Government Trading Funds Bill

Part of New Schedule – in the House of Commons at 12:00 am on 19th June 1973.

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Photo of Mr John Nott Mr John Nott , St Ives 12:00 am, 19th June 1973

With the permission of the Committee, I shall endeavour to answer some of the questions that have been put to me. But first I should like to thank my hon. Friends the Members for Cirencester and Tewkesbury (Mr. Ridley) and Dartford (Mr. Trew) and my hon. and learned Friend the Member for Dover (Mr. Peter Rees) for their warm welcome for this modest Bill. In the course of my remarks, naturally I shall endeavour to allay some of the fears expressed by the hon. Members for Dearne Valley (Mr. Edwin Wainwright) and Stoke-on-Trent, Central (Mr. Cant).

Although I describe it as a modest Bill, nevertheless it contains some important innovations. I believe, and can certainly give my assurance on this to the hon. Member for Stoke-on-Trent, Central, that we should maintain and endeavour to enhance in every way the high reputation for service and quality of the organisations described in the Bill. There is nothing in the clauses that could adversely affect these organisations in the way that he feared.

To take an example to which he referred, the Royal Mint has a worldwide reputation, and it has just been awarded the Queen's Award for Industry for its export achievements in competition with mints throughout the world. When the Royal Mint becomes a trading fund there is nothing contained in that change which would in any way diminish its image—I think that was his term—and reputation for quality, and the service provided by this excellent and famous organisation.

I agree with my hon. Friend the Member for Cirencester and Tewkesbury that we must do all possible to improve the performance of the public sector. The trading funds will be within the responsibility of Ministers, enabling me to answer the hon. Member for Nottingham, Central (Mr. Dunnett) by saying that questions may be put to the Minister responsible for the trading fund concerned. The Royal Ordnance Factories are the responsibility of the Secretary of State for Defence, and questions may be put on matters which come within the responsibility of the Secretary of State for Defence, as they are now.

In every case the adoption of trading fund finance is part of a wider series of management changes in the organisation concerned. It is designed to give the management of the organisation more clearly defined tasks. We want to give the management greater freedom as to how those tasks may be performed, and hold the management more clearly accountable than they are now for the results. The trading fund financing that we introduce in the Bill is a means of facilitating other desirable changes in the public sector, rather than an end in itself. We share the wish of my hon. Friend the Member for Cirencester and Tewkesbury that the public sector should be made as efficient as possible in its operations and this modest measure is, as he appreciates, a move towards that end.

There is a great deal of work going on in the public sector at present with this in mind. When my hon. Friend implied that perhaps not enough was being done, I think he tended to minimise the great amount of work being done here.

My hon. Friend also said that he thought the Bill should go further. It might be of interest to the Committee if I set out the circumstances which might make a particular activity of Government suitable for trading fund status. I might list a few examples where a particular activity of Government would tend to lead us to suggest that it should have a trading fund, which would be where the nature of the service is such that a substitution of trading fund finance for Vote finance, would be more conducive to efficient management; a situation where it is possible to cover the costs either through charges for supplying goods and services, or by charges for meeting particular policy requirements. In other words, we would see this particular trading fund as being able to cover all its costs through its trading activities.

More generally, we would see whether the basis on which the service is to be organised is such that it will be possible to separate clearly the responsibility of its management from those of its customers and whether there exist adequate accounts and other means of assessing the performance of the trading fund to form a reasonable basis on which it could be held accountable. That does not mean, however, that the Government are not looking at other means of dealing with activities in the public sector.

As my hon. Friend knows, in some cases the Government have suggested the complete hiving off of activities. An example of this is the proposed establishment of the Manpower Services Commission under the Employment and Training Bill. In other cases the need has been sufficiently met by establishing executive agencies within government and an example of that is the Property Services Agency of the Department of the Environment. In each case we look at the activities of government and try to decide which organisation would be most conducive to the maintenance of its reputation and activities and to the maximum efficiency with which it might be run.

My hon. Friend also raised two questions, and I think my hon. Friend the Member for Dartford touched on this point about how we would regard public dividend capital. It is an important matter because it has recently been considered by the Select Committee for Nationalised Industries and generally speaking we would keep to the outline set out by my right hon. Friend the Chief Secretary when public dividend capital was debated in the House on the 9th August 1972, when he referred to three criteria to be looked into in deciding whether public dividend capital might be suitable.

The Chief Secretary had in mind first, that the enterprise must be viable and must be required to meet specified financial targets. Secondly, there must be an expectation that dividends will be paid, although not necessarily every year, and that the earnings over a period will at least equal the interest that would have been paid on fixed interest capital. Thirdly, there must be genuine fluctuations in earnings from year to year because of the nature of the commercial business undertaking. In fact, the enforcement of the first rule that the enterprise must be viable and must be required to meet specified financial targets will go a long way to meet the criticism which the Select Committee made of the use of public dividend capital in the case of the British Steel Corporation.