyer with no allegiance to this country or its future since we are not even assured that foreign bidders would be out of the running.

I believe that this is an important matter. I have studied with care the debates in another place, both in Committee and on the Floor of the House. I have rarely read a Minister's replies which were so unsatisfactory in reference to the core issue. I congratulate the Minister on his first appearance, however uncomfortable it may be. It would be well if he were to take this point on board. Whether or not the presentation of the noble Earl, Lord Halsbury, of the position of the Committee of Vice-Chancellors and Principals is acceptable, or whether there is some other way in which the university interest can be maintained, the Government at present run the risk of being thought an enemy of universities and of research.

As noble Lords echoed in a debate just before the Recess, and has been said in other debates in your Lordships' House, there has been a rundown in the allocation for research. Burdens have been put upon universities in other ways which cramp their activities. I do not know why this Government should be hostile to universities. Most of their Ministers are the product of universities. Perhaps they all had a bad time! However, they certainly give the impression of being hostile to universities.

I take a particular example in the defence of the Bill. It is said that it is no longer important that BTG should exist as a way of enabling universities and other such institutions to cash in on their discoveries because other methods are open to them. It is true that a university can employ an expensive firm of patent agents or it can enter into a partnership with a private sector company. All those avenues are perfectly possible. But they are less desirable because they involve the universities expending already limited funds on undertaking activities for which adequate machinery already exists. The staff of BTG has been referred to by other noble Lords. BTG has expertise in this difficult and competitive field both in this country and, perhaps even more importantly, overseas which could not be at the command of a single university unless it were to employ at the level of BTG. That would hardly be an appropriate use of university funds.

I cannot understand why there is no wish by Government to say, "We shall privatise it. There are arguments for putting this area in the private sector; but at the same time we shall ensure that this invaluable service to universities and other research institutions is guaranteed". Whether it is guaranteed by the setting up of a trust which would have a controlling shareholding or by the interposition of the Government through a golden share are technical matters on which other noble Lords are better qualified than me to advise Her Majesty's Government. I can only say that it is no use the Minister saying, as his colleague said in another place, that "all this will be revealed in due time". That is how the South Sea Bubble was launched. The due time is when a Bill is before your Lordships' House. We are entitled to know the purpose of the Bill. That can be done only if we are told about the conditions that are to be imposed on the purchaser of the new group. If we are not told, the Minister will find that the opposition to the further progress of the Bill will by no means come only from Opposition Benches.

4 p.m.

Baroness Hollis of Heigham

My Lords, it is with hesitation that I rise to speak, not because I am not a scientist but because I am genuinely baffled by the Bill. I do not know why it has been introduced nor why it is being pressed. It has been described as being "quite unnecessary" by one vice-chancellor; "As it is not broken don't mend it", said another vice-chancellor; "Deplorable", said a plant geneticist; "Utterly perverse", said an eminent mathematical physicist; "Wrong", said the inventor of pyrethrine; "I fear for the consequences", said the inventor of M RI.

Then who wants the Bill? Certainly it is not the academic community, the research councils or the hospitals, all of whose intellectual property BTG patents and promotes. Certainly the inventors do not want it, because if they wanted a different type of technology transfer company they would not have gone to BTG in the first place. Nor do 75 per cent. of the staff want it; nor does any siren voice in the City, whether financial consultants such as Coopers & Lybrand and Price Waterhouse. Who, then, wants the Bill, apart from perhaps a handful of senior staff members?

If not who, my second question is why? As my noble friend Lord Williams has asked, is it that the company is producing such profits that its sale is a significant source of privatisation revenues to the Government? Hardly; the company is valued at between £30 million and £55 million within a margin of error of most departmental budgets. Is the company instead making considerable losses subsidised by the taxpayer which could instead be turned around by the private sector? Hardly; BTG makes a tidy and increasing profit, half of which, net, goes to the Treasury. It is clear that the taxpayer gains more from the current flow of revenues than is likely to be received from any proceeds of sale. Is the company perhaps a complacent monopoly, uncompetitive, its clogged arteries impeding the transfer of technology to our industry? Hardly; since 1985 it has operated commercially, competitively and in entrepreneurial fashion. It has become the biggest and best technology transfer company in the world, emulated in France, Germany and Japan.

Then perhaps the company's customers, the inventors and the owners of our intellectual property are unhappy and are seeking a different structure. Hardly; since 1985 universities have had a choice of where to go. One or two universities, such as Imperial College, have set up their own companies, but 50 universities, 17 polytechnics and eight medical schools have made BTG their preferred choice. As the University of Kent said: After several years doing our own patenting and licensing we, at the University of Kent, have become absolutely convinced that this is not a cost effective way for a university to proced… The BTG route is much to be preferred". Or, as was said by the vice-chancellor of the University of East Anglia, BTG: are responsive, efficient and prepared to take a risk, and in addition are profitable. They have our confidence: so why change it? That vice-chancellor, Professor Burke, should know; he helped to invent and develop Interferon. Do their views count for so little?

Perhaps wisely the Government have not advanced, or have not been able to advance, any of those arguments for the privatisation of BTG. In another place they offered only two arguments. The first was that civil servants are unable to pick winners; only businessmen can do that. The second argument was repeated by the Minister this afternoon: that BTG is hampered by restraints placed on public sector bodies. I doubt whether either of those arguments need detain the House for long this afternoon.

As regards the first argument, that civil servants cannot pick winners, I must point out that we are not talking about different people running BTG after privatisation. Indeed, the scientific community fear that different decisions made after privatisation will be worse and not better because they will be influenced by commercial short-termism. As regards the second argument, that BTG is hampered by restraints which are inevitable in the public sector, I draw attention to the fact that the managing director of BTG, Mr. Ian Harvey, has produced a shopping list of constraints that fall on the company.

Perhaps I may remind your Lordships of some of them. The Government have refused to allow BTG to participate in Link or in Alvey. The Government have refused to allow BTG to handle high-temperature super-conductors. The Government have refused to allow BTG to take over another technology transfer company on the ground of that being backdoor nationalisation. The Government have refused to promote BTG in their literature.

It will strike your Lordships that all those limitations are Government made and not God given. They have everything to do with the Government's attitude to the public sector and nothing to do with the public sector body as such. Your Lordships may think that the answer is that the Government should change their perceptions rather than change the company.

The second argument that the managing director of BTG advanced was that within the public sector BTG must ask Government permission to borrow more than £ 250,000. That figure was set in 1967 and is equivalent to £2 million at today's value. At a stroke the Government could raise that figure, and we all know that. However, we have been led to believe that that is not a real issue because BTG already has sufficient revenue flows and its main constraint is good inventions rather than a capital constraint. A further argument has been advanced that as a public sector body the Government fix salaries but that senior management will wish to be free to fix its own. Your Lordships will give that consideration the weight that it deserves.

Finally, BTG management points to two, possibly three, potential contracts that got away. The first, in Spain, was dropped because the Spanish Cabinet would have needed to discuss the matter. The second was in France where the Quai d'Orsay raised an eyebrow. Such significant contracts were lost. They were apparently not so significant that the DTI felt impelled, required nor propelled to intervene on behalf of BTG to pursue the matter further.

Against the two contracts that may have got away —and it is not clear that the public status of BTG was the reason for their loss—must be set, first, the 140 successful overseas licensing agreements that BTG has negotiated; secondly, the access that BTG has to overseas universities, government laboratories and national agencies which favour public status bodies; and, thirdly, the additional clout that a national agency can carry over and against a small private company when it comes to enforcing patent rights. Most academics doubt whether a privatised BTG would successfully have defended its Hovercraft patents against the Pentagon.

As the University of Manchester's Institute of Science and Technology has argued: With a few notable exceptions which can easily be resolved by the Government, BTG has every freedom to operate nationally and internationally for the exploitation of its intellectual property base". Quite so.

If the arguments for privatisation are so improbable and so perverse, I suggest to your Lordships that the arguments against privatisation of the company are a much more substantial and serious matter. First, we are talking about intellectual property, 75 per cent. of which has been produced by universities and research councils and 100 per cent. of which has been funded by public money. Why do the Government believe that the inventors of MRI and pyrethrine and the holder of an Interferon patent should go to and stay with BTG? Is it inertia, indifference, their ignorance, their absentmindedness, their folly or their shortsightedness? Those people who possess the intellectual property for our benefit have chosen BTG over its competitors precisely because BTG combines genuine entrepreneurial competence with a perceivable commitment to the public good. It is able to brigade the personal and private interests of the inventor, his concern for confidentiality and the proper exploitation of his products, with a wider sense of social responsibility and the anxiety that the first beneficiary should be British industry.

The scientific community is committed to the ethic of public service as well as public research. I find it quite extraordinary that the Government should value and jettison that commitment so lightly. As Lancaster University has said, several inventors have gone to BTG in the past to ensure that their ideas were licensed non-exclusively for wide benefit. In other words, BTG is the organisation which those inventors would have created had they needed to. If it goes, that may need to be done again.

The scientific community has more hard-headed reasons for supporting the present structure of BTG. The Government may suggest that a private sector BTG responsible to shareholders may be even more successful. That is what the scientific community fears. Shareholders, in their quest for safe and speedy profits, will reduce the risk taking and the speculative investments with uncertain pay-offs which BTG now provides. Many patents, especially of pharmaceuticals, take 10, 15, 17 or 20 years to develop fully. MRI —body scanning—required development funding for 17 years. Few private companies will wait that long. Indeed, one need only look at British Telecom's research programme at Martlesham. Since privatisation it has become notorious in the academic world that BT now pursues only those projects which have a two-year pay-off.

BTG can also offer critical mass: 190 scientists, engineers, lawyers, patent officers and financial experts who together possess an unequalled expertise which commands academic confidence. If BTG is privatised, the academic and scientific community has real fears about its ownership, some of them having already been expressed. A trade sale could mean inventions being suppressed. An overseas sale might mean that piranha properties—Taiwan—will milk existing licences without funding research and development. If change there must be, then a trust would be preferable to other privatised options. However, it means that universities are being asked to buy rights to develop the intellectual property they already own and to buy what they cannot afford, given their straitened financial circumstances. However, if they fail to buy, their own intellectual property will be at risk.

Perhaps the Government will finance the universities to buy out BTG so that the financial proceeds may return back again to government. If that is so, why do they not invest in them now and make clear that they are vesting in them a golden share for a nominal consideration?

If BTG is privatised it will lose those features which make it so attractive to many academics and universities. If BTG loses their confidence, they will go elsewhere and the privatised company will wither and not grow. The UEA states: If BTG were now to be privatised and enter the private sector with no distinction in its role from that of any other short term finance venture capital company, we shall certainly reconsider our position here at UEA, since there would be no advantage in staying with BTG". Lancaster University makes a similar comment. It states: there are many private sector companies doing a similar job … why create another? The distinctiveness of BTG is that it is a national agency, commercially run, which brigades the private and public interest. That distinctiveness is not its liability, as the Minister suggested, but is its asset and the reason that it commands the confidence of the scientific community. In its present form, it adds to the plurality of outlets and opportunities. It is properly competitive and offers choice.

The universities and the scientific community do not want this change. Only 20 per cent. of universities support the Bill. The rest either want no change or the least change possible; that is, a trust. They want to know from the Minister what assurances can be given that BTG will not be divided, dismembered, disbanded and lost to the nation.

Finally, in the words of the University of Kent: From the point of view of the nation as a whole, it is vital that full advantage should be obtained from inventions made in this country; and a genuinely independent, comprehensive and commercially experienced service such as BTG now provides is the best, probably the only way, to prevent fruitful inventions from being lost or suppressed". From the point of view of the nation as a whole, we ask the Minister to think again.

The Earl of Halsbury

My Lords, before the noble Baroness sits down, may I ask, does she accept that her reference to inventions being bought up and suppressed is pure illusion from a legal point of view, because any invention patented and not being worked can be the subject of an application to the controller of the Patent Office for a licence of right?

4.15 p.m.

Lord Birdwood

My Lords, I shall not take up more than a few moments of your Lordships' time this afternoon. I am afraid that I have nought for my noble friend's comfort this afternoon in his maiden voyage in the Department of Trade and Industry beyond a logically founded belief that it is right for BTG to seek privatisation, but the unity of voices raised this afternoon on the absolute necessity for certain key reservations to be built into the Bill is a unity which I share.

I always find it extremely difficult to disagree with the points of view put forward by the noble Lord, Lord Williams of Elvel. Sometimes I find his lucidity dismaying when I genuinely disagree about the political platform from which he speaks. However, in this instance the way he picked up Mr. Leigh's comments in another place—and I have read those —rang all sorts of bells with me. My noble friend Lord Beloff also commented on the curious evasions in this thin and less than incisive Bill. I am no parliamentary draftsman. Perhaps of necessity an enabling Bill of this sort is as lacking in detail as is this Bill confronting us this afternoon.

For a while I thought I was to be the only voice from these Benches speaking on this Second Reading. I find that extremely distressing and possibly an insight into the views of my government friends about the importance of science and technology, again subjects touched upon my noble friend Lord Beloff. However, the Bill has my personal support and I hope that its passage into law will be smooth, although from the debate this afternoon I believe that that is a forlorn hope.

Before continuing I should declare a sort of interest. I have personal links with a profit-making scientific organisation, the founder of which is on the council of BTG.

Going back into the history of BTG and how it was fused out of NRDC and NEB, which the noble Earl, Lord Halsbury, touched upon, I must admire the skill with which the original architects left an entity to get on with its own business. I shall not repeat the figures because they are well laid out for anybody to read, but today we have an exceptionally sturdy, flexible, profitable and attractive organisation; a hybrid which could easily have been stifled by the politics which surrounded its formation.

Today BTG is a credit to its executives and it reflects credit on the foresightedness of the people who brought it into being. However, a philosophy from which will not swerve is that all organisations must evolve. We heard from the opposite Benches a series of persuasive reasons why no change should take place. But BTG is no exception to the rule that organisations must evolve or they die. BTG is now ready to migrate from state-ownership.

Anyone who knows me will have heard me often say that I have a personal distaste for ideologies, left or right. This afternoon we are in the front line of an ideological issue —I am surprised it has not been mentioned because Second Reading is surely the time to do so—as to whether a successful enterprise should be state owned. On the whole, ideologies tell us how the people who frame them think other people should behave. I prefer to watch and encourage what actually works rather than what people believe other people ought to work at. Change works and commercial freedom works. None of the events over the past two years allow for any denial of that. The rigour of profit works and BTG must be excepted from any colour of criticism—its profit record has been outstanding. The time is appropriate for the organisation to go through a thres iold of evolution, and I am glad to give my support to it today.

A subject touched upon this afternoon, but not given sufficient emphasis, is intellectual property—what it is, what it is in law and how it can help the nation. On the whole, we use BTG's terminology which is "technology transfer". In a commercial climate in which there is a decline of manufacturing, whether politically driven or simply a cycle in a society, the management of intellectual property—I make that distinction as vehemently as I can; I am not speaking of intellectual property as an entity in itself but the management of intellectual property—is a difficult skill for a society and for a company. However, it is absolutely essential in Britain today. The management of intellectual property as represented by BTG is too important to be left to the state. It is a key enabling skill. It is a key enabling activity.

The management of intellectual property is world wide. We have seen that in the track record of BTG with its increasing dependence on global rather than domestic issues. But it is still fragmented. It is an immature commercial activity. BTG owns around 3 per cent. or 4 per cent.—possibly less—of the world revenue in the management of intellectual property. That makes it twice as big as the next organisation in the word in that field. Voices were raised with regard to whether capital would be found during the privatisation process. I suggest that with those ratios in front of us capital will be the least of our problems. Once BTG is released from its cage or its present hot house there is no realistic limit to what it can be. Even if it obtained 6 per cent. of the world revenue in this area, it would double its size.

I was puzzled by the pronouncements of the vice-chancellor of the committee, which I consider to be a little paranoid. I do not see why the universities' output should suddenly be blocked by BTG changing its status; quite the contrary. I suggest that its increasing flexibility and the faster speed of response which will be possible in a private environment will enhance its attraction to university intellectual output.

It is a tribute to BTG that it is often perceived as a private organisation. Material which it pointed out to us listed a few cases in which its relationship with the state and its hybrid nature prejudiced possible exploitation contracts. I prefer to regard myself as an inventor in this country. How would I feel about giving the management of intellectual property embedded in my invention into an organisation owned by, for example—I do not want to sound xenophobic —the French Government? I would be happy to give it to a French company if that company showed me that its track record and intellectual ability to resonate with what I was producing was the best possible policy. Contrary to what some noble Lords opposite said, I would feel more comfortable—I know that this opinion is shared by many people responsible for innovation—passing innovation over at an early stage to a private organisation with appropriate safeguards rather than to a state-owned organisation.

Before I sit down it may interest your Lordships to learn that today's issue of Fortune International is almost entirely dedicated to the importance of intellectual property. On the front cover it is referred to as, "America's Most Valuable Asset". As I touched on earlier, it is also an exceptionally valuable asset for this country. The opening paragraph of the key article states, Brain power has always been an essential asset. It is, after all, why Homo sapiens rules the roost. But it has never before been so important for business. Every company depends increasingly on knowledge—patents, processes, management skills, technologies, information about customers and suppliers, and old-fashioned experience. Added together, this knowledge is intellectual capital … Such collective knowledge is hard to identify and harder still to deploy effectively. But once you find it and exploit it, you win". BTG, as a private entity with the safeguards built into it —I wish the Government had seen fit to spell out some of those safeguards —is in a position to win for all of us. Somebody much wiser than I said that the future that is with us now is not going to draw a distinction between the haves and the have nots, but between the knows and the know nots.

4.30 p.m.

Lord Clinton-Davis

My Lords, I should like to start by echoing what my noble friend Lord Williams of Elvel said in welcoming the Minister to the Front Bench in his new role. We think it is a deserved promotion, albeit in a dying Government, but on his baptism he can draw scant comfort from any support that he may have had so far as concerns the Bill. Even those who welcomed the Bill, like the noble Earl, Lord Halsbury, and the noble Lord, Lord Birdwood, were critical and they raised a number of highly pertinent questions which I hope the Minister will be able to answer rather more fully than the Parliamentary Under-Secretary in another place. The noble Lord, Lord Birdwood, said that the Bill was lacking in detail and contained no safeguards. Those views have been expressed by virtually everybody who has spoken in this debate. The Minister also had to witness a most paralysing indictment of the Bill by his noble friend Lord Beloff and by my noble friends Lady Hollis and Lord Williams of Elvel.

This has been a very interesting short debate. The noble Lord, Lord Beloff, in his powerful indictment indicated that the Government have not made up their minds about what they want to do in the future or, alternatively, having made up their minds, they do not want to reveal their intentions. I think that that just about summarises the Government's position today. The noble Lord went on to pose the question: why did the Government care to be seen as the enemy of research and of the universities? He added that after all most of the Government Ministers are the product of universities. Perhaps in moments of introspection that may be why they are hostile to universities at the present time, having regard to the record of those self-same Ministers.

The Bill has no connection with the national interest. It is by no means inconceivable that the new entity, whatever it is, will cease to promote British interests. It has no connection with the employment interests of the BTG staff and no connection with long-term planning in order to ensure the interests of BTG's clients and the scientific community as a whole, because by its very nature it will have to become far more preoccupied with short-term considerations, as my noble friend Lady Hollis said. Coupled with that —and this was reiterated on all sides of the House —is the danger of asset stripping, which would unquestionably destroy the integrated service on which public sector research so strongly relies.

The Bill has no connection with the recommendations of the Coopers & Lybrand report. My noble friend Lord Williams and the noble Lord, Lord Meston, both asked why the Government were so coy about that report. The explanations that have been proffered in another place simply will not do. Indeed, one might well ask the question: what would have been the Government's reaction had the Coopers & Lybrand report been favourable to the Government in its conclusions? I suspect that we would then have heard no argument about confidentiality or giving undue help to those wishing to negotiate a purchase, which are pretty lame excuses for non-publication. In those circumstances everything would have been out in the open.

The Bill has no connection with the experience in Europe. Again, as my noble friend Lord Williams observed, in France, Germany and Denmark all similar companies have been able to operate perfectly well, unencumbered of course by the ideological baggage of the kind that still dominates what poses as the thinking of this Government. There is no connection with the Government's own experience when they misguidedly set up defence technology enterprises—a "whizz" idea in the mid-1980s of Mr. Heseltine's. That of course was a sad precedent but it is also an unhappy augury for what they now have in mind.

Least of all does the Bill have any connection with the Government's proffered rationale for privatisation in this instance. They say that BTG has held back because it is a public sector organisation, because there are bureaucratic restraints and because in the private sector it could offer a more comprehensive service and take up rather more opportunities. This rationale, which was stated over and over again by the junior Minister in another place, is exploded by the fact that any such holding back as has occurred has been accomplished as an act of deliberate policy by this Government over the past 12 years. Despite the fact that that has happened, BTG has continued to make profits and pay dividends and has on occasion, on demand, even given extra cash to the Government.

The Bill certainly has no connection with usual legal practice. The Government have steadfastly resisted publication of the memorandum and articles of association—a point very strongly made by the noble Lord, Lord Beloff, and the noble Earl, Lord Halsbury—on the strange and spurious grounds that they should wait and see who are to be the prospective purchasers before determining what should go into the memorandum and articles of association. To say the least, it is unusual to depart from the practice that the memorandum and articles of association should be prepared on the instructions of the promoters of a company. I have never heard of a situation in the real world where the memorandum and articles of association are prepared in consultation with or as a result of identifying the potential purchasers of the company.

The real reason for this privatisation—and the cat was well and truly let out of the bag by the Parliamentary Under-Secretary of State in another place—is of course to maximise the receipts to the Treasury and also, as part of the continuing remnants of Thatcherite ideology, to privatise for the sake of privatisation. That is why they have failed or refused to consult the Committee of Vice-Chancellors and Principals before embarking on this hard-boiled and half-baked idea. It is true that Mr. Leigh, under great pressure, saw the committee later and then all he could say was, and I quote: the Government would give careful consideration to the universities' favourite opinion. Equally, as we have heard again today from the Minister, the Government have refused to rule out other options and the likelihood is that it would be the other options that would prevail. It is clear that the Government have not convinced the universities, their staffs and others that the future of their intellectual property—and the universities are the most significant single source of BTG's intellectual property—will be safeguarded and will be effectively exploited to the continuing benefit of those who, after all, are the originators of the intellectual property.

The Government, in their purblind state, fail to recognise the extraordinary contradiction in what they are currently bent on. That is to say, at one turn they urge the universities to maximise the commercial exploitation of their intellectual property and to procure financial support from sources other than the Government and, on the other hand, they have to maximise the returns to the Treasury. This conflict of course would be most marked if a successful bidder for BTG wanted to engage in asset stripping—that is something which has concerned a number of your Lordships this afternoon—and also for commercial reasons sought to suppress or slow down the exploitation of BTG's intellectual property. Over and over again the Government have refused to offer safeguards against any such possibilities; or even to acknowledge that they exist. Therefore, the Opposition will continue to attack what we believe to be a misconceived concept of privatisation. Assuming that the Government refuse to back down, which I believe is the rational course for them to take, we shall seek to mitigate the mischief of the Bill by seeking to introduce appropriate safeguards at Committee stage and subsequently on Report. First, we shall seek to insist on the publication of the Coopers & Lybrand report, or at the very least on a resume which excludes highly confidential information—if there is such highly confidential information. We insist on the Government being much more open than they have about t hat. For example, does the Minister agree that the Coopers & Lybrand report recommended a course completely contrary to that which the Government have now taken?

Secondly, we shall seek to insist on the publication of a satisfactory form of memorandum and articles of association to prevent any potential purchaser—not just the immediate purchaser from engaging in asset stripping. We are not prepared to give the Government a blank cheque in this regard, which is what they are asking for. Thirdly, we shall urge the retention of a special share by the Government to ensure that changes are not made to the fundamental business of BTG without the consent of the Government and, more particularly, of Parliament. This point was made most specifically by my noble friend Lady Hollis. Fourthly, we shall seek to avoid, by inserting suitable provisions in the memorandum and articles of association which ought to be before this House, deterring or instigating others in similar technical sectors from using BTG because of its possible, sale to a commercial or manufacturing undertaking. Such a trade sale or break-up sale would be inimical to its independence, impartiality and integrity so far as concerns inventors and a wide range of different companies.

Those three i's—independence, impartiality and integrity —are crucially important to inventors and a wide range of people who are deeply concerned about the Bill. We shall also seek to ensure—and this point was made by several noble Lords this afternoon—that the locus of universities in the managerial structure of any new enterprise will be properly regarded and taken account of.

We do not like this Bill. My noble friend Lord Williams and I have made that abundantly plain. There are very good reasons for not liking the Bill. We feel reassured by the number of noble Lords on both sides of the House who have expressed the strongest misgivings, not from the point of view of any ideological instincts but because they believe that this Bill ought not to have been brought before Parliament. It is not too late for the Bill to be rejected.

4.43 p.m.

Lord Reay

My Lords, I should like to start by thanking most sincerely the noble Lord, Lord Williams, for his very gracious opening personal words in which he was joined later by the noble Lord, Lord Clinton-Davis; though I do not want to enter into his teasing speculations as to the length of time I am likely to be here.

We have had a short but lively debate with some very interesting contributions from all sides and some most useful markers put down for the Committee stage. I can give an assurance that I shall study carefully all the different concerns and, in some cases, warnings that have been expressed from different quarters of the House. I shall do all I can to meet what reasonable concerns there are.

The noble Lord, Lord Williams, wondered what was the real reason for privatisation, as did the noble Lord, Lord Clinton-Davis. I explained this very fully in my opening remarks. While self-financing and profitable, BTG is severely constrained by the obligations which rest on a public sector company and which prevent it from developing in the way it could to the advantage of customers and inventors—and perhaps even the Exchequer. As I explained, a public sector BTG has to seek permission for its principal investments from Ministers whose judgment is not necessarily the most informed or appropriate, and which only delays matters. The department must approve the salaries of senior personnel according to public sector criteria; and again that may not be the most suitable yardstick for a company operating in the free market.

The company may not in any circumstances incur external borrowings over £250,000—a fairly paltry sum for the international business BTG has a chance of becoming. Moreover, as I attempted to show, BTG has developed the habits of a commercial company. All in all, we believe these are quite sufficient reasons to justify the privatisation of BTG. BTG is successful, but we believe it could be much more successful in the private sector. It is emphatically not a question, as the noble Lord, Lord Clinton-Davis, charged, of it being privatisation for privatisation's sake.

In regard to the need for BTG to preserve its three i's, as the noble Lord, Lord Clinton-Davis, put it—its independence, impartiality and integrity—the Government are looking at what conditions it may be necessary to impose on the sale in order to try to meet some of the anxieties that have been expressed. As I said, no sale option has been ruled out. We are looking at measures which might be included in the sale contract or articles of association. Subject to EC law, we have not ruled out the retention of a "golden" share to safeguard any provisions for a limited period. Decisions on these matters can only really be taken once the identity of the buyer is known. What protective measures are necessary will to a large extent depend on who the buyer is. Contrary to what the noble Lord, Lord Williams, argued we do not believe it would be sensible to try to write such measures into the Bill. For one thing, we do not see how such abstract concepts as independence, impartiality and integrity could be written into the Bill in any meaningful way. It would provide insuperable problems of interpretation. It might also prejudice the whole process of privatisation which would, in our view, be in nobody's interest. Let me repeat: we will try to maximise the net return to the taxpayer consistent with there being a good prospect for the continuation of BTG's technology transfer business. How that can best be done will very much depend on who the buyer is.

Lord Clinton-Davis

My Lords, on the question of the memorandum of articles of association, does the Minister not recognise that the practice he has now recommended, if applied to the private sector generally, would make nonsense of the way in which companies carry on their business?

Lord Reay

My Lords, I was coming on to say something about the articles of association about which the noble Lord, Lord Williams, asked a specific question. As I said, we are taking that issue into account. Work has already begun on drafting the possible articles of association for the successor company. My department has recently appointed a leading firm of City lawyers to act as external legal advisers on all aspects of the sale process and it is looking closely at that particular aspect.

Noble Lords will appreciate that it is necessary to take pains to get these matters right. If these draft articles of association are ready while the Bill is before the House we shall certainly table them. I can assure noble Lords that I shall make every effort to ensure that that is done.

Lord Williams of Elvel

My Lords, I am sorry to press the Minister as I know that he has gone very far on this matter. However, will he please give the House an assurance—because an assurance is what the House requires—that the articles of association will be before your Lordships before the Bill leaves this place?

Lord Reay

My Lords, I cannot go beyond the assurance that I have given. If the articles of association are ready while the Bill is still before the House we shall certainly table them; and I shall do my best to ensure that they are ready.

It has been argued, in particular by the noble Lord, Lord Williams, that the Government have ignored or overridden the interests and opinions of the universities, of the inventors and of the staff. It is not correct to suggest that the Committee of Vice-Chancellors and Principals has not been consulted. My honourable friend met the CVCP on 15th April. The CVCP expressed the desire to see BTG as a lively commercial concern in the private sector and also expressed a wish to own a small but not negligible share in the privatised company. The Government will give most careful consideration to any proposals that it may make.

So far as concerns inventors, the Bill ensures continuity of all existing contracts and agreements. In future inventors may use the BTG, as they have done in the past, or any other exploitation mechanism if they so choose. It is indeed the case that one leading inventor has expressed his concerns on the Bill to us. We have met him. Although BTG holds a portfolio of around 8,500 patents, we have met or had representations from a total of only three inventors. There is a notion that some inventors, driven by altruism, have assigned their ideas to BTG principally because it is in the public sector. But to my knowledge inventors have very rarely refused revenue-sharing arrangements.

It is natural that the staff should have anxieties when a major step that is bound to affect them all intimately is about to take place. We have discussed the matter with the employees' representatives, my right honourable friend the Secretary of State having met the union representatives earlier this year to hear their views. Their views have been noted by the Government. I repeat that the Bill will not affect existing pension and redundancy arrangements. Schedule 1 to the Bill makes this quite clear. As with management, employee participation in the sale has not been ruled out.

I was asked some other specific questions. I was asked about the excising of the commercially sensitive parts of the Coopers & Lybrand report, a question also put recently in written form by the noble Lord, Lord Williams. As we made plain to him in our reply, the contents of the report are very largely commercially sensitive or confidential. For that reason we believe that partial publication of the report or its conclusions would be pointless.

The noble Lord, Lord Clinton-Davis, asked whether the report recommended against privatisation. Examination of the principle of privatisation was not within the remit of that study. The report analysed BTG's business and looked at the feasibility of various privatisation mechanisms.

The noble Baroness, Lady Hollis of Heigham, referred to universities being reliant on BTG. As my noble friend Lord Birdwood pointed out, we do not believe that there is any reason why BTG could not continue to provide services to those universities which wished to use it in the private sector. The Government are currently considering what alternative arrangements would be needed for those which chose not to do so and which currently have no alternative arrangements. However, whatever noble Lords may have been told, only two universities have expressed concerns to us.

The noble Baroness asked about the raising of borrowing limits. We do not believe that we could raise such limits. There must be control of a public sector body. She also asked about contracts which had been lost because of BTG being within the public sector. I must make it plain that BTG has had problems in gaining overseas contracts. The noble Baroness asked why the Department of Trade and Industry had therefore not done more to help it get these contracts. In two of the cases, the Government were not asked by BTG to help because BTG took the view that representations by the Government would be counterproductive in terms of helping it to try to obtain the contract. However, we have been asked to intervene in a recent case that has arisen in the United States. We arc doing so.

I am grateful to the noble Earl, Lord Halsbury, for his welcome for the general principle of the Bill. He was for 10 years the managing director of the NRDC and knows this matter intimately. He asked about the status of retired public servants and whether they would be affected by privatisation. The BTG privatisation would not affect retrospectively the status of its retired officials. The pension arrangements covered by the NRDC pension trust deed are vested in the successor company by Clause 1 of and Schedule 1 to the Bill.

I conclude by reverting to the principle behind the Bill, which is the issue of privatisation. We see BTG as an eminently suitable candidate for privatisation. It already operates along commercial lines. Yet it is restrained from making advances by rules which have become inappropriate but which necessarily apply to public sector bodies. On this side of the House we believe that privatisation can bring great benefits—and mo,;t of the rest of the world evidently agrees with us. I do not believe that this case will prove any exception. I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.