§ Mr. John H. Osbornasked the Secretary of State for Industry whether he will now make a statement about British Telecommunications' external financing limit.
§ Mr. Kenneth BakerAs stated in "The Government's expenditure plans 1981–82 to 1983–84", Cmnd. 8175, British Telecom's external financing limit of £180 million and the related figures in the White Paper assumed that BT would make a real return on net assets of 6 per cent. in 1981–82. Following a reappraisal by BT of volume prospects in the light of the recession, the Government recognise that it would not be reasonable to expect BT to make this level of return in the current financial year. My right hon. Friend the Secretary of State has accordingly agreed with the chairman that BT's financial target in 1981–82 should be set at a real return of 5 per cent. defined as profit before interest but after historic and supplementary depreciation, expressed as a proportion of net assets at replacement cost.
Reflecting this reduced financial return, my right hon. Friend has also agreed that BT's external financing limit should be raised by £200 million to £380 million in order to enable BT to maintain its planned investment programme, which, following revised demand forecasts by BT, now stands at a little over £1,900 million in 1981–82. The funds are being found from the contingency reserve within the planned totals of public expenditure.
As a condition of the increased external financing limit the chairman has agreed to make the necessary arrangements to ensure that the additional sums are used exclusively for capital expenditure. British Telecom has undertaken to look urgently at ways of closing any remaining financing gap; in particular it is at my request asking two groups of external consultants who are already advising on aspects of BT's operations to include in the scope of their investigations a close look at possible cost savings and efficiency improvements which could be achieved in the present financial year, and, more importantly, in later years as well.
332WI am sure that the House will welcome these measures which underline the recognition by the Government and BT of the central importance of telecommunications investment to this country's future economic performance.