British Telecommunications Bill

HL Deb 27 April 1981 vol 419 cc1032-89

2.53 p.m.

The Earl of Gowrie

My Lords, I beg to move that this Bill be now read a second time. I am bringing before your Lordships today a Bill which concerns the whole future of the communications industry in this country. In a sense, we are debating the development of something like the motor-car industry in 1911. This is an industry whose efficient and rapid development and growth is seen by virtually everyone as essential for our manufacturing industry, for the business community and for employment, as well as for the services used by the general public. The Bill contains proposals designed to stimulate just such efficient and rapid development. It allows a more flexible approach to postal and telecommunications services by both the public and private sectors leading, it is hoped, to the provision of greatly improved services for everyone and increased opportunities for those involved with the industries.

Telecommunications are developing at an enormous rate and demand for these services already outstrips supply; and that is talking at the height of a major recession. We hear, it seems almost daily, of new methods of information retrieval, electronic communication and other computing developments in which telecommunications play a vital role. These are developments which could only have been dreamed of a few years ago, but which are likely to be at the forefront of our entire industrial and commercial progress from now on; because, of course, these technologies are highly pervasive and affect the development of industries other than their own.

It would be difficult for anyone present in this House today to dispute that there has been widespread, and often justified, public dissatisfaction with the service currently provided by British Telecommunications in respect of these forms of communication. We hear daily of delays in the installation and maintenance of equipment all over the country. I am not sure if it is altogether relevant whether this is caused by poor management, by restrictive labour practices or by lack of investment; and I shall return to questions of investment in a moment. The fact is that, despite the sterling efforts being made by British Telecommunications to improve matters, the service to the consumer and the community is not as good as it should be; and, moreover, it is provided in a way which effectively prevents others—prevents the private sector—from making enterprising improvements and innovations.

Thus the Government believe that the introduction of competition into this industry will act as a needed stimulus for improvement in services generally, and especially for the introduction of a more diverse range of equipment which can become available to the customer. We cannot afford to maintain the same rigid monopoly structure that has existed in this field for so many years now. This is certainly not a new idea; the report of the Carter Committee suggested that the boundary of the telecommunications monopoly should be redrawn. That is primarily what the Bill is doing.

When we look to foreign experience in this field, particularly to the United States where, over the last 15 years, steps have been taken to reduce the hold of local and national monopolies, we find that the fact that entrepreneurs are able to enter the market and provide new services and new equipment has turned out to be of enormous benefit to the industry as a whole, to employment and to the needs of the consumer. So we in this country want private enterprise to participate to a much greater extent than hitherto in this exciting industry, both by offering new services to people and by creating new jobs for people.

While British Telecommunications will continue to provide the basic network, we want to break down the barriers between the public and private sectors, allowing greater co-operation for the benefit both of those working in the industry in the form of an increase in the number of jobs, and for the consumer in the form of improved and diverse services. The Bill should make this possible. In addition, the Bill provides opportunities for a rather more flexible approach towards the postal services, while, of course, maintaining the basic monopoly of the Post Office over our national letter services.

Essentially, the Bill has to it four main parts, or four main parcels, so to speak. There is, first, the split of the Post Office and the establishment of British Telecommunications as a separate corporation; secondly, there is the provision to liberalise the telecommunications monopoly; thirdly, similar provisions which relate to the postal monopoly and, fourthly, the extension of the 1969 Post Office Act to enable the Treasury to dispose of their shares in Cable and Wireless Limited. If I may, I shall deal with these briefly in turn.

The decision to split the Post Office was announced by my right honourable friend the Secretary of State for Industry last summer. This gave effect to the recommendation of the Carter Committee, under the last Government in 1977, which argued that the two businesses are completely different; one is, clearly, highly capital intensive while the other is, of course, highly labour intensive. This view is shared by the Post Office Board and by many—though, I must say, not by all—of the unions. I believe that both sides of this House will accept that the split is a sensible and practical move, and that it is an advantage for each business to have its own board able to concentrate exclusively on its own affairs. In fact, most of the practical arrangements for the separation have now been carried out and, indeed, some have been in effect for many years now. If this Bill is passed, the separation will be formalised and complete.

Much of Part I of the Bill therefore is taken up with the statutory provisions necessary for the establishment of the new public corporation and the transfer to it of the statutory rights and liabilities of the Post Office in respect of telecommunications. In this respect it is simply repeating existing Post Office legislation, but in respect of British Telecommunications it also includes new provisions which enable my right honourable friend to liberalise the telecommunications monopoly and to ensure that the corporation competes on a fair basis under the new régime by setting up separately accounting subsidiaries. These provisions, which are contained in Clauses 15 to 19 of the Bill, together with my right honourable friend's powers in respect of the corporation in Clause 6, are of course a key part of the Bill.

I must hasten to say that the Bill does not attempt to lay down a detailed régime for relaxation of the telecommunications monopoly because of the need for us to retain flexibility in order to take account of very rapidly changing technologies. Telecommunications technology is developing at such a bewildering speed for many of us that any detailed competitive régime that we, either here or in another place, enshrined in statute would, I believe, run the risk of being left high and dry, giving rise to the need for renewed primary legislation at possibly quite frequent intervals. I do not think that that would be satisfactory from a legislative point of view.

The Bill therefore provides general enabling powers which will allow the Government to introduce competition in ways that take full account of the current state of technology and which can be modified flexibly as needs arise. Of course, this places a very considerable onus upon the Government to make progress and to steer the intended development of competition in the provision of equipment and services. However, it does not therefore follow that these changes, once they are achieved, will not be permanent. For one thing, the proposed licensing power will enable licences derogating from the monopoly to be irrevocable, and I am advised that "irrevocable" in parliamentary terms means that primary legislation would be required to withdraw them. Secondly, and, to my mind at least, this is certainly the more important point, I am convinced that the benefits of competition will be sufficiently clear to all, and the growth of activity and the improvement in the range and availability of services so readily apparent to all, that once this process has begun it would in practice be quite impracticable for any Government to reverse it, even if they wished—foolishly in my view—to do so.

The target timescale for the liberalisation of individual types of equipment is currently under discussion with the interested parties, but for the four main types of equipment which are at present exclusively supplied by British Telecommunications the Government have in mind broadly the following programme. First, modems—the device necessary to connect computers to the network—will be liberalised as soon as possible after the coming into effect of the Bill, should it receive Royal Assent later this year. Secondly, the approval of the first types of telephone instruments for competitive supply will follow soon afterwards, with liberalisation being progressively extended to other types as the necessary technical standards become available. Thirdly, teleprinters will be liberalised in something over a year's time. Finally, we envisage that private automatic branch exchanges—known in the trade jargon as PABXs—which give rise to somewhat greater complexities, should be liberalised towards the end of the transitional period which I mentioned.

In the meantime we are exploring whether, in the interests of users, some degree of choice of supplier can be introduced for already approved equipment in advance of this general liberalisation policy which I have outlined. Recently there was an interesting debate in your Lordships' House on standards, and I can say that all equipment to be attached to the network will have to receive technical approval from an independent body appointed by the Secretary of State—this will be the British Electro-technical Approvals Board—and will therefore have to comply with the standards set by the British Standards Institution and approved by the Secretary of State. All such equipment will also have to be marked to show that it has been approved for attachment to the network. Clauses 17 to 19 of the Bill make provision for these requirements to become statutory. These measures are extremely important and will ensure the continuing safety and integrity of the network.

Secondly, we intend to liberalise the use of the network for third party services. This will certainly extend to the provision of services not already provided by the corporation. Going beyond that, your Lordships may know that the Government have recently published a study which my right honourable friend commissioned from Professor Beesley of the London Business School to look into the economic implications of full liberalisation of the use of the network for this purpose. I shall see that copies of the study are placed in the Library. My right honourable friend has invited comments on the report before the Government reach any final conclusions on the report's recommendations.

The third area of possible liberalisation is in the provision of transmission services in competition with British Telecommunications. My right honourable friend announced last July that he was exploring the scope for this, particularly in relation to the very exciting possibility of satellite business systems. A number of organisations have since been exploring the market possibilities. No decision has yet been made, but my right honourable friend intends to make a statement on this subject shortly.

Licensing procedures to implement this liberalisation policy will not require an extensive bureaucratic organisation, since it will be apparent that for the most part licences will be of a pretty general nature, covering whole categories of equipment, and will not relate to specific individuals. The Secretary of State may not exercise his licensing power without first consulting British Telecommunications, so there is no question of the arbitrary issuing of licences which might seriously damage the corporation's interests. Indeed, the corporation will be given every opportunity to put forward its views. Moreover, under Clause 15(1)(b), the corporation itself will have the power to issue licences and we envisage that it will continue to play an important role in this area. So we believe that the powers are drawn in such a way as to allow maximum flexibility to enable this industry to take account of changing technologies.

Some concern has been voiced about the danger that this liberalised régime will lead to a takeover of the United Kingdom telecommunications network and equipment market by foreign imports. I do not believe this need be so. Indeed I am confident that the stimulus of competition will help British industry to keep in the international forefront of the new technologies. But the Government do of course recognise that our telecommunications manufacturing industry must be given time to adjust to the new competitive conditions. For this reason we intend to phase the liberalisation programme for attachments to the network over a period of about three years. In addition, we shall be very vigilant in ensuring that our manufacturers obtain reciprocal trading opportunities with countries which will be exporting their products to us. Those who wish to maintain the open system in world trade must also be vigilant in guarding the principle of reciprocal treatment.

It is true that our international obligations under the Community treaty and under GATT do not permit us to discriminate against the purchase of equipment by private customers on the basis of its country of origin, even where the supplies from that country in one way or another enjoy a protected home market. We are, however, engaged in bilateral discussions with the main trading countries concerned, as well as in talks at Community level, and our object is to obtain a satisfactory assurance that our manufacturers will have similar trading opportunities in those countries as their manufacturers will have here in the United Kingdom. The Government will take account of the extent to which satisfactory assurances are received in deciding upon the timing and extent of our liberalisation policy where attachments are concerned. But it is up to British industry to react to the freedoms which we are proposing. Nevertheless, we can as a Government ensure that fair time is given within which British industry can react. So the message of this Bill to industry is quite clear: we, the Government, are breaking into hallowed monopolies in order to give you, in industry, a chance to create more wealth, more jobs and more products. It is industry itself that must now get going.

So far I have concentrated on the private sector, but BT of course will have a crucial role to play and a strong, financially healthy BT is vital for the full development of communications in this country. The new corporation will have responsibility for providing a modern, efficient network and for applying the new technologies. Far from losing out because of liberalisation, it will benefit from the increase in traffic which will be generated by the growth in new services which it will help to provide. Moreover, it will be able to compete in these areas; Clause 2 of the Bill gives it powers to supply telecommunications equipment which also provides other services, such as data processing, and it will be able to extend its activities into new technologies such as fibre-optic electronics. May r say, in parenthesis, that anyone interested in this field and its possibilities for expansion should study the excellent special supplement in the Financial Times on this industry which was printed only today.

Fibre-optics is the technology of using pulses of light rather than electrical current to transmit information. It has already been applied to telecommunications in the development of optical fibre for transmission systems. In the future it is likely to be applied to telecommunications switching—or exchanges, for short—among many other possible uses. Where the new corporation does compete, however—for example, in the provision of terminal equipment—it must do so on a fair basis. It is for that reason that Clause 6(6) gives the Secretary of State the power to require BT to set up separately accounting subsidiaries. This will ensure that there will be no hidden cross-subsidising of the corporation's competitive activities by its monopoly. Further checks will be provided by the Director General of Fair Trading who will monitor the new competitive régime and look out for evidence of any unfair trading practices, both in the public and private sector.

I have already stressed the Government's commitment to a financially healthy British Telecommunications. The Government endorse the importance of investment in posts and telecommunications. At present we have a system which contains much equipment which is now out-of-date. We need to modernise it; for instance, by introducing the new electronic switching system which allows the transmission of signals in digital form. We need to expand the system to cater for customer demand, which is still growing despite, as I said earlier, the recession and we need to use the system to introduce new services to the customer.

Perhaps I may illustrate the need here with a few figures. After its high levels of the early 1970s, investment in the telecommunications system was reduced to a low point of the still high figure of £1.4 billion in 1977–78. It has since climbed, in adverse conditions, to £1.5 billion in 1978–79, £1.6 billion in 1979–80 and an estimated £1.7 billion in 1980–81, and a further increase in investment levels is planned for 1981–82. The figures I have given are all in terms of constant 1981–82 out-turn prices. For short, they discount inflation. They illustrate the magnitude of the investment programme with which we are here concerned.

Of course pushing ahead with an investment programme on this scale at a time of economic difficulties is not an easy task. A major part of the programme can be financed from the cash flow from BT's large depreciation provisions, but in addition of course the corporation needs to make profits and it needs to borrow. The Government, for our part, have increased BT's external financing limit in the financial year which has just ended to £223 million. Though less than BT would have liked, this marks a significant increase on recent years, when net repayments by the corporation have been required.

We are also concerned to do what we can to increase the finance available for telecommunications investment in this year and subsequent years. In our view, the best route lies through the introduction of private capital outside the constraints of the PSBR. We would like to see BT forming joint ventures in partnership with the private sector, for instance, in the supply of attachments and the provision of services auxiliary to the main network. Provided that the corporation did not control such joint ventures they would be genuinely private sector concerns whose borrowing would lie outside the PSBR constraint.

The House may know that Clause 26 of the Bill has been amended in another place so that British Telecommunications would have the power, if the Government so permit, to borrow directly in the money markets for long-term capital needs. As the Government indicated at the time, this is a permissive provision which will enable the corporation to raise finance directly from the market if suitable arrangements can be made. What we are seeking to develop is a new form of financing, involving a genuine element of risk for the investor which would bring pressure for improved performance to bear on the telecommunications business. Your Lordships will be aware that simultaneously we also need to take care to avoid excessive monetary growth.

Before leaving Part 1 of the Bill, I must quickly mention the provisions concerning the pension fund in Clauses 32 to 34. These clauses are necessary to allow the present Post Office Pension Fund trust deed to be amended to take account of the creation of BT. The Post Office trade unions and the trustees of the fund have expressed concern that the pension fund might be split. They feel that the fund, which is after all the largest in the country, has been very successful and that decisions about its future should not be taken arbitrarily. They have asked that a decision be deferred for two or three years. Your Lordships will be used to my frequent strictures in this House that capital in this country is now corporate. I must emphasise, therefore, that no decision as to the future of the pension fund has yet been taken. Ministers in the Department of Industry are undertaking a series of meetings with all the interested parties, the unions, the trustees and the pensioners themselves, to discuss what the future might be. No final decision will be made until these meetings are complete.

Turning finally to Part II of the Bill, this provides for a flexible approach to the postal services similar to that in Part I for telecommunications. As I have said, the basic monopoly for our national postal service for letters will remain in the hands of the Post Office. Nevertheless, we propose that the Secretary of State shall have power to make derogations from the monopoly in certain circumstances. The changes proposed in this Bill have resulted for the most part from the review of the monopoly which was undertaken by the Department of Industry following the general dissatisfaction in the postal services which arose during the summer of 1979. During that review a very wide range of interests was consulted and the general feeling was that while the basic letter monopoly should remain, there was room for some flexibility in respect of certain types of service. This view is reflected in our proposals in this Bill, which also take account of the views expressed by the Monopolies and Mergers Commission in their report on the Inner London letter post, which your Lordships will remember was published last year.

I think the House will also have noticed that the Bill contains, for the first time, the definition of a letter in Clause 66. This defines the scope of the postal monopoly, while Clause 68 allows the Secretary of State to issue licences for services which would otherwise fall within the monopoly. Clause 69 enables him to suspend the monopoly, either nationally or in a particular area and either in respect of all letters or only certain categories. Certain changes to the exclusive privilege have already been decided upon and as soon as possible after Royal Assent the powers in Clauses 68 and 69 will be used to allow the carriage of mail in bulk between document exchanges and to allow charities to deliver Christmas cards. We have had many debates on that subject in your Lordships' House, so I hope that at least will he warmly welcomed.

Clause 58 of the Bill extends the Post Office's powers to allow it to provide electronic mail services which incorporate what is called a "hard copy" stage—a print out; this will enable it to continue to be at the forefront of the development of this type of business communication. This clause also lets the Post Office provide a wider range of services over its counters than at present. This power has an important bearing on the sub-post offices which, as many noble Lords will be acutely aware, are a crucial element in rural communities, enabling post offices to undertake a wider range of counter services and thus providing a potential for an increased volume of business, which many of them badly need.

This part of the Bill also contains provisions similar to those in Part I, enabling the Post Office to establish self-accounting subsidiaries, and empowering the Secretary of State to direct the establishment of such subsidiaries. Once again I should like to emphasise that these are not new powers; they have precedents in several other nationalisation statutes, including some put forward by Governments led by noble Lords on the other side, for instance, aircraft and shipbuilding legislation. At present we do not have plans to exercise these powers but we are looking into the possibility that some post office activities may more appropriately be undertaken by the private sector. I believe that all these measures taken together will help to encourage the Post Office to improve its efficiency and help it to provide a better service to the customer, which is, after all, the Government's prime aim.

Finally, I come to the provisions concerning Cable and Wireless Limited. The Bill includes a clause which broadens the Treasury's existing powers under the 1969 Post Office Act to dispose of shares in Cable and Wireless. The clause is therefore quite at home in this Bill. The measure proposed is part of our overall policy to dispose of public sector assets. As was announced to both Houses on 9th March, the Government have decided to make a public offer of just less than 50 per cent. of its shares, subject to obtaining the necessary powers. There has been a lively debate about this clause in another place, and I imagine it will also be of interest to noble Lords, in particular to the noble Lord, Lord Glenamara, who was, as the House will be aware, chairman of the company until last October.

Noble Lords may recall what I told the House on 9th March, that the Government's proposal for Cable and Wireless has the agreement of the company's court of directors and has been cleared with all the Governments of the 31 countries where Cable and Wireless operates under a franchise. The proposed sale of shares will create a partnership between the public and private sectors which will give the company the benefit of increased commercial flexibility and will include arrangements for employees to acquire shares.

I would repeat that this is a very important Bill for a great industry at the threshold of what will probably be the most rapid form of industrial development all over the world in what remains of this century. I believe it will lead the way to great new opportunities throughout the industry, opportunities which cannot but help benefit all those working in the industry, and indeed the economy as a whole. Above all, they will lead to a vastly improved service to the customer whether as business or as individuals. I commend the Bill to the House.

Moved, That the Bill be now read 2^a.—(The Earl of Gowrie.)

3.24 p.m.

Lord Ponsonby of Shulbrede

My Lords, as the noble Earl said in introducing the Bill, this Bill has four objectives: to separate the Post Office into British Telecom and the Post Office as a separate entity; secondly, to give the Secretary of State power to introduce the sweeping changes the Government wish to see to the telecommunications monopoly; thirdly, to introduce parallel powers to reduce the Post Office monopoly and a new power to suspend that monopoly at any time he wishes; and finally, to give the Treasury power to sell shares in Cable and Wireless.

At the Second Reading of the Bill in another place the Secretary of State said: I commend the Bill to the House without hesitation as a substantial measure likely to bring noticeable and worthwhile benefit to those who work in the public and private sectors connected with telecommunications and to the public generally as consumers and users of telecommunications".—[Official Report (Commons), 2/12/80, col. 205.] We do not see the Bill like that at all. We see it as a Bill which could have a very detrimental effect to the public generally as customers and users of telecommunications and postal systems. The outward purpose of the Bill is to split the Post Office into two sections. However, with that purpose comes the hidden purpose of the Bill; that is, to enable the Secretary of State to use his own powers, as he has put it, to privatise national assets. I would say "piratise", and in using this word I have specially in mind the Government's recent undue haste in selling the shares of British Aerospace. Those shares today, only a few months after their market flotation, are worth many millions more than the public paid for them, millions which have been lost to the nation because the Government were not prepared to wait for the right moment to market those shares.

This Bill gives the Secretary of State powers, under subsection (6) of Clause 6, to direct the corporation to dispose of its assets or any of them and to ensure that its subsidiaries or any of them dispose of their assets or any of them. The power is universal. If British Telecommunications is doing better than some other organisations the Secretary of State may stop it doing so well and take away its assets. Clause 62 gives the Secretary of State the same powers in relation to the Post Office. And of course, as has already been mentioned, Clause 79 gives the Secretary of State power to dispose of some or all of his interests in Cable and Wireless Limited. These are very wide powers, too wide powers, for the Secretary of State to have, and I should stress that he does not have to come back to Parliament before he exercises them. The Bill gives him virtual power to sell off the whole of British Telecommunications, the Post Office and Cable and Wireless—not, I should hasten to add, that he has declared his intention of doing any of these things.

These powers enable the Secretary of State to threaten to require British Telecommunications to set up special Companies Act subsidiaries in areas in which it is in competition with the private sector. It wishes to do this in order to "make transparent" any flows of funds from British Telecommunications' monopoly services to competitive services. However, none of British Telecommunications' private sector competitors will be prevented from cross-subsidisation between products or from "loss-leader" type market strategies. The threat to direct British Telecommunications to set up subsidiaries is unnecessary, as adequate mechanisms already exist under previous legislation and previous arrangements to ensure that British Telecommunications does not take unfair advantage of its position in any new markets. The Competition Act 1980 adequately covers this point.

The Bill as at present drafted will allow the Secretary of State to interfere with the corporation's pricing policies for as small a category of assets as practical considerations allow, even, for example, between one competitive product and another. This is obviously inappropriate and should be amended. This is the most worrying aspect of this Bill, as I hope I have made clear—because it leaves unfettered powers in the hands of any Secretary of State for which there is no provision for parliamentary scrutiny. I am bound to ask myself whether it is right that these powers should be in this Bill, which is essentially—as the Explanatory and Financial Memorandum points out to your Lordships—about the creation of a new public corporation, namely British Telecommunications.

The proposals in the Bill fundamentally alter the basis on which telecommunication services are to be provided in the United Kingdom. Although the Government have agreed that British Telecommunications will retain the monopoly of the provision of the first telephone in a customer's premises, so far as all other terminal apparatus is concerned the supply, installation and maintenance will be opened up to competition. This so-called liberalisation will be phased out over a 3-year period, which is intended to allow manufacturing industry to gear up for what is undoubtedly the major threat of substantial imports of equipment from abroad.

I am glad that when introducing the Bill the noble Earl, Lord Gowrie, appeared to be slightly flexible about the 3-year period because I believe there is great concern that it is much too short. Originally, as the Bill was first published, British Telecommunications was to be left with the monopoly of maintaining private automatic branch exchanges. Again, I am glad that in moving the Bill, the noble Earl, Lord Gowrie, spelt out the PABX synonym for your Lordships. This was in recognition of the fact that such exchanges form an integral part of the network and that problems in one exchange can infect the quality of service and the provision of services to other customers. But as I have said, the Minister of State, Mr. Kenneth Baker, has stated that the maintenance of PABXs is also to be opened up to competition in the future.

One even more recent threatening development to the future of telecommunications in this country than the steps announced in the debate has been the publication of the Beesley Report. Unfortunately, your Lordships did not have the benefit of hearing the Secretary of State's Statement on that report before your Lordships rose for the Easter Recess. This was because the Statement was made in another place an hour or two after this House had risen for the recess. Professor Beesley was asked by the Government last year to undertake a study of the possibility of liberalising the supply of what are called value-added network services. These services occur when someone hires a complete private circuit from British Telecommunications and uses it to sell telecommunication services to third parties. Professor Beesley recommended that the free use of the value-added network services should be allowed. He also recommended that the use of international value-added network services should be allowed, as should be the development of private transmission services.

In making these recommendations Professor Beesley was, in the words of Sir George Jefferson, the chairman of British Telecommunications, going far beyond his terms of reference and, more particularly and pointedly, beyond the scope of the evidence submitted to him. Not surprisingly, the report's arguments and assumptions are especially questionable when it comes to dealing with these areas. However, the Secretary of State has agreed to undertake consultations before coming to any decisions on the proposals in the report later this year.

I believe one must say that if the Beesley recommendations are accepted, British Telecommunications faces the prospect of very substantial revenue losses as private companies will be interested only in the provision of alternative transmission facilities or value- added network services on the most profitable routes. Professor Beesley has estimated the loss of potential revenue to British Telecommunications as a result of his proposals at around 2 per cent. However, this figure has been hotly disputed by British Telecommunications, and its chairman, Sir George Jefferson, said on the day after the publication of the Beesley Report that the implementation of its proposals could lead to an increase of 50 per cent. in the ordinary domestic customer's bill over and above anything due to inflation.

I should now like to pass on to the question of the quality of the service currently provided. One must agree with the noble Earl, Lord Gowrie, when he said that no one would claim that the telecommunications service provided at the present time is perfect. However, we should not blind ourselves to such reasons as there are for it not being a perfect service—if indeed it is ever possible to achieve absolute perfection. One of the major reasons is the constraints over the past 10 years which have restricted investment in the network. Without sufficient funds for investment British Telecommunications cannot provide additional exchange capacity, replace old and deteriorating underground cable, take on the staff needed for maintenance and for the provision of services, or pursue as fast as it would like the modernisation of its switching equipment from old, fault-prone electro-mechanical devices to modern, fast electronic equipment.

I do not believe we should let our natural British modesty prevent us from highlighting some of the achievements of British Telecommunications. I know that some of your Lordships feel that anything which British Telecommunications does, Bell does better. But what are the facts? In Britain, some 98.6 per cent. of all subscribers can dial direct to 106 countries. In the USA the figure is 50 per cent. because the network there is not as good in the rural areas as is our network; we enjoy a first-class network throughout the country. Bell has to pay 43 per cent. of its revenue from trunk usage to pay for local lines, so the point is quickly made that the trunk routes are paying for the local services. If the trunk routes are to be privatised, British Telecommunications is bound to have to drop its charges for trunk use and to increase charges to the individual householder. Indeed, Britain's potential prosperity and economic recovery in every part of the country can depend on us having a first-class telecommunications system. Such facilities are the nerve centre of a modern society. Service industries are being set up in areas of unemployment and will need these facilities to ensure their success. I can only refer back to the Beesley Report itself, which pointed out in paragraph 103: Despite exchange rate strength, in late 1980 BT still had low charges relative to most Europeans. In the transatlantic market to US, in a range of 11 European countries, prices for a 1 minute telephone call ranged from 92p (UK) to £1.93 (Belgium), with Sweden being the nearest to UK at 99p". At paragraph 105 the report goes on to say: So UK is, in general, a most favourable place from which to conduct international business, as well as being a favourable location through which to route international calls from locations elsewhere". One can only say that it is no wonder that nine out of 10 of the top Japanese multinational firms have decided to establish their European hub base in the United Kingdom.

I think that the test of the Government's proposals must be whether they are likely to improve service to the customer. The whole package will have an effect—and probably a very substantial effect—on the revenues of British Telecommunications. At the same time, there is no sign of any end to the cash limit system under which British Telecommunications is prevented from finding the sums needed for investment. Inevitably, therefore, costs to the ordinary residential customer will rise and the service will deteriorate. That is likely to be particularly true in the rural areas outside the cities, which to date have been subsidised by the profitable businesses in the cities and by commercial and industrial customers. This is very much the same philosophy as the Government have adopted with regard to the British Airports Authority: today's customers pay for tomorrow's services; tomorrow's customers should pay for tomorrow's services.

I find that a very odd philosophy. For example, nobody would suggest that the users of an existing mode of river crossing—say, a ferry—should pay for a new mode of crossing—say, a bridge. Money would be borrowed for the bridge and the users of that bridge would be charged a toll. This is exactly what is proposed for the new Humber Bridge. I am quite certain that that bridge would not be being built today if the customers of the existing ferry services were having to find the money. The philosophy that future services should be paid for by existing customers places an intolerable burden on those existing users, and British Telecoms should not have its borrowing powers restricted in this way.

The issue of borrowing powers is a major consideration for the future. British Telecoms is not alone in viewing with dismay the Government's continued refusal to allow it access to private sources of finance. The manufacturers are equally concerned. Indeed, the managing director of Plessey Telecommunications was recently quoted in Engineering Today as pointing to the stupidity of the Government's decision. Engineering Today stated that he is concerned that there is a fundamental paradox involved: The Government is saying that the UK must modernise its telecommunications networks and yet at the same time liberalisation could lead to a diminution of revenues, and so of capacity to invest.". Plessey is right in stressing the investment aspect of the need to allow British Telecommunications greater financial freedom; for increased funds for British Telecommunications would be spent on British goods and equipment, thus safeguarding and creating employment in British manufacturing industry. Indeed, it is surely absurd that, at a time when the Government expect manufacturers to be gearing themselves up to face competition, they are reducing their work by failing to allow them to invest adequately and thus to order new equipment.

We should remember that in real terms the investment of British Telecoms has been static for the past 10 years, and that at the current time for every £18 per head of the population that the United Kingdom invests in telecommunications each year the United States invests £36, France invests £51, Japan invests £32 and West Germany £36. Those are the latest figures which have been made available to me and, of course, they will vary from day to day as exchange rates fluctuate. I know that the Government will answer this by pointing to the potential for raising additional sums provided under Clause 2 of the Bill, which allows the company to enter into joint ventures. Indeed, in introducing the Bill, the noble Earl mentioned this point. However, this argument should not be allowed to go unchallenged. For elsewhere the Bill prevents British Telecommunications from engaging in joint ventures in the main network area. Yet it is in the main network area that the vast majority of investment is required. Therefore, potentially, joint ventures can raise sums which are trivial in comparison with British Telecommunications' investment needs and are peripheral to its major activities.

The overall effect of this is that the customer is not only likely to have to pay higher prices for services, but he is also likely to be faced with having to pay higher prices for poorer services than he has received in the past; for if British Telecommunications' income is squeezed and it is allowed no substantial relief from the cash limit on its borrowing, it will simply not be able to afford to maintain existing standards, both for the provision and quality of service. It is the customers in the least profitable sectors, like the rural areas, who are likely to suffer most.

The Bill lays a duty on British Telecommunications to provide a first telephone for any customer. So customers having additional terminal apparatus will be confronted with a variety of problems as a result of divided maintenance responsibilities. If the private sector supplies an additional piece of terminal apparatus, like a telephone, and maintains it whenever a fault occurs, a potential problem arises in establishing whether the fault is on the apparatus or in the exchange connection. In real life the problem is not likely easily to be tracked down. The private sector is likely to blame the network and several visits could be involved in establishing where the fault lies. Inevitably, British Telecommunications will be forced in the direction of charging for maintenance visits separately on a cost basis, whereas at present, of course, charges are included in the rental. The private sector will doubtless also charge. Customers, therefore, face not only a delay in establishing and correcting the fault, but will also have to pay heavily in two directions to get it sorted out.

As I have said—and I see that time is moving on—many British manufacturers are greatly concerned about the rush of imports. I think that it is very important that in Committee we should look at the proposed timing of this. It is not only British Telecoms but also British industry which could be very adversely affected if this is rushed into at too great a speed. The Government have stated that they wish to ensure that all equipment is certified by an independent body which has been Government appointed. Clearly it is right that this should be done, but there are a number of areas where this needs to be clarified. It is not, for example, clear how compliance with the orders which will come from the licensing of equipment will be enforced. This is something which we need to ensure is done.

The present standards ensure that existing equipment such as Prestel sets keeps high and low voltages separate. Indeed, there would be a lot to be said in many fields here for there to be international standards. If there were international standards for the manufacture of equipment it would make it much easier for British exporters to penetrate overseas markets instead of meeting with a situation where the sort of standards laid down overseas are different from the standards laid down in the United Kingdom, with the effect that equipment may meet one set of standards and not another. From the point of view of British manufacturers the international standards become something of great importance here.

I should like to turn quickly to Part II of the Bill, which deals with the Post Office. We are totally opposed to any interference with the letter monopoly, be it a relaxation or its abolition. Although the Bill has sensibly retained the basic letter monopoly, the derogations under Clauses 68 and 69 could lead over time to drip-by-drip breaches of the monopoly resulting in its effective collapse. The letter monopoly has existed for over 300 years and was updated and confirmed by Parliament in 1953. During these years the monopoly has been criticised on many occasions but there has never been any significant change or relaxation in its application.

The postal service is a part of the basic infrastructure of our society, touching on the daily lives of all. The Post Office delivers mail to every home in every city, town and hamlet in Britain. The postal service must always be in the public eye, but also it is ever open to criticism. It is judged both by the quality and reliability of its services and by its prices. Like many other public services, its successes go unremarked but its failures hit the headlines.

Any relaxation of the monopoly would lead to a drastic worsening and eventually to the wholesale withdrawal of certain services. The original concept of Rowland Hill was that the cost of conveying a letter varied so little that it was pointless to reflect distance travelled in the price, and acceptance of this principle and the introduction of uniform inland postal services has enabled remote rural areas to receive the same services as the towns and cities at the same cost.

The social objective of maintaining services at reasonable prices to rural communities is only possible if average unit costs are spread out over the broadest possible traffic. In other words, the pre-sorted bulk postings for local deliveries in town centres in a sense subsidise the "one-off" letter for some remote area. The loss of this bulk traffic could mean either the reduction or abolition of rural deliveries or a drastic increase in price. A relaxation in the monopoly would undoubtedly lead to this situation by making it possible for private operators to cream off the profitable traffic, leaving the uneconomic traffic for the Post Office to handle. Indeed, the commercial operator would offer services only in town centres and densely populated areas.

It has been suggested that if this sort of situation evolved and there were inroads in the Post Office share of the market and 12 per cent. of letter traffic was transferred to other carriers, the real price of a letter would rise by more than 20 per cent. This would have the effect of a reduction rather than a creation of wealth in the community. Of course the letter monopoly is common throughout the world, and those who want to abolish it must therefore be doing so for dogmatic and extreme political reasons to satisfy their friends in private business, regardless of the public interest. Apart from the bad effect on individual citizens, the effect of that abolition on the Post Office would be disastrous. Private profiteers would cream off the lucrative inter-city traffic and the Post Office would be left bearing the burden of the universal door-to-door delivery service, which would quickly slide into deficit.

I think I have made it quite clear that we are against any interference with the monopoly of the Post Office here. I now move on to other sections of Part II of the Bill. I should like to deal briefly with Clause 68, to which the noble Earl, Lord Gowrie, referred. Clause 68 provides that the Secretary of State may, after consultation with the Post Office, grant licences, other than a licence to all persons, for the doing of anything falling within the postal monopoly. Such licences may be granted unconditionally or subject to any conditions specified in them; they may be irrevocable or subject to revocation as therein specified.

As the noble Earl, Lord Gowrie, has said, the Government do not envisage that they will use these powers frequently but hope that their existence will keep the Post Office on its toes and thus obviate the need for using them. However, the Government have already declared their intention—which the noble Earl reiterated this afternoon—of using these powers as soon as the Bill is enacted for the grant of general licences covering the ability of charities to deliver Christmas cards, and of document exchanges to transfer mail in bulk.

Although the Government have said that the licences could be revoked by the Secretary of State for breaches of conditions imposed in them, there is no requirement in the clause for the Secretary of State to impose any conditions on the licences when granting them. Surely, with the powers of granting licences the Secretary of State should have a responsibility to ensure that the activities of the licensees are controlled. Control should include the registration of licensees; a requirement that all items carried by a licensee bear an endorsement which identifies it; provision for all licences to be revocable; and publication annually of lists of licences issued, or revoked, or ceased, so that both the public and we know who these people are. This is a matter which we shall have to deal with in Committee.

The further point on Part II of the Bill to which the noble Earl, Lord Gowrie, referred is the question of the pension fund. He said that the Minister of State, although he has had a recommendation from the chairman of the Post Office and British Telecommunications that the superannuation fund should be split, has agreed to undertake consultations with the relevant parties before coming to a decision on this. I hope it will be possible at some later stage in the progress of the Bill for us to know how those consultations are proceeding.

Clause 79 gives the Government powers to dispose of all or any of the shares of Cable and Wireless. If the Government were to use those powers, it would be an act of commercial vandalism. None of the justifications that noble Lords opposite put forward for dismantling, fettering or emasculating publicly-owned industry can apply here. As the noble Earl, Lord Gowrie, pointed out, my noble friend Lord Glenamara was, until last October, chairman of Cable and Wireless, and in his final annual report he said that Cable and Wireless had had to compete hard for international markets and that, outside Britain, the fact that the company was owned by the British Government could be an asset. The company could be trusted to be impartial when given the sensitive task of running other countries' telecommunications projects or systems. I hope that the House will heed those remarks, and when he winds up for the Opposition no doubt he will go into that aspect of the Bill in more detail than I can at this time.

The Government have described the measure as "the Bill of the decade", although the noble Earl, Lord Gowrie, slightly downgraded it by referring to it as a "very important Bill". While it may be important and could be the Bill of the decade, it threatens to be disaster of the decade. The Government have continually pointed to the success of de-regulation in the United States as a justification for their approach. But that process was carried out over a period of 20 years; the Government plan to phase out the monopoly in the United Kingdom in only three years. The Government are taking an enormous gamble with a major potential growth sector of the economy. We believe they have got it wrong and that the results will be very serious for the future of British manufacturers. On Second Reading the Secretary of State said there were three main objects behind the Bill: first, to protect the interests of consumers; secondly, to stimulate the United Kingdom industry; and, thirdly, to promote the greater flexibility of telecommunications systems". I believe that the Secretary of State has got it quite wrong and that it will achieve none of those things.

4.3 p.m.

Lord Byers

My Lords, I must tell the noble Lord, Lord Ponsonby, that 38 minutes is a very long time for an Opposition Front Bench speech on Second Reading. I can only reflect that the noble Lord should count himself lucky at not being charged by the minute!

My Lords, we on these Benches welcome the objectives of the Bill in so far as it will allow users to be offered a wider range of attachments and services. I hope it will stimulate suppliers to develop innovative and competitive systems both for the domestic and for the export markets. I agree with the noble Earl, Lord Gowrie, that we are about to witness a technological explosion in the field of telecommunications in this decade and that we must make the most of it.

In Britain, the importance of the telecommunications industry to the recovery of the economy and for the generation of new jobs cannot be over-stressed. The development of information technology is vital to our future, and therefore anything which encourages that is to be warmly welcomed. Having said that, we nevertheless have certain important reservations about the methods outlined in the Bill. There does not appear to be a clear structure or framework in which the British telecommunications industry as a whole can develop with confidence, and confidence will play a major part in the development of this industry in the future.

I do not object to British Telecom having a monopoly of the basic network but I do not think it is a wise concept that British Telecom should manage the whole telecommunications environment when it must inevitably be in competition with private sector organisations in that same environment. To my mind, it is the equivalent of British Airways being given the power to decide whether or not Laker should have a certain route or a particular licence, rather than leaving that to the Civil Aviation Authority. In our view it would be far better to vest the exclusive privilege of telecommunications in the Crown, as was the case until 1969, and that would put British Telecom on an equal footing with other private sector companies in terms of the licensing of certain services.

I believe that a more useful and viable concept would be to establish an independent telecommunications authority representing users, suppliers and British Telecom. That would enable the Secretary of State, through that management authority, to licence British Telecom, and others, to supply on subscribers' premises equipment which would conform to independently-defined and monitored standards to ensure safety and compatitibility with other network users. There would be no need for such an authority to be a bureaucratic regulatory body like the Federal Communications Commission in the United States. I would see it more like a licensing and strategic planning authority, as I said, vaguely on the lines of the Civil Aviation Authority. No more staff would be needed than is already provided in the Bill and an important merit of my proposal would be that the decisions would be seen to be fair because they would come from a body which had technical competence, a competence it would be quite wrong to expect from the civil servants at the Department of Industry.

The next major flaw in the Bill is the wrong-headed thinking about the need to constrain British Telecom's investment to protect that sacred cow, the public sector borrowing requirement. Maybe I have misunderstood it, but I cannot see the logic of it. I believe Professor Beesley is right; it is illogical to place these restrictions on the capital investment budget of a corporation whose aim it is to be viable and profitable. We should not forget that first-class communications are the nerve system of a modern society, and we have a lot of catching up to do against the competition of industrialised nations which are ahead of us.

Our communications system needs massive investment starting now and it needs to be assured of a stable climate in which to invest. We in this country have a legacy of under-investment which we must overcome quickly. In my view, it all points to the need for a flexible investment policy unrelated to the public sector borrowing requirement. If British Telecom is left free to find its own money for capital investment in the private market, I am certain it will be able to do so. Indeed, it should be encouraged to do so because then the need for cash limits and placing a burden on the PSBR would be avoided. In my view the same goes for any nationalised business which can persuade the market to fund it. What has to be done is to negotiate the terms on which the cash is to be found. The real test is whether the capital market is prepared to do the underwriting and is prepared to risk its money on the prospectus put to it by British Telecom or any other nationalised industry.

What I do not understand is why British Telecom, in trying to raise money from the private sector, must apparently team up with some private-enterprise organisation. Why is that necessary and why can it not do it on its own? After all, if BP wants to borrow money, does that count against the public sector borrowing requirement? Does the same apply in respect of British Aerospace? If you can raise the money on the market, I cannot see how it can affect the PSBR. In my view, there is a clear need to differentiate between commercially viable capital investment which will bring profits into the company eventually, and current expenditure on public service. The same principle, as I say, should apply in other areas of the public sector. I should have thought it would not be difficult to raise, from pension funds and other institutions, loans and debentures with or without warrant to get equity, and to negotiate something which would not in any way be a burden but which would enable us to increase the budget for capital investment in a field in which it is greatly required.

There is only one other point that I want to make. I have not referred, nor has anyone today, to the vital question of privacy and the safeguarding of data and other information, because the Home Secretary has made it clear that the Government intend to introduce legislation very much in line with the proposals of the Younger Committee, of which I was a member about 12 years ago. However, I would welcome from the Government an indication as to when we may expect to embark on this sort of legislation, which is now overdue by a decade. In the meantime, we support the Bill in principle. We shall have other things to say at the Committee stage, but we wish British Telecom a bright future.

4.11 p.m.

Lord Hankey

My Lords, I warmly support the Bill and what the noble Earl, Lord Gowrie, has said about it. I thought that he made a very good case; and indeed he expressed the Government's appreciation of both the vital importance of these services to our industries and of the progress that is needed. I propose to restrict my remarks this afternoon to the telecommunications issue. As has been said, telecommunications are at the moment the scene of a real scientific and industrial revolution. The silicon chip and new techniques of data processing, new techniques of storing and retrieving veritable libraries of information, have revolutionised the requirements which the telecommunications network itself must meet. I am sure that many of your Lordships will have consulted, or at least will have experimented with, the absolutely amazing Prestel terminal in our Library.

In order to deal with these new requirements, on which it is truly essential for this country to keep up-to-date, a whole range of new possibilities is opening up, and in research at least this country seems to me to be very well forward. There are the satellite communications, affecting all kinds of telecommunications, even those involving weather reports. There are new ideas for telephone exchanges, especially System X. There is a whole range of audio and video appliances which will be usable at ordinary domestic telephone terminals, and there is the remarkable new system of using laser light passed down narrow glass fibres to carry telecommunications. The Parliamentary and Scientific Committee had a most eye-opening discussion about that last summer.

The excellent British industries, including Telecom, which are developing these methods and processes seem to be well up in the race. They will indeed be vitally affected by the Bill. I believe that, as the Bill recognises, it will be necessary to have very close co-operation with leading companies here—not only competition, but co-operation—including some very go-ahead international companies with British subsidiaries. I have always thought that international companies and groups which bring into our country new technologies, new processes, new ideas and new training really ought to be encouraged; and that is certainly the view of OECD. But it is also quite essential that our own companies, including the new Telecommunications Corporation, should be enabled and helped—and I say "helped"—to compete effectively and to co-operate, where that is desirable, for instance, by forming joint subsidiaries for specific purposes, and in general to operate effectively. Successive Governments have in fact done much to promote this industrial research and development, and I am sure that the Department of Industry is at present well placed to help.

However, I have some more awkward and more specific things to say about the Bill, which in general I support. You see, my Lords, we have previously been very good at research; we have often led the world in research. We have not been good at applying it in industry and at commercialising its use, and I hope that the Government are going flat out—I repeat, flat out—to see that our failures in the past are not repeated on this occasion.

These new industries require continuity of policy and continuity of support if they are to make the grade and compete effectively with the very go-ahead industries overseas. I am sure that they will need help in obtaining planning permission and that kind of thing. The usual form is that one applies for planning permission, and it takes two years to get a "No". One then engages a QC and applies to the Ministry, and after a year one gets a "Yes". Three years have passed and by then the market has disappeared. This is the kind of way in which we fail. We simply have to streamline planning procedures. I know that the Government have made some changes, but I am not aware what the practical effect on the ground has yet been. Businesses cannot invest safely or effectively without continuity of conditions.

Clauses 4 to 8 of the Bill give the Secretary of State for Industry very extensive powers of control over how the new corporation may act and what it may produce. I just hope that these powers will always be used in a way which will be conducive to production and to effective competition with our competitors abroad, and not merely in a way which suits the ideologies of some Minister or party, or which yield to some political pressure group but which would not help the desperately needed advance of British industry. I am not at all thinking of our present Minister of Industry, or the present members of the Department of Industry. But I think that there is here a danger that we must watch in the future, and reading the Bill I do not really see what the answer ought to be.

The mere failure to take decisions, or mere procrastination while committees haggle or Ministers hesitate, or while the Treasury has to be squared—I say that with feeling can deal a fatal blow to the placing or securing of contracts. If the Government were to deal with telecommunications in the way in which they have dealt with the fast-breeder reactor at Dounreay—which has poured electricity into the grid for 21 years, and has been the subject of endless procrastination by Governments—we should inflict on our budding industries in the telecommunications field a similar fatal blow, and once more we should lose our lead to overseas competitors. From listening to the speech of the noble Earl, Lord Gowrie, for whom I have great admiration, I know that he would share my views about that, and that he is just as anxious as I am to see everybody get on with it.

This is not just an internal matter. I am sure that these new products and processes can lead to extensive exports, which would give much extra employment. However I can assure your Lordships that if we do not ourselves invest money and buy and install the products and methods, it will be almost impossible to get foreign Governments and foreign authorities to buy them. When one tries to sell something abroad the first thing they ask is, "What is your own Post Office or Government doing about it?" That applies to all kinds of things, including ships, guns and torpedoes.

That brings me to the point about stability of interest rates, which is really vital to investment, and preferably interest rates should be lower than they now are. This is very important for young expanding industries, such as we are concerned with in telecommunications. The bankers, and indeed many Governments, as we now see, are often providing loans at preferential rates, or with special terms of repayment, for overseas countries in need of aid. Indeed, they are now thinking of doing it for Poland. I should like the Government to find a further means of helping in this way young, progressive industries with enterprise, a great future, and new ideas, such as those concerned with telecommunications.

I know that the Government give a certain amount of development assistance already, and I should like to see more of that. It would be a bigger help to these industries if there were a preferential rate of interest applied in some way than it would be a real charge on the Treasury. There is no stability for the industrialists when interest rates go up and down like a yo-yo. It is worse in America than it is here, but it is still very embarrassing here. High interest rates are a fearful burden on development. Also, an extension of these very progressive industries will certainly help to reduce unemployment, and to some extent, therefore, will help with the PSBR. I hope that the Government will look at this suggestion that I have made.

This brings me to the problems of investment, in Clauses 26 to 29 of the Bill. I suppose it is right to give the Secretary of State and the Treasury these very extensive controls over the new corporation's activities, which really are of great national importance. But I hope that Parliament will somehow record the view that these extensive powers should be used to aid investment and not to hamper and restrict it. I agreed with a great deal of what the noble Lord, Lord Byers, said about this. I fully understand the very difficult position of the Treasury having to meet an expanding PSBR without increasing the money supply. I think that to some degree the Government are in competition with every sort of organisation in borrowing money. They have to borrow enormous sums, and if other people borrow enormous sums there is less for the Government, which, of course, puts up the rates of interest.

But about 95 per cent. of British Telecom's investment is spent in the United Kingdom, as the noble Lord, Lord Byers, said. Their investment means more jobs and more ability to produce and create wealth; it means the improvement of services to industry and to the whole community, and in many cases the production of goods for export. It really is short-sighted and counter-productive to set narrow cash limits which prevent this. British Telecom finances most of its investment needs from internally-generated finance, but it needs to borrow about 25 per cent. to cover the rest. This year it has been allowed to borrow only about 15 per cent. I really think that, given the importance of encouraging progressive industries rather than bolstering up unprogressive ones, we must all express the hope that the Government will find some means to use the financial powers in this Bill to help promote investment in the electronics industry generally.

My Lords, I personally think that it is better to do this in a time of recession, because it is going to have to be done anyhow. If it is done now, it will help employment more and tend eventually to reduce pressure on the PSBR; if it is done later, it will increase pressure in the economy and there will be objections of another sort raised against it. I realise that that is a somewhat Keynesian remark, but Keynes was not entirely wrong and it has yet to be proved that the other side of economics is always right. Surely, with all the oil money pouring in, an exception should be made here; and, as I was saying the other day, I want to see "a régime of intelligent exceptions"—I repeat, intelligent exceptions. However, I know well that in all these matters it is vital that Ministers and civil servants should be extremely wise. When I look at the enormous powers given to Ministers in this Bill, I repeat the hope that they will really be as wise as they possibly can. It used to be said that no Victorian architect was safe within reach of a pile of bricks and mortar. I earnestly hope that successive Governments will be safe within reach of this enormous industrial power. I hope your Lordships will take a really good, hard look at the relevant clauses in Committee.

To conclude, I support this very important Bill. Let us take this opportunity to help to make the great leap forward into prosperity which our country so sorely needs, and may other new industries follow the example.

4.25 p.m.

Earl De La Warr

My Lords, I am going to try to be as crisp and as brief as the noble Lord, Lord Byers. I doubt whether I shall quite succeed in either. About half of my business life was spent in putting electronic signals down cables to television sets at the other end. This we did under licence from the Post Office, with whom we had close commercial and technical relations. In addition to that, we were involved in the manufacture of a wide range of electronic equipment, both television sets and computers, and equipment for the cables. It is because of this that I am speaking to your Lordships today—but on Part I of the Bill only.

My Lords, this Bill marks the starting point of a brave experiment. The risks will be great, but so, too, will be the rewards. The explosion in telecommunications comes, I believe, at the right time in the development of this country's economy. Like other countries, we are moving into service industries. Sixty per cent. of our workforce is now employed in services; and in the United States it is 70 per cent. The growth of telecommunications, therefore, is an essential ingredient of future wealth-creation. Work patterns are going to change. They have got to if we are going to deal with the present appalling geo-graphical imbalance between jobs that are available, or will be available, and the people who are available to fill them. So I believe that in many ways the new information technology can play a vital part in creating new work and new jobs.

The Government's chosen way to help the growth of the industry is to liberalise the present monopoly of the Post Office. It is, of course, a way that is politically inspired. It is not the way that most European countries are going: it is the way that the Americans have already gone—a point which has been made before. But I, for one, do not find that it is a way that is rooted in dogma. I find that it is by far the best way and by far the likeliest way—provided only that the Government have a commonsense and business-orientated approach to those whose job it is to run the network and to make and use the terminal equipment.

I believe that the Bill itself sets exactly the right legislative background. I believe that it does all that primary legislation should set out to do. I fully support it, and shall continue to do so in every way throughout its passage through your Lordships' House—but I must put down two markers. First of all, I am very concerned to see that the corporation shall have the same freedom as any private company to set its own prices, and, where necessary, to invest, as any other business does, in new growth sides of its business—such as, for instance, Prestel and Datasell. I am not at all convinced that there is any change necessary in the Bill in order to achieve this, but I choose to make the point at this stage. I also want to see the penalty of imprisonment for certain offences, which crept in at the Report stage in another place, disappearing altogether. It is totally inappropriate, and I hope that the Government will take the initiative in having it out.

I want to make three broad comments and I emphasise that nothing that T say implies a desire to change any part of the Bill. The first concerns finance; and here I echo what has been said from all sides of the House. British Telecommunications needs to spend during this year at least £2 billion on investment and most of it is needed for updating its main exchanges in order to enable them to increase capacity and to process digital information. To do this, they will need to borrow £500 million this year, and probably more in future years, to top up their very substantial cash generation; and somehow a way must be found to enable them to do it. Private sector money is available; we know that. A real rate of return of 8 per cent. is assured. But much more important, capital investment in the network lies at the very heart of the growth of the whole industry. Four square in their way stand the Treasury who are saying, in effect, "Never mind that British Leyland borrowings do not count against the PSBR. This lot does!"

A noble Lord: They do count, my Lords.

Earl De La Warr

My Lords, I am pleased to be corrected. I probably could have chosen a better example. The Treasury approach, as things now are, is not good enough by half—and half is almost exactly correct in the arithmetical sense, too.

My noble friend Lord Gowrie has referred to the possibility of raising money by joint ventures with private enterprise companies. That may come in due course, but I doubt that it will be anything like enough, and I know that that is the very firm opinion of British Telecommunications themselves. On this point I want to join with the noble Lord, Lord Byers, and other noble Lords in pressing my noble friend Lord Trefgarne and pressing him hard. I hope that he will say just two things: "Yes, this order of expenditure is absolutely necessary", and, "Yes, somehow we will make this borrowing possible even if we do not yet quite know how".

Secondly, this Bill does nothing to spell out the strategy and how it is to be approached; and nor should it. It is there to provide the legislative framework and no more. But we know that all sides of the industry are keenly awaiting the issue by the Secretary of State of the rules on such things as licensing, leasing and resale. I should like to take this opportunity of saying how glad I was to have some guidance from my noble friend Lord Gowrie on these points. We have heard that the Secretary of State has just released a report by Professor Beesley, with a statement made by the Secretary of State himself. This report, which I have read four times in the last few days, ranges far and wide over the whole spectrum of liberalisation. I commend it to those of your Lordships who are interested in these matters because it is an extremely interesting and effervescent document. It was compiled in only three months—a very creditable effort considering that it was compiled by only one man. But I am hound to say, having read it very carefully, that I suspect that the professor had arrived at many of his conclusions before he started to consider the arguments. His conclusions about the leasing of circuits, about resale and about royalties are imprecise; and so, too, are his suggestions about the corporation's international business and about competitive trunk networks at home.

I hope that this report will be regarded as a useful contribution to the working out of the strategy and not as the base document from which all else will stem. I assure your Lordships that it is certainly not of sufficient calibre for that sort of treatment. If the Secretary of State needs this sort of advice—and I think that he does; and I think that he is wise to need it —then I suggest that he needs a proper working party made up of consumers, of British Telecommunications and of the trade, and followed by very mature consultation. I regret to have to say this because I know that my right honourable friend the Secretary of State is very keen on this report, but this is something on which I feel very strongly and which I must say to your Lordships today.

The third and final point concerns the powers of the Secretary of State over the corporation. Here I echo words that have been used before this afternoon and, I dare say, will be used again. The Bill is unusual in this one respect. On the one hand, the powers taken by the Secretary of State to achieve this resolution are such that they could result in the re-creation in all but name of the office of Postmaster-General. I am certain that this is very far from being his intention, but it could happen. I understand why the Secretary of State has taken these powers and I think that he was right to do so. He is intent, and correctly so, on ensuring that the necessary growth takes place and with an increasing momentum. But we must remember that whether it takes place and how quickly it takes place will in very large measure depend upon the efficiency of British Telecommunications, the corporation. That in turn will depend upon the retention of an entrepreneurial style of management. So that the chairman, managing director and his hoard of directors must be left, as much as in any private enterprise company, with the powers themselves to direct the running of their own ship. I am certain that the Secretary of State appreciates this and is aware of the need to treat his powers, in so far as he possibly can, as reserve powers to be used only in the last resort. Very much will depend upon that.

Lord Davies of Leek

My Lords, I wonder if the noble Earl would give way. It is always worth listening to the noble Earl, but I should have liked him to point out in passing what we are lacking. There is the management, and the know-how; but after cutting down our educational and technical colleges' approach, and with this Government cutting back on education, shall we have the skills available? It is a real problem for people with the knowledge that the noble Earl has of this industry.

Earl De La Warr

My Lords, I take the noble Lord's point, but it is a point which I feel that my noble friend Lord Trefgarne would rather deal with himself. That is the soft way of saying that I am not going to be caught by that one. Nevertheless, quite seriously, I am grateful to the noble Lord for his intervention. I want to end the way I started by applauding the Secretary of State's brave endeavour, for so much in terms of the re-creation of wealth and prosperity in this country depends upon its successful outcome.

4.40 p.m.

Lord Underhill

My Lords, I must first apologise to the noble Earl, Lord Gowrie, for the fact that I was not in my place for his speech. As the House knows, I am engaged in a long-running Select Committee, which is now in its 36th day. I have no doubt that the noble Earl has painted with his usual progressive outlook a very encouraging picture of the developing British Telecommunications and Post Office businesses.

However, in my view this is a disastrous Bill. It could be disastrous for both British Telecommunications and the General Post Office, for our manufacturers and for the consumers which are the users of both services. As with other measures brought forward by this Government, a great deal of parliamentary time will be spent upon it but it will have very little effect upon our ailing economy. I am not arguing against the proposed split of Telecom and the Post Office, although I must say in passing that not all countries have thought it advisable to make such a split. I believe that there are actually four within the European Community which do not think such a split is essential. But we are not arguing on that particular point.

This Government claim to have been elected to minimise intervention in industry; but they are seeking in this Bill massive interference with two services of a great industry and, in doing so, they propose to give sweeping powers to the Secretary of State. I have been able to listen to other noble Lords refer to these sweeping powers and therefore I shall not go through them in detail. But I doubt whether any Government have introduced so many Bills which create such powers for Secretaries of State to make them great, powerful barons. This has happened in one Bill afteranother. It would appear that the Government have been influenced by the position in the United States. This I would suggest has resulted from a rather superficial look at what is taking place.

Clause after clause of the Bill is directed towards enabling private interests to come in and provide profitable services which can only be done to the detriment of the remainder of the network and thereby of the users. In America it is generally understood that Bell Telephones, the AT & T, said to be the largest private undertaking in the world, have in effect a monopoly exercised through a number of regional bodies on somewhat similar lines to our Telecom. Other companies have similar facilities in other states. Admittedly, there are other services in which there is competition but it must be emphasised in connection with this that over a very long period of years the USA has established an extensive machinery of regulation which inevitably must entail a considerable amount of bureaucracy. There is very little in this Bill proposing any regulating machinery on the lines operating in the USA.

It would seem that the Government have been guided in their attitude by the report from Professor Beesley, to which reference has already been made by other noble Lords. This report, to say the least, would appear to have been compiled from a very limited and hurried survey of the situation. One hates to be suspicious, but the impression is given that the Government wanted additional background in order to justify some of the features in this Bill. This report was brought forward after the Bill had left another place to come to this House.

The noble Earl, Lord De La Warr, has referred to licences already existing under the Post Office arrangements. I am not an expert in these matters but they are just common-sense works. The things that we are concerned with are granting licences which will use the actual transmission network of British Telecom. Can there be many who would not be fairly confident that concerns will come in to provide these additional services only where there is an opportunity for the most remunerative return? I am certain that no concern will come in for a licence to provide any additional service unless there is a good possibility of a return. Therefore there must be some effect in the rural areas. Noble Lords opposite are always very concerned about what takes place in the rural areas. Such additional services could I believe be supplied by British Telecom itself, providing that it was enabled to make the necessary investment. Some other noble Lords have referred to that and, before I close, I shall say a few more words upon it.

The Secretary of State is to have under the Bill practically unfettered powers for the issue of licences for these competing services. He will be able to issue them himself or he will be able to direct British Telecom that it shall do so. It may be argued that revenue from these licences would be a great asset to British Telecom. But British Telecom will only receive revenue by use of its own circuits. Money from licences is not going to go to British Telecom but into the Consolidated Fund.

The Bill will also prevent British Telecom from using profits from one subsidiary in order to encourage development in another. On the discussions during the passage of the Transport Bill we heard a lot about cross-subsidisation. It would appear that the Government are determined that in this Bill this will not be a facility available to British Telecom. However, there is nothing to prevent competitors to British Telecom doing the self-same thing. They could decide that in order to get a foothold on a service, they would run it temporarily at a loss or in order to provide another service. Therefore fair competition, it would seem to me, is such that British Telecom will be meeting competitors with its hands tied behind its back. There are also increased powers for British Telecom to manufacture and produce various items; but in later clauses of the Bill we find that this power is taken away, for the Secretary of State in certain circumstances will have to approve such manufactures.

The day before the Report stage in another place, the Minister of State dealing with information technology announced that the monopoly for the use of additional equipment would be broken by the issue of licences. We are rather surprised that this is now to be extended to private branch exchanges. I am no telecommunications engineer, but I wonder whether the Government have realised the situation that there can be with two engineers entering the same premises in order to trace a fault. Whatever criticisms there might be of Post Office telecommunications up to now, I have always been pleased to note the attention given to tracing faults. We are now going to have an engineer coming into premises to trace a fault up to the end of the telecommunications responsibility and there will be subsequent tracing of the fault.

Sections of the equipment manufacturing industry have already expressed great concern at the proposals in the Bill to provide for the supply of equipment. think that it is well known that there are concerns in America which are looking with delight at the opportunity of penetrating the United Kingdom market. Is it sufficient that the Government are giving British manufacturing industry nearly three years in order to get itself acclimatised to this situation? As other noble Lords have stressed, at present British Telecom obtains its supplies 95 per cent. from British suppliers.

Earl De La Warr

My Lords, will the noble Lord give way? Would he not agree that this can be a two-way affair and that System X, for instance, the grand new Post Office exchange, can be exported very widely indeed and that the two things can at least counter each other?

Lord Underhill

My Lords, there is a possibility, in the same way as I shall mention later—of the development of Prestel by the present British Telecommunications, without requiring any Bill of this kind. There are also powers in the Bill given to the Secretary of State to determine the financial objectives of British Telecommunications. I was pleased to note that the noble Earl, Lord De La Warr, referred to the power in the Bill whereby the Secretary of State may interfere with the charging, if he so desires, in certain circumstances. Yet we are told that it is the aim of the Bill that British Telecom and its subsidiaries shall act in a commercial manner. When a competitor seeks to provide a value-added service using British Telecom circuits, will the charge to that concern take into consideration the very heavy cost that Telecom will have to meet in order to provide the national network which is so essential to the whole apparatus?

The Government also seem to have the view that monopoly stifles growth and development of new equipment, but surely no one will deny that Post Office Telephones—and the new corporation, when it is set up—does carry out effective research. The Post Office led the world with Prestel, the first ever view data system. Why does the Bill provide that British Telecom must obtain the approval of the Secretary of State for any programme of technological research? Surely that is a power which is absolutely unnecessary. In addition to launching Prestel, British consumers have direct dialling at present to some one hundred countries. There is no other telephone service in the world which can equal it. Equally, every one of Telecom's consumers has the facilities of STD and there are very few telephone services which are able to compete with that.

I was very pleased, on entering the Chamber, to hear the noble Lord, Lord Byers, refer to the powers of British Telecom. A massive concern such as that must have adequate investment and I should like to support the noble Lord's view that they should be able to borrow on the open market. Frankly, I just cannot understand how it is argued that it is wrong for a body such as British Telecom, which is expected to act commercially, to borrow on the open market. In another place the Minister said that money for investment could come not only from self-financing and the cash limit system but also from the disposal of assets and the introduction of private capital into subsidiaries set up by British Telecom for that purpose. British Telecom wants powers to develop its own network, not to break it down by selling parts of it off. That seems to be a crazy way to suggest that British Telecom might raise additional income.

I should like to say just a few final words on the position of the Post Office, to which no reference has been made in the speeches which I have heard. The service developed in this country so long ago by Rowland Hill has been copied throughout the world. The basic feature is the provision of national services at a common price. As with Telecom, the Secretary of State is to be given considerable powers to interfere with the running of the new Post Office. The monopoly of the Post Office is to be confined to the actual conveyance of letters, but the Secretary of State is to be empowered to withdraw the monopoly in whole or in part according to his discretion. As with British Telecom the Secretary of State is to have powers to grant licences to any person in any way he chooses to do things which are at present within the Post Office monopoly. It may be argued that the Secretary of State, either now or in the future, will be a wise and intelligent man who will use these powers intelligently; but this is the power given in the Bill to a Secretary of State. In fact, under Clause 68 he can make licences for any period of time and they may be irrevocable. I did not know there was any legislation which could grant anything irrevocably but, unless I have misread the clause, that is there. If these powers are to be used, as with British Telecom, there will be a creaming off of profitable parts. Who will want to deliver post in the far-flung and sparsely-populated areas such as the Highlands and Islands? Anybody who wants to get a licence would only wish to come into the profitable big cities. I hope the Government are not going to say that this could never happen, because the power is there in the Bill for the Secretary of State to take.

The Bill may present opportunities but if it is misused it could present grave threats to two great public services, with almost unequalled powers given to the Secretary of State to interfere in what are now supposed to be public concerns run with a commercial outlook. Most of these extensive powers do not require parliamentary orders. Even where orders are required, in most instances—there are some exceptions—the negative procedure will follow. I would suggest that unless the Government think again we could have a situation where the Secretary of State, either the present one or a future one, uses these powers so arbitrarily that instead of helping the development of British Telecom and the Post Office we could find it affecting both.

4.57 p.m.

Lord Orr-Ewing

My Lords, I think we would like to compliment my noble friend on his initial introductory speech and perhaps sympathise with the noble Lord, Lord Ponsonby, not because of the length of his speech, but because he had to pronounce from that Front Bench that everything we were doing would lead to gloom, doom, bankruptcies and poverty of service. It has not been so in the past. The Post Office have had, and perhaps rightly in the past, a hundred years' start. I believe they are so good that they will compete. Let us remember that every new facility and every new service which comes forward will make use of the public Post Office network and thereby benefit with extra services, extra charges and extra revenue coming from the additional apparatus which is attached to that network.

I should like also to compliment in all humility, if I may, the noble Lord, Lord Byers, not only because I agree with every single word of what he said on finance and the management structure and on the need for a telecommunications authority, but also because he was able to put it in such succinct words that those of us who came later particularly appreciated his constricted and constructive approach.

I support the Bill, not least because it makes one small reduction in the very large public sector from which we in this country suffer. As I have said before in this House, we have a 50 per cent. larger public sector than any of our competitors, and this is a great burden on the country and its competitive position. Here we are making a marginal reduction in the public sector. We are allowing competition to come in and we are making a marginal reduction in the monopoly. Also, of course, I welcome the recommendation, which originated with the Carter Committee, that we should separate these two very different industries: the postal industry and the telecoms industry. They are different types of industries, as many people have said in the past. I think it is regrettable that the Labour Government did not feel able to accept that and perhaps move towards this position in the two years which elapsed after that Carter Report. It is particularly unfortunate that we have not been given all the facts and figures about pricing and profits, and about how the performance of our Post Office compares with overseas competitors. Those facts were recommended by the Carter Committee. After all, it is the fourth largest telecoms network in the world. On the whole, it is pretty good, but I believe that it will be a good deal better with the competition that we are going to introduce.

It is true to say that, with the new services of information which can be provided, the sky is literally the limit. I only wonder whether the human brain will be able to absorb all this information. It is all very well being master-minds in their own fields, but it is no good absorbing information if we cannot turn it into some beneficial action for ourselves, our companies and our country. That will be the difficulty with the amount of information that could come forward as a result of new inventions and technology.

With this Bill, Parliament is laying the foundations for the next 30, 40 or 50 years—certainly, well into the next century—and the best possible stimulus in these conditions is competition. You need competition in experimentation, in innovation, in investment, in production, in marketing and in supplying new services. I was influenced by the Economist article in a recent edition, which said: Customers certainly are fidgeting. The long delays in getting telecommunications equipment—whether switchboards, telex machines or ordinary telephones—delivered and installed is at present the biggest single barrier to letting commercial premises in and around London". Most of us know of examples where people have examined premises, have found that they had to wait many months or even a year before they could get the necessary PABXs and have gone elsewhere. It is fair to say that the end of that article said that British Telecom's London management is briskly reducing those delays. That is possibly easier to do in a recession, but when the economy turns up, as it now shows signs of doing, the demands and queues may build up again if we do not have some competition.

My first criticism of the Bill as it stands is that too large a part of telecoms is left in the monopoly hands of British Telecommunications. Of course, I accept, as others have done, that the main network must remain a British Telecom monopoly. That monopoly remains in respect of most private homes. I believe that over 90 per cent. of these have only one telephone and, at present, the provision of that telephone, its installation and its servicing will remain in the hands of BT. So we are really only nibbling at the monopoly in the private area, though not in the business sector.

I cannot understand why my noble friend did not go further and ordain that the Post Office should provide a network termination and test point at the entrance to a house, and thereafter leave it to anyone to attach apparatus, provided that the apparatus did not interfere with other network functions. "Integrity of the network" is a kind of "bogy boy" that is raised every time. It was said, in an article which I read very recently, that it is about as outmoded as virginity. I certainly am bored with the idea that, because you want to attach apparatus, you cannot have a proper inspection, a proper set of standards. Other nations do not insist that their Post Offices have to do everything.

My second criticism is in two parts. First, there is the proliferation of management functions and I have tried to draw these out. I find that this is a very woolly and diffuse management and I suggest that we might do better than this. The Secretary of State himself—and I agree that too much power is in his hands—and the Department of Industry have responsibility for the overall management, for the licensing, for the policing and, I suppose, via the Board of Trade, for the export potential, because overseas trade comes under the Board of Trade.

Then he has many bodies to consult. He has the Consultative Committee on Telecoms; he has the Sub-Committee on Standards of Telecoms; he has the Post Office Users' National Council and, presumably, he will consult representatives of other outside interests as well. Then there is the BSI to be considered, who will lay down the definition of standards. Then there is the BEAB, which stands for the British Electrotechnical Approvals Board. Then there is the Office of Fair Trading, who are to do some of the policing and to ensure fair competition.

I wonder whether that is the right set-up. I have found the Office of Fair Trading good, but desperately slow. You have to wait six months for a report and such a delay is important when you believe that you have a strong case. I have seen competition from the BSC in the last two years. They have started—using taxpayers' money, because they are making such losses—buying themselves into steel stockholders and there is some very unfair competition there. Certainly, British Shipbuilders have been bidding against the private sector and quoting prices which are only half the proper and economic prices; and, again, they are propped up by the taxpayers. It is not easy to ensure fair trading conditions between the private sector and a huge ex-monopoly, however well-meaning that monopoly may be.

Then there is British Telecoms. They have the management of the monopoly services. They have to advise on licensing, since they have to be consulted by the Secretary of State; they have interface definitions to consider; they have network integrity to consider; they have type approval, except on the digital stored programme controlled PABXs, which is a new concession; and I suppose that they take some responsibility at international conferences on telecommunications. The drawback of this set-up is that it is diffuse; the responsibility is not pinned. I therefore suggest that some of these ambiguities, uncertainties and complications are better met by a single, permanent expert body to foster enterprise and drive growth in United Kingdom telecoms.

My second point is that I do not like the tremendous powers which are given to the Secretary of State. He is responsible for licensing, for delicensing or for stalling. I recall that one of the previous occupants of this office was the right honourable Anthony Wedgwood Benn. He had this responsibility. If a Labour Government ever came to power, it could be that someone of the Left again had responsibility in this field. It is unwise to put all that in the political field and make his responsibilities so great. Therefore, I suggest that we appoint a statutory telecoms authority.

The Liberal Party proposed this in another place. I do not know whether it was the right formula, but if they decide to put down something in this House at the Committee stage we should like to hear the Government argue the case; and it would certainly merit some argument. When it was discussed in another place on 10th February this year in Standing Committee B, the Government's reply was, I thought, rather lighthearted and did not really meet the case. Mr Kenneth Baker is a very good friend of mine, but on that occasion he was in a frivolous and jocular mood and he shrugged off the suggestion with a number of excuses which do not stand up to examination.

We need a telecoms authority to be responsible to the Secretary of State. Of course, he must have residual powers; if he did not have them, we should not be able to put down PQs, and it is an important freedom for Parliament to be able to question these matters. Secondly, I should like a telecoms authority to coordinate all the management functions and all these loose separate bodies. Thirdly, it should be fully representative, not just of the manufacturers but of private users, of industrial users, of service industries, of British Telecoms itself and probably—and absolutely essentially—of the unions.

My noble friend may argue when he winds up that I am advocating, as have others, the creation of another Quango. Yes, I am, but it would be similar to the Civil Aviation Authority or to the IBA. It would be ridiculous for us not to do something which is logical just because we have a feeling against Quangos. I should like to show just what has happened to Quangos since this Government came to power. On 15th May there were 2,117 Quangos. Up to 23rd February we had abolished 430. However, we have created 23 new Quangos, so that, when there is a need, this Government can create a Quango.

My noble friend also argued that a Select Committee could look at this matter. Those noble Lords who were in the other place will remember that in the old days a Select Committee was not attached to or monitoring every Ministry. There is now. There is one Select Committee which looks after both the Ministry for Industry and the Ministry for Trade. What a tremendous scope they have to cover. The Ministry for Industry has a staff of between 9,000 and 10,000, with regional offices all over the place, while the Ministry for Trade has a staff of 7,300. The Ministry for Industry covers BNOC, British Leyland, the NEB, British Steel, British Aerospace and a lot of sponsored industries. There is industrial sponsorship of electrical engineering and a host of other sponsorships.

My argument is that no Secretary of State, or his agents, can possibly be professionals in this highly technological and evolving and changing industry. Nor can a Select Committee adequately cover all his responsibilities. Admittedly there are five Ministers who are trying to deal with departmental responsibilities within the Ministry for Industry but I suggest that what is wanted is a self-contained body. I am a believer in "small is beautiful". I should like there to be a succinct professional body sweeping up these many responsibilities and advising the Secretary of State. That body would do the monitoring.

I am advocating something which would possibly create another Quango. No Quango is perfect, but I believe that Quangos are a hell of a lot better than a bad Minister. Every Government in their time have some bad Ministers. With a Minister as politically motivated as was Mr. Benn, it would seem to me to be very unwise for a Mr. Benn and his department ever to be responsible for such an immense undertaking and for so many decisions as I have enunciated and as at present intended under this Government's scheme.

Therefore, I would ask the Government to look again at this matter and see whether or not we ought, on the lines suggested by the Liberals, to set up an authority which would sweep up these responsibilities so that we create a management which is more in accord with what all the business schools are now advocating and which is not the type of dog's breakfast that is now being offered to us in this Bill.

5.14 p.m.

Lord Lovell-Davis

My Lords, when this House last met, on the day it rose for the Easter Recess, the noble Lord, Lord Denham, in response to an inquiry by my noble friend Lord Wells-Pestell, referred to two Statements which were about to be made in another place. One of these, as has already been mentioned this afternoon, was a Statement on telecommunications monopoly, in which the Secretary of State talked about the competitive arrangements covering apparatus which could be linked to the telecommunications network and the removal of British Telecommunications' monopoly on giving their approval of such apparatus. He went on to point out that he was that day publishing the Beesley Report, welcomed its "free market" recommendations, as one might expect, and, as one might equally expect, threw cold water on Professor Beesley's, to me, more important recommendation that the restraints on British Tele- communications' capital investment should be relaxed.

Cautiously, if the word has any meaning other than a purely political one in this context, the Secretary of State announced that he was inviting views on the subject before coming to detailed decisions in two months, although how this relates to the legislation, once it has been passed, is something on which the Minister can perhaps enlighten the House in his summing up. No doubt it was understandable—it was certainly in accord with the way the Government are treating the matters contained in the Bill we have before us today—that this House did not stand upon the order of its going, to wait for the Statement to come from the other place, but went. Today, the first time we have met since the Statement, we find ourselves launched into the Second Reading of a major piece of legislation vitally affecting the future of British Telecommunications.

Let us consider the complexities of the subject we are talking about. I wish to address myself specifically to the telecommunications aspects of the Bill. We are not just talking about telephone lines and handsets, although they are critically important in terms of service to the customer and finance to British Telecom. We are talking about a vast range of developments in telecommunications technology: video-conferencing, viewdata, communicating word processors, fast facsimile transmission, rapid data exchanges, electronic transfer of business funds, the use of microwave transmission and communications satellites. The list of telecommunications possibilities seems to grow almost daily as the technologists storm ahead. Those members of your Lordships' House who are also members of Sub-Committee F of the Select Committee on the European Communities, as I am, have been taking evidence on this very subject in EEC terms and surveying the tremendous range of opportunities which exist, and we have some appreciation of what is involved.

It is essential that this country should benefit in every way possible from this technological revolution, just as I believe, as a member of the sub-committee, that the EEC should also benefit and not allow itself to be sold out to manufacturers in the United States and Japan.

The Government have referred to this Bill as "the Bill of the decade", although as my noble friend Lord Ponsonby of Shulbrede pointed out, the noble Earl, Lord Gowrie, has this afternoon reduced it somewhat to "a very important Bill". That may be so. It may be the Bill of the decade, but if it means that the Government reach the wrong decisions in planning for the future of British Telecommunications, then it could turn out that they have presented us with another sort of Bill altogether: an ecomomic and social Bill for which we shall be paying for decades to come.

I am not one for endless discussion or allowing a complex problem to paralyse the will, but a matter as vitally important as the one before us must be given the consideration necessary for reaching proper decisions and avoiding potential disasters. I find it hard to believe, therefore, that the Government are prepared to stomp ahead, with the intention of using parts of the analysis contained in Professor Beesley's report, which I understand he had just three months to com- plete and the outside views they are able to gather and assess between now and July.

I appreciate that a great deal has been said and written on the subject of the future of telecommunications and I hope that the Post Office itself has made a constructive and not solely defensive contribution to the dialogue. But this Bill proposes massive changes which will affect not only customers, which in one way or another really means the whole of the nation, but a vast potential growth sector of our economy. It is not enough to put a guillotine on a public debate of such fundamental importance, just as it is not enough in the Bill itself to propose de-regulation of the Post Office within a period of three years. The Government seem constantly, though in the minds of many people with insufficient justification, to be looking to the example set by the United States, ignoring the fact which other noble Lords have referred to this afternoon that ending AT & T's monopoly over there took place during a period of 20 years.

It has been pointed out that "there is no real strategy behind the legislation" and it would be hard to avoid and support that conclusion were one unaware of the Government's prime strategy to pursue a monetarist course and save money wherever they can, at whatever cost to sensible, long-term planning. However, if they are looking to America as the model for the British plan, the Government might also consider that over the decades America has consistently invested more in its telephone system, and it is this which has led to a better and more varied service there. Incidentally, as everyone knows who uses postal services in the States, the letter service is, by and large, appalling. It is, of course, the service on which million of Americans depend but it offers few compensations other than a willingness to provide service rather than the prospect of glittering profits. Presumably, if we are following the Americans, we, too, can expect a continually deteriorating postal service.

The point, however, is that while American investment is high, their telecommunications system is not all that superior to ours, as my noble friend, Lord Ponsonby, has indicated, and, so far as electronic exchanges, optical fibre routes, shared lines, public telephones, overseas dialling, and increasingly, maintenance facilities and so on, are concerned, we have the edge on them. The edge we do not have but which British Telecom desperately need is that of investment. British Telecom stated only last week that they will have to spend at least £2 billion a year over the next five years to create the sort of network we need to become a competitive trading nation. Having been consistently starved of funds for many years, they now find themselves facing even more stringent Government controls and I doubt very much if the pundits in the Treasury—who will one day, I hope, he made publicly accountable for their role in steering our economy on to the rocks—will accede to British Telecom's request to be made exempt from the limits of the public sector borrowing requirement and be given the means by which they may raise money on the open market.

It seems anachronistic for the Government to call for "a strong and successful British Telecom" and to hope that some magic change will take place because of the privatisation or as my noble friend Lord Pon- sonby said, "piratisation" of what British Telecom themselves refer to as their "peripheral activities", while they deprive British Telecom of the borrowing powers which Sir George Jefferson, British Telecom's chairman, has said are needed "to sustain the very minimum programme necessary to avert serious damage to our supply industries and avoid a disastrous telecommunications situation developing over the next few years".

The simple result of the Government's privatisation plans will be to further undermine our economy and our competitiveness. It is little wonder that the Government's plans have caused a rush of blood to the head of British manufacturers. At present British Telecom buys over 95 per cent. by value from British suppliers, as the noble Lord, Lord Byers, has pointed out, and they and the people who work for them will have to bear the brunt of what will follow if there is an influx of cheap and inadequate American, Japanese and other foreign equipment, in terms of workers being laid off, the cutting back of R and D and the loss of a great opportunity to develop and build on technical skills. For, make no mistake, my Lords, in spite of the assurances given by the noble Earl, Lord Gowrie, it is clear that American and Japanese companies have their eyes on the telecommunications equipment market over here and are laying their plans to take over a significant proportion of it once this Bill comes into effect. Other overseas companies will doubtless follow their example and make use of the golden opportunities this Bill will open up to them.

I hold no special brief for the Post Office and, when they fail to provide service of the standard I think we are entitled to expect, I am as critical of them as anybody else. I am not wholly opposed to certain aims represented by this Bill. What I am very concerned about is that the Government are proposing massive changes, which they intend to introduce as rapidly as possible in the interests of freeing so-called "market forces" and saving money on yet another vital social service, without adequate consideration of all that may be involved as a result of those changes. If the complex and long-term implications of this Bill have not been thought through properly before it is implemented and the Secretary of State can use the enormous powers he will have secured for himself, then it will not only further erode the base on which a competitive British telecommunications industry may be built, add to our already disastrous and long-term problem of unemployment and create a messy and degraded system which will subsequently have to be sorted out and integrated—but it will also leave this country with postal and telecommunications systems which, particularly for the ordinary user, will have become worse rather than better.

5.26 p.m.

Lord Morris

My Lords, I must first, at the outset, declare an interest as President of the Telecommunications Council. I suppose at this Second Reading of a liberalising measure it is appropriate that I have never felt quite so liberal for I agree with every single word spoken by the noble Lord, Lord Byers. In a way much more important I enjoyed every moment of his speech and it is a nice irony that by far the shortest contribution should have been the one that I longed to continue further.

Turning to the speech made by the noble Lord, Lord Ponsonby of Shulbrede, he drew attention to the fact that private sector competitors of British Telecommunications have more freedom of operation under this Bill than would British Telecommunications themselves. I feel sure that I am not alone in feeling weary of noble Lords opposite drawing analogies between private sector companies and public corporations, for they always choose to forget that it is the taxpayer who "carries the can" for public sector corporations. Public sector corporations are trustees of taxpayers' funds and the Government have a duty of care to ensure that proper control is exercised, particularly where the public corporation is placed in a monopolistic trading position and is not directly answerable to Parliament.

In addition, I am astonished that he should complain that this Government should provide three years for converting the mess that we have in this country as a result of the opportunity that the Socialist Government missed under the Stonehouse Bill to do in 1969 what the Americans did some 15 years earlier. Also to suggest that the sale of British Aerospace was a loss to the nation solely because the price of the shares went up after acquisition is, with respect, nonsense. The only reason why the price of the shares went up was (a) that it was privatised and (b) it should never be forgotten that one of the major investors in aerospace as a result of the increased confidence after privatisation was, of course, the pension funds, and far from the nation losing, it has manifestly gained.

I welcome this Bill for it is a legislative expression of a liberalising intent to return to freedom, providing as it does a unique opportunity to create a healthy environment to serve the economic and social needs of the United Kingdom at least until the turn of the century. Some might consider this Bill a dry piece of administrative law. That could not be further from the truth. This Bill reflects the exciting and welcome fact that Her Majesty's Government recognise that the industrial and commercial future of these islands lies in the exploitation of the commercial opportunities present as a result of the revolution in information technology and that of telecommunications transmission systems.

Consider also Her Majesty's Government's awareness in appointing a Minister of State with sole responsibility for information technology and related subjects. Consider also that in September 1980 Her Majesty's Government transferred some £9 million of taxpayers' money for information technology education directly. Consider also that the Prime Minister herself was present at the initiation of micro-processing hardware at a comprehensive school. All this and other facts to my mind demonstrate a keen awareness by Her Majesty's Government that they at least understand to the full the social and economic potential for change as a result of the micro-chip and other technological innovations. The impact of these innovations can only be compared to the impact that the railways made both nationally and internationally over 140 years ago, and believe me, my Lords, I in no way exaggerate.

Bear in mind that (leaving aside manufacturing applications of this technology) the workaday function of hundreds of thousands of people in this country consists solely in communicating with their colleagues, customers, suppliers, and their files, synthesising this information, coming to a conclusion and then acting upon it. The action normally also takes the form of yet more communication. Give a man the opportunity of easy and rapid communication and retrieval and input of information on file and you destroy, in part, the expensive, time-wasting, energy-wasting, necessity to travel to a centre. Your Lordships will readily appreciate that there lies therein the potential to revolutionise the way we work, the way we live, the way we learn. Indeed, it will even affect our human relations in that the burden of absence from the family—the nuclear family—could, in part, be relieved to the greater good of all. In other words, the quality of life in the next 25 years could possibly take an enormous leap forward.

This awareness is reflected in 10 seemingly innocent words in Clause 15(1) of the Bill; the words are, "A licence may be granted by the Secretary of State". In so saying the Government are shown to be fundamentally aware of the reality that it can only be the role of government to gear the tempo of change, not the dead hand of a monopolistic trading organisation. If we are too slow the United Kingdom telecommunications and related industries will be taken over by the French, the Germans, the Americans, the Japanese. If we are too swift to change such disruption could be caused that in the long run it will be politically unacceptable to change, and furthermore create even more delay for change. It is for this reason that so many are puzzled that Her Majesty's Government have seen fit to recreate a monopoly in the hands of a state trading corporation in one breath and taken on itself powers to erode that monopoly in another.

Looking at this matter in a somewhat cynical way, that part of the Bill which concerns itself with the whimsically described 19th century phrase of "exclusive privilege" can best be described as good politics and bad law; bad law in that it is not straightforward—I will not go so far as to say it is dishonest, but it is not straightforward; bad law because it has the capability of setting a government department on a war footing with a public corporation. Surely after 112 years the exclusive privilege, the monopoly to gear the tempo of change, should not lie with a trading corporation but should lie with Government. In this, of course, I am reflecting entirely the view of the noble Lord, Lord Byers.

Furthermore, in maintaining the monopoly it can be argued—and I do assure your Lordships it will be argued in Committee—that Her Majesty's Government are placing themselves in danger of flouting treaty obligations under the Treaty of Rome. We shall hear the arguments later on that. May I ask my noble friend whether Her Majesty's Government are aware that no harm would befall the corporation if the Government were to take upon themselves the monopoly and license the corporation as they would any other trading corporation?

There is also deep concern voiced in that the uncertainty felt by those in the telecommunications industry, and indeed by British Telecommunications, itself, has in no way been lessened by the provisions of this Bill. I believe this is understandable. Bearing in mind that the lead-time for major investment must be at least five years, how can any corporation, any company, in the private or public sector, properly plan unless Government make known their policy in more detail? Here I agree with my noble friend Lord Gowrie; I do not think a statute is the right vehicle to do it. But they must make their policy known as soon as possible and in as much detail as possible. Also I vigorously believe that it would be of great benefit to the Department of Industry if they were very seriously to take up the position so ably argued, again by the noble Lord, Lord Byers, and my noble friend Lord Orr-Ewing with regard to a Telecommunications Authority. This makes eminent good sense. The anti-quango dogmatic stance of this Government per se just does not bear examination at all.

Notwithstanding the fact that this is the only occasion that I know of when a Government has commissioned a quasi-White Paper after publication of the relevant Bill, I most warmly welcome Professor Beesley's report. However, I do most strongly support the view that Her Majesty's Government cannot in one breath demand that British Telecommunications be sensible of market forces and then not allow them to borrow on the private market in another. This just does not make sense. I entirely endorse the view of Sir George Jefferson, chairman of British Telecommunications, when he said: The fact that we will be facing an increasingly competitive environment is highlighted in the Beesley Report. Whatever decisions are taken on Beesley, British Telecommunications must have the same freedom as its competitors to raise capital for profitable and wealth-creating investment". That must be so.

The only thing about Beesley is that I wish he had gone a little bit further. His major recommendation was that in the home market there should be no restriction on the freedom to offer services to third parties. I would have preferred him to take a leaf out of the book of the German monopolies commission, who were extremely firm on this point. Their major recommendation was that the German Federal Post Office should be totally excluded from selling, leasing and servicing all other telecommunications end user equipment and to let private industry deal exclusively with these jobs. They believed this because they thought that true competition was impossible between private sector enterprise and the German Federal Post Office as a public enterprise which also holds the network monopoly and licenses end user equipment. The Commission is convinced that controlling the German Federal Post Office market conduct would be inefficient to guarantee private enterprise equal opportunity in end user equipment markets.

There is one other aspect of the Bill which concerns me very much indeed. I entirely endorse Her Majesty's Government's attempts to encourage British Telecommunications to create subsidiary companies—I repeat, wholly-owned subsidiary companies—in order to stop cross-subsidisation. But I feel I must point out that through the vehicle of this Bill they have given British Telecommunications the perfect opportunity to drive a horse and cart straight through this good intention. It only affects wholly-owned subsidiaries and yet in the powers sections of Clause 2 they have the perfect right to promote, run, and set up partly-owned subsidiaries. God forbid, but if I was the chairman of British Telecommunications I would not set up wholly-owned subsidiaries; I would set up 99 per cent. subsidiaries and so avoid the difficulty of having the Secretary of State breathing down my neck at every decision I had to take. I do hope that Her Majesty's Government will look at this point particularly carefully.

My last point concerns the order of consideration of the clauses at Committee stage. I have been empowered by the noble Lord, Lord Lloyd of Kilgerran, who will be handling this on behalf of the Liberal Party, to mention his support for this. Indeed, Her Majesty's Loyal Opposition have also agreed to this point, and I only mention it now because it is very much for the Government to raise an Order of Business Motion. I am convinced that it would help the House in the logical progression of debate on the Bill at Committee stage if the Bill was taken out of order in part. This is for the very good reason that the fundamental part of the whole Bill is the creation of the monopoly and the riders against the monopoly by the Secretary of State; that is, Clauses 12 to 15, Clause 2 being the powers and Clause 3 the duties.

If one discusses the powers of the corporation before looking at the scope—the power to control and the caveats of that control—it is going to make life very difficult indeed. The Minister will only say, "We will deal with that when we come to it". In addition, if Parliament in its wisdom grants a monopoly the quid pro quo for that monopoly is the obligation and the duty to provide and have regard to. Flowing from that the corporation should be then granted the powers to implement that duty. If the Bill is debated in that order I believe it will assist the progress of the Bill and it will certainly assist the progress of debate generally. I do hope that my noble friend the Minister will consider this very carefully indeed; it is solely a suggestion to help the progress of his Bill, which I warmly welcome.

5.42 p.m.

Lord Wynne-Jones

My Lords, I have to admit that this Bill is a much better Bill than I thought at first sight. In fact, looking at it carefully, I have to say that really it is a good Bill. It is quite a good Bill because it sets out to do a number of things; to separate telecommunications from the postal services and to liberalise the telecommunications industry. All these are excellent things to do, especially if one happens to be a big manufacturer of equipment; they are excellent for every purpose for which the Conservative Party stands. Therefore, it is a good Bill for the Conservative Party to put forward; it is an excellent Bill because it shows quite clearly what the Conservative Party wants to do with all our national industry. The Conservative Party has already started this with the aerospace industry. Now it moves on to telecommunications. I do not disagree with what the Conservative Party is doing. If I were of the Conservative Party's point of view and was concerned about large manufacturing countries, particularly America and Japan, I should applaud this Bill. That is why I said that it is a good Bill. But is it a good Bill for the rest of us? Is it a Bill that does anything for the ordinary user of telecommunications?

Lord Skehnersdale

Yes, it is, my Lords!

Lord Wynne-Jones

"Yes", says the noble Lord on the Front Bench, my Lords. No doubt it will be of considerable value to him in his horticultural interests to have some better means of communication—and no doubt he would prefer to buy it from a cut-price firm rather than go to the Post Office. There is no doubt at all that many people will find that there is a certain advantage to them, but the question is, is it of overall advantage to the people of the country? That is what matters. And clearly it is not in their interests. It is not in their interests because it removes the common carrier responsibility, which is that of the Post Office, and it allows competition. Competition sounds a beautiful word. We all like competition. We agree with competition, but, if competition crushes the very thing one is aiming at, then it does no good at all.

I can remember only too clearly the time when, back in the 1930s, there was cut-throat competition in transport in this country. I can remember when I was living at Reading and the return railway fare—and forgive me for quoting figures which sound meaningless today—was 9/-. The bus service cut the fare to 6/-, whereupon the railway cut the fare to 7/6d. Forgive me for using antique language! Then another bus company came along and cut the fare to 4/- and another bus company dropped the fare to 3/-. Finally the biggest bus company said that if anyone else dropped their fares they would fix the fare at 2/-—and they killed all the opposition. All the other companies, which had flourished like mushrooms, went out of existence because they were unable to face the competition which they themselves had created. Today the same thing is tending to happen in the aero industry, with airlines reaching the point where competition is making things unprofitable for them and where one will find that instead of having cheaper transport, fares will end up by being more expensive.

Now let us take the case of telecommunications. I was talking today to someone who has recently been in Dallas—a place which I believe is known to people for odd reasons nowadays. He said that the firm he was visiting had decided not to accept an offer on very favourable terms of property in a certain part of Dallas because in Texas there are apparently 400 different communications companies. They have shared out the territories among one another and if the firm had moved into a particular part of Dallas then the Bell Telephone Company—which they regarded as the best—could not serve them there because there was an underground agreement between the telephone companies under which the Bell Telephone Company had a circumscribed area within the City of Dallas. So the firm concerned remained where they were rather than take cheaper accommodation elsewhere in the city. Is that the sort of competition one is talking about? Is that the sort of thing that noble Lords on the Government side want done?

If one looks at Canada, one finds that Canada does not have the same sort of competition as there is in America. Why is that? It is for the very simple reason that Canada's population density is less and consequently one does not have numerous companies flooding across Canada and making a profit there. The whole of the Arctic region of Canada has a population of something like 40,000 people. They have an excellent national telephone service. Would they have a telephone service at all if this were left to private competition? We know perfectly well that they would not. We know quite well that the inevitable result of cut-throat competition will be that the consumer in less favoured parts will suffer. I do not say more favoured parts—he may get off quite well—but I say that the consumer in the less favoured parts will suffer.

Furthermore, the industry which we have in this country today, closely linked to the Post Office and supplying to the Post Office's specifications, will be crushed out of existence by American and Japanese competition. This would have happened in this country as regards our computers; IBM would simply have crushed ICL if ICL had not been guaranteed contracts by our Government—and I include the present Government. One can be absolutely certain that the net result of this beautiful Bill, put forward in order to press the particular dogmatic interests of the Conservative Party, will be to crush our telecommunications fabricating industry.

5.52 p.m.

Lord Glenamara

My Lords, we have had a very useful short debate on this important Bill. Many important points have been raised and we shall wish to pursue many of them at the Committee stage. But what a foolish, irresponsible Bill this is. Sir Keith Joseph called it "the Bill of the decade". It is a Bill which risks irreparable damage to two great and cherished British institutions, one of which has existed since the 17th century and the other for well over a century.

The British Post Office, as well as being one of our major businesses, is indeed a great and cherished British institution. But this Bill, of course, is in the tradition of recent Conservative Government Bills or perhaps I should say in the tradition of Bills of recent Conservative Governments. Your Lordships may remember that the Heath Government, from 1970 to 1974, reorganised local government; "disorganised" would have been a much better word. They bureaucratised it as never before, and this, of course, from a party which does not believe in bureaucracy. Now they are having to take draconian measures to control the monster that they created in that reorganisation.

Then the author of this Bill—Sir Keith Joseph—reorganised the Health Service and he reversed the order of creation by creating chaos out of order. Can any noble Lord really say that the Health Service or local government were improved by those two massive upheavals under recent Conservative Governments?

Now they are at it again and this, perhaps, is not surprising because most of the senior members of this Government were, of course, also loyal members of the Heath Government. This time it is the dear old British Post Office and magnificently successful Cable and Wireless. What have those two bodies done to deserve the fate of local government and of the National Health Service? I have some little knowledge of these two bodies for, I think uniquely in your Lordships' House, I happen to have been both Postmaster General and chairman of Cable and Wireless, so I speak with a little knowledge.

With all its faults—and it has many—I believe that today the British Post Office is the most efficient post office in the world. I shall mention some of its faults, as I see them, later; but taking those into account, its efficiency is much greater than the American, French, German or many other post offices. I very much regret that Sir Keith Joseph and today the noble Earl who opened the debate had not a word of praise for but a great deal of ill-informed, niggling, carping criticism of the Post Office. There is nothing at all in the performance of the Post Office to justify the re-organising attentions of this Government. On the contrary, in spite of the Government's ludicrous application of the external financing limits policy to what is a thoroughly successful and viable business which, as the noble Lord, Lord Byers, said could raise money for investment without any difficulty, if allowed to do so, and in spite of having to organise on a nationwide basis what is probably the most capital-intensive business in the economy, it has achieved quite commendable results in both sides of its business.

Why did not the Secretary of State in his Second Reading speech, to which I listened, and why did not the noble Earl, Lord Gowrie, today mention some of the successes of the Post Office? Why did not they tell us that 90 per cent. of telephone subscribers in this country can dial directly over 100 countries abroad? Why did not they tell us that the view data system, Prestel, is streets ahead of any United States system or any other system, and take a little pride in that? Why did not they tell us that 90 per cent. of first-class letters are delivered next day and that that is better than any other post office in Europe, and take some pride in that? Why did not they tell us that in recent years the rate of growth of postal business has been twice that of the gross national product, and take some pride in that; or that the productivity of Post Office engineers has doubled over the last decade.

I am sorry that in introducing the Bill today the noble Earl, Lord Gowrie, repeated the tired old arguments of six months ago which took no account of the total transformation in quality of the service given by British Telecommunications in the City in the last six months. The noble Lord, Lord Orr-Ewing, mentioned this and, of course, he said that it may have been due to the recession, which may well be true because there is a close correlation between telephone business, traffic and the economy. But this year work in hand has been cut by 45 per cent.; British Telecommunications is now providing international private circuits in 13 weeks; and in the City of London British Telecommunications is now providing new telephone lines in one to two weeks. The quality of international and inland automatic services is now the best in British Telecommunications' history.

Recession or no recession, these are real achievements. These are only some random statistics, and I could quote many others, to illustrate the real context as opposed to the mythical context in which this third Tory reform of a great national institution is being launched. So, in the name of Heaven, why this great upheaval in the Post Office? It has nothing to do with efficiency. On any objective assessment of its effects it will make British Telecommunications less efficient than it is today. It certainly has nothing to do with achieving a tidy structure. I believe that five years from now the British Post Office, if it is not repealed in that period, will look like a Heath-Robinson creation at its uproariest best. It will be a ramshackle, inefficient structure; it will be a hotchpotch of an inefficient, impoverished British Telecommunications, and an impoverished British Post Office with a penumbra of subsidiaries all competing with dozens of private enterprise firms, many of them almost certainly owned by large electronics firms of Japan, the United States of America and Germany. In five or six years' time that will be the pattern in this country. It has nothing to do with efficiency; it has nothing to do with a tidy structure; so why this? We have to look at the nature of this Government to find out why they are doing this; why they are introducing this extraordinary Bill.

The noble Earl, Lord De La Warr, said that it had nothing to do with dogma. I am sorry, but I take exactly the opposite view to the noble Earl. I am forced to conclude that it is motivated entirely by Tory theology.

Earl De La Warr

My Lords, will the noble Lord bear in mind that I did say that it was of course politically inspired? I then went on to say that I did not find it rooted in dogma.

Lord Glenamara

My Lords, I do not think that there is much difference between what I have said and what the noble Earl has said. The Secretary of State who is the author of this Bill is the Government's number one theologian. He is to the British Cabinet what Mr. Suslov is to the politburo in Moscow. There never was a Government more bound up, more enmeshed in their own theology than this Government. It is rather like that poor old mummy in Bristol University. Layer after layer of ideology. You cannot see the real chaps under it all, they are so bound up in their own theology.

Lord Orr-Ewing

My Lords, would the noble Lord allow me to intervene? I am most grateful to him. Could the noble Lord perhaps have an instance where we have totally nationalised and de-nationalised an entire industry? Every time they come to power they nationalise something extra and add to the burden of the public sector. We have only nibbled at the fringes and tried to introduce an element of competition. Is this not reasonable?

Lord Glenamara

My Lords, this Bill enables the Secretary of State to take a number of major bites at it, not a number of nibbles. In the case of Cable and Wireless to de-nationalise it completely. The noble Lord says so he should. He is making the point for me. I am not complaining about a Government having principles or a philosophy, but the tragedy is that this Government apply their principles to every situation irrespective of the facts of the situation. One would have thought that a party so obsessed with defence matters would have adopted the military technique of making a thorough appreciation of the problem, of each situation confronting them and then, and only then, making a plan to meet the situation. But not on your Nelly. This Government do no such thing. They simply apply their prejudices about competition; about the superiority of private over public enterprise; about the evils of trade unionism. They apply their prejudices to every situation that comes along whether they are relevant or not. Elijah, Elisha, and all the Old Testament prophets were much more pragmatic than this Government.

This Bill broadly does three things. First, it divides the Post Office into two separate corporations. Secondly, it gives the Secretary of State power to diminish considerably both the postal and telecommunications monopolies of the Post Office by ministerial edict—a device beloved by the Secretary of State, who has used it in almost every Bill he has introduced into Parliament. Thirdly, and sneaked in at the end in Clause 76, power to sell the shares in Cable and Wireless.

First a few words on dividing the corporation. Already this is virtually done. The noble Earl, Lord Gowrie, remarkably today told us that this was so. I noticed an advertisement in The Times last week advertising for solicitors for the Post Office. This is what it said: British Telecommunications will require separate legal services and in preparation for the proposed division, the Solicitor's Office has been divided". I thought that this division required parliamentary approval. A very large amount of money has been spent on this. I should like to know from the noble Lord, Lord Trefgarne, who authorised it. It is to treat Parliament with something like contempt simply to ask us to approve something that requires parliamentary approval when the noble Earl tells us that it has already been done, and this advertisement put in The Times by the Post Office tells us that it has already been done. I shall return to this in a minute because it applies to Cable and Wireless as well. There is a rather important principle being breached here.

I return to the question of why is this being done. Sir Keith Joseph told us in the Second Reading debate. He said this, and only this: I come to the split of the Post Office into separate corporations for the postal services and telecommunications". He tells us that it has been under consideration for some time. Its argument was "— that is, the Carter Committee— that the two businesses are markedly different, one being capital-intensive and the other labour-intensive. Each needs its own board to concentrate on running its business".—[Official Report, Commons, 2/12/1980; col. 207.] That is all we are told. The noble Earl repeated that today.

What an extraordinary argument in this day of the large conglomerates who very often own a large number of quite disparate companies. I happened to come across the annual report of Thomas Tilling. It has just been published. It sets out their interests: builders' merchanting; construction materials, equipment and services; energy equipment; industrial equipment distribution; insurance;manufacturing engineering; medical supplies; furniture; publishing; textiles; tiles and pottery; vehicle distribution. It is quite common in this day and age for large companies to have quite different interests. Anyhow, as I shall mention shortly, I contest the view that nowadays the postal side and the telecommunications side are all that different.

Then we are told that the Post Office has become too big to manage. Here again this is demonstrably untrue. Demonstrably by reference to many quite brilliantly managed large firms throughout the world. When I was Postmaster General I had McKinsey in the Post Office surveying the management. They did not recommend a division, but they recommended a different management structure for the Post Office. When the Director General of the Post Office retired I did not appoint a successor from the civil service. I think for the first time ever, I invited a businessman—who until he died a few weeks ago was a Member of your Lordships' House—to take over and head the Post Office. He was then Mr. John Wall.

After he had been there a month he came to me and said two things. First, "The Post Office is under-managed", and secondly, "the Post Office has got the wrong management structure". I said, "Well, your remit is to put that right". Mr. Wall, as he was then, met, as everybody did in the Post Office then, great kindness but he also met resistance from ingrained civil service attitudes in the Post Office. The structure needed changing, not duplicating. Above all it needed, and I think still does, new attitudes which graft a sharp commercial edge on to the quite laudable but in itself inadequate public service attitude of the civil servants.

Splitting the corporation as this Bill proposes does mean duplicating the management structure—I quoted this Times advert—and particularly in the matter of buildings. Any of your Lordships who is associated with businesses which have large head offices in London will know just how important those buildings are in the balance sheet nowadays. If this had happened under a Labour Government, I am sure the party opposite would have accused us of doubling the bureaucracy. At grass roots level the postal side and the telecommunications side, as everybody knows from their own localities, are so intertwined, sharing buildings, sharing counters, that it seems nonsense to extricate one from the other when they have lived happily side by side for so very long. But the major point about this division is not any of these points. It is that if ever there has been a case for it, it is less today, and it is getting less all the time because of the developments in the technology of telecommunications. The growth of electronic transmission of mail is quite remarkable. In the same issue of The Times that I took that advertisement from there was an article headed: British Telecom to start high-speed desk-to-desk message service". The article stated: A high-speed desk-to-desk message service is to be started early next year by British Telecom, the telecommunications arm of the Post Office. Users of the service will be able to type letters, internal memoranda and other messages on their terminals as if the terminals were ordinary typewriters, and then send the correspondence directly to the recipient over the telephone network". That says it all; electronic mail will probably replace at any rate inter-business written correspondence and telex within a very few years. It is a convergence, a coming together, of the postal service and telecommunications, and at the very time when that is happening, this wonderful reforming Government of ours decide to separate the two. To confuse matters even further, they propose to give the new Post Office power to provide electronic mail.

Having said all that, I recognise that there are two views about splitting the corporation. I do not think all my noble friends behind me would agree with what I am saying. I am expressing my own view based on a little knowledge both of the Post Office and telecommunications. I understand that the two major Post Office unions are divided on this matter. They are a little like the two women before Solomon, only this time the sword will fall. Indeed, it has already fallen and the unfortunate babe has been rent in twain.

Parliament is being asked to authorise something which requires parliamentary approval but which the British Post Office, presumably with the approval of the Government, has in fact already done, and, as I said, that is not the way to treat Parliament. Why has this extraordinary procedure been allowed? Considerable expenditure has been incurred by the Post Office. The same thing, as I pointed out, has happened in the case of Cable and Wireless; selling the shares requires parliamentary approval—the passage of this Bill—yet considerable fees have been paid or incurred in preparation for that sale without parliamentary approval. Strictly speaking, there should be no expenditure before Royal Assent, but it has become the custom that expenditure can be incurred after Second Reading. However, this Bill is having its Second Reading in your Lordships' Chamber only today. If the councils of Lambeth or Camden incurred expenditure which they had no legal right to incur, the district auditor would surcharge them. Will anyone surcharge the board of the British Post Office for this advertisement and for all the other expenditure they have incurred? Will anyone surcharge Sir Keith Joseph for the expenditure so far incurred in preparation for the sale of the shares in Cable and Wireless?

I come to the second proposal in the Bill, the monopoly to British Telecommunications. Clause 15 enables the Secretary of State to grant licences derogating from that monopoly. It also enables British Telecommunications to do so with his consent and it enables the Secretary of State to direct British Telecommunications to grant licences. In passing, I would contest the view of the noble Lord, Earl Gowrie, that these orders are irrevocable except by legislation. I should need to take advice on the matter, but on the face of it that cannot be true; what is done by Ministerial order surely can similarly be undone, unless the Act specifically says otherwise.

Similarly, Part II of the Bill enables the Secretary of State to derogate from the postal monopoly. As I pointed out, if the Secretary of State's ministerial record for the past two decades is looked at, this technique of omitting the really important details from legislation, leaving the Minister enabling powers to fill in the details, appears time and again. He is a great one for asking Parliament to give him enabling powers—in this case very considerable enabling powers—but of course in this case we have a pretty good idea of what he intends to do with them, and from his reaction to the Beesley Report. Noble Lords should ask themselves two simple questions: first, will these powers which the Secretary of State is taking—he has told us how he intends to use them and the noble Earl filled in the details a bit today—improve the service; and, secondly, will the proposals help or hinder the United Kingdom's ability to exploit the potential growth in the world telecommunications market?

First, what about the customer? As a number of noble Lords have said, the Post Office runs the world's fourth largest communications network. For the past decade it has grown at approximately 8 per cent. a year—rather more because it has doubled in a year—without any increase in staff. That has represented a massive increase in productivity. It provides a truly national service, not only to commerce and industry but to almost every remote farm and hamlet in the country. The charge for a call from a remote house in the Cumbrian mountains or on the Caithness coast is exactly the same as from an office in London. How is that done? It is done by extensive cross-subsidisation, as in the case of almost every telecommunications authority in the world. That allows national charging for telephones. For example, the cities subsidise the rural areas and long-distance and international calls subsidise local calls. Almost every national telephone system does that, and so the existence of a monopoly permits a national system of charging for the telephone.

It is often said that monopoly reduces sensitivity to customer needs by stifling innovation. Let us look at a few of the innovations for which the Post Office has been responsible. Prestel I have already mentioned. The noble Lord, Lord Hankey, mentioned optical fibres; they were largely the work of two British scientists and they offer enormous increases in capacity for traffic and reductions in cost. About 450 kilometres will be fully operational by next year, I understand, and that will be the most comprehensive network yet for optical fibres. Incidentally, Cable and Wireless are also introducing them in Hong Kong. I take pride in that, and I hope the Government do as well.

Then we have System X, which is a potential world-beater. The United States, which the Government never cease to quote, has produced nothing to equal System X. I have mentioned overseas direct dialling; more countries can be dialled from this country than from anywhere in the world.

The Earl of Gowrie

My Lords, with great respect to the noble Lord, he really must not talk as if the Government were abolishing all those admirable institutions. We are talking about restructuring arrangements, introducing some element—not an extensive but some element—of private competition to add to them. The whole thrust of the noble Lord's rhetoric for the last 26 minutes has been as if the Government were somehow divesting themselves of those admirable institutions.

Lord Glenamara

I listened to the noble Earl make his speech in silence, my Lords, and I hope he will listen to mine. I am talking only about the innovations because it is said that monopoly stifles innovation. For example, on the question of shared lines, in the United Kingdom 10 per cent. have two-party lines and there is a programme to phase them out. In the United States, taking one sector, GTE, 17 per cent. share their lines with up to eight other subscribers.

Lord Orr-Ewing

What about the United States' system, my Lords?

Lord Glenamara

My Lords, in some ways the United States system is superior to ours. There is a quicker provision of service there with a slightly lower fault rate and a much wider range of equipment. We do not have to look far to find the reason for that. Indeed, my noble friend gave it by quoting two figures: the investment rate in Britain is £18 per head per annum whereas in the United States it is £36, or double. The real value of investment in British telecommunications has fallen each year since 1973. A 20-year comparison of investment in telecommunications in the United Kingdom and the United States shows higher investment in the United States over the whole period. That is the reason for the quicker installation rate, the lower fault rate and quicker services in the United States.

Lord Orr-Ewing

My Lords, would the noble Lord give way?

Lord Glenamara

Time is getting on, my Lords, and I hope the noble Lord will forgive me if I do not give way. The reason for the difference has nothing to do with poor management, poor industrial relations, or lack of competition. It is simply due to the Government's cash limit restrictions on investment. That is the cause of the shortage of exchange equipment, with too much old electromechanical equipment, Strowger equipment, and too little electronic equipment. That is the cause of the shortage of stores to provide services. That is the cause of the shortage of staff to install and maintain equipment, and that is the cause of the slow replacement of out-of-date equipment. That, not the lack of competition, is the cause of the shortcomings in British Telecommunications.

If Beesley is implemented, it will allow a private circuit to be leased from British Telecommunications and then used to sell to third parties services which are now being provided by British Telecommunications. Furthermore, going outside his remit, Beesley recommended that similar arrangements be allowed in international services as well. BT, like other telecommunications authorities, makes the bulk of its profits on trunk and international services, and so the inevitable result of implementing the Beesley recommendations would be a loss of British Telecommunications revenue, and therefore higher prices for residential and rural customers and poorer services because British Telecommunications would be forced to phase out subsidising of local calls and rural areas. BT has put the possible increase at between 50 and 60 per cent. Sir Keith Joseph has put it at 20 per cent. Even today's Daily Telegraph, which is a great friend of the Government, put it at between 20 and 25 per cent.

So, as one of my noble friends asked, who will serve the rural customer if the Bill becomes law?—and the Secretary of State certainly can then implement the Beesley recommendations under Clause 15. There British Telecommunications' only duty will be to provide the first telephone. So why should it provide other services at a loss? Incidentally, and interestingly, a similar point arises in the case of Cable and Wireless. Why should it provide communications for, say, St. Helena, or the Falkland Islands, at a loss? Exactly the same point arises there. Who will supply the services in rural Devon, Norfolk, Caithness, Cumbria? As my noble friend said, British Telecommunications will almost certainly have to charge for maintenance. The noble Lord, Lord Wynne-Jones, said that a small handful of large business users will benefit, but the vast majority will be faced with higher costs. So the answer to that question is that the customer most certainly will not gain.

Now what about British Industry? I shall not quote my own views, but I shall quote the views of a number of very reputable journals. Business Week published in July an article, which stated: US makers of telecommunications equipment may stand to gain the most from Britain's July 21st decision to rescind the state monopoly of telecommunications equipment". The Economist, on 6th December, stated: The General Telephone and Electronics Company hopes to have 15 per cent. of the market for British PABX equipment within five years". Engineering Today, on 6th April this year, stated: There could be a cheap overseas invasion". Electronic Times, in January this year, stated: Vako Electronics were eager last year to tell Electronic Times of its plans to set up a telephone assembly facility in the UK. Parts for the telephone will be imported from Taiwain, while the electronics would be developed and manufactured by Vako. The company is now just importing the readily assembled equipment from Taiwain. It is then being sold through an agent in the UK and Vako has no further interest in the business". That is exactly what is going to happen.

Sir Keith Joseph has spoken rather airily of making reciprocal trading arrangements with foreign manufacturers, and the noble Earl did so today. But those remarks really are meaningless. At best, they can be nothing more than gentlemen's agreements, and when it comes to national commercial interests, there is not much gentlemanly conduct about, I fear. Anyhow, the agreements are no guarantee of access to markets. If your Lordships think that the penetration of the United Kingdom market by Japanese, German, and French cars is fairly dreadful—and it is—well, all I can say is, "You ain't seen nothing" compared with what will happen when this telephone bonanza is opened up.

Finally, and very briefly, I should like to say a few words about Cable and Wireless. If the Government's treatment of BPO is difficult to justify, their proposal for Cable and Wireless, which is probably the most consistently successful publicly-owned industry, is sheer industrial sabotage. Cable and Wireless has existed in one form or another for over 100 years. It pioneered the first submarine cables in the British Empire and across the Atlantic. In the 1920s the submarine cables were being rivalled by the new wireless companies, and sensibly the two came together and formed Cable and Wireless. Some of your Lordships might remember sending cables by the old Imperial—Imperial Communications Limited—before the Second World War.

After the Second World War, there was an Imperial Conference and it was decided that each Commonwealth country should take over its own external telecommunications. The Dominions and the bigger colonies did so, but Cable and Wireless, as it was then called, was left operating the external telecommunications, and sometimes the internal telephone system as well, of many Colonial territories and some foreign countries. It was believed that those countries as they reached independence would want to own and run their own external telecommunications. But in most cases that has not happened. On the contrary, in the past four years, for example four independent Commonwealth countries have come to Cable and Wireless and asked it to run their external telecommunication, and in one case, that of Botswana, its internal telephone system as well.

That has happened for two reasons. The first reason has been the sheer competence and integrity of Cable and Wireless. The second reason has been that the countries know that the British Government stood behind the company—it was wholly-owned by the Government. So at a time when British influence has receded, for example in the Indian Ocean, this great British publicly-owned company owns and operates the most sensitive public utility for most of the Gulf States, and in the case of Bahrain the telephone system, too; for Oman, North Yemen, for the Maldives, the Seychelles, and Mauritius. It is the most sensitive of their public utilities, in terms of their economies and their defence, as well as politically. In the Pacific Cable and Wireless operates for the Solomons, for Vanuatu, (in co-operation with a French company, which is not going to be denationalised), for Tonga, the Cook Islands, and Fiji. It also does so for most of the Caribbean Islands.

In addition, the company has a fleet of modern, sophisticated cable ships, which guard and maintain the world's cables, which are now tremendously important. Ships are permanently stationed in Vigo, (in Spain), in Singapore, Suva, Honolulu and Bermuda. As well as guarding the cables, it lays most of the new submarine cables. In this field we are beating the world, including the Japanese. In recent years Cable and Wireless has developed a contracting business and is now, for example, carrying out a defence contract, worth hundreds of millions of pounds, in Saudi Arabia.

I apologise for talking for so long, but so little is known about Cable and Wireless, and what I have said all adds up to a major British influence in the world at a time when we could do with much more of this kind of thing. The Government are proposing to dissipate it, to flog it for a one-off financial gain, and so put it all at risk. Why? Make no mistake, my Lords—if Cable and Wireless is denationalised (and the Bill gives the Government the power to do that) the independent countries where it operates may well nationalise its operations there and buy the expertise needed to operate it from the USA, France, Germany, or Japan.

The noble Earl, Lord Gowrie, said that all the countries where Cable and Wireless operates had been consulted and none of them had opposed the proposal. Will the noble Lord, Lord Trefgarne, confirm that the Government of Hong Kong, where Cable and Wireless earns the bulk of its profits, is insisting on a joint company with the Hong Kong Government? Will he also confirm that a similar kind of arrangement will probably be insisted upon in Bahrain, the next biggest earning area for Cable and Wireless? Of course some countries have taken over the operations of Cable and Wireless in the past few years—and they paid only book value for the assets. So anybody who proposes to buy the shares of Cable and Wireless should bear that in mind.

We have been given no reason at all from anybody in the Government for this body blow at a vital and successful British industry. What an appalling disgrace this is! They simply cannot abide seeing a successful publicly-owned company, a company owned by the whole British people, and they insist on its being owned by some of the British people—the ones who have money to buy shares in it. Of course, nationalisation overseas is not the only danger. The other—and it is a very serious danger—is that it is going to end up in foreign hands. When the shares are marketed you can ensure that they go only to British nationals, but who knows in whose hands they will end up in, say, five years' time? I can tell the noble Lord that Siemens, an EEC company, would dearly love to own Cable and Wireless, and so would a number of other electronics companies throughout the world.

What the Government are proposing to do with this great company is a sheer disgrace. This Bill is not only irresponsible; it is ill-informed. It tampers with two great and successful British institutions. It will create chaos in what is, as I have said, the most sensitive of public utilities. It will weaken our national economic effort, for good communications are now the lifeblood of the economy. It will deal a colossal body blow to our own electronics industry. It will result in higher charges for residential subscribers and rural subscribers. Even the Secretary of State agreed with that. In three years' time the then Labour Government will have to unscramble it and restore sanity, but I fear that before then very great harm will have been done. What a foolish, what an inept, measure it is!

6.32 p.m.

The Parliamentary Under-Secretary of State, Department of Trade (Lord Trefgarne)

My Lords, this, as was to be expected, has been an important and interesting debate. It has been concerned with the future, for this Bill is designed to open the way to opportunities which as a nation we cannot afford to let slip. Nobody can forecast these opportunities in detail at the present time, and therefore the Bill is bound to be permissive and open-ended, rather than restrictive and minutely prescriptive. It gives the Secretary of State the powers to respond to changes as they occur in a field which is likely to see changes over the coming years greater, perhaps, than any other. We have heard about a number of products and services for which the technology is already known and available. What is needed is the spur of competition and the freedom for British companies to go out and meet the demand for new services from businessmen and consumers. This is why this is an exciting Bill and one which points the way to innovation and growth—and so to creating new jobs.

May I turn now to some of the points that have been raised during the course of the debate—and, indeed, there were a great number. Perhaps I may first refer to the question of finance in British Telecoms. There is no dispute whatever about the need for telecommunications investment. The Government are reviewing every possible means of financing that investment within the constraints imposed by the need to control interest rates for the benefit of private sector investment generally, as the noble Lord, Lord Hankey, recognised, and particularly for the smaller and progressive enterprises.

But let us not lose sight of two things. First, a programme in 1981–82 of around £2 billion is a very substantial programme indeed compared with recent years, particularly in the present economic circumstances. It represents an increase in real terms of several hundred million pounds. The financing of the bulk of that programme is not at issue, and the remaining gap of some £300 million or so is under urgent consideration. Secondly, your Lordships will recognise that British Telecoms itself must do all in its power by productivity improvements and high efficiency to play its part in increasing its revenue and to ensure the cost-effectiveness of its investment. In particular, it is essential to ensure that any increases in British Telecoms' borrowing are genuinely devoted to increasing investment, and do not, for existence, find their way into excessive pay settlements.

The claim by the noble Lord, Lord Glenamara, that cash limits are the cause of lower investment in recent years, including waiting lists and lack of spares, et cetera, does not, I think, bear examination. British Telecoms themselves have never claimed any such thing. On the contrary, both British Telecoms' investment and its external financing limits have been increasing in real terms in each year since this Government came to office.

Let me now refer to the point made by several noble Lords about the application of British Telecoms' borrowings to the public sector borrowing requirement. Several noble Lords from all sides of the House have suggested that some way ought to be found of removing these borrowings from the PSBR. I would not want to venture into a formal definition of the PSBR, which is something for wiser heads than mine, but it is perhaps worth pointing out that those who lend money to public sector organisations do so in the informal expectation, at least, that the Government stand behind those borrowings. That is why, in the eyes of the Government, all such borrowings have to form part of the so-called PSBR, because in the last resort the Government stand behind the borrowers should the unthinkable happen to any of these organisations.

Several noble Lords also raised the question of the powers of the Secretary of State as defined in this Bill. I would remind your Lordships, if that were necessary, that British Telecoms is working now at the very limits of technology in some areas. I cannot forecast precisely how or when this technology will develop, and it is for that reason that the powers have been taken in the Bill as they have. We see it as vitally necessary to ensure that the Government have the power to respond to technical and scientific progress. In any event, I think it is most important to distinguish between positive and negative powers. The enabling powers given to the Secretary of State in this Bill are essentially to divest or de-regulate monopolies, and to introduce competition at an appropriate place, and that is far from an interventionist posture.

The noble Lord, Lord Hankey, my noble friend Lord De La Warr and, I think, some other noble Lords referred to the question of joint ventures, and in particular to the use of powers under Clauses 4 to 8 of this Bill. The Government will most certainly welcome partnerships with private capital in subsidiaries formed by British Telecoms. There are a number of obvious advantages to be gained from such arrrangements. British Telecoms would gain access to and be able jointly to develop the business and technical skills, expertise and organisation of private sector firms in areas such as marketing, research and development, shared distribution networks and so on; in other words, the normal factors which bring commercial organisations together jointly to exploit new opportunities. British Telecoms would also gain access to private sector finance as a means of maintaining and increasing investment in telecommunications outside the constraints that inevitably arise from the need to contain public sector borrowing, to which I referred a moment ago.

It has been suggested that these powers might be used to secure the total disposal of British Telecoms' subsidiaries. This seems to be most unlikely. In all the areas that I can think of where a joint venture with British Telecoms would be attractive to the private sector, it would be precisely because British Telecoms had a substantial stake in the enterprise concerned. It would make no kind of sense in these circumstances to try artificially to force the private sector to go it alone, without British Telecoms' participation.

The noble Lord, Lord Byers, and other noble Lords referred to the admirable succinct nature of the noble Lord's speech and referred to the vesting of monopoly in Government and the licensing of British Telecoms as well as other operators. This point was raised by at least one other noble Lord. I can see that this would be a possible alternative approach, but it would have meant considerably more administrative disruption that the method we are proposing since it would have been necessary to define the precise nature of and extent of British Telecoms current services in order to licence them ab initio. In practice, I am doubtful whether the overall effect of our proposals will be any different since, under the Bill as drafted, we shall have full powers to license other operators to carry out any activity coming within British Telecoms exclusive privilege.

The noble Lord, Lord Ponsonby, referred to the wide-ranging nature of Professor Beesley's findings. The noble Lord should know that it is impossible to draw rigid boundaries to any aspect of telecommunications. Professor Beesely has been right, in the Government's view, to draw attention to questions outside his formal remit which he considers to have important implications for the main substance of his study. As regards international services, Professor Beesley's main recommendations are confined to the use of the network within the United Kingdom because international services are subject to agreement between the various administrations involved. British Telecoms will remain the operating entity for the United Kingdom's international telecommunications, but, as now it will have power to license independent operators where appropriate within the terms of international agreement. I hope that British Telecoms will give careful consideration to Professor Beesely's constructive suggestions for the leasing of international circuits.

The noble Lord, Lord Ponsonby, and the noble Lord, Lord Underhill (who told me that unfortunately he would not be able to remain in the Chamber), asked about divided maintenance responsibilities. I think this was referred to by at least one other noble Lord. The Government's intended prime instrument policy, to which my noble friend Lord Gowrie referred in his opening speech, is specifically designed to meet this problem. British Telecoms will remain fully responsible for subscribers' first telephone instruments and will thus be able to maintain a satisfactory end-to-end telephone service in performance of its statutory duty.

The noble Lord, Lord Byers, and my noble friend Lord Orr-Ewing referred to the possibility of an independent telecommunications authority. I had expected them to liken that to the Federal Communications Commission of America but, in fact, they drew greater similarity to the United Kingdom's Civil Aviation Authority—of which I do have some knowledge—rather than the American FCC. The Government, however, have been concerned to avoid the creation of a new bureaucratic organisation where we believe the functions concerned can be equally well carried out by existing bodies. In the case of technical standards for attachment to the network, it is general Government policy where standards are referred to in legislation to look to the British Standards Institution to carry out the standards writing function. That has been well established over the years. Similarly, for the authentication of equipment to the required standards, the British Electro-Approvals Board (the BEAB) have extensive experience of this field. Taking over the authentication function on a self-financing basis will be transferring it from the public to the private sector.

It is true that telecommunications licensing will be a new activity for the department itself. I believe, however, that there are advantages in the licensing function being exercised by the Secretary of State accountable directly to Parliament. It is intended, so far as possible, to proceed by means of general licences which, once issued, will create conditions of open competition in telecommunications similar to those now being created in the United States. The noble Lord, Lord Byers, also asked me about data protection. The noble Lord asked when legislation will be introduced to deal with this issue. As my right honourable friend the Home Secretary has made clear, the Government have decided in principle to introduce legislation on this subject when an opportunity offers. I am afraid that I cannot at the present time be more specific about the timetable.

The noble Lord, Lord Davies of Leek, asked through my noble friend Lord De La Warr about the supply of qualified engineers and my noble friend suggested that I might be better placed to answer it than he himself. British Telecoms provide many trade courses, but I take the point that even these courses need a supply of entrants holding the necessary basic qualifications, for example, O-levels, A-levels, City and Guilds, et cetera. I hope the noble Lord will forgive me if I do not develop that point, because that is perhaps rather wide of the subject of our debate this afternoon, save to say that the system also requires an adequate supply of young people willing and able to embark upon a career of the kind envisaged. I believe that that may be the first requirement if we are to solve the shortage, if shortage there be.

My noble friend Lord Orr-Ewing also asked why the prime telephone itself should not be liberalised as part of this policy. The prime telephone policy requires that where a telephone terminates a direct exchange line, British Telecoms will continue to be responsible for the telephone instrument as well as the direct exchange line. This policy does have a number of advantages. First, it will enable British Telecoms to ensure a high standard of end-to-end service to which I have referred already. Secondly, it will enable customers to determine whether a fault lies in British Telecoms equipment or a privately-supplied attachment since the British Telecoms telephone will always be available to test the line. This should avoid unnecessary visits by British Telecoms engineers. Disputes between the telephone company and subscribers about responsibility for faults has been a problem in the United States. Indeed, other countries in their liberalisation programmes, including, for example, France and Canada, have adopted a prime instrument policy. One noble Lord—I think it was Lord Glenamara—referred to the Canadian experience in particular. Contrary to what has been said or implied during the course of this debate, I should say that the Canadian authorities are liberalising their telephone telecoms règime. I might only add that there was widespread support for the prime telephone policy, as it is called, and the Government are satisfied that this is the right way to proceed.

My noble friend Lord Orr-Ewing also referred to the management structure of the new règime. Once the main licensing decisions have been made the structure will be really very simple. As far as possible, the Government are aiming at a deregulated position with the Government having reserve powers used as infrequently as possible.

At the same time, existing organisations such as the British Standards Institution and the BEAB, to which I have already referred, both private sector bodies, will have a role to play. We do not wish to see a new monolithic regulatory body in the public sector where export bodies already exist. My noble friend Lord Morris also referred to the need, as he saw it, for British Telecoms to be able to compete. The Government's policy is that British Telecoms should indeed be free to compete in the provision of telecommunications equipment and services, provided that such competition is on a fair basis. We are supported in this view by the report last year of the Advisory Council of Applied Research and Development (ACARD) which specifically considered this question and recommended that British Telecoms should be free to supply terminal equipment and information technology services for use with the network without having an exclusive right to do so and that it should not be the approving authority for terminal equipment and IT services provided by others. The Government's proposals are in line with the ACARD recommendations.

My noble friend Lord Morris also asked me about the order of consideration of amendments and clauses at the Committee stage. I would tell my noble friend that this is a matter for the authorities of the House, and of course the usual channels, to which I suggest he addresses his request. The noble Lord, Lord Wynne-Jones, seems anxious to leave, I think. I am sorry if that is the case because I am just coming to the remarks that he made.

Lord Wynne-Jones

My Lords, I can assure the noble Lord that I am anxious to stay.

Lord Trefgarne

I hope that the noble Lord will not be disappointed. My Lords, the noble Lord referred to Texas and what he saw as an unsatisfactory situation in a particular city there. I understand that the state of Texas has now regulated local monopolies such as the one to which the noble Lord referred; they are supervised by state regulatory bodies. The Government have no proposals for a similar system here, which will not I think be necessary. I referred earlier to Canada, to which the noble Lord also referred.

Lord Wynne-Jones

My Lords, would the noble Lord permit me to make one comment on that? Surely, what he has just said shows that the more one tries to liberalise, the more one has to regulate.

Lord Trefgarne

I do not think that is the case at all, my Lords. There was a clear abuse of the legal position in Texas which the local authorities there saw fit—quite rightly—to correct, and naturally abuses of the position need to be corrected all the time in every règime that exists.

Lord Morris

My Lords, before my noble friend moves on to the next point, I did approach his—and indeed my—noble friend Lord Gowrie on this point in detail. I also spoke to the Liberal Party and the official Opposition, as I said in my speech. It was suggested that this point should not be addressed to him but should be dealt with through the usual channels: would my noble friend be kind enough to advise me what I should do now?

Lord Trefgarne

My Lords, I suggest that my noble friend should go to see the Chief Whip. The principle of the split was raised by a number of noble Lords. The idea of this split did not originally start in the mind of my right honourable friend the Secretary of State, who came in for such criticism at the hand of the noble Lord, Lord Glenamara. The separation of the Post Office has been under consideration for many years. The Carter Committee, which was set up at the end of 1975 by the previous Administration, recommended firmly in favour of separating Posts from Telecoms all those years ago. No decision was made by the last Government and soon after we came into office we decided to end the uncertainty. Extensive consultations with the chairman of the Post Office, the Post Office Users' National Council and other interested parties, including the trade unions, showed a broad measure of support for the separation. In the light of these consultations, my right honourable friend the Secretary of State announced last year the decision in favour of implementing the Carter Committees recommendation.

I do not think that I need to go further about the principle of separation, which of course lies at the heart of this Bill, except to deal with the specific point about timing which was raised by the noble Lord, Lord Glenamara, who particularly referred to the advertisement that he had seen in The Times recently. Splitting the administration of the Post Office does not require legislation. As the last Government's White Paper on the Post Office (Cmnd. 7292) said: Whether or not there is eventual separation, each business in the Post Office must be and already is self-reliant and to a large extent self-contained". Most of this happened under the previous Administration. As my noble friend Lord Gowrie reminds me, it is therefore not Tory theology, admirable though that may be from many points of view.

This has been an important and interesting debate. There is no doubt that the communications industries are entering a new era. It is essential that as our postal and telecommunications businesses move into that era they are in a position to meet the challenge and provide the country with efficient and effective services. The debate has made crystal clear the importance attached by everyone in the House tonight to this principle, which is indeed at the root of this Bill. The Bill creates the necessary radical new framework for the two businesses, smaller operating units, individual profit centres, competition, improvements in consumers' rights. All these will help contribute to the achievement of this end. When the monopolies are in the interests of the country they will remain; but if they run counter to those interests, then this Bill will allow the necessary changes to be made. The consequences of the Bill which we have been considering today will reach well into the next century. They will go a long way to determining the competitiveness of our industries in the future, and particularly the service industries.

The City is already crying out for these services. The Bill seeks to release the energies, skills and financial resources of the private sector into a field which has so far been dominated by state monopoly. The objectives of the Bill are strongly supported by the business community as a whole and will bring great benefits to consumers. It is an important Bill—as has already been said, perhaps one of the most important measures of this Parliament. I hope that your Lordships will now agree to give it a Second Reading.

On Question, Bill read 2^a, and committed to a Committee of the Whole House.