§ The Secretary of State for Trade and Industry (Mr. Norman Tebbit)
With permission, Mr. Speaker, I should like to make a statement about privatisation of British Telecom.
As the House will know, it is the Government's intention to sell a majority interest of the ordinary voting shares of British Telecom.
I wish now to set out the broad outlines of the capital structure with which BT plc will enter the private sector. We have concluded that the initial debt of the company to the Government should be in the form of debentures with a capital value of £2,750 million carrying interest at between 12¼ per cent. and 12¾ per cent. The Government will assign sufficient of these debentures to the residual statutory corporation to enable it to meet the deed of covenant obligation to the BT and Post Office staff superannuation schemes as required by the Telecommunications Act 1984.
BT plc will also issue to the Government preference shares to the value of £750 million. These preference shares, carrying a gross dividend of 11¾ per cent., will be non-voting and redeemable at BT's option or in any case after 30 to 35 years. Apart from BT's continuing overseas and short-term borrowing, the remainder of the company's assets will be financed by ordinary shares and reserves.
Turning to BT's future operating environment, we announced last year that the tariff increases on some of BT's services should be kept below the rate of inflation. We have now concluded that the services concerned will include local calls, business and residential rentals and trunk calls. The constraint will apply for five years to a weighted average of these services. Its level will be RPI minus 3—that is, three percentage points less than the increase in retail prices generally over the preceding year. We are satisfied that this will reassure BT's customers whilst allowing BT to adjust tariffs on these services to reflect market demands. The board of BT has given the Government an assurance that BT plc intends during the same period that the level of its residential rental charges will be held within a ceiling of 2 per cent. and that it further intends during that period to continue to give rebates to low users broadly comparable with the present scheme in overall financial effect.
Details of the operation of the RPI minus X provision will be set out in the BT licence which will be laid before Parliament soon.
The Government intend that the BT flotation should provide an opportunity to encourage wider share ownership by both the public and employees of the company.
Employees who work at least 16 hours per week for BT and who have been in continuous employment with BT from 2 April 1984 until a date shortly before the flotation will benefit from a special scheme. They will be offered about £70 worth of free shares and, for every share purchased by the employee, the Government will provide a further two free shares, up to a maximum of £200 of free shares for £100 of purchased shares. Employees will therefore have the opportunity to acquire about £370 worth of shares for an investment of about £100. As in past sales, these shares will have to be vested in a trust for a minimum of two years.
354 In addition, a discount of 10 per cent. off the public offer price will be offered to all employees at the time of flotation on purchases of up to £2,000 worth of shares, provided that they are held for a specified period.
Further, we have decided to offer special incentives to telephone subscribers. One possibility would take the form of vouchers which could be used to offset part of the cost of quarterly telephone bills for a subsequent period. Details will be announced closer to the flotation.
As a result of these measures, we are confident that very many of BT's employees and customers will become shareholders in BT plc. The financial framework for BT plc is now set and work on the flotation is on schedule for a late autumn launch.
I will keep the House informed of further progress on the BT sale.
§ Mr. Peter Shore (Bethnal Green and Stepney)
The right hon. Gentleman's long statement illustrates the complexity as well as the folly of attempting to privatise this large, profitable and extremely innovative and successful public enterprise. Can he confirm that the arrangements made and announced at the beginning of the statement for the allocation of debentures will fully safeguard existing pension rights both for pensioners in retirement and for those who are still serving with the corporation, and who are continuing to acquire their pension rights?
Given the sums involved in the first few paragraphs —£2,750 million for debentures and £750 million for preference shares—what is the right hon. Gentleman's estimate of the flotation of equity shares? Presumably he is trying to clear the ground to launch them. Bearing in mind from our earlier debates that BT was provisionally valued at about £4,000 million, it would appear that there will not be the scope that we previously thought.
As regards tariffs, can the Secretary of State explain the apparent inconsistency in the fifth paragraph of the statement, where the formula of RPI minus three is applied, among other things, to residential rentals and trunk calls, when there is then a reference to residential rental charges being held within the ceiling of two plus RPI? On the face of it, there is a contradiction and we look forward to the Secretary of State's explanation.
Is not the Secretary of State aware that previous attempts to make privatisation popular by dispersing shares to existing employees have resulted in about 84 per cent. of all such allocations being disposed of by the recipients within one week of becoming the owners? The Minister has said nothing in the statement about the size of the equity issue that he has in mind, or about the cost. Can he deny the reports that have appeared in the business section of this week's edition of The Sunday Times that £50 million is being allocated for the promotion, through advertising, of public awareness of this forthcoming issue? Can he deny that the brokerage fees have been provisionally estimated at about £60 million? Is he aware that sums of that kind for a wholly unnecessary enterprise are indeed a scandal?
§ Mr. Tebbit
The right hon. Gentleman has asked me five questions. His first question concerned pension rights. He will recollect that what is involved here is a shortfall in the pension fund, in effect, which dates back some years and concerns investments which were made in past years and which are not providing sufficient yield to cover all 355 the obligations, Sufficient of the debentures will be transferred to the fund to ensure that in that respect its obligations may be fully and completely met. In essence, although I think that the right hon. Gentleman's question, if I may say so, was not quite to the point, I can give the assurance that I think the members of the pension fund concerned would want to have.
Secondly, the right hon. Gentleman questioned the value that we shall be placing upon the equity, and he referred to a valuation of the company of about £4 billion. I think that the right hon. Gentleman misleads himself. There have been speculative suggestions that the company would be worth about £8 billion, and therefore that about half of the equity would be worth approximately £4 billion. Those are estimates which have not been made by the Government and are not authorised by the Government. The price which will be achieved for the equity will depend upon several factors, not all of which are yet known, not least the general state of the market at the time of the launch.
Thirdly, the right hon. Gentleman asked about the RPI minus X formula and the RPI plus 2 formula. I can well understand that it is not easy to see initially what is taking place. The RPI minus X formula applies to the whole basket that I mentioned, which includes the domestic rental. The RPI plus 2 formula applies specifically to the rental. Therefore, whatever shuffles are made within the basket, the rental element for residential customers is covered by the BT assurance on RPI plus 2.
Fourthly, the right hon. Gentleman asked about employees' shareholding. Experience has been very different in different enterprises. For example, the National Freight Corporation experience has been very different from that of the others, but I hope that the right hon. Gentleman will share with me the ambition to spread share ownership more widely, and particularly among the employees concerned.
Fifthly, the right hon. Gentleman asked agout a speculative story in The Sunday Times concerning brokerage fees and advertising campaign costs. If I were to deny or confirm all the stories which appear in The Sunday Times or other newpapers, I would be very busy indeed. I have no intention of going down that path, but The Sunday Times story was misleading, to put it mildly.
§ Mr. Michael Grylls (Surrey, North-West)
Will my right hon. Friend confirm that he will work hard to ensure that telephone subscribers can get shares at a beneficial rate, as that is a method of spreading share ownership widely? I congratulate my right hon. Friend on proposing a very good scheme for the employees of British Telecom, as that is another way of spreading ownership as far as possible.
§ Mr. Tebbit
I shall do all I can to promote share opportunities for employees. The important aspect of the special offer is that employee shares will go into trust, and those shares that go into trust must remain there for two years. Therefore, whatever may happen to shares which are bought by employees outside the special provision, those shares which go into the special trust will be held for at least two years.
§ Mr. Mark Fisher (Stoke-on-Trent, Central)
In view of what the Secretary of State has said about the Government debt amounting to £3.5 billion through debentures and preference shares, will he now make clear 356 to the House how much equity he intends to float in cash terms and in percentage of the fixed and current assets? If the House subtracts that £3.5 billion from 50 per cent. of the total asset value of £8 billion, it will realise that the Secretary of State is intending to sell equity only to the tune of £500 million, which is only 6 per cent. of the total fixed and current asset value of BT.
§ Mr. Richard Page (Hertfordshire, South-West)
Does my right hon. Friend agree that this privatisation is possible due only to the dramatic increase in efficiency by British Telecom and its employees over the past few years? As my right hon. Friend is obviously not pitching the share value too low—in fact, he is pitching it at a very reasonable market level — may I urge him to do whatever he can to offer these shares to subscribers at the most generous of rates so that we can become not only a property-owning democracy, but a telephone share-owning democracy as well?
§ Mr. Tebbit
I agree with my hon. Friend; it is desirable that the share ownership should be widely spread. I should like to pay tribute to many of the improvements that have been made in the performance of BT in recent times. It is interesting to note the extent to which those improvements have come about under the knowledge that BT is to be privatised and must be fully competitive.
My hon. Friend referred to the value which I put upon the equity. I have not actually put a value upon the equity; the market will finally put a value upon it. However, I think that it may be helpful to the House, and particularly to the hon. Member for Stoke-on-Trent, Central (Mr. Fisher), with whom I may have been a little brusque—a most uncommon failing on my part—if I say that the total asset value of the company will be of the order of £9 billion, that Government debentures will feature in that to the tune of £2,750 million, that there will also be the foreign loans on the balance sheet, and the preference shares of £750 million, and that that will leave a total approaching—and I emphasise approaching—£5 billion represented by the equity and reserves.
§ Mr. John Golding (Newcastle-under-Lyme)
Is the Secretary of State aware of his Department's intolerable interference in the current wage negotiations between the Post Office Engineering Union and BT? Is he also aware that it is quite wrong, in order to help sell the BT shares, for his Department to be urging BT to reduce the standard of living of BT employees, to stop paying for genuine productivity improvements, to pay the lowest percentage increases to the lowest paid, and to peg the pay of clericals and executives? Is he further aware that this interference may well take more from BT staff than any handout of shares?
§ Mr. Tebbit
I am not aware of any intolerable interference in the affairs of British Telecom, but, were there to have been intolerable interference by Ministers in the affairs of British Telecom, I am sure that the hon. Gentleman would join me in being aware of, and perhaps even enjoying, the prospect of privatisation since clearly Ministers, even had they wished to interfere, would have been in a much poorer position to interfere had BT already been privatised.
§ Mr. Tim Eggar (Enfield, North)
I welcome the measures announced to help employees and subscribers, but can my right hon. Friend confirm that, under the basket formula, it will be possible for BT to raise rental charges and local call charges so as to reduce trunk call charges, thus enabling BT to undercut trunk call competitors?
§ Mr. Eggar
Under the basket, the rental charges can rise by RPI plus 2, and on the local call charges there is no ceiling, which enables BT to reduce trunk call charges by significantly more than would be the case if there were a limit on trunk call charges as such. Does it not therefore allow BT to undercut its competitors?
§ Mr. Tebbit
Not altogether, because local call charges are in the basket, and are therefore covered in that way.
§ Mr. Ian Wrigglesworth (Stockton, South)
Will not the biggest beneficiary of the announcement of the Secretary of State be the Treasury and not the consumer? If the Government had wished to increase competition in telecommunications, why have they not allowed more licences to be given to telecommunications operators in the country in order to benefit consumers? Why have they decided that it should be RPI minus 3 per cent., and not a higher figure which one would have expected by international competitive standards? Will the Secretary of State look at that figure again and see whether it can be brought more in line with international standards overseas?
§ Mr. Tebbit
I am not sure whether the hon. Gentleman thinks that there should be less protection for the consumer or more. I do not think that he has been altogether assiduous in his studies of what happens overseas. The greatest beneficiary of the change will be all those who have an interest in the performance of the economy as a whole. British Telecom's performance is an important component in the performance of the economy as a whole. It will be one of our major companies. The better it performs, of course, the better for all of us, so we shall all be beneficiaries.
§ Mr. John Ward (Poole)
My right hon. Friend will be aware that many hon. Members have heard with relief his announcement that the privatisation of British Telecom is to go ahead on time. Will he particularly take on board the message that I think has come from both sides of the House that the subscribers should get the chance to subscribe to the shares on preferential terms so that there is the widest possible spread of share ownership?
§ Mr. Tebbit
I certainly hope that we shall be able to devise schemes that will encourage wider share ownership generally, particularly by telephone subscribers.
§ Mr. Dave Nellist (Coventry, South-East)
Does not the Secretary of State accept that the widest possible share ownership is the public ownership of all working people owning an asset? Will he therefore declare to the House that the real intention behind his complexity of incentives and share deals in this privatisation exercise is to frustrate a future Labour Government from renationalising such a public asset? Will he take it from me that the next Labour Government, and in particular the unions concerned, will ensure that this public asset is renationalised?
§ Mr. Tebbit
I confess that, on the current performance of the Labour party, I do not lose too much sleep about the prospect of a future Labour Government and I do not think that we need to do so while the hon. Gentleman is part of the team representing the Labour party.
So-called public ownership—state ownership—means that the only people to have any say are politicians and civil servants. I want to give a wider representation than that on the board of directors.
§ Mr. Teddy Taylor (Southend, East)
How does the RPI minus 3 formula compare with the increases charged by British Telecom and its predecessor over, say, the past five or 10 years? Will there be any restrictions on the increase in call box charges?
§ Mr. Tebbit
The call box charges will not be included in the RPI minus X formula. The performance of BT over the past 10 years is rather less good than RPI minus 3.
§ Mr. James Wallace (Orkney and Shetland)
I think that many hon. Members will find the statement as interesting for what it does not say as for what it does say, and will find it astonishing that, after a debate ranging over two parliamentary Sessions and 300 hours, there are still so many vague areas in the details of the flotation. Will the Secretary of State say how much of what appears to be the £5.5 million free equity he intends to float in the late autumn, and the cost to the taxpayer of advertising that flotation?
§ Mr. Tebbit
We shall float 51 per cent. of the equity in the autumn. We cannot yet assess the cost of that. That will be reported no doubt in the fullness of time. As to any vagueness at this stage after two years, when the hon. Gentleman gives some thought to it I think that he will realise that, until the Bill was enacted, it would have been difficult to commence the negotiations and the discussions on the future capital structure on RPI minus X, and all the other details.
§ Mr. John Powley (Norwich, South)
I warmly welcome my right hon. Friend's statement, but does he agree that, alongside a number of other measures introduced by the Government, this is a welcome sign of the return to the hands of the individual of the wealth previously held by the state and that the sure way for BT in future is to respond more readily to the demands of the individual via his shareholding and the amount of use he makes of the company's services?
§ Mr. Tebbit
I agree completely with my hon. Friend. I extract some mild amusement from the fact that those currently engaged in a campaign to accuse the Government of having authoritarian tendencies and wanting to grab power for Whitehall are among those who wish to keep the corporation in the control of Whitehall, thereby increasing the power of the state. That is what Opposition Back Benchers are interested in.
§ Mr. Dafydd Wigley (Caernarfon)
When the right hon. Gentleman referred to 51 per cent. of the equity that is to be sold, did he mean 51 per cent. of the £5,500 million? In other words, shares worth £2,750 million will be sold out of the £9,000 million total asset value.
§ Mr. Tebbit
Not unnaturally, the hon. Gentleman is not quite clear about the figures. The future capital structure of the company will consist of the £2,750 million of Government debentures, of foreign loans and other such 359 items amounting to £750 million, of preference shares amounting to £750 million, and of ordinary shares and reserves of £4,712 million£a total of £8,962 million. I rounded up the figures for the convenience of the House. Of the equity — which is not £4,712 million as that embraces ordinary shares and reserves—51 per cent. will be sold. We shall have to await a much later stage to see the valuation that is placed on the company.
§ Mr. Philip Oppenheim (Amber Valley)
Is my right hon. Friend aware that, of 19 key telephone systems currently about to be approved, no fewer than 13 are manufactured overseas and that even BT is currently considering the distribution of Japanese-made key telephone systems? Is he also aware that many of these systems come from countries such as Belgium, France, West Germany, Japan and Yugoslavia and that British telecommunications manufacturers have absolutely no hope reciprocally of selling in those markets as they are closed to overseas goods?
§ Mr. Tebbit
I do not agree with all that my hon. Friend says. We had become uncompetitive in a number of these more innovatory areas, and that was due to the monopoly position of the past. There was no incentive to develop these new instruments. Therefore, liberalisation initially means that foreign companies have an advantage. I am confident that British companies can respond to the challenge and that they are doing so already.
§ Mr. Peter Thurnham (Bolton, North-East)
I welcome my right hon. Friend's proposal to offer a voucher scheme to subscribers. Will he confirm that that scheme will be available equally to both private and business users?
§ Mr. Tebbit
I said that one possible option was a voucher scheme. The details of such a scheme, if we were to take it forward, are not yet fully worked out, but I take note of my hon. Friend's proposition.
§ Mr. Richard Shepherd (Aldridge-Brownhills)
Bearing in mind BT's failure to meet the productivity gains agreed with the last Labour Government and the tremendous productivity gains realised in north America, does not my right hon. Friend think that RPI minus 3 per cent. is far too generous to BT and against the interests of British consumers — domestic, industrial and commercial?
§ Mr. Timothy Wood (Stevenage)
I wish to pursue the question of competition and the publication of the licence. I hope that my right hon. Friend will make suitable provision within the licence for appropriate competition and the avoidance of cross-subsidisation and other anti-competitive practices by BT in the future and that such provision will be more effective than that contained in the draft licence.
§ Mr. Tebbit
I note what my hon. Friend says. It is essential that the competition which BT will suffer or enjoy should be real. That means that the competing companies must be relatively strong. One danger would be a proliferation of small competitors, all of which could 360 effectively be brushed aside. Until the competing companies grow and strengthen, some difficult licensing problems will have to be dealt with.
§ Mr. Rob Hayward (Kingswood)
I hope that BT employees will welcome my right hon. Friend's announcement as much as hon. Members have done. However, there was no reference to the treatment of pensioners who are former BT employees. I hope that my right hon. Friend will give serious consideration to providing similar facilities for the purchase of shares by pensioners as well as employees, especially current employees of BT who will retire between now and the date of flotation.
§ Mr. Tebbit
I take note of what my hon. Friend says. He will realise that these are extremely complex matters. I hope that in due course we shall be able to make fuller statements with regard to all pensioners as well as employees.
§ Mr. Eric Forth (Mid-Worcestershire)
I sympathise with my right hon. Friend's natural desire to protect the consumer through the RPI minus X formula, but is he satisfied that by using that formula sufficient allowance will be made for a privatised BT to maintain its profitability, thereby maintaining the reinvestment in the business which will be necessary to justify the share flotation in the first place?
§ Mr. Tebbit
Yes. My hon. Friend puts the perfect counterbalance to the point made by my hon. Friend the Member for Aldridge-Brownhills (Mr. Shepherd). That perfectly illustrates the way in which one must preserve a balance between the two interests.
§ Mr. Shore
The right hon. Gentleman's statement was not exactly a model of clarity, as I think he will understand. Things have not been improved by the muddled replies that we have had to a number of questions and to the fact that we are still lacking the licence, for which we have now been pressing for the past 18 months. Is it not clear that call box charges will not be controlled in any way in terms of price limitation and that therefore the consumer can expect an increase in charges? As we predicted, and as the Government in Committee most emphatically denied, rentals for the ordinary domestic telephone user will increase and will be subject not to any price reduction formula but to the formula of RPI plus 2. Will the right hon. Gentleman kindly confirm that that is the case?
§ Mr. Tebbit
The call box user and telephone users generally will have better protection through the machinery of the Director General of Oftel, to whom complaints may be made about abuse of British Telecom's position. That is a possibility which is open by statute and which was never open in the past.
The right hon. Gentleman must know that in the past there has been no control of rental charges, which have increased quite considerably in real terms in the past. He must accept that the protection which is now offered is better that that which has been available in the past. He says that the price will increase. It may increase, but there is an undertaking by British Telecom, which will be undertaken by British Telecom plc, to exercise some restraint in that area. That is an undertaking that we have not had before.
361 The fact that the right hon. Gentleman can ask questions at the end of the day on only two comparitively minor matters when set against the whole programme of denationalisation of British Telecom puts his objections into perspective.