HC Deb 15 May 1996 vol 277 cc901-8

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Bates.]

9.35 am
Mr. John Marshall (Hendon, South)

When Baroness Thatcher formed her first Administration in 1979, she was committed to a policy of privatisation because she believed that it would increase industrial efficiency, that it would lead to higher investment once the industries were removed from the dead hand of the Treasury, that the industries would provide a better service for the consumer and that that was in the national interest.

It is significant that in 1978–79, the external financing requirement of the nationalised industries was £2 billion. It is ironic that today they pay into the Treasury as much in corporation tax as they took out of it that year for their financial needs. The true extent of the Thatcherite revolution can be seen from the fact that when the Leader of the Opposition went to the United States he assured the Americans that it was safe in his hands.

Privatisation has led to a massive increase in investment. For example, British Telecom has invested more than £20 billion and it has given £7.6 billion back to the taxpayer in corporation tax. The water industry has invested £15 billion—with Thames Water investing £2.5 billion and South West Water investing more than £1 billion. PowerGen has invested more than £2 billion.

Investment has been accompanied by a massive increase in efficiency. For example, in British Telecom the number of full-time employees fell from 241,000 in 1984 to 137,500 in 1995. At the same time, the number of exchange line connections increased from 19,828 to 27,077 and the number of connections per employee increased from 82 to 197—an increase of 140 per cent. over 11 years.

British Gas, PowerGen, National Power, British Airways, the British Steel Corporation and the regional electricity companies have also experienced increases in efficiency. For example, British Steel saw a reduction in the number of its employees from 67,000 in 1986 to 40,000 in 1995. Turnover per employee more than doubled over that time and productivity increased by 50 per cent. PowerGen did even better in terms of productivity—it doubled over five years.

London Electricity's sales per employee increased by one third over four years. Over four years, it reduced the number of its employees by 26 per cent. and it increased capital expenditure by 22 per cent. British Airways—the world's favourite airline—is no longer subsidised and it saw a growth in productivity of 60 per cent. between 1987 and 1995. In British Gas sales per employee increased by 120 per cent. between 1985 and 1994.

There are those who would say that the reduction in the number of employees created unemployment, but that is not true. One has to look at employment in the economy as a whole. One does not increase employment in the energy-intensive industries by forcing them to pay more for their gas and electricity. The price of gas and electricity has dropped in real terms, which has led to increased employment in energy-intensive industries because they are now much more competitive. We have to recognise that it is unfair to force pensioners and the low paid to pay more for gas, as happened when the industry was nationalised as compared with when it is in the private sector.

Productivity increases have been accompanied by a dramatic rise in the quality of customer service. When I lived in Ealing in the early 1980s, I remember getting off the train and trying to use a pay telephone at the station. One could guarantee that many telephones would not work. I shall cite some figures that demonstrate the huge improvement in the pay telephone service in this country. In 1987, there were 80,000 pay telephones, of which 77 per cent. usually worked—that is, 61,600 telephones. Today there are 128,000 pay telephones, of which 96 per cent.—or 122,880 telephones—usually work.

Dame Elaine Kellett-Bowman (Lancaster)


Mr. Marshall

No, I shall not give way as the debate is time limited. We have lost three minutes due to prayers—which is a worthy cause—so I shall not give way to anyone.

The number of working pay telephones has increased by 99.5 per cent. since 1987. What is true of pay telephones is equally true of other BT services. In 1984, only 74 per cent. of residential telephones were installed within the timeframe promised to the customer. Today the figure is 96.6 per cent. In 1984, 76 per cent. of private circuits were completed by the promised date. Today the figure is 98.4 per cent. It is no wonder that in January this year the Director General of Oftel said: Comparisons with statistics on BT's performance pre-privatisation and later in the 1980s show customers today are benefiting from significantly improved services". BT has delivered to the customer not only better services but lower prices. Local calls now cost 34 per cent. less in real terms than before privatisation. The price of a local call in Britain is lower than in Germany, and our local call areas are twice as large as in Germany, four times larger than in the United States and 12 times larger than in Canada. The price of national calls has fallen by 64 per cent. and the price of international calls has fallen by 46 per cent. in real terms.

What is true of BT is equally true of British Airways. It made a loss when nationalised, but is now the world's favourite airline. British Steel, which lost markets when in the public sector, has managed to rebuild its export markets. Even motorway service stations, which were the butt of the humorist when the land was owned by the state, perform much better.

The water companies—about which we occasionally hear the odd word of criticism—have improved also. South West Water now has 99.6 per cent. compliance with the drinking water directive and another 50 beaches in its area meet European Union standards. The privatised industries have delivered better services and lower prices. Earlier this year, electricity consumers benefited from the flotation of the national grid and saw their electricity bills decrease by £50. Due to the operation of Ofgas, gas consumers will see their gas bills decrease by £50 also. That is what competition and privatisation do for the consumer. Industries such as gas, electricity and telecommunications are much more tightly regulated in the private sector than in the public sector.

Privatisation has also encouraged wider share ownership. There were about 2 million to 3 million shareholders in 1978–79. Today there are 10 million private shareholders—many of whom are employees of the former nationalised industries. I remember visiting National Freight in the mid-1980s. I asked a telephonist whether she owned shares in the company and she replied that she did. She continued, "The only trouble is that I listened to the trade unions and did not buy as many shares as I should have. I would be better off today if I had bought more". The trade unions told my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) that the privatisation of National Freight would not work, but it has been a major success.

An amusing aside is that some of the trade unions that were so critical of privatisation have been willing to invest in the privatised industries. The National Union of Rail, Maritime and Transport Workers, which is telling people not to invest in Railtrack, has invested in Eastern Electricity—where it took a nice turn—in Thames Water, British Gas and in Cable and Wireless. The GMB is the prize example of a trade union that has invested in privatised stock. It invested £170,000 in British Aerospace, a mere £62,000 in British Airways, £201,000 in British Steel, £230,000 in Enterprise Oil and £131,000 in Cable and Wireless. It has sold its investments of £22,000 in the British Airports Authority, £30,000 in BT and £134,000 in Rolls-Royce. That union has invested a total of £530,000 in privatised stock. I sometimes suspect that, when the Trades Union Congress meets, its members discuss their investments in the privatised utilities and decide which one to go for next.

A document entitled "From Finchley to the World" was published some years ago upon Baroness Thatcher's completion of 10 years in office. It referred to her role on the world stage, but it could have referred also to the fact that privatisation—which is such a success in the United Kingdom—has been copied across the globe. Every Government in the free world—from Russia in the east, to Australia in the south and to Canada in the west—is committed to privatisation policies. Some of the most enthusiastic apostles of privatisation come from the former communist countries: they discovered that the dismal performance of centrally planned economies can be righted only through the introduction of the private sector.

As I said at the beginning of my speech, the Leader of the Opposition said in Washington that he would defend the Thatcherite revolution. I suspect that he said that not out of conviction, but as an act of political cynicism and convenience: he recognises that privatisation is popular with consumers and with the general public.

Privatisation involves much more than simply selling state assets: it involves using free enterprise to provide services for the public and it involves compulsory competitive tendering, which has saved council taxpayers £400 million. Those hon. Members who would abolish compulsory competitive tendering must tell the council taxpayers of this country how they would account for the £400 million saving which has led to better service provision by local authorities and to lower council tax bills.

In talking about privatisation, one must mention also the private finance initiative. It is not simply a funding initiative—if it were, it would be bad value for the taxpayer because the Treasury can always borrow more cheaply than a public company. The private finance initiative involves using private sector management skills to accomplish tasks that would not be achieved as efficiently in the state sector. That is demonstrated by the application of the PFI in prisons and the health service and particularly with the new Northern line trains. That is one of the earliest and most successful PFI projects which will allow many of my constituents to travel in better trains next year. Let us hope that those trains are delivered and are up and running before the general election.

Privatisation has led to a much better performance by the British economy. The concept is copied across the world and it has benefited consumers, industrialists and the economy at large. I look forward to hearing the Minister commend it to the House.

9.48 am
The Financial Secretary to the Treasury (Mr. Michael Jack)

I congratulate my hon. Friend the Member for Hendon, South (Mr. Marshall) on securing the debate, and on the robust and enthusiastic way in which he has endorsed a revolution in the way in which business is done in this country. I am grateful to him for giving us the opportunity to take stock of our privatisation programme's successes, which he so eloquently put before the House. I hope that the Opposition will take the opportunity of taking stock of what he has said by reading his perceptive comments. It is sad that they are not here in large numbers to hear what we have to say.

The Labour party now talks about being in favour of private enterprise, but, as my hon. Friend mentioned, in practice, it has consistently opposed each privatisation. It talks about promoting stakeholding, but, again, it has opposed privatisation, which has offered the opportunity for real stakeholding by millions of consumers and shareholders in this country's key industries.

It is worth reminding ourselves of the fundamental nature of the changes that my hon. Friend has attested to. In 1979, nationalised industries cost the taxpayer some £50 million a week. Now privatised industries contribute some £55 million a week to the Exchequer. We have increased the size of the private sector by an amount equivalent to 9 per cent. of gross domestic product.

In 1979, nationalised industries accounted for more than 11 per cent. of GDP; now it is around 2 per cent. Forty-eight major businesses and dozens of others have been privatised, with Railtrack to follow next week. A total of 950,000 jobs have been transferred into the private sector. Proceeds have totalled £64 billion, helping to reduce Government debt, to restore public finances and to free up resources for private investment. My hon. Friend rightly drew our attention to the fact that we have increased the number of shareholders from 3 million to 10 million, more than tripling the number of people with a real stake in this country's major businesses.

We have provided the framework for competition and real choice, putting the consumer in the driving seat as the privatised industries have to focus on meeting the consumer's aspirations as well as those of their shareholders. That consumer aspect makes such a fundamental difference between the old nationalised approach and the privatised approach.

Before privatisation, nationalised industries operated in a regime that was against the interests of the public, in whose name they were ostensibly run. Their prices were set at the whim of Whitehall as their management were shielded from the commercial realities of competition and the profit motive. They had no incentive to improve service to their customers, and their investment needs often went unfulfilled as commercially sensible investment was routinely squeezed out in the face of more pressing public spending needs.

The resulting inefficiencies were paid for by the customer through higher prices and poor service, by the taxpayer through subsidy, and by the economy generally through underinvestment. As my hon. Friend rightly said, privatisation has dealt with those issues. In contrast, the transfer to the private sector, where there is the discipline of the market or, where necessary, of independent regulation, has transformed the performance of our once nationalised companies.

A key factor in achieving that has been to introduce competition, wherever possible. That offers the best long-term benefits to consumers. As my hon. Friend rightly pointed out, we see the effects of that in telecommunications, where prices are down and where choice and quality are up. Telecommunication prices have fallen by 40 per cent. in real terms and, as someone whose teenage son has discovered his first girlfriend, I can now, because of the large reduction in bills, allow him to use the telephone without fear. Telephone calls cost less than in France, Germany or Italy.

Most customers have greater choice of telecommunication supplies. All have access to Mercury for long-distance calls. There are some 4.5 million mobile telephone subscribers, twice as many as in most European countries, a true communication revolution occasioned by the advent of privatisation.

In gas and electricity, there has been substantial change. So far, larger industrial customers have benefited from competition in supply. As a result, industrial prices for gas and electricity are at their lowest level since 1970, but domestic customers are soon to benefit. From 1998, they will be able to choose supplies. Nine companies have been licensed to supply gas in the south-west. There are pilot schemes and price reductions range from 15 per cent. to 20 per cent. That will maintain the momentum of price reductions—gas bills have already fallen by 17 per cent. In general, privatisation has meant that typical household bills for gas, water and electricity have fallen by £75 per year.

Freed from the constraints of competing for public funds for investment, privatised companies have been able to spend sums on improving their business on a scale that would not have been possible in the public sector. I make no apology for repeating the points that my hon. Friend mentioned. British Telecom has invested £25 billion and water investment has doubled in five years. A £15 billion programme means that Britain's water is, again as my hon. Friend reminded the House, among the cleanest in Europe and there is £24 billion more to come in the next 10 years.

It is not, however, just the former utilities that have benefited. As my hon. Friend reminded the House, no one who has experienced the service provided by British Airways, or who has witnessed the business performance of companies such as Rolls-Royce, British Steel or British Aerospace should doubt that they have benefited enormously from taking their rightful place in the private sector.

Despite that, our critics say that the privatisation programme is on its last legs. Nothing could be further from the truth. The privatisation of Britain's railway industry—one of the most complex and far reaching of any of our privatisations—is coming to its climax. The three passenger rolling stock companies have been sold through a competition raising £1.8 billion. Seven franchises have been awarded bids. Bids have been invited for a further five and the pre-qualification process is under way for another eight.

The Railtrack flotation is nearing completion, with shares due to start trading on 20 May. Around £1.9 million registrations were received from the public, clearly showing the all-round interest in Railtrack. I look forward to my right hon. Friend the Secretary of State for Transport announcing on Monday next the outcome of the offer.

I also look forward to that privatisation bringing about a fundamental change for the better in the culture and performance of the railway industry. So much of the carping comment from Labour Members is about service cuts. The reverse is true. The industry is keen to attract new passengers. For example, many franchisees are committed to enhancing services with new rolling stock. On the London, Tilbury and Southend line between Fenchurch street and Southend, the franchisee is to procure new rolling stock for two thirds of the existing fleet.

On the midland main line, the franchisee will procure new air-conditioned trains to run additional stopping services between St. Pancras, Derby and Nottingham. Additionally, services are to be enhanced with a proposed service pattern in 1999 offering a dramatic increase in service levels—for example, 10 more services each week day to and from Derby, 10 each week day for Nottingham and 22 for Leicester. Likewise, the London-Gatwick service will dramatically improve. Although looking to the future, I should like to remind the House that, later this summer, there will be the sale of British Energy, including the most modern of our nuclear generating stations.

Our privatisation programme has not been confined to former nationalised industries. We have been vigorously pursuing a programme to increase the private sector's role in the provision of services hitherto undertaken by the civil service. This year, the Laboratory of the Government Chemist, the Natural Resources Institute and English Heritage's historic property restoration have been transferred to the private sector. Among the civil service candidates for privatisation this year are Her Majesty's Stationery Office and the Chessington Computer Centre. Further candidates are actively being sought. We remain committed to transferring to the private sector activities that will benefit from that.

It is clear, therefore, that our enthusiasm for the privatisation programme remains undimmed, but privatisation is only one part of our drive to bring private sector skills into public service provision. Contracting out is another, but, most exciting, as my hon. Friend mentioned, is the private finance initiative. That is directed at enhancing the benefits that the private sector can bring to the management of economy sectors that were once the public sector's exclusive preserve. In particular, we are interested in developing partnerships between the public and private sectors, with the former as purchasers of service and the private sector as provider, with quality and cost-effective public services as a result.

My hon. Friend was right to attest to the Northern line. That £400 million contract requires the delivery of a level of reliability four times that of the best fleet currently operating on the underground. As somebody who used to travel on the route, I can well appreciate my hon. Friend's enthusiasm for that development.

My hon. Friend the Member for Hendon, South also drew the House's attention to one of Britain's best invisible exports. It is not so much invisible in the way in which its profile is exercised. The sale of our expertise in privatisation has made us the envy of the world.

All the change that my hon. Friend the Member for Hendon, South described in accurate detail has clearly brought about a change in the Labour party's attitude, which, in accepting the importance of the private sector, has surely conceded the argument that privatisation is right. Nothing showed that more clearly than its attitude to British Telecom. In 1984, at the time of flotation, the Labour party said that it would return to public ownership the public assets and rights—

Madam Deputy Speaker (Dame Janet Fookes)


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