Ordnance Factories and Military Services Bill

Lord Lloyd of Kilgerran

moved Amendment No. 1: Page 1, line 11, after ("liabilities") insert ("other than intellectual property rights and liabilities relating thereto"). The noble Lord said: My Lords, it is my privilege to move the first amendment to this Bill. It is an amendment concerning matters of the utmost importance relating to the defence of the realm, and to the provision of the best possible equipment, secret or classified, for the armed forces. It concerns inventions, designs and know-how so vital to the provision of such equipment. The amendment also concerns the Royal Ordnance factories' contracts involving inventions, designs and know-how, in particular in collaboration with United Kingdom firms and foreign firms; and also the nature of the foreign business undertaken by the Royal Ordnance factories.

In my submission the difficulties in which the Government have found themselves on this Bill arise from Clauses 1 and 2, which give powers to the Secretary of State to make schemes for the transfer of what is termed in the Bill "prescribed property". The word "property" is not defined, but will include, of course, land and factories and machinery. However, I am not concerned with property of that kind. I am concerned with property known by a rather high-sounding phrase as "intellectual property". As your Lordships will know, the term "intellectual property" covers patents, inventions, know-how, technical information, drawings, designs, copyright and trade marks. The Ordnance factories have achieved an international reputation in designing, developing and, indeed, manufacturing equipment for the armed forces. In my submission it is highly desirable, therefore, that great care should be taken that property involving and being concerned with equipment for the armed forces should not be dealt with in the same way as ordinary real property such as land and machinery.

The scope of the activities of the Royal Ordnance factories was set out in the annual report for 1982–83. The report refers to the association of staff—the factories have highly technical staff with a fine reputation—and it indicates the association of the Ordnance factories with industrial companies both in the United Kingdom and abroad. The report goes on to detail the kind of projects associated with the equipment of the armed forces, and concludes by saying: The products, and others, have been developed with industrial partners, and it is specially important that we continue to develop these associations with large defence manufacturers in a number of countries, and to build new ones. The wide range of capabilities of the Royal Ordnance factories is without doubt a major attraction to these companies in the United Kingdom and abroad". Your Lordships will see, therefore, that this property which is known as intellectual property has unique characteristics. It is impossible to evaluate what is its real value, not only in financial terms but in providing the best possible equipment to our armed forces both at the present time and in the future. Yet 890 as far as I am aware the Government have given little or no indication as to the type of schemes which they intend to introduce for the purposes of the transfer. In my submission the Government should disclose far more information to indicate that the nation's interest in these matters will be protected adequately.

I do not propose to give your Lordships a long dissertation on the main difficulties arising from transferring intellectual property. Of course, there is the field of patents; and as a result of the co-operation of the staff of the Royal Ordnance factories with other firms a large number of patents exist. Earlier this year the Minister in the other place indicated that he would soon be publishing a list of patents—they number something of the order of 200 to 300 patents—and that this list would be open to public scrutiny. As far as I am aware nothing has transpired yet, although it was indicated at that time that the information regarding patents would he available some time in April. Also in February of this year the Minister said that a list of Royal Ordnance factories' products, which would include the making of parts for other contractors, was being prepared, but no information about that has yet been disclosed.

What we on these Benches are asking is the subject of my amendment. The amendment is a simple one. It suggests that after the word "liabilities" the definition of property should exclude, intellectual property rights and liabilities relating thereto", so that further steps can be taken to safeguard matters arising from the transfer of intellectual property.

A large number of questions arise in relation to the transfer of patents owned not only by the Royal Ordnance factories alone but also, probably, in collaboration with United Kingdom firms and with United States firms. In the Patents Act there are sections, which I do not propose to read, dealing with security and safety matters arising from patent applications, and, therefore, relating to the inventions concerned. I should like to know whether Sections 22 and 23 of the Patents Act 1977 are being adequately catered for by the Government.

In regard to the services of the Crown, under the Patents Act the Crown has very extensive powers, in Sections 55 to 59, to ensure that the Crown has available to it inventions of all kinds, intellectual property of all kinds, so that the best type of equipment can be available for manufacture for the services of the Crown. Another question I should like to ask is whether, in the view of the Government, those sections of the Patents Act are adequate to preserve the important powers which the Crown now has to maintain the supply of the best possible equipment for the armed forces.

Need I say that in a matter of this kind it is inevitable that the European position must be considered? There are sections of the Patents Act, from Section 77 onwards, dealing with the position of European patents. I have looked at all those sections in relation to this Bill and I find that there is a considerable lacuna—to use a moderate term—in the Act at present and a failure by the Government adequately to take steps for the purposes of protecting their position in relation to defence matters. I, therefore, beg to move this amendment to exclude from Clause 1 the property 891 known as intellectual property in order that it may be dealt with in a different way.

Lord Graham of Edmonton

My Lords, I understand that it would be for the convenience of the House to take Amendments Nos. 13 and 14 at the same time as the amendment moved by the noble Lord because they are related: Amendment No. 13: Page 16, line 2, at end insert ("or any right. undertaking or arrangement of any kind relating to an application by an employee for an award in respect of intellectual property."). Amendment No. 14: Page 16, line 5, after ("pleasure") insert ("or to affect to the disadvantage of an employee any right, undertaking or arrangement of any kind of an employee to apply for or pursue an application for an award in respect of intellectual property or the manner of assessment or amount of such award"). I should like to speak certainly in support of all that has been said by the noble Lord, Lord Lloyd of Kilgerran, in moving his amendment and to pay particular attention to the direct application of what he has said in respect of intellectual property rights to the employees in the Royal Ordnance factories. The noble Lord was right in pointing out the fierce jealousy, loyalty and commitment that exists among the generality of the employees of the Royal Ordnance factories. Of course, they do not have merely their jobs at stake. I shall not make any allusions as to what will happen as regards redundancies and transfers because those matters are the subject of other amendments. However, when one considers the intellectual ability of the employees and the contribution that they have made, I think that the Minister would agree that they are worried as to what will happen to that which, at the moment, is jointly shared between themselves and the Royal Ordnance factories.

The opportunity for them to develop their ideas and to make their contributions only exists because they are employed by the state. Nevertheless, in view of the Government's determination to transform completely the basis of the management and the capitalisation, responsibility and authority of the ROFs, those who are employed in them are entitled to ask questions. I still live in hope that the Minister will be able to satisfy and give assurances to those who have asked us to raise these matters.

When we come to Amendments Nos. 13 and 14 we move to the crucial Schedule 2 which relates to employment. Amendment No. 13 alludes to paragraph 2 of Schedule 2 which says: This paragraph applies where a scheme contains provision under section 1(1)(a) for a transfer of anything which constitutes an undertaking (within the meaning of the 1981 regulations) or part of such an undertaking". Our amendment would then go on to say: or any right, undertaking or arrangement of any kind relating to an application by an employee for an award in respect of intellectual property". Amendment No. 14 deals with the following subsection, which is subsection (2), and in effect it also seeks to introduce a form of protection or to reserve a protection to employees who have been clever enough, sensible enough and committed enough to share with the ROFs the knowledge which they have gained and gleaned as employees of the ROFs.

The Minister has a great many assurances to give during the course of the passage of this stage of the Bill. 892 I am bound to say that not merely on this matter but on a whole range of other matters we are advised that, although it is now almost three months since the Committee stage, there is a range of questions that in our view are entitled not only to be answered, but to be answered in the affirmative.

The Minister must be aware that the question of the safeguarding and the security of the intellectual property rights of the employees—who substantially are those who have created them—are matters that ought to be capable of resolution. It may be that the Government will resolve these matters by accepting the amendments and that in our view would be a satisfactory way to proceed, otherwise the Government will be taking unto themselves not merely the power to sell off the assets. As the noble Lord, Lord Kilgerran, has pointed out, in the main when we allude to property we are talking in terms of prescribed property. The noble Lord quite rightly pointed out the occasions in the past when the Minister had promised that he would indicate precisely what was meant by the prescribed property so that we could perhaps understand what would be meant by the intellectual property rights. The noble Lord quite fairly pointed out the type of things which are normally understood to be contained within the phrase "intellectual property rights".

During this debate the Minister has not merely the opportunity to spell out that which is included on the face of the Bill, but if he is not prepared to accept our amendment. the opportunity to say something which will satisfy the hundreds of people—although it may well be many more—who feel that they are entitled to protection as regards what they have thought up, advanced or done.

I am bound to say that there is an element of secrecy bordering on concealment by the Government but not as to their intention. We know that their intention is to privatise the Ordnance factories per se. We are talking about the methods. There is concealment about the basis upon which this is to be done—the details of the schemes the details of the memorandum of agreement and the details of the financial arrangements. We now have a matter which, at it happens, touches the first part of the Bill and it is something which affects perhaps not every single employee, but I think the House will agree that it is a matter upon which we are entitled to have the Minister give us some assurances. Certainly we on these Benches move Amendments Nos. 13 and 14 because they are very much along the same thrust as those moved by the noble Lord, Lord Lloyd of Kilgerran. Unless we can get satisfactory assurances, we shall certainly follow the noble Lord if he intends to press his amendments to a Division.

Lord Trefgarne

My Lords, I appreciate the concern of the noble Lord, Lord Lloyd of Kilgerran, and the noble Lord, Lord Graham, that nothing in the Bill, or in any of the schemes to be made under it, should place civil servants currently working in the ROFs in a worse position with regard to their rights in intellectual property, including their rights to apply for an award of compensation. I hope to be able to assure noble Lords that this will not happen and that there are ample safeguards, both in the Bill and under the general law, for those rights of employees.

893 I wrote to the noble Lord, Lord Lloyd of Kilgerran, during the Recess at some length and I hope that he received that letter. I explained to him then that Schedule 2 of the Bill ensures that the TUPE 81 Regulations, as they are called, apply to transferred employees and that their existing rights are as closely as possible transferred to the new company.

Lord Lloyd of Kilgerran

My Lords, I am sorry to interrupt the noble Lord the Minister, but in moving Amendment No. 1 I merely referred generally to intellectual property rights in the definition of "property" and I did not move my second amendment which is concerned with the rights of employees as such. I was saying in my speech that intellectual property was vital in relation to the provision of equipment. There are no safeguards in this Bill concerned with the transfer of that property. In my submission on Amendment No. 1 I was not concerned with the matters arising under Amendment No. 2 as to which the noble Lord the Minister did send me a letter dated 1st August. When we had disposed of Amendment No. 1 I was proposing to deal with the questions which arise under Amendment No. 2.

Lord Trefgarne

My Lords, to be frank, I believe that it had been agreed that Amendments Nos. 1, 2, 13 and 14 would be taken together. Although I agree that the noble Lord's earlier remarks did not specifically address themselves to Amendment No. 2, the fact is that these matters are fairly closely intertwined and it is difficult for me to answer one without answering the other, particularly as the noble Lord, Lord Graham, has spoken to his amendments at the same time. However, in any event, I shall deal with the point about which the noble Lord is now concerned and I hope to be able to satisfy him on that matter also.

This means that there will be the same rights to apply for an award in respect of intellectual property both before and after transfer. In that sense may I tell the noble Lord in advance of his moving his amendments that the amendments to Schedule 2 are unnecessary. At the moment applications for awards are referred to the MOD Committee on Awards to Inventors, who will deal with all applications up to vesting day. After vesting day, as I have explained, the new company will administer its own scheme.

In fact, I understand that there is only one application for an award still in the pipeline in the MOD. That case, and others which may arise between now and vesting day, will be handled by the MOD and any awards paid by the department. After vesting day such applications will be entirely a matter for the company. There is, therefore, no possibility that employees may suffer any detriment in respect of an application which has not been finally processed on vesting day. In addition, I should note that there are no applications outstanding for an award of compensation under the Patents Act 1977, and indeed it seems that no such claim has so far been made by any employee, whether in the Civil Service or outside. Therefore, I trust that what I have said will assure the noble Lord that his concerns on those points are fully understood and indeed provided for.

894 The noble Lord has sought to make a case for the Ministry to retain intellectual property rights; I think that that was the point that emerged from his earlier remarks. I must say that the Government wish to see the new Royal Ordnance company put in the same position as any other company which has been trading for some years in the defence industry. Any such company possessing an established product line would own a variety of IPR in its products, generated in the course of design, development and manufacture of those products. If the Royal Ordnance company is to function effectively in its new environment it is essential that it shall also own the IPR in its own products. We therefore intend to transfer to the new company only those IPRs which relate to existing products of the Royal Ordnance factories, and certain patents which may not be specifically related to ROF products but which originated within the Royal Ordnance factories.

But the transfer of IPR does not mean that the Government no longer have any interest in, or right to use, it. The Crown has statutory rights in intellectual property under the Patents Act 1977 and the Registered Designs Act 1949, and nothing is being done to affect these. The Crown will continue to have access to the transferred patents and registered designs for Crown purposes. Furthermore, the transfer of much, but not all, of this IPR will be subject to express reservations in favour of the Ministry of Defence, enabling the department to use those rights for Crown purposes, and also authorise third parties to do so, without any payment to the new company. The exceptions will be in respect of IPR relating to products which the Royal Ordnance factories have developed on their own account, and not as a result of work undertaken for the Ministry of Defence.

The Government could not accept a situation in which the Royal Ordance company possessed no IPR of its own. This would be to emasculate the company before it had even begun to establish itself in the market place. I hope that the noble Lord, Lord Lloyd of Kilgerran, would accept that there is no intention here to give away property to which the new company could make no reasonable claim, and that the Government's existing rights in the relevant IPR are fully safeguarded.

The noble Lord has also expressed concern about security of IPR, and I believe that this was much in the mind of the noble Lord, Lord Graham. I should tell the noble Lord, Lord Lloyd, that a few ROF products which would otherwise qualify for transfer are being excluded for specific reasons—for example, on security grounds or to meet the requirements of current competition policy.

I have been asked specifically about copyright. I do not think that the noble Lord, Lord Lloyd of Kilgerran, mentioned it today but it has certainly been mentioned on earlier occasions. For Crown servants the position is governed by Section 39(1) of the Copyright Act 1956, which provides that if a work is, made by or under the direction or control of Her Majesty or a government department", Her Majesty is entitled to the copyright—that is, the work is Crown copyright. For employees in general the 895 applicable provision is Section 4(4) of the 1956 Act, which provides that where, a work is made in the course of the author's employment by another person that person is entitled to ownership of copyright in the work. Civil servants transferred to the ROF company will continue to be subject to this latter provision, and it is clear that they will be no worse off in this respect.

I have therefore to suggest to both noble Lords that these amendments are unnecessary because the Government's existing rights in IPR will be protected, and because the rights of the employees are already fully protected both by the Bill and by the general law.

Perhaps I may touch on two other points that were made by the noble Lord, Lord Lloyd of Kilgerran. First, I want to tell him that the patents to be transferred will, generally speaking, be listed in the scheme, provided that it is not contrary to the public interest to do so. I am sure that he would also like to know that the provisions of the Patents Acts continue to apply to the new company. In the light of this fairly full explanation I hope that the noble Lord will be content that we are taking his concerns fully into account and will see fit to withdraw his amendments.

Lord Lloyd of Kilgerran

My Lords, may I say at once that I had no information that these amendments were to be taken together and, as is my right, I am dealing with the first amendment, realising of course that the Minister has also been directing his attention to the other amendments which I did not move at all in my speech. I am merely concerned that this Bill has no safeguards introduced to it to protect inventions, designs, know-how, copyright and all the matters that are known as "intellectual property". I believe that it is most important that the Government should somehow disclose in this Bill what action they are taking in relation to intellectual property rights arising from the work of the Royal Ordnance factories, not only alone but in collaboration with other firms in this country and throughout the world.

The Minister does not appear to have given a satisfactory answer; certainly he did not give me one in his letter to me of 1st August, where he did not refer to these matters except to tell me something about the Patents Act and the position of employees in relation to the Patents Act and the 1981 regulations about the transfer of rights of civil servants. Therefore, I am in something of a quandary.

We on this side of the House consider that the protection of intellectual property and the transfer of intellectual property is quite different from the transfer of ordinary property in relation to land, factories or machinery. There are no safeguards in the Bill for the purposes of dealing with intellectual property and the speech of the Minister, to which I listened most carefully, gave no assurances that proper regard would be paid and protection given to this branch of property.

In these circumstances, I have no other option but to test the opinion of the House in relation to my Amendment No. 1, which says that, having regard to the complexity of intellectual property, intellectual 896 property should not be considered within the term "property" in the Bill. Therefore, I beg to move.

Lord Strathcona and Mount Royal

My Lords, before the noble Lord sits down, I should like to ask him two questions. The first may sound rather ignorant, but if these amendments were carried, what would happen to the intellectual property rights when the rest of the assets of the Royal Ordnance factories are transferred? Secondly. what is so different about the situation of the Royal Ordnance factories from, for instance, the transfer of the Decca company, which was bought by Racal not so long ago? There must have been all kinds of intellectual property rights that were bought at that time.

Lord Lloyd of Kilgerran

My Lords, with the leave of the House, may I answer the question? The noble Lord who has just sat down has had a distinguished career in the Ministry of Defence and he knows a great deal about these matters. However, the position of Decca and Racal, where Decca was taken over by Racal, is totally different from the position which would arise under this Bill.

I know something about the takeover of Decca by Racal. Great care was taken in the agreements in relation to that business effort to look after the patent rights, the intellectual property rights, as a totally separate matter from factories and machinery and property rights. Intellectual property rights in the deal to which the noble Lord referred were considered to be one of the fundamental assets which were carefully looked after in relation to the goodwill of Decca which was preserved by Racal.

The noble Lord's first question was if all the assets have been transferred—by which he means the property assets of the factories and the machinery—what would happen to the intellectual property rights? They would remain with the company. They should not in my view go over, be transferred, with these real property assets of factories and land. They are a separate, unique class of property which should be dealt with entirely separately from the other kind of real property.

Lord Trefgarne

My Lords, if I have your Lordships' permission to speak again and the noble Lord's permission to intervene in his closing remarks, might I ask him what mischief he apprehends is going to happen in the light of the arrangements being in place that I have described? It seems to me that the concern in the noble Lord's mind was that these most valuable intellectual property rights should not transfer to the new enterprise but should remain available to the Government.

I thought I had explained during the course of my remarks—I tried to do so—that the Government will continue to have access to these rights as is necessary, but not in an unnecessary way; and that the property rights can transfer where it is appropriate for them to do so, and in most cases where the Government will continue to have access to them free of charge as they require. I cannot see what difficulty it is that the noble Lord has in mind.

Viscount Trenchard

My Lords, may I intervene for a moment and ask the noble Lord, Lord Lloyd of Kilgerran, whether the time for the important and quite complicated negotiation of what intellectual property rights would be purchased ultimately by a private purchaser of some kind is not when there is a purchaser actually negotiating? At that time there will be the third party involved, Her Majesty's Government and the Ministry of Defence research establishments, which are still to a large degree separate from the Royal Ordnance factories, who in fact have invented many important inventions in this area.

Clearly there will have to be at the time that money is going to be paid over to Her Majesty's Government a detailed negotiation as to what intellectual property rights pass, and what rights the Ministry of Defence holds at the moment it decides for national reasons it will continue to hold. May I suggest to the noble Lord that it is still to a large degree—and I have some criticisms of it in this respect—an enabling Bill. In an enabling Bill, before the negotiations with the party prepared to put up the money, I do not see how the noble Lord can get any satisfaction on definition of intellectual property. This often arises originally out of an invention in a research establishment and then is passed on to perhaps one of the Ordnance factories to carry out, and occasionally—not so frightfully often—invented in an Ordnance factory. These things will all come for negotiation when hard money is being offered for the Royal Ordnance factories organisation. I do not see how they can come before that time.

Lord Lloyd of Kilgerran

My Lords, with the leave of the House, I do not know whether I should make any comments in relation to what the noble Viscount, Lord Trenchard, has said. He has raised a most important point. As I would expect with his experience in the department, he understands the real problems that will arise in regard to inventions, designs, copyrights and drawings. I am sorry to pursue the matter that the noble Viscount has raised; but say, for example, that there is a contract between the Government and a firm in the United Kingdom. Then because perhaps the money is better, perhaps the circumstances are better, they decide to transfer the property which is the subject of that contract with the United Kingdom firm to a United States firm. Where is the safeguard in relation to avoiding a business arrangement of that kind? Of course it would lead to litigation forthwith, but that is the kind of bother that happens when you do not apply special schemes to intellectual property. Therefore, the object of this amendment is to highlight the question of the importance of intellectual property in these matters.

In view of the fact that there has been considerable discussion going on, and in view of the contributions of the two noble Lords opposite in addition to what the Minister has said, if my noble friends would agree I think in view of the confusion that has arisen we might postpone the consideration further of this matter until the next stage. Therefore, although I have asked the leave of the House to press this amendment, may I now, with the leave of the House, withdraw it without 898 any commitment, and the matter will probably be raised again in a clearer way at the next stage.

Amendment, by leave, withdrawn.

Lord Lloyd of Kilgerran

moved Amendment No. 2: Page 2, line 6, at end insert— ("( ) the protection of the rights of employees associated with intellectual property:"). The noble Lord said: My Lords, I now come to my Amendment No. 2, which is an amendment to Clause 1. This clause is concerned with transfer schemes. It says: the Secretary of State may make a scheme which, or schemes each of which, provides for one or more of the following". Then there follow the titles and scope of a number of schemes.

In my amendment I have suggested a further paragraph, which reads: the protection of the rights of employees associated with intellectual property;". That should be one of the schemes to be considered separately from all the other schemes. The noble Lord the Minister was most helpful in his letter of 1st August to me and also in his speech in reply to observations made by the noble Lord, Lord Graham of Edmonton, in relation to patent matters.

I agree that the rights of civil servants who will be transferred from the Ordnance factories to private enterprises will probably be safeguarded under the terms of the Patents Act relating to employee inventors. But the crunch of my argument rests with the provisions now applying to the staff of the Ordnance factories to set out certain regulations giving them the right to make an application for awards to inventors for their inventions. They can apply for awards. As the Minister told me in the letter, a large number of awards have been made on an ex gratia basis.

What is to happen when those members of staff go into other employment in the company when perhaps they are transferred to this other company? The object of this amendment is to ensure that their position is safeguarded in applying for awards for any of their inventions.

With the leave of the House, I shall speak also to Amendments Nos. 13 and 14 in which it is suggested that in Schedule 2, dealing with schemes, it should be indicated that an, undertaking or arrangement of any kind relating to an application by an employee for an award in respect of intellectual property would not be affected as the result of such a transfer.

The Minister has referred to the Transfer of Undertakings (Protection of Employment) Regulations 1981 and he says that the position is safeguarded by those regulations. I have studied those regulations very carefully and I do not see that they cover the position of an employee in the Ordnance factories who now can apply for an ex gratia award for an invention. They do not preserve his position when he is transferred to the public company, as is desired and intended by this Bill.

This is a simple amendment. It says merely that the important matter relating to awards to inventors 899 should be the subject of an extra paragraph in Clause 1(1), in addition to the three already there, and that the protection of the rights of employees associated with intellectual property should be cited clearly in the Bill. I beg to move.

Lord Graham of Edmonton

My Lords, I rise briefly to support the noble Lord, Lord Lloyd of Kilgerran, and I anticipate that yet again the Minister may say that the words are unnecessary. If they are not contrary to the spirit of the Bill, we ask the Minister to recognise the anxiety which exists in certain quarters and to add the words. I can understand should the Minister have an intellectual argument against their inclusion—and no play upon words is intended. If in the proposition there is something that the Minister cannot accept, that is one thing, but if, as I think we are likely to be told time and time again, it is covered by TUPE 1981, as referred to in the earlier debate, the Minister must know that those who are to be involved and affected are dissatisfied with what he believes are adequate protections.

What has been moved is a reasonable spelling-out of an aspect of the matter of intellectual property which. in our view, would be well received by those affected. Unless the Minister can tell us that there is something contrary to the spirit or the thrust of Clause 1, we trust that the amendment will be accepted.

The Minister should also take on board the scepticism which we on these Benches feel as time passes by as to what is intended at the end of the day. In an earlier debate—and it is germane to this one—the Minister indicated that the detail of the patents which would be involved, would be included in the scheme. The Minister knows that in February his parliamentary colleague in another place said that that list would be available in two or three months' time. Not only is it still not available, after eight or nine months; now it will be made known only after the event. Members on this side of the Chamber do not dream up these anxieties; they are presented to us by those outside the House. We ask the Minister to make sure that if the Bill is to complete its passage and to become law, it will be against the background that the anxieties raised are assuaged by words on the face of the Bill. I give full support to the amendment which has been moved.

Lord Trefgarne

My Lords, I hope that I can reassure both noble Lords that this amendment really is not necessary. The ROF employees will not be in any worse position as a result of the change in status. The position of Crown servants is already the same as that of employees in the private sector, as a result of the Patents Act 1977. The transfer of employees from the department to the new company will make no difference whatsoever to their statutory rights with regard to intellectual property.

The Patents Act contains provision for the payment of an award of compensation in certain circumstances in respect of the benefit accruing to the employer from a patent granted in respect of an invention made on or after 1st June 1978. This provision will continue to apply in the same way to employees of the new company, although we are not aware of an application 900 for such an award to date. The reason for this may be that employees have instead applied for an award under the Civil Service scheme for the payment of ex gratia awards to employee inventors. This Civil Service scheme amounts to a term and condition of service, and as such will transfer to the new company by virtue of TUPE 81. The same scheme for the making of ex gratia awards to employee inventors, or something very much like it, will have to be set up and administered by the company after vesting day. This will be a legal obligation on the company. The right to claim such payments in the appropriate circumstances will therefore continue in substantially the same form.

I hope that I have reassured both noble Lords. The noble Lord, Lord Graham, asked what was the harm of including the new words if they only clarify the position; I think that was the implication of what he said. I think it is a mistake to add to the Bill unnecessary words which will create confusion and generate problems of interpretation. I hope that both noble Lords will agree, in the light of what I have said, that employees will not be in any different position under the new arrangements than they are under the present dispensation and that, accordingly. the noble Lord will see fit not to press his amendment.

Lord Lloyd of Kilgerran

My Lords, the noble Lord has repeated to some extent the contents of a letter that he sent to me on 1st August. It does not satisfy me that the position of these Crown servants on transfer will be protected in relation to ex gratia awards. I agree almost wholly with him in regard to his observation in relation to patents, though complications can arise on patents where the Crown employee is involved as a co-applicant with outside firms on collaboration projects, and in my view the effect of the TUPE regulations does not adequately safeguard an employee in relation to his ex gratia awards.

In his letter, the noble Lord says, on the TUPE regulations: The effect of these Regulations is that the same scheme for the making of ex gratia awards to employee inventors"— and he goes on to use the significant phrase— or something very much like it, will have to be set up and administered by the company after Vesting Day. This will be a legal obligation on the company". I have found it difficult to discover how the legal obligation arises merely because the Minister cites the TUPE regulations. I have indicated that the TUPE regulations are not adequate for the purposes of protecting ex gratia awards to employees of the Ordnance factories.

The Minister continues in his letter to make the following point, though he did not repeat it in his speech: If any changes are to be made"— Therefore, there is a doubt in the Government's mind that the scheme, after the transfer of property, may not be the same as the scheme before; in other words, the employee's application for an ex gratia award will be treated differently, and perhaps to his disadvantage, after the transfer of the property. I repeat: If any changes are to be made in the scheme, they will have to be the subject of negotiations between the company and the Trades Unions representing the transferred employees". 901 The unfortunate employee therefore has to get involved in the discussions between the new company and the trade unions regarding the ex gratia awards. It would be far simpler merely to put in the Bill that one of the matters on which care has to be taken during the transfer is the protection of the rights of employees associated with intellectual property, in particular in regard to the awards-to-inventors scheme. The noble Lord the Minister in his letter to me indicated—and I believe that he has said it today—that many companies have award schemes. A lot of companies just do not have award schemes and some of the award schemes for employees in many industrial companies are not up to the standards of the awards made even to Crown servants. Therefore, unless the noble Lord, who I see is shaking his head, wishes to say anything else, I beg to move this amendment to protect the rights of employees in relation to awards to inventors.

4.22 p.m.

On Question, Whether the said amendment (No. 2) shall be agreed to?

Lord Graham of Edmonton

moved Amendment No. 3: Page 3, line 18, at end insert— ("and, without prejudice to the generality of the foregoing, every scheme shall contain a provision securing to the Ministry of Defence, whenever required, absolute priority in the supply of goods and services to that Department at fair prices of the goods and services it may from time to time require, and every scheme shall contain such provisions as may be necessary to secure to the Ministry of Defence spare manufacturing capacity to the extent required by that Department so as to meet such emergencies as it may envisage."). 903 The noble Lord said: My Lords, I beg to move Amendment No. 3, standing in my name and those of the noble Lords, Lord Stoddart of Swindon and Lord Lloyd of Kilgerran. Although in fact this amendment is here, it deals with a completely separate issue to that of intellectual property but we think it is an issue of vital concern to the protection of the supply of some resources and some requirements by the state in the future that, as we see it, could very well be prejudiced by the Bill as it stands. As the words of the amendment make quite clear, every scheme shall contain such provision as may be necessary to secure to the Ministry of Defence spare manufacturing capacity to the extent required by that Department so as to meet such emergencies as it may envisage". Bluntly, we are concerned to ensure that everything that at present is supplied to the state by the ROFs will continue to be supplied even though in future there will be a completely different, albeit a commercial, view of what is or is not produced. We are under the impression that there will be some things which are presently manufactured and supplied by the ROFs for the defence of the realm which in future will be seen by others as not so commercially advantageous to produce: produced by others, the goods will not be profitable.

If in fact there is any danger that the needs of the state will be prejudiced by the change, then this amendment seeks to ensure by the addition of the words that there will be an absolute priority in the supply of goods and services to that Department at fair prices of the goods and services it may from time to time require". The ROFs provide a number of items which no other commercial manufacturer supplies. They provide complete priority in cases of need. That is not supplied in the ordinary way by a commercial manufacturer. This complete priority is essential, particularly when difficulties arise. If the Minister tells us not only that he does not envisage these difficulties, but that he can give the House a categorical assurance that such difficulties will not arise because there are means to ensure that they will not arise, then of course the purpose of our amendment would be negatived.

The ROFs also provide spare manufacturing capacity which again is vital in terms of the defence of the country. These are matters of extreme importance and could well be lost if the Government do not accept this amendment. Fears have been expressed by previous Secretaries of State for Defence that as a result of what the Government propose our defences could very well suffer. The Minister speaking at Committee stage said that if arrangements such as are envisaged were incorporated in a scheme and were subsequently found not to be working properly there would be no way of changing their fixed and settled effect except by the making of another scheme. We say that there is no substance in this argument, for the amendment does no more than retain the position which has existed for years and years and which has proved highly beneficial and essential to the armed forces. It has in no way impeded the efficiency of the ROFs, and they have built up a high reputation in the field of overseas sales of ROF products.

904 It is nonsense to suggest that it may not work properly, for the existence of such arrangements has enabled a close liaison to be built up between the armed forces and the workforce of the ROFs at all levels. The production of tanks, including the highly successful Challenger tank, requires some very specialised machine tools, and this machinery is used for no other commercial purpose.

I shall listen to the Minister with interest and wait for him to comment on this illustration of why we consider this amendment is needed. It would be quite impossible for a commercial firm, working on a commercial basis, to retain all the machine tools required in the production of many of the ROF products. The system which has well stood the test of time has enabled excellent working relationships to be developed between the ROFs and the research and design teams in the Ministry of Defence. The Government's proposal to do away with these arrangements could well destroy the expertise which exists in the workforce of the ROFs, together with the extremely close relationship with the armed forces, particularly with the Army, and could prove to be financially very costly to the Ministry of Defence.

We believe there is some ground for concern that the impact of the Government's proposal could very well affect the efficiency of the armed services and in terms not merely of providing them with an assured supply of munitions. What we are concerned about here is providing an assured supply of the munitions and equipment that they require, and at a reasonable cost, and providing it in comparison with others to measure against quality, and providing it with sufficient reserve capacity.

We on this side of the House will await with interest the response from the Minister. If he can indicate to us not merely that he has confidence that the kinds of difficulties I have outlined will not happen but that even if they do there are ways of circumventing them, and if he can guarantee that he can circumvent them, then we shall be satisfied. But, as the Minister very well knows, it needs only one situation where the defence of the realm is vital and where the adequate supply of the provision is not guaranteed. In that context this has been one of the key elements of the ability of the ROFs to be always there: even though the provision of the requirement is not commercial, it is there: It was one of our fears that in the changed circumstances such a guarantee of the provision of that which is needed and required—not something which it is best to have or that we would like to have, but which those with responsibility for security say it is essential that we should have—would not be available. If we can guarantee that will be available, we believe that the MoD is entitled to have written into any new arrangement that their needs will be given priority over any other needs which the company, or those associated with the company, consider is best on commercial grounds. I beg to move.

Lord Lloyd of Kilgerran

My Lords, as the noble Lord, Lord Diamond, pressed the theme of these amendments quite strongly at the Committee stage, may I take this opportunity of apologising on his behalf for his not being here today. He is recovering from an operation and he is sorry not to be present.

905 The main theme of the noble Lord, Lord Diamond, as of the noble Lord, Lord Graham of Edmonton, today—and also, if I may say so, of the noble and gallant Lord, Lord Carver, at Committee stage—was to prevent a situation arising in which the Government were less capable of providing equipment and other matters for our armed forces in the same way as we are able to provide them at the present time. It was felt that a situation might arise in which the arrangements contemplated by the Government, without these amendments, would not enable the armed forces to get the best possible equipment.

Lord Carver

My Lords, I very strongly support the amendment, as I did at the Committee stage, and the arguments put forward by the noble Lord, Lord Graham of Edmonton, in support. The object of the Royal Ordnance factories and of the service they have rendered down the centuries—I have been a very satisfied customer of the Royal Ordnance factories—is to be in every circumstance a source of production upon which the Government can wholly rely. Unless this amendment is accepted, that principal function of the Royal Ordnance factories will disappear. Having in many ways been an unsatisfied customer of civilian producers of equipment, particularly tanks, I view as very serious indeed the idea that we shall have to rely solely on something which does not contain the guarantee provided for by this amendment.

Viscount Trenchard

My Lords, as one who was privileged to watch over the purchases in the recent Falklands emergency, I want to say again what I said at the time: that the Royal Ordnance factories form only one part of the armaments industry, though historically a very important part. Aircraft, missiles and other armaments have been developed separately and are in private hands. Far more of the operations which here are carried out by the Royal Ordnance factories are in private hands in the United States. I have no doubt that the Minister will describe the background powers of the Government in times of war or emergency in relation to private industry. As the Minister who was ultimately responsible during the Falklands conflict may I say that all parts of the armaments industry performed equal miracles, including the Ordnance factories as well as the British Aircraft Corporation over the supply of Harriers and spares, missiles of every kind and torpedoes that had not even been accepted by the services but which were made available for the operation. There were no problems over any form of equipment.

Turning to price, there are very adequate price controls even when there is no emergency. Those price controls are reviewed from time to time. They have just been reviewed again. They result in our armaments industry having a very much smaller profit margin than the profit margins of armaments industries abroad, in particular the United States armaments industry. In my opinion, therefore, there is full and permanent control—many would say that this control is too fussy and delays the production of equipment—over prices in the private sector.

It is true that we have encouraged private industry to depend more upon exports. One can speculate, at least theoretically, on a conflict of interest arising as a 906 result of obtaining big orders from abroad for aircraft—orders which we need to obtain if our aircraft industry is to remain viable and to be available for our forces in times of emergency. That issue arose at the time of the Falklands conflict in relation to key and critical equipment. I found that the response of private industry was immediate. There was a telephone call on the Sunday and they dealt with the situation the following Monday morning. Therefore our forces were provided with what they needed at the time when they needed it.

Apart from the legal background, which I have no doubt the Minister will describe to us, I do not believe that there is any special reason why the Royal Ordnance factories in private hands will not respond to a national emergency exactly as they have responded in the past. There is interdependence between the armaments industry and the requirements of Her Majesty's forces. Both have long-term interests. Firms must ensure that they hold the maximum share of the supply of British arms to our forces. I have no doubt whatsoever that at the time of privatisation there will be discussions in which both parties will agree that they need both long-term and short-term assurances. The suppliers will be interested in such assurances. The armed forces, for all the reasons which the noble and gallant Lord, Lord Carver, gave at the Committee stage, will also be interested in such assurances. Therefore I believe that the arguments in favour of this amendment fall and have recently been shown to fall in a practical test.

Lord Trefgarne

My Lords, the arguments deployed by my noble friend Lord Trenchard were very much those which were in my mind when we considered this matter at an earlier stage of the Bill. The fact of the matter is that only a very small percentage out of the total of our defence requirements is provided by the Royal Ordnance factories. This is not to say that the amendment does not contain the germ at least of an important point, and I shall seek to reply to it.

As I said in Committee, and as I repeat now, the Government take these matters seriously. I had hoped that what I said at the earlier stage would have reassured your Lordships that we have taken account of the concern exemplified in this amendment. I should say first of all that the Royal Ordnance factories, as a commercial company, will continue to be engaged in the business of manufacturing weapons and ammunition. Again, as I said before, we would expect the Ministry of Defence to remain the major customer of the Royal Ordnance factories for the foreseeable future. I do not therefore accept the argument that the new Royal Ordnance company might not find it commercially convenient to supply the Ministry when most of its business is done with it. However complicated the order or however small the number to be manufactured, the Ministry will have to negotiate the right price to secure the business with the company. Whether it be part of the department or an independent commercial company, the same sort of costs will arise, and we believe that under commercial discipline the Royal Ordnance factories will be able to supply us at better prices.

Regarding the question of priority of supply, which was very much in the mind of the noble and gallant 907 Lord, Lord Carver, this is again something to be negotiated in the contracts between the department and the new company. Contracts are as equally legally binding as schemes made under the Bill, but they have the additional advantage of being more flexible so that new arrangements can be made from contract to contract to suit the circumstances. In their current status, if the Royal Ordnance factories cannot meet an agreed timetable for the supply of goods, then that timetable simply has to be revised. As a commercial company working under contract, the Royal Ordnance factories will face obvious penalties if the timetable stipulated in the contract is not adhered to. I see this as more of an incentive for them to afford priority to the department than the current administrative arrangements within the department. Should there be to this a background of a developing crisis, like the one described by my noble friend Lord Trenchard just now, your Lordships will be aware that the Government would begin to take special measures relating to the industrial organisation of this country. This is not the occasion to go into the detail of the measures which are available to us, but they will be well familiar to at least the noble and gallant Lord, Lord Carver.

By the same token, the spare manufacturing capacity—this was very much in the mind of the noble Lord, Lord Graham of Edmonton—which needs to be maintained against such a crisis can perfectly adequately be maintained by contract. There is no real reason why the new Royal Ordnance company should not wish to enter into such contracts, which could even form part of the orders placed for the original supply of equipment. I am afraid that I do not share the noble Lord's concern that a commercial company would turn its back on such contracts.

As regards the question of costs, we firmly believe that a system of contracts will help the department to monitor more accurately the costs involved, both in production of equipment and in maintaining their capacity. To have such arrangements spelt out in a contract, and the costs therefore more easily identifiable, can only be seen as an improvement in our system of financial accounting. The department will pay proper prices for its orders and for the spare capacity required. In return, the company will of course provide the services. This is a sensible method of dealing with these issues and will be a far more efficient means of securing our objectives than any provisions contained in a scheme could possibly be.

I support fully the aims expressed in this amendment but, as I have said, it is wholly inappropriate and unworkable for a scheme to contain such provisions. All your Lordships' concerns can be met by the drawing up of contracts which can be monitored and changed as necessary. That is a far more reasonable and flexible way of approaching these questions, without in any way detracting from their importance. I hope therefore that the noble Lord will not persist with his amendment.

Lord Graham of Edmonton

My Lords, I am grateful to the Minister for the care he has taken in responding. But we are talking about the past. The Minister is confident that in respect of securing the proper 908 provisions needed this will be as secure in the future as in the past. He is confident about that. He uses phrases such as, "I see no reason why safeguards cannot be built in". The new ball game begins one day after vesting day. The whole purpose behind the Government producing this Bill is to change the raison d'être, not merely of the financing of the small arms factory but also in so many other ways.

The Minister is saying that given the commercial overview of the operation of a business—and this is a very precious business so far as national security is concerned—the shareholders will be looking after the health and wealth of their shares just as any other shareholders look upon the health of their shares. They are shares in a business. There will be lay-offs and there will be slumps. There will be proposals to put things into mothballs. There will be commercial considerations. I acknowledge that this is a small element of the totality. I believe that the Minister gave a figure—

Viscount Trenchard

My Lords, if the noble Lord will permit me to intervene, one of my duties as the Minister concerned was to act as ex officio chairman of the Royal Ordnance factories. I can assure the noble Lord that all the things he has just mentioned are permanent bread and butter to the Royal Ordnance factories at present; that is, cutting out anything, any idle facility or otherwise, that may not be required or is not likely to be required. They may not have shareholders at present, but they do have the Treasury instead. Having spent half my life in industry and also having seen a good deal of the Treasury, I would rather have shareholders. The idea that there has been less financial pressure on the Royal Ordnance factories than on private industry to go for export as a priority and to cut out obsolete things for our own forces is totally erroneous.

Lord Graham of Edmonton

My Lords, I do not accept that stricture because it was never intended that my remarks should be a criticism of how the Ordnance factories have operated in the past. The noble Viscount will at least extend to me the courtesy of taking on board the points I am making. My concern is that whatever the imperatives set by the management of the ROFs in the past there will be an additional imperative introduced in the management of the ROFs in the future, and that will be their commercial viability. I am not going to knock the national integrity of the defence industry; that is not my job. I am simply saying that the element, "Will it pay?" will be introduced in the future, whereas it was not there in the past.

The noble and gallant Lord, Lord Carver. described in a few words the nub of our argument. In the past there has been complete reliance. The noble and gallant Lord said that the source could be wholly relied upon. We are saying that in respect of the defence of the realm we want to ensure that to the extent that a scheme can be amended by the introduction of the proposed words then at least there should be an opportunity to ensure that it will happen in the future.

I am bound to say that the Minister has much more confidence that we have that at the end of the day the commercial interests of the shareholders will be 909 subjected to a lower order of priority by those shareholders than the national interest if there is a conflict. If the Minister says that there will never be a conflict—

Lord Trefgarne

My Lords, if I may have the noble Lord's permission to intervene again, I fear that I could not have made myself clear when I spoke earlier. There is no difficulty that we see about spare capacity in the Royal Ordnance factories—and I think this was very much in the mind of the noble and gallant Lord—being available for use in times of crisis. We see no reason why that capacity should not be maintained in times not of crisis, by means of contract between the Ministry of Defence and the Royal Ordnance factories. As I said during my earlier remarks, that contract may very well arise from a contract arranging for the original supply of the goods concerned.

Lord Graham of Edmonton

My Lords, I am grateful to the Minister, but the fact that the Minister sees no reason why that should not be so does not mean that it will be so when the two parties to the contract get around a table. In the past, there have not been two parties: there has been one party, substantially—the state. In future there will be the state and the private management of the ROFs. There will need to be two to make a contract and two to make an agreement.

The Minister is saying that it would be very much more helpful to national security if in the making of those contracts there was built into them, if necessary, the kind of arrangement that would ensure that the spare capacity which needed to be provided was in fact provided. I agree. But the Minister cannot tell this House and he cannot tell the country that he knows that the raison d'être for the operation of the business after vesting day will be that which he wants. If the Minister says that there will be no change whatsoever, then where is the weight and the muscle of the private shareholders in this? They, too, have some rights; and they have opportunity to express their rights.

We are saying to the Minister—as we have done in respect of so many other matters—that for the sake of not writing into this Bill something which the Minister has said could be superfluous he is missing an opportunity to strengthen the Bill and to provide an assurance to a great many people.

Lord Strathcona and Mount Royal

My Lords, I am sorry to interrupt the noble Lord again, but procedure demands that we work in this way. I remind the noble Lord that the Royal Ordnance factories—and I, too, am a past chairman of the Royal Ordnance Factories Board—have for a long time been working on a trading account. They have been running it as far as possible as a commercial concern. I have no doubt that if they were asked to maintain surplus capacity they would expect to be paid for it by the Ministry of Defence, and the Treasury would have to agree to it in exactly the same way as it is suggested should be done with a commercial company.

I will further remind the noble Lord that there are, I believe, strategic supplies of oil maintained in this country by the oil companies. I am fairly sure that the Government pay the oil companies for the cost of maintaining those strategic supplies of oil. That is a 910 perfectly normal (as the noble Lord has been calling it) contract. Let us not become mesmerised by what it is that we are discussing. If you were to visit the company for which I work and were to ask, "Will you maintain some extra capacity which you do not now need in order to make extra electronic equipment which we might require later?", I have no doubt that the company would reply, "If you would like to pay for it and supply the equipment, we will certainly look after it for you, and you can pay us for dong so". I do not see that that is so very difficult.

On a slightly more technical point, studying the noble Lord's amendment I believe I am right in saying that, if my reading of it is correct, it states: whenever required, absolute priority in the supply of goods and services to that Department at fair prices". His amendment then goes on to say: and every scheme shall contain such provisions as may be necessary", but does not include the words, at fair prices", at that point. As I read it, that would imply that one just has to do it and cannot necessarily get paid for it. Therefore, I should say that, in any case, the amendment is defective.

Lord Graham of Edmonton

My Lords, the noble Lord would say that, wouldn't he? As far as I am concerned, I am not knocking for one moment the past arrangements and the satisfaction with the past arrangements. However, in the past at the end of the day the Government have been the governors; they have been able to lay down the arrangements because they have had the muscle. After all, they are giving the contracts. We cannot see why the form of words that we introduce, which will strengthen the hand of the Government when they come to make the kind of arrangements which the Minister has pointed out are perfectly and properly capable of being aimed at and which, as the noble Lord just pointed out, already exist in his knowledge and which I respect, is not capable of being accepted. Therefore, I intend to press this amendment to a Division.

5.1 p.m.

On Question, Whether the said amendment (No. 3) shall be agreed to?

Lord Stoddart of Swindon

moved Amendment No. 4: Page 4, line 24, at end insert ("but such day shall not be before 1st October 1985."). The noble Lord said: My Lords, I beg to move Amendment No. 4 standing on the Order Paper in my name and the name of my noble friend Lord Graham of Edmonton. As noble Lords will be aware, we moved an identical amendment at the Committee stage but withdrew it because we hoped that the Minister would consider what had been said and come back at this stage with his own amendment. It was clear at that stage that the Government were not ready to put the Bill into operation. Furthermore, by the time we had reached that amendment the Bill was in a rather different form from that at the beginning of the Committee stage, the Government having been defeated twice. However, the Government have decided that they want to press on with the Bill and do so as quickly as they possibly can.

Noble Lords will know that the Opposition are not in favour of the Bill in its entirety. We do not believe that it is necessary. At the Committee stage, having accepted that the Government wanted to have their way, I asked why there was the rush, why the Government wanted to get rid of a profitable organisation and why do it so quickly, before they were really ready. It is patently obvious that they are not ready to implement the Bill in its entirety.

It is becoming clear to us from conversations that we have had that many things need to be settled before vesting day. The vesting day that the Government have in mind is far too close for those matters to be settled. Indeed, had the Government had to meet the original vesting day of 1st October 1984 they would have been in terrible trouble. I very much doubt whether they would have been able to come forward to Parliament with the schemes and information that they have promised to make available.

At the Committee stage, among other things the Minister said that the Government had explained the benefits that he saw as flowing from the operation of the ROFs on a fully commercial basis, and that they were convinced that the best interests of all concerned—the ROFs, the workforce, the services and indeed the country at large—lie in an early change of status.

On 21st May 1984 (at col. 740) in another place, the right honourable Denzil Davies said: What on earth is the benefit of this exercise to the country? What is the benefit to the country's defences? What benefit is there to the employees of the ordnance factories and to the British taxpayer? We received no answers to those questions on Second Reading. in Committee, on Report, or now on Third Reading". 913 To date, we have not received any of the answers from the Government in this noble House.

There are enormous problems in store for the employees with the proposals for two pension and two redundancy schemes which will create much bitterness in the future. Lord Carver said on 19th July 1984 at cols. 1675–76 that the services themselves could suffer greatly as a result of some of the operations of this Bill.

It is now three months since the Minister said that the drafting of the memorandum of understanding was almost finalised. That was three months ago, and we have so far seen nothing at all. I should like to know from the Minister how close the memorandum is to finalisation, bearing in mind that three months ago he said that it was near to being finalised. Presumably it ought now to be completed. Perhaps those who are involved may have a sight of it as soon as possible. We have not even seen an abridged version. We have not seen the final articles of association, although, as I said, three months ago the Minister said that they were in final draft. Where is the information that we were promised? Can he give us an assurance that we shall have it before the completion of the Bill through Parliament?

At the heart of the Bill are the provisions in Clauses 1, 2 and 3 about schemes. Schemes are the chief mechanism by which the Ministry of Defence and other Government property, including that of copyright, presently vested in the Queen, will be transferred to the company. To date neither House of Parliament has any detailed knowledge of the contents of the scheme, yet the Government apparently want to rush ahead with the privatisation of what it is agreed is a very efficient and profitable undertaking. Ministers have said that it is important that the scheme, with necessary exclusions, should be made public so that those whose rights are affected should know where they stand. We have not yet had any scheme published at all. What about the rights of all those people to whom the Minister referred?

Parliament has a right to know what legislation it is passing. It needs to know that the steps being taken by the Government will secure a full financial return for transfers. That is what it is all about. We understand that there is still much work to be done on this scheme, particularly in respect of the valuation of assets, which I should have thought was a matter of the utmost importance particularly to the present Government.

The location for the headquarters of the ammunition division has not yet been decided. I understand that it is currently housed in offices in the old War Office building in London. But if vesting day is to be in November, what happens to the ammunitions headquarters' staff'? Are they to be evicted? Will they be thrown out into the street with nowhere to go? It takes time to acquire and to move into new offices. Again, that is another reason why the operation of the Bill should be delayed, and delayed for a reasonable period, which we believe to be about a year.

There is still much work to be done on pensions and redundancy. As noble Lords will have seen, there are amendments on the Order Paper which will be moved at a later date to try to put those matters right. Nevertheless, there is much work to be done on those 914 matters. The trade unions—the people working in the industry—are not satisfied with what has gone on to date and do not believe that the Bill should become operative until those matters have been settled to their satisfaction and in fairness to them and their families.

The ROFs' annual report for 1982–83 states: The significant improvement in the ROFs' financial position has enabled planning for some expansion of investment with an increasing emphasis on the replacement and the modernisation of factory facilities. At the end of 1982–83 this was reflected in future expenditure contractually committed of £20.6 million and further authorisation not yet committed of £28.5 million". We need to know, and I think we are entitled to know, whether this additional expenditure of £28.5 million was authorised and had indeed been contractually committed.

Perhaps the Minister can answer that when he replies. Indeed, will the Secretary of State also place a limit on any new investment by the ROF PLC involving capital expenditure? Will the new company have its business restricted to defence products? If this is to be the case, then it will need some guarantee of orders from the Ministry of Defence. These are all relevant matters about which we are entitled to have replies.

The Under-Secretary of State, speaking in the Committee stage of the Bill in the House of Commons on 28th February, said: The precise value of the new Company will not be known until after vesting day—perhaps not until two or three months after vesting day, depending on how much work there is to be done. Clearly this fact will influence the issue of securities for which provision will be made in the Scheme. Because of the preliminary work that is being done on valuation, we expect to have a very good idea, though not an exact one, of the total value of the Company by the end of June. Based on that we shall be able to determine the most appropriate capital structure for the Company.". Messrs. Cooper and Lybrand were employed to produce the priciples of valuation. Have these been finalised? So far as we know, they have not. If they have been finalised, have they been approved by the Ministry of Defence?

There are three issues arising from the valuation of assets. These are as follows. First, the Board of Inland Revenue will need to be satisfied that the value attributed to the assets is reasonable, since the valuation will be used as the basis for claims for tax allowances in subsequent trading years. Secondly, the assets transferred will need to be valued in order that an opening balance sheet may be prepared; I should have thought that was elementary. Thirdly, the most appropriate capital structure for the company including the amount of authorised capital and the nominal value of the shares will be based on such valuation. As such work has still to be done on the valuation of assets the capital structure of the company itself is unknown. If the assets have not yet been valued it will be difficult to produce an opening balance sheet. Parliament as a whole lacks information on all these aspects.

I would have thought that with that catalogue of failures of indecision, of not knowing exactly where they are going on the part of the Government, there is a very good case—indeed, an overwhelming case—for delaying the operation of the provisions of this Bill. While I understand the desire of the Government to 915 get rid of national assets to the private sector—although I disagree with it, I understand that that is the nature of their dogma—I say to them that it is not in the country's interests that such assets should be transferred in such a way as to injure the taxpayer and those people who are running and working in Royal Ordnance factories themselves.

I believe that the Government have a duty to the taxpayers and to the people working in these undertakings. I believe the Government have a duty to ensure that the interests of the taxpayers and also the interests of those working in the undertakings are fully safeguarded. They will only do that by ensuring that when they go forward with their schemes, when they decide finally to go to the market and privatise, they are proper, well thought out, well constructed and well balanced schemes that are going to benefit the country, and not the reverse. Therefore, I hope under all these circumstances that the Minister will see fit to accept this amendment.

Lord Trefgarne

My Lords, I am afraid the Government are no more able to accept this amendment now than we were when we discussed it in Committee. The effect would be to delay vesting day by almost a year. The noble Lord has explained why he believes such delay would be helpful, but I have to say that the likely effect of any such delay would merely be to prolong existing uncertainties. There has in fact been progress in the matter of the pensions scheme and redundancy payments, which I think was uppermost in the minds of noble Lords when we last discussed this matter, since this amendment was last before your Lordships. In the interval, I understand that the trade unions have been able to satisfy themselves as to a number of technical points arising on the pensions scheme. I accept that there are still some outstanding issues, and I hope that these can be quickly resolved one way or another.

As to redundancy payments, I believe that the unions are now satisfied that transferred employees will receive after vesting day, in the event that they are declared redundant, indentical compensation to that which they would have received had they remained within the Civil Service. An entitlement to benefits at that level will, in the absence of any agreement to the contrary, form part of the terms and conditions of service after vesting day, and there will therefore be a contractual right on the part of employees to receive benefits at that level. Naturally, any failure by the company to make them would constitute a breach of contract.

The failure to resolve outstanding issues has not been entirely due to lack of time. The questions involved are complex. Their complexity will not diminish with the passage of time. Indeed, the approach of a deadline tends to concentrate the mind, and its postponement merely dissipates the will to complete the task. There is no guarantee that if vesting day were to be postponed, as the amendment calls for, we should not find ourselves in more or less the same situation some months from now.

There is much to be said, I believe, for vesting day to take place, and outstanding issues to be negotiated direct between the unions and the company. The basic 916 position of the unions has been secured and it will not be jeopardised by having vesting day sooner rather than later. I appreciate the noble Lord's anxiety about these matters, but I am afraid that the Government could not accept the amendment.

As to the precise date of vesting day, it has always been our desire to have vesting day as soon as possible after Royal Assent has been given to the Bill. Our earlier intention that it should take place on 1st October 1984 had to be abandoned when it became clear that the Bill could not complete its Parliamentary passage before the Summer Recess. With the benefit of hindsight I think I can say that we would have had some difficulty in meeting that date, anyway. There are still some formalities to be completed. I do not wish now to risk a prediction of when vesting day will be, but I shall only say that it will be as soon as we can manage it after the Bill is passed. Incidentally, the noble Lord referred to the articles of association. These are public documents. They are available now in the company registry. Indeed I shall be happy to send the noble Lord a copy of the holding company's articles if that would be of assistance to him.

The memorandum of understanding I fear is not yet complete but it will be published when its terms are completed, save for any omissions that we have to make for reasons of commercial confidentiality or other security considerations. As I say, it is not yet in final shape but we shall publish it in due course, with the proviso that I have offered, when it is. I hope that I have been able to assuage some of the anxieties of the noble Lord. I fear that this is a matter upon which it will be very difficult for me to persuade him completely, but I none the less hope that the noble Lord will not wish to press his amendment.

Lord Lloyd of Kilgerran

My Lords, if ever there was a speech by a Minister justifying an amendment, we have now just heard it. The noble Minister is very fair. He has admitted that there are all these complications and delays. To revert to a simple matter of the list of patents, two, three or four hundred patents were promised in February. We have heard nothing about them. As we go through this Report stage, we hear more and more about the uncertainties for the preparatory work of this Government in relation to this Bill. If I may echo the words of the noble Lord, Lord Stoddart, Parliament really has a right to know what legislation it is passing.

The object of Clause 1 of the Bill is to produce transfer schemes which must be put to Parliament. Here we are, having postponed one date—the vesting date originally arranged of 1st October. And the Minister says that we could not keep to that. Surely, the Government ought at least to give way to some extent and reduce the uncertainties that they are worried about by giving a date. After all, a year is not a very long time in dealing with matters of this kind. Cannot he give some further date which will be a reasonable period of, not necessarily but approximately, a year as is asked for in the amendment?

Lord Stoddart of Swindon

My Lords, I have to echo the words of the noble Lord, Lord Lloyd of Kilgerran, that if there was a justification for pressing this amendment it was contained in the Minister's own 917 speech. The noble Lord really did not answer the many questions that I put to him. Certainly, I do not believe that he convinced the House that the Government really were ready in any proper state to go forward with the implementation of this Bill when it becomes an Act. Indeed, the whole issue seems to be woolly and airy-fairy.

I accept what the Minister said about the articles of association being available, and I should be most obliged if he would send me a copy. But the memorandum of understanding which is an important understanding and an important document will be published in due course. In due course! That could be three years hence. It could be a decade away. The Minister was not even able to assure this noble House that the memorandum of understanding would be published within a few weeks, two months or even three months. It would be published in due course. "In due course" could cover a very long period of time. That simply is not good enough. Indeed, it reinforces my view that we need a significant delay in the coming into force of the operation of the provisions of this Bill.

Again, the Minister said that the trade unions may now be satisfied. It may very well be that on one or two technical matters they are satisfied. I can, however, assure the Minister and the Government that the trade unions are not satisfied on the principles of, for example, the pension scheme. The Minister may have some more up-to-date information than I have, but they are not satisfied so far as I know that the pensions of all existing staff will be fully indexed for all time. They most certainly have not been assured and satisfied that future employees will have pensions that are comparable to those of existing employees. They are most concerned that within this same organisation there will be two sets of staff, one enjoying superior conditions of service to the other. They are certainly not convinced, for example, about redundancy. We shall be dealing with these matters in later amendments.

If the Minister really believes as he appeared to say and confirm that the trade unions are now basically satisfied, he has a rude awakening coming to him. That is another reason why I urge noble Lords to support this amendment. It will be in the interests of Parliament. It will be in the interests of the country. It will certainly be in the interests of the Royal Ordnance factories and, indeed, of the Government themselves to have a delay of this measure.

5.35 p.m.

On Question, Whether the said Amendment (No. 4) shall be agreed to?