Nationalised Industries (Hansard, 4 August 1980)

§ Sir Geoffrey Howe

The Government have now completed a joint examination with the nationalised industries' chairmen's group (NICG) of three aspects of the nationalised industries' financing arrangements. Useful progress has been made and I am happy to report that proposals have been worked out which the Government have agreed and which the chairmen have welcomed as a modest but worthwhile improvement.

The first points concern the way in which external financing limits (EFLs) for the industries are set and administered. The Government regard EFLs as one of the main elements in the framework of financial disciplines within which the 42W industries are required to operate and in particular as an essential instrument for short term control of public sector borrowing. It has always been recognised, for example in the original cash limits White Paper of April 1976 (Cmnd 6440) that since the nationalised industries are trading organisations with large flows of expenditure and revenue, the EFLs cannot be immutable: but that equally there can be no presumption that a financing deficit would be met, as happened before 1976, by a further injection of external finance. We have now sought to define in broad terms the circumstances in which the Government would be prepared to consider adjusting EFLs. We have also agreed a measure of end-year flexibility. This would come into effect in 1981–82 and would allow industries to exceed the current year's EFL within limits on condition that an equal deduction was made from the following year's EFL. Provision for this would be made in the contingency reserve within the overall public expenditure plans.

Second, we have agreed in principle a somewhat revised presentation of nationalised industries' financing in the Financial Statement and Budget Report designed to demonstrate more clearly the extent of the contribution of the industries' internal resources and, in particular, profits to the financing of their investment programme. The details are still being discussed.

On finance, we have agreed on a more flexible approach to the determination of the terms on which industries may borrow from the National Loans Fund (NLF). The rules governing the maturity period for such borrowing have been changed so that they are determined by an agreed view between each industry, the Treasury and the sponsor Department as to what is an appropriate maturity pattern for the industry's liabilities, rather than by the present arrangement under which the majority of borrowing is for a maturity period linked directly to the asset life of the industry. For their part, the industries have agreed to provide additional information about their borrowing requirements in the immediate future, in order to assist the task of the authorities in funding the PSBR, and so maintaining monetary control.

I am placing a document setting out the details of the first of these changes in the Library.