§ Mr. Bill Homewood (Kettering)
I must admit, Mr. Speaker, that I am very grateful for the ruling that you have just given, because if it had gone the other way I would have said "Thank you Mr. Speaker" and sat down again.
Nevertheless, it is with some trepidation that I rise to talk about company shares, because I have never owned a company share and my speculative activities are confined wholly to the time between 2 pm and 5 pm, and the returns will always be found in The Sporting Life, but never in the Financial Times.
However, in talking about shares I am not concerning myself very much with the speculative thinking of those who paid some £290 million for the 80 million British Petroleum shares that were sold last November and were the concern of the Supplementary Estimates, on page 116, where the expense of the sale of those shares is detailed—which details have aroused my interest.
I am talking not about the sale of the shares but only about the expense. Frankly, I am of the opinion that we have in no way fully plumbed the depths of the present Government's propensity to produce bankruptcies, and I should think that even an investment in BP, in present circumstances, must involve some risk.
My concern is with the expense that was incurred in that transaction. My information is that of a total of £14 million involved in the expense, about £7 million went on stamp duty—I have no criticism of that, obviously, because the Government were only paying themselves—but the remaining £7 million was paid in commission to bankers and stockbrokers. 1401 Some 2½ per cent. of the total realised by the State for the sale of its public assets was poured into the pockets of private individuals who undertook the handling of the transaction.
Actually, the taxpayer was lucky, for at four-tenths of a penny per share the commission could have been £12.8 million. One can only assume that some purveyors of the shares failed to cash in on the bonanza because they were unable to push through the 2,500 shares that were necessary to qualify, for I very much doubt whether the employees of BP took up 30 million shares, which would be the figure necessary to account for the shortfall, particularly when it is noted that they were restricted to 137 shares apiece.
However, £7 million of public money found its way into the pockets of bankers and stockbrokers. Within six months of taking office the Tory Party had repaid much of the debt that it owed to its friends for their unstinting support and had ensured that the Tory coffers would not be empty at the next election.
There could be still more to come. The Government retain a 46 per cent. shareholding in BP. The brokers, bankers and stockbrokers must be licking their lips as they contemplate the Chancellor of the Exchequer's problem in trying to give tax cuts and at the same time ease the public sector borrowing requirement to a 7 per cent. growth rate. Surely more BP shares will have to be sold despite the Government's categorical undertaking, which I shall ask to be reaffirmed by the Financial Secretary, that no more BP shares will be sold.
The hypocrisy of the transaction becomes clear when we consider the Government's economic philosophy, or what they claim to be their philosophy. It is their idea that incentives will be created by investment and higher productivity. In what way can the gift to the City satisfy that criterion? The £7 million will change nothing at BP. The same people will take exactly the same decisions. Not one ounce of new oil will be produced as a result of the Government's gift to the City. Brokers, bankers and stockbrokers will be £7 million better off.
In my constituency, and in Northamptonshire, parents are being asked to pay £800,000 for transport to take their 1402 children to school. Nine counties of a similar size could continue to provide free transport for schoolchildren, given the sum that has been handed to the brokers, bankers and stockbrokers that were involved in the BP transaction.
I understand that the Government do not believe in cosmetic job creation. They claim that job creation must have a functional purpose. I do not know whether that was a phrase used, but that was the intention. What was the functional purpose in creating the £7 million worth of activity in the City that arose from the BP transaction? We can only hope that the Government will not engage in selling oil any more BP shares at such a high cost to the public. That cost is bound to accrue when public assets are sold off to private enterprise. We can only hope that the Government will have a long look at their policy. They must realise that it will be of no help to the public sector borrowing requirement in the long term, even if it has produced a windfall profit this year.
§ 7.3 pm
§ Mr. Bob Cryer (Keighley)
This is an important debate and it raises a number of issues. I am pleased that Mr. Speaker has indicated that the debate may go wider than the narrow title and that we may refer to principle.
The sale of a national asset to provide tax concessions for the rich—that was the basis of the sale of BP shares when the Chancellor of the Exchequer made his announcement in last year's Budget—did not take place against a background of national insolvency or of national economic difficulties. It was clone to provide tax concessions for the well off and to enable a switch from direct taxation to indirect taxation and the imposition of a 15 per cent. VAT rate. Part of the price of support, and part of the further financial income, was a once-for-all bonanza obtained by selling off a precious national asset.
According to the prospectus issued in the Financial Times on Monday 5 November 1979, BP is not an unprofitable company. It owns partly or in whole many important oil fields, the value of which increases year by year as our finite oil supplies are used and the world's oil crisis escalates. For example, BP owns part of the Forties field—indeed, in part 1403 of the group it has a 100 per cent. interest—13 per cent. of the Ninian field, a 54 per cent. interest in the Buchan field, a 15 per cent. interest in the Beatrice field and a 100 per cent. interest in the Magnus field. The prospectus stated that in 1974 the group discovered the Andrews field, approximately half of which lies in the licence area in which the group has a 100 per cent. interest.
These national assets were paraded before the public in an attempt to induce them to buy BP shares. The Government were selling off the people's assets to give them a short-term once-for-all financial income. I am sure that the Financial Secretary will tell me that in 1977 the previous Labour Government reduced the Government holding from 68.3 per cent. to 51 per cent. However, the present Government made a share offer that resulted in Her Majesty's Government's percentage being reduced to about 46 per cent. It was claimed that the Government do not intend to sell any more of their present holding in the company. I, too, shall be interested to have that intention reiterated by the Financial Secretary—namely, that the Government do not intend to reduce still further national assets such as BP.
When the Chancellor of the Exchequer made the original announcement he said that the Government were following a precedent. There were many of us inside and outside the then Labour Government who deeply regretted the decision to make the offer to the public for the purchase of BP shares. We thought that it was wrong. We warn future Labour Governments that they must develop a more democratic system of decision-making within the framework of government that has existed hitherto. In future the 24 or so members of the Cabinet will not be in a position merely to hand out decisions that go against the main thrust of Labour Party policy.
It is clear that the previous Labour Government did not sell the nation's assets to such an extent that the Government became a minority holder. The Government are now in a minority of 46 per cent. The previous Government were careful to maintain a 51 per cent. holding, which made it clear beyond peradventure that the Government were still in control.
1404 Two of my concerns about the Government's reduced shareholding is whether they have sufficient control—they have little legislative provision—and whether the existing directors can alter the memorandum and articles of association in such a way that control may be further diminished. As my hon. Friend the Member for Kettering (Mr. Homewood) said, the sale of those shares cost £14 million, of which £7 million has been spent on stamp duty. That is an extraordinarily high sum. It cost £7 million to raise a relatively paltry sum and at the same time a precious national asset has been sold on a once-for-all basis. One is driven to the conclusion that that sum represents a return for the handsome contributions that the banking and financial community have made to the Tory Party.
For example, in 1978 the banking and finance community donated £76,270 to the Tory Party. British United Industrialists received £20,375. The Economic League Ltd. received £30,625. Aims of Industry received £1,698. Other companies received £1,350. Those sums total £130,228. That represents a handsome donation to the Conservative Party. I do not have any list of the individual concerns that made such contributions. I should be interested to know whether S. G. Warburg & Co. Ltd., Robert Fleming & Co. Ltd., Lazard Bros. & Co. Ltd., Morgan Grenfell & Co. Ltd., Kleinwort, Benson Ltd., J. Henry Schroder Wagg & Co. Ltd., Mullens & Co., J. & A. Scrimgeour Ltd., Hoare Govett & Co. Ltd., Keyser Ullmann and Rowe & Pitman have made any contributions to the Conservative Party during the past few years. Perhaps they have not made any contributions. However, if they made such contributions, they have been handsomely repaid. They have reaped a rich windfall of £7 million from Government funds.
They have received the taxpayers' money.
Even closer links exist. S. G. Warburg & Co. Ltd was the principal bank involved in promoting the offer. It had the benefit of the present Secretary of State for Trade on its board of directors for many years prior to 1972. I do not suggest that there is a direct link. However, if the Government arrange payments that total £7 million to such organisations, they should 1405 have no connection with them. The links between Government and private enterprise are so intertwined that one could legitimately argue that the sum of £7 million represents a benefit that was anticipated by those organisations when making payments to the Conservative Party and its front organisations, such as British United Industrialists. Such front organisations pass on money to the Conservative Party year after year.
The sale represents a paper transaction. I accept that it draws revenue. However, machinery is available to the Government for collecting that revenue without paying the extra £7 million. That machinery is called "the tax system" The Government are obsessed with giving tax concessions to the rich. If they were not so obsessed, they could use that system to gain at least £7 million. They could certainly gain more than was achieved by the sale of BP shares. The purpose of selling off that national asset was to provide tax concessions not to the average family man but to the rich. The average family man receives virtually no benefit, and the rate of interest has lessened any benefit that he might have had.
The figures demonstrate beyond peradventure that only those in the higher income brackets receive a benefit that will place them above any erosion caused by the current level of inflation. The Government have paid £7 million in order to gain revenue. They have eroded a national asset. They already employ thousands of people to operate a tax system that gives generous benefits to industrialists and to all those who are able to make various claims in the form of tax allowances. Generally, that does not include PAYE workers.
The sale has not produced any more oil. It has not produced any more cars or machines. It has not improved our exports. It has done nothing. It has provided a once-for-all revenue to the Government. The Government talk about the need to increase productivity. They are prepared to hand over £7 million for the sale of those shares. That has not been criticised by the press. The press usually fastens on to steel workers or car workers. It fastens on to those who turn out the goods and machines that are used by people every day. There has been little criticism of the amount of money that has gone into the pockets of those who 1406 raised the share issue on behalf of the Government.
The Department of Employment produced an earnings survey for 1979. It is an annual publication. It may provide a clue as to where part of that money has gone. Normally emphasis is given to the high earnings of people such as steel workers. My hon. Friend the Member for Kettering knows that the Government attempt to emphasise the enormous earnings of steel workers and car workers. When mine workers put in a claim, it is said that they earn enormous sums of money.
After medical practitioners and top managers in trading organisations, the survey lists finance, insurance and tax specialists. No doubt that includes S. G. Warburg & Co. Ltd., Lazard Bros. & Co. Ltd. and the other merchant banks. Such people apparently earn £162.70 a week. I understand that that figure represents the average figure and that it is subject to variation. However, it is an under-estimate not an over-estimate. Among the top 30, only three types of manual workers are included.
When the Government sell shares they should bear in mind that those who benefit are among the top earners in the country. The Government could argue that other workers should improve their rates of productivity and thereby increase their earnings. Why not encourage the steel workers to reach that level of earnings by settling the steel dispute? Out of that top 30, only coal-mining deputies, face-trained coal miners, stevedores and dockers find a place. The Government show concern for wage levels and for productivity. It is strange that they have not investigated the rate of productivity of some of those who have received part of that £7 million.
Many executives and managers are no doubt well paid in such companies as S. G. Warburg & Co. Ltd., Lazard Bros. & Co. Ltd., Robert Fleming & Co. Ltd., Morgan Grenfell & Co. Ltd. and others. A survey carried out by the Inbucon management consultants estimated the average basic salary of managing directors to be £19,321 per annum. Those are the people whom we are discussing. There are, of course, perquisites on top of that. The Government clearly did not take any precaution in assessing the position when they started selling shares at that 1407 enormous cost. Local authority expenditure is constantly being cut. We should consider what local authorities could do with £7 million.
The House will be interested to know what investigation the Government made into the productivity and efficiency of the organisations that promoted the sale of BP shares? Was there any investigation? For £7 million the Government could have employed a fair number of management consultants and made a proper assessment.
These people whom the Government have paid so lavishly are not involved in wealth creation. They are mere paper pushers. Many Government Members criticise paper pushers and administrators in local government. The constant theme is more social services and fewer people in offices. I have never heard the Government say the same about merchant bankers and stockbrokers.
It is extraordinary to pay £7 million for a share issue. Most local authorities and Government Departments would not have needed half that sum to undertake the same exercise. I should be interested to know whether a comparison has been made. The people in these exalted organisations who receive these enormous sums of money are beyond the ken of ordinary people, who do not buy and sell shares, have stockbrokers, or ever come into contact with merchant banks.
The Government claim that they want to promote ordinary jobs, such as engineering, and improve the status of engineers. Perhaps they should raise their status to that of merchant bankers or stockbrokers. The terms and conditions of employment of the engineer on the shop floor are frequently inferior to those of the typist and clerical worker in the same firm. Workers will wonder what is the point of putting on overalls and getting their hands dirty when they hear of these enormous sums being paid. They will want to get into administration. There are good windfalls in merchant banking and stockbroking.
It is not by chance that the lusher pastures in Surrey are known as the stockbroker belt. We now know where the detached houses with Rolls-Royces and Bentleys parked outside come from. They come from handling such share 1408 issues, passed on to these people by the Conservative Government, who are grateful for their lavish donations.
The Government fixed a price for the shares, but they made a loss. They must equate supply and demand if they wish to play the market and put a price on a share. I do not know whether the merchant banks and stockbrokers gave the Government advice, for which the Government paid handsomely, or whether the Government did it themselves. Did the Government, with their obsession for supply and demand and monetarist economics, fix the share price, bearing in mind the market? According to The Daily Telegraph on 10 November the shares sold for more than the price put on them. They sold for 364p as opposed to 362p, which is only 1 p difference, it is true. [Interruption.] The Financial Secretary may laugh. As he knows, they were oversubscribed one and a half times, and the Government fixed their price badly. I believe that the principle is bad in any case, but they did not maximise the revenue that they could have earned.
I am also concerned that the list of directors in the share issue which was announced in the Financial Times on Monday, 5 November 1979, contained some seemingly eminent people—Sir David Steel, DSO, MC, TD, the chairman, and others such as Dr. J. Birks, CBE. This little group of people are operating in a remote clique, away from the ordinary shop floor, where the goods and services come from. The people there have to keep their wages down, be good and not organise into trade unions. They have legislation on their back to try to stop them organising into trade unions. They bear the burden of this Government. Then there are the people at the top—those who connived at this share issue.
On behalf of the "law and order Government," the Attorney-General told us that new criteria would apply to that little group of people, who are advertised by the Government as being respectable. They headed the share issue prospectus and were there to enhance the prospects of selling shares. The prospectus notes that there was a little difficulty about BP, and that it was partly concerned in the Bingham report.
They are a law and order Government for the trade unionists on the picket 1409 lines. The Attorney-General said at the Dispatch Box that, if the fraud was big enough and if those involved were retired, the Government would not take action. This Government have one rule for those in the board rooms of Shell and BP and another—
§ Mr. Deputy Speaker (Mr. Richard Crawshaw)
The hon. Gentleman has remained within the bounds of order until now. However, unless he is about to allege fraud against some of these people, I do not believe that the Rhodesian issue is relevant.
§ Mr. Cryer
I am grateful to you, Mr. Deputy Speaker, for reminding me of that. We are discussing the cost of issuing these shares, and the prospectus is highly relevant. Paragraph 4(e) says:A report to the Secretary of State for Foreign and Commonwealth Affairs (the Bingham Report) in respect of allegations of evasion of Rhodesia sanctions by major oil companies, including BP, was published in September 1978 and the Director of Public Prosecutions is investigating whether or not any action should be taken in respect of the matters dealt with in the report.My claim is that the share issue partly depended on the reputation of the people at the head of the share prospectus.
Mr. Speaker allowed the general matter of principle to be discussed. The Government are setting two standards—one for BP and another for the remainder of the nation. The former can get away with breaking the laws made by this Parliament. Are those people suitable to maintain the company on behalf of the nation now the Government no longer have a majority shareholding?
I have in my hand appendix 3 to the Bingham report. Sir David Steel, DSO, MC, TD is mentioned in that appendix. It says:This Annex gives references to evidence which may be relevant when considering whether offences against the Sanctions Orders have been committed.The appendix was actually withheld from public view in case these people were criticised. The Government do not withhold the names of trade union members on picket lines. Indeed, they normally give them as much publicity as they can. I am concerned about the provisions now being made by the Government to ensure that the interests of the nation as a whole in the remaining 46 per cent.—a minority 1410 holding—are looked after by the Government-appointed directors. On the face of it, it looks as if potential lawbreakers are continuing as directors of BP. The whole thing is, in my view, a sorry mess.
It is true that the Government can claim that a precedent was created by the previous Labour Government. I am sure that the Financial Secretary will make much of that. He must also know that the trade union movement and the Labour Party were deeply opposed to the sale of BP shares by the previous Government. I believe that the lesson has been learnt. We do not want to give precedents of that nature to any other possible Government. However, I believe that, after the next election, we shall have a Labour Government for many years because the lessons being learnt from this Government are so bitter that people are taking them to heart.
Even so, the then Labour Government retained a 51 per cent. share, and it can be argued that the memorandum and articles of association can be altered only if the share is below 25 per cent. I am not entirely convinced about that and nor, I suspect, was the Minister who made that argument during the Standing Committee proceedings on the British Aerospace Bill. There are very few legislative provisions—although I accept that there are some—that act as safeguards for all companies. But this remains a very foolish effort by the Government to sell off a potentially appreciating national asset. As oil supplies become more scarce the value of BP is bound to increase, particularly judging by the evidence given in the prospectus, which was issued with the advice and consent of the Government. Certainly the Governor of the Bank of England gave his approval. It seems terrible that the Government should make this decision for such a short-term benefit to hand out tax concessions to the rich. They should not sell off companies in this way.
Finally, the idea that the Government should sell off these shares at a cost of £7 million is quite extraordinary. Quite apart from the principle, which is fundamentally wrong, the idea of it costing so much seems to indicate a great degree of carelessness on the part of the Government and a lamentable trust in the financial institutions to which they are so close.
I advise the Government to get as far away as possible from the financial 1411 institutions—the merchant banks, the clearing banks and stockbrokers. When they do this sort of deal they should apply the same rigid and somewhat venomous criteria to them as they apply to central and local government systems of organisation. On the basis of the evidence that has been provided so far this exercise is far too costly. At a time when the Government are cutting back on things that people want and need such as meals on wheels, the social services generally, education, nursery provision and school transport, they should not lavish money on this sort of expenditure. In fact, they could, by a fairer system of direct taxation, obtain the revenue much more easily. This is unjust, unfair and extremely unwise.
§ Mr. Frank Dobson (Holborn and St. Pancras, South)
I shall do my best to keep within the rules of order and, in view of Mr. Speaker's ruling earlier, it should be easier for me to do so on this item than it has been for certain other people. I shall not mention the sanctions-busting activities of BP, save to say that there is a rumour in the City that in an effort to export British expertise, BP, Shell, the Foreign Office and the Department of Energy are getting together to set up a British institute of practitioners in sanctions busting, the expertise of which they will sell around the world.
Tonight we are talking about the transaction known as the sale of £290 million of BP shares. To get this in perspective we should run briefly through the history of the company and look at its scale. The company was incorporated in 1909 primarily to protect supplies to the Admiralty of fuel oil for the Fleet. The father of this first nationalised industry was Sir Winston Churchill—not a notorious Socialist—who established the company because he was suspicious of Dutch influence in Shell and United States influence over all other sources of oil supplies to this country. That was a reasonable suspicion then and it is still reasonable in relation to the United States.
Since then BP has grown at a fairly ruthless pace. Originally it depended heavily on supplies from Persia—now Iran—and subsequently Nigeria. Both 1412 these resources are now nearly 100 per cent. nationalised and the current major assets of BP are the Alaskan fields and the North Sea oilfields, which guarantee roughly 65 per cent. of BP's current reserves. They are regarded in the oil trade as "politically insensitive crude". That might be applied to me at times, but it means that those reserves are safe from nationalisation. It is believed that the Americans will not nationalise assets in Alaska and that the British Government will not nationalise assets in the North Sea.
Currently, BP is the biggest industrial concern in the United Kingdom and Europe; therefore it is Britain's and Europe's largest asset. Excluding companies in the United States, it is the largest industrial concern in the world. Traditionally, since 1909 the British Government have never held less than 51 per cent. of the share stock of BP which has ensured theoretical control of the company. I believe that there is a sort of concordat between the Government and the privately appointed directors of BP to the effect that a British Government would never actually control the company. There is an indication of this—perhaps it is part of a measure of reconciliation—in the appointment of Lord Barber, who is not an arch exponent of monetarism, as one of the Government directors on the board of BP. Incidentally, if the Prime Minister can forgive Lord Barber for his role as Chancellor of the Exchequer she can forgive anyone anything.
In addition to the direct holding there is a 20 per cent. shareholding held by the Bank of England, which it acquired when it took over the assets of Burmah Oil. This was the holding which was part of the security in the Burmah Oil rescue bid, and presently it is the subject of litigation between Burmah Oil and the Bank of England. I do not think that that has been resolved yet.
As recently as November this House was asked to approve some Supply Estimates. We were asked, in theory, to approve £1,000. What we were talking about, in fact, was an estimated expenditure of £14.2 million, the cost of selling ordinary shares in BP. Provision was to be made for the expense of the sale, including stamp duty and value added tax, amounting to about £6.6 million for the sale of 80 million BP ordinary shares, at 1413 25p each, and further expenses were to be included in the £14.2 million.
We are now asked, in theory, for a further nominal £1,000 because the Estimate, of £14.2 million made as recently as November, has proved insufficient. It transpires that the Government now need £14.3 million to assist them in the sale of selling of shares in BP becausepayments have been higher than expected".That must be the shortest and worst explanation ever provided by the Treasury. It is a remarkable statement. The Treasury would normally complain "like crazy" if anyone else said that he needed more money because payments had been higher than expected. When payments are higher than the Treasury expected it is presumably excused, and it asks the House for a Supplementary Estimate.
The breakdown of the figures was provided for me in an answer by the Financial Secretary—the hon. Member for Blaby (Mr. Lawson). I am told that the estimate of the costs incurred in the 1979 offer of Government-owned BP shares to the public is not yet complete, but the latest estimate of the outcome is: on VAT and stamp duty, £6.8 million; underwriting, and allotment commissions £4.25 million; legal fees, £450,000; other professional fees, £360,000; preparation of documentation and distribution, £1,030,000; processing of applications and registration, £1,350,000; and registration fee with the Securities and Exchange Commission, £60,000. That brings the current total estimate to £14.3 million.
The main payments, according to the answer given to me, were made to six underwriting banks, five brokers and four receiving banks. That is apparently a term of trade. I had always thought of receivers as people who dealt in bankrupt stock but, apparently, that is not the case in this instance. Payments were also made for printing, distribution, advertising and professional advice, and to the Post Office, the Bank of England and BP for their expenses in the issue. There were also payments to the Inland Revenue, and payments of VAT to Customs and Excise.
I have checked further into these commissions paid to people in the City and the circumstances in which these arrangements were decided.
1414 The Financial Times on 1 November last year, said:The sub-underwriting institutions will receive the normal fee of 1¼ per cent. of the value of shares to which they commit themselves over the next nine days, amounting to £3.63 million. The five brokers and six merchant banks will share the specially reduced underwriting fee of ⅛ per cent. or a total of £363,000.I am quoting from the Financial Times. It is not a description that I would use:The slimness of this fee reflects the fact that the underwriting banks did not underwrite the deal until they had arranged sub-underwriting with investing institutions. S. G. Warburg, the lead underwriters, is receiving an additional fee of £160,000.We should be grateful for small mercies if this was a slim fee. When totalled, it still amounts to £4.25 million handed over to City institutions simply to sell these shares.
The receiving banks mentioned in the reply and also in the quotation from the Financial Times were Barclays, Lloyds, Midland and National Westminster. The other companies involved in underwriting, according to the Financial Times, were Robert Fleming, Kleinwort Benson, Lazards, Morgan Grenfell, Schroders and Warburgs. The Financial Times added:The brokers to the offer, which assembled the bulk of the sub-underwriting are Cazenove, Hoare Govett, Rowe and Pitman, Scrimgeour and the Government broker Mullens. The sub-underwriters include a substantial number of investing overseas institutions.It is interesting that no fewer than five of the companies whose names I have read out were recorded in 1978 as having given donations to Tory Party or Tory front organisations. These were the four receiving banks—Barclays, Lloyds, Midland and National Westminster—and Kleinwort Benson. We do not know—perhaps the hon. Member for Blaby will tell us—who were the famous sub-underwriters. I suspect that some of those institutions may well have found themselves giving donations to the Tory Party over the years.
I should like to know why this supplementary sum of £100,000 beyond an Estimate made as recently as November is necessary. I would have hoped that the figure could be got right in November, and that there would have been no need to ask the House for more money so quickly. One of the reasons why extra 1415 money is needed was attributable to the special terms offered to BP staff. The hon. Member for Blaby said on 31 March 1979:Applications from employees of BP and its United Kingdom subsidiaries for shares not exceeding £500 in value at the offer price as well as applications from the trustees of the BP group employee participating share scheme will be allocated in full. My right hon. and learned Friend the Chancellor of the Exchequer made clear in his Budget Statement that the Government's sales of State-owned assets would, besides serving the immediate purpose of helping reduce the borrowing requirement, be an essential part of the Government's longterm programme for promoting the widest possible participation by the people in the ownership of British industry.—[Official Report, 31 October 1979; Vol. 972, c. 523.]However, when BP set up its scheme it was not quite what might have been expected, according to those remarks of the hon. Member for Blaby. The scheme required that the staff of BP should have spent four years in the service of the BP group on 1 January 1980 to qualify to buy shares. In addition, employees wishing to participate in the scheme had to vest shares that they already held in BP, or that they were buying, in a scheme established by BP to be run by the trustees of that scheme and not by individual staff shareholders. When the initial shares put in by the employee are held by the trustees, the employees have to put in an equivalent amount, through a sort of membership fee each year, if they are to continue to qualify as members of the BP share ownership scheme.
This seems a bit of a curiosity. Compared with the provisions of the 1978 Finance Act, on which the BP scheme is based, it would seem that the Act does not require a minimum service qualification from employees before they are entitled to this preferential treatment. Nor does it require employees to place their own shares with trustees in order to be allowed to participate, and it does not require an annually renewable membership fee, either.
One of the effects of the three obligations imposed on employees by BP before they can benefit from the so-called preferential terms is that they all discriminate against the less well-paid members of BP's staff. That reduces the numbers who can take advantage of the sale of shares. The so-called preferential terms are mainly a perk for the higher- 1416 paid members of the company's staff. So much for the encouragement of wider share ownership to which the Financial Secretary referred.
I have got no further in my efforts to find out why the increase of £100,000 is necessary. Indeed, the total of £14.3 million may not be the end of it. The answer to me gave only the "latest estimate" of the outcome.
If the Estimates are wrong, it is not the first time that that has happened. When, lamentably, the previous Labour Government decided to sell shares in BP it was estimated in The Times at the outset that that operation would cost £8 million, but a special Supplementary Estimate showed a total of £25 million, of which £12 million represented stamp duty and VAT, leaving £13 million for the parasites in the City who are sucking the blood out of the current share issue. The Treasury and the Bank of England were just as incompetent on the previous occasion.
The sale of BP shares is part of the Government's general attitude towards public sector assets. We have been promised massive sales of all assets of which the Government can manage to dispose. That will certainly be a bonanza for the parasites in the City. Until I looked more closely at the matter I thought of it as a bonanza for those who bought, but the biggest bonanza is for those handling the goods on the way. Anyone who can get in on one of the big share transactions that the Government are floating can make a lot of money for doing little.
It is worth recollecting that the Government are committed to substantial sales in British Airways, where the assets total £830 million, British Aerospace—
§ Mr. Deputy Speaker
Order. We have enough to deal with in this debate without going through a whole list of possible share disposals that are not relevant to the subject under discussion.
§ Mr. Dobson
I do not wish to challenge your ruling, Mr. Deputy Speaker, but in view of what happened in 1977 and what has happened in the past year, we ought to draw the attention of the Financial Secretary to the problems that he, the Treasury and the Bank of England may encounter in the massive transactions that are proposed for the future.
1417 I hope that it will be in order to draw those problems to the Financial Secretary's attention and to emphasise the nature and scale of the problem.
§ Mr. Deputy Speaker
The hon. Gentleman has drawn that to my attention quite forcefully. I am sure that the Financial Secretary heard what he said. I think that we should now continue with the debate.
§ Mr. Dobson
Thank you, Mr. Deputy Speaker. We have had a £290 milion sale of shares, but it is nothing like the size of the sales that the Government are contemplating in other areas. An amazing amount of money has been made in the City out of this relatively limited transaction. I hope that the Treasury and the Bank of England will have learnt a lesson from what has happened, but I do not suppose that they will have learnt anything, because we are discussing the sort of system of which they thoroughly approve. They have lived with it—indeed, they practically invented it.
The Government are cutting social security benefits and all sorts of projects that are useful to ordinary people, yet if they go through with these massive sales they will be establishing what amounts to a system of outdoor relief for the professional classes in the City. They will be greasing the palms and lining the pockets of City institutions, at little risk to those institutions, for the next few years. It may not be the same receiving banks that have helped Tory party funds. Perhaps it will be other banks and other merchant bankers who give advice and float shares.
Was it necessary to involve merchant banks and others to whom I have referred? In view of the assets of BP, the extreme pressure on energy supplies and the virtual certainty that BP will wax fat and flourish, you and I, Mr. Deputy Speaker, could have sold BP shares from a stall in Petticoat Lane for as good a price as all the gents in the City achieved when they were shifting £4.25 million of public money into their own pockets.
Another point of interest is that there is a note in the original and the Supplementary Estimates thatExpenditure borne on this Vote is not subject to Cash Limits.1418 This is the Treasury's own expenditure and is therefore not subject to cash limits. It must be a relief to the Treasury mandarins that their activities are not subject to the limits that they impose on others. The two previous debates on the Bill concerned overseas aid and the prison service, both of which are subject to cash limits, which are causing great strain in those areas—as they are in the Health Service—among local authorities and major nationalised industries. The cash limit system is good enough for them, but apparently it is too harsh and wicked for the Treasury to cope with when dealing with transactions in the City.
We have discovered one welcome aspect in the Supplementary Estimates and the sale of BP shares. Every cloud has a silver lining, and we have one here. The evidence shows that there is a significant Government U-turn on the sale of oil assets. The Chancellor of the Exchequer said, in his lamentable Budget Statement last year:I intend to ensure that the proceeds of sales in the current financial year will amount to some £1 billion and I have taken account of this in the Budget arithmetic. The biggest contribution to this total will come from the sale of a further part of the Government's shareholding in British Petroleum".—[Official Report, 12 June 1979; Vol. 968, C. 249.]The Government originally intended to sell a substantial part of BP, possibly all of it, but there is good news, because in the offer for sale document to which my hon. Friend the Member for Keighley (Mr. B. Cryer) referred so effectively we find thatH.M. Government does not intend to sell any more of its present holding in the Company, nor is there any intention to sell, other than to HM Government, any of the shares in the Company representing the holding acquired by the Bank of England from The Burmah Oil Company, Limited and one of its subsidiaries…for the foreseeable future.So there is a final caveat—the silver lining gets a bit grey towards the end. Nevertheless, the Government have indicated that they do not intend to dispose of more of their BP shareholding than they have got rid of to date.
I said that Churchill was the founder of this semi-nationalised industry and went on to explain that he founded it for strategic reasons. If there were strategic reasons then for the British Government to ensure that they controlled one of this country's major oil suppliers there are 1419 certainly strategic reasons today. There was no great shortage of energy supplies at that time but there certainly is now. I am glad that the Government are not to sell any more of our shareholding in BP and that they appear to have abandoned their intention to sell the British National Oil Corporation, although they are indulging in a bit of forward selling of the oil, thus mortgaging our assets.
Nevertheless, it is good for the country that the Government have changed their minds and it is a triumph for the case made by the Opposition ever since the Government announced their intention of selling a substantial part of BP. It is bad news for the people in the City, though I regard that as good news. We often hear Conservative Members talking of jobs for the boys, but this debate has amply demonstrated that this sale means cash for the chaps in the City. With a bit of luck, if no further BP shares are sold there will be no bonanza for the City chaps.
I also hope that there will not be a bonanza for the City from the sale of British Aerospace, the National Freight Corporation and British Airways. It is to be hoped that the Government will see the error of their ways before going further than they have done.
§ 8.2 pm
§ The Financial Secretary to the Treasury (Mr. Nigel Lawson)
The debate has ranged widely, and I will attempt to answer the points made by hon. Members who are present.
I was slow in getting to my feet because I noticed that no fewer than eight hon. Members had indicated that they wished to speak in this debate. We have heard only three of them, so obviously this is not a matter of such great interest as might have been thought at first sight.
The hon. Member for Kettering (Mr. Homewood) who opened the debate, was under the delusion that of the total sale proceeds £7 million went in the form of fees, underwriting and commissions to banks, merchant banks and stockbrokers in the City. Opposition Members have spoken against those institutions with obvious animus and the debate has been an amalgam of ignorance and prejudice. The hon. Member for Holborn and St. 1420 Pancras, South (Mr. Dobson) drew attention to the fact that that figure was not the true one, and that the banks, stockbrokers and others received only £4.25 million. I mention that because it is of interest to recall that at the time of the offer by the previous Administration in 1977 those same City institutions received rather more than £9 million.
It is therefore taking the conspiracy theory of politics rather too far to assume that the present Government engineered this sale in order to hand commissions to their friends in the City. The previous Labour Government did precisely the same thing though on a larger scale.
The arguments we have heard are scarcely worth the time of the House.
The hon. Member for Keighley (Mr. Cryer) pointed out that a precedent was set by the previous Labour Government and that he was concerned about that. The right hon. Member for Plymouth, Devonport (Dr. Owen), who is sitting on the Opposition Front Bench, should perhaps take note. The hon. Member for Keighley made it quite clear that should a future Labour Cabinet try to do what we are doing it would not be allowed to do so. He pointed out that the constitution of the Labour Party would by that time be so altered that a Labour Cabinet would not be able to act without reference to a wider body of the party. Whether that would be the national executive committee or some other element I do not know.
§ Mr. Cryer
The hon. Gentleman's remarks remind me of the time when Churchill wrote to Clem Attlee saying that he hoped that the national executive committee of the Labour Party would not have any influence on the Labour Government and Clem Attlee replied that, of course, it would not. I said that a future Labour Government must have a more democratic system of consultation with the people of the Labour movement as well as with people outside.
§ Mr. Lawson
I am not sure that that takes us much further.
The hon. Member for Kettering made a point of substance and asked for reaffirmation of the undertaking given in last year's prospectus of sale about the Government's intentions regarding further sale. I can reaffirm that there is no 1421 intention in the foreseeable future of selling any more of the Government's shareholding in. BP.
The hon. Member for Keighley had the bizarre idea that when the present Government took office they faced no economic difficulties and that therefore, unlike the situation in 1977, there was no excuse or justification on those grounds for the sale of shares. On the contrary, the economic difficulties that we inherited were acute, particularly those caused by the grossly excessive size of the public sector borrowing requirement. It was essential to get that requirement down and that, though not the sole reason for selling BP shares, was one element in this objective.
The hon. Gentleman also showed great concern about the State losing its holding. There was throughout the hon. Gentleman's speech a confusion—prevalent among the speeches of Labour Members—between the nation and the State. For an asset to be a national asset—as are great corporations such as BP—it is not necessary for the shares to be 100 per cent., or even 51 per cent. owned by the Government. It is significant that those nations that have flourished have had less rather than more of their business enterprises owned by the State.
The hon. Member seemed to be concerned that now that the British Government would have a minority holding in BP all sorts of dreadful things would happen. He is wholly mistaken in that, as he is mistaken on a number of issues. The British Government have never exercised control over BP since the shares were originally bought by Winston Churchill. The articles of association do indeed lay down that the two Government directors have a power of veto irrespective of the size of the Government shareholding. But that veto has never been exercised. Nevertheless, its power remains unimpaired by the share sale.
The articles of association can be altered only if the amendment is not prevented by a blocking minority of 25 per cent. The British Government shareholding of 46 per cent. is substantially in excess of 25 per cent. The whole basis of the relationship between the Government and the company is laid down in the Bradbury Bridges letters, to which I note Opposition Members did not 1422 refer. That is wholly unaffected by the sale of the shares.
The hon. Member for Keighley could conceive of the sale only in the context of pork barrel politics. I assume that that is the only kind of politics that he understands. But there is nothing in the sale which warrants such an allegation.
§ Mr. Lawson
I am saying that the position is unchanged as a result of the Government's sale of 5 per cent. of the holding.
The hon. Member for Keighley—with his great expertise in financial matters—stated that the whole matter had been badly handled. He said that the issue was oversubscribed, that the revenue was not maximised and that the City institutions which were paid commissions got them for nothing. None of those statements bears any relation to the truth. The previous Government went to precisely the same institutions to get their issue underwritten and sub-underwritten the last time round.
It would have been grossly irresponsible of the Government, needing to be sure of a particular sum of revenue which they had announced to the House of Commons they would achieve by disposals, to have taken the risk that there would be no buyers at the price set. The issue was one and a half times oversubscribed. That shows that there was fine judgment. In 1977 the issue was many, many times oversubscribed. The 1979 sale price of 363p compares with a closing price of 354p today.
The hon. Member for Keighley and his hon. Friends who say that any fool could have seen that the price would go up and up and that there would be oversubscription are totally wrong. The institutions which underwrote the issue took a risk for which they were paid. They took the risk that the price would fall—it was a near thing in the event—and that they would be left holding the shares at the price that they had agreed in advance. They took the risk in order that the Government could avoid taking the risk that they might not receive the money 1423 that they needed. The payment for that risk represented the underwriting commissions. That is standard practice. The terms were fine and narrow. There was no overpayment to the institutions.
I shall pass over the sleazy attack of the hon. Member for Keighley on BP directors. That was characteristic of him. The House has come to accept it, even though it is impossible to like or admire it.
The hon. Member for Holborn and St. Pancras, South repeated a number of the points made by the hon. Member for Keighley. The only different point that he made was about his dissatisfaction with the employee share scheme. A substantial number—about £15 million worth—of shares were taken up by employees. I welcome that.
The BP share scheme operates under the Finance Act 1978 which was passed by the Labour Administration with our support. The hon. Member for Holborn and St. Pancras, South is incorrect to say that there is no requirement that trustees retain the shares of the employee. On the contrary, that is built into the Act. There is a retention period of five years. During that period the employee is unable to dispose of the shares, whatever the reason.
§ Mr. Dobson
I did not suggest otherwise. I said that under the 1978 Act there is neither a four-year employment requirement nor a requirement that people who keep their shares in the scheme pay a membership fee each year. Both those requirements apply to the BP scheme.
§ Mr. Lawson
The hon. Member made those points, but he also argued the point that I rebutted a moment ago. I am glad that he agrees with me. Giving a slight preference for long-service employees is a matter for the company. It is a reasonable preference to give.
We did not sell a small part of our BP holding for short-term reasons. As I said earlier, there was a major problem of excessive public expenditure and an excessive budget deficit and public sector borrowing requirement as a result. The country is still suffering from that, although we are gradually putting it right. A contribution from the sale of BP shares was an important part of the asset disposal programme.
1424 There was no sound reason for the Government and the Bank of England to hold the majority of BP's equity. Traditionally, successive Governments have not interfered in BP's commercial affairs. We have no intention of doing so. There is no magic about the figure of 51 per cent. Indeed, under a previous Labour Administration the holding went down to 48 per cent. I see that the hon. Member for Holborn and St. Pancras, South acknowledges that. It made no difference to the situation.
Our sale had two objectives. In addition to helping to overcome the public sector borrowing requirement difficulties which we inherited, it gave the wider British public the opportunity to increase its stake in this important British oil company. The offer of the shares involved the City. I pay tribute to the City. I am glad that my hon. Friend the Member for City of London and Westminster, South (Mr. Brooke) is in the Chamber.
The City was paid at a reasonable level for the services that it performed, but there were no excessive expenditures. A strict control was kept on costs. Competitive tenders were obtained wherever possible. Each commission was paid only after the need for it had been carefully scrutinised. As I have already demonstrated, the costs of the sale were no more excessive than the costs of the sale conducted by the previous Government. The figures are not substantially different. I do not wish to make much of the point, but, as a percentage of the total disposal realisations the amount that went in commissions to City institutions—£4,250,000 in 1979—was slightly lower than in 1977.
The Bank of England, which was the Government's agency in this matter, had a strict remit to ensure that there was no unnecessary expenditure. Only a tiny minority of Labour hon. Members genuinely believe in their hearts and with their eyes open—looking at the experience of State-owned industries, who could possibly believe?—that public sector interference in BP, which is what the hon. Member for Keighley wants, could bring any benefits to this country. Most hon. Members will agree—and it is the view of previous Labour Governments as well as the present Government—that it would hamper BP and damage 1425 confidence here and abroad in this major British oil company, which is a great asset to the country.
We firmly believe in the initiative and flexibility that private enterprise brings to the oil business, as it does to other sectors of the economy. Where Government checks and controls are necessary, they should be provided generally, as, for example, through the regulatory powers of my right hon. Friend the Secretary of State for Energy over North Sea developments. The dead hand of Government control over our major presence in the international oil business is no way to proceed in the best interests of the United Kingdom. The BP sale was an occasion to widen public ownership of British industry in the true sense, and not in the false sense in which the term is so often used by Labour hon. Members.