HISTORY OF THE CROWN AGENTS, new foundation proposed, Second Reading, Order HC Deb 06 June 1995, Vol. 261, cc35-117. UK Parliament Hansard.

(MEMO: Canada has no Crown other than the British Crown.)

Crown Agents Bill (Lords)

HC Deb 06 June 1995 vol 261 cc35-117
Order for Second Reading read.
The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Tony Baldry) I
beg to move, That the Bill be now read a Second time.
In August 1993, my noble Friend the Minister for Overseas Development, Baroness Chalker, announced the
Government's decision to introduce proposals that would allow the Crown Agents to be transferred to a newly created,
independent foundation. The Bill before us gives effect to that decision. It might be helpful to remind the House a
little about the Crown Agents. Who is it? What is its history?
The Crown Agents began its work in 1833, when, as Crown servants acting under prerogative, it was appointed to
procure goods and services for colonial administrations. Its status was redefined at the turn of the century, when the
position of Crown Agents' staff was formalised as analogous to that of civil servants. A new headquarters was opened,
and the volume and complexity of work undertaken increased rapidly.
The next milestone came in 1954, when its full name was changed from "Crown Agents for the Colonies", to "Crown
Agents for Oversea Governments and Administrations", by which it is still known today, although I suspect that
everyone in truth knows it as Crown Agents. That change reflected and assisted its transition from British colonial
servants to the present international business, uniquely responsive to the needs of a wide range of overseas clients. It
performed that task well for more than a century.
For almost all its 162 years, the Crown Agents has effectively operated in the private sector.
In 1954, Sir George Seel, the Crown Agent, gave a broadcast explaining the change of name for the Crown Agents. I
think that what he said was of some interest. He said: “We trace our ancestry as Crown Agents to the private
merchants who, in the eighteenth century, handled the London or Bristol business of the several West Indian
Colonies.” These private agencies were consolidated by the Treasury in 1833 into one establishment, under two "Joint
Agents General for Crown Colonies", who then acted for 13 Colonies; henceforth under Treasury supervision, but still
as a private business.
During the 19th century, various adjustments were made, as colonies multiplied and the business expanded, and in
1863 the name Crown Agents for the Colonies was introduced. In 1909, after a parliamentary investigation, the
organisation took its present form under the general supervision of the Secretary of State for the Colonies.
“We are still,” said Sir George Seel, in 1954,
“a private business in the sense that we are not paid out of taxes. We live on a modest commission on orders, adjusted
from time to time to avoid piling up profits, or of course running into a loss. Our salaries conform to those of the Civil
Service, but we depend for continued existence on satisfying our principals, the oversea authorities (now numbering
120) from whom we take our instructions. We are in short a Crown Office carrying on financial and commercial
business on a large scale. Last year, we bought and shipped some £60,000,000 of goods, nearly all British. We hold
over £800,000,000 of other people's cash and securities.” “We are well known to British firms who export anything
from railway engines to pedigree chickens, or from a dredger to a queen bee. We are known to investors in Colonial
Stocks, and to thousands who have served overseas, and when on leave or retirement drew their pensions or salaries
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from our offices overlooking the Thames at 4 Millbank, London.” “We act as consulting engineers. We float loans, or
acquire house property. We can where authorised act as Universal Aunts for any public authority abroad which has
business in this country.” “Why change our name? The answer is simple. Twenty years ago `Crown Agents for the
Colonies' fitted well enough, but now our clients are by no means all Colonies, or even all British, or even all
Governments. Foreign territories like Iraq, Jordan and Libya, once under British administration and guidance but now
independent, still find it pays to use our services. So does Ceylon, an independent Commonwealth country. We act for
international bodies, and for British Government departments under the Colombo Plan. We are constantly acquiring
new clients among local authorities and other public bodies abroad.” “For all these clients our name, nearly a century
old, signifies quality and service; but many now find it misleading. We have therefore felt bound, although with some
reluctance, to change it. In practice, we have always been called just 'Crown Agents', and we had hoped to make that
our official title. But there is already a Crown Agent in Scotland, and it would be even more confusing, as well as
discourteous, if we tried to poach on his preserves. So, after trying many alternatives, we become 'The Crown Agents
for Oversea Governments and Administrations'.” “Our friends will no doubt go on calling us Crown Agents for short,
and we hope this will continue to stand for efficient service. We've been asked 'What's in a Name?' The answer, for us,
is the maximum of business goodwill between Britain and many oversea countries.” That was Sir George Seel in
1954. As was clear, Crown Agents was a UK success story, effectively while in the public sector, running as a private
business.
Alas, in the 1970s, things got difficult. Crown Agents unwisely expanded its own account business into areas in which
it had no specialist expertise.
When the property market failed in the mid-seventies, Crown Agents was left with substantial losses, which
Government were obliged to underwrite. That resulted in a Bill in 1979 which provided a tight framework of
regulation and Government control—a necessary piece of legislation at the time, supported as a whole by Parliament.
On Second Reading in February 1979, it was clear that the Bill had been introduced against the background of a series
of financial disasters, inquiries and investigations, and that the legislation was deliberately tight in order to try to
ensure that such mishaps could not occur again.
For the first time in its history, Crown Agents was given statutory authority as a public corporation, responsible to the
Minister for Overseas Development and the Secretary of State for Foreign and Commonwealth Affairs. The Secretary
of State appoints the chairman and board, and has certain powers of direction over their work. The Act rightly took
care to safeguard the traditional confidential nature of Crown Agents' relationship with its overseas principals.
But it is worth noting in the context of today's Bill that if Crown Agents, as a consequence of this legislation, moves
into the private sector in the next year or so, it will have spent only about 15 years of its 162 years as a public body.
It is also worth noting that Crown Agents operates at no cost to the taxpayer. Since incorporation in 1979, Crown
Agents has not received any subsidies from the Government—quite the contrary. Since 1979, Crown Agents has made
payments of more than £20 million in capital and interest to the Government. It has been so successful that today it is
one of the world's largest international public sector purchasing organisations.
It provides procurement, management and technical services to around 150 clients, serving 130 countries. It employs
about 600 permanent staff, plus 250 overseas and contract staff. Its clients include other countries which give
substantial bilateral aid, such as Japan and the Netherlands; and multilateral development agencies, particularly the
World bank, the European Union and the United Nations. It is a matter of some pride to all of us that a country such as
Japan has such confidence in the Crown Agents that it contracts out its overseas development work to the Crown
Agents.
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In the former Yugoslavia and in Rwanda, where Crown Agents has worked for the ODA and for the United Nations
agencies, its procurement and logistic services have proved invaluable, delivering emergency supplies to those who
desperately need them. There is no doubt that, with its help, we have saved many lives.
The heart of Crown Agents' business is, and will remain, the provision of procurement services for all its clients—
whether public or private sector—here and around the world. It also provides training and advisory services in
procurement. As one of a number of such projects in the former Soviet Union, Crown Agents provided the Russian
Government with technical advice, funded by our know-how fund, for the management of a $350 million World bank
import rehabilitation loan.
At its own training centre in Sussex and overseas, Crown Agents provides courses in a wide variety of disciplines that
are highly relevant to economic reform and human development. The Crown Agents group also includes an asset
management arm regulated by IMR0— the Investment Management Regulatory Organisation—and a financial
services company which has applied for supervision, following passage of the Bill, by the Bank of England.
Its stamp bureau provides philatelic services for nearly a quarter of the world's postal administrations, and its wholly
owned subsidiary Resource is helping the standards organisations of more than 30 newly industrialised countries to
establish standards for product testing and inspection.
The Crown Agents ethos is rooted in a long and proud tradition, but it is completely relevant to today's competitive
business environment and the needs of a growing army of customers. One of the most important of those is the
Japanese Government. My right hon. and noble Friend the Minister for Overseas Development is becoming used to
the congratulations of diplomats and officials who have come across the work of Crown Agents. Most recently, the
head of the Japanese Economic Co-operation Bureau, Mr. Hirabayashi, made a point of telling Lady Chalker—at a
high-level meeting of the OECD development assistance committee in Paris—how much he valued the work done by
Crown Agents.
The Japanese Government's appreciation of Crown Agents' professionalism and reliability is no doubt the reason why
an increasing volume of Japan's aid programme is routed through Crown Agents. I am sure that the House will be
interested to hear about a few of its more recent projects.
In Ghana, Crown Agents is currently organising a major economics consultancy for Japan's OECF to assess the
progress of privatisation. For that project, it formed an Anglo-Japanese team—a good example of the new models of
partnership and consultation that Crown Agents, as a business at the cutting edge of its field, is developing.
Hon. Members may be surprised to learn that the total value to date of the purchasing programme in the 14 subSaharan African countries that Crown Agents manages for the Japanese is around $1 billion. That substantial sum—
along with the trust of the Japanese Government which it signifies—places a fair value on the quality of the work that
Crown Agents provides for many clients across the world. That is why—along with, I am sure, the whole House—I
have every confidence in the future success of Crown Agents.
The House may be most familiar with the work of Crown Agents in emergency relief and humanitarian assistance. It
has deservedly won a pre-eminent reputation in that regard. Often operating in very difficult environments, frequently
in an unfamiliar legal context, Crown Agents has built up substantial reserves of good will and trust as a result of its
courage, professionalism and dedication. Its contribution to the Mostar relief convoy in Bosnia was decisive, and the
United Nations High Commissioner for Refugees has placed on record "enormous appreciation" of its “courage,
professionalism and spirit … solidarity and dedication under extreme pressure and danger".” But Crown Agents' work
rarely ends when the immediate crisis is over. It is also used to planning and building for the future. It has already
begun purchasing and supplying equipment, plant and vehicles for the reconstruction of damaged facilities in the wartorn city of Mostar, under the management of the European Union Administration.
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Hon. Members will recall that Crown Agents is a truly international organisation, with clients across the globe. It has
developed speedy, innovative and flexible responses to emergencies, which take full advantage of their world-wide
network of personnel and offices.
That network played an important part in the United Nations' emergency response to the Rwandan refugee crisis.
Crown Agents airlifted logisticians and equipment to Zaire; a complex operation to supply water to a refugee camp
near Goma was solved only when Crown Agents airlifted from Croatia a water tanker convoy, complete with
equipment and spares. The tankers were soon transporting 350,000 litres of water daily into the camp, providing the
last vital link in the chain of relief and saving many lives in that beleaguered country.
Crown Agents' many friends in the House and across the world will be pleased to know that it intends to make the
best possible use of the expertise that it has developed in so many tragic parts of the world. Indeed, the ODA is
currently discussing with Crown Agents plans to provide a full-time emergency response unit on permanent standby
to deliver humanitarian assistance anywhere in the world.
The range of Crown Agents' activities is impressive. Its business is constantly evolving. Sixteen years ago, when the
1979 Act was passed, Crown Agents provided the bulk of its services with funding provided through the British aid
programme—although it served many other public sector clients around the world. Today Crown Agents obtains more
than 70 per cent. of its work from overseas, because that work has increased substantially. New markets continue to be
identified, and the benefit of Crown Agents' professional expertise is felt in the more recent areas of development
activity—for example, Vietnam, Palestine and the central Asian republics.
My right hon. Friend the President of the Board of Trade opened Crown Agents' latest buying office last year in South
Africa, where Crown Agents is making an increasingly important contribution to the development of the economy.
Quality assurance and inspection services have been expanded, and a joint venture company established to service the
growing volume of interregional trade in that part of the world.
Perhaps the most exciting project is the Soweto skills initiative, which combines commercial shrewdness with a real
contribution to development in the poorest part of South Africa. It aims to identify potential entrepeneurs from the
township for attachment to UK companies and training in enterprise skills. The project is run jointly with other
businesses, both British and South African; host companies have included top-flight names such as Rolls-Royce, GEC
and Hill Samuel.
I consider that a fine example of the collaborative, skills-based approach that Crown Agents is now developing. By
marketing the expertise that it has built up over its long and distinguished history, it enables poorer economies to
develop the qualities and personnel they need to produce and maintain an acceptable and sustainable standard of
living for their peoples.
More and more operations are carried out in strategic partnership with other aid institutions or providers of
complementary services. Crown Agents is developing multi-disciplinary services, based on its own pioneering work,
and supplies management information systems for use by clients. This year will see the installation of a new
computerised purchasing system.
Crown Agents is modernising to meet the challenges of an increasingly competitive international market. It is up to
Government to ensure that outmoded legal and political structures do not hold back the development of a great British
success story that extends throughout the globe. Everyone appears to agree that the 1979 Act no longer meets Crown
Agents' needs.
Throughout its history, Crown Agents has adapted—sometimes with the assistance of Parliament—to the continually
changing environment in which it must operate. Those changes have not damaged the professionalism and integrity on
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which its reputation depends; they have strengthened it, and we must not stand in its way. We believe that it is no
longer necessary or appropriate for Crown Agents to remain in the public sector, with all the constraints on its work
that that involves.
It is our intention to provide the Crown Agents with a legal and financial framework which will enable it to continue
to make its distinctive contribution to development by meeting the changing needs of its clients while preserving the
essential qualities of probity and impartiality for which it is renowned.
The Bill provides for the transfer of the Crown Agents' business from the present statutory corporation to a successor
company, under the Companies Act 1985, wholly owned by the Crown and therefore still in the public sector.
However, the Bill then gives the Secretary of State the power to dispose of the successor company to a new owner. It
is at that point that Crown Agents will leave the public sector.
The Bill also contains provisions for the future of Crown Agents Holdings and Realisation Board. That was a separate
legal entity set up in 1979 to manage and wind up the assets and liabilities of the unincorporated Crown Agents' own
account business, to draw a line under its losses. CAHRB will stay in the public sector to discharge its remaining
responsibilities. When the last few loose ends are tied up, the board will be wound up by the Secretary of State using
his existing powers.
This is an enabling Bill. It cannot prescribe the final form that the business will have in the private sector; nor should
it attempt to do so. We have, however, made our intentions clear, and I would like to put them firmly on the record.
Mr. Nigel Forman (Carshalton and Wallington) I declare a constituency interest in the future of Crown Agents,
because a number of my constituents work at its headquarters in Sutton.
On the financial aspects of the matter, is my hon. Friend fully aware that the organisation will necessarily have some
restructuring costs? Is he further aware that it is healthy for Crown Agents that the pension fund should be in surplus?
Can he give some indication whether that situation could continue, because it would help finance some of the
restructuring costs?
Mr. Baldry The pension fund and the staff of Crown Agents are very important. I hope that what I am going to say will
reassure the House and my hon. Friend that we are seeking to achieve a structure which is strictly in the private sector
—that is, one that does not have the Treasury straitjacket that comes from being in the public sector; a structure which
recognises the contribution of the staff, protects the interests of existing staff and ensures that the Crown Agents
moves into the private sector in a way that guarantees its continuing viability and that it will continue to be a great
British success story.
I should like to deal with each of those issues separately. Our intention is that, in due course, the owner of Crown
Agents will be a new, independent foundation with a clear developmental mission. I hope that that is clearly
understood by the House.
There will be a two-stage process under the Bill. In the first stage, the Bill provides for the transfer of the Crown
Agents from its present statutory corporation to a successor company, under the Companies Act 1985, wholly owned
by the Crown and still in the public sector.
Mr. George Foulkes (Carrick, Cumnock and Doon Valley) Will the Minister give way?
Mr. Baldry If I may finish stage two, I will give way.
In stage two, the Bill gives the Secretary of State the power to dispose of the successor company. It will be our
intention that that company will go to a new independent foundation with a clear developmental mission. It is at that
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point that the Crown Agents will leave the public sector.
Mr. Foulkes The Minister was right to ask me to wait, because I wanted to ask about the foundation.
The foundation was announced by the Government in August 1993, nearly two years ago. Since then, my right hon.
and hon. Friends in the other place and here have been pressing very strongly for the memorandum and articles of
association to be published, so that we can see what sort of foundation it will be and what will be its purpose, structure
and membership. The Government have constantly refused to do that. Can we have some guarantee that they will be
published and made available to hon. Members during the consideration of the Bill in Committee, which will
otherwise be a total farce?
Mr. Baldry As the hon. Gentleman knows from comments in the other place, our intention is that the memorandum
and articles of association should be published as soon as possible.
There are a number of issues which are still under consideration. Perhaps I can share one with the House. Certainly I
want the Committee to be as well informed as possible, but I could not give an undertaking or guarantee that the
articles will be ready for the Committee stage.
Let me take one issue that we will want to discuss in Committee. One of the ways forward would be for the
foundation to be a charity. In that case, one of the issues that would have to be considered is whether the foundation
would have charitable status.
Since the Barings debacle, there has been a different approach towards charitable status. Prior to the Barings debacle,
it was perfectly proper and sensible for the trustees of a charity to repose all its funds in a particular institution
because they may have considered that to be safe. Post-Barings, we can see that that might not be the most sensible
way for trustees to fulfil their fiduciary duties. They may find it more sensible to spread their portfolio of investment.
If the foundation were to be a charity—and that matter is still under consideration—and was not able to invest all its
portfolio in the operating company of the Crown Agents, there might be some continuing instability, which we would
wish to avoid.
We share with the whole House the desire that the maximum amount of information about the foundation should be
given and made available just as soon as it can be. Nothing in the Bill should cause a scintilla of concern to any hon.
Member who has a genuine interest in development policies and in ensuring that the Crown Agents continues to do
the excellent work that it has done in the past.
We have given repeated assurances about the nature of the proposed foundation. We have made it clear, and I repeat
again, that we have no intention of selling Crown Agents by means of a trade sale, because that would not meet
Crown Agents' needs, nor would it meet the concerns of its overseas clients.
The foundation will be a company limited by guarantee. No profits from the foundation will be distributed to its
members. They will be reinvested instead in accordance with the developmental objectives set out in the constitution
of that foundation. The memorandum and articles of association will be very tightly drawn, to preserve and build on
the ethos which Crown Agents has developed over its long and distinguished history.
The permanent members of the foundation will bring together business ability with wide experience of aid and
development. They will be drawn from charities, financial and trading companies, professional and trade organisations
and other aid organisations and enduring institutions. Present members of the Crown Agents board may bring their
unrivalled experience of the business to the initial membership, providing valuable continuity during the period of
transition.
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Again, I make it clear that the Government have no intention of having any involvement in determining who are the
members. Obviously, we will wish to be satisfied that the founder members possess competence and integrity. The
hon. Member for Eccles looks critical. Perhaps I should explain in a little more detail.
We do not start with a clean sheet of paper. We have the existing membership of Crown Agents, together with a
number of organizations—the Chartered Institute of Purchasing and Supply, for instance—and charities that have a
close interest in Crown Agents. One imagines some of those organisations coming together as founding members of
the new foundation.
Human nature being what it is, I imagine that at some point Crown Agents and those who take a close interest in it
will come together and tell the Government, "We wish to be the founding permanent members of the foundation." The
Government will not determine who those members should be; we feel that Crown Agents and others can well work
that out for themselves. We shall simply be concerned to know that they possess competence and integrity, and that
collectively they will meet the developmental needs of Crown Agents.
We are still considering the best structure for the foundation. As I explained to the hon. Member for Carrick,
Cumnock and Doon Valley (Mr. Foulkes), a number of issues remain to be considered. We shall want to ensure that
the new structure enables the foundation to fulfil its social and developmental objectives, while enabling Crown
Agents' operating company to trade commercially.
As I have said, charitable status for the foundation is one of the options. It has its attractions, including oversight of
the trustees by the Charity Commissioner. It also has difficulties, arising in part from the restrictions imposed by
charity law on single investments. Prospective members of the foundation will have their views on this, and no final
decision has yet been made.
We want to be assured that the future structure will be fully satisfactory before transfer of the business takes place. We
will make sure that the fundamental objectives of the foundation cannot be changed without our agreement for a
sufficient period to ensure that the new structure starts life on a proper footing. As to how long that period might be, I
am certain that we can explore that in some detail in Committee. It is certainly our intention that there can be no
change to the fundamental objectives of the foundation for a substantial period, so that it can start life on a proper
footing and establish itself as a new entity in the private sector.
The foundation will be the sole shareholder in the operating company, which will be built on fully commercial lines.
There are plenty of analogies for such a system. The Oxfam charity can operate with Oxfam Trading carrying out its
business as a straightforward commercial operation whose profits are reinvested for charitable pursuits. The Wellcome
Foundation carries out similar operations, too.
The operating company will he limited by shares and will service capital in the usual way; it is the operating company
that will generate the surpluses which will enable the foundation to fulfil its developmental objectives.
The capital structure of the new company remains to be settled. The Bill contains provisions allowing us to make the
necessary arrangements. We are keen to ensure that the new company does not begin its life overburdened with debt.
We want to ensure that Crown Agents has a fair start, to guarantee the continuing viability of the business, not least
because our aid programme is, and is expected to remain, a substantial customer of its excellent services. So we shall
seek to ensure that the terms of transfer balance the need for a healthy rebirth of Crown Agents in the private sector
with the interest of taxpayers in securing value for money for public assets.
To recap: there will be a two-tier structure, with the foundation being the sole owner of the operating company. The
foundation will be a company limited by guarantee. My noble Friend the Minister for Overseas Development
confirmed that in another place on 24 April. The foundation's memorandum and articles of association will be tightly