Examination of witnesses (Questions 60
- 79)
MONDAY 18 MAY 1998
MR MICHAEL
C SCHOLAR, CB,
MR NEIL
HIRST and MR
RICHARD LAZARUS
60. So that although there is not privity
here, it was certainly very much in their interests to allot shares
to those who had entrusted them with the task of allotting shares
for the best price possible?
(Mr Scholar) They are not alone in having a merchant
bank operation and an investment management operation under the
same roof with a Chinese wall between them. That is common place
in the market. It is accepted by the regulator. I think there
is nothing unique about that.
61. You do not feel in the least bit uncomfortable
about that?
(Mr Scholar) No, I do not.
Mr Maclennan: I am
surprised. Thank you.
Mr Leslie
62. I have so many notes with so many explanation
marks on them, I do not really know where to start. I have a number
of different questions and I think I will need to hear some answers
because I am absolutely furious, to be honest, reading this report.
From start to finish I feel, as a taxpayer, completely ripped
off in this matter. First of all, to put it in context, what was
your Department's prime objective in the whole of the sale? Was
it to maximise proceeds and get value for money, or was it to
privatise at any cost?
(Mr Scholar) There were two purposes. One was
to privatise and achieve best value for the taxpayer, and the
other was to effect a re-structuring of the nuclear decommissioning
and re-processing industry which would benefit the Exchequer.
That is an enterprise which offers the taxpayer very large potential
savings. There is an estimate in AEA's accounts as to the size
of the nuclear liability, the cleaning-up liability, which in
1994 was estimated at £9 billion. In 1997 that was estimated
at £7.2 billion, a saving of nearly £2 billion. We have
a report by a firm of consultants who estimate that the savings
which should accrue from the change which has been made to the
structure of this industry, should be of the order of 25 per cent,
and it is 25 per cent of a very large number. So this was a policy
which was designed to protect the taxpayer.
63. So what do you say? I know you have
insisted that you feel the whole of this sale or privatisation
has been a resounding success, but I just want to try and get
a figure on it though, so what do you estimate to have been the
benefits to the taxpayer brought about by the sale, the net benefits,
taking into account the immediate losses that you quite obviously
see in the share prices as they have rocketed since privatisation?
(Mr Scholar) Well, the taxpayer received £228
million from the sale. The sale costs were around 5 per cent of
that. I know Mr Williams does not agree with that analysis, but
that is what I believe to be the case. So there was a substantial
benefit for the taxpayer from the sale itself. I may add that
when the sale was first mooted, general reaction in the press
and in Parliament was that there was very little value to be got
from this company.
64. I am not surprised at all that there
was great delight and hand-rubbing going on in the City perhaps
that here comes another great privatisation where the taxpayer
is going to be fleeced, but I wanted to know just from you, you
were talking about the benefits that the transfer of liability
from the public sector to the private sector might bring, so have
you got a figure for that or not?
(Mr Scholar) Yes, I would say that on present
estimates the change of policy in dealing with the decommissioning
of nuclear waste is estimated to save the taxpayer £1.8 billion.
65. And that was solely to do with AEA Technology's
privatisation, not associated changes?
(Mr Scholar) No, it is associated with the whole
restructuring of which this is an important part.
66. It is a part of it, right. Let me just
ask you about the phasing of the sale again. You mentioned before
to Mr Maclennan that there were various considerations given by
your Department to phasing and yet in paragraph 3.5 of this Report,
which I presume you have agreed—am I right in that?
(Mr Scholar) Yes.
67. It says that the DTI did not even investigate
the case for phasing. Why is there this discrepancy here?
(Mr Scholar) The Report says that the DTI decided
against phasing, but did not investigate the case for phasing.
68. Yet you said some minutes ago that you
had investigated the case for phasing.
(Mr Scholar) No, I explained to the Chairman and
to Mr Williams that the reason why the Department decided against
phasing was that it was firm government policy that there should
not be phasing and that there was no value-for-money reason for
going ahead with phasing.
69. But you investigated this idea. What
I am just trying to find out is whether this was entire incompetence
or whether it was a deliberate decision not to go for phasing.
We read in the Report that there is very little previous experience,
if any, of handling flotations in this Department in the team
which actually dealt with this whole AEA Technology sale, so was
it that you were unaware and you were operating blind, in the
dark about this whole sale, or did you actually investigate it
and come to a conscious decision, having looked at all the facts,
not to phase, so which was it?
(Mr Scholar) It was a decision in fact of the
House of Commons not to phase.
70. No, it was not a decision of the House
of Commons. There is a difference between phasing a sale and an
Opposition amendment about one particular point in time. What
I am trying to find out is did you advise your Ministers that
they should phase this or not?
(Mr Scholar) We did not offer advice to Ministers
on the point.
71. So you did not advise Ministers at all——
(Mr Scholar) We did not.
72. —— that there might be potential
losses if phasing did not take place?
(Mr Scholar) No, there was no paper, there was
no advice given to Ministers on the point.
73. Was this contrary to Schroders' advice?
(Mr Scholar) No, Schroders and Cazenove offered
no advice that phasing would be beneficial.
74. So let us just ask you on this point,
are you on performance-related pay?
(Mr Scholar) Yes.
75. You are, and were the other officers
involved in this whole fiasco also getting performance-related
pay?
(Mr Scholar) All senior civil servants' pay is
in part related to performance.
76. So when your colleagues and yourself
made the decision not to advise Ministers perhaps about the potential
losses and the lack of phasing, do you feel that you deserved
the performance-related bonuses that you might have subsequently
got?
(Mr Scholar) Yes, because I do not think that
phasing offered any benefit to the taxpayer and in not proposing
phasing, we were following the clear line that we knew Ministers
to be following.
77. So you do not accept that if the Government
had a 40 per cent share retained today in AEA Technology, it would
be worth £230 million, which is actually £6 million
more than the total proceeds altogether?
(Mr Scholar) No, I do not accept that.
78. You do not accept that?
(Mr Scholar) I do not accept that.
79. Could I just ask Mr Lazarus a few questions
about Schroders and this success fee because you are a Director
of Schroders—am I right?
(Mr Lazarus) Yes.
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