Supplementary Memorandum
from the Department for International Development
CDC LEGISLATION: ENTRENCHING THE PARTNERSHIP
CONCEPT (Q 30)
We would like to find a way of entrenching the
partnership concept in the CDC legislation, so that if a future
Secretary of State wished to sell all the Government's holding
s/he would have to go back to Parliament before doing so.
2. We considered a range of possibilities for
doing this, including reference to the partnership in the long
title of the Bill, a preamble, a purpose clause or a more general
weak action clause, but concluded that the most practical option
would be a specific clause in the legislation relating to the
Government shareholding. Depending on the precise procedural route
chosen, this could require the Secretary of State to lay a Statutory
Instrument in the House in draft if she wished to sell any part
of her shareholding. If the draft was not prayed against within
the required 40 day period, the Secretary of State would make
the order as drafted and take the action proposed.
3. Two broad areas of concern with such a proposal
were identified, one relating to the market and the other to classification
of the transformed CDC to the private sector.
(a) the market
Our advisers have pointed out that such a clause
would be unusual and would need to be explained to investors,
and that investors may fear that involvement of a third party
which cannot take part in commercially sensitive negotiations
and has no direct financial interest in the outcome could make
finding a solution more difficult if things were to go wrong.
It could be perceived as weakening the position of other investors
relative to the Secretary of State, and so could worry investors.
It is difficult to be confident about how important this issue
might become for investors.
(b) classification to the private sector
The more difficult objection relates to classification.
We consider it essential that the CDC partnership is classified
outside the public sector, so that it can attract private capital
without it counting against the PSBR. Otherwise CDC will not be
able to expand substantially. Classification is judged by the
Office for National Statistics. We are advised that because this
procedure would make takeover more difficult than for other companies
(by introducing a third party approval process) and so makes the
company different from others (as well as weakening the force
of private sector disciplines) they would not allow classification
to the private sector if this were an indefinite provision. They
would, however, accept a time-limited provision for five years
from the time when CDC ceases to be wholly owned by Government.
DFID
July 1998
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