Privatisation and Wealth Creation

HL Deb 05 June 1985 vol 464 cc771-823

4.37 p.m.

Debate resumed.

Lord Bruce of Donington

My Lords, we on this side of the House are most grateful to the noble Lord, Lord Thorneycroft, for having introduced the Motion, and particularly for doing so in such pleasant terms. His remarks were not entirely devoid of the odd political crack that we have come to expect from him. He did permit himself of the remark, in one of his more controversial moments, that the original idea of the Labour Party was, "If it moves, nationalise it". I can perhaps reply to that by saying, from our point of view, that if it moves well, then the policy of the party opposite is to privatise it.

We are also grateful for the contribution of the noble Earl, Lord Gowrie, who spoke in such pleasantly persuasive terms. I almost sighed for the days when there was talk of rolling back the frontiers of the state, The noble Earl this afternoon was at his most constructive. He referred almost in poetic terms to the tides—tides moving in the particular direction which he himself propounded. I should perhaps therefore reply to the noble Earl in terms that he will equally appreciate.

The essence of tides is that they come in and then they go out again. What the noble Earl must realise is that he cannot make the tides permanent, as he would wish. The noble Earl feels that he is on the tide at the moment, and he produced some figures concerning the performance of certain industries since they had been privatised. I shall deal with that point a little later because I have the figures for both before and after privatisation, and I may have some observations to make on the comparisons that he has made.

Going back to the noble Lord's Motion, one observes that he wishes, To call attention to the process of returning some public activities to the private sector". That is his first objective. Then he wishes to call attention to the, effect upon the important national objective of wealth creation". I think that it is fair to say that neither the noble Lord nor the noble Earl was very effective about the process, although they hazarded some observations as to what the likely effects would be.

We are talking in the first instance, therefore, about the creation of wealth. Wealth has been defined as: A collective term for those things, the abundant possession of which constitutes riches or 'wealth' in the popular sense". I suppose we could now add to that: the services which, among other things, facilitate their enjoyment". We are talking about the creation of wealth, but I sincerely hope that we are not talking in the abstract about it. We are talking in the real world in which we live, in which we have our hopes, and in which we hope to be able to survive for the average, or above average, period of time. The first thing about which I would venture to remind your Lordships is that at the moment there are some 4 million of the adult population not permitted to take part in the process of wealth creation. That is something which should colour all our thoughts upon matters of this kind.

The second thing we can perhaps bear in mind is that some 21 million of the adult population own all but 4 per cent. of the disposable wealth in this country, and that the other half, the other 21 million, are confined to the ownership of 4 per cent. of the national wealth. This is the context within which wealth creation should be discussed.

Now let us deal with the process of privatisation. From the Government's standpoint their policy of privatisation has been put foward in a number of manifestos. It is done for reasons which will emerge clearly from the actions in practice that they have taken. The first part of the process of privatisation is to create the slogans and to establish the myths to justify the actions. One of the first myths that has to be created is that all nationalised industries make losses, although I observe that matters have tended to be moderated these days.

The myth has to be established somehow by slogans. When, as he then was, Sir Angus Maude was co-ordinating the publicity activities of the Government he delivered himself, subsequent of course to his departure, of this observation: I went on the old propaganda maxim that unless you say something at least 25 times nobody ever hears it, and if one could get every Minister to say the same things over and over again, it did begin to work". Over the last five years this is exactly what we have had. We have had it from the Benches opposite. Automatically the myth is created that nationalised industries, per se, are unprofitable, less efficient, and so on.

Then the next part of the argument that is put forward is that one of the reasons that they are inefficient, one of the reasons why they are not creative, is that they are all subject to Government interference, and the Government's interference is really one of the reasons these public boards, or public industries, cannot function.

They have not any particular theoretical argument to put forward in that respect. What they did in order to drive this point home was to interfere themselves on an unprecedented scale. They had to make their point by doing it themselves. In some cases they fixed prices; in some they engineered price increases by limiting capital expenditure, or by bringing forward debt repayments by the concerns themselves to the Government. They made compulsory levies, particularly in the gas industry where in one year alone they took £579 million out of it. In the case of BNOC they were directly responsible for its losses by taking a price gamble, by ordering BNOC to keep a price that made a considerable loss, as a result of which they felt capable as a matter of personal experience—engineered by themselves—to say that Government interference was one of the reasons why nationalised industries were inefficient.

So much was this so that they produced a feeling among the leaders of nationalised industries that after all it would be better to be privatised—anything to get the Government off their backs. Of course the moment that the leaders of the nationalised industries expressed themselves in agreement with privatisation, the Government themselves would give publicity to the opinions they had themselves been instrumental in creating. From the standpoint of the chiefs of nationalised industries it was, "Hit me over the head with a hammer; it is so nice when it stops". And who can blame them? That was the first process: to create the myth; to establish the slogans; and directly to interfere.

The next thing was to consult with the City authorities—with the accountants, brokers, and everybody else—as to the best way of proceeding. Then finally the Bills were brought to Parliament, the prospectuses were in due course issued, and the issues were made. This was the process to which the noble Lord, Lord Thorneycroft, referred. What has happened during that process in financial terms? The first thing is that the vast sums of taxpayers' money—I must use the words "taxpayers' money"—are spent in that process on fees and commission to the City of London, to firms of accountants and brokers, and the total of that admitted by the Government so far is £173 million. The figure is estimated by the Financial Times at some £200 million. That is one of the things that happened in the process.

The second thing that happened in the process of privatisation was that the Government made a loss of at least £1½ billion in terms of the sale of their interests in the companies concerned. That is only calculated by reference to the initial price at which these going-concern industries, or the shares in them, were disposed of. In real terms there is probably a loss to the British taxpayer, to the public, of something close on £3 billion. These are once-and-for-all sales. There are several more, we are given to understand from The Times of 30th May, scheduled for the current year and the two succeeding years calculated to yield approximately £10 billion which again, according to sources close to the Prime Minister, will be extremely useful to finance the bulk of the tax cuts which they hope to provide before election time comes.

The third thing that happens is that the shares are then disposed of. The theory is that they are very widely dispersed—this is part of the whole motive for what is being done—to diversify, to return to the public or, as the noble Earl, Lord Gowrie, put it this afternoon, to transfer back to the public. But what happens in practice? The latest survey of the number of individual shareholders in the United Kingdom, which was published only a month ago, is that share holding is limited to a number of individuals comprising rather under 5 per cent. of the adult population, which is a very small number indeed. The total is two to two and a half million or thereabouts. These are comprised not within the 50 per cent. of the population who have between them 4 per cent. of the national wealth. It does not go to the seven million who are at or near the poverty level or anything of that kind. It goes to 5 per cent. and this is what the private sector is.

The private sector, aside from the institutions, comprises some two million people or possibly slightly more who are all within the top and medium income brackets. Let nobody be under any illusion that the person who buys some shares in British Telecom will hang on to them indefinitely. Some do so; but perhaps the noble Earl will bear in mind the figures. For example, in Cable and Wireless the initial number of subscribers was 150,000. The figure is now 26,000. In British Aerospace there were 44,000 initial individual shareholders and the number is now down to 3,300. So let no one say that the shares are by any means transferred to the general public.

In the course of his reply to a Question on the privatisation programme the noble Earl said: My Lords, any government should be proud to have redistributed capital from the Executive to the public. That is a thoroughly good thing to do and the Government should be doing more of it".—[Official Report, 16/5/85; col. 1252]. To the public, my Lords? When the largest number of individual sales in the country, the better heeled section at that, of the population comprise at most two to two and a half million of the adult population—

The Earl of Gowrie

I am grateful to the noble Lord for giving way. My Lords, I do not consider that two to two and a half million is a negligible number of people; but as I said in my remarks, those who participate through institutions in share ownership—which is well over half the population one way or the other—should be taken into account as well.

Lord Bruce of Donington

My Lords, this is something over which they have no control. If the noble Lord is putting forward the capitalisation of some remote and ultimate interest in pension funds, before he starts getting too definite about that he should consult his right honourable friend the Minister for Social Services who at the moment is playing hell with the whole pension system in any event. There is no security in that.

The Earl of Gowrie

My Lords, that is unbelievable rubbish; it is nonsense.

Lord Bruce of Donington

My Lords, I am well aware that the noble Lord would not care for that very much; but he made the definite statement to which I reply.

The Earl of Gowrie

My Lords, I care for rational debate, not irrelevance. I made a serious point which is that the vast number, over half the population of this country, participates one way or the other in institu-tions which hold shares. I for one have no shares whatsoever. I do not consider that a merit or a demerit. I prefer to participate through professionals in which respect I share this habit with well over half the population. It is a complete irrelevance to talk about any proposed and highly sensitive reforms in the pension industry.

Lord Bruce of Donington

My Lords, I note that the noble Lord has described my remarks as irrelevant. If they were irrelevant there is no reason why he should be stung like lightning into a response. I am quite willing for the Official Report to be read and for the public at large to be able to judge whether what I have said is in broad consonance with the facts themselves.

I now pass to the effects of privatisation. Here one must not be too dogmatic. There will undoubtedly be some cases where a transfer of ownership from one set of shareholders to another can be beneficial. But it does not automatically follow by any means. In general terms—and most of your Lordships will have had experience in commerce or industry, whether actively, as consultants or professionals—noble Lords will know that a change in the ownership of a company, unless it is highly personalised by the acquisition by one person like a Murdoch or a Maxwell, for example, has absolutely no effect on the company whatsoever. The mere act of a change of ownership has no such effect at all. It has no effect on the creation of wealth. Some firms, although private, succeed.

In fact I shall give those who believe in private enterprise the point that in the Financial Times of November last year there was published a whole list of companies which showed that out of the 500 leading companies in Europe no fewer than 222 were in this country. That may not generally be known. It is a very considerable reflection, I would suggest, on the power of privately-owned firms. I certainly do not begrudge that. The process of the creation of wealth is not particularly influenced—aside from the highly personalised sector where an individual gets control—by the shareholders themselves. In fact, any good company chairman will tell your Lordships that when he has an AGM he expects it to be over in a couple of minutes so that they can adjourn for drinks in the anteroom. This is always known. Shareholders as such have very little control over the affairs of their companies. The process of creating wealth is putting money to work together with human endeavour. This is the process by means of which wealth is created.

One of the extraordinary things in relation to the privatisation programme is that every one of the 11 companies so far privatised during this Government's period of office had a profit record prior to being privatised. We do not have one instance of a company making a loss before it was privatised—which one would think would be a very desirable and logical thing to do, bearing in mind all the incentives that emerge. So we are left with the real reasons for the privatisation programme. The first is that the profitable industries and their control are, in political terms, a dagger at the Government's policies. The Government are scared of the public becoming progressively aware that nationally-owned industries in most cases make very substantial profits indeed.

This is something that the Government do not like, because if the public apprehend that nationalised industries are successful—and these have been success-ful; that is why they have been taken over—then the public might be much more sympathetic to a continued programme which, in the event, gives the Government of the day some control over the macroeconomic policies of the country. The second reason is the provision of cash requirements to finance tax cuts. The third is to benefit that limited class of people who comprise in their number a very large majority of their own supporters, particularly in the City of London, by way of fees, by way of commissions on the scale that I have described.

The fourth motive is to cripple any government who follow them. They must be glowingly aware of this possibility because they are financing expenditure out of the sale of public assets. They are depriving future Governments of the revenue that they would normally receive or be entitled to receive from the nationalised industries themselves. Sooner or later, even though they sell the lot, even though they sell all their capital to pay for the groceries, it will mean that any succeeding Government are going to have difficulty in balancing the books with the same unscrupulous ease with which the Government are now seeking to do it for their own purposes.

5.4 p.m.

Lord Diamond

My Lords, I want to start by thanking the noble Lord, Lord Thorneycroft, for the very moderate way in which he introduced a most important topic and gave us an opportunity to discuss what the theory was, what the theory now is, and how it is substantiated by what happens in practice as to transfers between public and private sectors in one way or the other. He spoke with great moderation and with immense experience, as we all know; and, if I may add to that, with the wisdom of middle age. We welcome all that. I am also grateful to the noble Earl for everything that he said with regard to the theory of what we are discussing, but I am bound to say that I draw a complete distinction between a discussion of the issues and an appraisal of the actions of the Government and their motivation. I shall come to that later on.

Let me discuss first of all—and, I hope, in the same moderate and objective way as that of the noble Lord who led the debate—the arguments for and against the public sector and the private sector. I know of no economic rule which would guide us as to the proper absolute size or proportion of a public sector. There will always be a public sector; every country has one. The size of it will depend upon what we think about the individual elements which comprise it. I and all my friends on the Liberal and SDP Benches take the same view that, as to action, we have no urge—we certainly have no dogmatic urge—either to nationalise or to privatise. Our view is that every case should be considered on its merits and on previous experience. We would add that, unfortunately, the argument is too narrow as between nationalisation and privatisation.

There is a third sector, the co-operative sector, to which we should also have great regard. We should bear in mind the great success that has been achieved by workers' co-operatives in Northern Spain; and any one of your Lordships who has had the same experience as I have had recently of travelling in a bus in Israel will have been impressed by the efficiency of the service, by the cheapness of the fare and by the smile on the face of the driver—because he, of course, is part owner. He and his fellow-drivers are the owners of the bus services there, and are doing very well out of it, thank you! So we must have regard for that which I might call the third sector, as well.

I am bound to agree with the noble Lord, Lord Thorneycroft, that many of the arguments which we promulgated in 1945 and which we accepted with sincerity as being in favour of transferring from the private to the public sector no longer apply. They have been seen to become invalid. We were all quite sure then—and I, certainly, was quite sure—that one would get better labour relations if the problem, the attitude, of "we" and "they" could be removed. Of course, if you removed "they"—"they" being the bosses—by nationalisation, it was perfectly logical to assume that better labour relations would result. It was perfectly logical to assume that one would have much easier wage discussions, naturally, because previously in the private sector the wage earner who did not claim the maximum amount that he could claim realised that the balance that he was not claiming was going into the pocket of the owner. Now, of course, there was going to be no owner, and no longer could there be any argument about regarding wages in any other but an objective way.

These advantages did not mature. It is quite impossible to say, in the light of what happened in the nationalised industries, that labour relations are better there than anywhere else; but, perhaps not surprisingly, the sense of ownership which one hoped would arise has not arisen. The ownership is too widespread and diffuse for it to be perceived. It is not surprising that a miner, for example, on contemplating a piece of mining machinery, does not find his breast swelling with pride in saying to himself, "One fifty-millionth part of that is mine!" It is too little to appreciate. Those arguments therefore no longer apply.

On the other hand, it has been necessary to nationalise where one had not thought there were the arguments, or that nationalisation would be appropriate. It has been necessary to nationalise to safeguard industries vital to the national interest which were threatened with bankruptcy. I refer to motor cars, shipbuilding, steel, and Rolls-Royce. They all survive today. They would not be here if it were not the fact that wise decisions were made by both Governments to nationalise them and give them that temporary or permanent protection. Those of my age will remember that at the time interest was shown in motor-cycles, the British motor-cycle industry was dominant throughout the world. The motor-cycle industry was not nationalised: it does not exist any longer. In place of the British motor-cycle industry we have massive Japanese imports.

I do not say, either, that the arguments which applied at the time are necessarily permanent arguments. For example, I could imagine a case being put forward with regard to Rolls-Royce that it had to be nationalised for a period, that it had to be protected, that it had to be strengthened in the national interest. It is conceivable—we would have to look at the case—that after a period of strengthening it may be appropriate for it once more to be returned to the private sector. I do not know. I am not saying it is right. I am not saying I have looked at it. All I am saying is that the arguments are not permanent arguments. It was right, essential and inevitable at the time, as I know full well from my government experience, that Rolls-Royce should have been nationalised by the Conservative Party when they came in. That does not mean that it is essential that it should remain nationalised for all time.

Similarly, there are arguments for privatisation which do not hold in practice. I have heard what the noble Earl has said. I want to challenge some of his figures and conclusions. The first argument he used was the spread of shareholding. I want to make it quite clear that all of us on these Benches share that goal. We think the spread of shareholding is a good thing. Nevertheless, in the only case where I know that the figures have been fully analysed—that of British Aerospace—we find that within the course of the first 11 months after privatisation the number of small shareholders (and by "small" shareholders I mean those holding under 100 shares each) fell 14 times, to one-fourteenth. We also know that the large shareholders (those holding over one million shares) rose in that same period 13 times. There vv, as an enormous concentration of shareholding among the larger shareholders in that short period.

The noble Earl says that that may be so; we all know how concentrated the ownership of shares is in the very top wealth sector of the community. But, says the noble Earl, no doubt these large shareholders holding over one million shares were the institutions; and no doubt the institutions were holding monies for pension funds, insurance companies' funds, and so on. No doubt they were. But I am bound to ask the noble Earl: has he any figures which break down the ultimate holdings within those pension companies? We on the Royal Commission on Distribution of Income and Wealth, of which I had the privilege to be the chairman for some six years, throughout its life, looked at this time and time again. We could not find any way of getting back down to the ultimate shareholders. I do not think the noble Earl said he had the figures, but no doubt he will be able to clarify this point.

We on the Royal Commission—I am relying on my memory here, but I think it is right in this respect—concluded that there was no evidence at all to show that the distribution of wealth within pension funds was any different from the distribution of wealth among individuals. As you would expect, and as is most likely, the wealthier and larger income groups within the community would naturally have the larger pensions and the larger element within the pension funds which would be represented ultimately by shareholding. One would have the same distribution among the population within the funds as one has outside the funds. We are therefore still left with the conclusion that the argument that one of the benefits of privatisation is that one automatically secures for a long period the benefit of a wide distribution of shares—and I agree it is a benefit—does not hold.

Similarly, with regard to employee shareholding, again, we on these Benches are very much in favour of promoting employee shareholding. But where you have access to the figures—and there may be others to which the noble Earl has access but to which I have not—again, in a breakdown of those in the case of British Aerospace one finds certainly that there was a vast proportion of employees who were interested at the very beginning as a result of the special terms and advantages offered to them—sometimes free shares; and sometimes there was an inclination to indulge in a little private stagging—and who took up shares. Some 75 per cent. of the employees became involved. But what was their shareholding? Their shareholding, even at the start, was only some 2½ per cent. of the shares of British Aerospace. If one assumes (as is a reasonable assumption) that the same thing happened to the employee shareholders as happened to other small shareholders, then their present shareholding would be very small indeed.

Suffice it to say that I am not satisfied that the argument that you automatically get these two benefits from privatisation is valid. Nor is the argument valid that privatisation necessarily produces better management. Reference has been made to Jaguar—most unfortunately from the point of view of the other side. We all know that Jaguar is a star case where, under public ownership, new management was introduced—this was the case with British Aerospace—and as a result of that new management there was a startling and remarkable turn-round in profit-making. That was under public ownership. All that that demonstrates, as one would expect, is that good management produces results. Bad management does not produce results, irrespective of whether it is in public or private ownership.

Then, again, there is the argument, now produced very frequently, that privatisation automatically frees management and the board of directors to enable them to produce better results. Here again, I think this has not yet been demonstrated. First, I am bound to say that I am not impressed by the arguments of a Government who say, "We must privatise in order to remove Government interference". Government interference is the amount of interference which the Government decide to apply. The Government can stop interfering without privatising. It is just as simple as that.

We are all bound to recognise also that there may be cases where Government interference, Government leaning on a nationalised industry to take some action which does not contribute to the maximisation of its profits, may still be in the national interest if by so doing it is helping another British company. That has been the case in one or two instances, particularly in aircraft production, where "buy British" has been promoted by governments very naturally, and has meant waiting times for those like British Airways, waiting to fly 'planes, who would have preferred to buy them direct from America and get on with the job. But overall that has proved to be in the national interest. One will not get that happening in the private sector. In the private sector one company will not say, "I am going to withhold maximising my profits so that another company in the private sector can benefit".

So there is that possibility. I do not believe that constraints in the private sector do not exist: they do exist. One has the very obvious constraint of the calendar. Every year one has to produce in the private sector a satisfactory balance-sheet showing satisfactory results in order to satisfy the market because of the possibility of raising further finance, and so on. That is a constraint against developing those long-term activities which can be done in nationalised industry because there one is required to break even, taking one year with another, and not each year. These are constraints within private industry which are well understood, and I am only saying that it is not proven that by the sheer, simple act of privatisation one necessarily increases the freedom of management and their possibilities of making better profits—or, as the noble Lord, Lord Thorneycroft, would put it, of increasing their wealth.

Finally, one comes to the question of greater profitability which is now being promulgated as an automatic assumption. It is not an automatic assumption, and if I may I shall spend a moment or two examining it. May I preface that by saying that when I look at these figures I remind myself of two caveats. The first is that it is very difficult to compare like with like in this field, and indeed it is quite impossible ever to say what a nationalised industry would have done had it not been privatised, or the other way round. One can only draw conclusions and make estimates.

The second thing is, I remind myself, the dreaded stupidity of post hoc ergo propter hoc. At the moment, I cannot think of a better example than the 146 jet of British Aerospace. That was a 'plane designed largely before nationalisation. It was developed during nationalisation; it was sold after privatisation and it features in the post-privatisation profits of that company. Where is one to give the credit for those profits? Clearly, the fact that the profit was made subsequent to privatisation does not deny the fact that it was due to the design and development periods just as much as it was due to the sale period. Therefore, it is not easy to make the comparison and one has to have regard with care to the studies that do exist. There are such studies. The Pryke studies are probably familiar to most of your Lordships. They have shown—and I accept their conclusion—that the nationalised industries performed well in the 1950s and 1960s and not so well in the 1970s. I think that is part of the explanation of the trend which the noble Lord, Lord Thorneycroft, quite properly discerned. They found that nationalised industries performed much better in France, and somewhat better in Italy than they did here—indicating that it is not necessarily and exclusively a question of nationalisation but of how the nationalised industries are managed.

When comparing the results of similar activities—which is the only thing one can do—comparing the result of an activity carried on by a nationalised industry with a similar activity being carried on at the same time by private industry, the study I have referred to found that British Airways compared very unfavourably with British Caledonian. But of course that was before the period when British Airways had new management and the noble Lord, Lord King, took over. They have had new management and the profits have increased enormously. That did away with that argument. There were two other comparisons, with rather small and purely commercial activities—that is, ship and hovercraft services, and sales of gas and electricity appliances—where the private sector was found to be more profitable. I accept their conclusions on that.

However, when we look at some of the larger conclusions, we find that closer examination may reveal different results; and I come back again to British Aerospace, since they have been frequently quoted, with their larger profits since privatisation. One finds in fact that those larger profits since privatisation were due entirely to two things. One is inflation and the inflated figures, because it is no good giving absolute figures in a comparison: you have to give the deflated figures to get at your comparison. The second factor is increased capital. If your Lordships were to look at the same figures—and I have done the exercise—in terms of the true measure of profitability, that is to say, the rate of return on the total assets in the company, you will find that, contrary to what has been widely stated and superficially shown on the mounting profit and loss accounts, the first three years after privatisation show on average a fall of 20 per cent. on the results of the last three years before privatisation. Therefore, it is not easy to draw a general conclusion that automatically one moves from a loss-making period and into a profit-making period immediately one moves from nationalisation to privatisation. It is because of the difficulty of doing that that I think any general conclusions are misleading.

We should stick to the policy which we on these Benches have adopted, that each case should be examined on its merits. As a transfer is a very costly exercise (and indeed, as has been made very clear already, the expenses involved amount to some two per cent. of the total assets involved) and it is very costly in the diversion of management from their normal functions of looking at questions relating to the transfer, we also feel that the onus of proof should be on those who wish to see a change in the present structure. If one wants to privatise, one has to demonstrate that in a particular case privatisation is appropriate; and vice versa.

I have said I do not take the view that the Government have examined each case with the care that they should have done and they have reached their conclusions on the basis of the same objective approach as the noble Lord, Lord Thorneycroft, proposed. Indeed, quite the opposite has happened, to my mind. All they are indulging in is, as I have previously indicated, what I must call a mad scramble for cash. Why do I say it is mad when I previously said it was only a scramble? That is because if your Lordships take all the nine major flotations over the last four years of privatisation, on average the amount undersold was something like 25 or 30 per cent.—demonstrated often on the very first day. Of course there was one exception, Britoil, which was affected by a drop in the world market price of oil just at the time of its flotation, and which has recovered now to more than the flotation price.

However, if you take all of them together, then you find that the market value today is exactly double the flotation values of those shares. If you had had a given sum of money in your hands which enabled you to buy a share in each of these nationalised industries throughout the present Government's tenure of office, you would have twice that sum of money in your hands now. Or put it another way: if the Government had waited until today, they could have secured, for the benefit of the Revenue and the taxpayer, exactly twice the amount which they have done on the sales.

I do not know how this has happened; but one is hound to draw the conclusion that the Government were in a great hurry—what I call its mad scramble—to turn the assets, and it is a fixed store of assets, into cash which it can use, as has already been said, for paying for the groceries. Selling the silver to pay for the groceries is what I called it previously. I am reminded of what someone said about the wisdom of saying everything 20 times over. We are getting towards that point now, and perhaps it will sink in with the Government that they are selling the family silver to pay for the groceries. I think that is very true, and it is disgraceful. I really think it is disgraceful for a Conservative Government to behave in that way.

The Earl of Gowrie

My Lords, before the noble Lord sits down, can he please deal with the issue of whether the Government have sold the family silver to the family?

Lord Diamond

My Lords, I really did not expect an argument of that kind. The noble Earl has used it before. He is trying to equate public ownership with the ownership of a very small minority. We have said this so many times. If your Lordships would be good enough to look at any one of the eight reports of the Royal Commission on Distribution of Income and Wealth, you will find—and it will be reproduced in all the later Inland Revenue reports—that the shareholding is held by a very small sector of the community alone; that which is right at the top. It is absolute nonsense to say that what was previously held by the Government as trustees for the whole of the population—there is no other way in which the Government are entitled to hold it of course because they are trustees for the whole of the nation—is still held by them, if it has been dispersed in this way. Would the noble Earl please have regard to simple question? At the end of this Government's period of office, they will have denationalised so many companies that they will have turned a large portion of this national, limited stock into cash and they will have spent the cash. What have they then got to show for it? They have spent an investment. What new investment do they have to show for it? What new roads? What new infrastructure?

The Earl of Gowrie

My Lords, the noble Lord really tempts me into analysing the scale of public spending by this Government. It is colossal.

Lord Diamond

My Lords, I know it is colossal. The noble Earl is speaking to a very sympathetic audience. The scale has always been colossal. It is the problem of certain Treasury Ministers to try and limit the size of it. Of course I understand that. But the noble Earl is merely accepting my point. It is so colossal. It is so difficult to find the funds to meet that expenditure, and pressure for that expenditure comes from every source and every individual, on whichever side of whichever Chamber in Parliament he sits. Every single one of them approaches the Chief Secretary and says: "We want a reduction in taxation, but, incidentally, the one thing that I am interested in—my hospital, or my regiment, or whatever it is—that needs funds; that needs help." That was so; it still is so; and it always will be so. Of course, the temptation to use ready cash out of your capital in order to meet current commitments is strong and must be resisted. I am still astonished that Conservative philosophy accepts what has been happening.

Lord Renton

My Lords, in the longest speech that we have so far had in this debate, the noble Lord, Lord Diamond, has been at pains to proclaim the neutrality of himself and of the Alliance on this great national issue of public ownership, and in doing so he has given us a welter of figures which we will need to study carefully. I do not have the advantage of being either an accountant or a member of the Royal Commission, nor do I have the more doubtful advantage of formerly having been Chief Secretary to the Treasury, but I feel bound to draw your Lordships' attention immediately to the fact that what the noble Lord has said about the effects upon minor ownership and employee ownership of shares is at variance with the information which has so far been given by the Treasury, from which, if I may, I will quote a little. As the Treasury pointed out, The privatisation of British Telecom alone has resulted in a massive extension of share ownership in the UK". Those are their words, not mine. Over 2 million individuals applied for and were allotted shares and almost half of those applied for 200 or 400 shares, and those applications were met in full. I think one should also point out that in the case, for example, of Cable and Wireless, 99 per cent. of the workforce participated in the issue of shares. The same went for Amersham International. At Associated British Ports, 90 per cent. of the workforce participated; and in the case of British Telecom it was again 96 per cent. That I think was a considerable advance in distributed ownership.

Perhaps I may come now to what I really rose to say. Listening to my noble friend Lord Thorneycroft, may I say that I had a pleasant feeling of nostalgia? Hearing him brought back memories of our efforts in another place from 1946 to 1950, and our opposition to the nationalisation of transport in particular. He was, in those days, already a doughty debater. One of the arguments that he used against nationalisation was the difficulty of unscrambling, and this is one of the things that the Government have been courageous enough to face. My noble friend's speech today was, of course in character. We are grateful for it, and I was very glad that he put this subject into its historical perspective. He put forward what my noble friend Lord Gowrie called an ecumenical approach.

It is right that we should try to achieve some continuity in our national institutions, so long as it does not mean that acceptance of unworkable compromises which have been shown to be unworkable, and my noble friend Lord Thorneycroft rightly praised the Prime Minister's courage in rejecting such compromises. In those years, 1946 to 1950, the Labour Government went a long way towards creating a socialist state by nationalising not only transport but, as has been said, coal, gas, electricity, steel, airways and so on. I think we should pay tribute to the noble Lord, Lord Diamond, for the candour which he displayed in revealing that he and many others, especially those who moved from the Labour party to the SDP, had had a change of mind. Of course the postal and telephone services had been nationalised years before—the Post Office in the days of my predecessor at Huntingdon, one Oliver Cromwell. I say that he was my predecessor only in the sense that I had his constituency as a tiny part of my huge constituency. He was elected by 100 hereditary freeholders. I was elected first by 39,000 people over 21 and later in an electorate of 93,000 people over 18. I ask your Lordships to forgive the digression.

But, as a result of all these state controlled activities, the, strictly speaking, nationalised industries accounted by 1979 for no less than 10 per cent. of the gross domestic product and they employed 1½ million people. In addition to those, there were many others in central and local government, in ordnance factories, in the armed forces, in the airways and airports industry and so on.

In spite of what the noble Lord, Lord Diamond, said, the return on capital in those nationalised industries was very disappointing and it was public capital. Their over-manning and their generally poor performance, and the public dissatisfaction which that created, as well as the disappointment of many Socialists who had had great hopes, as the noble Lord, Lord Diamond, had, of this, caused us to think about it when we obtained power in 1951.

My noble friend Lord Thorneycroft was, I remember, placed at an early age in an important position in the Cabinet as President of the Board of Trade, and I dare say that he and my noble friend Lord Boyd-Carpenter and others will agree that during the years we were in power, from 1951 to 1964 and again from 1970 to 1974, we tried hard to make a success of the nationalised industries. My own part was a very minor one. I was the junior Minister in what is now called the Department of Energy. It used to be called "Fuel and Power" and the noble Lord, Lord Shinwell, was the first Minister of that description. It is so refreshing to see him sitting there in his place with all his memories.

I can assure your Lordships that we were keenly anxious to see our nationalised industries of coal, gas and electricity do well and we improved the structures wherever we could. For example, in the Electricity Act of 1957 we changed the monolithic structure of the Central Electricity Authority and established a separate generating board and area authorities. That was a useful thing that had to be done. I wish that we had done the same with British Rail. It would have been somewhat better.

We poured public capital into all those industries and as a result they achieved some technical advances. But financial success was elusive and that was not always the fault of management or of labour, most of whom were doing their best, although, as the noble Lord, Lord Diamond, so very properly said, bad labour relations sometimes soured the situation.

No, my Lords, the fault was the fault of the systems which generated bureaucratic organisation and practices; systems where the lack of market disciplines and, as has been said, of incentives was a serious impediment to obtaining good results or indeed, sometimes, of obtaining technical progress that should have been obtained. In my opinion, it was indeed a courageous and wise decision of the present Government, of the Prime Minister and her colleagues, to apply clearly radical solutions to this problem.

The sale of the assets has already provided, or brought back to the Treasury, no less than £5 billion of capital cash, if there is such a thing. The noble Lord is an accountant and he knows whether or not there is. I cannot find a better expression for it. The noble Lord, Lord Diamond, may think I am on dangerous ground when I say that. He regards it in one light and I regard it in another and more favourable light.

Lord Diamond

My Lords, the noble Lord means that it was capital and is now cash that disappears.

Lord Renton

But, my Lords, it was capital which was not earning its keep and it is now cash which is at the disposal of the Government and the nation for what we hope will be good purposes.

I shall not weary the House by again contradicting the noble Lord, because the Treasury has already issued the figures and my noble friend Lord Gowrie, perhaps selectively, can give some more at the end of the debate, but there have been some impressively improved financial results from the nationalised industries and companies which have been sold.

One of the other results of privatisation has, as I said, been a considerable increase in the number of small shareholders and employee shareholders, and this development, coupled with the sale of council houses and the encouragement of owner-occupying, takes us a big further step towards making us into a property-owning democracy. That is a great practical ideal which was formulated in 1947, as your Lordships will remember, by my noble friend Lord Stockton, working on that occasion in close partnership with the late Lord Butler of Saffron Walden—

Lord Boothby

My Lords, may I interrupt the noble Lord for one moment to say that he should add that the original man of them all was the late Mr. Noel Skelton? He used for the first time the phrase "property-owning democracy". He was Member of Parliament for Central Perth for many years and he ought to be remembered in that connection.

Lord Renton

My Lords, this is a matter in which the noble Lord has the advantage of me—

Lord Boothby

I am so old.

Lord Renton

—because he is speaking of a political time whereunto my memory does not reach. But I am very grateful to him for pointing out the initiative. However, the translation of that initiative into a blueprint was the joint effort of my noble friends Lord Stockton and Lord Butler, as they ultimately became.

I would hope that the noble Lord, Lord Bruce of Donington, who lamented—and was perfectly justified in doing so—that 21 million people still own only 4 per cent. of the wealth, will go along with us in this advance towards the property-owning democracy, in an advance towards wider share ownership and wider house ownership. One of the most interesting things that has already emerged from this debate is the bold but wise prediction of my noble friend Lord Thorneycroft, that if by some mischance the Labour Party ever gained power again they would not put the clock back. However, meanwhile, we look for the support of the noble Lord, Lord Bruce of Donington.

Those who oppose privatisation and the sale of council houses thereby oppose a property-owning democracy. That includes all those Socialists who prefer to see our people bossed about by Left-wing politicans and union leaders with the obedient help of swarms of rubber stamps. I think that it was our dear and late lamented friend Lord George-Brown who said that if socialism did not kill bureaucracy, bureaucracy would kill socialism.

As I do not want to speak for too long, I should like to say a few brief words about the privatisation of hospital services. This is indeed necessary but more difficult and more controversial than denationalisation. It is necessary because our hospital services are costing far more than they should. Altogether the National Health Service is costing £17 billion, much of it being spent on administration and domestic and cleaning services. If the cost of those services could be reduced, even more money would be available for the care and treatment of patients. It is a more difficult process because there is a relatively new and still fairly small range of private enterprise to do the work required. It is more controversial because the unions mostly strenuously oppose it and make much of any little thing that goes wrong, and because, being experimental, success cannot always be guaranteed.

Lord Bruce of Donington

My Lords, I am most grateful to the noble Lord for giving way. Will the noble Lord concede that cleaning is also part of the care of the patient?

Lord Renton

My Lords, yes, most certainly it is. That is a perfectly fair point to make. But if an unnecessary amount of money is being spent on ancillary services, there is less money available for the highly expensive and very technological equipment, such as X-ray equipment and so on, on which obviously we want to see more spent. Progress is very costly in that field. To the extent that we can save—and legitimately save—on these ancillary services, so much the better.

As to local authority services, there is enormous scope for privatisation in this area. I have a list of nearly 40 different local authority services which could be privatised. Some progress has been made. So far over 100 local authorities have saved £17 million by privatising some of these services. I understand that, if necessary, the Government will introduce legislation next Session to speed up the process, but I must point out that it can be done without legislation if only people will do it. I hope that we shall see further progress.

We all want good social services, education, hospitals, defence and civil defence, but we need to avoid unnecessary costs so as to provide more of what is really needed and help those in greatest need. We cannot pay for the welfare state and all these other services out of either losses on nationalised industries or poor returns on public capital. As has been stressed, we must produce the wealth to pay for them; and that can only be produced from the profits of private industry which can be taxed to provide what the nation requires. That is why, in my opinion, the Government are fully justified in what they are doing.

5.55 p.m.

Lord Rochester

My Lords, I have been intrigued by one word in particular in the Motion of the noble Lord, Lord Thorneycroft, calling attention to the process of returning some public sector activities to the private sector. I am referring to the word "some", because it raises the basic and highly controversial question of what those activities should be. In my contribution to the debate, which your Lordships will be delighted to learn will be brief, I should like to suggest that, if we are to achieve the important national objective of in the words of the Motion, "wealth creation" it is vital to seek—though I am bound to say, having listened to a number of speeches this afternoon, that I think it will be hard to find—a consensus on what are the activities which should take place in the public sector. I am not now concerned to identify precisely what they should be, but simply to pose the question as one which it seems to me is of fundamental importance to the debate.

The point that I wish to stress concerning the effect on wealth creation of the distribution of activities between the public and private sectors is the paramount need for stability in the interests of the economy in general and of manufacturing industry in particular. In my view, the economic and industrial measures needed to control inflation and to reduce unemployment are of such a controversial and unpalatable kind that no single political party will prove capable of implementing them on its own. In the end international competition, from which, as a trading nation, we cannot exclude ourselves, will dictate that the decisions to be taken affecting British industry—whether or not nationalised—will have to be based primarily on long-term commercial considerations and not on short-term political ones.

I have never withheld from this Government credit for having reduced the rate of inflation, but their policies have been carried out at a cost which, in my view, will not in the long run prove sustainable. That cost is to be measured in terms of unemployment and of pay increases which, in the private sector, have been in excess of improvements in productivity and in the public services are increasingly perceived to be unfair in relation to settlements reached elsewhere. Your Lordships have only to look at the present state of morale in the teaching profession and in the Civil Service to recognise that.

This is not the time to put forward yet again suggestions as to how agreed new procedures for pay determination might be sought. I last did that in our debate two months ago on the Government's Budget proposals, and shall gladly do so again when a suitable opportunity arises. However, I wish to offer the opinion that our greatest national problem is how to mark out ground on which more of us can stand together for the purpose of creating additional wealth instead of devoting so much of our energy to squabbling over how such limited wealth as we possess is to be distributed.

A particular reason—and here I can speak from some experience—why there is need for a greater measure of consensus in determining policies in the industrial field is that the time span over which industry now has to plan ahead is incomparably longer than the expectation of life of a single Government. In terms of national planning, it is surely unforgiveable that in recent years the policies of the Government of the day have often proved so unacceptable to the Opposition that they have been reversed within only a few years. It is industry which is then left to pick up the pieces.

In relation to the Motion before us, I suppose that the most glaring example of that process is the fate of the British steel industry. Since the last war it has been threatened with nationalisation, then nationalised, denationalised, and renationalised. It is now being reduced, through lack of a coherent, long-term investment policy, to a situation where it is literally having to fight for its very existence. That is only one example of the damage which has been caused by basic changes in Government policy in the industrial field.

There have been others: in aerospace, shipbuilding, regional policy, the establishment and then the dismantling of the National Enterprise Board, and so on. I believe that these fundamental shifts arise directly from our adverserial, first-past-the-post electoral system. In saying that, I realise that it will not be music to the ears of all of your Lordships.

Again, this is not the time to dwell on the need for change in the electoral system but it seems to me that the question is highly relevant to this debate. In my view, such a change would help enormously in the process of wealth and job creation, by strengthening the hands of those—and they are by no means to be found only in the alliance parties—who perceive the need for more continuity and consistency in our economic and industrial policy to be of overriding importance.

I conclude by asking this question: how otherwise can industry plan 10, 15 or more years ahead (as nowadays it needs to do) and how otherwise are we as a nation to achieve our objective of producing goods and services profitably, for the benefit of the community?

6.2 p.m.

The Earl of Lauderdale

My Lords, it is not often that one has the pleasure of following the noble Lord, Lord Rochester, who has such a reputation in this House—and, if I may say so, outside it—for taking a moderate, constructive and friendly approach to labour relations, inter-party relations, and matters of great concern to everyone in this House, whatever their party allegiance. The noble Lord has just adverted to a topic favourite on his own Benches—proportional representation—on which I will not follow him. But the noble Lord referred also to the shuttlecock between party purposes and the interests of the steel industry. It is my intention to refer to another industry which, mercifully, is at this moment exempt from that particular shuttlecock.

In the quiet, adult discussion to which my noble friend Lord Thorneycroft proposed we should devote ourselves—as to the private and public sectors and their respective roles—the noble Lord, Lord Diamond (who I always want to call "my noble friend"; but I suppose that in parliamentary terms I must call him "the noble Lord", even though he is an old personal friend of mine) referred to the co-operative approach. It was a kind of glancing blow and I propose to return to it in relation to the coal industry, to which there has been no reference this afternoon.

The coal industry is, mercifully, omitted from the present published catalogue of privatisation targets. It is as well that it should be—at any rate, meantime—while it is emerging from a trauma which many, and possibly most, miners did not want in the first place. The trauma was brought on under slogans about jobs for now, jobs for grandchildren, and preserving communities. Perhaps it is as well to remember that politics is really the systematic organisation of hatreds, and so everything is true except the facts.

I speak on this subject because many years ago I sat for a mining constituency in Scotland. I knew every colliery and I knew almost every coal face in those colleries. I was wonderfully treated with courtesy and friendship by the men. In fact, I do not recall ever hearing a hard word, except in political terms, said against me. I came to respect the men working in those colleries very sincerely.

I believe that, despite all that has been going on, there may be a ray of hope. It is important to bear in mind that this is a context in which tribal loyalties and emotions have developed over the years among people who are very much cut off from the ordinary run of other people's lives because of the hours of work they have to endure in many cases and because of other circumstances. In a way, they may be likened to fishermen. They are very much up against the elements and they lead lives of danger. They lead lives which are, in a communal sense, somewhat inbred.

Only group and tribal hysteria can explain such wanton violence of the peaceful as led to the loss of some 20 or 30 good, long-run faces with about £100 million-worth of equipment simply through deliberate neglect. But while that aspect has been played up by the media—and during that period of controversy there were exaggerations from many quarters in following the coal strike—it is important to get matters into proportion. Though there were another 40 or more faces lost some 25 of those were doomed anyway, and so one can write them off. And that is out of a total of 500 faces. So we are talking of only something like 15 per cent. of the faces altogether. Perhaps that is one useful thing to say in reducing the picture to its proper proportions.

It is not generally realised but I am informed—and I believe my informants—that the coal industry is already 75 per cent. back to normal and producing about 2½ million tonnes a week. Whatever the Central Electricity Generating Board may wish to do or should be allowed to do in the future, it is imporant to realise that some 90 per cent. of the Coal Board's markets have been retained. Sales to the generating boards of England and Wales, of Scotland, of Ulster and of Denmark, and Électricité de France, have all been retained. The British Steel Corporation and the chemicals industry are still buying as much coal as ever. Indeed, I understand that ICI is going ahead with its plan for a £100 million conversion to the use of coal. The paper and board industries continue to be firm clients of coal as well. The fact that 90 per cent. of the coal industry's market holds firm is already a credit.

The second credit—which is not usually known—is that the surviving bitterness between those who were for and those who were against the coal strike is much more patchy than might generally be supposed. It is bitter indeed in Fife but not greatly noticeable in the Lothians, which are only the other side of the Firth of Forth. Likewise, I understand that bitterness remains very sharp indeed in the Doncaster area but less so over the rest of Yorkshire. So the picture is not one of unalloyed gloom.

In an extractive industry, of course, massive investment on a rolling basis will always be needed for as long as the industry exists. In the coming years, it will be needed for better collieries with richer seams and greater mechanisation in Staffordshire, Warwickshire, Oxfordshire and elsewhere. In the next century, when the techniques of the oil industry are applied to in situ gasification under the North Sea, to introduce oxygen so that coal can be burnt underground and turned into gas, then again enormous volumes of capital will be needed.

There is absolutely no hope whatever, under any solvent economy, that such investment will be available unless there is a proper return on it. It is perhaps worth mentioning, in that connection, that the £1.5 billion of investment in the Selby colliery has still resulted in only two-shift working when certainly there should be three shifts.

The major question hanging over this industry is how realism can be made more general. How do we purge the tribal hysteria which has triumphed hitherto? That is indeed a task for giants. But this takes us back to the days of the noble Lord, Lord Shinwell, who I am always glad to see in his place, as indeed we all are, when he is there. I spoke to him a day or so ago about what I am about to say and he gave me his approval to draw attention to certain quotations from what he has said. He was Minister of Fuel and Power at the time the coal industry was nationalised, so he has vivid memories of the very important and, as he has since said, rather disappointing discussions which took place then with the leaders of the National Union of Mineworkers.

In this House on 19th February, as reported at col. 476 in Hansard, he said that, if the miners … had accepted the offer of several places on the Coal Board—it was a definite offer which is on the record of the Ministry of Fuel and Power—we could have avoided this Scargill business. In the public sector, in nationalised industries, there must be partnership". That is a term which the noble Lord, Lord Shinwell, has used more than once. I believe it is a phrase which is in fact more implicit in the Conservative approach than may perhaps have been recognised so fat in this debate.

I take just two more quotations from the noble Lord, Lord Shinwell. I treat your Lordships to this extract from Lead with the Left,the noble Lord's comments on his first 96 years. On page 136 he says: I should have expected the miners' leaders to have immediately agreed to what was likely to produce a new situation in the industry. As part of the partnership proposed they were offered two seats on the National Coal Board, but they refused". In Shinwell Talking: A Conversational Biography to Celebrate his Hundredth Birthday, which was such a joy to us all, and is a series of interviews with the noble Lord, he is quoted on page 24 as having said that, when I was nationalizing the mines, preparing the legislation, and I met the miners' leaders … I said, 'What I want you to do is select a few of your number, an elite, as designate members of the Coal Board. And I want you to regard yourselves not as employees but as partners in the industry' ". He went on: Do you know what they did? William Lawther replied, 'No, we're not interested in that' ". That is a very important series of revelations about what happened when the mining industry was nationalised. For various reasons of discretion the noble Lord felt it proper not to say until recently what I have just quoted.

It is also interesting that he recently put a Question to the Government. I was disappointed that the Government did not immediately seize the opportunity that the noble Lord put before them. In a Question for Written Answer on 28th January, the noble Lord asked the Government, Whether, in any possible future reconstruction of the National Coal Board the National Union of Mineworkers might be invited to nominate a few of their leading members—possibly three or four—to share in mutual discussion". The noble Earl, Lord Avon—alas, he is temporarily absent in hospital—gave what I can only call a typical Civil Service reply which suggested to me that they were at their wits' end—and it did not take them long to get there. He replied: The machinery for such discussions with coal mining unions already exists".—[Official Report, 28/1/85; col. 552.] Of course, they missed the point. It is this missing the point which is serious and could be an important factor in the present situation, because it may well be that a new situation is emerging.

The past 20 years have seen a deepening crisis of confidence between managers and the men. But is not a different crisis now beginning to appear? The NUM executive, with centralising and overt political aims supported, one is told, by a clandestine brains trust of West Midlands university dons—but never mind about them—is more and more at odds with a regional resistance. Do not let us drop into this silly habit, which is common in the press, of saying that some people are moderate and some extremists. In coal everyone is an extremist. Nobody is a moderate. On the other hand, in a sense everybody is moderate and nobody is extreme. The ordinary labels simply do not apply and it is silly to say that one lot are baddies and the others are goodies.

What I am trying to say is that it does appear that something new is happening in the coal industry on the side of the NUM in that in Nottinghamshire, Derbyshire, the West Midlands, perhaps Lancashire and certainly South Wales, there is a regional resistance to centralised leadership. It may well be that what I chose to call a new left is being generated. Unless it is seen to be left it will lack credibility—just as some Bishops may be suspect not only because of what they think but because of doubts about their apostolic succession. The credibility of any movement in the coal industry must be its leftward appearance. So do not let us be confused, misled or particularly upset because that leftward stance is necessary to the case.

As in theology, so in politics, there is much merit in presenting an idea to ensure some chance of serious consideration instead of having it strangled at birth. For that reason the word "privatisation" is out, out, out. It is absolutely out for ever. It is a silly word. It does not apply, and it cannot apply, to this industry. I am happy to note that, at any rate, the so-called privatisation of coal is not in the catalogue of targets made public by my party.

But if that is out, there is another term which is well-established and respected: that is, "licensing"—pay for co-operative partnership. If the new left do mean to make a better living out of the mines—after all, that is what they have to propose to their chaps; not quantity of words but success, better wages, better conditions and better investment—could not licensing offer a route? In the oil industry there is the widespread practice of companies farming into or farming out into other people's blocks of development opportunities. I wonder whether possibly the principle of farming out or farming in may not provide a new approach to the need to attract investment and the consequential creation of wealth.

All great truths start as blasphemies, but the fact is that the operations of the open cast executive under licence have been relatively trouble-free. I wonder whether licence terms to co-operatives—to come now to the oblique reference of the noble Lord, Lord Diamond—could not be contrived, either colliery by colliery or even face by face. The terms would vary with prospective profitability, salted by team bonus incentives on the one hand and adjusted for carried or shared overheads on the other. But the key to profitability and to the attraction of investment, whatever government are in office, and wherever capital is to come from, must be free market pricing and the opening, therefore, of the right of the Central Electricity Generating Board to coal imports. Only so can a market price be established by which the Coal Board can judge and measure its performance.

As a matter of fact, in volume terms coal imports could never be very great for a score of different physical reasons. Perhaps the most important one is the problem of landing coal from abroad, and the other one is shipping it from abroad. At any rate, in volume terms it is bound to be relatively small, but its effect on the market for coal and on coal prices could very well be something like the Rotterdam spot market in crude oil.

The Coal Board has to compete. The Central Electricity Generating Board as the largest single customer must also be free to compete. The competitive climate alone can regenerate, in my view, a sense of proportion, and the new left, be it within the coal industry or, for that matter, within the Labour Party, surely faces a worldwide growth of competitive economies. China is the most obvious recent example. It either faces that fact of the world or it withers into insignificance. I believe that both should learn that life is neither a spectacle nor is it a feast; it is a predicament.

6.23 p.m.

Lord Shinwell

My Lords, since the noble Earl is about to sit down, may I venture, since my name has been mentioned and as I have to go in any event, to correct an impression? Something has been quoted from my writings about my submission to the miners on the occasion when I was engaged in preparing legislation for the nationalisation of the coal industry. I beg Members of your Lordships' House not to pay the slightest attention to my writings, whether they be in the book that was mentioned, Lead with the Left, or in I've Lived Through It All, Conflict without Malice, The Britain I Want or the other books, or in my articles in Sunday newspapers. Pay no attention to them.

What I ask your Lordships to do is what I was myself forced to do. For my book I've Lived Through It All, published by Cassells, I wanted the documents associated with my submission to the miners. I approached the Ministry of Fuel and Power. They refused to let me have them. What was I to do? I noticed the noble Earl, Lord Stockton, here today. I could have said this in his presence and he would have understood it. As I was in some difficulty, I approached him. He was then Prime Minister, and I was on very friendly terms with him. He was always very magnanimous, even when he was provoked, and I found his a very friendly disposition. I told him my story. He insisted at once on telephoning to the Ministry of Fuel and Power: "You must let Mr. Shinwell", as I then was, "have all the notes, a complete record of the discussions that took place, which were taken down by my official people".

The documents are there at the ministry (the Ministry of Fuel and Power as it was then) and there it will be found that I realised, as I was bound to realise, that there would be a great deal of turbulence in the mining industry. I was warned by the late Lord Linlithgow and by his father, and by Lord Lambton and many others of the famous coal land-owners of the period way back 70 or 80 years, about the turbulence that was going to occur in the coal-mining industry over the years. Do not forget Arthur Cook! Never mind about Scargill: Arthur Cook was something far worse than Scargill. We have a great deal of trouble with him. He was a horrible person to deal with.

However, we had this situation, and because of my apprehensions I decided that something must be done. Therefore, I proposed to the miners' union, led by Sir William Lawther—l0 men as leaders; all gone now, I say regretfully—"In the future, I do not want you to regard yourselves as employees of the Coal Board. The Coal Board members are not yet elected, but they are about to be elected. I have singled out some names, but that is as far as I have gone. Before I decide on all the names, I do not want you to regard yourselves as employees but as partners in the industry".

I was horrified when I received their answer. I expected a reasonable answer—or, anyway, a friendly answer. Sir William Lawther said: "Nothing of the sort. We haven't come here for that. You have been talking about the benefits of nationalisation. So have we. We want them now. We want a five-day week; we want three weeks' holiday with pay; we want more rations". They had 12 points in their charter, and they wanted every one of them. I said: "I don't own the coal industry. It's still in the hands of private owners. They are waiting for their compensation, and they are going to get it. There is going to be no confiscation". They gave way on the question of whether we should take the industry over, but we have heard about that. The result was that Sir William Lawther would have nothing to do with it; and he was supported by every one of his team.

Eventually, I tried to get three members to join the Coal Board. There was Ebbie Edwards, a previous secretary of the miners' union; there was Arthur Horner, a communist member; and there was another member whose name I have forgotten for the moment. I approached Horner privately. He was a very reasonable person to deal with, although communist. On the question of our national politics he was all right, and certainly he was all right about the mining industry and its future. He agreed he would become a member of the board, but he said I must ask Harry Pollitt, the secretary of the Communist Party. I said, "All right". Pollitt told him: "Your job is not to accept anything in the nature of administration. You have got to fight them"; and Horner came to me and said, regretfully, "I am sorry; I can't take it on".

That is why I dropped from three to two as was mentioned by the noble Lord. First it was three, then it became two because Horner had gone, and then I decided not to proceed any further. Eventually, I came to the conclusion that I must consult my officials and some prominent members of the Cabinet—Attlee himself, Ernie Bevin and one or two others—to get their views about it. They had nothing to do with my submission about partnership. I never discussed that with them; it was never mentioned in the Cabinet. I would have forced this through Parliament without difficulty. The result was that they said, "Go ahead". But the miners would not accept it, and what a pity that was. There would have been no Scargill, and we should not have had the terrible incidents that we have had in recent months. I believe that it would have been the beginning of better relations between the workers and those who are regarded as their employers, whether in state-owned or privately-owned industries. That must be right.

That is the story. Noble Lords need not take it from me. They can take it from the records that were in the possession of the Ministry of Fuel and Power.

6.30 p.m.

Lord Molloy

My Lords, the noble Earl, Lord Lauderdale, said that no one had mentioned the coal industry, but, with the help of my noble friend Lord Shinwell, he certainly made up for that. It has had a very good run indeed. But neither of them made one fundamental point which I think ought to be made, bearing in mind the traumatic experiences in the mining industry over the past 12 months which the noble Earl mentioned. When there is an examination in depth I think that it will be clearly revealed how very nearly the distress caused in the steel industry was caused in the mining industry. But that is not the point of this debate today.

I should like to make this point. The League of Nations in its industrial relations world report, which was carried on by the United Nations, showed that from just before 1938 up to the mid-1970s—and I ask the House to listen to this—British miners were top of the world league for the lowest number of strikes and the minimum amount of industrial unrest. Much has been said about the miners by journalists, television commentators and other horny-handed sons of toil who risk their lives five times a day facing the danger of being impaled on their fountain pens, and it is about time that we stated something good about the miners, which the noble Earl, supported by my noble friend, did so well this afternoon. It gives me great pleasure to support both of them.

I am bound to say that in opening the debate the noble Lord, Lord Thorneycroft, took me by surprise with the moderation of his speech and his well informed data. What he said will satisfy everybody who has this one basic idea—to get our country back on its feet. That was the fundamental contribution which he made. At one time I thought that anyone entering the Chamber could be forgiven if he made the mistake of thinking that he was listening to a well-informed Fabianist.

But we must also try to understand this: the industrial base of our country, whether in the private or the public sector, is out of date, and we are not catching up. Something has to be done about that. If I may I say this to the noble Lord, Lord Thorneycroft, we do not want to go back to the period of total political inertia from 1952 to 1964 which is known by world economists as Britain's Rip Van Winkle period, where everyone seemed to be asleep and nothing much was being done. The people who paid the bill were the incoming Labour Government in 1964. They tried to do things, and I think that in 18 months under my noble friend Lord Wilson they did quite a lot. That is the sort of thing that we must try to understand. We must never allow that to happen again, and, as the noble Lord, Lord Thorneycroft, said, neither must any party fix its face rigidly against any form of private enterprise. That would be banal stupidity, but it would be equally silly to say that there must be no form of nationalisation.

I remember when I was in the other place with noble Lords on both sides of our Chamber seeing one of the swiftest acts of nationalistion in the whole record book when Mr. Heath and his Government took Rolls-Royce into public ownership. We must understand that it was vital that that was done. There was no argument about it. The chairman of the directors' organisation, the CBI—not the present one, who is hurtling fast for the 17th century—the president of the TUC and everyone else realised that it was urgent to do that. I believe that this adds up to a number of conclusions, and it is for the good of the nation that these things are done.

I hope later on to say why we in the valleys where I come from believe, for example, that the steel and coal industries should be in public ownership. But we also believe that all these big industries are there to create wealth—to create wealth for our welfare state, as has been said. One cannot have it both ways. We cannot on the one hand say that all private enterprise is making a massive contribution to the welfare state and then set about destroying the welfare state. That is political hypocrisy.

There is another thing that we must take into account. While we want to see the private sector creating wealth, we should also concentrate on preventing death. Before public ownership, nearly 400 miners every year were slain instantly, as I have said before, and another couple of hundred died from what was called "the dust". They have a posh word for it today—pneumoconiosis. These are some of the good things of public ownership. As has rightly been said, there are bad things about public ownership—for instance, in its management—and there are also bad things about management in private enterprise.

For example, in the 1970s the nationalised industries were unsatisfactory in their productive targets, but so was much of the private sector. It would appear that to a degree both suffered from low productivity because of poor management. That is not a comforting thought. One cannot point to the great monopolies and say how good they were. They were just as bad. That is why I say that the fundamental issue is for all Great Britain's industries is to start modernising at the very base. When the opportunity is provided in the House I hope one day to enlarge on that.

In preparation for this debate I read in some depth the books of Mr. Richard Pryke. By and large he is hostile to publicly-owned industries, but he is fair too. He points out that we must never forget that in the private sector efficiency dominates because the inefficient go out of business, leaving only the profitable to survive. Despite the fact that he is not particularly enamoured of nationalisation, he says that the nationalisation of shipbuilding, Rolls-Royce and other parts of the motor industry were necessary because those great industries were going to the wall. In his book, Public Enterprise in Practice, in 1971, he makes favourable comments on the productivity of many of the publicly-owned industries.

I turn briefly to a matter which perturbs me and which I know is perturbing people outside the House, particularly active trade unionists who are by no means extremists. As the noble Earl, Lord Lauderdale, said, we must get away from that assumption. I am talking of thinking men and women who are concerned. They go to their branch meetings and have to face the sort of thing that I am talking about. I read an article in the paper only the other day, and we have heard about this before. Civil servants who have worked in the Treasury join big companies to teach them how to pay only the minimum amount of tax—these well-heeled, well paid patriots! Another element is now causing some disturbance, and this is the action of former Ministers. Sir John Nott, who was our Defence Minister, is now chairman of Lazard's, which handles the Government's privatisation business. Admittedly it has great skill and it advises on privatisation, but it is giving advice on the Royal Ordnance Factories, British Aerospace and British Shipbuilders, all of which have connections with the Ministry of Defence.

People in the industrial world are asking, "What is going on here? What sort of a line up is this when an ex-Minister can indulge in this sort of thing?". I do not say that there is anything wrong in that whatsoever, but the Government ought to make it quite clear that there is nothing wrong. Their silence indicates that perhaps there is something that they ought to have said, and I hope that they will say it. These things disturb people on both sides of industry—knowledgeable people who are in management, as well as the real trade unionists who are desperately interested in raising the welfare and standard of life of their members.

I should like to give another example. That is the example of Amersham International, which was formerly Radiochemical Centre, with shares held by the United Kingdom Atomic Energy Authority. Over years it has been involved in massive research in a very risky area, costing millions of pounds. This research has demanded great skills in handling radio-activity safely. Their achievement is to their great credit. That should have remained with the nation. It should not be handed on a plate to people whose biggest contribution is merely the fact that they have lots of money. That is bad.

British Aerospace was a public corporation. In February, 1981, Kleinwort, Benson, on behalf of the Secretary of State, made the public sale of 100 million of ordinary shares. The Secretary of State now has about 48 per cent.; the trustees of the employees organisation have a measly 3.24 per cent., and all the other shareholders have 48.3 per cent. That is taken from this year's annual report of British Aerospace.

I think I had better quote word for word what they have to say: whilst profit in cash terms has been rising steadily since 1979 and deflated turnover since 1978, profitability (return on assets) was below its 1978 and 1979 level in 1983 after almost 3 years of privatisation". This is quoted from that official report. I cannot guarantee that it is correct but it has never been challenged. I believe, as the noble Earl, Lord Lauderdale, has said, that these are the matters we must bear in mind in order to keep a balance of what is going on.

I think we should also acknowledge this. In the great publicly-owned industries there is literally a myriad of small firms that depend on the extraction industries such as the coal mine industry, the fuel industry, the big steel industries, the gas industry and the United Kingdom atomic energy industry. Hundreds of small private firms absolutely depend upon them. Sometimes we do not take enough cognizance of this. We think that when such an industry is nationalised it means that everything comes under the State, when in fact there are hundreds of small firms, employing thousands of people, who gain a great deal from that industry.

There is another matter which we have to acknowledge. It is acknowledged by sensible private industry. It is this. In those years immediately after public ownership there was a great leap forward in relation to public safety at work. Social responsibility at work was increased enormously. I think that is to the credit of the nation as well as of the publicly owned industries.

A moment ago I was explaining why we in the South Wales valleys believed that public ownership, or nationalisation (which was the word we used) of the coal industry and the steel industry was absolutely necessary. It was not because Sankey and those other 10 judges in 1924, after their examination, were totally unanimous that nationalisation was the answer. We knew it before they did. They merely confirmed what my grandfather had been saying. What I want the House to try to understand is this. They did not say it because they wanted us all to own a coal mine so that we should become millionaires. It was not said for that reason. It was because we really believed that our country could best be served if the nation itself would accept responsibility for this great industry.

I happen to believe that the mixed economy is good, that it is a sensible way of working, so long as the fundamentals are of the property-owning democracy. The first person that I heard say that was Lord Attlee, when he was Mr. Clement Attlee. He said that in a debate held actually in this Chamber when this Chamber was used as the House of Commons. It was when one of the great public ownership Bills was being introduced. He said that a property-owning democracy meant that a democracy owned the fundamentals of the property and the caretakers of the people were those who they had sent to the House of Commons. I thought that was a very formidable argument.

The same applies to all other forms of public ownership. Will we really privatise the roads when the GLC is abolished? Will there be a system like that in some places in America, where one must throw a handful of coins into a gate before one can move on because that little piece of road may be privately owned? I do not think that the nation will stand for that for one moment. If it was said that every road and every pavement throughout Great Britain, from Land's End to John O'Groats will be returned to private enterprise, there is no way the nation will stand for that. It is an absurdity. That same argument applies to many other matters.

In conclusion, I should like to say this. I happen to believe that nationalisation and public ownership, together with private industry, can tremendously help this nation. In the early years after the war I think we developed the principle of the mixed economy. I do not know what is happening to my country at the moment. I am not very happy about it. I have not been happy for the past 10 years. Earlier this afternoon it was said to me that we were suffering from a kind of arteriosclerosis. Well, we must get over it. It happens in public industry and in private industry. This must be fundamental.

I believe we have also to acknowledge this. All that has happened in relation to privatisation is this. As something has been privatised, so unemployment, the greatest scourge of all our nation, has gone up. That ought to be given priority. Before it is decided whether anything should be privatised or nationalised, we must consider what we can do to make it efficient and to bring skilled men back to work.

Any poll will indicate to your Lordships that the greatest concern of the British people this afternoon is unemployment and the awful scourge that it is. Therefore I believe that if we are to work together in both private and public enterprise to see that the scourges of unemployment and bankruptcy are reduced until they have vanished and are vanquished, what is required is a brand new base for British industry. I have not time to develop that tonight. When we attack this scourge of our falling behind Japan, falling behind France, falling behind America, whether in the private or public sector, whether we work in or favour either the public or private sector, we should at least acknowledge this. We must move towards an agreement on the principle of a sensible, mixed economy. The motto on all sides of that economy must be to serve the British people.

6.48 p.m.

Lord Bruce-Gardyne

My Lords, I should like to join with other noble Lords in thanking my noble friend Lord Thorneycroft for introducing this subject this afternoon. Personally, I always find it rather alarming to speak in a debate initiated by my noble friend. That is because he always sets such a remarkable standard of charm of delivery and coherance, and effectiveness of arguments that the rest of us always feel rather muted by comparison. He certainly has provoked a wide-ranging debate this afternoon. I must admit that until the noble Lord, Lord Molloy, told us, I had not realised that one of the objectives of the nationalised industries was to set an example in preventing death. I must say that that sounds to me like an ambitious target.

A number of my noble friends, including, most notably, my noble friend Lord Gowrie, have advanced what they see as being the main purposes of privatisation. I should venture to put forward my own brief list, which overlaps with but does not entirely coincide with that which was advanced by my noble friend from the Front Bench.

In ascending order of significance and importance, it seems to me that one can identify four objectives to be achieved. The first is the financing of the PSBR. The second is the release of the management of public corporations from the trammels of state intervention. The third is the opportunity for both thousands of employers and potentially millions of private citizens to participate in the direct ownership of these businesses through shareholding. The fourth is the restoration to the customers of the benefits of choice and competition. It was the fourth of those objectives which I do not think my noble friend mentioned from the Front Bench. It seems to me that that was perhaps not a wholly unimportant omission.

Perhaps I may take those four objectives in order. The financing of the PSBR has always seemed to me to be a vastly overdone element in the affair. I sometimes think that the Treasury is a little bemused by its own book-keeping. I am not at all sure that that bemusement is not sometimes shared by other noble Lords on both sides of the Chamber. In fact, I thought I detected an element of bemusement even in the speech of the noble Lord, Lord Diamond. Surely to the extent—and it is to the overwhelming extent—that the purchase of shares by the institutions in companies that are privatised comes from money that would otherwise go into investment in gilts, we are really talking about two sides of the same coin. All we are really talking about is not reducing the PSBR, but an alternative method of financing it. This, to my mind, is something that the Treasury and some of its critics are all too inclined to overlook. I would therefore put this a very long way down the scale.

The argument of the independence of management achieved through privatisation I think is important. It is all very fine for the noble Lord, Lord Diamond, to say that there is no reason to denationalise for that purpose and that Governments can simply desist from interfering. There is something to be said for putting temptation beyond arm's reach in this world, and that applies to Governments as it does to individuals.

For my money, the last two arguments are crucial. We have talked, certainly in this party, as my noble friend Lord Renton pointed out (he was corrected by the noble Lord, Lord Boothby, on its precise origins) about the achievement of a share-owning democracy for all of 30 years.

Lord Renton

My Lords, the phrase that we have always welcomed, and I believe supported, in our party is not a share-owning democracy but a property-owning democracy, which includes the ownership of one's home.

Lord Bruce-Gardyne

My Lords, I accept entirely that correction from my noble friend. I should have said that the concept of a share-owning democracy was a rather later evolution of the same concept. Nevertheless, I would argue that it has been a professed objective of successive Tory Governments since the late 1950s to achieve wider share ownership. In practice, we have seen a steady contraction of the share of individual equity owners in the totality of equity ownership—until, that is, this Government arrived. This Government, for the first time, have actually begun to achieve, on a major scale, a reversal of that tide. It is an enormous achievement.

I was astonished when the noble Lord, Lord Diamond, talked about an analysis of the share register of British Aerospace. What about British Telecom? Here we see, at one single stroke, the totality of individual equity share ownership almost doubled. I am amazed that the noble Lord could talk about the spread of share ownership, or rather the absence of it, without any reference so far as I could detect to what has happened in the case of British Telecom. That is, I believe, a fantastic achievement.

Lord Diamond

My Lords, it is good of the noble Lord to give way. First, British Telecom is a very special case. Shareholders either have vouchers that last three years, I think, or, as in my case, a bonus issue under which you have to hold the shares for three years before you receive your bonus. Secondly, it has only just been made. One has to wait until at least three years after the event to see how many free shares are still held.

Lord Bruce-Gardyne

My Lords, yes. I accept entirely that we must wait and see. Nevertheless, I find it extraordinary that the noble Lord. Lord Diamond, could conduct his strictures on the absence of the spread of share ownership without any reference to what has happened so far at any rate in the case of British Telecom.

Having said that, all these considerations, to my mind, should properly take second place to the argument of competition and the widening of consumer choice. That is not just my own estimation. I should like to call in evidence the present Financial Secretary to the Treasury, who in a most important speech in November 1983 pointed out, first, that, activities such as electricity generation, the production and marketing of gas, coal production and sale, telecommunications, bus transport, sewerage treatment and disposal are in no sense natural monopolies. The monopolies in these areas were created (not natural) and it is by no means self-evident that they are necessary or even beneficial". He went on from that to say, even more specifically: On its own, privatisation is not the cure for all ailments. We are not so naive as to think that an unrestrained monopoly in the private sector would be less inclined to exploit its position than the monopolies in the public sector. The key here is to ensure that greater competition goes hand in hand with returning industries to the private sector". Finally, he stated categorically: The primary objective of the Government's privatisation programme is … to encourage competition". That was the precept. I am bound to say that I have some slight qualms as to whether the example precisely follows that precept. In the case of British Telecom, yes there is an element of competition introduced. But it cannot be said to be a very broad or extensive element of competition. In the case of British Airways, its dominant market position has been retained.

In each of these instances it can be argued that there were extenuating circumstances, at any rate to the extent that the Department of Industry was absolutely hell-bent on the protection of what it called the concept of the flagship for British industry. In the case of British Telecom there were reports—I do not know whether they were true—that some interesting bargains were supposed to have been struck with the trade unions on the understanding that competition would not be allowed much rein after privatisation. In the case of British Airways the whole question of injecting genuine competition was undoubtedly complicated by international agreements regarding the pooling of airlines which it was not within the ability of Her Majesty's Government alone to change.

I cannot see any particular explanation or extenuating circumstances in the case of British Gas. What we are proposing, I must say, has me not merely bemused but somewhat alarmed. We were told at the time of the last election that it was the Government's intention to inject additional competition into the gas industry. That seems to have passed us by. I was interested to read this morning in the Financial Times the suggestion that the regulatory agency to control the British Gas Corporation after privatisation might be called OGRE. That seems to me to be a very appropriate name, because it takes one to recognise one. I have always thought that the prospect of Sir Denis Rooke rampaging free throughout the private sector was one to scare the daylights out of some of us.

I listened with great care to what my noble friend Lord Gowrie said this afternoon on the subject of the supervision of the British Gas Corporation. I hope that my noble friend will cast a glance sometime at what Sir Denis Rooke himself has had to say about this prospect. In the Observer newspaper the other day he talked about what he planned to do with his gas showrooms, saying: We could team up with other companies to develop integrated sales of not just gas appliances, but possibly other goods as well. There is the North Sea. For the last few years we have been restricted from applying for licences in certain areas deemed to be oil provinces. It is illogical. We would certainly go back into oil—exploration, not refining, that is", he said most generously.

Furthermore, we read: Just what sort of regulatory body is to be introduced, Rooke says he hasn't yet worked out". That, I must say, is big of him. All that I can say is that it will need a pretty powerful regulatory body to keep a grip on that gentleman once he is released from any degree of ministerial supervision and control.

An opportunity is being missed in this instance. I believe that there is every reason to seize the opportunity to widen the area of competition, in particular for the supply of gas from the North Sea. I realise that there is the opportunity for the Gas Corporation's pipeline system to be used as a common carrier by other potential suppliers under the Oil and Gas Enterprise Act, but nothing much seems to have come of that and I am not in the least surprised. I should think that trying to pump gas through one of Sir Denis Rooke's pipelines would be a highly hazardous operation, and even more so once he has gone private.

We need to look carefully at this again. We should recognise above all that if we are to introduce competition into these industries the time to do it is before they go private, because once the share sale has been completed it becomes a great deal more difficult to change the whole basis on which the share sale was undertaken.

I do not wish to delay your Lordships much longer. I want to raise one specific matter, which I certainly should not ask my noble friend to comment on tonight. Although a narrow matter it is one which is of some concern. When Britoil was originally privatised in 1982 the offer for sale, which was a document which took up 12 pages in the national newspapers, announced in large headline letters on the front page of the offer document that individuals, in the plural, who retained their shares until the qualifying time at the end of this year, 1985, would be entitled to a fidelity bonus issue.

Back on page 12 of this prospectus, in very small writing, there was the warning that share applications in the names of husbands and wives together would be disallowed for the purpose of the bonus issue. I am bound to say that I have the impression that large numbers of small shareholders who filled in the coupon for that equity offering were quite unaware of this small print stipulation. I know that some of them have already raised the matter with the Treasury and have been told that that was clearly spelt out in the prospectus, and that cannot now be changed.

I would be slightly more convinced by this argument if we had not seen something which to some of us looked suspiciously like a retrospective change in the prospectus in the case of Enterprise Oil when it was deemed necessary to prevent RTZ taking a slice of the equity that had not been foreseen. In any case, I put it to my noble friends that if this small print provision in the Britoil share offer is not reviewed before the bonus issue takes place this winter, I suspect that there is going to be a good deal of unexpected indignation. That is a warning I think we should bear in mind.

I want to conclude by simply saying that I go along entirely with what the Financial Secretary said to us two years ago: The essence of privatisation is the achievement of competition and the opening of consumer choice". I do not believe that it is necessarily a better place for a monopoly to be in the private sector. I sometimes suspect that the right place for a monopoly, if that is really all we can achieve, is to leave it where it is under the supervision and control of Ministers.

7.4 p.m.

Lord Taylor of Gryfe

My Lords, it is always a pleasure to follow the noble Lord, Lord BruceGardyne. I want to take up only two points which he made briefly in this lengthy debate. One is the element of consumer choice, which obviously concerns the noble Lord deeply. I accept what he has said, that even with the provisions of the watchdog for British Telecom we have not yet guaranteed a situation which protects the public against the abuse of monopoly.

It is too early to say how far the limited powers of Oftel will safeguard the interests of competition as the noble Lord, Lord Bruce-Gardyne, requires. But I welcome the noble Lord's comment because the same problem exists in relation to the projected sale of British Gas. Like the noble Lord, I commend a reading of the article in today's Financial Times which analyses this problem in great detail. I do not believe that it is justified to move into this uncharted area without some fairly good guarantees that consumer choice and protection against the abuse of monopoly power will be taken care of. In the case of British Telecom and also in the case of British Gas, we may simply be exchanging a public monopoly for a private monopoly. In my view a public monopoly is more likely to be reassuring and protective of the interests of the consumers against the abuses of monopoly.

The other point which the noble Lord, Lord BruceGardyne, made was that privatisation inevitably relieves management from the trauma of Government inteference. There is no reason in the world why we cannot devise a structure for relations between Government and management which gives management the powers and responsibilities of management and permits it to exercise its imagination and initiative without necessarily transferring the undertaking to private ownership. It should not be beyond our wit to achieve that end.

This debate has gone on a long time, and I am not referring simply to this afternoon's debate. Of the nine speakers who preceded me in this debate seven were Members of Parliament and have pursued these matters over a long period in another place, and this afternoon, they have fought battles of long ago. Nothing divides the parties more clearly than the subject of this debate. Privatisation and state ownership, are matters of deep ideological commitment on the part of both parties, and they have divided the main parties over the years. It is this which distinguishes the Alliance from both these parties. The noble Lord, Lord Diamond, has stated our case this afternoon, taking a totally pragmatic approach to this problem, recognising that ownership is not necessarily the critical area, that efficiency in running the business and the ability to give management its head are important, and that sometimes even the question of ownership can be irrelevant.

These are widely diverse industries. Some are in high technology, some in coal mining, some in gas, and some in other areas of important national activities such as shipbuilding, defence, and so on. All of these are different in their operations, their experience and their problems. If there has been one thing which has plagued consideration of nationalised industries it has been the desire of successive Governments to produce blanket solutions for a great diversity of industry. We have suffered for it.

The Social Democrats and our Liberal allies take the view that we should be quite pragmatic about this, and examine these industries in the light of whether what we are doing will achieve maximum managerial efficiency and will contribute to the creation of greater national wealth.

I must say to the noble Lord, Lord Thorneycroft, that his opening speech was a reasonable speech. Indeed it moved close to some of the things that have been said from these Benches this afternoon. It is argued that somehow or other the privatisation of industry will automatically achieve a greater degree of efficiency. The case of British Aerospace was mentioned by the noble Lords, Lord Diamond and Lord Molloy. But let me quote another, perhaps independent authority. I refer to the Financial Times' editorial on this matter last week. In talking about the experience of Volkswagen in Germany, it says: In spite of a large public shareholding in Volkswagen, that company has successfully acted like a member of the private sector. As this example shows, public ownership, whether complete or partial, is not a bar to efficiency. Privatisation is not a panacea. In some cases, notably the utilities, there are real disadvantages in converting a public monopoly into a private one". That is our case. It might even be said by the Government—and the noble Lord, Lord BruceGardyne, mentioned this—that privatisation will liberate companies from the rigidities of the public sector. As was said in another article: This never stood much examination because virtually all the companies privatised were pretty well run anyway and quite a few, (Enterprise Oil, Britoil, Amersham International, Wytch Farm, etc.) would never have existed in the first place but for the entrepreneurial initiative by the public sector". There is no justification for saying that because it is in the public sector there is induced inefficiency. That is not demonstrated by the facts.

In the balance sheets of the great clearing banks one can see the vast provision now being made for failures and bad debts. That is some indication the private sector is not by any means free from inefficiencies or even failures. The fate of great companies such as Dunlop is another example of this. British Leyland is another case I might cite.

Lord Bruce-Gardyne

My Lords, does the noble Lord not agree that the experience of some of the banks with their bad debt provisions might suggest that it is not only the managements of the manufacturing and commercial companies that need some scrutiny, but the managements of the banks themselves?

Lord Taylor of Gryfe

My Lords, I take the point, but I was about to make my point by mentioning one of the interesting companies mentioned in the press today, British Leyland. How glad we are to see that its corporate plan has at last been approved, although it has been in the Government machine since last November. Let us look at the background to that great industry. While under private ownership it should have been restructuring and should have been investing substantially in new plant and equipment to be competitive with Germany and Japan, but it continued to pay our dividends until it was practically bankrupt. Only now, under public ownership, and only now after giving Sir Michael Edwardes free rein under public ownership to exercise his managerial skills has that company been restored to some degree of viability.

We cannot argue that we have to transfer these businesses into private ownership to achieve efficient management. I want to say something about the use of resources. As has been said by the noble Lord, Lord Diamond, what we are doing now is to realise a capital asset. We are spending what is on two things. We are spending it on promised tax cuts which have not been delivered by monetarism so far. These tax cuts will be passed on to the consumers. Some of the money may be saved but a good deal of it will necessarily be spent on imported goods. The other thing for which we shall use it is to pay for the vast burden of social services, notably unemployment benefit. If that money or a part of that money were invested in capital projects creating new capital assets we should not have the substantial burden that falls on us as a result of this ever-increasing army of people who are denied the right to create wealth. We are concerned that the resources being realised from this exercise are being dissipated in this way.

I want to say another word about the impact of all this on the financial market. A considerable programme lies ahead. We are talking about £2 billion per annum, which will require to be generated in the market for the shares of the privatised companies. It means that in 1986–87 there will be a third call on British Telecom of £1,200 million; on the National Bus Company another £200 million; on the ordnance factories presumably £300 million; and on British Nuclear Fuels perhaps £350 million. To this must be added British Gas with a possible flotation which will bring the total up to £8 billion.

On top of that the Government quite rightly and courageously have decided to go ahead with, or at least have given a fair wind to, a Channel Tunnel. They have said also that the Channel Tunnel will be required to be financed by the private sector and from the market. What kind of impact will this have on the market when we are talking about a demand for £8 billion from the market for these industries that I have mentioned plus the Channel Tunnel? I should like the Minister to address himself to the question of crowding out. If this demand is made on our resources it could limit the capacity of private industry to raise finance.

The Earl of Gowrie

My Lords, it is a global market.

Lord Taylor of Gryfe

My Lords, I am aware that British Telecom and others, obviously including British Gas, will require to be floated internationally, but the substantial impact will be on the United Kingdom market. Lord Diamond mentioned something like 80 per cent. The overall outlook for the equity market in this context does not appear so rosy as it might with the prospect of having to find as much as £8,000 million by 1998, even assuming that only part of British Gas is floated. That is a serious matter which has to be thought about, because I hope private industry will make some demands on the market in the light of the anticipated improvement in our economy.

Finally my credentials for speaking in this debate are the fact that I served on the board of a nationalised industry for 11 years and that I was chairman of a minor nationalised industry. I lived through the problem of Government pressures on nationalised industries. I was in British Rail. In British Rail we had to justify all our plans to our sponsoring Minister, then we had to take the plans to the Treasury. The Treasury in turn examined the plans and there was the management audit team appointed by the Monopolies and Mergers Commission who also had to look at our investment plan. We had two public accounts committees next door and the Treasury set up another audit committee to look at the affairs and the corporate plan of British Rail.

We shall never run nationalised industry with such a burden of bureaucracy and oversight frustrating management in its best endeavours. Neither shall we attract to the nationalised industries the kind of people who are imaginative and bright. They will not operate in that environment. What we should be looking at in this debate is how we can relieve the nationalised industries—and there are very good people and vast resources invested in those industries—of this great burden of bureaucracy which both the Conservative Government as well as the Labour Government have imposed upon them. How can we relieve them so that they can be as inventive and imaginative as the private sector? Tht is what this debate should be about, and not about this and question of privatisation versus nationalisation.

That ideological debate is past. This country cannot afford a switch in the future if a Labour Government gets into power. We cannot afford to have the industries switched back to public ownership as has been promised about British Telecom and other of the public issues. This country cannot afford that sort of exercise. Let us stop this ideological nonsense and let us look at things practically with a view to achieving the greatest degree of wealth creation to the benefit of our country.

7.21 p.m.

Lord Campbell of Alloway

My Lords, no doubt most noble Lords would agree with the noble Lord, Lord Taylor of Gryfe, that we simply cannot afford a switch back. Furthermore, all noble Lords, I suspect, would agree that this is an issue which divides the political parties. But where the dividing line lies has not yet been made plain in this debate, and one awaits, as the French might say, with impatience, the speeches of the noble Baroness, Lady Seear, and of the noble Lord, Lord Barnett, in winding up. The importance of this debate was reflected at the outset by the manner in which it was opened by my noble friend Lord Thorneycroft. Without hint of condemnation, skirting the arena of extremist political contention, he held fast to the middle ground of what is possible, what is practical and what is sensible. He justified the selective transfer of business activities from public to private sector on the objective test of wealth creation in the best interests of the nation.

"Privatisation" is a horrible word. It does not give full credence to the process of selection—and this is a policy and process of selection. My noble friend gave his unqualified support from the wealth of his own experience to this hallmark of policy of the Thatcher Administration. The noble Lord, Lord Diamond, also drew our attention to the absence of any economic rule as to the size of the public sector which all countries have to have. In this regard, as I understood it, he supported the approach of my noble friend Lord Thorneycroft in principle. But the policy of the Government which claimed the support of my noble friend Lord Thorneycroft was a process of selection. It was a process of examination of each case on its merits, which is the principle espoused, as I understand it, by the SDP.

But then we find the mailed political fist in the SDP's velvet glove of neutrality. The charge made by the noble Lord, Lord Diamond, is that in the implementation of this policy of selective transfer, first, we did not make the right selection; secondly, we undersold (to use what seems to me to be, perhaps because I am a Conservative, a rather unattractive phrase) in a mad scramble for cash; and, thirdly, the cash was misapplied.

These triple charges are wholly without foundation or justification, as the record of events demonstrates. First of all, those selected went into profit; secondly, as to price, the only reason why it doubled over two years was because it went into profit; and, thirdly, if it is applied in the reduction of taxation, whether directly or indirectly, it is not misapplied. To suggest, as the noble Lord, Lord Diamond, suggested, that this is an example of post hoc propter hoc seems perhaps—and I say this with the greatest respect to him—to have reduced the order of reasoned debate to manifest absurdity.

The noble Lord erects, furthermore, a theoretical Aunt Sally of automatic profit instead of loss, an automatic improvement in long-term investment plans. But the noble Lord must know far better than I, who has no experience of Government and no experience of politics, that there is nothing inevitable, there is nothing automatic, in any rearrangement of business. It is a question of selection. It is a question of judgment, and, so far, events have vindicated the judgment on these scores. As my noble friend Lord Gowrie said in his speech, this selective transfer from public to private ownership is but a facet of general policy to mould and establish in our country a new order of society which is far from inconsistent with the general trends elsewhere in the world, to which my noble friend Lord Thorneycroft happened to refer.

Privatisation, as it is called—and how I hate the word; it is so imprecise; but there it is—is partial. It is not total; it is selective. It is not, assuredly—and this is the problem that using this awful word creates—the sort of Land's End to John o'Groats idea which germinated in the mind of the noble Lord, Lord Molloy, where all the paving stones from Land's End to John o'Groats were nationalised. The concept is a total misconception. Furthermore, this concept of the selective transfer from public ownership to private ownership on the principles enunciated by my noble friend Lord Thorneycroft is not to be considered in isolation but in context with the general policy and the new order of society which has already taken root under our very feet.

The ideal, first of the property-owning and then, under the Thatcher Administration, of the share-owning society is on the way to becoming a reality, in part (one must not over-emphasise the extent, but to some degree) as a result of the transfer of this business activity. But it is nonetheless a significant part. There is now in the process of wealth creation a new dignity, a new importance, a new sense of personal involvement, accorded to each and every member of the trades unions; and industrial relations have entered a new phase. Think back for eight years! They have entered a totally new phase: a new dimension of partnership, a new dimension of trust. We now have (which we never had before) unprecedented training schemes to meet the demands of the new technology. We have contained the ravages of inflation. All this so that by the creation of wealth, by selling to the markets of the world, we shall balance the books. The sole source of wealth creation is the pursuit of profit from business activities.

I am sorry that the noble Lord, Lord Bruce, is not in his place at present, but I truly sought to understand what he was saying to your Lordships. It seemed, with the greatest respect to him—and I would say more if he were in his place—that he stood the subject on its head with the skill of a practised accountant. He created a myth. He established the slogans. Then we got to the stage of the interference. We got to the position of being hit on the head with a hammer. Then we got to the computation of loss which suddenly seemed to be criticised on the ground that it was used for the reduction of taxes. Perhaps it is my own inadequacy—it probably is—but all I can say to your Lordships is that to me this exercise of HumptyDumpty economics simply is not understood.

Furthermore, the noble Lord, Lord Bruce, seemed—and one will have to look at Hansard, and it is a matter for your Lordships' impression—to confuse the creation of wealth with the sharing of wealth. Those are two entirely different problems. One is economic, with which this debate is concerned; the other is purely political, with which, as I understand it—I may be wrong—this debate is not concerned. Furthermore, he sought to define the creation of wealth, of putting money to work, with human endeavour. Is it not quite obvious that that process may either result in a profit or a loss; and a loss creates no wealth.

Lord Molloy

My Lords, before the noble Lord leaves that point, may I tell him—he having made his comments about me—that there are still a couple of important roads which cause great hazard and havoc in London which are privately owned and are toll roads, where one pays a toll.

The other point that my noble friend mentioned was the argument which was submitted by what can be called—simply for purposes of identification—Right-wing economists, that they are doubtful whether the Government are on the right tack when they are simply privatising big industries to collect large sums of money for the Chancellor in the hope that this will make some tax relief for the rich and they feel that that is not a correct way to go about it. That is not only the point of view of my noble friend Lord Bruce of Donington but even journalists in substantial journals and Sunday newspapers who would not agree with much of what he says.

Lord Campbell of Alloway

My Lords, I gave way to allow the noble Lord. Lord Molloy, to ask a question. But in fact he made a statement. With the leave of the House, I should prefer to leave it to the noble Lords who wind up to deal with the issue that he raised if that would not be considered discourteous to the noble Lord, Lord Molloy.

The point I was coming to in my speech was that when this administration took office, 15 per cent. of the total investment in our economy, 10 per cent. of the GDP, 1½ million workers, were all within the ambit of state control. If the present policy of privatisation were to be pursued until the end of this administration it is suggested by my noble friend Lord Thorneycroft, on whose judgment I totally rely, that only about 10 per cent. of this system of state control will have been dismantled. If that is right, one has not only to look at the process of selection but one has to look at the question of proportion.

It is essential therefore in any debate on this subject to keep a sense of proportion as well as a sense of objectivity. Only where the creation of wealth demands this selective process of transfer should we then unhitch certain business affairs from the lumbering wagon of Government service and the ceremonial plod of the departmental dray horse. Whether we like it or not, we have to bring our manufacturing service industries into line with the exacting standards of the new technologies and sell in the markets of the world. These are markets and technologies which we are no more able to control or regulate than King Canute was able to tame the waves of the sea. We cannot set some easy striking rate for change. We have to react at the speed dictated by the commercial environment.

The ethos of Government service is incompatible with aggressive drive essential to viable business. Public service administration suffers from inherent defects which inhibit the creation of wealth. The debilitating feather-bed subsidy of state saps the vitality of a competitive spirit. The interests of consumers are discounted, the standards of efficiency lapse, and this selective process of transfer from public to private ownership is not only justified but, as my noble friend Lord Gowrie said, vital and essential.

The means of implementation of course vary according to the circumstances; from hiving off as in the case of Jaguar, or the British Rail hotels, to the wholesale dismantling of the state monopoly as in the case of British Telecom. Our inventive genius, technical skills, the strength of our institutions, are second to none in the world. We must therefore harness these and, by selling to the world, maintain and augment our living standards; and the transfer of activities from the public sector to the private sector has already afforded an important contribution. The details of this have already been dealt with by other noble Lords.

It is wholly inappropriate for a late speaker—and I apologise, I would not have been so late but for an intervention—to refer to statistics in any detail, many of which can be found in the Economist of 23rd February, 1985, under the engaging subtitle "Making the Modern Dinosaur Extinct". What do we do with the extinct dinosaur? We set up new top management which combines the expertise of the old guard with the competitive urge of the new. We convert the mentality of order taking into the art of selling. We bring decision-making into line with the requirements of customers and the taking of commercial risks. We inculcate a sense of involvement, realism and leadership in the workforce. We encourage technical innovation. We ensure that pay, promotion and staffing are not dependent upon length of service or grade structures, but are dependent upon merit, motivation and aptitude. We introduced those longterm investment policies. I disagree, with respect. with the noble Lord, Lord Diamond. The records show that those investments, certainly with Cable and Wireless, with the telephone exchange in Hong Kong and the investment in China, would never have been possible under state control.

In conclusion, as my noble friend Lord Gowrie said, there is still a long way to go. The selective transfer of business and activities from public to private ownership affords an important opportunity for employees to gain a stake in the business which provides their livelihood. I simply do not understand the noble Lord, Lord Diamond, when he says, "but it is not automatic". Why should it be automatic? What matters is that there should be the opportunity, the free choice. Indeed as everybody knows, 96 per cent. of British Telecom employees are shareholders.

All this of course is the antithesis of the Clause 4 dogma of state control of the sources of production. As my noble friend Lord Gowrie has said, the flag still flies over Transport House. The Labour Party is said to be committed to reversing this policy. The militants in the Labour Party are overtly dedicated to obstructing it. The other day, at a Labour solidarity meeting in London, Mr. Hattersley said: Party members do not have to choose between socialism and common sense. Perhaps he knows that it is about as easy to eradicate this hallmark of Conservative policy as to unscramble an egg. Is this the harbinger of the prophetic tidings of my noble friend Lord Thorneycroft, surprisingly echoed by the noble Lord, Lord Taylor of Gryfe?

7.42 p.m.

Baroness Seear

My Lords, I think it will be agreed that in your Lordships' House the lunatic fringe in both the Conservative and Labour parties is grossly under-represented. No doubt for that reason there has been, I think, common agreement on all sides that we shall continue to have a mixed economy. No speaker today, so far as I have heard—and I apologise because I have not been able to hear every speech in the debate—has suggested that we should go totally for what I suppose has to be called privatisation; though I wish that somebody would give a prize for finding a different title.

The Earl of Gowrie

My Lords, may I suggest "liberalisation" to the noble Baroness?

Baroness Seear

My Lords, I should be delighted to accept "liberalisation", with some modifications—

The Earl of Gowrie

My Lords, with a capital "L"!

Baroness Seear

My Lords, the noble Earl was attempting to trap me and I was about to fall into the trap.

As I said, nobody has suggested that we should have total free enterprise or total public control. So what we are really confronting and what we have been considering during most, if not all, the speeches we have heard this afternoon is: how do we get the best possible public enterprise and how do we get the best possible private enterprise, since we are going to have them both for the foreseeable future?

I think it has to be admitted that we have never really worked out a satisfactory theory of public ownership in relation to the inevitable link between public accountability and the proper running of a large-scale business. I speak now from memory—I have not checked my sources, and I see that the noble Lord, Lord Shinwell, is no longer here—but I understand that the noble Lord said, when he became Minister of Fuel and Power (I paraphrase): "I thought, after all the discussion about nationalisation, when I took over this office I would find a blueprint with all the thinking worked out as to how nationalisation was to be introduced; but I found nothing".

A great deal of thought had been given to the politics of nationalisation and practically none to the organisational problems of nationalisation and the all-important problem of the relationship—the inevitable relationship, since it is public—between Government and the industry itself. Nor have we ever satisfactorily solved the problem of the position of the consumer in a public monopoly. With almost 50 years of experience behind us, and with a great many very good brains in this country thinking about it, we have never solved those problems.

I believe that some of my noble allies have suggested that there is no reason why there should not be a satisfactory relationship; and in theory no doubt that is true. But I remember the late Lord Beeching-saying on one occasion that what really justified paying a decent salary to the chairman of a nationalised industry was that he kept the politicians out of the hair of the people who were trying to run the industry. He said that was the most difficult job, and that was the job for which he needed the highest reward.

I remember also that some 10 years ago, together with the noble Lords, Lord Chapple and Lord Kearton, I had the privilege of serving under the noble Lord, Lord Plowden, on an inquiry into the structure of the electricity industry. As your Lordships would expect with personnel of that calibre, we produced an extremely good report. But it was completely mucked up by the politicians. In fact, after lengthy political arguments it was buried. Of course it was not the first inquiry of a very distinguished nature into the electricity industry which had been buried by the politicians. But that industry was unable to make the moves it needed to make without political action, and so it limped on. I must say that from what I saw of it, though I would not claim to be competent to judge its efficiency, it seemed to me in many ways an extremely well-run industry with very devoted and highly qualified people in it, determined to make it a good industry. But it was being seriously handicapped by the fact that it could not make the organisational changes that were necessary without political sanction in the first place; and that political sanction was not forthcoming.

That cannot be a good way in which to run public enterprise. I do not know what the answer is, and nobody has produced an answer. Unfortunately in the nationalised sector if things get too bad they are not replaced by the normal processes of decay followed by death, because nationalised industries suffer from the burden of immortality. You cannot kill them; they go on indefinitely, however much they may limp in the process. So the first thing I would say is that if we are going to continue with nationalised industry, as indeed we are, we really need to give some very much more effective thought to what that relationship is to be than we have succeeded in doing so far.

We also need to think much more about the position of the consumer. I do not think that anybody seriously believes that the consumer councils have done the job of protecting the consumer in the monopoly nationalised industries. For example, my noble friend Lady Burton is constantly pointing out how handicapped and hobbled the consumer councils are in their job of trying to look after consumers in an economic situation in which the market does not give them the protection that free competition would give them.

Therefore on the one side we need to give a great deal more thought as to how to get the best possible results out of public enterprise. But then it does not follow that private enterprise is necessarily so good, so efficient and satisfactory from the consumer's point of view. In particular, it is going to deliver the goods only if it has what to a large extent the public sector does not have: that is, the benefit of genuine competition. Indeed, almost my only quarrel with the speech of the noble Lord, Lord Bruce-Gardyne, was that he took the words out of my mouth, and particularly in respect of the prospective denationalisation of gas. It seems to us on these Benches, as it seemed to the noble Lord, Lord Bruce-Gardyne, unlikely to say the least that a private monopoly is any improvement on a public monopoly from the point of view of the consumer. It could be a satisfactory wealth-producer, given certain circumstances; but as to whether it will really serve the needs of the consumer, unless we can find ways of injecting genuine competition into these industries which are privatised. I cannot see that there is any advantage at all.

I thought that the noble Earl, Lord Gowrie—who, I must say, has made the very best of a bad job—was hard put to it to advance much of a defence for the kind of situation that is going to arise in the gas industry, in which there will be very little competition indeed; and what he was suggesting for the protection of the consumer did not convince me, at any rate. Genuine competition is surely the first requirement if we are to have the benefits of the private sector and it is to be worthwhile moving from the public sector to the private sector.

Then, as we move these industries into the private sector, can we not take advantage of the changes that are being made to deal with some of the defects of the private sector and to improve on some of the many things which greatly need improvement, particularly in the area of industrial relations? I must say, having been brought up on the Liberal Yellow Book, that I am rather entertained at the death-bed conversion of the Conservative Party to so many of the doctrines that were preached 55 or 56 years ago in the Liberal Yellow Book. I must say that I should have thought, too, that there might be a little more recognition of what has been put forward and preached for half a century by people who were opposed by the Conservative Party, who have not in the past been known for their attacks on monopoly, who have been extremely half-hearted in the development of genuine competition and who have not been known, until very recently, to press for wider share ownership.

For 20 years I was a member of the Council for Wider Share Ownership, and year after year we went to both Conservative and Labour Chancellors of the Exchequer to beg them to do something for the extension of share ownership, and we got pretty dusty answers from both of the two major parties. So it is a very recent conversion. We welcome it, of course, and we consider that repentance is always very good to see. But it is a very late decision to turn in that direction.

But is the noble Earl really satisfied that what the Government are doing in relation to the privatised industries will produce the results that he wants to see? I have some reason to believe that some, at any rate, of the people inside these industries are more than a little doubtful as to the changes which will be brought about by the policies of the Government in this direction. They may need to go a great deal further and look a great deal more deeply into the problems of these industries if they are to achieve the results that they hope for; in particular, in the field of industrial relations. It is a sad commentary on what was thought 50 years ago about the benefits of nationalisation, but the fact is that industrial relations have been worse in the public sector than they have been in the private sector, and the position will not change overnight.

We have the chance now, if we really give our minds to it, to bring about a totally new climate of industrial relations in these industries. The opportunity of ownership is part of it, but only part, if we are to get the benefits of good relationships, both for their own sake and also because of what that improvement would bring in terms of greater efficiency. We must all know that in many parts of industry, if people were really devoted to the idea of making those industries run effectively they could do so. If people at all levels thought that it was in their interest and worth their while to do it, those industries could be transformed. The range of opportunity for change here is enormous. But you need new thinking about industrial relations, and new structures.

May I say, just as a starter here, that it will not be done merely through agreement with the trade unions—and this is a problem that the Labour Party will most certainly have to face. But you cannot do it without the agreement of the trade unions. What is needed is that everybody should be involved, and they should be involved in believing that the success of the enterprise is in their own interests. Sadly, the union tradition has been based on the acceptance of the inevitability of conflict, rather than on acceptance of the advantages of partnership.

This is not going to be done just by words. We need, at the present time, to think extremely hard, and we need to put the best brains we have into these two areas; how do we get a much better relationship and control in the public sector, and how do we really mobilise the ability, the enthusiasm and the commitment of all sections inside the private sector?

7.55 p.m.

Lord Barnett

My Lords, I should like to join others who have congratulated the noble Lord, Lord Thorneycroft, on introducing this Motion and on the way that he introduced it. As has been said, he did so moderately—indeed, he was so moderate that he was even kind to the Prime Minister, who, after all, has not been altogether kind to her predecessors in Government in either party. So it was very kind of him to be kind to the right honourable lady. But while he was moderate, there was one phrase that he used which I hope, on reflection, he might even care to reconsider. I took it down because I was surprised that he used it. He said: The true wealth creators provide goods and services for profit". I hope he did not really mean that, because we must all know of many very fine people in our community, including the public sector as well as the private sector, who provide the most magnificent services, but not for profit. One thinks of nurses, doctors, those in the social services, any number of people, dedicated people, who do a first-class job, and they are not doing it for profit. Let me make it quite clear that that is not to say that those who provide these services or goods for profit are doing anything wrong—they are also doing very well—but there are many others who are not providing those services for profit.

Lord Thorneycroft

My Lords, I fully accept what the noble Lord has said. Many people do magnificent things and not for profit at all. I was talking about how you create the wealth to help those people who cannot help themselves, and for that purpose somebody has to make a profit; otherwise there is no surplus with which to do it.

Lord Barnett

My Lords, I entirely agree with the way the noble Lord has just put it—and, indeed, I shall be coming to that. I entirely agree with the way the noble Lord has now put it. My noble friend Lord Bruce of Donington dealt primarily with the first half of the Motion, the process of returning parts of the public sector to the private sector. I want to deal, if I may, with the second part of the Motion which was dealt with again briefly just now by the noble Baroness, Lady Seear, and a number of other noble Lords; that is to say, how can we produce more efficiently as a nation; how can we create the wealth which we can then decide in our different ways how to distribute? That is the side of it that I want to deal with.

Let me say at the outset to your Lordships that of course I accept the evidence that there has been some improved performance since privatisation from the public sector to the private sector. But as has been said by a number of noble Lords in the debate today, it is far too soon to argue conclusively that there has been a permanent improvement or indeed that all or a greater part if it has been due to privatisation. Jaguar was mentioned, as we know, by the noble Lord, Lord Diamond, and of course one of the major reasons why Jaguar had such a wonderful period in the last year or so was the strength of the dollar. We all know that. We also know that the management in Jaguar had improved enormously long before privatisation.

That applies equally in the case of British Airways. I nearly said "my noble friend" but the noble Lord, Lord King, whom I do consider a friend, has done a first-class job in British Airways while it is still in public ownership. The noble Lord, Lord Taylor of Gryfe, mentioned British Leyland. Of course we would not have a British Leyland if it were not for the public sector and the successive governments ensuring that they put in the right kind of management to turn it into a successful enterprise. Let me make it quite clear to your Lordships that that is not to dismiss—I certainly would not dismiss—the obvious advantages to management of the removal of ministerial and Civil Service interference. Having done some of the interfering, I can well understand that those who have to manage major nationalised industries will not like it at all and will find it very difficult to get on with the real job.

I can understand that very well and it makes the job very difficult, particularly in the fields of pricing, capital investment and acquisitions. And it is not just interference. It is the slow interference; it is the time that it takes to interfere. We all know what goes on. Some of us have sat on Cabinet committees that have discussed interminably whether we should interfere or intervene in some way. So of course I understand that any decent management would rather not have that kind of interference and would be able to get on much better if they did not have it.

On the other hand, one is also bound to say, if one takes a longer view of our industrial history, that one cannot readily produce evidence that private manufacturing industry has done brilliantly on all our behalfs. Indeed, far from that being the case, I would take the comparison between private manufacturing industry in the United Kingdom and private manufacturing industry elsewhere. One can go back a very long time and one is bound to concede that we have done less well than most of our competitors abroad. That is under successive governments. I am not blaming any particular government, but the plain fact is that on any reasonable comparison, with some very fine exceptions, private manufacturing industry has not served this country well, for all sorts of reasons.

Even if one accepts, as I do to some extent, that in the short-term there are some results that are evidence not of long-term permanent improvement but of some improvement—although, as I said, an objective observer must surely accept that it is too soon to say that they will be permanent—I had hoped that this debate would have been considering, in the terms of the Motion, whether wealth creation should be the only national objective by privatising major parts of the public sector.

In endeavouring briefly to answer the question, I want to pose three additional questions. First, to the extent that a privatised industry may be more efficient, why is that so? Secondly, should wealth creation be, in the terms of the Motion, "the important national objective" to the exclusion of other considerations? Thirdly, is it possible to do better with industries within the public sector?

I come to my first question. Why, if it is more efficient, is it more efficient? I have already conceded to your Lordships that one of the advantages is noninterference, which in turn affects the vital decisions on investment, prices and acquisitions. I would also concede that it is bound to some extent to affect the ability to recruit high quality and well motivated managers, although even that has to be qualified. Sir Denis Rooke has managed very well, as have other top people in the nationalised industries, such as the noble Lord, Lord King, in British Airways, who has managed to recruit excellent people to do a first-class job.

Nevertheless, I accept to some extent that there will be some of those disadvantages. So let us assume that, other things being equal, the prospects, as has been argued from the Benches opposite, are better in the private sector than in the public sector. But other things are definitely not equal, and that is why I bring myself to the second question that I posed.

Should wealth creation be the national objective to the exclusion of other considerations? Surely, only the most hopelessly biased would argue that wealth creation should be the only national objective. Nobody is arguing that. Indeed, the Government do not argue it. That is why in the case of British Telecom they require licences with 44 complex conditions and why, in other industries such as gas, which are to be privatised, there will be all kinds of restrictions and controls. Wealth creation is not the only objective. It is important that we should recognise that, because if we do we have to go along with what the noble Lord, Lord Bruce-Gardyne, said about monopoly industries.

Should the Government be privatising large monopoly industries? Will that be the best way to create wealth, in the sense of creating wealth for the community? Once you have the various controls over prices, and the various compulsions on those so-called private sector industries to provide their services and goods to major sectors, which they would not otherwise want to do, then we have to consider something other than purely wealth creation.

I assume we all accept that wealth creation is not the only criterion. Even if we accept that it is not the most important criterion, if you let it have its head and hand over the public sector to the private sector, we all know that the private sector will say "That is not a profitable part of this industry and we are going to hive it off. We are not going to provide telecommunications to parts of the country where it is very expensive to provide that service." There is a variety of other areas where I would hope no Government would allow wealth creation to be either the sole or the most important criterion, not to mention the question of job losses, and major sections of British industry, which would go if it were left purely and simply to the profit motive.

That is what we are talking about. The nice words for it are wealth creation, but once something is transferred to the private sector we are talking about the profit motive. We therefore must answer my second question by saying that it is not necessarily in the national interest, or not necessary, that wealth creation should be so important a criterion.

That brings me immediately to my third question. If it is in the national interest, as has been shown by the noble Lord, Lord Bruce-Gardyne, and others, to keep important parts of the public sector in that sector, or at least to have a considerable degree of control over those industries, is it possible to do better with those industries than we have done so far? Few will doubt the need to try to improve the efficiency and performance of both the public and private sectors of British industry.

To answer that question, I come back to the major reasons why the present method of ministerial and Civil Service control has important disadvantages. I have referred to interference and slow interference, and to the failure to take decisions. I hope that I do not do my noble friend the former Prime Minister, Lord Wilson of Rievaulx, under whom I served, a disservice. But I think it was he who said that a decision deferred is a decision made. This happens all too frequently in government. Defer and defer until management of an industry get more and more concerned about how on earth they are going to manage that industry. That is one of the problems.

But one of the major reasons why governments and civil servants defer and delay, apart from the fact of running anything by committee, is the Treasury's concern, as I know the noble Lords, Lord Thorneycroft and Lord Diamond, will understand, about the public sector borrowing requirement. I am not sure whether it was called that in the noble Lord's day, but it was the same kind of thing.

The fact is that it stems directly from the nonsense which has been perpetuated from the days when I was Chief Secretary of treating current and capital expenditure as in government accounting. It leads therefore directly to the equal nonsense of the use of short-term sales of very exhaustible public capital assets to fund public current expenditure. I am not suggesting for a moment that a new accounting method is the whole answer to the problem—of course it is not—but it must help. It would surely be sensible in its own right, and it would also stop some of the more foolish interference in public sector management's power to manage, if we separated the area between capital expenditure and current expenditure in public accounting, in explanation of the way we manage our affairs. As I say, that is not the whole answer.

However, as has been accepted by many noble Lords in this debate, nor is privatisation. As I hope I have shown, good management can do well in the public sector and there is no evidence yet that large private firms are inherently more efficient than large public firms. The public firms are at least accountable to Ministers and, through Ministers, to Parliament. It is not unimportant that we should have that accountability in major sectors of British industry.

However, for other reasons—social obligations, certainly at the very highest level, and not least employment—it is surely right to keep important major industries in the public sector rather than take the dogmatic hard line stance that privatisation is right, full-stop. We should be considering ways of creating more efficient industry, both in the public as well as in the private sectors. Certainly it does not help wealth creation to sell off public capital assets and use the proceeds to finance public current expenditure.

When the noble Earl, Lord Gowrie, spoke earlier he said—and I took down his words: selling public assets is no substitute for sound monetary policy". But the Government are doing precisely that. They are selling public capital assets in order to balance the PSBR. The noble Earl's noble friend Lord BruceGardyne did not complain about it: he said that that is what they are doing. Of course that is what they are doing, and the noble Earl must know it. I know that the noble Earl becomes very angry when we accuse him of these matters, so if he is going to get angry with me about it, perhaps at the same time, he will also get angry with the noble Earl, Lord Stockton. I should like to end by quoting what the noble Earl said in the debate on 23rd January this year. At col. 254 of Hansard he said: … the monetarists have left us only one alleviation of their austere regime. They have invented the one new law that there is no difference between capital and income". The noble Earl, Lord Stockton, then went on to say: Some of the nicest fellows I have known in my life have experienced this confusion between capital and income, but they usually ended up in rather dreary lodging houses". I have no wish to see the noble Earl end up in a lodging house, but I should like him to end up recognising that there is a difference between capital and current expenditure and that, in so recognising, we might just help to produce a more efficient public sector.

8.13 p.m.

The Earl of Gowrie

My Lords, I suppose there is a sense in which your Lordships' House is a rather elegant constitutional lodging house, and we have all ended up in it, including my noble friend and the noble Lord, Lord Barnett. However, this has been a lively and elegant debate, and the noble Lord, Lord Barnett, has closed it with a lively and elegant speech. Although what I am about to say perhaps strays a little far from the subject of privatisation—or perhaps it does not—I should like to start with the celebration of a notable private achievement associated with your Lordships' House today, in that my noble friend Lord Howard de Walden has won the Derby, and that is surely good news on all sides of the House.

I enjoyed the speech of the noble Lord Lord Barnett, as I did the closing speech from the Alliance of the noble Baroness; but I feel a certain frustration with both speeches. I was waiting like a hungry man confronted with two great chefs for just a hint, just a sniff, at what might lie under the platters with which they covered the policies of their respective parties with regard to this particular Government programme.

One specially noticeable feature of this debate—a debate which should give my noble friend Lord Thorneycroft considerable pleasure—is that there were no real criticisms of any particular or individual sales, except possibly that of British Gas, and I shall comment on that in just a moment. The Liberal and SDP speakers argued for a pragmatic approach, and in my opening remarks I tried to demonstrate that that was also the Government's intention. Again, with the qualification in connection with British Gas, I did not detect any particular dissent from past sales.

The Labour Party studiously avoided any reference to Clause 4; but, as I said in my opening speech, it is still flying bravely over Transport House and I wondered whether the noble Lord, Lord Barnett, was going to have a go at hauling it down. However, he did not. We are still very tantalised at what re-nationalisation proposals they have in response to this policy of freeing the industries or, as I still prefer to think of it, returning the family silver to the family. The noble Lord, Lord Diamond, and I have debated this up and down this Chamber for many hours. On this issue I am afraid that the noble Lord will never persuade me that he is right, and I suspect that the other criticism may also apply on his side.

The noble Lord, Lord Bruce of Donington, said that privatisation was expensive to taxpayers. All changes involve some cost. The noble Lord mentioned the figure of £183 million to £200 million. Out of £5 billion that does not seem too bad to me, and we hope that there is a considerable return for many people on that money as the years proceed. I would argue that there has already been a very considerable return. The noble Lord said that we were depriving future governments of revenue; that the next Government would not be able to use the income of these assets to balance the books. I think that my noble friend Lord Bruce-Gardyne answered that very well when he said that there is something to be said for putting temptation out of the reach of governments. I firmly expect my right honourable and noble friends to form the next Government, and I do not want them to be in the way of temptation.

More seriously, the noble Lord gave figures for the concentration of wealth. I rather agree that too narrow a concentration of wealth has bedevilled this country, its growth and its progress. I have to say that since the war Labour Governments have had a reasonable share of office; I think that it has balanced out, if not quite evenly, then reasonably equitably, between the two great parties. They have not been able to alter this concentration very much. However, the noble Lord and I are in agreement that it is too narrow. Therefore, I think that it is a little mean-minded of the noble Lord, Lord Bruce of Donington, who is usually a very generous speaker—in personal terms at any rate—not to suggest that the Government are making a strenuous effort to widen the ownership of wealth.

It is very much our policy to spread wealth through, for instance, the sale of council houses, and through our efforts to promote owner occupation as well as wider share ownership. Owner occupation is now at a record high; it is 61 per cent. in Great Britain and, as my noble friend Lord Renton recognised—and this was also echoed by my noble friend Lord BruceGardyne, who was otherwise quite critical—the Government's measures have probably doubled the number of individual shareholders since 1979. It is one thing to argue that it is not sufficient or that it is still too concentrated; it is another thing to argue that in some way it should not have happened at all.

There was the argument that privatisated companies were profitable before privatisation. The noble Lords, Lord Bruce of Donington, Lord Diamond and Lord Barnett, all made that point. Of course I acknowledge it. It is true in some cases. Indeed, it is necessary in preparing enterprises for privatisation to ensure that the profitability and performance improves. The goal of privatisation is an important incentive for Government and management to improve performance while the industry is still under state ownership. Without that goal it is hard to believe that quite the same progress would have been made. I would argue that the earlier profitability was under the goal of privatisation or under the lure of privatisation. It is certainly hard for me to believe that the higher quality management which made this progress—and I echo the tributes paid to the noble Lord, Lord King, and others—would have been prepared to work in the organisations concerned had we not been planning privatisation.

Various speakers echoed the noble Lord, Lord Bruce, in saying that all this was simply a device to finance tax cuts. That is not the case. The proceeds are of course welcome on public borrowing—and, if public borrowing allows, tax cuts will be very welcome, not least by many of those who support the parties opposite. But, as I said at the beginning, that is not the main objective. In any case, as the noble Lords, Lord Diamond and Lord Barnett, know very well, decisions on tax cuts are taken in the context of the overall fiscal position and the need to limit Government borrowing.

I confess to a certain frustration—though not for the first time, and I doubt whether it will be the last—at many of the comments made by the noble Lord, Lord Diamond. In debating terms I thought he was answered very well by my noble friend Lord Campbell of Alloway. I do not propose to engage in that kind of debate now, as we have had it and enjoyed it. I thought that the noble Lord had a habit of putting up clay pigeons of his own, rather than mine, and then shooting them down. It interested me that he said nationalisation had been a mistake. He was very honourable in admitting that he had been in favour of nationalisation in the 1940s but thought now that some or most of its promise had not been fulfilled. But he then said that privatisation was a mad scramble. So, again, we did not really know where that was leaving us.

It would be quite impractical to echo St. Augustine (as I thought the noble Lord, Lord Diamond, did) by saying, "Privatise me, Lord, but not yet", which appeared to be the noble Lord's policy. It would be impractical to wait. These businesses cannot be sold all at once. I agree with the argument about the need to have an orderly progress through the markets. We must also reflect the fact that different companies take different periods of time to prepare for privatisation.

After the speech of the noble Lord, Lord Diamond, the tone of the debate altered; it changed gear a little. We found ourselves in a very interesting but somewhat different set of arguments about existing publicly-owned industries and industries where there are not at present plans for privatisation. The coal industry was spoken about a great deal. That part of the discussion answered the charge of the noble Lords, Lord Diamond and Lord Barnett, that we are selling capital and translating it into cash. Whatever criticisms may be made about the Government in respect of the nationalised industries, very few people could doubt that we have invested enormously in steel and coal, at a higher level than previous Governments in real terms. I believe that this fact is acknowledged on all sides.

That money comes from the public purse and the profits or assets of privatisation go back into the public purse. It is a very easy debating point, but it is not at all a real one, to say that in some way those assets are financing social security. They are also financing investment. I confess to a certain impatience (which is a very unfashionable and unpopular emotion to display in your Lordships' House, and quite rightly, so I apologise) with the reiterations, particularly of the Alliance, that this Government do not invest in infrastructure. Even in my own ministry—and mine is the smallest of all the free-standing or independent ministries—I am concentrating very much on the superstructures of the museums rather than on their contents. I happen to have on my budgets (and a lot of headache it causes me) much the biggest public work of the century in the new British Library. I am quite happy to say that some privatisations are helping to pay for that work.

I say to the noble Lord, Lord Molloy, that small suppliers can still supply the privatised industries, or industries which have yet to be privatised after that happens, and that health and safety legislation—and I echo his praise for the executive—will still operate there. My noble friend Lord Lauderdale entered that part of the debate in a characteristically robust and vigorous way, and made many of the points I should like to have made if I had more time.

A note of enthusiasm tinged with scepticism was introduced by my noble friend Lord Bruce-Gardyne. This added a lot of spice to the debate because my noble friend was until very recently a Treasury Minister of great distinction. We all felt during his speech, therefore, that we might be trembling on some great revelation. Happily, or unhappily, my noble friend pulled up just short of making it. Instead, he gave us a delightful masque; appropriate to the season, which I think I would call, "Who's afraid of the big bad Rooke?" He introduced the major note of scepticism in the debate, which was about the British Gas issue. It is no secret that this matter did cause my right honourable and noble friends a great deal of heart-searching and anxiety.

The best way of dealing with this point is to ask: if we are to go for greater competition in the gas industry, then how are we to achieve it? It is quite a difficult industry. Gas is in some ways a natural monopoly. It is very difficult, where an industry has the vast bulk of its assets used in gas distribution, to consider it very practicable to split them up. We believe that privatisation will increase efficiency by exposing the company to private sector attitudes and pressures, and to the disciplines of the capital market. The tough regulation of monopoly will benefit consumers.

I recognise that we still have some way to go to provide reassurance on this point. We are therefore proposing legislation to provide for the protection of the consumer by establishing regulatory arrangements for, among other things, the oversight of gas prices to the consumer and the terms and conditions of supply. My right honourable friend Mr. Walker, in his announcement in another place on 7th May, went into his ideas for wider share ownership as far as the gas industry is concerned. I recommend that your Lordships study his remarks on that occasion.

The noble Lord, Lord Taylor of Gryfe, spoke about the impact of privatisation on financial markets. He raised also the issue of the Channel tunnel—and I am a very firm "chunneller" myself. There is no real evidence of crowding-out; provided that there is, as I suggested earlier, reasonably orderly progression of the sale. There is no fixed quantity of funds available for investment. Increased amounts have gone into equities in recent years. British Telecom was successfully absorbed. That was the largest stock market flotation ever carried out in the United Kingdom or anywhere else. There are plenty of new issues other than privatisations going ahead now, and we are planning the programme carefully. I believe the evidence is that privatisation may be increasing the funds available for equities generally, by stimulating the appetite of private investors for shares and increasing confidence.

In sum, the point was put very well by my noble friend Lord Campbell of Alloway that privatisation is only part of the Government's general policy towards wealth creation. We are also very interested in contracting-out and competitive tendering (that is of great interest to small businesses) in the sale of council houses, as I have said, and in a wide range of measures concerning deregulation.

My noble friend's Motion, and the way he introduced it, has given me the chance to pose the very simple question, and to try to answer it: why privatise? The answer is: because privatisation is a major element in a strategy to promote efficiency, increase incentives and widen ownership. Transferring state business into private ownership, in our view, increases efficiency, whether through competition or in other ways. It allows employees to take a direct stake in the companies in which they work—and I think the Liberal and Alliance Benches might have made a little more of that. We believe that that will lead to a major change in attitudes. It gives everyone an opportunity to own a real share in the nation's assets. I do not believe that the future significance of these changes can be overestimated, whether people want to own directly or through participation in institutions, as I said earlier.

Of course I accept that privatising alone will not solve all our problems, overcome labour relations difficulties, and the rest, but if you look at it as part of an overall programme which also embraces substantial changes in other fields—in taxation, in employment legislation and the like—it is coherent; and I am encouraged by the fact that neither opposition party suggested tonight that they propose to change it.

Lord Thorneycroft

My Lords, I rise simply to thank those who have participated in the debate and to express my special thanks to the noble Baroness, Lady Seear, and to the noble Lord, Lord Barnett, for replying to the discussion in such fascinating and interesting speeches. I particularly thank my noble friend Lord Gowrie for replying to them in such able terms. Perhaps I may be permitted to ask leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.