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Mr. Boswell: My hon. Friend will be familiar with the situation in relation to certain agricultural quotas. Does

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he agree that it would be possible to include within the mechanism a siphon whereby a proportion of the value, or a proportion of the spectrum itself, was taken off as a necessary part of, and concomitant to, the Secretary of State agreeing to such a transaction?

Mr. Letwin: My hon. Friend's mind is so speedy in its operation that he anticipates not merely the next part of my remarks, but the part after that. The solution he envisages is one which the Minister, on mature reflection, may wish to adopt. As I said, new clause 5 represents the minimum position.

12.15 am

By contrast, new clause 11 represents the opposite extreme. It allows reallocation, effectively by arbitrary fiat. The hon. Member for Broxtowe (Dr. Palmer) made the valid observation that serious issues arise from such reallocation--for example, property rights and the rights of individuals and companies that have invested. Nevertheless, the new clause would resolve the monopoly rental surplus profit problem.

The new clause would allow reallocation without compensation. That could be defended on the ground that in order to exercise that power reasonably, so that it would not be challenged in the courts through judicial review, the Minister would have to allow the retention of such parts of frequencies that were originally allocated as was necessary to continue those same actions which were originally the subject of the bid or the administrative charge.

Even then, dangers are attached to that option. However, it would represent a conscious policy by the state to recoup unused frequencies for the public good and to restore profitability--a normal return--to the level that the bidder had anticipated it would be, post the technological changes that had enabled the bidder, hypothetically, to be able to conduct exactly the business he had intended with a much smaller range of frequencies.

There are two poles. At the one pole, there is the entirely voluntary market mechanism, posing no problems of civil or property rights and solving the problem of the efficient use of the spectrum--but leaving intact what might be enormous surplus profits under certain scenarios; a vastly over-adequate reward for the original risk.

At the other pole, there is a more draconian possibility. If exercised in the true traditions of British administration, and subject to the strictures of the British legal system, it would probably result in the preservation of property rights, although it runs some risk of going too far in that respect. However, it would deprive the original holder of what might otherwise be a very excessive profit.

Between those two poles lies exactly the suggestion on which my hon. Friend the Member for Daventry, with his lightning wit, alighted. On mature reflection, we may feel that we are suffering from a lack of completeness in our range of amendments and new clauses. As my hon. Friend said, what we are putting forward tonight is a menu for ministerial consideration, but I fear that it contains only the first and last courses, and may be missing the main course.

We might have tabled a new clause that would have allowed for tradeability, but tradeability with some form of levy--which could be adjusted not necessarily merely

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for a normal return, but for a super-normal return to allow for original risk. That might also recoup vast sums for the Exchequer at a time when technology had moved in a way that was not anticipated.

On the issue of immediate practice, we have to consider what will be the effect of the Bill if it is passed as it stands, which I fear may well be the case. In a perfect world, it would not matter if the new clauses were not accepted, because the Government could introduce a new Bill next week with an equivalent set of provisions; but we are all aware that that is not the reality of public administration. No doubt the Minister fought long and hard to find legislative space for the Bill. The dizzying speed with which her colleagues are introducing legislation--much of which I regret--suggests that the legislative timetable may be chock-a-block for many years.

I fear that, although the House is at the disposal of the Government--I sometimes feel that it is utterly so--technology, reality and commerce are not. The speed with which the developments that I mentioned have occurred may mean that the Government cannot catch up in their legislative timetable with the pace of technological development.

Mr. Ian Taylor: I would go even further. Because of the speed of change--my hon. Friend rightly mentioned the advances in compression technology--it is impossible for Governments to anticipate developments in the very near future. All legislation should be technology neutral, and it should facilitate, rather than regulating a closely defined area of activity at any given moment, because that is always likely to block investment or to be simply irrelevant, because the technology has superseded it.

The new clauses are designed to make the Bill technology neutral, creating powers to deal with the technology however it develops. I am interested in the lucid and erudite way in which my hon. Friend is explaining the problem.

Mr. Letwin: It is precisely because of our collective ignorance--and, alas, the ignorance of any Government--that technological neutrality, and flexibility in the face of changing technology, are of the essence. If the new clauses are not accepted, it may be too long before the Minister gets the chance to introduce equivalent provisions.

If the worst happened, and the problems that I mentioned arose, it would be at the cost of some years of efficiency, perhaps to the considerable disadvantage of the economy and with long-term effects on British manufacturing and design, and the problems that the hon. Member for Broxtowe referred to might become acute.

If a company purchased a wide range of frequencies and found that it did not need them all because of advances in technology, but then began to exploit some others in an unanticipated way, it would of course have established a valuable property right in those parts that it had not originally anticipated using for that purpose, and it would be extraordinarily difficult, at least at the far end of the spectrum, for the state ever to recapture the gain.

The Minister may find herself in the bizarre position of having the Conservative Opposition accusing her at a later date of having failed to recapture for the state, in a

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virtually unattended House at 12.23 am, an amount vastly greater than the entire surplus profits to which Labour Members allude in relation to privatisation.

Mr. Lansley: I always hesitate to intervene on my hon. Friend, because the completeness with which he forms his argument leads me to suspect that I will simply anticipate a point to which he was about to come.

Does my hon. Friend recall a point made by the hon. Member for Broxtowe (Dr. Palmer) on Second Reading, that if administrative pricing gets the fee wrong, either it will be too high, and act as a disincentive to investment, or it will be too low, and not affect economic behaviour at all? Does my hon. Friend agree that new clause 5--to which, inter alia, he is speaking--would assist, even where administrative pricing applies, in getting the fee right at the earliest possible moment?

Mr. Letwin: My hon. Friend makes an important point. The combination of new clause 5 with new clause 16, which we shall discuss in due course, will have that effect. I must not intrude on your good will by talking about new clause 16 now, Mr. Deputy Speaker, but perhaps we should return to my hon. Friend's point--which is very just--when we debate that new clause. The problem is not merely one of inefficiency or surplus profit. There is another dimension, which makes the flexibility that would be conferred by the new clauses--or, at least, by similar provisions--all the more necessary.

If, on her return to the Department, the Minister consults widely, not just with those concerned with frequency allocation but with those with experience of the entire range of the telecommunications business and, indeed, the media business, she will hear an echo of what I am saying. We may be on the verge of a revolution in the cost structure of the telecommunications industry, to which the new clauses are directly relevant.

There is beginning to be some indication--in Italy, for example--that the fundamental cost of mobile telephony is between a quarter and a fifth of the cost of fixed telephony. That applies even under the fairly efficient arrangements currently operating in the United Kingdom. If the comparison proves to be bona fide--many of us are currently studying the matter in some detail--the entire fixed-line network, not just that of BT but those of its competitors, may well disappear within the lifetime of this Government. That is not because the network's functions will disappear, but because they will be replaced by fixed-radio access.

It is possible that, if the new clauses were accepted, the process could occur smoothly, and that as much as1 per cent. of gross domestic product could be added to consumer surplus in the economy. As I have said, voice telephony accounts for between 2.5 and 3 per cent. of GDP. If we reduce its resource cost by more than 50 per cent., there may be a consumer surplus of roughly1 per cent. of GDP. The new clauses would allow the transfer to take place smoothly. Without them, such a transfer might not be possible. The economic loss that might be entailed--I say "might", but I think there is a pretty strong probability--if the Minister fails to adopt similar measures could be very great.

I hope that on all these grounds--sheer efficiency, preventing abnormal profit through an unintended monopoly rent, and, most important of all, the generation

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of a huge economic opportunity gain for all of us--the Minister will seriously consider whether, after all, she should opt for flexibility arrangements of this kind.


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