HL Deb 19 July 1982 vol 433 cc637-44

3.54 p.m.

The Parliamentary Under-Secretary of State, Department of Health and Social Security (Lord Trefgarne)

My Lords, with the permission of the House, I should like to repeat a Statement being made by my right honourable friend the Secretary of State for Industry in another place. The Statement is as follows:

"With permission, Mr Speaker, I should like to make a Statement about the future of telecommunications in Britain.

"It is the Government's aim to promote consumer choice. Wherever possible, we want industrial and commercial decisions to be determined by the market and not by the state. We believe that consumer choice and the disciplines of the market lead to more stable prices, improved efficiency and a higher quality of service.

"Since the British Telecommunications Act 1981 received Royal Assent less than a year ago, some progress has been made in breaking the state monopoly in telecommunications. I have licensed the Mercury Consortium to provide a new telecommunications network in competition with BT. I intend shortly to issue a general licence permitting all bona fide value-added network service operators to use the BT and Mercury networks. The way is now open for the private sector to sell telephone apparatus direct to the public. Liberalisation of telecommunications has started and we intend to see it through.

"For BT, the prospect of competition and the advent of new technology are now stimulating them to provide a wider range of competitive services. I pay tribute to the way Sir George Jefferson and his hoard are transforming what was not so long ago a Government department into a commercially oriented business. Mr Speaker, we now want to take the next step.

"As a nationalised industry, BT does not have direct access to financial markets. Its borrowing is controlled by Government and counts against the PSBR. To bring inflation under control, these borrowings have inevitably to be subject to strict limits. But external finance is only part of the picture. In the past, monopoly power has allowed BT to raise prices to finance investment without doing all that could be done to increase efficiency. Around 90 per cent. of BT's investment programme, about £2,200 million this year, has been self-financed. By 'self-financed', I mean of course 'customer financed'; BT's charges to customers not only cover current running costs but are also paying for 90 per cent. of new investment. As a result, charges have risen steeply while investment is still not enough. Unless something is done radically to change the capital structure and ownership of BT and to provide a direct spur to efficiency, higher investment would mean still higher charges for the customer. The Government, BT and the general public would find that unacceptable. We need to free BT from traditional forms of Government control.

"We will therefore take the earliest opportunity to introduce legislation which, while keeping BT as a single enterprise, will enable it to be converted into a Companies Act company, British Telecommunications plc'. The legislation will allow the sale of shares in that company to the public. It is our intention, after the next election, to offer up to 51 per cent. of the shares on the market on one or more tranches.

"Once half of the shares have been sold, the Government will give up control over the commercial decisions of BT plc. BT plc will be outside the public sector; its borrowing will cease to be subject to Exchequer control, and it will look to its shareholders and the markets for its external financing. It will be for the board of the company to decide when and how much to borrow, taking account of internal factors and market conditions in the same way as any other private sector company. This will mean not only a greater flexibility for BT and less pressure on consumers and taxpayers, but also that BT will be subject to proper market disciplines. BT will be in a position to provide better services which are more responsive to customer needs, like those provided by the privately-owned telephone companies in the United States.

"BT plc will nevertheless dominate the British market for telecommunications for some years yet. The Government consider, therefore, that there will be a need for regulatory arrangements for the industry to balance the interests of those supplying telecommunications services, their customers, their competitors, their employees, their investors and their suppliers. The legislation will reform the arrangements for licensing telecommunications so as to end BT's exclusive privilege and its role in licensing. Instead, there will be a new Office of Telecommunications, modelled on the Office of Fair Trading, under a director general appointed by me. He will have powers similar to those of the Director General of Fair Trading. He will operate with the same degree of independence from Government. It will be his job to ensure fair competition and fair prices.

"The legislation will contain provisions to safeguard existing pension obligations. There will also be special provisions to ensure that those employed in BT can acquire shares in the company.

"Finally, the legislation will reform the Telegraph Acts which were passed in the last century. We need to recast the law to make it relevant to the technology of today and tomorrow. I will be issuing a consultative document on this aspect shortly.

"Because these propsals are far-reaching and will affect a lot of people, I am today publishing this Statement, with some additional background information, in the form of a White Paper.

"Mr. Speaker, these proposals follow naturally from the liberalising measures passed by the House last year. It would make no sense to stop half way. If those who work in telecommunications are to provide the range and quality of service which modern technology now permits, and if they are to do so in competition with each other, it cannot be right that BT should remain subject to the web of Government interference and controls which are the inevitable lot of an industry which enjoys the privilege of Exchequer finance.

"The quality of the service which any enterprise provides depends upon the skills, energy, and leadership of the people who work in it. We want to provide those people with the environment—market, financial, legal and structural—which will free them to give of their best.

"In the view of the Government, that is what the proposed legislation will do. I look forward to its early introduction".

My Lords, that is the Statement.

4.2 p.m.

Lord Ponsonby of Shulbrede

My Lords, I should like to thank the noble Lord for repeating the Statement and to say straight away that it is not a Statement which we welcome; nor is it welcomed in the industry. The contents of the Statement have been widely predicted in the press over the last few days, and I am told that members of all the unions involved in the industry have already condemned the proposals which have been set out in the Statement. The Statement pays tribute to the progress made by BT in transforming itself into a commercially oriented business, and the last thing that it needs at present is a further period of uncertainty before it has fully adjusted itself to its current situation. Undoubtedly the morale and enthusiasm of management in the industry will suffer as a result of the proposals.

The Statement rightly points to the problems of BT's finances and the financing of its investment. The only answer that the Government can find to this particular problem is a dogmatic one; yet it would have been possible, and indeed more sensible, for the Government to have altered their public sector financing policy so that they could remove the cash limits restrictions which they impose on BT and allow BT to go to the market under its own steam. I was surprised to learn from the Statement that the Government are so cock-a-hoop about their election chances that they propose to sell 51 per cent. of the shares after the election. Let me assure your Lordships that the shares will not be sold if we win the next election. We intend to restore the integrity of the BT network and we very much regard this as an election issue. If the Government reach a situation in which they sell off 51 per cent. of BT, one wonders how they will price the issue. Are we in for another Amersham International scandal?

I should like to ask the noble Lord one or two points of detail arising from the Statement. What effect will the licence arrangements envisaged at the beginning of the Statement have on the cost of services in the rural areas? In particular, can one be assured that for those people without a telephone of their own, coin-box telephones will continue to be as widely available as they now are? I know that there is very great concern among the employees of BT about their pension provisions, and I wonder whether the noble Lord can assure employees that under the new arrangements they will be no less well off than they are now? In listening to the Statement one detects an implication that under the system that the Government propose prices will come down, and I wonder whether the noble Lord would care to comment on that point too?

Lord Byers

My Lords, I do not think that I can follow the noble Lord, Lord Ponsonby of Shulbrede, in what he has just said. I think that the intention to sell off 51 per cent. of British Telecom can at this stage be offered a cautious welcome, though I must say that for over two years some of us have contended that to inhibit British Telecom from raising investment finance on the open market has been absolutely, totally illogical, and that, provided the Government do not give a guarantee, the investment finance raised on the open market should not count against the public sector borrowing requirement. This is the illogicality of the myth of the Treasury, and we shall have this argument about other organisations that are to be privatised.

On the question of pensions, is it the intention that all the presently available benefits should be transferred to the new private company? Does that include indexation? If it does, will it not place a very heavy burden on a private company which no longer will have the Treasury behind it? We very much welcome the proposal regarding share ownership. Will shares he offered to employees not only at the beginning of the life of the private company, but also at intervals along the road? That is what gives the incentive to people, in particular newcomers, to get an organisation moving. May I also ask the Government not to take too seriously the threat from the official Opposition about making the organisation a political football. That would be horrifying.

Lord Trefgarne

My Lords, I am greatly obliged to the noble Lord, Lord Byers, for his response to the Statement. I am sorry that the noble Lord, Lord Ponsonby of Shulbrede, was less enthusiastic towards its contents. The noble Lord, Lord Ponsonby, asked me a whole string of questions, and perhaps I may reply to those which I believe he would regard as the most important. First, with regard to rural costs and coin-box telephones, unhappily it is the case that the cost of the provision of all utilities, whether the utility be water, electricity, telephones, gas, or anything else, is much higher in rural areas—for example, to remote houses in the midst of Wales—than it is in the centre of a large town or city. However, as at present constituted, British Telecom has a certain duty, spelled out in Section 3 of the British Telecommunications Act 1981, to provide its services, save where it is, in its opinion, impracticable or not reasonably practicable", to do so. It is certainly the intention of the Government that that obligation should be carried over to the new company, BT plc. Therefore I very much hope that the kind of fears which the noble Lord expressed will not be realised; indeed I believe that they will not be. Certainly British Telecom plc will continue to have an obligation to provide coin-box telephones, which was a particular concern of the noble Lord.

The noble Lord, Lord Byers, and indeed the noble Lord, Lord Ponsonby, referred to the question of pensions. The existing pension fund of the Post Office is now being split in half in respect of the postal services on the one hand, and British Telecom, as it presently exists, on the other. The present idea is that the British Telecom pension fund should be transferred to the new BT plc. It is certainly the intention that after the transfer pensioners and prospective pensioners should enjoy the same rights as they do at present, including the indexing to which the noble Lord, Lord Byers, referred.

Both noble Lords referred to the question of British Telecom's borrowing being counted towards the PSBR. I recall that we discussed this matter in great detail at the time of the passage of the British Telecommunications Act. I fear the fact is that the borrowing which British Telecom at present undertakes, which constitutes a comparatively small part of its capital expenditure, must count towards the PSBR, because, although the Government do not necessarily have to guarantee such borrowing, the fact of the matter is that there is an inherent guarantee in any such borrowing; at least, that has been the considered opinion over a matter of years of those more learned in these matters than myself.

But the result of this proposal will be, of course, that such borrowing no longer forms part of the PSBR, which can only be to the benefit of British Telecom, its customers and, indeed, its staff. Incidentally it will have an effect on prices, which I think one noble Lord referred to (I think it was the noble Lord, Lord Ponsonby) because with their greater freedom to borrow free from the shackles of the PSBR it will be possible for them not to have to make such a provision out of revenue for their capital expenditure.

Lord Kennet

My Lords—

Lord Boyd-Carpenter

My Lords, is my noble friend aware—

Several noble Lords

Order! Order!

Lord Boyd-Carpenter

My Lords, is my noble friend aware that most users of telephone services will be very happy to know that the era of ever-increasing charges, largely for the purpose of financing very necessary investment, will, as a result of the measures he has announced, be shortly brought to an end? Is my noble friend aware, therefore, that this particular Statement will go very well with the users of the telephone services? Would he tell me whether, having disposed, after the next election, of 51 per cent. of the stock in British Telecommunications, the Government intend to retain the remaining 49 per cent. indefinitely; and, if so, why?

Lord Trefgarne

My Lords, I certainly agree with my noble friend that the difficulties which telephone users have been subjected to in recent times, particularly the sharply escalating cost of the service, are matters from which we ought to offer them the earliest possible relief, and I am certain that this is the best way to do that. As to whether or not the Government w ill retain 49 per cent., or any other percentage, of the shares in this corporation, I should say that that is not a matter upon which we have yet reached a final decision. Speaking for myself, I see no reason why, in principle, we should retain any particular percentage of the corporation; but in the first instance we are proposing to dispose of the 51 per cent. which is referred to in the Statement.

Lord Kennet

My Lords, we up here are not against the injection of private capital into BT, even if only as a means to enable its employees to invest in it themselves directly; but the House has just heard the declaration of the next battle in the continuing frontier war in British politics between nationalisation and denationalisation, in the pledge by the Labour Party to repeal the 51 per cent. which the Government have promised to enact if they win the next election. We are for moderation and slowness in these matters.

Will the Government say anything at this stage about the maintenance of our vital national interest in telecommunications and about the public service obligation which lies upon British Telecommunications at the moment, and the related question of possible foreign ownership? Further, could the Government make clear whether or not the new "plc", after it has been fully privatised, will be a monopoly as regards the provision of the network itself, or will there be an element of competition introduced (because that would appear difficult in so small a country as ours); but if it is to be a private monopoly, in what way do the Government think things will be improved over the present condition of public monopoly?

Lord Trefgarne

My Lords, first of all, on the monopoly question, as I said when I repeated the Statement, a second network has now been licensed, the Mercury Consortium, and it will be open to them to provide such additional services as they feel able and as they want to do. Value-added services—that is to say, services which derive their usefulness from being attached to the network—will be generally licensed under the provisions which, again, are referred to in the Statement. On the question of employee shares, which the noble Lord raised—and I regret I did not reply to that point when the noble Lord, Lord Byers, raised it—it is certainly our intention that employees should be entitled to acquire shares. The detailed proposals have not yet been worked out, but I fancy they may well be something along the lines of the scheme we devised for British Aerospace, the Bill for which passed before your Lordships a year or so ago.

As for the question of foreign ownership, to which the noble Lord referred, that also is a matter to which the Government have given some thought, and, again, our initial thinking is along the lines of the provisions contained in the British Aerospace Bill; but I should say that we have not yet reached a final decision on that matter, and it may be that some other, more appropriate scheme will occur to us. The noble Lord also asked about the general duties of BT plc. May I again refer him to Section 3 of the British Telecommunications Act 1981, which laid certain duties upon British Telecom, as it now is. We have it in mind, in a general way, that similar duties should be assigned to British Telecom plc when that company comes into being.

Lord Oram

My Lords, while it is perhaps too much to hope that the Government can be halted in their rush to privatise state-owned industry, can we not on this occasion, at least, be spared the empty pretence that the Government are promoting wider share ownership in privatised industry? Has the Minister seen the evidence that was before the Public Accounts Committee in another place respecting British Aerospace, to the effect that shareholdings slumped by as much as 83 per cent. in 10 months, from 158,000 shareholders to 27,000 shareholders, and in the case of small shareholders by 93 per cent.? Can we, if this present scheme goes ahead, expect a different result on this occasion?

Lord Trefgarne

My Lords, it is one thing to create a scheme to facilitate the purchase of shares in a company by the employees of that company—that is what we did in terms of British Aerospace, and that is what we have in mind to do in respect of British Telecom—it is another to insist that they hold on to those shares for ever and a day. Sometimes they sell them for perfectly good and justifiable reasons. Most of the schemes that are devised in this sort of area usually have a proviso that the shares have to be held for a certain period by trustees, or some such; but I think that the important thing is to make available the necessary facilities for employees in the business if they wish to acquire shares at the outset.

The Earl of Onslow

My Lords, I do not know whether my noble friend saw in The Times today a letter from the chairman of the British School of Motoring, explaining that his telephone bill for local charges had gone up by 37 per cent. compound per annum over the last two years, whereas the costs of international dialling, et cetera, had gone up by very little. If this scheme which my noble friend and his right honourable friend are going to produce is going to have the effect of checking the rise in local charges, which are the charges affecting most of us most of the time, then surely this is something which can be very much welcomed. How in fact is the new competition going to be introduced into the local telephone system, which is the telephone system which the vast number of ordinary people in this country use? How is that going to happen?

Lord Trefgarne

My Lords, as I have explained, the existing level of telephone charges is set having regard to the need, not only to provide the running costs of the network and the equipment, but also to make provision for 90 per cent., no less, of the capital investment of British Telecom in any particular year. Under the new arrangements, British Telecom will be able to borrow as they think fit on the market, and as they are able to do so, and this may well relieve them of some of these very high capital appropriations which have to be made. That is the first answer to my noble friend; but there is going to be a considerably greater degree of competition generally in the telephone service, overseen, as I have said, by a new director-general, and I am certain that that, too, will have an effect on the charges to which my noble friend referred.

Lord Airedale

My Lords, can we be assured that with the onset of the fierce new competition, the Act which safeguards the continuance of telephones in remote areas will also safeguard telephones of the elderly, the sick and lonely, some of whose telephones probably do not make any commercial sense but probably make the difference between these people continuing to live independently and having to move into institutions?

Lord Trefgarne

My Lords, I suspect that the fear of the noble Lord will prove to be unfounded. The telephone arrangements at present are that there is an initial fixed charge for the installation, followed by annual or quarterly rentals and then additional charges are levied in respect of each call. With a simple installation, the fixed charge is not unprofitable, and I see no reason why difficulty which the noble Lord foreshadows should arise.