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Skill Centres (Sale)

Volume 172: debated on Tuesday 15 May 1990

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Motion made and Question proposed, That this House do now adjourn.— [Mr. Nicholas Baker.]

11.55 pm

I raise the Adjournment debate in anger and outrage at the attack on skill centres by the Government and by this Minister, who has been in charge of it. The move to sell off the skill centres has created uncertainty. It has pushed carefully prepared budgets to one side and has created a shortage of money for the maintenance and replacement of machinery that is vital for training processes and for helping people adequately to undertake courses at skill centres.

In the words of Geoffrey Holland, accounting officer for the Training Agency:
"During the period of uncertainty pending the privatisation decision, capital spending was restricted to essentials".
What does that really mean on the ground where people receive their training, a ground that is unfamiliar to the Minister? It means that in a skill centre with which I am familiar, the manager did not know whether to spend £400, which he could ill afford, on a milling machine—for the Minister's information, that is an important piece of machine tool equipment—or to scrap it because it was too much for the budget. That is the effect of the decision that Ministers have taken to privatise the skill centres. Indeed, that was the first aim that the Secretary of State for Employment set out when he made that announcement. However, there is more to come.

The sale of the centres, often located on valuable land, has been carried out in a deceitful and underhand way, which calls into question sections of the civil service and their integrity, and the Government's adopted procedures, which have denied a fair bidding process. I am fundamentally opposed to the privatisation of the skill centres—they could and have worked perfectly well in the public domain and under public ownership. But if they are to be sold off, surely it is reasonable to ask that the procedure undertaken is fair and open, which is patently not the case in this process. The Government always claim that they are interested in
"turning around a business which is currently unprofitable and creating training businesses with good prospects of viability."—[Official Report, 1 May 1990, Vol. 171, c. 472.]
That is the sort of answer that the Minister has used in parliamentary answers and on other occasions.

The sale announcement was made in March 1989. The document was prepared by Deloitte Corporate Finance and was issued on behalf of the Secretary of State for Employment. Incidentally, Deloitte has done quite well out of this because its fees are already more than £350,000, including VAT, and all the advisers involved can confidently expect that when the Government get round to revealing the figures in the summer, those fees will be in excess of £0·5 million of taxpayers' money.

Copies of Deloitte's document were issued under a promise of secrecy and had to be returned—as though Deloitte was unaware that photocopying had been invented. The Minister has not yet revealed the number of documents involved, but I am sure that with the number of civil servants at his command, he will manage tomorrow to answer the questions that I have tabled for answer today.

At least 40 groups were, to my certain knowledge, interested. Several of them made tender offers. Bidders were invited to submit offers. What bidders did not know was that three senior civil servants, ludicrously termed a management buy-out team, were preparing a plan to buy. They were financed by the Government in that they did this in ordinary working hours and were
"in contact with professional advisors as from the autumn of 1988."
The advisors were paid for from taxpayers' funds.

The only safeguard for those insider dealers, according to an answer of 27 March, was this:
"Given their special position as a management buy-out team, in early April 1989, my Department removed the three officers concerned from direct responsibility for decisions affecting both personnel matters and the expenditure of public money. This was done to ensure that bias could not enter into decisions"—[Official Report, 27 March 1990; Vol. 170, c. 157–58.]
The three officers were responsible for the national operation of the skill centres.

No use was made of the rules governing acceptance of outside appointments by Crown servants. Those rules were published in 1988, and appendix B states:
"It is in the public interest that people with experience of public administration should be able to move into business or other bodies and that the possibility of such movement should not be frustrated by unjustified public concern over a particular appointment. It is also no less important whenever a Crown servant accepts a particular outside appointment that there should be no cause for any suspicion of impropriety. The rules set out below have been designed to safeguard against such criticism both the public service and individual officers who wish to leave to take up these appointments. The aim of the rules is: (a) to counter suspicion, however unjustified, that the advice and decisions of a serving officer might be influenced by the hope or expectation of future employment with a particular firm or organisation; and (b) to avoid the risk that a particular firm or organisation might be gaining an unfair advantage over competitors by employing an officer who has had in his official career access to information which those competitors could legitimately regard as their own trade secrets."
Appendix B also states that the rules apply to Crown servants of grade 3 level, or equivalent and above; and
"below Grade 3 to whom an offer of appointment or employment of the kind to which the rules apply is made and who has at any time during the course of his or her official duties in the two years before leaving Crown service (or earlier if the association has been of a continued or repeated nature) had with the company or other organisation making the offer the kind of personal involvement described in paragraph 9 below."
I mention these extracts from the document because the Minister seems somewhat unfamiliar with it. It goes on to say that the criteria for dealing with applications include the following:
"Particular attention should be paid to appointments where the prospective employer
  • (a) has a contractual relationship with the Government;
  • (b) is in receipt of subsidies or their equivalent from the Government;
  • (c) is one in which the Government is a shareholder;
  • (d) is in receipt of loans, guarantees or other forms of financial assistance from the Government; or
  • (e) is one with which Services, or Departments or branches of Government, are as a matter of course in a special relationship."
  • All those criteria are met in full by the position of the three civil servants dealing with the skill centres. The rules are perfectly proper and sensible, designed to give the public confidence in the operation of civil servants, keeping companies with which they are in contact at arm's length so there can be no question or suspicion of any impropriety or favouring or that civil servants are manoeuvring themselves into an advantageous position. They are designed to stop insider dealing in the civil service —the sort of thing that the Government have frowned on in the stock exchange. Corruption springs from insider dealing. Yet those very rules were set aside by the Minister.

    It is interesting to note how the Government apply rules to councillors. The rules that they formulate for other people are not set aside. The national code of local government conduct must now be signed by councillors and orders tabled by three Departments must be considered and approved by the House. The code of conduct says, in paragraph 6:
    "You should never do anything as a councillor which you could not justify to the public. Your conduct, and what the public believes about your conduct, will affect the reputation of your council, and of your party if you belong to one. It is not enough to avoid actual impropriety. You should at all times avoid any occasion for suspicion and any appearance of improper conduct."
    Paragraph 9 continues:
    "Interests which are not pecuniary can be just as important. You should not allow the impression to be created that you are, or may be, using your position to promote a private or personal interest, rather than forwarding the general public interest."
    Such words denote a curious sort of attitude on the part of a Government who have paid for three civil servants to have advisers to work full time on a plan to take over a publicly owned body, given that those civil servants were part of a tendering process.

    The other bidders were not just a group of cowboys, as the Minister knows. One of the consortia that bid was headed by Sir Richard O'Brien, the former chairman of the Manpower Services Commission. Not even the Minister could dismiss such a bid as irrelevant. Bidders were not informed that the Government were to provide £11 million to the successful bidder. Only Astra was told that.

    There is a stock reply. On Tuesday 1 May I asked the Secretary of State for Employment,
    "pursuant to his answer to the hon. Member for Bradford, South of 23 April, Official Report, column 99, at what stage of negotiations following the receipt of bids for skill centres it was decided that £11 million should be given to Astra Training Services; and what steps were taken to ascertain whether other bidders would revise their positions in the light of the sum being offered."
    The response from the Minister lounging on the Bench was:
    "The payment of £11 million from the Government to Astra Training Services Ltd. represented Astra's assessment of the costs of turning around a business which is currently unprofitable and creating training businesses with good prospects of viability. Deloittes, in conjunction with my Department's other advisers, evaluated all the offers and made recommendations to my Department. The Government decided that the Astra offer, including the £11 million payment, met the Government's six objectives for the sale (a copy of which was placed in the Vote Office on 13 February 1990) more fully than competing offers."—[Official Report, 1 May 1990; Vol. 171, c. 472.]
    But the competing offers were not really competing offers because they did not have the information that £11 million was available. The Minister shakes his head, but my information is that that was not made clear. If it was, why did not the Minister say so in answer to the question that I have just read out?

    In any case, the Minister has decided that the tender should be given to the very three people heading the organisation that produced a loss of £27 million, which is why the Government decided to privatise the concern—claiming that it would be better in the marketplace. That seems a curious choice to say the least.

    The document that Deloitte put out contained some interesting information. On page 27, appendix 4, which is headed "Principal lease terms", says:
    "Many Skillcentres occupy valuable sites, several with considerable development potential. The Department considers that these properties might be too expensive for many business purchasers. Therefore, purchasers will be offered the option of: (a) acquiring the Department's freehold or long leasehold interest; or (b) taking a lease of the properties. Where a purchaser wishes to acquire the Department's interest, it will be available on terms which reflect its full value."
    That document contains a clear implication—indeed, an expression—that some of the sites will be so expensive that lease terms will be made available in order to maintain, one supposes, the skill centres. Therefore, it is rather surprising to find that 27 freehold sites have been acquired by Astra Training Services and that two of those sites are in the most valuable sector. They are grade A sites rather than grade B or C which would decrease in value. They are sites "with considerable development potential."

    What conditions are being imposed to prevent taxpayers from being ripped off? Is the £11 million being used to buy sites that will later be sold for development by Astra at a considerable profit, only a proportion of the added value being required by the Government? Will the Minister confirm that METEL, which bought the Liverpool site freehold, has just made 25 people redundant? That hardly augurs well for extending the skill centre facilities.

    The net replacement costs for all 60 sites, according to the annual report published in document No. 337, "Training Commission Accounts 1988–89", was £86,749,000. Are the sites that have been sold to Astra Training Services Ltd. worth about £40 million? Perhaps the Minister will tell us about that. What price has been received? It is not a question of commercial incompetence. These affairs involve public sites and a grant of £ 11 million to an inside tenderer. The public should know whether one of the criteria that the Secretary of State announced, that value should be obtained for any site disposed of, has been fully met. We will not be able to know that unless the Minister provides the information.

    It would be a cruel irony of the marketplace, would it not, if, after four years when the conditions no longer apply, Astra is wound up after selling off the site, the company pockets the £40 million, and the directors retire? No doubt the Minister will be keen to know that, according to information provided to me by the Library, on 8 May the three directors, diligent as no doubt they are, had failed to lodge the articles or memorandum of association or any other information with Companies house.

    The debate gives the Minister an opportunity to provide information. On the face of it, this is a sleazy conspiracy to rip off the taxpayer. Dedicated civil servants have worked for low salaries for many years to make the skill centres a success, only to find that the Government's decision has placed their future in jeopardy. Already, more than 50 have sought transfers away from the skill centres because of the lack of certainty and confidence in their future. When the Secretary of State made the statement he made it clear that he thought highly of the people who worked in the skill centres. However, the leadership, the three civil servants concerned, were wrong to become involved. There may have been a temptation, but they were wrong. Ministers were wrong to involve them. When the Minister and the Secretary of State took up office they signed a Cabinet document placing upon them obligation not to involve civil servants in political activities.

    The sale of the skill centres, the rush to privatisation, is a political activity brought about by the ideology of the ruling party. Ministers should not have placed civil servants in that position. They should have ensured that the tendering process was open and seen to be open, provided all the information that was available to all the bidders so that the process was seen to be fair, and the insider dealing should have been stopped.

    At the very least, Ministers should have applied the ground rules governing the relationship between civil servants and the private sector. To set those rules to one side inevitably evokes criticism and suspicion and that will continue until the matter is fully investigated by the Comptroller and Auditor General or the National Audit Office. But that will take more than a year and we need the answers now.

    12.15 am

    As usual, the hon. Member for Bradford, South (Mr. Cryer) fully lived up to his reputation—

    I take the strongest exception to the hon. Gentleman's suggestion that there was something improper in the decision to sell the bulk of the Skills Training Agency to the management buy-out team. There is not one shred of evidence to justify his assertion and he knows that perfectly well.

    I remind the hon. Gentleman that the position of the management buy-out team was described clearly and openly to the House when the sale of the STA was announced by the then Secretary of State for Employment on 13 March 1989. The management buy-out team was removed from any direct responsibility for decisions affecting both the expenditure of public money and personnel matters. The hon. Gentleman knows that perfectly well, because it has been spelt out to him in written answers.

    It is typical of the hon. Gentleman that he sits there muttering. He must exercise his responsibility—

    Order. The Minister is attempting to answer the debate.

    The hon. Gentleman must exercise his responsibility as a Member of the House. He should not use the opportunity that his privileged position gives him to cast slurs on people in the way that he has done tonight.

    The hon. Gentleman knows perfectly well that the civil servants were supported in their sale negotiations by professional advisers of experience and integrity. I am satisfied that the team acted throughout with the utmost probity, and that its success resulted from the merits of its bid, not from any other cause.

    I suggest that the hon. Gentleman should, on reflection, make it clear to the House that he has no grounds for the assertions that he has made this evening. He should not use his privileged position to cast slurs on people who he knows perfectly well cannot reply.

    I take this matter extremely seriously. The purchasers of skill centres accept that the transfers are governed by the regulations and on the basis of the discussions between my Department's advisers and the purchasers. There is no reason to suppose that any breach is intended.

    The Government have virtually completed the move of the STA into the private sector. We announced our intention to do so in our White Paper in December 1988 and my right hon. and learned Friend the Secretary of State told the House in February this year that we had agreed terms of sale for more than three quarters of the business.

    That is a considerable achievement for a business which has had a long history of financial problems. In the past six years the STA has broken even financially only once. Those losses arose despite an arrangement under which the public sector purchased a fixed amount of training from the STA. That arrangement rightly ended in 1987 following criticism of it by the Public Accounts Committee.

    At that time, we took advice on the scope for turning the STA into a more competitive and viable training business, able to compete on level terms with other providers of training, without subsidies and artificial prices—which had been such a feature of its time in the public sector.

    Given the STA's massive losses—up to £30 million in the last financial year—there was no prospect of maintaining its network of training centres within my Department. To keep a network of any kind, it was necessary to sell. Therefore, the Skills Training Agency was put up for sale by public tender. It may help the hon. Gentleman—if anything ever helps the hon. Gentleman—if I describe how that sale was conducted. It had to meet the objectives that the Government set themselves at an early stage. They were as the hon. Gentleman briefly described them in his speech. It is important to recognise that those six objectives had a significant bearing on the outcome of the sale.

    It was not a privatisation, where the first objective is to ensure the maximum financial return. If we had wanted that, we would simply have shut down the STA and sold off its very considerable property assets. But we did not want to lose training capacity which we felt had the potential to become viable. Our first objective was to transfer into the private sector as much of the training business as we could.

    Our having decided on that objective, the sale process became a fairly complex one in which we had to balance the preservation of training, proper treatment of the property assets, and the taxpayers' interests in those assets —as well as the overall financial returns. Throughout the sale process, Ministers were advised by Deloitte Corporate Finance. It prepared an information memorandum that fully described the STA, the scale of its operation, the nature of its business, and the property that it occupied. That memorandum was sent to a number of organisations that had expressed serious interest in the sale.

    On the basis of that memorandum and of discussions between potential purchasers and our advisers, indicative bids were received and evaluated. Some bids were rejected as inadequate, and the remainder were subjected to more detailed negotiation, which covered all aspects of the bids, ranging from the price proposed for the business and the treatment of the property, through to bidders' proposals for safeguarding the terms and conditions of staff employment and offering suitable pension agreements.

    All potential bidders were treated on the same footing, and all bids ultimately received were evaluated against the same criteria—taking full account of our six objectives.

    On the basis of that very full evaluation, we announced on 13 February that the majority of businesses would be taken over by Astra Training Services Ltd. Its offer covered 46 skill centres, plus the STA's head office and various other assets. Astra, the main successful bidder, is—as the hon. Gentleman stated—a company formed by a management buy-out team at the STA's head office. That successful management buy-out represents the first of its kind in the civil service. The Astra bid, together with the others that were successful, means that 51 of the 60 skill centres will be sold as training businesses.

    Those STA property interests not included in the sale package that was announced will be offered for sale on the open market, bringing in substantial sums to the Exchequer.

    I would have been pleased to secure Astra's bid for 46 of the skill centres. In the event, it can take only 45. It cannot take the Chesterfield centre because it was one of a number of sites where the sale of the business depended on the agreement of the landlord to transfer the centre's lease from my Department to Astra. I am sorry to tell the House that the landlord in that instance, Chesterfield borough council, which is Labour-controlled, refused to transfer the lease, thus forcing the skill centre to close and depriving Chesterfield of training services.

    I must add that news emerged today about the sale of the Liverpool skill centre to Merseyside Education Training Enterprise Ltd. I understand that, as the hon. Gentleman said, METEL has made all the staff transferred to it from the Skills Training Agency redundant, less than 24 hours after completion of the sale. The Department negotiated the sale of an established business in good faith, and had taken some comfort from the fact that METEL is a charity and from the membership of METEL's board.

    We are determined to support our former employees in enforcing their legal rights, and to ensure continuity of training for the trainees from the centre. We are currently examining the contractual position, and are offering our former employees access to legal advice.

    The hon. Member for Bradford, South referred to the clawback terms on property asset disposals. If he had done his research, he would know perfectly well that the clawback terms are a matter of public record. Development gains will be repaid to the extent of 100 per cent. on gains realised in the first three years after privatisation, 75 per cent. in the following year, 50 per cent. the year after, and 25 per cent. in the remaining five years. That meets the requirements that my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) set out in March—

    The motion having been made after Ten o'clock and the debate having continued for half an hour, MADAM DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

    Adjourned at twenty-five minutes past Twelve o'clock.