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Lord Rea: As always, the noble Baroness is very persuasive but she has not persuaded me or other Members on this side of the Committee that our amendments are not the way forward.

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It is not necessarily the intention that these amendments should be the final version of how the foundation should be described. They were put forward as an encouragement to the noble Baroness to come forward with what she believes to be better proposals which are more acceptable to the Government. In tabling the amendments, we were trying to demonstrate that these matters are not dealt with in the Bill as it stands.

When speaking to the first amendment the noble Baroness, Lady Elles, said—at least as we understood it—that the further elaboration of the Government's future intentions in that regard should come before Parliament. The passage of this Bill provides a golden opportunity for the Government to describe their future intentions either by agreeing to an amendment similar to that which we propose or by tabling their own amendments.

I do not believe that the noble Baroness is being logical when she describes what is to happen next but refuses to put that on the face of the Bill. She said that it is not intended to alter the objectives of the foundation for three years. But where do we see that on the face of the Bill? It may be that there will be a change and a less sympathetic Minister takes her place. That may mean that the Crown Agents will go in a very different direction indeed.

We shall not divide the Committee on this amendment. However, I ask the Minister earnestly to make proposals before Report stage so that we can have more than just a feel, as she said, for what is in her mind. We need to have evidence written on the face of the Bill which will provide some substance rather than statements which we have to take on trust. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5.15 p.m.

Clause 2 [Provisions with respect to capital structure]:

Lord Judd moved Amendment No. 6:

Page 2, line 13, leave out subsection (2).

The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 8 and 9. The purpose of these amendments is to obtain a clearer indication of the Government's intentions than is presently contained in the Bill.

I am sure that the Minister will understand that on these Benches, we are not altogether convinced that there is a clear unanimity of view in the Government about the future of the Crown Agents. We believe that there are different schools of thought which are pursued quite actively. The Minister knows that we identify with her objectives. We have no doubts as to her good will and intentions. But we are worried about those who may not share those intentions. We beg her to see that everything for which we are arguing today aims to strengthen rather than undermine her position.

Our proposed amendments to Clause 2 remove all reference to Ministers imposing an assumed debt on the successor company. The Government are already claiming immediate repayment of the remainder of the

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debt which the Crown Agents assumed on their incorporation. We believe that Ministers should not saddle a new company with a further initial debt unless they can justify it and specify the sums involved at an early stage. This would be the appropriate time for them to do so.

Members of the Committee on all sides have already made clear their anxieties about the initial capital structure of the new company. They have also expressed deep anxieties about the security of the Crown Agents' staff and the pensions of past and present employees. When I re-read the Second Reading debate I was struck by the Minister's forceful proclamations of intention. One of the most moving and powerful passages in her remarks was about the courageous, loyal and outstanding service of Crown Agents' staff in the past. Therefore, that is not something that we should treat lightly. The anxiety which we wish to highlight in the amendments is in relation to the connection between pension funds and the capitalisation of the new company.

The most recent figures in the 1993 annual report value the assets of Crown Agents at just under £16 million. The same report gives the market value of the pension scheme's assets in March 1990 as nearly three times that figure; the surplus value today after pension liabilities are taken into account may be as much as twice the value of the Crown Agents themselves.

So we are bound to wonder which privatisation represents the greatest loss to the public purse, that of the Crown Agents' business or that of the Crown Agents' pension funds? I want to ask the Minister this direct question: is the provision for imposing an assumed debt intended to recoup the loss to the public purse of the value of the pension fund by extracting interest payments equivalent to the savings made by Crown Agents by virtue of their continuing pension contributions holiday? Indeed, if we want to give a fair wind to the enterprise in its new form—something in the interests of all parties—we must consider the implications of resources for necessary restructuring to meet the challenges ahead. I would be grateful if the Minister could answer my question in her reply. I would ask the Committee to consider whether that amounts to funding privatisation of Crown Agents from the pensions surplus that rightly belongs to the past and present staff of Crown Agents, in spite of the tightening up of pensions rules currently being considered by Parliament.

At the end of the day, what matters is this: the financial viability of the Crown Agents if they are removed from the public sector. While I fully appreciate the tremendous work being done by Crown Agents and their capacity to make the most of fresh, commercial opportunities, I am not as sanguine as the Minister about the certainty of the business making great profits in the private sector at the same time as adhering to the social and developmental objectives which the Minister so rightly underlined. We should not saddle them with any extra debt burdens if we are to oblige them to venture on to the risky path of operating in the open market with a well-defined social purpose.

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There is one other related point which the Minister may wish to address while we are considering the question of initial capitalisation. At present, part of the remit of the Crown Agents is to obtain the best possible deal for clients in the use of their funds. That is the attraction of working through them. It is no doubt why this highly efficient business returns only a very modest profit and would not break even at all without the benefit of the pension contributions holiday to which I referred.

How will that change the foundation that the Minister envisages? Will the foundation she intends to create still be free to obtain the best available return for itself, or will it be obliged to obtain the best possible deal for its clients? I suggest that it cannot do both. Will the purpose and principles to be enshrined in its constitution include a duty to make only sufficient profit to fund its ongoing work, or will it be free to maximise its profits at the expense of those governments and agencies that it currently serves?

The amendment I wish to move to Clause 3 removes subsection (2) which prohibits the Foreign Secretary from directing the successor company to issue securities in the company to him once the company has ceased to be wholly owned by the Crown. The intention of the amendment is to explore just how the Government intend to maintain reserve powers in the foundation for a five-year period after privatisation of the successor company.

The Minister said that that is the Government's intention in order to ensure that the foundation continues to adhere over that short period to its initial commitment to developmental purposes and principles. Indeed, the noble Baroness re-emphasised that point during today's deliberations. The most obvious formula for doing so is for the Secretary of State to hold some type of golden share in the foundation and to be able to increase his shareholding if the foundation strays from the agreed path. Yet the subsection that we are considering appears to rule out that option. If the Government's intention is not to hold a golden share and retain the option of increasing it, how will they exercise the reserve powers to which the Minister referred?

Again, I should be grateful if the Minister would address that point in her reply. In another context, bearing in mind the firm strictures of the scrutiny committee, I hope that Members of the Committee will agree that the Bill should not refer to the point at which the successor company has ceased to be wholly owned by the Crown without first spelling out the details of how that transfer of ownership is to be conducted. I beg to move.

Lord Redesdale: I should like to speak to Amendment No. 7 which is really a probing amendment. I admit that the way the amendment is phrased would not suit legislation, but the aim is to raise a few questions that I hope the Minister will be able to answer. In fact, all the amendments in the group deal with the debt that the Crown Agents will inherit. Before we reach the next stage of the Bill's proceedings, could the Minister give an indication of the amount of interest to be paid by the Crown Agents as part of their penalty for

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realising their debt too early? It is rather unusual that the Crown Agents, which are being put into the private sector by the Government, should then suffer a penalty clause for actually having to repay the loan; indeed, they have to do so by law. That is the aim behind the suggested removal of lines 16 to 18 in Clause 2.

The amendment also puts forward the question of how the Crown Agents will pay the outstanding debt to the Consolidated Loans Fund. Is it the Minister's intention that the pension contributions paid by the Crown Agents, which are now being used for restructuring the company (as regards the pension contributions holiday) should be used to pay off the outstanding debt to the loans fund?

Is it the Minister's intention—and this is the heart of the amendment—that the successor company to the Crown Agents should have a financially firm basis? Does the noble Baroness envisage that money will flow from the Crown Agents over a long period of time to the Treasury, as I believe will most likely happen, or, most unusually, will money actually flow from the Treasury to the Crown Agents to start it up? I return to the point that was raised earlier; namely, that we are dealing with a slightly strange enabling Bill. I believe that it is an unusual enabling Bill. We are privatising a company which will produce no dividends for shareholders.

I have one further question to ask the Minister which is raised by the amendment. The Minister mentioned that the holding company may have charitable status. Can he give some indication of whether the members of the foundation—that is, those who are now keen to become such members—would also be keen to become charitable trustees? I believe, although perhaps the Minister will be able to give me some indication in this respect, that charitable trustees should manage their money in the way that would give the best return on the assets of the charity. That could come into conflict with the set aims of the foundation. I realise that I have asked the Minister many questions. However, that was the purpose behind the amendment. Unless those questions are answered, I fear that we may have to bring forward many more amendments at the next stage to clarify the position.

5.30 p.m.

The Viscount of Oxfuird: I, too, wish to speak to Amendment No. 7. During the Second Reading debate I referred to the remarks of my right honourable friend the Foreign Secretary, who described the Bill as "privatisation to preserve", and extended them to describe it as privatisation to preserve and enhance. I believe that emphasises that this is a rather special form of privatisation.

The new body created will not be the property of private shareholders like British Telecom or British Airways, with full commercial freedom to go to the market to seek additional equity or funding, but a foundation—a company limited by guarantee—which will be unable to distribute profits or assets to guarantee members, but equally—I repeat and re-emphasise this—

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will have no access to further equity capital. That is why we must be so careful to ensure that the new body starts off with an adequate balance sheet to see it through the many uncertainties which will inevitably lie ahead.

It is my view, however—which I should like to urge upon my noble friend—that the Bill should not demand the repayment of the commencing capital debt but should reinforce the balance sheet of the new body by converting that debt into permanent capital. If early repayment of the outstanding debt is forced upon the new body, and if further debt is imposed upon it, then that would weaken the balance sheet significantly. In transferring the Crown Agents' activities to an independent foundation we are doing nothing to alter their fundamental nature and should therefore not expect any dramatic changes in the level of profitability that the new body is likely to achieve. In making these points I realise that the Treasury has a real responsibility to protect the interests of the taxpayer.

In any organisation the Treasury role is usually a difficult and an unpopular one. But the role of the Treasury is only one of the factors that we in Parliament must consider and support. Very often there are wider issues that must also be considered. It is therefore vital that we should ensure that the new body is born with financial muscle, in the tangible form of a strong balance sheet, to be commercially viable.

It was Walter Bagehot who said in the 19th century,

    "The Crown is, according to the saying, the 'Fountain of Honour'; but the Treasury is the 'Spring of Business'".

If we can achieve a strong financial base for the new foundation I am sure that it will succeed. If not, we risk seeing our fledgling body swept away and destroyed early in its young life. I very much hope that commercial reality will overcome the problems of short-term expediency and that we shall finish up with a new foundation with the strength and financial viability to sustain itself for the years to come. May the Treasury act as a spring.

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