HL Deb 05 June 1985 vol 464 cc748-56

3.4 p.m.

Lord Thorneycroft rose to call attention to the process of returning some public sector activities to the private sector and to its effect upon the important national objective of wealth creation; and to move for Papers.

The noble Lord said: This Motion is deliberately couched in these unprovocative terms suitable, I think, to a discussion of this character. Indeed I intend no attack, obviously, upon the public sector; nor for that matter do I claim that all the problems in the world can be solved by the private sector. I hope for a quiet, adult discussion about the roles and responsibilities of the public and private sectors of industry as we approach the last 15 years of the 20th century.

In most of my life the tide has moved steadily towards state enterprise: coal, transport, health, aviation, ports, steel and shipbuilding. In fact, it used to be said, "If it moves, nationalise it." The Labour Party—enriched, if I may use the term, by some of the present leaders of the SDP—were I suppose responsible for that period. But, in truth, the responsibility lay with more than a party. It was a national trend; it was the age of centralisation; it was the age of economies of scale. The Conservative Party were in office from time to time during that period, but very little was reversed. Steel was nationalised, then denationalised, and so forth. Sometimes the undertakings were unsaleable, and that may have been one reason. But in a way it was considered unsporting or unethetical to change the ownership backwards and forwards, and quite a lot of distinguished industrialists used to complain to the Conservative Party: "You are upsetting things by changes of that character". And so the ratchet effect grew.

Then in the last six years we have seen a reverse of that: British Aerospace, Cable and Wireless, Amersham, National Freight, Sealink, Jaguar, Inmos and British Telecom. The trend has also been illustrated by the sale of council houses, by the use of private contractors in the service of public institutions and by the very substantial growth of self-employment, which was pointed out by the labour survey published last week. The move has been to, "Do your own thing".

Nor has this trend been limited to this country. It has been seen in the United States, in socialist Scandinavia, in France, in West Germany, and even in the Anhui province of China where a Mr. Cheng has managed to mobilise the local talent and engage it in manufacturing and marketing reed mats, with immense personal profit all round. Even in Russia, Mr. Gorbachev has been watching over experiments in the use of incentives and the price mechanism in order to help the rather failing agricultural economy of that country. Against that trend, I think your Lordships would agree that it would have been remarkable if Mrs. Thatcher had not moved somewhat modestly in the same direction.

Therefore I make an assumption, which is that no party is going to seek wholly to reverse the trend to privatisation. It is just as inevitable as the trend the other way was in the earlier part of my life. Labour will continue to privatise housing and indeed, if I read Mr. Kinnock and his supporters correctly, they may even carry it a bit further. They will not be, to use his own delicate term, "copping out to the Tories". They will not be doing anything of the kind. What they will be doing is swimming, as good politicians tend to do, with the tide happily behind them. Therefore I regard privatisation not as a doctrine. I think it should be judged not on doctrinaire grounds but on the tests of practical achievement and of what is best for us at this particular moment in our history.

There are 56 million of us in this country, and that population is supported by a workforce of 24 million, of whom fewer than 6 million are in manufacturing and 17 million in all are in the private sector. These are the men and women between the ages of 18 and 60 reaching full physical and mental maturity. They are the pillars of this society. It is from their efforts that the rest of us live and are supported.

The true wealth creators are, I suppose, those who provide goods and services for profit; profit so high that they invest it in the making of still more profit. They can use the money in investment; in the payment of high wages, and, importantly, in the creating of surpluses which can be taxed and used for all the things for which politicians normally ask. So the working population at any moment in our history supports 11 million children, 9 million old-age pensioners, 5 million administrators, and 3 million, tragically, seeking work. They support the armed services; they support the hospitals and the universities; and they support the huge apparatus of the welfare state.

Faced with that situation, any Government must, I think, have two roles. First, they are bound to control and direct the enormous state spend that is seen on the wealth consumption side. That is vast, and, if it grew too much, it would crush the efforts of the wealth creators. That is why, over the months ahead, we shall he having a very great debate over the whole question of the scale and the direction of wealth consumption that can be achieved in this country. Secondly, the Government obviously have to consider how best to maximise the wealth creation of the country.

I do not stand here to say that the public sector is not engaged in wealth production. Of course it is. But it is now possible to study these things in rather greater detail than it once was and to make comparisons with other countries. On the whole the return on capital in the public sector tends to be small and the industries tend to be less innovative, less competitive and less profitable. That is not a condemnation. They do things other than make profits—many of them. But those are factors which are relevant to the public sector. The test of the private sector, and the answer to the question of whether we move things into the private sector is: can they contribute more to wealth production? I emphasise that I believe in an objective test; not doctrine, not whether they contribute to the revenue of the Chancellor of the Exchequer—though as one who has filled that office, I would not be against that. The real test is what wealth they create.

Let us look for a moment at the ones that have been privatised: Cable and Wireless, of which the profits have doubled; Amersham International, where profits have been increased four times; National Freight, who have gone from a break-even position to being 28 per cent. in profit; Jaguar, who are increasing staff and profitability. But one should not judge it just by those who have been moved. The wealth creators are men like the noble Lords, Lord Hanson, Lord Forte and Lord Weinstock in this House, and the huge industries that create massive profits which are tax-creating and which are turned into other things to support all the admirable objectives to which I have referred. The public enterprise is obviously important. It will remain on a large scale.

If the present Government went on privatising at this rate, say at £2 billion a year for the next two years, then at the end of this Parliament they would have privatised less than 10 per cent. of the public sector. There is no question that the public sector will be hugely important in this country, and not only in ownership, for I am bound to say that I believe one of the largest responsibilities of the public sector is in leadership, in laying down strategy, in creating the background and in following the example of some other countries like France and Japan where the public sector has an enormous role, not so much in ownership but in leadership of the national effort.

I therefore conclude that parties, when they are debating between elections, tend somewhat to exaggerate the possible differences between them. In all my experience, when parties are in office the differences appear to be much narrower, the room to manoeuvre is very little. Take men like R. A. Butler: in the days when he was in power he was moving very close to Mr. Gaitskell—indeed the era saw the coining of the term "Butskellism"; or Mr. Denis Healey, who was one of the most eloquent and brilliant defenders of the monetarist policy, better than some of our own people, I sometimes used to think, and standing for the nuclear deterrent with a passionate devotion which exceeded even Michael Heseltine's.

They battle cautiously, if I may say so, across the middle ground; and the middle ground today is different from the middle ground of my youth. We do not talk so much about the scale of enterprise, the central controls and the rest. We talk of innovation, of enterprise and of adaptability. It is more an opportunity economy that we are moving into and it is those countries which recognise this which are going to be the most successful. Oddly, the pressure groups in the two parties are both facing firmly in the opposite direction. The Centre Forward—for whom God be praised—are for taking risks with inflation. This is where I came in with the noble Earl, Lord Stockton; or perhaps where I went out! Then in the Hard Left they are still searching for the commanding heights of the economy—and barren heights they are today to search for.

I would recommend, if I may, with respect and humility, the policy-formers in any party not to pay too much attention to the pressure groups today. They are not as good as the pressure groups of some years ago. Instead, Governments should stand for radical approaches, with a radical approach to the containment of public expenditure. That takes courage. That requires Governments to consider not what is popular but what is possible, and, that is not easy. I compliment Her Majesty's Government on their courage in that respect. I think they need a radical approach to enterprise and they will find that—not in everything, I do not exaggerate, but in many things—a steady move to the private sector will increase the wealth of this country and enable it both to support the ambitions that we have and, finally, but not least, to have a positive, direct and modern approach to public enterprise itself.

My Lords, I beg to move for Papers.

3.20 p.m.

The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie)

My Lords, my noble friend Lord Thorneycroft said of his own career in his marvellous and, as always, enjoyable speech: "In most of my life the tide has moved steadily towards state enterprise". My noble friend was one of those who watched the tide turn—indeed, who saw that it was turning and who channelled it in useful and benign directions. I therefore particularly welcome his Motion, which rightly makes the connection between the Government's policy of transferring state activities to the private sector and our general strategy of providing the right conditions for creation of wealth, which is in our judgment really about the limits of what Government activity should be.

It might be as well for me to restate very briefly the objectives at the outset. Too often where privatisation is discussed, interest centres on the sale proceeds, and this is understandable because an auction or a sale is always a newsworthy and interesting thing. There are indeed sometimes substantial additions to Exchequer revenues, and since I know very well as a spending Minister in another field that there is no very great diminution of pressure on spending Ministers to spend, these additions to Exchequer revenues are always welcome. But raising money is not the primary objective here. Selling state assets is of course no substitute for the sound fiscal and monetary policies which this Government—and I dare hazard, in the ecumenical spirit of my noble friend, all governments nowadays—perforce have to pursue.

The objectives of privatisation are three-fold. They are: to improve the efficiency and the performance of the enterprises concerned; to increase the incentives and the motivation of those people who work in the enterprises; and to widen ownership of property generally. May I look quickly at these in turn and, first, at the objective of improving efficiency and performance?

I have no doubt that since the war the interests of consumers and employees have overall been damaged by public ownership as it is presently defined. Governments of different colours have of course all behaved similarly in setting targets to improve the performance of state industries and they have been right to do so. But targets and rewards contrived by the Government are unlikely to be successful for very long. Indeed, Government interference can be positively harmful with centralised decisions, restriction of management freedom and an industry strategy subject to political fluctuation. I believe that this was probably an inevitable, rather than in any sense a malevolent, result of state ownership of industry. I do not believe that very many people can now argue with great force that our record in this sphere over the past 40 years or so has been such as to convince us that "business as usual" is the best slogan for these industries.

By contrast, the results in terms of increased efficiency which are already clear from the performance of the privatised companies suggest that business in a different way is very good business indeed. May I give some examples? Noble Lords will no doubt have others. I have to say that I disagreed with only one thing that my noble friend Lord Thorneycroft said. He said that the profits of Cable and Wireless had doubled since privatisation. They have not; they have trebled. The chairman has said on the 1983–84 results: The outstanding results achieved by the group reflect to a large degree the increased vigour with which business objectives have been pursued since the company was privatised in November 1981". More recently he also stressed the value of new management freedoms when he said: A striking example of this was our completion—in four days—of arrangements to acquire control of the Hong Kong Telephone Company … Reference back to the Treasury and other Government Departments would have made this impossible". Then, again, British Telecom suggests that there have been direct benefits to consumers very quickly, and I know that this is a House of Parliament where the interests of consumers dominate the minds of people on all sides of the House. The waiting list for new telephones has suffered a dramatic fall. I should like to mention, too, that industries, as well as peopled by consumers, are the people who work in them. There have been signal benefits to employees as well as to consumers. I believe that it is a false tendency to see privatisation as harmful to employment; though of course all industries now, public or private, are subject to the forces of competition and efficiency. It is of course true that some companies have reduced manpower before and after sale—an inevitable part of the rationalisation processes which have been taking place all over the world, but which perhaps in these fields are all the more severe because of the failure of the organisations to adapt quickly enough while they were in the public sector.

Public ownership, by contrast, is also no guarantee nowadays of jobs. Look, my Lords, at the large job losses in British Steel or in the coal industry. Nor has being in the public sector been a guarantee of good labour relations, as was hoped and promised over 40 years ago. But by transferring businesses to the private sector, where future job prospects will depend on performance and responsiveness to consumers rather than to Government guarantees and taxpayers' subsidies, we are in fact enhancing the job prospects of the great majority of their employees. And once in the private sector, the chances of increasing employment are improved. For instance, Amersham International announced last April 250 new jobs in Cardiff, and Jaguar has created over 1,100 new jobs since last September.

The second objective that I mentioned was that of increasing incentives. Employees can take a direct stake in their companies, and they can see that efficiency and profitability are therefore in their interests. More efficient working practices and better industrial relations are likely to result. Four hundred thousand jobs have already transferred to the private sector—a significant, even a revolutionary, achievement. Three-quarters of these employees have acquired shares in their companies. For example, 96 per cent. of British Telecom employees are shareholders. The National Freight Company has more than 10,000 employees. Their families and pensioners subscribed for no less than 82½ per cent. of the equity, and the great majority of employees have retained their shares. The value of the National Freight Company's shares has risen 12 times since privatisation in 1982. Only three-and-a-half days have been lost through strikes since then, and the company is now increasing staff numbers after years in which these numbers were in decline.

The third objective I mentioned was that of widening ownership of property, which is central to the Government's strategy because this gives everyone the opportunity to own a real share of the nation's assets. It is, if you like, my Lords, our policy of public ownership. Wider share ownership should increase understanding of how business works and the need for profits and good management, just as—and my noble friend made this correlation himself—wider home ownership enhances a sense of personal pride and responsibility. In time, the result may be that people become less inclined to look to the state for solutions to problems, and in my view that is a development which is essential for the health of a free society.

My noble friend was right to say that there is still a long way to go, but under this Government good progress has already been made. The number of shareholders in the country has probably doubled, and 1.7 million British Telecom shareholders, for instance, have retained shares out of the original 2.2 million. On this issue of retention, I should say that I for one of course see no objection to selling to people who themselves decide to participate in our capital markets through institutions like unit trusts, but it is a welcome development that so many in these industries have decided to retain shares. I think that this is a figure which is comparable to the three-quarters of a million council tenants who, under our policies, have bought their own homes.

However, a great deal remains to be done; and notably there is the sale of British Gas, the National Bus Company, British Airways and, as I understand my noble friend Lord Trefgarne will shortly announce, the British Airports Authority. The announcement of the British Gas sale has brought some argument into the debate generally about privatisation of industries which are monopolies or near monopolies. Some people argue: why sell public utilities into private ownership? What is the point if effectively they are not subject to competition? This is an important argument and I think that I should take it head-on.

First, it seems to me that it is not at all clear from the record that monopolies in the public sector are necessarily good for customers or employees. The same point put more positively argues that considerable benefits should flow from privatisation even in industries where competition is difficult or impossible to achieve. For instance, there is greater management freedom to react more quickly and effectively to market opportunities. Then there is the access to the private capital markets for expansion along with the ensuing disciplines of such markets; for instance, the need to earn an adequate return. Then there are the opportunities for employees and customers to own shares directly and to participate in the future of their companies. Employees become more involved and committed and customers less alienated, and all can press for better service and performance.

Then there is the furthering of the general aim of wider share ownership, which I mentioned previously. Again—and I believe that this is most important—these advantages of privatisation should improve the lot of the consumer even where there is little competition for the products or services of the privatised businesses. In addition, the Government are most concerned to defend the general public interest through tough regulation in the interests of the consumer. Our aim is to protect consumers and also to ensure that returns expected by private investors are not earned by high prices, by low efficiency, and through monopoly, but rather by the reverse.

British Telecom of course has market dominance, if not a monopoly, and is now flourishing and expanding in the private sector. But at the same time its consumers—and they surely include all of us here—are protected, for example, by the limits on price increases—the RPI-3 per cent. formula, as it is known—and the requirement to provide rural phone-boxes. I believe that this demonstrates the Government's pragmatic approach. We are keen to see benefits of privatising British Telecom but, at the same time, we have made proper arrangements to deal with its great power in the market.

The same pragmatic approach is being applied in a rather different way to the bus industry. Here we see scope for privatisation, more competition, and some continuing subsidy. Already consumers are deriving benefit from deregulation. Fares on long distance coach services are now from 15 to 40 per cent. lower in real terms than they were before deregulation, and both the NBC and the independent operators have gained from the resulting increase in demand. NBC's National Express services grew by 50 per cent. between 1980 and 1984 in terms of passengers carried, and the market share of independent operators is up from almost nothing at the beginning of that period to no less than 30 per cent.

However, on local services local authorities will still be able to subsidise loss-making routes; but these will be opened up to competitive tender in order to protect the interests of ratepayers and bus users. I would argue with my noble friend that this is a thoroughly pragmatic rather than a doctrinaire approach, and it is an approach certainly in some contrast to that taken by Opposition parties. Some of your Lordships may recall a recent and keynote speech by Mr. Roy Hattersley which seemed to me to be a rather vain attempt to give a veneer of rationality to his party's policy. He made much reference to "social ownership" rather than "an extension of nationalisation". I certainly welcome his admission—and these are his words not mine—that, A society in which a higher percentage of productive capacity is owned by the state is unlikely to be highly efficient or truly free". However, in spite of Mr. Hattersley's brave words, the fact remains that Clause 4 is still flying above Transport House. Labour is pledged to renationalise British Telecom and other privatised businesses, and I very much look forward to the statement of Labour's position by the noble Lord, Lord Barnett—he of the British Petroleum share sale, as noble Lords will remember—when he comes to wind up this debate on behalf of the Labour Party. Even Mr. Hattersley has referred to, Socially owned counterweights in banking, brewing, sugar refining, provision of concrete and construction material and construction itself". He says that, A substantial public presence must be recreated in the airlines and oil industries. This is not at all far from the 1983 Labour manifesto which said that Labour would, return to public ownership the public assets and rights hived off by the Tories, with compensation of no more than that received when the assets were denationalised". Perhaps we shall learn this evening whether or not that is still the position.

By contrast, the Alliance, while nearer to ourselves on these issues, seems to favour giving away British Gas shares. I rather doubt whether that is consonant with getting a fair price for taxpayers. Is it not rather a gimmick than a serious widening of share ownership? There are surely great administrative problems in distributing very small quantities of shares for each of 40 million adults. However, the more important objection which I have is that a true sense of ownership seldom comes with free handouts. It comes rather when people assess what is being offered and decide whether it is worth buying. Free shares have been made available to employees in many privatised companies to encourage commitment to their company. I had something to say about that earlier. But it is better if the general public can choose whether to put money into shares—money that otherwise might be spent or left on deposit—and better too that those who manage their savings should also be able to do so.

In conclusion, transferring assets to private ownership is a vital part of Government policy. It embodies several key elements of our general strategy to assist wealth creation and disperse its effects. It is also in line with the need for less Government interference and a smaller public sector. At the same time, we are not pursuing this policy blindly without regard to consumer interests or other objectives. Arrangements for British Telecom and proposals for the bus industry—examples I have given—show clearly that we are always ready to put in place protections for individuals who might suffer.

I very much congratulate my noble friend on his Motion and on the way he put it forward. I welcome this debate and the chance it gives me to say that this Government are determined to build on the progress that we have already achieved in this Parliament and in the next.