§ 4.8 p.m.
§ Debate resumed.
§ LORD SHACKLETON
My Lords, we return to our fascinating discussion where the noble Lord, Lord Shawcross, left it, on the subject of the television levy. Let me say straight away to the noble Lord, Lord Shawcross, that he is in no way in breach of the Addison Rules and in any case it would have been for him to interpret them; it is not for me to interpret them, but I would have advised him if he wished it. It is entirely a matter for individual Lords to decide whether it is proper for them to speak in your Lordships' House. The noble Lord thinks that as chairman of a contracting company it is proper to do so, and I have no comment on this, beyond perhaps saying that when he has been 107 there a little bit longer he will have learned that the television levy has not been fluctuating up and down; it has in fact been altered only once since it was introduced.
I will turn to the rather serious points made by the noble Lord, Lord Denham, about the future, and I may he able to say something of some comfort to him. I do not really believe that we ought to spend much time discussing whether this should be a levy on the net advertising receipts—I should stress that it is net and not gross—as opposed to some special levy on profits. This point was very fully discussed before, and although I take Lord Denham's point, which is a subtle one, that the levy is all right provided that the figure is low enough, but it becomes all wrong when it approaches the margin, with respect to the noble Lord I think this is a piece of sophistry, because the intention is that it should not approach too closely to the margin, that there will be an adequate level of profit.
I must remind the House of what Mr. Bevins, who introduced the new system, said. He said that the rental should consist of two elements: first, an amount to cover the costs of the Authority; and, second, an amount to cover the commercial value of the concessions. And he said that he had made it perfectly clear at the outset that the proposed levy was not a tax. To talk about discriminatory taxation—it has not been mentioned to-day, but it was on another occasion—was really an absurd form of talk. Of course the community has no more right than anybody else to charge unfair rentals; but I shall try to explain why the new rates of levy are in our opinion fair and reasonable.
I cannot help remarking that there has not been half the fuss over the new rate of levy that there was in 1963, when the idea of the levy was originally proposed and long before the noble Lord, Lord Shawcross, diversified himself into this area of activity. There was enormously more fuss about it at the lime; and this is really nothing to be surprised at, because when the levy was first proposed the television duty which it was to replace took 11 per cent. of gross advertising receipts, while the new levy was to take, overall, nearly 25 per cent. of those receipts. No wonder there was a much 108 bigger storm than over this relatively small increase of to-day!
A recurring theme in discussion in another place, but not so noticeable to-day, has been that the new levy will bear particularly hard on the smallest companies. As I explained in my opening speech, although the Authority dissented from Her Majesty's Government's conclusion that there was scope for this extra £3 million a year, there was general agreement that this was the fairest way to do it in the circumstances.
I should like now to turn to this question of profits, and what is—I will not say the right profit, but the appropriate profit in the circumstances. I think we must recognise that companies whose contracts have been continued have received very large profits indeed; and it does not seem to be much in dispute that they have made what can almost be called excessive profits. But much of this profit has been distributed—in some cases because in close companies they had to be; in others because the companies chose to do so, as they have every right to do. Some companies decided, as they were fully entitled to do, to employ their profits to help diversify their businesses. Others built up reserves which will help to pay for the heavy programme of capital expenditure now facing the system, a programme the coming of which was readily foreseen, or could have been readily foreseen several years ago.
I must say that I am a little surprised at the concept, whether with a new company or an existing company, that in all circumstances if it is to finance new capital development its profit in any particular year must be above a particular level. The companies which were originally set up, before they really "came into the money", did not immediately make profits, and it is not unknown for private enterprise in fact to take risks and to face years where their profits are not as high as others. So I do not think it is reasonable to assume that the cost of the new capital investment which may face them, as well as the extra running costs brought about by the introduction of colour, is something that should be related directly to what their profits are in any one particular year; and I do not really believe that noble Lords who own businesses would dispute this particular proposition.
109 Profits on the new companies are now running at about 20 per cent. The levy, of course, is charged, as I admit, on all the advertising revenue which actually reaches the company, the so-called net advertising receipt which of course cuts out the cost of agency fees and so on. Looking back at the published figures of a group of two or three of the main provincial companies (and these are figures which I understand have been published; they have of course come from public companies) one finds a rate of return before tax of anything from 40 per cent., back in 1966, up to 80 per cent. But I must admit that, even so, I am slightly doubtful about the value of these particular figures. Again nobody will know better than the noble Lord, Lord Shawcross, that there is no such thing as right rate of return or profit. It depends on the type of business and on all sorts of things. One would have to examine them in great detail to come to precise figures.
But the common theme has been high profits. This is over and done with now and the community cannot, and ought not to seek to recover the money. It is true that, if there is the smallest element of truth in the Press reports which went the rounds at the time, some people were able to make a fairly spectacular killing on the market when the new contracts were awarded. I do not know whether this is true; but I am bound to admit that the levy is not the ideal remedy—indeed it is no remedy—for that. I have noted the concern expressed by noble Lords about the future of Independent Television, and Lord Shawcross's own idealist tic approach to what he hopes to do and what led him into this business, and I acquit him of any intention, so to speak, of trying to get his spoon into the gravy. I think he is fascinated, as anybody would be, by the interest of this type of activity. I am saying this in a kindly way to the noble Lord, because I can see that this is of great interest.
§ LORD SHAWCROSS
My Lords, I have no objection at all to "putting my spoon into the gravy". Unfortunately, there is no "gravy" and I have no spoon.
§ LORD SHACKLETON
My Lords, the noble Lord was rather at pains at the beginning to indicate that he had no interest in the equity of the business. I 110 do my best to be nice to the noble Lord, but he slaps back at me, and therefore I am bound to say that for a man of his business experience I think he takes an extraordinarily narrow view of how companies operate. I really am astonished that somebody who has spent as long as he has in association with one of the largest companies in this country should think in these very narrow terms. His own company, Thames Television, is, I think, one of the newer ones; but we shall just have to watch the progress of these companies over the next period.
I honestly believe that we need not get so "steamed up" as the noble Lord, Lord Denham, is about the future. I want to focus on one point. The noble Lord alluded to the Postmaster General's reference to the possibility that in certain circumstances, if the profits were very much higher than expected, the levy might go up. Since the noble Lord has been busily assuring us that there is no possibility of the companies making profits of this level, I do not think he need worry about it. But I would agree with him that it would be a dangerous tendency if this became something that was constantly adjusted in this sort of way.
I find it impossible to state categorically what the right sort of rate of return should be. I think we shall agree that is has been excessive in the past, but if it drops as low as some noble Lords fear, it may drop too low for the satisfactory conduct of the business. But at this stage it is too early to come to any conclusion on this. This is a period of national financial stringency, and in a time of financial stringency, I think, a certain squeeze on profits is not necessarily a bad thing.
Again, noble Lords who have been in business will admit that at times when their profits have been squeezed they have worked with rather greater vigour to save costs and run the business more efficiently and maximise profits. The level of profits has been so high that there cannot have been a great deal of incentive in the past. Still, the fact is that managers and others go ahead in doing their best, to a great extent regardless of profit levels. This is going to be a challenge. In much of its output, and notably in the export market, the industry's performance has been first-class. Export earnings, I should mention, are not subject to levy and were deliberately left out of the reckoning in 111 the assessment of profits which led to our decision; and the new circumstances will, I hope, encourage the industry to try to improve still further on past performances, however good they may have been.
I have already paid a tribute to the achievements of Independent Television. I am bound to say that I think it is too early for the noble Lord, Lord Denham, to be seriously worried about the position of the companies, but I repeat again the undertaking that the Postmaster General has given that he will keep a careful watch on the situation.
§ LORD DENHAM
My Lords, before the noble Lord sits down, may I say that I think the Postmaster General's words need a little more clarification. The noble Lord, Lord Shackleton, has given us a certain explanation of it, but my worry is that he has suggested that he is going to regulate the profits by this levy which is based on the revenue. It is not a question of taxing profits. If you have a high tax on profits, the more profits you make the more tax you pay, admittedly, but also the more net income you are left with. But if, by the levy on the revenue, the net profit is going to be controlled, it is a little difficult for anyone to make any plans for the future and to put the risks on the one hand, against the advantages he may get, on the other.
§ LORD SHACKLETON
My Lords, I think the noble Lord is taking a little advantage of the House. He is supposed to speak only once, and I think that was more than just a question. The noble Lord has asked me whether I can be more precise about what the Postmaster General meant. What I think I did was put a certain gloss on what the Postmaster General said. The noble Lord has made his point. I think he is carrying his conclusions much too far and is reading too much into the Postmaster General's statement if he thinks it implies that the rental is something that is automatically regulated according to the movement of profits. Obviously one takes into account, as the previous Government did, certain profit levels, and one takes certain broad steps to bring them into whatever appropriate level the Government of the day think is right. It may well be that the returns will, in the course of the next year or two, be very much 112 higher than the Government have foreseen, but there is nothing they can do about it.
§ On Question, Motion agreed to.