§ 3.41 p.m.
§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Reay)
My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
§ Moved, That the House do now resolve itself into Committee.—(Lord Reay.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The CHAIRMAN OF COMMITTEES in the Chair.]
§ Clause 1 [Vesting of property etc. of NRDC and NEB in a successor company]:
§ Lord Williams of Elvel moved Amendment No. 1:
Page 1, line 15, at end insert:
("(1A) No order under subsection (1) above shall be made until the Secretary of State has—
(1B) The Secretary of State may by order sell or transfer all or any of the securities of the successor company that he or the Treasury may hold to third parties provided that he has laid before Parliament a statement announcing—
before such an order is made.").
§ The noble Lord said: First, I must thank the Minister and say how grateful we are that he has succeeded in the attempt that he promised at Second Reading in producing the articles of association of the successor company. We shall have more to say about that as our debates go forward in Committee. I believe that the noble Lord has honoured not an undertaking but nevertheless a promise to do his very best. He has done his very best and I am sure that the Committee will be extremely grateful to him for having achieved it.
§ Amendment No. 1 is designed to ensure that the British Technology Group as it stands at present does not go into the hands of what I would call undesirable owners without Parliament being informed. Perhaps I may take the Committee through the provisions of the amendment.712
§ The order under subsection (1), mentioned in the first line of the amendment, is the vesting order which the Secretary of State may make to vest the property of NRDC and NEB in a successor company. The provision under paragraph (a) of the amendment is a condition precedent to that order being made, as is paragraph (b). Paragraph (a) should not cause any great difficulty for the Government. It says that we should know the successor company into which the property of BTG—if I may so refer to it, and I shall continue to refer to it as such throughout the Committee stage—is to be vested.
The important point comes under subsection (1B) of the amendment which states:
The Secretary of State may by order sell or transfer all or any of the securities of the successor company that he or the Treasury may hold to third parties provided"—
at this point I introduce two more conditions precedent—that we know to whom the company will be sold, how much will be paid for it and on what conditions the transfer of securities will be made. Until those matters are known and laid before Parliament, the Secretary of State, according to my amendment, would not be able to make the order to sell and therefore would not be able to make the order to vest.
§ We suggest in Amendment No. 1 that, before the Secretary of State makes the vesting order, Parliament should be told who will buy the property and whether it is a consortium of people, institutions, banks, or whatever it might be, together with the consideration price and other conditions.
§ I do not have to tell Members of the Committee—we had a lengthy discussion of this matter at Second Reading—that BTG is quite different from other companies that have been privatised. Its assets are intellectual property and people —approximately 190 people of great skill. It is not a company which will be floated in the way that British Gas, British Steel or other privatised companies were floated. It will be sold to a consortium on a private basis. In those circumstances, I believe that Parliament ought to know before the vesting order is made who are those people, what the price is and what will be the effect of the sale. I beg to move.
§ Lord Reay
It may be for the convenience of the Committee if I take an early opportunity to explain what action the Government have taken since the Second Reading on 3rd June. During the earlier stages of the Bill the Government made clear that they would listen carefully to all the views and representations expressed in this Chamber, in another place and outside Parliament.
During our debate at Second Reading, as the noble Lord reminded us, I undertook to try if possible to ensure that the draft articles of association were made available to this Chamber while the Bill was before it. I am therefore pleased to be able to report that draft articles of association for the successor company to the British Technology Group were placed in the Libraries of both Houses on Friday 21st June. Additional copies are available in the Printed Paper Office and the Vote Office. I am grateful to the noble Lord for his words of appreciation of the fact that these articles have now been laid before the Chamber.
713 The principal feature of the draft articles is a provision for a government special share which will protect certain provisions in the articles. The two key provisions protected by the special share are in Article 42—a 15 per cent. limit on control by any one shareholder of voting rights in the privatised company (for practical purposes, a 15 per cent. limit on individual shareholdings)—and in Article 12 a restriction on substantial disposals of assets without the consent of the special shareholder. Those provisions are in keeping with precedent in previous privatisations.
The special share would last for up to five years. In the Government's view that would be sufficient to enable BTG to adjust to life in the private sector. It is also in line with precedent. In addition, Article 79 contains a third provision for one director of the company to be appointed by the Committee of Vice-Chancellors and Principals of the universities of the United Kingdom in consultation with the Committee of Directors and Principals of the polytechnics. That right will not be protected by the special share, for reasons which I shall outline in a moment. The safeguards are together designed to preserve BTG's independence and integrity in dealing with all its customers and to help the continuation of BTG's traditional technology transfer activities.
The 15 per cent. limit on individual shareholdings in Article 42 clearly means that no one buyer will be able to purchase BTG outright or achieve a controlling interest. It signals that the Government will not be interested in receiving bids from that type of investor. It means that BTG will therefore be sold to a number of investors with, in effect, a balance of power between their various interests. That provision in the articles should allay the concerns that have been expressed about BTG being purchased by a single industrial or commercial company with an interest in the success or failure of particular technologies.
The prohibition on substantial disposals of assets without the special shareholder's consent in Article 12 goes hand in hand with our aim to see BTG's technology transfer activities continue. Clearly, a sale to a consortium which takes a long-term view of BTG is the most practical step that we can take to help the continuation of the business. In addition, Article 12 provides for any disposal of the whole or a material part of the assets of the privatised company to be subject to the consent of the special shareholder. A material part of the assets is defined in Article 12. It means either assets which represent 25 per cent. or more of the company's net asset value or assets to which 25 per cent. of average income is attributable.
The Government have included Article 79 giving the CVCP the right to appoint a director in recognition of the important part that the academic sector has played in BTG's business and will surely play in its future. The academic sector accounts for around a half of BTG's new business and is thus its largest inventive source. We believe that any new buyers will want to continue to work closely with such an important source of business. There is no reason why there could not be more than one director if the new owners so decide.
714 The 15 per cent. limit on individual shareholdings follow the precedents of other privatisations. But in the circumstances of this privatisation it is not necessarily intended to be absolutely rigid. With only a small number of shareholders it may be possible for the make-up of individual shareholdings to include one or more somewhat above 15 per cent., yet without control of the company passing to any one shareholder. Thus, while 15 per cent. will be our bench-mark, we will be prepared to consider possible ownership structures involving higher shareholdings. Each will be considered on its merits, taking into account the preservation of BTG's independence, the determination to continue BTG's activities and of course the price offered.
The flexibility to allow shareholdings above 15 per cent. is provided by the power to change the articles, a power which has been available in previous privatisations. The limit on a shareholding can be amended through a special resolution of the company but only with the agreement of the special shareholder.
The provision of the universities appointed director is not protected by the special share. Let me explain why. First, noble Lords will know that we must always be mindful of our position on barriers to takeovers within the European Community. We wish to see such barriers removed wherever possible. Unequal voting rights, of which special shares are an example, are regarded as constituting one such barrier. In the context of the European Community 5th Directive on company law, where there is a proposal to prohibit unequal voting rights, a derogation is being proposed from this principle which would allow public sector businesses to make the transition to the private sector.
We therefore believe that we can justify a special share which is time-limited and restricts overall control and disposals of assets under such a derogation. We do not believe, important though it is to represent the universities, that we can justify using a special share to entrench particular interests on the board of a privatised company.
In conclusion, we believe that the special share provisions we have proposed genuinely meet the concerns that have been expressed inside and outside Parliament. The special share achieves a fair balance. It will help attain the objective we have always had of providing a good prospect for the continuation of BTG's technology transfer activitites. But at the same time we do not want to fetter and constrain any new owners in a way which makes it impossible for them to take commercial decisions by having to look over their shoulders for Government approval. We do not want to deter purchasers from coming forward by imposing unrealistic constraints on the ownership of the new business.
The Government firmly believe that the British Technology Group belongs in the private sector. BTG's own chairman, board and management agree and support privatisation as the best route for future expansion and success. BTG has sent information to all its customers—research organisations, universities and industries in the United Kingdom and overseas 715 —informing them of the privatisation. The overwhelming majority of replies expressed support for the principle of privatisation. We all want to see BTG continue to develop and exploit the results of academic research as a successful commercial organisation in the private sector. We believe that BTG is on course for that target.
Perhaps I may turn to the first amendment in the name of the noble Lord, Lord Williams.
§ Lord Williams of Elvel
I am sorry to intervene. If the noble Lord agrees, before he replies, would it be wise at this point to hear the noble Lord, Lord Meston, who wishes to speak on the amendment?
§ Lord Meston
I am conscious of the fact that to a large extent the Minister has taken the wind out of my sails. The difficulty with the Bill hitherto has been that we have had just bare bones. As drafted, it does little more than is necessary to transfer the business of BTG to an unknown company on an unknown date. Until last week, the Government have added little except the rhetoric of privatisation. We are grateful for what the Minister indicated today. I hope that what he indicated is not cast in concrete because refinements may be necessary at the Report stage. Indeed I hope that the Government—they have been at some pains to stress their open mind throughout the passage of the Bill—will retain an open mind when we consider the detail of the draft proposed articles. I do not wish to add anything further at this stage.
I am sure that we are all grateful to the Minister for enlightening us. I cannot complain that he has taken the wind from my sails; there was none in my sails to start with. He has put wind into my sails. I am worried by what he said. He informed the House that Her Majesty's Government were seeking to give comfort to us with the Government's special share in BTG. He stated that we should derive great comfort from the fact that any substantial disposal of assets could not possibly come about without the approval of the special shareholder.
As the noble Lord, Lord Williams, made absolutely clear, the company will have assets which are not fixed or currency assets of a disposable quality. The real net worth of a company is in the people who work for it. I do not believe that the Minister's words give comfort. If the real net wealth of a company lies in the skill, experience and knowledge of those who work for it and that company moves elsewhere, it will wither on the vine. If one considers the position carefully, I do not believe that the statement is as much comfort as my noble friend suggests.
§ Lord Peyton of Yeovil
I have done my best, as I always do, to generate some enthusiasm for the measure, but I must tell my noble friend that so far I have failed. Nor have I encountered a great deal of enthusiasm in others.
I wish to ask the Minister one question at this stage which arises from his remarks. He referred to a 716 balance of power between their various interests—that is, between the interests of the new owners. I cannot help feeling that it is easier to talk of such a balance of power than to achieve or maintain it. I hope that before we pass from the subject, my noble friend will find it possible to make a few more remarks to enlighten us.
§ Lord Williams of Elvel
Perhaps I may intervene to thank the noble Lord, Lord Peyton, for what he said. I wish to come back to the terms of my amendment. The Minister made a general statement about his approach. My amendment specifically addresses the point for which the noble Lord, Lord Peyton, seeks an answer. How does one achieve a balance of power? If there is such a thing, is it not proper that Parliament should be told what that balance of power is, before the Secretary of State makes an order? That is the point of the amendment.
§ 4 p.m.
The Earl of Halsbury
I congratulate the Minister on fulfilling the promise that he made on Second Reading to bend over backwards in order to provide us with the memorandum and articles of association in time for our debate today. It is pleasant to see that he has kept his word which, I am sure, was the result of a great deal of hard work.
I am dubious about one aspect of the golden share provision. In this Chamber only last week the Government excused themselves from applying their rights under a golden share provision on the ground that there was an undertaking not to exercise their rights in a managerial context. Therefore, to some extent, I have doubts about the full provisions of the golden share idea.
I have two drafting points to make. They arise out of legal doctrines about which I am not an expert but about which I have heard sufficient to beware. The first relates to the exclusio alterius rule whereby, if one appends illustrations of a general term—for instance, any intellectual property—and then proceeds to list a number of such illustrations, one cannot thereafter argue that an item not on the list was covered by the generality. That is treacherous countryside which I do not pretend fully to understand. The remedy is usually to include in context some provision such as, "without prejudice to the generality of". That device is used at page 5 of the memorandum and articles of association where paragraph (T) states:To enter into any guarantee"—that makes the provision general—contract of indemnity or suretyship and in particular (without prejudice to the generality of the foregoing)".There is the avoidance of the exclusio alterius rule used at one point in the memorandum and articles of association. I should like the Minister to undertake to look at its applicability to the earlier illustration I gave. It is purely a drafting point. That is all I wish to say at this stage in giving general support to the noble Lord, Lord Williams of Elvel.
§ Viscount Caldecote
Can my noble friend make clear to the Committee whether the memorandum and 717 articles of association are to be finalised before the Bill is passed so that we may know precisely the form of that document, or will it still be in draft form?
§ Lord Williams of Elvel
Perhaps I may intervene again; I apologise to the Committee if I do so too often. I wish to direct the Committee's attention to my amendment. I understand that the Minister has made a general statement about the Bill. When dealing with subsequent amendments we shall have plenty of opportunity to discuss the status of the special share and the articles of association and whether they will be final by the time the Bill leaves this Chamber. However, the Committee is currently addressing itself to Amendment No. 1 which, in the words of the noble Lord, Lord Peyton, seeks to establish the balance of power. If the Minister says that there is to be a balance of power, Parliament should be told what the shareholding and the price is to be and how the whole deal is to take shape before the vesting order is made. That is the point of my amendment, and I should be grateful if the Committee would address itself to that point.
§ Lord Reay
The noble Lord has taken three opportunities to plug his amendment. He is right in saying that Members of the Committee have made general remarks in reply to my opening statement. That is understandable in view of the nature of that statement. They have also raised questions with which we can deal during the course of our debate.
Perhaps I may continue on the specific topic of the amendment. The amendment is technically flawed. However, I recognise that the noble Lord's intention is that the Government should disclose to Parliament the identities of the parties concerned and the sale consideration before shares in a successor company are sold. However, that would be unprecedented and in our view an impractical way to proceed. It would be unprecedented because none of the previous far larger privatisations that have occurred has required parliamentary approval of the purchasers in this way. This is an enabling Bill which seeks Parliament's approval for the framework in which the sale will take place.
The proposal is impractical because it would seriously hamper the sale process. We should not be negotiating in good faith and in confidence if, once we had concluded the deal, we were then to ask the prospective new owners to wait in the wings until we had sought further parliamentary approval. Prospective purchasers might well be deterred by the uncertainty involved in such an unusual process of seeking parliamentary approval. There could also be no guarantee that other interested parties might seek to reopen or challenge the sale process once details of the proposed sale come into the public domain.
It may be that the intention of the amendment is to ensure transparency in the sale process. Members of the Committee are concerned about the principles that will govern the privatisation and the kind of new owners that will emerge. The Government are clear what principles they will follow in this privatisation. First, we do not intend to sell BTG to a single industrial or commercial company. Secondly, we fully 718 intend to sell BTG to buyers who will take a long-term view and will want to continue its technology transfer activities. We shall look most carefully at the identities and intentions of the prospective purchasers to ensure this. Thirdly, there is a provision in the articles which prevents substantial disposals of assets without the shareholders' consent. Given that we have made our intentions clear, we believe that the amendment is unnecessary and for the reasons that I have set out it would be unprecedented and would make a sale extremely difficult. The Government must be free to negotiate and carry through the sale in a way that will not jeopardise the whole privatisation process. For that reason I ask the noble Lord not to press his amendment.
§ Lord Williams of Elvel
I shall press the Minister further because I do not believe that any of his arguments stand up—not the first, second, third or fourth. The amendment may be technically flawed but it is not the job of the Opposition to draft amendments as parliamentary counsel would draft them. Any argument from the Government Benches that the Opposition's amendments are technically flawed in some manner falls on very deaf ears. If the Government would like to provide us with 150 parliamentary counsel we shall get our amendments properly technically drafted. Until then I hope that we shall adopt the principle that has always obtained in this Chamber; that the Opposition draft amendments making their intention perfectly clear and if the Government accepts them they draft them correctly. That is the answer to that argument, and I hope that we shall hear no more of this technically flawed stuff as we go through Committee.
Secondly, as regards previous privatisations, the Minister has given the game away. The Government have simply taken pigeon-hole privatisation, drawn out what happened in respect of British Steel, British Gas, electricity and so forth, and said, "We will do the same again". But the privatisation of BTG is quite different from those privatisations. It will not be a public flotation nor a trade sale; it is a special deal. There are no physical assets worth the name; the company is totally concerned with people and intellectual property. Therefore, in order to achieve the balance of power among the shareholding, as mentioned by the noble Lord, Lord Peyton, the Government must give up the idea that it is exactly the same as previous privatisations. It is wholly different.
Thirdly, the Minister said that my suggestion was impractical. It is not in the least impractical. The Government can negotiate in perfectly good faith. They can crash their way round the City of London talking to institutions, banks and trusts. They can then fix a deal and will have a condition precedent to the contract which is the announcement to Parliament. There are plenty of conditions precedent to contracts for sale all over the place. That is absolutely no reason for rejecting the amendment.
Fourthly, the requirement of further parliamentary approval in order to make sure that Parliament understands that the Government have done their best to achieve the balance of power referred to by the noble Lord, Lord Peyton, and to obtain the best price 719 for the taxpayer while preserving the integrity and continuation of the business, which is based on intellectual property, does not seem to me onerous. I hope that the Minister can come up with some rather better argument.
§ Lord Meston
I wonder whether the Government have read too much into the amendment in the name of the noble Lord, Lord Williams of Elvel. My understanding is that at this stage he does not seek to invoke the affirmative resolution procedure. He merely requires that a statement is laid before Parliament; nothing more and nothing less. I join with him in failing to understand the argument that the negotiation would somehow lack good faith. It could not possibly lack good faith if both sides know the ground rules; and one of those ground rules will be, if this amendment or something like it is accepted, that there are those preconditions.
The Earl of Halsbury
On Second Reading I remarked that a friendly divorce had been agreed on and that we were now facing the problem of remarriage which, as Dr. Johnson said, represents the triumph of hope over experience.
I support this amendment and in particular subsection (1B). It is vitally important to have the right shareholding and the right people with the right ideas. One can see from the current BTG reports that the group admits that the pyrethroid insecticides have come to the end of their earning ability and that something else must be found. Those insecticides swam over the horizon at the very end of my term as managing director and have lasted for 30 years as the principal revenue earner. What will they be succeeded by? They are liable to be succeeded by another device which started at about mid-term of my managing directorship; namely, the Torotrak gear. It was initially known as the Perbury gear because it was invented by a Mr. Perry and a Mr. Bury. Their names were put together and the product was called the Perbury gear. However, it has now changed its name.
It is no longer a single development by BTG but is a joint project by BTG and Leyland. In the brochure one is invited to go to see it fitted to a Rover car. It is on the road. It has taken 35 years of patience and expenditure to see that through. That would not happen with shareholders impatient for short termism and profits tomorrow. Therefore, the future backers of the enterprise must be right minded. I believe it right that Parliament should be in a position to confirm that in its opinion the backers are right minded.
Why is that gear so important? It is a continuous variable gear from speed zero to speed maximum. Any gear ratio in the whole range is applicable. The result is that the computer control of engine performance is facilitated with fantastic results from the green point of view and as regards the composition of the exhaust gases. Unburnt hydrocarbon is down 33 per cent.; carbon monoxide is down 57 per cent.; carbon dioxide is down 80 per cent. and there is a beneficial effect as 720 regards fuel consumption, in miles per gallon, of 11.5 per cent. with a small deterioration in NOx. The brochure ends with the words:Come and talk to us. Test drive the new Torotrak CVT and prove to your own satisfaction that the Torotrak CVT really is the transmission of the future".It has taken 35 years of possibly heartbreaking failures to reach that point. That is why the board must have the right composition and that is why I support the amendment, particularly subsection (1B), of the noble Lord, Lord Williams of Elvel.
I have not tabled any amendments. I wished to simplify our proceedings and I thought it better to support amendments in the name of the noble Lord, Lord Williams, rather than to have a shot myself.
§ 4.15 p.m.
§ Lord Peyton of Yeovil
Before my noble friend replies I should like to take the opportunity to correct the noble Lord, Lord Williams, in one respect. The reference to the need to produce a balance of power between the interests of the different shareholders came from my noble friend and not myself. I asked my noble friend to say how he proposed in the first instance to achieve that balance of power and how the Government intended to ensure its continuation.
I hope that my noble friend is able to say rather more than merely putting another suit of clothes on the words. In my view that is what he did. He said that the Government intended to look carefully at the identities of buyers and their interests. I understand that. However, I am not yet satisfied as to how the Government will achieve the permanent enshrinement of a balance of power between the different shareholders.
§ Lord Reay
I take up the point made by my noble friend. A provision of the articles of association will be a 15 per cent. limit on individual shareholding. That will ensure that no one organisation can acquire a controlling interest in the company. To that extent there will have to be a balance of power in the ownership of the privatised company.
§ Lord Williams of Elvel
How will there be a balance of power just because nobody can own more than 15 per cent.?
§ Lord Reay
That is self-evident. If there is no controlling interest, by definition there must be a balance between the shareholdings, none of which will be above 15 per cent. As I said, that is our benchmark. Therefore, there must be a form of consortium which, by its nature, will provide a balance of power and interest.
I cannot pass over some of the remarks which the noble Lord made without commenting on them. He made heavy weather of the fact that I referred to a technical flaw in the amendment. I did not base a great argument on that. In fact, I brushed past it as soon as I decently could in order to meet him on his own ground as regards the principle behind the amendment. However, I should be failing in my duty to the Committee if I do not point out technical flaws where they have been detected.
721 I ask Members of the Committee who may be tempted by the noble Lord, Lord Williams, to reconsider whether this amendment is sensible. The Government are being asked to conclude a sale with some entity and then come back to this Chamber, state what the entity is, state what is to be the price of the sale and then seek the approval of the House.
I believe that to bring a deal into the public domain before it has been finalised and then ask for parliamentary approval is impracticable. It would invite all sorts of disturbances to the process of the sale. It would also act as a discouragement to potential purchasers to enter into the process of making a bid to buy the company. I said that it was unprecedented, but that does not surprise me. It seems to be a thoroughly bad idea.
§ Lord Williams of Elvel
It is unprecedented because this is an unprecedented privatisation. I must repeat that and I shall continue to repeat it all the while it does not get through the heads of Members of the Committee opposite. It is unprecedented and therefore we must look at unprecedented possibilities. There is no reason why this Chamber should not invent precedents. That has been done before and I hope that it will be done again.
Let us concentrate on practicability. It seems to me to be possible to do a deal with a consortium with what the noble Lord refers to as a balance of power, whatever that may mean. The noble Lord, Lord Peyton, corrected me for trying to put words into his mouth because they were the Minister's words. A deal is done. The condition precedent is that there is a statement to Parliament saying that the deal is done and a price is given.
That does not give an opportunity for anybody else to come in. The contract is initialled; contracts are exchanged; there is only one condition precedent and once that is fulfilled the contract is completed. Nobody else can come in once the deal is struck. It is only if Parliament, in its wisdom, decides that the Government have not achieved a balance of power or have sold to quite the wrong people, that we may experience trouble. Then we would have to pray against the order. Noble Lords know that praying against an order is an extremely difficult exercise.
It is a condition precedent purely for a contract of sale. I have been in the business of buying and selling companies for 20 years. I know that there are plenty of conditions precedent around when one has a contract of sale for a company. They do not allow anybody else to march in and make new bids. Exclusivity is granted to the buyer at the point at which contracts are exchanged and initialled. The noble Lord does not have a leg to stand on in the matter.
At this stage I do not wish to divide the Committee; that would be wrong. I shall certainly read what the Minister said and see whether I can glean any words of wisdom from it, although I am rather pessimistic about that possibility. In the meantime I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lord Williams of Elvel moved Amendment No. 2:722
Page 1, line 21, at end insert:
("( ) The Articles of Association of the successor company shall contain inter alia the provisions set out in Schedule (Articles of Association of the British Technology Group Plc) while the company is wholly owned by the Crown, and thereafter until altered by the affirmative resolution of both Houses of Parliament.").
§ The noble Lord said: In moving Amendment No. 2, for the convenience of the Committee I shall speak also to Amendment No. 6, which is consequential upon Amendment No. 2. In our previous debate we discussed the special share. These amendments specifically address the problems of the special share.
§ I shall take, first, Amendment No. 2. The problem with the articles of association at the moment is that the special share may disappear at any time and will, if the Minister's prediction is right, disappear after five years. At that time there is no guarantee that the articles of association will not be changed by any future shareholding body; in other words, Parliament will have no say whatever in the future articles of association of the successor company once the special share has been redeemed.
§ We regard that situation as unsatisfactory. In order to preserve the integrity of the business we believe that the articles of association of the successor company should be contained in a schedule to the Bill. Clearly there must be mechanisms for changing the articles of association should the shareholders decide, in their wisdom, that they want to do so. I am sure the Minister will say that Amendment No. 2 is technically flawed, but I shall pass over that for the moment. It incorporates a method of changing the articles by simple order in both Houses of Parliament to enable Parliament to decide, after this unique privatisation, whether or not the articles of association should be changed.
§ If the articles of association are not written in on the face of the Bill as a schedule, they would contain no serious guarantee once the special share is redeemed. It could be redeemed tomorrow—not in the calendar sense but the day after the company is sold—and the articles of association could then be changed at will by the new shareholders.
§ I have not tried to include in my proposed new schedule—Amendment No. 6—the entirety of the articles of association that the Minister was kind enough to produce. I focused on one specific issue; that is, the special share. The articles of association state, as the Minister said, that there will be a special share which will be held by one of Her Majesty's Secretaries of State, a Minister of the Crown or any other person acting on behalf of the Crown. Members of the Committee will notice a difference between my amendment and the existing articles of association. The present articles allow for a redemption of that special share either at the discretion of the Secretary of State after consultation with the company or at the end of five years, whichever is the earlier. We do not believe that that gives the company a proper guarantee for the future.
§ I note what the Minister says in regard to the Fifth Directive. I believe that the amendment is consistent with the philosophy of that directive. If it is not, then I do not understand why the Government are 723 privatising the company in the first place. Leaving that aside, it is possible for a special share to be "non-time limited"—if I may use that expression. At the same time, if that is challenged by the Commission, or anybody else in the European Court, and the United Kingdom lose, a mechanism exists under Amendment No. 2 for the articles of association to be changed to conform with that judgment, if that is the judgment that is handed down.
§ I want to start with a golden share unlimited in time. I will go further than the present articles, which draw attention to the rights of the special shareholder in the event of voluntary winding up, presentation or disposal of the whole company; I will go on to disposal of the whole or a material part of the assets of the group. Again I must remind Members of the Committee that we are dealing with intellectual property. I should like to feel that a material part will be confined to 10 per cent. of the assets rather than the higher figure contained in the present articles.
§ I accept that the amendments are not correctly drafted and need all kinds of adjustment to put them in proper technical form. But their effect is to make sure that the articles of association of the successor company—that is to say, privatised BTG—are a matter for Parliament and can be changed in specific circumstances only with the assent of Parliament. If that does not happen, there is no guarantee of permanency of the integrity and independence of BTG. That is the point behind the amendments. I beg to move.
§ Lord Meston
Between now and the Report stage we shall have to look carefully at the draft proposed articles most helpfully produced by the Government, and the proposals tabled by the noble Lord, Lord Williams of Elvel. I readily echo what he says, that at this stage it is not a case of arguing over the detail of drafting but of looking at the general principles. The general principles that he raises are of fundamental importance in this case. Generally speaking, articles of association are not unalterable. I wonder whether the Government intend that there should be any provisions in the articles which are not to be altered; if not, they are capable of alteration under the provisions of the Companies Act.
The Minister indicated his thinking behind the five-year period. However, the uncertainty which has troubled those who are most concerned by the Bill, is preserved by the provision to which the noble Lord, Lord Williams, referred; that is, allowing for redemption at any time. The concern as regards the Bill is not just asset stripping but asset preservation and the preservation of the long-term projects, such as those to which the noble Earl, Lord Halsbury, has referred, and which are part of the unique business of the British Technology Group. I perceive from the Minister's remarks, both now and at Second Reading, that perhaps the Government now appreciate that BTG has unique qualities best known to those who are most concerned about its future. It is for that reason that we have to look very carefully at the details of the articles of association and ensure that there is not too much provision for future change when these matters 724 are out of the hands of both the Government and Parliament. To that extent I support what the noble Lord, Lord Williams, has said.
§ 4.30 p.m.
The Earl of Halsbury
I support the amendment in principle. The matter is of such complexity that I would like further time to study it when I have read in Hansard the Minister's reply to the noble Lord, Lord Williams of Elvel. I received only yesterday the Government's memorandum and articles of association and I have not had time to do my homework. Therefore, I wish to reserve my position on the matter until the Report stage while giving a general blessing to the intention of the noble Lord, Lord Williams of Elvel, in the hope that we can find a formula to which everyone can agree. The most important factor is the acceptability of future shareholders to BTG itself. That is very important. Doubtless it has a part to play in selecting its future shareholders one of these days. For the time being I give the noble Lord, Lord Williams, my moral support, but I shall not follow him into the Division Lobby at this stage if he cares to divide the Committee.
§ Viscount Caldecote
I do not believe that there is any disagreement between Members of the Committee that transfer technology is of great importance to the prosperity of our manufacturing industry. I do not believe that there is any disagreement that BTG has done a first-class job and that it will do a better one in the private sector. I believe that we are all trying to find the best way forward to enable the company to continue doing the good job that it has done in the past. I have some sympathy with the proposal put forward by the noble Lord, Lord Williams.
My noble friend the Minister spoke a great deal about the balance of power. But is not the balance of experience just as important? To some extent we shall come to that matter in future amendments. For instance, it would be possible for insurance companies or financial institutions of various kinds to buy 60 per cent. of the shares of the company and have control of it. However, that might not always be desirable. We shall come to that point to some extent in the amendments to be moved by the noble Lord, Lord Flowers. Can my noble friend the Minister say something about that matter? The important thing is to have people in charge of the company who we are confident will carry on the good work that the company does now.
§ Lord Reay
Amendments Nos. 2 and 6 would have the effect of writing special share provisions into a schedule of the Bill itself. That would be entirely unprecedented even in the case of far larger privatisations such as British Telecom. It would be entirely unprecedented to write special share articles into the enabling legislation, which is what the amendment proposes. The Government have always retained the right and flexibility to retain the precise special share provisions appropriate at the time of privatisation. In the case of BTG, entrenching the special share in the Bill in this way would remove the flexibility which, in our view, is essential if we are to 725 achieve a sale and maximise the proceeds to the taxpayer. One reason is that we want to retain the flexibility to allow, if necessary, shareholdings above 15 per cent. We do not necessarily want to rule out a good consortium, some of whose members might have more than a 15 per cent. holding.
For example, would noble Lords rule out a 30 per cent. stake being taken, for example, by the CVCP? Members opposite might say that in that case one can seek parliamentary approval. The delay and uncertainty involved could well jeopardise the interest of the prospective consortia and therefore the privatisation itself I must insist that the Secretary of State needs flexibility, as he has always done on previous occasions.
Amendment No. 6 sets out special share provisions which go further than what the Government have proposed in two ways. At present the threshold set out in the draft articles which we have prepared is assets which represent either 25 per cent. of net asset value or assets which generate 25 per cent. of average income. One of the two main effects of this amendment is to reduce the present threshold for restriction on disposals of assets from 25 per cent. to 10 per cent.
We believe that 25 per cent. is the right limit. It is intended to prevent a sale of the whole, or a substantial part, of the business of BTG, without the consent of the special shareholder. BTG's council and management have been consulted on the articles and strongly supported the Government's proposal to have a 25 per cent. limit on disposals of assets. They are as concerned as anyone about the future of BTG's business. But they clearly accept that the asset disposals threshold must be set at a practical level to allow the business to continue to operate on a commercial basis.
A 25 per cent. limit would catch substantial disposals of assets without involving the Government in vetting every disposal above £3 million, which is what the limit would be in absolute terms if the percentage proposed by the noble Lord were accepted. It would be quite wrong for the Government to be involved in the business affairs of the privatised company in that way. Indeed, we are privatising exactly in order to remove this sort of petty constraint on the company. A limit on disposals which was pitched at an unrealistically low level like that to catch individual asset disposals would unreasonably involve the Secretary of State as special shareholder in making commercial decisions. The amendment proposes that the time limit of up to five years on the special share should be removed.
There is a recognised precedent that, in order to allow a business that is being privatised time to adjust to the private sector, the Government may decide to take a time-limited special share. This is precedented in many previous cases; for example, in the privatisation of Jaguar, British Steel, the water companies and the regional electricity companies. In all those cases the special share was time-limited. It is time-limited in such cases because it is only needed during the relatively short transitional period while the new business adapts to its new commercial environment. It is no part of the Government's 726 business to continue to intervene indefinitely in the affairs of such private sector companies. Our aim is to give them time to establish themselves and prove their track record. Once the new company has established its credentials, there is no reason why it should not be subject like any other company, or any of its competitors, to the full disciplines of the market.
§ Viscount Caldecote
I wonder whether my noble friend can help me on one point. If BTG in its new form is very successful and continues to increase its profitability and the usefulness of its technological transfer, would not the company be in even better shape in five years' time, just at the time when the protection of the special share is removed? Can my noble friend the Minister say whether the company would then be open to being taken over by a predator who might well take a short-term view of the situation and not enable BTG to continue to do the excellent work that it is now doing and which we hope it will continue to do indefinitely?
§ Lord Reay
I have explained why the time-limited share has to be as it is and why it has always been so. There is another reason which I touched on in my original statement as to why it is wrong to have an unlimited time share. It concerns the European initiative on the removal of barriers to takeover and the proposed European Commission Fifth Directive. It is quite likely that the directive may only allow derogation from the principle of equal voting rights in the case of privatised companies where it is time-limited. In the past unlimited special shares may have been used but the developments in Europe, and United Kingdom support for the removal of the barriers to takeover initiatives, together with the kind of business which BTG is, make an unlimited time for the special share inappropriate today.
§ Lord Williams of Elvel
Try as I might I cannot perceive any serious argument coming from the Minister, either responding to my points or, specifically, to the point made by the noble Viscount, Lord Caldecote. First, he says everything is unprecedented. What I have been trying to say—and I shall say it again and again until I am understood—is that this is an unprecedented privatisation. It is not like the regional electricity boards, British Gas, or anything like that. This is a technology transfer operation which employs 190 highly skilled people, whose assets are almost entirely in intellectual property and who perform a very valuable service. This is not another British Gas. Therefore, to claim that because it was right for British Gas, National Power, PowerGen, and all the other privatisations is absolutely no argument whatever for saying that it is right for BTG.
At the end of his reply the Minister referred to the proposed directive. This is a proposed directive which has a long way to go before it is finalised. There is nothing in existing legislation in the United Kingdom or anywhere else which would stop us having the special share permanent until somebody tells us we cannot do it. Nobody is telling us that at the moment. The point made by the noble Viscount, Lord 727 Caldecote, is absolutely right. If this company is as successful as we all hope it will be in either the private or the public sector—and if in the private sector we hope it will be successful—the time at which it will be most vulnerable to a takeover will be when the special share is pulled out. That will be the problem; so the whole thing will collapse on some predator coming in to take a short-term view of the value of the intellectual property involved. That is precisely what we are trying to avoid, but the Government do not seem to pay any attention.
We then get down to the question which is a fundamental dilemma of the Bill: do the Government want to see BTG in proper hands? By "proper hands" I mean a sensible long-term solid body of shareholders who will stay there for the long term—and it is a very long term—knowing that the sort of developments that the noble Earl, Lord Halsbury, referred to will be taken through. Or, to use the noble Lord's phrase, do the Government wish to maximise the proceeds for the taxpayer? I understand, intellectually, either possibility. The noble Lord is representative of the taxpayer. He can easily say, "Well, we shall flog the whole thing off for the highest price we can get. That's no problem". Indeed it is no problem for the Treasury. I suspect the Treasury is rather worried about the attention of the Public Accounts Committee in another place. Nevertheless, this is not the sort of company to fool about with. We have to get this into a shape where it has a proper shareholding, where the shareholding is long-term and constant and, in my view, where the special share continues without time limit. That is the only way we are going to secure the future of what is, as the noble Viscount, Lord Caldecote, said, an extremely valuable company from the point of view of the British economy.
I do not want to bang on too hard about this. I hope my message is gradually getting through to the Minister. I must say that I find his arguments wholly unpersuasive. He has not answered any of the points made by any Member of this Committee. He has simply relied on precedent and maximising proceeds to the taxpayer. The Committee has not got off to a very good start. I recognise, as the noble Lord, Lord Meston, said and as the Minister will no doubt say, that in its present form the amendment is technically flawed. I know that the Minister has not said that, but I admit that it is. However, I am trying to get at the point of principle, and it is the point of principle that I believe noble Lords have debated.
I hope the Government will take this matter away and consider it. The argument is being put forward not only by those on the Opposition and the Liberal Democrat Benches. There are important voices on all sides of the Chamber arguing for a sensible solution for this company. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.728
§ 4.45 p.m.
§ Lord Flowers moved Amendment No. 3:
Page 1, line 21, at end insert:
("( ) The Secretary of State shall not nominate a company for the purposes of this section unless he is satisfied that the memorandum and articles of association of the company make adequate provision for—
§ The noble Lord said: In speaking to Amendment No. 3 I shall, with the leave of the Committee, speak also to Amendment No. 4. Both amendments refer to the way that the Bill should reflect the proper interests of the research community in the constitution of the successor company. May I first apologise to your Lordships. Due to unavoidable absence abroad I was unable to take part in the Second Reading debate on this Bill. I shall resist the temptation to make a long and discursive speech now, partly because it is against the custom of the House to do so and also because were I to do so I should find it difficult to better the excellent speech already made by the noble Baroness, Lady Hollis of Heigham, at Second Reading. I am grateful that she joined me and other noble Lords in presenting these amendments because it is now clear that they have wide support in all parts of the Chamber.
§ I also take this opportunity to thank the noble Lord, Lord Reay, for having made the draft memorandum and articles of association available to your Lordships in time for the Committee stage. The Select Committee on Science and Technology, of which I have the honour to be the present chairman, has never taken a considered view about the future of BTG, important a matter though that is. However, it is an organisation well known to the members of that committee and at their meeting last week they made clear their concern that BTG should retain its essential independence of judgment when operating within the private sector. Accordingly, they encouraged me to write to the Minister about these documents believing them to contain the essence of the matter.
§ The memorandum and articles are encouraging but by themselves they do not suffice; they are permissive rather than prescriptive. The purpose of Amendment No. 3, particularly paragraph (a), is to ensure that the successor company has a duty to continue to undertake the kind of work presently done by BTG; namely, the development and exploitation of the intellectual property entrusted to it by institutions of higher education, especially the universities, and others active in research. It would ensure that the new company dealt with all intellectual property, not limiting itself to somebody's flavour of the month or to those items which happen to suit its more immediate commercial interests; for the business is by its nature essentially long term in character.
§ As the noble Earl, Lord Halsbury, illustrated so vividly, it is the willingness of BTG to look seriously at projects which are out of the main stream and that have so often underpinned BTG's success, earning it the respect of the research community. The Minister 729 said that that is understood by the Government; but it does not appear on the face of the Bill and that is what matters.
§ It has been said in another place and at Second Reading here that research councils, universities and, in the case of medicine, their teaching hospitals, provide some 70 per cent. of the intellectual property which BTG develops and transfers as appropriate to the commercial sector. Work at BTG is extremely important to them, returning some £8 million annually to inventors and their institutions. I have with me copies of many letters from vice-chancellors, and of course from the Committee of Vice-Chancellors and Principals, representing all the universities which make that very clear indeed.
§ This amendment will put on the face of the Bill the requirement that the memorandum and articles continue after privatisation to make adequate provision for this very important sector to participate in and influence the direction of the company. Without those safeguards there is nothing in the Bill to indicate what the company should be doing, or to differentiate it from many other companies; indeed, to reflect the unique requirements placed upon it. The memorandum and articles do not suffice by themselves because, as everyone knows, they can be changed by a vote of the shareholders at any time, and especially when government interest has waned as it inevitably will in due course.
§ Therefore, even though the draft memorandum and articles of association have been made available, for which we are indeed grateful, and even though the documents recognise the role of universities by making welcome provision for the appointment by the CVCP of a director of the company, the link with the universities and the research councils is so vital that it should find expression on the face of the Bill. Lest it be thought from anything I have said that I find these documents satisfactory in all respects, I should add, speaking as a former chairman of the Committee of Vice-Chancellors and Principals, that the CVCP is now seeking a professional opinion about them which should be available before we reach the Report stage. When I have seen that advice, I may feel inclined to press matters further.
§ Much the same considerations apply to Amendment No. 4 and so I shall not repeat myself. The amendment requires that there should be provision on the face of the Bill regarding the experience and capacity of the directors of the successor company. The special characteristics of BTG are by now well known to noble Lords and have been further rehearsed today. In order to preserve its essential features it is important that the directors of a successor company should understand and have extensive experience of the business of research and that this requirement should continue indefinitely. The proposed new clause would ensure that at least a third of the directors, in the opinion of the Secretary of State, met the requirement. This is no more than an extension of the present composition of the BTG council, which has eight members in addition to its chairman and chief executive, three of whom are 730 drawn from universities and research councils. Their first-hand experience of research is much valued by the BTG management. I beg to move.
The Earl of Halsbury
I support these two amendments in general terms. A little history may interest the Committee. When I became the first managing director I realised what a rich source of inventive supply the world of academia would be. I set out to gain its confidence. I had a rather unusual power of selection of future board members, due to circumstances which I described at Second Reading. I thought that the individual who was to become the late Lord Blackett would be my passport to the universities. He was pure academic. He was a Nobel Prize winner. He had everyone's confidence and became a member of the board in due course.
The next stage in gaining the confidence of the universities was to assure them that we were not trying to set up a monopoly of any kind in receiving the output of the universities. I toured every university in the country to explain that if the university wanted to do something itself it should go ahead and do it. If it found itself in difficulties it should ask for help; but if it wanted us to do something it had only to say so and we would do our best to respond correctly and give the appropriate advice. As a result, a tremendous amount of good will built up between the NRDC, as it then was, and the universities.
After my time it seemed appropriate to the Treasury that inventions made in universities with funds from the research councils should be directed to the NRDC. The Treasury made a pronunciamento to that effect as a result of which the universities were required to hand things over to the NRDC. The NRDC immediately forfeited the confidence of the universities. This became a matter of so much ill will that the Treasury ukase was put into reverse and immediately BTG regained the confidence of the universities. Therefore, to have on the council a membership which would enable the universities and research councils to participate in the direction of the company would merely be reverting to first principles. I support it entirely.
Amendment No. 4 is a slightly more elaborate version of the recital contained in the original Development of Inventions Act 1948. I have not had time to investigate fully but I do not think it involves any new point of principle. I support it. However, like the noble Lord, Lord Flowers, I want to make a study of what transpires in Committee. Therefore, I do not wish to see the amendment pushed to a Division at this stage. Nevertheless, it has my full support.
§ Baroness Park of Monmouth
I am not a scientist but I was involved while at Oxford with the whole question of our policy on intellectual property. I wish to endorse most strongly what the noble Lord, Lord Flowers, said. Indeed, I share the concerns expressed by the noble Lord, Lord Peyton, the noble Viscount, Lord Caldecote, and the noble Earl, Lord Halsbury.
In May 1985 the Green Paper on the development of higher education into the 1990s urged the importance of higher education seeking to derive more of its total income from sources other than the 731 taxpayer and the ratepayer. The British Technology Group offered, as a public institution, a very effective and acceptable way for many university scientists and engineers to exploit their inventions through its facilities for technology transfer. That intellectual property represents well over 50 per cent. of BTG's value. It seems only reasonable and right that BTG's successor company should be required to continue to serve in every way as well as before its most important source of supply.
Cast-iron guarantees are needed that such areas of support as, first, a degree of long-term strategic investment in developing new ideas and, secondly, energetic measures to protect patents, to litigate to recover royalties and to pursue infringement cases, should be as strong as before. The BTG has always emphasised the prime importance of being able to protect intellectual property effectively. This often requires a major investment of resources and expertise, as we have been told. Equally, the universities, the prime users, are rightly concerned about a privatised body proving reluctant on short-term commercial grounds to produce the sometimes speculative investment needed over many years to take an innovation from the experimental stage to the point where its commercial potential can be properly assessed.
The BTG has been willing to take a consistently long-term view, in keeping with its origins. Would a private company do that? The answer is almost certainly, no, unless specific provision is made in the legislation that the existing approach to the funding of innovation should continue as before. Such major technologies as magnetic resonance imaging, which is still being funded, and cephalosporin, an established success, owe their development to BTG funding. I am confident that the Government will see the force of the argument that these special aspects of BTG's work must be preserved.
The point which needs particularly to be recognised is that we cannot have it both ways; on the one hand, requiring universities to make research pay and to make it available for exploitation for the nation's good, and, on the other hand, in principle, proposing to transfer BTG's powers to a private company whose object is described in the articles of association as acting "for the purposes of the company". Hence our concern that there should be proper safeguards.
I had expected to speak separately to the other amendment. However, following the excellent example of the noble Lord, Lord Flowers, I shall not take the time of the Committee beyond making the point, which I think is important, that scientists themselves have always been happy to provide their intellectual property for the public good but they would possibly have very real problems if they were to doubt the conditions in which that intellectual property would be handled by a successor company.
§ 5 p.m.
§ Lord Peyton of Yeovil
When my noble friend replies to what is to my mind an eminently reasonable amendment, I hope that he will at least reflect some 732 concern or a belief that universities have a contribution to make and that inventors have some rights. So far as I can see from a First Reading of the Bill, neither of those important features are to be found in it. It cannot be assumed that investors will want to go to universities to seek their advice and be guided by it; nor can it be assumed that investors whose interests are, often enough, quite short term are the same as those of inventors whose interests are essentially long-term.
I return to the point which was first raised by my noble friend. I refer to the question of a conflict of interests. The Bill appears to be unconcerned with the issue. I appreciate my noble friend's difficulty in answering a quite simple question, for the very good reason that I do not believe a satisfactory answer exists. However, I hope that my noble friend will address the point in his reply that there is great unease about the Bill. So far as I am aware, there is no great enthusiasm for it. I am not at all sure who will gain from it. I should be most grateful if my noble friend could give us some idea on that aspect of the matter.
In such circumstances, I believe that it is up to the Government not just to talk—as they have frequently done—about the need for integrity, impartiality and independence; they must say very clearly how they will achieve those very desirable objectives.
§ Lord Kirkwood
Like the noble Lord, Lord Flowers, and the noble Baroness, Lady Park of Monmouth, the little I have to say in support of this amendment also applies to Amendment No. 4. Both amendments refer to the independence of BTG.
There can be little doubt about the success of BTG under its present chief executive, Ian Harvey. That can be gauged by the fact that the royalties earned last year exceeded the total earned by the entire US universities system and government research system combined. One can appreciate the argument for privatisation; namely, that further growth and success on the international scene could be inhibited by association with a UK government (of whatever hue), particularly in view of the great opportunities for business in Europe opening up in 1992.
However, a crucial part of the success of the enterprise is the perception by researchers in universities, polytechnics and government research stations, that BTG is an independent organisation anxious to secure the best deal for its customers in the market. Should the group lose that—by being taken over by a commercial enterprise interested only in short-term profits, in asset stripping or in obtaining favourable licensing terms for itself to the exclusion of competitors—then the goose will certainly fly from the BTG nest and may refuse to lay any golden eggs anywhere.
It is to ensure that the independence of BTG be written on the face of the Bill—and that is what BTG itself wants—that these amendments have been laid before this Chamber. I urge Members of the Committee to support them.
§ Viscount Caldecote
I support the general thrust of these amendments because I think that it contributes to the objective which I mentioned a short time ago; 733 namely, the continued prosperity and success of BTG. However, the significance of the amendments depends to some extent on the answer to the question which I raised earlier as to whether the memorandum and articles of association will be firm before the Bill is enacted or whether they will remain in draft form. I hope that my noble friend will be able to enlighten us in that respect.
§ Lord Williams of Elvel
I very much regret that my noble friend Lady Hollis is unable to be present in the Chamber today. However, if she had been here, as she has attached her name to the amendments, she would certainly have spoken in favour of both of them. I shall do the same.
In supporting the amendments, I slightly echo the remarks made by the noble Viscount, Lord Caldecote. Even though these amendments may mark an important step in preserving the integrity of the business as it stands, in my view they do not go quite far enough. I should prefer to have—this is why those of us on this Front Bench did not put our names to the amendments—a sort of arrangement where the articles of association (including the very desirable points enshrined by the amendments) are in some sense fixed in stone before the company is privatised.
However, I regard Amendments Nos. 3 and 4 as being important. They are important as expressions of principle because without such provisions in the Bill—and what is proposed I regard to be a minimal position—I simply do not believe that the integrity of the business will be protected over time.
§ Lord Reay
In replying to Amendment No. 3 tabled in the names of the noble Lords, Lord Flowers and Lord Kirkwood, the noble Baroness, Lady Hollis of Heigham, and my noble friend Lady Park of Monmouth, I should like, first, to point out that we have already taken into account the interests of the academic sector in the direction of the privatised BTG in Article 79 of the draft articles of association. I make this point especially to my noble friend Lord Peyton of Yeovil. The article provides for a director appointed by the university. To be precise, he will be appointed by the CVCP after consultation with the Committee of Directors of Polytechnics. That carries into concrete form part of the requirement of Amendment No. 3.
My noble friend Lord Caldecote asked me about the status of the draft memorandum. He was quite right to ask the question again. I apologise for not having answered it before. It is in draft form at this stage and we expect to stick to the principles which are set out therein. However, we must retain the ability to change the details if necessary.
I should point out that the draft memorandum placed before the Committee already sets out in some detail the activities of the successor company. Those activities cover technology transfer in far more detail than is the case in the proposed amendment. For example, perhaps I may draw the attention of the Committee to paragraph 4(A) (iii) on page 1 of the memorandum which sets out what the activities of the company will be. It says:To apply for, or join in applying for, purchase or by other means acquire and protect, prolong and renew, whether in the United Kingdom or otherwise any intellectual property rights 734 including patents, patent rights, brevets d'invention, licences, copyrights, secret processes, trade marks, registered designs, protections, concessions and the like, and to use and turn to account and to manufacture under or grant licences or privileges in respect of the same, and to expend money in experimenting and testing and making researches, and in improving or seeking to improve any patents, inventions or rights which the Company may acquire or propose to acquire".The privatised BTG will have the power to carry out its traditional technology transfer activities.
§ Lord Williams of Elvel
Perhaps I may interrupt the Minister for just a moment. I must point out that that does not impose any duty on the company whatever.
§ Lord Reay
I was, in fact, going to deal with that point.
As I was saying, that will give BTG the power to carry out its traditional technology transfer activities. The power will be utilised by new owners who wish to continue those activities. It is our intention to sell BTG to such new owners. But imposing a duty of this kind, which is what the noble Lord would like to do, would be meaningless unless it matched the intentions of the new owners. How could such a duty be enforced? To place a duty on the new owners in the articles of association to safeguard and exploit intellectual property of all kinds would take away from the company the ability to exercise the power in the memorandum as it thinks best in the long term commercial interests of the company. The articles of association constitute a contract between the company and each member. Therefore, it is those members who would have to enforce the duty in the articles imposed upon the company and they could not be required to do so. They would also be able to amend the relevant article by a special resolution.
The memorandum of the new company provides for such technology transfer activities to be part of the privatised BTG's business. But the crucial factor would be the identity of the new owners and their intentions. We intend to sell the company to owners who will continue the traditional business.
As far as Amendment No. 4 is concerned (I hope that the noble Lord, Lord Williams, is not listening) I must say that it is technically flawed if the intention is to effect the composition of the first directors of the privatised BTG. This is because we shall need to set up the successor company for BTG as a shell company before we vest the assets, property and liabilities of the NEB and the NRDC in its. The first directors of the BTG's successor company will therefore be purely nominal appointments to the shell company, probably civil servants from the DTI. They will not be the same people as those appointed by the new shareholders of the privatised company.
However, I accept that that is not the intention of the amendment and I shall therefore address the principle behind the amendment.
The Government fully accept the important role played by the academic sector in BTG's past development and the role which it can—and I have no doubt will—play in the future. We have therefore consulted the CVCP and listened to its representations. There have been two results of this process. First, as I mentioned, we have included a provision in 735 the articles for one director to be actually appointed by the CVCP in consultation with the polytechnics. Secondly, we believe that the CVCP is considering a proposal, which it is discussing with the universities and its financial advisers, to take a financial stake in the privatised company.
Those practical proposals, taken together, would go further than the proposed amendment in two respects. First, we are giving the power of appointment to the board to the academic sector; and, secondly, we are allowing for the possibility of a CVCP-held stake, which would result in the academic sector having further close involvement with, and a say in, the business of the privatised BTG.
If a CVCP stake in the privatised BTG materialises there may well be additional directors from the academic sector with relevant experience of research and its exploitation. I must emphasise that there is no reason why further such directors with relevant experience should not be appointed. Indeed, the articles we have presented are drafted to help keep open that possibility to the new shareholders. Article 80 specifically says that directors of the company do not require a share qualification. It will therefore be open to the shareholders to appoint further such independent directors as and when they wish.
We believe that such practical arrangements for the continuing participation of the academic sector in BTG's business should be welcome to the Committee. However, we do not believe that the Secretary of State should in some way dictate the composition and experience of the board. I accept that there will be a need for relevant experience on the board of technology, of intellectual property rights, and of public as well as private sector research. There will also be a need for commercial and financial skills. But it will be for the new owners to decide how to achieve the right balance. They will clearly bear all those factors in mind in making their appointments. We do not believe it is right for the Secretary of State to intervene in the composition of the board to the extent required by this amendment.
For those reasons I hope that noble Lords will not press the amendments.
§ Lord Peyton of Yeovil
Before my noble friend sits down perhaps he will consider what he said. I understood him to say that it is useless to impose duties on the new owners without knowing their intentions. That is what worries me most. I hope that my noble friend will understand that while it is interesting to have in front of us articles which reveal what is presently in the Government's mind, they are in no way the same as enshrining a principle in a Bill which we can amend. We cannot amend articles. I have the strongest objection to articles of association being used as anything other than an indication of the Government's present thinking. When the Government move from that and treat articles of association as if they were some alternative to legislation I feel very uneasy indeed.
§ 5.15 p.m.
§ Lord Williams of Elvel
If I may supplement what the noble Lord, Lord Peyton, said, there is absolutely no reason in law why the objects of the company should not be rephrased in the way that the noble Lords, Lord Peyton and Lord Flowers, require, and that should be enshrined in legislation. I am sure that the noble Lord, Lord Meston, would be delighted to offer his services, for a certain consideration, in order to draft the objects. If the Government lawyers cannot do it properly, we can do it for them. It is vitally important that a duty be imposed on the company. Otherwise—I will tell the noble Lord this absolutely straight—not only will the company not perform its duty but it will not be worth very much. That is the point.
§ Lord Reay
Perhaps I may reiterate what I said. By their nature the articles of association constitute a contract between the company and each member. It is therefore those members who would have to enforce the duty in the articles which would be imposed upon the company. There is nothing that could require them to do so. That is what I meant when I said that a duty such as would be required by this amendment could be enforced only if it matched the intentions of the new owners.
§ Lord Meston
To follow on from what the noble Lord said, he is quite right in saying that the objects in the memorandum do not bind the company. Like the noble Lord, Lord Peyton, I noted the Minister's remarks about matching the intentions of the new owner. The trouble is that we do know what the intentions of the new owner may be. Although the Minister drew our attention to paragraph 4A(iii) of the proposed draft memorandum, we could equally look at paragraph 4(Q) and see that the new owners can sell or dispose of any real or personal property or the undertaking of the company for whatever considerations they may approve. In other words, they can sell off the whole lot. It is not enough just to look at the memorandum and articles and say they give us assurances for the future. There has to be some statutory provision. The various amendments which we have heard today are directed at that.
§ Lord Flowers
I am grateful for the support that noble Lords all round the Committee have shown for these amendments, which are intended to preserve some of the essential features and independence of the BTG. I apologise if Amendment No. 4 is indeed flawed, but I think its intention is clear enough. I shall certainly take it back and look at it again before the next stage should it be necessary to reintroduce it in some form.
In response to the Minister, I readily acknowledge that there is some comfort for the research community in the articles of association. However, they do not stand part of the Bill. As I understand it, they can be changed by the company at will or at any rate by a vote of the shareholders. On the contrary, we seek something more permanent on the face of the Bill to guarantee the continuation of the essence of BTG.
737 From what the Minister said, it seems that the Government seek maximum flexibility in order to maximise immediate profits to the taxpayer—a worthy objective. However, they wish to do so at the expense of longer term benefits (through innovation in industry) to the economy and therefore to the taxpayer. The question is: where does the balance of advantage lie—in the short term, or in the long term? It is in the hope that the Government will reflect further on this important matter before the Report stage that I beg leave to withdraw my amendment.
§ Amendment, by leave, withdrawn.
§ On Question, Whether Clause 1 shall stand part of the Bill?
§ Lord Meston
Perhaps I may raise a matter that I mentioned at Second Reading. It concerns the thinking behind Clause 1(5) which provides for the revocation or variation of orders to name a day or to name a successor company. Rather than speculate on why the provision may be necessary, I ask directly why it appears in the Bill. I supplement that question by asking whether it is envisaged that there will be a time gap between the making of the order and the appointed day. It may be that this has just been inserted from an abundance of caution or there may be some specific purpose. I wonder whether the Minister can enlighten us.
§ Clause 1 agreed to.
§ [Amendment No. 4 not moved.]
§ Clause 2 agreed to.
§ Clauses 3 to 5 agreed to.
§ Clause 6 [Target investment limit for Government shareholding]:
§ Lord Williams of Elvel moved Amendment No. 5:
§ Page 4, leave out lines 26 to 28 and insert ("as to ensure that the beneficial ownership of more than ten per cent. of the successor company shall not be owned by a company which is not situated in the United Kingdom and which is itself not controlled beneficially or otherwise by persons other than United Kingdom citizens.").
§ The noble Lord said: This is in the nature of a probing amendment to determine the Government's attitude towards foreign ownership or foreign participation in the successor company. Some concern has been expressed in various quarters that the intellectual property which forms the assets of BTG could be valuable to foreign companies. Foreign companies may, as it were, club together. I realise that no one is allowed to own more than 15 per cent., but if, for example, four foreign companies clubbed together in one form or another through various vehicles, either inside or outside the United Kingdom, it would be possible for them to gain advantage of the intellectual property which resides within BTG.
§ I do not know whether the Government have considered the point. If so, what is their view? I should be grateful if the Minister would pay attention to it and let me know the Government's view. I beg to move.738
§ Lord Reay
Our reply is quite simple. On the question of foreign ownership, as no doubt many Members of the Committee will be aware, we are constrained by our treaty obligations with our European Community partners. We cannot exclude European Community nationals from share ownership or discriminate against them in any way. That would be contrary to our obligations under Articles 7 and 221 of the Treaty of Rome. We therefore cannot rule out potential buyers solely on grounds of nationality.
I wish to point out that in any case the special share provision that we envisage taking would prevent any one buyer—whatever its nationality—taking control of BTG. Article 42 of the draft articles placed before the House achieves that because it limits any individual shareholding from the United Kingdom or from overseas to 15 per cent. We are therefore only talking about a situation where there would be foreign investment in BTG, not overall foreign control of BTG by one organisation. Foreign investment in BTG is something that spokesmen of the party opposite were prepared to support in Committee in another place at the higher limit of 20 per cent.
We should not give the impression that we are in any way antagonistic towards foreign investment in British companies and in the British economy. An element of foreign investment in the privatised BTG could help it to raise capital and expand into overseas markets, continuing its development as a world technology transfer organisation. This development could in turn be of benefit to the longer term continuity and stability of the privatised BTG.
Perhaps I may again make the point to the Committee that BTG is already a world technology transfer organisation. Over 70 per cent. of its licence income comes from overseas. That is because technology is not parochial or limited by national frontiers; it is international. If BTG helps to develop United Kingdom inventions and license them abroad, that would be to the benefit of the United Kingdom because United Kingdom inventors then enjoy licence revenue-sharing agreements with BTG. I hope that that goes some way towards answering the question which the noble Lord raised.
§ Lord Williams of Elvel
I am grateful to the Minister. He went slightly off on the wrong tack. I am not in the least opposed to moderate foreign investment in BTG. That is obviously acceptable. I understand our Community obligations. However, let us take the case which may be hypothetical, but it could happen: seven Japanese companies club together and each takes one-seventh of the company. They offer a price which the Treasury cannot resist, 50 per cent. higher than any other bid that the Treasury received. Having respect for the Public Accounts Committee in another place, the Treasury has to accept it. Is that a situation with which the Government are comfortable?
§ Lord Reay
The noble Lord asks an extremely hypothetical question. He invites me to consider a situation in which no United Kingdom investors come forward, but we certainly expect United Kingdom 739 investors to come forward at the appropriate time and to offer to take stakes in the privatised company. Of course, any such offers from United Kingdom bodies will be considered on an equal basis with all others. We do not intend to discriminate, nor can we on grounds of nationality.
I wish to make another point. As the noble Lord knows, whether they are foreign or United Kingdom investors, they will not be able to acquire more than a 15 per cent. shareholding in the privatised company. That will prevent effective control going to a single foreign company, as I said. However, any grouping of companies acting together would likewise be caught by the special share provision.
§ Lord Williams of Elvel
I am not sure that the Minister has answered my question. To prove that Japanese companies and banks are acting in concert is an extremely difficult operation, as I know from my past career. Nevertheless, I hope that the noble Lord will pay some attention to this point. When we come to Report, perhaps he will have a slightly more satisfactory reply. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 6 agreed to.
§ Clauses 7 to 17 agreed to.
§ [Amendment No. 6 not moved.]
§ 5.30 p.m.
§ Schedule 1 [Provisions Supplementary to s.1.]:
§ Lord Williams of Elvel moved Amendment No. 7:
Page 10, line 48, at end insert:("and
(c) the NRDC Group Pension Fund including any accrued surpluses shall remain solely for the benefit of the members of the fund and their dependants and shall not be used by the successor company for any other purposes.").
§ The noble Lord said: In moving Amendment No. 7 I shall speak also to Amendments Nos. 8 and 9. These amendments collectively address the problem of the NRDC group pension fund. The Committee will be aware that the pension fund is governed by a trust deed. There are seven trustees of whom three are appointed by the employer. BTG has had a good record in appointing employees rather than non-employees as trustees. The election of trustees was introduced by the NRDC. The unions are particularly anxious that this practice should continue. We would like to see the practice safeguarded in the legislation.
§ Similarly, the present arrangements for pensions allow an inflation-linked principle which is common throughout the Civil Service. However, that does not necessarily flow into the private sector when a company is privatised. I should be glad to hear the Government's views on that. I recognise that Amendment No. 7 may be going a little too far in trying to ensure that surpluses in the fund accrue for the benefit not only of members of the scheme but also for past members; that is, pensioners. There may in future—I stress the words "in future"—be occasions when it may be appropriate for an employer to take a holiday from pensions contributions. I emphasise that that only applies to the future because at the moment public funds—that is, indirectly, taxpayers' money 740 —have entered the NRDC fund. It would be a mistake to allow the fund to be stripped in any way by a future privately owned company for the benefit of private shareholders.
§ Amendment No. 8 concerns the trust deed of the scheme. I understand that at the moment it is under revision. The trust deed states that all employees of BTG who are over 21 may join the scheme but, upon reaching the age of 30, all employees must join and the trustees must accept the employer's word as regards who is or is not an employee. It seems appropriate to give the trustees discretion as regards who to accept as a member, as that would help to protect the fund against the possibility of a future employer flooding the scheme with members who were not strictly employees.
§ Amendment No. 9 is designed to ensure that if unsuitable members are nominated for the scheme, they will not be allowed to join it. These are probing amendments. I am trying to ascertain the Government's view on the future of the NRDC pension fund. I beg to move.
The Earl of Halsbury
I declared an interest in this matter on Second Reading. If the Committee accepts the amendments, I am sure that I and my fellow pensioners will be duly grateful.
§ Lord Reay
I understand entirely the sentiments underlying the three amendments which the noble Lord has tabled. I share his concern to see that the rights of past and present members of the pension scheme are protected after privatisation and that surpluses which have accrued over the years are not dissipated to the detriment of the underlying financial viability of the fund. At the same time we should bear in mind when considering these amendments the importance of striking a fair balance between the rights of employees and those of employers.
Amendment No.7 provides for any accrued surplus to be used solely for the benefit of the members and not to be used by the successor company for any other purposes. It is designed to ensure that both the present surplus and any possible future surplus has to be used to improve benefits. It will effectively prevent the employer taking a contributions holiday or taking a refund of a surplus while the scheme is ongoing, or a refund or a surplus should the scheme be wound up. In the Government's view the amendment is undesirable and would fall foul of statutory requirements, particularly the Income and Corporation Taxes Act of 1988, and the NRDC trust deed.
Paragraph 2 of Schedule 1 already provides a comprehensive provision which ensures that the only effect of vesting on existing agreements is to substitute the successor company for the corporation and the board. Thus if a pension arrangement or a contract of employment applies before vesting, it will apply after vesting. The successor company is simply substituted for the corporation and the board. Paragraph 4(1) (b) goes on to state specifically for the avoidance of doubt that Clause 1 of the Bill, 741is effective to vest the rights and liabilities of the Corporation or Board under any agreement or arrangement for the payment of pensions, allowances or gratuities in the successor company".It is not for the Government to dictate how accrued surpluses should be treated, much less to direct that they should, in BTG's case, be used solely for the benefit of the members of the fund and their dependants to the exclusion of the successor company. The Inland Revenue lays down limits on the amount of pension an individual may receive and the amount of assets the fund may hold and still receive tax exemptions. The surplus could not be used to increase benefits beyond Inland Revenue limits without jeopardising the tax exempt status of the scheme.
If the surplus assets in the fund exceed 105 per cent. of the scheme liabilities, there would be a statutory surplus within the meaning of the Income and Corporation Taxes Act 1988 and the excess funds would cease to attract favourable tax treatment. In order to avoid any tax charge, the scheme assets may be reduced by the following methods: making payments to the employer; suspending or reducing contributions of the employer or the employees; and increasing benefits under the scheme.
It would be wrong to deprive a successor company of the full range of options for dealing with a surplus when these options are themselves laid down by statute. Such matters are inevitably a matter for discussion between an employer and the trustees of the pension scheme and with the wider membership, particularly through trade union representation. Precedents from court cases have shown that it is extremely difficult for an employer to take unilateral decisions in relation to the pension scheme to the detriment of members, particularly as regards the use of surplus funds.
In addition the amendment would preclude the refund of any surplus to the employer in the event of a winding up. This would be contrary to Inland Revenue rules which require any surplus on winding up to be refundable to the employer. The NRDC group pension fund rules also provide for a surplus on winding up to be refunded to the employer. If this amendment were approved, the pension fund rules would be incompatible and would need to be changed. If such a situation were to arise, there is a danger that the scheme would lose the approval of the superannuation funds office and would have to be wound up. I am sure that no one in this Committee would wish to see that happen.
It is a matter for the trustees of the pension fund who are independent of BTG management and the Department of Trade and Industry to deal with any surplus. The scheme is already adequately protected in that the actuary is appointed and selected by the trustees and is therefore outside the control of the corporation. In practice it is likely that any accrued surpluses will in future continue to be dealt with on actuarial advice in the same way as before; namely, by improved benefits to members and by a contribution holiday for the corporation.
Amendment No. 8 gives the trustees a discretion on whether a new member should be admitted or not. The purpose of the amendment is to prevent an employer 742 requiring the trustees to admit members who are inappropriate, for example because either singly or together they would be a financial burden on the fund.
The reality is that the trustees already have significant control over the introduction of new members in that they have a discretion to refuse to accept a transfer of past service benefits if, for example, they are not adequately funded.
Therefore, although the employer may determine who is eligible to join the scheme for future service, it is the trustees who have a discretion to admit members in respect of past service through their control and the acceptance of transfer payments from other schemes. That is equally true of individual and bulk transfers into the fund. The trustees can therefore ensure that the scheme receives adequate funds in respect of the past service of such new members. Further, as the trustees effectively control the contribution rate (by appointing the actuary) they can also effectively ensure that future service is also adequately funded.
We must also take account of employment law considerations. The provision of a pension scheme is a part of the terms and conditions of employment and is a benefit provided by the employer for its employees. It would be untenable to have a position where the provision of pension benefits is denied to an employee by the trustees of the scheme as that could possibly place the employer in breach of contract. The role of the trustees is to administer the operation of the fund and oversee the payment of benefits and not to decide who receives benefits—that is the role of the employer. For those reasons that amendment is unnecessary and undesirable.
I turn now to the last of the three amendments, Amendment No. 9. The effect of that amendment would be to remove the employer's present right to veto the nomination of any elected trustee and to lessen the control which the employer has over the constitution of the trustees, thus ceding more control to the employees.
The amendment is unnecessary in view of the fact that under the present scheme the employer does not have an unfettered right to veto a nomination for an elected trustee. The procedure for the election of elected trustees is laid down in the rules of the scheme. The starting point is that any three members of the scheme may nominate any other member who is an employee for at least one calendar year to be an elected trustee. The corporation has a right to veto any such nomination, but that right can only be exercised after there has been full consultation with the recognised trade union and if in the opinion of the corporation the person nominated is unsuitable to be a trustee.
So far as concerns the suitability of trustees there is a perfectly sensible procedure under the present scheme to ensure that suitable members are put forward for election. The consultation process ensures that the right of veto can be challenged and is not a blanket veto. Being a trustee of a pension scheme involves onerous obligations and is not a position which should be taken up lightly.
The independence of the trustees is further protected by the appointment of an additional trustee 743 as chairman. He has a casting vote when there is an equality of votes and has traditionally been chosen for his independence. His appointment must be approved by the other six trustees. Further, the trustees are required under trust law to act in the best interests of the members or risk personal liability. The use of a trust in itself acts to ensure that decisions are made with the interests of the members being properly taken into account.
I hope that in the light of that explanation the noble Lord will be reassured that adequate protection already exists under the present scheme and that he will see fit not to move the amendment.
§ Lord Williams of Elvel
I am most grateful to the Minister for his lengthy explanation of the rather complex position regarding the fund. I shall have to read through what he has said very carefully with my advisers before deciding what to do at the next stage.
There is only one point of principle I wish to make. While the company has been in public ownership, it has been public funds—indirectly taxpayers' money—which has gone into the fund. It would be a great mistake if the taxpayers' money were allowed to be stripped out by a future private owner for the benefit of private shareholders.
In the light of what the Minister has said—and I shall have to read Hansard very carefully when it comes out—I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 8 and 9 not moved.]
§ Schedule 1 agreed to.
§ Remaining schedules agreed to.
§ House resumed: Bill reported without amendment.