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Mr. Andrew Smith (Oxford, East): On the Secretary of State's claims for the privatised ports, is it not the case that the port of Tyne's pre-tax surplus increased by 172 per cent. between 1992 and 1994, which is better than that of three of the privatised ports to which he referred?

Sir George Young: The tonnage carried in that period decreased, however. That was not an expansion period for that port. Clyde's turnover and tonnage--it is not just the turnover--increased by 33 per cent. and its pre-tax profits by 58 per cent. between 1992 and 1995. In their 1995 annual report, the directors reported:

"Another satisfactory year . . . acquisition of new waterfront facility will provide increased opportunities for expansion and diversification".

Lloyd's List in May this year said:

"In 1992 Clydeport considered closing its Greenock operation due to lack of business . . . now the group is more concerned it will run out of capacity at Greenock and has therefore bought a neighbouring site".

If we look at Forth, we find the same impressive story. In the 1995 annual report and accounts, the chairman notes:

"Turnover has increased by 32 per cent. to reach £47.3m . . . Profit before tax was up £15.3m (up from £13.9m in 1994)".

The position of Forth has been helped by the acquisition of Tilbury and Dundee. Lloyd's List recently noted:

"At one time damned by an image of crumbling infrastructure and fractious labour relations, Tilbury has re-emerged over the past few years to mount an increasing challenge to its more recently developed competitors at Felixstowe and the Isle of Grain. Tilbury's recent history has been recounted a thousand times--abolition of the Dock Labour Scheme, followed by a management-led privatisation and ultimately the sale to Forth Ports Group. Those dramatic changes have served to revolutionise the culture and business attitudes at the port, now being driven by Forth Ports' desire to generate realistic returns on investment".

That has, of course, been the general experience of privatisation, and it is what we should expect for the privatisation of Tyne. The evidence all points in one direction: port privatisation substantially improves port performance.

Privatisation does not reduce the responsibilities of port authorities. All their obligations under general law continue, and the Ports Act provides that all functions conferred or imposed on an authority by any statutory provision are transferred to any successor company. The Act also specifically applies the Transfer of Undertakings (Protection of Employment) Regulations 1981, which provide statutory protection for employees from takeovers to transfers under the Ports Act. Additionally, there is provision for a clawback levy to be applied on a sliding scale to all land disposals during the first 10 years following privatisation. So the taxpayer would benefit from sale of surplus land.

The users of the port will continue to benefit--as do all users of UK ports--from the Harbours Act 1964, which gives me a statutory right of appeal against unreasonable port dues. The right is important, because the public right of access to ports depends upon the payment of those dues. The right is in reserve, but it is rarely used. There is no doubt--because of commercial pressures generated by the promotion of competition in the ports industry, as I have already mentioned--that commercial

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pressure keeps down fees. The right has never been exercised for any of the privatised trust ports since they were privatised.

Mr. Don Dixon (Jarrow): If privatisation is so good, why are the Government not privatising the port of Dover?

Sir George Young: The port of Dover has given an undertaking voluntarily to privatise itself in 1997.

With that background on the Government's ports policy and the Ports Act, I come to the privatisation of the Port of Tyne Authority. Our intention in seeking the compulsory privatisation of the Port of Tyne Authority is to create an opportunity for the port to share the benefits gained by the entrepreneurial and innovative approach more generally found in the private sector.

The Port of Tyne Authority has not ruled out privatisation. Indeed, in the authority's response of September 1995 to the consultation on compulsory privatisation, it states that it welcomes the provisions of the Ports Act that enable voluntary privatisation, and even accepts that compulsory privatisation may be needed in certain circumstances. However, it does not consider that its port would benefit. With all respect, however, and in no spirit of criticism, I have to say that it cannot be disinterested, and that it is only natural for the authority, and indeed for others connected with the port, to perceive proposed privatisation as a threat or criticism. It is not.

Privatisation is based on the general experience, in this country and others, that it brings a change of culture that benefits and improves overall performance. Taking the port fully into the private sector will not undermine what has already been achieved. Rather, it will open up more opportunities for innovation and entrepreneurial development, to the benefit of port users and the wider Tyneside community. Privatisation can be expected to lead to a more dynamic approach to investment, exploiting more fully the authority's financial capacity, to the benefit of the region. So we believe that the port's future development will be best handled in the private sector.

I should like to deal with some of the concerns that have been expressed in the consultation exercise. Some concern has been expressed about timing, arising mainly from uncertainties because of decline in the coal trade. It is not surprising that there have been both positive and negative developments in the port's business in recent years--that is the nature of the ports business. Waiting for a steady state would mean that no port could ever be privatised. Potential purchasers and their advisers should have no substantial difficulty in assessing and allowing for any uncertainties in the future business of Tyne. The port has indeed shown that it can adapt to changing trade patterns.

The powers of compulsion in section 10 of the Ports Act enable me compulsorily to privatise any trust port with a turnover exceeding £5 million, at 1991 prices, following consideration of responses to a succession of consultation exercises, and with the consent of Parliament.

My right hon. Friend the previous Secretary of State consulted the Port of Tyne Authority, in June 1995, to ascertain its views on privatisation, and it was asked to respond within three months. As I explained, we were not convinced by the authority's arguments against

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privatisation, and I wrote to the chairman on 15 November last year to direct the authority to form a company and prepare a transfer scheme, to enable the authority to transfer all its property, rights, liabilities and functions to that company. A model transfer scheme was provided to the port authority for consideration, and the actions were to be completed by the end of February this year. The Port of Tyne Authority complied with that timetable and advertised its scheme in March, inviting anyone who wished to do so to send representations to me.

The scheme submitted by the Port of Tyne Authority, although based on a model provided by my Department, included a number of additional provisions that would have been likely to constrain the operation and development of the port, which I shall come to in a moment. In my view, it would not have been possible to make the scheme accord with advice previously given. I therefore considered making my own scheme, as provided for in section 12 of the Act, and consulted the Port of Tyne Authority and considered its views before advertising the proposed scheme and inviting representations.

Following consideration of the representations, I was and am still minded to proceed. My proposed scheme forms the schedule to the order before the House. It follows closely the transfer schemes used in previous privatisations, including that in Ipswich, which was approved by Parliament earlier this year. I considered the additional provisions proposed in the Port of Tyne Authority's scheme to be unacceptable and unnecessary. Their removal was the main focus of representations made to me on my proposed scheme.

The provisions raised an important and difficult issue. A transfer scheme concerns the transfer of property, rights, liabilities and statutory functions of the port authority to a successor company. It is not appropriate for such a scheme to contain provisions that are not directly connected with the transfer but intended to impose new, on-going commitments on the successor company. There is even a question whether such on-going provisions would be intra vires.

Such doubts and the difficulty and inappropriateness of each of the proposals led me to propose my scheme. As I said, it follows very closely the schemes used for all the voluntary privatisations and the scheme being followed for Ipswich, which was discussed in Committee earlier this year.

The authority's proposals covered aspects of pension and employee rights. There is, of course, general protective legislation in those matters, which will apply to the successor company, and there is no case for or way of imposing further legal obligations on that company. I of course understand that such matters are of concern and I shall be prepared to consider with the authority what might be included in the sale objectives, to allow prospective purchasers' intentions to be considered in the evaluation of bids.

There was no justification for the authority's proposed consultative committee, with its extraordinary range of powers, which would have shackled any new management in a totally unacceptable way. The successor company will be just as capable as the port authority of continuing

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good relations with local interests. Indeed, it will be in its commercial interest so to do, as evidenced by the conduct of port businesses already in the private sector.

The proposed consultative committee was to have held a special share, provided for in the company documents for Port of Tyne plc--the company set up by the port authority in accordance with directions earlier this year. Subject to parliamentary approval of the order, we shall direct that the relevant article--article 30--be deleted from the company's articles of association, that other consequential amendments be made, and that a few minor amendments to bring the company documents into line with Companies Acts regulations also be made.

The authority also questioned whether a new owner would have sufficient funds to invest. The Government's position is that anyone making a bid will do so on the basis that they will be able to operate the port profitably thereafter. No one would make a bid that put them in a position where they were not then able to operate the port profitably.

The authority also maintained that the port's wide legal powers meant that the benefits of privatisation would not be significant. Although in some privatisations, the wider powers available to a company have certainly improved the ability of ports to operate, the benefits of privatisation are not confined to that one factor. Privatisation in the ports and other industries has shown that benefits flow from the conversion to a full commercial operation based on shareholder equity and interest. The authority's scheme also included a general provision relating to on-going maintenance of the port, how profits should be used and local management of the port, but there is no case for such a provision.

Subject to parliamentary approval of the draft order, the sale of the port will be undertaken by the Port of Tyne Authority and its advisers. Ministers intend to discuss the process and the timetable with the chairman immediately. I want to discuss the desirability of encouraging a management-employee buy-out offer--a MEBO--with substantial employee share ownership.

We believe that it is appropriate to proceed with the privatisation. I therefore commend the order to the House.

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