PowerGen and National Power (Hansard, 9 June 1995)

§ Mr. Gordon Brown (Dunfermline, East)
(by private notice) asked the Financial Secretary to the Treasury if he will make a statement on the inquiry into the sale of shares in PowerGen and National Power.

§ The Financial Secretary to the Treasury (Sir George Young)
The stock exchange yesterday released a letter from its chief executive, Michael Lawrence, to the Permanent Secretary to the Treasury, Sir Terence Burns. The letter enclosed the initial findings of the stock exchange's inquiry into the circumstances surrounding the Genco 2 sale and asked the Treasury to examine further the circumstances surrounding the sale, including the dissemination of information between various parts of the public sector and between the public sector and the market. Sir Terence Burns replied that the Treasury is taking this work forward and will respond in substance to the stock exchange in due course. Since the release of that exchange of letters there has been a great deal of misinformed, inaccurate and hysterical comment. It would be helpful if I clarified a number of issues.
First, there is nothing sinister to be read into the release by the stock exchange of its letter to the Treasury's Permanent Secretary, Sir Terence Burns; nor is it the case that release of the letter signifies that the stock exchange has found criminal or unwarranted behaviour by the Treasury or other Departments. Stock exchange initial reports are normally passed to the appropriate regulatory body. Only in a small proportion of cases do stock exchange reports result in action by the regulatory or prosecuting bodies.
In this case, the Treasury and the stock exchange agreed that the letter should be released. It is important that the procedures are open and are seen to be open.
Secondly, the stock exchange report of its initial inquiry does not criticise the Treasury or any other party. The Treasury does not have the authority to release the exchange's initial report—that decision is for the stock exchange. The report has, I understand, been compiled in line with normal practice under confidentiality undertakings given by the stock exchange.
The stock exchange has asked the Treasury to examine further the circumstances surrounding the sale, and we are prepared to do so. The Treasury's response will be published for all to see. Moreover, despite assertions to the contrary, neither the Treasury nor other Departments have immunity from insider dealing under the Criminal Justice Act 1993. It is entirely open to the prosecution authorities to investigate if they believe that there is a case to be answered. The Treasury will, of course, co-operate fully with any requests.
The Treasury is taking forward the work requested by the stock exchange urgently. Sir Terence Burns has asked a senior Treasury official, who was in no way involved in the Genco 2 sale, to lead the work. He will examine in detail the events surrounding the share sale and the actions of all the parties involved. Having done so, he will draft the Treasury's response, which will be sent to the stock exchange and then published.

§ Mr. Brown
While I am grateful to the Minister for coming to the House this morning, is not his response wholly inadequate not simply to a letter from the stock 420 exchange, but to the new and serious charges made this morning by the chief executive of the stock exchange? Does he accept that the Government's proposals are no answer to the charge that damage has been done to the City's financial reputation and that there is an urgent need to repair our reputation? When serious allegations are made about the Treasury, no one would agree that the Treasury should he put in charge of investigating the Treasury.
What is new is that, this morning, the chief executive of the stock exchange said that, but for the Treasury's position in relation to the Crown immunity, he would have referred the matter to the prosecution or regulatory authorities. Will the Minister now join me in asking the stock exchange to publish the initial report of its inquiries and the reply sent yesterday by the Permanent Secretary of the Treasury? Will he join me in asking the Serious Fraud Office and the Securities and Investments Board to carry out investigations into the matter? Does he agree that an independent inquiry, under a judge, should be set up into the matter? Even if he agrees that the stock exchange is not in a position to take the matter further, does he accept that section 47 of the Financial Services Act 1986 contains powers to appoint investigators where allegations about market manipulation have been made? Does he therefore agree that no further privatisation sales should be carried out until those matters are cleared up?
Is not this inquiry the mark of an increasingly desperate Government, who are gambling to raise money, short-circuiting their own rules and running away from an open and public investigation of the consequences of their actions? That goes for the Chancellor as well, who ran away this morning to his country house, when he should be in the House answering questions on this matter. Is not this a Government whom no one will trust to investigate themselves?

§ Sir George Young
I entirely reject any accusations made by the hon. Gentleman that the Government have acted improperly in any way.
The Government are doing exactly what the chief executive of the stock exchange asked us to do in his letter. He has asked the Treasury to take the matter forward and that is exactly what we are doing. As for the stock exchange report, as I said in my initial reply, it is a matter for the stock exchange. It was compiled under the normal rules of confidentiality which apply to the stock exchange. It is entirely a matter for it.
I dealt with the SFO in my original reply. Its course of action is entirely its concern as it is an independent body.
What the Government are now doing represents the right way forward. A factual report will be compiled into what happened and that will then be made available to the stock exchange. That is exactly what we have been asked to do by the stock exchange and exactly what we are going to do.

§ Mr. David Shaw (Dover)
Does my right hon. Friend accept that Conservative Members believe that the investigation is being carried out in a totally appropriate manner? Where the stock exchange feels that there are legitimate reasons for raising questions, it is totally normal for it to ask the selling shareholder to answer them. It is totally reasonable for the Treasury to reply to those questions in a proper manner. It would be inappropriate for a judge to reply to those questions since that person would not have access to the Treasury papers 421 and all the detailed information required for the reply. The matter can properly be dealt with in the way in which my right hon. Friend has identified, which satisfies Conservative Members.

§ Sir George Young
I agree with my hon. Friend. No new information has come into the public domain which in any way disputes the version of events that the Treasury gave at the time. We co-operated in full with the stock exchange in its initial report into the matter. We propose that the Treasury will do exactly what it has been asked to do by the stock exchange.
The report will be prepared by a senior official of the Treasury, who was in no way involved in the sale. A response will be made to the stock exchange which will then be put in the public domain for any further action that is then called for. I believe that that is a responsible and proper way to respond to yesterday's letter from the stock exchange.

§ Mr. Malcolm Bruce (Gordon)
Does the Minister accept that satisfying his hon. Friends will not satisfy the public or the stock exchange? Does he accept that people cannot take seriously the idea of Treasury officials investigating Treasury Ministers? That is too cosy by half.
The Government have lectured the country and the House about the values of privatisation in the marketplace, notwithstanding tax write-offs, discounts and discounted shares. They, too, should be bound by the rules of the marketplace that they suggest other people should follow. The right course of action is not a cumbersome, independent inquiry, which could turn into a witch hunt of the Government, but an inquiry carried out by the stock exchange. It is the appropriate body to do that because it is independent and it has the power to do so. It would want to do that if the rules of Crown immunity did not debar it from doing so. Will he not allow the stock exchange to do its job?

§ Sir George Young
Perhaps it would be best if I read the last sentence of the letter from Michael Lawrence of the stock exchange. It says: In the circumstances, the Exchange believes that the best way forward is for the Treasury itself to determine how to examine further the handling of this privatisation, including the dissemination of information between various parts of the public sector and between the public sector and the market. That is exactly what we are doing.

§ Mr. Harry Greenway (Ealing, North)
Is my right hon. Friend surprised to hear the integrity of distinguished public officials at the Treasury questioned in the way that they have been? Does he agree that those challenges are wrong, unfair and misguided and that they should be withdrawn?

§ Sir George Young
I very much hope that no suggestion is being made that will in any way compromise the integrity of the senior civil servant who will carry out this exercise. That would be a very serious matter and I hope that no suggestions along those lines will be made this morning.

§ Ms Diane Abbott (Hackney, North and Stoke Newington)
Does the Minister accept that his reply will be widely seen outside the House as disingenuous? He said that the Government are doing only what the stock exchange has asked them to do. He quotes from the letter in which the chief executive says that "in the 422 circumstances" he is asking the Treasury to conduct an investigation. Is not it the case that "the circumstances" are the fact that the stock exchange believes that the Treasury has Crown immunity from the relevant sections of the Financial Services Act'? The stock exchange is only asking the Treasury to conduct that inquiry faute de mieux. It is not a question of criticising the integrity of individuals, but that the Treasury investigating the Treasury cannot carry any credibility with the public.

§ Sir George Young
Two issues arise from that. First, our response to the stock exchange report will be sent to the stock exchange and published. Of course it will then be open to the stock exchange or anybody else to comment on the report or, indeed, to take any further action. Secondly, the stock exchange does not normally carry out investigatory actions. Indeed, the letter from the chief executive says: The Exchange is concerned with the maintenance of an orderly and fair market, but, in most instances, is not a formal investigatory or prosecutory body. That is not its role. It does not normally carry out investigations and that is why it will not in this case.

§ Mr. Cyril D. Townsend (Bexleyheath)
Does my right hon. Friend agree that the constant call to bring in a judge at every twist and turn of public events has become farcical? Such a distinguished figure takes minutes, wastes money and frequently does not produce the result for which the Opposition hope. Will my right hon. Friend confirm that the privatisation programme, which the Government have in place, will in no way be delayed?

§ Sir George Young
We will certainly be proceeding with our privatisation programme as planned. I agree with my hon. Friend. Nothing has been said this morning or yesterday which would in any way justify bringing in a judge, for which some people have been asking this morning.

§ Mr. Tony Banks (Newham, North-West)
Does the Minister believe that those shareholders who lost money over the purchase of shares in National Power and PowerGen will be satisfied with the explanation that he has given this morning?

§ Sir George Young
If the hon. Gentleman looks at the Financial Times today, he will see that the shares are now standing at a premium over what investors paid at the beginning of March. So the question of a loss by those investors does not arise.

§ Mr. George Mudie (Leeds, East)
Hon. Members must have some sympathy for the Minister having to come to the House instead of the Chancellor of the Exchequer. The Chancellor is on record as accepting that price-sensitive information was available to the Treasury before the sale began. In view of that, how can the Minister defend the Treasury examining itself and its own behaviour? How can the Minister expect the thousands of small shareholders who lost money on this sale—and the large institutions which lost millions—to accept such self-regulation by the Treasury?

§ Sir George Young
Professor Littlechild did not decide to undertake his review until the afternoon of Monday 6 March, after trading had begun in National Power and PowerGen shares. We took financial and legal advice on 3 March about the possibility that Professor Littlechild 423 might make an announcement on initiating a consultation about reopening the distribution price caps on the regional electricity companies—not the Genco companies. The advice that we received was that no change was required to the prospectus. The prospectus refers to a confirmation by the regulator of his position on the regulatory regime applicable to the generators. On 3 March, before the flotation, the regulator's office confirmed that that remained accurate.

§ Mr. Alan Williams (Swansea, West)
Does the Minister accept that the Government are being foolish in asking the Treasury to inquire into the Treasury? When the Treasury report is eventually prepared, what access will there be to the background documents on which that report is based?

§ Sir George Young
I explained that the response would be published when it is made available to the stock exchange. The background papers would not normally be published at the same time. Of course it would be open to the various bodies in the House, including—I assume—the body of which the right hon. Gentleman is a distinguished servant, to take the matter further if it so decided.

§ Mr. Geoffrey Clifton-Brown (Cirencester and Tewkesbury)
Is not the real key that in all the privatisations of former nationalised utilities, the regulatory risk has been well known? Indeed, it was clearly spelt out in the memorandum attached to the particular flotation about which we are talking. Does my right hon. Friend agree that the Government did not ask the regulator to undertake an investigation, but that the regulator did it off his own bat under the powers given to him under the previous privatisations?

§ Sir George Young
My hon. Friend makes a valid point. We have an independent regulator, independent of the Government. The stock exchange and investors are now getting accustomed to buying and selling shares in a regulatory regime, where regulators are independent of the Government and rightly independent of the companies concerned. Those adjustments are being made and will go on being made.