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Lord Fraser of Carmyllie: My Lords, with the leave of the House, I shall certainly reflect on what the noble Lord said; and I should be grateful if he would in turn reflect on my remarks. I certainly did not wish to convey that there was any other purpose behind this clause. It is not framed to achieve anything other than to ensure that the authority has sufficient powers to take the necessary steps to organise itself in preparation for making the transfer scheme.

In relation to the words in the clause,

I sought to indicate that it may be that the authority would have sufficient powers without Clause 3. The process would, however, be far more cumbersome and would almost certainly require greater administrative costs. As I indicated, I do not consider that to be a desirable way to proceed. I shall certainly write to the noble Lord about this matter.

Lord Clinton-Davis: My Lords, I am grateful to the Minister. He will appreciate that this is a probing amendment. It was the only convenient way in which we could tease from the Minister the information that I sought at this stage of the Bill. On the basis that he and I will spend days and nights consuming each other's words to our mutual dissatisfaction, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 [Successor companies]:

[Amendment No. 11 not moved.]

Clause 7 [Disposal by Authority or Secretary of State of shares in successor companies]:

[Amendments Nos. 12 and 13 not moved.]

Clause 10 [Extinguishment of certain liabilities]:

Lord Peston moved Amendment No. 14:

Page 5, line 34, leave out ("except with the consent of the Treasury") and insert ("unless a draft of an order approving such an exercise of a power has been laid before both Houses of Parliament and approved by resolution of each House").

The noble Lord said: My Lords, this amendment is grouped with Amendment No. 15. They concern Clause 10, the rubric of which is:

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    "Extinguishment of certain liabilities".

I assume—again the noble and learned Lord may educate me on this matter—that the lines that I wish to leave out (page 5, lines 35 to 37) are there for technical reasons. One would always insert such lines. The only reason that I suggest they be taken out is in order to make my points about draft orders being placed before both Houses of Parliament.

I am always concerned when liabilities are "extinguished". It is another way of saying that the assets are being sold but the taxpayer still retains the liabilities. That is what "extinguishment of liabilities" means. Liabilities do not disappear. The Government are not passing an Act of Parliament stating that the liabilities do not exist any more. I take "extinguishment" to mean that the purchaser will not be subject to those liabilities and it is therefore a rather serious matter.

This has happened with other privatisation legislation. In my view, this question has not been sufficiently considered by both Houses of Parliament. I do not comment, now or on any other occasion, about the other place; but I am convinced that we in this place have not sufficiently considered these matters. In particular, in respect of other privatisations we have probably been a little lax in allowing liabilities to be extinguished and placed with the taxpayer when they should not have been. My reason for raising the matter is to place those views on record.

En passant, I have a general point to make about financial prudence which refers not only to this Bill but to all such Bills. If a company is privatised on fundamental grounds of prudent finance it is not, and would not be, right to use the proceeds of privatisation for the purposes of changing taxation. On any grounds of serious analysis of privatisation, the proceeds ought to be used for reducing the national debt. In other words, one merely exchanges one set of assets and liabilities for another.

One of the greatest mistakes of this Government over a good many years is that they have not proceeded with prudent finance in regard to privatisation. That point ought to have been made years ago and accepted. It applies to this privatisation, too, even though it will not yield a great deal of money. The correct approach is to say that this is an asset that should be sold, that it really belongs to the taxpayer, and that what the taxpayer requires is a reduction in the national debt, which is a liability in terms of paying interest, either long term or, in the case of consols, for ever and ever. The fundamental point that we need to consider is the extinguishment of liabilities and whether, when that sort of thing happens, this House ought to have a say. I beg to move.

Lord Ezra: My Lords, when the noble and learned Lord replies to the amendment, would he indicate whether, under Clause 10(2), where a limit is set on the aggregate amount of liabilities extinguished, the effect of that could in theory be that nothing at all is realised from the disposal of those assets and that the liabilities extinguished could equal the amount realised from their sale?

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Lord Fraser of Carmyllie: My Lords, as currently drafted, Clause 10 enables debts of the authority to the National Loans Fund to be extinguished up to the value of the proceeds from the sale of AEA Technology, with the consent of Treasury and subject to a negative resolution by either House of Parliament. The clause is effectively drafted in a standard way, as found in other privatisations. The authority's debt is currently serviced largely by income earned from the commercial activities carried out by AEA Technology which are to be transferred by scheme. Some debt may also be transferred to the successor company. In addition, paragraph 11 of Schedule 2 permits the Secretary of State to make loans to a successor company while it remains publicly owned. Successor company debt may also be extinguished by order, again subject to a negative resolution.

Noble Lords may recall—I confess that I was not part of the process at the time—that my noble friend Lord Ferrers stated the Government's policy on the extinguishment of debt when the Bill was read for a second time. Perhaps I may recap. Authority debt extinguished will be matched by sale proceeds and, where successor company debt is extinguished, it will be either converted into debentures, repaid or offset against proceeds.

We have discussed a number of amendments designed to subject the actions of the Secretary of State to parliamentary scrutiny. But since any order extinguishing debt under this clause is already subject to parliamentary scrutiny, I suggest that the amendments have the quality of over-egging the pudding.

The clause only permits the extinguishment of authority loans up to the value of the proceeds. The answer to the question of the noble Lord, Lord Ezra, must, at least in theory, be yes, that could be the position. The proceeds will be paid to the Exchequer. The Exchequer will not be out of pocket because debt is written off rather than repaid from proceeds.

Provided that the calculations are done in present value terms—as stated at Second Reading, that is our firm intention—the net overall effect to the Exchequer will be the same. No one would suggest that the debt should not be repaid or written off against proceeds in that way. The Government's view is that Clause 10 provides the most effective mechanism for achieving that.

The debt transferred to, or incurred by, a successor company cannot be privatised. It will therefore either be converted into securities or extinguished. To the extent that the debt is not converted, there is no statutory restriction as to the amount which may be extinguished (as applies to authority debt) but an order to extinguish can only be made with Treasury consent. That consent will only be forthcoming in so far as proceeds cover the present value of the debt to be written off.

On more than one occasion I have indicated that we have no intention of privatising AEA Technology at any cost. But in the event that there was any reason to think otherwise, the control mechanisms placed on the Secretary of State by this clause already provide Parliament with the opportunity to bring him to task.

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The noble Lord included in his remarks a set of more general observations about how these matters have been handled in previous privatisations. All I can say to him is that what has been done here is much the same as was done in previous cases. But this is not an appropriate moment for me to re-open that broader policy approach contained in earlier privatisations.

Lord Peston: My Lords, I thank the noble and learned Lord. I was being rather mischievous in discussing the general question of public finance at this stage but I have to take my chances when I spot them. I thought that the point of the noble Lord, Lord Ezra, was central. In due course we should like to know—the point he made—what actually happens. There is the theoretical point that the net sum could be zero. It turns out that it cannot be negative at least. However, one hopes that we shall not be anywhere near the zero end of the spectrum and that there will be a considerable net benefit to the Exchequer whatever else happens.

I am grateful for the noble and learned Lord's reassurance that there is still room for parliamentary scrutiny on some of these matters. In particular, subject to that reassurance, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 15 not moved.]

4.15 p.m.

Schedule 1 [Transfer schemes: supplementary provisions]:

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