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Lord Judd: My Lords, again I thank the Minister for her courteous reply. It would be remiss of me not to underline the fact that what she has said on this amendment again raises an unsatisfactory constitutional question. One can only commend the Minister's candour but that candour only underlines our anxiety. She confesses that we do not yet know exactly what it is that we are being asked to enable. That is why we suggest that safeguards must exist to ensure that Parliament has the final say before the deed is done. Otherwise, by this Bill, we are enabling something to happen and we do not know what that something will be. We have the Minister's good will. I repeat almost ad nauseam—although it is not ad nauseam because I have so much regard for the Minister—that we do not doubt her intentions. But, in a democracy, it is not responsible to legislate by intention. We must legislate by substantial proposition. The point is that we do not know what is the substantial proposition. That is the first point.

I was even more troubled, as I listened to the Minister, because I would have held her out as a shining example of an exception to the arrogance of government which, in so many other realms of the current Administration, begins to disturb us all. Yet she has told the House that safeguards would lead to delay and we must not envisage that those safeguards should be insisted upon because of that delay.

We are not talking about delay or lack of delay. We wish to get right the legislation which we are enabling and we wish to fulfil our responsibilities as trustees of the nation's assets. If our arrangements in this place or the other place lead to delays, that is unfortunate but is no reason for not taking seriously our responsibilities.

I listened carefully to what the noble Baroness, Lady Elles, suggested. She is a person of so much standing and experience that what she says cannot be lightly cast aside. I am not happy about the situation, but the Bill will be considered in another place and I just hope that the Minister, for whom I have such a high regard, will live up to her high reputation for taking seriously not just the letter but the spirit of ministerial responsibility. I hope that she will ensure safeguards for the public

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interest and that before the matter reaches the other place she will find ways in which to ensure that we no longer continue with this unsavoury business of being asked to buy a pig in a poke. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 [Provisions with respect to capital structure]:

The Viscount of Oxfuird moved Amendment No. 3:

Page 2, line 10, leave out from ("be") to end of line 12 and insert ("converted into equity").

The noble Viscount said: My Lords, the fact that the Bill has progressed to this point warrants the support of us all. My noble friend has nurtured it through her department and the Treasury. It is to be hoped that we are not that far from a situation in which we can pass to the Crown Agents the organisation which they seek: a foundation which will enable them to continue to overcome the vicissitudes which inevitably lie in wait for them. Theirs is a world which cannot but have directed at it the spotlight of national and international attention. As such, they must not face the burden of penury.

This amendment again draws to your Lordships' attention the fact that this new body, created under the Bill, will not be the property of private shareholders. It will not be a British Telecom of a British Airways with the freedom to go out into the market and seek additional equity or funding. For one moment we must put ourselves into the shoes of the directors of a company. We must ask ourselves what corporate management would accept a debt of £2 million on its balance sheet under such terms and report with confidence to the shareholders that all is well. Indeed, what auditor would not seek to raise more than an eyebrow over such a situation?

With the limitations attaching to the structure of its potential foundation, the management would have every right to seek comfort in legislation, particularly in relation to the conversion of debt into equity. There is a commercial wisdom in that action and the will must somehow be found to make it a reality. I beg to move.

Lord Rea: My Lords, this amendment is grouped with Amendments Nos. 4 and 5. I shall speak to all three amendments but shall direct my remarks in particular to Amendment No. 5.

On Second Reading, the noble Viscount, Lord Oxfuird, and other noble Lords on all sides made clear their anxieties about the initial burden of debt which the successor company would be expected to carry. The amendments in the name of the noble Viscount, Lord Oxfuird, suggest one safeguard, and my Amendment No. 5 proposes another. Both have the same aim.

A month ago the Minister said that it was premature to take a decision on what should be the balance between the interests of the Crown Agents and the taxpayer. Perhaps she will now be more forthcoming. It will certainly be interesting to hear whether she agrees that a debt of no greater than 10 per cent. of the value of the Crown Agents group is in the same general area that she is considering.

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The noble Baroness said that she did not want the debt and capital structure of the new company enshrined in legislation. It is quite difficult to see what the Minister does want enshrined in legislation. I am sure that the Minister will listen to the advice of the current board of Crown Agents as to the appropriate levels to set. The board may advise and the Minister may accept that the level we propose is too high or perhaps too low. But Parliament is entitled to be concerned that we are being asked to approve whatever level of debt Ministers choose to impose.

Amendment No. 5 proposes a level of no more than 10 per cent. of current value in order to probe the Government's intentions. We wish to signal clearly our view that the initial debt imposed on the successor company should be in reasonable proportion to its assets. We must avoid a situation in which the successor company quickly founders, as we discussed on the last amendment, in the private sector because its capital structure is too weak from the beginning. Therefore, we have tabled the amendment in order to offer some protection to the successor company at the vulnerable point of privatisation. I hope that the Minister's reply will offer an assurance in regard to such protection.

Lord Redesdale: My Lords, I support the spirit of the amendments. I agree with other noble Lords when they speak of their confidence in the Minister. I have every confidence in the Minster. However, I have absolutely no confidence in the Treasury, and I am sure that it will try to get as much as it possibly can from this proposal.

I have two brief questions to ask the Minister. These amendments deal with the financial status of the Crown Agents after transfer. Is it envisaged that the £2 million debt which must be paid back to the loan fund will be paid by the Crown Agents from their employer pension contributions, because at present that fund is on a pensions holiday? Would that be used to finance the debt as opposed to being used to restructure the company? Secondly, will the Crown Agents in the future be left, after the transfer, with sufficient capital equity to carry on their work without being burdened too heavily with debt?

7.30 p.m.

Baroness Chalker of Wallasey: My Lords, we now have a most interesting group of amendments before us. I am grateful to my noble friend Lord Oxfuird for tabling Amendments Nos. 3 and 4 and to the noble Lord, Lord Rea, for tabling Amendment No. 5. I understand why the amendments have been put forward. Certainly, decisions can only be taken on the appropriate financial structure of the company when a full corporate plan has been put to us by the Crown Agents. Of course, that must be based on the needs of the business. We want to take full account of the views of the Crown Agents' board as well as the views of the Government's own financial advisers. That is why I believe that it would be premature to take a decision of such a nature at present.

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My noble friend Lord Oxfuird wants the Crown Agents to start off with a sound balance sheet; so do we. But, if his amendment were to be accepted by your Lordships, we would then find that the new Crown Agents would be launched with 100 per cent. equity capital. I regard—as, probably, does the noble Lord, Lord Judd—the setting up of the Crown Agents back in 1979 with 100 per cent. debt financing as a mistake. However, I do not believe that that means that we should go from one end of the spectrum to the other; in other words, that we should go for 100 per cent. equity. It is not a matter that we should be determining at present. I take full note of my noble friend's concerns, which I share. But I hope that he also shares my concern to ensure that the taxpayer receives value for money when the Crown Agents transfer to the private sector.

The noble Lord, Lord Rea, spoke to Amendment No. 5. I should stress that I cannot alter the response that I gave in Committee. We are all agreed that the Crown Agents should not begin their life overburdened with debt. We are determined to give them a good start. We want to give them the means to have a strong and stable structure within which to carry forward their business into the 21st century on a viable and sustainable basis.

I have explained—and I shall repeat it again—that the Government have no plans to make some great raid on the pension fund as the noble Lord, Lord Judd, seemed to think at an earlier stage. However, as a government, we have a duty to consider value for the taxpayer when we transfer assets to the private sector. That is why I maintain that it would be premature to take decisions now.

The noble Lord, Lord Redesdale, asked me about the pension fund surplus. Obviously, the surplus which allows a holiday on contributions at present is of great value to the business of the Crown Agents. However, I should underline the fact that it is certainly not directly relevant to the pensioners. As I believe the noble Lord knows, the surplus in the pension fund is the amount, as declared every three years by the actuary, not currently needed to contribute to paying the pensioners. Therefore, if there is a surplus, it does not in any way affect what it has already been decided is needed for the pensioners themselves.

There are other ways of sorting out the capital structure, but that cannot be decided until closer to the day when the transfer of the Crown Agents takes place. That is why I also believe that it would be wrong to accept Amendment No. 4 tabled in the name of my noble friend Lord Oxfuird. It could rule out one or other of a range of options for which the Bill allows. My noble friend's amendment would certainly provide for further borrowing from the NLF, but I must tell him that that power already exists under the current Act. However, it is not considered appropriate for private sector bodies to borrow from the NLF. That is why there is a provision in Clause 2 for the current debt to be repaid. Then there are the provisions in Clause 4 which would allow the Secretary of State to lend to the new Crown Agents.

Therefore, within the structure of the Bill, there is a range of options. It is not the time to rule out any options; nor is it the time to rule them in. That is why I

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know I am appearing to noble Lords tonight to be less helpful than they would wish me to be. However, it really does not help the Crown Agents to prejudge such issues. That is what we would be doing if we were to accept any of the amendments in this group. I hope, therefore, that they will be withdrawn.

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