§ 12 noon
§ LORD WINDLESHAM
My Lords, I beg to move that this Bill be now read a second time. The Bill is short and simple, but not, perhaps, entirely uncontroversial. Its purpose is to abolish State management in the three districts of Great Britain where it now operates: Carlisle, Gretna and Cromarty Firth. My Lords, State management was started in 1916 as a counter to drunkenness in the First World War. It was continued after the war as something of a social experiment, the idea being that drinking abuses could be controlled by providing congenial surroundings in which people could drink without being pressurised to do so. The social purpose of this experiment now lacks any validity. If it did not, it would surely have been extended elsewhere in the country. We must now accept the fact that State management no longer has any social justification. The people of Carlisle and the Scottish districts are no more or less drunken than people in the rest of the country. And the standard of public-houses throughout the country has so much improved since 1916 that State management houses, though adequate, are no longer superior to those elsewhere.
State management has operated under a law which permits the Secretary of State to brew beer and sell it within the State management districts, and which virtually prohibits anyone else from selling liquor in these districts except with his authority. Without this monopoly power it has been generally held that State management could not operate. The effect of his monopoly power is that the licensing justices, or the licensing courts in Scotland, are reduced to mere ciphers. They can grant a licence, but it has no effect unless the Secretary of State gives his authority. The Government see no reason why the licensing justices and the licensing courts in these areas should not 597 now have the same responsibility as those in other places for determining the issue of licences.
The other effect of these monopoly powers is to restrict the consumer's choice in these areas. One of the features in recent years has been the growth in the number of new off-licences, particularly in general stores and supermarkets. These have had the desirable result of keeping prices competitive. The consumers in the State management districts have been denied these advantages, and the Government see no reason why this state of affairs should continue. We have, therefore, decided that the Secretary of State's monopoly powers ought to go, and they will be repealed by Clause 1 of the Bill, with effect from the date of Royal Assent.
I have said that State management no longer has social justification. Nor has it any economic justification. We must be clear about this. This is not to say that it does not make a profit. It has always made a profit, albeit a modest one—of the order of £200,000 a year in the case of Carlisle. This is the net trading profit on assets which at last year's provisional valuation were worth about £4 million. The corresponding figure for the Scottish districts was about £40,000 on assets provisionally valued at £700,000.
§ LORD DAVIES OF LEEK
My Lords, I do not want to prolong this debate, but would not the noble Lord agree that profit depends on the price of a pint of beer? They brew good stuff in Carlisle, I can assure you. Has the noble Lord comparative figures for the prices of beer? These houses were not after profit: they were after comfort and succour for the tired warrior who had been working.
§ LORD WINDLESHAM
My Lords, I have come armed with the fullest possible information, including lists of the prices from a number of breweries in the North of England, of draught mild, draught bitter, keg, and so on. Depending on how the debate goes I may draw on that information but let me continue now with my exposition of the reasons for presenting the Bill to your Lordships, so that you may see the design, scope and breadth of the Government's plan in full perspective. We agree with the noble Lord that prices count—obviously they do; and they have an effect on profits, 598 though not quite in the direct relationship that the noble Lord might claim. We speak in the presence of a former Professor of Economics, Lord Robbins, who will be able to guide us, if he remains, during the later stages of the debate.
On the basis I have described, the rate of return on capital employed has been just over 4 per cent., and slightly more in the case of the Scottish districts. But when we look at the figures of the un-appropriated profits, we find that capital expenditure has been running at the rate of about £150,000 a year, which means that the real return on capital (corresponding to the distributed profit in the case of a commerical company) has been only about 1 per cent. And of course the scheme pays no corporation tax. A comparison has been drawn with the average return on capital in the brewing industry as a whole, which is about 10 per cent. before tax. But even more telling is the comparison with the rate at which the Government have had to borrow money, which is between 8 and 9 per cent. This is why we say, with some confidence, that State management has no economic justification. It may be argued—indeed, it has been argued—that profits show an upward trend, and that the capital value of the assets is likely to appreciate. I do not dispute these facts, but they are not arguments for the State's holding on to the properties. The increased profitability and the growth potential of the properties will be reflected in the market value when we come to sell them. These, then, are the reasons why the Government have decided to abolish State management: it has no social justification; it has no economic justification; it is a wholly anomalous activity for the Government to be engaged in.
I should like now to deal briefly with the method of sale. This is a matter of considerable importance and interest, and I think your Lordships may like to have a brief description. Having reached our decision, we naturally considered whether there was any practical alternative to outright sale of the assets. Among the possibilities the Government considered was one which my noble friend the Lord Chancellor, when in Opposition, said we would consider. This was,any viable proposal for transferring the ownership and management of the State Scheme to a suitably constituted local body such as a trust ".599 Having done so, we came to the conclusion that, because of the very low return on capital which I have mentioned, no public trust would be viable and that we should not be justified in the use of public funds for this purpose. The Bill, therefore, provides for outright sale. Clauses 2 and 3 require the Secretaries of State to dispose of the properties on such terms as appear to them expedient in the public interest. That is all the Bill says, and that is all it needs to say. I shall explain in a few moments how we propose to set about the disposal of the properties, but let me make it clear now that we see no need for any detailed scheme of disposal to be set out in the Bill.
We propose that the valuation and sale of all the properties shall be conducted by outside independent professional estate agents. These agents will be appointed on the recommendation of the President of the Royal Institution of Chartered Surveyors, in the case of England, and of the Chairman of the Scottish branch of the Royal Institution and the President of the Institute of Auctioneers and Appraisers of Scotland. For Carlisle, agents recommended by the President of the Royal Institution have been approached, and have agreed to act, subject to negotiation of appropriate terms. Messrs. Sidney and Graham Motion, of London, and Messrs. Storey Sons and Parker, of Newcastle, have agreed to act jointly in the disposal of the licensed premises and the brewery, and Messrs. W. L. Tiffen and Sons and Messrs. Gibbings and Johnston, both of Carlisle, have agreed to act jointly in the disposal of the unlicensed properties. For Scotland, the Chairman of the Scottish branch of the Royal Institution and the President of the Institute have been asked to recommend suitable agents.
In determining the method of sale we shall rely heavily on the professional advice of the agents who have been approached in this way. Subject to their views, we propose that in Scotland the licensed properties should be advertised individually for offers. The unlicensed properties would first be offered to sitting tenants, where appropriate at or near valuation. In the Carlisle District we propose that the 170 or so unlicensed properties should again, in general, be offered to the sitting tenants before being 600 put up for sale individually by public auction. The 11 hotels will also be sold individually by public auction. We propose that the 40 or so smallest public-houses—the precise number and criterion to be determined on the advice of the agents—should be offered for sale to the sitting tenant where appropriate, before being offered for sale individually by auction. The sale of the remaining premises will be on the basis determined on the advice of the agents.
My Lords, we shall also expect the agents to advise the Government as to the best way of selling the brewery at Carlisle, and this does present particular difficulty. Small breweries are being closed up and down the country, and there can certainly be no guarantee that the brewery will be sold to someone who will be willing to keep it in production. All we can say is that we shall do all we can to find a buyer willing to keep it going. This is one of the considerations the Home Secretary will have in mind in determining the public interest.
Another consideration for both Secretaries of State—the Home Secretary and the Secretary of State for Scotland—will be the need to secure the best overall return to the taxpayer. A third will be the need to avoid replacing a State monopoly by a local private monopoly. A fourth will be the interests of the tenants and the staff.
§ LORD STONHAM
My Lords, may I interrupt the noble Lord? He mentioned that some 40 small licensed houses will be offered to the sitting tenants. What about the other 100 public-houses? Will they also be offered to the sitting tenants?
§ LORD WINDLESHAM
My Lords, this is exactly what we want to discuss with the agents. We do not think it right to tie ourselves down at this stage, before we have received professional advice, to the exact method of sale for the other houses.
§ LORD PARGITER
My Lords, I should like to be clear about this. Supposing someone, a brewer or one of the organisations, makes an offer for the brewery—it may be a very good offer; perhaps more than the licensed premises could be sold for individually—is it proposed that it would be considered?
§ LORD WINDLESHAM
My Lords, the Home Secretary will consider any offer, having taken the advice of the agents, who will be acting for the Government. The matter is far from straightforward. It is one on which professional advice is needed but if the advice was on these lines it would certainly be considered by the Home Secretary.
§ LORD DAVIES OF LEEK
My Lords, would the club and institute union, which was started by a parson have the right to come to the auction sales to buy some of these pubs? And if they did would the Government not bar it?
§ LORD WINDLESHAM
My Lords, I am not sufficiently familiar, I fear, with the subject to know to what bodies the noble Lord is referring.
§ LORD DAVIES OF LEEK
My Lords, the club and institute union, the working men's clubs as they are known throughout Britain, are sometimes very lush; the carpet is almost up to your collar stud. I would suggest to the noble Lord and to the Government that this is not a "lame cluck" by any means, and the Government would be doing justice if the club and institute union were allowed to come in on this deal.
§ LORD WINDLESHAM
My Lords, anyone will be free to bid for any of the properties; and if these admirable bodies, lush up to the collar stud, wish to come and bid, I am sure the agents and the Government would be very pleased to have them.
I must say something about the time table. We expect the process of sale to start soon after the Bill receives Royal Assent, and we hope that it may be completed in about a year from then. But we are not tied down to any fixed period, and there will be no question of having to sell at less than market price in order to complete the sale within a given time. We must retain flexibility on this. The Bill imposes no time limit, and provides in Clause 5 for trading powers of the Secretaries of State to be repealed only when the sale is complete and the retention of powers would serve no useful purpose.
I have said that one of the considerations which the Secretaries of State will have in mind will be the interests of the State management staff. The Explan 602 atory Memorandum on the Bill states that the saving in public service manpower will be about 1,200. In fact, the total number of staff in the English and Scottish districts is almost 1,500 individual employees. I emphasise that these are savings in posts in the public sector, but we hope that the great majority of staff, many of whom are part time—bar maids, bar men, cleaners and so on—will be taken on by the new owners, and that the number of those who do not find other jobs will be a small proportion of the total staff.
All the staff, however, are civil servants, and the position is that if alternative Civil Service work cannot be found, they will receive compensation under the Superannuation Act 1965, or the Redundancy Payments Act 1965, whichever is the more favourable. More than this I can not say at this stage. Everything will depend on who the new buyers are, whether they are willing to take on the existing staff and whether the staff want to stay. What I can say, on behalf of the Government, is that we shall use our best efforts to secure suitable arrangements for all our staff, and to deal sympathetically with individual cases. These, my Lords, are the principles of the Bill and the reasons for its introduction. It ends a 55-year-old anomaly, it restores a measure of freedom to the people of three districts and it will benefit the taxpayer to the tune of about £4 million. My Lords, I beg to move.
§ Moved, That the Bill be now read 2a.—(Lord Windlesham.)
§ 12.18 p.m.
§ LORD STONHAM
My Lords, I am sure that the House is grateful to the noble Lord, Lord Windlesham, for his clear explanation of the Bill and his valiant attempt to justify it. This is a deplorable Bill for which there is no justification whatever. The noble Lord said that this system had no validity, that there was no longer any social reason (but he himself has given us some of the social reasons) and that there is no economic reason. But, my Lords, there is only one reason for this Bill; namely, that the State management scheme is publicly owned. Moreover, it is efficient, it is well run and it is profitable. Therefore it is completely anathema to Conservative doctrine and is to be abolished, put out of the way. If that was not the case why 603 have not the Government waited for the reports of the Committee which is looking into the licensing laws and of the Committee which is considering tied houses? Because if there were any recommendation regarding tied houses owned by the brewers, then the whole position of the Carlisle scheme would be altered.
Ironically enough, in my view, the Bill imposes on the Home Secretary, as the noble Lord said, the duty of selling the property on such terms as appear to him, the Home Secretary, expedient in the public interest. This is an impossible task, because by every objective criterion it is manifestly in the public interest that the property should not be sold, but should be continued to be managed in the the public interest. It is curious to reflect that it was the conception of what was then the public interest over 50 years ago that caused the scheme to be started. There was considerable public concern about excessive drunkenness in a few areas of the country adjacent to munitions factories. It even affected the war effort, so something had to be done. In 1916, the Central Control Board was set up, with wide powers to control liquor. In the Carlisle area, and in two small areas in Scotland, it was decided to set up an experiment in what was called "disinterested management". In the financial sense, one cannot have disinterested management, but in the terms of the remit of the scheme disinterested management was started and still operates today. I suggest that that is one of the social purposes which is still being fulfilled.
The scheme was charged with the task of not allowing too much beer to be sold and, despite the unlikely situation, it has succeeded magnificently. In 1916, it was thought that some publicans—good businessmen, no doubt—were encouraging excessive drinking to their own profit; so the State management areas were designated. The Control Board acquired all the five breweries in Carlisle, and all but a few of the pubs in the three areas, and prohibited the sale of liquor by anyone else. Out of the five breweries in Carlisle all were closed down except one, which still continues and operates very efficiently. Hundreds of pubs were shut, and today, in addition 604 to the one brewery and the hotels which the noble Lord mentioned, there are 147 pubs, 10 off-licences and 200 unlicensed premises, which are mostly let to business concerns—who, incidentally, are very worried about this matter.
There is an annual turnover in excess of £3 million, and some £300,000 of that represents off-sales to private traders outside the area of the scheme; and they, too, are extremely concerned about what is going to happen. The staff, according to the way you compute them, number between 1,350 and 1,500. By any standards this is a very valuable property. Although it is a small business, compared with the big, national breweries, it is a sound business, efficiently run, which has made, and is making, its contribution to the Exchequer every year.
An analysis of brewery costs published by the National Board for Prices and Incomes in 1966 showed that the cost of production labour at the Carlisle brewery was 20 per cent. less than the average for commercial breweries. Further, the net profit of the Carlisle business was 70 per cent. of their wholesale selling price, compared with the 15 per cent. average for the other breweries. The condition of the scheme's properties is kept under constant review. In the past five years, as the noble Lord has indicated, but did not quite spell out, a great deal of money and much thought has been spent on the properties. Some five hotels and 33 of the public houses have undergone major reconstruction and rebuilding. This is the complete answer to the noble Lord, Lord Windlesham, saying that it is not economic. It is really something when you can decide in advance what the figures are going to be!
The beer is the cheapest in Britain. If you put up the price by a penny a pint, or twopence a pint, this alters the figures, as it did last year. But the other important matter concerns what is spent on maintaining the properties. On the figure of 4 per cent. return on capital, which the noble Lord gave (which was an average of three years selected by the Home Secretary, and they were low years) this is not the criterion by which the scheme is run. It is the many sided success of this scheme which has ensured its continuance for more than 50 years, 605 long after the initial cause for setting the scheme in operation had gone because the drunkenness was cured overnight. As soon as the scheme started the drunkenness was wiped out. But the experiment in disinterested management has continued.
The scheme is a business enterprise and is operated as such. It has problems which are much the same as others that similar businesses have to contend with. But its first priority is and has been quality, not profit. I do not know whether the noble Lord looks at the scheme in the Home Office, or whether things have changed, but that was the case when I or my noble friend Lady Bacon had anything to do with the Home Office. Mr. George Thomas was also involved—one of the country's leading teetotallers, and the nation's brewer as he was at that time. That indeed was disinterested management! The scheme always considered the customer first, always regarded improving the properties as much more important than putting up prices. It produces a wide range of malt, draught and bottled beers; it bottles Guinness, Bass, Worthington, Tennants and lagers; it blends its own whisky and bottles its own wines. So private enterprise is very well looked after within the scheme. If you go into one of the Carlisle pubs you are immediately assailed with every advertisement for the big proprietary brands. They are all over the place—Whitbread, Guinness and so on—advertising things that I have never heard of. The one thing you do not see is any advertisement for the State beer. If you want it you have to ask for it. The locals ask for it because they like it and because it is much cheaper. So that is the point about the economy.
I remember the chief brewer, a charming man, showing me some modest advertising signs which he had drafted and painted himself in his office. He asked whether he could put those in some of the public houses. He was justifiably proud of his product. We had to say "no" because it would have been pushing the sale of our products to the detriment of the inferior and more expensive proprietary brands. I know that it sounds "out of this world", but this is the case.
However, what is important, to me at least, is that throughout the scheme I found among all those on the staff the 606 same interest as was shown by the chief brewer—among pub managers, barmaids, and the members of the Advisory Committee, unpaid, honorary. They are really fightable about the scheme. They were all dedicated to the job and firm in their belief, which I shared and still share, that they were doing a good job in the public interest. We are talking about the Home Secretary's taking steps which are expedient in the public interest. It is expedient in the public interest to ensure that this scheme goes on. Yet this is what the noble Lord, Lord Windlesham, is asking us to destroy. If the Government insist on using their majority to force this Bill through, they will do so, but I believe that they will in due course regret it.
Although the noble Lord has given us, and I am grateful for it, considerable information which I did not know before, and which I do not think has been disclosed before, there are still one or two matters I should like to know about. As I say, the Home Secretary has a duty to sell the property on such terms as appear to him expedient in the public interest. The noble Lord says that highly reputable professionals have been appointed to negotiate the sale, and that the Government have been advised in the appointment of those professionals by the heads of the professions. I question very much that they are starting in the right way. For example, it is said in the Explanatory and Financial Memorandum to the Bill—and the noble Lord has repeated it as if it were still valid:There has been no very recent or detailed valuation of the assets, excluding stocks, of State Management in England and Scotland, but a provisional estimate in 1970 suggested that their value then was not less than £4.7 million.That is very provisional. It is an admirable suggestion; but the historic value of the assets was £3½ million over fifty years ago, and most of them were property. Well, my Lords, this valuation is very provisional indeed! If the value was £3½ million in 1916, it must be at least four times that now. So this is something we must challenge, and we must ask what kind of advice has been given by these professional people.
Still on that point, I recall that in 1953, when steel was denationalised, the Government did not put the responsibility on one Minister; one man did 607 not have to decide the price. They set up the Iron and Steel Realisation Holding Agency, and as regards all persons appointed to it the Treasury had to be satisfied that they had no financial or other interest in steel. That body was charged with the duty of the negotiations which eventually resulted in the realisation. This is a much smaller job, a much simpler job, but why cannot that procedure be adopted? Why cannot we have this clinically clean? When this Bill was discussed in another place, detailed references were made to the fact that leading breweries had made major contributions to Conservative funds, and inferences were drawn that the Home Secretary might be influenced by them in his decision. I mention that only to reject it utterly. No Minister could or would be influenced by such matters. We know it, my Lords. But do the brewers? Do the newspapers? Do the people? When suggestions of this kind are made we are all involved—Parliament is involved—and it would be a great factor if means could be found to relieve the Home Secretary of the very onerous duty of making these decisions. I do not quite know how it could be worked out.
I am very glad to hear from the noble Lord that the forty smallest pubs are going to be offered in the first instance to the tenants. I presume that the Government will be moving an Amendment to that effect at a later stage. It is the small pubs which have been the greatest concern. This is the social purpose of the scheme. Very often there is in an area a pub and only two or three houses—it is just a hamlet. The pub cannot possibly be financially viable with just a handful of people living in the vicinity, but it is the only place where the people can get together for a social hour. When I was connected with this question it was a matter of considerable concern to me, because manifestly the tenant's job was not a full-time job. I do not know how far the arrangement has progressed, but we then arranged that each year eight of such pubs should be offered to tenants so that we created tenancies for them. I take it that these are the chaps who will be given the chance to buy their own pub. I am very glad that that is so. I hope that the scheme will be taken much further so 608 that over a period—and I fully accept that this cannot be done in a year; it requires sufficient time—everyone who has worked in this way, certainly if he has done so for a good many years, should be given an opportunity of buying.
§ LORD ROBBINS
My Lords, I wonder whether the noble Lord could enlighten me, and possibly other Members of the House, on an historical point. Were these small public houses, whose virtues he is extolling, in existence before nationalisation, or have they been brought into existence by the Control Board?
§ LORD STONHAM
No, my Lords; they were not brought into existence by the Control Board. They were all taken over and are part of the 147 pubs. But I have no doubt that they were kept going for the very reason for which they seem desirable to me; namely, that they were doing a very good job in a small community, and it is desirable that they should so continue. If they are sold individually I have no doubt they can be carried on, and of course they will be viable because, as with so many other small country pubs, they do not represent a full time job; the man runs a smallholding, or something of that kind, as well. These men have invested a considerable part of their lives in the scheme. It is impossible for me to think of them as civil servants. They are just pub managers, and very keen on their job. So if the property is to be fragmented in this way and we write the necessary changes into the Bill, these people will have a fair chance.
But since almost certainly the brewery will be closed, I should like to know what will happen to the redundant brewery employees who have grown old in our service. They are civil servants, but I think it is impossible to find them employment in similar jobs as civil servants. How will they be compensated? Will their pensions be adequately safeguarded? If, as seems likely, they have to remove, will full removal grants be paid? I do not expect these questions to be answered to-day, but perhaps the noble Lord will write to me about them.
In the meantime, it seems that if the Government are obdurate in this measure the lives of these good, loyal people will be utterly disrupted, and I think the 609 least that Parliament can do—and will do—is to see that the most generous provision is made for them. No present or former Home Office Minister will dissent from that.
In my opinion the Bill is a sorry business and it has created distress and ill feeling in the Carlisle area—and distress not confined to members of the Labour Party. The volunteer chairman of the State Scheme Advisory Committee, a gentleman named Mr. Jim Aspey, who is a Conservative councillor or alderman, declared—and I quote:It is disgusting treatment. The State sells the best and cheapest beer in Britain and they are just about to announce the highest profit ever of £269,000 for last year.That was a Conservative, speaking in anguish the blunt truth. I have no doubt he has been suitably admonished for his indiscretion, but not too heavily admonished, I hope. However the truth of the utterance stands, and I hope that the Government will note it.
More important is the view expressed by the noble and learned Lord the Lord Chancellor, to which the noble Lord, Lord Windlesham, referred. The present Lord Chancellor, who was then speaking as the Shadow Home Secretary, in January, 1970, said:It is increasingly obvious that it is throughly inappropriate for the Home Office to be directly concerned in a commercial operation of this kind.Fair enough, I would say. I think that is right. He went on:We shall therefore be ready to consider any viable proposal for transferring the ownership and management of the State scheme to a suitably constituted local body, such as a trust.That, so far as this scheme was concerned, was the only mandate given to the Government by the electorate. It would have satisfied Mr. Jim Aspey and all the locals, and I think it would have satisfied every Member of this House.
The noble Lord, Lord Windlesham, has said that since the scheme was not making enough profit on capital it would not have been suitable to offer to a trust. If the Home Office had searched around I think they would have found means of meeting that objection, or would have found that the objections were not valid, instead of which we have this Bill decreeing that the Home Secretary has to haggle over the price. Because, my 610 Lords, welcome as the intervention of these professionals will be, it will still in the end be a Minister who will have to say "Yes, we will accept" or "No, we will not accept". It still has to be the Home Secretary. I believe that, with all that is to be said against the scheme and all that is to be said for it, the Government should withdraw the Bill and should bring in another embodying, so far as is practical, the suggestion made by the noble and learned Lord, the Lord Chancellor, because in effect, in rejecting this suggestion you are saying that the Government's principal Law Officer made an irresponsible suggestion, a view which I do not accept. We cannot leave it there; we must know more about it.
There is one other matter with which I would trouble the noble Lord, Lord Windlesham. It will not arise with these individual sales but it could, or probably would, arise if there were a single buyer, or two or three buyers, for a large area of the property. A lot of the pubs have run much prized sporting activities. For example, there is a bowling green attached to one. As a bowling green it does not make much money: people take a Hint of beer and sit out there and forget all about the pub, and obviously the land would be much more profitably disposed of for use in other ways. Can the Home Secretary find some way of keeping those facilities for the enjoyment of the people?
My Lords, for 56 years the State scheme has been run for the customers, not primarily for profit. It has sold a good product at a low price. It has also made good net profits, and all the time it has been spending a lot of money and much thought on making the establishments better places in which people may enjoy themselves. By these standards it has been a considerable success and is a credit to successive Home Secretaries, Liberal, Labour and Conservative, and to the civil servants who have served them. I hope it is not going to be unhappily ended today, steam-rollered by an implacable Conservative majority on the altar of private enterprise. My Lords, I am sure we can look to the noble Lord, Lord Windlesham, to help us to ensure that something is saved from the wreckage.
§ 12.50 p.m.
My Lords, we have listened to a very long and interesting
611 speech from the noble Lord, Lord Stonham, with almost all of which I entirely agree, although I hope that I shall be able to say so in rather shorter time. I, too, am very sorry to see the State management scheme go, and I hope that, whatever else 'he 'says, the noble Lord who is my neighbour and who is going to speak afterwards will agree with me that it has served us in the Carlisle area extremely well.
The reasons why I disagree with the winding up of this scheme are the exact opposite to what the noble Lord, Lord Windlesham, I think, would put as the most important point. The noble Lord and his friends feel that the present set-up is an anomaly; that the State should not engage in this kind of activity. It is for this particular reason that I should like to see it continuing to engage in this activity. It seems to me that in a mixed economy, such as ours is, there is room for this kind of State activity. There is not only room for the proper nationalised activities like the Coal Board or British Rail, or even other activities like British Petroleum, in which the Government owns half the equity, 'but there is opportunity, and indeed room, it seems to me, for certain things of a much smaller nature like the State management here.
I am far from being one of those who wish to see the means of production, exchange and distribution nationalised altogether. I think that the over mighty State is just as evil as the over mighty corporation, or the over mighty subject. But I foresee an extension of the kind of State activity of which the State management we are discussing, and which operated extraordinarily well over half a century, is a very good example. It seems to me to be a pity to unwind this—I will not say experiment, because quite clearly, it was no longer an experiment, in the sense of the drink trade, but it was still in some measure an experiment in the sort of smaller activities which I believe the State should run, and I am very sorry to see it ended.
I see no reason at all why it should be a monopoly. I agree that in some measure it was a monopoly, but that was something that could easily be remedied; indeed, in some part it had already been remedied. The noble Lord suggested 612 that such an activity as this could not go on unless it was a monopoly. I do not agree. It could go on perfectly well as it was, but unloading some of those aspects of monopoly which it had.
§ LORD WINDLESHAM
My Lords, I should be interested to hear the noble Lord develop that point, because those who have been very close to this scheme have always advised the Home Secretary not to authorise the justices to grant licences to compete with the scheme, on the ground that if they did so the scheme would not be able to operate profitably. This is the advice given to successive Ministers, and if the noble Lord has arguments to the contrary I am sure the House will be interested to hear them.
My Lords, I am not sure that I have arguments to the contrary, but I have questions and I say that it seems to me a most unlikely statement. I cannot understand why an enterprise which I have always regarded as a perfectly viable one (and I will come on later to question the noble Lord's financial figures) should not be able to operate without being a monopoly. It does not seem to me to make sense.
My Lords, it would certainly lose trade, but if it was trading properly and profitably it would also encourage trade to itself. This seems to me a perfecly reasonable proposition. I cannot understand why a State enterprise must be a monopoly, in order to operate. This seems to me tantamount to saying that those lieutenants of the Government who run it do not know their business, and I would not for a moment want to accept such a proposition.
Nor do I feel that State enterprises of this kind should be only in what can perhaps be too narrowly defined as a public service. I see State enterprises of this kind operating in a field in which they can, as it were, keep private enterprise up to the mark. I am not sure that this is not one of the principal reasons why the drinks trade, if I may use that rather pejorative term, is anxious to see it unwound. It is a fact that the present scheme has produced what is universally 613 agreed to be extremely good beer at an extremely low price in competition with other brewers. I need not draw your Lordships attention to examinations by Which?, or examinations by a daily newspaper not very long ago, in which I think it was demonstrated that the quality of the beer—I do not speak about the taste; that is a subjective judgment—but the quality, its gravity and price, came out virtually higher than anywhere else.
May I say something about the public-houses themselves? They seem to me to be very attractive places and to measure up very well to any other public-houses in the land. The noble Lord, Lord Stonham, mentioned this question of advertising. One of the things I find most attractive about them is the restrained nature of the advertising; they are not covered with advertisements from top to toe outside. It does seem to me that in some measure the drinks trade is afraid of this competition and would like to see it unwound. This is only one of the reasons. I also think there is profit there to be had, and I cannot accept statements which seem to me to be the contradictory of those who wish to see the scheme unwound. On the one hand, it is said that the scheme is not making a proper return on its capital.
The noble Lord, Lord Stonham, said something about this. The capital the noble Lord, Lord Windlesham is talking about is the capital as it is at this moment, or at any rate last year; but the capital that one has to take into consideration (and I think the noble Lord, Lord Stonham touched on this) is what it stands the public in at.
It has been going on for 56 years. The return of capital invested over those 56 years is, I suspect, very much better than the noble Lord and his friends suggest. I cannot challenge the figures. All I can say is that it seems to me surprising that we have not heard more about what this figure is and what the return on it is. At the same time, it is suggested that it is being subsidised by the taxpayer because it is so cheap. Those two statements do not tie up. The noble Lord, Lord Stonham, when he was at the Home Office, had considerable experience of this, and it seems to me that his figures do not tie up with those the Government produce. It looks to me 614 very much like a classic example of what a takeover situation looks like before the financier pounces.
Another argument heard, as well as the argument that the State should not engage in this kind of trading, is that the State should not engage in the kind of trading which is based on, and makes a profit out of, something which inherently might be damaging those who use it. I refer to the State making money out of gambling, out of tobacco, out of drink itself. Well, my Lords, I know that this is an argument which was much used many years ago, but I doubt whether it means anything very much now. I would go rather the opposite way and say that the State ought to engage in those very trades that are of the kind I mentioned. The patent medicine trade, I strongly suspect, is one in which Governments should engage as a public service. One need go no further than the example of the thalidomide drugs' being pressed on the public by advertising without proper examination. The advertising trade itself, I think, the Government should engage in, not as a monopoly but in part as a public service. So much for the argument that Govments should not engage in trading of this nature.
It is also said that if it was as valuable as I maintain it would have been extended. I think this is a fair argument up to a point, but I think that those people who are engaged in the manufacture and distribution of beers, wines and spirits have always taken very active steps to see that it was not extended. Even as long ago as the old days of local option, which is long before the Carlisle experiment, the brewers as such took very good care to prevent local option becoming a practical proposition. Similarly with regard to the New Towns. When there has been any suggestion of local authorities trading, the brewers have been very active in preventing it coming about. In any case, I do not necessarily want to see the practice spread over the whole field. All I am saying is that this was something which worked very well in a small field, and it seems to me a pity to abolish it—if for no other reason than that which I said before, that the State ought to engage in those sorts of small activities, and I see a great future for the extension of that kind of thing.
615 This proposition that the state management scheme should be abolished has been advocated for a number of years. It was not part of any Election Manifesto. It has nothing to do with that. It has been advocated in the district in which I live for a long time, and as I say, I am quite certain that the reason is that there is a handsome profit to be made. That being so, I hope that the Government will take very special note of what the noble Lord, Lord Stonham, said with regard to the method of its disposal. So far as I am aware, what the noble Lord, Lord Windlesham, told us to-day is new. These arrangements for the disposal, for the valuation, have not been made public before. I welcome them and hope very much that they will work, because I think it is greatly in the interests of the Government—and I do not necessarily mean only this Government, I mean any Government—that when something like this is done, it should be patent for all to see that it is not a "job". It is not merely that it has been subject to innuendo; it has been openly suggested that the Government have not clean hands in this matter. The noble Lord, Lord Stonham, rejected that suggestion utterly. I too reject it utterly but, as he said, it is very important that the public should be able to reject it utterly, too.
One other small point was made by the noble Lord, Lord Stonham, which I want to touch on. That is, that he disagreed with the point that the noble Lord, Lord Windlesham, made that a public trust could not have been employed here because the profits would make such a scheme unviable. I do not accept that. This is an extraordinary statement. It is tantamount to saying that no trust can operate in those fields where there are not profits to be made. The noble Lord may dispute this, and I hope that he will when he winds up, but it seems to me to be a statement which goes against any idea of a trust at all. I know that some trusts are in grave financial difficulties. One has only to look at the National Trust—not that it is a Government body, but it is a quasi-public institution. It may be that many of these organisations have grave financial difficulties, but that does not mean that they cannot set up.
§ LORD WINDLESHAM
My Lords, the noble Lord would not suggest setting up a trust if the estimates indicated that it would make a loss, would he?
My Lords, in certain circumstances, yes, I certainly would. That is what I was trying to say.
§ LORD WINDLESHAM
My Lords, would the circumstances of running public houses in one small district of the country be such that the noble Lord would feel that the argument was strong enough that a trust should be operated, with public funds, to make a loss in one area of the country, whereas in all the rest of the country that particular activity, brewing and selling beer, was operating profitably and at no cost to the public?
My Lords, I would agree with the noble Lord that if in a certain small area a case of this kind was patently making a loss, and a grave loss, then there would possibly be good reasons for not setting up a trust unless there were other circumstances. But all the indications are, as I understand them, and as noble Lords on the Labour Benches understand them, that this organisation is making a good profit already, and could make a very much bigger profit if it was handled in a certain way. I do not necessarily want it to make greater profits because then it would cease selling such a good beer in the attractive circumstances it does.
§ LORD WINDLESHAM
My Lords, I hesitate to interrupt the noble Lord again, and I will give some figures on this when I wind up, but the essential point is that to begin with the State management scheme does not pay corporation tax. A trust, or any other undertaking, would have to do so. The monopoly would not continue, so therefore the conditions would be totally changed. However, I can give some further details on that.
My Lords, I hope that the noble Lord will do so. I have not said the last word on this, and it is very important that it should be demonstrated beyond all possible doubt that a trust is not possible. On the face of it, the noble and learned Lord the Lord Chancellor once thought that it might 617 have been possible, but his noble friends have apparently now decided on examination that it is not, and I want to know why. I do not want the information now, but I should like to know chapter and verse. I am quite certain the noble Lord would not wish to go on now with that, but at any rate it is something that we want to know.
Lastly—and again this was touched upon by the noble Lord—it is very important that to allay the fears of the staff—both the people who actually serve the beer and the people who manage the public houses in the area—they should be kept closely informed by the Government as to exactly how the Government are going to make good those obligations which any good employer should have to its staff. The noble Lord has mentioned things which are new with regard to pensions and redundancy and so on, but it is very important not only that these matters should be in the mind of the Government, but that the Government should make sure that they are well known to those in the Carlisle and Scottish State management scheme.
§ 1.6 p.m.
§ LORD JACQUES
My Lords, first I would express some regret that it has been found necessary to take the Second Reading of this Bill on a Friday. In the other House it was recognised that this Bill raised questions of principle, and that there were people living at a long distance from London who had knowledge and could make a good contribution to the discussion on the Bill. Consequently, they took all the stages in the middle of the week, and the Bill received far greater consideration than it is likely to receive in this House.
The noble Lord, Lord Windlesham, and the Government speakers in the other place, have between them given four reasons for this Bill. I want to deal with those four reasons quite separately. The first reason they have given is that it was a war-time experiment, and that the need for it has long since gone. It was, of course, originally a war-time experiment, continued until 1921. In 1921, Parliament looked at all the arrangements for the sale of liquor which had been in force during the war, and they decided that some of those arrangements should be regarded as temporary and should go. They also de 618 cided that other arrangements which had been made during the war should remain a permanent feature of our system of the sale of liquor. This venture was one that Parliament thought should be permanent; and it was not the only one. The same Parliament did away with the apparatus of control of war time, and in particular it abolished the Central Control Board, and vested the control of this venture in the Secretary of State for Home Affairs and the Secretary of State for Scotland. Both the Southborough Committee of 1927 and the Royal Commission on Licensing of 1933 commended this venture on economic and on social grounds.
I concede at once that the original purpose of this scheme has now become much less significant. But we live in a changing society, not a static society. Our economy in 1971 is vastly different from the economy we had in 1916. We live to-day in a mixed economy, and an economy in which there are huge corporations which have considerable powers and which can often be checked by way of example. Consequently, the purposes that can be served by such a scheme are not static; they change as society changes. In introducing the Second Reading of this Bill in another place, the Home Secretary acknowledged that by its example this scheme had done much to improve the standard of licensed premises in the period between the two wars. He could have gone further. He could have said that in the inflationary period since the last war it has kept down the prices of liquor. We on this side of the House do not accept that this is a war-time experiment. It was an experiment for five years, but for the last fifty years it has been part of our whole process of the sale of liquor. We do not accept that the need is any less than it was originally. It is different, but not necessarily any less.
The second reason which has been given is that the present system prevents the licensing justices from exercising their proper function in the control of liquor. It is true, of course, that under the present system the respective Secretaries of State can either consent or object to a licence which is granted by the justices, and they have done both. It follows from that that it would be possible to make the changes required by a simple alteration 619 in administrative policy. This Bill is not required to do that, nor is other legislation required. A change in administrative policy is all that is required, if it is desired that the justices should have more liberty.
The third reason which has been given is that the venture is a monopoly and ipso facto is objectionable. If the Government really feel strongly about monopolies, they should spend their time chasing the big fish rather than the small fish. In 1969, the Monopolies Commission pointed out that the tied system of the private brewers was against the public interest. The Government did not propose to do anything about that until, during the discussions on this Bill in the other House, there was such pressure that they decided to refer the question to the Erroll Committee. In the meantime, I would remind the noble Lord that the State licensed houses are not tied houses. They sell twenty kinds of beer in addition to their own brand, and in the outer perimeter of Carlisle they have competition from other licence holders.
The fourth reason which has been given by the Government is that the return upon capital is only 4 per cent. and is inadequate; that, on the average, brewers make 10 per cent; and that the criterion for nationalised industries is 10 per cent. This is the core of the problem and I want to deal with it in some detail. First of all, the efficiency of the State venture has not been questioned by anybody. The Secretary of State for Scotland, speaking in the other place on the Second Reading of the Bill, said that he was very pleased to tell the House that this organisation was well run. As my noble friend Lord Stonham has stated, in 1966 the Prices and Incomes Board showed that its costs were lower than the average for other brewers and that, as a percentage of wholesale prices, the profit of the brewery was greater. So its efficiency has not been questioned by anybody, and in this kind of organisation it is efficiency that counts. The benefits of efficiency in this kind of organisation can be used either to make profits or to benefit the consumer, or they can be used for both. In this case they have been used to benefit the consumer in a big way. On March 21 of this year, the Sunday 620 Mirrorpublished detailed results of an investigation which it had made into the prices of medium beer, and it listed 27 breweries and their prices. It showed that the price of Carlisle bitter at 10½p was by far the lowest price in the whole country, and that the highest price of 16p was being charged by several of the leading brewers.
§ LORD WINDLESHAM
My Lords, I do not want to interrupt, but the noble Lord must not leave the House under a mistaken impression. I have the prices as at July 2 of five draught bitters in the North of England: Carlisle State Management, 11p; Workington Brewery, 11p; Jennings of Cockermouth, 11p; Scottish and Newcastle, 11p; and Bass Charrington, 11½p.
§ LORD JACQUES
My Lords, that does not get away from the figures that were published by the Sunday Mirror.
§ LORD WINDLESHAM
My Lords, it certainly does not tie in with them, but that is the information I have from my officials as at July 2. There have presumably been price movements and those are the prices in the area concerned.
§ LORD PARGITER
My Lords, may I ask the noble Lord whether those are all the breweries operating in the area, or have they been specially selected?
§ LORD WINDLESHAM
No, my Lords; those are the five. The noble Lord will see that two of them, Workington and Jennings, are fairly small local breweries, while two others, Scottish and Newcastle and Bass Charrington, are large national groups.
§ LORD STONHAM
Yes, my Lords. But all five are brewers operating and selling in the immediate vicinity of Carlisle. Therefore the effect of the competition of the State management scheme would he felt. They could not sell for higher prices.
§ LORD WINDLESHAM
My Lords, that may be so. I do not want to interrupt for too long the flow of the noble Lord's argument, but I do not think one can make a case in quite the way he was making it; namely, that the price of a pint of draught beer produced by the Carlisle scheme is so very much lower than prices in the North of England generally.
§ LORD JACQUES
My Lords, my prices were not a selection of five. The Sunday Mirror took 27 breweries and showed that the State beer was by far the cheapest at 10½p, and that the highest price of 16p was charged by several of the major breweries. That was in March, and it may well be that as a result of the publicity given by the Sunday Mirror some of the prices had been changed by the end of June. It would appear from the prices at my disposal that there would have been no practical difficulty whatever for the State scheme to increase its prices by 10 per cent. and on the basis of the figures published by the Sunday Mirror, had it increased its prices by 10 per cent. it would still have been selling at considerably below the market prices. It has a turnover of £3 million, and 10 per cent. of £3 million is £300,000. It had already made a profit of £269,000 so it could have made a profit of £569,000, which is substantially more than 10 per cent. of the capital sum of £4.7 million mentioned in the Bill, more than the 10 per cent. made by the brewers, and also more than the criterion laid down for nationalised industry.
What the Government are really complaining about is that the prices of beer in Carlisle have been too low. If there has been anything at all wrong with the State scheme, it has been its lack of policy direction. If it was desired that the prices should be nearer to the market prices so that there should be more profit available, that direction should have been given. If it was not given, that was not the fault of the management, of the staff or of the customers—and they are the principal human elements involved in this venture. If this state of affairs had existed in private industry the company would not have been wound up; the directors would have been replaced—and that is exactly what should happen here.
The State venture has been so successful it should be handed over to a local trust, a trust appointed by the Minister. That trust should have three clear instructions. The first instruction should be that capital is interchangeable with labour, and that, in the same way as the cost of labour is a cost of production, so the cost of capital is a cost of production; in other words, that interest should be charged as an expense in 622 exactly the same way as wages are charged as an expense. Secondly, the trust should be instructed that it should sell at or just below the market price. Thirdly, it should be instructed that all profits made after meeting the cost of the capital should be retained in the venture, so that ultimately the venture would become independent of the Treasury. The past records of this venture indicate very clearly that within a very few years it would be completely independent of the Treasury.
Before leaving this part of the subject, I should like to comment on the valuation of capital, because the Government have made so much of the point that the return on capital is inadequate. The facts are that you can seldom rely upon the comparisons which are made when they are calculated as a return on capital. In this industry, and in most other industries, there are basically three ways of valuing capital. First, there is the historic cost, which at least is a fact. Second, there is the current market value, which at best is somebody's estimate and is likely to be widely different from somebody else's estimate. Thirdly, there is the notional value of the capital to the business. Many companies decline to value their assets at the current market value for the very good reason that the properties are not being put on the market. They value them at the value of the property to the company as a going concern. In this case, that kind of valuation would be a value calculated upon the profits likely to arise from the ownership of the property, assuming that it was used as licensed premises. That is a basis which is used by many of the brewers outside the State scheme. Therefore, there are so many variations in arriving at the capital that any ratio of capital which is going to be compared with some other ratio is likely to have fallacies behind it. In passing, I should like to point out that taking the 20 years of the State scheme from 1950 to 1970, it will be seen that the lowest profit it made on the historic cost of its capital was 8 per cent. and the highest was 18 per cent.—not such a bad performance for an undertaking which was selling both the cheapest and the best beer in the country.
In conclusion, I should like to deal with the question of whether or not the 623 Government have a mandate for this Bill; and, if they have not a mandate, what the consequences are. It is true, of course, that the manifesto addressed by the Conservative Party to the electors of Scotland said that if the Party were returned to power they would abolish the State monopoly. On that, I would say two things. First, I have already shown that it is not necessary to have this Bill to abolish the State monopoly. All you need is a change in administrative policy. But, secondly, I would remind the Party opposite that they did not get a majority of the votes or of the seats in Scotland, and anything which they put in the Scottish manifesto cannot be proclaimed as a mandate to do things in Scotland. That is just untenable. Their manifesto was not accepted by the Scottish electors, and the Government have no right to claim it as a mandate. In the case of Carlisle, what happened? The Conservative candidate at the last Election, and his supporters, were praising the State scheme. They were shouting the advantages of the State scheme to the consumer, and they said that if the Party were returned to office they would make only two changes: first they would be a little more liberal in the granting of licences, which would be more convenient to the consumer; and, secondly, they would transfer the control of the State scheme to a local trust. That was all they promised the electors.
If the Government are bringing forward this measure without a mandate—and I believe they are—there are two consequences which cannot be denied. The first is that we on this side of the House would be entirely justified in voting against this Second Reading. This is a matter for my noble friend on the Front Bench, but I would hope that he would divide against the Second Reading of this Bill—a Bill without a mandate. The second consequence is that if the Government act in this way without a mandate, then the Opposition have the right to say that when we come back to power we reserve the right to re-acquire these assets and we shall not feel bound by the conventional methods of assessing compensation. That was said by my right honourable friend the Shadow Home Secretary in the Second Reading debate in the other place, and I hope that it will be carried out.
624 My Lords, in an industry in which we have large corporations that are semi-monopolistic, to decide to close down a small but successful socialised sector of that industry, without a mandate, is petty, mean and vindictive. It is not likely to sweeten relations in British politics. It leaves a sour taste. I conclude as I concluded at Question Time on Monday. I believe that this scheme has been so successful that the friends of the Government feel that it is a dangerous precedent, and have called upon the Government to destroy it without delay.
§ 1.28 p.m.
My Lords, my reason for intervening in this debate to-day is because I live near the area concerned. I am sorry that this issue has been blown up into something which is far bigger than it deserves. Carlisle is neither the desert nor the paradise that some speakers here, and more so in another place, have tried to represent. We have heard that this scheme started as a system of wartime control of drunkenness; and I should like to think that most of those who offended came from a distance, and were not good, law-abiding natives of Cumberland. When the war was over, in line with liberal thinking at that time, the suggestion was that this scheme should be continued as an experiment in disinterested management; and it was accepted that the local magistrates would have to be put in an invidious position. I would agree with the noble Lord on the Liberal Benches to this extent: that as the wartime controls were in existence there was some justification for continuing the scheme in peace-time, at least for a short time, to see what results might emerge. It has now been in operation for something like fifty years, since the end of the First World War; and to the best of my belief no serious conclusions have ever yet been put on paper, nor have the people of the country ever been told specifically of what great advantages have in fact emerged. Those who know the area will agree with me that many of the premises about which we have been talking have edged nearer and nearer towards the style of the ordinary pub in other parts of the country, and the distinction which used to be drawn between Carlisle and other parts of the country is now less marked.
625 Why has no action emerged over the last 10 years from Governments either of the Right or of the Left? I would suggest it is because this has never been a pressing issue. It has over the years absorbed a certain amount of political content, and Parliamentary time is very precious. The noble Lord opposite spoke about the greater opportunities for discussion if this Bill had been introduced in the middle of the week instead of on a Friday. In another place they managed to fill a whole volume with discussion during the Committee stage. I hope that we may manage to find a way to discuss this Bill fully but not at quite the same length.
Another reason why other Governments have taken no particular action is that we Britons excel in the art of compromise; and the particular compromise is that there has grown up in Carlisle, alongside the State management scheme, a much more highly developed system of club life than in most other cities of the same size. I am sorry that Lord Davies of Leek is not here; for it is true that Carlisle has a very large number of clubs, some maybe with plush carpets up to your collar stud and with large reserves of capital. It is even said that the turnover of those clubs exceeds the turnover of the larger numbers of State management pubs in the city. So you have two separate systems working side by side. The club system has not been built up because of the cheapness of the beer, but because people liked to have more freedom and more choice, which is a factor which deserves to be mentioned during this debate. I heard, too, during the earlier stages that one or two barrels had been sent from Carlisle to the other place, for the delectation of the Refreshment Department or of the Members of the Committee, but I have heard of nothing similar happening here. That is clearly class distinction. The unpaid House might have been allowed the same advantage.
§ LORD STONHAM
My Lords, I cannot say whether it is true but I understand there was a nine-gallon barrel, that it was sent to the Kitchen Committee and that the Chairman would not allow it to be consumed.
My Lords, that does not say that the same objection would be raised here if it were sent to Miss Wilson. I suggest that as we are not a very large number we might enjoy this with our lunch, and perhaps our judgment would then be improved. It is a great pity that so much politics has been injected into this issue. I do not want to expand on this, but I am quite sure that Labour organisations in Carlisle think that there are votes in this; and that is why the discussions have been so long and in many ways so repetitive.
The principal point that I want to make—and it is a new one; I do not think it was discussed in the other place—concerns the interests of the tourist industry. Here I must declare that I am President of the English Lake Counties Tourist Board and was associated with a smaller organisation which preceded it. We are greatly interested in developing facilities not only in the Lake District proper but also in the area around which includes Carlisle and the country up to the Roman Wall. It is beyond question that the facilities in Carlisle are far less good than they ought to be, and far less good than those of other towns similarly placed and of comparable size. I am not offering any bouquets to the few premises in Carlisle which are not within the State management scheme. I am not making any distinction; I am taking the whole lot together. But it cannot be gainsaid that the pace-setter in this must be the State management scheme which owns and controls the largest number of properties in that town.
The State management scheme are associate members of the Tourist Board. I do not think it is unfair to say that their Hotels Manager is keen, and would do more if he had more money and, maybe, if his Board allowed him to. I do not want to make trouble between him and his Board. But the work has not been done. The hotel facilities in Carlisle are proportionately poor. Unlike the rest of England, where the practice is spreading, there are few pubs which have bedrooms, all too few with bathrooms. There has been very little additional hotel building over recent years.
I do not want to start quoting figures of building since 1939 or 1949; but I 627 would claim that the number of hotels with bedrooms or with private showers is deplorably small for such a city. Three public houses have been built since the war and I can certainly commend the State management scheme for their choice of name for one of them, the "Inglewood Forest". But apart from that, any visitor to Carlisle would bear out the general tone of what I have said. This comes about not because the people at the top have not realised that something should be done but because, not being open to the same free competition as in other areas, they just have not done it. Further, they have not had the resources. The profit figures quoted have not been sufficient to find the capital necessary to invest if premises were to be brought up to date as others in the Lake District are.
No great problem should be presented in the hotel industry and the tourist industry (expanding as it is to-day in this country and particularly in the tourist areas) to the majority of the staff about whom reference has been made. The managers, I think, have done extremely well, within the limits of what they were allowed to do. In an expanding tourist area other staff who are part-time—ought not to meet any great difficulty. In many cases the change could result in an increase of pay. One group for whom I hope my noble friend will have special regard are the elderly members of the staff of the small brewery. It is unlikely that the brewery will have a very long life ahead and it will not be as easy for them to find alternative employment as it will be for those working in the different hotels and pubs.
Lastly, as to the question of disposal. Here my noble friend may not feel that I am quite so much on his side as I might have appeared so far. There is undoubtedly the feeling in Carlisle that, above all, a straight transfer to one or two of the big brewery chains should be avoided. This is not political; it is the nature of the neighbourhood and Lake District, where the whole essence is the small family business. But this is not to say that there is not room for others. I think that it would be a pity, when we have seen small breweries disappearing from various parts of the country, that we should effect a major transfer here to 628 one of the bigger chains. But my noble friend has said that that is not the Government's intention.
My Lords, I am a member of the Royal Institute of Chartered Surveyors and I still pay my dues, although I have not practised for many years. Putting myself in the position of those firms from whom he has said he is seeking advice, I do not see how they could do other than show him different ways whereby these properties could be broken up and sold, and underlining the way where there could be the biggest return. I should like him to say here and now that he is not absolutely wedded to accepting what would appear to be the biggest offer, because an immediate cash gain may mean some future social loss. As I have said, the tradition in that part of the country is for small breweries and family businesses, and I should like to see that continue.
Like many over the years, I have hoped to see the State monopoly broken. I have never thought there was any great force in the argument which the Home Office always produced, that if the experiment was to be of any use at all, the monopoly must be retained and the justices in Carlisle kept in this invidious position. I could never see force in that argument, and I wish that either an earlier Government who disliked the monopoly could have broken it and let things work out in their own way, or else noble Lords opposite, who appear to set such great store by continuing this scheme, had had the courage of their convictions and extended it to other areas, with or without modification. In fact, my Lords, the great heat and fury which they have expended on this issue over the last few weeks is not so very convincing since, over the whole of the last 50 years, they have done nothing to amend, approve or extend the scheme which they now represent as so full of merit.
Since time has been allowed to go by, it could well be that now, if we just broke the monopoly and let things in Carlisle continue, with competition between State management and the others, the assets that we have spoken of—and not least the brewery—would drop quickly in value and the loss to the taxpayer would be too great for any 629 Government easily to contemplate. So as a result of lost time it may be that the solution which the Government are now proposing is the right one. My Lords, I think we have to look at this matter somewhat differently from the way some noble Lords opposite are looking at it. There are other issues besides beer, important though that is. People want to spend a night in Carlisle; they want to eat in Carlisle, and the tourist industry is extremely important in that area. There is no doubt that over recent years chances have been missed in Carlisle.
§ 1.43 p.m.
§ LORD LEATHERLAND
My Lords, this is a Friday, an unusual day for us to meet, and I hope it will not be suggested that we are "only here for the beer". I rise to support my noble friend Lord Stonham in his opposition to the Bill and it may be thought that I am a somewhat incongruous ally. I have never touched a drop of beer in my life, and for the middle 25 years of my life I was an absolute teetotaller. In order to complete the record, I should add that in later years I have developed a taste for an occasional glass of wine; and if noble Lords are inclined to doubt that, I would invite them to put me to the test.
I have, my Lords, a liberal kind of mind with regard to the philosophy of drinking and no prejudices which would be likely to give me a jaundiced view of this Bill. Mind you, but for a strange turn of fate just over fifty years ago I might to-day have been one of the Bill's most enthusiastic supporters. It happened like this. At the tail end of 1918, when we were advancing through Belgium into Germany, my old Colonel, who was the chairman of a brewery, had to be sent home. We were very good friends—within our proper stations of course—and the last words he said to me were, "Leatherland, if you ever want a job when the war is ended, just come round to the brewery." That brewery was a very progressive one in a rapidly expanding and prosperous town. It took over many other brewery companies and its final merger made it one of the leading breweries in the land, although not one of the giants.
630 It so happened that my pre-war job with the Birmingham Corporation was kept open for me and I had no need to go to the brewery. But had it been otherwise, my Lords, just visualise the situation. Here I might be to-day, a wealthy brewery director—because, bear in mind, the chairman was a friend of mine—presiding with great dignity over a constituency Conservative Association and handing out great bags of brewery profits to the Conservative Party funds. But it has not turned out like that. I do not intend to say anything about the £150,000 which it is alleged that breweries have handed to the Conservative Party. I believe there is a sense of decency to be observed in politics in this country; and anyhow, I think that our politicians, by and large, are men of integrity. But I must say that if it should happen that these pubs and the brewery in Carlisle are sold to one of the brewery firms which made a big contribution to the Conservative Party funds, it would look very bad indeed. That is all I want to say about that aspect of the matter; henceforth my lips are sealed on that subject.
My Lords, I think it just as important for us to pay regard to the way in which the Government have judged their priorities. What are the real problems facing the country to-day? They are unemployment, with dole queues in every town in the country; with prices rising in the grocery shops every week; with our national production sagging and with signs that the balance of trade is not going to be so happy-looking in the year to come as it was in the year that has passed. Those are the real facts that this country, this Government, this Parliament and the public ought to be facing to-day; not "fiddling while Rome bums"—though I use the word "fiddling" in its strictly musical connotation.
There is no need for this Bill; no one wants it. My noble friend Lord Jacques has mentioned that the Carlisle experiment was not even given a line in the English Conservative Manifesto. Furthermore, a few weeks ago, during the municipal elections in Carlisle, the question of the sale or otherwise of the State management scheme was the main issue. And look what happened. The Tory mayor was defeated; one of the safest Tory seats proved a Tory defeat; the 631 safest Tory seat in the town had its majority reduced from 1,000 to 100 and another safe Tory seat was won by Labour for the first time. My Lords, I think it is clear that the people of Carlisle want to carry on with the scheme as it has been for the last 56 years.
I wonder whether it is some death wish on the part of the Tory Government that makes them want to interfere whenever they see people fairly contented; that makes them want to sack people from their jobs; to send up the cost of living; to send up prescription charges and to increase rents. Why cannot they leave well alone? They could well do so in the case of the Carlisle scheme, which has been running satisfactorily for 56 years. Out of its profits, in the first 11 years it paid off the whole of the capital money that had been borrowed to purchase the original houses, and during its existence £11 million has been paid over to the National Exchequer. It is making close on £300,000 a year with the prospect of a still bigger profit during the latest year; it has accumulated profits of £1½ million and even the Monopolies Commission spoke well of it. At the same time, it is producing a better beer at a cheaper price than some of the other breweries in the country. What is wrong with that? I hardly know how I should develop my criticism. Is it to be mild or is it to be bitter?
One of the reasons that has been adduced for the selling off of this State management scheme is that the profits are smaller than those of privately owned breweries. Is that a sin? As a matter of fact, there is a handsome profit made, in spite of the fact the better beer is sold at a cheaper price. We have heard it said that their profits are only 4 per cent. on working capital, as against 10 per cent. in the case of private breweries. But I should like to see far more evidence than has been so far adduced to convince me that that comparison is made on a really comparable basis. We know that in the last 15 years an enormous amount of juggling has taken place in connection with the capital structure of many of our privately owned and publicly owned breweries.
Again, we have to consider that a better quality product is being provided 632 by the State breweries and public-houses at a lower price. As the profit rose considerably last year; and is due to rise again this year, and as the price has been put up, I presume under Government instructions, the 4 per cent. that has been quoted may prove to be considerably out of date when the next lot of the Board's accounts are published. Then we have to look at the conditions of sale. The first thing that will happen, on the very day that this Bill receives the Royal Assent, is that the monopoly powers of the State Board are to be broken. I do not want to enter into an argument about monopolies, but there cannot be any sliding scale of morality; if it is wrong to have a monopoly here, it is equally wrong to have it in the tied house system, a system which has been roundly denounced by the Monopolies Board as contrary to the public interest.
Let me get back to the main line of my argument. If the monopoly power of the State is broken, then equally this reduces the capital value and the potential selling price of the properties. I think it is our duty to see that we get the best sale price we can when these properties come to be disposed of. What does the Explanatory Memorandum on the Bill say about the financial aspects of the matter? We have had the figures, but it will not hurt to have them again. First of all it says:There has been no very recent or detailed valuation of the assets…So something has to be done there to write up the assets.
Then there is a provisional estimate. Those of us who read prospectuses and study takeover bids know what "a provisional estimate" is really worth. But last year, we are told in the Memorandum, it was:suggested that their value then was not less than £4.7 million.But we are not going to get all that for the taxpayer, for the people, when these properties are sold. There is to be a "rake-off"—or rather, I will say, reduction—of £900,000 which will include the "rake-off" of estate agents and the compensation that will properly be paid to the people who are displaced. But why sack them at all? Why not keep them on as they are now, and so save 633 all that money that will have to be paid out in compensation. The Explanatory Memorandum says:The ultimate saving in posts will be about 1,200,…I realise that all these 1,200 are not going to be sacked, but it well may be that several hundreds will have to be paid the dole every week. Let us get it clear that this £4 million, or whatever is realised by the sale, is not going to benefit the taxpayer except in a very indirect way. It is going to be applied to the reduction of the National Debt, and the effect of that upon the demands made on the taxpayer will be small indeed.
Let us now have a look at the balance sheet. It goes up to March 31 of last year. Again I see that many of the figures on this balance sheet will need to be altered. First, there are figures for land and buildings, mostly freehold, on page 10. The original cost of the Carlisle properties is put down at just under £2 million, but in the Accounts this is depreciated to just over £1 million. Do freeholds really depreciate by 50 per cent. in fifty-six years? I have been connected with some freeholds in my time, and I find that they are now about seven times higher than they were fifty-six years ago. So the value of that property should be multiplied, rather than reduced. That is the case with regard to the Carlisle properties; and a similar story holds good with regard to the Gretna and Cromarty properties. There is an item in the balance sheet for goodwill. What is this goodwill? It is shown, on page 8, as just under £170,000. But is this realistic? We are told on page 12 that it is a figure representing the compensation that was paid to the tenants fifty-six years ago. That figure needs to be multiplied by half a dozen to bring it into line with present-day values.
There is another factor to consider when we are looking at this balance sheet. We have to bear in mind that soon after this brewery and the public-houses are sold the Erroll Committee will be reporting, and as a result we shall be having longer licensing hours; more beer will be sold and the value of all public-houses will go up—after the State has parted with them and the brewers have got their hands on them. We have also 634 to bear in mind that the population is increasing, so there will be more customers after the sale and the properties will be more valuable. We have a specific case of that at Cromarty, where the Invergordon smelter is going to bring a considerable body of workers into the district. And I believe that the people who work in smelting have pretty good thirsts.
So, my Lords, the brewers look like being able to buy at present values and are being given a big present of a considerable potential profit increase. What we must bear in mind is that we have here a very valuable property, most of it freehold; and we know that freehold values go up year by year. That is within the experience of all of us. We have often been told that in considering our daily political affairs we must pay attention to the best interests of the nation, and I feel that if there is to be a disposal of these assets, then in the best interests of the nation that disposal should be entrusted to an entirely independent and non-political body. A realisation agency, on the lines of that set up for the steel industry, immediately comes to mind. I say nothing about the eminent experts who are being brought in under the Government's proposal, but I do say that, having regard to the very close affiliations between the Conservative Party and the brewers, it would not look well in the public interest if the Government themselves and the brewers were allowed to conduct these negotiations, even through experts as the intermediary. In order that the country can be satisfied on this question, there must be, in my view, an absolutely independent authority.
There is only one other feature about this sale that worries me; that is the Government's intention that it shall be wound up within 12 months. I know that it may run to 13 months, or maybe only 11; but 12 months is the target. What is to stop the brewers getting together and deciding that during those 12 months they will not make any bids? Brewers can cling together. I remember that 30 years ago that it was the brewers who publicised the song:The more we are together, the merrier we shall be.If the brewers hold back during these 12 months, then many of these properties 635 may have to be sold off at considerably less than they are worth at this moment, quite apart from the increased potential value to which I have already referred.
My final words, my Lords, are by way of a friendly warning to the Minister, for whom we all have a high regard. I am wondering whether he has pinned a little note at the head of his bed saying, "Crichel Down". What is to be the position if he fails to offer to the original owners, with the first option, the opportunity of buying back these properties? I may there be barking up the wrong tree, but I am only anxious to help the noble Lord to keep out of trouble. Looking at the Bill as a whole, I think it is a bad Bill. It is unnecessary; it is not in the public interest: it is brought forward from petty political motives, and I sincerely hope that the Government will have second thoughts and save us the trouble of dividing against it.
§ 2.2 p.m.
§ BARONESS GAITSKELL
My Lords, I shall be very brief, particularly as I did not put my name down on the list of speakers. I always feel extremely incensed by the mean attitude of the Conservative Government to nationalised industries. I agree with my noble friend Lord Stonham and other speakers that this Bill is decidedly not justified as being in the public interest. The scheme has been going on for years in a perfectly satisfactory way, and all honour is due to the Liberal Party who introduced it so many years ago. Why meddle with it and dismantle it now? We can only deduce, as my noble friend Lord Leather-land said, that this change is a sop to the brewers, not only for benefits receceived but, more important, for benefits to come.
I agree almost entirely with Lord Henley's arguments. I am no rabid nationaliser, but I intensely dislike rabid denationalisers. The meanest part of Tory doctrine is this hiving off of profitable bits or denationalising certain industries for no good reason. The noble Lord, Lord Brown, in the previous debate this morning said that the Tories made profit into a god: I suggest a very jealous and covetous god of profit. A small point was made in the debate about justification for certain bits of a nationalised scheme not being profitable. I think that 636 this is perfectly justified for social reasons in certain respects—for instance, for a pub in an outlying district. It seems to me, finally, that the Bill does not help the taxpayer, for this scheme has been profitable: the Bill helps only the brewers.
§ 2.4 p.m.
§ LORD WINDLESHAM
My Lords, we have had a spirited debate. Strong feelings have been expressed and I accept that there is an issue of principle between the two sides of the House on this matter. We have had the benefit of listening to people with special knowledge and experience. The noble Lord, Lord Stonham, was in charge of this scheme for some years at the Home Office, and I know what a close interest he took in it. The noble Lord, Lord Henley, and my noble friend Lord Inglewood both live in the area, and although they came to different conclusions in their attitude towards the Bill they spoke with special local knowledge. I think the point made by my noble friend about tourist facilities is a new one. I have not seen it raised in previous debates, and it is an important consideration which we should keep in our minds as we debate the Bill. I can say to my noble friend, as I said in my opening speech, that my right honourable friend is conscious of the need to avoid replacing a public monopoly by something approaching a private monopoly; and the staff considerations, especially the staff working in the brewery, will be very much in our minds.
Seeking what agreement I can, I should also like to welcome what a number of speakers, including the noble Lord, Lord Stonham, said about the appointment of the independent professional agents. The Government had previously announced that it was our intention to approach the presidents of the professional institutes concerned in England and Scotland, but he is quite right in saying that my statement to-day is the first full statement that the agents have been nominated, have been invited by the Government to work in this way and have agreed to serve in the case of England. The consultations in Scotland have not yet been concluded.
Several speakers said—and perhaps this was one of the main themes of the 637 debate—they thought the State management scheme at Carlisle should be handed over to some local trust. Perhaps the noble Lord, Lord Jacques, was the one who spelt this out in most detail, but the noble Lord, Lord Henley, also spoke on these lines. I am not sure that noble Lords have really come to grips with this particular proposal. It is one that has been discussed in another place. My honourable friend the Parliamentary Secretary explained why the Government had come to the conclusion that a proposal on these lines would not be viable, but I think I should do it again now. If we take the most optimistic estimate of current profitability, the figure would be about £300,000; and even if this sum could be maintained, one would also have to take into account 40 per cent. corporation tax. This is a central point: the scheme at the moment does not pay corporation tax, whereas any public trust which took its place would be liable for corporation tax. Then there would be the expenses of running the trust, and a substantial sum for the maintenance of capital investment, about which I shall say more in a moment or two, before any allotment could be made for the purposes of the trust as such. If the trust had, in addition, to pay interest on the purchase price on a loan from the Government to purchase the property, it seems to us doubtful whether it would make any profit at all. I think that noble Lords who favour this particular proposal must take these factors into account in the arguments which they put forward.
The question of the profitability of the scheme has run through our debate, and I want to say a word or two about how we should look at this question of profit. The accounts for the year ended March 31, 1970, show that for Carlisle the amount transmitted to the Consolidated Fund during the year—and this is the amount which corresponds broadly to the sum distributed in profits by a commercial company—was only £19,346. The rest of the profit was unappropriated and was used for capital expenditure.
§ LORD JACQUES
My Lords, surely this is not fair criticism. If this had been a private company, it could have borrowed money and could have appropriated the whole of its profit. The 638 noble Lord also used that argument in his introductory speech. It is quite unfair criticism.
§ LORD WINDLESHAM
My Lords, I should like to go on with it, because I think it has some validity. The remainder of the profit was unappropriated and was used for capital expenditure. The figures for capital expenditure for the five years ended March 31, 1970, are that the annual profits totalled £920,000, and the capital expenditure over five years totalled £713,000. In other words—and let us have these figures clear in our minds if we are to debate this in a knowledgeable way—the contribution made by the scheme to the Consolidated Fund over these years was only about £200,000 over five years, an average return in that case of about 1 per cent. The noble Lord cannot accept this, but I think it is a fact that we ought to take into account, when we are talking about the return to the public, to the taxpayer, from this particular scheme. The Consolidated Fund has benefited over five years by a sum of about £200,000.
§ LORD JACQUES
My Lords, whether a trading concern invests in any one year more than its profits, or whether it does it in several years, is not relevant. This has no validity at all. It need not have borrowed money from the Consolidated Fund; it could have borrowed elsewhere.
§ LORD WINDLESHAM
My Lords, it could have borrowed it elsewhere; but when we are talking about the viability of the scheme, if money is borrowed elsewhere then the interest charges on the borrowed money must be taken into account. I do not think we are even going to reach agreement on the profitability or otherwise of the scheme. In any event, as I said earlier, this is secondary to the Government's purpose in disposing of this scheme.
The question of prices was raised. The noble Lord based his argument on that fount of original and accurate wisdom, the Sunday Mirror, in, I think, March, 1971. Since then prices have gone up in the Carlisle and District State Management Scheme. The figures I gave are the current figures for a pint of draught bitter, which is the beer that he chose; and they show that prices are almost exactly level at 11p in the North of 639 England. But I am told that his argument is correct to the extent that there is at the moment an average price differential of approximately ½p. That is the figure—a half of one new penny—and let us keep it in our minds when we discuss the relative cheapness of Carlisle beers.
The noble Lord, Lord Jacques, went on to question whether the Government had a mandate for this particular Bill. He referred to a "Manifesto undertaking" in Scotland, and went on to argue that because the Conservative Government did not win a majority of seats in Scotland this undertaking had no validity. He received support from noble Lords opposite, and I think that they ought to know better. He is on the weakest constitutional ground that I have heard for a long, long time. He must know that the Parliament of Westminster is the Parliament of the United Kingdom. There is no separate Parliament for Scotland: the Members of Parliament for Scotland sit as Members of the Westminster Parliament, and he really must not use arguments of this sort.
The noble Lord also indicated that he had been tempted to consider voting against the Bill. I hope very much that he will resist this temptation. It is easy for people who feel strongly about particular measures in this House to vote against them; they feel strongly about a particular measure and they feel entitled to express disagreement. But I hope that in doing so they will consider the interests of the House as a whole. We have had to address ourselves to this issue very recently on two major Bills: the Industrial Relations Bill and the Immigration Bill, two of the principal issues before Parliament. On both occasions a number of noble Lords, despite the advice give from both Front Benches, felt that they must record their vote against the Bill. I think that, by their actions, the position of a non-elected Chamber is called into question. This is a very profound issue, and one which I hope any noble Lords considering this course to-day will keep in mind.
My Lords, the comparisons made in the course of the debate, when references were made to other nationalised industries and other arguments were used, are 640 not, I think, valid. Coal, steel, power, transport and so on, are all in public ownership because of public policies; but for various reasons, mainly economic, the State has assumed control in these sectors of economic life. This is not true of public-houses. If a man landed from Mars and found that the Home Secretary, of all people, owned a brewery in a not very large town in the North of England and was responsible for the management of a group of public houses, again in a relatively small part of the country, he would be a very surprised Outer Space man.
Another factor is that State management is not conducted by any public corporation. Both the policy and the operation of the scheme are the direct responsibility of Ministers. I have said, and I believe this very strongly, that there are no justifications on the economic plane, and I hope we shall agree on that. In any event, that is the position. But the social justifications that may have existed 50 years ago no longer apply to-day. This Administration is concerned, as a positive policy for which no one could argue that it did not have a mandate, to disengage itself from those areas of activity where government has no need to be; and in our view, brewing beer and running pubs is just such an activity. Everywhere else in Britain outside these three small schemes, people get along very well with the licensed trade, and for the life of us we cannot see why it should be different in Carlisle, Gretna or Cromarty. There is also the fact, which there is no getting away from, whatever noble Lords opposite may feel, that over £4 million in public money is tied up in this scheme. I think we are seeing once again—
§ LORD STONHAM
My Lords, I did mention this figure of £4.7 million, which we utterly repudiate. It is nonsensical, ridiculous and indeed shameful to have that printed in the Bill. I hope the noble Lord will not keep on referring to it.
§ LORD WINDLESHAM
My Lords, I am afraid that I must disappoint the noble Lord. I am going to keep on using that figure, and I must correct him, since he raises the matter again. He said that in 1916 the Carlisle assets were valued at £3 million. I am afraid that is quite 641 incorrect, and the House must not carry that impression away in its collective mind. The book value of the Carlisle assets—namely, the historic cost, and subsequent additions at current values—appears in the Annual Report as something over £1 million. The £4.7 million valuation was arrived at in May and June. 1970, just before the last General Election, at the time of the previous Adminitration. It was based on a paper upgrading of known values in the light of known trading figures. The valuation was carried out by local valuation officers of the Inland Revenue, and I do not think that the noble Lord should discredit the officers who carried out this valuation in the way he has done.
I do not want to delay the House any further on this Bill; we shall discuss it further at the Committee stage. But I think we are seeing here—I do not want to criticise them for this, and one sees it in all Parties—the intense conservatism of noble Lords opposite. We saw it with the Industrial Relations Bill and we are seeing the same thing here. They do not want a change to be made, mainly be 642 cause things are as they are. There may be a better way, but they do not really wish to see a change made. We do not think a Government can accept that. We think that the situation can be improved, for the reasons I have given, and we think that this Bill is the way to do it.
§ LORD JACQUES
My Lords, may I point out that we do want change, but there are changes and changes. We want the right kind of change.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.