§ Mr. Conal Gregory (York)It is an appropriate time to discuss the path of denationalisation, particularly when manufacturing exports have increased by almost half since 1979. Furthermore, United Kingdom economic growth has been more rapid than it has in either France or West Germany since 1979—and in the previous two decades we had had the slowest growth of the major European Community states. In addition, business investment has risen by two-thirds over the 1980s—by half since 1979 and by three-quarters since 1981. By the end of last year there were nearly 375,000 more businesses in operation than there were a decade ago. So I welcome this morning the opportunity to debate these key matters against such a good and successful economic background, and I welcome my hon. Friend the Financial Secretary to the Front Bench.
As a result of all this, the real take-home pay for a married man on average earnings has increased by a third since 1979. Much of this success lies in taking unnecessary parts of the state out of Government control where it was stifled by red tape and putting it into efficient private hands where proper expansion could apply. The number of shareholders has more than trebled since 1979. A survey in February 1990 showed that 11 million people—one in four of the adult population—owned shares.
Denationalisation subjects companies to the discipline of the market place and forces them to put customers first. A private sector company cannot survive if it does not satisfy its clients. The profit performance of former nationalised industries suggests that denationalisation has helped to improve customer service. Furthermore, employees have a stake in the success of their business, as a glance at the National Freight Corporation alone will show. Denationalised companies allow their full potential to be realised and new customers to be won.
Whenever possible, denationalisation has been accompanied by a policy of increasing competition so as to guarantee customers a wide choice of goods and services at low prices. For example, the United Kingdom has led Europe in liberalising the airways following the denationalisation of British Airways. One can recall a time when, under Labour, that fine airline was ranked lower than Ethiopian Airways.
Another example is the fact that the United Kingdom has led Europe in liberalising the telecommunications market, bringing obvious and large benefits to consumers. The denationalisation of British Telecom was accompanied by the licensing of a direct competitor, Mercury, whose success forced British Telecom to cut the prices of long-distance calls.
A further example is the denationalisation of long-distance coaches. Now such coach travel is enjoying a marked revival. Competition has helped to drive prices down, improve the range and quality of services available and make long-distance travel possible for many people such as pensioners.
Yet denationalisation has not been carried out irresponsibly. Tough regulatory authorities have been established to protect consumers where areas of natural monopoly remain. Oftel, the telecommunications watchdog, has been highly successful in this context. Under terms agreed with British Telecom, prices can now only 1276 rise by 4.5 points less than the rate of inflation, and British Telecom has agreed to introduce itemised billing and pay £5 per day for failure to repair faults within two working days. Any such suggestion would have been more appropriate to April fool's day under a Labour Government. What a contrast that is with the bad old socialist days. Similar consumer rights have been enshrined in law for the electricity and water industries.
I will cite some specific examples of improvements. Less than three years ago there was a less than 50 per cent. chance of having a business telephone line installed within six working days; today, the figure is 77 per cent. Some 82 per cent. of residential telephone lines are now installed within eight working days. However, faster installation is only one of the many ways that customer service has improved through denationalisation. Any constituent walking on the street would find it hard to discover a public pay phone that was not working. A survey by the Yorkshire Evening Post in the greater York area examined that only a short time ago. It found an incredibly high proportion of public telephones in good working order. Indeed, nationally the figure is 96 per cent. in perfect working order—yet in December 1987 the figure was as low as 72 per cent.
In the same year, 4.3 per cent. of long-distance calls were not getting through; now it is only 0.7 per cent., and the figure is still improving. Where there was once a one in four chance of finding directory inquiries engaged, there is now only a one in 12 chance. British Telecom engineers are now clearing nine out of 10 faults within a working day. Of course, there is a great deal more to be done, but I wanted to give those specific examples of customer improvement that have resulted directly from denationalisation.
Such a denationalisation programme—so beneficial to manager, employee and customer—has brought benefits to the state purse. The coffers have been increased, so that the Government have been able to cut taxes, increase spending on priority areas and reduce the national debt. Richard Pryke, a specialist in the economics of nationalised industries, undertook a careful comparison in 1982. My hon. Friend the Financial Secretary may be aware of that study, which was entitled, "The comparative performance of public and private enterprise," which was published in the July 1982 edition of Fiscal Studies. His conclusions are worth examination by the House.
Pryke chose three areas for the like-with-like comparisons. First, in civil aviation he compared the performance of British Airways with that of British Caledonian. Of course, his performance comparison pre-dates the turn around in the fortunes of British Airways. Secondly, in short sea ship and hovercraft services he compared the record of Sealink UK with that of European Ferries, as well as comparing the record of BR Hovercraft with that of Hover Lloyd. Thirdly, for the sale of gas and electrical appliances and contracting, he compared the record of the two nationalised concerns—the British Gas Corporation and the electricity boards—with that of private competitors. In each case he concluded that the record of the nationalised concern was worse than that of its private-sector competitor, whether judged by profitability or by productivity indicators. Public enterprise achieved that poor result despite having certain advantages. For example, British Airways operates out of Heathrow, while British Caledonian operates out of Gatwick.
1277 Two related aspects of management are criticised. First, the nationalised industries appeared to have been slow in reacting to market developments; secondly, they seem to have been willing to continue running sections of their businesses at a loss, and have been reluctant to rationalise their operations. Pryke does not believe that the unprofitability was caused by nationalised industries having non-commercial objectives, such as running social services.
Those views by a respected international economist place denationalised companies in their rightful context.
What is the range of companies that have been denationalised? The list is a long one, and I shall not tire the House with it at this early hour of the morning. However, I shall name some key companies. We can remember Amersham International, Associated British Ports, British Leyland—in which the Government held 99.7 per cent. of the shares—British Aerospace, British Airways, the British Airports Authority—now known as BAA plc—British Gas, British Shipbuilders, British Telecom, Britoil, Cable and Wireless, Enterprise Oil, Jaguar, National Bus, the National Freight Corporation, which has 10 per cent. of the United Kingdom's road haulage market, Roll-Royce, Royal Ordnance, TSB and the electricty and water authorities.
Clearly some areas have not been denationalised and perhaps this is one of the most pungent political points that I wish to make today. As I represent York, I am bound to say that the most obvious area in which denationalisation has not occurred fully is British Rail. Some parts have been brought into the private sector. Although many people think that British Transport hotels have been completely denationalised, no fewer than 11 hotels remain in state ownership, although I cannot understand why that should be. Sealink was denationalised in 1984, operating 37 ferries and 10 harbours. British Rail Engineering Ltd. is a highly successful, well-geared engineering company. Indeed, it need not necessarily remain a railway engineering company. It now offers over 20 per cent. more in salary terms to its workers in comparison with equivalent jobs in British Rail. It also offers shares in the company.
Why are the Government holding back from selling the rest of British Rail? Why have they not sold British Coal or the Post Office? Why are they holding back as much as 49.8 per cent. of British Telecom? After the successful launch last week of National Power and PowerGen, why are the Government retaining 40 per cent? Following the success of the flotation of subsidiaries such as BREL, it is high time that bodies like BR were split further. For example, the core of British Rail could be split like the Civil Aviation Authority. There could be a signalling and track authority and trains could pay to cross the system in terms of frequency, time and use. I am sure that denationalisation would be in the interests of employees and the freight and passenger customers.
On the other hand, the Opposition are committed to nationalisation. Their industry policy has not moved away from Clause Four. One of the key messages of the debate is that employees in free enterprise, denationalised companies can expect their shares to be snatched away or invalidated and their wages to fall if Labour is ever returned to power. Customers can expect to return to 1278 higher prices, less flexibility and less service. People with pensions can expect a fall in the value of their holdings and hence in the dividend or pension. Lovers of state intervention and red tape will have a field day. Labour would fuel inflation with such a strategy and could finance its proposals only by a levy on industry, or by raising taxes disproportionately, or both. That would be a return to the disastrous economics of the 1960s with socialist policies of subsidies, quangos and tax allowances. After 12 years in opposition, one might have expected the Labour party to produce some fresh ideas, but sadly that is not the case.
At the next election the public will remember Labour's pledge to renationalise. Labour's rather inadequate representatives try to sabotage flotations within days and hours of each denationalisation going public. What did the socialists do for the water industry when they were last in power? Did they commit proper resources to that industry? They certainly did not. Under socialist control, investment was cut by half.
It is not surprising that the only Labour Member to attend this debate has only just entered the Chamber. Nevertheless, I welcome him
§ Mr. Bob Cryer (Bradford, South)I am here for the next debate
§ Mr. GregoryThe socialists may try to dress up their intentions by using a marketing phrase like "social ownership," but the truth is that not one denationalised company will be safe if Labour take power.
Apart from the ballot box, one of the greatest bulwarks in our determination to ensure that Britain goes forward in a spirit of enterprise is a widening of the shareholder base and making share allocations part of the salary package. Such is the interest and enthusiasm of employees that some 84,000 people, plus 21,000 pensioners, from the 12 regional electricity companies, the National Grid Company and the Electricity Association applied for and received shares recently. Between them, they were allocated almost 160 million shares. That is true capitalism at work.
Perhaps the most telling statistic that I could give the House is that a driver or fitter who invested £1,000 in 1982 at the time of the employee buy-out of the National Freight Corporation could be sitting on £70,000 value today. Nothing could be clearer than that message for every trade unionist in the land. A vote for socialism would actually erode common sense and the value of their savings. Those who are worried about taking the plunge into the private sector need look no further.
Britons have invested many times more in their homes than in equities in the post-war era. It is time to redress the balance and encourage greater share participation. It is clearly important to change national attitudes. For example, we need more comprehensive reporting by pension funds and investment schemes. I well appreciate the quip made in some Sunday finance columns that getting information out of the pension funds is almost as difficult as trying to investigate the finances of the Vatican. I shall not encroach upon that, but pension funds are generally a reluctant audience.
The tax treatment of direct share ownership should be changed. It would be apt to give an annual tax-free allowance to those investing directly in a United Kingdom company. The Confederation of British Industry task force suggested that it could be £100 a month—a modest but sensible proposal for my right hon. Friend the 1279 Chancellor of the Exchequer. Furthermore, we need to change the personal equity plan regulations to allow more than one plan manager in any one tax year and to increase the annual limit to £10,000. We need to introduce a lump sum PEP scheme to encourage investment of inherited funds and pension lump sums.
We must both reduce the time period before employees can become shareholders in their own right and provide a greater incentive to retain shares once their options have been exercised or transferred to the employee. With respect to profit-sharing schemes, the shares acquired under the Inland Revenue profit-sharing schemes should be transferable into a PEP without having to be sold and repurchased. That would avoid taxes and charges. The period for which the shares are held by the share trust before they are transferred could be reduced from five to three years.
Accounts and other circulars to shareholders should clearly be distributed to all participating employees. It would be helpful if when shares became transferable a statement was sent to all employees of the capital growth and the dividends received on shares since allocation. Furthermore, institutional investment committees should not restrict the numbers of shares purchased for the benefit of employees under profit-sharing schemes. If share purchases are to be made easier for individuals, we need to look at the saving and follow the recommendation of TAURUS, the International Stock Exchange system for electronic recording of ownership and transfer of shares, so that they can be passed on to the private investor.
A share maintenance service is needed for the private investor at no additional cost. At present there is a lack of liquidity in the stocks of smaller companies, which could and should be investigated by the ISE. There should perhaps be separate orders with a driven market for smaller company stocks. We may well see the development of retail stockbrokers closely involved with companies which wish to seek the help of private customers.
As I reach the end of these thoughts, I pay a special tribute to my hon. Friend the Member for Esher (Mr. Taylor), who hoped to participate in the debate but has not been able to do so.
The Government have encouraged employee share ownership in successive Finance Acts and tax reliefs, and with important concessions in the Companies Act 1989. Politically, the value of employee share ownership to the worker, to the company, to the economy and to society is now well established. There is more employee identification with a firm's need for profitability and its return on capital. There is more motivation for the work force to assist the development and efficiency of the company. There is less tendency to engage in labour disputes and more realism about pay negotiations. There is a lower staff turnover through loyalty and a greater sense of involvement of the company in the community in which it operates, as I saw frequently with Rowntree Mackintosh before it became part of Nestle in York, and as I have seen since then when it has been under Swiss ownership.
It is admitted that many of the benefits will be realised only if the companies concerned adopt participatory management techniques. If not, the sense of involvement that the work force have through shareholding may remain rather latent. That should apply whatever percentage of the company is held by employees.
Clearly, the Treasury is not entirely sympathetic to qualifying ESOPs because of the tax privileges that have 1280 occurred in the United States. It could be argued that some have become corporate financing tools. However, I am sure that there are devices that my hon. Friend and his Treasury team could use to ensure a more appropriate way of developing wider share ownership, partly through tax breaks, and to reduce inflation.
If we see in the next pay round of British Rail, for example, not only an increase in wages, but an opportunity for employees to participate in shares, just as was done in British Rail Engineering Ltd., there will be a reduction in the demand on the British Railways Board, a lowering of the increase in ticket prices for passengers, an increase in freight costs that is below inflation and an opportunity for the company gradually to ease its way towards the market.
I have referred to several possible schemes and I have given examples of many companies which have moved into the private sector since 1979. I have been clear and open to the House about the dangers that would occur in the unlikely event of our ever having a socialist Government again. I welcome the opportunity for my hon. Friend the Financial Secretary to respond to some of those positive thoughts.
§ The Financial Secretary to the Treasury (Mr. Francis Maude)I warmly congratulate my hon. Friend the Member for York (Mr. Gregory) on securing a place in this important debate, if not on securing this place.
It is a pleasure to have the opportunity to debate one of the most important sets of issues on the economic agenda of politics. The importance of this series of issues is unquestioned except, it seems, on the Opposition Benches. One would have expected that on the issues of denationalisation and wider share ownership, on which my hon. Friend has spoken so eloquently and in such an informed way, there would be some interest from the Labour Benches. What do we see? We see the Labour Benches with but a sole occupant, the hon. Member for Bradford, South (Mr. Cryer), who was quick to point out that he was present not to have anything to do with this debate, but to secure his position in the subsequent debate. I have the pleasure of also participating in that debate.
It is surprising and disappointing that my hon. Friend and I should be conducting this debate between ourselves because I suspect that we shall find that we agree on most points. It would have been interesting to hear the Labour party's view, or perhaps today's view, on denationalisation and the ownership of shares., Does it think that that is good, worthwhile, helpful activity, as we do? It is disappointing that, when these grave and important issues come before the House, all that we hear from the Labour party is a long and deafening silence. My hon. Friend and I will have to make up the deficit between us and see what we can do to throw light on the issues.
My hon. Friend has spoken in a learned fashion on the subject of privatisation. He has gone through many of the merits of the process and has illustrated his case with a wealth of examples. Privatisation has been one of the many stunning successes of the Government's economic and social policies over the nearly 12 years that they have been in office. The policy was highly controversial at its outset; gradually, as the process has continued, it has become less so. The Labour party has gradually moved 1281 away from its root-and-branch opposition to the very idea of denationalisation to something which is at best ambivalent, a sort of muted hostility.
I am sorry that the hon. Member for Bradford, South is temporarily leaving his place, because it would be interesting to hear from the sole representative of the Labour party present what the current view of the Labour party is on that great issue.
Since 1979, as my hon. Friend has said, a great many companies have been privatised—transferred from state ownership into what I would call genuine public ownership where the public own the shares in the business. More than 900,000 jobs have been transferred to the private sector. The state-owned sector of industry has fallen by more than 60 per cent. since 1979. Generally, the result has been that the industries have been subjected to much greater competition than hitherto, but even where a monopoly has been privatised, there has been tough and transparent regulation to protect the consumers while allowing private sector standards of efficiency to be injected into the business.
The total proceeds so far are some £28.5 billion before the present sale of the electricity generating companies. The performance of companies that have been transferred back into genuine public ownership has been, as my hon. Friend pointed out, startling. The pre-tax profits of British Aerospace have increased more than fivefold since 1981 when it was privatised. The profits of the National Freight Consortium are up almost 22 times since privatisation and the recent successful flotation on the stock exchange.
As my hon. Friend vividly illustrated, there are benefits to consumers. British Telecom's prices are down 22.5 per cent. in real terms since 1984. My right hon. Friend the Secretary of State for Trade and Industry, in his historic statement to the House some two weeks ago in which he announced the end of BT's duopoly, showed how the benefits of competition, of denationalisation, come through so sharply and distinctly to the consumers of the services. He announced further price reductions as a direct result of the benign policy that we have pursued. There are 17 per cent. more pay phones than in 1984—pay phones that work, compared with the position before privatisation when one's chances of finding a pay phone that worked were slight. The domestic prices of British Gas are down 10 per cent. in real terms since privatisation.
Privatisation has made companies that play an important role in the British economy more successful and has contributed substantially to economic growth and the dynamism of the British economy. That process will continue.
My hon. Friend the Member for York referred to some of the candidates for privatisation—the significant businesses still under state ownership on which the spotlight should properly fall. He mentioned British Coal and he will be aware of our pledge to privatise the coal industry.
My hon. Friend referred to British Rail, which he knows extremely well and the interests of which are close to his heart. When he makes the case for privatisation, the Government must listen with much respect because of his close constituency and other interests in the industry. We 1282 cannot contemplate privatisaton in this Parliament and no firm decisions have been taken, but it is very much on the agenda.
My hon. Friend also referred to the Post Office, parts of which have been denationalised. Girobank was sold and is operating successfully in the private sector. Further consideration is being given to privatising other parts of the Post Office.
I shall devote a little attention to the share ownership aspects of my hon. Friend's speech. Privatisation and share ownership go closely together but are not dependent on each other. There is no doubt that the flotation of shares in some of the larger previously state-owned companies has given share ownership a huge boost. Share ownership would have increased in any event, but probably not to the extent that it has. In the United States, without the stimulus of privatisation, 25 per cent. of adults own shares. Share ownership in Britain is almost as high. There is not the same depth of share ownership, but I hope that that will develop.
During this Government's period of office there has been an unprecedented rise in the number of shareholders. Share ownership used to be seen as the preserve of the wealthy or the professional classes. Now it is the choice of all classes. Direct ownership of shares in British companies has spread throughout the nation.
In 1979, only 7 per cent. of the adult population owned shares. That figure had been more or less constant for many years. A few companies had been distributing shares to their employees and a few eloquent voices called for wider share ownership. However, the prospects for progress at that stage seemed to be few. Since then, share ownership has spread more widely every year. The growth has been steady, particularly since 1984, and the results have been spectacular.
By January 1990, 24 per cent. of the adult population owned shares. Nearly one in every four adults was by then a share owner. We have long envied such a level of share ownership in other countries such as Japan and the United States. Many people thought that such a level of share ownership was impossible to achieve in the United Kingdom. A great deal of progress has been made as a result of much attention having been paid to this important issue.
My hon. Friend referred to the CBI's task force and its useful and interesting report. Converts to the cause are being made all the time. At last July's meeting of the National Economic Development Council it was a pleasant surprise to find that even the Trades Union Congress was reasonably positive. Its general secretary declared himself to be a "not unsceptical convert" to the cause. I suppose that that is a start. As time goes on and as he begins to understand better what share ownership means, he may become a wholly unsceptical convert. That is a helpful and beneficent development.
Some people—including some hon. Members—may still be doubters. It is worth, therefore, saying a few words about why share ownership is an important objective. A property-owning democracy was advocated as long ago as 1929 by Sir Anthony Eden. Since then we have worked ceaselessly to encourage home ownership. We have been very successful. Capital ownership is the next stage after home ownership. Owning some capital provides a family with the same independence, self-reliance and security as 1283 home ownership. That is why we encourage families and individuals to save. We have set out to revive and restore the habit of thrift.
Savings have a double value. They provide security for savers and they also provide funds for investment, which benefits the whole economy. Shares—ordinary equity—form the clearest link between savings and investment. It is the point at which the cultures of thrift and enterprise join. They produce a feeling in shareholders of direct involvement in the affairs of the company in which they have chosen to invest. That is particularly beneficial for employee shareholders. Anyone who owns shares in the company for which he or she works has every incentive to do his or her best for that company and to encourage co-workers also to do their best, since they will all benefit from its success.
The same is true of all shareholders. Ultimately, the future prosperity of everyone in the country depends upon the performance of British companies. Share ownership makes that sometimes harsh fact more obvious. It brings the investor directly into contact with the risks and rewards of capitalism and it is a key element in the culture of enterprise.
My hon. Friend referred to a number of steps that the Government have taken to promote share ownership. It can be fairly said that those steps have been successful. There would in any event have been some development towards the cause of wider share ownership, which we all espouse, but Government stimulus has been helpful to the process.
Some tax benefits have been attached to employee share ownership schemes, for instance. The process has been effected on a strictly voluntary basis; we do not believe in coercing firms into adopting bureaucratic models of employee involvement that may well turn out to be ill-suited to their needs. We believe in fostering employee involvement in the ways judged best for each company and its work force. Share ownership is one of the most valuable methods of promoting involvement. The aim is to produce an identity of interest between the worker and the shareholder. The simplest way of doing that is when they are one and the same person. That provides the strongest possible incentive to work for the prosperity of the company.
To this end, we have established a number of different models of approved employee share schemes, providing different kinds of tax relief to accompany them. Perhaps the two most important of the all-employee share schemes are the profit-sharing scheme and the savings-related share option scheme. I am pleased to say that the latest year for which figures are available, 1989–90, was a record year for all employee schemes: 1.3 million employees were granted shares or options over shares, with a total initial value of £1,370 million. For the holders of options, the value of the 1284 shares when they come to exercise their options may be significantly higher, although that depends, as it should, on their companies' performances.
By the end of 1989–90 a total of 890 profit-sharing schemes had been approved, as had 891 savings-related share option schemes. In all, about 2.25 million employees have benefited from these schemes, receiving shares or options worth an initial value of £6.5 billion. New companies continue to introduce such schemes. One hundred and seventy-eight new schemes were approved in 1989–90 and I hope that more companies will open such schemes in future.
We also welcome firms setting up their own employees' share arrangements, which may fall outside tax-relieved approved share schemes under the Finance Act. No company will be forced into the framework of that Act.
I am glad of the opportunity to comment on this important subject. It is delightful to see Opposition Members coming into the Chamber as the debate moves on. I am not sure whether the hon. Member for Islington, South and Finsbury (Mr. Smith)—it is a great pleasure to see him gracing the Opposition Benches at this time in the morning—is here for this debate or the following one. If he is keeping his powder dry for the next debate, I look forward to discussing that important matter with him.
I must, however, register again my disappointment that the Opposition have not felt this an important enough subject to come to the House and say where they stand on these weighty matters——
§ Mr. GregoryDoes my hon. Friend share my conclusion that the absence of Labour Members from the debate stems from their embarrassment about their policy? They have not renounced Clause Four and they have tried to dress up renationalisation in marketing jargon as social ownership. My hon. Friend's lucid description of employees participating in such schemes corresponds with a reversal of pay bargaining and the bad old days of the 1960s
§ Mr. MaudeMy hon. Friend asks a pertinent question. As we have sitting on the Front Bench a senior member of the Opposition's finance team, we may have some elucidation. We may be able to find out whether the Opposition's Front-Bench team stick as closely to Clause Four of the Labour party's constitution, or whether that is to be brushed aside. If it is to be the latter, the hon. Member for Bradford, South may have something to say about that. The world is waiting, with bated breath, to hear the way that the Labour party is moving. Does it remain committed to nationalisation, to re-nationalisation and the appropriation of the shares for which our citizens have paid money, and in which they have taken an interest? What is the Labour party's position on these matters? We ask the question, but all that we hear is silence.