Industry: The Public Sector

HL Deb 04 February 1981 vol 416 cc1199-216

2.46 p.m.

Lord Beswick

rose to call attention to the constant ministerial criticism of the public sector of the British economy; to the sale of profitable publicly-owned assets; and to the need for a more constructive and positive policy which recognises the value of a properly-balanced and integrated mixed economy; and to move for Papers.

The noble Lord said: My Lords, the Motion before us is worded a little differently from that originally set down, not because I have changed my views, but because on the advice of the Clerk of the Parliaments I naturally agreed to conform with the practice of the House in relation to a Motion calling for Papers. At the outset of the debate I want to underline the last part of the Motion which I am moving; namely, Britain's need for a more constructive and positive policy which recognises the value of a properly-balanced and integrated mixed economy". I shall not spend time in attacking private enterprise, but if anyone seeks to show as a matter of first principle that it is a superior form of activity, then I would remind him that we have it on the highest Conservative authority that there is an unacceptable face of capitalism. If it is a matter of finding faults, I would say that for every one fault in the public sector, there can be quoted two, three, four or more in the private sector, starting probably with the independent report of a few weeks' ago which shed light on one area of private enterprise and found that of 50 garage firms, only two were not open to charges ranging from incompetence to dishonesty.

I make those references only to strengthen the advice which I tender to the House, that it would be unwise and unrewarding to turn the debate into an argument of private versus public enterprise. I am asking for a properly-balanced and integrated mixed economy and there is a need, and a proper place, for the best in both private and public enterprise.

So while I recognise that there are in the private sector companies of proven worth, led by individuals of ability and integrity—some of them in this House—I also want to say as strongly as I can that I deeply and bitterly resent the unwarranted and damaging criticisms constantly levelled at the public sector and, by implication, if not design, against those men and women who serve in it. I have in mind extravagent language which uses words such as, "horrific", "debilitating", "poisonous", "voracious" and most recently from the Prime Minister, "haemorrhage"—all applied to productive enterprises and all as unwarranted as they are offensive. I suggest that this is sick language. It may serve to set up a scapegoat for the sad failure of economic policy, but it obscures the real issues.

The other day the noble Lord, Lord Orr-Ewing, made play of a figure of £3.1 billion which, he would have us believe, was squandered by the public sector. At the Dispatch Box the noble Earl, Lord Gowrie, dutifully told us that this expenditure was due to previous nationalisation policies. Much more usefully he could have told us how much of that money was returned in excessive interest charges, how much had gone on redundancy payments due to Government policy and how much was making good a previous lack of investment in the private sector. Then we could more usefully have considered the real problems of Britain.

A large slice of that £3.1 billion must have gone to British Leyland—a company which, under private enterprise, was called the most under-capitalised in the country. How much better if Austin Morris had been prepared to invest in a really modern production line! We now have the Mini Metro, which the Prime Minister, very rightly, has been boosting; but there would have been no such model if noble Lords' prejudiced approach had prevailed. In a Conservative Party broadcast on October 1st last year they were actually illustrating Britain's industrial achievements under conservatism with pictures of what was called "the most modern car production plant in the world". There was no mention in that broadcast of squandering taxpayers' money; nor was there any indication that it was in fact due to public enterprise.

Let me give more detailed examples of the governmental criticism of which I complain. On 14th December 1979, Mr. Adam Butler, as industry Ministry of State, addressed a gathering of businessmen. He said, among other similar things: Nationalised industry bills are horrific. They are debilitating the economy". This is the "haemorrhage" theme. Some of the "sinners", he said, were utilities.

In my dealings with Mr. Butler—and I say this very sincerely—I found him one of the most courteous and helpful Ministers and, indeed, parliamentarians that I have ever been privileged to meet. But that speech caused great and understandable offence among all the chairmen of nationalised industries. The "sinners", as he described them, were men of considerable dedication, providing essential national services which were for the most part paying their way. Those "horrific" bills would have been applauded as wise investments had they been made in the private sector; and if they were not wise, they should not have been approved in the first place.

Then there was the broadcast speech of Sir Keith Joseph, in which he referred to nationalisation as "one of the poisons in our economic system". On 10th July last year, when challenged about this in the Commons, he was prepared, he said, to substitute the word "handicap" for "poison". Again, I regard Sir Keith as one of the most honest and straightforward men in public life; but honesty ought not to be compounded with such prejudice, and straightforwardness is more acceptable if it is allied to accuracy. He could more accurately, and certainly more generously, have substituted the word, "stimulus" for "poisons". The investment through the public sector has been, and still is, a most valuable stimulus to the private sector. In 1979, 12 of the nationalised industries between them bought out £5,875 million worth of goods and services, and 95 per cent. of that was spent in Britain. In the case of the National Coal Board, it was 98 per cent. Hundreds of private companies have benefited directly by the investment programmes of the public sector, and have benefited indirectly because new technology tools, developed for the British customer, have found a market abroad.

In that same TV party broadcast, the Tories boasted of the equipment in the clay coal mine at Killingly—again public enterprise supporting the private sector, though no recognition in the broadcast of the public enterprise contribution. Ask the mining equipment people whether they think that the NCB has been a poison in our system. Ask the Federation of Civil Engineering Contractors what they think of what they call: … the Government's general prejudice against the public sector". There is another side to this, and it is as damaging as it is cruel. I happened recently to say to Sir Derek Ezra that I thought working conditions down the pit were easier than in the days when I used to wait at the pit gates for my father and brother, the days before nationalisation and mechanisation. I was told by Sir Derek Ezra to go down again and see. From the shaft bottom, I travelled the first 600 yards of the two miles to the coal face on my stomach on a conveyor belt. If you lifted your head up you got it knocked down or knocked off. Ought we not to be more careful before we describe men who, each working day, travel to work in conditions like that as being part of the poison in our system?

Then, in our debate on economic affairs on 27th November last year the noble Lord the Leader of the House—and I am grateful to him for his presence; I did drop him a note—with all the vehemence which he so impressively commands, said: Our precious oil revenues which should be husbanded for investment for the future are being squandered on the voracious demands of our nationalised industries". In the list of such voracious and wasteful industries he specifically named one which I happened to know rather well, and not unnaturally, noble Lords may think, I found myself on my feet. I will not take time repeating what I then said about British Aerospace, but the noble Lord later attempted to qualify, to hedge, on what he had said. He explained that he was speaking generally, and that he realised some industries—some—made a profit because they were efficient or (and I quote) "have a monopoly and control over their prices".

Presumably he was excluding British Aerospace from that category, but was thinking of what his right honourable friend had called "the sinners", the utilities. Gas is a utility, and maybe we can look at the record of British Gas. The history of British Gas, which brought together all those disparate old-fashioned, if worthy, gas companies, is one of the biggest single success stories in our industrial history. British Gas now supply over half of Britain's domestic energy and more than a quarter of British industry's heat requirements. Five years ago their outstanding debt stood at £2.26 billion. What a target it was then for the noble Lord, Lord Orr-Ewing! But, today, all those Government loans have been repaid, and last year, I understand, they were actually lending money to this Conservative Government.

The noble Lord spoke of their being able to control their own prices, but even that is not the whole truth. He could have said that a few years ago one Conservative Government compelled them to keep prices down in order to disguise inflation. Then a later Conservative Government—the present one—are compelling them to put prices up as part of their fetish of monetary control. But on top of that the noble Lord should really have said that he was a Minister of a Government who were going to impose a levy on the sale of gas, which will in effect he a tax on the consumer.

I noticed that the Energy Minister, to justify the price rises which he himself had called for, said last week that domestic gas prices in the United Kingdom are only half those in France and half those in West Germany. Does the noble Lord really think in the light of those facts that his words about squandering resources and voracious appetite can be justified? The noble Lord said that he was speaking generally, so I put down a parliamentary Question in general terms and the noble Lord, Lord Cockfield, in his usual helpful manner, gave me a list of 18 nationalised undertakings with their financial results for 1979–80. The list, I should say, does not include British Leyland or Rolls-Royce because, under the Treasury definition, I gather that they are not nationalised. Of those 18, the list shows 15 as making a profit; and, according to my addition, the profit totals more than £1.9 billion. After interest charges on all the borrowings, totalling some £1,800 million, they show between them, net of interest charges and net of advance corporation tax, no less than £117 million.

Speaking generally, I should not have chosen the expression "voracious appetite". Moreover, if we are talking of the contribution to Britain, we should also note that between them those industries showed export earnings in the year of £2,881 million. Again speaking generally, I should not have said that this was squandering national assets. No doubt the list for the following year will show a worsened outturn, but I should be surprised if it were worse than that of the private sector—and both suffer from the same suffocation by present economic policy.

The Motion that I ask your Lordships to consider calls attention to the sale of national assets. I can conceive of good reasons for selling national liabilities. But why are these superior entrepreneurs brought in only when the problems are easier, when the difficulties of merging have been surmounted and when profits arc bigger? As Sir Peter Parker said the other day, "Who is making a bid for the National Coal Board or for the London commuter services?" There is another aspect of this selling-off policy which involves the benefit to Britain when a more broadly-based corporation is enabled to take a longer view in the national interest and still keep in the black. I would relate this point to what was said by the noble Lord, Lord Weinstock, in the debate on 27th November last year—and I wrote to him to say that I was going to make this reference. The noble Lord made a remark in his maiden speech which I am sure he thought was uncontroversial but which the conventions of the House did not permit me to challenge. He said that the record of British Aerospace—and I quote: resulted from the long period of private ownership". Had I been making a claim, I should have said that the success was due to the grand efforts of those who work for the corporation. My experience of those in the manufacture and operation of aircraft goes back rather further than that of the noble Lord. My respect and affection for those who have carried those responsibilities since the war years is certainly not second to that of the noble Lord, Lord Weinstock. If I were making a claim I should have said that those men had greater opportunity under public ownership. We inherited from GEC and its partners a profitable enterprise, certainly, but a contracting one. There were redundancy schemes at all the civil sites. When I left we had recruiting campaigns; there was new investment in civil programmes that could never have been considered by the previous owners. The doctrine of the "bottom line" did not, for us, obscure the national interest. But that is possible only if a concern is broadly based, making an investment which will pay off in the longer term but retaining the self-respect which comes from paying one's way because they are able to retain programmes which pay off in the shorter term.

I read today that British Aerospace is about to be floated on the market. There are respectable arguments for the company type of structure; but there was no commercial need to float it on the market. Wholly owned by the Government would have been a better solution. After some millions of pounds of wasteful expenditure on commissions and legal fees, the whole operation will almost certainly be reversed in two or three years' time. Suitable arrangements have been made to prevent foreign interests taking financial control of British Aerospace and carving it up; but I take this opportunity of asking now (as I asked a year ago) what precautions have been taken to prevent any one United Kingdom financial interest from getting majority control and using that control to serve their other interests?—or, as one inside observer put it, "picking the eyes out of the corporation"? Can the noble Earl who is to reply give an assurance that this will not be allowed to happen?

On this same point of hiving off the profitable parts of a public business, I ask for another assurance. If, as in the case of British Gas, there is proven success and management of high order, why should their initiative in allied fields not be encouraged? Why, for example, should the Government seek to stop the initiative of British Gas in their offshore oil activities? Why should they seek to hive off the promising onshore oil development at Wytch Farm, the discovery and development of which was entirely due to British Gas? I ask the noble Earl this. Can he give us an assurance that in both those instances the initiative of that successful public corporation will be encouraged?

My Lords, having done my best to show that generalised criticism of the public sector is both unwarranted and destructive, may I make it clear that in my own view in the public sector we have lessons to learn and improvements to make? In passing, I might say that it is 35 years since I first worked for a public corporation and, in one way or another, I have been involved with them ever since. Firstly, I would say that Parliament or Whitehall should not try to impose a structure or corporate plan on an industry. The ten-year steel plan in the Tory White Paper of some years ago was an example of how not to do these things.

Similarly, in my view, it is a mistake for Parliament to try to impose a pattern of what we have come to call industrial democracy. That there should be progress towards genuine employee participation must be incontestable. That the public sector should provide the front-runners in this field, I hope we can all accept. In the legislation setting up British Aerospace, there was reference to the "organic growth of industrial democracy". I am sure that that is the right approach.

Then there is the question of relationships between Government and corporations. Just as decentralised responsibility down the management line—which I have no doubt many here can speak of with greater authority than I, although I have had some experience—has been proven better in industry, so, I hope, all Government departments will seek optimum decentralisation of responsibility to the people they have chosen to run an organisation. That there must be an overall national economic strategy is surely right; but once an investment programme is agreed, then there must be a sense of full responsibility infusing, or enthusing, those who are paid to implement that strategy.

That brings me to what we in the nationalised sector used to call cash limits. An agreed investment figure, intended for productive, wealth-creating purposes, and on which a return is expected, is different and should be seen to be different from subsidies, and different from local government or central Government administrative expenses. They should not all be lumped together in the public sector borrowing requirement and decried as a bad thing. They should be stated separately and seen as a sign of industrial vitality. In the course of the discussions over the past two years the nationalised industries have asked that this be done, and that there should be access to sources of United Kingdom capital other than the National Loans Fund. I wonder whether the noble Earl who is to reply can tell me what progress has been made on that.

For my part, I should like to see a financial structure for the public sector, including the oil interests, quite separate from the rest of Treasury book-keeping. There is no reason why the public sector should not be, and be seen to be, taken as a whole, self-financing and making an increasing contribution to the nation's housekeeping expenses.

Finally, I want to say something about motivation. First-rate motivation can make all the difference to the performance of a football team, a private company or a public service. In the public service motivation must be bound up with the public image and with Government policy. If Government policy is to decry, to denigrate, then motivation must be affected.

H. G. Wells once said: A man's guiding and satisfying idea of himself is what Jung calls his persona". In other words, man tries to live the part expected of him and to the standard he sets for himself. If in some cases in some public services the current behaviour is below a standard we should like to see, might it not be in part because we have this pernicious criticism of the public sector? And might it not be in part because of this insistence that market forces, the market economy, should guide all our efforts and set our standards? Remember what Frank Cousens said: If we are to have a free-for-all, then we are part of the all". Someone said the other day: Heaven help us if we leave everything to the market economy". I believe that to be literally true. We should in truth need Heaven's help and forgiveness if our society was left completely wide open to market forces. Satisfying the lowest common denominator may yield the biggest circulation but it will not give us an enduring society.

On the other hand, properly guided, public service can be a powerful force for good. All that I have seen and heard and read and felt in my lifetime suggests that most of the finest achievements, in peace and in war, spring from a motivation far above the market forces. That motivation we should encourage. That motivation we have not yet learned fully to use in our industrial life.

My Lords, I seek one more assurance from the noble Lord who is to reply. In quite striking contrast to the ministerial language which I have quoted, the noble Earl said two weeks ago: It is time that we, perhaps, broke away from the concepts of nationalisation on the one side and private enterprise on the other". The assurance which I seek from the noble Earl is that he will now do his utmost to convince his colleagues that this is a much more constructive approach to the economic and social problems of the Western World and that, as a start, he will now accept the Motion which I move for Papers.

3.16 p.m.

Lord Rochester

My Lords, we have heard from the noble Lord, Lord Beswick, a speech of the robust nature that we have come to expect of him. For my part I am rather sorry that the first part of his Motion, on which he spent the first 20 minutes or so of his speech, was couched in what seems to me somewhat negative terms, for in my experience criticism and counter-criticism seldom lead to solutions of industrial problems. However that may be, for my part I should like to concentrate on the last part of the Motion, that which calls for a more constructive and positive policy which recognises the value of a properly balanced and integrated mixed economy". Even on that point—if I may say so with respect to the noble Lord, whom I have supported on a number of occasions in the past year or two—I do not recall that that was quite the line that he was taking shortly after the last Labour Government came into power. In this House he played a prominent part in the support of policies of nationalisation of the aircraft, shipbuilding and ship repair industries. That certainly represented an attempt to alter the balance of our mixed economy. It was then said that there was a mandate for such policies because they had been included in the Labour Party Manifesto at the previous general election. In fact the great majority of those who voted in that election were opposed to such policies and, in so far as they have been implemented, they have in my view proved to be quite irrelevant to the solution of our basic problems.

I think that the best way of describing my own party's view of the Motion before us is to say that we do indeed recognise the value of a properly balanced and integrated mixed economy in which the public sector becomes more efficient and the private sector more profitable. That is not to say that the balance between the two sectors should remain in its present form immutably. Indeed, in my view the process of restructuring some of our most basic industries still has a long way to go, and there is no reason why within that process parts of our great state monopolies should not be hived off to private enterprise or, for that matter, the public sector enlarged or, again, joint ventures between the two sectors on occasion encouraged.

But in every case the test should be objective criteria rather than political dogma. What the Government of the day should at all costs avoid is the introduction of legislation which can reasonably be judged by the Opposition to be so extreme as to mean that it is then reversed as soon as the Opposition become the Government. Industry as a whole is then left to pick up the pieces.

It is against that background, in seeing the need for a more constructive long-term industrial strategy—such as is operated, for example, in France, Germany or Japan—that we on these Benches have for years advocated making use of well-qualified and relatively independent organisations such as the old IRC—dismembered by an earlier Conservative Government—and now the National Enterprise Board.

All along we have maintained that, irrespective of the political complexion of the Government in power, there should be as much continuity as possible in the operation of those bodies. We for our part, therefore, regret that in their actions to date, for example in relation to Rolls-Royce and British Leyland, this does not seem to have been the Government's view. In consequence they have lost the services of someone who might have led the way admirably to the desired stability: I refer to Sir Leslie Murphy.

Lastly, if we are to have a healthy mixed economy, some accommodation will have to be found eventually between the political parties and within industry itself as to how such an economy can be run in such a way that we do not continue to award ourselves increases in pay that far outstrip improvements in productivity. On this point I was greatly impressed by a letter which appeared in The Times on 20th November last under the heading: "An alternative route to disinflation". It was written by Sir Alexander Cairncross, James Meade and Sir Henry Phelps Brown, and I should like to quote the last sentences of that letter, if I may, in relation to the present Government's economic policy: An unconditional reversal of the present policy could result in a resurgence of the explosive inflation of pay and prices which the policy is beginning to constrain. We are in a cleft stick. Either we suffer our present misery and control inflation or we restore employment and inflation. In fact we can achieve full employment without inflation only if we can suitably modify our present pay-fixing arrangements. The strength of the case for disinflation by depression is, we are told, that there is no alter native. But surely we have suffered enough for men and women of good sense, from all political parties and from both sides of industry to get together and make just one more effort to find ways of modifying our present pay-fixing arrangements so as to enable us to promote economic expansion and employment without a pay explosion". I am sorry, as we all must be, that the noble Viscount, Lord Amory, is no longer with us; and in calling his views in aid, as 1 shall take the liberty of doing in a moment, I should like first to pay my own small tribute to his memory. He was a wise, modest, humorous and (although he would be the last person to acknowledge it) a truly noble man.

Several noble Lords

Hear, hear!

Lord Rochester

I am deeply grateful for all the help, advice and kindness that he showed to me personally. In a debate in our House on 10th April 1978 Lord Amory made plain his belief' that under inflationary conditions uninfluenced collective bargaining was not feasible, that some form of incomes policy was essential and that in any case the Government must have one in relation to their own employees and those of the nationalised industries. He further expressed the view that there was need for some accepted sum to be sought, in his view, under the aegis of the National Economic Development Council, which would in the aggregate be made available for pay increases in any yew, and that such a figure should be authoritatively worked out and accepted by public opinion.

Just before the last general election everybody seemed to be in favour of this idea. The CBI under Sir John Metliven had proposed a national economic forum with what they called "links" into Parliament. The TUC had signed a joint statement with the Labour Government committing itself to a national assessment each Easter. Detailed proposals for an incomes policy had been signed by 12 leading trade unionists in a pamphlet called A better way. Also, the Conservative Party had proposed concerted action in their document, The Right Approach to the Economy.

But where is all that now? I do not underestimate the difficulties that would be involved in making such a concept actually work in practice, particularly in relation to the collective bargaining that would still have to follow at lower levels. Indeed, having firsthand experience of wage negotiations, I am all too painfully aware of some of those difficulties. Nevertheless, I believe that another attempt has to be made, and I believe it because I think the alternative is demonstrably worse. It is even more difficult than may be generally supposed, because the question of pay determination cannot be isolated from problems concerning prices, investment and employment; so that any such national assessment would, in my view, have to be reached only after discussing the allocation of national resources as a whole.

At the end, of course, the Government would have to take their own decisions just as they now do. Further, they would have to take responsibility for those decisions in Parliament; but I suggest that they would command very much wider assent if they were made after discussions of which the general public were, as far as possible, made aware, rather than, as now, without any understanding by the people of all the issues involved. And at a moment when Mr. Len Murray has just said that trade unions have to show that they can balance their responsibilities to their members with wider responsibilities, would it not now be particularly opportune for the Government to give a lead in this direction?

A further way in which I suggest the performance of our mixed economy might be improved would be by encouraging action aimed at increasing the involvment of employees, both financially through share investment schemes and in exercising more influence in the making of decisions that affect them. In the field of wage negotiations, with or without improved procedures for pay determination, I believe that this increased participation could best be achieved through management disclosing to employee representatives more information aimed at observing a shared understanding of the relationship between productivity, pay, prices, investment and employment.

In this connection I was delighted to see that Sir Ray Pennock, president of the CBI, last week asked employers whether they informed their employees at every level, disclosed information on profit performance, explained how profit, if any, was earned and distributed and, as chief executives, had regular face-to-face discussions with their employees on the state of their businesses. He told them that, if they could not answer, Yes, to those questions, they had not begun to put future wage negotiations on a basis of understanding rather than fear, and that it was high time they did so.

Personally, I would prefer to see employee participation develop through such ways as organic growth, of which the noble Lord, Lord Beswick, spoke, and which starts at the bottom, working upwards to the highest level. But development there must be, or employers may one day find that it is imposed on them by legislation—and legislation of a kind which does not command their assent. In my view, the most constructive and positive way in which in the words of the Motion the need for a … properly-balanced and integrated mixed economy could be met, would he for elements in all political parties to get together to achieve that end. Alas! it seems to us on these Benches that neither of the major political parties is willing to do anything to facilitate that process. There is much talk nowadays of the block votes that are wielded by the trade unions, but you have only to look at our rotten electoral system to see disproportionate representation at its worst.

Noble Lords

Oh!

Lord Rochester

That may be unpleasant for certain noble Lords to listen to, but what a way in which to run a mixed economy! Take the steel industry in the last 25 years—nationalised, de-nationalised, re-nationalised and now almost in ruins. Happily, there is some evidence that more and more people have rumbled what has been going on and are making their views known. I hope that, in this matter of electoral reform, more and more people will make a common cause in order to establish that stability and continuity of economic and industrial policy for which this country is longing.

3.31 p.m.

The Minister of State, Department of Employment (The Earl of Gowrie)

My Lords, 1, too, should like to join with the noble Lord, Lord Rochester, in paying a quick and affectionate tribute to my late noble friend Viscount Amory. My late noble friend, who had a great sense of humour which we on all sides of the House miss, would, I am sure, have enjoyed the ingenuity with which the noble Lord, Lord Rochester, succeeded in getting proportional representation and electoral reform into a debate on the tendency of Conservatives to criticise nationalised industries.

I, of course, welcome the opportunity given to us by the noble Lord, Lord Beswick—who, whatever our differences of view, is an immensely experienced and respected figure in this whole field—to set out the Government's approach to the nationalised industries, and to say something about our policies of transferring them wherever we are able to do so, and whenever we are able to do so, to the private sector. I use that sentence because I am afraid that, in the interests of not detaining your Lordships too long, I shall after it have to lapse into the horrid shorthand and jargon of "privatisation". But at least it should be clear now that the House knows what I mean.

The common ground, or middle ground, is a rather crowded and noisy place at the moment and it is ground into which, on many issues, I occasionally put a toe myself. But it seems to me that it would waste the time of the House if I tried to pretend that we were not light years away, in our approach towards this matter, from the noble Lord, Lord Beswick, both as members of a political party and a Government which has been consistently trying to tilt the balance away from the public and towards the private sector.

Curiously enough, I think that, philosophically, we are rather nearer the position of Mr. Lech Walesa, who said yesterday of the situation in Poland—and I am quoting him— Perhaps if our workers could buy their industries, the industries would do rather better". I am reminded of a speech some years back by my honourable friend Dr. Rhodes Boyson, who said: If nationalisation of the mines meant that the miners owned them, look what would happen to productivity in the coalmining industry". As I said, I think we are rather nearer to that kind of approach.

Nor do I accept that a non-nationalised industry is, in some way, a non-national industry. That is what I had in mind when in an intervention last week, to which the noble Lord, Lord Beswick, was kind enough to refer, I said to the noble Lord, Lord Shinwell, that I thought there was an element of sterility in the language we used about these various sectors.

Our view is that the public sector is now overextended, that it is less efficient than it might be, and that the resources that it claims from. Governments, including our own Government, now contribute towards our present inflation. Our purpose, therefore, is to reduce it in size wherever we can and, where industries remain in the public sector, we are deter mined that they shall operate more efficiently and be more responsive to the needs of the taxpayer and the consumer.

If I may quote from an article about the nationalised industries in today's Times, it says: the price index for consumer goods and services supplied by them has been rising consistently faster than prices in general—by 30 per cent. last year, which was twice the … inflation rate". So our policies are being framed to try to bring this about in the interests of a markedly different balance within the mixed economy.

Of course, no Government can, or should, ignore the nationalised industries. Their size and importance gives them a central position in the economy. They take a huge share of national resources. They account for more than 10 per cent. of total output and nearly 20 per cent. of all fixed investment; they provide services which are essential to the life of the nation; directly or indirectly, they influence the prosperity of wide reaches of British industry, both public and private. Taken together, they employ about 1.7 million people or 7 to 8 per cent. of all employed. The Post Office alone employs 400,000 people; the National Coal Board over 200,000 people; the electricity supply industry more than 150,000 people, and the nationalised industries are dominant in energy, transport, communications and steel.

Yet—and this is something that is often lost in talking about the nationalised industries in aggregate—the differences between individual industries are very great. Some are monopolies, or almost so; others operate in internationally competitive markets. Some are labour intensive; others are capital intensive. Some are new and rapidly changing industries; others are old and traditional ones. Some require heavy external funding in grants and loans; others help us finance our own borrowing requirement, including that huge portion of it which devolves as a result of the older or traditional nationalised industries.

Some require money to meet their losses, others to finance large investment programmes. The investment programmes themselves vary between simple replacement of existing assets in broadly the same form and programmes which add to capacity in what are now technologically very advanced forms. So of course I recognise that sweeping generalisations about the nationalised industries are, therefore, dangerous. But I would say to the noble Lord, Lord Beswick, that the generalisations about the nationalised industries are not confined to one or other of our sides.

Nevertheless, what unites them is that they are a part of the enterprise sector of the economy which is wholly owned and controlled by the Government, and therefore—and there is no escaping this—sheltered from the full rigour of market disciplines. So what we find unsatisfactory about the nationalised industries, and the burdens which they impose on Government resources, is therefore inherent and certainly not usually the fault of those who run them. I repudiate the personalia in which the noble Lord, Lord Beswick, indulged. I do not know of instances when Ministers have been publicly snide or critical of the dedicated men who run the nationalised industries which we find—

Lord Beswick

My Lords, would the noble Earl be good enough to look at Hansard tomorrow and see that I gave the references in all cases?

The Earl of Gowrie

Of course, I will look at Hansard tomorrow, but it is a fairly easy game to quote Hansard in a different context. So let me repeat what I mean. I do not know of occasions when my colleagues have made publicly critical remarks in a snide way about these dedicated men who run our industries. In a market economy, competition is the normal guarantor of the efficiency of businesses. I do not think that that is a very contentious or very novel political or economic theory. The more efficient grow and increase their market share, while the less efficient eventually may go to the wall. This is the world in which the ordinary businessman lives and whose challenge he accepts. But these disciplines tend to be absent in the nationalised sector, or to exist only to a limited extent. Some of the industries, such as gas, electricity and the Post Office, are monopolies, or near monopolies. Others, like steel or airways, may face domestic and foreign competition, but they, too, have it relatively easy compared with companies in the private sector, because everybody knows, not least their own workforce, that the Government stand behind them. They do not have to face the challenge of raising money from shareholders or from capital markets on the basis of their track record, but the Governments who stand behind them have to raise money on those same markets. The interest rates that thereby accrue can squeeze out the private sector.

This invulnerability of industries in the state sector is the source of many of their problems and weaknesses. How, in these circumstances, can they be made as efficient as they would be were they open to the forces of competition? Of course, these problems are not new. Governments of both parties have grappled with this legacy since the war. There are no easy solutions and the problems are deep-seated, but in each and every case surely it is the Government's responsibility to try to ensure that the industries are as efficient, competitive and profitable as possible. En the absence of market pressures, the Government must provide the spur to the improvement in performance necessary if the industries in aggregate are to turn from wealth consumers into wealth creators. If the British steel industry had dealt with its overmanning in the mid-1970s—the noble Lord, Lord Beswick, was himself involved in this—those then made redundant would have entered the labour market in a much more favourable climate than now when the redundancies which were put off have inevitably accrued. So our policies of privatising are a major method of attacking such problems, and in a few moments I shall try to illustrate what we are doing. For the moment, however, I should like to discuss our approach to those industries which for the foreseeable future will remain in the public sector.

In 1979–1980 the nationalised industries together were responsible for a net contribution to the public sector borrowing requirement of £2.4 billion, or over 20 per cent. of the whole PSBR. Of course, not all of that was "dead weight". Some added to the funds which the industries themselves generated to finance investment intended to earn a reasonable return. But over £l billion (£1,000 million) was in the form of grants, primarily to coal and rail, and the four main loss-making industries—coal, rail, steel and shipbuilding—together required £2.2 thousand million in grants and loans. The losses of these industries made an immediate and heavy demand on the taxpayer. Overall, they greatly increased the Government's need to borrow, making the task of controlling the money supply much more difficult. No wonder the Government seek to get these borrowing requirements off their own books as rapidly as possible.

The position in 1980–1981 remains the same. Of the total £2.9 thousand million required by the in dustries, after allowing an obvious sum for the net contribution of the major profitmakers, £2.5 billion will go to the main loss-makers. Next year the position will be similar. Against that background, who could deny the need to secure a major transformation in the aggregate financing requirements of the nationalised industries? It may or may not be possible to achieve that transformation within the time-scale laid down in the last public expenditure White Paper, although we shall of course try. But that improvement, based on the industries' own forecasts, depends on their securing the improvements in efficiency and productivity which they themselves have planned. The impact of the recession makes the improvement more, rather than less, necessary.

Before coming on to the means by which the Government are seeking to tackle this problem, let us look for a moment at the industries' record, both individually and collectively. Over the last 12 months, as I said earlier, nationalised industry prices to the consumer have risen very fast—some 30 per cent., or twice the general rate of inflation. I acknowledge that it would be unfair to lay all the blame for this at a given industry's door. Some of it is the result of events beyond their control, such as increases in the price of oil. Some of it is due to the ending of artificially low prices, especially for energy, which were deliberately, as an act of policy, held down by the previous Government. But there has also been a failure by the nationalised industries adequately to control their costs, to adjust capacity and output rapidly to changing market requirements, to get proper manning levels and, above all, to control the level of pay settlements. In the last pay round, the increases in earnings achieved by nationalised industry employees, taking account of catching up payments from the previous round, were on average higher than in private manufacturing industry. This contributed to higher prices and so to the increased costs for all who buy their output. So from its relatively sheltered position the market-protected sector, as I like to think of it, has been adding to inflation.

But the problems go back much further than the past 12 or 24 months. Over the last 10 years, employment costs per head in the industries have risen faster than the average for the economy as a whole: 25 per cent. faster in gas, 12 per cent faster in electricity, 11 per cent. faster in telecommunications. Productivity growth has been slower in some sectors; 8 per cent. slower in rail, 12 per cent. slower in coal, 18 per cent. slower in posts and a massive 31 per cent. slower in steel. Indeed, in steel, productivity has actually fallen over the past decade while unit labour costs rose 50 per cent. faster than in the whole of the rest of the economy.

In some industries productivity has improved faster than in the rest of the economy—for instance, in gas and telecommunications, where there has been a marked increase in demand. This spread of achievement could be mirrored elsewhere in the economy and I salute it, hut our responsibilities in relation to the industries mean that we must provide tile stimulus to these industries by policy, by criticism, to substitute for the market place in making them more competitive and more efficient.

How do we do this? First, wherever we can we try to demolish the monopoly power of the industries and open them up to competition. Surely this is the most significant single step. It mirrors for the industries the steps which we have taken in other fields more generally to free industries from restraint—restraint over prices, over pay, over dividends in the foreign exchanges—and to allow markets to operate more freely. One example of increasing competition and its effect can be seen from the lively competition in bus, rail and air fares as a result of the changes in bus licensing in the Transport Act 1980. Another is the Telecommunications Bill which contains long-overdue powers to reduce the post and telecommunications monopoly. We have also announced our intention to remove the statutory prohibition on the generation of electricity as a main business. We shall seek further opportunities, and I am glad to be able to announce that we have sought such an opportunity today.

My honourable friend the Minister of State for Industry has today announced in another place that arrangements are in hand for the offer for sale by Kleinwort Benson Limited on behalf of the Secretary of State for Industry of about half of the issued ordinary shares of the British Aerospace Public Limited Company. The Government will retain between 48.37 per cent. and 50 per cent. of the issued shares, the percentage being dependent upon the number of shares taken up under special arrangements being made for the employees. Noble Lords will appreciate that I cannot give any further details about the offer for sale at this stage. The Government's position as promoter of the company places severe legal restrictions on the comments which Ministers can make about the offer, but I hope that the House will read the prospectus when it is published and will accept that nothing I might say could add to or detract from that document.

The policy of privatising British Aerospace was extensively debated during the passage through Parliament of the British Aerospace Bill, and I simply say now that I warmly endorse what has been said about the successful commercial record of British Aerospace. I reiterate that the Government believe that an organisation competing in international markets such as aerospace best lies within the private sector where it is free to respond to competition without being subject to Government or political pressures.

The noble Lord, Lord Beswick, was kind enough to give me notice of a question and he wanted an assurance that no single financial interest will have majority control in British Aerospace Limited. I will make three quick points in reply to this question. First, under the offer for sale only between 48 and 50 per cent. of the shares in the company will be offered, the exact proportion depending upon the number of shares taken up under special arrangements for employees. After the offer for sale, the shareholding retained by the Government will be equal to the number of shares sold under the offer for sale, the balance of the share capital being held by the employees. In a strict numerical sense, therefore, there is no question of a majority of the shares going to a single financial interest.

Secondly, the Government have repeatedly made clear their intention of promoting the widest possible ownership of shares, and so far as possible this intention will be taken into account when making allocations in the event of the offer being over-subscribed. Thirdly, if at some time in the future it appears to the Secretary of State for Trade that a shareholder was able, directly or indirectly, to control or materially to influence the policy of the company, then he could invoke the provisions of Section 64 of the Fair Trading Act 1973. This would involve a reference to the Monopolies and Mergers Commission, who would be required to investigate and report whether that fact operated, or might be expected to operate, against the public interest. It would be open to the Commission to recommend that such control or influence should not be permitted by the Secretary of State for Trade. I hope the noble Lord will therefore accept that the company will certainly not be defence less against any possible threat by a financial interest to acquire overall control.

The noble Lord, Lord Beswick, was also kind enough to give me notice of a question about British Gas in relation to onshore interests. I have the answer here, but if the noble Lord and the House will forgive me I will ask my noble friend Lord Trefgarne to answer it because, in view of the time, I think I should now get on with the rest of my speech.

We also believe that the setting of clear and firm financial disciplines against which the performance of the industry can be measured will, over time, exert a beneficial influence. Almost all industries now have medium-term financial targets, normally in the form of an expected percentage return on their assets. This provides a clear objective for the industry for three or five years ahead and a benchmark against which their success or failure can be judged. Industries which meet these targets should have their performance applauded as a record of success on which they can build. Industries which fail to meet their targets cannot expect to be dealt with kindly, any more than a private sector company which fails to live up to the expectations of its shareholders. In the 1980 Competition Act we took powers to refer state industries to the Monopolies and Mergers Commission. The reports so far show ample scope for such improvements in efficiency. And the Commission may be helpful, (as my earlier answer in the case of British Aerospace has indicated).

Improvements can therefore be brought about. We are not prepared to "write off" the industries as a sink of inefficiency. They are too important for that. It is our belief that all nationalised industries—those in profit as well as those making losses—can make improvements in efficiency which will benefit the whole economy. We do not interfere—and we do not seek to interfere—with day-to-day management of these industries. The Government themselves therefore cannot bring about any improvements. Our role is to encourage and stimulate—by criticism, if necessary—rather than to cushion and protect.

As noble Lords are aware, we also provide enormous help to the industries with the cost of adjustments and restructuring necessary for their long-term future. We cannot, of course, scatter largesse, and we must concentrate help where it is most needed. But this year we have announced increases in the external financing limits for four major industries—steel, shipbuilding, rail and airways—by nearly £600 million, bringing their total EFLs to over £2 billion. More recently we have agreed to provide nearly £1,000 billion over two years to support British Leyland.

As against this the Opposition spokesman, Mr. Peter Shore, has proposed to abandon the target for the finances of the nationalised industries. But that target, as well as reflecting a move towards economic pricing, also reflects the improvement which the industries themselves want to make in productivity and efficiency. I really cannot imagine that noble Lords opposite would wish to discourage those achievements and the return of the industries concerned to financial health. To do so would be astonishingly perverse. Our job, surely, whether in relation to the nationalised industries or for the economy more generally, must be to work to secure the improved performance on which the future of the country depends. We see this as a constructive policy designed to secure a proper balance between the public and private sectors.

As I said earlier, we are not privatising—to use that awful word—wholesale. The characteristic of our approach is an industry-by-industry approach and an industry-by-industry examination of the position, with solutions geared to meet particular circumstances and needs. We have deliberately chosen different courses to go private; for instance, the National Freight Company, where the Government do not seek to retain a shareholding; British Airways and British Aerospace, where the Government will retain about half the shares; and British Rail subsidiaries, where ultimately there will be a minority holding by British Rail, and the gas gathering pipeline, where the public sector will be taking a shareholding in an essentially private sector venture.

So we have made a good start on this policy. In the last Session, legislation was passed providing for privatisation of the National Freight Company, British Aerospace and British Airways. We have already sold a number of NEB subsidiaries. This Session, we have brought in legislation affecting the British Transport Docks Board, British Rail Subsidiaries, the Radio Chemical Centre and Cable and Wireless. In the telecommunications sector the British Telecommunications Bill will encourage partnerships with private capital. We believe that the result of this process will be beneficial to all concerned and will represent a major national effort that will aid the Government in their struggle to counter inflation.

I will conclude by saying this. Our policies have a number of strands. The objective is simple: to establish and foster a sound and efficient public sector contributing to the success of the whole economy. Of course this will take some years to achieve. The public sector includes complex and strategic industries which have been subjected to inappropriate policies for a considerable time. Of course it is taking time, but we have moved much further in this vital policy than any previous Conservative Government.