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Mr. Tim Smith : That was because of capital investment.
Mr. Purchase: It was not because of the company's capital investment.
Mr. Smith: There is a very simple explanation as to why the water companies paid below average corporation tax: it is because of their high level of capital investment.
Mr. Purchase: That is only part of the answer, as the hon. Gentleman well knows. In a short speech, we cannot
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deal with these matters in the way that he wants and I will not get tied up by doing so. The headline figures are exceedingly important and give a proper flavour of the subject of this debate.
To return to my speech, the North West Water group's pre-tax profits were £284 million, but the company paid tax of just 5 per cent. Severn Trent's profits were £268 million, but only 11 per cent. was paid in tax. The area I represent is covered by Severn Trent and I have figures showing that, since privatisation, the company's profits have totalled £1.836 billion. Of course, there is overrewarding in the boardroom--directors' remuneration this year totals £1,249,000. Snouts in the trough would be a better description than overrewarding.
Competition has been mentioned, particularly in the south-west, which is the local area of the right hon. Member for Northavon. Competition has been introduced, but evidence to the Select Committee shows that the Gas Consumers Council has recorded a 90 per cent. increase in the number of complaints. That figure refers only to the unresolved complaints that have had to be dealt with by the council, not the whole range of complaints that have been made to the gas company.
How did we reach a position in which such enormous profits are made? One of the reasons was the terrible, tragic and crazy undervaluation of assets at the time of privatisation. In almost every instance--perhaps without exception--there was a significant undervaluation of the asset. Actually, one exception comes to mind--the nuclear industry. When it became perfectly clear that the industry could not be sold as a whole because money could not be made from it, the Government divided it up. They took the brand-new nuclear reactor--Sizewell B, which had cost £4 billion to construct and which had only recently been commissioned--and sold it for £2.9 billion. The rest of the nuclear liability was left in the public sector to be picked up by the taxpayer. That was a clear example of money being taken from the public purse to put in private pockets.
Finally, I want to address the question of TransCo, which is a natural monopoly because no one wants to dig into the ground to lay another set of gas pipes. The gas companies will all use the same gas pipes and the competition to which the right hon. Member for Northavon referred is between suppliers. What do the suppliers have to say about TransCo? To some extent, they agree with the regulator that prices are too high. When the regulator brought price capping into play, TransCo complained that 10,000 jobs would be lost. The truth was that it already had somewhere in the region of 9,000 job losses in the pipeline.
Then TransCo shares fell slightly in price and everyone's reaction was, "How terrible. The regulator is ruining the industry." The truth is that, of the 1.8 million shareholders, 1.1 million were small shareholders, having fewer than 500 shares. If the regulator's price capping in respect of TransCo is adhered to, those 1.1 million small shareholders will actually be better off losing £130 on the value of their shares because of the lower gas prices that they will have to pay. That says a lot.
Sir Michael Grylls (North-West Surrey):
If any Conservative Members had doubted the wisdom of having this debate, those doubts must have been swept away by now. Clearly, we have flushed out Labour in respect of the extraordinary windfall tax about which Opposition Members have been talking for the past four years. The resulting headline might be, "New Labour, old attitudes".
I listened carefully to the speech by the hon. Member for Wolverhampton, North-East (Mr. Purchase), but I hope that he will forgive me if, because of the shortness of the time available, I do not follow him down some of the paths he laid out. However, at the beginning of his speech he commented on the regulators and the way in which they had not got going as strongly as they should have, and I think that that is unfair.
Although America had previously had regulators for monopoly industries, the privatisation programme in Britain broke new ground. I am not trying to make a party point, but the country owes a huge debt to the regulators. Some have been better than others and there are many different opinions about their effectiveness, but the regulators have tried hard and I think that they have been successful in getting to grips with the problem of how to regulate--especially in respect of prices--monopoly or near-monopoly industries.
If one wanted any proof of that, it is that, by and large, in all our utilities--with the exception of water companies, which are in a special position--prices have decreased considerably. If a regulator's job is to protect the consumer, the regulators have done their job well. As the hon. Member for Wolverhampton, North-East said, they could always press down prices a bit more, but I shall not go too far down that road.
What has emerged from the debate is Labour's old wish to interfere. Labour has lost the intellectual battle on nationalisation versus privatisation. It has been a bitter blow. In the 12 years or so since privatisation started, Labour Members have opposed every privatisation because they did not believe in it. In a way, that was reasonable, because they believed in nationalisation, but they have had to face the fact that the privatisations have been highly successful on almost any measure that one cares to produce, whether it be the consumer's interests, investment, or getting politicians out of those industries' hair. It has been a bitter pill for the Labour party to swallow.
So what happens? Labour finds a different route. Labour Members do not propose to renationalise the utilities, but they would like to interfere in them. It would be more intellectually honest for them to tell the House and the country, "Yes, we want to run those businesses. We think that it is wrong that they are run by professional managers. We should like to run those industries if we ever formed a Government. We think that we would run them better"--not many people would agree, but that is what they would say--"so we would nationalise those
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Labour Members also appear to have forgotten--I hope that the hon. Member for Edinburgh, Central (Mr. Darling) will mention this--that the world has moved on since the early days of privatisation, and that companies based in other countries have invested in those businesses and bought the shares. Many of those utility companies are now owned by American or French companies.
Not so very long ago, we had a 13-year battle to get rid of a method of taxation in the United States that everyone agreed was wrong--corporate taxation by the unitary tax method. There was a huge fight, in which both sides of the House were agreed: an entirely non-partisan effort. In the end it was won, to the great advantage of Britain, because British companies in America had been damaged by what hon. Members on both sides of the House agreed was an unfair, unjust, damaging tax.
Now, in 1996, in Britain, we have the prospect--in the unlikely event that Labour forms a Government--of another tax which most commentators outside the Labour party believe to be very unfair. As I believe I was the person who recommended retaliatory action in Britain against a unitary tax, I could not complain if that unlikely event were to happen. I am sorry that we are obliged to go down the fairy-tale route of supposing that there might be a Labour Government but, in all fairness to the public, we should warn them of what might happen if that very unlikely event happens.
If that happens and Labour introduces that lovely windfall tax, we shall not be in a position to complain if the Americans reintroduce a unitary tax, saying, "You have done a bad thing to us so we shall do a bad thing to you." Those 13 years of hard work would be thrown away.
Mr. David Shaw:
My hon. Friend will appreciate that we have not yet heard an answer from the Labour party on how "excess profits" are to be defined. Does he feel that all the overseas investors into this country will now say to themselves, "Excess profits will be taxed by any future Labour Government if there is one, so should we invest in the United Kingdom?" Is he not worried that all the small businesses for which he has fought hard over the years now know that their profits are at risk because they might be defined by a future Labour Government as excess profits and obscene profits? Has not Labour today frightened 5 million business people in this country?
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