HC Deb 05 April 1995 vol 257 cc1701-7 1.30 pm
Mrs. Helen Liddell (Monklands, East)

I sought this debate largely because of a constituency interest. My constituency in central Lanarkshire has been particularly devastated by the impact of the restructuring of the steel industry. My personal assistant, Mr. Frank Roy, is a former shop steward from Ravenscraig steel plant, which is no more. I am conscious that my constituents worry that privatisation has been not only in their worst interests but perhaps in the worst interests of the whole United Kingdom.

I do not necessarily wish to make partisan points, and I do not intend to rehearse the arguments against privatisation. We know where the Government and the Opposition come from on the issue. We are anxious about the impact of privatisation on the utilities themselves and in a broader setting. I would like the Financial Secretary to outline the costs, both hidden and obvious, of privatisation over a period.

We have teased information out of the Government about the costs of privatisation. That has led to some concern about what the accounts of the Exchequer reveal about how much privatisation has actually cost the taxpayers of this country. The Earl of Stockton in another place referred to privatisation as selling off the family silver. The Earl, who was an alumnus of my university, made a witty analogy between privatisation and the great homes of the nation. He referred to selling off the paintings, the furniture and the family silver. In reflecting upon his remarks this morning, I admit to some concern about the fate of his family company, given the speculation about the future of Macmillan. But that is an aside.

It is obvious that the key beneficiaries of privatisation are institutions in the City. Those of us who have been involved in private sector flotations know the substantial fees that are totted up by City advisers. There is concern in the House and elsewhere that some advisers who have been involved in the privatisation process have acquired Tory grandees on their company boards shortly after the privatisations have taken place. The merchant banks, accountants, lawyers, public relations consultants, stockbrokers and technical consultants have an opportunity to put their noses in the privatisation trough.

Only last week, the Financial Secretary admitted that the Government have spent some £136 million advertising privatisation share issues in the past 10 years. Since 1985, advertising costs for the flotations—there have been about 18—have ranged from £1.1 million for the sell-off of Northern Ireland Electricity to the £21.4 million which was spent on the 1986 "Tell Sid" campaign to persuade the public to buy shares in British Gas. I wonder whether Sid will tell us what will happen to the disabled when we address the issue of competition in the gas industry.

The three-stage sell-off of British Telecom cost £35.6 million over eight years in advertising terms alone. That sum beggars belief. That money could have been better spent in the public sector, rather than lining the pockets of advertising agencies and their spin-off agencies.

I hope that hon. Members will forgive me for referring to Scotland, but it is obviously at the forefront of my mind. Some £5.3 million was spent advertising the sale of the Scottish electricity companies. That amounts to more than £2 for every adult in the country.

It is recognised that Opposition Members are very disturbed about the extent to which industries were undervalued in the first place. That undervaluation is also a cost of privatisation. The Government undervalued the assets, heavily hyped their sale through advertising the share issue, and in many cases wrote off debts of billions of pounds beforehand.

To give another Scottish example, at the same time as many Scots were enduring the shameful humiliation of poindings and warrant sales because they had incurred debts as a result of the poll tax—I know that the Financial Secretary is concerned about that issue—the state was writing off £1.5 billion in debt for the Scottish electricity companies.

A poinding or warrant sale is the most depressing, degrading and humiliating way of recovering small debts. A sheriff officer arrives at the house of an harassed family, who are usually in some distress because they cannot pay their debts. The sheriff officer, who is often assisted by the police, can enter that house and go through every item of the family's belongings—from the kitchen table and chairs to televisions and radios—and put an often derisory value on those items. That exercise is often undertaken for the recovery of debts of only £200 or £300. I have witnessed warrant sales—in fact, I spent much of this week trying to prevent one from being inflicted on one of my constituents.

I feel quite bitter when I see that the Government are prepared to write off quite substantial debts in order to make companies that are about to be privatised more attractive for a general share issue. I remind the Financial Secretary of the words of his colleague John Maples, that the rich get richer on the backs of the rest of us.

It is very difficult for me to explain to my constituents—indeed, I would not try to explain it to those who are enduring the humiliation of warrant sales—how that can happen. The only similarity between the way in which the Government write off the debts of companies which are about to be privatised and the sheriff officers is that they both have very flexible attitudes towards the true value of assets.

I accept that many individuals made quick killings from initial share offers when they sold their shares to the institutions which are the current shareholders. The broad base of share ownership in this country has narrowed considerably. Water industry shares were sold at £6.5 billion in 1989, and they are now valued at £12 billion. There have been £2 billion in dividends since 1990. Shareholders get the money and the opportunity to laugh all the way to the bank, but the taxpayers are suffering, and the nation as a whole is impoverished as a consequence.

Mr. John Marshall (Hendon, South)

The hon. Member said that the broad base of shareholding has narrowed. Does she accept that there are now more shareholders than trade unionists, and that, as a result of privatisation, the number of individual shareholders has more than doubled?

Mrs. Liddell

That is a very quick political point to make. Yes, there are more shareholders than trade unionists, and undoubtedly some trade unionists hold shares. That is partly because the Government have been intent upon attacking trade unionists and reducing the number of people in employment in this country, thereby making them less eligible for membership of a trade union.

There has been dramatic restructuring within the privatised industries, with a consequent reduction in employment. House of Commons Library figures reveal that about 127,000 jobs gross have been lost in the privatised sector. I accept that every company, whether private or public, has to go through periods of restructuring, but that restructuring is taking place at a time when the labour market is under considerable pressure. It is also a time of rising unemployment.

What are the hidden costs of privatisation? Many companies restructure—often code for downstaffing—because it looks good in their annual reports. That makes it easier for a company chairman to laud a company's performance before his shareholders and to increase the share price. A number of privatised companies have employed senior executives as consultants. They are given a golden handshake, but return as consultants or redesign themselves as sole traders, sometimes in the form of consultancy companies.

I do not shed any tears for them, but for employers at a lower level who find themselves out in the cold. If they redefine themselves as sole traders, they are re-employed on temporary contracts with their former employers as members of a casualised work force. They do not enjoy the minimum employment protection that exists even under a Conservative Government.

There is an even less glamorous aspect of privatisation. Only last week, the Equal Opportunities Commission published its analysis of the impact of private contracting as a result of compulsory competitive tendering in the public sector, and the conclusions are horrifying in 1995.

That research showed that women in particular, members of the ethnic minorities and disabled people have suffered dramatically from CCT. Eighteen months ago, there was public outrage when auxiliary and domestic staff and porters at Glasgow Royal infirmary were re-employed by private contractors at lower hourly rates and with fewer holidays. Only a public outcry from the highest to the lowest in the community stopped that happening.

Less publicised cases arise daily. As a consequence, wages paid in the public sector—particularly to women—have fallen by as much as 25 per cent. Many women working in public sector cleaning and catering have to take on multiple jobs—often below the minimum part-time hourly rate, so they are not eligible for state benefits, including maternity allowance. They often have short-term contracts that make no provision for holidays or holiday pay. If they cannot work during school holidays, they have to claim social security benefits—which is a cost to them and to the nation.

Tomorrow, local government elections will be held in Scotland. Seeing the Press Gallery almost empty, I reflect on the halcyon days when there were reporters in the Press Gallery. When I was a Press Gallery reporter, a distinguished BBC reporter who, sadly, died last week reminded reporters every time they left the Press Gallery that Scotland is different. If only someone had reminded the BBC and "Panorama" of that last week, there might have been a different outcome to events in the courts.

If I may refer to the local government elections, there is a hare-brained race to reorganisation of Scotland local government, leading to more privatisations, particularly of essential services such as the education advisory service and catering in Strathclyde. That will produce further casualisation of the work force and additional concealed costs for the public and taxpayers.

The Government continue their reckless pursuit of privatisation, having learnt nothing from the costs incurred by early privatisations. Last week, my party's transport team published "The Runaway Train: The cost of rail privatisation", showing that the cost of privatization—based on Government figures and figures published in Hansard, would be in excess of revenue.

I seek a reassurance that the Government are not turning a blind eye to the costs of privatisation. Obtaining accurate information from them is like drawing teeth. We want to know the real costs in terms of unemployment and the cost to customers. Before the Financial Secretary reminds me that, under privatisation, some customers will have lower bills, I remind him that others will pay more. Fortunately, Labour managed to stop water privatisation in Scotland, but many people are paying increased water charges in England and Wales.

Will the Financial Secretary acknowledge that not everyone gains under privatisation? May we know the true cost of privatisation to the Exchequer and to society? May I have a reassurance—although I doubt that the Financial Secretary can provide one—that my constituents, who have suffered from steel privatisation and other privatisations, can look forward to a better future? I believe that they can only do so under a Labour Government. I do not expect that the Financial Secretary agrees.

1.45 pm
The Financial Secretary to the Treasury (Sir George Young)

The last sentence is about the only one with which I do agree.

I am grateful to the hon. Member for Monklands, East (Mrs. Liddell) for choosing this important subject for debate. She focused on the costs of privatisation. I hope that she agrees that, if one is to have a balanced perspective, one must consider not just the costs but the benefits. I hope, in a short speech, to redress the imbalance in the hon. Lady's speech.

A great deal of preparatory work must be done if one is to enjoy the receipts and other benefits of the Government's privatisation programme. Industries must be restructured and streamlined. Contracts must be put in place where none existed before. Potential shareholders must be informed by a prospectus of what they would be buying, and the general public must be kept informed. All that costs money and fees, but such preparatory work has produced massive benefits.

I was slightly surprised at the hon. Lady's speech, because the Leader of the Opposition has spent months touring the country to reform clause IV and telling the public that the state no longer needs to own massive, formerly nationalised industries. In 15 minutes, the hon. Lady, in a revisionist speech, cast doubt on Labour party policy on privatisation and nationalisation.

Mr. John Marshall

Can my hon. Friend say how much the taxpayer receives in revenue from the profits of privatised industries, compared with the amount of money that the taxpayer met in subsidies to British Steel, Rover, British Airways and British Coal when they were in the public sector?

Sir George Young

When we entered office in 1979, the nationalised industries were costing the state £50 million a week. The industries that we subsequently privatised are now producing revenue of £50 million a week—a massive fiscal turnround, of real benefit to taxpayers.

Mrs. Liddell

As the Financial Secretary is explaining the great worth of privatisation, perhaps he will explain why the Government decided not to privatise the Post Office.

Sir George Young

A large part of the Post Office is already privatised. Most sub-post offices are already in private ownership. The hon. Lady may know that my right hon. Friend the President of the Board of Trade is reflecting on how best to proceed with the Post Office.

Privatisation works. The hon. Lady did not say that privatisation and public ownership did not work. Before I entered the House, and while the hon. Lady was working as a reporter in the Press Gallery, I was working in a nationalised industry. I can tell her that nationalisation jolly well did not work. There were enormous concealed costs in state ownership.

Mrs. Liddell


Sir George Young

The hon. Lady had 15 minutes to make her case, and in courtesy to her, as well as to the House, I must answer her points.

In the days of nationalisation, we had debates about losses, debts, high prices, poor investment decisions, shoddy service and the holder of the latest strike record. In other words, there were costs under nationalisation. There were costs for every householder and business in the land. As my hon. Friend the Member for Hendon, South (Mr. Marshall) has reminded us, they were costs for taxpayers.

The hon. Lady may like to recall what the Leader of the Opposition said about privatisation. He asserted it is barely an issue that prices will rise because of privatisation."—[Official Report, 12 December 1988, Vol. 143, c. 684.] In fact, the cost of domestic electricity has fallen by 8 per cent., excluding value added tax, over the past two years. Under the Labour Government, electricity prices increased in cash terms by 2 per cent. every six weeks. There is a dramatic contrast between public and private ownership.

I do not blame those who worked in the nationalised industries, especially as I was one of them. It was the nature of state ownership, with its excessive centralisation and inevitable short-termism, that was the root of the problem. Privatisation has shown that it can rescue businesses and services from what was a rather depressing scenario.

The domestic consumer has seen dramatic improvements in standards. Privatisation has turned inward-looking businesses into successful ones often globally. I shall mention a few. The House will be interested to know that 45 countries throughout the world have benefited from the skills, knowledge and experience of British Gas since privatisation. Rover, which was once the basket case of the British car industry, is now exporting its Discovery model to Japan.

The hon. Lady mentioned the employees of former nationalised industries. Does she believe that those who now work for British Airways want to be taken back into public ownership? British Airways is now the world's favourite airline. It carries more international passengers than any other carrier. It is a real success story. Back in 1979, the hon. Member for Glasgow, Garscadden (Mr. Dewar) described British Airways as "a potential pantomime horse" of capitalism. How wrong he was. The hon. Lady talked about British Steel. In 1979, it was making losses of £1.7 billion. It is now an industry in profit.

The hon. Lady should reflect on the costs to the country's export position if the Government had adopted what I believe to be her rather short-term view of public ownership. We have heard something today about the wider cost of full public sector services. The hon. Lady mentioned local authorities. Compulsory competitive tendering and privatisation mean that homes and businesses can buy services at competitive prices instead of subsidising them through taxation. That has been of much greater importance to United Kingdom businesses and their customers that the hon. Lady realises.

I shall illustrate my argument by talking about telecommunications and energy supply, which are two key services to virtually every home and business in the country. Telecommunications account for about 2 per cent. of gross domestic product. Electricity and gas together account for a further 2 per cent. The services that they provide are crucial to the competitiveness of each and every business. If telecommunications and energy providers perform badly, other industries feel the pinch. If they are free to charge too much for too little, millions of individual customers pay over the odds for a second-rate service. It is they who suffer.

Privatisation has led to vastly improved investment levels and service standards. Before privatisation, it was the taxpayer who inevitably underwrote investment. After privatisation, companies facing competition and regulation had to shape up their act. The hon. Lady bandied a few figures about. Let us consider some more.

British Telecom has invested a massive £22 billion since privatisation. Mercury has invested £2.7 billion. Mobile phone companies have invested a further £2.6 billion. Investment by British Gas has tripled in real terms in the seven years after sale. The water companies have invested over £12 billion in the five years since privatisation, 75 per cent. more in real terms than in their last five years in the public sector.

Increased investment has clearly had an impact on quality. Everyone now has a real choice of telephone service. People no longer wait to be connected to a telephone service. British Gas now responds quickly to faults. In virtually all cases, supply is restored within 24 hours. No longer must busy customers wait in all day when they would rather be about their business. All utilities now offer timed appointments. Britain's water is now among the cleanest in Europe, despite being cheaper than water in most other European countries.

Let us consider what investing for quality has cost the consumer, and perhaps pause over some of the telling interventions of Opposition Members in previous debates. For example, we were told that 16 million British Gas customers could expect only one result—increased gas prices, higher than the rate of inflation. That was not a startling new Government announcement. It was a forecast made by a Labour Member. It was just a little bit out: since privatisation, the average household gas bill has fallen by 20 per cent. even after inflation. We were told that a minimum estimate of the cost of privatisation to the consumer in terms of increases was 20 per cent. That was said by a Labour Member in the Opposition's haste to oppose electricity privatisation. Wrong again: privatisation has brought down the cost of electricity to the domestic consumer by 9 per cent. in the past two years, even after taking inflation into account.

If hon. Members want to make a phone call when they leave the House to go on a well-earned recess, I am happy to tell them that the three-minute local peak rate call now costs less in cash terms than it did on privatisation. They will find a phone box much more readily, and when they do, it will be working.

The House may recall the scaremongering of the right hon. Member for Salford, East (Mr. Orme). He said in 1983 that the public telephone box could be threatened by extinction. That was a far cry from reality. The number of BT call boxes has increased by over 50 per cent. to 127,000, and 96 per cent. of them work at any one time, compared with about 75 per cent. back in 1987.

It is tempting to tease the hon. Lady about her party's record in getting figures right. The serious point is that her attack on privatisation is narrow and misinformed. At the beginning of her speech, she talked about costs. On average, each privatisation has cost only 2.8 per cent. of the proceeds that have been raised. Those narrow figures belie the knock-on benefits to consumers of which I have spoken. As my hon. Friend the Member for Hendon, South reminded me, privatised industries are contributing about £50 million a week to the Exchequer in taxes and dividends. That is surely relevant.

The criticisms that we have heard about the privatisation programme have ignored improvements in quality, reductions in price and improved service. They ignore the new export potential that privatisation has brought to the country. They ignore also the fact that privatisation has underpinned London's position as the premier centre for financial services and privatisation expertise, which is now being exported throughout the world.

Privatisation has brought solutions, ideas, innovation and investment. I can assure the hon. Lady that the Government will continue down that road. We shall proceed with privatisation—the hon. Lady mentioned British Rail—and take forward the private finance initiative. We shall bring the private sector into areas previously thought to be the preserve of the public sector. We shall continue to apply principles of quality and service in the heart of government and to local services.

A great wave of reform has swept the public sector over the past 15 years. That has set the framework for UK excellence at home and abroad. The Government are proud of their record. We are not complacent, and the process will go forward.

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