HL Deb 22 November 1982 vol 436 cc739-47

4.28 p.m.

Lord Skelmersdale

My Lords, with the leave of the House I will now repeat a Statement being made in another place by my right honourable friend the Secretary of State for Energy about the outcome of the offer of shares in Britoil. The Statement is as follows:

"Mr. Speaker, I wish to make a Statement on the outcome of the offer of shares in Britoil.

"The lists opened and closed at 10.00 am last Friday.

"Valid applications were received in respect of just under 70 million shares. They have been accepted in full at the minimum tender price of 215 pence per share. The balance of the underwritten portion of the Offer for Sale, some 185 million shares, will be taken up at the same price by the underwriters and sub-underwriters, who comprise some 500 pension funds, life offices and other investing institutions, who will hold the shares on behalf of their members, policyholders and shareholders.

"Ninety-nine per cent. of all applications came from small investors and employees. There were a little over 35,000 applications for 2,000 shares or less, 90 per cent. of them being striking price applications. These will be eligible for the small shareholder bonus subject to the terms and conditions set out in the prospectus.

"Under the special arrangements made by the Government for employees of Britoil, 92 per cent. of eligible employees will hold a total of some half million shares between them. I will circulate a more detailed breakdown of the applications in the Official Report.

"Dealings in Britoil shares will open tomorrow. Following the sale, the Government will be left with approximately 49 per cent. of the share capital of Britoil. The total share issue will raise a gross sum of £548 million. In addition, Britoil will shortly repay, with interest, a debenture of £88 million. Total gross proceeds will be approximately £640 million.

"The latest estimate of the costs to be borne by my Department since preparations began in January up to the end of the current financial year is £11½ million, exclusive of VAT. This sum includes expenses incurred in connection with the scheme transferring assets to Britoil, as well as costs of the sale itself. Parliamentary approval to expenditure in connection with the main expenses of the Britoil sale will be sought in a Winter Supplementary Estimate. Pending that approval, the necessary expenditure will be met by repayable advances from the Contingencies Fund.

"In all, the total net proceeds from the disposal of Britoil are estimated to be in excess of £625 million.

"Mr. Speaker, Britoil has now been successfully privatised on eminently fair terms for the taxpayer. I am sure all sides of the House will want to wish this important new British company every success in the years ahead".

My Lords, that concludes the Statement.

4.31 p.m.

Lord Bishopston

My Lords, the House will thank the noble Lord for reading the Statement which was given in another place. However, does he really think that the Statement is a little more sober and more realistic than some of the Secretary of State's rather bouncy comments made in a broadcast of yesterday, when he talked about the "great success of this flotation"? He referred then to the success of the issue. This is hardly the kind of comment which is made by responsible and experienced financiers and others in the City. The Secretary of State has now presided over two disastrous incursions into privatisation. The House will recall Amersham International, where the speculators made a killing, and now Britoil, where only a small percentage of the shares have been sold, showing a great lack of confidence in the issue.

Why did the Secretary of State and the Government ignore the warnings about the timing of this sale? As I said on the Statement on 10th November, the Secretary of State seemed determined to sell in November, whatever the consequences; and now we know the effect upon these great public assets. Does he recognise that the public have little or no confidence in this investment and will he urge the Government to reconsider not only this privatisation but also any future policies of privatisation they may have?

Also, can the noble Lord say what percentage of the 255 million shares will be held by small investors? Can he say what special considerations there were for employees to hold these shares? Does he classify shareholdings of up to 2,000 shares as being held by small investors? As the Secretary of State anticipates that some 185 million shares will be taken up by—and I quote the Statement— underwriters and sub-underwriters, who comprise some 500 pension funds, life offices and other investing institutions, who will hold shares on behalf of their members, policy holders and shareholders", does he classify these as small investors and can he say to what extent the shareholders who will be represented in these block shareholdings will have been consulted directly, in view of the uncertain investment with which they may be concerned? Is the sale of only 30 per cent.—the figure seems to have been between 25 and 30 per cent. of the shares—and the fact that underwriters were left holding considerable numbers of unsold shares really what the Secretary of State has in mind when he talks about "success"? He said he wanted—and I quote— the people of Britain to take a direct personal stake in the North Sea". I think he has the answer. Will he urge his right honourable friend the Secretary of State to make another early statement on this so-called "sale of the century" which, instead of being seen as a success, will be seen as the flop of the century? Will he stop playing with the vital assets which are represented in the North Sea in order to give the industry the kind of stability and the kind of certain future it would have and would continue to have under public control?

Lord Tanlaw

My Lords, we are grateful, from these Benches, that the noble Lord has repeated the Statement made in another place. The question that I would like to put is this. I wonder how the statement would have read if the issue had been a success. I think this is the best they can do in the circumstances, and for the term "success" to be used probably means that it has got into the Guinness Book of Records. From information I have received I believe that no new issue put forward on the Stock Exchange either in this country or elsewhere has met with such devasting non-success, though in this way it may have a claim to fame.

I am also worried that, as the noble Lord will recall, a suggestion was made from these Benches that perhaps in order to make amends for the Amersham issue Her Majesty's Government might consider a deliberate failure in order to maximise the number of shares left with the underwriters. That suggestion was made and I wonder whether perhaps it was taken a little too seriously by the right honourable gentleman the Secretary of State for Energy, who made a personal contribution by his intervention in the market, insisting that the shares be placed at £2.15 per share rather than taking the advice given that the price should be £1.80 per share. Perhaps the noble Lord can comment on that.

I should like to take up a point which was made by the noble Lord, Lord Bishopston; that, this sale was intended to benefit the small investor and the employees. This aspect was welcomed from these Benches and I think it is very unfortunate and most unfair that the small investor, when he looks at his shares tomorrow at 10 a.m., may find that the amount of money he has put forward has been lost by something like 20 per cent. With the amount of advice and the number of warnings given from not only these Benches but all parts of the House that the timing of this issue was all wrong, I think that the small investor has some complaints to make to the Government for going ahead when all the auspices were wrong, on City advice.

I should like to ask the noble Lord, if he could, to confirm that the expenses to the taxpayer of underwriting this issue will amount to more than £8 million. It is very difficult perhaps to find the parlia-

mentary phrase for describing Her Majesty's Government's efforts over this issue. I therefore use an unparliamentary phrase. I think that "a right Horlicks" has been made of this issue from the very start to the finish. There is some concern that Her Majesty's Government, who claim support from business and City interests, have managed to get so out of touch with them in order to make two very serious miscalculations, in terms of the City, in its two most recent issues on the road to privatisation.

The question I ask the noble Lord is: before any further privatisation issue occurs, will Her Majesty's Government take further advice from the City and actually listen to it, rather than take the advice of their civil servants who have no experience whatsoever, and have proved this to be so. Furthermore, would the noble Lord perhaps consider that it is time to have a whole debate on the issue of privatisation itself and the methods of it, in order to be reassured in this House that the Government in fact know what they are doing and are listening to the people who have been giving support until now, although they may have serious reconsiderations about it in the future.

Lord Davies of Leek

My Lords—

Lord Skelmersdale

My Lords, before I answer the question of the noble Lord, Lord Davies of Leek, which is obviously coming, perhaps I may respond to the first two speakers, the noble Lord, Lord Bishopston, and the noble Lord, Lord Tanlaw. Obviously, I am grateful for their introductory personal comments which were perhaps predictable. But I am not in the least surprised by the subsequent comments which I reckon were also fairly predictable. Indeed, anywhere else but in this Chamber I might have made reference to an element of crowing, but, of course, we will not do that sort of thing, will we?

There was an element of déja vu—of "I told you so"—in the remarks by both noble Lords. But I suggest to your Lordships that they were remarkable only for what was not said. Have we heard the noble Lord, Lord Bishopston, for example, say again that it was a waste of money to have the shares underwritten? Have we heard of the effects of the Indonesian statement that she had reduced her oil price by 47 cents a barrel on 12th November? Have we heard of the effects of the Saudi Arabian statement on Thursday last that they were willing to consider an oil price cut? Naturally not, but I have been asked various questions.

First, the noble Lord, Lord Bishopston, asked me whether the Statement was not a little more sober than my right honourable friend's comments on yesterday's "World at One". Naturally, my Lords, it was a little more sober. He is reporting on something to Parliament and, indeed, I have repeated his words in exactly the same way. I am glad that the noble Lord noticed that they were sober. That does not necessarily mean that any subsequent remarks made from either Dispatch Box in either House will be quite as sober.

The noble Lord, Lord Bishopston, referred to two "disastrous excursions"; and, indeed, the noble Lord, Lord Tanlaw, quantified these by referring to this current disposal of assets and by comparing it with the one for Amersham. He asked: did we take too seriously the suggestion from the Liberal Benches that we had overreacted on Amersham, and have we overreacted in the other way on the sale of Britoil? The two have no connection whatever. Not only was Amersham something like one-fifteenth of the size of the total value of Britoil, but, naturally, when these exercises are undertaken one wants to learn from mistakes, both real and apparent. I would say that we have almost certainly swung from one extreme to the other, but I do not think that that is necessarily a bad thing, and I would not draw that conclusion. Why ignore the warnings? The warnings have been frequent. Some have been irrational; they certainly have not been consistent. We have had one warning one day and another warning another day, so one does not know which warning to listen to at any time.

It was suggested by the noble Lord, Lord Bishop-ston, that there was little or no confidence in the City. What nonsense, my Lords! We had the shares underwritten at a price that we told Parliament we would. There is no doubt about it that this was a successful outcome, because, quite obviously, some small section of the City did not agree with the major bulk of the City who put a different value on the shares. The Government received the higher value.

I was asked about the percentage of shares held by small investors. Approximately one-third of the shares applied for were applications from small shareholders. This amounts to some 9 per cent. of all the shares on offer. There were special rates for employees. I do not have these arrangements to hand, but they were well identified in the prospectus in, I think, three different places. As I remember it, there was a long-term holding arrangement which applied to all small investors and which was a one-for-10 bonus issue for those shares which were held after three years; there was a topping-up arrangement where there were free shares being given to match the purchased shares, and there were also free shares on their own account. But, for the details, the noble Lord will have to refer to the prospectus.

The noble Lord, Lord Bishopston, also asked what I found to be a totally amazing question. He asked whether the 500 investors referred to in the Statement are to be described as small investors. No, quite evidently they are not. They may be made up of small investors, in that some of the underwriters and sub-underwriters were pension funds, assurance societies and the like and, naturally, there was no direct reference to the individual participant in those various schemes.

The noble Lord, Lord Tanlaw, commented that the Secretary of State was advised by the City that 180p would be appropriate as the value of the shares, whereas he stuck out for 215p a share, if I may paraphrase the noble Lord in rather inelegant language. This is pure unsubstantiated rumour. The point is that the higher value has been achieved by the Government, as I have already pointed out. I was asked: before further privatisations, will the Government learn lessons from these two exercises? Naturally, we shall. I think I have already shown that we have learned quite a good lesson from the Amersham one, and I believe we shall learn another lesson from this one. But that does not mean to say that I am not expecting further privatisation exercises.

The noble Lord, Lord Bishopston, referred to the flop of the century. To my mind, this occurred when the last Government had to go to the IMF because of constant previous unsound economic practices. Is that what puts the "great" in Great Britain? Is it a flop when the Government, with the advice of some City institutions, sells shares at a price which the City generally thinks is too high? Of course, it is not. I am glad that the noble Lord did not use the word "fiasco", because I have a lot more on that. But I have probably said enough.

The Earl of Onslow

My Lords, is it not hypocritical for Members on the other side of your Lordships' House to complain that small investors get a bonanza when they make a profit on Amersham, and then to complain that they have been diddled because they have not got enough from the profit on the sale of Britoil? Is it not the case that Her Majesty's Government have placed Britoil on the market at X numbers of pounds and they have got the money which they asked for, and should we not all be very pleased that they have been able to get the money that they asked for? If I may be so bold as to suggest it, I find the hypocrisy on the other side, wailing about the poor merchant banks and the poor City being left with large hunks of issued capital which they have not been able to sell to the investors, slightly startling, considering the views which were expressed on the Amersham flotation only a few months ago.

Lord Skelmersdale

My Lords, I agree with my noble friend. I do not think it is a wise procedure to butter toasts on both sides.

Lord Roberthall

My Lords, I have rather more sympathy with the Government than the two previous speakers. On the last occasion when we discussed this subject, the noble Lord, Lord O'Brien, who probably knows more about it than anyone else in your Lordships' House, said how impossible it is to make a correct judgment and I think that the combination of this and Amersham shows how right he was. The Government had advice from six merchant banks and they could hardly have gone any further than that. They also had the good sense to have it underwritten. So I do not think it was such an unfortunate affair as all that.

The party on whose Benches I sit takes the view that it is very unfortunate that we have to have a succession of nationalisation and privatisation, which reduces all the hopes of good management. It is also most unfortunate that the Labour Party and the Conservative Party are bent on going first in one direction, and then in the other. If we must have nationalised industries—there is a case for them—we ought to try to get them—

Lord Denham

My Lords, I wonder whether the noble Lord would put his remarks in the form of a question.

Lord Roberthall

My Lords, I beg your Lordships' pardon. There is one question that I want to ask. I wonder whether the noble Lord the Minister could tell us if the proceeds of this operation will go to reduce the public sector borrowing requirement, and, if not, what will they go for?

Lord Skelmersdale

My Lords, I agree with the noble Lord that the yo-yo of industrial politics in this respect is not good for anybody, but if the other side did not have such an idealistic approach to all these matters there would be no need for it. The noble Lord also asked where the proceeds are going. As with all other privatisation exercises, they will go into general Treasury funds and the Government will make such use of them as they see fit at a particular time to meet a particular contingency.

Lord Davies of Leek

My Lords, we are grateful to the noble Lord for his kindly manner and for his Statement. Is the noble Lord aware, however, that the financial columns of all the weekend papers and the others—no matter what political point of view they take—are beginning to say that we are going too far with this kind of privatisation? It is a dark cloud, no bigger than one's hand. However, the scions of the Tory Party, although they may accuse this side of déja vu, lack what the French call esprit de l'escalier: being able to answer back. In other words, privatisation is a complete failure. The country must pull together, whatever the politics of its people, because we are running it down. Is the noble Lord aware that we shall soon be reaching Bernard Shaw's acme of a non-industrial Britain in one of the introductions to his plays? We shall be a nation encouraging tourism and exporting chocolate and nothing else.

Lord Skelmersdale

No, my Lords, the Government do not agree with the main thrust of the noble Lord's argument. His reading of the papers over the weekend must have been a tiny bit selective because, if you include Monday, I managed to obtain a copy of today's Daily Telegraph, which takes quite the opposite view. I do not think that the papers have yet got to grips with the fact that we are talking about a completely different thing from that which we were talking about in the last Conservative Government. Then it was a question of nationalisation or denationalisation. Now we are seeking to introduce private money while retaining a substantial Government holding. I personally feel that this is the right attitude to be taking.

Lord O'Brien of Lothbury

My Lords—

Baroness Gaitskell

My Lords, I have been waiting all afternoon to ask the Minister a question.

Lord Denham

My Lords, certainly we shall be interested in the noble Baroness's question before we finish, but it is usual to take questions from different parts of the House.

Lord O'Brien of Lothbury

My Lords, would the noble Lord the Minister agree that it is not quite true to say that it is impossible to make a correct decision in instances of this kind? It is merely very difficult. The difficulty arises from the fact that in arrangements of this sort which take a good deal of time to conclude there must of necessity be quite a long interval between the time when they are announced and the time when they are completed. It may be a week; it may be more. During that interval, all sorts of extraneous events can occur which invalidate the judgment which has been reached. Such was the case in this instance. Such was the case also in the Amersham instance. There was egg on the faces of those who tried to reach a just conclusion. I am afraid that in City terms this particular offer was a flop. But it is true to say that the Government got their money from the underwriters.

Lord Skelmersdale

My Lords, I am very grateful to the noble Lord, Lord O'Brien of Lothbury, with his vast experience of City matters—far more than I can ever hope to achieve. I agree with everything which he has said. While I am on my feet, may I respond to a question asked by the noble Lord, Lord Tanlaw, about the costs of this exercise? As we said in the Statement, details will appear when the winter supplementary estimate is laid before Parliament. The major proportion of these—some £8.5 million—are attributable to underwriting.

Baroness Gaitskell

My Lords, would it not be true to say that what has happened about privatisation is a real slap in the face for the whole exercise? It seems to have been done by amateurs. Nobody consulted the City. It seems to me to be a complete fiasco and a justification for going against privatisation in the future.

Lord Skelmersdale

My Lords, I am afraid that I must tell your Lordships that I rather resent the remark of the noble Baroness, Lady Gaitskell, who called my colleagues "amateurs". The Secretary of State was a leading financial journalist and one of his junior Ministers was a leading merchant banker. I could not agree less with the noble Baroness.

Lord Beswick

My Lords, did I understand the noble Lord to say that the whole of this money—£635 million, I believe, will be the net proceeds—together with all other monies realised by the sale of public assets will go to the Treasury to be used as they see fit? Has there not been an undertaking that some of the money will go back into the industries concerned? Secondly, may I ask the noble Lord if he can give us an estimate of the cost of this 10 per cent. bonus to investors with 2,000 shares and less?

Lord Skelmersdale

My Lords, the noble Lord did hear me correctly. I said that the money would go to the Treasury. That was a slight euphemism, because the money goes, of course, into the national exchequer. As far as I know—but if I am wrong I shall write to the noble Lord—there has been no commitment to spend this money in any particular direction. The other question which the noble Lord asked me was about the total cost, was it not?

Lord Beswick

The 10 per cent. bonus my Lords.

Lord Skelmersdale

My Lords, the free shares were held up, so in effect there is no cost. I do not understand the point which the noble Lord is making.

Lord Beswick

My Lords, there will be an issue of 10 per cent. of the 2,000 holding in three years' time to those investors who then hold the shares. Those shares will have a value. What will be the value of those shares?

Lord Skelmersdale

Those shares, my Lords, will of course have a value but they will not have a cost. That is the distinction. I have no idea what will be the value of Britoil shares on the London Stock Exchange in three years' time.

Lord Beswick

But—

Lord Denham

My Lords, I know that the noble Lord, Lord Balogh, has been trying to get up for some time. We have now been 29 minutes on the Statement. I wonder whether your Lordships agree that once the noble Lord, Lord Balogh, has asked his question and my noble friend has answered it we should then proceed with the debate.

Lord Balogh

My Lords, this is the last episode in the tragi-comedy of British relations with the oil industry. We first gave them conditions which were far too favourable. The licensing system broke down completely. We then tried to get a solution to the same problem in an indirect way.

Lord Denham

My Lords, I wonder whether the noble Lord would put his remarks in the form of a question.

Lord Balogh

I thought I put it at the beginning in the form of a question. After that we tried, when I was responsible, to establish through the British National Oil Corporation an organ which could supervise and counterbalance the enormous might of the American oil companies. That has been destroyed, and now the institution has been endorsed. What is very funny is that the City did not like it any more than we did.

Lord Skelmersdale

My Lords, the noble Lord referred to the last episode in the transient relations of the Government with the oil industry. By no means is it the last episode in the transient relations of the Government with the oil industry, because BNOC, as a separate corporation, will continue to trade in participation oil. There will therefore be constant relations with the oil industry for, I hope, a considerable time to come.