HC Deb 19 July 1982 vol 28 cc23-32 3.34 pm
The Secretary of State for Industry (Mr. Patrick Jenkin)

With permission, Mr. Speaker, I should like to make a statement about the future of telecommunications in Britain.

It is the Government's aim to promote consumer choice. Wherever possible, we want industrial and commercial decisions to be determined by the market and not by the State. We believe that consumer choice and the disciplines of the market lead to more stable prices, improved efficiency and a higher quality of service.

Since the British Telecommunications Act 1981 received the Royal Assent less than a year ago, some progress has been made in breaking the State monopoly in telecommunications. I have licensed the Mercury consortium to provide a new telecommunications network in competition with BT. I intend shortly to issue a general licence permitting all bona fide value added network service operators to use the BT and Mercury networks. The way is now opening for the private sector to sell telephone apparatus direct to the public. Liberalisation of telecommunications has started and we intend to see it through.

For BT, the prospect of competition and the advent of new technology are now stimulating it to provide a wider range of competitive services. I pay tribute to the way in which Sir George Jefferson and his board are transforming what was not so long ago a Government Department into a commercially oriented business. We now want to take the next step.

As a nationalised industry, BT does not have direct access to financial markets. Its borrowing is controlled by the Government and counts against the PSBR. To bring inflation under control these borrowings have, inevitably, to be subject to strict limits. But external finance is only part of the picture. In the past, monopoly power has allowed BT to raise prices to finance investment without doing all that might be done to increase efficiency.

Around 90 per cent. of BT's investment programme, about £2,200 million this year, has been self-financed. By "self-financed", I mean, of course "customer financed". BT's charges to customers not only cover current running costs but are also paying for 90 per cent. of new investment. As a result, charges have risen steeply while investment is still not enough. Unless something is done radically to change the capital structure and ownership of BT and to provide a direct spur to efficiency, higher investment could mean still higher charges for the customer. The Government, BT and the general public would find that unacceptable. We need to free BT from traditional forms of Government control.

We will therefore take the earliest opportunity to introduce legislation which, while keeping BT as a single enterprise, will enable it to be converted into a Companies Act company, "British Telecommunications plc". The legislation will allow the sale of shares in that company to the public. It is our intention, after the next election, to offer up to 51 per cent. of the shares on the market in one or more tranches.

Once half of the shares have been sold, the Government will give up control over the commercial decisions of BT plc. BT plc will be outside the public sector; its borrowing will cease to be subject to Exchequer control, and it will look to its shareholders and the markets for its external financing. It will be for the board of the company to decide when and how much to borrow, taking account of internal factors and market conditions in the same way as any other private sector company. This will mean not only a greater flexibility for BT and less pressure on consumers and taxpayers, but that BT will be subject to proper market disciplines. BT will be in a position to provide better services which are more responsible to customer needs like those provided by the privately-owned telephone companies in the United States.

BT plc will, nevertheless, dominate the British market for telecommunications for some years yet. The Government consider, therefore, that there will be a need for regulatory arrangements for the industry to balance the interests of those supplying telecommunications services, their customers, their competitors, their employees, their investors and their suppliers. The legislation will reform the arrangements for licensing telecommunications so as to end BT's exclusive privilege and its role in licensing. Instead, there will be a new Office of Telecommunications, modelled on the Office of Fair Trading, under a director general appointed by me. He will have powers similar to those of the Director General of Fair Trading. He will operate with the same degree of independence from Government. It will be his job to ensure fair competition and fair prices.

The legislation will contain provisions to safeguard existing pension obligations. There will also be special provisions to ensure that those employed in BT can acquire shares in the company.

Finally, the legislation will reform the Telegraph Acts which were passed in the last century. We need to recast the law to make it relevant to the technology of today and tomorrow. I shall be issuing a consultative document on this aspect shortly.

Because these proposals are far-reaching and will affect many people, I am today publishing this statement, with some additional background information, in the form of a White Paper.

These proposals follow naturally from the liberalising measures passed by the House last year. It would make no sense to stop half way. If those who work in telecommunications are to provide the range and quality of service which modern technology now permits, and if they are to do so in competition with each other, it cannot be right that BT should remain subject to the web of Government interference and controls which are the inevitable lot of an industry which enjoys the privilege of Exchequer finance.

The quality of the service which any enterprise provides depends upon the skills, energy, and leadership of the people who work in it. We want to provide those people with the environment—market, financial, legal and structural—which will free them to give of their best. In the view of the Government, that is what the proposed legislation will do. I look forward to its early introduction.

Mr. Stanley Orme (Salford, West)

We have just heard a depressing statement. It is not in the interests of British industry. Why have the Government decided to take such a step, which is harmful to the national network, when British Telecommunications has improved productivity and service to the customer and has developed new technology? Does the Minister not agree that these proposals will destroy the morale of both management and employees? What effect will the proposals have on the provision and cost of services for people living outside the conurbation areas, and pensioners and those who need a telephone for health and security reasons? What steps will the Minister take to protect people in rural areas? What will be the cost to them?

What protection will be given to the pension rights of employees? What proposals will the Government make to protect both pensions and employment? How will the Government price the sale of the shares? What criteria can those shares be matched against? What guarantee will there be that there will not be a further Amersham International scandal? Why does the Minister not free, if he talks about—[HON. MEMBERS: "Too long."] This is an important statement, and it was a long one. I have a right to ask these questions. Why does the Secretary of State not free British Telecommunications from the cash limits and allow it to raise capital, as it could as a public corporation?

This will be an election issue, as the proposals will not come to fruition until after the general election. The Opposition will make this a general election issue. We shall fight to maintain a national network under public control, under British Telecommunications.

Mr. Jenkin

I did not imagine that the right hon. Gentleman would welcome my statement with open arms, but we are content to let the electorate decide. I do not think that the right hon. Gentleman recognises the extent to which this proposal will be in the interests of customers. This is one of the few industries which now has strong growth potential both in the network provision and in the provision of equipment and services to attach to the network.

The criticism has been made by the board, by the unions and by a Select Committee of the House that British Telecommunications has had to constrain its investment plans—[HON. MEMBERS: "Under the Government's policy."]—because of the extent to which it is limited in drawing from the Exchequer. Perhaps the right hon. Gentleman has forgotten that investment in British Telecommunications today is no higher than in 1975–76. The right hon. Gentleman knows that it declined in real terms under the Labour Government—he was a member of that Government—and that it has increased in real terms under the present Administration. However, it is still constrained. The investment needs of British Telecommunications are great. It is right that it should have access to the market.

Access for subscribers in the rural areas will be a matter for the licence that I shall issue to British Telecommunications, when the Bill has been passed. It is the Government's firm intention that anyone who can obtain a telephone under the present arrangements should be able to obtain a telephone under the new arrangements.

The right hon. Gentleman asked about pensions. The Bill will safeguard British Telecommunications' existing pension obligations. As the right hon. Gentleman knows, the pension commitments exist under a funded pension scheme backed by the Post Office pension fund. The assets are in the hands of independent trustees. They will not be touched by a sale of shares in British Telecommunications.

The right hon. Gentleman also asked about jobs. The telecommunications market, freed from British Telecommunications' control, and British Telecommunications, freed from Government constraints, will be a new expansionary force in the market. British Telecommunications is already leading the information technology revolution in the United Kingdom. It could become a major world force.

The right hon. Gentleman asked about the price of shares. As I am sure he will, recognise, it is too soon to start making guesses about that. He asked why we do not just free British Telecommunications from the existing cash limits. As cash limits on nationalised industries were the invention of the Labour Government—of which the right hon. Gentleman was a member—and were applied so strictly that investment in telecommunications went down in real terms in every year that that Government were in office, that criticism comes ill from the right hon. Gentleman's mouth. We intend to free British Telecommunications from that constraint.

Sir Paul Bryan (Howden)

Does my right hon. Friend agree that the recently published results of Cable and Wireless bode well for the arrangements that he is making for British Telecommunications?

Mr. Jenkin

Cable and Wireless has shown that there are great opportunities in this market. I welcome the appointment of Sir Michael Edwardes as chairman of the Mercury Consortium, because I am sure that he will bring a welcome dynamism to that major competitor, the first competing telecommunications network in the world.

Mr. John McWilliam (Blaydon)

Does the Secretary of State accept that the members of the Post Office Engineering Union, which I represent, will be horrified at today's statement? Does he further accept that, given his figures of 90 per cent. self-financing, he is proposing to sell the assets built up by the telecommunications customer over the years and that that will not be reflected in the service that people, particularly in the rural areas, will be given?

Will the right hon. Gentleman reflect on the problem which he and his right hon. Friends the Home Secretary and the Prime Minister have today, which is that British Telecommunications maintains services within the most sensitive installations in the country? How can he protect those services from foreign capital introducing its own priorities to the business?

Mr. Jenkin

I am sure that many employees of British Telecommunications will study the proposals carefully and will not be influenced too much by political statements by the Labour Party. I think that they will recognise that there is a great deal for them in this proposal. They have criticised the method of financing investment in British Telecommunications. They have had to face the anger of subscribers, who are currently having to finance about 90 per cent. of the investment in British Telecommunications. They have been acutely aware of the constraints which the present system imposes on investment. No one has been firmer in such criticisms of the existing procedures. We are proposing to change all that.

I assure the hon. Gentleman that matters of security and so on are well in the forefront of the Government's mind. I expect that, as with the British Telecommunications Act 1981, there will be an opportunity during the passage of the Bill for those matters to be debated on the Floor of the House. I have given the House the assurance that the licence will impose on British Telecommunications the same obligation to maintain communications to rural subscribers. That is absolutely clear. The Government have no intention of abandoning the rural areas. On the contrary, we believe that, as with all subscribers, they will get a better service under a company that is answerable to the disciplines of the market.

Mr. Michael Grylls (Surrey, North-West)

Does my right hon. Friend agree that the decision to allow the public to invest in British Telecom will free it from the shackles of Treasury control, so that in future the only control over investment will be whether the project is viable? That is a better way of operating for the workers and for the consumers.

Mr. Jenkin

My hon. Friend is absolutely right. The disciplines of the market, coupled with the terms of the licence and the regulatory system that we intend to introduce, will give the customer an extremely good service.

Mr. Charles R. Morris (Manchester, Openshaw)

Is the Secretary of State aware that the financial rip-off envisaged in his statement will create acute anxiety among the staffs of the Post Office and British Telecom? Can the Secretary of State give a catergoric assurance that the annual financial contribution by British Telecom to the Post Office superannuation fund will be honoured by any private company that is involved?

Mr. Jenkin

I doubt whether the right hon. Gentleman is right about the acute anxiety of those concerned. Many people working in British Telecom will look forward to the freedom from the mesh of Government control that has surrounded the industry ever since its foundation. I assure the right hon. Gentleman that the Bill will safeguard existing pension rights of British Telecom employees. There will be no welshing on that obligation.

As the right hon. Gentleman knows, British Telecom is carrying the whole of the pre-1969 pension contribution obligations and that is a matter which—[Interruption]. If the right hon. Gentleman will contain himself for a moment, I might be able to offer him some comfort. We shall consider whether part of the proceeds of sale of some of the shares in British Telecom can be used to relieve British Telecom of that continuing obligation and so secure the pension rights without the continuing outflow of tens of millions of pounds. That is for consideration, and no undertaking can yet be given. I hope that the right hon. Gentleman will accept my assurance that the Government have no intention of welshing on the pension obligations.

Sir William Clark (Croydon, South)

Does my right hon. Friend agree that the denationalisation of this section of industry will be widely welcomed in all parts of the country? Will he confirm that under the new set-up the British taxpayer will have no liability for index-linked pensions in British Telecom?

Mr. Jenkin

I cannot add to what I have said about existing pension obligations. It will be for the new company to consider the interests of its employees when assessing pension obligations. The company will obviously wish to reach an amicable agreement with its employees.

Mr. John Golding (Newcastle-under-Lyme)

Is the Secretary of State aware that his statement about the pre-1969 pensions being a matter for consideration will be viewed with horror and concern by the staff? The British Telecom staff will regard his proposals as a change for the worse which can bring only uncertainty into their pensions and job security, which they regard so highly.

Mr. Jenkin

I accept the blame, but the hon. Gentleman appears to have misunderstood me. My pledge on honouring existing pension obligations is unqualified. The point that I make is that we shall consider whether part of the proceeds of sale might be used to fund the pre-1969 obligation, at least as far as the Post Office is concerned, and relieve British Telecom's customers of the continuing need to contribute towards that pension right. I must make it clear that I am giving no undertaking that that will prove possible, but it will be considered, and it might prove a better way to deal with the pre-1969 pension obligation than the existing arrangements.

Mr. David Alton (Liverpool, Edge Hill)

I welcome what the Secretary of State said about increased employee participation. Does he agree that just like increased investment, it could be achieved without denationalisation of the industry? As the matter was raised less than a year ago, why was the House not informed earlier that following the introduction of competition, denationalisation would be the next step?

Mr. Jenkin

I took no part in those proceedings. We cannot stop half way. Most Members welcome the prospect of stronger competition in the provision of telecommunication services for people and businesses. It does not make sense for British Telecom to enter that competition while being subject to the mesh of Government control that inevitably surrounds a nationalised industry. I hope that the hon. Gentleman will welcome the Government's intention to make it possible for British Telecom employees to acquire shares in the company so that they may own part of the company for which they work. That will be welcomed by many employees.

Several hon. Members


Mr. Speaker

Order. I propose to call four more hon. Members from each side of the House, and then we shall move on.

Mr. Peter Hordern (Horsham and Crawley)

Is my right hon. Friend aware that his announcement that British Telecom's investment programme will no longer be constrained by the public sector borrowing requirement and that it will be able to obtain its funds from the capital market will be widely welcomed? However, will my right hon. Friend say why, as the general election will not occur for almost two years, the proposals cannot be brought forward sooner?

Mr. Jenkin

I have some sympathy for my hon. Friend's views. However, he must recognise that the Bill could not be introduced until the next Session. From the reaction of the right hon. Member for Salford, West (Mr. Orme) I expect there will be prolonged debates on the detailed provisions of the Bill and that it might not receive Royal Assent until well into 1983. My hon. Friend will recognise that, by any standards, even if it is done in tranches, the shares issue will be a big one, and we need to make sure that the market is ready to receive it. There could be difficulties about doing that during the period immediately preceding a general election.

There is also a reassurance here to the staff and people generally concerned with the industry. This is a matter on which the British public will wish to express an opinion at the general election. My hon. Friend will be pleased to know that we have plans to hasten these proposals forward immediately after the general election.

Mr. Gregor MacKenzie (Rutherglen)

Will the Secretary of State now answer the question put to him by my right hon. Friend the Member for Salford, West (Mr. Orme) about users outside major conurbations? The right hon. Gentleman said that he would take that into consideration when issuing a licence. We are concerned not only with the provision of a service but with its cost to people who live outside the major conurbations. We suspect that it will be much higher than at present.

Mr. Jenkin

The right hon. Gentleman knows a great deal about such matters, and I respect that. He will know that the network investment has already been made and paid for by the generality of consumers. For British Telecom to withdraw from rural services or impose higher charges would be to devalue its own network, and that would not he a realistic step.

Technological advances are widening the opportunities for rural communities. Advances in satellites, microwaves, and cellular radio are reducing the cost of reaching the remoter rural areas. British Telecom already has higher charges for connection in rural areas—I am sure the right hon. Gentleman is aware of that—and changing the ownership of British Telecom will not alter that.

Mr. John Browne (Winchester)

Is my right hon. Friend aware that his statement will be widely welcomed throughout the country by consumers, who will see in it greater freedom of choice and an opportunity for a vastly improved service? Will he accept that those who have a genuine long-term interest in employment in the industry will also welcome the statement? Will my right hon. Friend assure the House that, in freeing the industry, he will make sure that telephone companies will be obliged to provide itemised telephone bills to the consumer?

Mr. Jenkin

I believe that the Bill will introduce a better deal for the customer. I am surprised at the way in which the Opposition have reacted. They are standing up, not for the customer, but for the discredited system of monopoly State industry. I believe that a British Telecom that is more answerable to the market, and whose shareholders are the consumers, will very much have regard to my hon. Friend's point about bills, but that sort of detail will be a matter for the board of the new company.

Mr. Michael English (Northampton, West)

Is the right hon. Gentleman aware that the tenor of our questioning arises from the fact that his Department ordered that the White Paper, due for publication at 2.30, should not be published until after he had sat down, thus enabling him not to answer questions properly and not helping the House of Commons, which he is supposed to serve? Has he intentionally made his announcement about liberalisation in advance of selling the shares? By doing so he has reduced the monopoly value of the prospective sale of shares—that no doubt cheapens them for the purchaser—and reduced the contribution to the PSBR. What is his estimate of the reduction in the sale value that his announcement has made?

Mr. Jenkin

I gave instructions that the White Paper should be issued as soon as I had sat down, for the reason which I hope the hon. Gentleman will applaud. The White Paper reproduces my statement, and so it would have been wrong had the White Paper been published before I made my statement to the House.

Liberalisation and the private ownership of 51 per cent. of BT are complementary sides of the same policy. We want to open services to competition and to make BT more responsive to market forces. These things must go hand in hand. The hon. Gentleman is right. People who invest in a competitive BT will be aware of the kind of market in which they are investing, just as they invest in the shares of any other company that is operating in a competitive environment. The one difference here—and this will be for debate on the Bill—is the way in which the licence and regulatory systems will operate. That will be of major importance to investors in this company.

Mr. Richard Page (Hertfordshire, South-West)

I congratulate my right hon. Friend on today's announcement, which I believe will offer telecommunications to more members of the public at a vastly cheaper price than people are experiencing at present. What effect will his statement have on the franchise allocation of cable television? I ask that because, as British Telecom is the carrier of these cable television systems, it will produce a source of revenue at no extra cost to BT.

Mr. Jenkin

I am grateful to my hon. Friend for his kind remarks. The Government have not yet made any decisions on the expansion of cable networks. Since the report of the information technology advisory panel was published, we have been studying the issues involved. As my hon. Friend knows, important broadcasting issues have been referred to the committee under Lord Hunt of Tanworth, which is due to report by 30 September.

I believe that there is a wide range of options for BT's participation in the development of cable networks in this country, from going through the BT switching service to using wayleads and ducts. Under the arrangements that we have yet to consider in detail and announce, it will be for BT to make partnership arrangements with the cable companies which may be different in different parts of the country. At this stage I do riot think that we can be more definite than that. I see a distinct role for BT in the cable revolution, but it is too soon to say precisely how that might be carried out.

Mr. Ioan Evans (Aberdare)

The right hon. Gentleman will recall that when this matter was last debated in the House, when the Post Office was separated from BT, Labour Members warned that the Government's intention was to keep the Post Office in the public sector, because it was labour-intensive, but in due time to sell off the highly profitable telecommunications sector. Is it riot impertinent of the Government to proceed in this way in the lifetime of the same Parliament? Will the right hon. Gentleman at least give the public an opportunity to keep this highly profitable sector of British industry under British ownership? What guarantee can he give that it will not be sold to foreign investors?

Mr. Jenkin

If the hon. Gentleman thinks that the British public believe that efficient and well-known private sector concerns such as Marks and Spencer would do better if owned by the State, they may well vote to retain BT as a nationalised industry. My guess is that most people will see that they will get a better deal from a BT that is a private corporation and is answerable to the market, and that they will vote accordingly. I assure the hon. Gentleman that our intention is that the memorandum and articles of association of BT will contain provisions to prevent any undesirable change of ownership.

Mr. Tim Renton (Mid-Sussex)

I congratulate my right hon. Friend on this far-reaching and exciting step in telecommunications. In view of the enormous size of the issue, will he consider issuing shares on a preferential basis, not only to the work force but to each telephone subscriber, so that all users can have a continuing interest in the success of BT, not just through higher bills, but through ownership and higher dividends?

Mr. Jenkin

My hon. Friend makes an important point. At present, no one feels that he owns BT. That is one of the major disadvantages of the Morrisonian system of the statutory public corporation. It will be very much in the Government's mind to provide the widest opportunity for small investors to invest in the service of which they are customers and to recognise the community of interest that exists between those who invest in a concern and those who are its customers, so as to ensure the best possible service.

Mr. Ian Wrigglesworth (Thornaby)

Does the right hon. Gentleman not agree that the proposed timing of the change that he has announced will make BT a political football, which will cause great uncertainty and do great damage to this important sector of British industry? Will he reconsider the timetable, put this as a proposition at the next general election and not act until all the liberalisation measures have been brought into effect?

Mr. Jenkin

The country and BT will have the advantage of having had advance discussion of these matters so that the issues can be properly set out and decided by the electorate before any public issue takes place. The Government are convinced that there are great benefits to be gained—benefits for BT in being given its financial freedom; benefits for employees in having the opportunity to take shares and diversify job opportunities; benefits for customers in having a more market-sensitive organisation serving them; benefits for the taxpayer in a lower PSBR; and benefits for industry in freedom from regulation by BT. It is not a moment too soon to start down that road.

Mr. Orme

Will the right hon. Gentleman reconsider what he said about pensions? As I think he will agree, speculation on pensions is a sensitive issue, and in this case we are dealing with hundreds of millions of pounds. I believe that BT invests £80 million a year. That is bound to have an effect on shareholders and the sale of shares. We shall create problems and dismay in the industry if we mix the current situation and the pre-1969 situation. I am sure that the right hon. Gentleman wishes to clarify that matter.

Mr. Jenkin

I hope that there has not been confusion, because my reply to the hon. Member for Newcastle-under-Lyme (Mr. Golding) made the position abundantly clear. Anxiety was expressed about the continuation of the pre-1969 pension obligations contained in the British Telecommunications Act 1981. I have said that there will be no welshing on that obligation. The Bill will safeguard existing pension interests. I shall be glad if the right hon. Gentleman holds me to that. The future obligations of BT will be a matter for the board of that company and for negotiation between the management and employees of BT. I do not want to tie their hands, but existing pension obligations will be honoured. I give that pledge.