HC Deb 15 February 1995 vol 254 cc1001-9 3.31 pm
Dr. John Cunningham (Copeland)

(by private notice) asked the President of the Board of Trade if he will make a statement about Government policy on the future ownership of regional electricity companies in the light of his decision not to refer to the Monopolies and Mergers Commission the bid by Trafalgar House to take over Northern Electric.

The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Jonathan Evans)

It is Government policy that the ownership of the regional electricity companies should be decided by the market and should be subject to normal merger control procedures. Yesterday's decision by my right hon. Friend the President of the Board of Trade was fully consistent with that policy and with the Government's long-standing policy that mergers should be referred to the Monopolies and Mergers Commission primarily on competition grounds.

The Director General of Fair Trading, in his statutory advice, said that the merger did not raise any competition concerns and that the wider public interest issues raised by Northern Electric and third parties did not warrant reference to the MMC. The President agreed with that advice. In addition, however, the President noted the regulatory concerns of the Director General of Electricity Supply and obtained assurances from Trafalgar House to address them. The DGES is currently discussing with Trafalgar appropriate amendments to Northern Electric's licence. They will ensure that he can continue to regulate effectively to protect customer interests in the event of the takeover proceeding.

Until 31 March 1995, the Government retain a special share in all the regional electricity companies, which effectively prevents a takeover. Trafalgar must therefore wait until after that date to obtain control of Northern Electric—assuming, of course, that the shareholders agree the bid. The same is true for bids for any of the other regional electricity companies.

The Government made it clear in 1990, at the time of electricity privatisation, that the special shares would be redeemed and that from that date the regional electricity companies should be exposed to the normal disciplines of the market.

As I made clear, it will now be for Northern Electric shareholders to decide whether to accept Trafalgar's bid.

Dr. Cunningham

Is not it clear from the nature and the length of the Minister's reply that this is a major policy decision, which should have been the subject of a statement in the House by the President of the Board of Trade in the first place? Is not the President taking a rather curious view of his responsibilities when he says that he cannot answer questions before making his decision, yet apparently does not want to answer questions after he has made his decision either? The right hon. Gentleman is not usually reticent about his role in Government policy.

Does the Minister recognise that when he talks about decisions being taken by the market, regulated, private enterprise, monopoly regional electricity companies are not normal market companies, but something very different?

Is the hon. Gentleman aware that we believed—as did many other people—that there were strong grounds for a reference of this issue to the Monopolies and Mergers Commission? Has not the public interest been ignored by the President in not making such a reference?

Can the Minister confirm that it is true that the Securities and Futures Authority and the Securities and Investments Board are both raising important questions about insider dealing and dubious City practices connected with the role of the Swiss Bank Corporation in this affair? Can the Minister assure the House, if the Trafalgar House bid is successful—or if other bids for other RECs are successful—that properly transparent accounting practices will prevail in the future management of the regional electricity companies; and that they will not simply be used as cash generators for their new owners?

Is not it clear that the regulator has serious doubts about the proposed takeover in respect of his own powers and of the effectiveness of regulation under potential new ownership? Can the Minister say whether the so-called behavioural undertakings imposed on Trafalgar House will be legally binding? As the industry regulator apparently pressed for a referral to the MMC, why was his advice rejected?

Is it at all likely that the free-for-all that is about to ensue in the ownership and control of private monopoly regional electricity companies will ever produce the best solution or the best way of providing a rational structure for the electricity supply industry, to the benefit of its consumers and its employees?

Mr. Evans

Yesterday's statement by my right hon. Friend the President of the Board of Trade followed the usual practice of the Department of Trade and Industry when considering referrals to the MMC. In this instance, there has been no departure from the usual practice.

It has been suggested that the President should have waited to make the announcement until his return from India where, as the House will know, he is leading a trade delegation in the interests of developing the economic prospects of this country. He is due to return tomorrow. It was of course the right hon. Member for Copeland (Dr. Cunningham) who insisted on a response to his question in the House today, in full knowledge of the whereabouts of the President of the Board of Trade. His remarks in that regard should be seen in that light.

Perhaps the right hon. Gentleman's statement that the privatised electricity companies are not normal companies offers us some understanding of his outlook. We have consistently argued that, subject to the regulatory concerns that all in this House share, they are indeed normal companies, operating in the private sector. It was the very regulatory concerns outlined by the right hon. Gentleman when he asked me questions about the matter on Wednesday last week which were dealt with in the assurances given by Trafalgar House to the President of the Board of Trade, and which are referred to in his statement.

The right hon. Gentleman ignores what both I in my statement and the President in his have clearly stated, in two material particulars. The Director General of Fair Trading advised the President of the Board of Trade, first, that there were no competition concerns that would, in the circumstances, merit a reference; secondly, he also advised the President against a reference on public interest grounds.

The right hon. Gentleman carted into his remarks the accusation of, as he put it, "insider dealing". He should reflect on the clear statement already made by the President of the Board of Trade to the effect that the appropriate authorities are already looking into that. Yesterday's decision by the President was entirely unconnected with any matter to do with that continuing inquiry.

The right hon. Gentleman asked for transparent accounting practices. Clear reference was made to that matter in the statement of my right hon. Friend the President, in relation to assurances that he received from Trafalgar House. As to the concerns outlined by the Director General of Electricity Supply, the regulator's representatives were present when those assurances were received. There is continuing dialogue between Trafalgar House and the regulator.

The concerns expressed by the right hon. Gentleman clearly demonstrate his lack of understanding of the marketplace. My right hon. Friend the President of the Board of Trade reached his decision entirely in accordance with the interests of the electricity industry.

Sir Anthony Grant (Cambridgeshire, South-West)

Is not it perfectly sensible that the management of newly privatised companies should be kept on its toes by the threat of takeovers by companies and owners who will bring improved management? Is not efficient management in the direct interest of consumers?

Mr. Evans

My hon. Friend is absolutely right. Many Opposition Members fail to understand the operation and discipline of the marketplace. It is surprising that so many Opposition Members spend time complaining about the remuneration of senior managers and directors in privatised utilities, and then present the argument that they should be insulated from the pressures of the marketplace.

Mr. Nick Harvey (North Devon)

What was the purpose of the golden share, if the Government treat like any other takeover the first hostile bid for a public utility? The golden share may expire at the end of March, but public interest will not. What advice have the Government received from the regulator? Have not they pulled the rug from under the regulator's feet? What is the Government's assessment of the extent to which the bid is driven by the tax advantages that the bidder thinks will result?

Mr. Evans

The hon. Gentleman should know that Parliament decided that the golden share would expire in March this year, not continue indefinitely. The purpose was to allow electricity companies time to establish a track record in the marketplace. The hon. Gentleman is entirely wrong to assume that the golden share was to continue indefinitely and that the companies would always be insulated from the prospect of takeovers.

I have little to add to my comments about the regulator. The regulatory concerns outlined by the Director General of Electricity Supply were, in the Government's opinion, addressed by the assurances received. We are confident that current discussions between the DGES and Trafalgar House will ensure that regulatory concerns are addressed.

Mr. Bob Dunn (Dartford)

Will my hon. Friend confirm that all licence holders, whoever owns them, must abide by their licence obligations?

Mr. Evans

My hon. Friend is absolutely right. The requirements placed on licence holders remain entirely unaltered by my right hon. Friend's announcement yesterday.

Mr. Richard Caborn (Sheffield, Central)

If anybody in the House shows marked ignorance, it is the Minister. I do not know of any private company that legally has total control over the domestic market, as regional electricity companies have, until 1998. Will the Minister comment on suggestions in the press today that takeovers would change the industry's structure, and that it might revert to the pre-privatisation vertical stream structure—which could be totally in the private sector and foreign owned? Is the Minister saying, on behalf of the President, that the criteria used in the present takeover bid will apply even in the case of money invested from abroad?

Mr. Evans

I am saying that it is the policy of the Government to decide each issue on its merits as it comes to the Department of Trade and Industry to be judged. There is no circumstance in which this is any sort of precedent. Each case must be judged on its merits. The hon. Gentleman, as Chairman of the Trade and Industry Select Committee, well understands that it is not the case that there is no competition in the market. There is already competition; from 1998 there will be a whole lot more.

Mr. Tim Devlin (Stockton, South)

How will the assurances from Trafalgar House to the Secretary of State be enforced by the regulator, if they are not kept?

Mr. Evans

The position is that the assurances will be monitored by the regulator himself. The regulator has already indicated, in a statement that he issued yesterday, that he was beginning discussions with Trafalgar House to bring about amendments of the licence to that effect. I am sure, as my hon. Friend knows, that there is power within the Electricity Act 1989, if the regulator so considers, to have a matter referred to the Monopolies and Mergers Commission.

Mr. D. N. Campbell-Savours (Workington)

If insider dealing is found and difficulties arise over prosecution—as happened in the case to which I am unable to refer today—can we then be assured that the law on insider dealing will be reviewed, so that we can have some successful prosecutions?

Mr. Evans

I think that the hon. Gentleman will already be aware of a statement that was made by the Securities and Investments Board in relation to the issue of derivatives lately. I can tell him that, within the sphere of my own responsibilities on the operation of companies law, the issue of derivatives in that area is a matter of on-going examination.

Mrs. Angela Knight (Erewash)

Further to my hon. Friend's earlier answer, can he confirm that, in the event of Trafalgar House breaching its assurances, the Director General of Electricity Supply can refer the matter to the Monopolies and Mergers Commission under the Electricity Act?

Mr. Evans

My hon. Friend is absolutely right. It is very important, in the context of some of the remarks that have been made, to underline the fact that that power resides with the Director General of Electricity Supply.

Mr. John McWilliam (Blaydon)

Will the Minister tell me where I and my constituents can buy our electricity other than from Northern Electric? If he cannot, will he admit that it is a monopoly and see it as being different?

Mr. Evans

As the hon. Gentleman should know, for commercial customers there is currently a degree of competition in the market, and from 1998 the Government will ensure that that competition is more widely available, so that the domestic customer is able to take advantage of competition as well.

Mr. Peter Atkinson (Hexham)

If Trafalgar House succeeds in its takeover bid for Northern Electric, will my hon. Friend ensure that the company's capital programme on upgrading and renewing the overhead power lines continues? Reliability of supply is very important, particularly in rural areas, where the cables are subjected to the vagaries of the weather. Will my hon. Friend make sure that the agreement between the regulator and Trafalgar House ensures that Northern Electric will continue to spend that money and upgrade its programme?

Mr. Evans

For my hon. Friend's benefit,, that is one of the specific areas covered by the assurances given by Trafalgar House, and is subject to the discussions to which I referred.

Mr. Alex Salmond (Banff and Buchan)

Would the Minister like to reconsider his rather foolish comment that these are just normal companies? How on earth is it not a precedent? Will it not effectively be open season on the other regional electricity companies? What talks has he had with the Secretary of State for Scotland about the implications of the non-decision not to intervene for the two Scottish electricity companies? Does he not understand the anger that would be felt in Scotland if the independence of Scottish Hydro-Electric or Scottish Power were compromised by that foolishness?

Mr. Evans

In the circumstances, the hon. Gentleman misses the point concerning the advice given by the Director General of Fair Trading. This is a case in which the Office of Fair Trading, through the director general, is in a position to offer advice to the President of the Board of Trade. Both in the statement that was made yesterday and in the statement that I have made to the House today, it is absolutely clear that the decision that has been reached by the Government is in accordance with that advice: in terms of competition and of the public interest, there were no grounds for the matter to be referred to the Monopolies and Mergers Commission. Moreover, as I have already made clear, my right hon. Friend the President of the Board of Trade has secured the assurances to which he referred in his statement and to which I have referred today. We have also made it clear that any other bids will be considered by the Department in the usual way.

Mr. Jacques Arnold (Gravesham)

Does my hon. Friend find it odd that, having spent the past few weeks condemning the pay and conditions and professionalism of the boards and management of the regional electricity companies, the Labour party should condemn a proposal to subject them to the professional direction and management of a well-tested international British company? Does not that suggest double standards?

Mr. Evans

My hon. Friend is absolutely right. We do not believe that management or directors should be insulated from the pressures of the market. We believe that the customer's interest needs to be protected, and will be protected, by the terms of the announcement that has been made; but we believe that there should be no insulation beyond that. I am rather surprised—well, perhaps in the circumstances I am not so surprised—that Opposition Members seem to believe in such insulation.

Mr. David Clelland (Tyne Bridge)

Is the Minister aware that, at a special meeting in Newcastle this morning, the votes of private and individual shareholders were heavily outnumbered by the proxy votes of the big institutions? Does not that demonstrate that, despite what the Government have said about wider share ownership, the City is still in the driving seat? Given that the Conservative party is very much in the City's pocket and has demonstrated its dislike of regulation, what guarantee have we that the long-term security and interests of the consumer will be considered?

Mr. Evans

As I made clear in my statement, it is now for the shareholders of Northern Electric to decide the issue. The Government do not take a view as between one bidder and another; the shareholders must exercise their judgment in the circumstances. All that is meant by my right hon. Friend's statement is that he has decided in the circumstances—on the basis of advice received from the Director General of Fair Trading relating to both competition and public interest—that there are no grounds for a reference to the MMC.

Mr. Patrick McLoughlin (West Derbyshire)

I welcome yesterday's announcement by my right hon. Friend the President of the Board of Trade, and recognise the consistency of the advice that he takes from the Director General of Fair Trading. Will my hon. Friend confirm, however, that those who own the companies will be subject to the same regulatory regime? Will he also give us an idea of the views of consumers? How will they benefit from the takeover?

Mr. Evans

As I said earlier, the issue of whether the bid proceeds successfully will be a matter for the shareholders. It is not for me, or for the Government, to advise shareholders on whether to accept a bid. I can say, however, that under the Electricity Act individual companies with licences are subject to regulation in the terms of those licences, which are unaffected by today's statement.

Mr. Ronnie Campbell (Blyth Valley)

Surely the Minister is aware—the question has arisen before—that the taxpayer will lose £223 million because of the bid. The loss of tax revenue could be compounded by takeovers of other companies such as the Yorkshire Electricity Group, Midlands Electricity and perhaps even

London Electricity. It has been one big rip-off. Can it not also be said that Tory party funds will benefit from the Trafalgar House bid?

Mr. Evans

I do not know where the hon. Gentleman gets his figures, but if he is concerned about a rip-off, let me remind him that since the privatisation of the electricity companies, there has been a steady reduction in the price of electricity. That has been the effect of introducing the disciplines of the market.

Mrs. Jacqui Lait (Hastings and Rye)

As a number of Opposition Members are clearly concerned about the effect on the consumer, will my hon. Friend confirm that, should the merger go ahead, Northern Electric's customers will enjoy a substantial bonus?

Mr. Evans

I understand, because I read about these things along with everyone else, that Northern Electric customers have been offered a certain financial bonus by Trafalgar House. As I said, however, that is entirely a matter for the shareholders to judge, and not a matter on which the Government take a view.

Mr. Jack Thompson (Wansbeck)

Does the Minister recognise that other responsibilities exist in relation to the northern region? There are 18,000 shareholders living there who are also consumers. I assume that they have been to the meeting this morning and that they have been outvoted. Those are the people who have an interest in the northern region. Does not he recognise that a social involvement exists in exercises such as this, and that my hon. Friends who live outside the northern region also have an interest in what is happening, because it will happen in their regions?

Mr. Evans

I make it clear to the hon. Gentleman that the decision that has been made is entirely consistent with the advice offered to the Government by the Director General of Fair Trading. The hon. Gentleman is saying that there should be a preferential voting system, in which one shareholder is entitled to more of the vote than another. I cannot go down that route.

Mr. John Marshall (Hendon, South)

I congratulate my hon. Friend on accepting the advice that I gave him at Department of Trade and Industry questions last Wednesday. Will he confirm that consumers in the north will receive a bonus of £30 as a result of the takeover, if it goes ahead? Will he also confirm that the institutional investors disliked by the Labour party are the pension funds that guarantee occupational pensions, and the life insurance companies that give decent bonuses to people with with-profits policies? They include the majority of our constituents.

Mr. Evans

My hon. Friend will recall that, when I responded to him last week, I said that I did not think it wise in the circumstances to comment on his specific advice. I adopt a similar stance in relation to his comment about the bonus to be offered to Northern Electric customers. This is entirely a matter for the shareholders to judge. The role of the Government is to consider whether competition or public interest grounds exist for interfering in the situation. On the basis of the advice of the Director General of Fair Trading, we have judged that, in this instance, no such grounds exist.

Mr. Chris Mullin (Sunderland, South)

I do not suppose that the decision has anything to do with the fact that, since 1979, Trafalgar House has contributed £600,000 to Conservative party funds, does it—or am I being naive?

Mr. Evans

I am not sure that anyone, in the circumstances, would accuse the hon. Gentleman of naivety, but he is incorrect.

Mr. Ian Bruce (South Dorset)

Does my hon. Friend believe, as I do, that consumers throughout the country will be better off if electricity companies get the message that, if they want to defend themselves against unwanted takeovers, they should reduce the price of electricity to their consumers, and the wages being paid to chief executives?

Mr. Evans

It is especially interesting that the first correlation to be drawn in that way comes from the Conservative Benches rather than the Opposition Benches. It sets in context many of the remarks that we have heard from the Opposition Benches in the past few weeks. It is clear that the regional electricity companies cannot be insulated from the disciplines of the marketplace. In this instance, having judged those factors, and having taken into account the advice received, the Government have decided that this particular electricity company cannot be put into an insulated position.

Mr. Jim Cousins (Newcastle upon Tyne, Central)

What legal force will the assurances that were given to the President of the Board of Trade have? If those assurances are breached in any particular, will that mean that he will reconsider referring the matter to the Monopolies and Mergers Commission?

Mr. Evans

Perhaps I can assist the hon. Gentleman. I presume that he heard the beginning of my statement, so he will recall that I said that the Director General of Electricity Supply has the power to refer the matter in any event—[Interruption.] Will the hon. Gentleman please hear me out? The Director General of Electricity Supply has the power to refer the matter under the Electricity Act 1989 should he so wish. In this particular case, he is at this moment engaged in a dialogue with Trafalgar House. If the bid proceeds and if there is subsequently a takeover, the Director General of Electricity Supply will bear those factors in mind if there should be any breach of the assurances. The position adopted by the Government is that to have a statutorily enforceable undertaking beyond the assurances that we have received, would have required a situation in which the Director General of Fair Trading considered that such assurances were necessary. We received no such advice in this case.

Mr. Geoffrey Clifton-Brown (Cirencester and Tewkesbury)

Will my hon. Friend confirm that the shareholders of Northern Electric have already benefited to a considerable extent, that customers will benefit to a considerable extent from the £30 bonus and that employees will benefit from increased investment by Trafalgar House? Does he agree that as this is the takeover of an electricity company by an engineering company,

there are no competition or public interest issues involved, so my right hon. Friend the President of the Board of Trade has made absolutely the right decision?

Mr. Evans

I entirely agree with my hon. Friend's comments about competition and public interest. I do not think that he would wish me to comment on whether the bid should be successful as that is a matter for the shareholders to decide.

Ms Hilary Armstrong (Durham, North-West)

Does the Minister accept that Northern Electric's customers do not share his colleagues' enthusiasm for the takeover, but regard it with great concern? Does he realise that, having heard him today, they will be even more afraid that the rumour about the propensity of Trafalgar House to asset-strip any firm that it takes over is really what this is all about?

Mr. Evans

I hope that the hon. Lady has seen the statement issued yesterday by my right hon. Friend the President of the Board of Trade and the precise terms of the assurances received because they deal precisely with the issue that she raised.

Ms Ann Coffey (Stockport)

Will the Minister tell me to whom the regulator will be accountable if at some future date he decides to refer, or not to refer, the bid to the Monopolies and Mergers Commission?

Mr. Evans

The regulator is, of course, independent. It is a matter for him to decide in the circumstances whether he wishes to refer the bid. I find it odd to hear concerns raised about the position of the regulator because, as I said, when the assurances were given by Trafalgar House, representatives of the regulator were present.