BP Share Issue

HC Deb 12 November 1987 vol 122 cc655-64 10.13 pm

The Financial Secretary to the Treasury (Mr. Norman Lamont)

I beg to move, That a supplementary sum, not exceeding £1,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges which will come in course of payment during the year ending on 31st March 1988 for expenditure by the Treasury in connection with the purchase and sale of shares in BP plc. First, may I welcome the hon. Member for Newcastle upon Tyne, East (Mr. Brown) to the Opposition Front Bench as a shadow Treasury spokesman. Secondly, may I explain the purpose of the Supplementary Estimate, because it is extremely narrow.

The purpose of the Supplementary Estimate is to provide for the gross cost of the Government's subscription for new BP shares and to appropriate in aid of this expenditure virtually the same amount of receipts from the sale of shares so as to enable drawings on the Contingencies Fund to he repaid. The net result of these two transactions is that the Estimate provides for no more than a token £1,000 additional expenditure. This is the minimum sum which the House is asked to vote tonight.

The subscription for BP shares arises from the decision to combine BP's rights issue of some £1.5 billion of new equity with the Government's sale of their remaining holding of BP shares. It would not have been sensible for these two exercises to proceed separately. A separate issue of new equity by the company could have clashed in time with the Government's sale, and would have been confusing. We therefore agreed with BP that it was in both our interests to have a combined offer.

As part of this offer the Treasury agreed to subscribe for BP's new shares on a fully-paid basis, and immediately to sell the shares together with the Government's existing shares. The cost of the subscription was more than offset by the proceeds of the first of three instalments from the combined offer. The decision to proceed in this way was announced to the House in my written answer to my hon. Friend the Member for Taunton (Mr. Nicholson) on 21 July.

The Estimate that we are considering tonight covers solely the costs of the Government's subscription to the new BP shares—the rights issue—and the appropriation of receipts to pay for that subscription. It does not cover the sale expenses of the combined share offer, nor the Bank of England buy-back scheme announced by my right hon. Friend the Chancellor of the Exchequer on 29 October. Those will be the subject of separate Supplementary Estimates. This Estimate is entirely about paying BP for the rights issue. In that sense it is a transfer. The Government's intention to present a Supplementary Estimate was made clear in my written answer on 21 July.

The Supplementary Estimate was laid before Parliament on 2 November, the first day of parliamentary business after dealings commenced in the partly-paid shares on 30 October, and after the underwriting agreements became unconditional. Since the Government were obliged to incur the expenditure of £1.513 billion immediately the BP offer went unconditional on 30 October, the costs were met, in anticipation of Parliament's approval, by an advance from the Contingencies Fund.

The statutory limit on drawings from the Contingencies Fund is 2 per cent. of the previous year's Supply Expenditure, which amounts to just over £2 billion. 'The advance for the BP subscription, together with other advances, accounts for a large proportion of this total. 'The Consolidated Fund Bill giving effect to the normal winter round of Supplementary Estimates usually gains royal assent just before Christmas. It would be imprudent to leave a relatively small balance in the fund to cover all contingencies until that time.

The Government will therefore ask the House to approve a special Consolidated Fund Bill, taken out of turn, to appropriate the funds to repay the advance from the Contingencies Fund for the BP subscription as quickly as possible. The Consolidated Fund Bill will be introduced immediately after this evening's debate. Further Supplementary Estimates will be presented shortly, and will follow the usual timetable and procedures for the winter round.

10.17 pm

Mr. Nicholas Brown (Newcastle upon Tyne, East)

I thank the Minister for his courteous welcome. When I transferred from my tutelage by my right hon. and learned Friend the Member for Aberavon (Mr. Morris) I thought that I might escape late-night debates. I am sorry if I have brought the Minister bad luck in that regard.

The Opposition sought this short debate on the Supplementary Estimate because it provides an opportunity for hon. Members to raise matters connected with the BP sale and the provisions in the Estimate for repayment to the Contingencies Fund.

The Treasury has spent some £39 million of public money on marketing the sale. That makes it one of the most expensive share launches in history, at £144 per investor. One cannot help but wonder whether some of the investors would rather have just had the cash. That must apply particularly to the some 5,000 individuals who originally applied for BP shares, but have defaulted, mostly by bouncing their cheques. At some stage the Treasury must decide—I accept that the decision may not yet have been made—whether to prosecute those individuals to enforce the contract of sale. No doubt the House will be told that decision in due course.

Mr. Malcolm Bruce (Gordon)

What about multiple applications?

Mr. Brown

The hon. Gentleman mentions multiple applications. I do not think that it is yet compulsory to make them, but who knows what may come? If individuals end up as unwilling participants in popular capitalism, it is legitimate to ask whether they will also receive direct mail-shot letters inviting them to make a financial contribution to the cost of developing the Conservative party's new strategic thinking. I offer the idea to the Minister, who may take it up—or not—as he likes.

More seriously, the Government still own about 69 million shares in BP, which were being retained for a loyalty bonus. They will not all be needed for that purpose, and the Government will have to say at some stage what they intend to do with them. The redundancy of the loyalty bonus issue highlights a broader point. The number of British citizens who own shares is now in decline. The true figure is probably around 7 million, and falling. The failure of the BP launch is a tangible setback to popular capitalism. It is also much more than that. The psychological jolt that it has delivered will prove to be far more important in the long run. It will encourage speculators to be more discerning — I am not sure whether that is a good thing; I suspect not—especially between privatised monopoly utilities and privatised trading companies, to the trading companies' detriment.

Also abandoned is the philosophical approach of leaving matters to the market place without intervention by the Government. Whatever the arguments about the wisdom of the speculators' safety net, it is clearly a Government intervention in the market place. There are other problems with a safety net — not least those involving its withdrawal. It is difficult to tell how much of the present dealing in BP shares is deliberately short term, but, no matter how many times the shares are bought and sold, the Government guarantee to take them back into public ownership, even if that means paying more than their market value, which cannot be called popular capitalism. I hope that there is not chaos on the day before the safety net is removed, but the potential for trouble is plainly there, almost built into the arrangement. The resultant damage to BP's share value in the short term cannot be in anyone's interests — certainly not in the Government's, who would then be substantial shareholders again.

All this leads me to the possibly unworthy thought that the Government might seek to avoid the safety net coming into operation by authorising the Bank of England discreetly to deal in BP shares in the market place to help the price stay well above 70p. Perhaps the Minister will address that point.

Another point that needs clarification is the Government's attitude to bed and breakfasting in the BP sale. Bed and breakfasting is a tax dodge, whereby major share owners sell themselves their own shares at a loss, solely for tax purposes. Arguably, the Finance Act 1985 has made that easier, and the opportunities for abuse when the Government have fixed a minimum share price are self-evident. I hope that the Inland Revenue have the Government's encouragement to pursue such abuses with vigour.

A detail in the Estimate deals with a matter that was first raised in the House a fortnight ago. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) asked: Will the Chancellor take this opportunity to confirm— he denied it on Tuesday—that he has to pay for the rights issue from BP at 330p and that he will have to hand over the money tomorrow?" — [Official Report, 29 October 1987; Vol. 121, c. 436.] The Chancellor replied: The right hon. and learned Gentleman raised the lastpoint on Tuesday and, as he knows, he is wrong." — [Official Report, 29 October 1987; Vol. 121, c. 436.] In spite of that, we are today debating an Estimate which, in part II, under the heading A3 Subscription for new shares states: As announced on 21 July (Official Report column 111) the Government subscribed for new BP shares, fully paid, conditional on the sale of new and old BP shares under the offer. When this condition was met, upon completion of the sale, payment was made to BP for their new shres at the UK fixed price. The Estimate sets out the sum paid, and by dividing that sum by the number of shares purchased—which I can just about manage—we arrive at a figure of 329.7p per share. The implication of the question asked by my right hon. and learned Friend the Member for Monklands, East was that the Chancellor was buying the shares for more than the price at which he intended to sell them. The Chancellor refuted that by saying that of course he was not.

I accept that 329.7p is not quite 330p, but if that is all that the Chancellor meant when he vigorously denied the purchase, he was being less than straightforward with the House. The truth is slightly different and the point that my right hon. and learned Friend was trying to make was correct. It would have done the Chancellor more good if he had acknowledged that fact instead of retreating behind what I can best describe as mathematical semantics. I do not know whether the Minister wishes to intervene to clarify the point once and for all, but perhaps he will do so if I have got it wrong. The matter needs to be clarified because, as it stands, its substance reflects badly on the Chancellor.

The Conservative party is proud of being the party that best understands the City and knows about financial management, yet it managed to sell Britain's best-known company at the wrong price and at the wrong time. The 5 per cent. Kuwaiti shareholding provides an opportunity to commemorate the Government's involvement with BP by changing the name from BP to KP—after the nuts.

10.27 pm

Mr. Malcolm Bruce (Gordon)

I suspect that the House will need to return to this matter on more than a few occasions. It is obviously appropriate for the Government to start to give us some idea of what might be in store. At this stage nobody really knows.

I reiterate what I have said on numerous occasions, that it certainly gave me no satisfaction to see the BP share offer getting into difficulties. As I think the Government know, I and members of my party supported in principle the sale of the BP shares and were certainly in favour of the objective of wider share ownership that it was designed to achieve. A couple of matters arise from that and go back a few years in the privatisation programme.

The stated and glorious objective of the Government to achieve wider share ownership, which if done the right way I can fully support in principle, was subordinated to the realisation by the Government that they could secure substantial sums of money that were transferred from the private to the public sector. They realised that they could use that money to finance their tax cuts and/or their public spending requirements. It is regrettable that, when it became apparent that the BP flotation was in difficulty, that commitment by the Government to secure extra revenue and the necessity to overlook their previously stated first objective of wider share ownership.

Clearly, wider share ownership could not be achieved by the flotation at that time and has not been achieved. The proper thing for the Government to do was to suspend the flotation in spite of the difficulties that that would cause. The Chancellor came to the House and, to great acclaim from the Government Benches, produced what was apparently a salvation formula for the share offer. The full implications have not yet worked through.

The Bank of England has undertaken, up to the extension of the deadline for the safety net, to buy any shares that are offered to it at 70p, against a part-paid value of £1.20. I would appreciate it if the Minister would confirm that, on the day that the safety net is withdrawn, it is conceivable that all the shares will be offered to the Bank of England and it will be obliged to stump up the full 70p for them, which I calculate to be about £1.4 billion. That is only the beginning of the problem, because it means that that money will be tied up within the Bank of England and the bank is stuck with the problem of when to offload those shares. That will depend on what happens with the stock market and for how long it moves in the wrong or the right direction.

The Government are taking a substantial gamble, involving large amounts of public money. I appreciate that the £1,000 in the Supply Estimate is a technical device, but I think that it will he an ironical £1,000 compared with what might happen at the end of the day. It is a complex and difficult matter, and I do not confess to understand all the interactions and inter-relationships that follow, but it seems to me that the public are being stung twice— first as taxpayers, and secondly as contributors to savings or pensions schemes.

It is suggested that the loss on the shares is restricted to the 255,000 people who were either so farsighted that they had a different view from the rest of society, or so stupid that they did not realise the commercial realities that they were entering into. The reality is that millions of people suffered a loss on the flotation of BP because the institutions were either directly or indirectly underwriting it. That loss is built into the consequent adjustment to unit trusts and pension funds.

The hon. Member for Newcastle upon Tyne, East (Mr. Brown) mentioned the Kuwaiti interest that has been acquired. It would be appropriate if the Minister advised the House what safeguards there are in the system to prevent a substantial increase, given the depressed state of the market, in foreign shareholdings in BP, not all of which would be regarded as necessarily friendly in intent. The middle eastern interest in BP is a fairly obvious one.

I now raise a serious constituency matter, which I regard as poor custodianship by the Government on behalf of other shareholders of BP. British Petroleum is the largest employer in my constituency. It has its North sea operational headquarters there and approximately 2,700 people operate out of that office. We are glad to have those headquarters there. BP is one of the major oil companies operating in the North sea and Aberdeen area. It is regrettable that BP is in the process of transferring 300 technical staff from Aberdeen to the City of London, contrary to all intelligent market interpretations, at a cost to its shareholders of tens of millions of pounds.

A new office block has had to be acquired in addition to Britannia House in the City of London, where the Minister will know that office rentals are about 12 or 15 times the cost of office accommodation in Aberdeen. In addition, all removal costs, legal expenses and any loss incurred by the staff on their houses will be paid for by BP, and, therefore, indirectly by its shareholders. I resent more than anything the extent to which BP's actions have adversely affected the property market and many other people in Aberdeen who do not have the advantage of a company to step in and pick up the financial consequences of such a decision.

Mr. David Tredinnick (Bosworth)

Is there not a case for saying that a company the size and stature of BP should at all times retain an office in the City, where it can be on top of current issues?

Mr. Bruce

I am afraid that the hon. Gentleman has no knowledge of the background to what I am talking about. BP has a huge office in the City of London, bigger indeed than those of most of the banks. Quite why an oil company needs to have so many engineers based on the most expensive square mile of office accommodation in the United Kingdom beats me. If the company was not so big, and if its shareholders were not so complacent—this is the context in which I am criticising the Government— questions might have been raised as to whether that expenditure was in the best interests of the shareholders. I suggest that it was not.

What happened when the Chancellor came up with his rescue operation—if I may call it that—for the BP share flotation will be seen as a turning point for what has been known, even by the Prime Minister, as Thatcherism. A major share flotation got caught in a bear market and the Government had to change tack. No more will hon. Members on the Opposition Benches or people outside the House take self-righteous, smug, complacent lectures from the Chancellor of the Exchequer about the merits of nonintervention, about letting the market operate or about not using taxpayers' money to bale out companies, individuals or communities when they get into difficulty.

We are discussing a potential investment of billions of pounds of taxpayers' money which has been triggered by direct intervention in the market by a Government who claim that such proceedings are not acceptable and are not the way to operate in a free market. This will have implications for further major share sales. As and when we come to the privatisation of electricity, I believe that the Government will be forced to carry that out in a much different way from previous flotations. It would be absolute madness to try to float the electricity industry as a one-off, single sale like British Telecom or British Gas. It would be a disaster.

Mr. Graham Allen (Nottingham, North)

Can the hon. Gentleman tell the House how the Liberal party would privatise the electricity industry?

Mr. Bruce

This debate is not about how we would privatise it. It is the Government who are proposing to privatise it. We have made it clear that the Government have made no case so far that convinces us of the merits of privatising electricity. The Government themselves do not know how they are going to do it. That was revealed only a week or so ago. This is a serious point. If the House does not appreciate it, I am sure that people outside, especially those employed in the electricity industry, do. If an £18 billion flotation were to come to the market in a single tranche after the experience of BP it would mean that the Government had learnt absolutely nothing from this exercise.

The Government will have to think seriously about how the programme continues. Regrettably, the BP share sale was not in that category. One of the mistakes that the Government have made is in selling public monopolies in one, centralised unit as private monopolies, without proper competition or regulation, at a discount, with accounts massaged and underwritten by the taxpayers. Some of us have different priorities from the Government about the need to spend money. For instance, we believe in providing adequate benefits for the poor. The Government tell us that the money is not available and that we are irresponsible to call for such expenditure. Yet here we are debating what could ultimately lead to a massive investment of public money to bale out the failure of the Government's share deal.

I conclude as I began, by saying that that failure gave me and my hon. Friends no pleasure at all. The way in which the Government have responded, and the open-ended commitment that they have entered into, may mean that they will have to come back to the House on many occasions, and it could cost the public, savers and investors very dear indeed. I hope that the Minister can answer some of the points that I have raised, but I realise that many of them he cannot, because he cannot see into the future any more surely than I can.

10.38 pm

Mr. Norman Lamont

I am sorry that the hon. Member for Gordon (Mr. Bruce) feels that the share sale should have been suspended and I am surprised that that is his view. Given the fees that had been paid to the underwriters, not just on this privatisation but on so many others, it would have been a grave mistake for us to suspend the sale. It would have called into question the whole purpose of underwriting if, when the markets were in difficulty, the underwriters had been let off the hook. We have been criticised time and again for the size of the fees paid to the underwriters and it is extraordinary that in this case we should be urged by the hon. Member for Gordon to let the underwriters off the hook.

Mr. Ian Bruce (Dorset, South)

Does my right hon. Friend recall that when Labour sold 50 per cent. of BP shares in 1977 there were headlines that stated BP shares bungle costs millions"? Labour sold 50 per cent. for £600 million and indemnified the underwriters against loss; for 35 per cent. of the shares we get £6 billion. Surely that is how we should deal with our investments in British Petroleum.

Mr. Lamont

My hon. Friend is absolutely right and makes an extremely good point.

The hon. Member for Gordon asked whether it was true that the Bank of England might have to buy back all the shares that have been offered. In theory, that is the position and in theory I suppose that we could end up owning what we owned of the company before, plus a bit more from the rights issue, but at a much lower cost. That is why it was described as one of the greatest short sales in history. However, we do not expect that to happen.

The hon. Member for Newcastle upon Tyne, East (Mr. Brown) asked about the Bank of England's involvement and whether it might be discreetly buying BP shares to keep them above the 70p limit. Under no circumstances will the Bank buy BP shares other than under the arrangement announced to the House by my right hon. Friend the Chancellor of the Exchequer.

Mr. Allen

My hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) raised the point about the bouncing cheques—

Mr. Lamont

I am coming to that.

Mr. Allen

When the Minister comes to the bouncing cheques, can he tell us what will happen to those who have bounced those cheques? Does he have more sympathy for those who bounced cheques or for the poor unfortunates who did not bounce them?

Mr. Lamont

I am doing my best to answer the specific points raised by the hon. Member for Newcastle upon Tyne, East and I will come to them one by one. He suggested that there was evidence of a decline in the past few weeks in the number of people owning shares. I believe that the hon. Member for Dunfermline, East (Mr. Brown) has written a letter to my right hon. Friend the Chancellor—

Mr. Gordon Brown (Dunfermline, East)

He has not replied.

Mr. Lamont

I am not sure whether the letter has arrived. We cannot pick up a newspaper without reading about the hon. Gentleman's letters. Some of them arrive and some do not. I am not sure whether the hon. Gentleman is joining the Liberal party, because letter writing is normally a tactic employed by Liberal Members. However, I think that the particular letter alluded to by the hon. Member for Dunfermline, East may have arrived. I can tell him that we have no evidence, on the basis of the surveys that we have carried out or the figures that we have announced to the House, that there has been a decline in the number of people owning shares. The hon. Gentleman was quoting from a different survey based on different assumptions. However, even the hon. Gentleman's figures in the letter show a considerable increase in share ownership in this country. We profoundly welcome that and intend to pursue that aim.

The hon. Member for Newcastle upon Tyne, East referred to bed and breakfasting. Of course I cannot comment on the affairs of individual taxpayers. Bed and breakfasting is perfectly legal provided that it complies with certain criteria. Where it appears that it has not been done on arm's-length terms or at open market value, the Inland Revenue may make inquiries. We have all noted the recent press reports, which I am sure are what inspired the hon. Member's comments.

Mr. Nicholas Brown

My comments were inspired by concern for the Inland Revenue. There were clear opportunities for abuse. I am seeking from the Minister a clear commitment that the Government will encourage the Inland Revenue to look for and clamp down on abuse, particularly in the context of the BP sale.

Mr. Lamont

I do not think that the BP sale has given rise to anything that is not already perfectly legal. Even without the Bank of England scheme, there were large losses and opportunities for bed and breakfasting. Bed and breakfasting must fulfil certain criteria, and I am sure that the Inland Revenue will note what the hon. Gentleman said and the recent press reports.

The hon. Gentleman and the hon. Member for Gordon mentioned an alleged 4.9 per cent. purchase by the Kuwaitis' investment office. I have no information about that; it is a matter for BP. There is no limit in BP's articles of association on individual or foreign holdings. It was with BP's agreement that the Government did not retain any share in the company.

The hon. Member for Nottingham, North (Mr. Allen) asked about stopped cheques. When investors signed their application forms they agreed not to revoke their applications, so they should not have stopped their cheques. Those who did so have been asked to pay, but if they do not we shall consider what action to take.

The hon. Member for Newcastle upon Tyne, East raised a point that was made by the right hon. and learned Member for Monklands, East (Mr. Smith) about the BP rights issue and the 330p price. My right hon. Friend the Chancellor understood that the right hon. and learned Gentleman was asking whether the Government had to buy at the price of 330p from BP, whether the sale was pulled or not. My right hon. Friend said that that was not the case. If the hon. Gentleman studies Hansard he will see that that was what his right hon. and learned Friend's words appeared to mean. If he is saying that the question concerned the price of 330p rather than whether the Government were obliged to pay, I should tell him that 330p was the price for the rights issue and also the Government's sale price. I do not think that there could be any implied criticism, even if the question were answered on the basis of what the hon. Gentleman says that it meant, in buying the shares at 330p from BP because, like the other shares, they had been underwritten at that price. If the hon. Gentleman is saying that the shares were worth something else the implication is that BP should not receive the money that it wanted to raise through the rights issue. I am sure that, on reflection, the hon. Gentleman would not seek to imply that BP should not receive the agreed price that had been underwritten. I hope that I have clarified the matter and explained what my right hon. Friend meant when he answered the question.

Mr. Nicholas Brown

I understand the right hon. Gentleman's point perfectly. I am sure that he is right about the 330p, but I am not so sure that he is right about what the Chancellor meant. The Chancellor said : The right hon. and learned Gentleman"— my right hon. and learned Friend the Member for Monklands, East (Mr. Smith)— then asked me whether it was true that the Government were obliged to purchase a large number of BP shares at 330p per share. I can tell him, of course, that it is not true." — [Official Report, Tuesday 27 October 1987; Vol. 121 c. 171.] I agree that that bears the possible interpretation that there was no obligation to buy if the sale did not go ahead. Of course I accept that. However, it also bears the interpretation that there was no possible commitment to buy at 330p a share. While I accept that the way in which the question was phrased on the Tuesday was ambiguous, the way in which it was phrased the following Thursday during Treasury questions was not ambiguous. Still the Chancellor brushed it aside. He had had two days to read the debate and to consider the Government's position. He must have known that the question would be put again and it would have reflected more credit on him had he said that the Government were not obliged to buy if the sale did not proceed but to set out — as the right hon. Gentleman has correctly set out—the position if the sale did go ahead.

That is important because the thrust of my right hon. and learned Friend's argument was that the Government were purchasing shares at a price higher than that at which they intended to sell shares. That argument should have been met on its own terms rather than having a different interpretation placed upon it.

Mr. Lamont

I am not sure that the point is worth pursuing but I assure the hon. Gentleman that the Chancellor interpreted the question in the way that I described. I assure him, too, that my right hon. Friend was aware of the price at which the shares were being sold; it would be pretty astonishing if he were not.

Question, That a supplementary sum, not exceeding £1,000, be granted to Her Majesty out of the Consolidated Fund to defray the charges which will come in course of payment during the year ending on 31st March 1988 for expenditure by the Treasury in connection with the purchase and sale of shares in BP plc.

put and agreed to.

Bill ordered to be brought in upon the foregoing resolution by the Chairman of Ways and Means, Mr. Chancellor of the Exchequer, Mr. John Major, Mr. Peter Brooke, Mr. Norman Lamont and Mr. Peter Lilley.

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1. CONSOLIDATED FUND BILL 50 words
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2. BUSINESS OF THE HOUSE 125 words
3. STATUTORY INSTRUMENTS &c.
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1. EDUCATION 43 words
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2. BUILDING SOCIETIES 46 words