Lords amendment: No. 143, before clause 68 insert the following new clause—
'.—(1) This section applies where the Secretary of State or a nominee of his offers for sale to the public shares or debentures of the successor company at a time when that company is wholly owned by the Crown; and in this section "Full prospectus" means a prospectus which complies, or is deemed to comply, with the requirements of Schedule 4 to the Companies Act 1948 (matters to be specified in prospectus and reports to be set out therein).
(2) If the shares or debentures are offered by a full prospectus as respects which the conditions mentioned in subsection (3) below are fulfilled (in this section referred to as "the offer prospectus"), any form of application for the shares or debentures may (instead of being issued with a full prospectus) be issued with a notice given by the Secretary of State which includes—
- (a) a brief description of the shares or debentures offered, the terms of the offer, the successor company's business and its financial position;
- (b) an indication of the places in the United Kingdom where copies of the offer prospectus are to be available for inspection by members of the public; and
- (c) a statement of the effect of subsections (4) and (5) below.
(3) The said conditions are—
- (a) that a copy of the prospectus has been delivered to the registrar of companies in pursuance of section 41 of the said Act of 1948; and
- (b) that arrangements have been made with a view to securing—
- (i) that on or before the date of receipt of the form of application by a member of the public a copy of the prospectus is published in not less than four national newspapers; and
- (ii) that on that date copies of the prospectus are generally available in the United Kingdom for inspection by members of the public.
(4) Where a form of application is issued without a full prospectus but with a notice given by the Secretary of State under subsection (2) above, then, for the purposes of any enactment or any rule of law—
- (a) the notice shall be taken to have incorporated the offer prospectus; and
- (b) any application for the shares or debentures which is made in pursuance of the notice shall be taken to have been made in pursuance of that prospectus.
(5) Where a form of application is issued without a full prospectus, neither the form of application nor any document which is issued with it shall be regarded—
- (a) as a prospectus for the purposes of sections 37 to 46 of the said Act of 1948 (Prospectus requirements); or
- (b) as a circular for the purposes of section 14 of the Prevention of Fraud (Investments) Act 1958 or section 13 of the Prevention of Fraud (Investments) Act (Northern Ireland) 1940 (circulars relating to investments),
but only, where the form of application is issued without a notice given by the Secretary of State under subsection (2) above, for the purpose of determining the liability of persons other than the Secretary of State.'
§ Mr. Kenneth Baker
I beg to move, That this House doth agree with the Lords in the said amendment.
This clause, which was introduced in the other place, was justified on the basis that it was aimed at meeting exceptional needs, while at the same time providing proper safeguards for the interests of the investor.
The exceptional needs in this case are related to BT's size, and the unique familiarity of the public at large with the corporation. BT is very large, and to get a shareholder base appropriate to its size will require us to bring the sale offer to the attention of a very wide audience. For example, ICI has a shareholder register numbering 450,000 which it has built up over many years. BT is larger, and to achieve a comparable or larger shareholder base during the relatively short period of the flotation would require very much wider exposure.
We also need to go to a wide audience to ensure that everyone who is interested has the opportunity to be involved in the flotation. BT's subscribers number some 19 million and public awareness and interest in BT is therefore exceptionally widespread. We want to give those with an interest, and particularly telephone subscribers, the chance to invest because we should like the public at large to have a direct interest and influence in the running of BT. This would also, we hope, contribute to a spread of share ownership generally, which we believe would be of much wider benefit.
We must plan for a share offer on an unprecedented size. On that basis we would be in danger of outstripping the physical capacity in the United Kingdom to print and distribute full prospectuses, if a prospectus was required with every share application form. I am doubtful whether such a set of circumstances was ever envisaged when the full prospectus requirement was drawn up. In fact, at that time full prospectuses were themselves very much shorter, so even if a share offer of this size had been envisaged the logistical problems that I have outlined would not have been so prohibitive.
The clause therefore translates the prospectus requirement into terms which are practicable for an offer of this size. It does this by allowing us to issue a short notice with share application forms rather than a full prospectus. We nevertheless aim to fulfil the spirit of the existing legislation and this is made clear in the way that the clause is drafted. The clause ensures that the issue of a short notice takes place only against the background of a widely available full prospectus. I envisage a prospectus of the normal 50 to 60 pages which satisfies the prevailing stock exchange and legal requirements. I can assure the House that we intend to make the prospectus very widely 164 available indeed—at high street outlets and elsewhere—when the time comes. The clause also requires there to be arrangements for the publication of the full prospectus in at least four national newspapers. In these ways the clause ensures that investors who wish to make use of the full prospectus can do so without difficulty.
For the notice itself, the clause requires there to be a description of the salient points about the offer and BT's business and finances. This should help to highlight the important points for those who are unfamiliar with working their way through a full prospectus. We do not want to lose sight of this as a benefit of the notice because it will be difficult for the ordinary public to identify the main points in what may be a complex and long and full prospectus. The notice can therefore make a genuine contribution to their understanding of what is on offer. Since the notice will also be required to indicate places where the full prospectus will be available, the further and more detailed information will still be signposted for those who are interested.
In whole, therefore, the clause removes the practical obstructions to presenting BT to an audience appropriate to its size, but remains sensitive to investors' needs for information.
I commend the amendment to the House.
§ Mr. Roger Stott (Wigan)
We are back on track again as we rapidly conclude this evening's debate on this very important issue. By "back on track" I mean that I disagree profoundly with the spurious motives which the Minister has just enunciated for accepting the amendment. His remarks were completely and utterly fallacious.
Conservative Members should realise that the amendment allows the Government to get round the strict requirements about what has to be published in the prospectus for any company which is to be publicly floated. It is expected that the so-called "full prospectus" will be a very substantial document and might, therefore, in the Government's eyes be too complicated and difficult to handle for the "ordinary shareholder". Consequently, they are providing what is euphemistically described as the "short prospectus".
The point of having a full prospectus is that it provides the shareholders with a considerable amount of protection. It requires a company to provide fairly detailed information about its activities and prospects at a time when it is seeking to sell its shares to the public. Bitter experience has shown that these tight laws on information disclosure are very important if shareholders are to be adequately protected.
However, in this Government's mad desire to sell off BT they have now instituted—by their support of the amendment — a new procedure for circumventing the full prospectus requirements. That raises very important issues about shareholder protection and the trustworthiness of offer documents. Is this to be the forerunner of several other truncated prospectuses for share flotations that the Government may or may not propose in future? To what extent will it alter the Stock Exchange rules and the general provision of shareholder protection? Recent experience has shown that, far from reducing the flow of information to shareholders, there is increasing necessity to expand it and give shareholders greater protection. It might seem ironic that I am advancing an argument for shareholders in British Telecom, but the seedy business of 165 the short prospectus is a further example of the way in which the Government continually try to bend the existing rules.
Behind the amendment is the Government's real intention of selling off British Telecom at whatever cost at the first opportunity irrespective of whether that is in the interests of the nation as a whole or of the telecommunications industry in general. It is being claimed by those of us who oppose privatisation that the Government will encourage British Telecom to tart up its accounts so that it can provide the most attractive share offer possible, hence cutting down the prospectus, which will be a way of simplifying matters and making the share offer seem more attractive than it would otherwise be.
The Opposition's argument has been reinforced by recent accounting changes in BT. There has been a change in the depreciation policy by the adoption of the historic cost approach. This has had the miraculous effect of boosting BT's profits, and for the first six months of 1983–84 there was a sharp increase. The trading profits for that period will be taken as a key factor in the flotation. The profits were reported at £462 million, with every expectation of a profit of nearly £1 billion in a full year. This compares with the reported profit in 1982–83 of only £365 million. The increased profit was due to a large change of supplementary depreciation.
The corporation has shortened significantly the lives of its assets. This has led it to write them off sooner than it would have done previously. There has been an enormous write-off of £933 million, which was effective from 1 April. That write-off will be effective from the year of its flotation. This approach contravenes the standards of accountancy practice, but I understand that the auditors have complied with it. Such a write off has important consequences and the declared profits in the year after privatisation will be increased by the amount of the write off, which will be an enormous bonus to the would-be shareholders.
§ Mr. Neale
Will the hon. Gentleman concede that BT's accounts have regularly been qualified by its auditors, so they are hardly accounts that have had a great record of reputability in the past? Secondly, will he concede that one of the defects of his argument about the long-term retainer within the accounting structure of the assets that he is describing has been the tendency of BT to keep its assets as part of its current supplies and not to write them off more quickly and take in new forms of product? Many of the assets have been in the books for ages, with the result that new technology has been prevented from entering the organisation.
§ Mr. Stott
No, I do not accept that. If that were so, why was the different accountancy procedure not instituted some years ago? Why now, at the very time that the Government are proposing to sell off one of the most important assets that the nation owns, is it proposed to change the entire accountancy procedure? The Government are changing the accountancy procedure to make BT that much more attractive to the potential shareholder.
I shall pray in aid a cutting from The Times of 4 April. It is a letter to the editor from Sir Ian Morrow, who is a distinguished accountant and a director of Hambro's bank. What greater credentials could the honourable knight have? The letter stated: 166British Telecom has now reinstated its profit for the year to March 1983, showing an increase from £365 million to £1,030 million. The first figure is used as the basis for the price increases to consumers, the second, for setting the price for investors. Both of course are certified as 'true and fair'.With this example will other nationalised industries, e.g. British Gas, Please reinstate their profits on a historical basis?Perhaps the Treasury could be persuaded that private contractors to the Government should use inflation accounting figures for determining their costs on non-competitive bids.Those are not my words, but those of Sir Ian Morrow. He drew the example that I have already drawn of the shameful way—I am tempted to say dishonest, but I would be ruled out of order—in which the government are encouraging British Telecom to cook the books to fatten the cow before they sell it.
§ Mr. Neale
Does the hon. Gentleman accept that not only among Conservative Members but throughout the country there is considerable puzzlement about the way in which he projects the case for the members of his union? He is always sincere in the way in which he puts his argument, but surely someone working in an organisation such as British Telecom must be proud that it is now showing its true profitable position. It is getting its accounts into order. Until comparatively recently it had only one qualified accountant within its whole operation. How can the hon. Gentleman, on behalf of those for whom he speaks, suggest that it is not in their interests that BT is put on a proper commercial accounting basis so that it can compete in the open market with other companies?
§ Mr. Stott
If it were for the benefit of those whom I represent, we would not be doing what we are doing this evening. It is as simple and straightforward as that. It is because it is not for their benefit, but because the Government are privatising a public asset and fattening the cow before it is slaughtered, that we are opposing the whole principle of the Bill. The clause, which the Government now support, is one further example of the way in which they want to ensure that the books of BT are altered and cooked to give it the greatest profit when the industry is privatised.
§ Mr. Kenneth Baker
The hon. Gentleman is making allegations that it would be generous to describe as ignorant. In no way can a Government intervene in a nationalised industry and instruct it to change its asset lives. Indeed, the proposals agreed by the board of BT must be approved by its auditors. At no time did the Government intervene or express any view.
§ Mr. Stott
That may be the case. The fact that the Bill's provisions have been debated in the House and in the other place, thereby giving the Secretary of State for Trade and Industry the right to sell off British Telecom has meant that at least two years ago BT's board was given the green light and told that the industry was about to be privatised. It may be that the Minister has not said to Sir George Jefferson, "Cook your books," because he cannot say that, but the fact that legislation has been introduced to allow privatised BT to come into operation has given BT the opportunity to do what I have said. The Government are guilty in complying with the regulations.
The Minister owes the House certain explanations. I am sure that he read The Sunday Times "Business News" last Sunday. It contained an interesting article headed, "BT bosses launch shares roadshow." I am sure that that article 167 appeared this morning in the Minister's press cuttings file. Would he comment on some of the salient points in that article?
It does not come as any surprise to the Minister that the Opposition are totally opposed to the principles of privatisation and people making money out of the privatisation of British Telecom. It would appear, if my information is correct, that the stockbrokers whom the Department of Trade and Industry has designated as the appropriate people to facilitate this sale will benefit considerably. I understand that in the past the Commission to the stockbrokers who have participated in the flotation of other public assets has been levied at 1.55 per cent. The Sunday Times article said that the Commission had been increased to 2 per cent. If that is the case, the fat cats in the City — the Opposition are always accused of misrepresenting the Government's intentions—the seven or eight stockbrokers listed in the article, will receive a fee of £60 million merely for facilitating the sale of British Telecom.
The Secretary of State is gracing us with his presence in the Chamber. The right hon. Gentleman should stand up at the Dispatch Box and tell my constituents that the Government will not pay £60 million of public money—not money belonging to the right hon. Gentleman, the Conservative party or me—to facilitate the privatisation of British Telecom. Can the right hon. Gentleman confirm that that will not be done? The way in which the Government have dealt with the flotation of the shares has been appalling. The amendment is one further example of the way in which the Government are getting around the law by not submitting a proper and full prospectus to those who wish to buy the shares. That is a disgraceful and contemptible act.
§ Mr. Richard Shepherd
It is difficult to follow that mish-mash of low-level arguments, which raise doubt about the future of the Opposition Front Bench. When there is merit in any of those arguments one has to be cautious, but I wish to associate myself with two of the themes identified by the hon. Member for Wigan (Mr. Stott) in his awful diatribe.
The hon. Gentleman mentioned the provision of a full prospectus. We are conscious that every investor, no matter how small, and no matter how ignorant he may be deemed to be, is entitled to the same information as everyone else. I understand the Government's laudable motive to make the issue as widely accessible as possible, but I am not sure that that necessitates a lesser form of prospectus than would otherwise be provided. However, I do not make a great deal of that.
The second point that I think the hon. Member for Wigan made followed reports in the Sunday papers that the underwriting fee will be 2 per cent. We are talking about the disposal of what looks to be an extremely attractive company, whether on the old acccountancy basis or on the new historic cost convention basis. I wonder why a fee of 2 per cent. is necessary for what ought to be a successful launch. I understand that the valuation of the company is £4,000 million, which would give a gigantic underwriting fee of £80 million. I regret that I am not a shareholder in some of the companies that are being given such large sums to promote a highly attractive and, I predict, a successful and popular issue.
168 I shall be grateful if my right hon. Friend the Minister, in trying to reply to the arguments of the hon. Member for Wigan, will tell us why it is necessary to provide a lesser prospectus and why the Government are to pay an underwriting fee that raises concern on both sides of the House.
§ Mr. Ashdown
I listened with interest to the measured and careful speech of the hon. Member for Aldridge-Brownhills (Mr. Shepherd) and I agree with what he said about the prospectus.
The alliance parties firmly favour broader share ownership. That is an important aspect of the reforms that we should like to see made in the British economy. I agree in principle with the Minister's aim of a broader ownership of shares in British industry. However, I also share the concern of the hon. Members for Wigan (Mr. Stott) and for Aldridge-Brownhills about the unreasonable profit that will be made by the stockbrokers. Once again, it seems to be a case of large profits being delivered into the hands of the Government's friends.
New and exciting methods of share ownership should be greeted with enthusiasm, though I suspect that the Government's motives are a mixture of broader share ownership, which we welcome, and the desire to bring their narrow ideology into practice. We must ask whether that is a sufficient reason for overturning a provision enshrined in he Companies Act. The provision of a full prospectus is a safeguard, and I thereforé oppose the amendment. It is the duty of the House to scrutinise the Government's actions and to consider the long-term consequences of the precedents that the Government are establishing—for short-term reasons, in most cases.
We are seeing a change in the law of Britain and in the safeguards provided by that law, in pursuit of the sale of the company that we do not wish to be sold. Much more importantly, the change is contained in a Bill which is primarily nothing to do with the Companies Act, and it may have consequences that knock on into the future.
The hon. Member for Wigan made a speech with the general tenor of which I found some difficulty in agreeing. However, it contained some nuggets of importance. The hon. Gentleman was right to be worried about the establishment of such an important precedent within the framework of a Bill which has, fundamentally, nothing to do with the Companies Act. He pointed out that the precedent is established not only in the generality of the application of the Companies Act elsewhere, but in the context of the Government's plans for privatisation. If this change is to be introduced at this stage how much more will the Goverment lean on this precedent in the sale and privatisation of other assets?
Furthermore, are we not here establishing a capacity —it may or may not be made use of on this occasion— for advertising the shares in very broad terms in the newspapers or by other means, as was suggested in the article in The Sunday Times and not producing the prospectus until, perhaps, the day before the flotation? The setting of this precedent could damage the safeguards in the Companies Act about the publishing of a full prospectus.
We may well support the Government's aim, but it is largely coloured by ideology and dogmatism about the privatisation of assets, and we believe that in pursuit of that aim they are setting a dangerous precedent.
169 The hon. Member for Wigan referred, not so very briefly, to the writing down of assets. We continue to oppose the sale of BT, but, given what the Government are trying to do, and within the context of a successful sale of BT. writing down the assets should be a reasonably sensible way of proceeding. However, BT will be left in a highly geared state. Funds will be low in relation to debts. Should not the gearing ratio be brought down? If the Government wish to equip BT to survive in the real world, might there not be a case for writing off some of the debts? Will not the Minister have to follow that logic through and take some action along these lines?
It seems wrong to us, and it is a matter of deep concern, that the Government should be overturning some of the safeguards built into the Companies Act in order to pursue their advantage at this particular time. That is wrong, even though the aim of encouraging wider share ownership is something to which we could subscribe.
§ Mr. Mark Fisher (Stoke-on-Trent, Central)
In speaking to a previous amendment, the Minister for Information Technology said that the Bill was almost in port. It had been a long voyage, but he was almost there. As the Minister knows, however, as yet he has only the legislation. He now has to put the legislation into effect and sell the shares. That is what the new clause addresses itself to.
The reasons given for what is a considerable change in normal flotation practice are not very satisfactory. The Minister said that for logistical reasons he could not publish a full prospectus. He said that it was not practicable and used the rather shaky logic of setting up a problem, saying that it could not be solved and that he should therefore change the normal rules of flotation. The Opposition do not find it satisfactory if the intention of the new clause—it probably is—is to find some way round the Stock Exchange rules as laid out in the Yellow Book. The Yellow Book makes it clear that, for a successful flotation, a company that offers itself for flotation should be able to present five years' certified and audited accounts and a full prospectus to all shareholders.
§ Mr. Kenneth Baker
The guillotine is about to fall and I shall not have time for a substantial reply, but on the mini prospectus, I beg the hon. Gentleman to appreciate that the full prospectus of 50 to 60 pages is likely to be printed in several hundred thousand copies. There are some 19 million telephone subscribers and we regard this as a wonderful opportunity to extend share ownership on an extensive scale. To fulfil that opportunity it is not possible during a flotation to print 19 million prospectuses and deliver them to the homes of every subscriber. I ask hon. Members to consider how difficult it is to organise their election addresses during the three weeks of an election campaign and the amount of effort that that requires.
Our proposals are not sinister but are merely addressed to the possibility of trying to expose the prospectus to as many people as possible. My right hon. Friend the Secretary of State for Trade and Industry has said that he wants this to be an opportunity dramatically to increase share ownership. That cannot be done if we are obliged to print and deliver a 60-page prospectus for the sale of shares in four to five days, or one week at the most. That is not logistically possible.
I should like to make it clear that the full prospectus will contain all of the details. The shorter one cannot contain 170 all of the details, but it will make clear where interested people can go to see a full one. They will be made widely available through the banks and possibly even through post offices. In no way are people being asked to buy a pig in a poke. I believe that the anxieties that have been expressed about this matter have been alarmist —I do not think that the hon. Gentleman is adding to them— and I hope that I have been able to settle some of that anxiety tonight.
§ Mr. Fisher
I feel that what the Minister is saying is not quite true. There is not a logistical problem. BT is able to produce telephone directories that are far longer than the full prospectus and deliver them to every house. The Minister has set the problem. If he wants to sell shares to several hundred thousand or several million people, he has a responsibility to give them a full prospectus. It is not satisfactory for him to say that he has set himself a problem of trying to sell to millions of people but that he cannot fulfil his responsibilities as a seller to explain fully the problems, possibilities and, in the Government's terms, opportunities that the sale offers.
The Secretary of State is smiling mockingly, but if he wishes to sell the shares of a company in which he believes, he owes it to the people to whom he is selling to make the accounting problems clear. As Sir George Jefferson's chairman's statement in this year's half yearly report shows, there are distinct problems about the accounts and presentation that need explaining. They might not be sinister, but they need some capital reconstruction and massaging of the accounts to be appreciated and accepted. The change in depreciation policy has much to commend it, and getting rid of the old supplementary basis is probably welcomed on both sides of the House. When hon. Members sniggered because standard accounting policy was not being followed, they might not have been aware that, instead of passing through the profit and loss account which, I believe, is normal practice, the reserves have been written off. That is not standard accounting practice, and such a substantial change — £993 million— requires some explanation in the accounts. It is doubtful whether that can be done in a short, crisp prospectus.
Since time is running short, it will be difficult to put my entire case. However, the Government should answer serious questions in this prospectus not only about depreciation but about other accounting problems, including what provision will be made for——
§ Question put and agreed to.
§ It being four hours after the commencement of proceedings on the motion relating to the Telecommunications Bill (Allocation of Time), Mr. DEPUTY SPEAKER proceeded, pursuant to the miler this day, to put forthwith the Question necessary for the disposal of the business to be concluded at that hour.