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Lord Peston: I am sorry to interrupt the Minister. I thought it would be a convenient moment as he said something very definite and clear. If the Minister looks at page 16 of the Bill, Clause 2 of the Schedule has the heading,

The clause states:

    "The Treasury or, with the consent of the Treasury, the Secretary of State may at any time acquire ... securities of a successor company".

There is something a little further on relating to the selling of securities in successor companies. I interpreted that, possibly erroneously, as being included in the Bill for a purpose; that is, that the Government would not sell 100 per cent. of the AEAT, but would have the opportunity to continue to own some of it. I interrupted the Minister, I am afraid discourteously, to ask whether that is a complete misinterpretation.

Lord Fraser of Carmyllie: The noble Lord identified in that provision that,

    "The Treasury or, with the consent of the Treasury, the Secretary of State may at any time acquire ... securities of a successor company, or ... rights to subscribe for any such securities".

In his opening remarks I understood the noble Lord to be asking whether a set of special share arrangements is contained in the Bill. There is not. There are these more general provisions but I am anxious to avoid suggesting to him that we have in any sense in a bottom drawer a set of proposals that we would pull out. The noble Lord may again think that we are being unduly cautious about this and that we ought to come forward and say exactly what is our preferred manner of disposal. However, I repeat that I would have thought it more appropriate to leave that until we get to the autumn.

Lord Peston: The noble and learned Lord may have misunderstood me slightly. I did not for one moment think that there was a bottom drawer or, even if there was, that he would tell me what is in it. I was simply trying to find out the purpose of the paragraph. Am I right that the purpose of the paragraph is to enable the Treasury, or the Secretary of State with the consent of the Treasury, to acquire some of these shares in the successor company? That is what it says. I assume, without pushing the Minister, that they would acquire them for a reason. I gave reasons, but that is different. I do not expect the Minister necessarily to agree with my reasons. I simply want to know whether I am right that

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that power is there so that the Treasury or the Secretary of State could acquire such shares. Otherwise it does not mean anything.

Lord Fraser of Carmyllie: At an earlier stage the noble Lord was anxious to ensure his reputation as one who wants plain and simple language in legislation. Looking to the terms of paragraph 2 of Schedule 2, it would seem to me clear enough that the Treasury may at any time acquire securities in a successor company. However, if I am wrong about that, I shall write to the noble Lord. I do not believe there to be anything strange in that. Indeed, I believe it to be simply a standard provision.

Lord Clinton-Davis: Perhaps I may look at this issue from another point of view to supplement what my noble friend Lord Peston has said. We take the view—this was clear in our Second Reading contributions and in today's debates—that AEA Technology will carry out work that is crucial to the United Kingdom. It is involved in research into decommissioning and the operation of nuclear power stations and in extensions of that research into other areas. It is undoubtedly a critically important industry. It is the kind of industry in respect of which in the past the Government retained a golden share, a golden share designed to be able to assert the national interest, notwithstanding the competition laws of the European Commission which permit, as I think the noble and learned Lord will agree, foreign ownership to be excluded as a matter of principle. Provided it can be asserted successfully by the Government that a vital national interest is involved, they are perfectly entitled to operate through those procedures.

Does the noble and learned Lord accept that in principle at least it is correct that one does not have to adhere to the ordinary rules relating to competition if one can establish that a vital national interest is involved and that foreign ownership—even ownership from within the European Union—would not be acceptable? That is a general legal proposition that I put to him. I do not expect him to assert with me that AEA Technology could fall into that category. What I want to do is establish that there is at least a point of agreement between us with regard to the law. The rest can take care of itself. I should like to hear what the Minister has to say about that.

Lord Fraser of Carmyllie: I can briefly answer the noble Lord by going back to what I said earlier. A wide range of options is available to the Secretary of State in taking this forward. However, I was seeking to emphasise to the noble Lord, Lord Peston, that as we looked at matters we did not see that there was any value to AEA Technology if we were to seek to continue to maintain a particular arrangement within it on the lines of special shares or the like. I then went on to spell out that in paragraphs 1 and 2 of Schedule 2 there are provisions which would allow the Treasury or the Secretary of State to acquire securities of a successor company. What I am at pains to emphasise is that there is nothing buried in the schedule that is to be taken as an indication of a particular model that we would wish to pursue in taking forward this privatisation.

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Lord Peston: I thank the noble and learned Lord. Occasionally what I am asking is less than he assumed—and this is one of those occasions. I am particularly impressed with the argument that paragraph 2 of Schedule 2 is a standard clause anyway and therefore that the authority to dispose of any securities in Clause 7(2) is also standard. Given that, I am somewhat intrigued that nonetheless the power remains both to acquire securities of the successor company and to sell them. Therefore, even if the Minister would not want to do any of the things to which I have referred, someone else might want to do them, so that is an extremely useful clarification. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Clinton-Davis moved Amendment No. 33:

Page 16, line 9, at end insert:
("( ) Before any disposal by him of securities in any successor company the Secretary of State shall offer those securities for sale to the employees of that company.").

The noble Lord said: In moving this amendment it may be for the convenience of the Committee to take with it Amendment No. 39. The Minister said earlier—I hope I am not misquoting him: I am not against misquoting him but I do not want to do it deliberately—words to the effect that the Government are anxious to involve employees as much as possible in privatisation. With respect, the enthusiasm of the Minister has some limitations, as I hope to demonstrate in a moment or two.

If we are to go down the route of privatising this enterprise, we believe that the right thing to do in the light of the characteristics of this industry—the nature of the workforce, this being a "people control enterprise", and so on—is to have a preference in the Bill for a management/employee buy-out. It is important to do that for a whole variety of reasons, some of which were set out in an article in the Financial Times on 15th February 1994. The article referred to the desirability of selling the industry in a unitary way. It went on to say that,

    "the assets being sold will consist largely of the employees' brainpower rather than plant and equipment. Valuing the business will therefore provide a special challenge to City advisers".

The leading article in the Financial Times on that day stated that,

    "the ideal solution must be a management buy-out. This would create a sense of partnership among the company's employees, and guarantee the AEA the independence to underpin its credibility as a consultancy. However it may be too much to expect a state-owned scientific agency to make that sort of leap in one bound—particularly when it does not even have a chief executive".

In fact, it did acquire after that a chief executive.

That summarised the situation very adequately. However, the position of the Government is in marked contrast to that which was utilised in relation to the Railways Act 1993. In that Act, provision was made under Section 141, which gave financial assistance for employees who were seeking to acquire franchises or part of the board's undertaking. Therefore, they were given a priority which is singularly missing so far as this Bill is concerned. The Minister made an assertion that they are anxious to involve employees as much as possible in privatisation. What does that mean? Why is

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there a distinction drawn between the route that was followed under the Railways Act and the omission of such a provision from this Bill?

My amendment goes further than Section 141. The Minister could at least give us an indication tonight that the Government will be prepared to import just such a provision into this Bill. That would be a very good message. It is fair to say that, in relation to the Bill, although the Government said that they were quite satisfied I was wrong, in fact a priority of this kind might offend European Community law. The Government said I was wrong about that. Let us accept that for the sake of this argument. In those circumstances, why do not the Government show some consistency and say that Section 141 of the Railways Act provides an ideal model for what we should be doing here? That is the best way in which to translate into reality what the Minister said earlier. This is an appropriate amendment to pursue and therefore I have pleasure in moving it.

8.30 p.m.

Lord Fraser of Carmyllie: The noble Lord made reference to a number of observations which I offered earlier, not least by saying that I recognised that one of the management's key tasks, now as well as after privatisation, was to ensure that the staff were properly "incentivised". The noble Lord, Lord Peston, took exception to that word. I was scorched by his observation and instead I say that they should get the proper incentives to motivate them. I am happy to do that, because the performance and profitability of business depends on staff responding to incentives that are attractive to them.

The Government would be prepared to consider seriously any bid from a management and employee buy-out consortium. As the Committee will know, bids from MEBOs have been a feature of many competitive trade sales. Benefits can include increasing the level of competition, maximising sale proceeds, and, in many respects, pre-eminently maintaining the commitment of management and staff in the run-up to a sale. As I have already indicated as regards employee participation, the Government believe that it is indeed in the long-term interests of any privatised company that a significant measure of employee share ownership should be provided for. Accordingly, the Government will look carefully at any proposals for employee participation put forward by the management of AEA Technology or its successor.

In the course of this Committee stage, on a number of occasions I have been asked to draw parallels with other privatisations. They do not seem to be wholly apt, although in many respects at the end of the day the aim is the same. They are not wholly apt because we are not seeking to privatise the complete entity. Here we are seeking to extract part of it, albeit a very important part. I should prefer to rest on the basis that the undertaking that I have given on behalf of the Government, with the assurance that we look at such a proposal very

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favourably, is the right one, rather than offering, as I understand, particularly the provisions of Amendment No. 39, which state:

    "Before disposing of its securities in any successor company the Authority shall offer those securities for sale to the employees of that company".

There may be a prospect that such an arrangement would be desirable, but to impose such an absolute duty would not be appropriate. I hope that, in view of the assurance I have given, the noble Lord will be satisfied.

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