HL Deb 05 August 1975 vol 363 cc1504-99

4.52 p.m.

Report of Amendments received.

Clause 1 [The National Enterprise Board]:

The MINISTER of STATE, DEPARTMENT of INDUSTRY (Lord Beswick) moved Amendment No. 1A:

Page 2, line 2, leave out ("six") and insert ("eight").

The noble Lord said: My Lords, we had a great deal of discussion on this rather narrow point at Committee stage, and this Amendment is intended to do what the noble Lords, Lord Drumalbyn and Lord Aberdare, asked to be done. May I refer to one point, which has relevance to the next three Amendments? What we tried to do in this Part of the Bill was to leave as much room as possible for manoeuvre. The National Enterprise Board will be a very flexible and malleable instrument and it will grow with conditions.

We do not want to have constraints in the Bill. It was put very firmly that six was far too few, and it is conceivable, as I now see, that one could have a situation where, say, two members both fell off a cliff edge or something, leaving a temporary shortage of Board members. Below eight there could be only six, and if we wrote all these figures into a Bill we could be guilty of breaking the law, I suppose. Therefore, although it was not altogether a silly idea to have the figure as low as six, as always, I try to do what I can to help noble Lords opposite, and so the figure has become eight. But may I ask them, when it comes to the next three Amendments, to bear in mind the need for flexibility? Let us not be too constraining, but let us have the maximum amount of flexibility in the Bill. Having said that, I beg to move.

Lord ABERDARE

My Lords, I should merely like to thank the noble Lord for having taken the trouble to reconsider this matter. There was a good deal of discussion about it at Committee stage, and I am grateful to the noble Lord.

Lord DRUMALBYN

My Lords, I, too, am very grateful to the noble Lord for moving this Amendment. I am sorry that at the beginning of his speech I was busy searching for this Amendment on the main Marshalled List. However, I am very grateful to him for moving it. It is a question not so much of what we think, as of how the Bill will operate, and I believe that this Amendment will help the Bill to operate to better advantage. The noble Lord was right to make the Amendment, and we thank him for doing so.

On Question, Amendment agreed to.

5.56 p.m.

Lord ABERDARE moved Amendment No. 1.

Page 2, line 8, leave out ("or joint chief executives").

The noble Lord said: My Lords, I beg to move Amendment No. 1, and it might be convenient to take with it Amendments Nos. 2, 3 and 4 en bloc, since they are successive Amendments and deal with similar subjects. This is a matter which we discussed briefly on Committee stage and the noble Lord, Lord Beswick, said that he would look at it again and promised that points which had been made by your Lordships would be considered. I bring the matter forward again for that reason and also because several of your Lordships lent considerable support to the two ideas that lie behind them. The first, in Amendment No. 1, is that the Board should have only one chief executive. That was supported by several of my noble friends who have considerable experience, including the noble Lords, Lord Nelson of Stafford and Lord Orr-Ewing. Also, it received considerable support from the noble Lord, Lord Bruce of Donington, and since I am not often able to secure his support, and since he is not here at the moment, may I say that I believe this to be a point in favour of the Amendment.

It seems to us that it would be normal, in the interests of efficiency, to have one chief executive. I agree with the noble Lord that one does not want unduly to limit flexibility, but at the same time one wants something which is as efficient as one can make it. Therefore, I should have thought, that, almost without exception, there was normally one chief person; there is a chief in every tribe and there is a chief executive in almost every form of organisation. This applies even to the Government's own organisation, the Civil Service. I have never heard of a Department run by joint chiefs. There is always one Permanent Secretary who is the chief one, and the others are not. The noble Lord shakes his head, but I shall be very interested to hear if that is not the case. Although my own experience is limited, in my own Department there were certainly two Permanent Secretaries, one of whom was the principal one. So this is a normal provision and one which would seem to be right for the National Enterprise Board.

We then went on to discuss what is now embodied in Amendments Nos. 2 3 and 4, which would entail that chief executive being a member of the Board. Once again, this received considerable support from several of my noble friends, who stated that it was generally normal in industry for the chief executive to be a member of the Board, and that if we were to get the right calibre of person as chief executive it would be necessary for him to be a member of the Board. I hope that without sacrificing flexibility the noble Lord will be prepared to accept these Amendments, which do not really inhibit flexibility to any great degree, and seem to us to include two principles which are normally held to be right in industry generally. I beg to move.

The Duke of ATHOLL

My Lords, I should very much like to support my noble friend in his Amendment No. 1. I was once chairman of a fairly small company in which there were joint managing directors, and throughout that period I wished that its articles of association had stated firmly that there should be one managing director or chief executive. I can assure your Lordships from my experience that having joint chief executives leads to nothing but friction. I should very much like to support my noble friend Lord Aberdare in this Amendment.

The Earl of BALFOUR

My Lords, I also should like to add a few words here. Under the Development Agency Bill which went through your Lordships' House only one chief executive was appointed and the provision stated that the: chief executive of the Board shall be ex officio a member of the Board". I feel that this is important. As the wording stands, the chief executive may be either a member of the Board or a person who is not a member, and that I feel, with all due respect to our deliberations, must be rather contrary to the principles of Clause 2(2)(c) at the top of page 3 of the Bill: …promoting industrial democracy in undertakings which the Board control". I must ask the noble Lords who are steering this Bill through the House to give this matter serious consideration. I am sure that these Amendments are intended to be constructive and will vastly improve the Bill.

Lord ROBBINS

My Lords, may I add a footnote to the recollection of the noble Lord, Lord Aberdare. I believe there is a precedent, or an apparent precedent, for two Permanent Secretaries. At the inception of the Department of Education and Science for a brief period there were two joint chief secretaries, although the arrangement proved to be unsatisfactory and it was dropped almost immediately. I may be wrong in my interpretation of the minutiæ, but certainly that was the impression that was given to the general public.

Lord BESWICK

My Lords, I am not absolutely sure whether or not I can call in aid the noble Lord. Lord Robbins. May I say to the noble Earl, Lord Balfour, that we have taken this point seriously. But I hope that noble Lords opposite will not press these Amendments. I think that what they said about the chief executive being on the Board is right, and almost certainly, I imagine, the chief executive will be on the Board. But if we write this into a Statute we are limiting room for manœuvre. The noble Lord, Lord Aberdare, said that he could not conceive of just one Permanent Secretary. The noble Lord. Lord Robbins, says he knows of a case where there were two. I know of a case where there were four. In the Department of Trade and Industry there were four Permanent Secretaries. The situation changed. The Department was split up and we have only two now.

Lord DRUMALBYN

The Secretaries were not all equal. There was one principal.

Lord BESWICK

My Lords, I do not know about that. I doubt whether the noble Lord should go around saying they were not all equal. One might have been receiving a little more salary than the others, but there were four Permanent Secretaries. In my day it would have been considered inconceivable, but the situation changes and it was held to meet the situation at the time. They had four Permanent Secretaries. Whether or not one was superior to the other three I should not like to say.

What I say quite firmly is that it would be wrong to say in an Act of Parliament that the chief executive should be a member of the Board, for example. There may be a full-time chairman and he may not need a chief executive on the Board. There may well be a situation where different divisions are developing and there is a chief executive for each of the two main divisions, and they would he called joint chief executives. I understand that the Shell Company have five managing directors which again, according to some of the arguments, is probably not good administration, but it seems to serve them well. Even though the noble Duke, the Duke of Atholl, had a different experience with his company, I do not think we should completely write off the experience of the Shell Company in this regard. We want the widest possible degree of flexibility. We have it as things are now and it would probably be a mistake to confine the judgment of the Board quite so narrowly as is proposed by the Amendments.

Baroness STEWART of ALVECHURCH

My Lords, I accept what my noble friend has said, but I wonder whether he could reconsider the wording of line 10 on page 2 of the Bill, it appears to say that anybody on earth may be a chief executive of the Board because everybody is either a member of the board or person who is not a member—and that is true of course of everybody here. I am not just quibbling. That is a fact and how many people reading the Bill would interpret it.

Lord BESWICK

Quite so, my Lords, and that is what is intended. The chief executive may be a member of the Board or he may not he a member of the Board.

Lord NELSON of STAFFORD

My Lords, may I express disappointment because the noble Lord, Lord Beswick, is not accepting this Amendment. There is a little confusion. He referred to four managing directors and so forth. That is a very different thing from joint chief executives. There can be as many managing directors as one likes looking after separate sections of a business, but there must be one man at the top who makes the final decision. I think this is the point my noble friend had in mind in putting forward this Amendment. I think it would be a great pity if this Enterprise Board go ahead with freedom to have joint chief executives at the top. Chief executives is what we are talking about.

Lord ABERDARE

My Lords, I am grateful to all those noble Lords who have supported me. Practically everybody who has spoken has indeed supported me. I am sorry that the noble Lord, Lord Bruce of Donington, who supported me on the last occasion, was not here at the beginning of the discussion on this Amendment as no doubt he would have lent me his support again. I saw him nodding his head. However, I did not think that the noble Lord, Lord Beswick, had much of a case. He said the provision should not be written into an Act of Parliament. The Government wrote it firmly into the two Development Agency Bills; both the Welsh and the Scottish Bills provided for one chief executive to be appointed and he should ex officio be a member of the Board. I should have thought the same would have applied to the Industry Bill. I do not wish to argue further about the other instances in the Civil Service. I think my noble friend Lord Drumalbyn was right on that point.

Clearly this is not a matter I would wish to insist upon if the noble Lord wants to keep the position flexible. I would only urge that all of us here have expressed the view that for the sake of efficiency there should be one chief executive, even if there is more than one department, as it were, underneath the chief executive. We have also urged that the chief executive should be a member of the Board. Therefore, I hope that the noble Lord will take these feelings into account when the Board is set up. Otherwise, I beg leave to withdraw the Amendment.

Lord BESWICK

My Lords, I can speak only with permission and I ask for it. I do not wish to set a bad example of continual interventions. What I am asked is reasonable and I will look into this point again. I think they make a mistake in equating chief executive with managing director and I will see that this point is considered again.

Amendment, by leave, withdrawn.

Clause 2 [General purposes and functions]:

5.8 p.m.

Lord BESWICK moved Amendment No. 5:

Page 2, line 30, after first ("the") insert ("development or").

The noble Lord said: My Lords, here again I was asked whether we could help in what was apparently a small point. Certain noble Lords and at least one noble Baroness did not like the word "assistance". I insisted that the purpose of the National Enterprise Board in certain cases would definitely be to give assistance and I said that the word "assistance" would comprehend development. However, there was a widespread feeling that we ought to pay some attention to the development aspects of the Board, and therefore I suggest we have "development and assistance", and I hope that this will be acceptable.

Lord DRUMALBYN

My Lords, I think this Amendment again was in response to my suggestion, after others had made the point, that assistance has a connotation which is more of the "lame-duck" character rather than of the expansionist or modernisation character. So we are glad that the noble Lord will make this Amendment.

Lord ABERDARE

My Lords, may I reinforce what my noble friend has said. It was one of our Amendments. I am very grateful to the noble Lord, Lord Beswick, and I think this is a much better wording.

Lord BESWICK

My Lords, I made a slip of the tongue which I must correct. I said development "and" assistance. The Amendment which I am moving provides for "development or assistance".

On Question, Amendment agreed to.

The Earl of BALFOUR moved Amendment No. 6:

Page 2, line 33, leave out ("efficiency") and insert ("profitability").

The noble Earl said: My Lords, in order to be brief I did not speak to the last Amendment but I should also like to thank the noble Lord, Lord Beswick, for including "development or assistance". If I may speak to both Amendment No. 6 and Amendment No. 7, the point is that, as the Bill stands, the promotion of industrial efficiency in any part of the United Kingdom is not the answer. One can have the most efficient industry in the world, but if it does not make money it will go down the drain. As was stated earlier today in your Lordships' House, a tremendous amount of money has been invested in the famous shipbuilding yard of Harland and Wolff. If eventually that company does not become profitable I feel that the Government's efforts and everything that has been done will have been a waste of time.

Therefore, I am asking your Lordships to consider that the promotion of industrial profitability and international competitiveness in manufacturing industry in any part of the United Kingdom must be one of the main purposes of the Board. This can be achieved only by going into market research and finding out the latest development and all the other matters which I raised at Committee stage. In a case like this, efficiency is not the answer. Obviously we want efficiency but if there is no bag of gold at the end of the day we have lost everything. It is just one more drain on our balance of payments and one more drain on our economy. We have learned to accept and to welcome many of the provisions that are made by the Welfare State that we live in, but it is only the profits which are made by industry that will pay for them. For that reason, I sincerely ask your Lordships to agree that these Amendments to the Bill are needed. I beg to move.

5.12 p.m.

Lord LOVELL-DAVIS

My Lords, in some respects, I think that all noble Lords would accept that the promotion of efficiency and the promotion of profitability are the mirror images of one another, since the more efficient an industry the more profitable it will be. The converse, however, is by no means as true. The temptation to make a short term profit can well be contrary to long run efficiency. Indeed, I would go so far as to say that British industry has suffered over recent years from too heavy a concentration on short term profit at the expense of efficiency. This has, I think, been a factor in the under-investment in British industry. Short-term profits have been made by keeping to old, depreciated plant, but the long-term consequence has been to reduce the capability to produce to the standards required in world markets.

Take, for example, the two concerns which have been investigated thoroughly at the Government's request in recent months. The Ryder Report on British Leyland said: Nearly all the profit was distributed as dividends instead of being retained to finance new capital investment and the Boston Consultants' Report published last Thursday said: The loss of market share by the British motor cycle industry over the last 15 years resulted from a concern for short-term profitability". I think that it is this question, of time scale that is the strongest reason for retaining the word "efficiency" rather than changing to "profitability". One of the needs for the National Enterprise Board arises from the need for a body which can and will take a longer-term view than private industry and private financiers. This will be particularly true of the Board's functions of restructuring industry and of promoting development in the assisted areas. These functions will undoubtedly add to the efficiency of the economy, its international competitiveness and in the long run to its profitability. Any actions which put to full constructive use resources which are under-utilised will contribute to these ends. But it may need to be looked at on a longer time-scale than private industry, and that is why efficiency is the word we have deliberately chosen to use.

The noble Earl, Lord Balfour, also asked whether he could take Amendment No. 7 with Amendment No. 6. Therefore, may I reply also to that Amendment. This Amendment restricts one, but only one, of the Board's purposes as set out in Clause 2(1). It restricts this purpose to manufacturing industry. But it does not restrict the other two purposes. In particular, it does not restrict the first purpose, which is to assist the economy of the United Kingdom or any part of the United Kingdom. I am advised that this first purpose is so wide that it includes the second purpose. The result is that no restriction of the second purpose would restrict the Board's activities, as the Board could still rely on the width of the first purpose. Accordingly, it seems doubtful whether the effect of this Amendment is what the noble Earl intended.

That said, it is intended, as the White Paper indicated, that the attention of the National Enterprise Board will be primarily directed towards manufacturing industry. But to restrict the Board's activities to this area by Statute would be to hamper their usefulness both to manufacturing industry and to the economy as a whole. For example, in reorganising or developing manufacturing industry it will often prove necessary to develop, assist or reorganise associated sales and service organisations. Restriction of the Board's activities to manufacturing industry alone would prevent this.

The National Enterprise Board's managerial and financial expertise could on occasion be usefully employed in other fields than manufacturing. The IRC was not limited to manufacturing industry and undertook studies of the Cunard Steamships Line, for example, and also of the British trawling industry. The Board's advice—and the power to provide assistance where National Enterprise Board studies reveal the need—could be of great benefit in non-manufacturing sectors. I hope that this fairly lengthy reply will satisfy the noble Earl.

Lord ROBBINS

My Lords, I must confess that the reply of the noble Lord fills me with disquiet and unease. The body which it is proposed to institute will get into very great difficulties indeed if it assumes that there is usually a conflict between efficiency and long-term profitability, and gets into the habit of dragging in all kinds of extraneous reasons why it should act in the interests of a presumed efficiency rather than long-run profitability. I emphasise the term "long run" which I am sure is in the minds of most sensible industrialists. None the less, I would not support this Amendment. There are cases in which public intervention to override conditions of profitability may indeed be desirable. It was Adam Smith, whom many would regard as being the leading expositor of the social advantages of the search for profit, who used the phrase "Defence is more than opulence". I can think of many occasions in the modern world in which considerations of defence ought to override considerations of profitability. This is the one justification that I can think of for the, in my opinion, not altogether well-judged manoeuvres in regard to the case of Rolls-Royce. So on the whole I think that the present wording is good enough.

Lord RHODES

My Lords, I have often advocated a good level of profit on the basis of being able to replace old machinery. In my view, the Minister gave an excellent reply when he called in aid the example of written down machinery. All we need to do is to look at any of the craft industries where the purchase of raw material is involved, the expertise in which has been handed down from father to son over the years so that they know where to go for the raw material and what to do with it. But for years the essence of written down machinery, for instance in the wool trade, has been that the expertise is in the hands of the operative who is able to do things with it. That is all right for a time, until the point is reached when you need to re-equip and then you start handing out millions of pounds just to catch up with what should have been done before. Let us keep in the word "efficiency", because if we substitute for it the word "profitability", we shall bless the spiv, and goodness knows we have had enough of them about during these last ten years! Who with any perspicacity at all has not absolutely writhed When at 10 o'clock in the morning a machine has been worth £1,000, and at 4 o'clock in the afternoon has been worth £2,000 and there has been no mention of the services of the man running it being any more valuable at all. So for goodness sake at this juncture keep profitability out of it but do not forget that without an adequate profit according to industry's need, you cannot succeed. This Amendment should be rejected.

Viscount MASSEREENE and FERRARD

My Lords, it may surprise your Lordships to know that I agree with the noble Lord, Lord Lovell-Davis, to a certain extent. For instance, Inter-City trains are efficient, but I understand that they do not make a profit. However, by the mere fact that they enable business men to move about the country very quickly, in a manner they help the profitability of the country. What the noble Lord, Lord Lovell-Davis, said, was quite right: you can make a quick profit if you run down your capital equipment in a factory, but I will not go along with him further than that. In my view, the National Enterprise Board must keep profitability in their sights as an A1 priority. I agree that one cannot always have it, especially in the public services, but when we get outside the public services I believe it is essential to keep profitability as the main objective.

Lord ABERDARE

My Lords, I think my noble friend has done a service by drawing attention in this Amendment to the problem of profitability and efficiency. I thought the noble Lord, Lord Lovell-Davis, correctly began by saying that perhaps they were opposite sides of the same coin, but he then rather went on to say that in certain circumstances they were contradictory.

Lord LOVELL-DAVIS

My Lords, I did not say that they were opposite sides of the same coin. In fact, I said the reverse of that: I said that they were mirror images of each other.

Lord ABERDARE

My Lords, does that not mean the same thing? I am not quite sure what "mirror image" means, but it seems to me that the two things are much the same. When I said "opposite sides of the same coin", I did not mean that they were opposed to each other but that they were part of the same coin. So I thought that that was helpful, but I think we are all agreed that it is no good having only efficiency. A company can go on being efficient for years and years, but if it does not make a profit it is not much good. Therefore, all we are asking the Government is to be sure that the National Enterprise Board have profitability within their long-range sights and that though they may seek efficiency in the short-term, they are operating with a view to ultimate profitability. I think my noble friend has made a valuable point.

The Earl of BALOUR

My Lords, must reply to what has been said. First, I would thank the many noble Lords who have spoken to this point, and I would particularly ask that in the directives that are given to the Board, besides obviously looking for efficiency, there will be brought in some form of profitability. Unfortunately so many of our nationalised industries at the present moment hardly meet that criterion. Furthermore, it is only by producing a profit from industry that one can accumulate the capital to put money back into that industry and constantly improve it. This is desperately important.

I have no intention of trying to delay the proceedings in your Lordships' House, but I think I must just say a few more words on Amendment No. 7. I thought the words. "in manufacturing industry" had been clearly defined in so many other parts of the Bill covering sales, services and even exports, but what I did not want to become an important function of the Board were matters such as banking or insurance, which I really do not feel the Board should enter into; certainly not in the first few years of their life. However, in view of what has been said, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

5.28 p.m.

Lord ABERDARE moved Amendment No. 8:

Page 3, line 1, leave out ("industrial democracy in") and insert ("good industrial relations and the involvement of employees in the affairs of").

The noble Lord said: My Lords, this is a matter on which we had a considerable debate at the Committee stage and I do not intend to rehearse all the arguments that we went through at that stage. In broad outline, my objection to these words "industrial democracy" was that they are too vague; they can mean anything to anybody and they cannot be strictly defined. Moreover, we are laying a duty on the National Enterprise Board in exercising their functions to promote industrial democracy, and it seems to me quite wrong in a legal document to lay this legal obligation on the Board to do something that nobody can really define. There is a vast range of different definitions of which I gave some examples during my speech at the Committee stage. It can be interpreted by anybody in different ways, and I do not think it is good enough to lay such a legal obligation on the National Enterprise Board.

I have amended the original Amendment that I tabled at Committee stage in the light of the debate we then had, and straight away I say that I am extremely grateful to my noble friend Lady Elliot of Harwood because the present Amendment takes account of a suggestion she made to leave out the words, "appropriate means of involving employees in the affairs of". She made that suggestion, with which I wholly agreed, as a result of some criticism of the original Amendment made by the noble Baroness, Lady Wootton of Abinger. She took the view that my Amendment was too paternalistic, particularly, I think, because of the words "appropriate means". Therefore I have now left out those words and the result is a much simpler sentence, promoting good industrial relations and the involvement of employees in the affairs of undertakings which the Board control". I also have studied what was said throughout that debate. I read again with great interest what was said by the noble Baroness, Lady Lee of Asheridge, who spoke about involving the minds and hearts of work people in the affairs of a concern. Therefore, I am content that we have the word "involvement" in the Amendment, which I hope will go some way to meet the point that she was making.

I believe that the noble Lord, Lord Bruce of Donington, preferred the words "worker participation" rather than "involvement of employees". I do not think there is any real difference between us in those phrases. I see no difference between the word "involvement" and the word "participation". The only reason why I prefer "employee" to "worker" is that the word "worker" so often refers only to the worker on the shop floor, whereas the people we want to involve in the business are all workers, both those on the shop floor and those in lower or middle management. One of the main problems in achieving the involvement of people on the shop floor with the top management is not thereby to bypass and exclude people in the middle management of the company. That is the reason why I think the word "employee" has a more exact meaning in this context than the word "worker".

I also read again what was said to me in reply by the noble Lord, Lord Lovell-Davis, but I find it rather difficult to believe that I shall ever convince him of the justice of my case, because he said at Committee stage— Noble Lords have argued that the term is imprecise, and unclear, but I think it is clear to all those who have thought objectively without unreasonable prejudice about the concept—"—[Official Report, 22/7/75; col. 172.] I find it very difficult to argue if he is going to take the view that those of us who take another view have not thought objectively, and have not thought without unreasonable prejudice about this concept. Certainly if he were here I am sure that I would have the support of the noble Lord, Lord Taylor of Gryfe, who spoke very strongly when we were discussing the same matter on the Scottish Development Agency Bill and, with many others of your Lordships, took the view that this term "industrial democracy" was not only vague but had many dangers associated with it.

In an effort to persuade the noble Lord, Lord Lovell-Davis, that we have some justice in our case, I should like to ask him one question. Can he say objectively, and without unreasonable prejudice that the words which I have put in my Amendment would in any way restrict the sort of development in employee participation that he wants to see? Do they not cover fairly accurately what is at present the practice in those firms, both here and abroad which he mentioned in his speech, which are most advanced in employer/employee relations? Further, can he honestly say that the hopes that he may have for the future of the National Enterprise Board and all those future relationships with employees would be in any way adversely affected if the words which I have suggested, rather than this vague and undefined phrase "industrial democracy", go into the Bill? I hope he can ask himself that question honestly, and tell me whether he feels that the words have suggested are perfectly adequate and cover everything that is wanted. Would he not further agree that the words "industrial democracy" have all sorts of overtones that neither he nor I would necessarily think desirable? They could certainly be interpreted by those who so wish as worker control of industry.

In conclusion, I would say that those of us who are seeking a better definition are not unreasonably prejudiced. We see genuine dangers in the term "industrial democracy" which can easily be avoided by more precise words, and we think it wrong in a Statute which is laying legal obligations on the National Enterprise Board not to take some account of the necessity of being much more accurate in what we are asking them to do.

5.37 p.m.

Lord BRUCE of DONINGTON

My Lords, I thought that on the last occasion when we met in Committee I had succeeded in persuading the noble Lord, Lord Aberdare, to withdraw his objection to the words "industrial democracy". He expressed a few misgivings, but as I understood it when he sat down he agreed that on balance they would not do any harm. It seems that since the Committee stage his arm has been stiffened and some of his resolve has been fortified. We all know perfectly well what is implied by "industrial democracy". It means for those people who are working in an industry—and in using the term "working" I mean all those who work in it, and not merely those on the shop floor—the progressive attainment of a state in which they exercise more and more control over their own destinies, and over the firm in which they spend a very large part of their lives. Nowhere in this Bill are guidelines laid down as to when this should happen and what form it should take, but the trend is quite unmistakable. It means that instead of individuals, working within a company, being regarded as mere ciphers or being taken into confidence on a social basis in order to be a little more involved—whatever the term "involved" may mean—they progress gradually towards the time when they take an ever more decisive role in the conduct of the affairs of the enterprise in which they work.

My Lords, it seems almost impossible to drag the Tory Party into the second half of the 20th century. I am sometimes dismayed when I hear some of the obsolete and archaic arguments that proceed from the Party opposite. In Germany for 25 years, as I ventured to point out to your Lordships earlier, they have had a form of industrial democracy. They have two-tier boards in companies and the supervisory board has upon it a percentage of worker representation. This is accomplished by Statutes. It means that the people employed in German companies feel that they have a measure of control over the destiny of their companies, and over the main policies pursued by them. I venture to draw the attention of your Lordships to the fact that the German companies appear, by and large, to have had a rather more successful history over the last 25 years than have British companies. I have said many times that one of the reasons for this has been the considerably higher capital investment of German industry, but there is the other factor, too.

The fact of the matter is that the German worker working in these enterprises feels that he is participating far more closely in the activities of that company. One cannot ignore this. It is not a matter of pure coincidence that the performance of German companies has so far exceeded that of our own. The whole question of the worker feeling that he is part of the enterprise and sharing to some degree in its control has a most profound bearing on this. We have exactly the same position in France where, on a voluntary basis, although enshrined in Statute, they have the same kind of system. In Holland, too, they have exactly the same kind of democratic participation.

My Lords, as your Lordships will recollect, I was one of those to have some misgivings about entering Europe, about participating in the European Economic Community. We are now in that Community, and we should at least drag ourselves up to the standard of history achieved by the remainder of the EEC.

5.42 p.m.

Lord ROBBINS

My Lords, without entering into debate with the noble Lord, Lord Bruce of Donington, whose remarks I always find provocative and interesting, may I ask him whether in the German legislation, which is an extremely interesting subject at this time, the term "industrial democracy" occurs? I am all in favour of many experiments. The reproaches which the noble Lord has expressed to some Members of your Lordships' House, justifiably or unjustifiably, do not wring my withers at all. However, I must confess to very considerable intellectual objection to the introduction into Statute of imprecise words. Although it may be true, as the noble Lord contended, that one knows in a general way what the words "industrial democracy" may mean for some people or, indeed, what the word "democracy" means for some people, I should hesitate very much—and I speak subject to legal correction; there are distinguished lawyers in the House—to vote without considerable reserve for a Statute which alluded to political democracy. I learn from reading the Economist this weekend that in the European Economic Community, entry to which the noble Lord now acquiesces in, we are in a minority in the voting system which we practise in "political democracy". The majority of our partners in the European Economic Community have different habits. If these variations are possible under the term "political democracy", how many more variations are possible under the term "industrial democracy"? Therefore, casting aside ideology and acting simply in the interests of statutory precision, I plead with your Lordships to accept the more precise words which the noble Lord, Lord Aberdare, recommended to the House, rather than the vague terminology—useful enough in certain kinds of conversation—which the noble Lord Lord Bruce of Donington, is recommending to your Lordships.

Viscount MASSEREENE and FERRARD

My Lords, there is a short point in all this. An hour ago the noble and learned Lord the Lord Chancellor, when asked how to define the phrase "industrial democracy", said he could not define it. The noble and learned Lord said he did not know of any definition of "industrial democracy". Surely, therefore, the noble and learned Lord having said that, it would be wrong to insert in an Act of Parliament, the words "industrial democracy".

Lord LEATHERLAND

My Lords, if the noble Viscount, Lord Massereene and Ferrard, finds this difficulty in all walks of life, may I remind him that there is an old conundrum which says, "Can you define an elephant? No; but you can always recognise one."

Baroness GAITSKELL

My Lords, I wish we were not fighting so hard on this Amendment. I do not know whether it is because the noble Lord, Lord Aberdare, is so persuasive in his arguments. I find no very great fault in his words, nor do I find any fault in the words of the Government. We are spending a great deal of time on this Amendment. We are also exaggerating worker participation on the Continent. What I have learned about Germany is not quite the thing that I believe the noble Lord, Lord Bruce of Donington, thinks it is, nor is their success due entirely to worker participation. We all know this. Therefore, I really do not know what I should like to plead, but it seems to me we are taking a great deal of time on something on which there is not a great deal between us.

5.48 p.m.

Lord HOUGHTON of SOWERBY

My Lords, I sincerely hope we shall decide to retain the words "industrial democracy" in the Bill. They are, of course, imprecise, but if we attempt to make a more precise definition of what we mean in present circumstances, we shall run into quite a lot of trouble because at present, "industrial democracy" has not been defined. Any terms which at present are intended to define "industrial democracy" are bound to bring into question the big debate that has yet to take place on what we really mean by "industrial democracy". This is a concept. This is "social justice"; it is like "happiness" Until it is more clearly defined, it is better to retain words which are all-embracing, comprehensive and imprecise.

My Lords, my objection to the Amendment is that it is more precise than the words in the Bill. The words "good industrial relations" are mentioned. Industrial democracy goes quite a long way beyond good industrial relations. Good industrial relations can exist where there is no industrial democracy, so that is limiting. The noble Lord, Lord Aberdare, was asking the Minister to say honestly whether he thought the words of the Amendment were restrictive. I will give him my honest opinion—they are.

Several Noble Lords

Hear, hear!

Lord HOUGHTON of SOWERBY

My Lords, "good industrial relations" is restrictive. It is far too narrow as part of the definition of the wider concept which the words "industrial democracy" imply. The next words in the Amendment are "and the involvement of employees in the affairs of". Here is a question-begging set of words. When it comes to terms in present circumstances which are difficult to define, it is better to have words that beg all the questions than words that beg only some of them, because if you beg only some of them, you have to define the others. If I may say so, with great deference to the Bill and all those who drafted it, at the present time it is better to have meaningless words in the Bill until it is possible to make them more substantive.

The Committee of Inquiry announced this afternoon by the noble and learned Lord the Lord Chancellor is intended to put substance into the words "industrial democracy". This means that when the Committee reports, and when "industrial democracy" is given shape, size and meaning later on, it will not be necessary to amend this Bill, because the words "industrial democracy" will fit whatever is intended by the words "industrial democracy". If, however, we include the Amendment in the Bill, those words will be inadequate when the report comes out and when Parliament has decided on this wider concept of industrial relations. The noble Lord, Lord Robbins, asked if my noble friend Lord Bruce was aware whether the German law mentioned anywhere the words "industrial democracy". So far as I am aware, these words are not mentioned. Why? Because they are putting precise form, shape, powers and functions to "industrial democracy" in their very elaborate industrial relations law.

So, with great respect, is there some doctrinal difference here which runs so deep and is so important, which Lord Aberdare has not yet revealed? Does he feel there is something here which goes against the whole concept of ownership, the function of private enterprise, the rights of management, the functions of ownership? Whether this is the big divide which is being concealed behind this difference in words, I do not know. If it exists, then this debate is important, but if it does not exist, then I agree with my noble friend Lady Gaitskell that it is not worth while spending much more of the time of the House in deciding on the difference between the two.

I apologise for intervening at this stage. I was not able to be in the House when this matter was debated before, but I should certainly have supported the retention of "industrial democracy" in the Bill. If I may say so, I urge this without any bias whatever in favour of one form of industrial democracy as against another. In the end we shall probably have to come to terms with many shifts of opinion and many new vistas of what people want out of life and what they want out of their work. I am more than ever convinced that there will be no social contentment, no political stability, no economic progress in this country until it is possible to ensure that the millions who work in industry today are going to get more satisfaction out of what they do.

Lord LOVELL-DAVIS

My Lords, as we are now all well aware, an Amendment very similar to this was discussed at considerable length at Committee stage, as the noble Lord, Lord Aberdare, pointed out. He asked me whether I thought the words in the Amendment were restrictive or did not fulfil the conditions we want to obtain. As my noble friend Lord Houghton of Sowerby has said, they are too weak. They simply do not contain the Government's intentions. This is how I feel about them; they simply do not contain the Government's intentions to bring about fundamental changes in attitudes and the balance of power and responsibility within industry.

I, like my noble friend Lord Bruce, am at a loss to understand why, having had to withdraw at the end of the very long discussion at Committee stage, noble Lords opposite now think it reasonable to bring the matter back before the House. I simply do not understand why noble Lords opposite are SD distressed by the term "industrial democracy". The phrase has been in common use for some time now, and it is the expression best able to convey the concept the Government have in mind. It seems to me that my noble friend Lady Gaitskell has put her finger on the crux of the matter in saying that we are taking an inordinate amount of time on this Amendment, and I agree with my noble friend Lord Houghton that obviously noble Lords opposite have in mind something which goes much deeper than the phrase itself. The noble Lord, Lord Aberdare, suggested that it is a vague term, and the noble Lord, Lord Robbins, referred to its lack of precision. In fact last year in another place, in answer to a Parliamentary Question, an explanation was provided which I think was a good one. I give it to the noble Viscount, Lord Massereene and Ferrard. Mr. Albert Booth said in another place: Industrial democracy' means ensuring that workers and their trades unions have an effective voice in decisions which affect their working lives. The Government are committed to the far-reaching extension of industrial democracy and have announced their firm intention to introduce legislation in the 1976–77 Session. This afternoon's Statement by my right honourable friend the Secretary of State, repeated in your Lordships' House by my noble and learned friend the Lord Chancellor, indicated some of the preliminary steps the Government will take towards that end. It is right that the National Enterprise Board should be among the first to implement the proposals which the Government will make and that it should be in the lead in the promotion of experiments in industrial democracy. I say to the noble Lord, Lord Aberdare, that it is not a matter simply of convincing me—and he has not, as it happens. The Government are absolutely convinced that "industrial democracy" is the phrase which we must include in this Bill, and therefore we must resist the Opposition's repeated attempts to water down this function of the Board. I can only hope that the noble Lord will not press his Amendment.

Baroness HORNSBY-SMITH

My Lords, would the noble Lord please answer one point which I think is at the basis of our concern. He just quoted what he said was a very good definition, given in another place, of "industrial democracy", and he used the phrase "workers and their trades unions". There are 14 million people who work for their living and who are not in trade unions, and that is why our emphasis is on employees within the firm. There are many staff associations, professional associations. To a great many people in this country "industrial democracy", as it is voiced by many of the advocates from some of the unions, means that representation and participation will be only through the avenue of trade unions. We want to see all employees within a factory having the opportunity to be involved.

Lord DRUMALBYN

My Lords, if these words ultimately end up in the Bill as it is finally passed, if the Bill is finally passed, how will the National Enterprise Board show that they are performing this function? The purpose of their Annual Report is to report on the way in which they are performing their functions. How will they be able to report on how they are promoting industrial democracy? Perhaps the noble Lord would be able to tell us that. Would he also bear in mind that "industrial democracy" will be defined. At the moment it is a vague concept. The Statement that was made today by the noble and learned Lord on the Woolsack indicated that some flesh was to be put on that concept before very long. However, flesh perishes and changes can be made. The term "industrial democracy", unless it is defined in the Bill, or unless it is stated in the Bill that there will be a definition of it sooner or later, will, in my view, and I believe in the view of all on this side, prove to be totally impossible to interpret in terms of what the National Enterprise Board are called upon to perform.

Lord LOVELL-DAVIS

My Lords, the question which the noble Baroness, Lady Hornsby-Smith, asked anticipates another Amendment. As for that asked by the noble Lord, Lord Drumalbyn, I think it will become very clear as to how the National Enterprise Board are promoting this. It will certainly be very different compared with the total lack of participation which exists at present in most of our manufacturing industries. The purpose of the inquiry is to look into the way in which measures may be formulated to achieve these ends. I shall be in a much better position to answer his question and we shall all know a great deal more about the matter when the inquiry has reported, and I have no doubt that the sort of views and questions put by the noble Lord could be put forward to the committee.

Lord ABERDARE

My Lords, I have been literally astonished more than somewhat by the speeches that have been made by noble Lords opposite. To put it to me that I have no right to withdraw an Amendment in Committee and then return to the subject on Report with a different Amendment is quite astonishing coming from a Government spokesman. I have never heard such a thing said in this House before and I hope it will never be the practice. We discuss issues in Committee, we have a good discussion of them and various suggestions are made—and in this case there was an admirable suggestion from my noble friend Lady Emmet—and in this instance we have returned with a different Amendment on Report. I really find such statements from the Government astonishing.

The noble Lord, Lord Bruce of Donington, was back at his wheel with the same old story about Germany. We could debate that for hours—and the noble Baroness, Lady Gaitskell, put her finger on it when she said that conditions and the whole atmosphere in Germany are completely different. We could, as I say, debate this for hours, but as I told the noble Lord, Lord Bruce, when we last discussed this matter, the trade union organisation in Germany is very different, usually with one trade union to match each industry, which makes it rather easier, and the whole free enterprise system is very much further developed and more encouraged, I agree entirely with the noble Lord, Lord Robbins. It is totally wrong to put words into this Bill which we do not know how to define; and I was utterly amazed to hear the noble Lord, Lord Houghton of Sowerby, say—I think I quote absolutely accurately what he said—that it would be better to have meaningless words in the Bill. Coming from a Parliamentarian of his experience, to suggest that it would ever be better in a legal document to have meaningless words leaves me gasping.

Lord HOUGHTON of SOWERBY

My Lords, what the noble Lord, Lord Aberdare, has just said is really torn out of the context of my speech. I did not say that there was any virtue in having meaningless words in a Bill. I simply said that in the present circumstances it was better to express a concept than to go into definitions which, as of now, it would be extremely difficult to give without running into a great deal of trouble.

Lord ABERDARE

My Lords, I do not agree with the noble Lord that it is better to express a concept in a legal document. He spoke of concepts such as social justice and happiness, but I do not believe that "happiness" appears in a Statute; I rather doubt it. We are here talking of a legal document, and I feel that the words we have put forward cover everything we want to see in this relationship. For this reason I will not withdraw the Amendment.

Lord BESWICK

My Lords, I want to make it clear that my noble friend did not say that the noble Lord, Lord Aberdare, had no right to return with this Amendment. Of course the noble Lord has such a right, and he has exercised it. What I thought my noble friend was referring to with a degree of surprise was the fact that the noble Lord had returned to the subject, especially as the noble Lord, Lord Aberdare, said in Committee that there was nothing between us on this issue. He said at that stage that there was not much difference between what the Opposition and the Government were seeking to achieve. We had a very interesting debate and my noble friend was expressing surprise that the noble Lord had nevertheless returned to it.

It would be quite impossible to say that these words mean the same thing to all men, especially after my noble and learned friend the Lord Chancellor announced that we are to have a Commission to look into this very matter. Nevertheless, it is a fact that they have a certain meaning to most people, and it is now clear that noble Lords opposite are beginning to think that they may have some real meaning. That is what is agitating them; they fear there is something between us. We want to go beyond the idea of just good industrial relations. We want to go beyond just involving workpeople in their work. We want them to have a real say, and we believe that if they do have a real say there will then be good industrial relations. Exactly how it will work out and exactly what form it will take in any particular company will be a matter for the personalities involved.

I believe it would be a big mistake to go back to the watery and weaker wording suggested by the noble Lord, Lord Aberdare, and it would be a mistake also to try to go beyond what is said here and spell it out too clearly in legislation because we have not reached that point yet. It will be a matter for trial and error and experiment. There will be many companies throughout the country which will be seeking to get industrial democracy by rather different ways and it will be very interesting to see the sort of encouragement which will be given and the response we receive. I suggest, therefore, that we leave these words in the Bill. There is no danger in them and no damage will be done. It will be something of a challenge. It is a new phrase which we believe should be incorporated in this legislation.

Lord POPPLEWELL

My Lords, I hope I can persuade the noble Lord, Lord Aberdare, to change his mind about not withdrawing the Amendment because, speaking from practical experience, I assure him that his proposed wording is imprecise, to say the least. We have a genuine desire today on the part of the most advanced industries, particularly the publicly-owned ones, to have good relations involving the workers in the workings of their industries. We have established, particularly in the nationalised industries, consultative committees which take into account the sort of words the noble Lord has used in his Amendment, but that is not sufficient for the future. I agree at once that "industrial democracy" is an imprecise phrase, but there are many different schools of thought at present about the sort of industrial democracy which should develop and how much involvement we want; for example, do we want workers on the boards of directors or should workers divorce themselves, as it were, from the employing side of boards?

Already the idea behind the concept of industrial democracy is generally accepted as a development for the future

as a result of the ordinary progression of industrial relations. I therefore agree with my noble friend Lord Houghton of Sowerby that though this may be a somewhat imprecise phrase, it is one that should be used to enable steps to be taken in future so that employees may be more intimately involved in the undertakings in which they are employed. Thus, I would rather have an imprecise phrase like "industrial democracy" in the Bill than the words suggested in the Amendment, which would not enable us to progress beyond the position at present prevailing in industry. Let us move with the times and, in so important a Bill as this, use a phrase like "industrial democracy" which will enable us to go forward with the general trend of thought in most major industries.

Lord PLATT

My Lords, I agree with the view expressed by the noble Lord, Lord Popplewell. Listening from a neutral Bench and a neutral point of view, I am more impressed by his argument than by any others I have heard on this issue. Despite the persuasive tones of the noble Lord, Lord Aberdare, whose sincerity I never question, I feel that the wording of his Amendment still smacks just a little of the paternalism for which it was originally criticised. I agree that the term "industrial democracy" does not mean the same to everyone; nevertheless, it gives wider scope for the development of what noble Lords in all parts of the House hope may be the development of the future. In spite of the speeches of the noble Lords, Lord Bruce and Lord Houghton, I intend to vote with the Government.

6.10 p.m.

On Question, Whether the said Amendment (No. 8) shall be agreed to?

Their Lordships divided: Contents, 71; Not-Contents, 66.

CONTENTS
Aberdare, L. Carrington, L. Falkland, V.
Alport, L. Cowley, E. [Teller.] Ferrers, E.
Atholl, D. Cullen of Ashbourne, L. Fraser of Kilmorack, L.
Auckland, L. Daventry, V. Goschen, V.
Balfour, E. de Clifford, L. Gowrie, E.
Balfour of Inchrye, L. Denham, L. Grenfell, L.
Belstead, L. Deramore, L. Hailsham of Saint Marylebone
Berkeley, B. Drumalbyn, L. Hankey, L.
Birdwood, L. Elles, B. Hanworth, V.
Bridgeman, V. Elton, L. Harmar-Nicholls, L.
Campbell of Croy, L. Emmet of Amberley, B. Hereford, V.
Hornsby-Smith, B. Monson, L. Sandys, L.
Hylton-Foster, B. Mowbray and Stourton, L. [Teller.] Sempill, Ly.
Killearn, L. Somers, L.
Kinnoull, E. Nelson of Stafford, L. Strathclyde, L.
Lauderdale, E. Newall, L. Strathspey, L.
Lindsey and Abingdon, E. Northchurch, B. Sudeley, L.
Long, V. Pender, L. Terrington, L.
Lyell, L. Rankeillour, L. Teviot, L.
Macleod of Borve. B. Reay, L. Tweedsmuir, L.
Massereene and Ferrard, V. Redesdale, L. Vickers, B.
Merrivale, L. Reigate, L. Vivian, L.
Meston, L. Robbins, L. Young, B.
Monck, V. St. Aldwyn, E.
NOT-CONTENTS
Arwyn, L. Gardiner, L. Pitt of Hampstead, L.
Aylestone, L. George-Brown, L. Platt, L.
Balogh, L. Gordon-Walker, L. Popplewell, L.
Beswick, L. Goronwy-Roberts, L. Raglan, L.
Birk, B. Hale, L. Rhodes, L.
Blyton, L. Hamnett, L. Ritchie-Calder, L.
Brockway, L. Henderson, L. St. Davids, V.
Bruce of Donington, L. Houghton of Sowerby, L. Segal, L.
Burton of Coventry, B. Hoy, L. Shepherd, L. (L. Privy Seal)
Castle, L. Jacques, L. [Teller.] Shinwell, L.
Champion, L. Janner, L. Slater, L.
Collison, L. Kilbracken, L. Stedman, B.
Crook, L. Kissin, L. Stewart of Alvechurch, B.
Crowther-Hunt, L. Leatherland, L. Stow Hill, L.
Davies of Leek, L. Llewelyn-Davies of Hastoe, B. Strabolgi, L. [Teller.]
Donaldson of Kingsbridge, L. Lovell-Davis, L. Taylor of Mansfield, L.
Douglass of Cleveland, L. McLeavy, L. Wallace of Coslany, L.
Elwyn-Jones, L. (L. Chancellor.) MacLeod of Fuinary, L. Wells-Pestell, L.
Feather, L. Mais, L. White, B.
Fisher of Rednal, B. Melchett, L. Wigg, L.
Foot, L. Pannell, L. Winterbottom, L.
Gaitskell, B. Phillips, B. Wynne-Jones, L.

Resolved in the affirmative, and Amendment agreed to accordingly.

6.18 p.m.

Lord RAGLAN moved Amendment No. 9:

Page 3, line 6, leave out subsection (3).

The noble Lord said: My Lords, I do not desire to remove this subsection but to raise a matter relating to a point which I made at the same place during the passage of both the Welsh and the Scottish Development Agency Bills, which are scions of the present Bill. My noble friend Lord Lovell-Davis will remember that we had quite an argument about this point. In the present Bill, the Government have entirely met my objections by the inclusion of five words. If I had been as clever as the Parliamentary draftsmen, I should have thought of them myself and put down Amendments to insert them into the Development Agency Bills. I do not doubt that the Government would have been happy to accept them.

I should like to read a similar passage from the Scottish Development Agency Bill. It says that The Agency may do anything, whether in Scotland or elsewhere, which is calculated to facilitate the discharge of their functions or is incidental or conducive to their discharge. This Bill has met my objections. I shall not go over my arguments again, but I was horrified at the vision of the almost unlimited power which the subsection would give to the Agency. The five words "specified in subsection (2) above", which we have in this Bill, make all the difference and now all is as right as possible.

I should like to ask my noble friend whether he would use his good offices to obtain the same wording in the equivalent clauses of the Agency Bills in their passage through the Commons. This is a most important matter, because if the Amendments are not made the subsection will be wide open to misintepretation. In my view, it is vital that the Board's functions are defined as those in the previous subsection; in other words, that they are those functions which are specified by Parliament.

Lord LOVELL-DAVIS

My Lords, I am obliged to my noble friend Lord Raglan for agreeing to withdraw his Amendment, and I am delighted to know that we have met the case by including in the Bill the words to which he refers. I well remember our discussion during consideration of the Welsh Development Agency Bill. I shall certainly draw my right honourable friend's attention to what my noble friend said, and no doubt he will read it in Hansard. I cannot of course make any promises on his behalf.

Lord RAGLAN

My Lords, I am very grateful to my noble friend, and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.23 p.m.

Lord ABERDARE moved Amendment No. 10:

Page 3, line 13, at end insert ("when this would be incidental to the reorganisation of any of their subsidiaries or in the course of the exercise by the Board of powers derived from the provisions of section 3 of this Act or in pursuance of the operation of a partnership made in accordance with paragraph (c) of this sub-section".

The noble Lord said: My Lords, this Amendment follows on a discussion we had at the Committee stage on the power of the Board to form bodies corporate. At the Committee stage we put down two Amendments, Nos. 26 and 36. Amendment No. 26 amended the purposes for which the Board may exercise their functions under Clause 2. The purpose of our Amendment was to remove from those functions one of establishing new industrial undertakings. When I was speaking to Amendment No. 26, I also spoke to what was Amendment No. 36 at the Committee stage, to form bodies corporate, because it seemed to me that these two matters went hand in hand, and Amendment No. 36 was merely consequential on Amendment No. 26.

I had as a precedent for thinking that, the fact that the same procedure was followed in the case of the Bills dealing with the Welsh and Scottish Development Agencies. But when I came to move my Amendment, which was to exclude the words, "to form bodies corporate", I was told by the noble Lord, Lord Beswick, that there were some difficulties and some genuine reasons why it was important that the National Enterprise Board should have powers, in certain circumstances, to form bodies corporate. The fundamental difference between us remains. We have already divided on the question of establishing new enterprises, and we are still completely of the opinion that the National Enterprise Board should not have the power to set up companies of their own in competition with existing companies in the private sector. When we debated this matter in Committee I do not think it was fully realised that we are fundamentally opposed to this power of the National Enterprise Board.

Of course we welcome free and fair competition, but we do not see State owned, State directed and State financed companies as providing either fair or free competition. Therefore, we are anxious to remove these words, "to form bodies corporate" from the Bill, following on the previous removal of the word "establishing" from the previous clause. But at the Committee stage the noble Lord, Lord Beswick, produced one or two reasons, and he said, in particular, that the Board might need to form bodies corporate in certain circumstances. One of these could well be in carrying out their duties under the 1972 Industry Act. Another could be in connection with the reorganisation of companies already within the Board's ambit or control. Another circumstance that occurred to me, was that it might be necessary for the Board to set up a new company when they were exercising another of their purposes, which was to form partnerships with other companies in the private sector.

The new Amendment which I am now moving covers these points. It gives the noble Lord his point that there are certain circumstances, which are defined in the Amendment, when it would be necessary to form bodies corporate, but it excludes the power of the Board to form bodies corporate on their own account in competition with companies in the private sector, which is the consequence of our previous Amendment which was carried at the Committee stage, and which follows on from similar Amendments which we moved to the Welsh and Scottish Development Agency Bills. I beg to move.

Lord MELCHETT

My Lords, as the noble Lord, Lord Aberdare, said, there is a fundamental difference between noble Lords opposite and those on this side of the House on this issue. I wonder whether noble Lords opposite appreciate the consequences of the Amendments which they have already made, to which the noble Lord referred, and the one which the noble Lord is now moving. The power to establish new undertakings was included in the Bill for a reason. It was particularly designed to enable the Board to build new factories and create new employment in areas of the country which have been deprived of much needed new investment. It was to provide a new weapon in the armoury of regional measures to replace declining industries in the hardest hit English assisted regions.

The National Enterprise Board will be in a position to assess on a wholly rational basis whether new investments can be sited in the areas of greatest need. Such considerations are often ignored by private industry. I am glad that nothing that was said at the Committee stage has prevented the noble Lord, Lord Aberdare, from coming back with an Amendment now. Indeed, my noble friend Lord Beswick said at the Committee stage that the noble Lord was free to do anything he liked on Report. My noble friend did not add "however disastrous", but I suppose that it may have been implicit in what he said.

The Board's power to establish industrial undertakings will be restored in another place by those who have the responsibility for trying to meet the needs of the assisted areas. Noble Lords opposite have already demonstrated that they place their devotion to Party dogma above their responsibility to the assisted regions. If they carry this Amendment, they will show that that was no mere misguided aberration, but that they are prepared to do further damage to the most deprived areas of this country for straightforward Party political reasons.

Lord BALFOUR of INCHRYE

My Lords, I find the speech by the noble Lord rather out of keeping with the general debate we are having on Report stage. I find it rather offensive, as it brings in Party issues which we have rather kept away from so far. I sincerely hope that the noble Lord, who is very young, will learn a little as his experience gets greater.

Lord ABERDARE

My Lords, I am afraid that I must agree with what was said by noble friend Lord Balfour of Inchrye. I found that reply offensive and not the least bit helpful. To imply that those who sit on this side have no regard for the assisted areas—particularly those who, like myself, come from one of them—would be a libel outside this House. I resent it very much. We did a great deal for the assisted regions when in Government. I do not want to start slinging brickbats; but if the noble Lord looks at the unemployment figures in the assisted regions since his Government came into power he might think twice. This is an imporant point. We have argued it before. We do not see that the public sector should be increased in this way by a formation of companies run by the National Enterprise Board in competition with private industry. We see plenty of other ways in which the National Enterprise Board can be of great assistance, working through and with private enterprise. These are all defined earlier on in the Bill where, apart from establishing industrial undertakings (which we object to) they will have the functions of maintaining, developing, promoting and assisting the establishment, maintenance or development of any industrial undertaking. There are plenty of ways in which the National Enterprise Board, with all their financial power and other functions, can stimulate new industry in the assisted areas without itself setting up companies in competition with, or as substitution for, those which could well be set up with the encouragement of the Board in partnership with private industry.

We have argued it before and divided on it. It would be illogical now to allow these words to remain in the Bill as they are. I have no comment whatever on the Amendment I put down, which was designed to meet difficulties envisaged by the noble Lord, Lord Beswick. As I have had no answer on that, I presume there is no answer and that these words will meet his needs. Therefore I am happy with my Amendment.

Lord BESWICK

My Lords, perhaps I could say a few words after what the noble Lord, Lord Balfour of Inchrye, and the noble Lord, Lord Aberdare, have said. It may be that my noble friend is looking at this Bill and at these proceedings in the rather uncomplicated way of someone with less experience than the noble Lord; but that uncomplicated way is a very genuine and sincere way. Noble Lords opposite must not misinterpret what they are doing to this Bill. This House is not being a Revising Chamber for this Bill; it is degutting it. There are policies that we have thought out carefully and have brought to the other place as a Bill. It has been looked at carefully by the other place as a Bill and they have settled the principles. It comes to us for revision and we have made Amendments, some of it which have been improvements. But matters of principle have been taken out of the Bill by this House, and, in those circumstances, my noble friend is justified in calling attention to it.

CONTENTS
Aberdare, L. Gladwyn, L. Newall, L.
Alport, L. Goschen, V. Northchurch, B.
Atholl, D. Gowrie, E. Pender, L.
Auckland, L. Grenfell, L. Rankeillour, L.
Balfour, E. Hailsham of Saint Marylebone, L. Redesdale, L.
Balfour of Inchrye, L. Reigate, L.
Banks, L. Hankey, L. Rochester, L.
Beaumont of Whitley, L. Hanworth, V. St. Aldwyn, E.
Belstead, L. Harmar-Nicholls, L. St. Davids, V.
Berkeley, B. Hereford. V. Sandford, L.
Birdwood, L. Hornsby-Smith, B. Sandys, L.
Campbell of Croy, L. Hylton-Foster, B. Sempill, Ly.
Carrington, L. Killearn, L. Somers, L.
Colville of Culross, V. Kinnoull, E. Strathclyde, L.
Cowley, E. [Teller.] Lauderdale, E. Strathspey, L.
Cullen of Ashbourne, L. Lindsey and Abingdon, E. Sudeley, L.
Daventry, V. Long, V. Terrington, L.
de Clifford, L. Lyell, L. Teviot, L.
Denham, L. Massereene and Ferrard, V. Trefgarne, L.
Deramore, L. Merrivale, L. Vickers, B.
Elles, B. Meston, L. Vivian, L.
Elton, L. Monck, V. Young, B.
Emmet of Amberley, B. Mowbray and Stourton, L. [Teller.]
Ferrers, E.
NOT-CONTENTS
Arwyn, L. Gardiner, L. Pitt of Hampstead, L.
Balogh, L. Gordon-Walker, L. Platt, L.
Beswick, L. Goronwy-Roberts, L. Popplewell, L.
Birk, B. Hale, L. Raglan, L.
Blyton, L. Hamnett, L. Rhodes, L.
Bruce of Donington, L. Henderson, L. Ritchie-Calder, L.
Burton of Coventry, B. Hoy, L. Segal, L.
Castle, L. Jacques, L. [Teller.] Shepherd, L. (L. Privy Seal.)
Champion, L. Janner, L. Shinwell, L.
Collison, L. Kilbracken, L. Slater, L.
Crook, L. Kissin, L. Stedman, B.
Crowther-Hunt, L. Leatherland, L. Stewart of Alvechurch, B.
Darling of Hillsborough, L. Llewelyn-Davies of Hastoe, B. Stow Hill, L.
Davies of Leek, L. Lovell-Davis, L. Strabolgi, L. [Teller.]
Donaldson of Kingsbridge, L. McLeavy, L. Wallace of Coslany, L.
Douglass of Cleveland, L. MacLeod of Fuinary, L. White, B.
Elwyn-Jones, L. (L. Chancellor.) Mais, L. Wigg, L.
Feather, L. Melchett, L. Winterbottom, L.
Fisher of Rednal, B. Pannell, L. Wynne-Jones, L.
Gaitskell, B. Phillips, B.
Resolved in the affirmative, and Amendment agreed to accordingly
Lord ABERDARE

Perhaps I could add one other word. We, too, on this side of the House, have matters of principle which we care about. If the noble Lord and the Government decide on a princple, that is all right; but they cannot expect always to carry us with them.

Lord BESWICK

My Lords, I am saying that this Chamber is a Revising Chamber. It is not a Chamber which settles policies of this kind.

6.34 p.m.

Their Lordships divided: Contents. 68; Not-Contents, 51.

6.42 p.m.

Lord ABERDARE moved Amendment No. 11:

Page 3, line 24, at end insert— ("( ) In the exercise of their functions and in the carrying out of activities as prescribed in this section and generally in this Act, it shall be the Board's duty to have regard to guidelines which shall be set out for them by the Secretary of State and given by him to the Board in the form of a direction under section 7 of this Act.")

The noble Lord said: My Lords, this Amendment seeks to make it the Board's duty to have regard to guidelines which are to be set out by the Secretary State, and which will be given to the Board in the form of a direction and Clause 7 of this Bill. The Amendment has been put down in consequence of an undertaking given at Second Reading by the noble Lord, Lord Lovell-Davis, on the issue of guidelines. At column 992 of Hansard on 10th July he said: …"The noble Lords, Lord Aberdare and Lord Drumalbyn, have asked for guidelines for the NEB to be made available to this House. This I can guarantee. But he went on: I cannot indicate any expectation that this will he done before the Committee stage. We are anxious that these guidelines should be available to the House before this Bill leaves us. They will no doubt play a very important part in the way in which the National Enterprise Board act, and I think that we ought to be sure we have seen them properly and have had time to consider them before we leave consideration of this Bill. I hope, at least, that if the noble Lord is not able to accept the Amendment, he will be able to assure us that the guidelines will be made available in the very near future, and certainly before we come to the Third Reading of this Bill. It rather underlines the importance of spacing out various stages of this Bill, and not rushing through it, giving it inadequate consideration and, as was at one time suggested, moving the Third Reading immediately at the end of the Report stage, because there are still important matters which we wish to probe further, and one of these matters is the guidelines which have been promised to us ever since the Bill was in another place. I beg to move.

Lord BESWICK

My Lords, the Amendment requires the Government to issue guidelines to the Board. I am not certain why the noble Lord wishes to put Amend this in a Statute. We have already given an undertaking that this will be done. There will be guidelines. The Amendment also requires that these guidelines shall be followed under a directive from the Secretary of State. There are already powers in the Bill to enable the Secretary of State to issue a directive to the Board, but it is unnecessary to have a specific directive related to the guidelines. I suggest, in view of the undertaking given about the guidelines, that it is unnecessary to state in the Bill that there will be guidelines. Therefore, I hope that the noble Lord will not wish to press this Amendment, since he is getting everything he wishes on the basis of assurances which have already been made.

The noble Lord also relates to his Amendment the question of when the guidelines will be published. We gave absolutely no undertaking in the other place or here as to whether they would be published before the Bill. It was thought it would be unwise and probably premature to issue them before the Bill went through its various stages, partly because the CBI still had to be consulted on certain points, and partly because the TUC still had to give its opinion on certain points. Also, there is the general reason, that if one has guidelines laid before the Bill is law, they may or may not relate to what will be in the Act. If there is one conclusive argument against laying the guidelines down, it is the action which has been taken by the Opposition in this House to "degut" the Bill. It is impossible to devise guidelines for this Bill until we know what will emerge from this House.

Lord DRUMALBYN

My Lords, I think it would be convenient if we discussed my Amendment No. 16 now, which deals with a similar point. That Amendment meets some of the points which the noble Lord has made. It specifies a period of two months after the establishment of the Board when the guidelines will be issued. It says: …the Secretary of State Shall within two months of the establishment of the Board, and whenever he considers it necessary or expedient thereafter, issue guidelines to the Board… They will not be the subject of a directive. It continues: …and it shall be the duty of the Board to carry out their functions in accordance therewith. If the noble Lord had been on this side of the House he would never have accepted this simply because an assurance had been given from that side of the House. It ought to be in the Bill. When in Government we were constantly being told to put things in Bills. This seems a proper and desirable thing to have in the Bill. I hope the noble Lord will at least look at my Amendment, even if he does not like my noble friend's Amendment.

Baroness GAITSKELL

My Lords, this Bill is so complicated and so detailed that, unless they have not read it with enough care, noble Lords opposite, when asking for guidelines, are asking for a gilding of the lily—or whatever the phrase is. To ask for guidelines after you have read the Bill through and are either trying to understand it as I do, or to understand it as I hope noble Lords opposite do, is really unnecessary.

Lord ABERDARE

My Lords, in reply to what the noble Baroness, Lady Gaitskell, said, it is the Government who have suggested that they will issue guidelines. In the course of the debates in another place, the Government came forward with an offer to issue guidelines to the Board in order to assuage some of the criticism which had been made of the NEB. I am only arguing for something which I am certain the noble Lord would have argued for if he had been on this side of the House. If the Government say that they will issue guidelines to the Board which will give the Board some general ideas as to how they wish them to operate, it is not right to put the Bill through both Houses of Parliament before anybody in either House has seen the sort of guidelines that will be issued. We have had this time and time again on various Bills, where there have been extraneous documents referred to as concerning the Bill, and Members of your Lordships' House—and, even more, Members of another place—have argued that they really cannot consider the Bill properly unless they have seen these other documents.

I agree that no absolute undertaking was given that these guidelines should be available before we completed our deliberations on the Bill, but I had rather hoped that the noble Lord would be able to say that indeed they would be available for our consideration before we part with the Bill. If the noble Lord could only give me that assurance, I do not necessarily want to write full details into the Bill. I was really endeavouring to get some assurance from the noble Lord that we should have some sight of the guidelines which the Government are committed to issuing before the Bill finally leaves this House. However, if the noble Lord is not in a position to give me that assurance I will leave the matter as it is and return to it on Third Reading. In the meantime, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.52 p.m.

The Earl of BALFOUR moved Amendment No. 12:

Page 3, line 24, at end insert—

("(4A) For the avoidance of doubt it is hereby declared that the power of the Board to acquire or dispose of securities shall only be by agreement with the company concerned.")

The noble Earl said: My Lords, this Amendment is intended to make it absolutely clear beyond doubt, as has appeared in one or two other places in the Bill, the expression "for the avoidance of doubt ". Speaking of what has now become Part I of the Bill, the noble Lord, Lord Beswick, said quite correctly during Committee stage that this Bill contained no power to take over anyone or any thing except by agreement. The noble Lord went on to say that the Board may give assistance under the Industry Act 1972, and he continued in column 134 on 21st July: …they may move in where there is need for a joint venture; they may move in where there is participation in reorganisation; they may move in where there is need to create employment in a certain area or to create new industrial capacity; they may move in when it is necessary to prevent a British company from passing into unacceptable foreign ownership. I should like to draw your Lordships' attention to the fact that, as the Bill stands, the Board have extremely wide powers in being able to acquire the shares of any company, and although in certain cases this could be done only with the approval of the shareholders concerned, I feel that if they are to be as honourable a body as I am sure the Government hope they will be, then let us not leave any doubt concerning this point. Perhaps I might refer also to the extremely interesting speech made by the noble Lord, Lord Stow Hill, also on the same day of the Committee stage. In column 143 the noble Lord said this: All I am asking my noble friend to do is to look at this again between now and Report stage to see whether he does not think that that wording should be reconsidered in order to make it clear that consent is absolutely necessary. I raise this point in order to ask the Government to make certain that consent is given before the Board either acquire or dispose of securities. That is all I am asking. If your Lordships will look at the beginning of subsection (4) this says that the Board shall have power: (a) to acquire, hold and dispose of securities. Then it goes on in subsection (3) as had already been mentioned, to say that the Board may do anything which is calculated to facilitate the discharge of their functions or which is incidental to their discharge. It is purely and simply to make this clear and precise that I feel these words should go in, and I beg to move.

Lord BESWICK

My Lords, there is really no question of doubt here. I beg the noble Earl to believe this: there is no question of doubt whatsoever. The Board will be able to take over shares even though the board of the company whose shares it is proposed to acquire do not give their consent. No one has ever suggested that the board of a company should acquiesce in the purchase of shares by the National Enterprise Board from a willing seller. Perhaps we might think of it in this way: supposing the noble Earl holds a block of shares in a company and he thinks that company is not being properly run, and would like to dispose of those shares. Supposing the NEB come along and think that they can add their expertise and make a contribution, and they offer to buy from the noble Earl his holding in that company—is he really saying that that purchase from him as a free agent should be vetoed by the board of the company? Surely that cannot be what he would like to see.

I therefore say again that the National Enterprise Board will have no power at all to acquire compulsorily any stocks or securities of any company at all. They have no powers to take over anything compulsorily. But the noble Earl goes further: he is saying that the board of a company should have the right of veto. We all know that there are cases when the Board does not wish to see shares change hands and they do not wish to see an institution or another company coming in or buying in the open market. They may argue against that, and they are free to do so; but there should be no right given to them to stop a transaction as between a willing buyer and a willing seller. I would hope that the noble Earl would not try to suggest that there is any doubt. There can, and will, be no doubt on this point.

The Earl of BALFOUR

My Lords, perhaps I may carry this a little further. May I remind your Lordships that under the provisions of this Bill Section 7 (5) of the Industry Act is being repealed. Let us look at the provisions here: Where financial assistance is given under this section by acquiring shares or stock in a company, the Secretary of State shall dispose of the shares or stock as soon as, in his opinion, it is reasonably practicable to do so; and before making the disposal the Secretary of State shall consult the company. This was a provision which was put in by the Conservative Government. I would have thought it was a perfectly sensible safeguard, intended to ensure that some consultation shall take place between a company and the Secretary of State or, in this case, the National Enterprise Board, before shares or stock are either acquired or sold. As it is, so far as I can see, under the Bill once the National Enterprise Board have acquired the stocks or shares it is going to be difficult for the company concerned ever to regain control of that company; and I think the chance the National Enterprise Board have to sell stock is very narrow. I think it is a pity that this part is being repealed, because even if the NEB have been substituted for the Secretary of State in this clause, it at least gives a chance for it not to become just a means of nationalising industry to a great extent, which concerns me. It would not concern me anything like as much if the nationalised industries made a profit. They are not making a profit—or very few, and very seldom. This subject concerns me, and I put down this Amendment to clear up the point that some consultation shall take place. My intention was to put that beyond doubt.

Lord BESWICK

My Lords, may I with the leave of the House reply to this point? The noble Earl asks that some consultation shall take place. In the majority of cases I have no doubt that there will be consultation, but there are certain cases when there is a difference of interest as between the shareholders, or some of the shareholders and the board of the company. In those cases it is intended that it should be possible for the board, as I have said, as a willing buyer, to buy from a willing seller of shares. That is clear and I hope that the noble Earl will not endeavour to make it less clear.

He has, however, quite fairly called attention to the provisions of the Industry Act 1972. I would put to him that the situation there was very different. That Act was designed to help in the main companies that were in trouble. It would not in those circumstances be appropriate just to buy shares in the market; that would not necessarily help a company in trouble at all. In those cases it would be more usual for new equity to be created and for that equity to be bought with Government money. In that case there must be consultation with the company. It is not possible, as the noble Earl will know, to issue new equity unless the company agrees to it. There are therefore very different circumstances so far as the 1972 selective financial assistance provisions are concerned compared to what we are seeking to do here.

On Committee stage I said that there was one exception to this firm rule that there can be no compulsory acquisition; namely, any company under the Companies Act—I think it is Article 209—can have power to acquire another company compulsorily, but that is a minimal power and there are qualifications to it.

The Earl of BALFOUR

My Lords, I beg leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

7.3 p.m.

Lord ABERDARE moved Amendment No. 13:

Page 3, line 29, at end insert— (6) Whenever the Board acquires or holds securities or forms bodies corporate in accordance with the provisions of subsection (4) above, either directly or through any of their subsidiaries, neither the Board nor any such subsidiary shall acquire or hold share capital of a body corporate otherwise than in the name of the Board or subsidiary as the case may be, save only that the Board or subsidiary may acquire or hold shares through a nominee or nominees to the extent and only to the extent that such acquisition or holding through a nominee or nominees shall be necessary to prevent infringement of the provisions of the Companies Acts, and no such nominee shall acquire or hold as a nominee more than one share in any such circumstances.

The noble Lord said: My Lords, I beg to move Amendment No. 13. This again arises out of a discussion we had at the Committee stage on nominee shareholdings. The noble Lord will reoollect that the Amendment we moved at Committee stage said that, neither the Board nor any of their subsidiaries shall acquire any of the share capital of a body corporate otherwise than in the name of the Board or subsidiary as the case may be. I was delighted when the noble Lord, Lord Beswick, replied to the effect—and I quote his words: Nothing would give me greater pleasure than to accept this Amendment. He went on to explain that there was a technical difficulty in that it was not possible to require the Board always to act in their own name because they had, under the Companies Act, obligations to have more than one shareholder. The Companies Acts require that a public company must have at least seven members, and a private company at least two members—the members in this case having the same meaning as shareholder. So, as a result of this, if the Board were wishing to take over an existing company as a wholly owned subsidiary, the Board itself cannot be the single direct owner of all the shares in that other company. It would have to arrange that in the case of a private company there was at least one other shareholder who was bidding for the shares; in the case of a public company there would have to be at least six other shareholders.

Therefore, this Amendment seeks to make it possible for the noble Lord to have the pleasure of accepting the Amendment I put forward before, but it gives the Board the right to use its nominee shareholders in bidding for full control of a company but they are limited to one share each. There is no doubt at all about the legal requirements. There have to be seven shareholders in a public company. But it would seem to me perfectly easy for the other six shareholders to be limited to one share. Certainly there is no legal reason why they should not be limited to one share. The effect of it would be that when a company's shares were being bought then, except for six shares in the name of the six outside shareholders, the other shares would be being bought in the name of the National Enterprise Board themselves or of the particular subsidiary company that was concerned. This gives considerable reassurance to industry on the subject of warehousing. We are at one, I know, on warehousing. The noble Lord has himself undertaken that the NEB will not go in for warehousing. At the same time, as one knows very well, assurances are perfectly valid but it is far better to have something properly laid down in the Bill; and it seemed to us that this was a way in which we could accomplish our common purpose. I am sure that the noble Lord is going to accept the Amendment. My Lords, I beg to move.

Lord MELCHETT

My Lords, my noble friend is not going to accept the Amendment and I am afraid that I am not going to, either. My noble friend Lord Beswick has given your Lordships a complete assurance that the National Enterprise Board will in no circumstances engage in the practice known as warehousing; that is, building up substantial shareholdings surreptitiously, using associates. As I understand it, this proposed Amendment would not prevent the practice of warehousing, because as I understand the term, it means carrying out such clandestine operations, not through nominees but with formally independent associates. Let us be clear that if the Board and their nominees, or a Board subsidiary and its nominees, acquired 10 per cent. of the shares in a company it will be necessary, under Section 33 of the Companies Act 1967, to notify the company concerned. That is already laid down and that law will apply to the National Enterprise Board and their subsidiaries in just the same way as it applies to any other company. Presumably, therefore, this Amendment is designed to prevent the National Enterprise Board from making use of nominees while they are building up a shareholding of less than 10 per cent. That in practice can be the only point of the Amendment.

The Government have been at great pains in the drafting of the Bill to ensure that the National Enterprise Board will have no special privileges not enjoyed by companies in the private sector. But this principle must in our view cut both ways. This Amendment seeks to place restrictions on the Board which are not placed on normal companies. If ordinary, respectable companies can act through nominees when appropriate, there is no reason, in our view, why the National Enterprise Board should not do so as well.

The last time I was on my feet I was taken to task by the noble Lord, Lord Aberdare, for, as I saw it, underlining the perfectly proper but nevertheless existing fundamental differences in political philosophy which divide either side of the House. I regret to say that I think this fundamental difference is brought to bear on this particular Amendment. It seems to me that this is a good example of those who say that they believe in the principles of competition doing all they can to hinder competition from the National Enterprise Board.

Lord DRUMALBYN

My Lords, the noble Lord should try to look at this matter from the point of view of companies, and not from just one side, the official side. We are dealing with a very powerful Board who are backed by enormous Government resources—one may say unlimited Government resources. The only limit is what the Secretary of State and the Treasury are prepared to lend. If for any reason the National Enterprise Board want to buy into a company, one must bear in mind that the Board are a totally different kind of animal from the company that they are buying into. It is a statutory corporation which is backed by Government's funds. Surely a company is entitled to know that the Board are buying into it. Their position is wholly different from that of any other company.

We know what are the purposes of the Board. For instance, they may want to improve the industrial efficiency of the Board. I myself hope that they would not indulge in pure speculation because that would be a gross misuse of taxpayers' money. Supposing, however, that they want to buy into a company so that they can keep an eye on it, are they going to keep a clandestine eye on it through nominees or will they, like men, come out into the open and say, "We are not sure that you are running the company correctly. We intend to take shares in your company to find out what you are doing". This is the simple issue. It is not a matter of ideology. We are dealing with a totally different kind of animal from that which normally buys shares—either individuals or companies—and they ought to be treated separately.

The National Enterprise Board should be publicly accountable for the shares that they buy. At the very least, a company should know whose shares it is registering. If it merely appears as a nominee, a company cannot possibly know that the National Enterprise Board are taking an interest in it. If it is the Board's intention gradually to acquire shares over a period, surely a company is entitled to have early warning.

The situation which the noble Lord has spoken about would not continue for very long. Even in a Companies Act, if we are going to have a Companies Act, there will be restrictions on the shareholdings of nominees. For a long time it has been felt that there are gross abuses of this practice. The noble Lord may say that there are restrictions on other people and that there can also be restrictions on the National Enterprise Board. But that is only one side of the argument. I can assure the noble Lord that this is something which foments an enormous amount of suspicion and distrust within industry. The noble Lord will be doing a great deal to ease the passage of his own Bill if he meets industry on this point, and I strongly recommend him to do so. I hope that my noble friend will put down an Amendment at Third Reading to deal with the point that the only circumstance in which the Board should be allowed to register through nominees is where they have to do so for legal reasons and then each nominee should hold only one share. Otherwise they should hold in their own names or in the names of their subsidiaries. It is as clear as that.

The Earl of BALFOUR

My Lords, I entirely support this Amendment. It is only right that in such circumstances no nominee shall acquire or hold more than one share. If there is to be trust between the National Enterprise Board and private industry, there must be openness and we must make it perfectly clear that there is no doubt about this. I feel that this Amendment raises many of the points which have been of considerable concern to those people who are connected with industry. They are frightened that the National Enterprise Board will be able to compete directly with them, because it has been made perfectly clear that the National Enterprise Board can set up a company to do that. Therefore, I ask the Government to consider this matter very carefully.

Baroness HORNSBY-SMITH

My Lords, when the IRC, which was set up by a previous Labour Government, was functioning and acquired holdings, were those holdings made public as IRC holdings?

7.15 p.m.

Lord MELCHETT

My Lords, by leave of the House may I deal with one or two of the questions that have been asked. The noble Lord, Lord Drumalbyn, said that he hoped that the National Enterprise Board would stand up like men and declare what they were doing. He said that there had been misuse of nominee shareholdings. I have two comments to make on that. First of all, is he implying that any other company which uses nominee shareholdings to build up a shareholding to 10 per cent. is doing something disreputable and that they are not standing up like men and declaring their interest when they buy their first share in the company? Underlying the treatment of the National Enterprise Board in this Bill the Government have been anxious that the Board should be treated in the same way as any other company.

The noble Lord says that I must look at both sides of the question. May I suggest to him that he should look at both sides of the question, too. We have said that the National Enterprise Board will be subject to various codes of practice in the same way as other commercial companies are subject to the Stock Exchange Rules and so on. On the other side, surely it is fair that the National Enterprise Board should not have totally arbitrary and special restrictions placed upon their activities if these are not placed upon any other company.

So far as I can see, the only justification for this proposal was advanced by the noble Lord, Lord Drumalbyn, when he said that the National Enterprise Board are a totally different creature because they are so much bigger and have unlimited resources. But the Board do not have unlimited resources. Certainly they are financed by the public sector, but I should have thought that the difference in scale between the smallest publicly quoted company on the Stock Exchange and the largest international conglomerate was at least as great as that between the National Enterprise Board and any company whose shares they are likely to be buying—if not far greater. Nobody has suggested that when ICI go into the market to buy less than 10 per cent. of the shares of a company—and we are only talking about less than 10 per cent.—because they are big they should stand up like men and say exactly what they are doing. If that is the only justification for treating the National Enterprise Board in a different way, in fairness I do not think that the argument stands up to examination.

Lord ABERDARE

There is a fundamental difference here. We do not consider that the companies which are financed by the National Enterprise Board have the same standing as those in the private sector. All along it has been fear of the actions of the National Enterprise Board which has led to such a lack of confidence in industry. As we have been stressing all along, there is suspicion of the National Enterprise Board. I accept that the noble Lord, Lord Melchett, says that the concept of the Government is that the National Enterprise Board owned company has exactly the same responsibilities and should have imposed upon it the same restrictions as those imposed on a company in the private sector. But that is not the way it is viewed by industry. Moreover, both noble Lords opposite have given us reassurances that the National Enterprise Board will behave in the very highest traditions of other companies in the public sector. At Committee stage the noble Lord, Lord Beswick, went so far as to say that he would have liked to accept the Amendment I put forward. Unless there is some intention to buy in the names of nominees, I cannot see why one should not restrict the nominee shareholding to one share. That seems to me to meet all the legal requirements and not to put any great difficulties in the way of the Board acquiring up to 10 per cent. of the shares. I do not really understand what the difficulty is.

Lord BESWICK

My Lords, first may I say that there was no obligation in law for the IRC to say that it was buying a particular share, but it had an obligation at the end of the year to publish in its annual report what it had bought. I can see that the NEB will also publish quite freely what their holdings are, but here we have a situation which is a little different. I acknowledge that the noble Lord is quite right in quoting me when I said that I had some sympathy with the original Amendment and that I wanted to see whether I could help. But what I thought would be wrong was some sort of underground operation by this nationally owned corporation. I thought it would be quite wrong that they should acquire things surreptitiously.

This Amendment would not prevent the kind of practice which is carried on by certain organisations, but I have given an undertaking that they will not use associates in order to build up a shareholding. The noble Lord, Lord Drumalbyn, now says that there should be some sort of constraint upon them. There is the constraint of the 10 per cent. holding. They will be under the same obligation as any other company. If they have a number of nominees with one, two or three shares each which come to a total of 10 per cent., then under the Companies Act they must say that they have this holding and I should have thought this was a reasonable situation. If it is thought that this is not sufficient protection against clandestine operations, there may be a case for bringing down the ceiling of the Companies Act below 10 per cent.

May I open my heart and mind to the noble Lord, Lord Aberdare? What I came across when I discussed this was the principle that here we were saying, as a matter of law, that this organisation will have no additional powers over any other company in the country. With that, it was put to me that it is reasonable to say that they should have no less power. One may say that they are publicly owned as against privately owned, but I do not draw that dividing line, as some people do, between public and private; it is drawn too often and too strongly. In this situation, with no more and no less power than other companies have, I should have thought we were in fairly reasonable territory and could leave it there.

Lord ABERDARE

My Lords, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 6 [Financial duties of Board]:

7.25 p.m.

Lord ABERDARE moved Amendment No. 14:

Page 7, line 13, at end insert— ("(c) shall require the Board to adopt a realistic test discount rate when assessing investment plans.")

The noble Lord said: My Lords, this time I am really confident that the noble Lord will accept this Amendment, because once again I am able to quote his words at the Committee stage when he said, the Government will require the Board to adopt a realistic test discount rate in assessing the desirability of investments."—[Official Report, 22/7/75; col. 226.] My Amendment says, shall require the Board to adopt a realistic test discount rate when assessing Investment plans. So my Amendment and the noble Lord's words are in complete accord. Therefore, I am sure he will be honoured to find his words written into this Bill.

I recognise the arguments advanced by the noble Lord at the Committee stage, when we were discussing the whole matter of the Board's financial limitations and the rate of return on their investments. He made the point that this rate of return will necessarily vary in differing circumstances and it is therefore almost impossible to write a rate of return into the Bill. I accept the force of that argument, but my Amendment does not go as far as that. It does not fix a rate of return; it only requires the Board to adopt a realistic test discount rate when deciding on investment opportunities.

I hope that as well as accepting this Amendment, the noble Lord will also give us some further indication than we had at the Committee stage that Parliament will be kept informed as to what the test discount rate is and how the NEB are facing up to the requirements placed upon them in the case of a new investment. It is very important that if Parliament is to review the financial success or otherwise of the National Enterprise Board, it should have some information on these matters and such information should certainly be carried in the annual report of the Board. Certainly, where it is a major investment this would seem to us to be the right place for the results of the National Enterprise Board, judged against the realistic test discount rate to be published. I hope that this Amendment will appeal to the noble Lord, and that as well as accepting it he can give us some reassurance on the publication of the future results of the National Enterprise Board. I beg to move.

Lord BESWICK

My Lords, I have been quoted and I am greatly honoured that the noble Lord should quote me, but he might well have quoted rather more than the few words he took out of that speech, because I went on to say that I did not think it was necessary to put into the Bill the use of this tool. That is all it is; it is a monitoring tool, an investment tool, and I have said that the NEB will undoubtedly use it. Exactly what is realistic might be a matter for judgment, but undoubtedly this will be one test that they apply before they make a decision. I honestly do not believe it is necessary to include in a Bill of this kind instructions to the experienced sort of people whom we shall expect to run the National Enterprise Board. I shall not quote the saying about grandmothers, but I should have thought it would have some relevance to that.

The noble Lord asked where Parliament would come into it. I hope very much that the report of the NEB will be as full as possible. Undoubtedly, this would be essential, and I have a note here to the effect that if when the Public Accounts Committee looks at these matters it finds that the Board have not been applying a proper test discount formula, it will certainly have words to say, and we should expect that there would be vigilance of this kind.

Lord ABERDARE

My Lords, I am sorry that the noble Lord does not want to put his own words into the Bill, but I think we find ourselves in some difficulty over the question of the financial responsibilities of the NEB, because in no way have they been specified in the Bill. It has been our endeavour throughout the progress of the Bill through the House to try to establish what are to be the financial criteria under which the Board are to operate, because unless one has criteria it is very difficult for Parliament or the Public Accounts Committee to come up with judgments as to whether or not the Board are fulfilling the duties which have been laid upon them.

I must accept the noble Lord's assurance that the National Enterprise Board will employ this sort of test when judging new investments and, further, I very much hope that when they come to their annual report statements will be made explaining the reasons for any investment that they have undertaken—both the underlying reasons in the mind of the Board as a whole, and also the financial considerations on which the investment has been based. I certainly agree that it is a reassurance that the Public Accounts Committee will be looking at the Board's affairs and will naturally be able to examine these sort of matters. Therefore, for the moment, I beg leave to withdraw the Amendment.

Lord BESWICK

My Lords, before the noble Lord withdraws it, as he said there is nothing in the Bill which sets out the financial responsibilities relating to the Board, I wonder whether he would look at Schedule 2 which is probably more comprehensive than most sets of regulations; and, moreover, there will be a six-monthly statement of accounts and not an annual statement.

Amendment, by leave, withdrawn.

7.31 p.m.

Lord ABERDARE moved Amendment No. 15:

Page 7, line 13, at end insert:

Page 7, line 13, at end insert: ("( ) In this Act— fair competition" means—

  1. (a) that the following procedure shall apply in any case where any private enterprise makes to the Minister a written complaint about a practice employed by any public enterprise, and the complaint is expressed to be made on the ground that the practice is unfair to the com- 1556 plainant and specifies the respects in which he considers it is so unfair;
  2. (b) the Minister shall forthwith after receiving the complaint send a copy thereof to the Board and, after such period for consideration of, and comment upon, the complaint by the Board as the Minister thinks reasonable has elapsed, shall send to the complainant a statement of the comments, if any, made by the Board on the complaint and shall, if he is of opinion that the complaint raises a question of substance and that the complainant has a reasonable case to make in support of the complaint, afford the complainant and the Board an opportunity of appearing either personally or by a representative, before a person appointed by the Minister;
  3. (c) the Minister shall consider the report of the person appointed under the last foregoing subsection and may, if it appears to him that the practice complained of is unfair to the complainant, give to the Board such directions as appear to him to be requisite to secure the removal of the grounds on which it is so unfair; and the Minister shall furnish the complainant with a statement of any such directions and the Board shall give effect thereto;
  4. (d) where a complainant avails himself of the right conferred by subsection (3) above to appear before a person appointed by the Minister, the Minister shall furnish the complainant and the Board each with a copy of the report of the person so appointed, and a statement of the conclusions reached by the Minister on considering the report; and
public enterprise" means the Board or any industrial enterprise in which the Board has directly or indirectly a significant interest or any industrial enterprise conducted wholly or in part under national ownership or control; and private enterprise" means any industrial enterprise carried on wholly or mainly in the United Kingdom in which the Board has no significant interest and which is not so conducted.")

The noble Lord said: My Lords, this is an endeavour to return to the question of fair competition between the National Enterprise Board and other companies in the private sector. Having examined my Amendment, I thought that the noble Lord might come back and tell me that the words "fair competition", which I am attempting to define in this Amendment, were not in the Bill, but this awkwardness may be saved by my noble friend Lord Drumalbyn whose Amendment No. 16 brings in the principles of fair competition. In any case, I find that one of the troubles about the Bill is that it does not mention anywhere the words "fair competition". In this Amendment we are endeavouring to give companies in the private sector a chance to make representations to the Secretary of State if any company believes it has been unfairly treated by the National Enterprise Board.

The safeguard provided in this new clause is only very minimal, as everything depends on the Minister. If he receives a complaint from a company it is he who decides whether it is a matter of substance and that the case is reasonable before appointing a person to hear both sides of the argument. Further, once that independent person has made his report, it is again the Minister who decides on the report and the action to be taken under it; so that all the decisions within this procedure lie with the Minister. Therefore it does not go very far, but it is some minimal protection to the private sector of industry and is something that would give a great deal of reassurance and more confidence to industry in general.

I know that noble Lords opposite have given assurances that companies within the National Enterprise Board's control will compete fairly and will be subject to all the rules of fair trading legislation. But that is not the point. The point that I am after is that by creating what my noble friend Lord Drumalbyn has called "this new animal" there will inevitably be quite new influences and pressures created—a State-financed conglomerate competing in the private sector. This has not happened before. It is quite different from the normal concept of the nationalised industries. It is a group of companies operating under the control of a State-established body in fields of endeavour where other private companies are already established. Any group of companies has a group loyalty—that I would have thought is entirely natural—and I have no doubt, as I said at the Committee stage, that the National Enterprise Board will seek to foster such loyalty between their companies. This could result in unfair competition so far as the private sector is concerned. Even if other things are equal I should have thought that one NEB company will tend to trade with another NEB company. That is where there can be unfairness as between the public and the private sector.

I was asked by the noble Lord, Lord Beswick, whether I was satisfied with the fair trading legislation. I am, so far as it goes; but we are really concerned with more subtle forms of discrimination which would not be deliberate. We are not trying to allege that the NEB would deliberately try to cheat or anything like that. All we are saying is that, inevitably in setting up this new form of organisation, there may well be difficulties, strains and stresses and there is undoubtedly anxiety in industry about fair competition with NEB companies. It is only in an endeavour to try to assuage that anxiety in industry that we put forward this Amendment which, as I said, gives very minimal protection but just allows companies which feel that they have been badly treated to have some form of approach to the Minister, who may or may not in his discretion refer it to an outside person, and may or may not accept the report of that person. I beg to move.

Lord LOVELL-DAVIS

My Lords, I know that the noble Lord will remind me that I said what I am going to say before, but I do not think that noble Lords opposite can really blame me. There is something—

Lord DRUMALBYN

My Lords, the noble Lord is not audible.

Lord LOVELL-DAVIS

I am sorry I thought the noble Lord said that I was not in order. I was saying that I am afraid that I have to maintain the general continuity by saying once again that all the existing legislation governing fair competition will apply to the NEB. It will be bound by the Fair Trading Act which is aimed at preventing restrictive trading practices. It would be extremely difficult, and probably impossible, to seek to impose further restrictions on the NEB without putting the Board at a serious disadvantage in comparison with private sector competitors. However, I can go some way to meet the noble Lord, Lord Aberdare. I am prepared to give an assurance that when the Government produce their guidelines for the Board they will include a requirement to avoid showing undue preference in trading relationships. It is the Government's intention—and I assure the noble Lord of the sincerity of this—that the Board's companies should not be given any unfair competitive advantages and that they should observe the best commercial practices in their relationships with their suppliers, customers and competitors. I hope that this assurance will satisfy the noble Lord.

Lord ABERDARE

My Lords, I am grateful for a small crumb. This is a help if only we could see the guidelines. If noble Lords would do their utmost to enable us to consider these guidelines before we come to Third Reading, many of these points might be more helpfully made rather than putting them into the Statute. I am grateful to the noble Lord and I beg leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

Clause 7 [General power of Secretary of State to give Board directions]:

Lord DRUMALBYN moved Amendment No. 16:

Page 7, line 26, at end insert— ("( ) With a view to securing that the Board carry out their functions in accordance with the best commercial practices and with the principles of fair competition, the Secretary of State shall, within two months of the establishment of the Board, and whenever he considers it necessary or expedient thereafter, issue guidelines to the Board, and it shall be the duty of the Board to carry out their functions in accordance therewith.").

The noble Lord said: My Lords, I have already referred to this Amendment. It falls in rather neatly immediately after what we have been discussing. The Amendment is self-explanatory. It says: With a view to securing that the Board carry out their functions in accordance with the best commercial practices"— that includes the Stock Exchange Rules, and so on— and with the principles of fair competition, the Secretary of State shall, within two months of the establishment of the Board, and whenever he considers it necessary or expedient thereafter, issue guidelines to the Board, and it shall be the duty of the Board to carry out their functions in accordance therewith.". I am sure this expresses the broad intention of the Government, because that is exactly what the noble Lord, Lord Lovell-Davis, has just been saying to us. Perhaps the Government may find two months a little too restrictive. Perhaps they would like a little longer. But apart from that it seems to me that this epitomises what the noble Lord opposite has been telling us on the last Amendment.

If I might take Amendment No. 17 by the standards of this Marshalled List, it ought also to have been Starred. I may say it was handed in on Friday afternoon, but was not printed, through no fault of the Officers of the House, and was not available until this morning. I think noble Lords opposite suffered from the same trouble, so they will have some sympathy.

I am sorry that noble Lords opposite have not had more time to consider this, but the point of Amendment No. 17 is simply that I am inserting this into the paragraph which has the rubric: General power of Secretary of State to give Board directions. Rubrics are not part of the Bill, however. They are altered to suit the Amendments we put into the Bill itself.

My Lords, it seemed to me that it was perfectly sensible to refer to guidelines also, and the word "guidelines" would go into the rubric in due course. This Amendment would simply mean that subsection (4) would read: The Board's report for any accounting year shall set out any direction given and any guidelines issued under this section during that year. That would make the whole thing comprehensive. I have not asked for the guidelines to be laid before Parliament when made. Perhaps the noble Lord opposite could tell me whether they will be laid before Parliament when made. In any case one could easily add this to the Bill at a later time.

Viscount MASSEREENE and FERRARD

My Lords, may I just refer for a moment to the question of fair competition? I am certain that what the noble Lord, Lord Lovell-Davis, said on the previous Amendment is correct. Perhaps this is not strictly relevant to this Amendment, but our experience has been that with regard to some nationalised industries, we have not had fair competition. I think I mentioned at Committee stage that I know in the part of the world where I live you are not allowed to hire lorries to take your stock to market unless the lorries you hire are Government ones. Do noble Lords opposite call that fair competition? I do not. I could quote other instances, but will not bore the House with them. However, I should just like to point that out.

I quite agree that presumably the Government will start the National Enterprise Board with the best of intentions, but eventually it depends on whose hands they go into. Governments come and Governments go. I am rather frightened that with the examples we have had of some nationalised industries in certain areas, we will not have fair competition as regards private enterprise. I think many private businesses will suffer.

Lord BESWICK

My Lords, so far as the fair competition point is concerned, it is difficult to get the exact definition as to what is fair competition; I admit that. The noble Viscount, Lord Massereene and Ferrard, keeps returning to the business of the lorries that were used. I have had three or four letters in the last two weeks complaining that a certain nationalised corporation will not use the nationalised road transport system. It uses a private company, and I find out on inquiry that apparently it does so because it is more convenient. I beg the noble Viscount not to worry too much about these lorries of his.

As to the question of guidelines, I can understand noble Lords opposite pressing this. We shall have guide lines, and in those guidelines, there will be a reference to fair competition—that I promise. I think we are making heavy weather a little as to exactly whether we should have this undertaking in the Bill. Another word for a "guideline" could be "directive"—that there shall be directives, or a specific directive. This is the first time that there has been an Act of Parliament relating to a public enterprise in which the Secretary of State has power to issue specific directives. That already appears in Section 7. We are meeting noble Lords on this. There will be power on the part of the Secretary of State to issue special directives. This will be spelt out in rather more detail in what have been called "guidelines", although there is no black magic about what is a "guideline" and what is a "directive".

Lord DRUMALBYN

My Lords, did the noble Lord, Lord Beswick, say that this will be spelt out in more detail than? Did he use the word "than"?

Lord BESWICK

It will be spelt out in more detail than what is in the Bill. I envisage that there will not just be a set of guidelines at the beginning. There will be guidelines as experience shows them to be required, which ise another reason why they ought not to be in the Bill. We want somethting separate from the Bill. Indeed, there are precedents for having them quite separate from the Bill. We are having a Third Reading. I will continue to report, and if noble Lords opposite wish to put something more down on Third Reading, they are free to do so. At present I suggest we do not press this Amendment.

Lord DRUMALBYN

My Lords, I am grateful to the noble Lord, Lord Beswick, for what he has said. I thought we had heard in some part of the Bill that the need to adhere to the Stock Exchange Rules would be put into the guidelines. If that is to be done, obviously it has to be done at once, I would have thought other similar things would be done at once. Obviously there will be occasions later on to issue further guidelines. Perhaps I am wrong, but I am certain I have either read or heard this. Perhaps the noble Lord will check on that.

Lord BESWICK

My Lords, there is a case where we have given an undertaking that they will do certain things. If they do not do those things—and I cannot conceive that they would not, because we are still living in a reasonably civilised world—the Secretary of State will have power if the Bill goes through without further Amendment, to issue a specific direction requiring them to do this. I do not think it will be necessary to do that.

Lord DRUMALBYN

Perhaps my memory was at fault, but this is one of the reasons why I put down this Amendment. I was gathering up into one subsection what I thought I recalled from previous references and the fair competition point. There is some difference, of course, between a specific directive and a guideline, in that a guideline by its nature implies a good deal more latitude. One gives someone a specific directive to do something specific, whereas a guideline in general tells them how to act; so there is a difference there. That was one of the reasons why I put it in this way in this clause which deals with directives; in order to draw a distinction between the two kinds of procedure.

My Lords, my noble friend Lord Massereene and Ferrard referred to certain cases of discrimination in nationalised industries. Perhaps the best known and most complained of were the electricity showrooms, but this has to a large extent been straightened out since. I am not certain what my noble friend on the Front Bench feels about this but the last paragraph we were dealing with, dealt with complaints about failure to observe fair competition. I understand from the noble Lord that it will be possible in a case like that to complain to the Director General of Fair Trading about failure to observe fair competition. I would conclude by observing that "fair competition" probably does not need definition, and certainly needs it much less than "industrial democracy". I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 9 [The Board and the media]:

Lord DRUMALBYN moved Amendment No. 18:

Page 9, line 1, after ("prevent") insert ("the provision of financial assistance by way of").

The noble Lord said: My Lords, this Amendment deals with the question of the media; the clause rubric is "The Board and the media". The Government have clearly recognised that there are dangers in the taking of shares in a company which engages in publishing newspapers, periodicals and so on, or in producing radio programmes. There can be very little doubt that the giving of assistance to a newspaper or television company or radio company, in return for shares in the company, would probably incur the suspicion of influencing editorial or producer policy, and might well result in that happening. It is very difficult to draw the line.

The purpose of the Amendment is simply to give a clear pointer to the Department and to the National Enterprise Board not to give assistance by taking shares, because it is dangerous, if there is any other way in which assistance could be given. That is why the Amendment is drafted in that form. Subsection (4) would read: Subsection (3) above shall not prevent the provision of financial assistance by way of the acquisition of share capital of a body corporate if the acquisition is made in pursuance of a direction under section 3 above… and then Amendment No. 19 comes in— …and if, in the opinion of the Secretary of State, it cannot, or cannot appropriately, be provided in any other way.

The noble Lord will recognise the origin of those words, which come from the 1972 Act. This is not intended to restrict the operations of the National Enterprise Board, but only to make certain that they do not get into any possible trouble through suspicion of being in a position to influence editorial policy or programme production policy. I hope that this may be helpful. I beg to move.

Lord LOVELL-DAVIS

My Lords, this Amendment is the forerunner of others which we shall be discussing shortly, which seek to preserve the Opposition's philosophy that Government assistance to industry should be given in a form which does not involve the acquisition of shares.

Lord DRUMALBYN

No, my Lords, I have just said the opposite.

Lord LOVELL-DAVIS

My Lords, the noble Lord also talked about the dangers involved. I cannot see how he can believe that this clause, the whole of which is carefully designed to avoid those dangers, can apply here. If he will read the clause carefully, surely he will come to the conclusion that there is adequate protection here. I was myself aware of the general Opposition philosophy coming across. I may have been quite wrong, but it seemed to me that it was the principle of giving assistance which would not involve acquisition of shares. As I read the Amendment, this point comes across strongly. The noble Lord must not be surprised if we reject this, because it runs counter to our intentions. We stand firmly on this as a point of principle.

We have never hesitated to make it clear that if the Government provide financial assistance to industry, through the 1972 Act and where it is done directly by the Secretary of State, or through the NEB under Clause 3 of this Bill, it should be open to the Government to take a full return for their assistance. If the noble Lord accepts that point, then I think in all other respects the clause is so designed that there is no real danger. It seems to me that the duties are clearly set out in subsections (5) and (6). If the Secretary of State overrides these, he can do so only if serious commercial injury would be caused. Surely the noble Lord is not disputing the desirability of the Secretary of State's maintaining a situation until the possibility of further serious commercial injury disappears, and the right of the NEB to dispose of that shareholding profitably at the value it has achieved.

It may be that I do not understand the point the noble Lord is making. It seems to me that those are the two points; either, first, the basic philosophy of helping by not acquiring shares if there is any other way of doing it; or, secondly, the danger of taking over. It seems to me that there is adequate protection in the Bill to ensure that the NEB do not become owners of newspaper companies. In any event, subsection (10) sets out the matter of editorial control. Perhaps the noble Lord would care to give the House further guidance.

Lord ABERDARE

My Lords, before my noble friend makes his decision, I really do not think that is a very helpful answer. It has nothing to do with the general Opposition philosphy. This clause has the object, as the noble Lord recognises, of wherever possible preventing the Board or any of their subsidiaries from becoming involved in companies that have to do with the media, publishing newspapers or magazines or whatever it may be. We are all at one on this; it is what we are all trying to achieve. But we recognise, and the Government recognise, that there may be difficulties where the Board are coming in to assist a group of companies one of which happens to be involved in newspaper publishing or broadcasting. My noble friend's endeavour is to make it much easier for the Government, and to make sure that when the Secretary of State has to intervene by giving a direction this shall be only when there is no other way of providing the means to help the company in question. It all seems to me to be entirely reasonable, and I am rather surprised at the attitude which the Government have taken.

Lord DRUMALBYN

My Lords, perhaps I should provide myself with a red flag and a green flag, and if I am going to be helpful to the Government I will rise to my feet holding the green flag and if I am going to oppose the Gov- ernment I will rise holding the red flag. On this occasion I really did rise holding the green flag. What we are talking about here is a clause which was introduced under the guillotine and which was not discussed in another place. This is an important clause and we hope it will not need to be used very often, but it has to do with the rescuing of media if they get into trouble. The nature of media is such—and this is plainly recognised by the Government's own drafting—that when giving assistance to them, they must do it in such a way that they do not influence editorial policy. We were all agreed on that on the last occasion and I did not think there was anything between us on it. Why the noble Lord should have thought that by introducing this Amendment in this way I was in any way going back on that I do not know. I suppose it was because I happened to choose the most convenient form of words, rather than inventing my own, by taking them out of the 1972 Act.

What we are proposing is quite simple; we are not removing any of the powers in the rest of the clause. We are simply saying, in effect, "If you have to rescue media, do it in such a way as to make it absolutely clear that you are not going to influence the editorial policy of the paper." And the easiest way of doing that is not to take shares unless one absolutely must. This does not debar the NEB from taking shares, but merely says that they should not do so unless there is no other appropriate way of providing the assistance. This has been a genuine attempt to get out of a real difficulty. The Government made it quite clear in subsection (5) that it is the duty of the Board if they acquire shares, …to exercise their voting power with a view to securing that the body corporate disposes of the business as soon as practicable. If they cannot do that because of the position of the company and they are exempted by the Secretary of State from doing so, then they have to concern themselves only with the financial or commercial decisions of the company. All I was saying was that if they should get into that position, nothing would prevent them from being suspected of influencing editorial policy, and therefore it is better to keep out of it; and with a view to avoiding that suspicion I tabled this Amendment. I assure the noble Lord that I am holding the green flag.

Lord LOVELL-DAVIS

My Lords, I am sorry if I misunderstood the noble Lord or misconstrued his intention. My attempt to interpret the reason for the Amendment was entirely genuine, I assure him of that, and I am sorry if the noble Lord, Lord Aberdare, should have taken exception to my referring to Opposition philosophy. He may recall that he reminded me during the debate on the Welsh Development Agency Bill that we have different philosophies. It seems to me reading this clause again, and particularly subsection (3), that there is adequate protection in respect of them taking over any undertaking with a substantial involvement. It seems very difficult to avoid the possibility of acquiring perhaps a minor publishing company of some sort which was involved in a bigger deal without acquiring the shareholding. I recognise the intention of the noble Lord, but I believe that the Amendment would have the effect of saving that assistance should not be given by the acquisition of share capital if there is any other way of giving assistance; but the Government cannot accept that the risks of assistance should be separated from the rewards of successful assistance. I think there is adequate protection in this clause and while I take the noble Lord's point, I hope he will recognise our point of view, also, in so far as the acquisition of shareholding is concerned, given the other protective measures set out in the clause.

Lord DRUMALBYN

My Lords, as the noble Lord did misunderstand my purpose, perhaps he will be kind enough to look at the matter again to see whether there is anything in my suggestion. I am sure he will be willing to do that.

Lord LOVELL-DAVIS

Yes indeed, my Lords; I certainly agree to do that and I will look again at the matter.

Lord DRUMALBYN

My Lords, I am obliged to the noble Lord. I may not be quite right here because obviously there is a difference between acquiring shares in a company which is publishing and taking shares in a group which is controlling the company, but on the under controlling the company, but on the understanding that the noble Lord will look into the matter, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 10 [Other limits on Board's powers.]

8.6 p.m.

Lord BALFOUR moved Amendment No. 20:

Page 9, line 43, leave out from ("State") to end of line 44.

The noble Lord said: My Lords, this clause begins: Neither the Board nor any of their subsidiaries shall acquire any of the share capital of a body corporate except with the consent of the Secretary of State or… The real problem here is that, as drafted, the Bill could, as I understand it, allow the Secretary of State to give a general directive to the Board to acquire share capital in certain types of undertaking, for example those which are very much labour-intensive.

My Amendment is the same as one which was tabled in the name of my noble friend Lord Drumalbyn in Committee, which was Amendment No. 80. I am not apologising for this because the matter was not fully explained on that occasion and the noble Lord, Lord Beswick, said at that stage: I wish to be absolutely frank with the noble Lord. He was referring to my noble friend Lord Drumalbyn: I know what the intention is. It is to relate it to the first case. Whether the effect would be to limit it to that case, I am not absolutely certain. I should like to take advice on this and we could return to it again at the Report stage".—[Official Report, 22/7/75; col. 266–7.] I have no doubt that the noble Lord, Lord Beswick, has taken this into consideration, but I have been considering the matter and I have read the Official Report of those proceedings carefully and I feel that, as the Bill stands, we shall here be creating far too wide an authority. I feel that the Board must not just be able to acquire shares in a company without having some reason for doing so—that is, if the company needs help—but my fear lies in the fact that subsection (1) of the clause continues: …or in accordance with any general authority given by the Secretary of State. That extends the provision far too wide. That is why I have tabled this Amendment and I hope that the Government will have second thoughts on the matter.

Lord DRUMALBYN

My Lords, my noble friend Lord Balfour beat me to it by tabling this Amendment, and of course if he had not put it down I would have done so because the noble Lord, Lord Beswick, said in Committee: I should like to take advice on this and we could return to it again at the Report stage."—[Official Report, 22/7/75; col. 267.] Earlier the noble Lord had argued: What is intended here is a sort of general authority to a subsidiary which will enable it to carry on its business in a proper businesslike way, without having to come back to the Secretary of State for every minor acquisition it might conceivably make."—[Official Report, 22/7/75; col. 266.] But what we are dealing with in this clause is, of course, a prohibition on the Board or its subsidiaries in acquiring: …any of the share capital of a body corporate except with the consent of the Secretary of State or in accordance with any general authority given by the Secretary of State—

  1. (a) if its acquisition would entitle the Board to exercise or control the exercise of 30 per cent. or more of the votes at any general meeting of the body corporate…or
▀¬if the value of the consideration for its acquisition…would exceed £10.000,000. I did not understand how that matched with the sort of general authority to a subsidiary which would enable it to carry on its business in a proper and businesslike way. I could see the possibility of a progression of acquisitions, but not in the context of an acquisition which would entitled the Board: to exercise or control the exercise of 30 per cent. It is difficult to see how that permission could be given in accordance with any general authority given by the Secretary of State. We had understood that the specific consent of the Secretary of State was to be required in each case. If that is not so, I hope the noble Lord will inform us. We should take a very different view if it were left wide open for the Board to acquire more than 30 per cent."—30 per cent. or more of the votes at any general meeting of any number of bodies corporate"—without referring to the Secretary of State but on a general authority. This is what the words can undoubtedly be read to mean, and our point is that they should either be left out or clarified so that it will no longer be ambiguous, because I do not think, from what the noble Lord, Lord Beswick, said, that it was the intention that that was what they should mean.

Lord BESWICK

My Lords, the noble Lord is absolutely right. It was not the intention to make it possible for the Secretary of State to circumvent the requirement here with regard to a 30 per cent. holding or to the investment of £10 million. That is not the intention. What the noble Earl, Lord Balfour, and the noble Lord, Lord Drumalbyn, are now saying is that that construction can be placed on that wording. The intention of this general authority, as I tried to indicate before and as I will spell out again, is that we have in Clause 10 a system of executive control which provides that the Secretary of State has to approve the making of a large investment or the acquisition of a 30 per cent. holding. That is what we should all like, I believe. Then it was said in the other place in Committee that this did not prohibit the acquisition of more than 30 per cent. or the investment of more than £10 million by a non-wholly owned subsidiary such as, for example, British Leyland. So we extended the power here to require the non-wholly owned subsidiaries to be brought in.

But what we may find now we have widened this area of monitoring is that a company such as British Leyland or the NEB might in the course of their business wish to make minor acquisitions of an almost routine kind. For example, Rolls-Royce might have selling agents overseas and might want to set up agencies, or British Leyland might well have a requirement to open up new sales points in this country. Instead of having to ask to set up a company in a provincial town, they can be given a general authority to do that sort of thing. Acquisitions by subsidiaries, acquisitions of less than a certain value, acquisitions of overseas sales outlets—there are the occasions for which it was thought that general authorities should be given. I must confess that I think it wrong if this can be construed as meaning that a company may by general authority invest £10 million in each of a number of different sales outlets. I will look at that aspect again.

The Earl of BALFOUR

My Lords, I am most grateful to my noble friend Lord Drumalbyn for his support and also to the noble Lord, Lord Beswick. I should like to leave the matter entirely in his hands, for I do not like putting down Amendments on Third Reading. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

8.15 p.m.

The Earl of BALFOUR moved Amendment No. 21:

Page 9, line 46, leave out ("30") and insert ("29")

The noble Earl said: My Lords, I wanted to take this Amendment separately because it deals with an entirely different point to the previous Amendment. Again, I must go back to the Committee Stage. I quote from the Official Report. The noble Lord, Lord Melchett, said: The 30 per cent. figure is the figure at which the code on takeovers and mergers says the company has to make its offer unconditional. I am being nodded at by noble Lords opposite who know a great deal more about that than I do, so I am sure I am right. There is no question of the Board having power to buy things up lock, stock and barrel. That we all agree with. It is a provision to protect shareholders of the company, not for the benefit of the Board."—[Official Report, 22/7/75; col. 269.] I am quite certain that that is what the noble Lord, Lord Melchett, meant and I entirely agree with him that this is clearly why 30 per cent. was chosen. However, I feel that in order to create confidence in shareholders of British industry, we should leave a little more of a gap between where the City Codes really come into effect and the extent to which the National Enterprise Board can acquire shares without having to go to the Secretary of State for approval. Let us make a 1 per cent, gap. That is all I am asking. I believe it would create confidence in shareholders; I believe it would give the Secretary of State just that little bit more grip which I feel he should have. I feel that it would avoid any risk of the National Enterprise Board acquiring, possibly by mistake, 30.1 per cent. Again, this was mentioned in Committee. I believe that this would be a safeguard. I beg to move.

Lord MELCHETT

My Lords, as the noble Earl says, this was discussed in Committee. I believe that he quoted me more or less accurately and I went on in the next column of the Official Report to answer the point which he has raised again about the NEB acquiring over 30 per cent. by mistake and without realising that they were doing it. If I remember rightly, I said that this was extremely unlikely to happen and that I did not think that it would happen. I am afraid that, having taken further advice on this, it is still my opinion that 30 per cent. is the right figure to have in the Bill. The noble Earl knows that the Board will be under a legal duty to obtain the Secretary of State's permission before they acquire 30 per cent. of the voting rights in a company, that is, before they get to 30 per cent. We explained in Committee that the figure of 30 per cent. had been chosen because it was in the City Code. This provision for them to go to the Secretary of State before they acquire the 30 per cent. stake clearly requires them to obtain the Secretary of State's authority before they reach the obligations in the Takeover Code, which come into effect when somebody acquires 30 per cent. I am afraid that I simply—

The Earl of BALFOUR

My Lords. I should like to interrupt the noble Lord for just a second. Paragraph (a) says. "30 per cent. or more", so it is not before we get to 30 per cent. This is quite important. It is at the bottom of page 9 of the Bill.

Lord MELCHETT

My Lords, my understanding and my advice is that the words in the Bill mean that the Board will have to go to the Secretary of State before they acquire 30 per cent. of the voting shares in a company. I am quite sure that that is the correct interpretation of the words in the Bill. I have given that interpretation in Committee and I am repeating it now—

Lord CULLEN of ASHBOURNE

My Lords, I wonder why we need to have the words "or more" in the Bill. As soon as they get to 30 per cent. they automatically have to go to 100 per cent. I do not quite see why "or more" is in the Bill at all.

Lord MELCHETT

My Lords, I am not a legal expert nor a Parliamentary draftsman, but I imagine that it would be possible, for example, for the NEB to buy a subsidiary which would take their holding up to 40 per cent., 50 per cent. or whatever of a company. Before they bought this subsidiary it would be necessary for them to go to the Secretary of State and say that this would give them 50 per cent. of the shares in the company. I imagine—and this is a slightly speculative interpretation of the wording of the Bill—that if the Bill merely said 30 per cent. and if the NEB were buying a company, for example, which would take their holding up to 50 per cent., that that would not be covered. Therefore, I imagine that that is why the phrase, "30 per cent. or more" is included, but as the noble Lord said, the fact is that before they get up to 30 per cent. they will have to go to the Secretary of State.

The only reason for putting in any other figure is, I assume, that it is felt that the National Enterprise Board will reach 30 per cent. without realising it, but if they are to reach 30 per cent. without realising it, might not they just as easily reach 29 per cent. without realising it? The fact is that the legal duty not to acquire 30 per cent. without permission is absolutely unequivocal, and if it were breached the action would be illegal. The company would be entitled to refuse to register the transfer of the shares, for example, if this were done by accident or intentionally. Alternatively, the company would be able to obtain an injunction to stop the NEB proceeding with the transaction. I think, quite honestly, that 30 per cent. is the sensible figure and the right figure, and there is not really any need for any cordon sanitaire, as it were, to be imposed before we get to the 30 per cent. figure.

Lord DRUMALBYN

My Lords, I do not think that it is intended so much as a cordon sanitaire as it is a distant signal. We do not really know whether there is any need for this. It may be that if the NEB were attempting to get a controlling interest, or were working towards a controlling interest, in a company, the shares of which were possibly quoted, or not quoted, but which were certainly not very readily available, they would be picking up the shares in odd packets over a period of time. It could just be possible that they would suddenly reach the point where they would have to ask for the Secretary of State's consent to go any further. This was the only point in the matter. There is no great snag about it. If it is not really a convenience I do not see that we need press this matter. If they inadvertently went over the 30 per cent., the noble Lord says they would be doing something illegal and the company would refuse to register. But he is now going back on this own argument. The company could not refuse to register unless they had registered the shares in their own name. Now he is refusing to let them register the shares in their own name, so the company cannot know. If the noble Lord is to put forward that sort of argument he must allow us to stick to our view that there should not be nominee shareholdings except where they are strictly necessary.

Lord MELCHETT

My Lords, the noble Lord is aware, of course, that if the shareholding has gone above 10 per cent. the company will have been informed that the NEB are involved in buying shares in the company, so I do not quite see where the nominee argument comes in when we are talking about going up to 30 per cent.—

Lord DRUMALBYN

My Lords, we are all assuming that everything is going well and according to plan. This was just an effort to try to make certain that there would be a stop point, a safety catch, or whatever one likes to call it. The noble Lord may feel that it is not necessary. The difficulty is that even if the NEB had been registering their shares in their own name with the company, the company would not know, if the Board went over 30 per cent., whether or not the Board had obtained consent. It would obviously refrain from registering until it had been assured that the NEB had the consent of the Secretary of State before they went further. This is slightly obscure. If it works all right, that is fine. We feel that if some type of safety device can be included, so much the better.

The Earl of BALFOUR

My Lords, I should like to say a little more on this matter, on which I should like to have a reply. I do not want the Board to go to 30 per cent., or just over, for some reason or other, and then ask the Secretary of State to homologate their action. This happens in the best of circles. I have found it in county council affairs and in all sorts of other matters. Such occurrences crop up from time to time, and it would be most unsatisfactory in this case. I wonder whether the noble Lord would think again.

Lord BESWICK

My Lords, I wonder whether I can assure noble Lords opposite that their fears are unwarranted. I also wish to read out a message of advice which I have received. It says that my noble friend's interpretation of this clause is, to quote the legal phrase, "spot on". It may or may not be strictly necessary to have the words "or more", but they were included to prevent anyone from trying to argue that an acquisition of 35 per cent. was not an acquisition of 30 per cent.

The Earl of BALFOUR

My Lords, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 11 [General extent of powers in relation to control of important manufacturing undertakings]:

8.27 p.m.

Lord BESWICK

My Lords, I beg to move Amendment No. 22. It improves the drafting of the Bill by referring to "this part of this Act" rather than to particular sections. There is a corrigendum attached to the Bill, which is no doubt in the possession of noble Lords opposite. My Amendment is not affected by the corrigendum.

Amendment moved—

Page 10, line 21, leave out from ("by") to ("in") in line 22 and insert ("this Part of this Act shall have effect").—(Lord Beswick.)

Lord BESWICK

My Lords, I beg to move Amendment No. 23. This Amendment simply recognises that the phrase "important manufacturing undertaking" is confined to Part II of the Bill.

Amendment moved—

Page 10, line 24, after ("this") insert ("Part of this").—(Lord Beswick.)

Clause 12 [Meaning of change of control]:

8.29 p.m.

The Earl of BALFOUR moved Amendment No. 24:

Page 10, line 35, at end insert ("or any other member State of the Communities")

The noble Earl said: My Lords, this Amendment is the same as the Amendments I put down at Committee stage. I have investigated very carefully the point with which we are now concerned, and I have sought every kind of advice that I could. I want to know in particular whether there is any provision which will prevent the Secretary of State from refusing to allow a national of a Member-State who is not resident in the United Kingdom to obtain control of an undertaking in this country. So far as I am concerned, I feel that the answer is, "Yes". Without going into all the various Articles of the Treaty of Rome, I should like to refer to Article 52 which provides that a national of a Member-State must be allowed to establish himself in business in any other Member-State on the same terms as its own nationals. In the matters referred to, which seem clearly to be concerned with the control of undertakings, there is no discrimination on grounds of nationality against nationals of Member-States.

The Bill, however, does discriminate on the grounds of residence. I think this is a very important point. If a person is living abroad and acquires (as he can) the controlling interest in a British company, the Secretary of State can then put a prohibition order on it. I feel that it could have a disastrous effect in discouraging foreign nationals, or, particularly, nationals of EEC countries, from setting up an industry in this country. As a practical matter, however, the Bill would make it a good deal more difficult for a French national to acquire control of a British undertaking; and it is possible that the European Court might regard the provisions of the Bill as a disguised form of discrimination on the grounds of nationality and therefore contrary to the provisions of the Treaty. This I feel would have the effect of simply discouraging industries from coming to this country.

Clause 12 bites only when somebody who is not resident in the United Kingdom gains control of a company. Change of control means a change of control from a person previously in control to any person not resident in the United Kingdom. But equally this can apply where a person not resident in the United Kingdom has gained control from somebody who may be overseas. A Frenchman having a controlling interest in this country, which might be perfectly acceptable, then sells it to another Frenchman. This would he classed as change of control and would come within the provisions of Clause 12. I am sure that this country is looking for the very valuable capital we can sometimes get from overseas. But this is the sort of risk that will prevent people from starting industry in this country. The risk of being subjected to a vesting order, if a Frenchman acquired a controlling interest in a company, probably would be enough to deter a non-resident purchaser, apart from any risk that he might be refused foreign exchange permission. I feel that this is not the sort of thing we want to encourage in this country.

Foreign investment has made a vast difference to Scotland. A tremendous amount of American capital came into Scotland. Half of the industrial estates there have American companies—or Italian; Olivetti, for example—which have created an enormous amount of employment. We had a referendum in June giving an overwhelming vote in favour of our going into Europe. I was told at Committee stage that these Amendments were unnecessary, but as this is the first Bill going through this House that could affect somebody living in the EEC, let us put the words into the Bill that are in my Amendment and make it obvious beyond all reasonable doubt that we have faith in the Treaty of Rome and we have faith in our European friends. Do not let us leave doubt. I am sure we run a far bigger risk of doing harm to ourselves than to them by not having the provision written into the Bill. I beg to move.

8.33 p.m.

Lord LOVELL-DAVIS

My Lords, as the noble Earl said, these are the same Amendments as those put down in Committee. Since I seem not to have satisfied him then, may I deal with it in more detail. We have given a great deal of thought to this matter. These Amendments give rise to two separate points. The first is the relationship between these provisions and our EEC obligations, and the question whether they are in any way in conflict. I think it is this that occupies the noble Earl's mind.

I can assure noble Lords that there is no question of conflict. This Bill is a piece of United Kingdom legislation, couched in terms of the United Kingdom. This is why in Clause 12 we refer to residents of the United Kingdom. However, this reference is without prejudice to our European obligations. The Government recognise and accept that in certain circumstances our European obligations would prevent the powers set out in Clauses 11 to 20 from being used to prevent the acquisition of a British company by a resident of the EEC. These obligations are part of British law by virtue of the European Communities Act 1972, and the powers contained in this Bill are subject to that Act. There is therefore no possibility of conflict between this Bill and those obligations. There is therefore no question of the Government not understanding or not meeting our European obligations.

The second question is the narrower one of whether it is necessary to draft the Industry Bill so as to reflect these obligations. In Committee, the noble Lord, Lord Elton, argued that, unless there was good reason not to mention our European obligations, we should do so. He argued—with, if I may say so, considerable force—the benefits of clarity brought by explicit, rather than inferred, reference to these obligations. We have looked at this again. I am again advised that no reference to the European Economic Community is necessary: but my advice goes beyond this, in that I am advised also that an explicit reference would in fact be harmful.

Perhaps I might explain why this is so. Our EEC obligations are established under European law, which as noble Lords will recognise has a different tradition to British law. Our European obligations are established in general terms under the Treaties, and are constantly being interpreted and refined by judgments of the European Court of Justice. Our obligations under the Treaties apply at any moment of time as they are interpreted at that moment. It is therefore impossible in a United Kingdom Statute to reproduce exactly what those European obligations are. I ask noble Lords to consider therefore the effect of making an explicit reference to European residents, as it has been argued that we should in the interests of clarity. On the one hand, the reference might establish an obligation under British law that fell short of our obligations under European law at some future date; but at that future date our European obligations as they are then interpreted will necessarily have precedence under the European Communities Act.

In this case, the reference in British legislation would be misleading, since it would state incorrectly what our European obligations were. On the other hand, the clear statement in the British Statute could go beyond our European obligations. We do not wish this. We wish to abide by our developing European obligations, not to become more European than the Europeans. Because of these difficulties, it is the accepted practice throughout the Community not to make explicit reference in national legislation to treaty obligations. Rather the practice is to make national law in national terms, and to bring Community law to bear through some general Act. This is the practice which we have followed here. I have explained why this practice has been adopted. There are other arguments. If Community law were applied through a series of pieces of legislation by the Nine Member-States, there would be a danger of inconsistencies being introduced between one piece of legislation and another, and between one country and another. These individual pieces of legislation would have to be considered by the Supreme Courts of each country. It is clearly preferable that there should be a general application of treaty obligations, and that questions on these should be settled centrally by the European Court of Justice. I hope noble Lords will accept, therefore, that what the Government wish to do is in keeping with European practice and that this practice is a sound one.

8.41 p.m.

The Earl of SELKIRK

My Lords, I hope that the noble Lord, Lord Lovell-Davis, is right. The point the noble Earl, Lord Balfour, was making was that European capital would be discouraged from coming here because it could not subsequently be withdrawn. This might work to the disadvantage of this country. Once it was invested here, it might be stuck and could not be withdrawn. I do not think the noble Lord touched on that point. I hesitate to comment on what European law is likely to be. If a Frenchman put money in this country and was not allowed to bring it out I should he surprised if, when he took that matter to the European Court, they accepted the judgment that the noble Lord, Lord Lovell-Davis, propounded.

Lord DRUMALBYN

My Lords, what the noble Lord seems to be saying to us is that these provisions do not conflict with EEC provisions. But what the Bill does not make plain is what the situation vis-à-vis the EEC is. May I say that again as the noble Lord was otherwise occupied. What the Bill does not do is to make clear in its own terms what is the position vis-à-vis residents in the Member-States of the EEC. It is all very well to say that that is covered by EEC legislation, and it is also all very well to say that other Member countries do it in this way. But, as the noble Lord himself said, our form of law is somewhat different from EEC law.

It may be true to say that the EEC can make determinations from time to time. The EEC courts may issue judgments which alter the EEC law, and in accordance with those terms we may have to alter our law. It is now up to the Government to make clear in the Bill what is the situation of a person who has been resident here for some years. Let us say he is a Dutchman and has a controlling interest in a firm. He goes back to live in Holland, and then comes under the terms of this Part of the Bill. I am aware it does not mean that change-over powers are automatically used. This is within the discretion of the Secretary of State. The answer may well be that the Secretary of State will have to exercise his discretion in every case of that kind in order not to conflict with European law. In fact, he will exercise his power by discretion. Even though we cannot get this into the Bill, it is up to the Government to make clear what is the position.

As my noble friends have already made clear, it is in the interest of this country that they should do so, because if we are conveying the impression in this Bill as it now stands that anyone who comes and invests in this country from a Member-State—which people are perfectly entitled to do under Article 221 of the Treaty of Rome—and then wants to reside in his own country again but continue to exercise that control, he will come under the terms of this Bill. We must know what the position is. Is the Secretary of State then entitled to exercise discretion and put a prohibition order on the transfer of assets? It is possible for him to do it. This is so in the case of a United Kingdom resident who resides elsewhere, such as in Canada, and this then bites on him. We must know the situation of somebody who is a national of a Member-State of the Community. It is not good enough to say that it is all covered and tidy, and that somebody knows about it. Parliament must know what we are legislating about and doing. This is absolutely essential.

Perhaps the noble Lord could also tell us which other Member-States have legislation of a similar character to this. I am not at all certain that it will not create serious friction if control passes from an American or a Swede, whom the Secretary of State likes, to a member of a Community State whom he does not like. This is the same point again, but in a different form. If a manufacturer of ballbearings decides to sell his factories in this country to somebody in Germany, will that be caught by the Act, or not? We must know. This will make it much more difficult for a Frenchman or a Dane to acquire 30 per cent. or more of assets in the United Kingdom. One has to remember that we are looking forward to the time—at least I am—when we shall have multi-Member-State companies, perhaps from three countries, all of whom will have 30 per cent. or more of the shareholdings. This is a very important question indeed. I do not think we have yet had a sufficient explanation. I am not suggesting that the words we have down at the moment are right or necessary, but we must know what we are legislating about.

Lord ELTON

My Lords, as we are at the Report stage, and slightly losing sight of the fact, may I add to the questions which the noble Lord, Lord Lovell-Davis, will answer when, by leave, he replies to the debate. He made a number of general points. My noble friend Lord Drumalbyn illustrated the difficulties by specific points. If I may briefly take up the generalities, the noble Lord, Lord Lovell-Davis, said that there could be no conflict with the EEC Act because that Act is superior to this Bill, and this Bill is made without prejudice to that Act. This is not a good reason for putting in the Bill things which are prima facie in contravention of our undertakings under the EEC Act.

He then went on to examine the question of whether the drafting of a Bill which was subordinate, as in this sense, to an EEC Act should make manifest the position of EEC law at the time when the Bill was drafted. He said it should not, because the interpretation and legislation of European law might advance beyond that point, so that in years to come the drafting—which was clear when it was made—would become more misleading than if it was obscure.

I should like to ask him in what direction this obscurity could arise. Is he envisaging that if the words in the Marshalled List are included in the Bill, and if subsequently the European courts or some agreed legislation should extend the privileges of the Community Member-States to, for instance, Chad or Gabon, this would in any way make the situation more confusing than it is at present? Returning to his position that everything is done subordinately to the European legislation, we must have a clear indication of what the effects of this will he. It may he necessary to put at the beginning of the Bill or in the Title an indication that everything in the Bill is done without prejudice to the EEC Act and such other Conventions or Acts which the noble Lord and Her Majesty's Government feel are superior to the powers exercised at the moment by Her Majesty's Parliament.

Lord LOVELL-DAVIS

My Lords, I cannot pretend to be an expert on EEC legislation, but I will attempt to answer some of the questions raised. Perhaps I might quote first from the European Communities Act 1972, Section 2(1), which may throw some light upon it. It reads: All such rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Treaties, and all such remedies and procedures from time to time provided for by or under the Treaties, as in accordance with the Treaties are without further enactment to be given legal effect or used in the United Kingdom shall be recognised as available in law, and be enforced, allowed and followed accordingly; and the expression 'enforceable Community right' and similar expressions shall be read as referring to one to which this subsection applies. I hope that has helped to answer the point raised by the noble Earl, Lord Selkirk.

Our legal advice is that the legal acquisition of property in one Member-State by a national of another does not fall within the scope of the freedom of establishment when the acquisition is being attempted from outside the Member-State in which the property is situated. It would therefore be no infringment of the right of freedom of establishment for a prohibition or vesting order to be made to prevent or frustrate a bid for a United Kingdom company made by a company registered in another Member-State: that is, a takeover bid from abroad. But it would infringe our Community obligations if we prevented a United Kingdom subsidiary of a company registered in and controlled by residents of a Member-State from acquiring a British concern through these powers, which could not, by their nature, be used to prevent acquisition by a British company which was not foreign controlled. If, therefore, an EEC company organised a hid for a key British manufacturing undertaking through a United Kingdom subsidiary, Clauses 12 to 20 of the Industry Bill could not be applied to prevent or frustrate the acquisition without the United Kingdom breaching its obligations. I hope that what I have quoted will make our obligations clear as concerning the European Communities Act.

I got the impression, listening to the noble Lord, Lord Elton, saying that the European Communities Act was superior, that this "wrote out" the need for national law. This is not the situation at all. This is a piece of United Kingdom legislation for the United Kingdom, as I have already said. The noble Lord also referred to the point I made about the United Kingdom law changing in the future; and he said this might be an obscurity. As I said in my reply to the noble Earl, it is the accepted practice—and we are framing national law here—not to make explicit reference in national legislation to treaty obligations, but to make national law in national terms. This presumably creates less obscurity than trying to frame the legislation in such a way that it is continually "rolling forward", as it were. However, I am no expert in these rather complicated matters.

The noble Lord also asked what other countries had legislation to control inward direct investment and foreign takeover. I believe this was something referred to by the noble Lord, Lord Drumalbyn. I suppose this country is not alone in having legislation to control inward direct investment and foreign takeovers. Other Western countries, either through their exchange control regulations or through specific legislation, exercise such controls. I would draw the noble Lord's attention to the Canadian Foreign Investment Review Act 1973, which has the aim of ensuring that future takeovers and extension of business by foreign companies will bring a "significant benefit to Canada".

Lord DRUMALBYN

My Lords, does that refer to Common Market countries?

Lord LOVELL-DAVIS

Yes, my Lords; the Common Market countries are listed: Belgium, France, Germany and Italy. I have done my best to answer adequately the various points which have been raised and I hope I have succeeded.

Lord DRUMALBYN

May I just ask the noble Lord whether he would be good enough to write to us about these points, because they are not at all easy to follow? Indeed, I do not suppose he followed my points any better than I have followed his!

Lord LOVELL-DAVIS

Yes, my Lords; I will certainly undertake to do that and I hope that your Lordships will then be more enlightened than I feel myself to be at the moment.

The Earl of BALFOUR

My Lords, let us hope there is not a great danger here; but may I again ask your Lordships to look at Clause 12(1) where it talks about "change of control". A change of control means a change of control from any person, and it does not really matter where that person is domiciled. It refers to a change of control to any other person not resident in the United Kingdom. In other words, I think we must be certain about this because it is just the kind of thing that will frighten a person away if he had thought of investing in this country. Having read that, he might easily say, "My God! I cannot sell it to anybody else, even in my own country." Therefore he just will not come here.

Having said that—and I do not intend to take up the time of this Committtee for very long—I should like just to say that I hope the Government will look at this again and make quite certain that the provisions here will not have the effect of frightening away Community residents from investing money in the United Kingdom. If we can get that point over, and if we can be certain that that point is all right, then—let us face it—there is no need for any Amendments or anything else. That is the important point.

Lord LOVELL-DAVIS

I should like to assure the noble Earl that we fully take this point. This is a general matter—the one of deciding whether to invest in another country—and the overseas investor must decide, on the basis of this legislation, whether or not he will come here in the light of the general conditions prevailing and so on. I do not see that this will discourage investment from the Community. I would have thought that people who control industries in the Community are fully aware of the freedom of action they have within the Community. I do not see this as discouraging that sort of investment. For the rest, they must make their decision on the legislation that exists and on the totality of Community legislation as well.

The Earl of BALFOUR

My Lords, I beg leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

Clause 13 [Power to make orders]:

Lord ELTON moved Amendment No. 29:

Page 11, line 41, at end insert ("to prohibit or restrict that change of control")

The noble Lord said: My Lords, I will endeavour to be brief because I raised this point on Committee and was so mystified and provoked to curiosity by the answer that I put down the same point again. During the Committee stage I was told that both the Amendments would not do anything to restrict the actions of the Secretary of State on the one hand and that the restrictions it would place upon him, on the other, would be unacceptable to Her Majesty's Government.

If the former is the case, then the words will not alter the effect of the Bill and it cannot be objected that the alteration is therefore deleterious. If the latter is true, then the Government apparently intend the Secretary of State to use his supplementary powers for purposes other than those set out in the Orders to which they are supplementary. This would be quite improper and it is not even clear that supplementary orders would be subject to Parliamentary procedure in the same way as Orders would be; and we would oppose this use of supplementary orders very strongly. The best way to prevent this anomalous situation from arising would seem to be to insert the words as printed on the Marshalled List. My Lords, I beg to move.

Lord LOVELL-DAVIS

My Lords, in Committee the noble Lord, Lord Elton, proposed an Amendment to restrict the incidental or supplementary provisions which a prohibition order may contain to provisions "to prohibit or restrict that change of control". I then explained, obviously not very well, what the Government found restricting in this Amendment, but I undertook to look at it further. There is only a very narrow point between us on this Amendment. Lord Elton wishes to make absolutely certain that supplementary or incidental provisions cannot be made which go beyond the basic purpose of "prohibiting or restricting" a change of control. On that point there is absolutely no disagreement. Even without the Amendment my legal advice is that it would be ultra vires for the incidental or supplementary provisions to go beyond the scope of the vesting order. If they did they would cease to be "incidental or supplementary".

The purpose of the provision in Clause 13(1) which allows for an Order to contain incidental or supplementary provisions is that it may be necessary, in order to ensure that a prohibition Order is effective, to take certain actions which are, in the words of the Bill, "incidental or supplementary". It may be helpful if I give an illustration rather than speak in general terms. A prohibition Order might not forbid but merely restrict the doing of something. For example, it might allow it to be done only subject to certain terms or conditions or in certain limited circumstances or with the consent of the Secretary of State. In such a case, it might be desirable to make incidental or supplementary provisions about the giving of notice to the Secretary of State before something was done, or enabling the Secretary of State to relate conditions which he had inspired. Noble Lords will, I am sure, recognise that such provisions would not of themselves be prohibiting or restricting the change of control, but would be incidental or supplementary.

To put the same point another way, this Amendment would confine incidental or supplementary provisions to those which prohibit or restrict. But a provision which prohibited or restricted would not be incidental or supplementary. I have spoken at some length to try to make clear why the Government do not think it right to accept this Amendment. I should, however, close by repeating that, so far as I can see, there is no disagreement between the noble Lord, Lord Elton, and me on any matter of substance. A supplementary or incidental provision could not go beyond the scope of the operative part of the prohibition order.

Lord ELTON

My Lords, I am much obliged for that detailed and careful explanation. When the noble Lord tells me that a supplementary order which was used for a purpose beyond that envisaged by the Order itself would be ultra vires, he satisfies me entirely. I am grateful to him for that and beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

9.4 p.m.

Lord ELTON moved Amendment No. 30:

Page 12, line 6, leave out from second ("of") to ("a") in line 7.

The noble Lord said: My Lords, briefly I should like to know from Her Majesty's Government how, and in what way, the removal of the words which the Amendment will seek to strike from the Bill would in fact alter the effect of the Bill. If it would not, I can see no purpose in keeping those words in. If it would, I should like to know what the change would be.

Lord MELCHETT

My Lords, am I right in thinking that the noble Lord would like to deal with Amendments Nos. 40 and 41 at the same time?

Lord ELTON

Yes, indeed, my Lords.

Lord MELCHETT

That will speed things up a little, my Lords. The words are necessary and I will seek, as shortly as I can, to explain to the noble Lord why. First, I refer to the phrase "circumstances which appear to him to constitute" a change of control in subsection (2)(c). This phrase gives the Secretary of State an element of discretion, so that he can deal with the difficult cases which may very well occur when there are strong grounds for suspecting that there is a threatened change of control, but where this cannot definitely be proved. These circumstances might arise when purchasers are acting in concert; or when a single holding in a British company is being acquired by means of several holdings in the names of different nominees. I am speaking of cases where ordinary commercial companies would act in a way which noble Lords and I have discussed at length earlier this afternoon.

I would remind noble Lords that we are dealing with purchases made by people abroad and the scope for investigation by British officials of overseas nominees would be severely limited. There may well be circumstances where the Secretary of State strongly believes, but cannot prove, that a change of control is threatened. Here we believe it proper that the Secretary of State should be able to act after justifying the proposed action to Parliament. The Amendment to delete those words would remove that discretion.

The Amendments to subsection (6)—that is, Amendments Nos. 40 and 41—would go further. Indeed, I am tempted to suggest that they destroy the limit on Government action that this subsection introduced. The purpose of this subsection is to limit the Government's power to vest a holding company to occasions when the change of control involves the holding company. We believe it would be wrong to be able to vest a holding company if the bid were made only for its subsidiary. In simple terms, we believe the shares of the holding company should be vested only if the bid is for the holding company. We are therefore concerned not simply with "a change of control", but with "an event in relation to the company which would constitute a change of control"—and that is the significance of those words. For that reason, the words "in relation to the company" are essential. Without them the limiting effect, and hence the purpose of this subsection, would be lost. I hope that with that brief explanation the noble Lord will see why these words are very important and will not seek to delete them.

Lord ELTON

My Lords, I am grateful for that explanation. On the first of the three Amendments we spoke of, I follow the noble Lord. One is always diffident about producing areas of grey for choice by Ministers, but I would not insist on this, and would not return to it. On Amendments Nos. 40 and 41. I found it slightly more difficult to follow the noble Lord in the logic of what he said. It appears to me that the words are superfluous and I do not think the words, "in relation to the company" perhaps have the force he intends for them. However, I do not wish to be difficult. I am always exacerbated by what I term "officialese" if I think that it is unnecessary. Probably the pressure of time is more important than my sense of exacerbation. Therefore, I will read very carefully what the noble Lord has said about these two Amendments and talk to him before we return to the Bill.

Lord MELCHETT

May I ask the noble Lord to read what I have said in Hansard. He will find that I made a strong case for retaining the words in the Bill. If I may say so, they are a far stronger case than they are in relation to the first of the Amendments.

Lord ELTON

My Lords, I was under the impression that I had already given that undertaking. The noble Lord and I do not communicate very well at times. Certainly I will read what the noble Lord has said. In the meantime, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

9.9 p.m.

Lord DRUMALBYN moved Amendment No. 31:

Page 12, line 9, leave out ("1st February 1975") and insert ("the passing of this Act").

The noble Lord said: I beg to move Amendment No. 31. At the Committee stage the noble Lord, Lord Beswick, was in full flight in telling me what were the reasons for including the words "1st February 1975"—this is reported in column 500 of Hansard—when my noble friend Lord Hawke asked him about a point which was totally unrelated to the point we were discussing and we never returned to what the noble Lord was telling me. I wonder whether he would be good enough to complete his exposition of why the words "1st February 1975" are necessary. They appear twice. I have another Amendment on this point. Indeed, it was on Amendment No. 42 that the noble Lord was giving the explanation. However, I think that the explanation for the date is the same in both cases.

Lord BESWICK

My Lords, I thought I had made it quite clear that the point about 1st February was that it was the date of publication of the Bill. I must correct myself; it was not. The date of publication of the Bill was 31st January. Therefore, we are saying that anything which takes place after 1st February should be caught. The reasons for that are fairly obvious. If one waits until the passing of the Bill, which could take months, a period of time is given within which action could be taken and it would be possible for anyone who knew of the requirement to keep secret their acquisition. If we did not have the power to go back to 1st February we could do nothing about it. I hope that the noble Lord is in agreement with our intention. If he studies it, he will see that there is no way to achieve that intention other than by saying that the relative date is 1st February, after which date everything about the Bill was known.

Lord DRUMALBYN

My Lords, of course it may be a long time before the Bill becomes law. For how long would the noble Lord be able to go back? Would he be able to go all the way back to 1st February, or would he be able to go back only for a certain period in order to stop the transfer? However, it is very unlikely that the transfer would be made immediately after 1st February. My guess is that it would be some weeks or months later. It is a slightly ticklish point, and I appreciate the main reason which the noble Lord has given. Unfortunately, he did not come to it in his previous explanation.

Lord BESWICK

My Lords, I am afraid I am not quite sure what the noble Lord is asking me. If he is asking how far we can go back, we can go back to 1st February if we wish to do so.

Lord DRUMALBYN

My Lords, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord ELTON moved Amendment No. 32:

Page 12, line 9, after ("1975") insert ("but not more than 6 months prior to his learning of them").

The noble Lord said: My Lords, I beg to move Amendment No. 32. This Amendment follows on directly from the point which was raised by my noble friend Lord Drumalbyn. It relates to the limitation of retrospection. I understand the difficulty of the Government. As the point of the publication of the Bill recedes over the stern, so the element of retrospection that is necessary becomes longer; but once the Bill becomes law and once the cases have arisen between that point and the point at which the Bill is published, presumably everything behind us is cleared up. However, the element of retrospection will remain in the Bill ad infinitum. In 1978, in 1980 and in 1984 it will still be possible to use the pretext of events which happened in February or March 1975 coming belatedly to light to institute proceedings under the Act.

My inclusion of six months is probably too short, but one could include a phrase which covered the length of time between the passage of this Bill into law and the publication of the Act—let us say nine months—and which thereafter would be terminus post quam non. In other words, once an event had taken place and had been unchallenged for a period of, let us say, nine months or a year it would not be in order for the Secretary of State on the ground of those events to use a vesting order. This is not unreasonable and it may be reassuring to persons who are engaged in commerce, particularly in the grey areas to which the noble Lord, Lord Melchett, referred earlier, in which it is not absolutely clear whether a particular set of circumstances has or has not occurred. In a case like that, once they have been allowed to pass unchallenged for nine months or a year, I thought it would be reasonable that the people involved could feel secure that what they had done would not give rise to this sort of challenge. I beg to move.

Lord MELCHETT

My Lords, the noble Lord, Lord Elton, has said something of what I was going to say and I think he acknowledged that the six months' period was unrealistic. It would of course open up an enormous loophole which it would be impossible to control, because if a foreign company acquired control surreptitiously and without people knowing, through, for example, friends and nominees, and this was kept from the Secretary of State for six months, the powers of Part II of the Bill would be rendered completely useless. In our view this would be an invitation to unscrupulous purchasers to keep their actions secret for six months and then to present the British Government with a fait accompli about which they would be powerless to do anything. If I may say so, I think almost any time limit would be open to much the same objection, although of course if one were to take a long enough period of time I suppose it is extremely unlikely that anyone would be able to keep something secret for that long.

I have a feeling that the way to get at what the noble Lord wants is this. Any foreign purchasers need not be in any doubt about whether or not their purchases are likely to be affected by these powers. Before acquiring control of key British businesses, they may come and seek the views of the Secretary of State. If the Secretary of State then approves the change of control, they can proceed with that assurance. Irrespective of whether or not prior approval has been obtained, purchasers who inform the Secretary of State of a change of control know that after three months have elapsed there can be no further action taken. This is explicitly established by paragraph (b) of Clause 15(4). So I think that any foreign purchasers who act in an open and above board manner have nothing to fear from any form of retrospection, and it will only be people who are deliberately keeping something secret in the hope of evading the use of these powers who will have something (quite rightly) to fear from the ability of the Secretary of State to act as he is now empowered to do by the Bill.

Lord ELTON

My Lords, we are now moving at such speed that it is difficult to digest before one is required to comment. I see the difficulty and I accept that the noble Lord has put forward a powerful argument. I think the most powerful part of it was the reference to paragraph (b) of subsection (4) of Clause 15. As I understand it, if the parties to some transaction which might be thought dubious in the terms of the Bill are to go to the Secretary of State and declare what they have done, at that point the Secretary of State is aware of what they have done and he has three months in which to take action in the light of that information. If he does not take action he then loses the power so to do. Therefore this protection is written into the Bill and if I understand the noble Lord aright, which I think for once I do, I do not think it is necessary to proceed with the Amendment and I beg leave to withdraw it.

Amendment, by leave, withdrawn.

9.18 p.m.

Lord DRUMALBYN moved Amendment No. 33:

Page 12, line 20, leave out ("and") and insert ("but no such nominee may hold more than one share.

( ) The Secretary of State")

The noble Lord said: My Lords, this is the same point as we have had before: the question of the statutory minimum of shareholders when whatever body was going to hold the shares would have to have a number of other nominees to hold the shares with them. It seems to me that it is unobjectionable to require that no such nominee will have more than one share he probably will not. I beg to move.

Lord LOVELL-DAVIS

My Lords, the purpose of the provison allowing the vesting of the shares in nominees is quite straightforward. Section 1 of the Companies Act 1948 requires a public company to have at least seven members. Since a vesting order may enable all the shares in a company to be vested, it is necessary to provide for nominees so as to avoid a technical breach of the Act. I am not quite sure whether there is any further answer the noble Lord requires. I find it rather difficult to see what the Amendment would achieve. There is nothing covert about this in any way.

Lord ELTON

My Lords, I wonder whether I can help, since we are anxious to keep interventions per person to a minimum. As I understand it, the noble Lord has now said that the purpose of this clause is simply to provide for the minimum number required under the Companies Act. The noble Lord will accept that whether it is groundless or well-founded, there are large areas of opinion which are somewhat suspicious of uses to which the Act can be put, and, as I said to the noble Lord, whether or not it is well-founded the fact remains that it exists. In order to reassure us, therefore, it would seem reasonable to put a provision into the Bill which would prevent nominees being used, for instance, doing exactly what the noble Lord suggested might have occurred. I will pause for a moment while he takes advice.

The situation we envisage is that nominees working for the NEB or for the Secretary of State might employ exactly the tactics which the noble Lord has just said that a foreign purchaser might use; that is, to buy a block of shares not so large as to force them to disclose their identity, but large enough to have an effect which the management or the shareholders might think would be prejudicial to the affairs of the company. This they could not do if they could buy only one share each. If they could buy a large number of shares then of course they could. The noble Lord has already said that they do not want to do that so I think he has precluded himself from objecting to the Amendment. I hope so.

Lord LOVELL-DAVIS

My Lords, I really do not see that the Amendment is necessary to prevent clandestine acquisition or hidden control. We are talking here of shares which have been transferred to the Secretary of State or to the NEB by a vesting order. The order will have to be published and approved by Affirmative Resolution of both Houses of Parliament under the terms of Clause 15(3) before it is effective. There is therefore no possibility of anything covert about the acquisition or the vesting in nominees. I really do not see that there is anything very much which the noble Lord has to fear.

Lord DRUMALBYN

My Lords, I am not quite certain what one might get up to if one did it in this way, which would be the normal way to do it. Therefore I thought it best to put down the normal way so that there is no possibility of anybody getting up to anything. That is the purpose of it. However, I do not want to press it particularly hard and if the noble Lord feels well disposed to it he might put something down on Third Reading. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The DEPUTY CHAIRMAN of COMMITTEES

My Lords, before I call Amendment No. 34, I should point out that if it is agreed to I cannot call Amendment No. 35. Your Lordships will notice that there is a corrigendum to subsection (4).

9.23 p.m.

Lord ELTON moved Amendment No. 34:

Page 12, line 27, leave out subsection (4).

The noble Lord said: My Lords, at the outset may I thank the noble Lord, Lord Beswick, for his communication to me on the subject, to which I shall later allude. At the Committee stage the words, …together with so much (if any) of the loan capital of the relevant body corporate as may be specified in the order", came at the end of subsection (4) and in its main body. In other words, in either a case mentioned in paragraph (a) or a case mentioned in paragraph (b) there was provision for the specification of some of the loan capital, together with the share capital in a vesting order, and such loan capital ranked under Clause 19 for compensation.

Since paragraphs (a) and (b) together comprise all cases in which vesting orders are made it follows that in every case where a vesting order was made there was provision for inclusion therein, and in the preceding compensation order, of a proportion of loan stock. These words, together with so much (if any) of the loan capital of that body as may be specified in the order". as a result of an Amendment at the Committee stage about which we had a confusing debate, appear at the end of paragraph (a) and not in the main body of the subsection. They do not therefore apply to cases falling within the definition given in paragraph (b). That definition in any case is not falling within paragraph (a). The power to vest and to compensate for loan capital has therefore been limited by this Amendment to what I may term paragraph (a) cases. These are cases in which the Secretary of State considers that interest specified in subsection (2)(c) can be only appropriately protected by the vesting of all the share capital of the body corporate that is to say, if the Secretary of State decides on a vesting order by virtue of a case falling within either subsection (2)(a) or (b), it is not open to him to vest any of the loan stock of the body corporate. In the first of these paragraphs, we are concerned with cases where the Secretary of State anticipates a prejudicial change of control. In paragraph (b), we are concerned with cases where a prohibition order has been made. The distinguishing mark of paragraph (c) is that it is a vesting order made as a result of events which have already occurred, of the kind we have been discussing, and which the Secretary of State considers to amount to a prejudicial change of control.

I asked for an explanation on Committee stage, and received it today. I should like to thank the noble Lord for the letter he has sent to me but, none the less, I should like him to clear up a doubt which has now arisen therefrom. Can Her Majesty's Government explain why, in their view, the only occasion on which loan stock should vest and bear compensation is when vesting of it is caused retrospectively, and when, furthermore, the whole of the share capital also vests? How does the noble Lord view the position of a company with a small share capital and a large loan capital, which is thus left with a large debt secured upon a management over which it has no control, and by which it was arbitrarily supplanted on the grounds that its own continuance was contrary to the national interest?

At that juncture in his letter, the noble Lord said it could not possibly be against the interests of any shareholder of loan stock to have stock secured on a Government enterprise. I am not sure that this is universally accepted. The noble Lord said in a written reply: It is proper….that there should be no power under paragraph (b) of this subsection to vest loan stock, since loan stock will not be involved in the change of control'". I must emphasise that the criterion distinguishing between paragraph (a) and paragraph (b) cases in Section 34 is not just whether all, or only part, of the share capital vests. The distinction between vesting all or part of the share capital is imposed by those two paragraphs, but the criterion by which they operate is not that at all; it is whether or not they fall within paragraph (c) of subsection (2) of this clause and if they do so fall, whether the Secretary of State considers he can or cannot appropriately protect the interest mentioned therein by any other means.

What distinguishes cases falling under paragraph (c) of subsection (2) from all other cases is that the Secretary of State has learned of the change of control after it has happened. It follows inescapably on that that, unless the Secretary of State learns of the change of control after the event, he has no power to vest loan capital and to compensate for it. I can see that the noble Lord is prompted to some mirth by this intervention, and I am sure he will make it clear to my great disadvantage, why this should be. Perhaps I will leave it there, because it seems that the noble Lord has had an answer all along which he has been longing to spring on me.

Lord BESWICK

My Lords, may I just remind the noble Lord, Lord Elton, that about a quarter of an hour ago he said something about my noble friend speaking rather too quickly, and that it was rather difficult to follow. This is something which we all have in common. Yes, my Lords, I have had a communication. It confirms what I had in my own mind, and it reads as follows: "offer to write again for Third Reading".

Lord ELTON

My Lords, first, I stand entirely convicted of the accusation of speaking too fast. But I think I have been speaking rather less fast than I did two years ago when I came to the Chamber. On this occasion, it has the enormous advantage of precluding the noble Lord from answering at this stage, so it does, in fact, accelerate proceedings. Therefore, I think it is appropriate for me to withdraw the Amendment, with the proviso that I can return to the matter on Third Reading, having read the letter of the noble Lord.

Amendment, by leave, withdrawn.

9.29 p.m.

Lord LOVELL-DAVIS moved Amendment No. 35:

Page 12, line 36, leave out ("the share capital") and insert ("that part of the share capital of any relevant body corporate").

The noble Lord said: My Lords, the concept in this Part of the Bill is a simple one. It is that when only some of the shares of a company are involved in a threatened or actual change of control, the Secretary of State should normally vest only these shares, and not all the shares of the company concerned. The concept was introduced in another place in response to a Conservative initiative which the Government accepted.

In this Amendment we are seeking to make this concept more precise by specifying that the shares must be shares in a relevant body corporate. In doing this, we are bringing the concept of a relevant body corporate to paragraph (b) of this subsection, and in this way imposing the same limitation to paragraph (b) that already applies to paragraph (a). I beg to move.

The Earl of SELKIRK moved Amendment No. 36:

Page 12, line 40, leave out first ("the") and insert ("a").

The noble Earl said: My Lords, I raised this question at the Committee stage, and I was quite convinced that the noble Lord. Lord Beswick, fully understood the point I was making. I am, therefore, disappointed that he has not put down an Amendment himself, and even more disappointed that he should have made the same mistake again in his Amendment No. 60. The point I am making is this. It refers here to the "law of the United Kingdom", and there is no such thing. It is merely a question of wording to put this right. There are laws in Northern Ireland, there is a law system in England and a law system in Scotland, but there is no law of the United Kingdom. I think the noble and learned Lord, Lord Gardiner, would support me on this.

There are various ways in which this could be put right. I have suggested what seems to me a simple way by referring to "a law of the United Kingdom"; that covers any law of any part of the United Kingdom. I think it covers fully the point the noble Lord has in mind. There are many other ways of expressing it. It is purely a drafting point, but I object to the use of words to describe something which does not exist. I beg to move.

Lord MELCHETT

My Lords, the noble Earl drew our attention in Committee to the drafting of this subsection. We have now re-examined it and believe that the drafting can be improved by bringing it into line with the precedent of Section 10(1) of the Industry Act 1972, which spoke of a body corporate incorporated under the law of any part of the United Kingdom. If the noble Earl will withdraw the Amendments he has on the List today, I will be glad to promise a Government Amendment at Third Reading.

The Earl of SELKIRK

My Lords, I am grateful to the noble Lord. I would point out that at Committee stage one of the three suggestions I made was the one that he is proposing, and I regret that the noble Lord has not picked it up sooner. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord BESWICK

My Lords, before we upset the noble Earl, Lord Selkirk, again, I wonder whether we might now adjourn the Report stage.

Lord ELTON

My Lords, for the convenience of the House I would say that I was not proposing to move my next two Amendments and I think I am right in saying that my noble friend was not proposing to move Amendment No. 42.

Lord BESWICK

My Lords, at that point I wonder whether it would be convenient, as we have given certain undertakings, to adjourn until tomorrow the further consideration of this Bill.

I beg to move that the Report stage be adjourned until tomorrow.

Moved accordingly, and, on Question, Report stage adjourned.