HC Deb 01 April 1981 vol 2 cc377-82
Mr. Kenneth Baker

I beg to move amendment No. 100, in page 6, line 44, leave out from beginning to end of line 3 on page 7.

Mr. Deputy Speaker

With this it will be convenient to take amendment No. 6, in page 6, line 45, after `directions', insert 'which shall be reported to the House of Commons.', and the following Government amendments: Nos. 101 to 107, 115 to 119, 122 and 123.

Mr. Baker

This is a complicated set of amendments but I think that what it will achieve will be welcomed on both sides of the House. The purpose of the amendments is to require the Secretary of State to lay before Parliament all directions requiring British Telecom either to create subsidiaries or to dispose of assets. The issue was debated at some length in Committee. I gave undertakings to consider the parliamentary procedures that would be appropriate when the Secretary of State used these powers.

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However, there are two exclusions. The first is where publication would be against the interests of national security. That is already in the Bill and in the 1969 Act. The second is where the laying before Parliament would affect adversely someone's commercial interest. Because of the detail of the exclusions, counsel has advised that the power to direct the creation of subsidiaries should be moved from clause 4 to clause 6, in the same subsection as disposals. That means that the exclusions have to be repeated only once.

Therefore, amendments Nos. 100 and 101 move the Secretary of State's power of direction to create subsidiaries from clause 4(5) to clause 6(6). The requirement that any direction should not impede the discharge of BT's duty applies only to the power to direct disposals, which is contained in amendment No. 102.

Amendment No. 103 requires directions under clause 6(6) to be laid before Parliament unless to do so would be against the interests of national security or anyone's commercial interests.

Mr. Orme

Will the hon. Gentleman explain what "commercial interests" of any person means? The Minister is asking for power to lay before the House a copy of each direction, but that is not an affirmative order or a statutory instrument. It is purely an obligation to lay before the House a direction in a certain regard. The proposed new subsection (6A) (a) and (b) mentions The interests of national security; or the commercial interests of any person". That could be widely interpreted. Will the Minister explain more fully how wide the Secretary of State would want to go?

Mr. Baker

The Secretary of State may use either of those powers. I should have thought that that would be an unusual circumstance, because we are discussing the Secretary of State's power to direct the creation of subsidiaries and his power to direct the disposal of assets. As I said in Committee, I consider that those are reserved powers and that they will not be used widely. The purpose of the amendments is to ensure that when the powers are used the House of Commons will be informed, so that it knows that the Secretary of State is using his power in that way. Later directions will be published in the annual report.

We thought it prudent that in both cases we should have a backstop—for example, the possibility that in such a situation the commercial interests of the corporation or one of the possible partners would be affected. I cannot think up hypothetical cases, but I shall look upon them as a backstop.

We would not want to publish anything which would harm a negotiation or discussion which might be confidential to the Post Office or to British Telecommunications. The later amendments refer to that.

Amendment No. 105 requires BT not to disclose a direction under clause 6(6) which the Secretary of State has not laid before Parliament. It would be anomalous if the Secretary of State decided that a direction could not be laid before Parliament and BT promptly disclosed it. If either of those two powers is used it will become widely known in the corporation and possibly outside. It is only appropriate and right that the House should know at the same time, because the matter may be of interest to hon. Members, who may wish to make an issue of it. If we published those facts in the annual report, that might be three months, six months or a year after the event.

Amendment No. 106 requires BT to include in the annual report all directions given to it under the Bill, and not only those under section 6 as at present. Amendments Nos. 115 to 122 do the same for the Post Office.

These amendments are in response to the points made to me in Committee. I am glad to be able to present them. It is entirely appropriate to inform Parliament of the use of these powers, because Parliament will then know when they are being used. As I have said, I think that they will be used sparingly, but at least the House will have the opportunity to debate them.

Mr. Golding

I have often experienced disappointment at the racecourse after thinking that my horse had crossed the line first. That sort of experience came back to me when I saw the amendments. I noticed that the Secretary of State had added his name to the amendment tabled by myself and my hon. Friend the Member for Bethnal Green and Bow (Mr.Mikado), which is designed to delete the right hon. Gentleman's power to give directions to British Telecommunications to create subsidiaries.

I was heartened by that. I thought that the Government had accepted the argument—which we strongly urged in Committee—that the Secretary of State was taking upon himself greater powers than any previous Secretary of State to interfere in the running of the public corporations.

When I saw that the Secretary of State had added his name to our amendment I thought that at last he was taking notice of the Conservative Party manifesto, which promised less interference in the day-to-day running of the nationalised industries. It was a moment of great pleasure when I saw that. However, it was pointed out to me that what the Government had taken away from clause 4 they had added to clause 6. As a result, my hope that the Secretary of State would not take such wide powers was dashed to the ground.

It is wrong for the right hon. Gentleman to take these powers to force upon British Telecommunications subsidiaries that it does not want. I do not want British Telecommunications to have any subsidiaries at all. I do not wish to see it operate in that way. Above all, I do not want the Secretary of State to force upon British Telecommunications subsidiaries which, in its commercial wisdom, it has decided would be damaging to the corporation's business. It does not make sense for a Secretary of State to have fought on an election manifesto which says "We will interfere less in the day-to-day running of the nationalised industries" but to take to himself when in office the power to interfere in that way.

I understand the Government's argument. They are saying that if we open up this work to competition, the competition must contain no cross-subsidisation—for example, between the part of British Telecommunications which enjoys a monopoly and the part which is in competition, and that that means the creation of subsidiaries.

That argument is nonsense. The management of British Telecommunications would have preferred to meet that situation by keeping separate accounts, without having to go through the rigmarole and bureaucracy of creating subsidiaries where none are required.

I should not have had no cross-subsidisation. I am convinced that cross-subsidisation will take place in American Telephone and Telegraph and Standard Telephones and Cables. Japanese companies and others will compete on the basis of cross-subsidising the telecommunications equipment with which they will flood this country. Cross-subsidisation will take place in private companies and perhaps in some foreign-owned public companies. We shall be asking BT to compete on unfair terms because it cannot cross-subsidise. Due to the Secretary of State's adherence to a particular ideology, it will have to create a bureaucratic orgnisation that it does not need.

I belive that the Secretary of State has gone along this road because in the case of ATT the Americans decided to liberalise, as the expression goes, in this way by the creation of subsidiaries. The Department of Industry and Ministers have therefore decided that they, too, will take that course. They have completely overlooked the difference between ATT and BT. ATT has subsidiaries which themselves can borrow on the open market. It has subsidiaries which depend upon the financial strength of the parent company. If that is not cross-subsidisation, I do not know what is. ATT has subsidiaries of the size of its manufacturing subsidiary, which is so powerful and financially independent that any comparison with BT must fall.

In Committee we asked a number of questions to which we have not yet received answers. I asked whether the Government would always prevent BT from cross-subsidising. I asked whether it would be possible for foreign competitors to be subsidised while BT could not. Those vital questions were brushed off by the Under-Secretary of State, who said that they could not be answered off the top of one's head. That depends upon the quality of the head. However, Ministers have now had time to find answers to those questions.

We also want to know what kind of subsidiaries the Government have it in mind to force upon BT. Rumours have been rife that the Government are thinking of forcing BT to have regional subsidiaries. I hope that that is naught but a pernicious rumour. As I said in Committee, it would be most damaging for BT to follow a course of regionalisation. It would be damaging to the rural areas particularly those which at present need to receive a cross-subsidy from more concentrated industrial and commercial areas. Let the Government know this. There is a great deal of cross-subsidy in BT at present. If one is to provide a national service at common charges, inevitably there is cross-subsidisation. I hope that it will continue.

It is also possible to create functional subsidiaries. We consider that to be one step towards hiving off. They are one degree worse than joint ventures. If the Government find that a subsidiary is particularly profitable they will use the powers that they have given themselves to sell it off. The Government run short of cash so often that they have to look to the public sector for something to sell. That is a short-term and disastrous policy, particularly for British Telecommunications.

10.30 pm

The Secretary of State has given himself the power to dispose of assets. We strongly oppose that. In Committee, I referred to the Government's habit of turning up at a pawnshop on a Monday morning to sell more of their assets. They are always doing that. As a result of their economic policies, they find themselves in dire financial straits. They must raise more and more money to finance unemployment. They raise that money by selling off national assets. It is a disastrous policy, which the Post Office Engineering Union strongly opposes.

I hope that my right hon. and hon. Friends on the Opposition Front Bench will oppose this measure strongly and that when a Labour Government are returned to office they will do everything possible to ensure that those assets are returned.

Mr. Kenneth Baker

The hon. Member for Newcastle-under-Lyme (Mr. Golding) referred to the big rally that took place earlier in Central Hall. I cannot help feeling that members of the Post Office Engineering Union and of the Union of Communication Workers would have preferred to hear the debate of the past half hour, which has been pertinent to the Bill, instead of four hours of debate on telephone interception. It is a pity that so few union members seem to have stayed for this debate.

The hon. Gentleman spoke to clause 5. He objects to the Secretary of State's power to create subsidiaries or to direct British Telecommunications to create them. He said that such power was unprecedented, but he must know that that is not so. Such provisions appear in several Acts which set up or reorganise nationalised industries. I refer to the Gas Act 1972 and the Civil Aviation Act 1971, as well as to two provisions that were introduced by Labour Administrations—namely, section 45 of the Transport Act 1968 and section 4(2) of the Iron and Steel Act 1975.

I hope that the House does not believe that we seek to include unprecedented, extreme Right-wing measures in this part of the Bill. We do not. There is a good, healthy precedent, which has been followed by successive Governments, including that of which the hon. Gentleman was a member.

I turn to the substance of the debate and to the Secretary of State's power to instruct British Telecomunications to form a subsidiary. We have already made clear our policy in this respect. When British Telecommunications competes with the private sector, it is essential that it should make appropriate arm's length financial arrangements to ensure that it does not use its monopoly activities to subsidise areas in which it faces competition.

The representations that have been made to me by the private sector in the past few months express anxiety that British Telecommunications will be able to operate on an inside track with an established market base and with considerable control over the availability of attachment equipment of one sort or another.

Representations have also been made on the subject of cross-subsidisation. If there is to be cross-subsidisation, it is most important that it should be explicit. One should know whether there is cross-subsidisation. Often in the private sector it is known. In a group of companies with a variety of different subsidiaries, the strategy may be to use the profits of one company to invest in another, to help to make the second company more profitable. That is common, and it could be said to be a cross-subsidisation. However, the point is that the investors, the shareholders and the managers know what is happening, and, moreover, it cannot happen limitlessly, because they will have to face the market and the requirements of their cash resources.

With the Post Office, much of that sort of cross-subsidation could occur without anyone knowing about it and because of the substantial resources available to the Post Office it could continue for a long time.

Mr. Golding

I understand the argument, but why did not the Government tell British Telecom to keep separate accounts, to inform the Government and get separate authority? That would have been preferable to creating separate organisations which management regarded as unnecessary, bureaucratic and expensive to the business.

Mr. Baker

I doubt whether it would be expensive to the business, because I have indications that BT is responding vigorously to the opportunities that liberalisation will show up. I expect it to come to the Government with proposals to create subsidiaries, rather than the other way round. That is a forecast. I may be proved wrong, but I think that that is more likely to happen.

I do not think that the setting up of separate accountable units would necessarily achieve what one wants to achieve. The more obvious way to achieve it is to create separate subsidiaries. As the hon. Gentleman said, that is the method that has been adopted in America. It should be beneficial to BT and its customers to have individual profit centres, so that it can assess the viability of its various investments and decide whether to put resources into one investment as opposed to another. It would also be in the interests of employees, who would benefit from the success of these ventures.

I think that that is the right policy. It will give BT additional freedom, as well as encourage it to compete vigorously. Every indication that I have is that it wants to compete vigorously with the competition which it recognises will come.

Mr. Orme

What if that competition comes from foreign competitors, which might be privately owned firms but which are subsidised by their Governments in different ways, sometimes by hidden subsidies? How does BT stand up against that?

Mr. Baker

If the right hon. Gentleman will give me examples of large foreign companies that are subsidised by their respective Governments I shall be pleased to look into the matter.

Mr. Joseph Dean (Leeds, West)

What about coal?

Mr. Baker

I do not think that BT is likely to go into the coal business. [Interruption.] The right hon. Gentleman is raising wide considerations, much wider than the general competition that applies to Britain's industrial competitors right across the board and not to the competitiveness of one telecommunications company in Germany as opposed to one telecommunications company in Britain or America. But, if the right hon. Gentleman is saying that BT is likely to be faced with unfair competition from overseas, we shall be debating that on a later amendment on the hurdles that overseas companies will have to jump if they want to enter the new, liberalised market.

Mr. Golding

The best example is that of a public corporation coming into competition. There may in future be competition from the Soviet Union, which would involve cross-subsidisation. Many industries have had to meet competition from countries behind the Iron Curtain. The question cannot be evaded merely by saying that it is wide and hypothetical. We need the answer now.

Mr. Baker

We shall deal later with competition from overseas. Certain measures and proposals in the Bill will to a large extent allay the hon. Gentleman's anxiety. From what I know of the Soviet telecommunications industry, it will not be able to compete vigorously with the British, European or American industries.

I see no reason why the Secretary of State should not have the power to direct BT to create subsidiaries and to transfer property to them. I repeat that there are similar measures in many Acts concerning nationalised industries. I do not believe that it will be necessary to use the reserve power much, if at all, but it is important to have it for clarification of cross-subsidisation. I hope that BT will voluntarily use its power under clause 4 or clause 2 to do what is necessary. I do not envisage the Secretary of State using the power frequently, but I am absolutely convinced that it should be held in reserve.

Amendment agreed to.

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