Harbours, Docks, Piers and Ferries

Part of the debate – in the House of Commons at 4:09 pm on 5 December 1996.

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Photo of George Young George Young Secretary of State for Transport 4:09, 5 December 1996

The port of Dover has given an undertaking voluntarily to privatise itself in 1997.

With that background on the Government's ports policy and the Ports Act, I come to the privatisation of the Port of Tyne Authority. Our intention in seeking the compulsory privatisation of the Port of Tyne Authority is to create an opportunity for the port to share the benefits gained by the entrepreneurial and innovative approach more generally found in the private sector.

The Port of Tyne Authority has not ruled out privatisation. Indeed, in the authority's response of September 1995 to the consultation on compulsory privatisation, it states that it welcomes the provisions of the Ports Act that enable voluntary privatisation, and even accepts that compulsory privatisation may be needed in certain circumstances. However, it does not consider that its port would benefit. With all respect, however, and in no spirit of criticism, I have to say that it cannot be disinterested, and that it is only natural for the authority, and indeed for others connected with the port, to perceive proposed privatisation as a threat or criticism. It is not.

Privatisation is based on the general experience, in this country and others, that it brings a change of culture that benefits and improves overall performance. Taking the port fully into the private sector will not undermine what has already been achieved. Rather, it will open up more opportunities for innovation and entrepreneurial development, to the benefit of port users and the wider Tyneside community. Privatisation can be expected to lead to a more dynamic approach to investment, exploiting more fully the authority's financial capacity, to the benefit of the region. So we believe that the port's future development will be best handled in the private sector.

I should like to deal with some of the concerns that have been expressed in the consultation exercise. Some concern has been expressed about timing, arising mainly from uncertainties because of decline in the coal trade. It is not surprising that there have been both positive and negative developments in the port's business in recent years—that is the nature of the ports business. Waiting for a steady state would mean that no port could ever be privatised. Potential purchasers and their advisers should have no substantial difficulty in assessing and allowing for any uncertainties in the future business of Tyne. The port has indeed shown that it can adapt to changing trade patterns.

The powers of compulsion in section 10 of the Ports Act enable me compulsorily to privatise any trust port with a turnover exceeding £5 million, at 1991 prices, following consideration of responses to a succession of consultation exercises, and with the consent of Parliament.

My right hon. Friend the previous Secretary of State consulted the Port of Tyne Authority, in June 1995, to ascertain its views on privatisation, and it was asked to respond within three months. As I explained, we were not convinced by the authority's arguments against privatisation, and I wrote to the chairman on 15 November last year to direct the authority to form a company and prepare a transfer scheme, to enable the authority to transfer all its property, rights, liabilities and functions to that company. A model transfer scheme was provided to the port authority for consideration, and the actions were to be completed by the end of February this year. The Port of Tyne Authority complied with that timetable and advertised its scheme in March, inviting anyone who wished to do so to send representations to me.

The scheme submitted by the Port of Tyne Authority, although based on a model provided by my Department, included a number of additional provisions that would have been likely to constrain the operation and development of the port, which I shall come to in a moment. In my view, it would not have been possible to make the scheme accord with advice previously given. I therefore considered making my own scheme, as provided for in section 12 of the Act, and consulted the Port of Tyne Authority and considered its views before advertising the proposed scheme and inviting representations.

Following consideration of the representations, I was and am still minded to proceed. My proposed scheme forms the schedule to the order before the House. It follows closely the transfer schemes used in previous privatisations, including that in Ipswich, which was approved by Parliament earlier this year. I considered the additional provisions proposed in the Port of Tyne Authority's scheme to be unacceptable and unnecessary. Their removal was the main focus of representations made to me on my proposed scheme.

The provisions raised an important and difficult issue. A transfer scheme concerns the transfer of property, rights, liabilities and statutory functions of the port authority to a successor company. It is not appropriate for such a scheme to contain provisions that are not directly connected with the transfer but intended to impose new, on-going commitments on the successor company. There is even a question whether such on-going provisions would be intra vires.

Such doubts and the difficulty and inappropriateness of each of the proposals led me to propose my scheme. As I said, it follows very closely the schemes used for all the voluntary privatisations and the scheme being followed for Ipswich, which was discussed in Committee earlier this year.

The authority's proposals covered aspects of pension and employee rights. There is, of course, general protective legislation in those matters, which will apply to the successor company, and there is no case for or way of imposing further legal obligations on that company. I of course understand that such matters are of concern and I shall be prepared to consider with the authority what might be included in the sale objectives, to allow prospective purchasers' intentions to be considered in the evaluation of bids.

There was no justification for the authority's proposed consultative committee, with its extraordinary range of powers, which would have shackled any new management in a totally unacceptable way. The successor company will be just as capable as the port authority of continuing good relations with local interests. Indeed, it will be in its commercial interest so to do, as evidenced by the conduct of port businesses already in the private sector.

The proposed consultative committee was to have held a special share, provided for in the company documents for Port of Tyne plc—the company set up by the port authority in accordance with directions earlier this year. Subject to parliamentary approval of the order, we shall direct that the relevant article—article 30—be deleted from the company's articles of association, that other consequential amendments be made, and that a few minor amendments to bring the company documents into line with Companies Acts regulations also be made.

The authority also questioned whether a new owner would have sufficient funds to invest. The Government's position is that anyone making a bid will do so on the basis that they will be able to operate the port profitably thereafter. No one would make a bid that put them in a position where they were not then able to operate the port profitably.

The authority also maintained that the port's wide legal powers meant that the benefits of privatisation would not be significant. Although in some privatisations, the wider powers available to a company have certainly improved the ability of ports to operate, the benefits of privatisation are not confined to that one factor. Privatisation in the ports and other industries has shown that benefits flow from the conversion to a full commercial operation based on shareholder equity and interest. The authority's scheme also included a general provision relating to on-going maintenance of the port, how profits should be used and local management of the port, but there is no case for such a provision.

Subject to parliamentary approval of the draft order, the sale of the port will be undertaken by the Port of Tyne Authority and its advisers. Ministers intend to discuss the process and the timetable with the chairman immediately. I want to discuss the desirability of encouraging a management-employee buy-out offer—a MEBO—with substantial employee share ownership.

We believe that it is appropriate to proceed with the privatisation. I therefore commend the order to the House.