The Minister of State, Department of Trade.and Industry (Earl Ferrers)
My Lords, I beg to move that this Bill he now read a second time.
The Bill before your Lordships is intended to pave the way for the privatisation of the commercial activities of the United Kingdom Atomic Energy Authority. It contains provisions of the type which are normally found in legislation of this kind, but they are tailored specifically to the circumstances of the authority.
The United Kingdom Atomic Energy Authority came into being in 1954 as a nuclear research and development organisation. It took over certain responsibilities for the development of atomic energy which had previously been exercised by the Ministry of Supply. The authority was not intended to be an academic research institute, nor was it intended that it should pursue basic science. It was the vehicle by which the new technology could be developed on a commercial scale. But the operation of the technology, once it had been developed, was left to others. It was left, for example, to industrial consortia; to the electricity authorities; and to what ultimately became British Nuclear Fuels and Amersham International.
By the 1960s it was clear that the authority's skills and expertise could more effectively be exploited if the authority were permitted to undertake non-nuclear work. Therefore, the authority was empowered in 1965 to carry out non-nuclear research and development, and in 1974 its powers were further extended in order to allow it to work in the environmental field. Unlike the nuclear programme, which was financed mainly by money provided by the Government, non-nuclear work was done from the outset under contract to customers. Most of these customers were, to start with, government departments; but over the years the field has widened to include other public and private-sector customers, both here and abroad.
In a similar way, even in the nuclear field, almost all of the income which the authority now earns comes from work which is done on a contract basis. Because the authority's commercial activities were growing in importance, the decision was taken some 10 years ago to put the whole organisation on a trading fund basis. That was done by the Atomic Energy Authority Act passed by Parliament in 1986.
Since then, the emphasis has increasingly moved away from nuclear research and development and towards providing scientific and engineering services. The authority's nuclear facilities have largely been closed, and staff numbers have fallen from the peak in the 1960s of over 40,000 to some 6,000 today. Therefore, the privatisation of the Atomic Energy Authority's commercial 730 activities is the next logical step in a process of technology transfer and exploitation which has been going on for many years.
The authority today consists of two divisions. One is called UKAEA Government Division and the other, AEA Technology. They operate at six sites. They are Harwell and Culham, both of which are in Oxfordshire; Risley, in Cheshire; Winfrith, in Dorset; Windscale, in Cumbria; and Dounreay, in Caithness. The Government's intention is to privatise AEA Technology. UKAEA Government Division will remain in the public sector.
The prime function of the government division is to manage the process of decommissioning the authority's nuclear facilities cost-effectively and to ensure that that is done in accordance with safety and environmental requirements. Following privatisation, the Government Division will retain the ownership of the authority's nuclear licensed sites as well as the responsibility for the safe management of the authority's nuclear liabilities and those operational nuclear facilities which still have life left in them.
The government division is also responsible for fusion research; for the UKAEA constabulary; and for the authority's other non-commercial activities. Again, these activities will not be transferred to AEA Technology but will stay in the public sector.
On the other hand, AEA Technology is responsible for all of the authority's commercial activities. It is an international science and engineering services business. It has a turnover of over £250 million, and it employs some 4,000 people who are spread across all six of the authority's sites. The business of AEA Technology is to identify problems and to try to find solutions to them based on the know-how which has been built up over 40 years of leading edge science and engineering. It operates in four closely related areas: in making the best use of industrial plant and improving production and processes; in product development and improvement; in safety and risk management; and in environmental and waste management.
It would take too long—and I fancy that it would be to the discomfort of your Lordships—if I were to describe even a selection of the many activities of AEA Technology in detail; but the breadth of its operations is demonstrated by its wide range of markets. For example, it is involved in manufacturing; in transport; in oil and gas; in defence; in energy supply, including the nuclear sector; in chemicals; and in healthcare. Some 40 per cent. of AEA Technology's business comes from the Government. A further 18 per cent. comes from the United Kingdom public sector. But in volume terms those markets are of diminishing importance.
AEA Technology's growth markets are in the United Kingdom private sector and overseas. In broad terms the United Kingdom private sector already accounts for nearly 20 per cent. of its turnover. Overseas markets now account for well over 20 per cent. of its turnover. Sales to both markets are growing rapidly. Privatisation will provide another stimulus to this process. It is clear to all those who have detailed knowledge of the business and, most important, to its management that privatisation represents the best—indeed the only—way forward for the business.
731 There are enormous opportunities open to AEA Technology. But it will be able to take full advantage of them, and will be able to maximise its return to the United Kingdom, only if it has the freedom and the flexibility which being in the private sector will give to it.
In a nutshell, that is what this Bill is all about. Its purpose is to enable AEA Technology to exploit the opportunities which are there for it to grasp, and to enable it to realise its full potential as a business and as a valuable national asset which will be capable of making a greater contribution to the national economy.
Perhaps your Lordships will permit me to explain what our plans are for the future of AEA Technology. In his Statement of 17th February 1994 in another place, my right honourable friend the Minister for Industry and Energy announced the Government's intention to privatise AEA Technology. He explained that decisions on the form which privatisation would take would be based on AEA Technology's performance in the market place, and on the extent to which the various options met the requirements of the potential customers; would enhance competition; would help to improve United Kingdom competitiveness; and would maximise the return to the taxpayer.
Since then, the Government have made it clear that, for the time being, AEA Technology will continue to be managed as a single entity and that those criteria may be likely to be best satisfied if it is offered for sale as a single entity.
As the staff are the principal assets of this business, we have also make it clear that the Government will consider seriously any bid which comes forward from management and employees. We have also said that, whatever form the sale may ultimately take, we will be looking to achieve a substantial level of employee participation in it.
Final decisions on the form of privatisation must, though, depend on the performance of AEA Technology over the next few months; on the Government satisfying themselves that sale of the business as a single whole will best meet the needs and requirements of customers and, particularly, the specific requirements of government customers; and on confirmation from the market that a sale as a single entity will secure the best overall value for money for the taxpayer. Decisions on the method and the timing of the sale can, clearly, be taken only in the light of market circumstances at the time.
The Bill envisages that the authority's commercial activities might be transferred to the private sector by two possible methods. The first is to vest the property, the rights and the liabilities in one or more publicly-owned successor companies. Shares would be held either by the authority or by the Secretary of State. Those shares could later be sold to the ultimate private sector buyers. Alternatively, in the event of a trade sale and if the circumstances were right, assets might be transferred directly by scheme to the ultimate buyer. The business could be sold as a whole or in parts. The Bill leaves open the possibility of more than one transfer, and it leaves open the possibility of transfers being carried out on more than one date.
732 The Bill does not refer to AEA Technology as such. AEA Technology does not yet have a separate legal identity within the authority as a whole. Therefore, the scheme-making powers relate to any of the property, rights and liabilities which are owned by the authority, but subject to the specific exclusion of nuclear site licences and freehold land which is subject to such licences. That kind of property may not be transferred under the terms of the Bill.
The exclusions are there to show that the Bill is not intended to pave the way for the privatisation of any nuclear liabilities or the privatisation of the authority's licensed sites. In so far as AEA Technology operates on or within a licensed nuclear site, it will do so in accordance with the authority's existing security and safety requirements. Privatisation will not affect existing safety or nuclear security requirements in any way. In addition, as I have already said, the other activities for which the government division is responsible will also remain in the public sector.
The Bill provides for the financial structure and control of the successor companies after they have been vested and while they are still publicly owned. And the Bill provides powers to enable these companies to borrow from the National Loans Fund while they remain in the private sector. There are also powers to permit the write off of the debt of the authority up to the value of its proceeds. Those powers are there for a specific purpose and it is this. The authority has an outstanding debt to the National Loans Fund of some £130 million. We want to ensure that the proceeds of the sale are offset against the net present value of that debt. In other words, we want to write off the debt, so far as is possible, by the proceeds of the sale. Clause 10 of the Bill specifically provides for that.
Clause 10 also permits the extinguishing of the National Loans Fund debt of publicly owned successor companies. That will happen where the debt is converted, so to speak, by the issue of an equivalent amount of securities or debentures to private sector buyers. Our intention is that if any successor company debt is not converted it will be repaid by the company or the net present value will be written off against proceeds. The tax provisions are intended to follow the precedents of earlier privatisation legislation. They aim to provide for tax neutrality—that is, that the transfer of property, rights and liabilities should not of itself give rise to tax charges.
On pensions, the Bill makes provision for all employees who are transferred to a publicly-owned successor company to remain in the authority's schemes until privatisation. At the time of privatisation, the Bill places a statutory duty on the vendor, whether the authority or the Secretary of State, to be satisfied that employees can join a pension scheme which taken as a whole is no less favourable than the authority's schemes. That means that the new scheme must offer benefits which are at least equivalent to the authority's schemes, although the mixture of benefits may be different. That reflects the Government's long-standing practice where public sector employees are transferred to the private sector. But we have set it out expressly in the Bill so that employees should know exactly where they stand.
733 I hope that what I have said will enable your Lordships to realise why the Government feel that privatisation is the right way forward for this business. Apart from anything else, privatisation will provide the staff with the best opportunity for them to realise the full commercial potential of their scientific and engineering activities, and it should bring the maximum benefit to the United Kingdom as a whole.
Those are the reasons for the Government introducing the Bill. I commend the Bill to your Lordships.
§ Moved, That the Bill he now read a second time.— (Earl Ferrers.)
§ 11.21 a.m.
§ Lord Peston
My Lords, I must thank the Minister for introducing the Bill. The Bill is curious in one way in that it is relatively short in terms of the amount of paper it occupies. But, in my judgment, it is intrinsically a very long Bill which raises an enormous number of questions most of which are not answered in the legislation. Indeed, there is so little said in the Bill about what will actually happen that we shall obviously have to have a long and detailed Committee stage merely to elicit from the Government what they actually have in mind and what they propose to do.
A further complication is that when the Bill was first introduced in another place the nuclear power White Paper had not appeared and the Government had not made an announcement on privatisation of nuclear power generation. When we are considering the Bill in detail it seems to me that we will also have to look at it in that context. Perhaps I may say, en passant, that I was waxing rather strongly about the need for your Lordships to debate the nuclear power White Paper at some time, but I have not seen anything yet on our forward-looking document as regards when we are likely to do so. However, I argued at the time—and I believe noble Lords on all sides of the House agreed —that we ought to do so. Indeed, that is still my view.
I should also add that one reason why we need to scrutinise the Bill is what emerged in the Statement on nuclear power generation privatisation. I fully agree that I ought to have appreciated the fact—although, as I said at the time, I did not—that the Government feel able to say that they have the powers to privatise nuclear power generation without returning to Parliament. In particular, so far as I can see, even though the other place has procedures whereby a way can he found to at least debate the matter, we have no procedure whatever which would enable us to look at nuclear power privatisation. That is because the Government say that they do not need any further legislative power.
The reason that I emphasise that fact - apart from regretting that that will happen—is that, unless I misunderstand the legislation, the Bill is in exactly the same form. Assuming that the Government are able to pass the Bill into law, when the time comes to make those transfers to the private sector the Government will simply do it. They will say, "Well, we have passed the Atomic Energy Authority Bill and that gives us the power to make such transfers". Therefore, there will be no need to come to your Lordships' House. The Government may come to 734 us with the announcement that they have done so, but they will not require any powers in that respect. In other words, we shall not be able to do anything about it if, for example, the Government were to split up AEA Technology much against our wishes. Indeed, we could do nothing about it. That is another reason why we will have to spend a good deal of time on the Bill as it is. If I am right—and perhaps the noble Earl will confirm this in his response—this will be our only opportunity to look at such matters.
The Minister said that he hoped he had convinced us. I wrote down several of his expressions for my future use. I believe he said that the Bill was the next logical step. The noble Earl also used the expression, "the best and only way forward". I am not sure what else he quoted from the cliché book of the Department of Trade and Industry. I should tell the noble Earl that he did not convince me in any way about the need for such a "next logical step". Indeed, we have the usual paradox in that what AEA Technology demonstrates is how well such a body can do in the public sector. It can do very well and it can meet the market test. It is now operating on a trading fund basis and doing so successfully.
When a firm in the public sector is doing badly the Government say that it must be privatised but when a company is doing well they also say that it must be privatised. In other words, there is no logical basis to what the Government have to say. Essentially, AEA Technology is an affront to what we might call the "dying embers" of the Government's free market policies, most of which have now gone. It is an affront to what is left of their political philosophy and they feel that this is their last chance to do some damage to an extremely good public sector institution.
In that connection I have two further points to make. First, are the Government able to tell us at present how profitable the business is on a proper profit and loss account basis? Can we be told that information, or is it commercially confidential? Secondly, BZW (Barclays De Zoete Wedd) produced a report on the matter. I am not quite sure how to pronounce the name as I tend not to mix in those rather high-falutin merchant banking circles. Perhaps I should, as always, declare a complete lack of interest. None of them seems to feel that it is worth while to employ me as a non-executive director—yet. There is a copy of the report in the Library. As that places it in the public domain, I am wondering whether other noble Lords who are interested in the extremely bulky document could have their own copies because it is, rather easier to work with such documents when one actually has one's own copy. Incidentally, I should be quite interested to know how much BZW was paid for the report. So far, I have only managed to read the summary which claims to demonstrate the value of privatisation. I cannot find any serious analysis in that respect.
I turn now to AEA Technology. For my own interest, I was delighted to hear the Minister say that the Bill is not called the AEA Technology Bill. I have looked through the legislation—and I am not terribly good at such things—and I could not find any mention of AEA Technology in it. I believe that the noble Earl can confirm that that is not an error on my part. Indeed, it is not mentioned. Essentially the Bill gives the Government the powers not to privatise a whole section of the Atomic 735 Energy Authority, but powers to privatise what is left over. What is left over turns out to be AEA Technology. It is a rather peculiar way of undertaking a privatisation. It leads to questions some of which the noble Earl answered.
The main question, apart from, "What it is?"—and since the Bill does not specify what AEA Technology is we have some difficulty from the outset in knowing precisely what we are talking about—is: "What are its assets?" What is it that you are selling? I entirely agree with the Minister who, I believe, said that really the assets are the people who are employed by AEA Technology, together with their skills and their know-how. To use a rather ghastly technical term, what we have here is an example of supra-additivity; namely, that the whole is worth a good deal more than the sum of the individual parts.
What matters is whether all these people as a whole and their know-how are to be transferred. I believe that the Minister in the other place originally took the view—but then he seemed to change his mind—that, if this business is to be sold at all, it should be sold as a whole. However, there is now no commitment to selling the business as a whole.
My interest, wearing a standard economist's hat, is in what there is to sell anyway, in so far as all the people who belong to AEA Technology are footloose. If one buys the company, that does not mean one owns the employees. They could work for someone else and even set up their own company as far as I can see. I am interested to know what, finally, there is to be bought. Do the Government have any indication of what the business is worth net—I mean what it is worth net of all its liabilities? That would he worth knowing.
That point relates to two other questions. Does AEA Technology have a series of long-range contracts which would be transferred with the privatisation? I assume that as we are talking about the transfer of property, included in what would he transferred would be intellectual property. In so far as the Atomic Energy Authority—I am not sure it is that body—or the Government own the relevant intellectual property, would that be included in the sale? I give the Minister notice of these questions but we shall deal with them in much greater detail when your Lordships sit as a Committee. One is interested in the liabilities, the nature of the possible write-offs and all that sort of thing.
I have referred to who would buy the business and what there is to be bought. However, are there any restraints on who could buy the business? I cannot see anything in the Bill that limits who the possible buyers could be. For example, can the business be foreign owned? Could it be bought by anyone abroad who can come up with the best bid? I can see nothing in the Bill which prevents anyone from buying the business. I should like to know the answer to that question. It is related to the matter which I raised at the beginning of my speech, in that presumably Parliament itself would have no say in that matter. If the business were to be sold to people about whom we might have doubts, we would have no locus to look at that. At no point does the expression "fit and proper person" or anything of that kind appear in the Bill. That is another matter that we need to consider.
736 I have already referred to the fact that the Bill is an enabling Bill. I believe that the only way that I personally, or your Lordships, can obtain further information on what the Government will be enabled to do would be by means of laying down in Committee all sorts of further points about the transfers because we shall not get any other entrée into what the Government propose to do when the details of privatisation are revealed. The Minister said that we have done this before. The one case where we have done this before recently is that of nuclear power privatisation, and I have expressed my disquiet about that. However, even if we have done this before, it does not mean that it is right and that provisions which have a parliamentary interest should proceed without your Lordships having any involvement whatever.
I have referred to the overseas aspect of this matter. There are two other facets of that which I must mention. I believe the Minister said that the responsibility for decommissioning, waste management and all that will still remain with the Atomic Energy Authority. I may have misunderstood what he said and I hope that he can clarify that. I believe we can all agree that there should be no blurring of who is responsible for decommissioning, waste management and nuclear plant safety. When we were listening to the Statement on the White Paper the Government said that they did not resile in any way whatever from their concern about safety. I hope that that assurance will be repeated.
That leads me to the following question. Will the Atomic Energy Authority, if and when it is privatised, be able to use its skills to assist in the construction and operation of nuclear power stations and all aspects of them in any foreign countries whatever? Is there any limit on what it might be able to do? Could it be involved with foreign countries and nuclear power stations in those countries when those countries could potentially be unfriendly towards us? Is there any connection in the Government's mind between the Atomic Energy Authority's ability to use its skills for that purpose and the eventual proliferation of nuclear weapons capabilities in those countries? Is there any restraint on the people who work for the Atomic Energy Authority simply resigning and using their skills in those countries? Those are all matters which I believe we need to address, particularly in the context of privatisation.
There are two or three other points that I wish to raise at this stage. There are many others, but I believe that your Lordships, especially as we are discussing this matter on a Friday, would prefer me to save those other points until the Committee stage. However, there are two or three other points that I must mention now.
The Minister referred to the pensions question. He used the word "equivalent" and the words "taken as a whole". I for one do not regard the word "equivalent" as having the same meaning as "the same". I will stress in Committee that people who are currently employed in the public sector should have the right to have the same pension, if that is what they want. I do not like the expression "taken as a whole", which always strikes me as being a way of not giving someone the same provision. It is a way of making provision that is not really the same. 737 I and my noble friends shall certainly return to this matter of pensions. That of course is not a million miles from the question of terms and conditions of employment.
One other overseas matter that I will have to ask the Minister about—however, we may be able to leave this to a later occasion—is whether there is a European Union angle to any of this. Are there directives, actual or potential, which will get in the way of what needs to happen? I cannot think of any but I am not an expert on that matter. The Minister's officials are experts on that matter. One would at least like to know whether there is a European Union angle to all of this.
Another point that I wish to mention is something that I find rather odd. I hope that the Minister will advise me on this. It is a matter that was dealt with briefly in the other place. Clause 11 of the Bill refers to membership of the Atomic Energy Authority. If I read it correctly—I am pretty sure that I do—the Bill proposes to reduce the minimum number of members of the authority. The minimum was seven but it will now be four. The original Atomic Energy Authority Act specified the sorts of people, and their expertise, who should be part of the Atomic Energy Authority. The Government wish to amend that Act to remove the requirement to seek people with particular forms of expertise. I believe in the other place the word used with regard to that proposal was "daft". I would never use such a word in the hallowed precincts of your Lordships' House, but I raise an eyebrow as to why that particular change to the Atomic Energy Authority Act needs to be made.
In conclusion, the Minister can see how helpful I am trying to be on this matter and how interested I am in the subject. I look forward to our rather brief debate today. I believe that we all look forward to the detailed scrutiny that we can give this Bill when your Lordships sit in Committee when we can elucidate a great many more of these topics.
§ 11.39 a.m.
§ Lord Ezra
My Lords, the noble Earl in introducing this Second Reading debate gave us the background information to the Atomic Energy Authority. He reminded us that it had been started in 1954 to cover all aspects of nuclear R&D and that progressively over the years its functions had been modified leading up to the major reorganisation in 1994 under the current chairman, Sir Anthony Cleaver, when it was separated into three divisions.
There is the government division, which is concerned with the management of the Government's nuclear liabilities and the decommissioning of redundant plant. It emerged from the debate in the other place that those liabilities amount to something of the order of £8 billion, and are therefore very substantial. The service division puts together all the service activities for the purposes of running the organisation. That service division has now been transferred to a company called Procord, which will provide the necessary services and therefore does not figure in the Bill. Finally, there is the commercial division known as AEA Technology, which is what we are concerned with although. for the reasons that the noble Earl indicated, that is not mentioned by name in the Bill. 738 Therefore one has to look at the Bill on the basis of a process of deduction to find out exactly what we are talking about. We are, in fact, talking about AEA Technology.
AEA Technology, in its present form as a separate division of the Atomic Energy Authority, has become one of the leading international engineering and scientific consultancies. Perhaps I may indicate to the noble Lord, Lord Peston, the results of its operations. My researches suggest that its turnover is currently £250 million. That has emerged in some of the documents that I have seen. It expects to earn a pre-tax profit of £10 million. Anyone who is familiar with consultancy will know that that is a good result. To earn a pre-tax profit of £10 million on that turnover is excellent. The chief executive of AEA Technology has indicated that he believes that the company could achieve a turnover of £400 million in three years' time, presumably with a corresponding increase in pre-tax profits. Therefore, from the public's point of view—and I emphasise that this is a company which is owned by the public, not by the Government—it is a very good investment.
That raises one or two questions. First, should the organisation be privatised now or would it be better to do so later?
My Lords, I do not like to interrupt the noble Lord, but it is difficult to hear him. I do not know whether that is because the loudspeaker system has gone funny or the noble Lord is not near a microphone. All of a sudden his voice has gone to such a degree that it is difficult to hear. Perhaps he would be good enough to speak a little louder.
§ Lord Ezra
My Lords, start again? Goodness me. I shall leave noble Lords to read what I said in Hansard. I was coming to the nifty gritty. The rest was introduction.
We on these Benches regard the nature of ownership of an enterprise to be a matter to be decided on the merits of the case. Whether an enterprise should be publicly or privately owned should be decided on the basis of whether it can do better under one form of ownership or another. In view of the fact that AEA Technology is doing so well under public ownership and, according to its chief executive, has such good prospects, I must join with the noble Lord, Lord Peston, in asking the noble Earl, when he speaks later, to indicate more clearly what additional merits he thinks will arise from private ownership. We are entitled to know. Does he believe that turnover will increase more rapidly and profits will rise more rapidly than suggested by the chief executive? We are entitled to know before we make up our minds whether we think this is a desirable proposition.
Secondly, there is the question of timing. This is turning out to be a very good investment, producing £10 million on a turnover of £250 million. In three years' time we could be earning a good deal more than that, with a much higher turnover. If this were an enterprise owned by the noble Earl, I am sure that he would be thinking about whether he should sell now or later. If he could make 739 much more money later, he might well decide to sell later. Why should he forgo that extra benefit? As a member of the public, as well as a Member of this House, I am interested in his answer. If we can make much more money later, why should we not make it later and hold on to an investment which already pays us well?
The third issue that I should like to raise is one, again, that the noble Lord, Lord Peston, mentioned. It is the way in which AEA Technology is to be privatised. I was glad to learn that on the whole the Government favour privatising AEA Technology as a single enterprise, but they have kept their options wide open. The Bill provides for the business to be sold in whole or in part; for the Sale to be carried out by the authority or by the Secretary of State; for there to he more than one transfer on more than one date; and for the sale to be either by flotation or by one or more trade sales. One could hardly have more options. The Government are leaving the whole matter wide open.
In my experience, no other privatisation measure has retained such wide options. Previous privatisations have all indicated broadly the lines on which the Government wished to proceed. There was a great deal of probing in the other place during the Second Reading of the Bill, but above all during the Committee and Report stages, to find out what the Government were going to do. Indeed, one of their own supporters, Mr. Robert Jackson, suggested that even if the Government would not accept an amendment to the Bill to indicate what they intended to do, when they had made up their minds they should come back to Parliament to enable Parliament to decide whether their proposals were desirable. However, that suggestion was thrown out.
I cannot understand why the Government are so reticent. I can only believe that they are reticent because the BZW report, to which the noble Lord, Lord Peston, referred said that in BZW's opinion selling AEA Technology in hits and pieces would be more profitable than selling it as a whole, although the report concluded that the Government should keep its options open.
We have to know from the Government what their priorities are in relation to this sale. Are they really seeking merely to make the maximum short-term benefit? If that is the case, they would strip the assets and sell them where they could get the most for them, but enterprise as a whole would disappear into oblivion. AEA Technology would no longer exist, having established itself in a prime international position. On the other hand, if the Government place more emphasis on continuing this enterprise along the path on which it has started so successfully with the present management, they ought to tell us so. To leave the matter wide open with such a range of options is not at all satisfactory.
One of the unsatisfactory aspects is that, so long as the uncertainty remains, the enterprise will find difficulty in obtaining new contracts. Its intending customers will naturally say, "Are you going to remain in being or aren't you? Which bits will be sold off and when? And what will happen to my contract if I enter into it if the body with which I have contracted no longer exists?". I understand 740 from discussions that I have had with management that the organisation is already suffering from that uncertainty.
There is another reason for believing that the Government should make up their mind and, one hopes, tell us that they want to sell AEA Technology as a single entity. That reason is that AEA Technology undertakes certain activities in which it has achieved considerable eminence. There is, for example, the work it does on energy research, which is a subject in which I have considerable interest. A body known as ETSU, the Energy Technology Support Unit, was set up in the early 1970s to carry out research on energy subjects. It has established an enviable reputation of independence and effectiveness in that field. If that body were to be sold off separately and merged in some wider commercial consultancy organisation, that reputation would disappear. The credibility which ETSU has with its present customers would cease.
I am in the energy consultancy business. I declare that interest. We frequently turn to ETSU, not as competitors, but as a body which can provide us with useful research to enable us to carry on with our activities. That factor would disappear. If ETSU were swallowed up by a competitive consultancy enterprise, we would not dream of turning to it; and the independent energy efficiency information which it provides—it deals with industrial energy efficiency, renewal energy and waste technologies—would no longer have that significance.
There is a another aspect of the sale about which the Government ought to tell us their intentions. One choice among the various options which the Government have reserved for themselves is whether there would be a trade sale in whole or in part, or a flotation. Quite frankly, I would be opposed to a trade sale because the organisation, in whole or in part, would be swallowed up in some other existing body. The significance of having AEA Technology as an ongoing, separate organisation would be lost. I should like to hear the Government express their preference that AEA Technology should continue as an ongoing organisation. They should tell us why it should be sold now rather than later; and indeed why it could do better in the private sector; and state whether there would be a trade sale or a flotation.
Perhaps I may remind the noble Earl that when Amersham International was floated—it was hived off from AEA some years ago—for the manufacture of isotopes, it was several times oversubscribed. If the Government undertake a trade sale, how can we ascertain that they will obtain the best price? I believe that we can he more assured that we are getting a reasonable price if there is a flotation. I very much hope that the noble Earl will give us answers to these questions when he replies to the debate.
§ 11.52 a.m.
§ Lord Sherfield
My Lords, I rise to say a few words in support of this Bill. It is, of course, a privatisation Bill. I have never been in favour of the principle of privatisation across the board; I believe that the circumstances of each case should prevail. I consider that this measure is a particularly good case.
741 I have been following the progress of the enterprise for some time in view of my past association with the Atomic Energy Authority. Its record to date is very impressive, as has already been said. In many ways, the enterprise is unique because of the multiplicity and diversity of skills on which it can call, which enable it to deal successfully with complex contracts. It is important that that success should be allowed to continue.
The enterprise has been very successful under the present management which has built up a successful export business of great benefit to the balance of payments. That is one of the important reasons that it is essential for the enterprise to be sold as a whole. The possibility of drawing on this resource of engineering and scientific skills gives it what I believe is called synergy of a high order, which enables it to land and execute complex international contracts.
There is another important reason for ensuring that the enterprise is sold as a whole and not broken up into sections. I refer to the staff. As I understand it, they feel that it is of great importance to them that it should remain as a single unit. That aspect has been emphasised already in the debate. However, it would be helpful if the Minister will give a little more reassurance that the enterprise will remain as it is, enabling it to continue its present policy.
As has been said, one of the great strengths of AEA Technology is the quality of its people. It is important that whatever form the privatisation takes, those people should be encouraged and motivated in every possible way. In particular, they should be enabled to participate in the profitability of the company. For those and many other reasons it is essential that the enterprise should be sold as a whole and not broken up. That is the main point on which I wish to concentrate.
Perhaps I may add that the present management has proven itself; and in view of the complexity of a great many of its contracts, it should have the greatest flexibility in operation. That is one of the reasons why it is right that it should be passed into the private sector. The management should have full capacity to act without legislative or other restrictions upon it.
As the noble Lord, Lord Peston, said, there are a number of points to be discussed in Committee. However, with those few words I express the hope that in the end the House will give this measure a fair wind.
§ Lord Boyd-Carpenter
My Lords, it is a good example of the odd way in which the Business of your Lordships' House is being arranged at present that we are taking this most important Bill on a Friday morning. The importance, significance, long-term effects and difficulties are probably greater than with any measures which we have spent the earlier part of the week discussing. I hope that it will not he regarded as a good precedent for taking major, complex and important legislation on a Friday morning. I hope that those who arrange our business—if they do arrange it—will manage better in future. In the circumstances, all one can do is to ask a number of questions. My noble friend on the Front Bench always answers questions fully, even if he does not always give the answers for which one had hoped.
742 First, will my noble friend answer the question put by the noble Lord, Lord Peston? What is the total value of the property which is to be transferred a:3 a result of the provisions of the Bill? I appreciate that he may not be able to give a precise figure, but perhaps he could give the order of magnitude of the value of the property which is being transferred.
As a former Treasury Minister, I observe with some amusement that the Bill is solid and fuel of provisions requiring the consent of the Treasury for almost anything that is done. I know that in many measures that is the effect of a Bill, but I cannot recall seeing any legislation in which the necessity for Treasury agreement is spelt out so frequently and fully. The Bill includes the fascinating provision of Clause 10(10):The Secretary of State shall not exercise any power conferred on him by this section except with the consent of the TreasuryI do not think I have seen that spelt out so brutally in former legislation, although I accept that it is probably part of the effect. Noble Lords will see that throughout the Bill provisions that the Secretary of State will operate with the consent of the Treasury are explicit in practically every paragraph. The powers of the Secretary of State are undoubtedly fairly limited.
There are one or two small points with which perhaps my noble friend will deal when he comes to reply. Can he say why the number of members of the authority is to be reduced? I appreciate that some of their functions are being taken away, but that membership is still an important function. A good variety of experience is required in running the authority. I wonder whether reducing the number of members to four may not unduly narrow the general levels of experience and expertise which it would be useful to have on the authority.
Another quite small point is that I would be interested to know why in Clause 8 stamp duty is to be removed from certain transactions. In general, I am all in favour of removal of all kinds of taxes from all sorts of activities, but it seems odd to spell out that stamp duty is to he excluded from an area in which apparently it was previously imposed. It calls for explanation in due course.
I believe that I heard it said that the number of employees directly affected by the Bill is of the order of 4,000. But I should be grateful if my noble friend would spell out what the numbers are and broadly what categories of work they are engaged in. Even to transfer 4,000 employees—which is a comparatively limited number—is a substantial matter and of great importance and significance to them. It would be helpful if my noble friend could say whether that is the right figure. If so, will he give some breakdown of the types of work, professional skills and expertise which they represent?
As has been said more than once, the Bill will have to be considered in Committee in some detail. There are a number of points, several of which were raised by the noble Lord, Lord Peston, and which I will not repeat because I know that my noble friend made a note of them. I hope that he will realise that it is not only the noble Lord, Lord Peston, who wants an answer; many of us in your Lordships' House hope that the questions will be answered.
743 As I began by saying, this is an important Bill. The activities it covers are of great significance for the future. They require careful management. I start with the presumption that a move towards privatisation is right. I know that noble Lords opposite do not share that view, most of them take the diametrically opposite view. I accept that the case for privatisation always requires to be made, there may well be exceptions to the general principle that a move to privatisation is a good thing.
When my noble friend comes to speak, and later on at the Committee stage, I hope that he will explain why at this moment it is desirable to introduce such a degree of privatisation. That area of work is of a complex nature; comparatively few people in this country fully understand it, even now. Therefore, there may be special circumstances which would raise a doubt as to whether the generally good principle of privatisation should apply. I express no view on it, I merely say that it is up to the Government to establish that both the act of privatisation and its timing are right. My noble friend always replies effectively, and I have no doubt that he will have answers to the questions. I hope he will give them.
§ 12.8 p.m.
§ Lord Haskel
My Lords, as we have been told, this Bill is designed to privatise AEA Technology. AEA Technology is probably the most important contract technical research and consultancy organisation in the country. The Minister described its scope. It is an important asset and we must be very careful with it. It is therefore extraordinary that the Bill is so unpopular. It is unpopular with small and medium-sized technology companies because they find it impossible to get the same high quality advice elsewhere at reasonable cost. The Minister, who is also responsible for small companies, must know that other large contract laboratories just will not deal with small companies.
The Bill is unpopular with the 4,000 staff who are worried about their pensions and career prospects. My noble friend Lord Peston told us that the Bill is unpopular with Parliament because it is a paving measure which allows AEA management or the Secretary of State to set up a company or companies that can be sold off without further effective parliamentary scrutiny. It is unpopular with the public because they are worried about the effects of the privatisation on nuclear proliferation and safety. The sale is certainly not in the taxpayers' interests, because it does not make business sense. It is unpopular with the science community because splitting it up works to the disadvantage of the British science base. So far as I can tell, this privatisation is popular with the Government only because they need something to privatise, and popular with the City and consultants because of the resulting commissions and fees.
I shall examine the reasons for this unpopularity in a little more detail. First, why is this privatisation unpopular with business? Business looks at AEA Technology as an important source of technological development and consultancy. Because it is in the DTI, businessmen know that AEA Technology will deal with anybody, large or small, at reasonable cost. It is looked upon as a national 744 resource. Because of the government connection, it has attracted other large technological projects to this country, such as the European Taurus laboratory, which is funded by the European Union and is located near Harwell largely because it has to be near AEA Technology.
The sale is also unpopular with business, because of the knowledge that businesses such as AEA Technology are best retained for their licence and consultancy income, and are best not sold. AEA Technology is a "people" business; and people businesses attract a very low price, for the reasons suggested by my noble friend Lord Peston. The Government will receive an even lower price for this business because the City simply does not understand contract technology research and consultancy and puts a very low value on it. Businesses like this are sold only in desperation. Another worry must be that somebody will buy the business and move all or part of it abroad. Can the Minister give any guarantees that that will not happen?
The Bill is unpopular with the staff since not only does it upset and diminish their career prospects—which even the Minister must agree is an important aspect of a people business—but also because there is uncertainty about pensions. At present, the Bill prevents employees' existing pension rights being transferred to the private sector. That is manifestly unfair. Pension rights are not guaranteed in the Bill. All we have been given are vague assurances about there being "no less favourable" rights. Perhaps the Minister can give us further enlightenment on this. The pension fund has been successfully managed for over 40 years and provides full index linking for members. Indeed, from time to time the fund has been in surplus. Once a business changes hands it is extremely difficult for the previous owner to exert any long-term control over the development of its pension fund. Therefore, it is important that employees should receive proper undertakings now.
The Bill is unpopular with Parliament because it gives the Secretary of State powers to reorganise and transfer parts of the business without further reference to Parliament. Is that because the Minister is prepared to leave it to the market to sort everything out? The United Kingdom Atomic Energy Authority and AEA Technology are an important national resource. Parliament needs to debate how it will be split up; how the safe dismantling of nuclear power stations is to be carried out; and how safety standards will be maintained. It needs to consider how AEA Technology is to be split up and sold. Is it to be a trade sale or a management-employee hey-out? Is it to be split up with important parts being closed down or going abroad? The Minister says that this depends on the performance over the next few months. The long-term national interest needs to be considered in regard to such an important national asset. This matter cannot simply be left to the sole discretion of the Secretary of State. Parliament must have further scrutiny.
The Bill will be unpopular with the public because the taxpayer will get a poor deal. As I explained earlier, people businesses realise low prices. So it is far better to keep them and benefit from the future income from royalties and patents. The noble Lord, Lord Ezra, told us that the business is doing well and that its profitability is increasing. I understand that it is establishing itself in 745 eastern Europe to provide assistance in decommissioning and cleaning up nuclear power stations there. I happen to know that AEA Technology recently set up the National Centre for Tribology, which now has an income of some £3 million for solving problems concerned with friction, lubrication and wear. I join the noble Lord, Lord Ezra, in asking the Minister why he plans to sell the business now, when he could get far more for it later. Even so, it will be a poor deal for the taxpayer. By the time the Government have made contingent liabilities for the pension fund and made the write-offs about which the Minister told us, the Government may find themselves making no money at all from the sale.
The interests of the scientific community have certainly not been taken into consideration. The Office of Science and Technology's Technology Foresight Report, published a few weeks ago, strongly recommends that the expertise of companies such as AEA Technology should be supported and enhanced. Yet this Bill will lead to the opposite. Does the DTI talk to the Office of Science and Technology? Perhaps the Minister can tell us.
Therefore, not only does this privatisation make no economic sense; it makes no sense in terms of Britain's science base. Science is a long-term business and, in the DTI, AEA Technology can take a long-term view. In preparing the company for privatisation the City will take the usual short-term view that it takes with all technology companies. When the consultants were asked to look at the privatisation the interests of the British science base were not even mentioned in the terms of reference.
The worst thing that could happen to British science is that the company should be broken up and its fragmentation lead to a form of cherry picking that will undermine its activity. That would be to the detriment of our science and technology base, and contrary to the advice of the Office of Science and Technology—and all this for very little money. What a shambles!
The Minister says that the development of the company can take place only in the private sector, and he makes comparisons with other privatisations. This privatisation is unquestionably an exception and ought to be looked at much more carefully. One of the advantages of AEA 'Technology is that it is in the public sector, and that is why it has been so successful. It helps the private sector. Like the noble Lord, Lord Ezra, I cannot think of any private sector expertise which will help AEA Technology. It is a successful, integrated, well-respected and well-managed international business.
The Minister's words about privatisation being the best way forward and about freedom in the private sector is the language of the 1980s. The industrial world has moved on since then. Today the search is for world-class centres of excellence. Those are what make an economy strong and healthy. Ownership is irrelevant. Public and private should be in partnership, not in competition. AEA Technology is one such world-class company. What is more, it plays a crucial part in helping Britain create more world-class companies. Privatising it is not only selling off the family silver; it is destroying the source that creates the family silver. Lord Stockton must be turning in his grave.
§ 12.19 p.m.
§ Lord Flowers
My Lords, with one misgiving, which I shall address presently, I support the Bill. Perhaps your Lordships will permit me to say that my adult life began in atomic energy, first in Canada during the war, then in Harwell, which in those days was the research establishment of the whole British enterprise. Under the inspiring leadership of Sir John Cockcroft, it soon became a major centre of broadly based research which could hold its head up against international competition, especially from America. I have remained more or less close to the nuclear industry ever since, although not always on its side on every issue, as the House may be aware. But nowadays our relationship is entirely informal.
I am aware that my historical perspective as an insider, so to speak, may differ a little from that of the noble Earl. But in those early days a great deal of basic research was needed on nuclear physics, on the properties of materials exposed to intense radiation, on the chemistry of new elements such as plutonium and on the behaviour of the various possible nuclear reactor types. As time went on and those issues became clearer, more work was done on more practical problems: on separation technologies, for example; on the disposal of nuclear wastes; and on environmental and safety problems. Of course, much of the work was done at the other sites of what was by then the Atomic Energy Authority.
During the 1970s it became generally understood that the AEA, especially, but not only, at Harwell, had developed many powerful techniques absolutely necessary for the extreme conditions found in nuclear plants which, however, could also be applied to great advantage to other types of plants outside the nuclear industry. The noble Lord, Lord Marshall of Goring, spearheaded those developments when he was director of Harwell.
Three major themes in particular have emerged. Safety analysis and techniques originally developed for nuclear installations have since been successfully applied to the rail, air and water industries among others. Environmental discharge control, first introduced for nuclear discharges, is now being applied to the control of hazardous materials more generally. In the course of that work an expertise has grown up in the operation of chemical plant as a result of which non-nuclear operators have been helped to optimise their plants, especially in the light of arduous safety and environmental factors. In the nuclear field itself, a great deal of work has been done on the decommissioning of nuclear plant, of which we hear much nowadays; it has already been mentioned today in your Lordships' House.
In recent years, that type of activity has been concentrated into the division of the Atomic Energy Authority called AEA Technology. As the noble Earl explained, it is no longer primarily a research and development organisation (although still perfectly capable of performing R&D) and it is not really part of the country's science base any longer. It is best described as a science and engineering-based company offering consultancy and technical services to a broad range of industrial customers at home and abroad. It acts, for instance, as consultants to the Ukraine and Slovakia on the decommissioning of old nuclear power stations, 747 which was referred to by the noble Lord, Lord Haskel. What we have witnessed is the birth and sturdy growth of a new type of high technology industry of great importance and promise.
As we have heard, the Bill makes it possible to separate off the activities of AEA Technology from the rest of the AEA. The privatised company will continue to have the nuclear industry among its chief customers. Already, however, almost half the revenues of AEA Technology derive from its non-nuclear activities. Shed of the restrictions necessarily placed on it by the AEA—a major point which, in part, answers the question of the noble Lord, Lord Ezra —the non-nuclear proportion is likely to increase and its export earnings, it is hoped, will reach about a third of the total. There is no doubt in my mind, although such is my continuing affection for Harwell that it is with some sorrow that I say it, that the prospects of the company will be enhanced in the private sector.
Coming to the Bill itself, there is a clause without which I should strongly oppose the whole venture. Clause 1(3) retains in the hands of the AEA and therefore in the hands of Government the ownership of nuclear sites and the licence to operate them, subject to the provisions of the Nuclear Installations Act 1965. Given that clause, I do not consider that there are any valid health and safety or environmental objections to the proposed transfer to the private sector.
However, the form of the Bill arouses in me one misgiving, as I remarked at the beginning of my speech. I am glad to see that it is shared by other noble Lords. The Bill enables the Secretary of State, if he thinks fit—and he may well do so—to split up AEA Technology into a number of distinct companies. Perhaps they would each specialise in one aspect or other of the available business; perhaps they would be forced to compete with each other across the board. Either way I believe that it would be a great mistake.
As I have taken some pains to explain, the various skills of AEA Technology have grown from a single beginning and form a coherent and mutually supportive whole. I do not say that it should stay that way for ever. I am content to let market forces determine the longer term outcome. But I personally consider that it would greatly weaken the enterprise and its chances of success, which are at present good, if it were to be split up by ministerial fiat before it had found its own level of operation in the market place.
I agree that many points of detail remain to be resolved in Committee. But, with that one misgiving, of which the Minister has not quite rid me, despite his careful and courteous explanations, I am happy to support the Bill.
§ 12.27 p.m.
§ Lord Wade of Chorlton
My Lords, I welcome the Bill. It offers an opportunity to that company and may bring great strength to the industry of the UK generally. Many noble Lords have explained in detail the enormous efficiency, competence and range of abilities that now exist in AEA Technology. The Bill presents that body with the opportunity to become a private company, free, as the noble Lord, Lord Flowers, said, from the controls that might be contained in its present structure and free of 748 the involvement of government. It will have the opportunity to employ a very highly motivated workforce which can encourage the development of its technology and skills on a world-wide basis.
There is now, with the enormous development of technological opportunity, a great need for a world-wide company with a wide range of skills which can help in a structured and defined way to co-ordinate some of the wide range of activities that are now taking place. As the noble Lord, Lord Ezra, said, in recent years there has been a change in management which has brought a great deal of business expertise into the organisation which will enable it to be much more forward-looking.
I strongly believe that the Bill gives us the opportunity to create a single, unitary, large-scale business, I would hope with its employees having a share of ownership in the business to encourage their long-term commitment to the organisation. That would put British industry, and the technology that will back it up, on a world-wide basis and help bring a whole sector of British industry right on to the world scale.
Having said that that is the opportunity presented by the Bill, I am concerned that in fact the Bill does not emphasise that opportunity but rather stresses a range of possible things that the Government may decide to do. I am delighted that all the noble Lords who have spoken have said that if this measure is implemented, it should result in a unitary body—that is, apart from the noble Lord, Lord Haskel, who does not want it to happen at all. I hope that we take this opportunity to create a strong, single company.
I hope that, with that in mind, the Government will look closely at what they bring forward at the next stage. A number of noble Lords will be pressing for such a solution. They will seek a clearer definition of the company that they want and a clearer explanation of why they want it at all.
I hope that the Government want to use their decision to privatize—with which I am entirely in favour—to create something that is better than exists at the moment; that removes restrictions; gives the opportunity to grow, to raise more finance and encourage a longer-term commitment to the business. If that is their purpose, then I applaud it wholeheartedly, and I hope that the Government have the guts to say that that is what they want to do. On the other hand, if they want to raise short-term money by selling something, then they should make that clear because it would not receive the same support, either in this House or elsewhere.
I see a great opportunity for a new privatised AEA to be more involved in the exploitation of the research taking place in our universities. As I have said in this House before, in Britain there is a lack of the skills needed to exploit research opportunities and take them into the commercial world in a more effective way than many small organisations which operate in this field do at the present time. If AEA is properly structured and we have the right management with those ambitions in mind, it will play an important role in encouraging the exploitation of the excellent research which takes place in our universities and research establishments.
749 I agree wholeheartedly with noble Lords who support the Bill and with those who feel that the Government need to be clearer in relation to what they want to do with it. It is inevitable that these matters will be pressed at the Committee stage. I know that my noble friend will be only too anxious, as he always is, to help us and find solutions to the problems so that we can give support to the Bill. However, I disagree with noble Lords who say that privatisation is not enormously successful. There is not a company in Britain that, having been taken out of the public sector, has not succeeded as a result; has not provided a better service to the customer; has not given a better return on finance and has not given a better return to investors at every level. I am positive that AEA Technology can offer the same benefits if presented as a whole unified company, and if given the opportunity to expand and grow and fulfil its ambitions on a world scale.
§ 12.32 p.m.
§ Lord Clinton-Davis
My Lords, this has been an interesting debate and one which has caused some anxieties to be expressed regarding the way in which the Bill is drafted—those anxieties riot being confined to this side of the House. I shall return to that topic later. We take the view that this is not only an unnecessary Bill, but it is also undesirable. It is ideologically driven and no compelling case has been made for it. The noble Earl finds that amusing. But his Government are ideologically driven and they are being driven into the sands pretty rapidly.
The Bill may be seen as being a fairly logical consequence of the Government's failure to privatise the Post Office. They have to privatise something and they seized on this. Having failed to privatise the Post Office, they have made life extremely difficult for it, notwithstanding the fairly paltry attempts that were made recently to mitigate some of the problems. This is the logical consequence of that failure.
At the beginning of his remarks the noble Earl said that his explanation was a "nutshell" of the Government's proposals. I suppose that that is an appropriate word to use because nutty ideas have got to have nutshells! But this is not a sensible proposition. It is a reflection of the Government's belief—which I believe to be misbegotten—that somehow or other, regardless of the success that can be depicted in a publicly-owned industry, it must be privatised; that the market will resolve all the problems and that in this case the Government can safely ignore the great story of success which they themselves indicated both in another place and here today. They have conceded that the industry has been supremely successful not only nationally, but also internationally. I believe that the 4,000 employees of AEA Technology are entitled to be congratulated on the efforts they have made, which have brought such rewards not only for their company but also for their country. AEA Technology is a critical element of the ability of Britain to succeed in its research and development ventures.
When my noble friend Lord Peston opened the debate for the Opposition he posed a number of serious points, to which I hope the Minister will respond, and one of which my noble friend Lord Haskel reiterated. They pointed out that these proposals will have the effect of losing the synergy of the component parts of AEA Technology. That 750 is part of the success of this enterprise. We believe that any possibility of fragmenting this enterprise, and to do so without being specific in law, is extremely damaging. I suspect that it will be fragmented; the best bits will be disposed of and a cherry-picking venture will be undertaken. That will be bad for Britain and also for the Government. The whole enterprise is another nail in their coffin.
At the beginning of the debate my noble friend Lord Peston —he was joined in this by the noble Lord, Lord Boyd-Carpenter—said he found offensive the way in which proper scrutiny by Parliament of the further progress of this madcap idea is to be undertaken. Is there to be any proper scrutiny? The answer clearly is no. It is wrong that the Government should bring forward measures of this kind. My noble friend asked a question and it is extremely important that it should be answered by the noble Earl: are there any procedures in this House to debate these further processes? I am not talking about a Wednesday debate or some form of Unmarred Question debate. We need the Minister to respond to that point and if the answer is no, as I suspect it will be, then this Bill is thoroughly unsafe and wrong. It is not the first time that the Government will have gone down this route.
This sell-off is effectively giving the Government a blank cheque. Of all people, this Government should not receive blank cheques. The Bill was introduced when it came before another place before any indication had been made of the Government's nuclear review. It is wrong that the House of Commons should be denied the opportunity to view the Bill in the context of that review. After all, that review has been promised since October 1989.
I turn now to the future role of UKAEA Government Division especially in areas of profitable commercial activities. The Minister has not discharged that duty, though if I misunderstood what he said I shall certainly look carefully at Hansard when it is published and we are able to examine the matter. However, grave issues have arisen in regard to pensions and my noble friend pointed to them and promised rightly that we shall return to them at Committee stage in order to obtain the clarification that is obviously needed.
There is too much uncertainty about the. Government's intentions in this regard. The term used in the Bill is that pension rights should be "no less favourable". It is an inability so far to define with precision what that term means that has led to considerable concern on the part of the employees. The terms "no less favourable" and "broadly comparable" have created great difficulties already in relation to the construction that has been placed on them by the Government Actuary's Department. The Institution of Professionals, Managers and Specialists has referred to the recent disposal,of two groups of employees to the private sector by sale. These are Facilities Services Division with 950 employees to Procord Limited and Harwell Dosimeters with 7 employees to EMS Medical Limited. Employees in both groups were not allowed to remain in the UKAEA index linked pension schemes. Neither of the new schemes on offer from the new employers offered full index linking but both had been given the Government Actuary's Department certificate of 'broad comparability'".That seems extraordinary. Thereafter the union sought independent actuarial advice which concluded that the scheme offered in the Dosimeters' proposal is not broadly 751 comparable. Yet the Government Actuary's Department certificate said that it was. There is a clear concern on the part of the employees, whether within unions or outside, about this matter. I ask the Government to examine it, as they will be forced to do anyway in Committee. We are not satisfied with what is proposed.
The Government's record in this respect has been less than satisfactory. A number of noble Lords will remember the difficulties that were experienced in relation to the Railways Bill. Because of the concerns expressed by employees, the noble Lords, Lord Peyton and Lord Marsh, together with noble Lords on this side of the House, were able to persuade the Government to change the provisions of the Bill. Some considerable progress, I must concede, was made as a result of that pressure. We do not believe that the criteria to be used by the Secretary of State in judging the terms "no less favourable" or "broadly comparable" are satisfactorily provided for in the Bill. They should be there but they are not.
My noble friend Lord Haskel also raised that point. I should like to add to what he said by asking another question. Why are the Government not persuaded in this regard to do what they did in the case of Amersham International, which was to give employees the opportunity to elect to remain within the Civil Service pension scheme until they chose as individuals to move out of the scheme altogether? After that case the Treasury demanded a change. Again, in this case, it is the Treasury that has determined the actions which the Government should be taking in relation to pensions. That adds force to the remarks that were made by the noble Lord, Lord Boyd-Carpenter, about the extraordinary force of the Treasury on this department in the Bill. I believe that there ought to be independent scrutiny of the whole matter. Employees have also expressed to us their great concern about the conditions of employment that are likely to be offered. That uncertainty also requires to be dispelled if the Government are to go ahead with this idea.
The Government say that AEA Technology has been impaired in its development by the application of the Treasury rules despite the extraordinary success that it has actually had. Perhaps the best answer to that would be not to interfere with AEA Technology but to do something about the Treasury rules, which are certainly in need of re-examination and which are impairing the activities of a great number of enterprises—perhaps more than in the case of AEA Technology. The Opposition are reexamining the situation and I hope that the Government will say that that is a perfectly proper thing to do.
I agree with my noble friends Lord Peston and Lord Haskel that the Government are being careless about the national interest. This agency has proved its ability in the field of research and development. That situation will change. It will pass out responsible control and the nation will lose control of the strategic direction of this prized national asset. My noble friend Lord Peston asked whether some provision should be made to ensure that that situation is defended. The Minister must answer that question in his response.
752 The objectivity and independence of the agency are also at risk. Those qualities have been the hallmark of its approach. I fear that there is a real risk that the agency's objectivity and independence will be impaired as a result of these proposals.
Perhaps I may say a few words about the idea of a management buy-out. In the Railways Bill, although I was never quite sure as to whether it was wholly in conformity with the competition rules of the Treaty of Rome, the Government said that they were going to give preference to a management buy-out when bids for franchises were being considered. There is no provision for that in this Bill. Why not? If the Government are satisfied that their approach in relation to the Railways Bill was licit, why are they now not including in this Bill a provision to that effect?
Under Clause 3 the management is empowered by the Bill to do anything it deems fit to facilitate privatisation. What does that mean? Can it go about doing what so much of management of privatised industries has been doing recently—offering themselves larger salaries, share options, declaring redundancies in advance; all the great notions of success entertained by the noble Lord, Lord Wade?
In Clause 10 the qualifications for board membership are to be removed. Why? The Government have not explained this matter. There are certain qualities affecting the board members which were set out in the Atomic Energy Authority Act 1954. I shall not weary the House with those today but those were set out and defined in that Act. They are now to disappear. Why? The Minister also dealt with the question of privatisation and the write-off of debt. Why are the Government pursuing a different policy in this regard from what they have in relation to other privatisations?
A number of your Lordships from all sides of the House have raised highly salient points. Even some noble Lords who have supported this idea have also questioned the propriety of the way in which the Government are going about this Bill. These are very significant matters. I fear that even at the Committee stage we shall run into great obstacles about being able to obtain from the Government assurances affecting employees and affecting the nation as a whole. I do not believe that the people of this country want this form of legislation. I think that they are deeply concerned about it. The Government are ensuring once again—I suppose this is the happy part of the Bill—that they will lose the confidence of the people massively in at least two years' time.
§ 12.50 p.m.
My Lords, we have had an interesting debate, as I thought we would. It has stimulated a number of noble Lords to say a number of interesting things. The noble Lord, Lord Peston, ended his speech in a charming way, having put about 150 questions, saying that he realised that he was trying to be helpful. He is very interested in this subject. In this brief debate he referred to the fact that his speech was a good deal longer than mine. That is an irrelevance and I make no complaint about that. Indeed, it was three minutes longer and I call that a long time. I make no complaint about that, but simply draw attention to it.
753 What really wounded me about the noble Lord's speech—normally he does not wound me at all—is that he said I had used every cliché from the Department of Trade and Industry. The fact is that I hate clichés. I have spent all my life removing them. The fact that he thought that I had used them all was a source of great distress to me. He and his noble friend Lord Clinton-Davis rattled out all the clichés themselves. They talked about the dying embers of the Government. The noble Lord, Lord Clinton-Davis, said that we were sinking into the sand and that we were cherry picking. He said that the Bill was ideologically driven and that it was introduced because we could not privatise the Post Office. That is the most astonishing argument. The worst cliché of the whole lot came from the noble Lord, Lord Peston, when he referred to "supra-additivity". I do not believe that even that word appears in the Department of Trade and Industry's glossary of clichés. All I can say to the noble Lord is that I suppose he must have just taken his children to see Mary Poppins and was thinking of "supercalifragilisticexpialidocious". If he had used that word I would have understood it.
§ Lord Peston
My Lords, the noble Earl is now hurting me. The word I used is not a cliché. It may be gobbledegook, but it is a standard word from my own dear subject of economics. He can attack me on those grounds, but I do not think he should accuse me of using a cliché.
My Lords, I always regard economics as gobbledegook, anyhow. Of course that does not apply to the noble Lord's speeches because he seems to succeed in avoiding most of them.
I was particularly glad that the noble Lord, Lord Flowers, who is such a distinguished scientist, said that he approves this Bill, principally because the Government Division is going to hold on to all the nuclear responsibilities. That remains, as it quite rightly should, in the public domain. Therefore, as the remainder is being privatised he found that totally acceptable. He said that there were no environmental or health reasons for objecting to that. That was very clear and proper.
My noble friend Lord Wade asked about the reasons for privatisation and hoped that it was not just for short-term commercial gains. He is quite right in that it is not short-term gain. The Government's intention in privatising AEA Technology is to realise the potential of the business and to enable it to maximise its possibilities. We are not going to sell the business or the staff short. We are not bringing this measure forward for short-term financial gain. The sale will be made on terms reflecting the national interest and to secure the best value for money for the taxpayer.
The noble Lord, Lord Peston, was concerned about the financial responsibility of the new nuclear liabilities under these long-standing arrangements. These liabilities will continue to be managed by the Government Division. For the reasons which I have given to the noble Lord, Lord Wade,—and as he rightly said, there is an enormous world potential here—the fact that the nuclear side has been removed means that we are left with some really distinguished scientists. They are much better working in the private sector.
754 The noble Lord, Lord Haskel, said that the people did not want this measure, the Atomic Energy Authority did not want it, and nor did the taxpayer. Then the noble Lord, Lord Clinton-Davis, said that the people of this country did not want it. I found that attitude of the three noble Lords opposite most astonishing and one of burying their heads in the sand. I thought that their party had said once and for all, after about 50 years, that it disapproved of nationalisation and that it had removed Clause 4. However, each of those three noble Lords said that they wanted this industry to remain in the public lector and that the nationalised part of it was better. They said that they did not want it transferred to the private sector. The reason that industries have gone into the private sector and that the party opposite has changed its views is that once these industries have gone into the private sector the firms have done better. One has only to look at gas, electricity, the telephone system and British Airways: the whole jolly lot have done better. That is why we believe that this organisation would do better if it were in the private sector.
The noble Lord, Lord Haskel, sits nodding his head backwards and forwards as though he had St. Vitus's dance. He must look to see what has happened in the private sector because nationalised industries have worked better there. The fact is that one cannot enable these scientists to get the full benefit if they are limited by government restriction. They are bound to be restricted, provided that the industry is in the public sector because governments are not in the business of allowing money to be used on a speculative basis.
§ Lord Clinton-Davis
My Lords, I am grateful to the noble Earl for giving way. How have this Government gone about restricting the activities of this particular enterprise?
My Lords, the noble Lord, Lord Clinton-Davis, sometimes asks the most extraordinary questions. He knows perfectly well that if a. business is in the public sector, it is subject to Treasury restrictions. The reason it is so restricted is because it is not right to use public money for speculative ventures.
I am glad that the noble Lord, Lord Sherfield, made his intervention. As a previous distinguished chairman of the Atomic Energy Authority, his views are enormously respected. He was concerned that there should be unitary privatisation, as were the noble Lords, Lord Ezra and Lord Haskel. I can understand why people like unitary privatisation. It may well be the best way forward. But we cannot say definitely now that the organisation will be sold as a single entity or that the sale will take any particular form. It depends entirely on the way in which AEA Technology performs over the next few months as regards the requirements of customers and confirmation from the market that a unitary sale will secure the best overall value for money.
My Lords, as noble Lords know, how debates operate in this House is a matter for the usual channels and the business of the House. However, I 755 undertake to ensure that the House is informed of the form that the sale will take. What happens thereafter must be left until that time.
The noble Lord, Lord Peston, inquired as to how profitable AEA Technology was. The noble Lord, Lord Ezra, very kindly answered the question for me and I shall not answer it further, save to say that the noble Lord was quite right. If he cares to answer any of the other questions which the noble Lord, Lord Peston, asked, I should be deeply grateful.
§ Lord Peston
My Lords, we are all being extremely helpful. I had seen the same £10 million figure. I wanted confirmation that that is the Government's estimate of profit correctly calculated on a profit and loss account basis. I take it that the noble Earl is saying that that is the right figure.
My Lords, the noble Lord's interpretation is correct. That is what we expect and anticipate, but what actually happens is a matter of fact which we shall come to in the passage of time.
My noble friend Lord Boyd-Carpenter asked what was the total value of the property to be transferred. It is quite difficult to answer that question. It will consist basically of fixed assets, contracts in progress and intellectual property rights, which is a point about which the noble Lord, Lord Peston, also asked. It is our intention to secure the best value for money from the whole of the sale. My noble friend also asked about the net worth. It is not possible to answer that. At the moment AEA Technology does not have a separate legal identity or its own balance sheet, but the value of the business in the end depends on its performance right up to the date of the sale. My noble friend also asked about contracts. There are over 2,000 customers. Most contracts are short term but some, including contracts with the Government, run for a number of years and will form part of the sale.
The noble Lord, Lord Ezra, and the noble Lord, Lord Haskel, asked why we were going to privatise the organisation. I have tried to make clear that the Government have said on many occasions that greater commercialisation in the public sector is not an option. It is impossible to escape the fact that the Government have to stand behind any public body. Therefore, it is irresponsible to allow those companies complete commercial freedom. That would be gambling with the taxpayers' money and would be inappropriate, as I am sure noble Lords will agree.
The noble Lords, Lord Peston, Lord Ezra and Lord Flowers, referred to foreign ownership and asked whether foreigners could buy the organisation. The decision as to whom AEA Technology might be sold will depend on a wide range of criteria, including the need to maintain its reputation for independent and impartial advice, and on the form of the method of sale which will not be decided until nearer the date of the sale. The Government welcome overseas investment in this country and, provided that the potential buyer meets all the sale criteria, there is no specific reason why a buyer should be discouraged simply on the grounds of nationality. We are not talking about the Government Division which deals with the nuclear business. That is a very different matter, 756 as the noble Lord, Lord Flowers, rightly said. We are discussing a body of scientists at the leading edge of science who are dealing with a number of very different issues at present, and will continue to do so—
Including anything; including oil. They are giving advice as contractors. That is perfectly correct, and they will continue to do so. The AEA sells its expertise to nuclear operators overseas. It does so under strict controls, and those controls will remain in place after privatisation.
The noble Lord, Lord Peston, must have been prompted by his noble friend Lord Bruce of Donington when he asked whether there were any European Union aspects to this. The department has been in contact with the Commission which has indicated that, in principle, it does not anticipate that the Government's plans for AEA Technology will give rise to any significant state aids or competition issues.
The noble Lords, Lord Peston, Lord Haskel, and Lord Clinton-Davis—funnily enough, all three noble Lords are from the party opposite, but it sometimes happens that that party speaks with one voice—wanted to know about pensions. It is not possible for the pension scheme of the privatised company to be the same as the authority's scheme. I forget which noble Lord referred to the difference between "the equivalent" and "the same" and tried to drive a coach and horses between the two words. The new scheme cannot be the same as the authority's scheme. Some features of the authority's scheme may not be reproduced in a tax-exempt occupational pension scheme. I doubt whether employees would thank your Lordships if they had to pay tax on their pension contributions and lump sums.
The noble Lords, Lord Peston and Lord Clinton-Davis, and my noble friend Lord Boyd-Carpenter referred to the board's composition, which is the subject of Clause 11. They asked why the number of people is to be reduced from seven to four. Clause 11(2) states:the Authority shall consist of a chairman and not less than seven nor more than fifteen other members) for "seven" there shall be substituted "four"".That does not mean that the board will have only four members. It means that the minimum will be four members but that the membership can be 15.
The noble Lord, Lord Clinton-Davis, said that certain qualities were required from board members under the Atomic Energy Authority Act and asked why that requirement was being removed. The answer is that in those days we were very much concerned with atomic energy and nuclear energy and it was therefore thought appropriate to specify in that Act certain qualities for board members. Now, AEA Technology is different, and it is better to allow the board to draw on a wide range of expertise as opposed to being restricted to drawing its membership from certain categories only.
The noble Lords, Lord Peston, Lord Ezra, and Lord Clinton-Davis, asked about parliamentary scrutiny. The Government have to be concerned about the interests of the taxpayer and about securing the best value for money if the sale goes forward. We can do that in two ways: by getting the best available price and by privatising the 757 business on a basis that best enables it to exploit the opportunities open to it and to maximise its contribution to the national economy. It is usual for such legislation to be enabling. I do not think that it is appropriate to tie down the Government. It is necessary to retain the flexibility and freedom to enable us to act in the best interests of taxpayers. The Government have to get Parliament's approval in principle. It is then a matter for the Executive—in this case, the Government as a whole—to do that in the best interests of the taxpayer and the country. We shall, of course, be responsible to Parliament for what is done and Parliament will be kept fully apprised of progress.
The noble Lords, Lord Sherfield and Lord Haskel, referred to employee participation. That is an issue in all privatisations. It is of particular interest in the case of AEA Technology which is, as the noble Lord, Lord Haskel, said, a "people business". Employee participation is likely to be important in maintaining the commitment of the staff and in getting future contracts. It is in the long-term interests of any company that is to be privatised that a significant measure of employee share ownership is provided for, but I do not think that it is necessary to put that specifically in the Bill.
I turn now to another point made about pensions by the noble Lord, Lord Haskel. Employees will be able to leave their accrued rights in the authority's pension scheme or to transfer them to the new pension scheme. The Bill provides that the new pension scheme must be no less favourable overall. It therefore seeks to protect employees' interests.
My noble friend Lord Boyd-Carpenter asked: why remove stamp duty? The reason is that there is a broad policy intention that when the Bill comes into operation it should achieve what we call "tax neutrality", which my noble friend will understand entirely. Tax neutrality is about ensuring that the process of transferring AEA Technology to the private sector does not of itself give rise to tax consequences. Successor companies start life in the private sector as if they had always operated in the private sector. The removal of the obligation to pay stamp duty is consistent with that.
My noble friend also asked about AEA Technology staff and what they did. It would take too long to set out in detail all the skills and experiences of the staff, but a very high proportion are qualified scientists and engineers across a wide range of disciplines. AEA Technology has some 1,860 graduate scientists and engineers—almost half its workforce—spread across all six sites, with 613 engineers (of chemical, electrical and mechanical disciplines among others) and 411 other scientists, including those involved in biosciences, mathematics and the material sciences. There are also 836 chemists and physicists.
The noble Lord, Lord Haskel, referred to the Atomic Energy Authority and small firms. The AEA is closely involved in the process of technology transfer to small firms. It runs, or is involved in running, some 40 industrial clubs with a further 10 under development. Those activities will continue after privatisation on the same commercial basis as now. The noble Lord was also concerned about the implications for the science base. I understand that concern. As I said in my opening remarks, 758 for the past 30 years UKAEA has operated on a commercial basis under contract. AEA Technology will continue to carry out research on that basis. The management has also made it clear that it will continue to set substantial funds—about 4 per cent. or 5 per cent. of the turnover—to finance its own R&D. That is not surprising because the success of the business depends on maintaining its scientific excellence.
I hope that I have answered most of the questions which your Lordships raised. It is right that your Lordships should ask such questions because the issue is important. The government division—that part which will remain in the public sector—still has a notable and vital role to play in overseeing the decommissioning of the authority's nuclear facilities.
AEA Technology is now an established international science and engineering services organisation which operates in a highly competitive market and is operating overseas. We must ensure that the resources and expertise which make up AEA Technology are used for the greatest benefit of the country as a whole. Despite the apprehension, concern and disbelief of noble Lords opposite, we believe that that is best done by putting AEA Technology where it can make the greatest contribution to the United Kingdom economy; that is in the private sector.
That is what the Bill is about. I have no doubt that in Committee your Lordships will wish to ask questions. However, as I have answered so many today I have no doubt that the Committee stage will be correspondingly brief. I am grateful to your Lordships for having taken part in the debate and I commend the Bill to the House.
§ On Question, Bill read a second time, and committed to a Committee of the Whole House.