HC Deb 07 May 1985 vol 78 cc637-47 4.19 pm
The Secretary of State for Energy (Mr. Peter Walker)

With permission, Mr. Speaker, I should like to make a statement about the future of the British gas industry.

Major progress has been made with the Government's privatisation programme. Management and enterprise have been freed from bureaucratic intervention in industries as diverse as aerospace, the ports and cross-Channel services, the oil industry and British Telecom.

The Government have decided that the time has come for a further major step in the transfer of state industry to the private sector. I propose to introduce legislation at the earliest opportunity to provide for the transfer to a new private sector company of all the assets of the British Gas Corporation, and for appropriate regulation of monopoly aspects of the gas supply business. Following that legislation, the Government intend that the shares in the new company should be sold to those employed in the industry and to the public.

This change, like the earlier ones, will remove state intervention and substitute realistic tests of performance for bureaucratic or political ones. It will create a real ownership by the public and employees in place of the nominal public ownership of the nationalisation statute. It will place new emphasis on efficiency for the benefit of consumers and give employees a new stake in the business.

The legislation will protect the consumer by establishing regulatory arrangements to oversee gas prices to the consumer and terms and conditions of supply. The new company will have an appropriate obligation to supply consumers, as has been the case with the British Gas Corporation. The legislation will protect consumers against discrimination and will contain necessary safety provisions, including the obligation on the new company to maintain the emergency services.

The opportunities for greater competition opened up by the Oil and Gas (Enterprise) Act 1982 will be maintained and kept under review. In particular, it is the Government's intention that competitors should be able to supply not only large industrial consumers but smaller domestic and commercial consumers in areas not already supplied by BGC, with suitable safeguards for safety.

Outside the areas of gas supply, the new company will be able to develop other areas of its business in a competitive environment, subject like any other company to the general framework of competition legislation.

I intend to provide special opportunities to gas consumers and other small investors to purchase shares, in line with our policy on wider share ownership. All gas consumers will benefit from the emphasis on efficiency which will be built into the regulatory system and from a staightforward system of gas pricing related directly to achieved commercial performance.

As with previous privatisation measures, I propose to make generous provision to enable all who work in the industry to acquire shares and thus to take a new stake in the company's performance and success. There will be new opportunities, as well as new challenges, for management and employees in the new company.

The British gas industry is now nearly two centuries old. It has spent nearly 40 years as a nationalised industry, but was developed for a century and a half in the private sector. It has undergone great change in the past two decades with the transition to natural gas, which has linked it to the great expansion of British industry into the North sea. I believe that today's announcement will mark a new and long period of successful development into which the management and all who work in the industry can bring their present talents and link them with new freedoms in the interests of the nation.

Mr. Stanley Orme (Salford, East)

The Government's proposal to privatise British Gas will create a massive new private monopoly out of publicly developed assets. For what purpose, and to what end? Will there be any greater choice for gas consumers? Will it introduce competition, which is so vaunted by the Government? The right hon. Gentleman mentioned the Oil and Gas (Enterprise) Act 1982. How many applications and approvals have there been under that Act? What a flop that Act has been. Will the measure bring the consumer any new benefits? Will it produce lower gas prices? There is not a shred of evidence to suggest that customers will be better off.

The Secretary of State has boasted that gas consumers will be offered a special opportunity to buy shares. The majority of gas consumers have enough to do to pay their present gas bills, which are deliberately inflated by Government policy. Does the Secretary of State recall that it was his Government who imposed a gas price increase of 10 per cent. above the rate of inflation for three years on the run—an additional national gas bill of £4 billion—and a £1.5 billion gas levy? The consumer, not the Government, has financed the development of the gas industry.

The Secretary of State boasts about the so-called wider share ownership. The privatisation record shows an ever-increasing concentration of shares in fewer and fewer hands. Is he aware that less than 5 per cent. of British Telecom's shares are now in the hands of its employees? The same story can be told about British Aerospace and Cable and Wireless.

I remind the Secretary of State that the British Gas Corporation has an outstanding safety record. If his proposals should have the misfortune to get through. there will be widespread anxiety that a private monopoly might cut corners on safety.

In his Cambridge speech last week the Secretary of State made a great point about employment and the creation of jobs. What new jobs will these measures create? What effect will they have, not just on the people who work in the industry, but on the tens of thousands who supply the industry?

Is the Secretary of State aware of growing public disquiet about the financial proprietry of the privatisation programme, which disquiet was rightly highlighted in today's TUC report? Huge fees are obtained by a limited number of City and financial companies. We want a full public and parliamentary inquiry into those issues before any further privatisation.

There will be equally widespread anxiety about the future ownership of the shares. Does the Secretary of State intend to have safeguards, such as the so-called "special" or "golden" share? What time scale does he envisage for these measures? How much does he expect to receive from the sale of these national assets? The sale will involve billions of pounds, but he has not today put a figure on what the Goverment propose.

We all know why the Government are selling this industry—it is to pay for the Chancellor's pre-election handouts. There is no national energy case for the proposals. The British Gas Corporation, as a public corporation, has served the country well. It is one of the success stories of the past 20 years. There is every argument for maintaining a national corporation serving the nation and answerable to the House through the Secretary of State. There is no case for the creation of a monster private monopoly, serving limited interests, apparently to be controlled and regulated by a new Government quango. That is why the Opposition will oppose the proposals and any Bill that follows.

Mr. Walker

In the comments that the right hon. Member for Salford, East (Mr. Orme) made about the interests of the consumer he said that the Government had increased gas prices, against the consumers' interests. Does he not remember the year when the right hon. Member for Leeds, East (Mr. Healey) was Chancellor and the British Gas Corporation announced an increase of 12.3 per cent. in its prices for the following year, and that six months later, at the Chancellor's request, they were increased by a further 9.6 per cent.? Was that looking after the consumer, or was it a politician interfering, as politicians have constantly interfered, in nationalised industries—almost always against the consumers' interests?

It will be in the consumers' interests to have an organisation that is interested in improving efficiency and its competitiveness with other forms of fuel. As to the monopoly position, alas, since 1847 there has been a monopoly in the supply of gas. There was a monopoly when gas was nationalised, because it is unlikely that each house had two or three sources of supply. We recognise that. It is far better to have an organisation that will be judged on its commercial success and efficiency than to have the constant bureucratic control from which every other nationalised industry suffers.

The gas industry's safety record has been good. Plainly, it is in the interests of the new company to maintain the highest safety standards. It will have to follow all the statutory obligations.

I have read the reports of the TUC with a great deal of interest, but I think that its latest report was one of the most superficial and unenlightened that I have seen for a long time.

The "golden" share will have to be considered when we prepare legislation. It is important that the company remains under British control. That has always been the position.

On the question of timing, we hope to get this industry into the private sector as speedily as possible. As to the suggestion that it is an attempt to boost our electoral prospects, the only boost will be if the Opposition are foolish enough to promise that they will nationalise the industry again.

Mr. T. H. H. Skeet (Bedfordshire, North)

I congratulate my right hon. Friend on his proposals, but may I ask him to bear in mind three crucial matters: the operation of pipelines—I hope that there will be common carriers—future oil discoveries and the export and import of natural gas?

Mr. Walker

These matters will be considered before any issue of shares. The common carrier proposals in the present legislation will continue to operate.

Mr. Bruce Milian (Glasgow, Govan)

The right hon. Gentleman mentioned efficiency. Is it not a fact that British Gas has been outstandingly efficient, and would have been even more efficient had it not been for the dogmatic intereference of the right hon. Gentleman; for example, over its oil interests and the gas levy?

What possible justification can there be for converting a public monopoly into what will be virtually a private monopoly, unless it is the Government's obsession with short-term financial gain because of their long-standing obsession with the public sector borrowing requirement?

Mr. Walker

If the management and employees of British Gas pursue matters efficiently and effectively, is it not right that they should be given a personal stake in that success? Is it not good that management and all those employed in the corporation should have some direct benefit and result from their improved efficiency and an incentive to apply it to the full?

The right hon. Gentleman accused the Government of interfering in a way that damaged the corporation's efficiency. I could cite many examples from 1974 to 1979 when the Government of which he was a member had all sorts of interventionist pranks with the BGC. That is the horror of nationalisation.

Mr. David Heathcoat-Amory (Wells)

I congratulate my right hon. Friend on his proposals, which will provide an opportunity to increase the number of shareholders in British Gas from one to many hundreds of thousands, thus creating a genuine measure of public ownership. Can he confirm that gas consumers in the south-west of England will continue to have access to gas supplies after denationalisation? Will the price in that area continue to be roughly the same as in the remainder of the country?

Mr. Walker

Yes, I can confirm both points, and the legislation will ensure that that remains the position. For the south-west and elsewhere in the country, the current positions for supply and pricing will continue to operate.

I agree with my hon. Friend about the spread of ownership. The reality of the hopes and aspirations of nationalisation in 1945—of there being a genuine sense of ownership for those employed in the industry—has proved a failure, and the ownership has always been in the hands of politicians and civil servants.

Mr. Ian Wrigglesworth (Stockton, South)

Will the Secretary of State tell the House how the commercial success and efficiency of the new company can be judged if there is to be no real market for its goods and no real competition? Who will carry out the regulation of prices and of the monopoly? Will another bureaucratic quango do that? How will the consumer benefit if the monopoly still exists?

Mr. Walker

There are plenty of examples throughout the world of privately owned utilities in which there is a regulatory price system having fine performances in efficiency. Efficiency brings rewards to the managers of a company and also to the consumers. A great deal of competition will remain, as there has been for a long time, between gas and electricity.

If the hon. Gentleman is saying that the alliance is in favour of continuing nationalisation, I shall look at that with considerable interest.

Mr. Albert McQuarrie (Banff and Buchan)

I congratulate my right hon. Friend on his statement. I am glad that British Gas is finally to be denationalised. Contrary to the view of the right hon. Member for Glasgow, Govan (Mr. Millan), British Gas has been an inefficient organisation in Scotland. I hope that the legislation will ensure that the smaller towns can enjoy gas—something which they cannot do now. What steps does my right hon. Friend propose to take on the question of the many showrooms in towns and cities that will be affected by privatisation?

Mr. Walker

British Gas has recently reduced the number of showrooms as a result of a commercial decision. The Government took action to ensure that the accounts of the showrooms should be shown separately. I think that the corporation will take decisions to improve effectiveness. For example, in a number of recent cases British Gas has undertaken joint ventures with the private sector in retailing and providing services. I guess that under privatisation that will be an increasing trend.

Mr. Dick Douglas (Dunfermline, West)

What is the criteria against which the right hon. Gentleman judges the efficiency of an organisation, and will he measure them against the performance of British Gas in return on assets, profitability, safety and customer satisfaction? Can any private concern in the United Kingdom measure up to the performance of British Gas since it was created? How does he propose—if he proposes at all—to restrict incursions by oil companies into the ownership of the company that he will create? The Oil and Gas (Enterprise) Act restricted the incursions of British Gas into the oil industry. Will he give an assurance that the so-called golden share will operate?

Mr. Walker

On the hon. Gentleman's latter point, I believe that, in common with other privatisations, the golden share will operate. On the issue of the North sea, the privatised BGC will have all the freedoms of any other corporation or company, which will be a further advantage.

On the question of criteria, many other companies could probably show that they have done better on return of capital——

Mr. Douglas

Name one.

Mr. Walker

There are plenty. The BGC, like any other corporation, has had its mistakes and its successes. If the management is as good as the hon. Gentleman suggests, it will at last have a system where that is recognised.

Mr. Peter Rost (Erewash)

Does my right hon. Friend accept that there might have to be some changes in the tax regime if the Government are to retain their economic rent, bearing in mind that the shareholders, whom we welcome, rather than the Treasury, will be collecting the dividend?

Mr. Walker

The taxation proposals that will apply to the industry will have to be made clear by the Government prior to any issue, and I am sure that that will be done.

Mr. Malcolm Bruce (Gordon)

Does the Secretary of State acknowledge that this is a further extension of the Tory party's clause 4? It is an ideological privatisation, not to benefit the industry, but to create current spending out of state-owned capital. Does he not realise that a flotation of this size will distort the stock market, to the disbenefit of the smaller businesses needing venture capital? Does he not recognise that at the end of the day British Gas will still be a monopoly? If it must be regulated, why cannot that regulation and competition be introduced within the public sector?

Mr. Walker

There are substantial resources in the pension funds which represent the interests of those who work in industry. There is a substantial supply of money available to such an enterprise. It will be an attractive and good investment.

There is a general argument that it is rather nice to keep all this in the public sector. By chance, at some time during my political life I happen to have had Cabinet responsibility for virtually every nationalised industry, with the exception of the Post Office—and I am not volunteering for that. All I can say, in no doctrinaire way, is that under all Governments the Treasury and appropriate Departments have crawled over every project and plan and interfered on a considerable scale, which is a great disadvantage to these industries.

Mr. Rob Hayward (Kingswood)

I welcome my right hon. Friend's announcement. Did he consider setting up regional bodies rather than a national body, as that would have provided a degree of comparison of operation from different part of the country?

Mr. Walker

Yes, I gave careful consideration to that, but, for a range of reasons, concluded that it was not a positive or practical idea. The reorganisation—which was carried out prior to my time at the Department—to make one network showed savings of probably £1 billion a year. To set up new organisations for each region, to follow that by a period of time within which they all had an opportunity to settle in, and to have considerable price differentials hitting some regions of the country far more than others would, in totality, have created no advantage, particularly when, at the end of it all, one must remember that gas is a product which, whether on a regional or national basis, will not have house-to-house competition.

Dr. Jeremy Bray (Motherwell, South)

Does the Secretary of State expect the Gas Corporation to have 10 pay higher charges for any capital that it raises after privatisation? If not, what assurances can he give about future changes in the tax regime to people who may be considering buying shares? Does he think that the present chairman of the Gas Corporation will be more committed to the gas industry if he has a private holding in it?

Mr. Walker

The present chairman will, of course, decide what he considers to be the advantages or disadvanages, but I should have thought that for any chairman, having all of his employees and members of management being able directly to participate in the firm must be an advantage of outstanding importance. The answer to that part of the hon. Gentleman's question about borrowing is that the cost of borrowing, as he knows, varies depending on the success and quality of the management. The cost of borrowing for highly assessed, quality managements is even cheaper than borrowing from the Government.

Mr. John Watts (Slough)

I welcome my right hon. Friend's announcement of this further substantial extension of genuine public ownership. Will he pay particular attention to the need to break the effective monopoly which is enjoyed by the Gas Corporation through its control of the pipelines, which, in spite of the common user provisions, prevents the competitive supply of gas direct from producers to consumers? Will he ensure that, within the new arrangements, there is an opportunity for real price competition between suppliers?

Mr. Walker

I must tell my hon. Friend, having studied the worldwide scene, that he should not overestimate the areas in which there will be two suppliers in competition. I have looked at operations throughout the United States, in the whole of North America, in Australia and in other parts of the world, and it is a myth to pretend that by some wave of the legislative wand there will be massive competition. We had a private sector gas industry in Britain for more than 100 years. From 1847 onwards there has been little competition of the nature described by my hon. Friend.

The provisions of the 1982 legislation are important. I have made it clear that for industrial users and those in areas which at present do not have gas supplies, if competition wishes to come in and supply them that opportunity will be available, and I hope that advantage will be taken of that. I have also said that we will keep the 1982 legislation under review. However, it would be wrong to give the impression that anywhere in the Western world was there lots of competition in gas.

Mr. Gordon Wilson (Dundee, East)

One is bound to wonder what the Government will do for cash after they have flogged off and squandered the nation's assets. Will a gas levy be imposed on the private company, and will that company be able to import Sleipner or other gas from the Norwegian sector should it wish to do so and the Government disagreed?

Mr. Walker

Decisions on import and export policies and the future of taxation will have to be announced by the Government before any prospectus is issued.

Mr. Tom Sackville (Bolton, West)

Does my right hon. Friend agree that there is no reason for any diminution of safety standards as a result of this measure? Does he further agree that any concern that arises will principally be the result of a scare campaign by the Labour party?

Mr. Walker

I agree with my hon. Friend, and it would be a grotesque insult to the existing management of the British Gas Corporation to suggest otherwise.

Mr. Peter Hardy (Wentworth)

The Secretary of State suggested that many other substantial companies had done better than British Gas. Will he name one substantial public company which has equalled the record of British Gas over the last decade? Does he really believe that when these assets have been sold off the profits which will accrue to the shareholders rather than to the Treasury will directly serve the national interest?

Mr. Walker

When the shareholders happen to be the management and employees, and those who administer pension funds, all taking an interest in improving efficiency, and when one removes from British Gas the massive interference of politicians and civil servants that has taken place, there will be advantage to the nation as a whole.

Mr. Tim Yeo (Suffolk, South)

In view of the massive success of the British Telecom share sale in attracting the participation of a high proportion of employees, against the advice of their trade union, and introducing an unprecedented number of individuals to the experience of share ownership, may I ask my right hon. Friend to assure the House that the same careful attention will be given to marketing the British Gas issue when the time comes?

Mr. Walker

Yes, I assure my hon. Friend of that. One of the most important aspects is that employees and managers will be able to have a substantial share in their corporation. That will be good, and, as my hon. Friend says, it was a great success with British Telecom. I see no proposals in today's TUC statement suggesting that the workers of British Telecom should have those advantages taken from them. I am sure that those employed in the gas industry will welcome this opportunity to participate in their future success.

Mr. Ken Eastham (Manchester, Blackley)

Is the right hon. Gentleman aware that prior to the establishment of British Gas many major British towns and cities successfully ran their own gas authorities? Should an authority desire, in the interests of its ratepayers, to make a bid, will he place any obstacle in the way of that being done? In other words, will it be left to the finance houses to take part in this wholesale looting of taxpayers' assets?

Mr. Walker

If the hon. Gentleman feels that way, he should have opposed nationalisation when it first took place.

Sir John Osborn (Sheffield, Hallam)

May I, as one who made his maiden speech on the subject of gas, add my congratulations to my right hon. Friend for his statement today? Since making that maiden speech, whereas oil has been international, natural gas has been too national, particularly in Europe. Will my right hon. Friend consider the possibility of common carrier obligations extending to a European gas grid, with the possibility of domestic and industrial users consuming gas from Norway, the middle east and perhaps even from Siberia?

Mr. Walker

The future export and import policy will have to be carefully considered before the transfer of ownership is made, and a statement issued. We must recognise the importance of seeing that the development of the North sea continues and that there is security of gas supplies to this country. Decisions will be made in that context.

Mr. Max Madden (Bradford, West)

Does the chairman of the British Gas Corporation support the transfer of the gas industry from public to private hands? If he does not, will the right hon. Gentleman give an assurance that he will not attempt to gag the chairman in defending his industry remaining in public hands?

Mr. Walker

I do not know of anybody who has succeeded in gagging Sir Denis Rooke.

Mr. Peter Bruinvels (Leicester, East)

I congratulate my right hon. Friend on his announcement. Will he do everything in his power to allay the fears of employees of both British Gas and East Midlands Gas and assure them that they have nothing to be frightened about, but, rather, that they should be encouraged to buy shares because they will be good value? The one problem that I envisage relates to the tariff structure. What will be done about tariffs to ensure that there can be genuine comparison of efficiency after the change comes about?

Mr. Walker

The regulatory authority will lay down criteria which eventually will be examined by the House, and I believe that that will be clearly seen to encourage efficiency, to the benefit of consumers and shareholders in the business. I welcome my hon. Friend's comments about the employees. I am certain that what is proposed will be beneficial to the employees, though doubtless there will be the usual scares about their pension rights and so on. All of those rights will be protected and they will continue, and the employees will know that the business is freed from the sort of Government interference that has not done the industry much good in the past. In addition, they will be able to share in their own success. Any sensible and rational employee in the gas industry should strongly welcome the statement.

Mr. James Lamond (Oldham, Central and Royton)

Has the Cabinet taken account of the overall impact of the policy which has just been outlined in relation to British Gas, already carried out in the case of British Telecom, and expected to be carried out in the case of British Aerospace and, possibly, the British Airports Authority? There are to be massive share issues and, apparently, an attempt to attract the small savers. That must be detrimental to the inflow of funds to organisations such as the building societies. They may have to increase their interest rates to the lenders, and that will have grave implications for those with mortgages. Has the Cabinet taken that into account?

Mr. Walker

If the hon. Gentleman takes that view, he should calculate the effect of large Government borrowings on the same movements and deplore them too.

Mr. Frank Haynes (Ashfield)

I do not intend to congratulate the Secretary of State. While the right hon. Gentleman was prancing around in the Ministry of Agriculture, Fisheries and Food a few years ago, like a bull in a china shop, and looking after the interests of the farmers on the Benches behind him, another Minister suggested at the Dispatch Box that a certain sector of the gas industry should be sold off. However, because of the ensuing row in the House of Commons, and the invasion of the House of Commons by thousands of employees from the industry, the Government backed off. If the employees in the industry make it clear to the Secretary of State that they are not interested in privatisation and have already demonstrated against it, will he back off? If not, why not?

Mr. Walker

Provided that the hon. Gentleman, having made the same remarks about British Telecom, will back off now that all the shares have been bought.

Mr. Haynes


Mr. Speaker

Order. We all hear things here that we do not like.

Mr. Orme

May we take it from the Secretary of State's answers that there is to be a golden share and that the industry will be protected from overseas takeover? That should be made quite clear.

Secondly, if a private monopoly is allowed to have oil interests, but a public monopoly, which is successful and is investing, is prevented from having the same interests, is there not a contradiction in the Conservative approach?

Mr. Walker

No, I think that it is a very good Conservative approach, and I fully support it.

Mr. Haynes

On a point of order, Mr. Speaker.

Mr. Speaker

I shall take the point of order. However, as no doubt the hon. Gentleman was seeking to discomfit the Secretary of State, I hope that he is not being too thin-skinned about the matter.

Mr. Haynes

Perhaps I should not raise the point of order.

Mr. Walker

If the hon. Gentleman made no criticism of British Telecom and did not consider that the workers were against the change, of course I withdraw. How wise the hon. Gentleman was.

I assure the right hon. Member for Salford, East (Mr. Orme) that there will be appropriate legislation to ensure that there can be no foreign takeover.

Mr. Haynes

On a point of order, Mr. Speaker. The right hon. Gentleman made an accusation that is not true. If he had said "The Labour party", I would not have protested, but he referred specifically to me. What he said was not true and I ask him to withdraw it.

Mr. Walker

Of course I withdraw it. I congratulate the hon. Gentleman on not being associated with the Labour party.

Mr. Haynes

Further to that point of order, Mr. Speaker. The right hon. Gentleman is answering in the same vein, and that is not being honest at all. That is being crooked.

Mr. Speaker

Order. No, it is not being crooked. The hon. Gentleman must not make that accusation. I think that, on reflection, he will withdraw that word.

Mr. Haynes

I withdraw it. I should have said "deceitful".