Bacon (Hansard, 2 March 1964)

§ Mr. Scott-Hopkins

The information is as follows:

Association be raised without the consent of the Secretary of State for Scotland, the Minister of Agriculture and the Treasury. The Government have made it clear to the Corporation that this dividend is adequate and fair to share-holders in existing circumstances bearing in mind the extent to which these shares differ from ordinary company stock under the terms of the existing financial relations between the Corporation, the Government and the Sugar Board, which involve the share-holders in no commercial risks. The Government said, however, that they were prepared to make fresh arrangements under which shareholders would assume such a degree of the risks normally borne by equity shareholders that the Government would be justified in removing the present restriction on the dividend.

The method of exposing shareholders to commercial risks and of encouraging the steady improvement of efficiency will be as follows. A formula has been agreed for calculating a "standard price" for sugar beet, i.e. a price which the Corporation ought to be able to 147W pay and, taking one year with another, still make a reasonable return on their capital. If the Government require the Corporation to pay farmers a guaranteed price higher than the standard price then the Sugar Board will make up the difference to the Corporation. If, on the other hand, the standard price is higher than the guaranteed price the Corporation will pay the difference to the Sugar Board. This means that if the Corporation increases its efficiency its profits will rise; if it does not achieve the standard set then profits will fall —or it may make losses.

The new financial arrangements will be incorporated in an Incentive Agreement made under Section 19 of the 1956 Sugar Act. If the shareholders accept the new arrangements this Agreement will be laid before Parliament as a Statutory Instrument. In the meantime I am arranging for a copy of the draft Incentive Agreement to be placed in the library.

It is also proposed that there should be changes in the capital structure designed to recognise the rôle of the Sugar Board in the accumulation of reserves over recent years. Since 1st April 1957, the Sugar Board has been the source of the profits of the Corporation totalling £14.2 million and of this £5.5 million has been put to reserve for re-investment in the renewal and improvement of the Corporation's equipment. Just over half the Corporation's reserves have been accumulated in this way. Shareholders are being asked to approve the creation of an additional 5 million paid-up £1 shares; half of these will be distributed to existing shareholders (including the Treasury which owns 750,000 shares); and the other £2½ million will be given without payment to the Sugar Board. The Sugar Board will thus acquire 25 per cent. of the Corporation's equity and share to this extent in future profits. It will apply the dividends it receives to help keep down the cost of sugar to the consumer.

The Articles of Association of the British Sugar Corporation will be amended to remove the need for Ministerial consent to dividends above 7 per cent. and to permit capitalisation of reserves if the new financial arrangements come into force.

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The Corporation's responsibilities under the Sugar Act 1956 to buy from farmers the acreage of sugar beet fixed by Ministers at prices determined in accordance with the Agriculture Acts of 1947 and 1957 will of course remain unaltered. The Secretary of State for Scotland and I will continue to appoint the Chairman and two other members of the Board of Directors of the Corporation.

The Government believe that these new arrangements will prove more satisfactory than the present ones. In due course it will be our intention to modify some of details of the 1956 Sugar Act, so as to simplify the mechanism for the financial relations between the Government, the Sugar Board and the Corporation.