House of Commons Hansard Debates for 20 Feb 1995

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Whitney, Ray

Widdecombe, Ann

Wiggin, Sir Jerry

Wilkinson, John

Willetts, David

Wilshire, David

Winterton, Mrs Ann (Congleton)

Winterton, Nicholas (Macc'f'ld)

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Wolfson, Mark

Wood, Timothy

Yeo, Tim

Young, Rt Hon Sir George

Tellers for the Noes: Mr. David Lightbrown and Mr. Sydney Chapman.

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Question accordingly negatived.

Question, That the proposed words be there added, put forthwith pursuant to Standing Order No. 30 (Questions on amendments) and agreed to.

Question accordingly agreed to.

Madam Deputy Speaker-- forthwith declared the main Question, as amended, to be agreed to.

Resolved,

That this House recognises that, because of medical advance, shifts in the population and the changing needs of patients, reform of the health service in London is both necessary and long overdue; congratulates Her Majesty's Government for its resolve in addressing the modern needs of people in the capital and the South East, in sharp contrast to the vacillation and evasion of the Opposition; and believes that policies now being pursued have already delivered a better health service for the area, enhancing the excellence of research, teaching and treatment as well as improving local health services in the parts of greatest need.

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Regional Electricity Companies

Madam Deputy Speaker (Dame Janet Fookes): I have to announce to the House that Madam Speaker has selected the amendment in the name of the Prime Minister.

7.14 pm

Dr. John Cunningham (Copeland): I beg to move,

That this House deplores the President of the Board of Trade's decision not to refer the hostile bid by Trafalgar House for Northern Electric to the Monopolies and Mergers Commission, given its unpopularity with the majority of Northern Electric's shareholders present at the special general meeting of 15th February, the absence of any experience on the bidders' part in running a private domestic monopoly energy utility, the concerns of the Director-General of Electricity Supply about his ability to regulate a regional electricity company which becomes subsumed within a larger group, the ongoing inquiries being made by the Securities and Futures Authority into insider dealings involving the bidders' advisers the Swiss Bank Corporation, and the expiry on 31st March 1995 of the golden share held by the Government in the 12 regional electricity companies, which will leave them open to predatory or hostile bids without any established procedures for transfer of ownership or the protection of small shareholders, consumers and employees.

It is appropriate and timely that the House should have the opportunity to debate the future ownership, control and regulation of regional electricity companies. The motion reflects the widespread public anger--indeed, contempt--felt by consumers and employees alike for a Government and their energy privatisation policies that have left them wide open to exploitation.

Those views are strongly held across the United Kingdom. They are reinforced week in, week out by further news of massive pay rises, huge no- risk share options and self-enrichment by directors who award themselves grotesque increases which bear no relationship to their own or their companies' performance. It is an abuse of their stewardship that we, the public, the press, consumer watchdogs and successful directors in the private sector condemn, but which the President of the Board of Trade condones, defends and, apparently, even believes in.

People are rightly outraged by the frequent widespread abuse of private monopoly power, which Ministers take no action to prevent. Consumers increasingly despair of a regulator who is powerless to act in their interests, who cannot prevent abuses and who has no remit to consider the employees' situation in regional electricity companies. Everyone recognises that electricity privatisation created private monopoly power, captive consumers and weak regulation in cash-rich industries, all of which have been a recipe for exploitation. As one City analyst said last week:

"Regional electricity companies are quite unlike anything else. As monopolies governed by a kind of regulator they are a licence to print money."

That is what experience has confirmed. Everyone believes that with the apparent exception of Ministers in the Department of Trade and Industry. As the Under-Secretary claimed again last Wednesday, when referring to regional electricity companies,

"they are indeed normal companies, operating in the private sector."--[ Official Report , 15 February 1995; Vol. 254, c. 1002.] It appears that Ministers are unique in their isolation in holding to that belief. The City does not believe that; the press does not believe it; consumers do not believe it;

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even the chairman and directors of the regional electricity companies themselves do not believe it. They know that if what the Minister said was true and if market discipline genuinely prevailed, they would not be able to get away with the hugh share options and salary increases through which they have been ripping-off consumers. It is a scandal.

Outstanding share options for directors and chief executives in regional electricity companies add up to more than £103 million. The 14 million share options total £103.4 million, according to figures provided by the House of Commons Library. That is the nature and scale of the rip-off that those people are awarding themselves at the consumers' expense. Far from any protection for consumers, the great and false claim at the time of privatisation that regulation would protect them has failed to have any effect. The price controls imposed last summer were so lax that shares in regional electricity companies rose immediately afterwards. The City was pleased that the new regime allowed the money machines to continue.

Sir Michael Grylls (Surrey, North-West): It was probably a slip of the tongue, but the right hon. Gentleman said that share options were ripping off the consumer--I think that those were his words. I am sure that he did not mean that because, as he knows--or should know--share options are not paid by the companies; they come from shareholders. Any share option does not cost the company one single penny. If the right hon. Gentleman thinks about it, he will realise that that is true.

Dr. Cunningham: We all know where the shareholders' money is coming from--straight out of company dividends. Shareholders and directors are the main beneficiaries of what has been going on, at the expense of consumers, employees and the taxpayer. Following last year's new decisions, shareholders once again won at the expense of consumers and employees.

It is against that background that the first hostile bid to take over a regional electricity company has occurred; indeed, it is because of that background that it has occurred. It involves Northern Electric and Trafalgar House, but it could be any regional electricity company and any predator. With one or two exceptions, the scenario would be the same.

We should bear in mind the fact that the Government's privatisation White Paper envisaged retaining regional-based electricity companies to respond to local needs and to promote regional identity--that was the Government's policy at the time. That basic concept has apparently been abandoned by the President of the Board of Trade. Apparently, any bid for any regional electricity company is now authorised. It is open season because he has ignored--indeed, he has abandoned--any public interest in the matter.

Strong grounds remain for a reference of these issues to the Monopolies and Mergers Commission on public interest grounds.

Mr. Bernard Jenkin (Colchester, North): What would be the point of referring a United Kingdom company's bid for a regional electricity company on public interest grounds when no such reference would be made in relation to a bidder from another European country?

Dr. Cunningham: I am not sure that that is necessarily true. A number of public interest grounds exist, including

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not least the ability of the regulator to continue even with his weak powers in the face of a takeover by a multinational conglomerate, whether it be Trafalgar House or any other organisation. The Labour party strongly holds the view that the bid should be referred. It is not alone in that view, as the hon. Member for Colchester, North (Mr. Jenkin) knows. That is the view of the National Consumer Council, the public watchdog. Its chairwoman, Lady Wilcox, has made that clear. She wrote to the Office of Fair Trading to raise key consumer concerns. She said:

"Questions about issues like cross-subsidy and disposal of assets must be fully explored by the MMC to safeguard consumers . . . We believe this will become a major issue for consumers which needs to be tackled as soon as possible."

The letter goes on in that vein. No doubt exists, therefore, about what the council believes.

The industry regulator holds the same view, but it has been swept aside by the President of the Board of Trade. The very person appointed by the Government with a framework of regulation to look after consumers' interests believes that the reference should take place. That is not all. I have a copy of a letter written by three Back-Bench Conservative Members to their colleagues. It is from the hon. Members for Stockton, South (Mr. Devlin), for Tynemouth (Mr. Trotter), and for Ryedale (Mr. Greenway).

Mr. Tim Devlin (Stockton, South): I am here.

Dr. Cunningham: I am pleased to see that at least one of the hon. Gentlemen is in his place. Apart from reiterating my point that "the privatisation White Paper sets out the case for retaining regional based electricity companies"--

the hon. Gentleman is right about that--those three Conservative Back Benchers say:

"A reference by the President for the Board of Trade to the MMC is an appropriate way for the important issues raised by the Trafalgar House bid to be examined."

On this occasion, we can safely say that support for the reference exists on both sides of the House. It may come as some surprise to the hon. Member for Colchester, North that his Back-Bench colleagues do not share his view, but I thought that he would like to know that they share the Labour party's view. Perhaps the President of the Board of Trade will tell us how many other Tory Members have written to him expressing the same view.

Mr. Devlin: In the letter that I and my colleagues sent to many of our colleagues, we did not express a view as to whether Trafalgar House should be allowed to take over Northern Electric. We said that a number of issues needed to be explored. When I was on the radio the other night in Newcastle, one of the right hon. Gentleman's colleagues would not answer the question of what Labour would do if it were in power. Would it refer the bid or renationalise the industry? No Labour Members have yet said a word about their attitude to that.

Dr. Cunningham: I understand the hon. Gentleman's embarrassment at being found out, but there is no doubt that we would refer the bid to the MMC. I share his view. This is not a question of Trafalgar House, or of being for or against the management of Northern Electric or Trafalgar House. This is a test case. We know that all the other regional electricity companies will be up for grabs.

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In the public interest, the matter should be thoroughly examined, and the MMC is the most appropriate forum in which to carry out that examination.

I hope that the President of the Board of Trade will tell us how many more letters he has had in that vein from his right hon. and hon. Friends. The hon. Member for Stockton, South and his colleagues the hon. Members for Ryedale and for Tynemouth will have their resolve put to the test, because at 10 o'clock tonight, they will be able to vote for a reference of the bid to the MMC. The hon. Member for Stockton, South has told his constituents that he wants a reference. Those three Conservative Members will have the opportunity to vote for that at 10 o'clock tonight. We and his constituents will be watching to see whether the hon. Member for Stockton, South puts his vote where, apparently, his beliefs are.

The President of the Board of Trade has no interest in the public interest. He is, after all, the man who boasted at the Tory party conference of his determination to intervene--he is the great intervener. He has failed another test, passed up another opportunity, and sold out on intervention in this case, as in many other cases before. His decision has produced a huge scramble for cash in the City. As we all know, every electricity company will become a target, not for investment in new plant or equipment, not for investment in new skills, education and training, and, above all, not in attempts to give consumers lower prices or better services; they will become a target in the battle to control private monopoly power to generate cash without competition, as those organisations have been doing since their inception.

To defend itself, Northern Electric is offering shareholders more than £500 million in cash or in marketable securities, including its share of huge windfall profits from the sale of the national grid, another sell- out of the taxpayer's interest by the Government. That offer will be financed, among other things, by huge borrowing, by more job cuts, as the chairman of Northern Electric has candidly admitted, and by reducing investment in the business--so much for long-term approaches to the future of electricity supply. Consumers and employees are the losers. Customers will, of course, pay heavily for the cost of the takeover, whatever the outcome of the struggle for control.

All of us, including taxpayers, will pay for all of this because Trafalgar House's bid will be significantly financed by its overseas tax losses, perhaps totalling some £300 million over time. Trafalgar House, cleverly, saw the possibilities for financial engineering, to acquire Northern Electric and make the taxpayer foot part of the bill. At least it made a gesture to consumers, with the offer of a rebate of £20 per consumer, or perhaps per household. Consumers are rightly asking themselves, "If all that money is available to battle for control, and if rebates can be given, why are we paying so much for our electricity?" Why is the regime so lax that all that money can slosh around in the system to benefit shareholders but not consumers?

Employees are asking, "If the companies are so profitable and desirable, and are such cash generators, why should we pay for all this with our jobs?" The likelihood is that those events will be replicated in other regional electricity companies. In Yorkshire, the

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midlands, the north-west and elsewhere, consumers, employees and taxpayers will foot the bill for the President's indifference to their position.

The Government sold Northern Electric for £240 million. Trafalgar's first offer is £1.2 billion. The difference of £770 million is the amount by which the Government shortchanged the taxpayer with their ill -judged privatisation. There are 12 RECs. All were underpriced and the loss to the taxpayer runs to billions of pounds. The fact that Trafalgar values Northern Electric at £1.2 billion says it all. Mr. Kevin Lapwood of Smith New Court said:

"It represents a capitulation on the part of the politicians"-- he meant the right hon. Gentleman and his friends--

"and the regulator."

That view is not surprising, given that RECs now have market capitalisation of more than £16 billion, compared with £5.2 billion four years ago.

It is not as though consumers had a good deal on prices. Figures from the Library show that between December 1990 and January this year, electricity prices rose by 4.3 per cent. in real terms against a background of falling world basic energy prices--oil by 26 per cent., gas by 27 per cent. and coal by 18 per cent. So much for claims that privatisation has done a good job for consumers.

Mr. Hartley Booth (Finchley): Why does not the hon. Gentleman accept that, since privatisation, electricity prices have fallen by 3 per cent. on average?

Dr. Cunningham: Because they have not. The hon. Gentleman is confused. Last September's study by London Economics on productivity growth in RECs stated:

"No clear privatisation effect is apparent. Whilst there is a slight improvement in the overall average productivity level in the post- privatisation period, this is so small as to not be considered statistically significant . . . Furthermore, there is no consistent record of improvement among the 12 firms that would suggest that privatisation can be associated with efficiency gains. In fact, while six of the companies improved productivity, three experienced slower productivity growth in this period, two were unchanged and one company actually became less efficient . . . We cannot accept the hypothesis that productivity growth in the distribution industry as a whole is higher in the post-privatisation period than in the period before."

There is no escaping the conclusion that in privatising RECs, the Government got it hopelessly wrong. Directors and shareholders are winners, while consumers, taxpayers and employees are the losers--as are energy conservation policies, long-term capital investment and, ultimately and disastrously, the future of the coal industry and mining communities.

I put specific questions about the Trafalgar House bid to the President and his Ministers before and received no answers, but I will try again. Are the assurances given to the President by Trafalgar House legally enforceable-- yes or no? If regulation is unable to protect consumers now in respect of a stand-alone utility, will it not be completely inadequate to deal with multinational conglomerates? The regulator thinks that the answer is yes. What is the right hon. Gentleman's answer?

Is it appropriate for the bid to proceed when the Securities and Futures Authority, the Securities and Investments Board takeover panel and the right hon. Gentleman's officials are investigating the conduct of the Swiss Bank Corporation in respect of share deals in

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Northern Electric? Is not it possible that at least some of those inquiries may lead to proceedings under the Criminal Justice and Public Order Act 1993?

Who tipped off Trafalgar House last Monday, 13 February, that the President did not intend to refer the matter to the Monopolies and Mergers Commission? Trafalgar clearly knew last Monday, before any public announcement by the right hon. Gentleman. As he was in London on Monday, he clearly made his decision then, so why not make a statement to the House? That Trafalgar House knew on Monday is confirmed in a letter to my right hon. Friend the Member for Bishop Auckland (Mr. Foster) from the Director General of the Office of Electricity Regulation. Professor Littlechild wrote:

"Following the announcement of the Secretary of State's decision, members of my staff met Trafalgar House representatives on Tuesday 14 February."

So far, so good. He adds:

"The meeting was arranged in the afternoon of Monday, 13 February."

That was the day before the announcement. Professor Littlechild concludes:

"I hope this information is helpful."

It is, because it tells us that notwithstanding the right hon. Gentleman's quasi-judicial role--his excuse for not answering questions in the House-- he must have been in direct communication with Trafalgar House, telling it of his decision before having the courtesy to inform the House. He did not have the courage of his convictions or to tell Parliament of his decision. Instead, he announced it in a press statement the next day, after he had left the country. Who tipped off Trafalgar House before any public statement was made?

If the President was so sure that he had got it right, why did he not tell the House of his decision? He had every opportunity. We pressed the Department for a statement, but the right hon. Gentleman ducked it. If he had had his way, the House would not have had an opportunity to debate the issue. If the President and his colleagues had had their way, nothing would have been said in the Chamber. Our private notice question brought the Under-Secretary of State for Corporate Affairs to the Despatch Box last Wednesday, and our selection of this topic today has given the House the opportunity for debate.

Mr. Jim Cousins (Newcastle upon Tyne, Central): Perhaps my right hon. Friend would like the news in a parliamentary answer that I received shortly before this debate. The President of the Board of Trade received the advice of the Director General of Fair Trading on the matter on 2 February. Twelve days passed before the announcement to the House. A meeting with Trafalgar House was held at the right hon. Gentleman's behest on 13 February. Is my right hon. Friend disturbed by that information?

Dr. Cunningham: My hon. Friend is just confirming what is apparent-- that the President of the Board of Trade, or his hon. Friends or officials, had conveyed to Trafalgar House long before the announcement of his decision, what the effect of the decision was when that decision was clearly in its interests.

Mr. Chris Mullin (Sunderland, South): Would this be the appropriate moment to remind the House that Trafalgar House has given £600,000 to the Conservative

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party since 1979? Does my right hon. Friend think that it is possible that there is an inside track for companies that enjoy this close relationship with the Conservative party?

Dr. Cunningham: I suppose that Tory Members would describe that as throwing public money at the problem.

The regulator clearly believes that his powers are insufficient to deal with an electricity company wholly owned by Trafalgar House. Does the President of the Board of Trade support the regulator in his wish to require Trafalgar House to float off 25 per cent. of the company? Will he give us a straight answer to that question when he replies? The regulator is dissatisfied and has made a reference to the Monopolies and Mergers Commission because he cannot get satisfaction from Trafalgar House. Will the right hon. Gentleman overrule a reference by the regulator? Yes or no? The public interest reasons for a reference of the bid to the Monopolies and Mergers Commission are overwhelming. The President of the Board of Trade should think again. In its vote tonight, the House should oblige him to do so.

7.40 pm

The President of the Board of Trade and Secretary of State for Trade and Industry (Mr. Michael Heseltine): I beg to move, to leaveout from "House" to the end of the Question and to add instead thereof:

`applauds the improvements in performance in the electricity supply industry since privatisation; welcomes the benefits which customers are receiving in terms of lower prices and improved service; supports the continuing development of competition in the electricity market and the maintenance of effective regulation where this is necessary; and notes that the Director General of Electricity Supply will continue to promote competition and protect the interests of consumers.'.

In anticipation of this debate, I spent some time looking at the Opposition motion. If I may, I shall take the motion as my text. I hope that the right hon. Member for Copeland (Dr. Cunningham) will forgive me for sticking to the subject as expressed on the Order Paper.

Apparently, the reason for deploring what I have not done is that the bid by Trafalgar House for Northern Electric was unpopular with "the majority of Northern Electric's shareholders"

who turned up at a meeting on 15 February. That is the first reason.

The second reason is that, apparently, Trafalgar House has no experience of

"running a private domestic monopoly energy utility".

The third reason is that

"the concerns of the Director-General of Electricity Supply about his ability to regulate a regional electricity company which becomes subsumed within a larger group"

were ignored. The fourth point, to which the right hon. Member for Copeland referred, is

"the ongoing inquiries being made by the Securities and Futures Authority".

The fifth point is

"the expiry on 31st March 1995 of the golden share held by the Government in the 12 regional electricity companies".

Those are the reasons which the Labour party gave notice that it wished to draw to the attention of the House tonight.

I am at something of a loss to understand the thinking behind those reasons. Perhaps we can explore just what Labour Members have in mind. It seems that, if a

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company has a meeting at which an undefined, unprescribed number of shareholders turn up, and if a majority of those who turn up hold a particular view, no matter how few they are, no matter the views of the others and no matter whether proxies are registered from the majority, the fact that those who turn up hold a view should be the determining factor. That is a curious constitutional innovation in the way in which British public companies should be run.

I find it fascinating that the Labour party believes that the view of a small number of possibly wholly unrepresentative shareholders should be the basis on which the President of the Board of Trade reaches his judgment. What about all the other shareholders who did not turn up? What about the majority who may not have expressed an opinion? Supposing that they were against the view of the small minority who did turn up? Am I supposed to ignore them? Am I not supposed to listen to their views and to a range of other people's opinions on the matter?

The fact is-- [Interruption.]

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