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Crown Suppliers

Volume 126: debated on Monday 1 February 1988

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3.50 pm

The Parliamentary Under-Secretary of State for the Environment
(Mr. Christopher Chope)

With permission, Mr. Speaker, I should like to make a statement about the future of the Crown Suppliers.

The Crown Suppliers are a self-financing business within the Department of the Environment. They sell furniture, and other equipment and services to the public sector. They have operated as a Government trading fund since 1976, and under the title of the Crown Suppliers since 1984.

As direct suppliers to Government Departments, the Crown Suppliers have achieved considerable success in the design and procurement of their own-brand furniture, the procurement and supply of a wide range of equipment, and the provision of fuel and transport. I have, however, considered the role and status of the Crown Suppliers in the light of untying Departments from the compulsory use of purchasing agencies.

I have had the benefit of two recent reports by consultants and have discussed a summary of those reports with staff representatives. It is clear that the Crown Suppliers must reduce their overheads substantially to reflect new working practices and purchasing policies in Government Departments.

Many of the activities of the Crown Suppliers are, however, of a commercial nature, and there is little doubt that they could be carried out more efficiently in the private sector. The question therefore is whether the Crown Suppliers should be given full freedom to compete in both public and private sectors, which would entail transfer to the private sector.

I am convinced that privatisation provides the brightest future for the Crown Suppliers, as well as a continued source of competitive supplies for the public sector. It will also allow the Crown Suppliers to have access to a wider market. It is the Government's view that the private sector should be invited to bid for those of the Crown Suppliers' businesses which can be undertaken on a normal commercial basis. Some activities will have to remain in the public sector, for security or other reasons.

The Government intend therefore to seek further advice from a financial institution on the best method of effecting the sale of the Crown Suppliers. The businesses available for sale will include the provision of furniture, furnishings and other equipment on an untied basis for the public sector, and the transport hire business. In evaluating offers received, I shall pay particular attention to proposals for the involvement of the staff in the success of the enterprise.

I also intend to bring forward legislation to effect the transfer at an early opportunity.

The Minister's statement on the privatisation of the Crown Suppliers is scandalous. It reflects the Government's narrow political dogma at its worst. It not only is an enormous threat to the jobs of those 1,486 people employed by the Crown Suppliers but will inevitably lead to bankruptcies and redundancies in many small, specialised firms throughout the United Kingdom, many in areas of high unemployment.

Has the Minister given the trade unions any assurance that the staff will be given the choice to remain in the Civil Service if they wish, even if this means a certain amount of regrading and retraining? Will the Minister confirm that in the past three years the Government have commissioned four reviews into the operation of the Crown Suppliers, at great cost to the taxpayer? Two of them — the Turton report of 1985 and the central unit of purchasing review 1986 — acknowledged that privatisation of the Crown Suppliers was feasible but would not be in the public interest. The two most recent reviews, undertaken by Coopers and Lybrand/Samuel Montagu and Dewi Jones, were not even required to consider the public interest in their brief—it is obviously no longer a consideration for the Government.

Does the Minister agree that the Crown Suppliers exist for two reasons? First, they exist to supply the Government and the public sector with the most economic furnishing, fuel and transport. All relevant Government statistical indices demonstrate that the Crown Suppliers fulfil that task to consistent standards of excellence. Secondly, they exist to increase the competitiveness and profitability of British industry. Ninety-six per cent. of their £240 million turnover comes from British firms, one third of which have 100 workers or fewer, many of them in sheltered workshops supporting an important social service.

The Crown Suppliers have pioneered numerous designs in furnishing, including flame-retardant mattresses and materials that are sold all over the world. The CBI has applauded the Crown Suppliers' priority sourcing scheme, which guarantees business and encourages investment in plant and machinery in designated development areas.

In the private sector, British Telecom, British Gas, British Rail and most recently British Aerospace all choose to use the Crown Suppliers because they judge them to offer best value in terms of cost, quality and reliability of service.

Finally, will the Minister explain precisely what parts of the Crown Suppliers he intends to privatise? Is it not ironic that, as a result of this privatisation, it is the taxpayer, whom the Government pray in aid for many of their policies, who will lose most? Clearly, the proper place for the Crown Suppliers is in the public sector.

That was a typically negative response from the Opposition. I am surprised that the Opposition do not favour the plan to extend the opportunities of the Crown Suppliers so that they can compete in a wider market. The Crown Suppliers' present share of the contract furniture and furnishings market is 8 to 9 per cent. I look forward to the time when they will be able to go out and expand their involvement in the private market.

As far as the transfer of staff is concerned, staff will be affected by the Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1987, and terms and conditions broadly comparable with those prevailing in their present employment will be available for them in the private sector.

It is the Government's policy to free Departments to make their own purchasing decisions using their own resources and to use public sector purchasing power in the widest interests of British industry. It is not a mandatory "Buy British Only" policy, which is illegal under the treaty of Rome and the GATT. It is right that the Crown Suppliers should use firms registered in the United Kingdom, because evaluation of competitive offers shows that to be the best value for money. The same principles would apply whether the Crown Suppliers were in the public or the private sector. The same principles would also apply for the use of small firms and firms in development agencies.

No change is proposed in relation to the Government priority suppliers' purchasing arrangements. The hon. Gentleman seemed to suggest that the status quo is one on which the Crown Suppliers can rest. The more enlightened members of staff of the Crown Suppliers realise that they must change with the times.

Is my hon. Friend aware that his decision will be warmly welcomed by Conservative Members and by many employees in the Crown Suppliers, who will welcome the freedom that it will give them to compete where they cannot now compete — in the private sector? Far from resulting in less employment in the Crown Suppliers or less work for the small firms that supply them, this decision could result in more employment and more work for those firms.

I appreciate my hon. Friend's typically positive response. I know that, when he had responsibility in government for the Crown Suppliers, he took a keen interest in their work, and it is a tremendous endorsement of today's announcement that my hon. Friend thinks that it is in the best interest of the Crown Suppliers.

When the hon. Gentleman considers the tenders for this business, will he seek an undertaking that there will be no further job losses on Merseyside?

I cannot give guarantees about job losses on Merseyside. As the hon. Gentleman may know, one of the reports that we commissioned referred to the possibility of reducing the overheads of the Crown Suppliers within the Government sector. One of the proposals put forward was that one of the two procurement offices — there are two: one in Liverpool and the other in London—should be closed. I can understand that staff in Liverpool would be extremely concerned if there were no such proposal as I have put to the House today. If either the London or the Liverpool office had to be closed, they certainly might fear that there would be job losses in Liverpool. I look forward to better employment opportunities in the Crown Suppliers, and that includes employment in Liverpool.

Does my hon. Friend accept that, generally, the decision must be a good step for the Government? What percentage of the Crown Suppliers' business is with overseas Governments and other Commonwealth nations, who have looked to such business because it was backed by the United Kingdom Government? Will he make it quite clear that whoever takes over the Crown Suppliers will operate with the same integrity as that which can be expected from Her Majesty's Government? Will he further confirm that opportunities will still be open on the security aspects, which the Government will contain, from which Commonwealth countries will be able to benefit if they so require?

My hon. Friend referred to overseas and Commonwealth countries. At present, the Crown Suppliers have little overseas business. I hope that they will get more overseas business as a result of privatisation.

Are there not some inconsistencies in the Government's policy? On the one hand, they say that the Crown Suppliers have done a good job, that 85 per cent. of their costs are better than in any other sector, and that 60 per cent. of their work is already contracted by the private sector, but, on the other hand, they say that it should be privatised. The Treasury says that it is not in the public interest for them to be privatised, yet the Department of the Environment says that it is.

What report has the Minister received that states that the proposal will have a cost benefit for the taxpayer? Is not the reality that no report comes to that conclusion? The Minister's political view, rather than any objective criterion, is prevailing. There will not only be job losses in places such as mine in south London, but increases in other Government Departments. Is not the whole matter a triumph of dogma over logic? Should not the Minister take it away and re-examine the proposal?

The hon. Gentleman is under a misapprehension. The decision has the full support o f the Government and the enthusiastic support of the Treasury. One matter that has concerned the Treasury is the level of the Crown Suppliers' overheads. If the Crown Suppliers stay within the public sector, action will have to be taken to deal with their overheads. The alternative of opening wider outside markets is preferable.

Will my hon. Friend accept that his decision will be warmly welcomed, not least by the furniture industry? Having listened to the eulogy given by the hon. Member for Houghton and Washington (Mr. Boyes), the Crown Suppliers would seem to have little going for them. They should not be afraid of private industry, and the furniture industry in particular, which will welcome the decision and the additional competition that it will provide — all to the benefit of the Government and the people.

What activities will remain in the public sector?

Certainly the activities that have security implications—and there may be one or two beyond that—will remain in the public sector.

Is my hon. Friend aware that his announcement will be welcomed? Has he considered the possibility of offering the Crown Suppliers on a management buy-out basis to people who have an esprit de corps, some of whom are my constituents and have written to me? Will he regard it as a forerunner of doing exactly the same to the Property Services Agency?

There has been an expression of interest by some members of the management in purchasing part of the Crown Suppliers. Their applications will certainly be considered along with the others. On the wider issue of the Property Services Agency, as my hon. Friend knows, we are moving to commercial accounts, with a view to a trading fund in the future.

Will the Minister be more specific about what will be left in the public sector? Will he spell it out? Does he say that he will hand the Crown Suppliers to the furniture industry, with its recent health and safety record? How will the national interest be served by doing that? Will such things as Ministers' cars be included? Will we see them driving Toyotas? What protection will there be for contracts, 95 per cent. of which are in this country at the moment and one third of which are placed with small firms, which the Government are supposed to uphold? Will that percentage remain in the future? Will the Minister be honest with the House and say that the matter bears the stamp of his political prejudice and hatred of the public sector, however successful it may be?

Certainly the decision bears the stamp of the Government's commitment to privatisation and to the benefits of a competitive environment. I have already answered points about effects on Government purchasing policy. There is no reason to suppose that the proportion of British goods will be reduced. Indeed, I look forward to the time when, instead of the proportion being 95 per cent., 100 per cent. of goods are British-made. I visited the "Better Made in Britain" exhibition, which was designed to try to encourage British firms to make products that are not yet available on the home market.

As my hon. Friend knows, there is a substantial Crown Suppliers facility in my constituency. Although I accept the challenge of privatisation, I ask him to be more specific about the time scale of the sale. As he knows, for many months, staff have been extremely worried about their future. They are highly skilled men and women, who deserve more recognition than merely being told that we are calling in more consultants to advise on the time scale. My hon. Friend knows full well my concern about the way in which leaks about the decision came out of the Department over a prolonged period. Parliament should be the first to be told.

On the last point, I certainly share my hon. Friend's concern 100 per cent. I appreciate his expression of interest in the matter. In Hastings, there are about 1,200 employees of the Property Services Agency, just over 100 of whom are employed by the Crown Suppliers. The timetable will depend upon the legislative programme. As knowledge about the announcement is becoming known, certain private firms are coming forward to express an interest in purchase.

Does the Minister recall the critical part that was played by the Crown Suppliers in changing the Government's mind about furniture foam and getting them to introduce tough new regulations? Is he aware that the main company behind the Government's original flawed proposals on furniture foam, Hillsdown Holdings, is likely to be one of the main bidders for the Crown Suppliers? Therefore, will he deal specifically with my question? Is one of the aspects of the Crown Suppliers that is to be left in the public sector its safety role in providing objective advice to the Government to ensure that the public interest is not sacrificed for the commercial interests of the privatised company?

The Department of Trade and Industry deals with the safety role. It seeks the views of organisations in the public and private sectors. That has happened in the case of furniture foam. I am surprised that the hon. Gentleman seems to think that it would be advantageous for the Crown Suppliers to stay in the public sector. If they had been in the private sector and had been consulted about their views on furniture foam, they would have been able to publicise their announcement when they made it in September last year.

Although I welcome my hon. Friend's excellent, if overdue, statement, will he persevere in doing good? Will he shortly bring forward his proposals for the total privatisation of the Property Services Agency?

I heard what my hon. Friend said. As I have already said, we are moving to commercial accounts in the Property Services Agency, with a view to establishing a trading fund.

Having accepted that the Crown Suppliers are a successful public sector enterprise, why do the Government inhibit or prevent them from competing with the private sector, then use that inhibition as a justification for selling them off? Is it because the savings for taxpayers and ratepayers and the profits that are being made for the public are required to be handed over to the Tory party's friends in the private sector?

Not at all. The Government take the view that commercial enterprises are better run in the private sector. The essence of the Crown Suppliers' activities is commercial.

Will my hon. Friend give a rather more convincing reply to the questions that were asked by my hon. Friends the Members for Gillingham (Mr. Couchman) and for Eastbourne (Mr. Gow) about the Property Services Agency? Surely the logic that has quite rightly drawn him—

The logic that has drawn my hon. Friend to the right decision about the Crown Suppliers applies with equal force to the Property Services Agency. Surely there is no argument of principle or practice for retaining the PSA in the public sector.

There is a distinction between the Crown Suppliers and the Property Services Agency. The Crown Suppliers have been a trading fund for many years, but the PSA does not yet have proper commerical accounts, let alone a trading fund.

Order. I remind the House that legislation will be introduced. Will hon. Members ensure that their questions relate only to the Crown Suppliers?

Does the Minister recall that on 9 December he answered a question from me about the Crown Suppliers by saying that he was considering the Coopers and Lybrand and the Dewi Jones reports? Does he accept that the main part of the Dewi Jones report stated that priority should be given to the introduction of improved working practices? What are his answers to the Dewi Jones conclusions? Is it true, as we read in the press, that the Chief Secretary to the Treasury is extremely sceptical about this privatisation on a falling stock market? What will happen to expert units such as those that look after Hampton Court and the Palace of Westminster? Will they be broken up and their expertise scattered?

It is not true that my right hon. Friend the Chief Secretary to the Treasury was against this or had reservations about it. Indeed, this matter was not his departmental responsibility. That proves that the purported leaks to the press suggesting that my right hon. Friend was against the privatisation were up the tree. I note what the hon. Gentleman says about the specialist work at Hampton Court and the Palace of Westminster. We shall consider whether that work should be part of the privatisation package.

Does my hon. Friend recall that, every time a Minister has come to the House to announce a privatisation measure, there have been whingeing voices, yet every time the measure has received the approval of Parliament it has been an enormous success? My hon. Friend's proposal today will be no less a success. The proposal will be welcomed not least in the less highly populated urban areas, such as Shrewsbury, where many local traders have not been able to come to terms with the preferred trading status of the organisation. Therefore, my hon. Friend's statement this afternoon will be very welcome in the more rural parts of the country.

I absolutely agree with my hon. Friend. The recent results of the National Freight Corporation are a further reminder of the success of privatisation.

As it has already been stated and accepted that the Crown Suppliers buy 95 per cent. British products, what guarantees will the Minister write into the legislation to ensure that that continues in future? Can he be absolutely sure that overseas predators will not take a leaf out of the book of the Kuwaiti Investment Office and seek to take full advantage of the opportunities when privatisation arises? Will he also guarantee that no Tory Member of Parliament, either in the Government or outside, will be given the opportunity to become a director of any of the privatised companies that may emerge?

It is not possible for members of the Government to hold directorships in companies. All the interest that has so far been expressed in purchasing the Crown Suppliers has come from British firms.

Will my hon. Friend agree that, in delivering services to the public, the Government must always have regard to the fact that they have no funds other than those provided by the taxpayer? Therefore, in their capacity as trustees of the taxpayers' money, the Government must consider how to deliver those services most cost-effectively. If those services can be delivered most cost-effectively in the private sector, it must be common sense and morally right to do that.

I agree 100 per cent. That is why the Government's policy is to allow Departments to make their own purchasing decisions using their own resources, so that they can shop around. Firms will win Government business only if they are competitive.

Will the Minister guarantee that, if the Crown Suppliers are to be privatised, they will not follow the same path as Coventry Climax, which has suffered an 80 per cent. loss of jobs in five years? Will he guarantee that by saying that he will monitor what happens to the company after privatisation? The Department of Trade and Industry has always refused to do that. Making a last attempt, will he explain precisely which elements of the Crown Suppliers are supposed to remain in public ownership for security reasons? Is he not aware which elements are to remain, or is it a secret?

It is not a secret. Those aspects of the Crown Suppliers' activities that have security implications will remain—

I can name one—the secure car service. I am sure that the hon. Gentleman would agree that it is appropriate that that should stay in the public sector. I am afraid that I cannot remember the hon. Gentleman's other questions, he asked so many.

With regard to job losses, I should have thought that Opposition Members would look more positively at the proposal. Sussessful privatisations have often involved an expansion of the labour force. I hope that the Crown Suppliers will be equally successful.

Will the Minister accept that this is unacceptable? He has come to the Dispatch Box to make a statement, but he has not answered specific questions put to him by my right hon. Friend the Member for Morley and Leeds, South (Mr. Rees) who asked him to tell us exactly what services and functions will remain with the Crown Suppliers. He should give us a list. It would appear that ministerial cars are involved. At the moment, it costs the taxpayer £2·5 million a year to provide him and his right hon. Friends with cars so that they can waltz around London and not experience the real traffic problems that the rest of us have to put up with.

I will take note of what the hon. Gentleman is saying if he is arguing for the privatisation of the ministerial car service.

Will my hon. Friend make sure that, by inadvertence, he does not achieve something different from what he wishes? Would he in any such regulations or instructions use the word "United Kingdom" rather than "British" so that he does not exclude products from Northern Ireland?

We must insist that the Minister answers the questions posed by myself, my right hon. Friend the Member for Morley and Leeds, South (Mr. Rees) and my hon. Friend the Member for Newham, North-West (Mr. Banks). The Minister told my right hon. Friend the Member for Morley and Leeds, South that there are one or two bits beyond security. Will he define exactly what they are? Will he assure us that he intends to publish the Coopers and Lybrand and Dewi Jones reports?

Summaries of the Dewi Jones and Coopers and Lybrand reports have been prepared and copies have been placed in the Library. We do not propose to publish them in full because they contain commercially confidential information. Certainly some aspects of the Crown Suppliers activities will not be up for sale.

The details will become apparent after we have made progress and engaged a financial consultant to look at the matter in detail.