I beg to move, That the clause be read a Second time.

In the 10 sittings and nearly 30 hours of the Committee stage, there was a common thread to our arguments. Our charge throughout the proceedings on the Bill has been that the abolition of the British National Oil Corporation will weaken and undermine many aspects of the security of our oil supplies. We believe that BNOC's control over about 800,000 barrels of North sea oil represented one of the vital means of ensuring our supplies in times of shortage.

The Minister of State, Department of Energy argued repeatedly in Committee and on Second Reading that he had a combination of powers and arrangements to ensure the security of our oil supplies. One part of that combination·and, therefore, a part of the right hon. Gentleman's defence in supporting the abolition of the BNOC—was that he had a series of security-of-supply assurances from the major oil companies, particularly those with refining capacity in the United Kingdom. Therefore, the right hon. Gentleman claimed that he could afford not to activate the participation agreements for six or 12 months.

I asked the Minister on Second Reading about the character of those assurances. He said that he could not give us information at that time, but would consider enlightening us in Committee. However, he said that the assurances from the major oil companies were informal.

The matter was not raised in detail in Committee—the new clause breaks new ground—but we put some sensible and reasonable questions to the Minister about his dependence on those assurances. He told us that he could say no more than he had said on Second Reading, which was very little.

Therefore, we need further advice from the Minister about the nature of the assurances that he has received. We believe that the assurances should be formal agreements with the oil companies. My support for that view was strengthened when I read an article in today's Financial Times about a letter that might be typical of the assurances on which the right hon. Gentleman is dependent.

The right hon. Gentleman will have seen the report in the Financial Times about the letter of assurance from BP to the Department of Energy. Is that typical of the informal assurances that he holds from the major oil companies? Are they in the form of a letter from an oil company manager to a civil servant at the Department of Energy? The illustration in the Financial Times is not even a letter from an oil company chairman to the Secretary of State for Energy; I do not know whether a letter from a chairman would increase or diminish the strength of the assurances, but it gives us no comfort to believe that the assurances may be only informal letters from oil company managers to civil servants.

The second and revelant question is whether, if the letter mentioned in the Financial Times is a typical example of the assurances, the right hon. Gentleman has received any advice about the contractual strength of those assurances. Would such an assurance be legally binding if a dispute arose about its terms?

Although the letter quoted in the Financial Times is dated November 1983, it may be one of the assurances received by the Minister of State. If it is not, I should be pleased to hear how the Minister has strengthened the assurances. More important, I want to ask the Minister about the terms of such an assurance. In the letter, the assurance is given in very general terms. About the types of supplies being offered in times of shortage or crisis, we are told in the letter that the oil company—in this case, BP—would be keeping customers supplied

"in accordance with the relevant contracts and established patterns of business."

If a shortage occurs or there is a potential crisis and pressures grow, those words could mean almost anything to anyone, especially to the oil company giving the assurance. Many of these established patterns of business may involve contracts with terminal dates. There may be very short-term arrangements with the companies concerned. How strong, reasonable and effective would such an assurance be at a time of shortage or crisis?

We also ask the Minister about the reference in this supply assurance letter, if it is still in force, to a total disclaimer on prices. The letter of assurance says that BP

"makes the above affirmation subject further to there being no legal or governmental constraint on its ability to raise prices as a necessary means of recovering costs."

It appears that a fundamental condition of the assurance is that, in return, the Government have to assure the oil company that they will make no endeavour to restrain or to restrict price increases in times of shortage. Those phrases cannot be read in any other way. It appears that, in return for a very general assurance about oil supplies, the Government will have to accept that there will be no intervention in the prices that BP wishes to charge during a time of shortage or potential crisis. That is a serious commitment to make in return for the very general assurance offered by BP.

We do not know whether the letter dated November 1983 is the type of assurance that the Minister told the Committee he had. We do not know whether it is out of date. We do not know whether, since that date, the assurances have been strengthened or improved. However, the Opposition wish to register their objection to a general assurance of this kind combined with a disclaimer, because it does not add up to an effective form of assurance.

During the last supply difficulty that we experienced, the Government attempted to restrain prices and the result was a shortage of petrol. Why is the hon. Gentleman so dismayed that there should be that disclaimer?

I am dismayed because it seems unreasonable that, when Britain is a large oil producer, there should not be some reasonable relationship between its production and refining capacity and the prices that a company in that position should be able to charge its customers. The House will note the belief of the hon. Member for Enfield, Southgate (Mr. Portillo) in letting the market rip, especially in a period of shortage or crisis.

indicated assent.

We shall take note of the hon. Gentleman's nod of assent and explain nationally that that is the position of Government Back Benchers, and I think that we are entitled to know whether the Government accept that unadulterated view of the market. Certain differences have emerged between the hon. Gentleman's position and that of the Government on certain aspects of the Bill. It will be interesting to know whether the Minister agrees with his hon. Friend.

We ought to know whether, in return for a general assurance of the kind suggested in the letter, the Government have offered the major oil companies a free-for-all in prices, forswearing any intervention on price increases during a period of oil shortage. I hope that the hon. Member for Enfield, Southgate will at least support me in saying that, in return for these assurances, we should have some knowledge of what is being suggested, and that there will not be a price disclaimer of the kind that was apparently in the BP-Government letter of November 1983.

These are two very important aspects of the so-called informal supply assurances if they are repeated in the other assurances that the Minister has in relation to supply and in relation to a disclaimer of any form of price control, moderation or restraint in times of oil shortage. Is that the combination about which the Minister spoke when he told the House of his front-line defences to ensure the security of our oil supplies?

Towards the end of the letter, I read:

"This letter will cease to have effect upon the expiry of the royalty agreement."

Will the Minister explain that a little more? If it is assured that this is the letter of assurance between BP and the Government, will the Minister say what that sentence means? If the royalty agreement between BP and the Secretary of State includes the right of the company to the automatic sale-back of all royalty oil, is that a part of BP's royalty agreement with the Secretary of State? If it is one of the conditions of the security of suppy assurance and it lapses when the royalty agreement lapses, how does that leave the assurance given to the House by the Minister that the new agency will be entitled to manage and trade every barrel of oil? Does BP's royalty agreement with the Secretary of State give the company the right to the automatic sale-back of royalty oil, and is the assurance made subject to this agreement?

On more than one occasion when we have discussed these issues the Minister has said that the agency will have a free and unfettered right to decide whether to manage and trade in royalty oil as opposed to giving an automatic sale-back provision to the major oil companies. Again, the House has a right to know about these so-called informal assurances.

In the absence of any trading in participation oil by the new agency, because the agency will have only a limited trading role, these assurances play a much greater part than they would have if we had had an agency active in trading in any significant way in crude oil through its participation agreements.

The new clause states that agreements relating to security of supply must be binding, contractual arrangements, not informal letters to civil servants from the managers of an oil company. In other words, they must be contractual agreements having the force of law. While it would be question of negotiations between companies and the Government, the new clause states that security of supply agreement must be specific rather than general. An agreement in the terms of the letter which I have quoted from the Financial Times would not do. That is why the new clause says in subsection (2)(a) that a company

"shall continue to supply United Kingdom customers with crude oil and petroleum products with at least the quantities supplied over the previous year or contracted to supply over the coming year, and will increase the supply where possible and will use its transportation and distribution system for this purpose".

That would be more specific than the waffly words contained in the BP letter. It goes on to place an onus on oil companies to promote and, where possible, increase supplies to the United Kingdom.

Such obligations on oil companies are not unreasonable, because those companies have major interests in our North sea fields. It would be incomprehensible to the general public if those companies did not respond in the most positive way on behalf of United Kingdom customers at times of shortage. We are not adamant about the wording of the new clause. If the Minister accepted the principle involved, we should be willing to accept an alternative form of words.

The new clause adds in subsection (2)(b) that there should not be a free-for-all in the way that the hon. Member for Enfield, Southgate described, whereby the oil companies would be able to exercise their power over the market and, in times of shortage, rip off the United Kingdom customer. To avoid that situation, we say:

"The Company will make supplies at the prices ruling at the time of request (or as otherwise determined by law and regulations".

No form of words should restrain the Government from being able to intervene, by law or regulations, on prices during a period of shortage.

The new clause would place proper responsibility on oil companies to endeavour to improve the nation's oil supply position in a period of crisis or shortage. Such a responsibility should be on companies because, as I say, the public would find it incomprehensible should the United Kingdom not be in a better position at a time of oil shortage than are other countries that do not have oil supplies off their shores.

Not only will the United Kingdom be in the oil production business for years to come—the oil will decline eventually; we shall discuss that on later amendments—but we still do have a large refining capacity. The public would not understand if the nation, producing more than 2 million barrels a day, did not ensure that major oil companies made a special effort to see that we had adequate supplies during a period of shortage.

Let us not forget that BP, Shell and the other major companies have had their way, as reflected by the Bill. I say that because their thinly disguised desire to have BNOC abolished—to remove BNOC as a major oil trader—is conceded to them in the Bill. Therefore, we are entitled to demand more from those companies by way of security of supply agreements than the untried, untested, waffly, informal assurances at which the Minister is clutching and on which he relied when replying to points made by hon. Members in Committee.

The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) sometimes worries me. Although some clear lessons are to be learned from the last 10 years, he does not appear to want to learn them. One is that, between 1974 and 1979, Britain and other western countries responded to the 1974 oil crisis by attempting to restrain oil prices. The result was that we had high inflation, we continued to be heavily dependent on oil and we went through a period of world recession.

In 1979, Britain again tried to restrain the prices of oil products. The result was that in Britain there was a shortage of those products, with queues at petrol stations, whereas other European countries which did not operate restraint had plentiful supplies of petrol—and we were a producer of oil, while those other countries were not.

Since 1979, countries have by and large responded to the second oil shock in a completely different way. They have not attempted to restrain oil prices. Hence, since 1979 our dependence on oil has decreased. We have shown greater efficiency in the use of energy, with the result that in the intervening years we have had falling inflation and enjoyed a period of substantial growth. Today, there is a substantial oil surplus throughout the world, and that is attributable to the fact that countries are less dependent on oil. Even the price of oil has fallen considerably because we have not made the error of trying to restrain prices.

The hon. Member for Merthyr Tydfil and Rhymney wishes to lead us back to the bad old days when we tried to put the lid on prices and when, ironically, we suffered from precisely what we thought we were avoiding—inflation in general and high oil prices.

I shall be brief and will not, therefore, answer the points that were made by the hon. Member for Enfield, Southgate (Mr. Portillo), except to comment that I do not accept his account of what occurred either from 1974 to 1979 or for the period since 1979.

I support the new clause, which was moved comprehensively by my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands). The security of supplies was the major point raised on Second Reading, when the Minister's answers were highly unsatisfactory. Nothing that has happened since then, in Committee and elsewhere, has persuaded me to change my view.

I will not go over the whole question of security of supplies and what might happen when the agreements under the International Energy Agency and Common Market are activated or what might happen on the activation of participation agreements. That is to be done with such a period of notice that, in terms of meeting a crisis—whether the crisis is beyond or below the trigger point of 7 per cent.—the whole process of reactivating participation agreements is of no relevance.

On Second Reading the Minister described the informal assurances given to the Government by the oil companies. Therefore, he must be embarrassed that the details of at least one of the informal assurances appeared in the Financial Times this morning. On Second Reading he said that he could not tell us any more than he had about the arrangements—and that was precious little—because the details were confidential. They were not sufficiently confidential to prevent them from appearing in today's Financial Times. I do not know how that happened, but I am delighted that it did. At least we now have information about those informal assurances.

8 pm

We are entitled to answers to a number of questions about the report in the Financial Times. Is it accurate? Does it give an accurate account of the letter from BP dated November 1983? As 20 months have passed, is that letter still operative? Is it written in similar terms to letters from other oil companies, or is it a one-off letter? If there are other letters—we must assume that there are, and that they are the substance of the informal assurances received by the Government—are they similar to the letter from BP?

I assume that those letters are not legally binding—they could not be informal if they were. On Second Reading and in Committee the Minister said that there were informal assurances. We are entitled to know how far those assurances are binding in the event of a crisis. Why should there not be legally binding agreements for the oil companies, given the circumstances of our North sea oil production? Why should we rely on informal assurances? If the companies are willing to give informal assurances, they can have no objection to having provisions written into legislation.

I shall listen carefully to the Minister's answers to those questions. However, unless there is a legally binding agreement the protection of our oil supplies will be deficient and defective. We must have legislation to deal with that, which is why we have tabled the new clause.

I fully support the new clause, including subsection 2(b) on prices. It is an important part of the new clause. However, if the Government said they were interested in security of supply but that it was not realistic to write a price ruling into legislation that would be fair enough. We could draft another new clause to accommodate that. What is essential is that there should be security of supply and that the Government have legally effective powers to ensure that in times of crisis. Indeed, the ordinary member of the public would find it incomprehensible that, despite our excessive production in the North sea, over our national needs, there should be a shortage in a time of crisis and no binding agreement to ensure security of supply. That would be indefensible.

As BNOC is to be abolished, something must be written into legislation to protect our supplies, and the new clause seeks to do that. If the drafting is not quite right, and if there was an objection to the provision on prices—although I would not necessarily accept the validity of that objection—it would be possible to write something into the legislation in another place to ensure security of supplies. I strongly support the new clause.

The House will appreciate that my hon. Friend the Member for Orkney and Shetland (Mr. Wallace) was very much involved in the Committee stage of the Bill and would have been present today had it not been for circumstances of which the House is aware—that his wife gave birth to a daughter last week. She came out of hospital today and my hon. Friend is properly with her, learning how to change his first nappy. I hope that the House will accept me as a substitute.

I am concerned about the implications of the new clause. The Opposition are understandably concerned about security of supply and the lack of legal force within the existing arrangements. However, the clause attempts to lay down specific circumstances for an unforeseen crisis, yet what will be required cannot be predetermined to the extent envisaged by the new clause. If a crisis involved the stoppage of the flow of oil in the world market, we should wish to retain the oil that we export for ourselves. We could deal with that by producing emergency legislation—something with which the House is perfectly capable of dealing in a spirit of all-party co-operation. That would be a more appropriate way to deal with the problem.

Why is it that the United Kingdom, which accounts for about 1·6 per cent. of the world's oil reserves, accounts for 4·5 per cent. of the world's production? What are the implications of that for the future security of supplies? We are producing oil at a rapid rate and selling it abroad. By definition, the oil sold and consumed now will not be available in future. We should concern ourselves with that aspect.

There is a natural instinct in the Labour party for tight regimentation in this matter. The hon. Member for Enfield. Southgate (Mr. Portillo) put the opposing view, which suggested too much trust in the force of the market to resolve the problem. However, to try to determine something in advance and introduce tight regulation over something that we cannot fully foresee is neither necessary nor likely to be workable.

Subsection 2(a) states:

"the company with production from the United Kingdom continental shelf shall continue to supply United Kingdom customers with crude oil and petroleum products with at least the quantities supplied over the previous year."

Some customers might not want or be able to deal with that quantity for internal reasons. The criterion is rigid in the extreme.

I am sure that the words do not debar the customer from foregoing a supply. Most of the assurances which the Minister is trying to obtain are for times when shortage occurs, but before a crisis. If a customer does not want the oil, the clause does not mean that he must take it.

I am grateful for that clarification, but the clause anticipates circumstances which cannot be anticipated. The one merit in the clause is the recognition that securing crude oil is not a requirement. To the extent that the clause addresses itself to that specific, it is an improvement. It recognises that crude oil being available is no darned good without the facilities to process it. In terms of security, the new clause is an improvement on previous agreements and participation agreements which Labour Governments wrote into legislation. I am pleased that we are learning.

To be frank, I think that the new clause is proposed because of an understandable resentment about what the Government have done to the British National Oil Corporation. Once the company had been split, the only logical solution was to do what the Government are doing. We might not have agreed, but the Labour party is resisting the solution for sentimental rather than rational reasons. My colleagues and I will not support the new clause.

An hon. Member can seek leave of the House to speak twice at this stage in proceedings, so I look forward to what the Minister has to say. I was not on the Committee considering the Bill, for reasons of which my colleagues are aware. I have sat on a number of other Bills on the same subject. When Lord Carrington was Secretary of State for Defence in the Government headed by the right hon. Member for Old Bexley and Sidcup (Mr. Heath), he favoured the British National Oil Corporation. That was because he realised from his ministerial experience that it would be impossible to safeguard supplies without some such instrument. That was his view at the time and I do not know whether he has recanted. I think not.

We need to know whether the letter of intent is sufficient. I have two questions to ask about the Financial Times article. First, is it satisfactory that a letter from Mr. David Simon, the head of BP's refining and marketing division, to an Under-Secretary in the Department should give such assurances? Surely such assurances should be given at least by the chairman of the company to the Secretary of State. I am not a great one for protocol but that seems an odd way of proceeding.

Secondly, the article states:

"BP makes the above affirmation subject to there being no further governmental constraints on its ability to raise prices as a necessary means of recovering costs."

What exactly is the nature of the quid pro quo?

I have kept my comments short because, after the Minister has replied, some of us might want to ask further questions.

We have debated this subject on Second Reading and in Committee. I have always acknowledged that the subject causes concern. Security of supply is important to the Government, to the House and to the country. In the changes that we made to BNOC and its functions, and in the changes made when Britoil was formed and in abolishing BNOC security of supply has loomed large. That is why I devoted a large part of my Second Reading speech to that aspect and why we debated certain aspects of participation fully in Committee.

We have made changes because circumstances have changed. The situation is not the same as it was in the early 1970s, either in relation to the oil market or to the structure of the oil industry. The Bill is a reflection of the changes. What might have been appropriate 10 years ago is not necessarily appropriate today.

The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) referred to the Financial Times article. I read the article with interest. The article must stand or fall on what it says. The arrangements between the Government and oil companies are confidential and I shall not breach that confidentiality. It is not my place to breach such confidentiality and I do not intend to do so. That would be wrong.

Whatever the source of the article, the information did not come from me. I shall not take any part in breaching confidentiality that would have an effect on that company and on other companies with which agreements have been made.

What will the effects be on the other companies and on BP? Everybody has read the article and the information is no longer confidential.

The matter is straightforward. I am surprised that the right hon. Gentleman, having held a ministerial position, should consider the possibility of discussing confidential matters. If I were to discuss such matters freely in the House and elsewhere, the parties to the agreement would have little confidence in Ministers fulfilling their obligations and responsibilities.

I understand the Minister's difficulty in regard to confidentiality—obviously he does not want to comment in detail on such matters—but he must accept that the terms of the report in the Financial Times give us greater cause for misgiving about the secret undertakings. Will the Minister speak in defence of his arrangement, particularly in the light of his charge that it goes less far than we thought when he told us that the assurances were available?

I am certainly prepared to comment on some of the general aspects, but I said that I was not prepared to comment on the specific details of the individual agreements with individual companies. For the reasons that I have stated clearly, I am not prepared to do that.

The right hon. Member for Glasgow, Govan (Mr. Millan) asked about the form of the assurances. They vary from company to company, and there are no two companies in exactly the same circumstances, so there is no standard form of agreement for all oil companies.

The right hon. Gentleman asked about the binding nature of the agreements. He more or less answered his question. Of course they are not legally binding. In 1982, when the matter of the agreements was first made public, it was made clear that the agreements are informal. They are not legally binding, and I have never claimed that they are. Equally, given the relationship that exists over a series of matters between Government and the oil companies, I see no reason and the Government see no reason for believing that in practice those agreements would not be honoured by both parties to them.

I should like to deal a little later with the matter of prices, because it is a fundamental part of the new clause.

The hon. Member for Merthyr Tydfil and Rhymney asked about royalties. He would be correct if what is reported in the article to which he referred could be affected by the new arrangements being made as a result of the legislation. I shall turn in a moment to the relevant contribution of the hon. Member for Gordon (Mr. Bruce). Circumstances change and, as circumstances change, so may agreements with the oil companies change. If, as a result of the passing of the Bill, there need to be any changes in the agreements with the oil companies, I shall discuss them with the oil companies. We are dealing with a changing situation. The passage of the Bill will create new circumstances. I assure the House that I shall be flexible and reactive to whatever changes arise as a result of the Bill.

In reading the terms, it appears to be a condition of giving the assurance that the royalty agreement with BP is signed. As I understand the historic position of royalty agreements between BP and the Government, they are for the automatic sale-back of royalty oil. The Minister says now that, in the light of the assurances he has given us, the agency will not be bound by any automatic sale-back arrangements. Will the royalty agreements require revision, and will the assurance fall if the BP does not get its way in the royalty agreement with the Secretary of State?

I think that I have made my point quite clear. If changes are necessary, or if agreements are affected as a consequence of the passage of the Bill, obviously each agreement will have to be looked at individually, because there are different circumstances in different agreements. I give the House the assurance that I shall look at those agreements to make sure that they are no less effective, following the passage of the Bill, than they are at present.

How can the Minister say that, if they are informal agreements and not legally binding? What happens if an oil company refuses to enter into an agreement? Presumably oil companies are free to do that.

It is significant that no company has refused to do so. I shall deal shortly with the principle of the matter and with the reason for having informal agreements of the kind that we have, rather than having them in a more legal form, as suggested by the hon. Member for Merthyr Tydfil and Rhymney and his hon. Friends. It is a fundamental question that we debated to some extent in Committee and are debating again this evening.

The Minister is always courteous in dealing with interventions. That has been characteristic of the way in which we have conducted our proceedings throughout the Bill. Therefore, I am sure that he will not mind if I intervene again.

The Minister gave an assurance to this House and to the Committee that the new agency will not be bound to give the right of automatic sale-back of oil to any major oil company. It appears from the terms of the assurance that it is tied into a royalty agreement which gives BP the right to an automatic sale-back. Which assurance should we take?

I can only repeat what I have said. If there are changes as a result of the legislation, any changes in the agreements will have to be negotiated with those who are parties to them. That has been the character of participation. For example, where it has been BNOC's responsibility, or in relation to other contracts which BNOC has with a non-participation agreement, where on the specific agreement—[Interruption.] The hon. Gentleman cannot have it both ways. He has referred to a report in a newspaper and asked what would arise in the circumstances mentioned there. I cannot go further than I have already. If circumstances arise which affect agreements, or if any change occurs in relation to a royalty undertaking which has been given, that has to be negotiated with the company concerned.

I do not recommend to the House that there should be a legally binding agreement of the kind suggested in the amendment. The agreement in regard to supply of product and security arrangements is between the government and the oil companies, and not between BNOC and the oil companies. The hon. Gentleman is breaking completely new ground, not only on the formality of the agreement but in regard to the making of an agreement between the agency and the oil company.

Where there is an agreement on security of supply, the Government are the proper custodian of one side of that agreement with the oil company, rather than, as in the past, through BNOC, or in the future through the agency. I shall refer in a moment to why we believe in working on a voluntary basis. It is much more appropriate, in regard to the range and degree of relationship between the Government and the agency, that the responsibility for the agreements on security of supply, whether legally binding or informal, should rest with the Government rather than shifting to the agency.

From a practical aspect, an informal agreement is preferable to a formal one. The hon. Member for Gordon gave the reasons in his speech. All the experience of crises over the past 10 or 15 years shows that it is impossible to predict with any accuracy how a shortage might develop and what our priority needs will be in time of shortage. Therefore, we must have as much flexibility as possible in our understanding with our refiners, so that we ensure that they do everything to supply their customers in the best way possible. It is impossible to write down in a legal form, in the manner suggested by the hon. Member for Methyr Tydfil and Rhymney, the kind of flexibility that is necessary if we are to react properly in a crisis.

8.30 pm

The new clause is a much more rigid approach. Although at first glance it has certain attractions, there could be considerable difficulties if we sought to put it into practice. The provisions might be out of step with the commercial facts of production and distribution. The new clause states:

"the United Kingdom continental shelf shall continue to supply United Kingdom customers … with at least the quantities supplied over the previous year".

How could this apply to a licensee with an interest in only one producing field, which had passed its producing peak? Who are the customers of a petrol station? How does one establish the quantities supplied over the previous year? Would there be an obligation to supply someone who had recently changed to another supplier?

Once one follows this rigid approach, attractive though it may seem in some respects, it becomes divorced from the real practice of commerce. It assumes a simpler basis of trading in oil and oil products than is the case in the real world. The hon Member for Wentworth (Mr. Hardy) entertained the Committee for a considerable period by following the chain of a cargo of oil from the time it was produced at the wellhead until it passed through the terminal and was loaded. He regaled us with stories of cargoes being traded 10 or 20 times. That does not apply to every cargo. One simply cannot formalise the practice in this new clause. One cannot try to solidify the pattern of trading after the agreement has been triggered. Entering into such contractual provisions—this is my main opposition to the new clause—would entail a considerable loss of flexibility. Above all else, we need flexibility.

The new clause refers to prices and to the oil that may be delivered under the security of supply agreement. It would be difficult for any United Kingdom continental shelf producer to agree to a pricing condition other than one that allowed him to receive the prevailing market price at the time of delivery. Any agreement would have to be made on that basis. Indeed, that principle was followed by the last Labour Government, when they introduced participation agreements on the basis that BNOC's transactions should be at no gain and no loss to the corporation or to producers. It is inappropriate to write into the new clause or into any informal or formal agreement any conditions on prices, other than that they should reflect market conditions.

That is not what the BP letter says. BP's point is very different. It tries to bind Governments not to apply any legal or Government constraint. It makes it a condition of the assurance that Governments will never try to constrain or moderate prices. That proposition is very different from agreeing to a price of the type laid down in participation agreements.

The Labour Government introduced participation agreements on the basis that the transactions should be at no gain and no loss. Obviously, this will reflect market conditions. My hon. Friend the Member for Enfield, Southgate (Mr. Portillo) pointed out that, when the Labour Government endeavoured to use their powers with respect to price constraints, supplies subsequently dried up. Because the United Kingdom market cannot be isolated from the world market, eventually there were upward prices in line with market conditions. The only effect of Government action in intervening was to cause a delay, which threatened supplies. I hope that my slightly more pragmatic approach, in comparison with that of the hon. Member for Merthyr Tydfil and Rhymney, in the light of the Labour Government's experience, shows what can happen. The Labour Government did not have a single supply assurance from a United Kingdom refiner. They relied on participation agreements. When the crisis came, it had no effect on the users of oil products and we suffered from shortages.

Because it is better to act informally rather than formally in giving flexibility and, because of our experience during previous crises, I believe that my approach is better than that of the hon. Member for Merthyr Tydfil and Rhymney, and I therefore ask the House to reject the new clause.

rose——

Order. The hon. Member has spoken once in the debate. Does he have the leave of the House to speak again?

Yes.

The hon. Member may proceed.

May I repeat the question that was put first by me, secondly by my hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) and thirdly by me again. It is no good simply taking refuge in the confidences in the Financial Times article, which states:

"BP makes the above affirmation subject further to there being no legal or governmental constraint on its ability to raise prices as a necessary means of recovering costs."

What is the quid pro quo?

Will the Minister of State answer the point made by my hon. Friend the Member for Linlithgow (Mr. Dalyell)?

I shall put the point simply, as I did earlier. I am not prepared to comment on the particular aspects of agreements with companies as reported in the newspapers. I have pointed out the much broader question of principle—that trying to write in conditions on prices, as the new clause does, has proved in practice to be totally ineffective, especially in the experience of the Labour Government whom the hon. Member for Linlithgow supported.

We have suffered quite a lot from the Minister's complacency, which he has shown yet again in those remarks. It provides cold comfort to customers or members of the public to realise that when the Minister uses the words "informal" or "flexible", it is ministerial double-think and double-talk, allowing oil companies to get away with wishy-washy assurances of the type that the right hon. Gentleman is clutching—which, when the crunch comes, are scarcely worth the paper on which they are printed. For that reason, I ask my colleagues to join me in the Division Lobby in supporting the new clause, which gives proper and meaningful assurances to customers and to the public in times of oil shortage.

I beg to move amendment No. 1, in page 2, line 18, at end insert—

`(1A) In managing on behalf of the Crown pipelines and storage installations the Agency shall prepare a plan to design and construct an onshore crude oil pipeline system to complement the existing system and shall enter into agreements on behalf of the Crown to make the system available to licensees with production from onshore fields on a common carrier basis at a commercial tariff and the system shall include better rail sidings, tank farms and necessary links with offshore producing facilities.'.

This amendment provides for the design and construction of onshore crude pipeline systems, which will complement existing systems and allow the making of agreements with licensees to use the pipelines as common carriers. As the amendment recognises, this would involve rail sidings, tank farms and links with offshore production facilities. It is a sensible amendment; the Minister will recall that it is similar to one that we debated in Committee, although it is not identical. It has more merit than the amendment that we debated in Committee, and the Minister will have had a little more time to consider the wisdom of our proposals.

The amendment is sensible, because it would make a helpful contribution to the nation's transport facilities. The Minister said in Committee that, the building of a pipeline can cause some difficulty, and that the several pipelines that had been built in his constituency had caused him concern as a representative of the local people. However, if he has reflected on the matter since Committee, he will have discovered that, after it has been completed, a pipeline causes much less concern than would many vehicles pounding along the roads in his constituency, to the distress of those who might momentarily have had only a little anxiety about the construction of a pipeline.

If the Minister seeks to maintain the Government's policy of extracting oil as fast as, possible from onshore as well as offshore fields, he will present serious problems to those who live in the areas affected. On balance, the vast majority of residents in areas where onshore oil has been discovered would wish to swap the prospect of vehicles pounding along their roads for the sensible and peaceful operation of a new pipeline.

I am sorry that the Government have not been more sensitive about such matters. The Minister was hasty in his rejection of our amendment in Committee, and I wish to put this point to him. My constituency is in an area where onshore exploration is proceeding. The Minister will share my view that onshore exploration in such areas is likely to be fruitful. As a Member for one of the large parts of England where oil is likely to be discovered, I would prefer it to be moved by pipeline than on our inadequate roads.

A short time ago, I told another Minister in the Department that I would strongly object to any opencast development in my area, and that I would object even more strongly to attempts to move on the roads in my constituency the material displaced or the coal extracted. Greedy eyes are already considering one site where the roads simply could not tolerate the additional traffic that would be required. If there is opencast development, the material should be moved by rail or by canal, not by road. The same argument applies in the case of the amendment. There is no reason why the roads should be clogged by vehicles moving material extracted from offshore oilfields when we have readily available the silent, efficient and effective pipeline system.

If the Government advise the Oil and Pipelines Agency that it should go ahead with extensions to the pipeline system, this could lead to substantial industrial orders and to many jobs. I hope that that point has not escaped the Minister's attention. The amendment does not state, although perhaps it should have done, that the jobs created would be largely within British industry. We recognise that, at last, the Government have begun to realise the enormity of the unemployment problem in many industrial areas, and such orders would be welcome and timely. There would be substantial benefits in the transportation of the product and, in the long run, for the environment, and the provision of jobs through orders to the steel and engineering industries, at a time when such jobs are needed desperately.

Since, this year, the Government will receive £12,000 million in direct revenues from our oil activities, the Opposition believe that some of that money could be invested in Britain. We would commend such valuable investment. The Government tend to boast that the oil revenues have allowed us to buy substantial assets abroad. Earlier this year, after calculating that we had received £50,000 million in direct revenues from offshore oil, I asked the Prime Minister during Question Time what benefit we had obtained from it. The Prime Minister's response was that we had enormously increased our overseas portfolio. When she was asked a similar question the other day, her answer had shifted a little. It should shift much more, and one way to shift it would be to devote some of the revenues to establishing a pipelines system that could benefit Britain for a long time.

In Committee, the Minister boasted of how much money had been invested in our existing pipelines. Although it is not as colossal a figure as the investment in some of the projects which the House debates from time to time, the sums involved are substantial. In 1980–81, we invested £2·47 million; in 1981–82, it was £1·87 million; in 1982–83, it was £2·6 million; in 1983–84, it was £3·65 million; and in the last full financial year, the figure was £4·32 million. Those substantial sums would provide more benefit if our existing pipelines were complemented by links to the onshore fields. We do not rule out additional links, which are entirely justified, to ensure that the onshore and offshore fields are complementary.

The Minister must recognise the merit of our proposal. It would provide jobs and a cleaner and healthier environment, and it would please the Select Committee. If the Minister recognises the merit of the consideration of the Select Committee, he will realise that the Select Committee appears to be recommending that there should be improved storage facility and investment, and the amendment would certainly fit well with the Select Committee's relatively recent recommendation.

I hope that the Minister will not dismiss as unimportant our concern about unemployment, the environment and transport. He may feel assured that the Government's docile and substantial majority in Parliament will allow him to continue to reject our logical and intelligent pleas with impunity, but I rather think that in another place there will be concern for the environment and employment which adds grace to that establishment, but which, if ignored in this House, is particularly regrettable since we are supposed to be the democratically sensitive establishment. We are perhaps relieved of the problem and responsibility of taking the longer and more relaxed view, which is often the characteristic of their Lordships. Here we are entitled to discuss realities. The reality of the situation is that the sheer common sense of the amendment deserves consideration.

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It may be that the Government Whips have persuaded their hon. Friends to stay away in order that they shall not be exposed to the sanity of our suggestion. The Minister smiles enigmatically, as is his wont, but I should not be surprised if that were the case. I trust that the shock which we had in Committee when the Minister rejected our argument will not be repeated tonight. The Minister is aware that the private sector recognises merit in the pipeline system and in its extension.

He recognised in Committee, and I hope that he will again tonight, the wisdom of the extension of the link which Mobil is now establishing to the terminal at Wymondham in Norfolk. Mobil was serving Mobil's interests, but in fact it was serving British interests as well because it is much more sensible to invest in this way to make the movement of oil efficient without causing social and economic disadvantage. Now that the Minister has had a few weeks for reflection, I hope that he will realise that the Wymondham development by Mobil is one which should be extensively repeated. We would certainly wish this to be so. In that regard, I remind the Minister that we put this proposal forward as a demonstration not only of our belief in sane arrangements in transport and industry but because we believe that there is a substantial place for co-operation in the economy between the public and private sectors. The example of the Mobil development in Norfolk should be repeated. I think that we can justly claim that our approach is entirely undogmatic and that, if there is dogma in these matters, it rests firmly wholly on the Government's shoulders.

On this occasion I hope that the Minister, perhaps in preparation for consideration of the Bill in their Lordships' House, will recognise the powerful arguments in support of our amendments and, for a change, will consider accepting them.

I am not sure what the Minister is going to make of this proposal. I yield to nobody in my willingness to resist the Government's economic policy and to criticise many aspects of their oil and gas development policy. I started out on my political career by standing against the Minister, and I like to think that I have done a little better since then.

I do not think that, in the course of trying to be constructively critical of the Government's performance, I can be expected to support what seems to me a barmy idea. I wonder what kind of impetus is coming from within the oil and gas industry to give rise to this kind of proposal. I certainly agree that we want to look for co-ordination of development, and I would welcome proposals to extend that. However, I am puzzled as to how one can integrate the onshore industry with the offshore industry, which is completely different in geography, scale and location; and where the pipeline is going to or from is a mystery to me.

I recognise the hon. Gentleman's difficulties. He is standing in for his hon. Friend the Member for Orkney and Shetland (Mr. Wallace) at short notice. If he had prepared for the debate, he would have been able to obtain from his hon. Friend the map of the pipeline system. On it, as on the various public documents available, he would have seen where the offshore fields are or are likely to be. He would have noticed that the location of the offshore fields in the area of Wessex is not very far from existing pipelines—perhaps those which have facilities at Hamble. Is the hon. Gentleman aware that, in Committee, his hon. Friend voted alternately with us and with the Government? My impression is that, having supported the Government on new clause 1, he will support us on amendment No. 1.

I am grateful to the hon. Gentleman, but I am capable of making up my own mind about the merits of the amendment. I gave way in the hope that he might answer my question. Where is the driving force in the industry about the benefit that it would get from the integrated development that the amendment appears to propose? I still wonder whether it is being suggested that we should pipe oil from Wytch farm to Hound point or even to Sullom Voe.

The hon. Gentleman does know where the pipeline is.

The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) is pushing his luck suggesting that an hon. Member from the Aberdeen area who has been connected with the oil industry does not know where the pipelines are. I am well aware of where the onshore pipelines are. It is sensible to co-ordinate development of new pipelines and to take account of our new requirements when giving annex B approval. However, it is extravagant to suggest that the agency must prepare a plan to design and construct an onshore crude oil pipeline system.

British Gas and BP were interested in an integrated gas gathering system. Those of us who supported the system were encouraged because plenty of people who knew a great deal about oil and gas development felt that the project was worth while. Movement came from within the industry rather than at the whim of a political party. The project did not go ahead, but it was always a sensible idea. The Government would not have considered it so closely if they had not recognised its considerable merits. However, I am not aware of any serious suggestion in the industry for an approach such as this.

The Labour party must show that it is not determined to regulate the industry for purely bureaucratic reasons. It must also show that it recognises that people in gas and oil production are professionals with considerable experience and with whom they should work in partnership. I understand that, in spite of the bold words of the hon. Member for Wentworth (Mr. Hardy), the amendment will not be pursued to a Division. The Labour party would be wise not to press it.

I am not aware of any pressure in the industry for this type of pipeline. When considering annex B development plans, I consider the pipeline implications and the terminal implications. Proposals and decisions are commercial, but the structure must be thought out sensibly.

The hon. Member for Wentworth (Mr. Hardy) has previously, and generously, acknowledged that I am deeply concerned about the employment potential of our oil industry. He has credited what I have tried to do since coming to this office to ensure that benefits are ploughed back in employment opportunities in the United Kingdom.

Equally, I hope that the hon. Gentleman will accept that offshore fields, to which the amendment refers—I must emphasise that—involve environmental factors. That was one of the major reasons for introducing a new licensing procedure for onshore development and exploration in the past 12 months. No scheme will please everybody, but the new scheme has been generally welcomed by both oil and environmental interests seeking a better balance between the two. I am sensitive to those points.

The amendment concerns crude oil from onshore fields, which, as the hon. Member for Wentworth said, can be transported in a number of ways, one of which is by pipeline. I hate to have to disappoint the hon. Gentleman again, but I question the relevance of the amendment to the Bill. We must remember that the Government's pipeline system was originally constructed to supply military airfields owned by the Government with the materials essential for wartime use. Therefore, the Government did not have then, nor do they now, any strategic interest in crude oil pipelines. I could not see such a pipeline servicing Government-owned establishments, as I am not aware of any that are using crude oil.

Therefore, decisions on how oil is disposed of, or transported from, a particular onshore development are the responsibility, with proper respect for planning and environmental considerations, of those who are concerned with the commercial development of the particular oil accumulation. If the licensees decide that the pipeline is appropriate, it would be for them to construct and operate it. I do not see any justification for involving the public sector, and in particular the Oil and Pipelines Agency, in owning or financing such pipelines.

Those are fundamental objections, but there are some practical ones as well. I endeavour to be practical in dealing with amendments, as I was in Committee. Amendment No. 1 refers to an onshore crude oil pipeline that is complementary to the existing Government pipelines and storage systems. However, as the existing system transports products and the one envisaged by the amendment would convey crude, it is difficult to see how the two could be regarded as complementary. However, if any part of the Government pipeline became redundant and if it appeared that it could be used by the licensee of an onshore oil production field and was appropriate for crude oil, I would expect the agency, as the managing agent of the existing system, to do what it could to facilitate such a change of use.

Despite the speech of the hon. Member for Gordon (Mr. Bruce), the amendment is not clear about where the pipelines should go once they have left the onshore fields. I imagine that the licensees would want to connect them to existing pipelines, to refineries or to port loading facilities. The amendment suggests that the pipelines should be linked with offshore producing fields. However, as the major onshore fields such as Wytch Farm and Humbly Grove, two of the bigger ones, are in the south of England and the major offshore fields are in the north of Scotland, it is difficult to see what purpose would be served by constructing such an extremely long pipeline.

The Minister of State's Department has produced an attractive document about British onshore reserves. It shows that the prospects for oil extraction in Britain cover not merely the Wessex area but a large part of the area on the western side of the Bristol channel. It is a pity that illustrations cannot be used in the Official Report, but this illustration shows that the prospects stretch right up into Lancashire on the western side of the Pennines and include a large part of Lincolnshire stretching right across to Northamptonshire and a considerable part of Yorkshire, stretching to Teeside. This means that the Teeside facilities for the oil industry could link in very well with the extraction of oil from the Yorkshire and Humberside region. We are taking a longer view of oil extraction than the hon. Member for Gordon.

I am glad that the hon. Gentleman takes such a long-term view, but I hope that he realises that the map he is holding represents what we know on the basis of geological knowledge, not what we know on the basis of drilling. I am referring to the areas where we are producing onshore oil. Many people would like oil to be produced in commercial quantities in some of these other areas too, but where work has taken place the results have not been quite so optimistic as the hon. Gentleman is and as I should like to be. I have to be realistic and to look at these matters in a practical manner.

For these reasons, I am anxious that the Government's pipelines system should be used as sensibly as possible. Again I pay tribute to the British National Oil Corporation for the way it managed the system. In recent years it has increased the commercial use of the pipelines system, but it has always borne in mind the fact that it has a fundamentally strategic use and that its full capacity has not been needed. The agency will, I am sure, encourage the use of the pipelines system for commercial purposes. To try to stretch a crude oil pipeline as opposed to a product pipeline to one that services crude oil from onshore fields is not, attractive though in some respects is the hon. Gentleman's proposition, one that lies properly with the functions of the Government's pipelines system either as it has been in the past, as it was recently under BNOC or as it will be in the future under the agency. For those reasons, I ask the House to reject the amendment.

I want again to ask for the leave of the House to put a question. I should like to hear what the Minister of State has to say in reply to it. I have to declare a strong constituency interest in the matter, not only because of the experience of Hound point, which was offshore, but because the whole pipe-laying exercise was so traumatic for some of my constituents and caused problems in particular for smallholders. As a Scottish Member of Parliament, the Minister knows about these problems. Furthermore, there are possibly oil deposits in the Bathgate area of Livingston.

In a previous incarnation the Minister had experience of the Scottish Office. To what extent will these be strategic planning matters for Government Departments to what extent will they be left to commercial interests? This is a very important issue. I listened carefully to the Minister and if I have misunderstood him, I apologise. My impression is that these decisions will be made by commercial interests, and hang the rest of us. I hope that that is not true.

By leave of the House, Mr. Deputy Speaker, I will answer the points raised by the hon. Member for Linlithgow (Mr. Dalyell). I can assure him that nobody is more sensitive than I about the laying of pipelines. The hon. Member for Gordon (Mr. Bruce) will bear me out when I say that within its small physical confines my constituency probably contains more pipelines than the constituency of any other hon. Member of Parliament. If, for the sixth time, certain landowners have a pipeline running through their land it can be a very traumatic experience. Both my Department and local authority departments are sensitive about this matter, and I take to heart the hon. Gentleman's point.

All onshore oil exploration and production is subject to the licensing procedure of my Department. As I said earlier, those procedures have recently been totally reviewed and a new system introduced to provide better safeguards. That will be welcomed as an improvement on the situation which existed before. Looking at it from the industrial and economic point of view, ultimate control rests with my right hon. Friend the Secretary of State, who grants the licences. The exercise of the licensing policy is discussed with my right hon. Friends in other interested Departments and we take a strategic view in relation to it. It is not just a narrow commercial view. The proposals and applications come from commercial interests, but the system is subject to licensing and licensing control, and the performance of the licences is monitored.

The Minister will forgive me for being parochial, but for the Livingston-Bathgate situation may we have an undertaking that at an early stage the two hon. Members concerned—my hon. Friend the Member for Livingston (Mr. Cook) and I, and indeed the regional council and the district council—will be taken into the confidence of those doing the strategic planning, because last time round a great deal of hassle would have been saved if we had been consulted at an early stage, especially in relation to the compensation of some constituents?

As I said to other hon. Members who have an interest in exploration or production licences in their constituencies, I am very happy for them to come and discuss these matters. If the hon. Gentleman wishes to follow that up he may do so, should the appropriate stage arise. As the hon. Gentleman may know, just a few weeks ago I announced under the new procedures the first onshore licensing round. Applications have been invited and that round will close towards the end of September. From then on we shall he examining the applications, and thereafter we shall be making an announcement about the awards. If, when the awards are announced, the hon. Gentleman finds that his constituency or that of his hon. Friend is affected, I shall be happy to meet and discuss with him any aspect he wishes to discuss.

Thank you very much.

We shall not press this matter to the vote. Before the withdrawal of the amendment, could I say to the Minister that, as a result of his constituency experience, there may well be a stronger case for integration in the development of pipelines than seems to have been the case in his own area? I recently saw a pipeline, not for oil, built through my constituency and it was obvious that we manage things very much better in north Yorkshire than they are managed in the right hon. Gentleman's constituency in Scotland.

One of our major concerns was the position of the smaller companies in the round of licensing to which the Minister has referred. Over the months, if it becomes obvious that, in the national interest or in the interest of the small independents, pipeline facilities should be provided, I hope that the Minister will not, out of a sense of dogma, prevent the Oil and Pipelines Agency from applying its ability and experience in the national interest. I hope that he will recognise that its experience is substantial and should be made available and not denied simply because the Minister has remarkably little faith, even in his own Department's publications, but a great deal of dogma.

I beg to ask leave to withdraw the amendment.

I beg to move amendment No. 2, in page 2, line 18 at end insert—

'(1A) Agreements entered into under subsection (1) above shall include the provision that the Agency shall lift royalty oil in the relevant chargeable period or where it is unable to do so no later than the end of the following chargeable period.'.

With this, we may take amendment No. 4, in page 2, line 18 at end insert—

`(1A) Agreements entered into under subsection (1) above shall include the provision that, at the request of the Agency, on behalf of the Crown and after consultation with the Secretary of State, the Operator shall reduce production in the field by—

(a) the amount that would otherwise have been supplied to the Agency on behalf of the Crown as royalty oil; and

(b) an equivalent amount of petroleum that would otherwise have been supplied to the licensees

such amounts to be left in the ground and the operator shall not produce such petroleum until requests to do so by the Agency, on behalf of the Crown and after agreement with the Secretary of State.'.

Although the two amendments are being taken together, the only thing that they have in common is a reference to royalty oil. I divide my contribution into two parts and I hope that the Minister will do the same when he replies. The debate will be better if we do it in that way.

Amendment No. 2 picks up a substantial issue which I raised in Committee and which does not arouse partisan feelings. I drew attention in Committee to the difficulties that the OPA may face in managing royalty-in-kind oil. Provisions governing the collection of royalty oil dictate that the agency must take all its entitlement within each six-month chargeable period. If it does not collect the oil within six months, it forfeits the right to collect, and royalty oil is paid subsequently in cash.

Collecting royalty oil within the chargeable period was a problem even for BNOC. I understand that the lifting of royalty oil is a shambles. Irrespective of our views on other aspects of the Bill, we all wish the agency to be as efficient and effective as possible in managing and trading oil. The problem will arise for the OPA if, in any six-month period, the amount of royalty oil does not justify sending a tanker to collect it. The problem was less serious for BNOC, because it could aggregate royally oil, participation oil and commercial oil to make up a decent cargo. Therefore, in most cases, it was able to collect the royalty oil on behalf of the state.

The OPA will not have the other sources of oil to make up a decent cargo. We tried to persuade the Minister of State to give the agency a more expansive role and allow it to enter agreements to purchase commercial oil, but the right hon. Gentleman turned his back on that. Therefore, the agency will face difficulties and the shambles involved in collecting royalty oil at present will get worse.

Amendment No. 2 suggests that there should be a rollover period, in which royalty oil that was not collected in one six-month period could be rolled over into the next period and help to make up a decent cargo so that the oil could be delivered to the market efficiently. The amendment proposes a system which I gather is the practice in Norway. It offers a practical solution to what will become an increasingly difficult problem for the agency. How does the Minister think that the agency will be able to handle that problem?

Amendment No. 4 raises a different issue connected with royalty oil. I touched on it briefly in Committee. Amendment No. 4 suggests that we should have the power to bank royalty oil. That is an option which should be available to the Government, especially if trends in the market make it commercially and nationally sensible. Here we could be looking at a different scenario from the one that we discussed earlier or the one that we may discuss on Third reading, when we could be facing oil shortages.

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In the coming months, we could see a dramatic fall, even a free fall, in crude oil prices. It is being talked about widely in oil circles, and the shambles that OPEC is in fuels the speculation that there could be a substantial if not a free fall in prices. If a substantial fall occurs, it will have conflicting impacts on our economy. Many aspects of a substantial fall in price could help to develop our economy, but they will also raise genuine questions of oil production policy.

In such a case, would it make much sense to drain as rapidly and as rapaciously as possible our largest, cheapest but declining oil supplies from the Ninian, the Brent and the Forties, or would it make more sense to leave the oil in the ground until a better price could be obtained? It might make honest, commercial common sense to bank a percentage of the oil, especially that in the most mature fields in the North sea. It might also serve as a modest form of depletion policy.

Banking our royalty oil in the mature fields would have no consequence for the development of our new fields. It would have little or no major effect on jobs in the exploration for and development of new fields. Therefore, I am interested to know whether the Minister has any thoughts about banking royalty oil.

Since our Committee stage, the issue of banking royalty oil has been raised. I read with interest in the Daily Telegraph of 1 July the report of an interview between Mr. Roland Gribben and Mr. Peter Holmes, the new chairman of Shell Transport and Trading. Mr. Holmes said:

"Lower oil prices are bad news for Britain but if Britain could it should be doing something like banking royalty oil."

We do not necessarily agree with his concept that lower oil prices are bad for Britain. We have heard conflicting views about the impact of lower, stable or higher oil prices on our economic and industrial prospects, but the issue of banking royalty oil will again be raised if we see a substantial fall in prices. Although I do not wholly subscribe to the view of the chairman of Shell Transport and Trading, there may be a case for the Government at least to have the option of banking royalty oil.

If that decision is taken, there may also be a case for saying to the oil companies that if royalty oil is to be banked they, too, must bank oil barrel for barrel. In a period of dramatically falling oil prices, there might be a simple, common-sense, commercial reason for the Government to consider banking royalty oil and asking North sea operations to do the same barrel for barrel.

That is the idea that we float in the amendment. The amendment also gives us the opportunity to ask what powers the Minister already has to bank royalty oil. Would it require new legislation to do it or would it simply be the subject of sensible, commercial negotiation and temporary arrangements between the oil companies and the Government?

Given the speed with which oil markets change and trends in development occur, it might not be a bad idea for the Government to have the option which the amendment would provide and which, to borrow some words from the Minister, would be flexible, pragmatic and sensible.

I intervene briefly, if only in the interest of being even-handed and to let Labour Members know that I do not just have it in for them tonight. There is some merit in the amendment. It is flawed in its drafting, as the hon. Member for Methyr Tydfil and Rhymney (Mr. Rowlands) acknowledged. He moved it as a constructive contribution to considering how we handle royalty oil in the most flexible way in the national interest.

The amendment raises a wider issue, to which I referred earlier—the extent to which we are overproducing oil, in the sense that the United Kingdom has 1·6 per cent. of the world's reserves and is producing 4·5 per cent. of the world's production. Do we have it wrong, or do others have it wrong?

To the extent, therefore, that the amendment represents a sensible contribution in considering how we might be more flexible in the use of royalty oil, and perhaps help to modify production in a way that is acceptable—we are, after all, referring to the Government's oil—the Minister might consider whether what is proposed, or a variation of it, is worth exploring in terms of an extra option which the Government might wish to employ in future.

We must be flexible about onshore production. In what was my constituency is the town of Bo'ness, which is a mining area containing a number of shafts where subsidence problems in recent years have proved extremely serious. Houses were built on ground which, because of coal production, has since proved to be unstable.

So much for coal. Some people are concerned about what the extraction of onshore oil may mean in built-up areas, and at this stage I register a constituency concern, though I wish to broaden the consideration of an aspect of oil production.

I heard recently, as did many of my hon. Friends, of worries that had been expressed about one of those great glories of medieval English architecture, Salisbury cathedral. I gather that the great spire of the cathedral is built on a base which, along with the chapter house, has a depth of only 4 ft. It is a marvellous engineering construction. In view of the proposal to extract oil in the Salisbury area, I am told that the friends of Salisbury cathedral believe that there could be sufficent destabilising of the surroundings to render the spire dangerous. I do not wish to exaggerate the point, and I put it no higher than that. Reports are available. Should the Department wish to inquire into the matter, it could undoubtedly obtain more facts.

How flexible are the environmental arrangements if it is found that the extraction of oil would create environmental hazards to what we might call the built-in environment? I do not know whether tonight, in considering this amendment, is the right time to raise this issue. It is clear that a substantial and major problem has arisen and that thought will have to be given to it.

While the hon. Member for Linlithgow (Mr. Dalyell) acknowledged that the point he raised was not wholly relevant to the amendment, I appreciate its importance. Every aspect of the application for production with which I am concerned is subject to the full rigours of planning conditions, and at that stage the considerations that he mentioned would be taken into account. I will send him information which may help to describe the procedures that must be gone through and which, I hope, provide the necessary safeguards in such a situation.

It might be found that the geological knowledge was incomplete. In any event, conditions can alter. What would the Government do if permission were given in good faith by all the parties concerned and it was later found that the geological conditions were such that the built-in environment was threatened?

Of course, planning permission can be given subject to certain conditions where special considerations might apply. I shall certainly give the hon. Gentleman more than an outline of the exact procedures involved. I hope that that will be of some reassurance to him, but, if not, he is welcome to come and discuss the general issues with me.

The two amendments are important and interesting, and I do not fault them on any drafting ground. The intention behind them is quite clear. I wish first to deal with amendment No. 2 and then to move on to amendment No. 4, because they raise two separate points.

As background to the matter, it is important to understand the Government's right to take royalty oil, which arises from the conditions of the model clauses under which licences are granted. Therefore, if we wish to change the manner or timing of the taking of royalty oil, it is necessary to amend the appropriate model clauses. It would not be possible to amend the contractual relationship between the Secretary of State and licensees by inserting provisions in an agreement between the Secretary of State and the agency, as the amendments seek to do.

The agency will have no contractual or any other entitlement to lift royalty in kind. It will do so as the Secretary of State's agent. I mention that not in any way to knock down the principles behind the amendments, but because it is important to get that perspective right in relation to their practical application. We discussed the principles underlying amendment No. 2 in Committee on 18 June. The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) said that there could be problems with roll-over entitlements of royalty going from one chargeable period to another. However, he was wrong to say tonight that the whole of royalty oil is in a shambles—it is not. I acknowledge that there can be problems on roll-over, but not to the extent of disadvantage suggested by the hon. Gentleman. The problem has been with us for some time and BNOC has largely overcome it. I believe that the agency should also he able to overcome it.

In practice, when BNOC has accrued a substantial portion of a cargo of royalty oil near the end of a chargeable period, it has been able to purchase oil from other licensees to make a whole cargo, which it has then been able to lift. There is no reason why part cargoes of royalty in kind should not continue to be aggregated with part cargoes of crude accruing to licensees in the field, either through the agency purchasing the latter—which is why we proposed that the agency should have powers to trade on its own account—or by selling the part cargoes of royalty in kind to the other licensees. There are practical ways in which the agency should be able to deal with that.

It is important to get in perspective the scale of the issue that we are considering. If royalty-in-kind oil could not be aggregated with other oil to make complete cargoes, my Department has made estimates that indicate that royalty in kind oil not lifted would currently be less than 0·4 per cent. of United Kingdom continental shelf production, so the gross scale of the problem should not be all that great.

However, I acknowledge that aggregation has given rise to problems in the past and could give rise to problems in future. I assure the hon. Gentleman that if operational difficulties arise in aggregating part cargoes in the way that I have described, I shall consider the issue again when other changes in the model clauses—which are the correct way to deal with this matter—are next considered. We have no intention that this should be a difficulty, nor do we want it to be a difficulty. There are practical ways around it.

Amendment No. 4 is more fundamental and I cannot accept it. If we have to use the depletion power, the Secretary of State should have the right to use it, not the agency. If it were decided to impose cuts, the responsibility should rest with the Secretary of State.

9.45 pm

It might be helpful if I clarify the Government's depletion policy. The United Kingdom is not able to influence the world oil market through the manipulation of the volume that it produces. We are a medium-sized producer. We produce about 2·6 million barrels a day compared with the United States, which produces 10·5 million barrels, and the Soviet Union, which produces about 12·5 million barrels. We export about 1 million barrels a day net. Any reduction that we made would have little effect on the global oil market.

Anyone who has studied OPEC members or other oil producers will know that any reduction that we made would almost certainly be taken up by others. Any move to cut production would result in clear losses. I am uncertain that we would benefit.

I say that because of the practical and physical nature of our offshore production in the North sea and other areas on the continental shelf. Given the high risk and high cost nature of our production compared with most other offshore areas, and certainly with the big onshore producers, companies would be less inclined to invest in the future if the Government were to restrict production arbitrarily.

One could argue that the arrangement proposed in the amendment puts more of a financial burden on the nation's oil revenues and therefore less on oil companies' returns. However, one must remember that whatever is put in must come out. That applies to any stockpiled commodity. If we are to regain the royalty oil in due course, production would have to be cut to make way for its production. Our production is small in world terms, particularly our production for export. United Kingdom production is soon likely to decline. Our production facilities are designed to produce according to profiles agreed with the Department, and after careful study of the characteristics of the reservoir and other matters. Therefore, any cut in current production would, of its very nature, interfere with those carefully designed plans and could lead to production being prolonged beyond the design life of the facilities, and in those circumstances could be lost for ever. That is a peculiar feature of the offshore developments in the harsh environment that we have. Some of those who talk about depletion sometimes ignore the physical nature of the production from our offshore industry.

I would not, for the reasons that I have given, be happy to accept the amendment, not only for technical reasons but as a matter of principle. For certain fields, the powers that the hon. Gentleman seeks in his amendment would cut across other assurances that have been given, and understandings that have been reached between licensees and my Department during the consideration of development plans. In any case, if we ever wished to restrain production, the necessary powers to do it would be available under the model clauses. Therefore, powers along the lines of the amendment would not be required.

I repeat the point with which I opened the debate. If we were contemplating such powers, which we are not, they should be exercised by the Secretary of State and the Government and not by the agency.

I hope that this useful debate has helped to explain Government policy and to put into perspective the reason for the policy. In those circumstances, the hon. Gentleman may not feel it necessary to press the amendment.

In view of the way that the Minister responded to amendment No. 2, I accept his assurance that he will look closely at the situation as it develops in the practical way that I suggested.

On amendment No. 4, I have a sneaking suspicion that before too long it may be the oil companies themselves that will be coming to the Government to suggest ideas along the lines that I raised. I shall just wait and watch this space.

I beg to ask leave to withdraw the amendment.

I beg to move, That the Bill be now read the Third time.

We have had good and long debates on the Bill on Second Reading, in Committee, and tonight on Report. I pay tribute to my hon. Friends who have supported us throughout proceedings on the Bill. I also pay tribute to Opposition Members—particularly those who have led for the Opposition—for a useful series of constructive debates in an important area of our economy and on very important issues. I am grateful for the generally constructive way in which they have approached the subject, although I have not always been able to respond by agreeing with them.

To go back to where we started, what we are doing in the Bill is very much based on a change in the structure of the world's oil market. It is that change in the structure and what is happening in the world of industry, business and commerce that caused my right hon. Friend and myself and the Government to look at the activities of BNOC, and particularly its main activity in the trading of participation oil. We were forced to the conclusion that, because of those changes in the market, the corporation had reached the end of its useful life.

I emphasise that the abolition of the corporation does not represent an application of any degree of dogma to the public sector. Rather, it represents the flexible way in which we have endeavoured to respond to the change in market circumstances. At the same time, it provides for a welcome reduction in the size of the public sector, where interference was not needed, although I think that Opposition Members have acknowledged that I have not sought to make that a major part of my arguments in the debates on the Bill.

This has been a useful debate. We have again debated the question of security of supply in times of shortage, a subject to which I attach great importance. If necessary, the agency can exercise certain powers. In our arrangements in relation to participation agreements, international matters and refineries, we have ensured that we retain all those important powers.

In recent years BNOC has been successful in operating as a pipelines agency. I hope that the work of the Oil and Pipelines Agency will carry on and be commercially successful.

I hope that the agency's work will prosper. BNOC has shed all its pure participation supplies in co-operation with the licensees. It has shed also, with their co-operation part of the supplies that it has been obtaining under long-term contracts. I hope that the remaining suppliers will quickly find satisfactory alternative purchasers. The remaining term supplies which the agency can trade freely are now only one tenth of the level before my statement of 13 March. The price paid by the BNOC is what the corporation can realise in the market. To that extent, BNOC has already detached itself from setting a price. That is a good base on which the agency can start.

I pay tribute to BNOC's staff. Things are now different. I wish the new agency and its staff every success.

I thank the Minister of State for his kind words about the way that we have conducted our affairs. He has been unfailingly courteous to the Committee and to all hon. Members who have participated in the debates. I am sorry that we were not able to persuade him that in many ways he is fundamentally wrong. It remains our charge and case that, by abolishing the British National Oil Corporation, our oil supplies will be weakened. We do not believe that the right hon. Gentleman's paper assurances from the oil companies, paper participation agreements, and the stripped-down agency which is set up under the Bill provide an adequate alternative form of security of supply. I have charged the Minister of State more than once with the utter complacency behind the way in which he has argued the case for the Bill and the way in which the Government have chosen to pursue the abolition route—abolishing a successful, vibrant and productive corporation.

I am sorry that, despite our efforts, the agency that will be born in the Bill will be a pathetic stripped-down version of what we need. The new agency will be a declining organisation from the start—trading in declining amounts of royalty oil. I do not believe that the Minister will attract people of the necessary calibre and quality to work in that agency, as opposed to those who might reluctantly be forced to go to it from BNOC.

The agency is basically self-extinguishing, as the right hon. Gentleman said. Already in oil circles the Minister's "GOPA"—Government Oil and Pipelines Agency—has been treated with contempt and derision, because everyone knows that it is not the real thing. We shall therefore vote against the Bill because we know that it is not the real thing. We look forward to the day when a Labour Government will establish a real British National Oil Corporation serving the nation's need and especially the challenge of the North sea in the 1990s.

I have had a number of opportunities to make known my views on the Bill, and I shall not weary the House by going into them at great length again.

I am disappointed that, when the Government took the opportunity to abolish BNOC, they felt the need to set up an agency in its place. My principal worry is that the setting up of an agency means that the Government will continue to be involved in the oil market. There is still a danger that the Government will be seen as a price setter, although I understand the points made by my right hon. Friend the Minister of State. There may still be turbulent days ahead in the oil market. In the past, when conditions on the oil market have become turbulent, someone has taken the blame for unsettling the oil price. As we enter the turbulent days ahead, some countries may again be looking for a scapegoat. I hope that my fears are groundless. Nevertheless, I harbour them.

My hon. Friend the Member for Bedfordshire, North (Mr. Skeet) and I attempted to persuade the Committee of the value of two amendments. One would have paved the way towards the privatisation of the oil pipelines and storage system, but we were unsuccessful in convincing the Committee of the merits of that scheme. I understood my right hon. Friend's argument that the time was not ripe for such a move. I was pleased——

I beg to move, amendment (a) to the Lords amendment, in line 2, leave out from 'which' to end and add

'shall not be included in this Act unless a majority of depositors of Trustee Savings Bank Scotland have first given their assent in a postal ballot.'.

With this, it will be convenient to take Government amendments (b) to (d), plus (i) and (ii).

I thank you, Mr. Speaker, for that ruling. Although I may disagree a little, I acknowledge that your view must prevail in these matters. I am grateful for the attention that you have given to my point of order.

I only wish that it were not necessary for me to move this amendment. If the Government had been prepared to accept the Lords amendment itself, or its spirit, TSB Scotland would have been able to continue its separate existence and I would not be moving the amendment, which suggests that the matter should go to a ballot of the depositors of the company.

I make it clear to those hon. Members who have not followed the debate that has been going on for so long that we are not dealing with a small subsidiary. TSB Scotland is the 11th largest company in Scotland and the most profitable bank by a long way, with £10,500 to £11,000 worth of earnings per employee. That compares with the Royal Bank of Scotland and the Bank of Scotland, for which the relevant figure is between £6,500 and £7,500, and the Clydesdale bank at the lower figure of £3,000 per employee. The Lords amendment is right. TSB Scotland is viable in its own right and should be deleted from the Bill. I shall give the reasons in due course.

The directors of the Edinburgh chamber of commerce passed a unanimous motion asking the Government to accept the Lords decision on the grounds that it was important to retain the autonomy of financial institutions in the city of Edinburgh. On 20 April 1985 Mr. Souness, the manager of the Life Association of Scotland and the chairman of the Edinburgh chamber of commerce, referred to the cosmetic formula that had been agreed with Lord Taylor of Gryfe, who a few months ago was instrumental in and deserves credit for derailing the Bill in the House of Lords. He said that the assurance would not count for much and that the issue was about where power lay. Criticism was made of the attitude adopted by the chairman of the Trustee Savings bank's central board. Sir John Read, when he visited Scotland. An editorial in The Scotsman described him as holding "the obdurate belief" that he and his fellow directors had got it right.

The Government's compromise in their intended replacement of the first Lords amendment is not worth a row of beads. I described it at the time as a spineless surrender and I do not retract that statement. The various assurances that are to be found in the letter addressed by Sir John Read to the Chancellor of the Exchequer on or about 16 May 1985 amount to very little. Sir John Read tossed to the Scots a string of beads to keep the natives happy.

The compromise suggests that the registered office of the group should be in Scotland. I am not sure what advantage the Government see in that proposal. The headquarters office, where the power lies, where decisions will be taken and where most of the money will be turned over, will be in London, so the conclusion must be that, like the Distillers Company or Burmah Oil, although nominally the registered office will be in Scotland, the real power and the real headquarters will be in London.

It is also suggested that there will be proposals to ensure that all banks in the TSB group remain as separate banks. This was always intended, so I do not know what advantage TSB Scotland, the banking fraternity in Scotland, the customers of TSB Scotland or the financial institutions in Scotland will derive from the proposals.

Another suggestion is that the trustees will be the directors of the new company. No more ridiculous suggestion could be made. The trustees of TSB Scotland have no credibility whatsoever. They cannot be trusted, apparently, to look after the interests of the Scottish bank. They do not intend to allow it to continue to have an independent existence. If that is so, how can they be trusted further?

I must make some comment on the strange ethics of the situation. Having willingly sacrificed themselves to the predator, the TSB Group, they appear willing to remain in the saddle to be appointed directors of the new banking subsiduary in Scotland. I am not sure what remuneration they will receive for that, whether it is 300 or 3,000 or 30,000 pieces of silver for betraying the birthright which should have been theirs after the creation of the trustee savings bank movement in Scotland two centuries ago. That pecuniary interest sits ill with the role of trustees. Even if it had been independent at the outset, the group will retain the veto, which it can exercise over the choice of new trustees. Any initiative which TSB Scotland might have been able to maintain under the new regime, will be killed off over a period if the TSB Group so wishes.

10.30 pm

There are also managerial problems associated with the changes which have been suggested. At present, these directors will not be elected by anyone: they will be appointed, if we agree with Sir John Read, the chairman of the TSB Group, as new directors of the company, without election. They will not be responsible in any way to any independent body of shareholders. Under that kind of regime, TSB Scotland will go into slack and supine managerial hands. That is because, without responsibility to shareholders, there will be little reason for management to exert itself.

If one looks at the comparison which I gave at the beginning of my remarks between the earning capacity per employee of the Scottish banks, it is noticeable that the one with the lowest figure of £3,000 per employee, is the Clydesdale bank. It is the only Scottish bank which is a fully owned subsidiary of an external bank, the Midland. Much of the profitable work which could be undertaken by the Clydesdale bank goes to the Midland and to its specialist investment companies and merchant banks. The Clydesdale is therefore denuded of some of the more lucrative sections of the market.

Yet this seems to be the area to which we will be condemning TSB Scotland if the House succeeds in overturning the Lords amendment to cut TSB Scotland out of this bad Bill. These directors will be a self-perpetuating oligarchy. They will be appointed by no one, elected by no one and responsible to no one. That is bad in itself. As for the proposal that 75 per cent. of the directors will have to live in Scotland, that is the merest token that could ever have been devised, and in relation to the safeguarding of the net worth, it can be overtaken in the course of time.

We have a thrusting, dynamic bank at present, but the picture will change dramatically if the Lords amendment is over turned. The Government are on very uncertain ground over the Bill. The amendment I have suggested in lieu of the Lords amendment which the Government intend to demolish, is intended to ensure that, before any precipitate or final action is taken, there should be a decision by the depositors of the bank in a ballot. A majority of the depositors should agree to the changes which have been suggested by the TSB. There are specific reasons why that is desirable.

I do not feel it necessary to rehearse some of the background information I gave you, Mr. Speaker, in my point of order earlier today. If one looks at the opinion expressed by Mr. John Murray, QC, to the Trustee Savings bank central board—that is, the London body—one sees the assertion that under Scots law the trustee savings banks in Scotland are owned by the contributors. The contributors are the depositors and the depositors are the members of the bank. Therefore, the ownership of the bank rests with the depositors. If the opinion is correct, they are entitled to the produce, the reserves and assets, of the bank. I should have thought that extending wealth within the community and ensuring the widest possible ownership of the assets of this successful institution would be welcome to the Government. It is surprising that the Treasury was prepared to say in the White Paper that there was doubt about the ownership.

Some of the matters that I raised during the earlier points of order about the information given to the House require answers from the Treasury. Did the Government receive a copy of the opinion? Did they conduct their own legal inquiries into ownership? If the central board had received such an opinion, suggesting that ownership rested with depositors, would not it have been desirable for the bank to go to the Court of Session with an action of declarator asking the court to declare as to ownership, so that that was cleared out of the way at the start?

No attempt has been made by TSB Scotland or by the central board to apprise the depositors, the prima facie owners of the hank, of their rights. It was surely essential that they should have done so. The bank was established for the customers and they have put their faith and money into TSB Scotland. Over successive generations, they have built up a very successful business which is now to be destroyed.

Given the opinion that has been received and the fact that there is to be an action in court tomorrow, it is all the more regrettable that the Government have precipitately determined to drive on regardless. Many people will regard it as legalised theft if, by an Act of Parliament, the ownership and resources of the bank are taken away from the working people for whom it was established and distributed to speculators, which is what will happen if the flotation goes ahead.

Many people in Scotland who have no objection to flotations and joint stock companies feel that this example of exploitation should not be allowed to proceed.

The Government wish to defeat the Lords amendment. My amendment suggests that before any other action takes place, the owners of the bank—the depositors—should be consulted in a postal ballot to get their views. The Government are keen on postal and other ballots in other areas. Before transferring the bank's assets to their friends in the City, they should at least test the strength of their position.

I cannot see what objection there can be to getting the agreement of the depositors. If the depositors, deemed the owners, agree to the demutualisation, if that is the correct term, of the company, at least TSB Scotland, the TSB Group and the Government will be on far stronger ground. That will be the result of a majority vote in favour. It is incumbent on the Government to tell the House whether they will accept the amendment which I have tabled. If they do not respond and if they fail to say yes, I hope that they will explain why insufficient information about this sordid affair has been placed before the House.

We are dealing with an important Scottish company. When I started my opposition to the Bill, I did so primarily on the basis that it would be a loss to the Scottish economy and the financial scene if this huge unit were to be taken out of our control. Its removal would inflict considerable damage on us.

I am following the hon. Gentleman closely. He is making a strong plea for the bank to be left in Scottish control. However, earlier in his remarks he was critical of those in control of the bank's affairs for apparently selling out. The hon. Gentleman cannot have it both ways.

Indeed I can have it both ways. I usually do, and I am usually right. I have explained that my objection to the Bill at the outset was based on the economic and financial loss that the Scottish economy would face. However, we have run into a more fundamental issue, which is whether such a company, which has had successful mutual control in the past, should have that form of control unilaterally dismantled without the consent of the depositors, who I believe to be the true owners of the bank.

We in Scotland have had successful mutual companies in the insurance section which have done very well. I would not trust the trustees as directors in controlling the future of TSB Scotland, especially if they are answerable to no one—except ultimately, I suppose, the TSB central board. I accept that the bank has built up extremely well in recent years, has served its customers and expanded its services. One can recognise work well done of that sort but it is still possible to criticise the trustees of TSB Scotland for their ultimate lack of vision. It appears that they have close sight but no long sight of the future.

Many Scottish companies have been taken over in the past and when that has happened the vitality has often seeped out of them and has not been replaced. Eventually these companies have either been entirely absorbed—that happened to many individual insurance companies which were based in Scotland—or closed, with job losses and a loss of leadership in the Scottish community.

If the Government insist on opposing Lords amendment No. 1, which I consider to offer the best solution, they should consider the formula which I have outlined in amendment (a) which provides that, before TSB Scotland is included in their proposals, consent should be obtained from the depositors by way of a postal ballot. In that way the Government would emerge with great credit. It is still open to them to take that course rather than to find that they have disappointed the Scottish community' in the unfortunate way in which the Bill has been prepared.

I could accept from the Minister the view that he has asserted in the past that the Bill is not one in which the Government have a pecuniary interest and that he is acting as agent for the TSB Group and, through that, TSB Scotland, but an agent is responsible to a principal. In this case, the principal is not necessarily the TSB trustees but the owners of the bank, the depositors. If that is so, the Minister would be acting in dereliction of his duty as agent if he accepted instructions from the wrong principal.

Now that he has the information and opinion that I have supplied, I hope that the Minister will acknowledge that the Government should not wish to be involved in a scandal of this sort and, even now, will accept a solution which would remove them from the hook on which they have been placed.

The new TSB's difficult birth is being attended with much doubt and uncertainty. I have no wish, in what I thought optimistically would be a short debate, to rehearse the whole history of the affair. The central issue with which we are concerned in this group of amendments is whether the exclusion of TSB Scotland from the Bill, as brought forward in another place, should survive and whether, if it does not survive, how adequate will be the Government's replacement provisions.

The debate in the other place represented an interesting episode. Lord Taylor of Gryfe apparently has an unbounded enthusiasm for devolution in the world of banking, though that enthusiasm does not have a wider application, if I remember the noble Lord's history.

I do not go all the way with the hon. Member for Dundee, East (Mr. Wilson) or with the depositors in writing off as totally worthless the concessions that have been extracted. In one of the depositors' circulars, those concessions were described as an insult to the intelligence of the Scottish electorate. While that was an overstatement, a number of questions need answering about those concessions and I hope that the Minister will provide the answers.

I am sure that I speak for many hon. Members when I say that we have no enthusiasm for the self-perpetuating board, as envisaged. The board of TSB Scotland will renew itself. It is the equivalent in the world of nature of the amoeba in the sense that it is self-generating, needing no outside help, although there is a negative check in the approval of the main board. I did not have the privilege of serving on the Standing Committee, but I expect that there was an explanation of whether they would be executive directors and whether they would be part-time or full-time. The Minister might wish to clear that up.

More helpful is the fact that the chairman and chief executive of each subsidiary bank will serve on the main board and that there will be no reduction in the worth of the bank without the consent of two thirds of that subsidiary bank's board of directors, although a cynic might ask what the worth of that is, given their silence on present events.

The real question concerns the value of the safeguards. The Minister said that there would be no vesting order until all the alternations in the articles of association had been made and the promised safeguards were in position. However, articles of association can be altered at a later date. The trouble is that the safeguards offered are immediate and there is no guarantee that they will stand the test of time. The Minister may wish to comment on that important matter, especially when we consider the adequacy or otherwise of what he proposes to put in place of the Lords amendment.

It is difficult to be objective about these issues. As we contemplate the scene, one can hear the creaks of bandwagons rumbling, and certain sections of the SNP—I am careful to say "certain sections—have been shamelessly jumping aboard. Last week it was wreaths in memory of the Labour party at the Royal High building; this week it is the Trustee Savings bank. Goodness knows what it will be next week. We must look at the arguments. There are two main areas of contention—one is the form of ownership proposed for the new organisation and the second is the loss of Scottish identity subsumed in the larger United Kingdom organisation.

I am not convinced by some of the rather romantic visions of the TSB as presently constituted, which have been used to buttress some of the debates during the course of the Bill. I do not want to go back to the philosophy of the Rev. Henry Duncan of Ruthwell and his famous strongbox with its three separate locks. However, I must tell the hon. Member for Dumfries (Sir H. Monro), whose peon of praise for the good cleric I read with interest, that he is a rather unlikely hero for a Conservative Member because his other characteristic was a decision to defy an interdict from the Court of Session during the famous legal proceedings in the Strathbogie case running up to the disruption. I would have thought that that would not have commended itself to Conservatives.

In any event whatever the Rev. Henry Duncan may or may not have done, there is a somewhat rosy coloured glow as people look at how the status of depositors has developed during the course of the TSB movement. I remember an interesting chapter in Olive Checkland's book "Philanthropy in Victorian Scotland", which deals with this at some length. I recommend it to anyone who is interested. I shall weary the House with only one sentence, which is:

"The concept of trusteeship was an elitist notion: depositors had no voice in the management of the Savings Banks."

That holds true today, even as it did in the days of Victorian philanthropy that are sometimes beloved of Government Back Benchers.

I am confident that the average depositor—one of the nameless 1·25 million, of whom there are several on the Benches behind me—thinks that he has a substantial stake in the management of the TSB as presently constituted. However, it is fair to concede that there is a big difference between management and ownership. Whatever the position of the depositors in terms of management, they have a special position in the bank that is not fully recognised in the scheme embodied in this legislation.

There has been a great deal of talk about the Page committee. The findings on ownership were quoted effectively by my hon. Friend the Member for Thurrock (Dr. McDonald) on Second Reading. The House will remember that when that committee considered something very much like the solution that has now been adopted, it reached the conclusion that it was neither practical nor desirable.

There is also the open question whether the bank is or is not, in the law of Scotland, owned by its depositors. The hon. Member for Dundee, East quoted the opinion of a well-known Queen's counsel at the Scottish Bar, Mr. John Murray. We are led to understand—and I have not seen a copy of the document—that his view was that, as an unincorporated body, it was owned by the depositors. Of course, that is not the law of the land. It is an educated guess about what the courts might find if they were invited to consider that question. But it underlines that we are in a peculiar position tonight because we are all aware that there is an action pending in the courts—an application for interdict—that is likely to be heard tomorrow. None of us know the outcome of that. It will be strange if the Court of Session says tomorrow that ownership is with the depositors and grant an interdict on that basis.

Perhaps the Minister can tell us the Government's view of the effect of such an interdict. If he has doubts, he can obtain an instant opinion from another QC sitting on his left—the Solicitor-General for Scotland.

Will Parliament override the court and make the interdict useless? What will be the effect of that interdict? What will happen to depositors who have been established in ownership and have a tangible right, which we are alienating, who will have no rights in the courts because Parliament is legislating to destroy their right to pursue their claim? That raises interesting questions which are not academic and which might become horribly relevant tomorrow.

I hope that the Minister will give us the benefit of his thoughts on the matter. If he cannot do that, I hope that we shall hear from the Solicitor-General for Scotland.

The Page committee, the opinion of counsel and the atmosphere of the trustee savings bank movement has been referred to. I believe that a substantial shift is envisaged in the Bill. It is not a matter that involves only a technical reconstruction of company status.

Leaving aside the question whether the bank is thrusting and dynamic, the TSB has served its depositors and its existence is based upon offering certain services. No one apart from salaried professionals, makes a profit or obtains a fee.

Under the new arrangement trustees will have a different remit. They will be bound by the Companies Act. Their job will be to maximise profits for the benefit of a different body of people—the shareholders. There might be an overlap. They will do that by extracting profit from the depositors. That will create a different atmosphere.

The important position now held by depositors was recognised by the Minister in his recent letter to Mr. R. A. G. Bennett of the depositors' association when he said that the preferential share option scheme was a recognition of the special place of the depositors in the TSB set-up.

Depositors are in a special position. The evidence for that is contained not only in the Page report, but in the way that the bank has been operating. To that we want to add the Scottish dimension. Scotland has a long and distinguished involvement and a well-developed network. Central funds have been gathered there. We have come a long way since the Rev. Henry Duncan's banks were established to

"ameliorate the conditions of the lower orders"

in Scotland.

I am told that 3,000 employees are involved, that the operating profit is £32 million, that there are 2 million accounts and 1·5 million depositors. There is no doubt that the Scottish bank would be a substantial entity if it existed in its own right. That was tacitly admitted by an authority that might appeal at least to Conservative Members—Lord Bruce-Gardyne—who said on 16 April 1985 that TBS Scotland would be well able to stand on its own two feet. I do not think that there would be any argument about that.

I do not want to argue that case at this stage at any length, but there is an understandable anxiety. It was referred to by my hon. Friend the Member for Thurrock on Second Reading, when she pointed out that there was a danger of the bank, weak in the south, using the vast majority of its resources over the opening years to try to cover the areas where it had not a long and well-established tradition. She rightly said that that should not be at the expense of Scotland and the north.

11 pm

We have here a fair amendment that calls for consultation. There is clearly a case for that consultation, based on the Scottish experience. There may be an argument about whether it is right to go ahead on the present arrangements, but that should be tested. I hope that I have established that the depositors are people who have a particular interest and should be consulted.

I have no doubt that substantial arguments can be put forward by the promoters of the scheme. They can argue that the employees are, as I understand, largely in favour of the reorganisation going ahead. They can talk about a better service for the customer from a commercial bank with a more competitive system. They can argue that the depositors' association is unrepresentative. It has not hidden the fact that it came late in the field and has only about 200 members out of the 1,250,000 depositors. The promoters can argue that an independent bank would be open to a substantial possibility of takeovers and would be in a weak position. There are all sorts of arguments, and it is not for us tonight to come to a conclusion on them.

I have tried to put some arguments and the hon. Member for Dundee, East has done the same. On both sides there are arguments that should be decided by the depositors, and they should be consulted before we come to a final conclusion on the matter. The very fact that they are entitled to preferential treatment perhaps underlines the case for consultation of the kind that I have mentioned.

I am a member of a building society. I was surprised to discover that I am a member because I have only a few pounds in an ordinary share account. A couple of days ago I received a voting slip, because the building society is about to amalgamate. It is asking me to vote on whether I want that amalgamation to go ahead. I accept that a building society has a very different structure from that of a trustee savings bank, but it is thought not inappropriate that everyone who has a deposit in the building society should be allowed to vote on whether the Alliance should join with the Leicester. All we are asking is for the same sort of basic right for the depositors in the TSB.

I hope that the Government will look sympathetically at the amendments. I hope that they will accept that there is a case for consultation, given the Scottish dimension that we have been talking about and given the undoubted change in the status of depositors that would result from the Bill. If the Minister will accept the amendment, or one of them, we can proceed with harmony and consent and there need be no further delay. If he cannot, I believe that we should divide the House upon it and, if we are unsuccessful, mark our disapproval by dividing also on the main Question.

On a point of order, Mr. Deputy Speaker. May I ask your advice on the important issue that we are considering? Various privileges are to be conferred by the Bill on depositors with the Trustee Savings Bank. There will be hon. Members in the House this evening who may be intending to vote and who may have accounts and be depositors with the Trustee Savings Bank.

I have an account with the Trustee Savings Bank which contains 81p, but the principle goes beyond that. In view of the lucrative offers that are being patronisingly placed before depositors, Mr. Deputy Speaker, can you advise me—and perhaps the House as well—as to the position of hon. Members if as depositors they were to find themselves in the Division Lobbies this evening?

The practice of the House is clear. Any hon. Member who has a pecuniary interest in the matter being debated and who is participating in the debate should declare that pecuniary interest. All hon. Members may vote on a matter of public interest. I hope that that is clear.

I am sure that Dr. Henry Duncan would be surprised that, 175 years after founding the savings bank movement, his name has been trotted about the Floor of the House at 11 pm. The hon. Member for Glasgow, Garscadden (Mr. Dewar) thought that it was unlikely that I would support Dr. Duncan, but I do. He set a fine example of sticking by one's principles over the disruption. At least a fine monument was erected in memory of his good work. This is unlikely to be reciprocated in the streets of Garscadden.

I think that Dr. Duncan would want the House to bear in mind that he spent much of his time promoting the savings bank movement in England and Wales. He was internationally minded and outward looking—very far removed from the narrow internal views of the hon. Member for Dundee, East (Mr. Wilson).

It is important to delve into the history not of the distant past but of the past two or three months. I should like my hon. Friend the Economic Secretary to marry Government amendment (d) with the important letter from Sir John Read, the TSB chairman, which was printed in detail in the other place on 4 July in reply to a written question by Lord Taylor of Gryfe to the Chancellor of the Duchy of Lancaster. How binding is the letter? How tied into the legislation is the assurance that in Scotland we will have the many factors set out in the letter, especially in relation to

"an independently managed Scottish bank"—[Official Report. House of Lords,4 July 1985; Vol. 465, c. 1394.]

which is registered in Scotland—I think that this is covered by deed—the issues relative to the charitable foundations under paragraph 4 (iii) and the membership of the Scottish board under paragraph 4(v)?

If my hon. Friend the Economic Secretary spells out in detail how he sees the arrangements for conducting the business of the Trustee Savings bank—both the United Kingdom and the Scottish groups—and how they tie together, that may well go a long way towards alleviating the concern in some parts of Scotland. This concern has not been reciprocated by the staff of the TSB nor originally by the trustees when the Bill came before us on Second Reading.

All of us who live in Scotland, who are interested in the bank's success and who realise that a large part of the bank's success in Scotland will go towards making it a great successor in the United Kingdom—[Interruption.]Why does the right hon. Member for Western Isles (Mr. Stewart) laugh at that? Is he not proud that the Scottish bank can take the lead in the United Kingdom? Should he not be pleased, rather than sit there girning away?

Surely the hon. Gentleman is aware from his experience that that is not the way the scenario will operate. The bank will simply become a branch office without any power.

Despite all the years that the right hon. Gentleman has served in the House his mind never broadens or becomes more up to date. In some years' time he will realise that tonight he witnessed the passage of legislation that greatly enhanced the prestige of the TSB in Scotland.

I hope that when my hon. Friend replies to the debate, which is broadly similar to the Second Reading debate in the other place, he will spell out how the letter from Sir John Read is tied into legislation. We want an assurance that what Sir John Read said will take place, and is bound as far as possible by legislation.

My hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) said that we were in a peculiar position. Indeed, we are, because we are dealing with a peculiar Bill. On Second Reading I declared an interest as a depositor in the Trustee Savings bank, and, as hon. Members know, I opposed Second Reading.

In the other place Lord Gowrie said that the Government could not allow the Bill to proceed to Royal Assent with clause 3. The Bill should not be enacted. Therefore, I would not be unhappy if the Government's motion, that we disagree with the Lords, were refused. It is becoming increasingly evident that serious questions about the ownership of the bank, if not in England and Wales, certainly in Scotland, have not been adequately resolved.

The group of amendments arises from an amendment of Lord Taylor of Gryfe, which succeeded on Report in another place. That amendment, which aroused a great deal of interest in Scotland, revealed the extent to which Edinburgh's financial establishment had been sleeping because it came some time after this House had given the Bill a Second Reading. It does not instil me with much confidence in Edinburgh as the second financial centre in the United Kingdom that Edinburgh took so long to wake up to what was going on.

It is more than anecdotal——

Order. I am sorry to interrupt the hon. Gentleman, but an unreasonable volume of noise is coming from the vicinity of the Bar of the House. I hope that the hon. Gentleman will be given the opportunity to deliver his speech without too much background noise.

It has been suggested to me that Lord Taylor's amendment might not have been passed in the other place if the President of Malawi had not been visiting the United Kingdom. There was a big dinner in his honour at Windsor Castle and, therefore, many on the Government side in the other place were absent. I am sure that Dr. Banda, who resided in and was educated in Scotland, would have a good old chuckle at that.

The more serious aspect was the flaw in Lord Taylor's amendment. Reference was made to the letter from the chairman of the central board. All hon. Members may not share the simplistic confidence exuded by the hon. Member for Dumfries (Sir H. Monro), but it seems an eggshell of a scheme. The first tap of a wooden spoon would give us a smack of what the scheme amounts to.

We have been told that the head office of TSB Scotland will be in Scotland, and that the TSB Group's registered office will be in Edinburgh. I understand that the Scottish Council (Development and Industry) has already said that it wants the entire operation to be located in Edinburgh. The shareholders' annual general meeting will be in Edinburgh, no doubt at the time of the Edinburgh festival.

11.15 pm

Those assurances, and the supposed safeguards about residential qualification for the directors of the new TSB in Scotland, do not amount to much. They certainly do not overcome the basic problem of ownership, which the Government have not fully resolved, and the question whether it is right for the Government to consent to the flotation of TSB on the stock market.

Lord Taylor in another place said that the concessions that had been agreed with the chairman of the central board of the TSB were more than half a loaf. However, having examined the concessions closely, it seems to me that they are little more than a handful of grain. They provide some managerial assurances, not proprietorial safeguards, because they do not alter the effect of the change in control.

This might be a convenient moment to say why I tabled amendment (ii), which calls for consultative arrangements with depositors. Although the Government are likely to have their way this evening, I believe that there should be adequate arrangements to ensure that the depositors with the TSB have a voice in the new set-up. It is clear from Sir John Read's letter that he envisages that no more than about one tenth of the depositors will become shareholders of the new TSB. We have been told all along that it is desirable to have shareholders because we wish to involve many more people in the running of the bank. yet it is explicitly acknowledged in the letter that not many more than one tenth of the depositors are likely to become shareholders.

Therefore, it is all the more important that some mechanism is written into the Bill so that the other nine tenths of depositors can have some machinery by which their views and complaints can be made known to the board. That should not be left to the whim of the chairman or the board. Since the TSB wished to be different and to involve more people than do the clearing banks, I should have thought that it would have wanted to have some customer representation within the established arrangements. That is why it was important to table the amendment.

Some reference has been made to mutuality. A depositors' association has been set up. Irrespective of whether it has 230 or 250 members so far, the fact is that there must be some recognition of depositors' rights in this exercise.

I noticed with interest that, in the letter which the Treasury Minister sent to the chairman of the Scottish TSB Depositors' Association on 4 July 1985, the Government made their position quite clear on the matter of mutuality. Copies of the letter were issued as a parliamentary answer. The Minister said:

"I agree of course that there are successful mutual financial institutions. But it is one thing to allow long-established mutuals to continue in business in their traditional fields of activity and quite another to set up brand-new mutual arrangements in modern circumstances."

The Government effectively appear to be trumpeting a new arrangement that organisations will be either private or public. In the Government's scheme of fiscal and economic affairs, it seems that there will be no encouragement and precious little assistance to mutuality as a concept. I wonder whether that is entirely desirable.

Many hon. Members have experience of mutuality in other areas. The TSB is not strictly a mutual, but I see no reason why it could not have moved towards the concept of mutuality. I think that the TSB could raise the capital for which it is looking, had it had shares which could be indexed and interest paid. I do not think that it needs to float an unknown business on the stock exchange to raise the capital which it says is necessary for many of these developments.

When the Minister tells the House why we should accept the Government proposal and disagree with the Lords amendment, I should like him to say whether the Government, had they known counsel's opinion, which was apparently given to the TSB in April 1979, would have come forward with a Bill, or would have left it entirely to the Trustee Savings bank to introduce a private Bill.

On Second Reading, I described the measure as closet privatisation. I want to know where the Treasury stands in all this. Many questions have been unanswered in the conduct of this highly undesirable plan to sell off the TSB.

As I said before, it will be a highly lucrative exercise. Those who buy will not be risking anything in the way that they would be in buying equities in a business. The reserves of the TSB are such that it will be an Aladdin's cave. I am not sure whether the Minister is Ali Baba or one of the 40 thieves, but I think it is important that the Treasury should spell out precisely where it stands, given the knowledge that the House now has.

I declare an interest. I am, or was, a depositor in the Edinburgh savings bank, and discovered, following the publication of the Bill, that my account, which stood at £1 10s 6d, is now worth £2.68 28 years later. I do not know whether that is in favour of or against the present structure of the bank, but that is the extent of my interest. No doubt I will be one of the thieves of whom the hon. Member for Glasgow, Maryhill (Mr. Craigen) has just spoken, because I would be entitled to shares if the matter goes forward to flotation.

Several matters of important principle are raised. It is obvious that no hon. Member—and it is not yet settled in the courts—is certain about the legal constitution of the organisation of the Trustee Savings bank. Without wishing to give a firm opinion, I would say that the Bill would turn a non-profit-making association into a profit-making company. If I am right, the distinction is that the original association had, under the trusts legislation—that is why it is called a trustee savings bank—a duty to maximise the benefits of the depositors. That is why the name was changed from the Edinburgh savings bank or any other bank to the Trustee Savings bank. Those who were in charge of it therefore had a duty to maximise the benefits of the beneficiaries—the depositors.

The new company has a completely different duty. It is exempted from, even if it is not precisely under, the requirements of trusts legislation, to maximise profits as a commercial organisation. Such a company has an utterly different structure in law in Scotland and in understanding as an organisation. The Government are merely the agent, runner or duty doer for the board of the TSB in putting forward the Bill. I do not believe that the Government would ever have done that if they had conceived of the legal structure of the bank.

We do not know what the legal structure of the bank is. The Court of Session will begin to decide that tomorrow. We know however, that it was called the Trustee Savings bank because it was believed to be such an organisation. It would have been a contravention of the Trade Descriptions Act 1968 if anybody had called it that and it had not been a trustee savings bank.

I do not wish to judge something which, if it is not sub judice, is very nearly sub judice. Let us assume that, as I have proposed, the court decides that the organisation comes under the umbrella of trusts legislation and has a duty to provide for the maximisation of the benefit of the beneficiaries—the depositors. Then the Bill will supravene abante the rights of the beneficiaries. It will be taking a trust and making it into a commercial enterprise without the consent of the beneficiaries, contrary to the duties of the trustees.

11.30 pm

We can take it the other way. The case may go to the first division and then to the other place, so it may be a long process. I am not looking into the motivation of those who raised the action but into the rights and wrongs of the matter. Supposing that the courts decide the other way. Then, have not the depositors, all these years, been misled as to their rights, and the duties of the directors?

I know that there are political motives. I know that there are those who say that anything that is Scottish must remain Scottish, and those who want to know whether the ban will be more Scottish if Sir John Read's letter is implemented than ever it was before. I am unimpressed by either the one side or the other. I am impressed by the fact that the defensive letter of Sir John Read has no force in statute and that any allegation that it is an earnest of eternal will has no force.

I am certain of various matters that concern me. The directors sought the opinion of counsel, which they were always entitled to reject, and which has regrettably—because it is a confidential matter—been revealed. It has been revealed, and we understand that they were informed and did not challenge that information, that the bank belonged to the depositors and that they were trustees for the beneficiaries. The directors then came to the Government to ask them to derogate their duty and later the function of that charity—trusts are charities. That raises serious poblems. If we are then told that the same adviser is advising them on the matters in which they are trying to reverse his opinion, that also raises serious matters.

We are told that Lord Taylor of Gryfe in the other place acts for Morgan Grenfell, which is, after all, acting with Noble Grossart in the Bell's whisky deal. The day after Lord Taylor accepted the advice, who was it that Sir John Read said would be a satisfactory director? It was Angus Grossart, of Noble Grossart. That raises other matters.

I am not, and hope will never be, able to understand anything about finance. I hate alligators, and I hate predators, and I hate everything about finance. However, if the financial institutions of Scotland are to be run on the basis that the TSB gets the advice of top counsel, hides that advice from the Government and asks the Government to bring in a Bill that contradicts it, then asks the same counsel to advise it in the opposite direction, and then in the other place the Government accept a compromise from a noble Lord who is in the financial institution of Morgan Grenfell, and the bank of Morgan Grenfell, in league with Noble Grossart says that the safeguard is to appoint one of their directors, all I can say is that the scepticism of a natural Jacobite Episcopalian is confirmed.

I am not a little Scotlander, but I am a little depositor in Trustee Savings Bank Scotland. I am very sceptical about constitutional arrangements whereby a trust becomes a public company when the question whether or not it is a trust has yet to be decided by the courts. The principles I have raised tonight ought to give a great deal of thought to a great number of people.

On a point of order, Mr. Deputy Speaker. Although I am not an accountant, a Scot or even a Pict, I have listened with great interest to this debate and have become increasingly disturbed by the points about interest that have been raised. I am a partner in a firm that is a substantial customer of the Trustee Savings bank. Originally, Mr. Deputy Speaker, you made a distinction between declaring an interest and speaking and then voting on a matter of public interest. I am not entirely certain about the distinction between the public interests and the private interests of a firm like mine. If this flotation takes place, my firm and I, as a partner in that firm, will have a substantial interest in it. I should welcome a ruling about how you make a distinction between public and private interests in a matter of this nature. At the moment I am reluctant either to speak or eventually to vote upon it.

Order. I am surprised that the hon. Gentleman has taken such a close interest in this matter, since I have been disturbed by the unreasonable noises that have been disrupting the debate from below the Gangway. I doubt whether I can usefully add to my earlier ruling that all hon. Members have a right and a responsibility, in accordance with the practice of the House, to declare any pecuniary interests that they may have in the subject under debate.

Further to that point of order, Mr. Deputy Speaker. On behalf of my hon. Friends the Members for Macclesfield (Mr. Winterton) and for Birmingham, Selly Oak (Mr. Beaumont-Dark) I apologise for the noise that they have been creating, but I have been seeking their advice. I am no wiser, nor am I much better informed about the distinction between public and private interests. Therefore in accordance with my conscience I declare an interest. It would be quite wrong of me to vote on this matter.

This has been a strange debate. The Bill has followed a very unexpected course. When the Government first introduced it, the matters that have become so controversial tonight, at a late stage in the proceedings on the Bill, appear not to have ruffled the feathers of those who are alleged to be most at risk from the proposals of the trustees of the Trustee Savings bank Scotland.

There has been a penumbra of criticism throughout the debate of the motivation of the trustees in suggesting this flotation and of the Bill that the Government have adopted—a penumbra that became rather more solid when the hon. and learned Member for Perth and Kinross (Mr. Fairbairn) spoke. He implied a somewhat sleazy motivation. It is going slightly beyond what is strictly necessary to impute improper motives to those who have been putting forward these proposals since August 1982. There has been singularly little criticism of these proposals, either from the depositors or from the commercial rivals of the Trustee Savings bank Scotland, or from anyone who might have been thought to be adversely affected by the proposals.

I did not say that the motivation of those who proposed this matter was in any way sleazy. I said that once the matter had been proposed and difficulties arose, what happened thereafter might be subject to close scrutiny.

The House has been subjecting this Bill to ever closer scrutiny, and no doubt will properly continue to do so for a little time yet. What has come out at this late stage in the Bill is that the proposed shape of the new bank is thought in some way to provide less protection for depositors than previously existed.

The hon. Member for Glasgow, Maryhill (Mr. Craigen) has taken a close interest on the Opposition side of the House in this matter for a long time. He complained that there might be under-representation in the new structure because only 10 per cent. of the depositors will be in the shareholding body. But that will be 10 per cent. more than has been represented in management decisions or in the decision-making process of the bank at any stage in its history. It is at least plausible to argue that the principal concern of the trustees in moving towards this new shape for the bank is the interests of the depositors. One must assume from their silence that the depositors have consented to what has been done. Over a period of three years, they have had plenty of opportunity to raise this matter.

For the bank to be organised as a public limited company would be in the interests of depositors. The bank has increasingly become comparable to a clearing bank and has ceased to be primarily a savings institution. It operates in the hight street like other banks and operates accounts that can be drawn upon. I doubt whether depositors really view it as being, in important respects, very different from, shall we say, the Royal bank or the Bank of Scotland. The operations have become very difficult to distinguish for the ordinary depositor who uses the services of the bank.

These facts have been somewhat lost sight of in the understandable and wholly legitimate controversy that has arisen about whether the Trustee Savings bank Scotland should be operated as a Scottish bank in Scotland with all the benefits that might bring to a strenghtened Scottish financial sector. There was a singular lack of criticism from those who have been concerned to see some strengthening of the Scottish financial sector. I suppose that the hon. and learned Member for Perth and Kinross believes that that is because they were in some way competitors and might not be interested in making that case. There were certainly others who, for political or other motives, might have thought it appropriate to boost the case for the independence of the Trustee Savings bank.

I need not go over the facts about the strength of the Trustee Savings bank Scotland. The statistics were cited by the hon. Members for Dundee, East (Mr. Wilson) and for Glasgow, Garscadden (Mr. Dewar) earlier in the debate. It is perfectly clear that the Trustee Savings bank Scotland is by far the strongest part of the whole trustee savings bank coterie. It could have stood on its own feet and I regret that is not what was proposed, because it would have been extremely sensible and we would have given it our support. They said to the Government, "Let us join this new United Kingdom organisation and let us do so without any protection of the separate Scottish interest." That was the point that the Bill had reached when the hon. Member for Dundee, East moved his famous amendment. There are many more hon. Members in the Chamber tonight than there were on that occasion. To give the hon. Gentleman credit, it must be said that he has taken a consistent line on the matter and has pushed the issue further.

11.45 pm

The hon. Member for Dundee, East had only 29 votes for his amendment and the matter appeared to have been lost. It was revived only when my noble Friend Lord Taylor of Gryfe moved an amendment in another place that was given all-party backing, including support from the Labour party in the unexpected person of Lord Stoddart of Swindon and reluctant support from Lord Ross of Marnock. Even at that late stage, they sought to extract a new structure for the Scottish side of the TSB.

It was too late to rewrite the Bill. It would have been desirable for TSB Scotland to be established separately, and that could have been done, but it was not open to another place to unravel the Bill. The political reality was that the Government, with their substantial majority in this House, could have overridden any amendment and left the Bill in its original form. It would have had the wholehearted support of the hon. Member for Dumfries (Sir H. Monro) in that. He was utterly contemptuous of the amendment of the hon. Member for Dundee, East and he suggested that the hon. Gentleman knew nothing about Scottish banking. Events have proved the hon. Member for Dumfries wrong.

The agreement that followed consideration of the Bill in another place has resulted in some important changes. I hope that the Minister will say something about the extent to which those changes can be made to stick. They are consensual and are not written into the Bill. They appear to rest on the somewhat shaky foundations of the articles of association of the new company.

However, the changes that were agreed and are set out in Sir John Read's letter are not insubstantial. They show that it is at least the present intention of the TSB to establish a separate Scottish management, located in Scotland and with its registered headquarters in Scotland. The board will appoint its own members and they will not be appointed by the central board in London, although the members will be subject to the board's approval. There will also be a right of representation on the main board.

The provision that 75 per cent. of the Scottish board should be resident in Scotland is not a nugatory provision. It is a practical way of ensuring that the management of the board remains in Scotland.

Like the hon. and learned Member for Perth and Kinross, I am interested in the matters that are to be considered in the court in Scotland. However, whatever the findings, proceedings have begun too late. There can be no question of the legislative process being held up by that late decision to raise these issues in the court. The very tardiness with which that matter has been pursued raises the question whether the issues are so pressing and whether there is the threat to depositors' interests that is suggested may be implicit in what is being done, or in the action that is being recommended by the trustees.

I do not feel that Sir John Read has proposed an ideal compromise and I do not regard the guarantees as copper-bottomed. However, at this late stage I do not think that there is an alternative to accepting them. They go a great deal further than the Scottish Members were prepared to go prior to the vote in another place. which was an extremely valuable step in stopping the Bill reaching the statute book without effective consideration of what might be done to safeguard the Scottish dimension of the bank.

The Bill will be seen to have justified the scrutiny role of another place. Those who would wish to see that role eliminated might think fit to read the reports of its debates and consider how effective it has been.

The Government have, for the most part, tried to play the part of an honest broker. When it came to the crunch, I am glad that they were prepared to put some pressure upon Sir John and his colleagues to produce an end result which, though far short of what we would have wished originally, is a great deal better than the Bill as it first appeared before us. I regret very much that TSB Scotland will not, in its new life, be continuing entirely on its Scottish feet.

I am pleased to be able to take up the remarks of my hon. Friend the Member for Caithness and Sutherland (Mr. Maclennan). I accept entirely the analysis that he has deployed, but I shall take the issue to a slightly more fundamental level.

It is true that the management of the TSB, in its own terms and within its own lights, has acted perfectly properly. It has acted efficiently and prospered in the best interests of the business as it sees them. The Government have probably acted according to their best lights as an honest broker in a difficult situation in their promotion of the Bill. The scrutiny that was given to the Bill in this place and in another place has revealed some difficulties which some of us—I include myself in the number—did not anticipate would emerge. From an operational. pragmatic and commercial point of view, everything that was said by my hon. Friend the Member for Caithness and Sutherland was right, but I am deeply uneasy about the fundamental principles of Scotts law that are at stake.

I followed carefully the interesting speech of the hon. and learned Member for Perth and Kinross (Mr. Fairbairn). First, a trustee savings bank is an unusual institution, and that presents us with a difficulty. If the Government had thought more carefully about that, they may have prevented us from having to face the problem before us.

The duty placed on the trustees of the original TSB institutions was totally different from that described by the hon. and learned Member for Perth and Kinross. My interpretation of their duty is that it was to promote savings, no more and no less. In other words, in small rural areas and in the high streets of small Scottish towns they tried to engender the ethic of thrift. If that was their function, and if they had no similiarity to a company limited by shares under the Companies Act, they were—and, therefore, still are—in a unique position. They do not have a joint stock bank structure, which is what the Bill sets out to achieve. The difference is that the trustees had the duty to promote savings, whereas a joint stock bank is established to make profit for the benefit of the shareholders. The two are totally different and no amount of legislative magic can translate the TSB into a joint stock banking company without considering who owns the assets of between £600 million and £700 million.

The bank has plans to continue, and I have no doubt that the TSB would prosper, if it were permitted to continue as it is. The depositors would benefit from that. While I would not go all the way with the hon. Member for Dundee, East (Mr. Wilson), especially in some of the language that he used, there is a danger that the House may be asked to put constitutional clothing on what is, in effect, an act of appropriation of the worst sort. That makes me uneasy about the whole process.

A small number of depositors have argued for a greater say, but I should have been happier if more of them had backed up the lead that was given by some of their number. While, therefore, the issue can be considered on a commercial or organisation level, on the one hand, it can be considered on a political level, on the other. It can be considered on the level of decentralisation and devolution to Scotland in terms of the amendment, and I join those who say that there is a cogent argument to be made for decentralising the bank and making it an exclusively Scottish institution—a point that I made on Report.

Now that the Government have had time to look at all the ramifications, and now that the Minister has heard the legal opinion, I should be interested to know the Government's attitude, although I have been a solicitor for long enough to know that one should not believe everything in an opinion. What is the Government's solution to how to bridge the gap between the present association and the joint stock bank being created by the Bill?

12 midnight

My only suggestion—and I realise that it is fraught with practical difficulties—is that some way, somehow, the depositors' opinion must be tested. They must be brought into the process. I would feel deeply restive and uneasy going through the Lobbies to support a measure with which in all other respects I agree, but where the legal questions are of fundamental importance to me as a Scots lawyer.

Does that mean that the hon. Gentleman will support the amendment tabled by my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) and my amendment which deals specifically with consultation with the depositors?

I listened carefully to the hon. Gentleman's speech, and he has made one or two perceptive speeches on this matter. I want to hear the Minister before I decide how to vote. I support the hon. Gentleman's case, but I want the Government to address themselves to the fundamental legal question about the ownership of the assets of the bank.

I have spoken during every stage of the Bill. Unlike the hon. Member for Caithness and Sutherland (Mr. Maclennan), who asked what could be done at this late stage, I believe that the Government could withdraw the Bill. Quite simply, irrespective of whether the Government accept the Lords amendment or whether any of the amendments being debated are carried. I believe that we will still be left with a bad Bill. It would be best if the Government withdrew the Bill.

The advertisements of the TSB on television show what it has achieved, so it is hard to believe that it desperately needs the Bill to be passed now. We should allow more time for more thought and come back with a better Bill next year. We should not speed through the Bill when the TSB advertisements show its success over recent years. Rapid progress is not essential. Unlike other privatisations, the Government have no financial gain from this Bill. Any money resulting from the sale of shares will remain with the TSB.

We do not have to accept the proposals for Scotland. We should wait to see what is determined in the court. The amendments on consultation are exceptionally important. Unless the TSB Scotland is very different from the English regional banks, there has not been any consultation with its customers. The hon. Member for Caithness and Sutherland mentioned that the Bill has been under discussion for three years. Therefore, when they have been sending statements to customers, I cannot understand why the TSB in Scotland or any of the regions has not carried out a consultation exercise and informed its customers of its proposals and why it wants to carry them out, and sought their views.

Customers and depositors should be able to express their view. Tomorrow the court will decide whom the trustees represent. If the trustees are acting in the best interests of depositors, they should have the confidence to consult them and see what they want to do.

I support the amendment to the Lords amendment. If it is not accepted I shall support several other amendments, but the best solution is for the Government to withdraw the Bill to allow proper consultation. The Government are acting as agent, so the legislation is not essential to them. Let the Government withdraw the legislation. Let us give the matter a year's thought and introduce a better Bill in the next Session.

Any Minister called upon to take through the House a Bill relating to a body with no owners of its assets has a formidable task. I am convinced that the Government were right to think most carefully about the basis on which they should legislate. Throughout proceedings I have tried to keep in mind the origins of my family in the manse and to have a generous, liberal-minded approach, particularly to the Scottish question.

The Scottish question has two parts. The first is the question of independence and the operation of TSB Scotland as a bank with a Scottish identity managed and run in Scotland. The second question is about the constitution, the way in which that bank should be accountable and whether depositors should have a different constitutional position. The Lords amendments are also relevant.

Before embarking upon the legislation, the Government considered the legal position carefully. We were satisfied that there was no element of expropriation in the Bill. The contents of Mr. Murray's opinion were known to us at all material times. I am advised that Mr. Murray's opinion was not the only opinion obtained by the trustees of the Scottish trustee savings banks. Before proposals were discussed with the Government, they had considered advice. It would be wrong for us to advise the House to delay consideration of the measure pending the outcome of an action which is taking place at a late stage in the Bill's progress.

There was an intervention from the Government Benches below the Gangway from a certain solicitor. Perhaps I should have said—although I do not think it amounts to an interest—that I am a partner in a law firm which no doubt on occasion has contact with the Trustee Savings bank.

Will the Minister say a word or two about the effect of an interdict, if there were to be such a happening in the courts, based upon a finding that ownership rested with the depositors? What would be the impact of that and what would be the effect on the Government's plans?

If the pursuer—I understand that is the correct term for an appellant in a Scottish court—in this case, contrary to the advice that the Government have received, were to succeed in obtaining a judgment against the trustees of TSB Scotland, we would, of course, consider our subsequent action in the light of that judgment. [Interruption.] As I have already said, it would be wrong for us to defer consideration of the Bill at this stage.

May I help my hon. Friend and other colleagues in the House? A similar occurrence took place about there years ago during the passage of a Bill of considerably greater constitutional significance than this one—the Canada Bill. An action was started very late in the courts in an attempt to delay the Bill. The Lord Chancellor in another place ruled that Parliament should not—indeed, could not—have its business put aside because a citizen or a group of citizens had started an action in the courts, and that Parliament must proceed with its business. Furthermore, he ruled that it would be wrong for Parliament to bow to such actions. Otherwise, any citizen or group of citizens could delay Parliament's business on any Bill passing through the House.

That is a helpful contribution. [Interruption.] I am surprised that Opposition Members should find amusement in such sensible comments as I have made. I suppose they would wish me to say that the Government would not consider their subsequent action in the light of such a judgment.

Returning to the assurance that the Minister gave earlier as to what would happen if the declarator were to fall the other way and not the way that the Government expect, will he give an assurance that the Bill will not be sent for Royal Assent until the matter of the court judgment is resolved?

I do not propose to give any specific assurances about the outcome of any action which has not yet been heard. It would be irresponsible of me to do so. I have given the House a reasonable assurance on the point raised with me by the hon. Gentleman. I gave way to him because of the long and close interest that he has had in the Bill. I compliment him on the consistency with which he has put his case. But I think that he and all hon. Members should recognise that there has been a very long period during which it has been open to any depositor to challenge the TSBs on the point of ownership.

The present legal framework of the TSBs goes back to the Labour Government's Trustee Savings Bank Act 1976. The current proposals which are now contained in the Bill were first put forward three years ago in a statement by the TSBs which received extensive press coverage and which was reflected in the annual report of each TSB at that time and subsequently. Details were then spelt out in the Government's own White Paper last December, and the Bill has proceeded through its various stages in the Commons and in another place during the past six months. At no point during that time did any depositor see fit to challenge the legal basis on which the proposals were made, and we consider the present action to be misconceived.

Does the hon. Gentleman accept that the TSB movement made no attempt to contact its depositors to tell them what was happening, let alone to find out whether they would approve such changes?

I am coming to the matter of consultation with the TSB depositors, and I shall take account of the hon. Gentleman's point.

The difficulty with the TSB's constitutional position is that, contrary to what the hon. Member for Dundee, East (Mr. Wilson) said, the depositors are not the owners. The hon. Member for Glasgow, Maryhill (Mr. Craigen) said that the TSB is not strictly mutual. In fact, it is not mutual at all. Had it been mutual, the task of producing a Bill for the future of the TSBs would have been a great deal easier. No legal ownership makes it extremely complicated.

The question of depositors being consulted lies at the heart of the amendments proposed by the hon. Member for Dundee, East and by the hon. Member for Glasgow, Garscadden (Mr. Dewar). In 1976, the Government introduced a provision that 25 per cent. of the trustees of each TSB should be elected by the depositors. Those elections took place, but in almost every case they were not contested. Between 1976 and last year, only two elections were contested. In both cases, the same person contested the elections, and was heavily defeated. That does not seem to demonstrate a great fever of depositor interest in the conduct of the TSBs. In many ways, it would have been healthier if more depositors had taken the opportunity of putting forward and supporting candidates, but in 1976 it was felt that this was a means of allowing some form of participation by the depositors. In practice, the depositors have greeted that provision with comprehensive apathy. That is not a basis on which we could say that the constitutional arrangements for the TSBs should be overturned or qualified in a way that would suddenly give the depositors a decisive part to play by a ballot, as the hon. Member for Dundee, East proposed, or by some other means of consultation.

Under the provisions of the 1976 Act no one has ever invited me as a depositor to vote for a person who wished to be a trustee. Surely I am not expected to put forward my own candidates and propose my own ballot. As a depositor, I should have been asked. I assure my hon. Friend the Economic Secretary that I have not been asked, and I do not know of any other depositor who ever has been.

I do not know whether all the depositors in TSBs in Scotland are as active and enthusiastic as my hon. and learned Friend the Member for Perth and Kinross (Mr. Fairbairn). I understood that he had a deposit of £2·68, which he had allowed to sit in the TSB without paying much attention to it. Had he gone to the TSB, he would have seen that notices are put up in the branches about elections. Had he been a keen depositor, he would have asked for a copy of the TSB's annual report and accounts and would have found full details of all these proposals. I do not want to point the finger only at my hon. and learned Friend, because that would be unfair. I was about to say that there are a million or more people like my hon. and learned Friend, but perhaps that would not be credible, and I should say that there are a million or more depositors with TSB Scotland, who are like my hon. and learned Friend in that they have taken no part in the operation and activities of the TSB with which they deposit their money. Faced with such a lack of enthusiasm from depositors, it would not be right at this late stage to introduce half-baked procedures for consultation with depositors who have not taken advantage of the statutory provisions, which were specifically inserted into the 1976 legislation to give them an opportunity to express their opinions.

In view of the somewhat nonchalant way in which the Minister dismissed his hon. and learned Friend the Member for Perth and Kinross (Mr. Fairbairn), will he explain where in his argument there is anything consistent with the Government's recent attitude to trade union ballots?

There is a slight difference between trade unions and TSBs, which resides in the fact that trade unions have members and TSBs do not. Earlier I explained how difficult it was to deal with a body which had no ownership or members, because it was not a mutual organisation. TSBs are certainly not constitutionally like trade unions.

I said that the question related to two aspects. The second is that, of the Scottish identity of TSB Scotland. The hon. Member for Dundee, East said that if we did not reject the Lords amendment, we would allow TSB Scotland to continue a separate existence, but that is exactly the opposite of the case. The Bill would then repeal the existing legislation under which TSB Scotland is constituted, and would not provide for it under the new legislation. TSB Scotland would, therefore, have no position in law, be unable to gain recognition as a bank, and presumably, therefore, have to cease business.

The Government have followed a much more constructive approach. Following the proceedings in another place we have endeavoured to ensure that in its final form the Bill will reflect the interests of the TSBs—the management and depositors—be soundly based in law, and reasonably take account of the anxieties expressed in Parliament during the Bill's passage. That is why amendments (b), (c) and (d) seek to introduce a specific provision—the concept of eligibility to succeed—whereby a separate new banking company will be registered in each territory and will take over the assets and business of the previous TSB in that country or territory.

The fact that we must move to disagree with the Lords amendment, and that I must suggest that these amendments should replace it, is purely because of the procedure in another place which meant that these amendments could not technically be tabled there on Third Reading. Therefore, they must be considered by this House.

In addition to the amendment that makes it plain that successor banks will have a separate identity closely related to their country, many hon. Members have drawn attention to the contents of Sir John Read's letter to my right hon. Friend the Chancellor of the Exchequer, which is printed in the Official Report of 4 July. We should recall the undertakings given in that letter: first, that the head office and registered office of each bank should be in its country; secondly, that each bank's board should appoint its members and that they should not be London nominees; thirdly, that 75 per cent. of the directors should be normally resident in that country; fourthly, that the chairman and chief executive of the banks in England and Scotland should be appointed to the group board; and, finally, and importantly, that the holding company should not be able to reduce the net worth or set the dividend policy of the subsidiary banks without the agreement of two thirds of their directors.

As the hon. Member for Caithness and Sutherland (Mr. Maclennan) said, they are important changes. He said that they were not all he wanted, but he fairly recognised that they constituted an important safeguard for the Scottish identity of TSB Scotland in the future. My hon. Friend the Member for Dumfries (Sir H. Monro) asked how independent the bank would be. All that I can say is that, whereas at present the trustees of any bank can merge it with another without an Act of Parliament, after the Bill is passed they could not do so without returning to the House with a private Bill. If this evening's proceedings are anything to go by, they might have great difficulty in gaining the approval of the House.

The Minister mentioned depositor apathy in elections. Will he spell out what accountability there will be in the elections by new shareholders of the directors of banks?

The new shareholders will have a direct say in the nomination and re-election of directors in the group parent bank. They will have no such say in relation to the subsidiaries. It is correct to say that the boards of the subsidiaries will appoint further directors in due course, but that is the normal pattern with subsidiary companies in groups. In this case, there will be greater assurance of the independence of those boards because of the provisions that I have just mentioned. It will be impossible for the parent company to nominate directors to the subsidiary boards of TSB Scotland or any other TSB. Those are important changes.

I accept fully that, although the amendments passed in the other place caused extensive reconsideration, they have resulted in important improvements in the basis on which the Bill will proceed. I willingly acknowledge that all those who have put forward ideas on Scottish independence have played their part in bringing that about. I hope that most hon. Members will accept that, having reached this stage, the Bill reflects most of the concerns that were expressed during its passage. Therefore, I hope that they will support the Government's amendments.

I have felt like an intruder during much of the debate, because despite the way in which some people interpret my surname, I have no connection with Scotland—[HoN. MEMBERS: "Shame."] I have connections with a better place.

The Minister referred to the legal position, and insisted that there was no need to delay the Bill pending the legal action. One can understand his point. However, it was entirely unsatisfactory to say that, if the judgment went against the Government, he would merely consider subsequent amendment. He did not consider the possibility that if the judgment went against the Government, it would mean that the depositors' accounts had been expropriated. Therefore, the Government would have to consider the matter seriously and the Bill would not receive its Royal Assent.

12.30 am

Secondly, the Minister referred to the letter from the chairman, which was published in the Official Report of 4 July. Once again, we find that some of the main commitments are in the articles of association. We had to make the point frequently in discussion of the Bill on Second Reading, in Committee and on Report that those articles of association could be changed, provided that 51 per cent. of the shareholders agreed. As my hon. Friend the Member for St. Helens, South (Mr. Bermingham) pointed out at one stage, given that shareholders are to be limited by the articles of association to 50 per cent., one need only envisage 11 institutions which hold 5 per cent. of the shares getting together to be able to change the articles of association.

Thirdly, the Minister said that the depositors were not owners and therefore should not be consulted. Even so, that does not give a strong enough reason for refusing consultation because the depositors, after all, occupy rather a special position as regards the TSB Scotland. If one in four in Scotland are depositors with the TSB Scotland, this should be an important consideration.

In all the debates, we have emphasised very much the special character of the TSB in Scotland. While one might say that the depositors are not owners and therefore have no right to be consulted, if we accepted the Minister's argument, we could still go on to say that, although they may have no legal right to be consulted, it would be quite in keeping with the whole tradition of the TSB Scotland to consult them.

Finally, the Minister accused the depositors of comprehensive apathy, and gave that as a reason for not allowing them to be consulted at this important stage of the change in status, however ill-defined, of the TSB, and particularly of the TSB Scotland. Like Viscount Whitelaw, the Minister seems to believe that one should not go round the country stirring up what he is pleased to call apathy. The Opposition believe that it would be quite proper to stir up the depositors' apathy on this occasion, and to allow them to be consulted before this important change takes place.

The Minister's replies have been very weak, and he has not given us any of the guarantees which my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) requested. We shall vote accordingly.

With regard to the legal side, as the Minister put it, I have rarely come across such a brazen attitude as that adopted by the Minister. He discards an opinion which states that the ownership of the bank lies with the depositors. He says that the Government took other legal advice, and has given no indication of what that might be. I find that remarkable.

In relation to the amendment, he has not convinced me that the provisions are other than minimal, and they will do very little to safeguard the independence of the Trustee Savings bank.

In summary, there has been breach of trust, in my opinion. There has also been breach of ownership, in my opinion. Having heard the Minister, I think that there has been a breach of the Government's credibility.