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Crown Agents

Volume 897: debated on Saturday 16 August 1975

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With permission, I wish to make a further statement about the financial position of the Crown Agents and other matters relating to that organisation.

My predecessor announced in December 1974 that the Government had agreed to provide a recoverable grant of £85 million to the Crown Agents to cover the writing down of asset values in their 1974 accounts as then foreseen and to provide financial backing appropriate to their operations, and that standby facilities had also been arranged with the Bank of England.

I have now received the audited accounts for 1973 and 1974 and have placed copies in the Libraries of both Houses. The balance sheet as at 31st December 1974 shows that the Government grant of £85 million was not enough in the event to avoid a technical state of insolvency, with liabilities exceeding assets at that date by some £15 million. This was because a greater degree of writing down of asset values and provision for losses were found necessary for the period covered by the accounts.

I should emphasise that the Crown Agents have no immediate liquidity problems. They have still not needed to draw on the £85 million grant or on the standby facility. I am also reassured by the thorough and energetic action which has already been taken by the new Board of the Crown Agents, under its Chairman, Mr. Cuckney, to clear up the problems of the past and lay the groundwork of a more soundly based future for the organisation. I should like to pay my own tribute to their efforts.

Nevertheless, without Government backing the Crown Agents would at present be in a difficult position, which could affect the confidence of depositors and others. I have therefore thought it desirable formally to reaffirm the assurance given by my predecessor in December 1974, that Her Majesty's Government stand behind the Crown Agents. Hon. Members will find the terms of my assurance to the Chairman in his covering report on the 1974 accounts, and I emphasise now to the House that the Government wish to see the Crown Agents continue in being for the sake of the valuable services which they are able to render both to their many overseas principals in the developing world and to Her Majesty's Government in their relations with overseas countries.

Like my predecessor I am, however, concerned that the future activities of the Crown Agents, and their relations with Ministers, should be on a more closely defined basis. The Government have been giving much thought to the future status structure and functions of the Crown Agents. We have decided that the right solution will be to introduce legislation which would confer independent legal personality on the Crown Agents by incorporating them, define their functions for the future and provide that specified powers of direction should rest with Ministers.

This would create a well understood relationship of a kind which exists between a number of bodies in the public sector and the Ministers responsible for them. It would clarify the responsibilities of the Government in exercising the broad oversight over the activities of the Crown Agents that has been shown to be desirable by all that has happened; while leaving it to the Board to run their own day-to-day affairs. It would not disturb the traditional relationship between them and their principals.

My predecessor told the House in April that she hoped to publish a White Paper during the present Session giving the Government's thinking on these matters. I shall not quite be able to meet that target, but I hope to publish a White Paper shortly to set out our present view of the provisions which will or may be required in the legislation to incorporate the Crown Agents.

Meanwhile, I should inform the House of a further complication arising from the past activities of the Crown Agents which will have to be dealt with separately and in advance of this legislation. I was informed in August by the Chairman that certain loans made by the Crown Agents either directly or through a nominee company might be challenged as unenforceable, on the grounds that the Crown Agents were neither licensed moneylenders under the terms of the Moneylenders Acts nor a bank for the purposes of those Acts. The Crown Agents are advised that if this matter were brought before the courts, they would have a good defence particularly on the basis that they and their staff are exempt from the operation of these Acts as Crown servants. However, if there were a challenge in the courts the matter might take a long time to resolve. Meanwhile the Crown Agents' financial position might be seriously worsened by the withholding of loan repayments and interest due, and in other ways.

This would increase the potential call on the Exchequer for financial support for the Crown Agents to a degree which we should find quite unacceptable in the circumstances. It would mean that a heavy additional liability would fall on the public purse, and that other creditors of those property and other companies to which the Crown Agents had made loans would be in a position to benefit by taking advantage of an uncertainty in the application of legislation. I think it is essential to put this anomalous situation right. The Government will therefore introduce a Bill, for consideration as early as possible in the next Session, to put the matter beyond doubt.

These are serious and disturbing figures, and no doubt at the appropriate time we shall wish to discuss how the Crown Agents, with their great traditions, got into this situation, but I imagine that we shall have to await the report of the Fay Committee, which will have all the facts before it.

The Crown Agents are a considerable asset to this country and provide very valuable services to their principals overseas. The Minister can therefore take it from me that we support him in his desire to give all the help he can to the new chairman and the new Board.

With regard to the legislation, will he take note that we shall look carefully at the actual proposals, bearing in mind that the main need of legislation at this stage is to ensure the confidence of the overseas principals in the Crown Agents?

I thank the right hon. Member for his statement. He has reminded the House that the events of recent years, which have given rise to great concern, are being considered by Judge Fay and colleagues working with him. They will, I think, take a few more months to complete their work, but obviously then there will be an occasion for a wider discussion of what has happened in the past.

With regard to the future, I am very glad that the Opposition agree with us that the Crown Agents perform a very valuable service which should continue and that we should give them the appropriate support.

I, too, welcome the steps that the Minister has mentioned this afternoon. Will he confirm that, if this were a private company, it would be insolvent, and will he give an undertaking to the House that the inquiry being made into its operations and finances will be made public and published to the House?

The answer to the latter point is, "Yes". I think the answer to the former point would also be, "Yes". It will not have escaped the attention of the House that a great many private enterprise companies—if "enterprise" is the appropriate word—got their fingers pretty severely burned in the property market, and in secondary banking and activities of that kind.

May I welcome very much my right hon. Friend's statement, and particularly the policy that is to be pursued in terms of the future incorporation of the Crown Agents. I am quite certain that that is the right course to pursue.

May I also say that I very much hope that the Fay Committee of inquiry will go very deeply into the causes of the misadventures of the past, which were, as he said, largely concerned with adventures in the property and secondary banking sector.

May I also say to him that I totally share his own confidence in the future of the Crown Agents and in all the tremendous and very difficult work that the new Board and the new chairman have carried out since they were appointed a year ago.

I am grateful to my right hon. Friend for the way in which she has put those points. I think that, in relation to this whole rather tangled story, a tribute should be paid to her, first, for the work she did from the Opposition Front Bench in probing into these matters and persistently questioning the Government of the day, and secondly, for the prompt action she took on assuming office, and particularly the directions she gave to the Crown Agents, which have provided a framework within which they are now working, and which they are fully implementing.

Arising out of the last part of the right hon. Gentleman's statement, will he give an assurance that the legislation, the introduction of which he is contemplating, will not be retrospective to the extent that it weakens the present legal position of one of the parties to the possible legal controversy to which he referred?

The House will be glad to know that we have in mind a very short Bill which will clarify the position about which there is some doubt. It will not alter the law as most people understand the law but will simply clarify it, so as to avoid the situation which I described in my original statement. If that were not done, there might be a period of uncertainty, which could be most damaging to the Crown Agents and conceivably to public funds.

Will the Minister accept that some of us have almost exhausted our capacity for surprise at the successive manifestations of incompetence which have been shown in running the Crown Agents, and that this shows how unwise it was for the House of Commons Select Committee on Overseas Development just over a year ago to terminate its investigation of the Crown Agents, which might have revealed this latest example of incompetence a bit sooner than it has been revealed?

Are we to understand that there will be two Bills, one the declaratory Bill on the point he has just mentioned and the other on the relationship of the Crown Agents to Government and Parliament? If there are to be two Bills, will the second Bill be produced in the immediately forthcoming Session as well as the first?

Secondly, may we be told what is the state of play on the papers which were referred to the Director of Public Prosecutions in respect of some of the staff, and how many of the staff of the Crown Agents have either been dismissed or are currently suspended pending investigations?

My hon. Friend also played an active part in helping to draw attention to all the things that had gone wrong in the past, and I pay tribute to him for that. But I think he was wrong in saying that I had revealed some further example of incompetence. I have drawn attention to a legal doubt which has arisen and which might be damaging, unless it were corrected, to the finances of the Crown Agents.

I think that the story of recent months has been a success story. The Crown Agents are disengaging as fast as they prudently can from the wrong type of investment in which they were engaged in the past. Their current activities are succeeding, and their overseas principals, including 120 different Governments and a number of other organisations, show continuing confidence in them.

As to my hon. Friend's question whether there will be two Bills, I envisage a very short Bill on the narrow legal point that I mentioned. I also envisage a White Paper, very shortly, which will itself lead to further legislation, though not quite as quickly—probably not in the next Session.

With regard to his point about the Director of Public Prosecutions, I have nothing to add to the reply that my hon. Friend the Parliamentary Secretary gave in January. This matter is still with the Director of Public Prosecutions. It is taking a long time. It is not a matter over which I have any control.

I do not have a figure for the number of staff dismissed, but I will look into it and give my hon. Friend any information that I can.

The Minister has made it clear that the financial position of the Crown Agents depends to a certain extent on the delicate question whether they acted as bankers or as moneylenders in certain transactions. However, he was somewhat ambiguous in his reply to my hon. Friend the Member for Horncastle (Mr. Tapsell). May we have an explicit assurance that the legislation which the right hon. Gentleman contemplates will not retrospectively affect bodies and individuals, persons and partnerships who have been involved in transactions with the Crown Agents and who may even currently be in litigation with them? Some of those involved are themselves in financial difficulties. I understand that one company is in the hands of liquidators. It would be grossly unfair if these matters were clarified retrospectively in a sense unfavourable to those other parties.

I am sure that the House would consider it unfair if the Crown Agents were unable through a legal technicality to recover money owing to them. That is what we seek to clarify and to ensure by this short piece of legislation which I propose to introduce.

Is not the truth of this whole affair that a large sum of money was available for investment and was invested mainly in slum property empires, just like the investments of many private companies, some of which have been referred to already? The fact is that the Crown Agents got their fingers burned as a result of those investments because of the escalation of property values and the subsequent falling-off in values. Are we to take it that this tiny group of people, who have squandered someone else's money and subsequently have had to use large amounts of the British taxpayers' money to try to remain solvent, apparently without success, will be dealt with in accordance with so-called British justice? Will my right hon. Friend assure us that if there are to be bankruptcy proceedings against these people, as there ought to be, they will be dealt with in the same way as the 11 people at Clay Cross about whom my right hon. Friend knows so much—having their cars and furniture taken away because they acted not in accordance with wanting to line their pockets and someone else's but in accordance with high moral principles?

There is a tremendous temptation to debate Clay Cross with my hon. Friend but, unfortunately, that would be out of order. Perhaps we might continue that argument somewhere else. The events which we all deplore are under investigation by Judge Fay and two other distinguished people. I shall await their report, and that report will be made known to the House. Then we can debate these matters. I do not think that any of these proceedings are helped by the cheap sneers which are typical of remarks by my hon. Friend the Member for Bolsover (Mr. Skinner).

Is the Minister aware that the Public Accounts Committee endeavoured to look into these matters in past years but was prevented from doing so because the accounts were not audited by the Comptroller and Auditor-General? Will the new arrangements put the accounts under the authority of the Comptroller and Auditor-General so that the Public Accounts Committee may deal with these matters, or will they be matters for the nationalised industries' accounts?

The accounts which have been placed in the Library today have a commentary by the Comptroller and Auditor-General. Therefore they could be studied by the Public Accounts Committee if it saw fit.

My right hon. Friend has made a low-key statement, but is not this a profoundly unsatisfactory state of affairs? Will he reconsider the points made by my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham)? Does not this call for a public inquiry under the Public Tribunals Act? Will my right hon. Friend also say how much additional money will be required in the interim, since the subvention provided by his predecessor, as he said, clearly proved inadequate? Finally, may I congratulate my right hon. Friend on the fact that his strident aversion to nationalisation is not wholly inflexible?

It is an unsatisfactory state of affairs, of course. My hon. Friend described my statement as "low key". The simple reason is that it is a sequel to two statements to the House by my predecessor which dealt with the matter far more fundamentally. As to whether there should be a study by a tribunal, there is a study being carried out by Judge Fay helped by Sir Edmund Compton and an accountant, Mr. Peter Godfrey—

This is taking place in private. That was thought right, and it was not challenged in the House when it was first announced. But there will be a public statement about it in due course.

As for the amount of additional money that will be needed, the significant point is that the £85 million of standby facilities at the bank has not been used. What we are saying is that there will be continued Government backing. Whether the money will be used and to what extent it will be needed, we cannot foretell. That depends on many imponderable factors in the future. Certainly I shall keep the House informed of any significant developments.

Although we welcome in general the proposal about the future state of the Crown Agents in their incorporated form, subject to any study of the White Paper, may I ask the right hon. Gentleman to be more clear-cut about allowing freedom in day-to-day management and perhaps, in that context, stress what he omitted to say in his statement that, in addition to serving their overseas principals and the Government themselves, the Crown Agents are serving as a form of direct and invisible exports which are of value to the country? I hope that that side of their activities will be strengthened and encouraged in the future.

The operations of the Crown Agents are of great value to the country in many ways that we cannot measure, because their activities create opportunities which lead indirectly to further investment, exports and so on. The work which they do in training people overseas is of help and of indirect benefit to this country, too.

As for the details of the division of powers between the Minister and the Crown Agents when they are incorporated, I ask the hon. Gentleman to await the White Paper. We are still considering that. But we envisage something broadly comparable with the relationship which exists already between many Ministers and the nationalised industries. I am sure that the House would not want a Minister in this House to answer for day-to-day decisions. One difficulty at the moment is that the situation is so unclear in the constitutional sense and needs clarification by new arrangements of this kind.

I am grateful, Mr. Speaker, for being allowed to intervene a second time. Will my right hon. Friend confirm to a number of my hon. Friends, first, that the problem about holding a public inquiry, which was considered very carefully at the time, is that a great deal of the evidence which has to be given to the Fay Committee has to come from companies and banks, is highly confidential and would not have been forthcoming at a public inquiry? Will my right hon. Friend assure them also that those against whom it is possible that charges might be made are under study by the Director of Public Prosecutions? Will he assure them, further, that although a great deal of Government money has been required to sustain confidence in the Crown Agents and to provide standby credits, it has not been spent or needed to be spent?

I think that I can give an affirmative answer to all three of my right hon. Friend's questions. I made reference in my original statement certainly to her latter point about the money not having been drawn upon, and I am glad that my right hon. Friend underlined that.