TELECOMMUNICATIONS (FINANCIAL PROSPECTS) (Hansard, 23 March 1970)

§ The Minister of Posts and Telecommunications (Mr. John Stonehouse)
In consultation with the Post Office I have been reviewing the financial prospects of the telecommunications business, and I will, with permission, make a statement.
Post Office telecommunications is a profitable and rapidly expanding business. Use of the system is growing at more than 10 per cent. per annum, while new technologies are being increasingly and extensively applied. Demand for new telephones is now running at 37 per cent. up on last year. Thus the system is making, and will continue to make, exceptionally heavy demands on investment resources and Exchequer finance: investment needs over the next five years will exceed £2,500 million.
The Government consider that a greater proportion of this heavy capital investment can and should be financed from internal resources. We also have had regard to rates of interest and levels of return on capital now prevailing in the private sector. Accordingly, the Government propose, in agreement with the Post Office, to increase the financial target for telecommunications from 8½, per cent. to 10 per cent. from next July. This will lift the rate of internal financing from 34 per cent. to 52 per cent. over the next five years.
In order to meet this higher rate of return tariff increases will be necessary which the Post Office will be discussing with the Post Office Users' National Council. Before they are put into effect, the Post Office and I will, of course, consider carefully any representations which the council may wish to make.
Details of the proposed tariff increases will be published by the Post Office as soon as can be arranged, and I will then place them in the Library.

§ Mr. Bryan
Is the Minister aware that this forecast increase in charges will be a great shock to the public, coming as it does only 18 months after the last increase in the telephone tariffs, and at much the same time as increases in postal charges which may well be up to 3d. on both classes of letter post?
Secondly, as the right hon. Gentleman is unable to give details of the increased telephone tariffs, can he give the House the total income which will be required to cover both this extra high profit target and increases in wages negotiated since the present tariffs were fixed?
Lastly, is the right hon. Gentleman aware that the public are already highly dissatisfied with the telephone service as it is? Can he give them any assurance that they will get better service for the extra money they are asked to pay?

§ Mr. Stonehouse
This is not the time to anticipate increases in postal rates. I certainly do not intend to be drawn on the first part of the hon. Member's question.
On the second part, the amount that should be raised by increased charges to meet the increased target needed is about £65 million a year.
On the third part, it is certainly the case that the Post Office service is not as good as we would like it to be. The Post Office is very anxious to improve it. This is why an unprecedentedly high investment programme has been adopted. This is in sharp contrast to the period when the Conservatives were in power, when the Post Office was starved of funds. We have been making up during recent years for those years of neglect. We intend that the good work of investment in the best communications system in the world should be continued. That is why I have made this announcement today.

§ Mr. Golding
Is my right hon. Friend aware that a study published in September last year by the Consumers' Association demonstrated that only one of nine major telephone countries, Norway, had lower charges than the British telephone service? Is he aware that workers in the telephone industry are very anxious that the investment which is required to back up the great technical advances which have taken place in this country should come from the public rather than from private investment?

§ Mr. Stonehouse
I am grateful to my hon. Friend. I absolutely agree with him on the second part of his question. It is more likely that through public investment we shall be able to build up the sort of service that we require in Britain.
I also agree on the first part of my hon. Friend's question. Even with the increased charges which my statement implies, this country will still have among the lowest rates in the world.

§ Mr. Lubbock
Is the right hon. Gentleman aware that in saying that the Post Office service is not so good as he would like it to be he was giving the House a masterly understatement? Is he aware that over 800 people in the Orpington exchange area alone are at the moment waiting for a telephone? Is he further aware that so long as the Post Office remains a monopoly no test of efficiency can be applied and that raising the target return on capital does not mean that the Post Office will become more efficient? So will he favourably entertain applications by other organisations, such as those by the B.B.C. and data industries, for data transmission systems of their own?

§ Mr. Stonehouse
Many firms are involved in competition. It is certainly not the case that it would lead to greater efficiency if parts of the Post Office services were hived off as suggested by the hon. Member. That would lead to inefficiency and additional costs. I think that we can be satisfied that the Post Office, bearing in mind all the services it provides at rates among the lowest in the world, is doing a first-rate job. We should pat it on the back and not continue to carp against it for minor deficiencies which I acknowledge, and which this statement is designed to put right.

Mr. Alan Lee Williams
How much does my right hon. Friend think the increased telephone charges will be, and does he think that he should refer the matter to the Prices and Incomes Board?

§ Mr. Stonehouse
I cannot anticipate what the exact rates of the change will he. This is the responsibility of the Post Office. This is what it is putting to the P.O.U.N.C. As I have said, I shall arrange for the details to be made available to the House as soon as possible.

§ Mr. Maudling
Is the right hon. Gentleman aware that one aspect of his statement was very depressing and, I think, will be of no help to the Post Office? He referred to a need for a higher rate of return and then implied that the only possible source was higher tariffs. Why did he make no reference to greater costs and greater efficiency? What would have happened if a private firm had tackled this question on that basis?

§ Mr. Stonehouse
The Post Office is already showing increased efficiency in this field. Productivity has been going up by 8 per cent. a year and we have been able to have a very efficient use of manpower that matches most of the other administrations. We should be proud of what has been achieved. Certainly, what the Post Office has achieved is very much better than what has been achieved in many private firms.

§ Mr. Dickens
Is my right hon. Friend aware that his statement is a very good example in contemporary times, when people are talking about wage explosions, of the necessary increase in tariffs caused for reasons quite unconnected with wages and salaries, namely, increases in the cost of capital?

§ Mr. Stonehouse
That, I think, is correct. It is the case that the recent increases negotiated for the staff employed in this part of the business will be more than made up by increases in productivity in which the men concerned are co-operating.

§ Sir Ian Orr-Ewing
Is the Minister aware that in overseas countries post offices are much readier to receive modern peripheral equipment attached to the telephones? Will we in Britain be a little more forthcoming now, because this is a useful revenue earner and provides facilities to the consumer that other countries already have?

§ Mr. Stonehouse
The Post Office, whose responsibility this now is, is very keen indeed to examine any way by which service to the consumer can be improved. I will draw this point to the attention of the Post Office, but I must stress that it is now the responsibility of the Post Office.

§ Mr. English
Does the target of 10 per cent. relate to telecommunications alone, as that side of the Post Office has been making a huge profit and thus subsidising the mail side, which presumably it will continue to do? Second, how much of this capital investment will be devoted to improvement of the service rather than to the mere extension of an existing service?

§ Mr. Stonehouse
The telecommunications side of the business has not been subsidising the posts. The post has made a return on investment and it has a separate target which it does its best to meet.
The capital investment will be applied to allowing expansion to take place, to meeting the growing demand for new phones, and to helping to improve the system.

§ Mr. Mawby
Does not the right hon. Gentleman realise that in view of the need for a tremendous amount of capital, it is a satisfactory way of proceeding in the future to allow large private consumers to make their own arrangements and therefore reduce the need for the Post Office to raise large amounts of capital?

§ Mr. Stonehouse
I am not satisfied that this would lead to increased efficiency. I do not think that the country generally would believe that following the doctrinaire ideas expressed from the other side of the House would be a good way to deal with this business.

§ Mr. Milne
Will my right hon. Friend have a closer look at the costs of the equipment provided by private manufacturers and at the advertising done by the Department with a view to reducing costs in that direction as well?

§ Mr. Stonehouse
The bulk supply agreement has been cancelled and new arrangements which should lead to increased efficiency in procurement now take its place.
Advertising is the responsibility of the Post Office Corporation, but I am satisfied that the advertisements that it puts out are more than cost-effective.

§ Mr. Speaker
Order.