HL Deb 02 May 1984 vol 451 cc557-65

4.2 p.m.

Lord Cockfield

My Lords, with permission, I will repeat a Statement made in another place by my right honourable friend the Secretary of State for Trade and Industry on the privatisation of British Telecom. The Statement is as follows: "With permission, Mr. Speaker, I should like to make a Statement about privatisation of British Telecom.

"As the House will know, it is the Government's intention to sell a majority interest of the ordinary voting shares of British Telecom.

"I wish now to set out the broad outlines of the capital structure with which BT PLC will enter the private sector. We have concluded that the initial debt of the company to the Government should be in the form of debentures with a capital value of £2,750 million carrying interest at between 12¼ per cent. and 12¾ per cent. The Government will assign sufficient of these debentures to the residual statutory corporation to enable them to meet the deed of covenant obligation to the BT and Post Office staff superannuation schemes as required by the Telecommunications Act 1984.

"BT PLC will also issue to the Government preference shares to the value of £750 million. These preference shares carrying a gross dividend of 11¾ per cent, will be non-voting and redeemable at BT's option or in any case after 30 to 35 years. Apart from BT's continuing overseas and short-term borrowing, the remainder of the company's assets will be financed by ordinary shares and reserves.

"Turning to BT's future operating environment, we announced last year that the tariff increases on some of BT's services should be kept below the rate of inflation. We have now concluded that the services concerned will include local calls, business and residential rentals and trunk calls. The constraint will apply for five years to a weighted average of these services. Its level will be RPI minus 3, that is 3 percentage points less than the increase in retail prices generally over the preceding year. We are satisfied that this will reassure BT's customers, while allowing BT to adjust tariffs on these services to reflect market demands. The board of BT has given the Government an assurance that BT PLC intends during the same period that the level of its residential rental charges will be held within a ceiling of 2 per cent. over RPI; and that it further intends during that period to continue to give rebates to low users, broadly comparable in overall financial effect to the present scheme.

"Details of the operation of the RPI minus X provision will be set out in the BT licence which will be laid before Parliament soon.

"The Government intend that the BT flotation should provide an opportunity to encourage wider share ownership by both the public and employees of the company.

"Employees who work at least 16 hours per week for BT and who have been in continuous employment with BT from 2nd April 1984 until a date shortly before the flotation will benefit from a special scheme. They will be offered about £70-worth of free shares and, for every share purchased by the employee, the Government will provide a further two shares, up to a maximum of £200 of free shares for £100 of purchased shares. Employees will therefore have the opportunity to acquire about £370-worth of shares for an investment of about £100. As in past sales, these shares will have to be vested in a trust for a minimum of two years.

"In addition, a discount of 10 per cent, off the public offer price will be offered to all employees at the time of flotation on purchases of up to £2,000-worth of shares, provided that they are held for a specified period.

"Further, we have decided to offer special incentives to telephone subscribers. One possibility would take the form of vouchers which could be issued to offset part of the cost of quarterly telephone bills for a subsequent period. Details will be announced closer to the flotation.

"As a result of these measures we are confident that very many of BT's employees and customers will become shareholders in BT PLC. The financial framework for BT PLC is now set, and work on the flotation is on schedule for a late autumn launch. I will keep the House informed of further progress on the BT sale".

My Lords, that completes the Statement.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord for having repeated the Statement made in another place, and, in particular, your Lordships will be grateful for his assurance that he will keep the House informed of further progress. I am bound to admit that with the existing uncertainties within the City, which have been voiced and, indeed, published over the last three weeks in the financial press and in what is called the quality press, the noble Lord's Statement comes as rather an anti-climax. It conveys really very little information at all.

In so far as the Statement does convey information, I was a little surprised to see that, notwithstanding the assurances about the RPI minus X factor which were given in the course of Second Reading, Committee and Report stages, we now find that the residential rental charges will be held within a ceiling of 2 per cent. over RPI. This is useful information to have. It is a pity, perhaps, that we did not have it while the Bill was going through your Lordships' House, because many of us suspected that the RPI minus X formula would conceal a number of factors of which, I suspect, this latest revelation is only one.

In dealing with the revised capital structure, the noble Lord has been singularly modest in the amount of information that he has given. It is said in paragraph 3 of the Statement that the initial debt of the company to the Government should be to the value of £2,750 million, carrying interest at the rate stated. This was, in part, envisaged at the Committee stage of the Bill.

If the noble Lord will look at the balance sheet of British Telecom as at 31st March 1983, he will find that the total amount of the loans from the Secretary of State amounted to £2,943.7 million. If one deducts the payments that are going to be made up to and including 20th September 1984, that leaves a total sum outstanding of £2,911 million. I do not know what increases or decreases in loan transactions may have taken place during the current year—and it may be that the position has changed since the end of the financial year 1983—but in the event of it being the same, it would seem that there is going to be a write-off of some £164 million of the taxpayers' money. I would invite the noble Lord's attention to that.

One rather expected that the Statement would contain much more information than it does and, in view of the Government's assurance that they are going to give us further information, may I anticipate some of the matters on which this House will expect some early information and, indeed, on which the prospective investors themselves will require further information. First of all, when is the draft of the final licence to BT going to be presented to this House and to another place for consideration? This is a matter of concern to investors, too, because until investors know under what conditions BT are going to operate, it will be very difficult for them to make an investment appraisal. May I have the noble Lord's assurance that as soon as the BT licence has been finalised it will be presented to this House first rather than to the investment institutions within the City?—because (who knows?) this House and another place may not like the final form of the licence which they see and which I am informed is likely to differ very substan-tially from the draft with which we were furnished during the passage of the Bill through this House.

Will the noble Lord also give us some further information in regard to some items which have appeared in the press; and if the items are wrong, then I shall willingly stand corrected by the noble Lord. According to at least one of the very prominent quality newspapers, a very considerable advertising and promotional campaign is going to take place prior to the issue of the shares themselves. Your Lordships will be well aware that over the last few months, for some mysterious reason, we have been made acquainted with the virtues of BT on an almost daily basis, several times a day, with "The Power behind the Button". The dividing line between a promotional activity ultimately culminating in inviting investors to make an investment in BT and an invitation to customers to take up the services of BT is a very fine one.

I trust that if the noble Lord is anticipating, prior to the issue, the television media being used as part of the promotion of the issue, he will bear in mind that in such circumstances the video recordings would, prior to showing, have to comply with the provisions of the Stock Exchange in exactly the same way as any written prospectus. He might take it on board that he is in danger of illegality if anything such as that occurs; unless, of course, further legislation is brought to Parliament.

May I ask the noble Lord a further question on this? If inspired reports in the press are to be believed, it is expected that the Government anticipate a substantial sale of these shares to residents in other countries and to people other than British citizens. If that be the case, will the noble Lord inform me as to whether it is proposed to issue a full prospectus to those individuals likely to subscribe in foreign countries or to investment institutions in foreign countries? If it is the intention to issue full prospectuses on that scale, how can he justify the issue of an abbreviated prospectus to subscribers in the United Kingdom? Alternatively, is he prepared to face the hazard that if he does not comply with the full-prospectus provisions, it may be difficult to have the securities marketed on other stock exchanges in the world?

Finally, when is the noble Lord going to let us have a copy of the memorandum and articles of association? I am sure that, although the subscribers and some of the employees may wish to take advantage of acquiring the miniscule amount of shares that are apparently going to be available on favourable terms, they would probably like to know whether they are going to be able to attend the annual general meetings of this new company—which, in coming years, should be very interesting indeed.

4.17 p.m.

Lord Diamond

My Lords, while it is with complete sincerity that we on these Benches can thank the noble Lord the Minister for repeating a Statement made in another place—which I certainly regard as an important courtesy provided by the Government—I hope that he will acquit me of any discourtesy when I say that we cannot possibly welcome any Statement of any kind which takes a step further in pursuing the unwise and damaging policy of attempting to turn this public monopoly into a privately-owned organisation. The term used here is "privatisation". My first question to the noble Lord is this. Am I correct in understanding that "privatisation", as used by the Government, means the transformation of a public monopoly, with all the accountability and protection that that involves, into a private monopoly without any accountability or protection at all?

As to the content of the Statement, the noble Lord has said that the financial framework is now set. In those circumstances, would he be kind enough to fill in some of the figures about which this Statement gives no indication at all? He has told us what the debentures would amount to, although he has not told us what kind of security is attached to the debentures, what kind of security they will carry. He has not given us any indication of the totality of the figures, either of the assets or of the amounts to be financed separately by ordinary shares and reserves. I am not expecting exact figures, but an indication would be helpful to everybody who is interested in this enormous and important flotation.

The Statement goes on to say that the flotation is on schedule for a late autumn launch. May I ask the Minister for an assurance that a late autumn launch will not take place during a recess of Parliament?— which, of course, would be a very convenient period to deal with the launch and all the difficulties involved in it; difficulties of a political, as well as an economic, nature.

Then the Statement goes on to refer to employee interest in shares which, as the noble Lord knows, is something in which all of us on these Benches are interested. Could he confirm that, with regard to employees' shareholdings on these advantageous terms, there will be no capital gains tax involved when the shares come to be sold, if they are sold, after the end of the retention period? Also, do the same remarks apply to the discount of 10 per cent?

Lord Cockfield

My Lords, may I first say that the issues of policy relating to the privatisation of British Telecom were debated at very great length in your Lordships' House very recently and I do not propose either to reopen those arguments or in fact to respond to the specific points made by the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Diamond, so far as that is concerned.

I will come, if I may, to the factual points. The Statement in fact gives a very great deal of additional information—in fact the kind of information for which the noble Lord, Lord Bruce of Donington, was himself asking in the course of our debates on the Bill. First of all, so far as the RPI minus X formula is concerned, the general formula—that is, the RPI minus 3 per cent, as it will now be—applies to a basket of charges which of course include the residental charges as well as local calls. That will be the overriding restraint. Within the total thus ascertained, it is only right that BT should have a measure of commercial flexibility as to how much to change individual charges; and it was in relation to that element of flexibility that the assurance has been given that the specific item of residential rental charges, about which some anxiety had been expressed, should not be increased by more than RPI plus 2 per cent. In other words, it is an additional safeguard and not one which in any way derogates from the main safeguard contained in the RPI minus 3 per cent. safeguard.

Secondly, on the revised capital structure, the accounts from which the noble Lord, Lord Bruce of Donington. was quoting are the interim accounts for the six months ended 30th September 1983 and they do show certain figures for the amount of the National Loan Fund's obligations then outstanding. The position, however, is that since then the total amount of the NLF debt has been reduced to £2,790 million. It is a substantial reduction. The point made by the noble Lord was an entirely valid one on the basis of the information that was before us when we were debating these matters on an earlier occasion, but the position is that the NLF liability has now been reduced to £2,790 million. That figure is within striking distance of the £2.750 million which the new figure will be: that is, the debentures of £2,750 million. In fact—and this is a point to which I drew specific attention in the debate that we had on an amendment moved by the noble Lord, Lord Bruce of Donington—the rate of interest charged on the new debentures will be higher than the average rate of interest on the NLF loans. If one takes the discounted present value of the new debentures, they will, if anything, be a little bit higher and not lower than the NLF loans; so I think that effectively deals with that specific point.

The noble Lord then referred to the draft of the final licence. On the basis of the arrangements that were put in the Bill as a result of the discussions in your Lordships' House, the statutory order will be accompanied by the final licence and, as I explained on that occasion, if the statutory order is not passed the licence falls. I gave an assurance that this would happen well before the Summer Recess so that there will be ample and timely opportunity for your Lordships to discuss these matters.

The details of the advertising campaign for the issue have not yet been settled and therefore I cannot give an estimate of the costs that will be involved. As regards the specific advertising to which the noble Lord referred, that is commercial advertising by British Telecom which is not linked to the launch. I note the warning that he has given, but the position as we see it is precisely as I stated.

As regards possible sales to persons resident outside the United Kingdom, the information given must meet whatever may be the regulatory requirements in the countries concerned. So far as the shortened prospectus is concerned, that was specifically approved by a vote in your Lordships' House and of course that applies only to the United Kingdom, since we cannot alter the regulatory systems in countries outside the United Kingdom. A draft of the memorandum and articles of association for BT PLC has been placed in your Lordships' Library and in fact has been there for some little time.

The noble Lord, Lord Diamond, asked a number of specific questions. He asked, first, what would be the amount of the ordinary shares and reserves. I have given figures for the amount of the debentures and I have given figures also for the preference capital. The remaining capital of the company, apart from certain loans from overseas institutions which do not really come into this discussion at all, will be represented by equity capital and reserves; but the precise division between the two has not yet been settled.

The noble Lord also asked for an assurance that the launch would not take place during a Recess. Of course, his interest here is to ensure that matters are fully discussed while the House is in Session. The assurance that I have repeated to the noble Lord, Lord Bruce of Donington—namely, that the licence and the statutory order will be brought before your Lordships before the Summer Recess—will, I think, answer that specific point.

Finally, he raised the question of the potential tax liability on shares issued to employees. For the "free and matching" offer of shares, we would expect the normal taxation rules to apply. The shares would be vested in a special trust and made subject to a declining rate of income tax after the end of the retention period; and after that they would not be liable to an income tax charge. The question of the discounted shares is a more difficult matter, and perhaps I may write to the noble Lord on that point.

Lord Bruce of Donington

My Lords, I am grateful to the noble Lord for his replies. I shall not press him very much further, but there are two matters to which I should refer. The first is that the figures I gave with regard to the loans were derived from the certified accounts for the year to 31st March 1983. I note what he says about the interim accounts since that time, and there is much talk of several forms of accounts that are now floating about. Could the noble Lord give us some indication as to when the accounts of British Telecom for the year to 31st March 1984 will be finalised, in whatever form it is decided to finalise them, and when we shall be in possession of them?

In regard to his reference to the draft memorandum and articles of association, is the noble Lord aware that, if he intends to proceed with a flotation some time in the late autumn, it is high time that the company itself was formed? If it has been formed, it already has a memorandum and articles of association. If it has not, will the noble Lord give us some information as to when we shall receive the finally agreed memorandum and articles of association, and will he be kind enough to notify the House, if necessary by other means, as to when exactly the copy will be placed in the Library, if that is considered by him to be the correct venue for that purpose?

Lord Cockfield

My Lords, I am sorry if I assumed that the noble Lord was quoting from the latest available accounts. I accept his explanation that he was quoting from a rather earlier set of accounts; but, of course, it does not affect the substance of the explanation that I gave. So far as the accounts for the year to 31st March 1984 are concerned—these are the certified accounts—they will be published in July, which will be in ample time before the flotation takes place. I am not at the moment in a position to tell him when the final draft of the memorandum and articles of association of BT PLC will be available, but I shall get in touch with him on that point.

Lord Diamond

My Lords, may I thank the noble Lord for the courteous way in which he answered, and very fully answered, all the questions that I put to him? I want to pursue only one further matter, and that is the question of the short prospectus, to which reference has already been made. Of course, it is true that the Government have legal authority to deal with this by way of a shortened prospectus, but, as the noble Lord has made absolutely clear, it is the intention of the Government that these shares shall be offered for sale on foreign markets, and, as he has repeated today, he may therefore be in the position of having to publish a fuller prospectus to satisfy the regulatory requirements, particularly of the American stock exchange. In those circumstances, does the noble Lord really suggest that it would be satisfactory—I am not saying it would be illegal—to publish a fully detailed prospectus for possible American purchasers and a reduced prospectus for all English subscribers?

Lord Cockfield

My Lords, perhaps I may deal with that point rightaway. The noble Lord referred to publishing a full prospectus. It is, of course, intended to publish a full prospectus in this country. That prospectus will be included in four prominent daily newspapers. As a result, the full prospectus will in fact be available to anybody who wishes to see it. The problem that we were faced with, which was discussed at length in Committee and particularly at the Report stage of the Bill, is that one might require as many as 16 million copies of it if a full prospectus were to be given to everybody who might be interested in the offer even if they did not subscribe for it. It is for that reason that a shortened prospectus will be used as well as the full prospectus. But there is no question of a full prospectus not being published in this country. I am sorry if there has been any misunderstanding on that point.

Lord Morris

My Lords, I am most grateful to my noble friend the Chancellor of the Duchy of Lancaster for repeating the Statement, but may I ask him one question? He was good enough to inform the House—indeed, to stress to the House—that the British Telecommunications licence would be published well before the Summer Recess. I do not want to press him for an exact date, but would it be right to assume that the licence will be published certainly in June and, with luck, even before the end of May?

Lord Cockfield

My Lords, I should not like to give my noble friend an exact date, because this depends also on the convenience in relation to the arrangement of business in your Lordships' House.