§ 3.7 p.m.
§ Lord Taylor of Gryfe rose to call attention to the case for ensuring that denationalised industries which become private monopolies (a) protect the consumer, (b) encourage United Kingdom suppliers, (c) practise good labour relations, (d) maintain widespread share ownership with maximum employee participation and (e) fulfil social functions which they performed before denationalisation; and to move for Papers.
§ The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. This Motion does not argue the case for state versus private ownership. We have pursued that arid debate on a number of occasions recently in this House. The Government and the Opposition have taken up their entrenched positions; both are prisoners of their respective dogmas—and I leave it there. This debate is about the problem of private monopolies which follow inevitably from the privatisation of public utilities.
§ The experience of British Telecom and the alarming leak in today's Guardian of the proposed legislation in the Gas Bill cause us great concern, and suggest that this is perhaps the time to take stock of what has been happening before we proceed with new legislation. In the case of British Telecom, noble Lords will recall that a regulatory authority, Oftel, was set up with some responsibility for consumer protection and there was an undertaking that British Telecom charges would be limited to the retail price index minus three for the first five years. We were reassured by these undertakings.
§ On this basis, the average telephone user assumed that the increased charges would not go beyond 4 per cent. for last year and 2 per cent. for this year; but this is not so. Unfortunately, the formula was based on a basket of rates and British Telecom has a monopoly on all services except that there is a potential competitor on long distance carriers. The new rates which British Telecom have now introduced in November 1985 compared with a year ago suggest not 4 per cent. nor 2 per cent. but that cheap rate local calls will go up by 20 per cent., standard rate local calls will go up by 9 per cent. and calls of up to 35 miles' distance will go up by 31 per cent. These are the services used mostly by domestic subscribers. In the case of long distance calls, which are used substantially by big business and where there is competition, there will be a reduction of 2½ per cent. By this device the formula is observed but at the expense of the domestic user and to the advantage of large companies. That is an obvious abuse of monopoly power.
I turn now to the question of privatisation and its impact on British suppliers. That was a matter which was considered by the House of Lords Select
Committee on Overseas Trade in its much publicised report. On page 76, paragraph 214, it states:
The Committee are convinced that public purchasing can be used to great advantage to stimulate the manufacture of competitive and exportable goods and they received evidence of this being done by the NCB and the CEGB".
On page 335 of the written evidence the NCB states—and I am sure that the noble Lord, Lord Ezra, who is to speak later in the debate will confirm this—
We are committed to a positive purchasing policy aimed at meeting our needs from UK suppliers and in 1983/4 only 2 per cent. of our total purchases were imported".
§ The average for all nationalised industries in this country was 3 per cent., but 97 per cent. of the coal board's requirements were purchased from United Kingdom suppliers.
The noble Lord, Lord Marshall, chairman of the CEGB, gave oral evidence to the committee, and he is reported on page 429 as follows:
The CEGB spends several hundred millions a year on capital equipment and we manage to place 98 per cent. of our contracts with British industry".
§ This is not a cosy club. It is an essential matching of the requirements of great public utilities with the skill and resources available from British industry. The buyers from the NCB and the CEGB get value for money and they are able to make comparisons with foreign suppliers. But like all other public utilities in every other country in the world, they collaborate with domestic suppliers in specification and design. It is a fruitful partnership in the best interests of our nation.
§ Now let us look at British Telecom plc. Before privatisation, a similar partnership existed among the Post Office and Plessey and GEC. Together they spent £350 million on the design and development of System X digital exchanges which are now poised for mass production. But what has happened with British Telecom? It has recently placed a £100 million order for the competing System Y digital exchanges with Sweden and an order for additional equipment worth £25 million from the United States.
Oftel is concerned about those developments, and rightly so, since a House of Lords amendment to the Telecommunications Bill laid some responsibility on it in that field. The director general said:
Any further shift on orders from System 'X' to System 'Y' should be limited to nominal amounts for a period of seven years so that the (UK) System 'X' manufacturers"—
which were not invited to bid on that contract—
will have a further opportunity to adapt".
§ He suggested that there should be a maximum of some 20 per cent. on the total requirements bought from Sweden.
I know that the Minister will say that some of that work will be done in the United Kingdom, but the situation will have serious consequences for the traditional United Kingdom suppliers and will certainly damage their opportunities to sell their product abroad. Oftel points out in its report:
It must be recognised that much of the main work to develop the next generation of Ericsson technology will be done in Sweden".
The director general also points out:
Telecommunications technologies are so central to the current wave of technological innovation that a nation with no basic R & D capability in this field would … be lacking in one of the basic attributes needed to maintain a position among the leading industrial nations".
Oftel further state that:
the System Y order increased the difficulties of maintaining an independent UK
§ capacity in this field. That is a far cry from the CEGB, the NCB and the Post Office which felt some sense of national responsibility beyond their commitment to maximise profits. Despite those serious charges, British Telecom has so far ignored Oftel and rejected limits on its overseas purchases. That must surely be a matter of great concern to the Government; it certainly was of great concern to your Lordships' Select Committee on Overseas Trade.
§ I now turn to the question of wider share ownership, for on these Benches we support the efforts of the Government to secure that objective. It is perhaps the major justification for the whole privatisation exercise. But the question must be asked: is it being achieved? Let us look at what has happened to the small shareholder in the flotations so far. In the case of Cable and Wireless the number of shareholders owning 500 shares on the date of issue was 129,421. Today the number has diminished to 22,178, and they represent only 1.3 per cent. of the total equity, while shareholders with over 1 million shares represent 58 per cent. of the equity. In the case of Amersham International, 6,017 small shareholders representing 70 per cent. of the total number of shareholders held only 3.2 per cent. of the total equity, while 92 large shareholders, representing 1 per cent. of the total number of shareholders, held 65.52 per cent. In 1985 the initial 6,017 shareholders had shrunk to only 4,300, their share of the equity being 2.15 per cent., while the large shareholders now own 70 per cent.
§ A similar trend may be traced in British Telecom, despite the incentives to people to hold on to their shares. It is difficult to get information over such a short period, but I understand that a similar pattern can be detected, since the number of small shareholders has fallen by 5 per cent. in five months, and today the small shareholders in British Telecom represent only 1.5 per cent. of the total equity. That must surely be of concern to the Government, for they have made repeated and exaggerated claims for privatisation as extending the limits of property-owning democracy.
§ In the time at my disposal I am not able to elaborate on the devices and incentives that may be deployed to ensure that those objectives might be achieved. There is a wealth of international experience in this field, and I recommend to the Minister that that be examined. The acceptance of some of those incentive schemes for holding on to shares might encourage small investors to hold shares and resist the temptation to follow the stags.
§ The other provisions of my Motion I shall leave to other speakers, particularly in the field of labour relations and worker involvement. On these Benches we are concerned not simply to encourage employee ownership of shares but also to ensure a measure of employee participation in the policy-making of those great enterprises. By the creation of such large privately owned giants there is a danger of remoteness and alienation, and we should like to see some real experiments incorporated in these schemes for decentralisation.907
§ Finally, let me say a word about social obligations. Noble Lords will recall that when we passed the Telecommunications Bill we insisted that a service should be provided in the housing estates and isolated communities. I am happy to say that so far as I can see this is being observed by British Telecom. But we must insist, in the case of gas, electricity and other potential monopolies, that similar obligations should be laid upon them and that they should be observed.
§ The terms of my Motion raise matters of great concern, I am sure, to all parties in this House. I hope that the Government will to some extent reassure us, in view of the information that I have provided, and so allay some of the anxieties that are deeply felt by all of us. I beg to move for Papers.
§ 3.20 p.m.
§ Baroness Elliot of Harwood
My Lords, in a short debate, we are told that we must be brief and I propose to be brief. I listened with enormous interest to the noble Lord, Lord Taylor of Gryfe. I agree quite definitely with some of his remarks. I am not opposed to denationalisation, or the privatisation that people talk about today. I believe, however, that it contains a certain number of difficulties. In the case of gas, about which I intend to speak, I hope that the Government will learn from the experience of other denationalisation schemes and also from what the noble Lord, Lord Taylor, had to say.
With regard to gas denationalisation, I talk particularly from the point of view of the consumer. The noble Baroness, Lady Burton, and myself share the same great interest in the consumers' point of view. I have three questions. As regards prices, there should be strong consumer representation on the companies, or whatever the organisations are that follow the denationalisation of gas. This is of vital importance to the success of the companies. The number of users depends on whether consumers are satisfied. I hope therefore that this is an issue which will be examined carefully.
There is then the question of safety. As we all know, gas is one of those supplies that can be perfectly safe. But it can also be quite dangerous. I hope that whatever is done in connection with reorganisation, great attention will be given to safety. The responsibility of the companies, when all these changes take place, is very great. I should like to know who will be responsible for matters such as safety and new installations of gas. Who will be responsible for emergency services? These matters are vital to the consumer and I would draw particular attention to the emergency services. There have been dangerous explosions in various parts of the country. It is our hope that these will not happen again. But let us be sure that this will be one of the matters that the companies taking over responsibility for gas will be concerned about.
Another question that arises is where responsibility will lie in the new set-up for inspection in relation to safety and efficiency. This is extremely important. Will home service advisers continue to operate? This service makes a considerable contribution, especially where old people or disabled people are concerned.
908 They need to have gas services adapted to their disability. I hope that the new companies will consider the disabled and people who have special needs.
I am sure that the Government will consider these matters and put them strongly to the companies that will be running the gas industry. They are matters that could be decided and insisted upon before the new organisation gets under way. Once the companies are operating, this becomes much more difficult. I hope very much that within the new organisation the interest of the consumer will be paramount.
§ 3.25 p.m.
§ Baroness Nicol
My Lords, the noble Lord, Lord Taylor of Gryfe, is to be congratulated not only on giving us the opportunity to debate this subject today but also on his masterly speech in introducing it. I agree with almost everything that he said. I am only sorry that I cannot take his particular arguments a little further. I want to cover an aspect of privatisation that he did not mention—the effect on the environment of certain privatisation measures. The effect of the privatisation of certain industries on the environment could be very dramatic.
"In the exercise of their functions relating to land under any enactment every Minister, government department and public body shall have regard to the desirability of conserving the natural beauty and amenity of the countryside".
§ In privatised industries, this obligation would disappear unless special provision is made at the time of sale. Have the Government any intention of including this kind of provision at the time of privatisation?
§ The need becomes clear with just one or two examples. British Gas, who have already been very much discussed, are currently negotiating a pipeline through the New Forest. Consultations are taking place with the Nature Conservancy Council, with the Forestry Commission and with several local societies to minimise the effect of the pipeline on the environment and on wildlife. Under the Gas Act and freed from the provisions of the Countryside Act, which would be the case following privatisation, such consultations would not be necessary. British Telecom, for example, can now lay new cables without any such requirement and, so far as I am aware, without any need for planning permission either.
§ When we consider the search for new energy sources that we are about to embark upon—power stations, onshore oil or gas drilling and their associated environmental problems, including the disposal of waste—there can be no doubt of the continuing need to impose responsibility on the operators. It has to be remembered that in many cases they will not require planning permission for their activities. Perhaps the most dangerous aspect of privatisation of energy supplies is the imposition of the profit motive over every other consideration.
§ Energy conservation, which has been Government policy up to now, even if it has not been very successful, will no longer be an objective since increased sales will mean increased profits. We have seen how British Telecom pursue increased sales with telephone bingo. That is scarcely a national asset, one would have thought. Finally, the possibility of privatisation of the 909 water industry has dire implications for the environment. Water authorities control vast areas of wetlands. Difficulties arise even now when drainage schemes are undertaken without full consultation in respect of the possible effects on wildlife. How much more might this happen if they are freed from all restrictions?
§ Those are just a few indications of the implications for the environment of the Government's present policies. The time for detailed studies on each one will arise when the Bills are presented. But this is an opportunity—I hope that the noble Lord, Lord Taylor of Gryfe, will forgive me for taking it—to remind the Government that an ever increasing number of us are on guard to protect our natural heritage and will expect the Government to take heed of this in their legislation.
§ 3.30 p.m.
My Lords, I am deeply grateful to my noble friend Lord Taylor of Gryfe for introducing these topics in so admirable a manner. I wait with eagerness to hear the answers to some of his questions, particularly those relating to British Telecom's charges.
Perhaps at the outset I could add one other question. I wonder whether, when gas is finally privatised, it might then become possible for the gas industry to sell gas to the Central Electricity Generating Board, which it now refuses to do. I realise that that is a matter upon which my noble friend Lord Ezra may differ from me, but I mention it in passing.
It is my intention briefly to focus my remarks on paragraph (a) of my noble friend's Motion, which relates to protection for the consumer and is not unrelated to paragraph (e), which is about social functions. With reference to (a), I have only two specific matters to raise. I wish to ask the noble Lord two specific questions arising therefrom, but may I first say a few brief general words. I believe that we are a little too preoccupied in your Lordships' House, and in other places, with this general question of whether essential services should be publicly or privately owned. I believe that what matters to those customers who are dependent on those organisations for goods and services is what kind of deal they get in terms of competitiveness, prices, sensitivity to complaints, and accountability, not merely who owns the shop.
Similarly, so far as the many employees are concerned, again, what matters is what kind of an employer they work for. Is that employer sensitive to their needs? Is that employer accountable? Is that employer approachable in the way to which the noble Lord, Lord Taylor of Gryfe, referred in his speech? Many of us will recall that in the days when the coal mines were nationalised there was a widespread and somewhat mistaken assumption among the miners that suddenly they owned the mines and would be working for themselves. It took very little time indeed for those miners to realise that the National Coal Board was not all that different from the old coalowners. I do not think that in this country we have yet devised a wholly satisfactory system of organising large-scale industries. I think we must all accept that the science-based industries, such as power generation and telecommunications, must be large scale in order to flourish. We have not yet devised a satisfactory 910 system of organising large-scale enterprises to make them competitive, accountable to the general public, to their customers and to their workforce, and to make them satisfactory in the kinds of ways to which my noble friend was referring. My noble friend pointed to this issue in his closing remarks and I think that he did so very wisely.
Let me move on to the two general matters that I wish to raise. The first is the matter of Oftel—consumer representation in the new telecommunications business. Some years ago I had the honour of being a member of the Post Office Board, with special responsibilities for consumer matters on a board which was then responsible not only for post but also for telecommunications and Giro. I then became the chairman of the Post Office Board's Quality of Service Committee. I am sure your Lordships will understand that this committee was fairly busy. It made many reports, and some response has been made to some of these.
In those days it was not my function to usurp the role of the Post Office Users' National Council, which was there to represent the consumer and to deal with consumer problems, but inevitably I had to work very closely indeed with POUNC. I found that body to be extremely efficient, alert and highly conscientious. It gave a great deal of attention to complaints put to it by consumers and groups of consumers, businesses and so on. Sometimes I regretted that POUNC did not know enough about what was going on; and I think that it might have been better had the chairman of POUNC been on the Post Office Board rather than myself—but that is a separate matter.
We now have a new situation in which these responsibilities for consumer representation in the telecommunications industry fall in a quite direct way on Oftel. In reply to questions recently in your Lordships' House the noble Lord, Lord Lucas of Chilworth, made reference to the advisory committees which are being set up. I understand that we are in an evolutionary situation. I understand from talks that I have had with senior officials in Oftel that they are doing everything they can to devise a new formula, but I also know, as I think your Lordships know, that the customer has not yet been fully informed about precisely what is happening.
I think that POUNC took the most major steps to make itself available to customers. Customers knew how to approach it. It set up its local councils, which were staffed from local voluntary bodies which were in close touch with the public Citizens' Advice Bureaux and consumer organisations of that kind. Indeed, it established a network whereby the ordinary customer who felt aggrieved or let down at least knew that there was an avenue for the channelling of his complaint and that at the end of the day he would undoubtedly get a response. We are not yet in that position in relation to British Telecom as it now is. I hope that when the noble Lord, Lord Belstead, replies at the end of the debate he will be able to tell us the situation with regard to the establishment of these advisory committees regionally, the appointment of members to them, to what extent members of local voluntary bodies have been included on those committees, and what steps are being taken to publicise the existence of this consumer element in the new set-up for telecommunications.
911 The second point I want to make is a relatively brief one; it relates to nationalised industries although it does not deal specifically with that subject. For many years I have worked with trading standards officers and with consumer advice centres, which, as your Lordships will know, in the metropolitan county areas were a county function as indeed they still are in the shire counties. In the metropolitan counties there is a great deal of uncertainty about precisely what is to happen. Who is now to run the consumer advice centres which exist in Greater Manchester, in Merseyside, and in metropolitan counties of that kind? What is to happen to the trading standards officers who work so hard in those areas?
I am reliably informed that at a meeting of the Labour-controlled boroughs in the Merseyside area it was decided that they would employ all the people presently employed—the trading standards officers and those in the consumer advice centres. I am also reliably informed by the treasurer of one of those Labour-controlled Merseyside boroughs that they took that decision before they knew how many people there were and before they had done any sums on the actual cost or where the money would come from. Therefore there was grave doubt as to whether the districts will perform those functions in an entirely satisfactory way.
I am sure we all agree that it would be quite extraordinary if we had a situation where in the shire county areas there were still trading standards officers and consumer advice centres but those places suddenly disappeared from the metropolitan areas. It is in the metropolitan areas that they are most desperately needed. I will say no more, but I hope that at the end of the debate the noble Lord will be able to tell me this. What steps are being taken in the different metropolitan country areas to make sure that the consumer advice centres continue, and continue just as well as they did under the old counties? Under what arrangements are they going to be continued? Who will employ the trading standards officers, who do a very important job in protecting consumers, very often for nationalised industries and sometimes when industries which once were nationalised have now become denationalised.
I hope that at the end of the day those questions will be answered. Once again, I thank my noble friend very warmly for introducing this subject, and I look forward with other noble Lords to hearing the answers.
§ 3.38 p.m.
§ Baroness Burton of Coventry
My Lords, I should like to thank the noble Lord, Lord Taylor of Gryfe, for giving us this opportunity today. I should like to congratulate him on the excellent timing of the debate; and further to congratulate him on the first-class speech with which he opened it.
In October, British Telecom announced price increases. This was two weeks after the company had disclosed a 39 per cent. increase in profits for the first quarter to £443 million. To most people any increase at all following such a profit seems a gross abuse of monopoly power. I should like to thank the noble 912 Baroness, Lady Elliot, for generously assuming that I should be dealing with the consumer aspect. That is what I hope to do in the time at my disposal today.
As I said in the House on 13th November, it is an abuse of what British Telecom is supposed to be doing. I want to ask whether those in charge believe that it is fair or just, or even what was intended when the licence was drawn up, to charge domestic subscribers more than it is allowed to do and to try to hide this by making it arithmetically correct by a lesser increase in the rates for business users?
I want to ask the Minister whether the Government are really incapable of understanding that less well-off subscribers find their telephone bills a burden as it is. They are certainly not in a position to buy shares in British Telecom, and see no reason for having a further increase in rates when such enormously high profits are being made. In their view, and certainly in mine, such profits should yield a reduction and not an increase. I refer to a much more authoritative source than myself because in the Financial Times on 19th November the main article on the centre page contained the following words:Many customers remain to be convinced, too, that what is good for BT and its shareholders is necessarily also good for them".In the House on 13th November, the noble Lord, Lord Bruce of Donington, asked the Minister at col. 270 of the Official Report whether he was,aware that the figures for the price increases given to the House by his noble friend Lord Orr-Ewing, even though they may conform to the small print of the licence that was ultimately approved, certainly do not square with the repeated assurances given in this House and elsewhere that the price to domestic users would not rise by any more than the stipulated amount, and that they are in fact in breach of those undertakings?Fundamentally, that is what is worrying me in the context of the consumer, and it brings me on to the subject of Oftel.
Does Oftel approve of such tactics, and, if not, can it stop, change, or forbid them? Answering the first question for myself—and my answer is a much better answer than I would receive from any Minister—Oftel does not approve. The Director General, Professor Carsberg, on 6th November said that he hoped that in future British Telecom would make more modest increases "in its own commerical interests". Furthermore, he said that he expected prices to reflect cost savings "more fully in future".
Concerning my other query; namely, could Oftel stop, change, or forbid such abuses—I do not know. However, in the radio interview on 6th November, Professor Carsberg said:The pricing formula was designed to provide a protection to consumers and at the same time encourage BT to achieve greater efficiency by allowing it to keep profits resulting from that efficiency. However, this formula is in place only for a period of five years after which it will be re-assessed. At that time I expect a new formula to be adopted which would ensure a fair proportion of the benefits of BT's increased efficiency would be passed on to consumers".I come to my first question to the Minister. Will the noble Lord tell the House whether that means that British Telecom can continue with such abuses of the ordinary consumer for a period of five years—indeed, until the formula is re-assessed? If such be the position, then I think we must look at the position of Oftel, the power that it has been given and what teeth it has been 913 given to use this power. I think that there is no doubt that Professor Carsberg feels as we do, but can he do anything about it?
What about gas? The House will understand, and I believe sympathise with, what I had to say on the gracious Speech concerning protection for the consumer and the necessity for a regulatory body when nationalised industries are privatised. The noble Lord, Lord Belstead, was always very good at answering questions with which I persisted in bothering him, and I wonder whether I may remind him that I asked three questions in the debate on 12th November and I was told that they would be answered in writing. That was two weeks ago and although I have made written inquiry I am still waiting. Will the noble Lord, Lord Belstead, in view of the kind words which I have said about him, please expedite the reply?
The noble Lord, Lord Gray of Contin, assured us on 2nd July at col. 1044 of the Official Report, when referring to gas, that:It is the Government's firm intention that the regulatory arrangements to be established will adequately protect the consumer as regards prices and the terms and conditions of supply".Oftel, in spite of Professor Carsberg, does not seem to have been able to do this. So what reliance can we place on Lord Gray's regulatory arrangements? I personally have no faith in Government protestations about helping the consumer and I think the House would agree that I have good cause to feel like that.
I said on 12th November, concerning privatisation of British Gas, that it seemed to me that some regulatory body must be set up, and furthermore that this must be independent both of the gas industry and of the Government. It should be accountable both to the public and to Parliament. Obviously, it must have the power to monitor what is going on in the industry, to make such information public, and above all to seem to take action on behalf of the consumer.
The Motion which we are discussing today speaks of nationalised industries which become private monopolies. It does not refer solely to the gas industry or to any particular industry. I have spoken of the necessity for establishing a regulatory body to deal with the privatisation of British Gas, and so I now come to the next question for the noble Lord, Lord Belstead—and it is, my Lords, only the second one! Do we have one such body for the gas industry only or do we have one general body to regulate public utilities in the United Kingdom? I think that my mind moves towards the latter, but I am quite certain that the privatisation of British Gas cannot be proceeded without—and I repeat "without"—a regulatory body, whatever subsequently grows from it.
However, where does that leave the consumer? I asked in our debate on 12th November whether, for example, the National Gas Consumers' Council would continue either as at present or strengthened. It may be that we have a regulatory body and also a consumer one. I do not know. It all requires much thought, far more than we have time for today. Personally, I should like to see the establishment of a strong, tough, regulatory body that, to quote the noble Lord, Lord Gray, once more:will adequately protect the consumer as regards prices and the terms and conditions of supply".914 It may be that I want the impossible. I want a strong, tough, regulatory body composed of, or containing, strong, tough, consumer-minded members, which is not at all the same thing as consumer representatives. However, such a solution could, I think, be a considerable factor leading to the adequate and proper—yes, my Lords, proper—consideration for all we ordinary consumers in the world of monopoly and big business.
In conclusion, may I ask the Minister whether he noted the letter on gas privatisation in today's edition of The Times, from the Director of Age Concern? Does the noble Lord realise that what I have been saying is quite correct and that it is the people at the bottom end of the queue who always suffer? We on these Benches—and, I think, the whole House—feel very much that that should not be the case.
§ 3.48 p.m.
§ Lord Beloff
My Lords, the noble Lord, Lord Taylor of Gryfe, in moving his very welcome Motion and giving us the opportunity for this debate, said that he did not wish to reopen the much vexed question of nationalisation versus privatisation, and I do not intend to breach his request that we should not do so. However, it seems to me that in the framing of the Motion itself there is an assumption which is worth examining, because it relates to the substance. I am referring to the assumption that somehow nationalised industries that are monopolies have met the major criteria which he sets out, and that the problem is created by the transfer of ownership.
Personally, I do not see where the evidence for that assumption lies. It seems to me that state monopolies have shown an equal disregard of consumers—for instance, of consumer needs—and have shown sometimes an equal capacity for (I shall not use the word "mendacity"; because perhaps that is too strong a word) sharp practice in denying consumers what they are entitled to. Let me give a specific example from an industry which has not been mentioned and which, so far as I know, is not at present on the list for privatisation—British Rail. About a week ago there appeared in the press a glowing statement from one of the chief executives of British Rail about the tremendous achievement of bringing about a new through service from the North to the Kentish ports, which would avoid a change of stations in London. So far, so good.
One might ask why, since the track, and so on, has been available for many years, this particular moment has been chosen to launch that service. I know the answer. The answer is that this is a smokescreen to conceal the fact that at the same time British Rail are going ahead with the abandonment of an existing through service, avoiding London, which links Manchester, via Birmingham, Oxford, Reading and Gatwick, with Brighton.
Those who are to benefit from the new service are as yet unknown. But there are those (and I confess I have a personal interest in this) who, by the abandonment of a through service in favour of a number of changes of train, lose by it. Yet British Rail put forward the one, so far as I can see, in order to conceal the blow which they are inflicting on other customers.
915 One may say that this is to be expected, and I think it is. This is how monopolies behave. I have no doubt that were any representatives of British Rail to read our debate they would say, "Of course we have to take off this through service because it is insufficiently patronised. There are not sufficient passengers to justify it". But again one may ask: why are there not? There seem to be a great number of people, let us say from the Manchester area, who take their holidays on the South Coast.
The reason it is not patronised as fully as it might be is two-fold. One is that the timetable is, on the whole, an inconvenient one. The second, I think more important, is that for years no publicity has been given to the existence of this through service. I constantly come across people at both ends who do not even know that it exists. One can only believe that British Rail have failed to give publicity to this service in order to give themselves an excuse for abolishing it, and that they have put on—we do not know for how long—the new through service from the North in order, as I say, to create a smokescreen.
I would hope, and indeed expect, that some bus company, some private operator, will put on a new service at least from Oxford to Brighton. If he does, I am sure (because one has seen this with other private bus services) that there will be ample publicity and no one at either end will be left in any doubt that this service is available to them. The reason is not the difference between private and public. The reason is that monopolies are in their nature impossible to control except to a limited degree, and that ownership matters very little indeed. In fact, the noble Lord, Lord Taylor of Gryfe, in dealing with British Telecom made the case. The only part of the system where charges are to be reduced is that part of the system where there exists competition; namely, the long inter-city routes.
Therefore we have to ask: what can we do about monopolies? There are, I think, two ways in which a monopoly can be controlled. One of them is by proper Government regulation: not by an independent regulatory body—I would have thought that we have had a fairly poor experience of many of these—but by a Minister responsible to Parliament for the operation of that service as Ministers are responsible for the armed services, for the Civil Service and for the police. The problems of the British postal service coincided, in my view, largely with the abandonment of the historic office of Postmaster General in favour of a Morrisonian public corporation.
The other way, of course, is to break the monopoly up; to introduce competition. My hope would be that in any future denationalisation, or privatisation, it will not be a question of transferring the ownership of an existing public monopoly to a body of shareholders but a real investigation of how far it can be broken up into component parts. Some may not compete with each other; many probably would not. Some may have competition from alternative sources of supply, as in the energy industry; but some may profit by the mere fact that reasonably small operations are likely to evoke a greater concern for their customers than large operations.
In the railway case my memory goes back to the early 1920s, when we had a whole range of railways.
916 We had the Central Line; the London, Brighton and South Coast Line; the London, Dover and Chatham Line; the Great Eastern, and so on, each with its own livery and its own particular methods of operation, and I think all prouder of themselves than the later amalgamations which were the precursors of nationalisation.
I know that the noble Baroness, Lady Burton, and the noble Lord, Lord Winstanley, believe that there is yet another method of control; namely, consumer representation. I am totally unconvinced. However consumer councils are chosen, composed or elected, and whatever the formal nature of their relationship with the body that operates the industry, they are doomed to be powerless because they have, and can have indeed, no sanctions.
I would suggest the somewhat discomfiting thought, which noble Lords may like to consider, that if at a stroke of the pen we abolished every single form of consumer representation that exists in any of our industries, the result would be imperceptible to the naked eye. Things would go on just as before. I take Lord Winstanley's points, such as trading standards. That is a matter of Government enforcement of a law which, if challenged, can be taken to the courts. I am afraid that the case of people of limited means faced with grossly excessive charges is not something that I can see taken to the courts; and stirring up trouble about this, unless you have a responsible Minister, also seems to me to meet with a dead end.
So far as I know there does not exist a consumer council for Messrs. Marks and Spencer, or a Sainsbury customers' advisory board. The reason is that if you do not like what these firms offer, you can cross the road and buy the commodity from their competitors. That is the only way that I know of, other than straight political legal control, for protecting consumers. It would be wrong if we were to allow ourselves to cultivate the illusion that there is some way round these awkward facts.
§ 4 p.m.
§ Lord Grimond
My Lords, I find myself very much in agreement with the main theme of the noble Lord, Lord Beloff. Like him, I believe that all monopolies become conspiracies against the public and, like him, I think that they are not always very effective and that the best protection against them is a Minister who can be harried in Parliament. Like him, I do not have wholehearted belief in consumer councils. But I think he failed to notice one point made by the noble Baroness, and that was her suggestion that not only should these councils be representative of the consumers but they should include people elected and chosen by the consumers. Up to now that has not been the case. They have very often been tame dogs, though I think that they are becoming less tame and they may be better than nothing. However, competition is the main support of the consumer.
I speak as somebody who was, and perhaps is, a strong supporter of privatisation, but, I must confess, not by the methods which the Government have chosen. The real damage the Government are doing is that they are seriously damaging the whole case for a different way of running some of our nationalised industries.
917 I have always believed that there are certain public services which are not subject to the profit motive and should not be judged by commercial standards. I do not believe that the universities should be looked on merely as places from which to turn out technicians for industry and I do not like the Government's attitude to the arts. One of their main faults seems to be to have totally confused the various functions of government. I sometimes feel that they would be a little happy to privatise their grandmother and to treat the proceeds as income if only they could reduce the PSBR by so doing. I think they have done great damage to the case for privatisation.
What is the case for privatisation? The case is principally, as has been said, that it should benefit the consumer. But having changed public monopolies into private monopolies we have seen only too clearly in the case of British Telecom that the last people they consider are the ordinary consumers. No case so far has been advanced for changing public monopolies into private monopolies at vast expense unless it is thought to be a good thing to provide huge profits for the City of London. I should like to know what the City of London has made so far out of privatisation. Perhaps the noble Lord, Lord Bruce of Donington, knows. Would it be £50 million or £100 million? Would it be £200 million?—all for the purpose of changing public monopolies into private monopolies.
It is a scandal that advertisements should be put into papers indicating that British Telecom has reduced its charges and that the shareholders of British Telecom should have to pay for those advertisements at a time when, as has been said in that magnificent speech by my noble friend Lord Taylor of Gryfe, it is greatly increasing its charges to the ordinary subscriber. Apparently the only people who are gaining are tycoons and large companies. Incidentally, why it is necessary to put advertisements in the paper drawing attention to this I do not know.
The fact is that the charges of nationalised industries—this is true not only of the privatised industries but those which remain nationalised—are being used, either by the Government or with the connivance of the Government, as a poll tax. They are being used as a form of taxation levied upon the people least able to pay, many of whom cannot possibly avoid it. Old people and people living alone must have a telephone. They are simply at the mercy of this private monopoly. However it is done it is true that some protection must be given and some amendment must be made to the Act to ensure that their interests are served.
It is not good enough to say that British Telecom has not exceeded the legal maximum. As has been said, for a corporation which makes enormous profits—that was said by the noble Lord, Lord Bruce of Donington—the excuse that they have only gone up to the maximum is monstrous and an insult to the British public. We have seen in the case of Hull that there are different ways of running a telephone service. I should like to know whether the Government have examined Hull and similar examples to produce at least some degree of competition.
The other point in Lord Taylor's excellent Motion on which I want to say a word is the matter of worker participation. Privatisation offered a magnificent 918 opportunity to spread ownership in this country and not only ownership but active participation in the running of industry. This has largely been missed. It is true that efforts were made to spread the shares of British Telecom, but on the whole the privatisation measures have not resulted in any greater worker participation in the actual running of industry. Management buy-outs and worker buy-outs have taken place, but not, it must be said, with any powerful and definite encouragement from the Government other than in words. It is not enough simply to give a sweetener to those who are working in industry in the form of a few cheap shares or the opportunity to subscribe for shares ahead of the general public. Many of the shares are then resold and they do not change the fundamental structure of industry. Unless the fundamental structure of our industry is changed we shall go through exactly the same hoops as we have been going through for the last 10 or 15 years; we shall have the antagonism of labour and capital; we shall have pressures leading to inflation and we shall have inefficiency.
The Government have had a glorious opportunity to privatise industry which they have largely missed because they have not brought in, for example, measures to allow people to borrow to invest in sitares and they have not brought in positive measures to ensure that the industries were handed over, to some extent, to their workers. Those are the two parts of this Motion to which I particularly want to draw attention. I hope that when the Government reply they will give an answer to the questions of responsibility.
In a way the most devastating speech was that of the noble Lord, Lord Beloff, because he is a Government supporter. What was his case? His case was that all monopolies are villains, private or public. Therefore why waste time changing from one villain to another? He does not like consumer representation. He wishes to return to the Postmaster-General. Do the Government want to go back to the Postmaster-General? No, my Lords. We very much hope that when the Gas Bill comes forward we can rely upon the admirable vote of the noble Lord, Lord Beloff, to oppose it. Unless the whole attitude of the Government which has been evinced over the Telecom Bill is changed, it will deserve the sternest opposition. I speak as one who has some shares in British Telecom, I am glad to say, but I consider it to be rather a scandal that those who have a little money in the bank and therefore could subscribe received some shares and a reduction in their bills whereas a poverty-stricken person who must have a telephone had no such advantages.
This is a Government nominally trying to spread wealth ownership and to make a case for privatisation. I must confess that, unless the Gas Bill is very different from the British Telecom Bill, they will have ruined the case for privatisation; a case of which many people such as myself were, up to a short time ago, powerful supporters.
§ 4.7 p.m.
The Viscount of Falkland
My Lords, there are many noble Lords on this side of the House particularly who may feel that it is a great pity that we are having this debate at all. It is a great pity that an 919 efficient and healthy public sector could not have worked alongside an innovative and productive private sector to create a high standard of living for our people and an example to the rest of the world, particularly the developing world. Privately most of us would think that all is not well in our nation, but some of us publicly have to play that down. That is understandable, but sooner or later we have to come face to face with the realities. New attitudes and energies must emerge so that we can heal some of the rifts in our society and create the unity which will enable us to create the wealth upon which the standard of living of our people depends.
However, I shall not look back. As was said yesterday in the debate on Northern Ireland, we must look forward. I take a slightly more charitable view (though I share his sentiments) than my noble friend Lord Grimond about the serious attempts by the Government in one area; that is, wider share ownership. The Government's attitude towards wider share ownership is enshrined in the Employment Act 1982. That Act states specifically that in annual reports action that has been taken in encouraging the involvement of employees in a company's performance through an employee share scheme or by other such means should be stated. What has been done in achieving a common awareness on the part of all employees of financial and economic factors affecting the performance of that company should also be stated.
How far have the Government gone with that laudable aim? I think they have gone some way. I agree with noble Lords who have been critical of the British Telecom flotation, but I have done some telephoning this morning and I am less critical than I was when I started my telephoning. It is difficult, as my noble friend Lord Taylor of Gryfe says, to get accurate figures. There is no doubt that this flotation initially helped to bring the whole area of share ownership closer to the inexperienced or novice investor. Accepted statistics show that before the flotation there were 2.5 million private shareholders in this country and shortly afterwards the figure increased by a further 1 million as a direct result of the British Telecom flotation. Some quite surprising (to me, anyway) figures are that, according to one source, 26 per cent. of the adult population, which is 11 million people, made serious inquiries about the flotation, and of the 2.3 million actual applications, 1 million were for the minimum investment of £100.
It is difficult to interpret the statistics. According to the registrars, today there has not been a significant reduction in the number of private shareholders in British Telecom. From an unofficial source (which is often more enlightening) namely, a firm of stockbrokers that has dealt extensively with this particular share, the information is that many of the people who have sold their shares and taken their profits were the larger holders of those shares, and a substantially high proportion of the people who had the smaller holdings have stayed there. Of course there was the incentive of the vouchers for the telephone bills, and so on.
Therefore I do not think that one can say the whole exercise has been totally wasted. There has been a 920 move. I think one may say that, to many people, to use street jargon, the whole matter has been something in the nature of a successful punt. The British are great punters. I have been a punter in the past. I hesitate to say that I am now: because I spend too much time in your Lordships' House, I cannot afford it. There are all kinds of ways in which the British can enjoy the fantasies of punting. However, owning shares is a serious matter. Wider share ownership needs to be taken seriously. In the educational process, to persuade people to own shares, a serious attitude must be taken to enable them to understand the responsibilities involved. That is particularly so in the area of employee share ownership, where further attitudes are involved, such as the attitude of a realisation of the importance of profit and loss to the companies with which employees are involved.
Where employee share ownership schemes have taken root in this country—and they have taken root quite widely—there has been enormous success. This has happened in companies with household names. One does not have to give a very long list. There is Jaguar. The managing director of Jaguar attributes the success of that company almost exclusively to the very high level of employee share ownership in his company. He says that has resulted in direct improvement in communications in his company, improvement in the quality of product, and in the success of that venture about which we all know. There are Sainsbury, Bulmers, the cider people, and Marks and Spencer. Those are household names. There have been great successes.
I think that much more innovative thought must go into how this process is to be extended further and faster, if we are to have a serious collective attitude towards the wealth creating process and the identity of individual citizens with this process. At this stage I would ask the noble Lord the Minister kindly to answer two specific questions. The first is whether he would agree that it would be of great benefit to the whole area of wider share ownership and also to the reputation of the City of London if some way could be found to abolish stamp duty. Stamp duty inhibits wider share ownership for obvious reasons. At this moment, there are many people buying shares. There is a great part of our market which is being taken by New York stockbrokers, because there is no secret about the fact that one can go onto the New York Stock Exchange and trade there without stamp duty. Thus, it would seem to me to have a two-pronged effect.
The other question I should like to ask the noble Lord the Minister is on taxation. It is about capital gains tax. I do not think any of us on this side of the House would support the total abolition of capital gains tax. There would be again, obvious social consequences of that. However, surely there is a way of simplifying capital gains tax, which would make the whole area of share ownership easier to comprehend and to approach. Perhaps I may make a suggestion to the noble Lord the Minister, and perhaps he can comment on it. Would it not be simpler to have a capital gains tax, for example, up to three years, during which one could be taxed on one's gains at 30 per cent. plus, but after a period of, let us say, five or even six years it could be abolished altogether?
921 I come back to the problems of wider share ownership. The problem now is to persuade people to hold on to their shares, to involve themselves. I do not think one becomes a shareholder until one has received a couple of reports through one's letter box, until one has actually received a few dividends, and so on. One has to persuade people to stick in there, and to persuade them to do that requires some innovative and practical suggestions by the Government. I am making practical suggestions, and I hope they agree. Capital gains tax could be simplified. After all, it must involve a good deal of bureaucracy. There is much jargon about simplifying. I know there is a system called tapering, which I think is what I am now describing. The noble Lord the Minister will probably know more about that than I do. Surely there is a way of simplifying this, which would be a constructive attempt to lift barriers for the inexperienced so that they could come into this area.
I conclude on that note. We have a situation where public companies are now moving into the private sector. It is sad for many of us, but perhaps this will produce the kind of involvement and national will which puts us up the league table again—because we have dropped a long way back; and we shall be hearing about that next week when the House of Lords Select Committee report is debated. We have moved a long way down the league table of gross domestic product. Time is short, and anything constructive and innovative in the area of wider share ownership, or anything which gets everybody out of the confrontation attitudes and along the road towards improving the standard of living of our people, will be very welcome.
§ 4.19 p.m.
§ Lord Ezra
My Lords, my noble friend Lord Taylor of Gryfe, in a clear, succinct and powerful speech, drew our attention to a matter of great public interest. That question is: how should we deal with monopolies when they are moved from the public to the private sector? In making his speech, my noble friend said that he was not raising the question of whether or not this should be done, but if it were done how we should handle the situation. In the course of this very interesting debate, however, the question of whether it should be done was inevitably raised. In a very compelling speech, the noble Lord, Lord Beloff, drew our attention to the logic of the situation, and so did my noble friend Lord Grimond.
The fact is that we are entering totally new territory in terms of the industrial history of Britain. This has never been done before. We have never before constructed massive public monopolies and then moved them into the private sector. So I think that we are justified on all sides of the House, and throughout the country, in being somewhat apprehensive about the process. We may be, in principle, in favour of privatisation, as my noble friend Lord Grimond said he was; but I think most people would have thought of privatisation as converting what some might have thought were inefficient, monopolistic, nationalised enterprises, into thrusting, competitive, private enterprises. But this is not what, apparently, will be done in one of the very big monopolies existing in Britain today.
922 The gas industry, which by everbody's account and belief has been a most successful enterprise carrying out one of the most exceptional technical feats, converting itself from what was generally regarded a few decades ago as an effete 19th century industry into one that has anticipated the 21st century, is to be transferred from the public to the private sector. So it cannot be that that is to be done because it is inefficient. It is apparently, according to reports leaked in the press, not to be changed in its methods of operation and so we must be concerned about how this whole situation is to be faced up to.
In the very limited experience that we have had so far in the case of British Telecom, the impression that has been gained is that the very strong safeguards that existed vis-a-vis Telecom in its public existence have been diminished in its private existence. That is the impression that has been gained because, if noble Lords will recall, when the privatisation Bill was being debated there were many on this side of the House who asked for the scope and effectiveness of Oftel to be strengthened, and that was resisted. We asked for the consumer organisation to be maintained, and that was resisted.
So I can only come to the conclusion that it is somehow felt by the Government—and no doubt the noble Lord, Lord Belstead, will answer this point—that if you have a monopoly in the public sector you need a lot of safeguards; but convert that monopoly into the private sector and by some miraculous means, without changing the organisation in any way, the safeguards automatically should be diminished. I believe that that is the nub of the Question raised by my noble friend Lord Taylor.
I must say that I felt a great deal of sympathy for the logical argument of the noble Lord, Lord Beloff, that if we want to do anything with public monopolies, if we want to change them in any way, instead of moving them into the private sector it would be far better to move them back into Government control. That, it seems to me, is a very logical proposition.
However, we are faced with a different situation and therefore we have to come to terms with it, so it is very proper that the questions raised by my noble friend Lord Taylor should be considered today. He was absolutely right, my noble friend Lady Burton of Coventry was absolutely right and the noble Baroness, Lady Elliot, was absolutely right, in drawing attention to the problems which have already arisen in relation to the Telecom privatisation, so far as consumers are concerned. This is a worrying situation and it is difficult to seem how it can be dealt with because the Government, quite rightly, from now on will be saying, "This is a commercial matter for the organisation". But that organisation happens, if not wholly at least in a large part of its business, to be an effective monopoly.
I have personally had experience in nationalised industry and in the private sector. In the private sector, the compelling interest is to show a good profit for your shareholder, and if you are operating in a particular market in which you can get good margins you get them in order to compete more effectively in those markets where you face more competition. So I must say, from the point of view of normal industrial 923 performance and reaction to a market situation, that I cannot blame British Telecom for doing what it is doing.
It can get a better price, it appears, from the domestic consumer, and so it is getting it. It is facing more competition with the industrial user, the long distance user, and so it is reducing charges. That is a perfectly proper thing to do in normal business. The question that we have to ask ourselves is whether that normal business reaction is proper in the case of a private monopoly created by Act of Parliament. That is the question and I very much hope that the noble Lord, Lord Belstead, will give us some illumination in that issue.
The other point that worries me about this situation of transferring public enterprise to private enterprise is that it is automatically felt that everything that was done when the enterprise was in public ownership was somehow wrong and has to be changed. But we have had publicly-owned enterprises in this country now for over a quarter of a century and a great deal has been learned about how to run large-scale enterprises in various aspects. There may be things which are to be deplored and which we would want to see avoided in the future, but to suggest that everything should be thrown out with the bath water strikes me as being quite wrong.
Some very positive lessons have been learned, particularly from the point of view of consumer representation, particularly from the point of view of employee involvement and particularly from the point of view of purchasing, and it is on purchasing, which was referred to by my noble friend Lord Taylor, that I should like to say a few words because I think that this is becoming a very serious issue for this country. It goes beyond the particular subject that we are discussing today.
We are facing a situation in which our manufacturing position is diminishing in relation to our needs, and even though the last current account figures showed that we were in surplus, a little examination of those figures reveals that this was largely due to the increased sale of oil and that on the manufacturing side we are continuing to lose ground. So we have to address ourselves to all the ways in which this can be stimulated. We are to have a debate next week on the Select Committee's report, under the chairmanship of the noble Lord, Lord Aldington, which will address itself to many aspects of this problem.
But the specific aspect which is relevant to the Motion before us today is the role of public purchasing. This is something in which I was personally much involved when I was in the coal industry. Not only did we within the coal industry seek to maximise our purchases on a competitive and rational basis from British based suppliers, but I took the initiative, supported I must say by my fellow chairmen in the other nationalised industries, to set up a group in which we looked at the purchases of all of us, in order to try to carry out this work throughout the whole publicly owned enterprise sector.
We did—as my noble friend remarked—achieve the remarkable feat that only 3 per cent. of our purchases 924 were obtained from non-British based firms on a competitive basis, not breaking any international rules whatsoever. Unfortunately, we have seen so far in the case of British Telecom—and a number of questions have been raised on this—that we are already departing from those principles.
Rightly or wrongly—it may be absolutely right from its industrial point of view—the fact is that it is moving away from those principles and therefore weakening the thrust which was developed when it was in the public sector. I learned today—and I was very pleased to learn it—that the East Sussex County Council has decided that it is to use its £40 million of annual purchases to stimulate enterprise as far as possible within the region for which it is responsible. I applaud that decision. But this sort of thing should be spread throughout all major purchasing enterprises in the country; and what I am saying is that in the nationalised industry group this was taken to very considerable lengths. Do not let us see that impetus lost when these enterprises are converted into the private sector.
Indeed, my Lords, that goes for a number of things that were developed in the nationalised sector. There were some positive things that were developed and there was a great deal of experience. Let us build on the successful and replace what was not successful. Let us not assume, because it is the decision of the Government of the day that on the whole they prefer enterprises to be in the private rather than the public sector, that everything which was done in the public sector was necessarily wrong. I hope that this whole question of transferring enterprises from one sector to the other will be looked at with increasing objectivity and that particular care will be addressed to the problem when that transfer affects a monopoly.
§ 4.31 p.m.
Lord Bruce of Donington
My Lords, this has been a very interesting debate and we on this side of the House would like to congratulate the noble Lord, Lord Taylor of Gryfe, on having given us the opportunity of discussing this subject today. The noble Lord, by way of a routine introduction to his very admirable speech, referred (as we would expect him to) to the dogma of both sides—thereby implying of course that those on his Benches were in a position of complete neutrality in the matter and regarded the whole thing from the lofty point of view of the public interest, uncontaminated by any party arguments.
Being somewhat a controversial participator in politics myself, I am bound to say that the noble Lord, Lord Taylor, has proved my case admirably. Never has there been a speech which, in its address to the implications of the Motion on the Order Paper, has been such an attack on the complete ineffectiveness, from the point of view of the public interest, of the introduction of the measures privatising monopolies.
I cannot let the occasion pass without referring to the most remarkable speech of the noble Lord, Lord Beloff, which I sincerely trust will be studied by the Government Benches tomorrow. I am deeply sorry if in praising him I in any way affect his prospects of promotion; but I am bound to say that, apart from one or two frills, it was a speech which I could have delivered with the greatest possible passion from this 925 Dispatch Box, because of course he disposed of the old fallacy of privatisation when it comes to its application to public monopolies. He showed quite clearly that, if there is to be a public monopoly, it is far better for it to be under the ultimate control of either a Minister or a body capable of responding to public pressure, to public complaints and to public requirements.
I feel bound to defend the noble Lord, Lord Belstead, against an accusation implicit in the terms of the Motion itself—namely, that privatisation in itself was intended to protect the public interest. To do the noble Lord justice, neither he nor his predecessors have made any pretence at all about that matter. They were quite frank about it in the introduction of the British Telecom Bill. The purpose of the privatisation was to yield a proper return to the shareholders—that is what it was all about—and to fructify, as I shall show later, among the broad mass of the British population in pursuance of what is sometimes euphemistically referred to as "a property-owning democracy".
The party opposite never pretended that the privatisation of a monopoly was going to be in the public interest. Indeed, in more recent weeks that has been quite clear. I have no need to quote, because everybody knows it: the principal purpose of the privatisation of public assets has been to provide money for the Chancellor of the Exchequer to enable him to distribute it at large by way of electoral bribes. It is perfectly clear: everybody knows it. It has given rise to a new term—a new term unknown in economic circles, unknown in accounting circles, unknown in legal circles and unknown even in universities—and, instead of raising revenue, we now talk about "incurring negative expenditure". That is the most ridiculous, idiotic and Civil Service-ese device created in order to conceal the true purposes of the Government.
Implicit in the speeches of the noble Lord, Lord Taylor of Gryfe, of the noble Baroness, Lady Burton, and indeed of my noble friend Lady Nicol was the wish that somehow steps should be taken notwithstanding privatisation to protect the public interest, environmentally and consumer-wise. The case for the Government is that by efficiency, by competition, automatically in the ultimate this would become merely another expression of market forces and that thereby the general interests of the consumer public would ultimately be covered by the free operation of market forces. Noble Lords speaking from the Liberal and Social Democratic Benches this afternoon have given some illustrations as to exactly how that has worked out. There seems to be a misunderstanding on the part of the Government themselves as to what the public interest really is and how far it is the responsibility of any Minister of the Crown to pursue the public interest.
Under the various privatisation Acts, the shares in the newly-formed companies vest in the Minister. They do not vest in him as a politician—and I shall return presently to that point in relation to the words of one of his own Ministers. They vest in him as a custodian of the national interest. Therefore, before disposing of a national and income-producing asset, the Minister, if he takes his responsibilities seriously in these days of, if I may say so, permissive politics, has to be satisfied first of all that it is not going to be 926 disposed of at a price which involves the whole body of the taxpayers—because this is what we are talking about—in a very considerable loss on the basis of its being sold on a going concern basis. He also has to be satisfied that the loss of income to the taxpayers at large—and that, as I shall show, includes not only income tax payers but value added tax payers and indirect tax payers—can be made up from some other source.
In the case of the various acts of privatisation that have taken place, had they involved real property, the Minister, in order to ensure that he would act properly within his ministerial responsibility, could have taken the advice of a district valuer. That would have protected him. But what did the Government do in the disposal of these shares in pursuit of what they declared to be the spread of a property owning democracy? They took the advice of the City, or certain sections of the City. The disadvantage is of course that the City itself was not a disinterested party like the district valuer. It was in the interests of those underwriting to make quite sure that the price was sufficiently low in order that their underwriting obligations could be minimised—it was obviously in their interests to do so—and also to ensure that it was sufficiently low to yield institutional investors, let alone individual investors, an adequate profit. In the case of British Telecom, as everybody knows. that happened.
The issue cost—the noble Lord, Lord Grimond, was kind enough to refer to me for an estimate of its total cost—was £318 million. That is the nearest estimate I can make. The total issue cost the taxpayer in terms of underwriting fees, in terms of professional fees, in terms of printing, stationery, postage, pre-launch advertising and all the rest, some £318 million. The theory was that it should spread the ownership of shares. My Lords, it did nothing of the kind. The percentage of shareholders in this country owning individual shares—there are some 42 million adults—was somewhere in the region of 5 per cent. two years ago, the latest date for which figures are available. On the assumption that the proportion has now increased to 7 per cent., and bearing in mind individual shareholders existing before unlikely also to have taken up shares in British Telecom and the rest, the proportion of the population now holding individual shareholdings is probably 7 per cent., or nearly 3 million individuals out of a population of 42 million. These are the most optimistic statements that can be made.
§ Lord Diamond
My Lords, purely for information, is the noble Lord indicating the number of shareholders, however small the shareholding?
Lord Bruce of Donington
Yes, my Lords, I am talking in terms of people who have shares in their own right. The number was in the region of 5 per cent. to 6 per cent. The noble Lord will be familiar with the figure because he was chairman of a very distinguished committee that dealt with matters of this kind. I would guess that the total number of individual shareholders now is about 3 million.
From where have those 3 million shareholders come? Are they in that part of the population, the 21 927 million adults among the population, who own between them 4 per cent. of the total disposable national wealth (which is £408 billion, according to the estimates produced by the Inland Revenue) or £777 each of disposable wealth? Included in that figure are the 7 million who are at or below the poverty Une. There are no shareholdings there. Or have the shareholdings been taken up by the top 10 per cent. who own some 56 per cent. of the total disposable wealth in this country, some £228 billion altogether, which works out at some £56,380 per head? Alternatively, do these individual shareholders—we are talking about a property-owning democracy now—come from the top 25 per cent. of the adult population?
It is quite clear that the individual shareholders of this country cannot be classified as the people as a whole. Yet this has been given as the justification for privatisation. Noble Lords may remember that, in addressing the Tory Reform Group recently, the right honourable Peter Walker said:There is a great myth that the Government, in conveying from the state to the people an asset, is selling the family silver. It is not in fact selling silver, it is transferring the silver from the politicians and the civil servants to the family".We really know who the family are. The family are bound to be in the main confined to that top 10 per cent. of the adult population of this country who own between them 56 per cent. of the national disposable wealth in the United Kingdom. This makes a complete farce of the claim.
Responsible Ministers would know this. Responsible Ministers would not pretend that it was anything other than that. They well know that the population as a whole, including the bottom 50 per cent. pay a large amount in indirect taxation. From that point of view, and from the point of view of the shareholding, the motive of the Government is quite clear. It is for nothing of the kind. For distribution to their own family maybe; for the acquisition of their own family, the richer and better-off people, maybe; but without any relevance to the needs of the nation as a whole.
It is unnecessary for me to duplicate the very excellent speeches that have been made this afternoon on other aspects of the Motion. I have concentrated on one only and the conclusion must be that the Government in pursuing their process of privatisation cannot possibly pretend that they are doing it in the public interest but are doing it only for the protection and advancement of the richer section of our community.
§ 4.48 p.m.
§ The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead)
My Lords, I should like to begin by thanking the noble Lord, Lord Taylor of Gryfe, for tabling this Motion. It provides a welcome opportunity to draw attention to the Government's success in transferring businesses to the private sector. The terms of the Motion, characteristically from the noble Lord, are encouraging too, for they are concerned not with whether monopoly 928 businesses should be privatised but with the objectives that they should have, as new, publicly owned companies.
The noble Lord, Lord Bruce of Donington, was not quite so encouraging in his speech from the Opposition Front Bench. The noble Lord spoke earlier in his speech about, as he saw it, the ineffectiveness of privatisation and the complete fallacy of privatising public monopolies. The noble Lord summed up a little later in his speech by saying that he felt the whole thing was not in the public interest. The aim of the privatisation programme is clear. It is to transfer businesses to the private sector in order to free them from unnecessary political and bureaucratic control, to subject them to private sector pressures and incentives and to promote real public ownership—that is, direct ownership—by members of the public and by employees. The interesting thing is that other countries in the world are following suit, Japan, Sweden, France, Italy and Germany among them. The noble Lord went on to suggest that privatisation is intended merely to allow a higher level of public spending through the practice of negative expenditure.
As your Lordships know, I am not an economist, but I know enough about this particular matter to be able to say that the noble Lord's accusation is certainly not the case. Indeed, the practice of negative expenditure is one to which the Labour Government themselves resorted when they sold the shares of BP in 1977; the practice was exactly the same from a previous government to the present one. The fact is that public spending at the moment is planned to fall as a proportion of gross domestic product over the next three years even if privatisation proceeds are excluded from the assessment.
Before dealing specifically with the terms of the Motion, perhaps I may return for a moment to the generalisation of privatisation. I remind the House that 12 major companies have been privatised; 20 per cent. of the state sector that we inherited and 400,000 jobs have been transferred. I beg to differ with the noble Lord, Lord Grimond, who condemned also the policy of privatisation as the Government are putting it into effect. I believe on behalf of the Government that the economy is gaining, as the greater efficiency of privatised industries means higher profits and investments on the one hand and better services to industrial customers on the other.
The companies we have privatised so far are all, to one degree or another, acting within a competitive market place either domestically or internationally. However, much of the state sector is comprised of the so-called natural monopolies. I recognise that those are the monopolies where economies of scale and the barriers to entry are such that it would be wasteful or impractical to break them up. However, the Government believe that the arguments for privatising those bodies are very much the same as for any other industries in the state sector.
Despite what has been said by the noble Lord, Lord Ezra, and by others who have unrivalled experience of the state sector, I make that assertion because privatisation means freedom from Government 929 interference. It is important to note that Sir Eric Sharp, chairman of Cable and Wireless, commented that:the freedom to negotiate new deals and joint ventures as principles…with other governments and major companies was invigorating for management and wholly beneficial for the development and growth of the company".That was said, as I understand it, in the context of privatisation opening up access to the capital markets, exposing an industry to the pressure of shareholders' expectations, and offering the opportunity to enter into new, more competitive relationships with suppliers. Of particular importance in the case of natural monopolies is the fact that privatisation means real public ownership.
Against that, the conventional wisdom has been that those monopolies are so important, and have so much potential power to harm customers, that the only safe place for them was in the public sector. I put it to your Lordships that the experience of the past 40 years has taught us that that is not so. As my noble friend Lord Beloff illustrated very clearly in his speech, from the customers' point of view ownership by the state is no guarantee of good service or value for money. Our conclusion is that customers' interests are better protected not by state ownership of monopolies but through a combination of genuine public ownership and effective regulation.
The Motion of the noble Lord, Lord Taylor, asks us to ensure that the interests of the consumer are protected. The principle by which that protection is provided by the privatisation programme is tough, transparent regulatory arrangements. On this subject, several noble Lords have referred to a recent paper from the Public Policy Centre. The noble Lord, Lord Taylor, was the first to refer to it. The authors of that report were critical, I believe rightly, of the general performance of state industries. However, I believe they under-estimated the effectiveness of a well-designed and properly-enforced regulatory system in providing incentives for efficiency, in promoting competition, and in protecting the interests of consumers.
As all your Lordships have taken the example of British Telecom, let me do so. BT's powers and responsibilities are set out in the licence it holds to run a telecommunications system. Under the terms of that licence BT is required to provide telecommunications services throughout the United Kingdom. The licence also contains a number of provisions to ensure that the company's dominant position does not operate against the interests of customers or competitors.
Perhaps most importantly in this context, the licence restricts BT price rises on line rentals and dialled internal calls to both business and domestic subscribers to, on average, three percentage points below the Retail Price Index. Many noble Lords have spoken about this subject today: the noble Lord, Lord Taylor, first of all, and the noble Baroness, Lady Burton, especially. I should like to make three points in reply.
First, in reply to the noble Baroness, the director general of telecommunications has confirmed that the increases do comply with BT's licence obligations. Secondly, the average price increase calculated under the formula was 3.7 per cent., and this represents a substantial fall in real prices for telecommunications 930 customers as a whole. That trend will, under the RPI minus 3 per cent. rule, be continued for the rest of the decade. The noble Baroness asked me particularly about the timing. It is the new privatisation regulatory regime which will bring that about. Finally, with the elderly particularly in mind, BT operates a low-user rental rebate which automatically reduces rental charges by up to 20 per cent. for those making only a limited number of calls. That rebate was improved as part of the package of changes made earlier this year.
§ Baroness Burton of Coventry
My Lords, before the noble Lord leaves that point, and as we have a little time in hand, I have to say that that is a quite monstrous reply from the noble Lord. I said that they had made those charges arithmetically correct; that they had added them together and then halved them to make them arithmetically correct. However, it is nonsense to say that which the noble Lord has said. In case the noble Lord moves on, may I also ask him this: could those abuses by British Telecom continue for five years until there is a new assessment?
§ Lord Belstead
My Lords, the answer to the noble Baroness is a very simple one. The move downwards because of the RPI minus 3 per cent. rule is one which, due to privatisation, will continue until the end of the decade. I consider that to be a benefit. If the noble Baroness and noble Lords believe, as has been set out in our debate this afternoon, that in distributing price increases within the average BT has not done as noble Lords would wish, then I can say that I know BT will of course read this debate carefully, as many others probably will do. I repeat that my answer to the noble Baroness is that for the rest of the decade the working of that part of the British Telecommunications Act will be of benefit and not otherwise.
Lord Bruce of Donington
My Lords, before the noble Lord leaves that point, can he say therefore that the residential subscriber—not the whole spread—will have his charges progressively determined under the RPI minus 3 per cent. formula?
§ Lord Belstead
My Lords, as I have already pointed out, both domestic and business subscribers come under the RPI minus 3 per cent. rule.
§ Lord Belstead
I am sorry, my Lords, but I cannot add to that. I think it is perfectly clear. That arrangement will continue for the rest of the decade. I do not believe that it would be for the convenience of the House if I went yet again over the ground which we have already been over this afternoon.
It has also been said in the debate, not least by the noble Baroness, that the rules of the Act cannot be enforced by the director general of Oftel. The director general of Oftel, of course, as all your Lordships who took part in the Bill will know, has wide-ranging powers and responsibilities for the telecommunications industry. He has already demonstrated that he can use these powers effectively. The recent Oftel decision on interconnect affecting Mercury gave the lie to those critics who argue that Oftel has no teeth.
931 The regulatory arrangements also ensure that BT fulfils a social role, to which the final part of the Motion by the noble Lord, Lord Taylor, refers. Under the terms of its licence BT must provide a universal service: public call boxes, 999 services, directory inquiry and other operator services. These duties are carried out under the constant scrutiny of the Office of Telecommunications, backed up by the authority of my right honourable friend the Secretary of State and, ultimately, the courts. So there is a clear set of rules and a powerful means of enforcing them. But this is not to say that BT and the consumer have no common interests. This is certainly not the case. BT does, after all, have 1.6 million members of the public and its own employees who are shareholders.
There are other, less obvious ways in which BT, fulfilling and exceeding the requirements of its licence, has taken on a broader and more active social role through which it can affirm its commitment to the community. For example, it has its own unit called BT Aid to oversee the telecommunications needs of disabled people. It has introduced numerous devices to help the hard of hearing, and is now offering new community alarm systems for elderly or infirm people at risk living alone. The new telephone kiosks are designed not only for ease of maintenance and relative immunity to vandals but also to allow easy operation by wheelchair users.
I remind noble Lords—none of whom said this—that the general standard of service has improved, too. I think it is an advantage that waiting lists have now become a thing of the past and that over 90 per cent. of orders for larger industrial customers are now being completed on time.
The Motion also raises the question of United Kingdom suppliers. A simple "Buy British" policy at whatever the cost is surely not in the best interests of British industry. State industries are now encouraged to look for the best opportunities available, taking into account all factors such as lifetime maintenance cost and ease of replacement, as any efficient operator should. In the private sector, the incentives to get the best from suppliers is greater still. We believe that no other policy is of any help to British industry in the longer term if we are to compete in international markets.
Noble Lords, and the noble Lord, Lord Ezra, in particular, criticised BT for going to non-United Kingdom suppliers. I defend its right to do so and, most of all, I defend its right to make such decisions rather than have decisions imposed on it. But to put the matter (which has been debated at considerable length this afternoon) into perspective from the Government's point of view, over 90 per cent. of BT's total procurement, from sophisticated electronics to motor vehicles, is of United Kingdom origin. The System Y purchase by a company which is 51 per cent. British owned represents only 10 per cent. of BT's switching capacity requirement over the next two years. The whole of the rest is System X.
§ Lord Ezra
My Lords, before the noble Lord finishes with purchasing may I clarify the position we have taken on this side of the House? I do not think that anyone here supports a "Buy British" policy 932 irrespective of cost or lack of competitiveness. We are proposing that large purchases, whether in the public or private sector, should be used to stimulate competitive responses from British suppliers. That was the point we were making, and that is the policy pursued by the nationalised industries. We should like to see it pursued when they cease to be nationalised.
§ Lord Belstead
My Lords, I now pass on to the third element in the Motion. This speaks of maintaining good labour relations, which are central to the success of any business. As privatisation reinforces the pursuit of business objectives, so it reinforces the incentive for good relations between management and employees. I am saying to your Lordships that, in effect, privatisation builds up a team spirit. But it does more than that, and this is to be found in the fourth part of the noble Lord's Motion.
Since privatisation gives employees a chance to buy shares in their companies, it provides a real sense of ownership. Employees are entering enthusiastically into this. At British Telecom 96 per cent. of its employees took up their share entitlement, despite union opposition. Eighty per cent. bought further shares; and there has been a retention rate of 75 per cent. by BT investors.
The noble Lord, Lord Bruce, suggested, as I understood it, that flotations have only gone to those who have rather than those who have not. It is worth remembering that among the 2 million applications for the BT flotation a year ago 1 million were from people who were buying shares for the first time. On the subject of wider share ownership, I was interested that the noble Lord, Lord Grimond, spoke of missed opportunities on the share ownership front, while the noble Viscount, Lord Falkland, spoke in glowing terms of the effect of employee share ownership on labour relations in the Jaguar car company.
I simply say to both the noble Viscount and the noble Lord that the sharesave schemes and the share option schemes have been very largely the result of Conservative Government legislation beginning in 1980 and continuing through later Finance Acts. It is worth remembering that there were only 30 profit-sharing schemes which existed at all in May 1979, and today there are about a thousand. I take three examples of the shares which are held. In BT, out of 1.75 million shareholders 1 million were, as I said, new investors and had never held shares before; and there are 250,000 shareholders in British Aerospace, and 500,000 in Britoil.
My noble friend Baroness Elliot and the noble Baroness, Lady Burton, asked about British Gas. The noble Baroness, Lady Burton, wanted to know what sort of regulatory body will be set up under the legislation which my right honourable friend the Secretary of State intends to introduce into Parliament. This is a very important point, but it is quite impossible to answer before the legislation is introduced. I know that the noble Baroness will acquit me of any discourtesy in having to say that, but that is as far as I can go.
My noble friend Baroness Elliot asked three questions, two of which can be answered ahead of the legislation. My noble friend said that it was extremely important that consumers should benefit from 933 privatisation, and not the other way round. My right honourable friend the Secretary of State for Energy has made clear that consumers will benefit from the privatisation of British Gas through the emphasis on efficiency that will be built into the regulatory pricing arrangements. On the second point, my right honourable friend has also made clear that there will be proper provision for consumer representation, and arrangements will ensure that high standards are maintained. My noble friend asked also about who will be responsible for the inspection of safety and emergency services, but, if my noble friend will forgive me, I cannot answer that in advance of the legislation.
The noble Baroness, Lady Nicol, in the same context of the forthcoming British Gas legislation, made the point that privatised companies would not fall within the scope of the Countryside Act 1968 as regards being careful about environmental damage when engaged in capital works. Again, as regards British Gas I am afraid I can say nothing until the legislation comes forward. However, in the case of British Telecom, where we have the legislation on the statute book, that is a licensed telecommunications operator and, as such, enjoys the privileges of the telecommunications code set out in the 1984 Act. It is true that this enables it to undertake basic work on the public highway and, for instance, erect telegraph poles and fly-wires without planning permission, but major projects, such as the satellite earth stations that we have being seeing on television recently, of course require planning permission.
The noble Lord, Lord Winstanley, asked me two specific questions. The first question concerned the progress made with the advisory committees under the British Telecommunications Act. Under the 1984 Act my right honourable friend is required to establish advisory bodies for telecommunications customers in England, Scotland, Wales and Northern Ireland; and these have all been established. Under the same Act, the Director General of Telecommunications is requested to establish advisory bodies for matters affecting small businesses, the elderly and the disabled; and these, too, have been established.
The noble Lord also asked me about the general arrangements for consumer protection and trading standards in the metropolitan counties. Under the 1985 Local Government Act, the boroughs and districts in each metropolitan county are to set up a joint committee to ensure that adequate and uniform trading standards are prepared to take effect from the 1st April 1986. To help them in this task, the Department of Trade and Industry has issued guidance notes and has offered the services of their trading standards advisers. All joint committees have now been set up, and they are getting on with the task.
There is just one other matter which I should like to mention. The noble Viscount, Lord Falkland, asked me two specific questions. One was: will stamp duty be done away with? The other was: will capital gains tax be improved in a way that the noble Viscount outlined would be desirable? They are both interesting questions, but they are both questions for my right honourable friend the Chancellor of the Exchequer. Yet in giving that somewhat negative reply perhaps I may just remind the noble Viscount that in 1984 the Government halved stamp duty rate from 2 per cent. 934 to 1 per cent., which has already proved to have had a significant impact on Stock Exchange turnover; and we have also raised the thresholds of capital gains tax in this year's Finance Act.
Finally, perhaps I may end with a word about the subject of wider share ownership. I should like to express my thanks to the noble Lord, Lord Taylor of Gryfe, for supporting the move towards wider share ownership as a major objective of the privatisation programme, though the noble Lord questioned whether this objective was being achieved.
I should like to say that I have pleasure at the end of this debate in agreeing with the noble Lord, Lord Bruce, on one point. As I understand it, there are indeed nearly three million share owners in the country today, which is double the number that there were when the Government which is supported by the noble Lord quitted office in 1979. I must say that I do not really think that the increasing share-owning public would understand some of the gloomy references which came from the noble Lord on the Front Bench opposite. The fact is that people are welcoming the opportunities for wider share ownership and wider property ownership, which we are encouraging. The privatisation programme will continue to play its part in providing opportunities for new investors to take a direct stake in the economy. Surely, my Lords, that must be good for our country.
§ 5.15 p.m.
§ Lord Taylor of Gryfe
My Lords, I know it is customary at the close of these debates simply to say a few kind words in withdrawal but I observe that we have a little time in hand and perhaps I may be excused from following the normal procedure in order to corrrect one or two points.
First, as regards the point about charges, I think that, if the noble Lord will read what I have said, he will confirm that it is right. In fact I quoted from the Sunday Times, which simply stated that big discounts were offered to big business at the expense of the domestic user. The figures quoted by me in my speech were checked with British Telecom, so there is no doubt about that fact.
The second important fact concerning, I am sorry to say, the decline of individual share ownership came at the end. There had been a substantial decline in British share ownership annually from 1980 until the flotation of British Telecom, when there was a slight increase because of its overall impact. But the trend is quite clearly there: there is a decline. I hope that the Minister will share my concern and look at various incentives to encourage wider share ownership in the future.
Then there was the point raised by the noble Lord, Lord Ezra. We are talking about developments in the electronic communications field; we are not talking about buying motor cars, which were included in his 90 per cent. We are talking about collaborative agreements on long-term planning, research, development and investment, and it is that degree of necessary collaboration which is being diminished by the policy of British Telecom. At the moment, with all our brains and our resources, we are importing into Britain £6 billion-worth of goods in the engineering and electronics field, and there is a deficit of £1 billion 935 in what should be a traditional British industry. It is in order to correct that situation that we encourage British Telecom—or any private monopoly—to acknowledge the responsibilities which were so ably discharged in the days of the Post Office.
Finally, I should like to thank all the speakers who participated in the debate. Perhaps I may say to Lord Bruce of Donington that it was not designed as a debate for or against privatisation. When the Gas Bill is produced, I am sure he will find that we shall descend from that lofty neutrality to which he referred and measure it against the criteria which are mentioned in my Motion. I should like to thank all the noble speakers for participating and for accepting the limitations of a short debate. I thoroughly agree with the noble Lord, Lord Beloff—who was the only speaker on the Government Benches apart from the Minister—that there are only two ways of controlling the abuse of monopoly. One is by a regulatory authority with teeth and the other is by injection of competition. Those are the only two ways to do it, and when a private monopoly is created the latter means is eliminated, which is why a strong regulatory authority becomes necessary.
This was a timely debate, and I hope a satisfying one. I sincerely trust that the Minister will take on board some of the contributions that were made in a spirit of encouragement and helpfulness. I beg leave to withdraw the Motion.
§ Motion for Papers, by leave, withdrawn.