6.20 p.m.
My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, that the House do again resolve itself into Committee.—( Lord Melchett.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD DERWENT in the Chair.]
Clause 35 [ Compensation for vesting of securities):
moved Amendment No. 160:
Page 49, line 12, at end insert ("or—
(c) the amount which would have been payable under subsection (3) above, if the special declaration had not been made, less the amount of the payment or assistance which is the subject of the special declaration.").
The noble Earl said: This Amendment refers to the same subject as the last Amendment which we dealt with before the Committee adjourned last Thursday. It refers to this curious phrase "the reduced amount", which is the compensation payable when the Secretary of State makes a special declaration. This Committee will remember that a special declaration can be made when a company has received funds from the Government after 6th November, 1965, when these provisions were announced, and before the vesting date. If the Secretary of State considers that the company would have been unable to pay its debt without those funds, or that the state of the company's affairs—and this is quite remarkable—is such that in the foreseeable future in the Secretary of State's view it is probable that the company would be unable to pay its debts without those funds, then the Secretary of State can male a special declaration. It was at this point that on the previous Amendment we suggested that these were very wide rowers and the Secretary of State should have the advice of an independent accountant, but the Government did not see fit to accept that Amendment.
This Amendment is on a different point, because when the special declaration is made then the compensation is the reduced amount. The reduced amount is, as it says in Clause 35(6) either 5 per cent. of the notional value of the shares at 1974 prices, or what would be: he current break-up price of the company had it not received the Government funds. I gave an example of this last time, and I would trouble your Lordships by repeating it so as to remind you of the provisions. Let. us assume that in 1974 there was a company worth £5 million, and it may be that it was in financial difficulties—it may be that it was not—and that since 1974, and indeed between 1974 and 1976, an order had come to the company which it felt that it could carry out. It may be that it would have required to borrow some money, but because it was going to be nationalised the normal places where one would borrow money, such as the banks, would of course not be available. Therefore, the only place to which that company could go to borrow the money to retool, or to buy some new equipment in order to fulfil the order, would be the Government.
Once the company took the money off the Government, or accepted the money from the Government, it had, as it were, the kiss of death, because then the Secretary of State could come along and say, "You have borrowed the money and therefore I will pay you in compensation only the reduced amount" The reduced amount would be either 5 per cent. of the 1974 prices which, in the example I gave of a company worth £5 million would be only a quarter of a million pounds, or alternatively the current break-up price of that company had it not borrowed the money. That is, of course, a figure which would be open to question, and in any event would be an inaccurate figure because it would only be a guess. I believe that it is not fair that a company worth that sum of money in 1974 might only be paid a quarter of a million pounds now simply because it had borrowed some money.
The object of this Amendment is to say that the correct and fair compensation would be the figure that it would have received in 1974 less the amount of money which, as a loan or as grant or in any other form, it had received from the Government. That would appear to us to be a fair form of compensation. I hope that the noble Lord, Lord Winter-bottom, in his usual magnanimous way, will agree that it is a fair suggestion and will accept the Amendment. I beg to move.
It is a fair suggestion, but at this moment in time I cannot undertake to accept it. We are having a serious discussion, and therefore all suggestions are fair. However, I should like to try to persuade the noble Earl that the Government's view is not quite as rigid as he seemed to make out. I seem to remember that at about midnight one day last week we were talking about events arriving out of a blue sky. But what we are really talking about is a situation where a company is in difficulties—and companies can get into difficulties through no fault of their own—and has to decide whether to go it alone and, with the help of its bankers, fight its way through its difficulties, or turn to the Government and get a loan which in fact affects the degree of compensation that it is likely to receive.
The situation which the noble Earl described is perhaps possible, but I do not think that it actually will be so. Banks, taken by and large, are very loyal to their clients. If a client came to them and described the situation which the noble Earl has foreseen, I think they would support him, but if they did not, then we have this particular situation which we have to consider. May I just give the Government's argument as clearly as I can? As I see it, and as the Government see it, Amendment No. 160 seeks to offer a further choice of valuation—and we have to deal with other choices of valuation in a later discussion—for a company facing bankruptcy; namely, the full valuation less the aid given. The amount of aid given does not have any bearing on the question of whether or not a company is solvent without it. It is either solvent, and thus to be compensated for in full, or else insolvent and thus virtually worthless. The clause already provides two options for compensation, either 5 per cent. of the full compensation or the amount which the shareholders would have received had their bankruptcy taken place. In the vast majority of cases, and this is an unfortunate fact, shareholders receive nothing out of a compulsory winding up, and for this reason I believe that to offer 5 per cent. in these special circumstances is by no means unfair. But to offer any more, except in the remote possibility where shareholders would have received more had the winding-up proceeded, would perhaps be considered unjustified largesse on the part of the Government. It is for this particular reason that I feel I must reject this particular Amendment.I was surprised that the noble Lord did not accept the Amendment and I was greatly surprised at his reasons for not accepting it because the whole point of the compensation through-out the Bill is that it is based on spurious data; that is, the notional value at 1974. In the example I gave it is possible that in 1974 the company in question was viable and would not go into liquidation. If in 1976 one is buying out a company at 1974 prices, I suggest that it is not fair to say that because subsequent to 1974 the company got into difficulties we should therefore use a different figure from that on which the whole of the compensation is based, which is the 1974 figure. If in 1974 that company was viable, why should it not be paid out in compensation at 1974 prices?
I find the argument adduced by the noble Lord strange because it may be that a company will go into liquidation and, if it does, there is very little left for the share-holders. But in the example I gave the company was not, in 1974, in liquidation and was not likely to go into liquidation and I do not see why the noble Lord says that the Government would be paying out largesse if he accepted the Amendment. It would not be largesse. It would be just and fair to pay the 1974 value less any sums which the Government had paid. Would the noble Lord care to explain—I am willing to be told if I am wrong—whether, if a company was solvent in 1974, under these provisions it would not be paid out at 1974 prices?The argument is that in the period between 1974 and 1976 a hypothetical situation may have arisen in which a company is in such difficulty that it is at risk of becoming insolvent and being forced to wind up its operations. It is obviously the Government's wish that such companies should continue trading and one would hope that if such a situation arose the company would turn to the Secretary of State, get a grant and continue doing what it was doing at the time of the original situation in 1974 when it was brought within the ambit of the Bill.
I remind the House that we are talking about hypothetical situations, not real ones. If such a situation were to arise, then either the shareholders would get 5 per cent. of the full compensation—and it is open to them to decide—or the amount which they would have received had the bankruptcy taken place. I think we can assume that at this moment all companies which are concerned with the progress of the Bill would choose to take what assistance the Secretary of State can give them rather than go into liquidation and throw their work forces on to the labour market. Admittedly, this is not a usual situation about which we are talking—it is a hypothetical one—and I believe that the terms proposed by the Government are fair; either 5 per cent. of the full compensation or the amount which the share-holders would have received had the bankruptcy taken place.I regret that the noble Lord, Lord Winterbottom, has opposed the Amendment so strongly. Do the Government understand that the problem is one of blight? We all know that if one is living in the shadow of a projected motorway or similar development the value of one's property can decrease sharply. Similarly, a company threatened with nationalistaion can find itself in a similar position. The noble Lord will recall that the Bill did not appear in the first Session of Parliament, over which the present Government had some control, although it was expected to arrive. There was a period of' uncertainty before the Bill was introduced in another place and that exacerbated the situation to which my noble friend has drawn attention. The Government are being unreasonable over this and I hope that my noble friend will press the matter to a Division.
I am grateful to my noble friend Lord Trefgarne and I, too, find the Minister's argument extraordinary, especially when he described this as a hypothetical case.
Can any noble Lord tell me of a factual case of any company suffering from blight? Perhaps the noble Lord, Lord Trefgarne, will tell me of one?
It is all very fine to ask that sort of question and I think I see the noble Lord, Lord Winterbottom, smiling. I would remind him that we have not yet had the vesting date and much can happen before then. What he is seeking to defend is putting something in the Bill which I suggest is unfair. My noble friend, Lord Trefgarne, referred to blight and what I think he had in mind was the situation where a company might have been viable in 1974 but could not find the funds to re-tool or buy new equipment, or carry out this new order which it has got since 1974, aid because it might have been in difficulty it must go to the Government. Once it f as gone to the Government, the Secretary of State is obliged to pay out in compensation what is frankly a derisory amount. Had that company in 1974 been in difficulties and had it in 1974 got a grant from the Government because of those difficulties, things might have been different. But it is possible that in 1974 the company was totally viable, and it is the mere operation of obtaining funds from the Government later to develop its exercise that the Government put in this provision which, frankly, will result in a thoroughly unfair amount of compensation. The obvious and reasonable thing, I suggest with humility, would have been to pay out what was agreed to he the proper price in 1974 less any funds the Government paid into the company. Even then the Government would be getting the company at a value probably much lower than is current value simply because it would have borrowed the money to develop its work.
I find the noble Lord's argument thoroughly unconvincing. I suppose that at this juncture he will not accept the Amendment and I see him, I think sadly, shaking his head in dissent. I am sorry about that. With respect, he is being most unreasonable. I hope there will be a little give somewhere from the Government, otherwise it makes the exercise in which we are involved rather tedious, particularly when we are trying to provide constructive Amendments, of which this is one. However, if the noble Lord sees fit not to accept it, then I shall be obliged to withdraw it and reconsider the matter.Before the noble Earl seeks leave to withdraw the Amendment, may I ask the Minister, as one who has had to deal with this question only in relation to Communist Governments who have tried to take over companies without paying any compensation at all, how the figure of 5 per cent. was conjured up? It seems remarkably low. One does not know what proportion the compensation bears to the value of the company. It could be virtually taking it over without any compensation. If the noble Lord would explain the clause a little more we might be able to have a better view of the Amendment.
I am not the most skilled person on the procedures of your Lordships' House, but I thought that the noble Earl, Lord Ferrers, had withdrawn the Amendment—
Several noble Lords: No!
and, if he had withdrawn it, that is the end of the discussion on the Amendment.
I was careful in the words I chose. I think I said that I would be obliged to withdraw it and then sat down. I did not actually seek leave to withdraw it.
I said as I rose, "Before the noble Earl seeks leave to withdraw the Amendment". I would be grateful if the Minister would explain the provision further; I am sure he understands it better than I do.
May I put it in words of one and a half syllables? The Opposition is making too much of the "investment blight". No noble Lord opposite or on the Cross-Benches has told me of a company which is blighted. We have given assurances to companies to ensure that normal, on-going business is not blighted by the Bill and we believe that companies are operating quite normally against the background of this Bill. If any noble Lord can tell me of a case of blight I should like to know of it.
Is the noble Lord really saying that because we cannot mention a particular case, we must now write this grotesque provision into the Bill?
Am I right in saying that the noble Lord said he had had enough talking? Am I not allowed to talk if I want to? I cannot hear what the noble Lord says.
I apologise. I said that I was bad on procedure. I thought that the noble Earl had withdrawn his Amendment, but I find that he has not.
I am very grateful to the noble Lord. I was wondering why he said that this was a hypothetical case and asked for evidence. When we are dealing with a Bill, we cannot, until we know what the conditions are and until all the firms that are to be nationalised have been gone into, give any evidence. One cannot say that one cannot have a clause in a Bill which is hypothetical unless one gives the cases. That seems to me to be quite ridiculous and I cannot understand it at all. We want clauses that are fair to the people so that, when we come to deal with the compensation, we can then provide the facts; but we cannot do so on a hypothetical case because at the moment we have no hypothetical cases. So what I want to know is why the noble Lord used the word "hypothetical".
I am afraid that hypothetical is hypothetical. I merely asked for an example of a blighted company. None has been given. Therefore, it is very difficult to say whether we are being fair or not. So far, no unfairness has appeared.
I am going to throw a small pebble into the pool by asking the noble Lord whether, if he is satisfied that no case will arise, it is necessary to have the clause in the Bill at all.
Oddly enough, that was almost the question that I was going to ask the noble Lord and, as we are asking each other questions, perhaps I may ask him this. Does he know of any company that was reasonably solvent in 1974 which has subsequently received a Government grant which will result in that company being paid out only either 5 per cent. of its 1974 prices or the current break-up value?
While we are asking each other questions, maybe I can join in and ask the noble Earl a question. We have been asked a lot of questions and I believe that I am entitled to ask one in return. Noble Lords opposite passed Amendment No. 156 when we were nearing the end of the previous Committee stage: am I right in thinking, as I think I am—for it is the Amendment of noble Lords opposite and not mine—that, under that Amendment, somebody who was not satisfied with the particular item of compensation with which we are dealing at this stage could go to the tribunal and say that, having regard to all the circumstances, the compensation was not fair and could ask the tribunal to alter the compensation? If that is the case, I am not quite sure what we are arguing about.
I can tell the noble Lord exactly what we are arguing about: we are trying to make the provisions of the Bill reasonable. I do not think it much of a statement to say that because somewhere in the Bill there is the right of a company to go to arbitration, therefore all the other provisions of the Bill can be absolutely haywire for, if they are not right, the company can go to arbitration. Clearly, we must try to get things right, but the noble Lord, Lord Winterbottom, asked me specifically whether I knew of any company that was going to be blighted. I shall find out, for I cannot tell him on the spur of the moment. But that does not alter the reason for trying to make the provisions fair. What I should like to know is whether the noble Lord knows of any company which has received funds from the Government and which, as a result of receiving those funds, will have the reduced amount payable.
I think that we are getting down to details. I shall inform the noble Earl at Report stage.
I am very grateful to the noble Lord. We are getting down to details, and I believe that they are rather important details, but I will withdraw the Amendment and shall come back to it at Report stage. I now, formally, and at the noble Lord's pleasure, beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
6.47 p.m.
moved Amendment No. 162:
Page 49, line 14, leave out ("either").
The noble Lord said: With this Amendment, which I am moving on behalf of my noble friends, I should like to speak to Amendment No. 163. Here, we are still addressing ourselves to this question of the special declaration and we are on a narrower point still. Since we have got into this rather unfortunate word "hypothetical", which looks like being our touchstone instead of our usual one—"flexibility"—I would just point out that, though I know that "hypothetical" is a dirty word in this House, the whole of this clause is to a very large extent hypothetical. That became very evident when the noble Lord was challenged by my noble friend Lord Ferrers to cite an example. Many of the provisions in the Bill are trying to deal with hypothetical situations that may arise. I think that we must accept that. So I do not believe that it will quite do to fling out the word "hypothetical" and say that that is an answer. I do not believe that it is.
What we are dealing with here is a rather technical point which, again, deals with accounting and also involves the onus of proof. Although these are comparatively narrow points, they are of some importance and I believe that they are made more important when this sinister phrase, "in the opinion of the Secretary of State" creeps in. That keeps on happening in this Bill. The subsections to which we are now referring were not in the original draft of the Bill. This is a point that was made in the discussion in another place and it was one of the Members from our side who pointed out that we were not here asking for special help but trying to redress an adverse balance against the companies. Indeed, one wonders why these subsections have been introduced. The apparent intention—and this has already been said—is to reduce the compensation which would otherwise be payable in the case of companies which receive Government assistance where, in the opinion of the Secretary of State, that assistance saves the company from liquidation or receivership.
Subsection (4) makes clear what is intended and, again, we are referring back to the date of 6th November 1975 and speaking of the reduced amount. I believe that we have discussed the broader issues involved here and the issue that we are addressing ourselves to in these Amendments is the fact that the accountants regard the phraseology as extremely unsatisfactory. We have these two provisions that the accountant has to declare that the company would be unable to pay its debts as they fall due without the payment or assistance in question. That, I understand, is technically possible, but, where the purely practical accountant says that he runs into grave difficulties is in the provision that the state of the company's affairs is such that, in all the circumstances, it is probable—one might almost have said "hypothetical"—that, in the foreseeable future, it would become unable so to pay the debts without that payment or assistance.
The accountants advise that this is not the kind of statement that they can be expected to make, and the industries feel that this is an unreasonable paragraph to have in here at all. We come back to the "heads I win and tails you lose" type of situation. I do not want to pre-empt the more general debate on compensation which will probably take place on the Question, That the clause stand part, but we are talking about a situation where one does not get a penny more if one has done better since November, but one gets substantially less if one has done worse. Again, in this particular instance, we are talking about a potential collapse.
May I finally remind the noble Lord that it was in discussing this point in another place that the remark which showed an appalling lack of understanding of the whole principle of compensation was made by Mr. Carmichael when he said:
"We are not in a take-over situation, we are acquiring by Act of Parliament."
If that is the attitude as exemplified in that discussion, then this is perhaps a slightly more important Amendment than at first might appear. I beg to move.
We have been discussing a group of Amendments which relate to the reduction of compensation for companies saved from collapse by Government financial assistance in the period, shall we say, from 1974 to whatever date it is when the Bill becomes an Act. May I briefly outline the basic philosophy behind the compensation terms before dealing with the Amendments which we are discussing now, Nos.162 and 163.
Compensation is fixed on the basis of a past reference period, the six months up to the end of February 1974. At that time, all the companies named in the Bill were viable concerns at the end of the reference period and the basic assumption still is that they will remain in that state up to the vesting day. Just to make the point clear, no company as of now has come to ask for aid under the clause, so we are—I know it is a longish word—in a position where the whole situation we are discussing is "hypothetical". I agree that it is the duty of this House and another place to discuss hypothetical situations, but hypothetical situations are less important than real situations, and as of now no company has come forward for help. The noble Lord opposite has said that clearly the prospects of individual companies may have changed since the reference period. But that in itself does not affect the basis of compensation. By basing compensation on a past period, the compensation payable is fixed, and generally speaking the shareholders are assured as to the basis on which the compensation they will receive will be assessed. We are talking about something that is not hypothetical but is factual. However, all of this is built on the premise that the companies continue as going concerns up to the vesting date, and I think we can agree on that. If a company should collapse before the vesting date, then clearly the whole basis of compensation is destroyed. That is recognised by the provisions of Clauses 27 and 29 which have already been discussed. But for a number of reasons the Government may not be prepared to see a company collapse before vesting day, and again, noble Lords who arc fair-minded men would not wish that to happen. In those circumstances, the Government may decide to support the company in the intervening period with some form of financial aid. If a company is saved from collapse solely by the Government digging into their pockets—ot should I say more carefully as noble Lords will correct me—digging into the pockets of the public, it is clearly wrong that the shareholders should nevertheless receive full compensation as if the company had remained viable by its own efforts. I believe that it would not be right for the House to accept these Amendments. When a company is running into financial difficulties, its directors will seek to avert the final collapse by early action and not wait until the receiver is at the door: that is to say, provided their accounting procedures are adequate. As soon as the danger signs appear, the company will seek whatever financial assistance it can to stave off collapse. The noble Lord opposite said that the bank might not support it. That again is a hypothetical situation, because I believe that banks tend to support their old and trusted clients. It may be that the company has no option but to turn to the Government, if the size of the problem is too great for any other sources to deal with it. While the ultimate collapse without assistance might be inevitable and clearly foreseen, it might nevertheless not occur at once—shall we say that while the organisation was working at full blast, the order book was shrinking and the future looked some-what bleak. If the Government give aid in these circumstances it is just as much to stave off bankruptcy as if the bankruptcy would have occurred the next day. As I understand it, sub-paragraph (b) of sub-section (6) which the noble Lord, Lord Strathcona and Mount Royal, is trying to delete in Amendments Nos.162 and 163, is to recognise this fact. If that sub-paragraph were to be deleted, then a company could receive aid a mere week before its bankruptcy and this maintain its right to full compensation. It is for those reasons that I must resist these two Amendments.Before my noble friend replies on this Amendment, and since the noble Lord, Lord Winter-bottom, said that he wished: o give his view on these Amendments in the context of an explanation about the Government's philosophy on compensation, may I ask him one question? If I understood him aright, he was saying that if between the date in 1974 when we have a fixed point—which is a fact, not a hypothetical position—and the vesting date, a company's activity level and profit level drops so badly that it collapses, then, of course, the whole basis of compensation collapses also? But if that argument applies to a company whose level of activity and profitability changes dramatically in the downward direction, what about the position of a company whose level of activity and profitability changes dramatically in an upward direction? Does not the whole basis of compensation logically collapse, just as much in the case of a company whose level of activity and profitability changed dramatically upwards since 1974? Is that different in principle from one which changes dramatically downwards?
We are talking about collapse. If a company's profitability rises, then I suppose there are hypothetical situations when that could bring about the collapse of the company; but it is highly hypothetical and unusual.
I thought that the noble Lord was trying to tell us an important thing—which we grateful for him trying to tell us—namely, something more about the underlying philosophy of the Government in setting these principles for compensation, which we shall debate more generally in a few moments, and that is why the statement is important and needs to be clarified. As I understood it, he said that it was part of the philosophy that if the situation changed dramatically since 1974, then the basis of compensation would also be undermined. He took the case of a change which was dramatic alas! in the bad direction; but logically the argument applies just as much if the dramatic change were to take place in an upward or hopeful direction. Both cases in logic, I suggest, would completely upset the basis of compensation.
The distinction which the noble Lord has not made and which we would make is that a company's activity and profitability after the date in 1974 can go up or down, and the basis of compensation is not affected; it would still be the base period of 1974. What we are pointing out is the distinction if the company ceases altogether. If the activity drops so low that the company goes bankrupt, then at that point the distinction should be made; but we are not making any distinctions if the profitability or activity goes up or down, except for this one case which, I think the noble Lord would accept, is of a different degree from an increase or decrease in activity or profitability.
I think I now understand the Government's position. What the Government are in fact saying is that if, following 1974, a company (to put it crudely) sits on its behind and does nothing, then its compensation is fixed. If, on the other hand, in the national interests as well as its own, it really forges ahead and greatly increases its level of activity to the national benefit, then it does not get any benefit from it. Is that really very fair or very encouraging to the sort of effort we want over what is a period of two or three years?
I do not think there have been cases, unless the noble Lord can bring them to our attention, where companies have sat on their backsides, and I hope the noble Lord was not suggesting that that was the case.
But if they have not, as I believe is the case, and they have greatly improved their business, on what conceivable basis of fairness is it right to give them only what the Government say they were worth in 1974, when since then they have been forging ahead to the national benefit and not just their own?
There is one question I should like to ask arising out of this small debate, and that is this. The noble Lord, Lord Winterbottom, said that no company had approached the Government for rescue aid. Is there any prospect of any companies approaching the Government for rescue aid? It is very easy, perhaps, obviously telling the complete and utter truth and looking backwards, to say that no company has, but is there any prospect, looking forward, of anybody approaching the Government for rescue aid?
As I understand it, the answer to that is "No", but obviously the Government cannot answer for the companies. It must be the companies who would know whether or not they are going to come to us; but as far as we know the answer which my noble friend gave was the correct one.
One of the difficulties that I see with the subsection which the Government seek to retain is the word foreseeable". We have heard no indication of how long "foreseeable" might be. The Government's arguments might hold a little water if "foreseeable" was just a few months, but there is nothing in the Bill to say that. It might be six months, it might be one year, it might be two years, it might be ten years. Is the noble Lord able to give any indication of how far ahead a company would have to be able to ensure its viability to avoid the penal effects of this clause?
"Foreseeable" depends upon the accuracy of the firm's accounting and the wisdom of its executives. How far can one peer into the future?
I really cannot allow the noble Lord to get away with that. The words in this clause are quite clear:
According to this clause, it is for the Secretary of State to decide when the foreseeable future shall end. Can the noble Lord tell me how far ahead the Secretary of State can see?"… a declaration by the Secretary of State that in his opinion … it is probable that in the foreseeable future …"
Perhaps on the same point, if I remember rightly my noble friend Lord Ferrers said among other things with regard to this paragraph (b) that no reasonable and competent accountant would find it easy to make a statement which backs up the situation which is described here. It is too difficult for even the most expert of common men to deal with this particular paragraph in real life. The noble Lord, Lord Winter-bottom, did not in fact reply to that in his first statement, and it would seem to me that it would be helpful if the Government could tell us why they think this is a paragraph which is in practical terms able to be realised by somebody who is really competent and trying to meet its terms.
I am very grateful to the last two of my noble friends who spoke from behind me, Lord Trefgarne and Lord Mottistone, because they in fact returned us to the Amendment. On this occasion the Government widened the debate quite beyond what T had originally envisaged when we embarked upon it. I do not think we are any the worse for that, because we probably dealt with issues which we should otherwise have dealt with in a few minutes' time. But I was a little suspicious that possibly the noble Lord was distracting our attention from the particular point that I was trying to deal with and to which we now have to return. The noble Lord nods his head, which I take to mean that he is going to deal with the issue and that he was not trying to distract our attention.
We wandered off into this whole question of hypotheses, and I should like to remind the noble Lord of one thing. The whole basis of compensation, as we shall be saying in a moment, is throughout designed on a hypothetical Stock Exchange valuation; and once you start on that—and the Government have started on that; we have not—you can hardly blame us if we follow with a whole series of other hypotheses. In this particular instance we have a very hypothetical situation, as the Government themselves have admitted, since the noble Lord, Lord Melchett, said that he did not know of anybody who was likely to go "bust"—which I am very glad to hear, incidentally. May I answer one or two of the other, more general, points which the noble Lord made? The issue of blight spreads right across the industry. Once you announce that it is going to be nationalised, it is very difficult indeed for any company, under that kind of threat, to borrow money. That is surely self-evident, and there are many noble Lords here tonight who will, I hope, reiterate this much more authoritatively than ever I can. But the noble Lord asked us one or two questions, trying to envisage the kind of circumstances. If one thinks back to the position of property companies during the period of the recent fall in property values, one recalls that many large property companies were: technically "bust". The City thought it would be undesirable to allow them to go through the hoop, which is perfectly proper, and they have a lifeboat committee, or some such committee I think it is cal ed, which exists to avoid this happening to such companies. I do not think anybody suggests that because they are technically "bust" you should therefore say that all their assets are worthless, which I think is what follows from the kind of argument here. Furthermore—and this brings us right back—is it seriously supposed that any accountant could possibly do any of the three or four things required of him here? No accountant could do them. It talks about the foreseeable future and "it is probable". Accountants try to make their trade into as exact a science as possible, and they like to stick to facts. We are all trying to stick to facts. That is our complaint here. On the narrow point, leaving aside the more geneeral one about hypothetical values, lifeboat operations, Burmah, the Bank of England, nationalised boards, et cetera, we are trying to stick to the practical point and we are saying that we are assured by those whose business it is that they would be extremely unhappy if they were asked to perform the particular service which is liable to be asked of them under this Bill as it stands at the present time. I rather doubt if the noble Lord wants to say anything further about this matter at this stage. If he does, I will gladly give way to him. If not, I should be happy to allow us to proceed to the Question, Whether the clause shall stand part of the Bill?, and the debate on it which will ensue. But I must warn the noble Lord that it is quite possible that we may have to address ourselves purely to the narrow, technical point at a later stage of the Bill. I beg leave to withdraw this Amendment.Amendment, by leave, withdrawn.
7.9 p.m.
On Question, Whether Clause 35, as amended, shall stand part of the Bill?
The reason I am entering the fray at this late stage is because my noble friend Lord Selsdon has asked me to move some Amendments which he put down. I have accordingly been studying the Bill and Hansard assiduously over the weekend, but I know quite well I can be tripped up on detail. However, I propose to deal with the general point, which I think is important and which was referred to by my noble friend Lord Orr-Ewing and expanded upon during the debate on Amendment No. 156 by my noble friend Lord Carr.
I would first refer your Lordships to subsection (3) of this clause, which reads:and so on. I draw attention to the significant words, "any person". These words occur again in subsections (4) and (5). As I understand it, these words are only applicable in the case of one out of the 43 companies intended to be nationalised. In the other 42 cases, the compensation is to be paid not to any person but to the parent company concerned. Let us for the moment forget the one quoted company and consider the other 42. The Government have repeatedly made clear that they wish to be fair. I should like to know what is meant by the word "fair". I trust that this means fairness not only to the taxpayer but also to the parent companies and to the underlying shareholders. If the Government are going to be fair to the parent companies they will automatically be fair to the shareholders; but the shareholders are, so to speak, once removed and will receive no compensation at all from the Government. They will, if they so wish, continue to hold shares in the parent company and will be concerned that the value of the compensation stock will be sufficient to replace lost assets with others of equivalent earning power. If that is not so, the Government will definitely not have been fair to the shareholders—something which the noble Lord, Lord Melchett, has frequently told us it is the avowed aim of the Government to be. I realise that it is very late in the day to raise the point and I do not have the experience to know how the Bill should be amended, but I would suggest that the words "any person" should be changed to "any parent company or person". If the Committee agree with this then perhaps we could return to it on Report. It seems to me that the Government, perhaps owing to the immense amount of legislation to which they were committed by their Manifesto, have used previous nationalisation Bills as a blue-print for this Bill. They have tried to use the previous system of using Stock Exchange prices by inventing the extraordinary idea of notional prices. For this, I suspect, they may have drawn some inspiration from Lewis Carroll. While speaking to Amendment No. 156, my noble friend Lord Wardington explained very clearly the inadequacy of using actual Stock Exchange prices as a means of valuing a company. It must be well known to the Government that during the relevant period Stock Exchange valuations were well below asset values. Therefore, if the parent companies had sold their assets on the basis of Stock Exchange valuations they would have been unable to replace them. Similarly, if the Government nationalise one of their subsidiaries and compensate on a Stock Exchange or quasi-Stock Exchange basis, the parent company will be unable to establish itself—to quote the words of the Under-Secretary of State—"… the amount of compensation due to any person in respect of any securities of a company which are held by him immediately before the date of transfer of that company shall be an amount equal to the base value of those securities",
If the Government would admit that, although they want to be fair they arc using a method of compensation that is unfair, we could get together and work out some improvements to the Bill to make it at least more fair, but the intransigent attitude adopted by the Government that they are being fair when it is obvious they are not, seems somewhat tedious and time-wasting."at the same level of activity as existed before its subsidiaries were vested".
7.14 p.m.
May I crave your Lordships' indulgence from the Cross-Benches to indulge in a few general reflections on the implications of this clause? I have not spoken, save on one occasion, on the rest of the Bill and I do not wish on this occasion to indulge in any observations at all on the nationalisation of the two industries concerned. I address myself solely to the question of fairness on which I personally am prepared to accept the assurances which have been given by noble Lords on the Government Front Bench that they are united with the rest of the world in seeking. I am afraid that the impression left upon what I imagine to be an impartial observer in this particular context must be to the contrary. It is on that matter and on that matter alone that I should like to expatiate for a few moments.
It is very clear (is it not?), that the draftsmen of this Bill started from the simple notion that if some person or group of persons is compensated on the basis of the Stock Exchange value at a said date, then the criterion of fairness is satisfied. Unfortunately or fortunately, it so happens that the companies enumerated in the Schedule for the most part lack a Stock Exchenge quotation on the named date. It is therefore considered to be necessary, and certainly it is necessary if compensation is to be devised at all, that some tribunal of arbitration should be set up to ascertain what would have been the Stock Exchange value at a certain date of these companies had they enjoyed the benefit of quotation—a task which must be associated with all sorts of perplexities and necessarily involves a vast number of judgments which in the nature of things are subjective. It may be that if the fundamental Amendment moved last time by the noble Lord, Lord Selsdon, survives in another place, the terms of reference of the arbitration committee may be interpreted in such a wide sense as in the event to vitiate the many fears which have been expressed in this House (and, I think, are expressed in the knowledgeable world at large) with regard to the procedure of this tribunal which I think it is not unfair to say is implicit in much which has been said from the Government Benches, much indeed which has been said from the Government Benches, in the last half hour. Let us then proceed to examine a little the fairness involved in what I, at any rate, believe to be implicit in the general philosophy of compensation as alluded to by the noble Lord, Lord Winterbottom, 10 minutes ago. Let me start from the position of an individual shareholder, if such an individual shareholder exists; but I hope Lord Winterbottom will not think I am indulging in too much in a hypothetical exercise if I use the words actually used in the Bill, "a person". The person involved may have observed that since the date mentioned in the Bill there has been a not inconsiderable degree of inflation. Any pecuniary compensation, therefore, which is paid to him now, or two or three years hence, is likely to have a very substantially lower real purchasing power than it would I have had at that date. You may dismiss that and I can under-stand your dismissing it, although I deplore the fact that Governments in general usually dismiss such arguments. I must say—perhaps this may be thought by noble friends on the other side a vindication of my speaking from the Cross-Benches—that I think most Parties have been almost criminally indifferent to the effects of inflation on investors, especially on investors who have been coaxed by the very often honest and upright agents of the Government to invest their money in Government securities. However, this is the fate of many unfortunate people, and those who receive lower recompense in real terms for what is taken over in respect of aerospace and shipbuilding are suffering in common with a great many of their fellow countrymen who have not had the common sense to "twig" the inherent dishonesty of Government policy in general in regard to inflation. I will not dwell upon that grievance any longer. On the other hand, I think that the individual might have some, complaint about the date. If I were in such a position—I am not aware I am—I should certainly feel that the choice of date and the perspective it involves is open to criticism on more than one count. Retrospectively, surely, the date occurs at a time when many values have been upset by every kind of unforeseen contingency: the rise in the price of oil; the gradual realisation of the catastrophic nature of the inflation to which we have been committed by an earlier Government, the attitude of certain bodies of producers and so on. If I were the individual person concerned, I should feel that some compensation assessed on a wider view of past profitability of what was to be taken from me would be appropriate. Leaving that on one side, accepting for the moment the cynical vindication which might be made: "Well, you might just as well choose some date, and we have chosen that, and that is that", I cannot regard as so unimportant the point made just before we embarked on this part of the debate by the noble Lord, Lord Carr of Hadley. Supposing that some of the companies concerned—I use the word, "some" advisedly—had shown some elements of enterprise, had reinvested profits in the industry, some of the entrepreneurs concerned had shown themselves not to be the imbeciles they are sometimes represented to be, if I, the person, were to be compensated on some notional value of what my shares would have been worth on the Stock Exchange in 1974, I might feel some sense of grievance. Similarly, if there were some companies which answered to the description sometimes delicately referred to by the noble Lord, Lord Melchett, as not having been absolutely 100 per cent. in every possible respect, it may well be that if I were the person concerned with those companies, I might he rather lucky in comparison to the other persons, to whom I have alluded, who had foresight to invest their money in more go-ahead concerns. I cannot regard this point as insignificant. I found it extraordinary that so fair-minded a debater as the noble Lord, Lord Winterbottom, can brush it aside as being merely hypothetical. It surely must be the case that there are some people who will lose relatively because of the adoption of this criterion. However, all this pales into insignificance beside a further conceptual mistake which seems to have been made by the framers of this Bill. For the purposes of argument, let me accept that compensation according to notional Stock Exchange value in the year 1974 seems to be fair. I am perfectly prepared to admit if you were thinking simply of inflicting an extraordinary fine on some reprehensible person by depriving him of his opportunity to possess shares in a certain branch of industry, and then you were persuaded that, after all, he needed compensation, it might seem fair if you could—and if your arbitration tribunal could do the job properly for you—compensate him at the notional Stock Exchange valuation. He could then buy another security of equivalent value. But now we come to what may be said is the grand structural defect of this set of provisions. It may appear to be fair when you are considering individual persons, and regarding the rest of the world as staying put, but it loses all appearance of fairness when you are thinking of compensation to holding companies and to parent companies, whose subsidiaries are to be compensated in the same way. I will not dwell further on the anomalies very well pointed out by the noble Lord, Lord Wardington, in the debate on Thursday night which may arise as a result of the use of notional Stock Exchange values compensating equal holdings in different companies. The noble Lord, Lord Wardington, gave striking examples of the anomalies of that kind. The point I wish to make—I do not wish to detain your Lordships much longer—is this: taking over the assets of an entire company is taking over something which usually if the company has any prospects of prosperity is considerably lower than the Stock Exchange value. This has certainly proved to he the case again and again in the City where a perfectly fair take-over bid is made for the assets of a particular company.Did the noble Lord say "lower than"? Surely he meant "considerably higher than"? When you take over a company you usually pay much higher than the—
Did I not say "higher"? I beg your Lordships' pardon. I certainly meant to say "higher". The point is so obvious that I do not think I need elaborate it further. It is true that the individual shareholder, other things being equal, does not realise, either annually or when he sells his securities, his share of the total value of the going concern. But when the going concern is taken over as a whole, then a notional valuation based upon Stock Exchange values at a certain date will certainly not, even if inflation is taken out of the system, enable the company concerned to replace the value of its assets and control. That, I believe, is the fundamental defect inherent in this part of the Bill. In my judgment, fair compensation involves an assessment of re-placement value, and even to say that is over-simplifying.
The point to which I have been leading up is an extremely simple one. I have yet to indulge in any conversation or to read any article in which it is controverted. Yet unless the Amendment moved by the noble Lord, Lord Selsdon, so enlarges the opportunities for the arbitration tribunal, the simple principle of fairness will be flagrantly violated by this clause. That, I think, is a pity because people are cynical enough already about the degree of fairness they may expect from Government in this country. I think it is a pity, because it violates principles of abstract justice, because it will certainly be a further discouragement to prudent investment and, finally—and I do not drag this in now, since it has been at the back of my mind ever since I became conscious of this element in the Bill—it is a pity because of the impression that it will create abroad. I wonder whether members of this Government, if some British company operating abroad were to be nationalised by some other reprehensible Government on the principles of this clause, would feel that full compensation was being paid by an export credits department or some other department if it were to act on this principle. Certainly we should be under no misapprehension at all in this respect. Noble Lords who were present earlier this afternoon will have witnessed that I have borne testimony on my feet in this chamber today to the unwisdom and the irresponsibility of certain remarks in the newspapers yesterday and to the effect that has had on the pound. But anyone who goes abroad deceives himself if he thinks that this kind of thing has not contributed materially to the inability of the pound to stand up to the sort of vicissitudes it has suffered recently. I cannot believe that the sober and moderate men on the Government Benches really intend that result.
Noble Lords have had a great deal to say about whether the compensation terms will be fair. The noble Lord, Lord Robbins, was among them. There haw been some very persuasive speeches from the Opposition Front Bench, and among others from the noble Lord, Lord Selsdon, and the noble Lord, Lord Orr-Ewing, from the Back-Benches. I am prepared to go along with those noble Lord; including the noble Lord, Lord Harmar-Nicholls, and the noble Lord, Lord Robbins, who paid tribute to noble Lords c opposite for being fairminded; and of course I would add that they obviously wish to be seen to be fair. Whether or not these terms are fair, it is perfectly clear that the only possible two reasons for unfairness would be either that the compensation "Cake" was too small or that the slices were cut unfairly. These are the two strands which the noble Lord, Lord Kirkhill, defined during the Second Reading of this Bill as being the Government's approach to compensation.
The Bill intends that the general principles, which the noble Lord set out as being necessary, should be devised for common application to all the companies to be taken over and that the Secretary of State would have regard to these principles in the case of the quoted company and the Secretary of State and the arbitration tribunal in the case of the unquoted company. As has been said by the noble Lord, Lord Robbins, and others, in this they will be guided by notional Stock Exchange values. Therefore all the effects which will flow from the compensation principle, such as fairness or unfairness, the added burden on the National Debt or restitution to the shareholders who have lost capital and income, depend upon the suitability of the Stock Exchange mechanism as a method of determining whether these effects can be achieved in the best possible way. I should like to ask noble Lords Opposite which of these effects they are seeking to achieve in respect of the compensation terms. They have said that they wish to be fair, and, of course, it would be very satisfactory, egalitarian and equitable if shareholders could be compensated fairly; but I see some difficulty for noble Lords in the proposition that we should, at the same time as we attack nationalisation on the basis that the country cannot afford the cost, be suggesting that the price should be upped. What we ought to want, and what Ministers more than anyone else ought to want, is the most efficient and effective deployment of the nation's resources, which in terms of investment means that funds should find their way not, as so often happens, to the least resourceful companies, but to the most resourceful companies. I do not believe it is possible to sustain the momentum of a mixed economy unless the energies and resources of the public and private sectors are most delicately sustained, balanced and co-ordinated. Noble Lords opposite accuse us of confrontation, but have they tried to sit down with the CBI and discuss with them, and with leaders of the other Parties, the implications and possible consequences of this Bill? And how can the private sector, which is soon to be deprived of these vast and, in many cases, profitable assets, plan to redeploy the proceeds of compensation stock in the most gainful way, in the way to achieve the greatest benefit to the domestic product, if they are to be kept in the dark about what they can expect to receive and what demands are to be made by some irrelevant and inappropriate formula? If Ministers think that average Stock Exchange values of three years ago are the best way of valuing the current worth of a business, then they greatly misunderstand and overrate the mechanism of the Stock Exchange and the movement of share prices as a means of computing the resources and resourcefulness of a group or company in the private sector at any time. In my view nothing can be done to undo the damage to the economy by transferring companies to the State sector—some vigorous and flourishing, and removed from the control of well-tried and flourishing managements; others in decline being propped up at public expense for a period. But compensation will, at least, provide an injection of funds into the private sector to help carry the State sector whose enlargement, as Professor Friedman said yesterday, has brought us to the cliff top of collapse. Many noble Lords opposite will, because of their views, reject what I say. But I ask them to consider whether the highest standard of living, and the greatest satisfaction, is obtained in that country which has the most vigorous and largest private sector, or in that country where all the resources, all the means of production, distribution and exchanges, are owned by the State. I have no doubt in which direction the Labour Party will take us, unless we dig our heels in all the way. That is why there is this talk of confrontation, and I suggest to noble Lords opposite that if they want to cool the temperature, to bring the heat down and to try to produce a situation where we shall have some kind of meaningful relationship between the Parties, they should try to introduce a measure of flexibility into this Bill, which does not at the moment exist; that they should try, between now and Report stage, at least to modify the compensation clauses so that they can be seen to bring benefit to the nation.7.45 p.m.
I hope that the noble Earl, Lord Dudley, was wrong in one respect. I hope he was wrong when he said that he anticipated that noble Lords on the Government Benches would reject the advice which he had been giving them, because that would mean that they underestimate the dangers that lie in front of us. One advantage of a debate on "clause stand part" is that one can talk in a general way. We have examined line by line, and word by word, what is in the Bill and we can now give a little genuine advice to the Government in the hope that they will accept it. I do not expect for one moment that noble Lords opposite can accept the arguments which will be put, but I hope that they will impress upon the Department how essential it is that, by the time this Bill becomes an Act—if ever it does—the compensation clause carries with it a message very different from what is in it now, even as amended.
The first question which I should like to ask noble Lords is whether they will use their influence to see that the Amendments which have been carried in this House remain in the Bill, and that it will not just come back to us from the other place in the most unfair state in which it existed before we first looked at it. Will they take into account what the noble Lord, Lord Robbins, said to them that this clause carries with it something much more important than that which is in the Bill? This will, I believe, affect the general world view of our future possibilities and potentialities. If one values the pound now on a purely technical basis, taking into account the inflation in Germany, France, Switzerland and elsewhere, one can quite safely say that it should stand at around 1·90 to 1·95 to the dollar. The reason why it is at its present frighteningly low figure is that the world has no confidence in our forward projections, and people think that our potential will be misused. That has a bigger impact than anything else on forming a view. Everybody knows that what we need in this country is a bigger output per man hour to bring us to the level of some of our competitors. Alongside that, we need a more vigorous and risky investment programme, both from Government and from private individuals. Unless we can get those two things we shall be over the cliff, and we shall be unable to get back. This clause relates very fundamentally to the second point. If the Government give the impression that when they nationalise they will be unfair in giving compensation, they will undermine world confidence at a time when they ought to be rebuilding it. They will drive the private investor away from using any savings or other money in a constructive way. They will encourage the feeling, which is rife throughout the country today, that the best thing to do is spend your money and not invest it; to get something on the shelf, in the safe or in the cupboard which will maintain its value. This kind of feeling, which comes from being unfair in matters such as this, will send us so quickly down the road to ultimate ruin that the present forecasts will seem almost rosy when we look at them in retrospect. If I might have the attention of the noble Lord, Lord Melchett, who is the Under-Secretary as distinct from being a conveyor of messages, I should like to emphasise that apart from maintaining, with all their influence, the Amendments which have been written into the clause the Government should go further and recognise the force of the argument of the noble Lord, Lord Robbins: that unless replacement value is taken into account nobody will be compensated. People are not being asked to sell at a time of their own choosing; they are having to sell at a time dictated to them by the Government. The least that the Government can do is to insist upon a compensation clause which will ensure that people are able to retain the replacement it value of the assets that they have built up in the past. There is much more to this clause than merely being fair to the people, who are involved. The clause will send out a message regarding our future approach which will decide whether or not we shall have any home investment. In. hat spirit, not merely in the technical spirit, I hope that the clause will be looked at by the Government before it comes back to us at Report stage and before we are asked to give it a Third Reading. If the clause goes back to the other place in anything like this form I hope that they will not feel that they have an ideological duty to send it back to us in a form which can bring only disaster to this country.The noble Earl, Lord Dudley, mentioned the question of the mixed economy. Per taps the attitude of Her Majesty's present advisers to the mixed economy is that of drunken American who likes his dry Martinis mixed with less and less Martini. By this I mean that the Martini is the private section of the economy while the gin is the public sector. Also I have a feeling that noble Lords opposite are trying to buy the gin at duty free prices.
This leads me to my next point: that if the Government buy at a notional share value and find, leaving aside the part we were discussing the other day relating to the ship repairers and the plastic coating manufacturers, that they have something that they want to sell in that shipbuilding, ship repairing or aircraft manufacturing company which is totally the bounds of the Bill, they will be indulging in what they have accused the "flyer" members of the City of; namely, of asset stripping. Earlier in our proceedings when I raised the point of surplus office blocks and said that I hoped the Government would not have to buy new office blocks to house these vast Corporations, the noble Lord, Lord Melchett, gave me an assurance that they would try not to do this. If the Government are buying large numbers of ship repairing and shipbuilding companies and are putting them into British Shipbuilders and if they are also buying the two main airframe and engine manufacturing companies and calling them British Aerospace, they must find that they will have spare stuff to sell. Consequently they will be selling, either for their benefit or for the benefit of the Corporation, certain assets that they have and they will be buying at this notional share value. If the notional share value were freely negotiated or if it were a freely negotiated takeover perhaps this would be fair, but as it is not a freely negotiated takeover the people who are suffering are not the bloated City plutocrats who seem to loom so large in the imagination of noble Lords opposite but the vast majority of the institutions which to a large extent provide life insurance and pension funds for ordinary working men and women. When they have to justify the Bill to our lords and masters, the citizens of the United Kingdom, I hope that the Government will explain to them that what they have done has been to depreciate those pension and life insurance companies which have tried to keep up the value through appallingly inflationary times, and economic mismanagement of Olympian standards; that it is their fault and that they are very sorry, but they had to do it for doctrinaire reasons, and that their pension and life insurance funds, when they come to maturity, will be less than they would have been had they not interfered by buying these shares in that way.7.55 p.m.
The clause that we are discussing is of extreme importance and the reason why it is important is, as has already been said, that any form of compensation must be fair. I do not think that there ought to be anything between those of us who sit anywhere in the House and the Government. If you are going to nationalise, then it stands to reason that the price paid must be fair. This means that the price has to be fair to the person receiving the compensation for which his assets are being removed. It must mean also that the price has to be fair to the Government and to the taxpayer in order to indicate that they should not pay out more than that which the assets are worth. It is fundamental to the discussion of Clause 35 that the compensation should be fair. The noble Lord, Lord Kirkhill, referred to this in his Second Reading speech when he said:
Those are very important words. Referring to the principle of compensation which the Government are using, the noble Lord went on to say:"My own view is that the compensation approach in the Bill is the fairest that can be devised"—
that is understandable—"Your Lordships' House will have understood that the approach has two basic strands. The one is to devise general principles of common application to all the companies to be acquired"—
So if the expression of view of the noble Lord, Lord Kirkhill, is correct, there is nothing between anybody on the principle that compensation should be fair. If one does not agree with that, one is saying that expropriation or unfair compensation is acceptable and I do not believe that that is contemplated by the Government; at least, I like to think that it is not. My worry is that even if the Government intend the compensation to be fair the very methods that they are using ensure that it cannot be fair because they are founded upon spurious data. The noble Lord, Lord Kirkhill, said that we have to find a common system of compensation. The whole basis of compensation is notional values of Stock Exchange prices, and of all the 43 companies which are to be taken over, only one is quoted on the Stock Exchange. Therefore one starts off by saying that the other 42 companies will be valued on an unreal basis; they will be valued on the basis of what the figure would have been had they been quoted, which they are not. When I say to the noble Lord, Lord Winterbottom, that this is spurious data this is because one is trying to compensate people for a level of shares which does not exist. This means that then you have to devise a system to find our what is right. If one begins with what the share figure should be, one of the first things one realises is that the value of shares goes up and down depending on all kinds of circumstances: on the economic circumstances, on the viability of the company as a whole; and on the timing of the reports. And not only that: the share value of companies depends to a large extent on what is known about the company by the public at the time and it does not depend upon what the public knew about the company in retrospect. This is the situation in which the Government will be involved in trying to find out in 1976 not what actually happened in 1974 but what the view of people in 1974 would have been for the future of those companies, which at that time was not known. That is the type of consideration which has to be given. And, of course, the value of shares depends upon what the public know about the company at that time, which is not the same as what the company knows about the company at that time. The company obviously may know very much more of its inner workings than the public knows, yet it is what the public knows that determines the value of the shares. Even then the value of the shares represents only the very small number of shares that change hands, and, as the noble Lord, Lord Robbins, said, absolutely correctly, if you are going to acquire a controlling interest then the value of those shares is enormously higher. It is reckoned that to have a controlling interest in a firm means that normally the share value will be 50 per cent. higher than that parcel of shares which is quoted on the Stock Exchange. Indeed, only the other day (dare we refer to it?) the Felixstowe Dock and Harbour Board were given a value for the full control of the company, and those shares were valued at 60 per cent. higher than those quoted on the Stock Exchange. I suggest that in this respect these figures cannot be fair, because they are based, to start with, on shares that are not known and on the value at which they would have been quoted on the Stock Exchange floor, and they are not valued on the basis of an acquiring and controlling interest. So the whole basis of what the notional value of the shares would have been in hindsight I suggest is spurious and academic. It is certainly open to question and to argument on all sides and by many people. Of course, the value of these shares practically never reflects the value or the cost or the earning power of the individual assets which underpin the shares, because the individual investor is in no position to realise his share of those assets. The individual investor receives only the dividend income that that company chooses to pay, and that of course, as a matter of practice, is invariably much less than the total earnings of the company. Yet again that is the kind of value—what the shares earn—that determines the level of the shares on the Stock Exchange. But if one accepts the fact that for control of a company it must be expected that the shares would increase in value by 50 per cent., and I think that is generally agreed upon by all people, then the value of the compensation which the Government are offering these companies is only two-thirds of the value of what it should be for a controlling interest. The curious part is that the shareholders are being paid, some time between 1976 and 1980, for securities which are transferred in 1976 and the compensation for which is based on 1973/74 values. So there is a huge time-lag and, as has already been stated, during that time inflation has gone up. So what in fact are the companies to do with the money which they acquire for the shares which have been taken over? The answer is that presumably they will either buy other companies or put that money into new plant and new equipment. They will have to buy new plant and new equipment at 1978 prices with cash paid for their assets at 1973–74 prices. I do not believe that that can be said to be fair, and perhaps I may just interject this thought with regard to Amendment No. 159, which I think was the last Amendment with which we dealt on Thursday. It was asked whether the Government accountancy service was consulted over the drawing up of the compensation aspects of this Bill, and the noble Lord, Lord Melchett, said, quite reasonably, that that was not something which arose on that particular Amendment. He said that he did not know what the answer was but that he would be kind enough to let us know the answer if we referred to it on the Question, 'Whether Clause 35 shall stand part of tie Bill? So I shall be grateful if the noble Lord, Lord Winterbottom, if he is to reply to this Amendment, will say whether in fact the Government accountancy service was consulted over the drawing up of the compensation clauses. I am bound to say that I find myself in a little difficulty over this matter because I believe that between us all we agree that the system should be fair. I do not think it is fair, and, what is more, the point that I find infinitely worrying is that when the Government were asked about compensation during the Committee stage of this Bill in another place the Minister of State, Mr. Kaufman, made it perfectly clear. He said, in effect, "We are not taking over these companies on the basis on which a willing buyer would get them from a willing seller. That is not what we are doing. We are nationalising them. We are taking them over by Act of Parliament. Therefore the terms on which a willing buyer buys them from a willing seller are not the terms on which we are offering compensation". It is as simple as that. That is what Mr. Kaufman said, in effect. The difficulty I find is that it is terribly hard to believe that the Government intend to be fair when the Minister of State says that that is the basis on which we are compensating companies. I genuinely hope—and I suppose it is an almost impossible thing to ask the Government—they they will reconsider this matter. If they want to be fair, then they must be seen to be fair, and at the moment I do not believe that they are being seen to be fair, nor do I believe that they are being fair."the other is to apply those principles in the fairest way possible".—[Official Report, 28/9/76; col.181.]
I hope that there may be time for one more speech from the Cross-Benches. I share the views which have been expressed that this really is not a very fair arrangement. The relevant days cover six months, during which period we had a coal strike, the engineers' strike, the three-day working week and numerous other troubles, and I cannot conceive that a worse period could have been chosen for fixing the base value.
I do not want to repeat all the things which have been said, but I did not get an answer to a question which I put to the Government as to how they thought up the figure of 5 per cent. for the "reduced amount". It seems to me an extremely low figure. My experience in cases of company compensations has been gained when dealing with Communist Governments. They never want to pay compensation, and they pay it at the lowest imaginable figure. The figure of 5 per cent. strikes me as an ominous similarity and puts fear into my bones. I do not like it. If it strikes me like that, it will strike foreign investors like that and we want foreign capital in this country. I have always hoped that we would have a Government which would give real help to our shipbuilding industry—knock down a bit of town around the shipbuilding yards, and extend the yards to build ships in a new way, as do the Swedes and the Germans. I had hoped that the Government would encourage investment in shipbuilding, but instead they have cast a blight on the whole thing. Someone on the Government Front Bench—I think it was the noble Lord, Lord Winterbottom—said he did not know of any case where any company had asked for Government help. But with a text like this around where you get only 5 per cent. if you have asked for Government help regardless of how much their help was needed, how do you expect to find anyone asking for it? The shipyards are starved of capital and the industries have had a blight cast upon them. This is a most unfortunate moment to bring forward such a Bill. What ought to happen is that in view of our economic situation, the Government should have the good sense to scrap the Bill. It does not matter that it is part of the Social Contract. If the Social Contract requires something manifestly idiotic and unfair, it should not be carried out. These are strong words, but I have very good reasons for thinking this in this case. Finally, we have the interesting case that the compensation will be paid in the form of Government stock. At a time when the inflation rate is running at 14 per cent. and likely to rise again because the Government borrowing continues, can you think of a quicker way to lose everything than to put it into Government stock? This is so much so that the Government have had to raise the rate of interest to 15 per cent., and probably it will go higher. If you pay 15 per cent. for assets which you take over, the assumption is that you are able to make more than 15 per cent. out of them, otherwise you will lose your money. Do the Government seriously think that, by taking over the shipbuilding companies, which have been badly treated, they will make 15 per cent. profit out of them? Or is this not otherwise throwing money down the drain? This is bad economics, bad commerce, bad finance, bad in every way. These compensation proposals are very open indeed to criticism.8.13 p.m.
It is perfectly obvious from the debate that compensation is badly regarded from all sides of your Lordships' Committee, and quite rightly so. I want only to raise one particular point, a rather different one from most people. I wish to ask why this system was introduced by this Government? Several of my colleagues have said that the system itself was a very bad one and that the Government ought to have been able to find a better system. I happen to have represented Wallsend-on-Tyne from 1931 to 1945. Wallsend-on-Tyne is a very big shipbuilding and ship repairing area. For all those years, even having lost my seat in 1945, and afterwards being returned for Tynemouth in 1950, I have still retained a very great interest in the shipbuilding area on Tyneside. I like to think that I know, at any rate, something about it.
When I lost my seat in 1945 and the Labour Government were returned with, if I remember rightly, Mr. Attlee as Prime Minister, the first decision was taken to nationalise the coal mines. That was the first nationalisation programme. So the coal mines were nationalised, and the question of compensation arose. It is very difficult to remember so long ago; but I think my brain is quite clear that the decision was then made that an independent body should advise on the compensation to be paid to the private coal owners. Of course, the problem of compensation in shipbuilding depends, at any rate to some extent, on the different assets of the different companies. Some companies have tremendous assets, some shipyards are losing money and some shipyards have ship-repairing yards attached. One cannot find a general compensation scheme which would fit every shipyard. In the same way, in 1945 you could not find a scheme of general compensation because of the different coal fields. At that time I had some connection with Bolsover, one of the most progressive coal mines, which always had plenty of money, which had deep seams and was a grand company. In my area of Northumberland and Durham we had a lot of mines which were losing money. Again, as today in shipbuilding, there were many differences in the compensation which had to be paid to the private mine owners, as there is in paying adequate compensation to the different shipyards. Although I had lost my seat in 1945, I still had a fairly wide connection with colliery undertakings. An independent body was set up to assess what would be fair compensation. My recollection is that the compensation terms game out, they were considered by the private colliery owners as fair and there was not the controversy over the compensation to the private colliery owners as there has been over the compensation to ship-builders and ship repairing yards. So it seems to me that the system used then was a very much better one than tie system being used today. I should like to know from the Government whether they have considered using the same system as was used in 1945. I suppose it ran until 1948, because there would be some t me while the investigations were put into operation. My recollection is that the private colliery owners were very well satisfied with the scheme that had been put into operation. I should like to know from the noble Lord why the Government have not used that system today in the compensation of shipbuilders and those connected with shipbuilding. Had that been done, it would have been very much more helpful. I am always looking at these things with great interest, with regard both to shipbuilding and coal-mining. I have always wondered why the old system of compensation paid to the private colliery owners was not used, and I should be grateful to hear why not, because it was regarded as fair. Nothing like the controversy arose then as is arising over the present system which this Government now want to introduce. I am very sorry that I failed to hear the speech made by the noble Lord, Lord Robens, because, after all, he fought in the next constituency to me in Blyth very many years ago when he was a great supporter of nationalisation.With the deepest respect to the noble Baroness, she is confusing me with a much more eminent Peer of the name of Robens. I rejoice in the humble name of Robbins, and I have never entered into political conflict with the noble Baroness, and I should fear to do so.
I do apologise. Unfortunately, when I came in I heard one or two noble Lords talking about Lord Robens, so they also used my noble friend's name incorrectly. Nevertheless, had he been here I should have liked to hear what the real Lord Robens thought. In those days, he was a great believer in nationalisation. He does not seem to be now, and he has gone into other and wider fields. He accepted the compensation for the coal mines—whether or not he had shares of course I do not know. It seems to me that that scheme under Mr. Attlee was a much fairer one. Though I did not agree with his policies, Mr. Attlee for many years Prime Minister of a Socialist Government, was widely respected and had a very wide approach to the problems of industry. I wonder whether he would have been pleased with the terms in regard to ship-building and ship repairing which have been put forward by noble Lords opposite.
The scheme for compensation for the coal mines, carried out by an independent body and accepted by the private colliery owners, was apparently a good one. Of course, they regretted nationalisation, they did not enjoy losing their private collieries, but at the same time they considered that they had been fairly treated. When I heard many noble Lords say what a bad system this Government are producing, I wondered whether they had looked at that scheme—but perhaps they are all too young and it is only I who am old enough to remember what happened in 1945. When the noble Lord replies, I should be glad to know why this particular system, which has caused so much controversy, has been introduced, and why the other form of compensation has not been adopted on this occasion.I should like briefly to support the general view expressed by many noble Lords that the Government's formula for compensation, based on a notional Stock Exchange value, is not realistic and not fair. I should like to raise one aspect in which in my submission the formula is not realistic or fair—that is, in its application to the successful company, particularly the successful company whose success is based on the technology and the good will and the know-how that it has built up and also to the assets it has built up which are generally known as industrial and intellectual property.
When I spoke on Second Reading, I declared an interest in that I was a small shareholder in Vosper Thorneycroft. It seems to me that the Government's formula omits to take such assets into account. If I may mention a personal aspect, I have spent many hours of my life endeavouring to assess the value of good will, of know-how and the value of assets of industrial and intellectual property. In a successful company, the value of these assets often has no relation to the Stock Exchange value. Therefore, even at this late stage, I should like to invite the Government to indicate what their policy is in relation to that aspect of compensation.I cannot speak with the graciousness or fairness of the noble Lord, Lord Robbins, but without going back to the debate of last Wednesday and the various points which I then considered to be unfair, I should like to consider whether a notional price is appropriate. The Stock Exchange price represents the whole of the business. But many companies which are the subject of the Bill have a variety of interests and divisions. Not all divisions necessarily produce the same earnings or have the same assets or asset value for people who might wish to take over a part. Following on the remarks of the noble Baroness, Lady Ward of Tyneside, previous Bills have related to industries where there were a substantial number of companies quoted which, therefore, provided a reasonable base to start with, though exceptions had to be made. Previous Bills gave an option because the assets represented a different value to different people. Whether it is fair or appropriate I leave for the moment, though I do not retract what I said the other day. It is going to be difficult to arrive at a notional price.
A Stock Exchange price takes the future into account, but that is something we are explicitly excluding from 1974 onwards. That is unfair and inappropriate. We are specifically excluding any increase in dividend and, as I said the other day, we are including a period of quite exceptional circumstances and taking a very short period of time. Disregard the question of whether this is a good time to bring in the Bill or whether it is a suitable industry to be nationalised. Six months is not a good period, and I believe that one of the reasons why we have these anomalies in the Bill is that political expediency meant that the Bill had to be drawn up quickly and therefore previous nationalisation Bills were not blue-prints for these wholly exceptional circumstances. I should like to say one or two further things as we progress through Clauses 37 and 38 because they are all related together. But I beg your Lordships opposite to pay particular attention to what Lord Robbins said, because it is very pertinent.8.30 p.m.
Noble Lords on the Front Bench opposite are beginning to look a little weary and perhaps even bored.
No.
I am glad that is not so; obviously my rising to my feet makes a difference. But in general I think it would he fair to say that there has been a look of some weariness, or a sort of Lenten look of fasting and misery, about noble Lords on the Front Bench opposite, because this is a tedious exercise. Constructive Amendments have been put forward and they have been simply blocked outright. We have been taking part in a dialogue of the deaf. It is necessary to go on repeating points made over and over again in the hope that noble Lords opposite may eventually tumble to the point. It is always said that if you make a speech to simple people you should say what you are going to say, say it, and then tell them what you have said. I am not going to say that noble Lords opposite are as simple as that, but there are moments when one wonders whether their refusal to answer questions derives from the principle, "Never explain, because your friends understand you and your enemies will not believe you", or whether their philosophy is, "Better a bad excuse than none at all."
What has been so extraordinary about debates on this Bill so far is the emptiness and silence of the Benches opposite. Your Lordships' House has been enriched in the last few years by the ennoblement of a number of persons of very considerable business, industrial and City experience. Indeed, some of them, when they have come here on a rare occasion, particularly the Opening of Parliament, have come in the Rolls-Royce we heard about over the weekend, which I must say are absent from noble Lords on this side of the House. But where are they? When the Front Bench cannot give intelligible explanations and rely simply on reading out briefs, which are not very well constructed to start with, all right, that is their bad luck; but one would have thought that at least their own supporters with knowledge and experience of industry and the City would come to their rescue and explain what they are up to. The fact is that they have been deserted by their own side, and it can only be that the good and intelligent and wise and experienced men who exist in the Party opposite do not really have much faith in; he policy behind this Bill in general and behind this set of clauses in particular. The Government may be getting rather tired of hearing about fairmindedness. When I was at school we were always told about "house spirit" until I could have screamed. Of course "house spirit" meant that we all did what the housemaster wanted. It may well be that noble Lords opposite will say that when the rest of the House talks about fairmindedness, it means fair in our view and not in theirs. But the fact is that this issue of fairness is critical in the eyes of the world. It has been said half a dozen times tonight, but it is worth saying another twenty times, if only noble Lords would take it on board in their heart of hearts, that we are not asking them to declare a great charismatic conversion tonight but we are asking that they will look at the problem of fairmindedness in the light of this country's reputation, in the light of today's news about sterling, in the light of the lack of investment and lack of foreign confidence in this country, and by Report stage come back and at any rate, as the phrase is, be a little more flexible. This word "fairness" is really, in the jargon of Statutes and of Bills brought before Parliament, a fairly new concept." Fairness cannot be defined; fairness is something we know about, something we recognise and understand, but it is jolly hard to define it. It is a fairly new concept, but it is creeping into other aspects of our public life. For example, only a fortnight ago—the text reached me today—the Department of Energy sent round a letter to companies applying for licences in the fifth round of licensing; they were invited to say whether they would enter into discussions about the participation of the British National Oil Company on the basis not of the market price for crude oil but a fair price. Hitherto it has been the market price. This is a matter I shall refer to on another occasion. The point is that the concept of "fairness" is being used by the Government to introduce quite a new slant where there is a negotiation between the Government on the one side and "little brother" on the other. So this question of the way the Government treat fairness is a touchstone, and is going to he seen abroad as a touch-stone, of the Government's good faith. The words of Mr. Kaufman in the Standing Committee have been quoted, but they need to be quoted over and over again, because unless noble Lords opposite understand the inwardness, as we say in Scotland, the real meaning of what Mr. Kaufman said, they will never grasp what we are getting at. What Mr. Kaufman said was this:If that is not the classic Communist case of, as you might say, double-think and double-speak with regard to expropriation, then it is very difficult to imagine what is. This phrase is going to be stuck in the Government's mouth for a long time to come. May I say in parenthesis, talking about fairness, that we on these Benches, and I believe throughout the House, have no fear whatsoever of the sort of blackmail nonsense that has been spoken over the weekend in certain speeches by Members of another place. Where it comes to fairness and we are seen to be standing for fairness the public will be behind us. It might be well worth while noble Lords opposite understanding that, instead of allowing some of their friends down the corridor to rant about Rolls-Royces and a lot of other things that are quite irrelevant. The concept of fairness is critical to this country's good name in the world, and this is the point that is at issue on this clause. It may well be said that I am only repeating what has been said already, but I have explained why it is worth while repeating these things. There are the distortions, of which the worst is the wholly hypothetical nature of the calculation; it is one hypothesis built upon another. There is a notional value which can be twisted and turned to mean absolutely anything; it certainly cannot be checked objectively. There is the question of the Stock Exchange quotation—what it would have been. How on earth can serious people, be they lawyers or economists, say what would have been in a hypothetical situation, one hypothesis on top of another? Then there is the assessment, which is either what the stockholders can negotiate with "Big Brother" in an atmosphere of so-called fairness, negotiate under the threat of the bullet, negotiate when some people are more equal than others, or it is what the arbitration tribunal may fix; and in view of the Government's philosophy about fairness as we have had it hitherto, who is going to have much confidence in a tribunal? Then much has been said, and it is worth while repeating, about this nonsense of the Stock Exchange quote. An example was given so well and so convincingly and so plausibly, and I thought so simply, by the noble Lord, Lord Selsdon, who, alas, cannot be with us today. I think he is in America, or Geneva, or abroad somewhere. He said it is like trying to measure the value of Boot's by the value of the high street chemist. Stock Exchange prices, anyway, do not refer to assets; they refer to the market for a small block of shares on any particular day. One knows that, and it is worth saying again, because noble Lords do not seem to be able to understand quite simple matters in this regard. They say they are taking control. All right, taking control normally means paying between 25 per cent. and 50 per cent. above the market level of the shares at the present time. Let us take a very good example. There has been an uproar over the weekend because this House threw out the Felixstowe Docks Bill on Friday. Under that Bill we were invited to approve a situation in which British Transport Docks Board has been offering 150p per share for shares that stood at 90p when the offer was made. This is an offer that the Government approved. If they accept the principle that when you buy control you have to offer very much more than the market price, surely they could recognise it now. The fact is that the Government consider that it is fair to confiscate the control value of a company, and we shall listen with interest to what they have to say now. But I am reminded of the adage of one politician—and I think he was in fact from the Party opposite but he might well have come from my side—when he said something very shrewd on political argument. He said,"We are not taking over these companies on the basis on which a willing buyer would get them from a willing seller. The Government are not going out on the market to buy control. We are taking control by Act of Parliament. While doing so we are offering fair compensation for the assets".
"The more one seeks to speak the truth, the more difficult it becomes to he precise".
8.42 p.m.
Before I reply to this somewhat diffuse discussion on clause stand part, may I, through the noble Lord, Lord Cullen, thank the noble Lord, Lord Selsdon, for his courteous note in which he told me that he was not going to be present here tonight. As I understand it, the noble Lord, Lord Cullen, has a watching brief on this subject, and I am certain that he will exercise his watching brief with precision. So far as I understand it the noble Lord, Lord Cullen, raised the question of the meaning of the word "person", which I believe under the Interpretation Act 1889 includes a body corporate as well as an individual; that is, a body corporate which is a parent company as well as an individual. This should not stand as a hazard in our discussions.
On Wednesday night noble Lords opposite passed Amendment No. 156 moved by the noble Lord, Lord Selsdon, which introduced in statutory form the word, "fair" into the Bill. We believe that this Amendment would have dealt with the problems raised by noble Lords on all sides of the Committee. However, we on this side of the Committee resisted the Amendment on the basic, that the terms in the Bill as present to the House were fair. I shall, therefore, make my remarks at this point on the basis of the Government's view of what is fair. May I say to the noble Earl, Lord Ferrers, that I think he was fair when le pointed out to the Committee that fairness is a two-way state: the Government have to be fair to the individual or to the company, and the Government at the same time have to be fair to the taxpayer, because at the end of the day it is the taxpayers' money that is being shifted to compensate the individual or the company. The noble Lord, Lord Robbins, took perhaps a realistic but at the same time rather hard view that none of the Parties, no Government, is ever truly fair; that fairness is a word that they find very difficult to understand. It is not quite true because I think we all try to be fair, but what exactly we mean by fairness is not the easiest thing to define. Noble Lords opposite have put "fair'' into the Bill, and we shall perhaps in clue course know what the statutory in: aping of "fair" is. The best we could do as a Government was to take a measure that was not hypothetical but factual, and which was the average of a series of share values over a six-monthly period. I am willing to accept that that method of measurement is imperfect. In point of fact anything that we did was bound to be imperfect. But I suggest that certain aspects of the fairness or unfairness of this decision might be discussed at a later stage in our discussions with greater precision. On this Motion on clause stand part noble Lords seen-to have fired at me with a blunderbuss, some bits going back and some going forward, and we are going to have an opportunity as we go on with our discussions to discuss the base value of listed securities, the base value of other securities, the function of the stockholders' representatives, and of course the arbitration tribunal. I should have thought that there were particular clauses in the Bill where certain of the points raised in this discussion might more profitably have been raised. After all, we are coming to them, and I hope noble Lords will be prepared to argue with us with greater precision these specific points which have been raised rather loosely at this stage of our discussions on Part II.
I hope that the noble Lord will acquit us of any endeavours to hold up proceedings. This section of the Bill is headed "Compensation", and it seemed to a number of us that by far the simplest way of despatching the business and, for that matter, helping the Government to get on with the Bill, was by making these general comments on the clause stand part. I speak for myself, but I think that was the idea. I hope we are not going to have a long clause stand part on each clause, otherwise we are going to get very thirsty indeed.
I think that the noble Earl mentioned the "Lenten look" on this Bench. May I say that so far as I am concerned it must be very early in Lent because I have not yet got a lean and hungry look. But I hope that the noble Earl will in fact practise asceticism at the later stages of our discussion, and having had a full meal now will in fact fast thereafter.
May I go back to the point that I was making. The most factual way that we could find of valuing shares as a starting point of negotiations was the Stock Exchange valuation of those shares, or the shares of parent companies, at a series of dates prior to the Government's announcement to nationalise these two groups of companies. Might I say to the noble Lord, Lord Robbins, that the reference period which ended in February 1974 was chosen as the last reasonable period during which share prices were unaffected by the prospect of nationalisation. To have chosen a later period would have opened the Government to the charge that they were rigging the terms of their offer. The problem we are discussing I think divides both sides of the Committee, but we believe that we chose the only factual and fair way of valuing the shares for the purposes of compensation.Can the noble Lord say how it is factual?
Stock Exchange prices, so far as I know, are a fact. When I buy a share or sell a share the price is a fact, and that is the best and nearest I can get to a factual state.
The noble Lord will observe, of course, that the majority of the companies do not have Stock Exchange prices.
This is a very interesting point. I am not dodging it. I cannot dodge it because it is coming towards me. We should be able to deal with this with precision, even brutality, when we come to Clause 38. I see that the noble Earl, Lord Lauderdale, is about to leave the Chamber. Presumably he has lost his appetite for these proceedings, though it is of course for him to decide to have a meal whenever he likes.
I enjoy listening to the noble Lord, Lord Winterbottom, but I thought he had left the points that interested me and that I might have a thin Lenten supper.
After that pleasant exchange perhaps I might answer the noble Earl, Lord Dudley, who will of course correct me if I failed to grasp exactly what he said. He asked what, at the end of a transaction, when Government stock had been exchanged for shares and so on, the individual company was to do with its Government stock. He argued that it was essential that the money—not the money of course; the Government stock—that had been issued for this purpose should in due course find its way into productive investment for industry. This point is of great importance which is recognised by the Government, and I am grateful to him for bringing it to the notice of the House.
In cases where the compensation stock is issued to a single shareholder, which is the holding company concerned, that company may wish to realise its stock in order to restructure its company, and I am certain that will happen; it has happened in the past and I feel sure that it will happen now. The Government are anxious to encourage reinvestment in productive industry and they have therefore provided an incentive in the Finance Act 1976—I believe in Section 54—by which a company owning the shares of a vesting subsidiary which sells its compensation stock within one year of receiving it is exempt from any capital gains tax on the stock, provided that it reinvests the proceeds in what the Inland Revenue calls qualifying assets; for land, building, fixed plant and so on. This amounts to reinvestment in productive industry, whether or not it takes place inside or outside the aircraft or ship-building industries, which is what the noble Earl wants and what the Government also want.I hope the Minister can relieve my extreme puzzlement. I gather that in the course of a friendly exchange of view concerning the issue of Government stock, the noble Lord, Lord Melchett, argued with great force and a considerable degree of voracity that this issue was simply a transfer and did nothing necessarily to augment the flow of aggregate expenditure.
That was the situation at the moment of the transaction, but time passes and various other factors come into effect and this is one of them. I do not believe that some of these great companies which receive a substantial holding of Government stock as compensation will just sit there and hold it; they will do something with it, but this is not on the day of the transfer, of the transaction.
Am I to understand, then, that the noble Lord thinks that eventually the issue of this stock will augment the flow of aggregate expenditure? This has deep implications as regards macro-economics.
I shrink from arguing with the noble Lord, whose expertise is far greater than mine, but I think he will agree that nothing in life is static. There may be an exchange of equal value between the Government and the individual on vesting day, but that does not mean to say that that freezes the situation for ever. I would hope that the situation today is not one that is frozen for ever.
I am grateful to the Minister for answering my point. However, nothing he has said so far invalidates my proposition that provided the stock is sold and the funds reinvested, a generous rate of compensation would be in the national interest.
Arising out of what the noble Lord, Lord Winterbottom, has been saying and the fact that he visualises these companies selling their Government stock, may I ask him to agree, that the only people who will buy it are the very people who would otherwise buy Government stock direct from the Government? As the Government have at present enlisted every buyer they can to raise the wind, they are mortgaging their own future in this way. I am not sure that he was correct in his remarks about capital gains tax; I always understood there was no capital gains tax on Government stock, anyway.
That is going a little beyond what we are discussing. At any rate, what I am discussing is Clause 35 standing part of the Bill. Much of what has bun said is valuable, but it is not quite what we set out to discuss at this stage of the evening.
It is the Minister who has inadvertently or other-wise strayed into another important field. Unless the Government tell Parliament and the country that there will be some time bar on the recipients of this stock in selling it, liquidating t, he does not begin to answer the point nude by the noble Lord, Lord Robbins; namely, the effect on the aggregate purchasing power released into the economy. Unless he says that the Government will put some time bar on the sale of this stock, he is admitting what we all—we on these Benches and the Liberal arid Cross-Benches as well as people o outside the Committee—have been saying from the beginning; namely, that this act of nationalisation adds significant, to the Government financial demand and the Government financial deficit.
8.57 p.m.
What the noble Lord has said is extremely interesting but there must be a point, which probably we have passed, when such points should be discussed. I think it is valid on Second Reading to discuss the whole impact of these proposals on the money stock, but what I am trying to do, and what I thought it only courteous to do, is to pick up the point made by the noble Earl and express the Government's view on the problem he raised. I cannot do more than that and noble Lords would not wish me to do more than I can do. I shall, therefore, stick firmly to the provisions of Clause 35 and not wander into the charming areas of macro-economics and Stock Exchange valuations and so on which have been dragged across my path. The points raised by the noble Earl, Lord Ferrers, will have to be raised again on later Amendments and I am sure he will keep up his strength to deal with those issues properly at a later stage of our night's discussion.
I come firmly back to Clause 35, which deals with two points only; it prescribes that compensation will be in the form of Government stock and that the amount of Government stock to be issued will equal the value of compensation and it provides that where a company is saved from collapse by Government financial assistance, a reduced amount of compensation will be paid. This is a splendid hook on which to hang much of our discussion, but I am sure that the Committee will excuse me if I do not go into the question of the saving of a company from collapse by Government financial assistance because we have had a good discussion of that already. I want simply to come back to the point that Clause 35 prescribes that compensation will be in the form of Government stock and that the amount of Government stock to be issued will equal the value of compensation. This will provide former shareholders with a steady income and with the opportunity of gaining whatever capital appreciation there may be on the gilt edge market. The stock can be traded in in exactly the same way as equity shares. The clause provides that the amount of compensation due will be the base value of the vesting securities and we go to Clauses 37 and 38 to decide what is appropriate in the case of base values. Clause 35—the clause that we have been discussing—does not bear on the valuation of securities themselves. I know that noble Lords will sharpen their intellect to deal with the method of valuation on later clauses. It is on this very simple premise that I ask the House to accept the clause.9.1 p.m.
While I had a little sympathy with the noble Lord, Lord Winterbottom, when he felt that he was being fired at with a blunderbuss, I did not expect him to fire back with such accuracy at his own Minister. It seems to me that the shot from the blunderbuss has not done the noble Lord much damage but his own Minister's case on the effect of the compensation in the Bill has been utterly destroyed by the unerringness of his rifle shot. It is now clear that what the Government have been trying to tell the House and people outside about the financial effect of going ahead with nationalisation has been totally misleading. I feel that the importance of what he has said has perhaps not yet fully dawned upon him, but I am sure that it will almost certainly dawn upon some of his colleagues when they have had time to reflect.
I may not properly have understood what the noble Lord said about capital gains tax and, if I have misunderstood him, I have no doubt that he will forgive me and I can correct my error at some future date. I was under the impression that the Finance Act 1976 said that any compensation that might be reinvested in stocks and shares by the recipient would certainly be subject to capital gains tax. I may have misunderstood the point that the noble Lord was trying to make when he referred to certain conditions of freedom from capital gains tax, but I think that I am right about that and I do not believe that it applied to the compensation from steel nationalisation. There again, however, I may be misinformed and perhaps, if the noble Lord cannot answer me straight away, he will look at this and let me know because, if I am right in the two propositions that I have put forward, that only serves to underline what we were all saying from many sides of the House and from outside the House that, as at present proposed, the compensation formulae are not fair if we use precedents set in other nationalisation Statutes as a standard of fairness. They are not fair by past precedents, let alone by any more abstract or technical yardsticks that we might define. As to the blunderbuss over which I said I had some sympathy with the noble Lord, I believe that there was a need for a general debate on the whole question of compensation and it did seem to a number of us that the debate on the Question, Whether the clause shall stand part of the Bill? provided the best opportunity. I hope—I cannot do more than that— when we come to the bits that are still ahead of us we may be speaking near enough in time to remember that we have used the same arguments already. However, I can only express that hope. I shall try to do my best to set an example in that respect, but I believe that it was for everybody's convenience to have a general debate at this stage. Before I come, in summing up the debate, to the more general principles, may I first refer back, not in detail but very briefly, to the technical Amendments which preceded this debate? I want to ask the noble Lord, Lord Winterbottom, and his colleagues, to look very carefully at some of the arguments that we were using, because I do not believe that they were partisan in any political way. believe that they have substance. Of course they are to some extent hypothetical, but so is so much of what we are talking about. I would just say to the noble Lord, Lord Melchett, that, while I accept that it may be true that, if we have an arbitration tribunal with much wider powers, which is certainly what we want—and we shall be coming back to a further Amendment on that later in our deliberations tonight—it will not matter so much if some of the other clauses and sub-sections are not as fair as they should be because there will be this fall-back machinery to cope with any unfairness that arises, I hope that noble Lords opposite will agree that we ought to try to get the clauses as good as we can because we do not want to have to resort to the arbitration tribunal on almost every single case. We really ought to try to see that the tribunal is a genuine fall-back machinery which is used more as an exception than as a general rule. For that reason alone, I feel that it is important to try to get the other clauses as technically correct and fair as possible, and I repeat that I really do not think that the arguments that have been put forward on a number of detailed Amendments to this clause are in any way partisan and, even if one accepts—which we do not—this basis of compensation, within that acceptance, I really believe that many of these present clauses are rather like a dog's breakfast and really need tidying up in order to avoid undue resort to arbitration, which is what would happen if they go through in their present form. So I hope that before the next stage the Government will lock at some of these technical points with an open mind, even if they feel unable to look at the overall issue with such an open mind. Coming on to that overall issue, it struck me that one of our troubles not only on these Conservative Benches but on all sides of the Committee is that the Government are really not Seeing this problem through the same eyes as we are. It seems to me that they start from a belief that what we are trying to do is necessarily to get more money—more taxpayers' money—to compensate the present owners of these businesses. Of course we want to get a fair amount of taxpayers' money, but as we have said—and I am glad to notice that the noble Lord, Lord Winterbottom, picked up this point, because my noble friend Lord Ferrers said it again this evening—we must be fair to the taxpayer as well as to the present owners of hip business. I have a feeling, however, that noble Lords opposite suspect that every Amendment that comes forward is a device inevitably to raise the total amount of money we want to extract from the taxpayer. I was encouraged to fear that by some words used by the noble Lord, Lord Melchett, in our debates on this subject last Wednesday night, when lie said at one stage—and I made a note of the words he used—that the compensation was fair or even generous. With respect, we are not talking about being generous. That has nothing to do with the Amendments we are moving. The Amendments are entirely to do with fairness, and fairness means fairness—fairness, let me repeat, as between the taxpayer and the recipients of the compensation; but fair-ness also—and this is extremely important—in the allocation of the total sum between the different claimants is on it. As has been pointed out both last time we debated this matter and again today, if we do not get fairness in the distribution, we shall get a misallocation of capital and therefore inefficiency both within the Corporation and within the holding companies being compensated for the loss of some of their subsidiaries. First of all, therefore, I ask the noble Lord and his colleagues to realise that the arguments about unfairness are indeed strong. They are not Party arguments in a politically partisan sense. They do not come only from these Benches. Indeed, they do not come only from other Benches in this House; they come also from outside. As I said last week, some of the earliest and certainly some of the strongest representations about the unfairness of these proposals we have in the Bill at the moment came from those most concerned with the protection of small savings and present and future pensions of many hundreds of thousands of our fellow citizens. That is where one of the earliest and strongest protests came from, and it was not in any way politically inspired or motivated. As the noble Lord will know, that protest was made not only in the first place to the Minister but also later on personally to the Prime Minister. I hope therefore that the Government will, even though we are at a late stage of the Bill, take very seriously these arguments about fairness, realising they are not just politically partisan and realising that changing their minds about the principles of compensation does not in any way compromise their stand for the principle of nationalisation. Of course I accept, however reluctantly, that to go ahead with nationalisation is a principle on which we cannot expect the Government to compromise. I believe that it is against the national interest, that they are wrong and will be proved wrong, but I accept that politically they cannot compromise on that point. However, I beg them to confine their incapacity to compromise to the genuine political issue of nationalisation and not to extend it to other areas of the Bill, notably the area about which we arc talking at the moment, the area of compensation, where the arguments being put forward are not politically partisan, did not start in that way, have not been continued in that way, as I believe was made very clear by the noble Lord, Lord Robbins, in his speech tonight when he specifically prefaced what he was saying by emphasising that he was not in any way referring to the merits of the main question as to whether these industries should or should not be nationalised. I beg the Government to look again at their proposed basis of compensation. I beg them to look at it again from two points of view; first from the point of view of the reference dates. I do not believe, whatever basis is chosen, that the reference date contained in this Bill is fair. I noted what the noble Lord said about the particular six months in question having been chosen as the last period when it could be said that the share prices were not in any way affected by the blight of nationalisation. I accept that and I accept the good faith behind the choice of those dates. There are two qualifications which one must make to that. First of all, I believe that when those dates were chosen it was anticipated by the Government, and indeed firmly intended by them, that this nationalisation process should go through much sooner: and the fact that it has not is not due to the time that Parliament has taken in debating it; it is due to the Government's own time-table. So I believe that when, in good faith, Ministers chose this particular period of six months they were honestly believing that the time between that period of six months and the enactment of this Bill would be much shorter than it has in fact proved to be. Because I do not need to remind the noble Lord that the Bill was not proceeded with at the moment in the Government's programme which was originally intended, but was in fact postponed by a good many months. I therefore think that we are now dealing with a much longer gap between the time when the compensation will be paid and the dates laid down in the Bill on which the share prices are to be taken than was ever thought likely by the Government when they laid down those dates. I also think it is not fair for the related reason that I put forward in a debate on an earlier Amendment, as did other noble Lords, and which, indeed, the noble Lord, Lord Robbins, put forward in his speech in this particular debate; namely, that by sticking to this three-year-old period, as it will virtually be, or certainly two-and-a-half-year period, at the end of which this compensation might begin to be calculated, we are taking no account of the behaviour of individual companies in that period. A laggard company, provided it has managed to keep itself out of bankruptcy when certain things that we have been talking about earlier this afternoon happened, and which does no more than just keep itself out of bankruptcy, will do as well as the company which, in not just its own interests but in the interests of employment and of the overall state of the national economy, has done everything that any company could to be vigorous and expanding over these last two and a half years. It seems to me a pretty poor reward to have your compensation irretrievably fixed by some artificial yardstick dating back to the last few months of 1973 and the first two months of 1974, with no regard being paid to how you have behaved in the meantime. As I have said, a lazy company which has sat back and done nothing except keep itself out of the bankruptcy court will not lose anything by its action, whereas another company which has forged ahead as if nothing was going to happen to it, completely undeterred by the fact that it was going to be taken over, will gain nothing by what I think one can describe as patriotic behaviour in that period. That seems to me to be a bad principle. So I believe that the reference date is unfair for the two reasons I have given, quite apart from others which might well be adduced as well. This brings me on to the second reason for the unfairness, and that is the basic method or reference standard which has been chosen by the Government; namely, of share prices. Of course I accept that share prices have been used as a basis for compensation in other nationalisation Statutes, and I accept that in certain circumstances they may provide a reasonably fair basis. Where the shares of a whole company are held by lots of people, then I accept that those recipients of the compensation are probably treated fairly because they are probably given an amount of money with which they can make an equally advantageous investment on the stock market. So when one is buying out a company which is held widely by a large number of shareholders, it may be that using the stock market price as the basis for compensation does produce a reasonably fair result, at least for the individual shareholders involved. But where the Government go wrong is in not realising that a totally different situation arises where one is dealing with wholly-owned subsidiaries, or almost wholly-owned subsidiaries, which is the the case in the majority of the companies affected by this Bill. There, the position is entirely different, because the value to the holding companies is no longer to be measured in terms of the share market price: it is in fact, and can only in fact be, fairly measured in terms of as; et values. Perhaps I may ask the noble Lord to confirm a proposition which I am just going to put to him. I understand that the ICFC—that is to say, the Industrial and Commercial Finance Corporation; anyhow, we all know the ICFC—which was, after all, set up under Government auspices a good many years ago now, is specifically prevented from selling any subsidiaries except on an asset basis. The ICFC when selling a subsidiary can only deal by selling on an asset valuation basis and is specifically prohibited from doing so on a share price basis. If my information is correct, I suggest that that is an argument which the Government ought to look at. If it is not correct, then that particular argument falls to the ground; but I believe it to be correct. I think that the Government must address themselves to it. It is evidence that I think the Government have accepted that when you come to sell a complete company as opposed to shares to a lot of individual shareholders, you can only do ii fairly on an asset basis. If it is needed to emphasise this—and I am only going through it briefly—it is also brought home that talking about making the share price a basis of compensation for 43 companies and then having to admit that 42 of them do not have a share price at all proves, at least by reductio ad absurdum, the proposition that we are trying to make: that this is not the right way to proceed. If all these companies, or a majority of them, had share prices, then the Government might have, not, I think, a convincing argument but a stronger argument on which to base themselves. The arguments against it in principle, coupled by the absurdity of picking a yardstick which does not apply and cannot apply to 42 out of the 43 companies which are to be nationalised, are so absurd as to be untenable. I am sure that noble Lords opposite ought to take seriously what has just been said by my noble friend Lord Wardington, who speaks on the subject with specific knowledge and experience, that the problem of determining what is a notional share price is a very substantial one—indeed, so substantial as to be almost certainly incapable of achievement with any sense of certainty or fairness as between one company and another. The trouble we are in is that the Government have embarked on this principle in the belief that the market for shares is the stock market where prices are fixed on an open market between willing buyers and willing sellers and that, therefore, the stock market prices must be fair; but they have never really faced up to the other part of the argument which I have been putting, which is that the Stock Exchange is the market for small blocks of shares owned by large numbers of people but it is not, and never has been, a market for the sale of whole businesses with a single owner. The market for whole businesses is conducted quite separately, and mainly by merchant hankers in the City. This market may be less well known and less understood by the public at large than the Stock Exchange, and, of course, it impinges on the Stock Exchange; but the terms of trading in this merchant bank market are quite different. Many noble Lords in the course of this and earlier debates have pointed this out. I am not going into the detail of it all again except to tell the Committee that I have been looking at the record of 19 recent company purchases. It is interesting to find, taking the whole of the 19 purchases, that the price actually paid by the purchasers was on average 48 per cent. higher than the share price at the date immediately preceding the initial bid—which again is proof, in 19 recent cases, of a very big difference between the share market price and the price you have to pay for the control and acquisition of the whole of a company. I do not believe that the Government can shirk that or shrug off that argument. I am not going to give the figures for each of the 19 companies, but let me say that the lowest surplus of the price that had to be paid over the share market price immediately before the bid was made was 21 per cent. and the highest was 124 per cent. In no case was the purchase price as low, or anything like as low, as the share price of the company immediately before the bid was made. The Government must look at this aspect. They must realise that if Hawker Siddeley, to take one of the two examples in the aerospace industry, were able, given the opportunity, to sell their shares in their wholly owned subsidiaries involved in this Bill through the merchant bankers' market and not through the Stock Exchange, they would get a wholly different and much higher value. The same applies to most of the other companies, but not all the other companies, involved. Indeed, some of them, I fear, would get a much lower value then they are going to get out of this formula. That brings me back to the other vital aspect of unfairness: not only the total must be fair, the allocation between the different claimants must be fair. The Government have misunderstood this distinction and so perhaps unintentionally may have arrived at the wrong result. The distinction between the two markets that I have been talking about is like the distinction between selling one-tenth of a Rembrandt in Petticoat Lane and taking the whole of the picture and selling it at Sothebys, and the Government are trying to sell it bit by hit in Petticoat Lane, and that is not fair.I wonder whether the noble Lord, Lord Winterbottom, would be kind enough to answer one question. When in Committee the other day, a noble Lord asked whether the Government Accountancy Service was consulted. The noble Lord, Lord Melchett, said that no doubt that was something which could properly be raised on the question that the clauses stand part. I said that perhaps the noble Lord would he good enough to seize himself of the information so that we would he able to get an answer. I am sure this is a matter of inadvertency.
I apologise to the noble Earl. I did not forget this undertaking. Government accountants have been closely involved at all stages during the formulation of the compensation provisions of this Bill.
Clause 35, as amended, agreed to.
9.27 p.m.
moved Amendment No. 164:
After Clause 35, insert the following new clause:—
Compensation for severance
.—(1) This section applies to a person who—
(2) A person to whom this section applies shall be entitled to receive a payment (to be determined in like manner to the compensation payable to him) equal to the loss or damage or expenses referred to in subsection (1) above.
(3) Where the relevant company forms part of a larger undertaking, the payment referred to in subsection (2) above shall include a sum equivalent to the reasonable cost of re-arranging the affairs of that undertaking and a sum calculated by reference to any increase in the proportion of the overhead expenses of the undertaking to the volume of the business over which those expenses are spread, so far as that increase is due to the vesting of those securities and is not reasonably capable of being avoided or diminished.
The noble Lord said: As we know only too well, Clause 35 contains the provisions for paying compensation for the securities which are to vest in these Corporations. Most of the privately owned companies named in Schedules 1 and 2, as we have noted over and over again, are members of groups rather than independent companies in their own right. Their parent companies stand to lose more by the nationalisation of these subsidiaries than just the value of their securities as investments. This new clause is intended to enable these additional losses to be made good. This is a principle for which there is a good precedent in other nationalisation Statutes.
When a subsidiary is severed from a group of companies by nationalisation or, indeed, for any other reason, it will obviously cease to pay its share of the central costs of the group to which it has belonged. These costs include such items as expenses of management, administration, technological advisory services, industrial relations services, counting, salaries, printing, pensions and insurance; and so one could go on. When I company is severed, is torn out of the group, a heavier burden than beforehand falls upon the companies that remain in that group, moreover, the past profits of the nationalised subsidiary, which will be a relevant factor in the assessment of share values under Clause 38, will have been reduced by payments made towards the central costs. Thus a parent company may first see its compensation diminished by the subsidiary's past contributions to its central costs, while getting no compensation for the lack of those contributions in the future. So the reduced or altered scale of the group's operations may even make some head office staff redundant, which will reduce the remainder of the group's costs in the long run. But the compensation for loss of employment will be considerable in the short run and it will he for the employees of nationalised companies only.
Investigations within the industries cocerned have brought to light a number of other instances of potential losses arising from severance. While I want to be as brief as I can in moving this Amendment, I. feel I must give your Lordships some examples of the costs that the companies involved may have in mind. There is the cost of physically dividing premises which may arise, or the cost of providing alternative accommodation when one subsidiary has been hived off but some of the activities on those premises have not been, and therefore it is necessary to find a new home for them. There are the additional costs arising from changes in insurance arrangements organised on a group basis. There can be higher funding rates, pension and life insurance funds for staff and manual workers for permanent disability, death and other insurance schemes. There can be additional costs arising concerning additional centralised computer services, no longer available to the parent company and the remaining subsidiaries. There can be costs which will be borne by the parent company in connection with undertakings in respect of overseas secondments concerning continuity of United Kingdom employment which are not honoured.
There are cases where employees have gone abroad and have been promised a job when they return home, and the promises cannot be honoured because the company in which they were to be given a job is no longer part of the group. There are arrangements for goods and services supplied on a group basis which will be adversely affected by the reduced volume of those requirements following nationalisation. There is the cost of obtaining alternative security for a loan secured until vesting date by securities which will vest in one of the Corporations. One could go on to give numbers of examples, but I hope I have given enough to persuade your Lordships that there are many additional costs which a group can bear as a result of having had one or more companies within the group removed from it, and that these are not covered by compensation in the ordinary sense, whether or not we think the present proposed basis is fair.
I said that the Amendment we are seeking to effect through this new clause has good precedents, and indeed it has because the need to compensate for the kinds of losses I have been describing has been recognised in the past, notably in Section 17 of the Coal Industry Nationalisation Act and also in Clause 39 of the Ports Bill. It is true—and the noble Lord may well point it out—that no such provision was included in the Iron and Steel Act 1967; but I think when one thinks about that Act one should realise that the iron and steel companies then being nationalised were for the most part themselves quoted on the Stock Exchange, so that whole groups were taken into public ownership in their entirety. That is entirely in contra-distinction to what is happening under this nationalisation Bill.
So I really believe that something needs to be done on the precedent of those earlier nationalisation Statutes that I have quoted and that it is really not relevant to refer merely to the Iron and Steel Act 1967, which is not comparable, for the reasons I have just mentioned. I think I have made the main case which I need to make in moving this clause. It has, of course, already been put forward in another place.
I gather that one of the arguments put up by the Government against it was the precedent of the Iron and Steel Act, to which I have referred, and which I have explained should not apply. I think it may also have been said that, anyhow, the totality of the kind of costs I have mentioned is not very great, and therefore could perhaps be disregarded on de minimis grounds. I can only say that that is genuinely not the belief of the industries concerned, which believe that the Government have seriously underestimated the scale of the losses I have been describing when subsidiaries are severed from groups, as opposed to whole groups being taken over, and I cannot see why there should be this injustice of not offering compensation for these. So I hope that this Amendment will be seriously and sympathetically considered by the Government. I think it is important, and the precedents for it in previous nationalisation Statutes which I have quoted are very much stronger and more relevant than the one precedent against it.
Finally, it is perhaps right that I should mention that this new clause was tabled at Report stage in another place, but could not be debated because of the guillotine. That is why we are rectifying the omission here, and why it has not had previous discussion, and why we might have to have a fairly full discussion here tonight. I beg to move.
9.37 p.m.
As the noble Lord made clear, a similar Amendment was proposed in the Committee stage in another place, and after some discussion was rejected. Since that time, the Government have considered this whole question very seriously, in particular since the Amendment was tabled at Report stage in another place and again in your Lord-ships' House. I regret to say that after very full consideration I cannot tell the noble Lord that the Government have changed their minds since the Committee stage in another place. We still believe that there is no case for making additional payments of compensation for severance in the case of companies to be vested under the Bill.
The effects of severance are difficult to quantify, and in considering the question we have to look at the total effects of vesting certain companies from a group in the new Corporations. We believe that the Bill provides a fair method of compensation for the securities of the vesting companies. In the case of a subsidiary of a larger group being vested, valuation will be based on the company's imputed Stock Exchange quotation during the reference period which we have discussed at some length. To the extent that the profits or losses of such a company have been distorted by its position as a subsidiary, and, in consequence, arrangements with its holding company and fellow subsidiaries, the fact of its subsidiary status will be a relevant factor which will have to be taken into account for the purpose of removing any such distortion in order to arrive at a proper valuation. The compensation will be payable to the parent as shareholder. There is a series of options open to the parent as to how it will use its compensation. It may decide to distribute it to its own share-holders; it may use it to expand its existing activities which are not affected by the Bill, or it may diversify into completely new activities. Either of these last two courses allows the parent to re-establish itself at the same level of activity as existed before its subsidiaries were vested. The disruption caused will therefore be significantly reduced if the parent decided on that course. The noble Lord, Lord Carr, referred to the precedents for the clause which he has moved and, naturally, I take those very seriously. In particular, the noble Lord referred to the severance provisions contained in both the Coal Industry Nationalisation Act and the Ports Bill, which was lost at the 1970 General Election. I think that those were the two precedents which he had in mind. I must tell him that I would not accept that the Iron and Steel Act 1967 is not analogous to the present Bill. In fact, I would say that it is more so than the two precedents to which the noble Lord has referred. Under the coal Act, compensation was quite differently based. As we have already heard from the noble Baroness, Lady Ward of North Tyneside, this evening, the compensation was asset based; it was not based on share values. Also, compensation took some eight years to be completed. Under the Ports Bill severance payments were provided for only in relation to the vesting of ports businesses—in other words, stevedoring, warehousing, et cetera, often carried out on property leased from harbour undertakings. The Bill provided for the later acquisition of ports businesses and compensation was to be assessed in a different manner from that for the harbour undertakings acquired at the start. Ports businesses could in many cases be an integral part of a much larger operation. Without the ports business, the remainder of the under-taking could have found itself it a position where its operations were severely curtailed. It was for this reason, where the remaining productive business might have suffered, that provision for severance payments was included in that Bill. This Bill is designed to ensure that the companies named in the Bill vest with the minimum disruption to the parent companies and fellow subsidiaries which remain in private ownership. I believe this was a point that the noble Lord, Lord Orr-Ewing, and I discussed at an earlier stage. We would all hope to see the compensation paid within a great deal shorter period than the eight years that it took under the Coal Industry Nationalisation Act. As has been said before and as I have to tell noble Lords I shall be saying again (with the noble Earl, Lord Lauderdale, I think that it bears repetition, even if it does not convince anybody) we believe that the existing provisions are fair. In particular, we believe that they are fair in relation to the concept to which the Amendment moved by the noble Lord, Lord Carr of Hadley, refers.I feel very sorry for the noble Lord, Lord Melchett, because he always seems to be put up when there is absolutely no budge to come, whereas the noble Lord, Lord Winterbottom, is allowed to make a more sympathetic speech and say that the Government will look at the matter again. Perhaps at a later stage the noble Lords could reverse roles so that we could get the carrot from the noble Lord, Lord Melchett, and the stick from the noble Lord, Lord Winterbottom. It would make a change.
I concede that there is a need for speed, but there is also a need for fairness, and we disagree about this. In another place a colleague of mine for some 20 years described the compensation terms as ridiculous. He is a very sensible person who is close to areas which arc involved with the shipbuilding industry. I think that this was a wise assessment. I make the point that the compensation must be fair if, as my noble friend put it earlier, you have a head office in your group. I speak now of an interest that I have declared six times so far in our discussions. Very often the head office is responsible for the computer services which have been mentioned and for advisory services, such as metallurgy, or physics, and for the more general services which it can provide on tap to its subsidiaries which need expert assistance. Very often the head office is responsible also for the research and development in a group, particularly long-term speculative research which cannot be decentralised to small companies consisting of 300 or 400 people. Such research is probably best done across certain parts of the spectrum of any group in centralised laboratories which can provide the service. Therefore it is rather naive of the noble Lord to say that you can decimate a group—that you can cut off the vital arms and legs of the group but that there need not be any compensation for recreating the head office. If noble Lords will bear with me, I cannot help reflecting that one of the troubles which we as a nation are suffering from at this time—and that is why the Prime Minister is on "Panorama" tonight trying to explain it away—is that we have got far too big a head office. We have 1·9 million people in local and central Government and only 40 per cent. in wealth creating industry. I am not saying that one should have too large a central or head office; obviously that would be a grave mistake. One of the advantages of having had a fairly rigorous financial climate during eight out of the last 12 years under successive Socialist Governments is that we have had to prune to the bare minimum our head office in order even to stay alive. But I still think it is a little naive to say that if you have to recreate offices and you have to recreate these services to serve a group there is no need for any additional financial compensation. I hope that perhaps the noble Lord will look at this rather more sympathetically and will, perhaps, ask some of his friends in industry. He has been so busy on the Front Bench since he joined us that probably he has not had all that time, and now he has Northern Ireland on his plate as well, so probably he has even less time to go and see and talk to people who are trying to make engineering groups viable—engineering groups which have very important and sometimes even a majority sector of the group likely to be cut off as a result of this nationalisation measure. If he does that, I think lie will come back with some understanding, and I hope perhaps that at Report stage he might have that gleam of satisfaction because otherwise—and, of course, this would be ridiculous—he might be charged with being a rather Left-wing character who does not like to shift when their Lordships' House are making constructive alternatives. Of course that would be obviously untrue and I hope he will put this matter right at later stages of the Bill.I must say once again that I really think the arguments put up are of a very stonewalling kind. I should have thought that the case made by the companies involved, which I tried to explain to your Lordships, was really a pretty reasonable one. Of course the amount of the severance costs will vary from company to company but I really do not see why they should have to bear them. I could only see why they should have to bear them without compensation specifically allocated to the cost if the Minister could give us confidence that the method of calculating the basic compensation was both fair overall and, in particular, took account of the sort of costs we are talking about.
I am not sure that at one stage in his speech the noble Lord, Lord Melchett, was not trying to say that to us. If he was, I wonder whether he would expand on it. If he is saying to us that in arriving at the notional share price, however that is to be done, one thing that will be done is to make allowance for the sort of severance costs that I have been referring to, and it is a specific assurance from the Government that these costs will he one of the factors to be taken into account (whatever others may also have to be taken into account) in calculating the notional share price, then perhaps we ought to listen to that. I wonder whether the noble Lord can say whether I was reading more into his words than I should have done, or whether that was what he was intending to imply.I think the noble Lord was reading rather more into what I said. I was referring in particular to the position of a subsidiary and the fact that it was a subsidiary, and that any distorting effect on its profits and losses arising out of its status as a subsidiary will be taken into account; but I would not go so far as to say that the long list of things read out by the noble Lord, Lord Carr, would necessarily be taken into account. Of course, I am always anxious to come as far as I possibly can to meet noble Lords opposite and I apologise to the noble Lord, Lord Orr-Ewing, if I have given him the impression of being a hard and unbending character. Nothing could be further from my wishes. I am anxious to find ground for agreement with noble Lords opposite whenever possible, and with that in mind it might be helpful if I were to acknowledge a very minor point to the noble Lord, Lord Carr, about pension funds. In fact, severance costs arising from pension funds are covered by Clause 49(12). I apologise that it is such a minor point but I hope it is indicative that I am trying to do my best.
Perhaps while I am on my feet I might respond to one point made by the noble Lord, Lord Orr-Ewing. I may have got this wrong, but the noble Lord seemed to be giving the impression that the services concerned entirely with the vesting company in some way would be left with the parent and not compensated for. Of course, if the services were entirely concerned with the vesting company, they would be acquired under Clause 20 and compensation paid for them it the usual way. I may have misunderstood what the noble Lord said, but I have put it on the record for what it is worth.I am grateful for the more sympathetic approach of the noble Lord, Lord Melchett, and for the indication that the light was beginning to shine from his eye and that we would get some "give" in the later clauses. I was making the point that one has specialised characters, very highly trained people in the various sciences, based at head office. If you take one-quarter of the companies away, you cannot divide a cha D into four and give one-quarter of his body to one company, so the other subsidiaries have to carry the extra costs. This happens in many instances—I mentioned particularly research and development. There is a viable size for sensible, economical research and development. You have to have a laboratory of a certain size, a project team of a certain size, mechanical assistance and a team of draughtsmen of a certain size. If you think of a quarter of them as being used by the companies being taken over, it is difficult to reduce the laboratory or the service by a quarter.
I do not want to prolong the discussion. To make the point to the noble Lord, it does not cover every case. We both wish to see the companies investing compensation in new businesses and new productive assets. If that happens, I hope that the quarter of a research worker being used in one of the companies being vested will be used in the new investment the companies undertake.
This is not immediately so. It will take us two or three years to re-create economically viable groups after we have had the major sectors cut off under this Bill. You cannot keep people standing around. Young people are ambitious; they want to work on something. They cost increasingly large sums of money and their support costs money. If we run them down or get rid of them pending acquisition of new companies or projects, we will have to give them redundancy pay. Whatever you do, you will be caught in years one, two or possibly three before you can re-create a viable group. That is why I am pressing the point my noble friend made so ably, that this ought to be one of the factors which ought to be taken into account by the Tribunal, which does not seem unreasonable. Many people have put this case in quite reasonable terms. My noble friend pressed this point. Is it one of the factors which may be taken into account? Or is the noble Lord's mind closed and it cannot be taken into account when assessing fair compensation?
Perhaps we must bring the debate to an end so that we can move on, but I am profoundly disappointed by the reply from the noble Lord, Lord Melchett. It seems to me that he has undermined his own case (I hope this does not seem ungrateful of me) by pointing to the slight relief provided in Clause 49 which I myself had not yet appreciated, but no doubt will do when we get to it. If one admits the need for compensating the group in respect of extra pension costs arising out of losing part of the group as apparently Clause 49 does, at least to some extent, then it seems to me that one has admitted the principle that severance cost ought to be covered. If pension costs, then why not all the other costs of the kind that I have mentioned? I feel this is very unsatisfactory, and does not stand on any logical or consistent basis.
The Government have admitted in respect of one item, the need to compensate for the costs that I have mentioned, but not in respect of any others. I fear I must say to the noble Lord that I shall wish to seek further information about this, and almost certainly wish to return to it on Report. One of the things I am sure the Government are realising is that if, on point after point, we are saying we will return to it on Report stage, we are heading for a very, very long Report stage. It seems rather a pity and rather unnecessary, when more flexibility, or at least more substantial argument might dispose of it one way or another on Committee stage. In view of the circumstances, before voting on this issue I should like to seek more information. Therefore, I beg leave to withdraw this Amendment.Amendment, by leave, withdrawn.
Clause 36 [ Payment of compensation]:
9.55 p.m.
moved Amendment No. 165:
Page 50, line 29, leave out subsections (6) and (7) and insert—
("( ) Where, after the date of transfer, a stockholder's representative submits a claim in writing to the Secretary of State for payment on account of compensation in respect of the vesting of securities under this Act, the Secretary of State shall within six months of that date make a provisional estimate of any compensation so payable and compensation stock equal in value to 75 per cent. of that amount shall forthwith be issued to, or at the direction of, that person or his successor in title.")
The noble Lord said: This is a fairly straightforward Amendment. In essence we are substituting the word "shall" for the word "may", though we have managed to do it in quite a number of words. Clause 36 provides that compensation shall not be payable for the vesting of any securities of the company before the Secretary of State has fixed the conversion date for all the securities of a particular class of that company, and it is on the date so fixed that compensation stock is to be issued. So far as the basic equity capital is concerned, Clause 36(3) and (4) provide that compensation stock cannot be issued until after its base value has been determined and from that, has to be deducted any claims in relation to the other provisions, in particular those in Clause 39. Of course we are faced with the fact that the base value of the equity share capital of a company may be the subject of quite long-winded negotiation or, indeed, arbitration proceedings, which is a subject we have discussed at considerable length already. It seems to us, therefore, that it could be months—and it is possibly not exaggerating to say years—before compensation gets paid.
Subsections (6), (7) and (8) go some way towards alleviating the position of the shareholders in that they are permissive on the Secretary of State and not obligatory on him to make payments of compensation on account before the valuations are finally agreed or determined. These provisions were not in the original Bill but following representations from the industries that it would be inequitable to shareholders they have been introduced. Of course the shareholders in the cases we are talking about are mostly parent companies or financiers, and it is not right that they should be kept out of their money. It is also an important point that these parent companies, either directly or through their subsidiaries, are engaged in industrial activities which are of great importance to the economy of this country. We feel that it is in the national interest that the companies should be enabled to re-invest in other industrial activities Es soon as possible. At a time of great worries about unemployment I do not think the point needs to be laboured.
The difficulty is that the companies do not know within a large area of doubt exactly the size of the compensation they are going to receive, and the noble Lord, Lord Melchett, was coy—to put it mildly—for what I thought was an unrespectable reason that it would weaken the Government's bargaining power about the amount of money he figured was going to be paid out in compensation, which I am bound to say rather reminded me of the noble Lord, Lord Balogh (who has not appeared for some time) who spoke about negotiations with the oil companies being "negotiations in the Arab souks". I am not necessarily suggesting that in this rather more respectable area of industry we are reduced to that kind of level. Nevertheless, this is implicit in some of the things we have been saying. This takes us back to an old bone of contention. I am not going to repeat the remarks I was making about assurances to the noble Lord, Lord Melchett, a few days ago, but I want to draw the distinction between the powers that the Secretary of State may have and the obligations which should be imposed upon him.
I dare say the noble Lord, Lord Winterbottom, will give us all sorts of undertakings before we are through today about how splendid the Government are going to be. From the way he is looking, perhaps he is not going to give us any undertakings at all, in which case we are going to be in serious trouble. What we are seeking here is perfectly straight-forward; we are saying that this should not be an option the Secretary of State may have, but an obligation upon him; if the money is owed it should be paid.
One can cite a number of precedents for this, and one in particular which has been called to my attention is the Transport Act 1947. There are also some of the land compensation pro-visions, where an advance payment equal to 90 per cent. of the agreed or estimated value of the interest is payable; that is, Section 52 of the Land Compensation Act 1973. But quite aside from the moral force of the equity point and the fairness point, what we are particularly concerned about is to keep these industries moving. One would make the perfectly simple point that in an ordinary commercial transaction the normal settlement period is one month. Perhaps this may stretch to three months. If we are talking of going to six, nine or even 12 months, we feel the companies would have something to complain about. Therefore, I move this Amendment in the hope that it will appeal to the Government to give us some help on this point.
I am grateful to the noble Lord, Lord Strathcona, for moving this Amendment, which enables me to explain to the Committee the Government's intentions with regard to payment on account of compensation. The negative motion of my head was due to the fact that I was not going to be tied down on percentages or time; but I think the noble Lord w ill find that in spirit we are together. Of the 43 companies named in the Bill 42 are unquoted. In all these cases compensation will be determined under the provisions of Clause 38—and I am stressing the next phrase—by negotiations with recourse to arbitration. While it is our intention and wish to complete these negotiations as quickly as possible, it is inevitable that even with the best will in the world it will be some time before the settlements are reached. Here we are still in agreement.
We recognise that shareholders could feel aggrieved if they have a long wait before they receive their compensation, even though interest on the stock will accrue from the vesting date. It is for this reason that we felt it right to make provision in the Bill for the Secretary of State to make payments on accounts of compensation stock. If the provision is to be of any real value, payments on account should he substantial and should be made at the earliest possible opportunity. A small payment on account only shortly before the final settlement would be of little benefit to shareholders or companies. It is therefore, intended that payments on account should be as large as possible and as early as possible consistent with the uncertainty still surrounding negotiations. The negotiations will be complex. Not only will it be necessary to settle the base value of compensation; it will also be necessary to establish, on the basis of detailed investigation of the company's records, whether there are any intercompany debts to be treated as securities, as we have discussed under Clause 21, and whether there are any appropriate deductions to be made under Clause 39. Here is an indication of the Government's thinking. While it is the Government's intention to make payments on account within six months of vesting day, the complication of negotiations may be such that in some cases it might not be possible to reach a sufficiently definitive view on that time-scale. The Amendment, if passed, would reduce the flexibility of the present provision, which could act against the interests of shareholders where the negotiations are particularly complicated. Clearly we would wish to avoid making payments on account which might, in the light of further negotiations, have to be reclaimed. The noble Lords who have moved these Amendments have been perhaps less ambitious than those who tabled similar Amendments in another place. The noble Lord, Lord Strathcona, has suggested paying 75 per cent. of the Secretary of State's estimate rather than 90 per cent. While I consider this to be moderate, it in no way alters the objection in principle to the Amendment. The setting of a figure is found to reduce the flexibility of the provisions. In cases of great uncertainty it could be too high. In others where there are few problems it could be too low. Either way one party or another could suffer. It is far better for everyone to retain the degree of flexibility in the existing provisions. I assure the Committee that the existing provisions for payments on account are intended to give real benefit to share-holders. The payments will be substantial and early. It is not intended that it should be a cosmetic provision. Unfortunately "substantial and early" is rather like the word, "fair"; what exactly it means is difficult to say, but we talked about industrial democracy and I think we know it when we see it. For that reason, I hope that the noble Lord will not press his Amendment, since the object of the Government is the same as his.10.7 p.m.
I do not think that that meets this point very well. We have to say a little more clearly what it is we are going to pay for what assets we are taking over. To say that an elephant is only an elephant when you see it—
You would recognise it. Is my noble friend referring to my quip about an elephant being recognisable although difficult to define?
Yes, of course I was. I did not think it was a very clever remark, because I think that people who own assets need something a little better than that. The Government are buying here—I am not necessarily against it—the assets of a lot of people. They really have to say what they are buying, and what they are paying. To say they will take six, or nine months, or maybe 12 months, when the Bill does not say anything of the sort, is not good enough. When we get to clause whatever it is, I think it is No. 122 or thereabouts, I want to raise the question of the things that I do not think the Government should buy. Even if we are dealing with the things that the Government think that they should buy, they must explain the basis by reference to something.
I see the noble Lord, Lord Peddie, who has been through this one before. I do not think that the noble Lord, Lord Winterbottom, is able to get away with saying that it will all come out in the wash. The people who own the present equity need to be told on what basis their equity is to be compulsorily taken over and it must be something rather better than what is going; my impression from what Lord Winterbottom said is that it will not be then, it cannot be now and it could be almost any time in the future, so to speak. I, as a Socialist who does not much mind the Bill—except the references to the matters which come up later in Clause 122 do not see how the Government can honestly and truthfully think that they can get away with the sort of brief that was provided to the noble Lord tonight. We must have an assurance that there will be a willing seller and a willing buyer arrangement. If that is not present, it will be cheating and the Government will have cheated a lot of quite nice ordinary people, many of whom up to now have voted Labour, and I simply do not see how this can be a Labour Government arrangement. The Minister must come forward with something rather more affirmative, something clearer, than he has given so far.10.12 p.m.
Further to what the noble Lord, Lord George-Brown, said, it seems that there is a point that the noble Lord, Lord Winterbottom, did not cover, or if he did cover it I did not hear him do so. I refer to the essential difference between what my noble friends have suggested and what is in the Bill. I refer of course to the quest on of the obligation on the Secretary of State as opposed to the Secretary of State "thinking fit", and it seems to me that as the Secretary of State is come of the bargainers, so to speak, in this deal, it is reasonable that he should be obligated to make this payment—whether it is 75 per cent. or another figure does not matter for the purpose of this argument; I am sure that this would be arguable and that Lord Winterbottom is right to say that in some cases 75 per cent. would be too little and in others it would be too much—in advance rather than the matter being left to one of the bargainers making up his mind about it. I hope that Lord Winter-bottom will take that up more fully than he did in his last reply.
From now on I intend to cling closely to my brief and the clause under discussion; I do not intend to wander into any clause other than the one under review. Having said that, let me tell the noble Lord, Lord George-Brown, who came into the Chamber and talked about the value placed on the securities to be traded, that that is not what we are talking about. We are discussing this Amendment to this clause and what the Government should do to make life easier for individuals or companies whose shares are being valued for the purpose of compensation so that they should not be kept an inordinate time waiting for that compensation to be paid. Noble Lords must recognise that this is a proper attitude to take. The ultimate value of those shares will be decided at the end of the day in the negotiations between the representatives of the Secretary of State and the shareholders' and stock-holders' representatives.
This, as the noble Lord, Lord Strathcona, said, could take some time and it is pretty sure to do so, and, in order to alleviate any hardship or difficulties that may arise as a result of the necessary delay—and I am not here arguing about whether the nationalisation is right or wrong, but simply saying that a delay in the procedures will be necessary—some payment should be made on account. There are 43 companies, of which 42 are unquoted—those are the difficult ones—and there must be a period, first, of analysis and, secondly, of negotiation. We have at this point to accept the fact that the Secretary of State, who is responsible to Parliament, will be watched with interest by Members of both Houses to see how he deals with the problems of delay. We have to start somewhere in calculating the interim payments and the only starting point that we could think of is the Secretary of State's estimate because, when this operation started, the Secretary of State clearly made an estimate. So what will be paid early will be a substantial proportion of the Secretary of State's estimate of the what the ultimate settlement of the negotiations will be. I do not see, other than waiting for the negotiations to be completed, any other course of action that could be taken. "Substantial" and "early" are, as I have said, subjective matters and they will doubtless be watched by the Members of both Houses.
10.17 p.m.
I should like to come straight back because the noble Lord did not really answer the point that I was making, which was that the Amendment puts an obligation on the Secretary of State to pay this. We both agree that that is necessary and should be done as early as possible. We are not quarrelling with the Secretary of State making a provisional estimate, but the Bill as it stands says that this will be done when and if the Secretary of State thinks fit, whereas the Amendment puts an obligation on him to do it and does not leave it to when he thinks fit. Though it was encouraging to hear from the noble Lord that there is entire agreement in principle on this which, in that sense, is an undertaking that it will be done, we all know that undertakings are splendid but are not part of the law of the land. It would be helpful if the noble Lord would go a little further and agree to an obligation on the Secretary of State being written into the Bill, rather than leaving it to when he thinks fit.
May I make a humble suggestion in this connection? The noble Lord, Lord Mottistone, clearly feels—and I sympathise with him—that any tincture of arbitrariness in the shape of leaving it to the wish or the whim of the Secretary of State is unacceptable. May I suggest that, alternatively, if there is to be set up—as I understand there is to be—a tribunal which will fix the notional values on which compensation is to be paid, it might be possible to devise a clause whereby that tribunal might recommend to the Secretary of State that advance payment should be made in the absence of precise ascertainment of the ultimate sum? That would seem to me to meet both schools of thought.
May I just say how much I support that? It seems to me—and I think I know the noble Lord well enough to know that he must see this—that this is taking over somebody's holding by a diktat. All right, let somebody decide on what basis? Then let the somebody who decides upon-what basis decide at what points you make the decisions. This Amendment does not quite do that. I would hope very much that at some subsequent stage we could make an Amendment that does exactly that. Somebody assesses what is the value of the stock you are taking over; somebody assesses at what point you pay for it, and then the Minister is required to say—and I must say some of us do not have any longer as much belief in the present behaviour of Ministers just to pass Bills which assumes that Ministers will behave well.
I like the words moved by the noble Lord, Lord Robbins. Those are not the words in this particular Amendment. I should like to see such words moved at some stage in the Bill and if the Minister were to be good enough to say that he would not mind having a look at moving such words I would be much happier, so long as I can still make it quite clear that in my view these do not refer to the ship repairing part of this Bill. I liked those words. The Amendment does not use them, so perhaps at some future stage we can put down a different kind of Amendment. I thought that the noble Lord, Lord Robbins, got it nearly as right as I would like it to be.The difference between us is that the Amendment would like to place an obligation upon the Secretary of State. I have given an undertaking on behalf of the Secretary of State. I know that my noble friend will not place a great deal of weight on that, but I place weight on it myself because I am authorised to do so. May I answer the point made by the noble Lord, Lord Robbins, which is constructive—and I always welcome any constructive points in debates like this. The only snag against using the arbitration tribunal is that it is the last stage of all and these negotiations do not come before the tribunal unless there is a deadlock. Therefore, that would be very much at the end of the day and a far worse situation than the one which we, as the Government, are proposing, or indeed as the Amendment proposes. I will, however, bring the view of the noble Lord to the attention of my right honourable friend the Secretary of State.
Although I shall not say a word, I feel that there must be some machinery which would enable one to get an early assessment of the figure of which a percentage would be paid in compensation. But, as I say, I try not to make promises saying that I will look at it if I do not mean to do so. I believe, however, that my right honourable friend will look at this matter. Whether or not any rational or precise method of calculation is available, I cannot say and I would not say: but since we have a starting figure which is the Secretary of State's assessment, perhaps we could build on that.10.25 p.m.
The noble Lord has some to a conciliatory state of mind, I think, and I am grateful to the noble Lord, Lord Robbins, backed up by the noble Lord, Lord George-Brown, for putting him in that happy condition, I think it is fair to say. It is encouraging to find that the noble Lord agrees that we are all of the same spirit, and he goes on to say that it is intended that the payments shall be substantial and early. So them really is not anything between us in principle, and all we are up against is something we have talked about so often, and that is how far we can give good intentions the force of law.
I think it may be helpful if I read out what was said in the Transport Act 1947, which presumably was a Labour Government's Act—and I referred to this earlier. It says:There, it seems to me that they are covering themselves in very much the same way as we are seeking to cover ourselves in this clause of this Bill. We quite understand that the Government are saying, "We concede that we owe you some money; we are lot totally certain about what the amount of money is"; and to my regret I find that the noble Lord is still saying that the Secretary of State has an idea as to what t le amount of money is. To use the noble Lord's actual words, "The Secretary of State will have made an estimate". Then it is also said, unfortunately, that the Secretary of State "may" decide to make an advancement, and "The reason we hedge around this is because we are fearful that the Secretary of State may advance too much having regard to the counterclaims against the original estimate which he, the Secretary of State, has made." It seems to me, quite seriously, that the proposal put forward by the noble Lord, Lord Robbins, would be quite a useful goad; and it is not a political point, I believe, to say that people who are not in Government find it necessary from time to time to have a slight spur to encourage the Government to move faster than they would normally move otherwise. This is all that this Amendment is seeking to do. I do not want to try to make this wider than it really is, but the principle involved here is simply the ordinary principle that a man who does a commercial deal with another man has, and that is that if he does not get paid he can say to him, "Look here, chum; it is about time that at least you made a payment on account while we are arguing about the details". I think that is a totally reasonable situation to set up as between the Government and a company which is being forcibly acquired. That is all we are saying, and it seems to me that the noble Lord agrees in principle. He demurs in practice from having the obligations placed upon him, and I quite understand that that is what his brief tells him to say. I am grateful to him for opening the door even the tiny chink that he has opened it, and I think the best thing I can do is to say: Let us observe the chink, let us rejoice about it, and let us see if we cannot push the door a little wider open at a later stage. Having said that, I am sure the right thing at this juncture is to withdraw the Amendment."A provisional ascertainment of the total amount payable under the last preceding section with respect to an undertaking shall be made as soon as may be after the date of transfer without regard to the possibility that the commission may, after the date of the completion of the pro-visional ascertainment, disclaim any property or contract not disclaimed by them before the completion of the provisional ascertainment".
Amendment, by leave, withdrawn.
Clause 36 agreed to.
Clause 37[ Base value of securities of a listed class]:
moved Amendment No. 166:
Page 50, line 42, leave out ("that") and insert ("being a class any of the securities of which").
The noble Lord said: I beg to move Amendment No. 166 and I would suggest that, with this, Amendment No. 168 might conveniently be discussed. These are really drafting Amendments and I hope that the Government will accept them without much difficulty. The subject was discussed in another place and the Government said that they would look at the point. It is simply that the word "listed" in line 42 on page 50 is evidently intended to apply to the word "class" and not to "securities". In the same way in sub-section (1) of Clause 38 it is intended to apply to all the securities of a class where any securities of that class were issued on or before the last of the relevant days. That is the reason for Amendment No. 168.
It is clear from subsection (2) of Clause 37 (also applicable to Clause 38) that fresh issues are an exception to the treatment in subsection (1) in each case. We think that these Amendments would make the position clearer than it is at present in the Bill.
As the noble Lord, Lord Campbell of Croy, has pointed out, this particular proposal was discussed at some length in another place. The Amendment was withdrawn because of an assurance given by the Minister of State to consider altering the marginal note to Clause 37 from "Base value of securities of a listed class" to "Base value of listed securities". However, after due consideration, it was decided that such a change would make the note incorrect.
May I explain why we believe that this would be the case? I am grateful to the noble Lord for taking Amendments Nos.166 and 168 together. Subsection (1) deals with the valuation of quoted securities where they were on issue throughout the reference period. A company may have more than one class of securities. Subsection (1) deals with the valuation of all securities issued throughout the reference period no matter what their class. The important point of the subsection is that it is the securities which are being valued and not the class of which they are a part. Subsection (2) deals with the same class of securities as is covered by subsection (1) but only with those securities of those classes which were issued after the reference period—I emphasise: "after the reference period." Again it is the securities that are being valued and not the classes. In this case the sum received for securities issued after the reference period is added to the valuation of the securities of that class which were issued throughout the reference period. The average price for each security in the class is thus worked out. This distinction between subsection (1) and subsection (2) is very important. It is one aspect of the assurances that we have given that any new money put into companies after the reference period will be taken into account at par in assessing compensation. It is our view that the Amendment proposed would at least blur this essential distinction and could result in new securities of the type covered in sub-section (2) being taken into account at something less than par. This could act against the interest of security holders. Exactly the same arguments apply in relation to Amendment No. 168.This is not worth pursuing; but the noble Lord has had the opportunity of trying to explain further the purpose of the clause and of the clause immediately after it, and the explanation of what is intended. I would only ask the noble Lord to see whether there is any other way in which it might be made clearer. It has not been clear to those who will have to wrestle with this Bill when it becomes an Act. I know that the Minister must have had some difficulty about the marginal description; but I had hoped that these Amendments would have provided another way of clarifying the clause. I am sorry that the Government cannot accept them, but I should hope that if they can see any other and better way of clarifying what is intended they would seek to put down Amendments at a later stage. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
10.35 p.m.
moved Amendment No. 167:
Page 51, line 4, after ("days") insert ("multiplied by 4/3,").
The noble Lord said: We have had a long and full debate upon Clause 35 and the various shortcomings which we see in the Government's proposals for compensation. This Amendment is an attempt to rectify one of those deficiencies. Clause 37 provides for the acquisition of the stocks in a company based upon their Stock Exchange value during a certain period. When my noble friend Lord Carr was talking on Clause 35, he drew, attention to the difficulty of distinguishing between a small parcel of shares which might change hands on the Stock Exchange, and the whole body of shares in a company which might change hands tender the auspices of a merchant bank or some agreed take-over bid.
He pointed out to your Lordships the difference in value and the difference in price paid for the shares on the one hand on the Stock Exchange in small I parcels, and on the other hand as part of a bid for the acquisition of the whole company. My noble friend referred to the percentage increase that might be expected when companies are acquired in this way. He referred to the examples to which I should like to draw your Lordships' attention again, and remind your Lordships of the figures that he mentioned. During a period late in 1973 and early in 1974—that is to say, the reference period described in this Bill—a number of bits, as is normal, were completed, and I have before me the figures. The average percentage increase in the price paid for the shares as part of an agreed bid, as distinct from the price ruling on the Stock Exchange on the day immediately prior to the bid, was no less than 48 per cent., yet the Government are proposing under the Bill to acquire the shares at the same value as was reigning on the Stock Exchange.
If we accept the average figure as accurate, the Government are therefore seeking, in my view, to acquire these shares for 48 per cent. less than they should be. I am prepared to accept that the figures may be a little generous, and it s for that reason that I have pitched my Amendment at 33⅓ per cent. over the Stock Exchange price.
There is one other aspect. Earlier, the noble Lord, Lord Melchett, was not able to explain why it is that the Estate Duty Office, when they are valuing shares which constitute control in the company" value them substantially higher than the Stock Exchange quotation reigning at the particular time. Taking these two points together, we ought firmly to say that the Government must pay a higher price for the shares than the price reigning on the Stock Exchange. We may be forced to accept that the Stock Exchange price must somewhere be used as a base line; but the price itself is substantially below what I believe to be an equitable price. I therefore beg to move.
10.40 p.m.
Some little time ago, while we were talking about Clause 35, I complained rather plaintively that we were debating every clause of Part II. The noble Lord, Lord Carr of Hadley, was good enough to say that if we could remember what was said, we could take that as read. May I say that this particular argument of the noble Lord, Lord Trefgarne, is one that we have dealt with in detail and with care—the whole question as to whether or not 100 per cent. of shares is more valuable than, say, an individual share at 20 per cent. For that reason, I would argue that the fairest way that we as a Government could think of calculating the value of shares was based on the Stock Exchange values over a six-month period. If that argument in the earlier debate did not convince the noble Lord, nothing that I can say now will convince him. The arguments are now as they were on the Question, Whether Clause 35 shall stand part of the Bill?
I am a little shattered by that, I must say. I think the noble Lord is saying that I am not supposed to argue my Amendments and must just refer back to the debate we have had earlier. I must say that I really do not go along with that. I certainly have not been convinced by the arguments advanced by the noble Lord and his colleagues as to why the Government have stuck so rigidly to this baseline. I most firmly believe that there is a serious injustice, not to say a confiscation of assets in this matter. Here the Government are setting out to acquire a whole range of companies, and have produced a very unsatisfactory formula for compensation. We are stuck with the basic concept of Stock Exchange prices which, in the light of the fact that only one of the companies is quoted, is wholly unrealistic.
I have not gone so far as to try to change that, though I believe that perhaps that should have been done. I accept that, but have said that the Stock Exchange price must be "doctored"—there is no other word—so as to more accurately represent the fact that the Government are acquiring control of companies. Control is worth something. If the Government are acquiring control without compensation—and that is exactly what it is—then that is confiscation; and if the noble Lord is taking such an unhelpful line with my Amendment, I shall have to reserve my position very firmly and come back to it at another stage. There are a number of points I could raise but, while listening to my noble friends, I shall ponder on what to do now.I think that what the noble Lord, Lord Winterbottom, said—that everything had virtually been discussed on the Question, Whether Clause 35 shall stand part of the Bill?—was not a very fortunate way of dealing with the Amendment of my noble friend, because he has made a suggestion for dealing with a particular part of this clause. I would hope that the noble Lord would not repeat all the general arguments trying to support the Government's whole system of compensation, which is what we discussed in connection with Clause 35, but that he will address himself to the particular point covered by this Amendment.
I think it was convenient that we should have had a general debate at one place on the whole question of compensation—and that is what we have just had in connection with Clause 35. I think that was for the convenience of both sides, including the Government Front Bench, because it meant that we did not have general arguments repeated. But that did not mean that individual Amendments, when moved, should not get a reply addressed to the particular point being raised in a particular clause, as my noble friend is attempting to do here. For the Government to say, "We have answered all this already" is disappointing, because this is a particular matter that my noble friend is putting forward. I would hope that the noble Lord, Lord Winterbottom, in connection with the Amendments we are to move on Clause 38—and the noble Lord is always courteous in the way he does reply—will be able to reply to individual points raised. We are not, of course, going over all the ground which we covered on the general question in regard to compensation, and the Government's proposals.I should like to suggest to the mover of the Amendment, with which, in some conceivable circumstances I would not demur, that in some respects it must be regarded as a pis-aller, a second-best. If the Government could be persuaded to jettison this ridiculous idea of going back to the share values of 1974, and manufacturing them by appointing a committee to establish notional values which might have prevailed at that time had these securities been quoted, and if they would simply substitute-I will not say retreat from that—the instruction to the arbitration committee that it should determine compensation on the basis of asset values, or replacement cost, if you like, taking into account intangibles, justice would be much better done than by inserting a rather artificial multiplier to the results of the attempt to ascertain notional values.
The noble Lord, Lord Robbins, has come to my aid. As I understand it, the noble Lord, Lord Carr, produced a vulgar fraction of about six over four, and the noble Lord, Lord Trefgarne, has a vulgar fraction of four over three, but I do not think that this is the kind of calculation which one can do in a Committee stage. Turning to the noble Lord, Lord Robbins, I am afraid that this argument has gone on and on. Many noble Lords who have spoken today have felt that the valuation of the stock on the basis of Stock Exchange valuations is not an equitable one. The Government have tried to explain that we have produced a formula which we believe is the best we can get, and I am afraid that I cannot move from that. Even if one were in favour of the principle of the Amendment of the noble Lord, Lord Trefgarne, I do not think that we could as a body agree to his arithmetic. That is a hard fact of life.
May I ask the noble Lord whether, among the solutions which the Government have considered, they have thought about the simple basis of ascertained asset values, which certainly has precedents in the past and which, so far as I know, has had no convincing arguments brought against it.
That, again, is one of the things which we have dealt with at some length this evening. I am not sure whether the noble Lord was in the Chamber, or was lucky enough to be having something to eat, at that stage. But we dealt with the Coal Industry Nationalisation Act and the fact that compensation then was based on asset values, which took at least eight years to settle. The noble Lord, Lord Orr-Ewing, and I agreed that we did not want that process repeated.
I am still some-what smarting under the initial reaction of the noble Lord, Lord Winterbottom, to my Amendment. There is one point that I must put to him again; I am sorry that he has heard it before, and may well hear it again later. The formula that he has arrived at takes no account of the fact that the Government are acquiring control of these companies. Therefore, does the noble Lord not agree that, since the Government are offering no compensation for the control which they are acquiring, they are confiscating control of those companies? If I am wrong, the noble Lord will please put me right; but I insist that the Government are confiscating the control of those companies. The noble Lord has criticised my arithmetic, and I would not claim to be the greatest arithmetician in the world, but something like it ought to be acceptable to the Government. Clearly, I cannot pursue the matter new, but I must tell the noble Lord that he has quite failed to satisfy my fears about this confiscation of control, and I reserve the right to return to this at a later stage after consultation with my colleagues. In the meantime, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 37 agreed to.
Clause 38 [ Base value of other securities]:
Amendment No. 168 is not moved?
I understand that Amendment No. 168 comes before Amendment No. 167A, although it is printed the wrong way round on the Marshalled List. The Amendment has been discussed with Amendment No. 166 and therefore is not moved.
10.51 p.m.
moved Amendment No. 167A:
Page 52, line 39, after ("value") insert ("as being a fair price taking into account the past trading records and future prospects of the company and the company's net tangible assets on the relevant vesting date and in particular the amount of equity capital which would be required to yield the average profit which the arbitration tribunal is satisfied on the best available evidence would have been made (as if this Act had not been passed) in the company's financial years ending the calendar years 1974 to 1978 inclusive.")
The noble Lord said: On behalf of my noble friend Lord Selsdon I beg leave to move this Amendment which recognises that if nationalised industries are to be managed efficiently and the country's economic resources allocated effectively the correct economic value must be ascribed to the starting public capital: in other words, the cost of acquiring a company, taking account of its present value and likely future profitability. Any value which is based upon historic share prices can have no relation to this value and the Government are making a rod for their own back in future if they persist on this basis. The effects of using it have already been seen in the case of steel nationalisation.
Under the circumstances of the Bill, compensation for some of the companies in British Shipbuilders will be so high in relation to their real value today that the Government may later have to ask Parliament to write off some of the initial capital. On the other hand, the disastrous effect upon confidence to invest in profitable opportunities and hence upon the efficient allocation of economic resources if efficient companies are confiscated for less than their true value has already been discussed.
On some of the more general Amendments which stand in the name of the noble Lord, Lord Selsdon, which the noble Lord, Lord Cullen of Ashbourne, is moving on his behalf, it seems to me that we are in a slightly unreal position, in that I am not entirely clear whether I am expected to speak to the Bill as it is now—in other words, as amended by Amendment No. 156, which it was not when the noble Lord, Lord Selsdon, tabled the Amendment—or whether to justify the Bill as it was before it was amended. Although I take the point which noble Lords opposite have made that on some of the particular Amendments these general arguments do not apply, at the same time this is a fairly general Amendment (this I think the noble Lord will accept) on the broad principles of compensation.
It seems to me that if it achieves anything Amendment No. 156 has already achieved what this Amendment seeks to do, but perhaps I could very briefly say a word about the effects of the Amendment and the Government's reasons for not accepting it or, indeed, Amendment No. 156 when it was pressed. As we have said, the compensation terms included in the Bill are for unquoted securities to be valued as if they had been quoted on the Stock Exchange during the six months up to the end of February 1974. We believe that the Stock Exchange is established in precedent as an impartial and objective test of the value of the securities. Techniques for imputing Stock Exchange valuations to unquoted securities are tried and tested in the City of London as well as within Government. Instead of this, the noble Lord's Amendment No. 167A, as Amendment No. 156 has already done, seeks to set the valuation at what the Amendment refers to as a "fair price". The Amendment states that the fair price should take account of the trading record and future prospects of the company and its net assets. As I said a moment ago in response to an intervention of the noble Lord, Lord Robbins, without a separate independent asset valuation, which would be a very lengthy process as previous experience has shown, the net assets of a company as recorded in its books reflect only the particular accounting conventions of the company. May I suggest to the noble Lord, who will, I think, agree with me, that that in itself would not be particularly objective and presumably, therefore, would not be particularly fair. We have already dealt this evening at some length with the question of the premium for control, and that was something that the noble Lord, Lord Trefgarne, mentioned on a previous Amendment; and as this is something which no doubt will come up again and again during the course of the evening it might be helpful if I were to say another word about it. I know the noble Lord has promised to return to it at the Report stage and I look forward to that, but it may be if I say a word he will be able to reflect on that between now and the Report stage. As I understand it, noble Lords have suggested that Stock Exchange quotations and, by analogy, imputed quotations, represent the price at which small parcels of shares change hands, and the suggestion is that when there is a takeover bid the price paid is generally higher than the quotation. This, I agree, may be so in the commercial world where one company seeks to take over another undertaking. In such circumstances the buyer may be forced to offer a higher price solely to persuade the seller to sell, but as my honourable and right honourable friends have said in another place and we have repeated here, the Government do not believe that this analogy with compensation terms in the Bill is a right one. The Bill seeks to establish the fair market value of securities by reference to the best established criteria for establishing that value—the Stock Exchange. The higher price for a complete undertaking does not, in our view, represent the fair market value. It represents only the price at which the buyer is prepared to buy to take over a company, and is the value to the buyer and not the market or the undertaking. In the final analysis the true measure of fair compensation is whether it represents the capital and income loss for every security holder being compensated. The capital structures of companies in the aircraft and shipbuilding industries are very complicated and differ, of course, from company to company. The annual income received per f 100 of nominal stock will vary widely between the various companies. So will the certainty of that income being continued. To assume that all the profits which these very different companies might have earned could be directly related to equity capital not only could result in a substantial over-payment of compensation but must operate unfairly among the different classes of shareholders within those different companies. We believe—and I do not make any apology for repeating myself because I I think it is fair to say that noble Lords opposite are repeating their attacks on us, but I make no complaint about that, the noble Earl, Lord Lauderdale will be pleased to hear. I repeat that in our view the Stock Exchange basis solves the basic problem of how to allocate compensation fairly between the various classes of shareholder within companies but with very different capital structures, and it is for that reason that we resisted Amendment No. 156, which is already in the Bill, and would of course resist this Amendment which I think covers the same ground.May I ask the noble Lord a straight question? Would he maintain that a parent company, one of whose subsidiaries has been taken over on the basis of this notional stock Exchange value, would be able to replace the assets which it had surrendered out of the compensation thus paid?
The noble Lord said he was asking me a straight question but I have been in your Lordships' House just long enough to know that noble Lords' straight questions are not always quite as straight as they seem. If I may give him a straight answer—and no doubt he will say that that fact applies to my answer as it applies to his question—it is that they probably vary from company to company.
The noble Lord was kind enough to refer to me. I think he said—and he will correct mo if I am wrong—that the Government justified acquiring these securities at their Stock Exchange value because the value of the control, which I was complaining about, is only of value to the company acquiring the assets or the shares in a takeover bid, and the value of the company to the market is the value of the share s, or the sum total of the value of the shares. But would he not agree that the market is not a market in companies; it is a market in companies' shares? One cannot buy a whole company on the Stock Exchange.
The question of the noble Lord, Lord Robbins, is a perfectly fair and straight one. It is quite simple to give the answer, which is that if you are having assets taken away on a share price, they should be replaced on a share price; but this is impossible. If they are being taken away on asset values, they can be replaced by purchasing assets. I should just like to refer to the answer of the noble Lord, Lord Melchett, to the noble Lord, Lord Lord Trefgarne, a moment ago when he was quoting a remark he had made earlier, when I am afraid I was taking the opportunity of having something to eat, when he referred to coal nationalisation being protracted to the extent of eight years. May I remind the noble Lord that on that occasion the number of companies quoted was something of the order of 120, and there were an equal number of privately-owned companies, all of which were owned privately by individuals and were not subsidiaries of other companies. That is why it took eight years, not because there was an arbitration tribunal.
Might I just put a point. First, having had a slim Lenten supper, and being much fortified thereby, and I am glad that the noble Lord, Lord Melchett, is also fortified, I congratulate him on the highly-condensed prose he composed for his last answer. It was highly professional and bore all the marks of several double firsts. But from what I could understand, he was drawing attention to, and rather protesting against, our suggestion that there is, and should be, a premium for control. If I understood his very complicated, condensed and classic prose aright, it seemed to me that he was suggesting that premium for control is not really quite so proper. But the Government approved, and last week were very angry when we rejected the position with regard to the Felixstowe Dock Company when the British Transport Docks Board offered 150p per share when they were standing at 90p. Is there any legitimate premium for control, or not? Perhaps I misunderstood the complicated and condensed passage which the noble Lord had composed to read to us.
I made the point because the noble Lord, Lord Trefgarne, said he was going to return to this on Report stage, and I thought it would be helpful if I said a word or two so that the noble Lord could look at it before coming back on Report. The noble Earl, Lord Lauderdale, says it is condensed and complicated. Maybe it would repay study in Hansard. I hesitate to suggest that anyone should look at anything that I have said in Hansard, but noble Lords opposite have occasionally done me that courtesy, and then we can all return to it on Report, having had the benefit of study, if any benefit is to be gained.
Did the noble Lord, Lord Melchett, say that it was a tried and tested way of valuing a company and, indeed, that it was by the best established criteria—I think that was the expression the noble Lord used—to use the Stock Exchange valuation? Is that the best and the tried and tested way to value a company?
I said the technique for imputing a share value was tried and tested.
I should like to support the Amendment. I am relying on the fact that this was not discussed in the House in the other place; it was discussed in Committee, but the Committee stage was a very small one. This goes for 49 out of 57 clauses and four out of seven Schedules. That is why we are paying close attention to it here, although this view does not seem to be popular with the certain Government Ministers, nor with the Prime Minister on "Panorama" tonight.
This Amendment makes one more effort to get fair competition, and it is based on the Amendment of Mr. Willey the Member of Parliament for Sunderland. He had Austin and Pickersgill in his constituency. I do not think he was one of the most successful shipbuilders. He described these compensation terms as ridiculous, and it is believed—I do not know whether this is true or not, but I have read it in many papers—that Mr. Kaufman, the Minister, persuaded him not to move the Amendment which perhaps is why we are giving special attention to it here. My noble friend on the Front Bench will remember that Nye Bevan once said, "Why look in the crystal ball when you can read the book?" Here we can actually read the book of what profits these people have made, not in 1972 and 1973 but in 1974, 1975, 1976 and 1977. We can actually see the results. Surely, therefore, it is not unreasonable to take this as a criterion. I hope that the noble Lord, Lord Melchett, will look at this again and bear in mind that Fred Willey is a man who is deeply respected in another place and that this Amendment is based on his views. Therefore, we are not being biased in our view; we are asking that sensible consideration be given at this stage.May I make one brief interjection? Following what my noble friend Lord Ferrers said, the noble Lord spoke about "tried and tested and accepted", but he seems to be unaware that many members of the Stock Exchange who are Members of this House have been at pains this evening to assert at great length that they do not accept the arguments he is putting forward. This seems to me the burden of what is being said here. He goes on to read a lecture to these members of the Stock Exchange, and then proceeds with the even more inconsistent argument by saying, "In our view …". We are arguing about the difference between what he thinks the Stock Exchange does and what the Stock Exchange thinks that it does, and there is a very considerable difference which is being emphasised by this Amendment.
I appreciate that we are not going to get any further on this point because we disagree on every aspect. I also see that Amendment No. 156 would cover it to some extent. In the meantime, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
11.8 p.m.
moved Amendment No. 169:
Page 52, line 41, at end insert ("taking into account all factors which the arbitration tribunal consider relevant in order to ensure that the compensation in respect of the securities shall be fair").
The noble Lord said: In the general debate on the Question, That Clause 35 stand part of the Bill, my noble friend and other noble Lords have pointed out how inappropriate, irrelevant and inequitable are the Government's proposals for compensation in the Bill. They are based on the values on the Stock Exchange of shares of parent companies over a certain period in the past; and as has been pointed out, those quotations are not a measure of the worth of a company, and there is very little relevance when one comes to the subsidiary companies. I do not expect the Minister w ho replies to attempt to repeat a justification of the Government's proposals, but in this Amendment we believe an important improvement could be made to the proposals in the Bill. I will briefly rehearse the reasons for the Amendment.
The value of a wholly owned subsidiary is that it can be disposed of as a going concern in its entirety. Such a disposal will attract a price much above any equivalent quoted value. The Stock Exchange quotation reflects the value based on the exchange of small quantities of shares in a market affected by factors unrelated to the specific company or even to the market as a whole. Then the means of calculating the notional quoted price is very uncertain. The amount of uncertainty and the virtual guesswork involved cannot produce fair or reasonable results. In this situation the object of this Amendment is that should the calculation required to reach a notional quoted price result in unfair and absurd compensation the arbitration tribunal will lave some latitude to take into account factors that will ensure an element of fairness.
I should like to add one example of a company which would receive inequitable treatment under this Bill. That is the company of John G. Kincaid, who are marine engine manufacturers at Greenock—a straightforward, uncomplicated case. The Government's proposed system of valuation applied to a situation nearly three years ago would produce absurd results. The company's report and accounts for the year up to the end of 1975 show that the turnover increased nearly fourfold, the profits are up four and a half fold and the reserves and assets are almost doubled. That no account can be taken of substantial improvements in profitability and the net asset position is tantamount to expropriation. This Amendment would go some way to improving the situation by allowing the Arbitration Tribunal which is to be set up under the Bill to take into account some other factors if an absurd result was produced by the system which is at present prescribed in the Bill. I beg to move.
This Amendment, No. 169, is clearly more limited in its scope than Amendment No. 156, which, noble Lords opposite pressed into the Bill on the previous Committee day. It does not seek so clearly to overthrow the Stock Exchange linkage which we believe is vital to the objectivity of the present terms. To that extent No. 169 is probably already subsumed in No. 156, which your Lordships passed after a Division. Amendment No. 169 merely requires that the Tribunal shall take account of all relevant factors in order to ensure that the compensation is fair.
There are two points that I should like to make to the noble Lord on this. First, the Bill already provides in Clause 38(3) that the Tribunal shall have regard to all relevant factors. The Tribunal is an independent body and it would not be acting properly if it had regard to factors relevant to Stock Exchange valuation yet failed to take account of them. While the present words may be different, the effect is exactly the same, and there is no need to duplicate the provision, as Amendment No. 169 seeks to do. Secondly, there is the question of fair-ness, which we have discussed at some length. As drafted, the Amendment seeks to embody the concept of fairness in relation to the Stock Exchange valuation. In that fairness is ensured both by the basis and the application of the present terms, this might appear unexceptionable. But fairness is essentially subjective unless it is defined in relation to a specific set of parameters; indeed that was one of my main objections to Amendment No. 156. The second part of the Amendment could, therefore, weaken the basic objectivity of the terms. In itself, this could reduce the fairness already fundamental to the Government terms. I appreciate the noble Lord's desire to ensure that the compensation which shareholders receive will be fair. As we have tried to make clear from these Benches, although I know with not a great deal of success, that, is too, the objective of the Government. The terms included in the Bill are both fair in their basis and their application. Amendment No. 169 is unnecessary and could, in certain circumstances, be harmful. In view of that, and in view of the fact that I think it is probably subsumed in No. 156 in any event, I hope the noble Lord will not press the Amendment.
Why does the noble Lord restrict the meaning of the words in this Amendment? Why restrict the very important words that "all factors" should be taken into account which are relevant in order to attain fairness in arriving at a notional Stock Exchange valuation. I wonder whether the noble Lord could answer this question. The words in the Amendment are, "taking into account all factors". Would he tell me the sort of factors he does not think should be taken into account; what description would he give to the factors which he does not think should be taken into account? I should have thought that to be fair you have to take into account all factors, apart from whether or not they fit into a notional Stock Exchange value at the end of the day.
If you do not want an arbitration tribunal to take all factors into account why go to the expense and trouble of setting one up? Why not just press a button or two on one or another of these computers we have, and they could give you that kind of answer. Since this is a human decision that is going to affect ordinary people, all factors ought to be taken into account. The other word is "relevant". The noble Lord is not suggesting that matters which are relevant in arriving at a valuation, whether it is done by a computer or tribunal should not be taken into account? What are the relevant factors—that these things could be unkind, or unfair, or unclean—that should not be taken into account? This is a modest Amendment, as the noble Lord said, and it may well be already covered by Amendment No. 156. If it is, I do not think it would do any harm to reiterate and underline the importance of these factors. Can the noble Lord tell me what are the factors he would not like to take into account? What is his case for saying that relevant matters ought not be taken into account? If he rules out both of those things how, at the end of the day, can you possibly come to a fair valuation?11.16 p.m.
I apologise for repeating myself, but I tried to make the point. The tribunal is an independent body, and the tribunal would not be acting properly if it had regard to factors relevant to a Stock Exchange valuation yet failed to take account of them. While the present words in the Amendment may be different from those in the Bill the effect is the same, and there is no need to duplicate the provision as the Amendment seeks to do.
Having regard to the fact that I think that every Amendment that has been proposed has been refused, and now we have got to the point when the noble Lord at least refers to the fact that there will be arbitration, would it not have been more helpful and perhaps saved time if we could have discussed the terms of the arbitration now, who will be on it, and all that sort of thing? We have to wait a long time before we come to discuss arbitration. It would have been better, if the noble Lord is going to refuse every Amendment and just adding occasionally that there will be a reason for arbitration, if we could have discussed the arbitration; we would have then felt that we were getting a hit of the way along the road trying to make things fair. But we have to wait such a long time before we discuss arbitration, and by that time the noble Lord will have refused every Amendment put forward in order to try to make fair compensation.
The noble Lord, Lord Melchett, has repeatedly referred to Amendment No. 156, which was passed at an earlier session of this Committee. The noble Lord has asked us to accept that this Amendment is unnecessary because of that Amendment, although this Amendment is rather narrow. Is it the Government's decision that Amendment No. 156 shall be allowed to stand, and that no effort will be made to reverse that Amendment when the House of Commons consider the matter?
No, I simply made the point, but I went on, so that noble Lords opposite would not accuse me of the very thing the noble Lord has—I did not achieve my purpose, but I suppose one cannot win every time—to give the detailed arguments which the noble Lord will be interested to know were prepared before Amendment No. 156 was pressed into the Bill. Frankly I did not expect it to be pressed into the Bill, so I gave the noble Lord the same speech that I would have done if Amendment No. 156 had not been pressed into the Bill. I am sorry I did not convince him, but I have done my best.
The point is that the noble Lord has asked us not to pursue this Amendment because we have already done it elsewhere, but it would be quite improper for him to do that if he was intending to pull the carpet out from under us by insisting that the Commons remove Amendment No. 156.
I do not insist on the Commons doing things. They will make their own decisions about these matters. I said that it seemed that this Amendment, because it was narrower than Amendment No. 156, was subsumed within it and that therefore it did not seem to be necessary at this stage. I went on, because we divided against No. 156 and I do not agree with it, to give the arguments against this Amendment in particular, which is also unacceptable to the Government.
May I ask; he noble Lord a question, which I will make as straightforward as I possibly can? The noble Lord, Lord Campbell of Croy, cited circumstances which, to ray mind, vividly illustrated the difficulties which have arisen in the minds of some of us who have criticised the Bill as drafted. In that case, would the noble Lord regard the circumstances of the company so described by Lord Campbell as being relevant or irrelevant?
A straight answer, please.
With respect, I do not think it was a straight question; at least, a fairer response might be for me to say that I did not understand the question. Would the noble Lori explain whether it would be "relevant" to what?
Relevant in the context of the Amendment.
Perhaps I can remind the noble Loud, Lord Melchett, that I said that the turnover had increased by nearly fourfold in the period since the relevant period, that the profits were up four-and-a-half times and that the reserves and assets had almost doubled. Those were the points to which the noble Lord, Lord Robbins, was referring.
I regret to say that the noble Lord, Lord Robbins, answered my question from a sedentary position and I did not hear what he said.
Perhaps the noble Lord will answer now. Having had an extra few seconds in which to think about the matter, may I ask him if he considers that the valuation which he is asking the Committee to accept would be fair if it did not take into account the points that my noble friend has just made?
I am not trying to be difficult. I know that noble Lords are giggling and are thinking that I am, but I honestly do not know whether the noble Lord, Lord Robbins, is asking me about the effect of the word "relevant" in the Amendment or is asking me about the effect of the Bill as drafted. When Lord Robbins answered by question from a sedentary position he had the Marshalled List of Amendments in his hand and I am still not clear where the "relevant" he is asking me about comes.
It seems quite plain. I am simply asking whether the circumstances mentioned by the noble Lord, Lord Campbell of Croy, would, in his judgment, be relevant to the determination of fair compensation.
With respect, that has not answered my question, but I will do my best to answer for the Bill as it is drafted and maybe the noble Lord will give his view on his Amendment as that is drafted. The factors that are relevant, so far as the Bill is concerned, are the factors that are relevant to valuing shares as if listed on the Stock Exchange, not those which a tribunal may consider are relevant to a loose concept of fair compensation, and that has been our objection to the looseness of the phrase "fair compensation" which noble Lords have already inserted in the Bill.
We seem to be getting into some confusion over this. Perhaps I might, with the permission of the Committee, ask the noble Lord, Lord Campbell of Croy, a question. Does he think there is any difference between the effect of his Amendment and the effect of Clause 38 (3)? I do not see what the difference is, and if he could explain it, it might be rather easier to understand the position.
I am grateful to the noble Viscount for asking that question because I had intended to deal with it at the end of the debate on the Amendment, and it seems that that point has now been reached. The noble Lord, Lord Melchett, began by saying that he thought that this Amendment, No. 169, was subsumed in Amendment No. 156 which the Committee made to the Bill at our last sitting. We do not believe that it is subsumed in that. We believe that it is supplementary to it but that it is not covered by it. Therefore, we believe that Amendment No. 169 is necessary also.
Then I come to the next point—and this is the point to which the noble Viscount referred—which the noble Lord spoke of, saying that he thought that this was covered by Clause 38 (3). However, that appears to be limited purely to Stock Exchange factors, whereas Amendment No. 169 refers to the application of the principle of notional valuation and is not simply limited to Stock Exchange factors. So, in answer to the noble Viscount, we think that there is an important difference between the two. We regard this as an important Amendment which would make a necessary improvement to the Bill. I would ask my noble friends to support me in pressing the Amendment.11.26 p.m.
On Question, Whether the said Amendment (No. 169) shall be agreed to?
Their Lordships divided: Contents 76; Not-Contents, 43.
CONTENTS
| ||
Amory, V. | Halsbury, E. | Rochdale, V. |
Ampthill, L. | Hanworth, V. | St. Aldwyn, E. [Teller.] |
Atholl, D. | Harcourt, V. | Sandford, L. |
Barrington, V. | Harmar-Nicholls, L. | Sandys, L. |
Belstead, L. | Kemsley, V. | Seear, B. |
Blakenham, V. | Killearn, L. | Selkirk, E. |
Brookeborough, V. | Kimberley, E. | Sempill, Ly. |
Campbell of Croy, L. | Kinnaird, L. | Sharpies, B. |
Carr of Hadley, L. | Kinnoull, E. | Shuttleworth, L. |
Carrington, L. | Lauderdale, E. | Simon, V. |
Cork and Orrery, E. | Lloyd of Kilgerran, L. | Stamp, L. |
Cullen of Ashbourne, L. | Long, V. | Strathclyde, L. |
de Clifford, L. | Lyell, L. | Strathcona and Mount Royal, L. |
Denham, L. [Teller.] | Middleton, L. | Sudeley, L. |
Drumalbyn, L. | Molson, L. | Terrington, L. |
Dudley, E. | Monson, L. | Trefgarne, L. |
Ellenborough, L. | Mottistone, L. | Tweedsmuir, L. |
Elles, B. | Mountgarret, V. | Vernon, L. |
Elliot of Harwood, B. | Mowbray and Stourton, L. | Vickers, B. |
Ferrers, E. | O'Hagan, L. | Vivian, L. |
Glasgow, E. | Onslow, E. | Ward of North Tynes de, B. |
Glenkinglas, L. | Orr-Ewing, L. | Ward of Witley, V. |
Gray, L. | Rankeillour, L. | Wardington, L. |
Greenway, L. | Redesdale, L. | Wigoder, L. |
Grey, E. | Robbins, L. | Young, B. |
NOT-CONTENTS
| ||
Brimelow, L. | Kaldor, L. | Peart, L. [L. Privy Seal.] |
Brockway, L. | Kirkhill, L. | Peddie, L. |
Champion, L. | Llewelyn-Davies of Hastoe, B. | Pitt of Hampstead, L. |
Collison, L. | Lloyd of Hampstead, L. | Shepherd, L. |
Cooper of Stockton Heath, L. | Longford, E. | Stedman, B. |
Davies of Leek, L. | Lovell-Davies, L. | Stone, L. |
Delacourt-Smith of Alteryn, B. | Lyons of Brighton, L. | Strabolgi, L. [Teller] |
Elwyn-Jones, L. [L. Chancellor.] | McCluskey, L. | Vaizey, L. |
Mais, L. | Weidenfeld, L. | |
Fisher of Camden, L. | Melchett, L. | Wells-Pestell, L. |
Goronwy-Roberts, L. | Milner of Leeds, L. | White, B. |
Gregson, L. | Morris of Kenwood, L. | Willis, L. |
Harris of Greenwich, L. | Northfield, L. | Winterbottom, L. |
Houghton of Sowerby, L. | Oram, L. | Wynne-Jones, J. |
Jacques, L. [Teller.] | Parry, L. |
Resolved in the affirmative, and Amendment agreed to accordingly.
11.34 p.m.
moved Amendment No. 170A:
Page 53, line 6, at end insert ("and amongst those factors to all relevant facts known at the time of the determination of the base value which were in existence on any of the relevant days, notwithstanding that any of them would not have been known on any of the relevant days.").
The noble Lord said: This Amendment might more conveniently have come later than Amendment No. 172A, because if the Government accept Amendment No. 172A then this Amendment will be unnecessary. This Amendment enables all facts inexistence during the reference period which are relevant to the calculation of a notional share price to be taken into account, and this would apply at least for
the duration of the reference period. That is the bwllfa principle. I expect I have pronounced this wrongly, as I am no student of the Welsh language; but, in short, it is the general principle in law that where facts are available they are to be preferred to prophecies—a principle that I would hope commends itself to your Lordships as well as to lawyers. This Amendment is similar to a provision in the Coal Industry Act, which applied the bwllfa principle to facts which were in existence at vesting date but which were known only at the time when compensation came to be determined. I beg to move.
I very much apologise; I did not get the Welsh joke. I turned round to my noble friend behind me, who is Welsh-speaking, and I did not get the translation in time. As I understand it, Amendment No. 170A seeks to specify that all the facts relating to a company during the reference period shall be taken into account in determining unquoted securities, irrespective of whether they would have been known. In so far as the noble Lord is seeking to widen the compensation base of the Bill, I am afraid I must reject this Amendment: in so far as he is seeking to establish that adequate information should be available for valuation purposes under the Bill, I shall try to show why it is unnecessary.
Under Clause 38, unlisted securities are to be valued on the basis of what would have been their quotation on the Stock Exchange during the reference period had they been listed. I think this is a rather important argument. For the purposes of the valuation process, therefore, it is to be assumed that the shares were in fact listed. In making this basic assumption, it automatically follows that all the requirements of the Stock Exchange which would have been a condition of that listing, including the provision of adequate information, would have been satisfied, whatever the reality. Officials of the Department of Industry have held discussions with representatives of the vesting companies on the whole question of which information is relevant to the valuation. It has been suggested on behalf of the companies that the information requirements of the Stock Exchange do not apply to unlisted secureties, and the information which would be required for a private treaty sale is more relevant. But, for better or for worse, the Bill prescribes compensation terms on a different basis. The basis prescribed is that the securities shall be valued "as if quoted". In such circumstances, it is the Stock Exchange basis, and not the private treaty basis, which is relevant; and it is therefore the information which is adequate for a Stock Exchange listing, and not some wider, ill-defined basis, which is relevant. The provisions of Clause 38 require the valuation of unquoted securities to take account of all factors relevant to a Stock Exchange quotation during the reference period. This is deliberately widely drawn. It is inevitable in the valuation of 42 widely different companies in four industries that differing factors will apply in relation to different companies. The requirement to take account of all relevant factors is intended to give sufficient flexibility to ensure that the valuation is equally fair to all security holders. It enables the stockholders' representative for each company to bring into the negotiations, and if necessary before the arbitration tribunal, all the factors which he considers relevant to the valuation of the shares of the company as if they had been listed on the Stock Exchange. This enables him to argue that any piece of information would have a direct bearing on the share quotation of a company had it been listed. Even if it were thought necessary to explain all this in the Bill, the Amendment would be inappropriate on the grounds that it would relate to an essentially different basis of valuation. I have told the Committee on more than one occasion that the Bill values unlisted shares as if they were listed in the Stock Exchange. It is not, and has not been, our intention to value them as if sold by private treaty. There is another point that I would make in the form of a half-apology to the noble Lord, Lord Trefgarne. He is not in his place, but I was going to say that he had accused me of condoning expropriation. I do not believe that expropriation can be the word to be applied to a situation where the stockholders' representative can argue the case with the Secretary of State and, at the end of the day, the arbitration tribunal will decide. It is for this reason that I believe we will get the fairest possible valuation of the shares on the basis proposed in this particular clause.Am I being stupid or would it not be fair that some acknowledgement of the bwllfa principle should be accepted by noble Lords opposite and looked into? If one likes to go back, your Lordships may remember a very much respected Law Lord who laid down the principle that you should not speculate on facts when you can know.
I am afraid that I cannot help the noble Lord in this matter.
I was suggesting that this matter perhaps might be looked at.
The noble Lord's last remark in response to the noble Lord, Lord Trefgarne, seemed to me to imply that because provisions arise later for, first of all, negotiation and, if necessary, arbitration, that this could meet the point made by Lord Trefgarne. But I thought that in previous exchanges it had been made quite clear that the negotiation and the subsequent arbitration was only within the ambit of this Bill; that is, on the basis that no value could be added for the managerial content of the take-over.
What is intended within the ambit of the Bill is the following: the requirement to take account of all relevant factors is intended to give flexibility and to ensure the valuation is equally shared to all security holders. It enables the stockholders' representative for each company to bring into negotiations and (if agreement cannot be reached) before the arbitration tribunal all the factors he considers relevant to the valuation of the shares of the company as if they had been listed on the Stock Exchange. This would enable him to argue that any piece of information would have a direct bearing on the share quotation of a company. We are talking about honest arbitration and honest negotiations.
I must confess that I am terribly perplexed about this business of "supposing that it had been on the Stock Exchange" when only one out of 43 companies actually had a quotation on the Stock Exchange. It seems an extra-ordinary criterion on which to base the whole discussion on all of Part II of the Bill. The noble Lord and I served on the Board of Admiralty for some time. I remember inquiring about how many people were color blind. We were always concerned about that for they would say they could not read the flags—though flags are not much used nowadays—and could not therefore serve in the Royal Navy. There were, say, 2½ in every 100 who were color blind. This is about the percentage of companies that we are concerned with. You would not say, "Let us judge all people by they number who are color blind and base everything on the assumption that the cannot read colours; cannot look at colour television or identify traffic lights, and so on".
This does not seem a vet realistic approach to life. Therefore it is a false assumption. I have never heard of the bwllfa system. Even the noble Lord found it unusual. As I quoted earlier, I was more familiar with Nye Bevan's principle; why gaze at the crystal ball when you can read the record? This; seems an admirable principle, rather more modern and certainly not Welsh, and easier to pronounce than the other one. Either principle is much sounder than the supposition that somebody, however wise they are, on the Tribunal can somehow work out what would have been the Stock Exchange value if in fact the company had ever been on the Stock Exchange for some strange period in 1972–73, paying no regard so far as we are able to know up to now, of any result achieved in expansion, improvement and efficiency, and every other factor in exports. We have not yet heard that these are relevant factors. The noble Lord has only to say, "As a sensible man I would think that these are some of the factors which a tribunal would need to take into account if we are going to have fair compensator, as every Government Minister has promised". Then I am sure we would be very happy to go on to the next proceedings.May I reread the sentence I read from my brief, interpreting it in terms of what the noble Lord said. It enables the stockholders' representative to bring into negotiations and, if necessary, before the Arbitration Tribunal, all the factors which he considers relevant to the valuation of the Mares of a company as if they had been listed on the Stock Exchange. Tonight we are not trying to impose on the stockholders' representative an assessment, a code of conduct, a method of assessment, binding laws as to the way he starts his negotiations; the factors which are considered relevant by the stockholders' representative are the ones that will be brought into negotiation, and although I know that your Lordships would not wish any names to be mentioned, one name I know among the stockholders' representatives, s a man whose negotiating power is formidable and who I am certain will present the case of his clients very well indeed. So it lies with the stockholders' representative to produce any factors which he considers relevant to the argument. I imagine the cases mentioned by some noble Lords must be considered relevant.
11.48 p.m.
But is the noble Lord still not tying the concept of relevance to the establishment of the notional value of 1974, or is he prepared to admit that the case so admirably described by the noble Lord, Lord Campbell of Croy, events which happened after 1974, would he relevant to fair compensation? The noble Lord has passionately denied that he is in favour of expropriation. I would say that if the factors in the case mentioned by the noble Lord, Lord Campbell of Croy, were not brought into the assessment, there would be expropriation.
If the stock-holder's representative considered these factors to be relevant, he would put them forward in his argument. I do not think we can say more than that.
May we be clear? In the Government's view, would the Arbitration Tribunal be entitled to take into account events which have occurred since 1974? This is the crucial factor. Let us assume that we accept for the moment—but it is wrong to accept—that the starting point has to be an extraordinary, notional Stock Exchange value. We think it is a crazy starting point; but let us for a moment assume it is the starting point. Having started with that, can the stockholders' representative argue about events which have taken place since then as a reason why the compensation should be different? If the stockholders' representative does so argue, do the Government give us a categorical assurance that the Arbitration Tribunal will be entitled to take those arguments into account and base their judgment upon them?
I can say that we are looking forward to the prospect beyond 1974 and are taking it into account. It is very difficult to put this into precise language, but I should have thought, knowing at least one of the individuals who are stockholders' representatives, that it would be very hard to keep him away from the situation mentioned by the noble Lord.
I do not want to press the noble Lord unfairly, because I am sure he is not dodging the issue deliberately. Of course he can say that the stockholders' representatives can and will come and put the arguments, but the crucial point is whether the arbitration tribunal will be within their terms of reference to give weight to these particular arguments. It is no good just saying that the stockholders' representatives can put the arguments, if the terms of reference of the tribunal were such that they could not take them into account in arriving at their valuation. I think if we could all be reassured categorically that the arbitration tribunal would be able to give weight to those arguments and use them as part of the evidence on which they would base their recommendations, some of us would be at least less unhappy than we are at the moment.
It is not possible to foresee every question that might be put to one in an argument of this kind; but I think the argument put by the noble Lord is entirely valid and that what he says is correct. However, we have come to Clause 42 in due course this evening and I will try to get something more concrete for him by them.
We have had an interesting discussion on this Amendment, which I now beg leave to withdraw.
Amendment, by leave, withdrawn.
11.52 p.m.
Before I call Amendment No. 170B, I should say that if it is agreed I cannot call Amendment No. 171.
moved Amendment No. 170B:
Page 53, line 19, leave out subsection (6).
The noble Lord said: In order to arrive at an estimate of compensation for all but one of the 43 companies, it is necessary to calculate the price which the shares of those companies would have had if they had been quoted on the Stock Exchange between August 1973 and February 1974. Such a calculation can be shown to be impossible. If a notional share price is to be quoted in any systematic way, it must be possible to say, first, what factors determine the share prices, and secondly, the weight given to each of these factors by the Stock Market. Leading City analysts, statisticians and economists have attempted to do this in order to discover whether it is possible to predict future share prices, their subjective data going back for some years for the larger companies to the most advanced statistical method, but they found it impossible to make predictions with a degree of accuracy that was helpful, conclusive or meaningful.
The weightings given to various factors appear to be completely random: in other words, there is no clear or apparent relationship between the share price of individual companies or between the share price of individual companies or between the share price of an individual company and the general level of the Stock Market. Two almost identical companies can have a totally different share price when measured short term or over a longer period. This result may sound improbable, but it is nevertheless a fact. Even the largest companies, which might be thought to have the most consistent relationship with the Stock Market as a whole fluctuate substantially relative to each other and to the general level of the Market. For example, in one year ICI fluctuated relative to the Market by 59 per cent., GEC by 39 per cent., Unilever by 58 per cent., and Vickers by 100 per cent. Smaller companies are liable to fluctuate much more widely. The impossibility of calculating a hypothetical or notional share price would not matter if it was clear from the Stock Exchange evaluation of the parent company over the reference period what was the actual evaluation of the subsidiary. But the parent company's share price is helpful only if it is possible to dissect, from the evaluation of the whole, the evaluation of the separate parts of the whole.
Finding the relationship of the parts of a multi-activity company to each other, and to the company as a whole, is an insoluable problem for the same preconditions of knowledge are required. It must be known what weight the Stock Market gives to the factors in order to assess the contribution of the parts of the whole. Should it measure what is the subsidiary's proportion of the group's net assets, pre-tax or post-tax profits, or liquidity? Each factor used on its own would produce a separate remit. What balance or "mix" of factors should be employed? For this reason, the known share price of the parent is no a helpful guide to the subsidiary's notional share price. In fact, by directing as Clause 38 requires, that the parent's share price should be taken into account, the task of devising a notional share price is made more difficult and complex as an extra layer of difficulties is encountered. In the case of steel nationalisation, there was no such requirement. I beg to move.
11.57 p.m.
This is a complex matter and there was considerable discussion in Committee in another place about the meaning of Clause 38 (6) to which the Amendment relates. Clause 38(6) provides that, where a vesting company represents a substantial proportion of a quoted parent, the share quotation of that parent shall be one of the relevant factors. I must emphasise that this is only one of the relevant factors. The basic requirement on the Tribunal is to take account of all relevant factors in determining the notional share quotation of an unlisted company. The inclusion of Clause 38 (6) merely ensures that the quote of a parent is not excluded from the considerations when it is strictly relevant. If the subsection were not included, as proposed in Amendment No. 170B, the Bill would fail to recognise the obvious correlation between a parent company's value and the subsidiary's value when the subsidiary represented the major part of the parent. I think that that is a fair argument, using the word "fair" in the sense in which it was accepted earlier.
That is a very good answer, but it answers only a very small part of what I said. My main point was that to calculate a notional share price will be extremely difficult, and I wonder whether any noble Lord here today has a notion of what t notional share price is. I do not have one.
May I point out that at an earlier stage of our discussions the noble Lord, Lord Melchett, said that the technique of computing notional share price was well-known. After puzzling about the literature, I should like to submit a humble request to the Front Bench that a paper be laid in the Library, giving an authentic account of the technique of computing notional share prices.
I was a little puzzled, too. The main explanation which the Minister gave for including the quotation of the parent company was to make certain that it would not be excluded when it was relevant. If you have to name something in order to show that it is not excluded because it is relevant, why do the Government not accept all of our suggestions that we ought to mention liquidity, profits being ploughed back or extra profits being earned? This adds point to our argument that what we have mentioned should be included, in order to show that they, too, are relevant. How does the noble Lord square that, because that was the only answer he gave?
In his reply to my noble friend the noble Lord referred to a subsidiary being the major part of a parent. Does this mean that if it is a minor part of a parent the considerations do not apply?
If the subsidiary company is a minor part of a major group, then it is not quite so relevant as if the area for nationalisation were a major part of the parent group. There is a difference. The profits and assets of the minor part obviously must carry greater weight in calculating its value than if the bulk of a major company came within the ambit of the Bill.
Then may I point out to the noble Lord that the greatest number of major companies which are to be nationalised will have a minor part nationalised? It seems to me that according to the noble Lord's interpretation, this applies only to minor companies which have no share quotation. A minor subsidiary would not come within the ambit of the Bill. It is the major companies, with minor subsidiaries, which are quoted. It would be helpful if the noble Lord could look again at this point. The noble Lord stated that where the subsidiary to be nationalised was a major part of a parent the price at which it would be nationalised would bear a relationship to its parent's quotation.
I am grateful to the noble Lord for having put his point so clearly because I think I can help him. The application of Clause 38(6) is strictly limited; it applies only where an acquired company represents a substantial part of a quoted group. In other words, Clause 36 will apply only where the activities of the acquired company are clearly a major factor in determining the quotation of the parent. It is not the Government's intention to apply Clause 38(6) where the activities of the acquired company are less than major in determining the share price of the parent. Minor holdings will not affect the issue. Clause 36(6) is limited in its scope.
This was another of the Amendments which was tabled in an effort to try to make the Government see how extraordinary the notional share price is. However, I know that one could go on like this for ever without its having any effect. Therefore, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
12.4 a.m.
moved Amendment No. 171:
Page 53, line 32, leave out from beginning to ("the") in line 34 and insert ("the arbitration tribunal, in determining the base value of the company's securities in accordance with subsection (1) above, may have regard to").
The noble Lord said: I beg to move Amendment No. 171. If one looks at line 32 on page 53 one sees that as the Bill stands it says that one of the relevant factors shall be—the words are obligatory—the quotation of shares of a parent company. This is most unsatisfactory. I will not go over the arguments again. My noble friend Lord Cullen of Ashbourne has just pointed out that a parent company's quotation bears very little relationship to the value of a subsidiary company. Its inclusion as a prominent factor is inappropriate, in that a parent company's quotation would be only a reliable indication of the notional value in the special circumstances where the acquired subsidiary constituted almost the whole of the parent company's activities. This is about the only situation where that would apply. The Amendment does not make the taking into account of just one prominent factor obligatory. The Amendment does not predetermine the question of relevance of the parent company quotation. What it does is to enable the arbitration tribunal to have regard to the quotation of the shares if they decide to do so. We think this is an improvement in the drafting of the Bill and I ask the Government to consider it. I beg to move.
Of course, the Government will consider these arguments; that is what we are really doing this evening, considering them; but as we see it Amendment 171 would limit the application of Clause 38(5) unnecessarily. It would make the arbitration tribunal responsible for deciding whether or not to take into consideration a parent share quotation. This could lead to an anomalous situation where, for example, the arbitration tribunal decided not to consider a parent's quotation where it was in fact strictly relevant. Clause 38(6) is so drafted that it can be applied in negotiations in the way most appropriate to the particular valuation in question. Any reduction in the flexibility of the application provision, which would result from the inclusion of Amendment 171, could be detrimental to either party in the negotiations. I feel that, since we are speaking about negotiations, flexibility is important since "give and take" between the two parties must be an integral part of the negotiations. Therefore, I suggest that this Amendment should not be accepted.
Can the noble Lord say how many companies will be affected by subsection (6) of Clause 38? My impression is that it will be very few.
I will give the noble Duke an answer as to exactly how many at a later stage. My impression is the same as his, but I should like to be precise when I give an answer.
On this Bench we consider it to be unsatisfactory that this should be the only factor that is referred to, and our Amendment would certainly be in line with the other Amendments which the Committee has made today and on the last occasion. I will not press the Amendment at this time, but I reserve the right to return to it at the Report stage. At this stage I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
moved Amendment No. 172:
Page 53, line 35, at end insert—
("( ) In determining the base value of any securities of a company in accordance with subsection (1) above, it shall be assumed that dividends had been paid by that company of such an amount as would have been appropriate if no restrictions as to the payment of dividends had been imposed on the company under the terms and conditions of a temporary loan made to the company by the Secretary of State for Defence.").
The noble Lord said: This Amendment at least has the merit of being relatively straightforward and of very narrow application. If we are going to have hypothetical Stock Exchange valuations it is likely that the main factor that will be taken into account by those who are responsible for agreeing or adjudicating on the values of a company will be the actual and prospective dividend yield. But it so happens that during the six months reference period when these valuations are to be struck, in the case of two shipbuilding companies, although they were in fact earning quite satisfactory profits they were precluded from paying dividends by the terms of the agreements under which they had accepted loans from the Ministry of Defence. The point of this Amendment is quite simply to demonstrate that it would be unfair if the