My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 1. In moving this Motion, I shall speak also to Amendment No. 2.

Amendment No. 1 is a paving clause for the new schedule in Clause 9 which, for the convenience of the House, I should point out that the noble Baroness, Lady Rawlings, wishes to have debated separately. Amendment No. 2 removes the amendment on taxation purposes added to the Bill at Third Reading by the noble Baroness and the noble Lord, Lord Redesdale. I understand that they agree that the need for the amendment has been dealt with by the insertion of Amendments Nos. 4 and 5. I beg to move.

My Lords, in speaking to Amendment No. 1, I shall speak also to Amendment No. 2. It is with considerable relief that we see this amendment, which seeks to include on the face of the Bill a reference to a schedule laying down the CDC tax arrangements. I should like to thank the Minister for his clear description of this unusual arrangement, and for the briefing notes provided by his department. We should also like to take the opportunity to pay tribute to the achievement of the Secretary of State in finding a solution to this difficult question with the Inland Revenue and the Treasury.

Our relief, however, is mixed with a persistent sense of disquiet. We shall have the opportunity to discuss the detail of the tax provision when considering a later amendment. Now, we should like to raise only a few more general points. As the Minister will recall, during the first passage of the CDC Bill through the House, both opposition parties felt very strongly that the tax status had to be resolved at the outset; otherwise, the PPP design would be half-baked and its chances of success dramatically reduced.

We shall not detain the House rehearsing the arguments yet again. Nevertheless, I wish to record that I remain sceptical about the PPP concept. We remain convinced that three elements are crucial to the CDC public/private partnership if it is to have a chance to succeed: that it has a strong balance sheet; that its sale is not rushed; and that its tax status is clarified. On the first two elements, the Minister gave us assurances at Report stage. On the third, the Government have introduced in the other place two very important amendments settling the issue. It is a step in the right direction.

Of course, we cannot legislate for success, but we can try to create the right framework. In the Bill the Government have applied considerable ingenuity in creating a framework for a third way—between public and private—which we on these Benches doubt exists.

When passing the Bill, my honourable friend the Shadow Secretary of State said,

"we are taking a step of faith".—[Official Report, Commons, 14/7/99; col. 529.]

It is in the nature of faith never to be disjointed from hope. For the sake of the third-world beneficiaries of the CDC's work, we therefore hope that the Bill does not just embody a clever abstract construct, which in practice will fail to live up to its expectations. Notwithstanding those anxieties, we agree to Amendment No. 1.

I turn now to Amendment No. 2. Subsection (3), which we are now being asked to take out, was inserted in this House at Third Reading, after grappling with considerable drafting difficulties. I am very grateful to the noble Lord, Lord Redesdale, for his support in this matter. Our intention was to put pressure on the Government to settle the tax status of the new CDC at the outset. We felt that achieving tax efficiency was of paramount importance and that it would be wrong to postpone it.

I appreciate that both CDC and DfID wanted the tax issue settled as well, but it has ostensibly been a long and difficult struggle with the Treasury, not least because of its difficulty in terms of delivering the Government's vision of PPP. I feel that our amendment contributed in nudging it in the right direction. I am therefore glad that we were able to do something, however small, to put pressure on the Inland Revenue and the Treasury to assist in the negotiations. We agree that the subsection is now redundant.

My Lords, I shall speak only to Amendment No. 2. I start by thanking the noble Baroness for her kind words. It was indeed a hard and lengthy process to put our amendment on the face of the Bill, but I am happy to remove it. I feel that there is almost an air of satisfaction about the Minister that it is now being removed. However, we shall be discussing the tax schedule later.

My Lords, I rise to express my gratitude to the noble Baroness and the noble Lord for agreeing to the removal of their amendment. I trust that their faith in the Government's solution to the problem will be justified when they hear our arguments.

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 2.

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 3, which is the privilege amendment.

My Lords, I beg to move that the House do disagree with the Commons in their Amendment No. 4. I thank the Minister for his helpful explanation of this highly technical clause and I believe it is of significant importance. We wish, however, to look at this provision more closely as we feel that the Government whisked their amendment through at the very end of the Committee proceedings in the other place.

Our somewhat ham-fisted amendment is intended to provide the opportunity to scrutinise more carefully the consequences of the clause. The effect of our amendment would be that the CDC would be barred from being regarded as an investment company.

Why has the change been brought in so late? Is it again because of difficulties in negotiations with other departments? What were the objections to allowing this sort of modification to the Companies Act? Can a PPP only be cobbled together by making exceptions—by tailor-making both tax provisions and company law? Is it not the case that good will is not sufficient to set up a partnership, and a whole raft of exceptions are necessary to get the PPP to take off? What sort of precedent does the arrangement set for future PPPs? Are the Government as enthusiastic about PPPs now as they were before encountering the difficulties of constructing the first one? I should be grateful for the Minister's reply to those questions.

We are told that the purpose of the amendment is to place the CDC on such a footing as to make it comparable with other investors in emerging markets, which are usually investment companies. Given the nature of those markets, an investor buying into CDC will not be like Sid, who picks up a few shares in any old public utility because his mate told him so over a pint of beer. The investors we are talking about are far more sophisticated and they can clearly see that the CDC is a peculiar investment company. Does the Minister not think that will not affect their decisions negatively?

Even if my suspicions are only partly correct, I wonder whether we are dealing with a device to improve presentation. To what extent do these provisions amount to a mere gimmick to make the CDC look more attractive? If I understand the mechanisms correctly, an investment company can reflect unrealised gains both on its balance sheet and on its profit and loss account. That means that unrealised gains would be fed into the equation for calculating the return. If the investments are good, those unrealised gains will help to push up the CDC return from its exceptionally poor 1998 level of minus 3.4 per cent. The increase in return that we are likely to witness between this year and next will not be directly comparable if in the meantime the CDC has become an investment company. Is this measure just a sweetener for investors? I beg to move.

I am grateful for the interpretation of the amendment given by the noble Baroness, Lady Rawlings. I was slightly surprised when I saw it on the Marshalled List, considering that it is precisely the issue for which we have been fighting. On reading Amendment No. 4, I note that it fully meets the expectations I had and fulfils the criteria that the Liberal Democrats wished it to fulfil.

I have one question on the amendment. At every stage of the Bill we were told that at the next stage this tax exemption would be put forward as part of the Bill. At what point were the Government able to finalise the agreements? I got the impression from reading the Hansard report of the other place that it was only at the last minute there—let alone at Committee, Report or Third Reading stage in your Lordships' House—that the exemption was added. I believe that certain reasons were given, not the least of which was the European dimension of the nature of the tax exemption.

I realise that this is an exceptional Bill and it is unlikely that such problems will arise again, but I would be grateful if the Minister in his reply could give us a chronology of the development of this amendment.

My Lords, for some two and a half years I was on the board of the CDC and for some nine years I was its chief executive. We always sought a degree of tax exemption and we did not get it, so it would be difficult for me now to argue against the CDC becoming in some form tax exempt. However, I wish to make a couple of points.

The way in which the information has arrived that CDC would become tax exempt has been somewhat hurried. It is difficult on first reading of the amendment to understand exactly how far the tax exemption would stretch. There was a previous argument about whether the CDC should go offshore, and it was decided that it should not. Because all its investments are offshore, if it went offshore itself it would not be taxable in the UK anyway. That argument has already been fought out and I do not wish to go over it again.

Within the conversations about tax exemption there was some implication that it would not apply to the CDC if it earned fee income. It would only apply to tax on its investment status, and corporation tax would apply normally. There is a longer term issue about what might or might not happen when or if the golden share is no longer held by the Government, but that is probably better discussed on another amendment. I would be grateful for a little more information on how we got to this position and whether it is water-tight.

My Lords, it is an anomaly of the procedure of your Lordships' House on consideration of Commons amendments that we move straight to a speech on disagreement before I have had the opportunity of explaining what the amendment does. That is contrary to the way in which we normally deal with such matters. The noble Baroness, Lady Rawlings, was entirely in order when she did what she was invited to do, but it seems to me to be the wrong way around.

The purpose of this amendment is to permit CDC to have the status of an investment company for the purposes of the Companies Act. The CDC's business is in substance that of an investment company. It will seek funds from investors by offering active management of its investments and the spreading of risk. Although it does still have holdings of senior debt, its investments in recent years have increasingly taken the form of equity and risk capital. As noble Lords who took part in earlier proceedings will know, it is our intention to intensify that trend. However, because of the nature of the countries in which it operates, it does not meet all the technical requirements of the Companies Act definition of an investment company. This amendment allows it nevertheless to have the status of an investment company by not applying to the CDC—and to the CDC alone—the requirement to meet these specific Companies Act criteria.

That has two practical effects. The first is that CDC would be permitted to prepare its accounts in the way that investment companies do, which is different from other companies. In particular, it allows investment companies to reflect unrealised gains on investments in its accounts. We are advised that potential investors will see and value CDC as an investment company, and will expect it to account in this way.

The second point concerns distribution of profits. Companies other than investment companies can, broadly, only pay dividends from accumulated realised profits less accumulated realised losses, without distinction between revenue and capital. Thus, for example, if a company made revenue profits but capital losses it may not be able to make a distribution. Investment companies on the other hand can in addition pay dividends from accumulated realised revenue profits minus accumulated realised revenue losses, and so may he able to pay dividends even if they make capital losses. That reflects the fact that an investment company's business is subject to fluctuations in the value of its investments which are classed as capital assets, and can be affected by provisions, for example, against transient restrictions on remittability of funds from abroad, which do not reflect on the underlying soundness of the investment. It would not be possible to list the CDC as an investment entity without the secure prospect of regular dividends, and it is therefore important that, like other investment entities, CDC is able to make distributions in this way.

There are three reasons why the CDC will not be able to meet the Companies Act requirements. First, it will need to retain more than the permitted 15 per cent of its income from securities. Secondly, it holds more than the permitted 15 per cent by value of its investments in subsidiaries. Thirdly, initially, it will not be listed. Those are set out in the amendment and unless your Lordships wish to press me on the point I shall not describe in detail how it works.

The reason for the first of these is that in countries where the CDC invests, where sophisticated stock markets often do not exist, it is necessary to look for gains through higher income returns rather than through crystallisation of gains on exit from a transaction, as tends to be the case in western venture capital transactions. Since a high proportion of the CDC's returns will therefore come from income, a requirement to retain not more than 15 per cent would significantly affect its ability to reinvest.

The reason for the second is that because of shortages of management capacity as well as capital in developing countries, the CDC sometimes needs to exert management control or is unavoidably the largest equity participant, so it has a higher proportion of majority owned subsidiaries than would be allowed. It would not be able to fit either of these criteria without changing the whole nature of its business. The listing point, on the other hand, is essentially a transitional issue.

Noble Lords asked about the timing of Amendments Nos. 4 and 5. I shall try to deal with them together. I acknowledge that it will be later than we would have wished. When we first introduced the Bill here we wanted to have the taxation and investment company provisions on the face of the Bill. It is not a matter of power struggles; it is a matter of trying to get it right. We have come up with a solution which is particular to the CDC. The investment company provisions in Amendment No. 4 are tailor-made only for the CDC. They are not applicable to anyone else. They do not provide a precedent for future public private partnerships. They do not indicate a change in the Government's views about public private partnerships in general. They are serious exceptions. They have been made because this is a different case. I hope that noble Lords will feel that this amendment and Amendment No. 5, because they are so carefully thought out for the purposes of the CDC, are worthy of approval.

My Lords, I am grateful to the Minister for his detailed answers to our questions. We hope that the CDC, which has been such a successful company for so many years, will be able to continue in its dedicated wonderful work after all the dramatic changes have been made.

I thank the noble Lord, Lord Redesdale, for his contribution to the debate and for the wise intervention from my noble friend Lord Eccles who has had great experience with the CDC. I do not believe that at this stage there is any benefit in dividing the House arid I beg leave to withdraw the Motion.

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 4.

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 5. It may be for the convenience of the House if I speak to that before the noble Baroness speaks to her amendments, Amendments Nos. 5A and 5B.

We said at the Report stage on 2nd March that we had agreed the principles of a tax solution which would provide the CDC PPP with the required tax efficiency and that we intended to introduce necessary amendments to the CDC Bill at the appropriate time in the House of Commons. I have acknowledged that the appropriate time was late in parliamentary terms and I have apologised for that. Amendment No. 5 was paved by Amendment No. 1.

The overall policy aim of the proposal is to provide the CDC with a level playing field in relation to competitors located outside the UK so it can achieve its goal of investing in developing countries using private capital raised in the context of a competitive private investment market. It does not seek to give the CDC anything more than that.

The key element of the new schedule is that (unless the partnership were to end) the CDC's (and only the CDC's) income and chargeable gains would not be chargeable to UK corporation tax, capital gains tax or income tax. The CDC would remain liable to applicable local taxes as at present and investors in the CDC would be liable to tax on their income and gains according to their own circumstances. It is also intended that where the CDC undertakes activities other than investment (such as investment management) this would be undertaken through a separate subsidiary, subject to tax in the normal way. That is the answer to the point raised by the noble Viscount, Lord Eccles, about fee income.

The provisions of the new schedule and reasons for them are reasonably straightforward. The exempt period in paragraph 1 provides for the exemption from tax to begin on a day appointed by the Secretary of State by order. Our intention is that the exemption should take effect at the same time as the CDC's new capital structure is implemented so that the CDC can start to develop a financial track record on the same basis as it will go to market.

There is always a potential state aids angle in any government sale. We have discussed this informally with the European Commission and we do not consider that either the tax, or balance sheet proposals more generally, will distort intra-Community trade. However, we intend to notify the European Commission of the tax proposals along with the capital restructuring, and any other relevant details, to provide investors with certainty.

The exemption, like the partnership, is intended to be an indefinite arrangement which will remain in place for the foreseeable future. But paragraph 1 also provides a necessary protection in that if Parliament were to decide, under the provisions of Clause 18, that the special share could be redeemed, and it then was redeemed, the exemption would come to an end with the partnership.

Paragraph 2 covers the main substance of the tax treatment. It provides that the CDC's income and chargeable gains will not be chargeable to corporation tax in the UK. The CDC will also be exempt from capital gains tax and income tax (under existing provisions of the Income and Corporation Taxes Act 1988) but will be liable to other taxes such as VAT and stamp duty.

Sub-paragraph (2) is a technical provision, necessary because the language used in legislation dealing with controlled foreign companies refers to a charge arising which is equal to corporation tax rather than it being actual corporation tax, so the CDC's exemption would not necessarily cover this.

Paragraph 3 is about residence for tax purposes and would apply only if the partnership had been brought to an end following the redemption of the special share. Although it is not our intention that this should happen, it is not possible to bind future governments. Therefore, it is necessary to make clear now what will happen if the exemption were to end. Investors will require comfort as to what will happen to them in these circumstances since any decision under Clause 18 would he for Parliament alone and not for them.

The paragraph therefore provides for the CDC to have the option to restructure and possibly go offshore without liability to UK tax provided that its central management and control had moved offshore by the expiry of the exempt period and not thereafter. This aims to maintain the level playing field which we are seeking to create for the CDC. The mechanism set out would provide for an orderly transfer without providing scope for tax avoidance.

Paragraph 4 deals with groups of companies. It is designed to prevent tax avoidance by preventing other members of CDC's shifting assets into CDC to avoid tax.

Paragraph 6 on distributions provides that dividends should be treated as if they were coming from an overseas company. This is to prevent investors benefiting from provisions designed to prevent double taxation of company profits, first, in the hands of the company and, secondly, as distributions from those profits in the hands of the shareholders. That would not be appropriate because CDC's profits are exempt in the company's hands.

I understand that the noble Baroness wishes me to comment on her Amendments Nos. 5A and 5B before she speaks to them. Amendment No. 5A would have the effect that CDC's tax exemption would be dependent on the special shareholder being satisfied that the investment policy and business principles had been adhered to. I agree entirely with the thinking behind the amendment. We want them both to be firmly entrenched and adhered to, but we do not think that it is appropriate that this should be done by an amendment to the provisions on tax exemption.

All the advice we have received is that the partnership should be designed in such a way that there is no possibility, and no appearance of any possibility, of ad hoc government interference in the day-to-day functioning of CDC, and that all our requirements should be set out in the partnership documents so that investors have clear knowledge of what they are investing in. We would not wish to allow political discretion, or the appearance of it, over CDC's tax liability, which would be the effect of Amendment No. 5A. The special share is the right instrument for protecting and enforcing the investment policy and business principles.

The articles of association contain provisions for the investment policy in Article 51, and for the business principles in Article 52. These are entrenched in the articles of association and can be changed only with the consent of the special shareholder, the Secretary of State. That in turn requires the approval of Parliament. The content of the investment policy and the business principles is also protected. For investment policy, no change could be made without the approval of the majority of the ordinary shareholders and the consent of the special shareholder.

The mechanism for changing the business principles is different. Changes to the business principles could be made only by a majority of CDC's board, that majority to include at least three of the four members of the business principles committee, which is set up to monitor operation of the business principles and review their content and make recommendations to the board. The two directors appointed by the Secretary of State will sit on this committee, which means that at least one of them would have to have voted in favour of the change before it could be agreed.

I hope it will be accepted, therefore, that both the investment policy and the business principles, to which the amendment refers, are already enshrined in the articles of association under the Bill, and that it is better for them to be protected in that way than through an amendment to the tax exemption provisions.

Amendment No. 5B would change "seventh" to "tenth" in the period in which Section 66 of the Finance Act 1988 is disapplied so that CDC could shift its assets offshore. In order to go offshore, a company incorporated in the United Kingdom would normally set up a company outside the UK, in a country with a suitable tax regime, transfer its assets to it and then effect a merger into that offshore company. Because of the nature of CDC's assets, held in a large number of overseas jurisdictions, it could take CDC several years to do that. I imagine that that is what is behind the amendment. But it would not be appropriate to encourage it to be doing so during the partnership, and if it waited to commence the process until after any redemption of the special share there could be a period in which it was exposed to UK tax. So far, I think, we have everything in common.

The proposal is that a rule which says that a company incorporated in the UK is UK resident for tax purposes, under Section 66 of the Finance Act 1988, should be disapplied to CDC for a period of seven years after the end of the exempt period. This means in practice that CDC could initially go offshore by moving its central management and control offshore. It could then shift its assets in the seven year period during which Section 66 was disapplied. CDC estimates that it would take about three or four months to shift its central management and control. This should happen in the notice period fits redemption of the special share. The seven year period which we proposed fits in with the average life of CDC's investments. CDC is confident that the seven year period would be sufficient to allow for an orderly transfer.

I hope that that gives the noble Baroness the reassurance that she seeks about the detail of this admittedly complex amendment.

My Lords, I beg to move Amendment No. 5A as an amendment to Commons Amendment No. 5. I should also like to discuss, in speaking to Commons Amendment No. 5, my Amendment No. 5B.

I wish to thank the Minister for his helpful explanation of the complex and crucial amendment that Commons Amendment No. 5 is, and for his co-operation at this stage and throughout the passage of the Bill. The main effect of the amendment, at least, is clear: as long as the Government hold the golden share, CDC is exempt from corporation tax, capital gains tax and income tax, but not from other taxes such as VAT and stamp duty, and from PAYE obligations.

I have laboured sufficiently the reasons why a tax-efficient status is essential to the CDC PPP, and I shall not detain the House on the matter further. However, I should still like to ask the Minister one question.

Although helpful to CDC, this tax arrangement is also very unusual, in that the exemption is given to an individual company rather than a category of entities. Is there a danger that this exemption represents the thin edge of the wedge? Is it not sufficient to say that CDC is unique? I am sure that other companies will attempt to argue that they are unique. If I am allowed to strike a provocative note, the National Lottery, for instance, is unique, serves good causes and would save substantial sums of money were it to be tax exempt. Will the noble Lord, the Minister, give assurances that the CDC exemption will not be treated as a precedent? I should be grateful if the noble Lord could answer my questions afterwards.

Amendment No. 5A would make tax exemption conditional on the Secretary of State's being satisfied that the CDC had followed its investment policy and the statement of business principles. The intention of the amendment is not to wreck the tax arrangement, but to entrench the CDC development purpose more securely. In another place the shadow Secretary of State argued forcefully that the development purpose was not satisfactorily entrenched. Furthermore, he argued convincingly that the investment policy and the statement of business principles do not embody the development purpose adequately. As they stand, nothing would prevent CDC from investing, albeit in the prescribed countries and geographical areas, in high-performance, high-yield companies, rather than in labour-intensive ones benefiting the poorer groups in those countries. CDC would be under pressure to follow this course in order to achieve higher returns which would attract private sector investors.

In the future CDC will be unlikely to invest in hardwood forest plantations, as it did in the Câte d'Ivoire, or in setting up an avocado pear farm which will not produce any fruit in the initial seven years and will therefore earn no money, as Mr Bowen Wells clearly explained in another place. Over the last two years we can already detect the beginning of this trend in the composition of the CDC portfolio. Whereas the share of agribusiness is decreasing significantly, that of manufacture and commerce is increasing.

That trend will be particularly strong and its effects detrimental to the poor in large and diverse countries like India. There, CDC has invested in the first private sector Internet access provider. That will no doubt contribute to the development of the communications infrastructure that business needs to be efficient. However, what will it do for the rural population of Rajasthan, who do not even have electricity? When will the benefit of that investment reach them? It will never do so because they live in a different economy. Instead, that particularly poor region, which is well known for its stone and marble quarries, would probably benefit from investments in companies cutting and polishing stone, like Jaswal Granite, a South Indian company of which CDC owns 9 per cent. I believe that we shall see less and less of such investment in the future. How is that potential investment vacuum to be filled?

The Government argue that the focus of their development policies is poverty. They maintain also that CDC is one of their policy instruments. Therefore, CDC should have the same focus. However, that focus cannot be achieved by an investment policy and a statement of business principles enjoining CDC to look across countries alone. If the development focus is to be maintained, the assessment policy must encourage the poorer groups within particular countries. Will the Minister give assurances that the Government will undertake a review of the investment policy? In short, we are asking the Government to get the investment policy right and then incorporate it into the Bill.

The effect of Amendment No. 5B is to lengthen from seven to 10 years the transition period after the Government relinquish the golden share. This is a probing amendment. Aspects of the CDC's tax arrangement are particularly unusual and complex and we feel that the arrangement has not been sufficiently scrutinised in another place. What is the fundamental reason for the amendment? Once the exempt period expires, what do the Government envisage that CDC would do to maintain the effect of its unique tax status? The helpful briefing notes provided by the department suggest that provision exists to ensure that CDC,

"would have the option to restructure and possibly go offshore without liability to UK tax".

But the Secretary of State finds that to be politically unacceptable. Has government policy changed? If that is the case, is the position that existing investments will remain in CDC onshore but the latter would be treated for tax purposes as though it were offshore while new investments would be made by a pew CDC entity offshore and therefore outside the UK's tax net? Will existing investments remain onshore until they are realised or until those assets are transferred offshore? In what respect does that arrangement differ from granting CDC a grace period after expiry as the exempt period in which to transfer assets? Would that complicated arrangement be necessary if CDC were allowed to go offshore as a PPP? Would the residence status during the transition period amount to state aid under EU competition law? I should be grateful if the noble Lord could clarify those points.

I come now to the substantive aspect of the amendment. We are told that the period of seven years was chosen because it fits the average length of CDC's investments. Unfortunately, in practice, there are no averages. Is Inland Revenue trying to fit CDC's investments into a procrustean bed? How will the existing longer term investments, or those which are particular difficult to transfer, be treated after seven years? Is seven years not an arbitrary period of time?

We understand that that period of seven years was the outcome of negotiations. The Inland Revenue was looking for a figure of zero years but CDC was looking for a period of 12 to 15 years to accommodate its longer term investments. On these Benches, we believe that the transition period should be longer.

My Lords, we wish to speak to these amendments because it was not possible to do so at the last stage of the Bill. However, the Minister gave a comprehensive statement and he has already answered many of the questions which I wished to asked. Therefore, I shall not take up the time of the House.

On these Benches, we are glad that the CDC will not be going offshore as that goes against the fundamental principles of the nature of the CDC. I admit the idea that the CDC could somehow avoid PAYE would gladden the hearts of those working for it but I do not believe that it would receive a great deal of support from the Treasury.

The Minister set out quite clearly how he believes the CDC will operate and under what development criteria it will be bound. As the noble Baroness pointed out, there is a danger that the CDC will move away from investments in some of the poorer areas of the world. That would he extremely unfortunate.

However, as the Minister has set out his views quite clearly for Hansard, which are now on the record. Therefore. I do not believe that we need to press for a strengthening of the statement of business principles or the investment policy.

Many of the issues which we have raised are in relation to the unlikely event that the Secretary of State cashes in the golden share. I believe and hope that that will never be the case, even under a change of government. The amendments provide a belt-and-braces approach which was spoken to at great length in another place. But the assurances which the Minister has given this evening have helped to ease some of our fears.

My Lords, I am grateful to the Minister for saying that CDC can have a wholly-owned subsidiary overseas even if it cannot be overseas itself. In its history, it has had a number of wholly-owned subsidiaries overseas.

I believe that I am finding some sort of a middle position here. As I see it, this Bill is an enabling Bill. I want to say briefly why that is so. A welcome aspect of the matter is the transformation of CDC from being a statutory corporation to being a plc, although one must shed a tear for what is almost the last of the statutory corporations.

The reason for this being a welcome measure is that the Act of 1948, which was implemented in 1947, has been tinkered with in respect of the way in which CDC could invest. It has never been radically altered and, of course, the world and its economy has moved on. The provisions of those original CDC Acts are extremely restrictive as to the way in which CDC can invest. Under the Companies Act, as a plc, it will he able to invest in a much more modern and effective way, even in the 70 per cent of the poorest countries and the 50 per cent which are in sub-Saharan Africa and Asia.

Many of the questions which the Minister has been asked arise from the fact that, as my noble friend Lady Rawlings said, the CDC is a sui generis. It is not like anything else and never has been quite like anything else. It has had to pick up gleams of opportunity and common sense from other organisations. It has picked up a lot of good tips from 3i, the IFC, from its European comparators, finance institutions and even from companies such as Unilever. Of course, its present chief executive comes from Shell and there is no doubt plenty of overseas experience from which it has benefited.

In essence, CDC is self-taught. It did not leant its trade from anywhere else. I am confident that, with the provisions in this enabling Bill, CDC will find a way through the next few years. I hope that it has another 50 years ahead of it. Its path as a plc is bound to be tortuous, as its chairman, the noble Earl, Lord Cairns, said in the House at Second Reading when he did not minimise the difficulties of operating effectively as a plc.

I believe that these amendments are relevant in that we need CDC to settle down to a consistent policy as a plc and to have plenty of time in which to do that in order to demonstrate its effectiveness. The Government have been ingenious, but they have also been experimental. The public/private partnership has yet to be proven. I believe it is doubly difficult to prove it in the case of CDC.

Immediately, there is the problem of restructuring the balance sheet. Perhaps the Minister can tell us how that is progressing because, without that, no further progress can be made. Can he also tell us when a prospectus will be issued for the intended 75 per cent external shareholders? I should certainly have had nightmares if I had had to write such a prospectus. In my opinion, by virtue of the fact that CDC is so generous, it will not immediately be attractive to any class of conventional investor as they do not like to have to think out things de novo.

I am pleased that CDC will be converted from a statutory corporation into a plc, although the same results could have been achieved by amending the existing Acts. I am much more doubtful about whether the public/private partnership experiment, ingenious as it is, will succeed. Anything that gives CDC an opportunity of proving continuity of purpose and policy and of having longer in which to do it is welcome.

In the closing minutes of the CDC's process of transition and in speaking to the amendment, I want to say that I have been lucky enough over the years to count CDC employees among the circle of my closest friends. I make a plea that the culture that has always pertained in CDC is not destroyed by the transition process. The men and women of CDC collectively have always put the welfare of the nations in which they work before their own welfare and before the concept of profit. When an organisation changes so profoundly its cultural foundations, as is the prospect today, those influences become fragile to those who work in it. I hope that the Minister can reassure me that that fragile culture can be reinforced by the process, rather than destroyed.

I am grateful to all noble Lords who have taken part in this short debate. When the noble Viscount, Lord Eccles, first intervened I neglected to welcome him to our deliberations. He was not in the House when we considered the matter before. The only hesitation I have in expressing my pleasure in seeing him here today is remembering the sad death of his father.

I anticipated a number of the questions which have been posed, but I shall respond to the additional points raised. The noble Baroness seems to think that this is the thin edge of the wedge and that because we have made special provisions for CDC, it will be easier for other people—she named the National Lottery—to take advantage of the same procedures. The fact that it has been so difficult, that it has required primary legislation, and months of negotiation and consideration during the passage of that primary legislation, in my view makes it clear that this is not a precedent that is likely to be followed. If anyone attempted to follow it in regard to the National Lottery, it would be over my dead body. I believe it would be over the dead body of the Chancellor of the Exchequer as well. We have taken care to get the procedures right because we recognise CDC's unique quality and the marvellous work that it has done over a period of more than 50 years.

The noble Baroness commented on the investment policy and the development purpose—

My Lords, I am sorry to interrupt, but I am reminded that a number of years ago—I believe in 1994—when we debated the National Lottery, the Minister, when speaking from the Opposition Front Bench, opposed the 12½ per cent tax on the National Lottery. I put that forward for information.

I had nothing to do with the National Lottery. There are those of us who think that in the next negotiations for the National Lottery we should consider the possibility of a not-for-profit National Lottery. We said that at the time. That will be possible in the consideration of the re-awarding of the contract. That is not the same as a tax exemption, and it certainly is not the same as going off-shore, as appeared to be suggested.

The amendment concerns where we enshrine the investment policy and the development purpose of CDC. I hope that I made it clear in my opening speech that it is well entrenched in the memorandum and articles of the CDC and in the procedures that make it clear that it cannot be changed without the agreement of the Secretary of State and without the agreement of Parliament. I believe that that is the right place for that entrenchment, rather than in the provisions on tax exemption, which is where Amendment No. 5A would place it.

The concerns of the noble Baroness go much wider than how the investment policy is protected. She queries the investment policy and says that her honourable friends in the Commons suggest that we are already departing from what ought to be the investment policy and development purpose of the CDC. She gave some examples.

It is difficult to judge individual investment decisions in that way as the work of CDC in any country is complementary to other investment activities, whether venture capital activities or the investment activities of the state itself. It is difficult to say in Pakistan, Uganda or anywhere else what the role of CDC may be because it will vary from country to country. If your Lordships will forgive me, I do not want to open up the question of the adequacy of the purposes of CDC. They were fully debated when the Bill went through the House. Those issues are not raised by the Commons amendment before us or the amendment to it.

On Amendment No. 5B, which concerns the exempt period, I do not believe that CDC wanted a longer period than that which is provided. As I said in my opening speech, my understanding is that it is content that that will meet its needs. If we have an average investment cycle of seven years, the investments will be falling in over that seven-year period and all but perhaps a tiny number of them will have fallen in by the time the seven-year period is reached.

However, I acknowledge—indeed, I welcome—what the noble Lord, Lord Redesdale, said. We are talking here about an exit strategy which we had to include— an exit strategy has to be included in any change of this kind—but one which we do not intend to use. We do not intend to dispose of the golden share, but we have to be sure that if there were some seismic change in policy in the future (to use the Prime Minister's phrase) it would be possible to make changes without further primary legislation. That is what we have done. It appears to us, and it appears to CDC, that seven years is the right period.

The noble Viscount, Lord Eccles, asked about the restructuring of the balance sheet. It is the important next step. We aim to have it in place for inclusion in the 1999 report, which will be produced for April 2000. It will take the results of 1999 into account after the abnormal results of 1998. As for the timing of the prospectus and the sale, it is far too early to say. That will depend on market conditions and the CDC track record. We have always made it clear that we expect that to be a considerable way off.

The noble Lord, Lord Birdwood, asked about the culture of CDC and whether that will be preserved. I very much hope so. I believe that we have set in place a process and a framework which will enable those who have valiantly served CDC over the years to continue to serve and to achieve even better results than they have in the past.

My Lords, I beg leave to withdraw Amendment No. 5A.