HL Deb 27 October 1983 vol 444 cc378-83

4.15 p.m.

Lord Cockfield

My Lords, with the permission of the House, I will repeat a Statement made by my honourable friend the Financial Secretary to the Treasury in another place. The Statement reads as follows:

"With permission, Mr. Speaker, I will make a Statement.

"As part of its continuing programme of privatisation, the Government are now considering disposal of a further tranche of their shareholding in Cable and Wireless plc during the current financial year.

"The Government renounced control over the company in October 1981 following the sale to the public of some 133 million shares. The Government's shareholding has since been diluted to some 45 per cent. of the company's issued equity as a result of an issue of new shares by the company in March 1983.

"The Government have in mind a sale of approximately half their present shareholding through an offer for sale to the public. The precise timing and amount will be subject to market conditions. Parliamentary approval for the expenditure will be sought in a new Vote which will be presented to the House in due course. Pending that approval, the necessary costs of preparation for the sale will be met by repayable advances from the Contingencies Fund.

"The directors of Cable and Wireless are recommending shareholders to agree to the issue to the Government of a special share which will enable the Government, irrespective of their own shareholding, to ensure the continuance of those provisions of the company's articles of association that limit the shareholdings of individuals and parties acting in concert to not more than 15 per cent. of the issued ordinary share capital. The Government will vote their shareholding in favour of this proposition".

My Lords, that concludes the Statement.

Lord Bruce of Donington

My Lords, the House will be very gateful to the noble Lord for repeating the Statement, which indeed seems to have been anticipated in the columns of today's Guardian and Daily Telegraph. The most remarkable thing about this Statement is that it really gives no reason for the sale taking place, other than as part of a continuing programmes of privatisation. But the principal purpose of privatisation as put forward by the Government from time to time has been to restore industry, or sections of it, into private hands and to remove sections of it from what has sometimes been described as "the dead hand of the state". However, that has already been done. In 1981 the Government parted with 51 per cent. of their interest in Cable and Wireless, so presumably all that transpires as a result of the particular transaction which is envisaged in the Statement is merely the raising of more money.

It would have been helpful if the noble Lord had indicated for what purpose the proceeds of the sale are to be used. I have been carefully through the accounts of Cable and Wireless plc for the last two or three years. They seem to be doing remarkably well. Their profit record is very good, their turnover is going up, and last year the Government themselves received, on the basis of their reduced holding, approximately £10 ½ million after tax, which was not really a bad return for the amount of investment which they had retained.

It is all very well to think that the country is to be indefinitely mesmerised by the calls for privatisation carried out for the ostensible reasons of restoration of competition, effciency, enthusiasm, initiative, drive and so on. It is getting a little thin. Here it is anticipated to dispose of a futher half of the Government's present holding. May I suggest to the noble Lord that it is not always good housekeeping—a word to which Her Majesty's Government pay very great regard—to eat the seed corn, more particularly in circumstances such as this.

The shares have been quoted in the current year as high as 383p each. They have gone as low as 250p, and today's quote on the Stock Exchange is some 265p. At what price do the Government propose to sell, and do they consider that competitive conditions enabling the best possible price are likely to arise during the current financial year? The fact of the matter is that the Government are desperate to raise money from any source, and when getting that money they propose to take the unsound way of dealing with it: by using it as ordinary income and spending it as part of the normal process of Government expenditure. This is not very sound. I should have thought that it would have been far better for the Government to content themselves with retaining their existing holding.

We note that pending approval—which will of course be necessary in this case—the necessary costs of preparation for the sale will be met by repayable advances from the contingency fund. I am sure that the House would be interested to know just what these costs of preparation comprise. Will the noble Lord give us some indication of what the costs of preparation comprise, and an approximate idea of how much these costs of preparation will be?

So far as the conclusion of the Statement is concerned, of course we entirely support the intention of the issue to the Government of a special share. The purpose of this is well-known: it will enable the Government in certain circumstances affecting what they conceive to be the national interest to exercise their one special share by way of majority over all the existing shareholders. This is a very sensible precaution. I hope that the noble Lord may be able to enlighten the House a little further in response to the questions which I have ventured to put to him.

Lord Diamond

My Lords, may I, too, say how grateful we are—it is very important that this should continue to be the case—for repeating the Statement made in another place, thereby enabling this House to participate in important discussions of this kind. May I ask the noble Lord three questions? First, approximately—I know that he cannot give me a precise figure—how much do the Government expect to raise net out of this sale? Secondly, is he able to give an assurance that this money, being from a sale of national assets, will be earmarked exclusively for capital purposes? Thirdly, will he help me with the irreconcilable statements made in the first and second paragraphs?

The second paragraph of the Statement refers to the "continuing programme of privatisation". The third paragraph refers to the Government's having renounced control. If it is correct that the Government have renounced control, then surely, as the noble Lord, Lord Bruce of Donington, said, it cannot be right to say that the purpose of this sale of a further tranche of a minority holding is in pursuance of a programme of privatisation.

Is it not the case that it is in pursuance of a programme of misleading the electorate at the time of the General Election? At the time of the General Election, statements were made about public expenditure which have since been shown to be less than the whole truth. Is it not the case that this money is required because the Government were not prepared to make adequate provision for increases in demandled expenditure? If they made adequate provision they could not make the reductions in taxation without wrecking the whole of their financial policy which formed the content of a Bill which the Government introduced immediately before the General Election. Do not these points that I am making hang together?

Lord Cockfield

My Lords, may I start with the points raised by the noble Lord, Lord Bruce of Donington, although to some considerable degree they were also reflected in what the noble Lord, Lord Diamond, said. There is of course a clear conflict of political philosophy between those of us on these Benches and noble Lords on the Benches opposite. We have discussed these matters on many occasions in the past and we shall no doubt go on discussing them.

But may I start by making this point? When one refers to privatising a company, it does not mean that one sells only 40, 50 or 60 per cent. or any other specific percentage of the capital of that company. What is important is that control of the company passes into the private sector, which suggests a minimum of 50 per cent. But there is a great deal to be said for selling 100 per cent. and getting it out of the public sector altogether. That is the real answer, both to the broad political point raised by the noble Lord, Lord Bruce of Donington, and in effect also to the third of the points raised by the noble Lord, Lord Diamond.

This is an act of privatisation, and where there is no national interest involved there is no reason whatever—I am not speaking specifically about Cable and Wireless, because both noble Lords widened the discussion beyond that—why in many of these instances the state should retain any shareholding at all. Therefore, the proposed sale of approximately one-half of the shareholding remaining with the Government is a perfectly legitimate further step forward in the programme of privatisation.

The success of that programme is amply illustrated by the point raised by the noble Lord, Lord Bruce of Donington, himself; namely, that since control of the company passed to the private sector the company has in fact flourished very much indeed. Of course, a sale of this kind does raise money for the Exchequer and that is one of the reasons for making the sale. This was brought out very clearly, for example, in the statement made by my right honourable friend the Chancellor of the Exchequer in July when he said there would be additional asset sales. This is one of them.

The noble Lord, Lord Bruce of Donington, asked: at what price will the Government sell? That price can be fixed only at the time that the Government are ready to make the offer for sale. But information of this kind is market sensitive and it is not possible at this stage to go further than that. Our aim will be to secure a fair value for the shares in the light of the market conditions then prevailing.

The noble Lord, Lord Diamond, also asked how much money did the Government expect to receive. Here again I can only give him illustrative figures. If, for example, the Government sold 100 million shares, which is approximately one-half of their present holding, at the current market price, which the noble Lord correctly quoted as 265p, it would raise £265 million, less expenses. The noble Lord, Lord Diamond, also asked what the expenses would amount to. I am not in a position to answer that question at the moment because the expenses will depend to a considerable measure on the method of sale which is undertaken, including whether or not it is underwritten; but as money must be spent before the Vote can be made in another place to cover the expenditure, it is necessary to charge any costs incurred ad interim against the contingency fund.

The noble Lord, Lord Diamond, also asked for an assurance that the money would be earmarked for capital purposes. I give him no such assurance. The money which reaches the coffers of the Exchequer is not categorised as income or as capital. There is a very large capital element in the expenditure incurred by the Government on the other side of the account, but it is not the practice to hypothecate individual receipts of moneys, as to whether they are going out for one purpose rather than for another. But there is, as the noble Lord will see from the annual public expenditure paper, a very large volume of capital expenditure which goes on every year.

The noble Lord, Lord Bruce of Donington, suggested that this was an unsound way of running our finances. This is not the position at all. We have a very substantial public sector borrowing requirement which has to be met either by taxation or by borrowing. If either the noble Lord, Lord Bruce of Donington, or the party of which the noble Lord, Lord Diamond, is a member were in office, that borrowing requirement would be a very great deal bigger than it is at present. The use of moneys derived in this way as part of the finance to meet that borrowing requirement is a perfectly legitimate procedure.

Lord Beswick

My Lords, the noble Lord, Lord Cockfield, spoke about the advantages which will accrue from this disposal of public assets. Can he give us just one example of how there will be some advantage in managerial efficiency: whether there will be benefits to the consumer from selling off this additional package of shares? Secondly, when the Government have disposed of—some people would use the term "flogged"—these public assets, may I ask the noble Lord to indicate how the Government then propose to meet the shortfall between revenue and expenditure?

Lord Cockfield

My Lords, so far as the first part of the noble Lord's question is concerned, as a distinguished former chairman of a nationalised industry he will be aware of the continual complaints made by the nationalised industries about Treasury involvement in their affairs and about the Government's sitting on their backs. Nothing could be better from the point of view of running an efficient business than that the Government should not be involved in that business and that the management of the business should be free to conduct it in the best commercial manner. The success of this policy is shown by the very success of Cable and Wireless itself since it was privatised. I am sure that it will continue along this road of success.

The noble Lord raised a second point which I suspect was more rhetorical than anything else. He asked: how would the Government meet their borrowing requirements after they had "flogged" these assets? I believe that was the word he used. The answer to his question is perfectly simple. It is part of the Government's policy to reduce the size of the public sector borrowing requirement. One of the major ways of doing this is by restraining the rise in public expenditure, and I hope very much that we shall have the noble Lord's support for those measures.

Lord Beswick

My Lords, if I may press the noble Lord on this matter, is he seriously telling the House that there will be less Treasury intervention when the shareholding is 21 per cent. than when it was 42 per cent.?

Lord Cockfield

My Lords, the important point is that the Government should no longer be in control of the company. It is even more important that the Government should not be involved in it at all. The Government are not an investment trust. It is not the function of Government to be holding investments in companies. The function of the Government is to govern the country, a job which they are doing with very great success, as underlined by the results of the General Election in June. The right thing is for the private sector to run industry and business efficiently and profitably.

Lord Bruce of Donington

My Lords, may I press the noble Lord to answer one question which I put to him but which he did not answer. I asked for estimates of the cost of preparation. The noble Lord must have had some figure in mind, otherwise he would not have found it necessary to say that advances would be made from the contingency fund. Quite clearly they must be significant. Can the noble Lord not give any indication as to what these costs of preparation are, as distinct from the actual costs incurred at the time of the offer for sale, whatever they may be? What are these costs of preparation, and approximately how much are they?

Lord Cockfield

My Lords, I thought I had very fully answered the noble Lord's question. A wide range of costs is involved. There is the cost, for example, of advice tendered to the Government and advice taken by the Government. There are other preparatory costs involved in the preparation of documents, the circulation of documents, the insertion of advertisements. There is the cost of the actual issue itself—the underwriting costs and so on. It is impossible at this particular point to say just at what point in the chain of the incurring of those costs the appropriate Vote will be passed. It is not possible at this stage therefore to say how much of the total expenditure will be charged against the contingency fund and how much of it therefore will come after the date when the Vote has been passed in another place. Purely by way of illustration, the cost incurred when the first sale of shares in Cable and Wireless was made was £7 million, but that of course included the cost of underwriting, which is a substantial part of the total.