Lord Howell of Guildford
That this House takes note of the case for private ownership of industries and institutions in the United Kingdom.
Lord Howell of Guildford (Con)
My Lords, as this is my first proper opportunity, I wish at the outset to pay my personal tribute to the late Lord Howe of Aberavon, who was my friend, mentor and inspiration for many years. His role in our nation is not unrelated to the subject that we are debating in this Motion, since he brought sense and moderation to the great issue of unravelling Britain’s overcentralised and socialised industrial structure and saw the future in strictly practical, rather than ideological, terms. Speaking of balance and moderation, I very greatly look forward to the maiden speech of my noble friend Lord Young, whose almost proverbial balance of common sense and moderation will undoubtedly be a great asset to this House in dealing with this kind of subject and many others.
I suppose that, if I was a die-hard, last-ditch, put-the-clock-back, old-school Tory I would be on the side of Mr Corbyn, the leader of the Labour Party, who clearly wants to return to the past and is, I understand, firmly committed to the renationalisation of the railways and, as far as I know, maybe much else as well—I am not quite sure about that. However, as I belong to neither that wing of the Tory party nor, needless to say, Mr Corbyn’s circle either, I will be taking a different view, and one that I hope that, in this House at least, is fairly uncontroversial. After all, at about the last dinner and discussion I had with the late Baroness Thatcher while she was still well, she repeatedly warned me that life would be difficult for us as Conservatives because Mr Blair had pinched all her best policies, notably her commitment to privatisation of large swathes of British industry. She thought he had carried on with and taken one of her best ideas.
Of course, the seeds of privatisation go back long before that, and were really planted back in 1970 under the Heath Government, when we attempted to bring in for the first time systematic questioning of whether every programme and function of central government should be in the public sector at all or organised in different ways. However, 1997 was one of the defining moments in the privatisation story, because it was the recognition that a modern social-democratic, forward-looking party, as Labour then was, could live with, and actually carry forward and develop, the privatisation programme idea. My theme in my comments will be that the continuing privatisation trend of the last 30 years or so, both here and around the world, including incidentally in Russia and China, has been basically technological and the inseparable child of the digital age and the information revolution, rather than ideological.
There may have been instances where it has gone too far and too fast, or where the results have been disappointing. I do not disguise that I wanted a different pattern of railway privatisation from the one that was actually adopted, and if I am told once more on the telephone when trying to contact a privatised energy utility that my call is important to them and to hang on for 20 minutes and then be told I have five choices, none of which works, I shall go berserk. None the less, I believe that going back to the alternative of state ownership of the main utility industries would be a much bigger disaster, if indeed it could nowadays be done at all.
For me, the apogee of the old lumbering, non-innovative, hopelessly overcentralised state ownership—so called public ownership, but of course the public and the customer had virtually no say at all—came when I assumed responsibility for the then Department of Energy in 1979. There I realised that I was entering a colossal and overloaded ministry, the department at the centre of just about everything, covering more than 20% of British industry and the most vital parts at that. It was the department of oil shocks, the Shah having just fallen; the department of militant miners, with Arthur Scargill itching to have a go at the new Tory Government; the department of colossal investment programmes in mammoth nationalised industries; the department of booming North Sea oil, with a state oil company owning and trading one of the largest volumes of oil on the planet; the department that had to keep alongside rising OPEC power; the department of nuclear energy; the department of the vast British Gas empire, under its formidable boss, Sir Denis Rooke; the department of the Central Electricity Generating Board and all its 12 or 13 area electricity companies; the department of the National Coal Board; the department that had relations with all the international oil companies; the department that owned 51% of BP; the department of global energy turmoil, soaring oil and gas prices, and threatened oil shortages, which were rocking the whole world’s economy. In short, it was a department of Soviet proportions, supposedly presiding over a huge socialised sector employing millions of people, a consumer of billions of pounds, in a world that was, in fact, coming to the end of its time.
Looking back, I can see that we were poised on the pivoting moment of the 20th century, as state mega-ownership and centralisation was finally choking itself to death and the digital era of decentralisation, denationalisation, privatisation and the rising market state was about to begin. Nothing like that immense departmental empire, with the fate of the whole government and economy on its plate and almost with its own foreign policy, would or should ever exist again. It was unmanageable, uncontrollable, impossible and fascinating.
That brings me to my first point, about why and how privatisation took off: it was the realisation that state ownership was not only hopelessly overcentralised but was not even a good means of control. On the contrary, private ownership with proper regulation stood a far better chance. Nationalised industries had their own empires, far removed from the accountability that the world wanted, the pressures of the market and, indeed, the pressures of the customer. That was our first motive.
Our second motive was embodied by the word “innovation”. We could see that, because no competition with nationalised industries was allowed—that was by law, and so we had to change the law—the incentive to innovate was minimal. That was the case for a whole chunk of British industry, and that had to change.
Our third motive was that the public sector just could not deliver the capital that these industries needed to modernise. The investment needs of these vast industries was constantly being undermined by short-term budget needs, which were eating away at their programmes.
Finally, and in my case primarily, some of us wanted a bit of genuine public ownership—not the bogus sort, where a few Whitehall bosses ruled the roost, but the truly public and widespread ownership of a capital-owning democracy turning earners into owners. We thought that privatisation was the road to that. That is what the Chancellor was talking about the other day, with his plans to build a share-owning democracy and sell Lloyds Bank shares to retail investors. Actually, in those days, we were going to go even further, and I still think we should, and build a society in which as many as possible, at all levels, have some form of ownership of capital or property or other form of savings—a really widespread stake in the capitalist process, giving security and dignity to as many people as possible rather than total wage dependence.
Employee share ownership was also part of that story. In fact, one of the most successful privatisations of the early days, which I personally presided over and which was initiated by my noble friend Lord Fowler with great foresight when he was Transport Secretary before me, was the National Freight Corporation sale, which enormously benefited all its staff and employees.
So what are the lessons for today from this initial wave of privatisation and its continuation through the whole decade under a Labour Government, as well as in many countries around the world, regardless of their types of government?
First, as I have suggested, the public interest, in the sense of defeating monopoly tendencies and protecting the customer and consumer, often stands a better chance through the good regulation of private industry rather than old-style state ownership and control. I could not help laughing when, the other day, I heard a union leader saying that the nationalised industries would be run,
“in the interests of passengers and the taxpayers”.
He clearly had a very short memory.
Secondly, there was that famous phrase about privatisation from Harold Macmillan—that we were selling off “the family silver”. It always seemed a funny kind of silver if it was costing £2.5 billion a year, as it was in 1979, to hold on to and upkeep. Yet, 10 years later, it was paying back £60 billion to the Exchequer in taxes alone. That does not make sense of the silver analogy; I think the great Harold Macmillan was wrong there.
Thirdly, one ought not to be too dogmatic about different types of privatisation, including models where the state retains a degree of ownership. There have been some very interesting post-privatisation models around the world. When I was working as a banker, I was asked to advise a country, which will remain nameless, on privatising its gas industry. I thought I had got the message over to Ministers in that country but, when I went back a month later to see how they were getting on, the Minister told me proudly that he had put his brother in charge of the industry. So it was privatised and that was all right, was it not? I did not succeed there. On another occasion, when I was visiting Václav Havel at Hradcany Castle, the lady who took the coats called me aside urgently. She said she had heard that I was an expert on privatisation, and could I get her father’s pub back from the communists who had stolen it? She was dissatisfied when I said that I could not do much more than mention it to Mr Havel. I do not know whether she ever got it back or not.
I also declare an interest as an adviser to by far the most efficient, safest and advanced railway system in the world—the Central Japan Railway Company’s Shinkansen system. This is a private company with a large, residual government shareholding. Incidentally, its safety record is much better than the more recent Chinese high-speed system. Japan seems to be a country which, with their current Chinese enthusiasm, our Government have temporarily forgotten. We depend just as much on Japan for our economic strength, especially for a successful nuclear future, as ever we will on China.
It has to be accepted as well that a privatised electricity industry, which we now have, was never going to be able to build nuclear power stations on the scale of the giants being constructed 30 years ago in the 1970s and 1980s. We are still, of course, constructing one of these giants—at Hinkley Point C. It should come as no surprise that it needs a French state company, a Chinese state-owned company and the British Government, plus eye-watering price penalties on all industries and households for years to come, as well as endless government guarantees of risk-free returns to the investors, to keep a project of this size and design going forward. I suspect that this will be the last of its kind in the line.
Although the debate about privatisation has regrettably now become polarised, I have concluded that the benefits have definitely outweighed the failures. More importantly, forces were at work from about two-thirds of the way through the 20th century which made privatisation inevitable. Asking whether privatisation is good or bad is rather like asking whether evolution is a good thing. It happened and was bound to happen.
Technology is marching on. The digital age is on the march. The nature and role of the state are changing. With immense people empowerment, a huge impulse to localisation and entirely new relations in many industries between the consumer and the producer, I believe that the modern information revolution will take this process forward far faster than most people realise, breaking down whole monopolies, both public and private. If we are going to see the transformation of the world’s energy mix, as many desire, this will depend on the flexibility and openness of our former energy and utility companies. Freezing them back into state monoliths is the very last way to help that process.
We need not a return to ideology—on the railways or anywhere else—but an advance to continuing innovation of every kind. That is what privatisation has enabled and it is what the market and the private sector, harnessed by skilled regulation, can and will provide. Nationalisation belongs to yesterday. I fear, too, although it will be resisted, that the great Labour Party in its present state belongs to yesterday. It is all rather sad and not a little dangerous. I beg to move.
Lord Wrigglesworth (LD)
My Lords, the noble Lord has done the House a service in raising this issue at the present time, although I hope that we shall not see the polarisation and ideological nature of the debate that we had in decades gone by. I take a very pragmatic approach to this issue and will rehearse the arguments for it in a moment, but before doing so I want to join the noble Lord in welcoming the maiden speech of the noble Lord, Lord Young. He and I worked in the Post Office together before we were both elected to the other place in 1974. Just as when I was making my maiden speech here I looked back to see what I had said in my maiden speech in the other place, I looked at the noble Lord’s maiden speech, which was made seven days before mine. I see that he spoke on this very issue of nationalised industries, and we look forward to the contribution he will make to this debate and those he will undoubtedly make to the benefit of the House in the future.
Having had a vote of no confidence from my constituents in the other place after nearly 14 years, I have had the benefit of some experience in different types of business. As I mentioned, I worked in the Post Office when it was a nationalised public corporation before going into the other place. I was director of a major consumer co-op for a number of years and the research officer for the then quite substantial Co-operative Party, which was the political arm of the co-operative movement, so I had a lot of experience of different types of co-operatives in that capacity.
When I came out of the other place, I joined a partner in establishing a commercial and industrial property development company which became the biggest investment and development company in the north-east and is still doing that work today, probably creating more jobs than I ever did as a Member of Parliament in the other place or indeed probably here. That was a great success and I still have an interest in industrial and commercial property in the north-east. In addition, before coming here I was on a number of plc boards and chairman of the Port of Tyne, one of our biggest deep sea ports, for seven years. That ran in a very commercial way as a statutory corporation. So I hope that I can bring those experiences to the House in discussing the Motion before us.
It is unhelpful to business and to industry to have the uncertainty of a raging public debate, as we did in decades gone by, on an ideological basis over the issue of privatisation or nationalisation. As the noble Lord, Lord Howell, said, we should take a technical, not an ideological, view of this. There are very good examples of public sector organisations that prosper and serve the country well and do not suffer the maladies that the noble Lord outlined, but I regret that the Pandora’s box of this debate has been opened again by the new leader of the Labour Party. As a frequent user of the rail services up to the north-east, the idea of them going back into state ownership fills me with horror. I do not know why the privatised railway companies have not sold the success that they have had over the past decade and more to much better effect. Those who want to go back to the old British Rail must be looking at our stations with rose-tinted spectacles. The stations, and the services on our trains, are infinitely better than they were in those days. Memories seem to be very short. There has been a long-standing campaign, funded and organised by the trade unions from that sector, to try to get them nationalised again and the new leader of the Labour Party has obviously bought that.
In the Library’s briefing for this debate there is a piece by the Professor of Political Economy at Glasgow University. I can see where he is coming from ideologically. He talks about public ownership serving,
“social needs and environmental concerns over private gain”.
He talks about,
“democratic accountability and public engagement in the economy”.
What does he mean? He should remember some of the things the noble Lord mentioned. The nationalised industries used to be run with constant interference by civil servants and government departments, making it impossible for them to manage their businesses as they would if they were proper commercial organisations, or serve the consumers as they were supposed to. The idea of going back to that sort of arrangement fills me with horror.
No matter who the owners are, the trick is getting the relationship right between the shareholders, or stakeholders, and the management. Then management can manage on a proper commercial basis, to achieve the objectives that have been laid down by the shareholders or stakeholders. I think not only of our Port of Tyne, but of the very successful port of Dover, which is a statutory corporation. When it was suggested that it be privatised, the campaign against this was led by the Conservative Member for Dover because it is a perfectly good organisation, doing a good job. As was said many years ago, “If it ain’t broke, don’t fix it”. The Port of Tyne is the same: it made over £10 million last year being run on a commercial basis and there is no reason to disturb an arrangement like that. Channel 4 is in public ownership, and it does a good job but it has not been constantly interfered with by government. The noble Lord made a fundamental point: if a public sector organisation like that needs capital, one may have to go to the market and privatise to enable the business to succeed. If you do not, any debt that it builds up will, inevitably, be on the PSBR and the Treasury will take an interest in everything it is doing, and that leads to stop-go investment in the business.
There are cases where it is right for a body in the public sector to be moved into the private sector, but there are also cases for doing the opposite. The Conservative Government to which the noble Lord referred nationalised Rolls-Royce in the public interest. At the moment there is a case for the Government paying the costs of mothballing the steel plant in Redcar which is being closed. That plant is as big as St Paul’s Cathedral and has the second biggest blast furnace in Europe. The furnace, the coke ovens that go with it and all the surrounding deep berths for importing iron ore and taking the steel out, would need a massive investment of billions of pounds. The chances of that facility being revived are very slim indeed but, strategically, the Government should seriously consider having it available, for the relatively cheap cost of mothballing it for some years. However, I have not seen any serious consideration of that. That is what I mean about taking a pragmatic approach. Do not take an ideological approach, but ask what is best in the circumstances and behave in accordance with that.
The French seem to be much better at getting this right with the public sector. French Governments manage to sustain businesses right across the board in the public sector—or those with considerable public sector interests in them—without the sort of interference the noble Lord talked about. That is why the relationship between the ownership, the shareholders and the management is fundamental. If that is wrong, everything goes wrong. One can see plenty of examples of the dangers of the way it has been done in this country at any time. Look at the demands from Members of the other place, and even some in this place, regarding the way the Government should run the banks in which they have a shareholding. You cannot run an organisation if people externally are telling you what salaries should be paid to the management, what organisation they should have or what services they should provide. You cannot chop and change from time to time according to a political timetable and political demands, rather than taking a strategic, long-term approach, and be giving the management the job of doing it. Frankly, if the management does not do the job, it may have to be removed, which I have had to do at times, in order to ensure that the objectives that have been laid down are achieved.
I hope the ideological debate that raged in the past does not come back—I think the noble Lord would agree on this point—and that the settled position we have reached as a country is maintained. The blind doctrinal faith and ideology of a minority, which thinks that by putting things in public ownership you are somehow serving the consumer and the public interest, is completely wrong. It need not look in the crystal ball; it can look to history to find the truth of that case. From these Benches, I am advocating a pragmatic and non-ideological approach. If we do that, consumers, the people working in those businesses and the whole country will benefit.
Lord Young of Cookham (Con) (Maiden Speech)
My Lords, it is a particular pleasure to follow the noble Lord, Lord Wrigglesworth, because, as he said, we both worked for the same nationalised industry over 40 years ago before we embarked on our respective political careers. I am delighted that our paths have converged once again in your Lordships’ House. I am grateful to him and to my noble friend for their very kind words about me. It is an honour and a privilege to make one’s maiden speech in your Lordships’ House. My arrival here has obliged the tabloid press to rebrand me from the “bicycling Baronet” to the “pedalling Peer”, but there are worse things to be called by today’s media.
Having read your Lordships’ debate about the size of this House last month, I was worried about the welcome I might receive because reference was made to an article describing the new intake, of which I am part, as the,
“extraordinary ennoblement of failed and discredited politicians”.
But there has been no trace of that ungenerous remark in my welcome to this House. Your Lordships could not have been kinder to the new boy. My sponsors, Black Rod, the Whips and the staff of the House have so far kept me out of serious trouble. As a bonus, the induction tour took me to a part of the building I had never been to in 41 years—the Sports and Social Club.
I understand all the sensitivities in this House about those who arrive here from down the corridor. But given that this House has as its mission the scrutinising of legislation and holding Ministers to account, I hope that those who have served an apprenticeship elsewhere might be able to add value to the proceedings in your Lordships’ House. It is also helpful to include those who have held office and can from first-hand experience spot the Achilles heel in a ministerial defence.
For my part, I think that I have the unique record of having been sacked by two Prime Ministers and then brought back by both of them, leaving unresolved the question of my ministerial merits. I have joined the Government more often than the noble Lord, Lord Mandelson. I think that I am the 8th former Government Chief Whip to join your Lordships’ House. In that capacity, I noticed that the Government lost more votes in one day last week than I did in two years. However, that is in part because the residents here are free range, as opposed to battery farmed.
I have always taken an interest in your Lordships’ House. With the noble Baroness, Lady Hayman, I co-piloted the House of Lords (Expulsion and Suspension) Bill in the last days of the last Parliament, which landed safely before dissolution. It enables your Lordships’ House to deal appropriately with,
“noblemen who have gone wrong”,
in the words of Sir William Gilbert in “The Pirates of Penzance”. It has a part to play in upholding the reputation of this House, and I hope I never activate its provisions.
I also understand the fear that the rarefied atmosphere of your Lordships’ House might be contaminated if we bring with us the emissions from the other place. I will not be doing that, having been equipped with the appropriate software. However, as one of the less partisan Members of the Commons, I welcome the calmer atmosphere here. What would be acrimonious exchanges on the green carpet become civilised discussions on the red one. I was only rebuked once for my behaviour in the House of Commons, and that was in the 1970s, with George Thomas—later the Viscount Tonypandy—in the Chair. We were debating the state retirement pension; I opened my remarks by congratulating the Speaker on his 65th birthday and expressing the view that he might like to take a particular interest in the debate. I was rebuked for my insolence, but he then excised the exchange from Hansard.
I would like to make a brief contribution to this debate, so ably introduced by my noble friend. Before joining the other place, I was economic adviser to a nationalised industry—the Post Office Corporation, which embraced both BT and Royal Mail. As with other nationalised industries at the time—the noble Lord made this point—there was political temptation to freeze the prices before an election and then increase them afterwards, which played havoc with demand. The investment programmes were constrained by and caught up with the fluctuating fortunes of the government finances and were sometimes directed towards marginal seats. That was no way to plan for and run major infrastructure companies where stable, long-term investment was crucial.
To pick up on a point made by my noble friend who introduced this debate, after BT was privatised, I went back to the staff canteen to meet my former colleagues. On the notice board was one piece of paper: a chart of the BT share price. To me that symbolised one of the benefits of privatisation: the identification by the employees of a company with its success, in a way that was simply never possible under public ownership. Privatisation of BT brought choice in handsets and providers and got rid of the waiting lists; it would be absurd to renationalise it.
Twenty years ago, when I followed in the footsteps of my noble friend who introduced this debate and became Secretary of State for Transport, I completed the privatisation of the railways. Some noble Lords may regard that as a spent conviction, but I am unrepentant. Instead of a British Rail monopoly, we have now created a vibrant railway operating industry, using the skills of the airlines, the bus companies and overseas operators. They bid competitively for the franchises in the interests of both taxpayers and passengers. If British Rail failed, no one else could run the railways, but now we have a range of competent providers. Instead of an industry which looked inwards towards the Minister for funds, we have train operating companies looking outwards to the market—to their customers—to generate more revenue.
I remember the public expenditure rounds in the last Conservative Government. I would appear before the Star Chamber, which was populated with colleagues with whom I have now been reunited, and tell them of my requirements. They would say, “George, we are really excited by your new train set, but health, education, defence and the police have got the money”, and so not enough was left for the railways. Now, however, the train operators and the roscos—the rolling stock companies—are not inhibited in the same way and investment has soared. We may not have got absolutely everything right—it was done against the clock, at times without a majority in the other place and with an Opposition threatening to renationalise—but the basic structure has remained unchanged and passenger numbers have doubled.
At the moment, the Treasury is conducting probably one of the most difficult public expenditure rounds since the war, with the outcome due to be announced next month. I ask your Lordships how much more difficult that exercise would be if in addition to the demands of health, education, the police and defence were added the investment requirements of the nationalised industries. In my view, freeing these companies from the constraints of the PSBR was the most significant and welcome consequence of privatisation.
Over the last 20 years, a broad consensus has emerged that the wealth-creating infrastructure companies are best located in the private sector. There is a legitimate debate about the process, the price and the appropriate method of regulation, but I hope that we have left behind the arguments of the 1970s and 1980s. There are grave risks in breaking that consensus, such as a threat to the investment programmes of the industries concerned. Why should they risk capital if they are about to be taken over? It would be a serious diversion of management effort to see off the threat of nationalisation. That is the last thing that these important industries need at this stage of our recovery. I very much hope that the debate, so ably introduced by my noble friend, will help to ensure that common sense will prevail and that the consensus holds.
Lord Cavendish of Furness (Con)
My Lords, what a tremendous pleasure it is to follow my noble friend Lord Young of Cookham and to hear his outstanding maiden speech, on which I congratulate him. As has been said, he had a distinguished career in another place. I have seen the way he has been greeted in your Lordships’ House by former colleagues. He is obviously incredibly well respected and incredibly well liked.
Not having served in another place myself, I always find myself speculating how those distinguished people from another place will fare in your Lordships’ House. It is uneven, to say the least. Some fare better than others. Some sulk and say that it is not the same; others really get into it and make a career in your Lordships’ House. My noble friend is a true parliamentarian. We can look forward to a very distinguished contribution and we welcome him warmly.
I thank my noble friend Lord Howell and congratulate him on introducing this important debate. His speech was a reminder of his long and distinguished career, full of wisdom. It was also timely, as old arguments are resurfacing.
I declare an interest. In all my adult life I have been engaged with industry and commerce. I refer noble Lords to the register of interests. A debate on the possible merits of public ownership is once more possible only because the present generation of young adults cannot remember what the nationalised industries were really like, as the noble Lord, Lord Wrigglesworth, described. They cannot remember how it took more than six months to get a telephone connection, or the endless industrial action generated by a powerful and politically driven trade union movement. They cannot remember the general feeling of squalor that usually surrounded public sector enterprises.
I remember also a sentimental attachment even to the worst of these nationalised services. I remember sensing that people felt that the state, having brought us through horrible, damaging and tragic conflicts to victory, could also contribute to the peace that ensued. In the British mind there was and probably still exists a strong feeling as to what should and should not be done for profit. I do not dismiss those perceptions, but I do not think that that feeling stands up to argument. When a doctor or a social worker goes home with a pay packet and then deducts the expenses of living, what is left is surely, by some description, profit. Sometimes I think of the argument in reverse. Imagine if by tradition the undertaking business had, since the dawn of time, been the preserve of the state. Think of the outrage when somebody suggested it should suddenly become privatised—making money out of death.
While I conclude that the case for private ownership of industry is overwhelming, it does not follow that I am uncritical of some aspects. We in the private sector do ourselves no service by ignoring the shortcomings we see around us.
My starting point is that 95% of the British economy is driven by small and medium-sized businesses. The head of affairs of such an enterprise experiences things that no head of a tier 1 company, a multinational or a quango experiences. He or she is at personal risk every hour of every day. There is the commercial risk of the market changing unexpectedly, or commodities changing; there is the financial risk, including the strangely capricious attitude of banking nowadays; and there is the regulatory risk. Imagine being in charge of a small business, and the reams of paper that come at you every week. There is also the legal risk: employment law is complex, and although it has improved, all of us in the private sector know what it is to deal with vexatious claims. There are also the huge decisions we all have to make on capital investment.
That exposure to the harshness of the real world shapes the character and mettle of these people. They are the real heroes of the British economy, and it always saddens me to think how little their voice is heard. The CBI always claims to speak for all of us—but it certainly does not speak for me. How could it? It has never asked me what I think.
Public ownership, by contrast, is unavoidably inefficient, as I think has been pointed out already. I am not attempting to disparage those who attempt to manage it, but everything is stacked against them. Government is simply not designed to run business. The story of PFIs surely provides the best example: again and again we have seen how all the rewards go to private sector investors and all the risks are borne by the taxpayer.
All of us in manufacturing industry understand the importance of capital investment: it is the lifeblood of our business. My own experience of many years is that when properly equipped, a business produces happy surprises, but if we have had to stall investment—for cash-flow reasons, say—it is full of unhappy surprises. Yet even in this year of grace the Treasury is still, I feel, unable to distinguish between revenue and capital.
When I was in local government, in Cumbria County Council, we had very sharp political divides but we came together to save money to build a new school. The old school was bad for education, expensive to maintain and bad for morale. It really had had its day, and all of us in local government joined forces to get a new one. The Treasury told us that we could not have a new school because it was “inflationary”—a bizarre idea, which revealed a completely different understanding of the workings of capital. I regard the Treasury as being innumerate from the point of view of a private sector business.
I also regard the public mechanism for controlling expenditure as bizarre, to put it mildly. Parliament decrees that something should be done, or bought, or a service provided, and then the Treasury does its damnedest either to stop it or to delay it. No one in the private sector would survive a week with that sort of system of control. When a Government sit there buying and spending, as Governments have to do, their power and financial muscle are such that what they do will have a strong gravitational effect. To avoid centralisation, the Government have to be proactive in preventing it. It is a credit to the present Government that they do just that.
It was a tragic historical set of circumstances that allowed our local government structure to be undermined and become a shadow of what it once was. In effect, it fell prey to centralising forces. The extremely sophisticated local government finance teams that used to be found up and down the country were one particular casualty of that development. We need to recover the financial skill that characterised the best of our local authorities. They really did understand the distinction between revenue and capital.
I shall now touch on something that I spoke about in last week’s debate on the Second Reading of the European Union Referendum Bill; I make no apology for repeating it. You will find no greater admirer of the free market than me, but I seriously worry about the fast-growing phenomenon of corporatism. It leads to greed, to a failure of accountability and transparency, to a diminution of competition, and, in the end, as we have seen internationally, to corruption.
The effect of corporatism can be illustrated thus—I am thinking of a particular set of circumstances with which I am familiar. The Government wish to place a contract. Understandably, they like to deal with a tier 1 company. They ask for, and probably receive, assurances that the local supply chain will receive a share, and a framework agreement is set in place. The business is shared out among other tier 1 companies. The supply chain issues then become rather vaguer and at one remove, and are finally often ignored.
There are two reasons why tier 1 companies like dealing with companies of similar size. The first is cultural. I well understand that. It is very easy for a tier 1 company to deal with its opposite number of similar size, and, often, with its links to Whitehall. The second is more sinister. Many of these companies are fat and monopolistic and often not as efficient as they should be. The inefficiencies are sometimes disguised by making up ground through screwing down their suppliers. The approach of some supermarkets to dairy farmers is a case in point. I see in Cumbria the tragic results of that and the suffering of some dairy farmers. The one thing that terrifies these companies is that fleet-of-foot small companies will muscle into their territory. A timber contractor operating nationwide regularly approaches the regulator to try to toughen up the regulatory framework for his business. This is not because he is interested in health and safety but because he cannot bear the idea of the numerous two-man operations operating successfully, and he wants to put them out of business.
We have also seen how great infrastructure projects come and go without local companies enjoying any benefit whatever. At least the Government set out with honourable intentions; I would be less confident saying that about many of their quangos. Worse even than the quangos are the private monopolies, especially exemplified by some of the utility companies which become so utterly remote from the customers they should be there to serve. One of the best antidotes to this is the growing number of LEPs we are seeing developing around the country. When they are good, they really help the SME sector.
This is also the age of partnership. Given the huge investment coming into my local town of Barrow-in-Furness, a number of us are trying to get together with very small operators who normally would not be able to compete so that we can come together and add a little muscle to our operation. Huge size tends to lead to corporatism. Might not the public be served by fiscal incentives either to split up large companies or not grow them beyond what is in the public interest?
The question of institutions raised by my noble friend is more subtle—but, again, gravitational force is at work. I carried out some local research into why individuals were not being attracted to school governorship, local government or parish councils, or leaving early. In the case of school governors, the story was always the same: they said that they were always being sent for retraining, so time burdens were continually being added. So you are getting committee-type persons going for these things and independent-minded persons staying away. Similarly, parish councillors are being made less and less welcome because of the regulations coming down. The modern world has discouraged local leadership; somehow it has to be retrieved.
I have always thought that about half of my own working life ought to be devoted to public service. I realise that that is too much for many people. It is said that Cumbria is overgoverned and underled. I think that government has a role in making public service more attractive—or at least less unattractive. A happy nation needs leadership and the participation of all if it is to prosper.
Lord Stoneham of Droxford (LD)
My Lords, I, too, congratulate the noble Lord, Lord Young, on his maiden speech and welcome him to the House. I was not aware of his role in the final throes of rail privatisation but, as somebody who always prioritises rail in my business travel, I thank him and congratulate him on at least making my life more amenable over the years since that time.
When I first noted that this debate had been tabled, I was not sure whether it would be a trip down memory lane to highlight the merits of privatisation or a partisan clarion call to try to highlight the “back to the 1970s” views of the new Labour leader. Inevitably, it has turned out to be a combination of both. But I hope we can, as I will try to do in this speech, learn the lessons of the past to improve on what we do in the future.
I remind the House of the huge damage done to the British economy by the ideological debates of the 1950s, 1960s and 1970s over the issue of private and state ownership. I happened to walk into the House this morning with the noble Lord, Lord Brookman, who has spent a lifetime in the steel industry. I reflected that I thought it was a sad time for him, with the current problems in that industry. He reminded me that when he started work in in the 1950s there were 270,000 people working in the steel sector; that was when he started at Richard Thomas and Baldwins in Ebbw Vale. When I started as a graduate management trainee in the Coal Board in 1974, there were 250,000 working in the mining industry. One of the consequences of the last few decades is that whole communities have been turned upside down. It is sad to reflect that nothing has really replaced the optimism, confidence, prosperity, spirit and skills of those communities.
I am not sure whether those industries were going to survive, but I am absolutely convinced that the lack of investment over the years has destroyed steel-making. We might be talking about the liquefaction of coal, rather than putting all our hopes into fracking, if we still had some remnants of a coal industry. I am absolutely convinced that lack of investment in rail and nuclear energy has seriously retarded services in those sectors. It has also retarded our capacity to ourselves improve and invest in them.
The consequences of that lack of investment are now being felt. We can see huge problems in the rail sector huge because of the lack of experience in building new capacity; there is just no knowledge or skills. There is poor project management because there is no experience of actually doing it. It is not surprising that the Great Western electrification in the course of the last two years has spiralled out of controlled. This is before we start HS2, which is so essential to improving our rail capacity.
Today, of all days, it is slightly ironic that the decline of our nuclear energy industry has left us resorting to a French, state-controlled company, EDF, in partnership with the Chinese state’s China General Nuclear Power Corporation, to build a design which is already massively delayed in other countries at an astronomic energy price. I noted in the Guardian today a quote from the noble Lord, Lord Howell, saying this is,
“one of the worst deals ever”.
I hope that he might take the opportunity when summing up either to deny that quote, or to explain himself to his son-in-law. Managing and project-managing this sort of investment—which will not be completed until everyone who has signed it is long gone—has to be a problem. You have to be a great optimist not to believe that this complex deal is a recipe for contractual disaster.
There were both successes and problems with privatisation and we are still experiencing some of its consequences. Three things need to be said about it. Often, deals were hurried to get political payback, meaning that initially in some sectors there was inadequate competition or faulty structures which were not sustainable —too often, quick wins rather than sustainable futures were achieved. There was not enough experience in franchising or regulation to manage these in the first instance. We are still having problems with that and in making sure that the consumer gets the best deal. We need to ensure, over time, that franchise deals are longer term, so that they encourage more investment.
The third problem is that too many of our infrastructure utilities have drifted into foreign ownership, in areas such as power generation, airports and water. That inevitably means that we will end up with very complex deals for investment, requiring expensive government guarantees, and contracts that are likely to be fraught with difficulty. We want an open economy but I cannot believe that the French, Germans or Americans would have allowed to happen what has happened here.
There have been successes. The debate has emphasised that British Rail is not something that we would want to go back to, unless we were acting simply out of emotional nostalgia. Franchising has had its problems but, happily, investment is happening; customers are more centre-stage; reliability has risen, certainly on all the lines that I use; and monopolies are being challenged. There are also the great success stories of privatisation: Rolls-Royce rescued and then privatised, a company at the pinnacle of our engineering skills in this country; I talk also of Airbus and British Aerospace, where now in civil aviation we challenge the Americans, which was undreamed of 20 or 30 years ago. But there have also been some disasters and that was often because those industries and sectors were denuded of skills and investment before privatisation.
I am a social democrat and less concerned about ownership than about the best means to improve the country’s competitiveness and prosperity. I am sure that is better done through ensuring that there is always choice and competition because they are the main drivers of change; otherwise, monopoly breeds complacency and uncompetitive practices. I have worked in the state sector and the private sector and for social enterprises so I have seen all forms of ownership.
I will make a few comments about how private enterprise now has to deliver in the economic situation that we face. There are some shortcomings that the Government need to address. One is that there is still too much emphasis in our stock market and our companies on short-term profit maximisation and results to get the share price up. We have also allowed too much of our talent in this country not to go into real industry but to drift into the City and the finance sector as a whole. One of the disadvantages of the affinity that we have with the City is that it encourages a trading mentality, which encourages too many acquisitions and mergers rather than the development of real businesses. We should always seek to improve competition and should be very wary of allowing companies to be taken over by overseas owners. The UK has been seen as a bit of an easy touch and we underestimate the consequences for our industry if we allow too much ownership to be in overseas hands.
One of the most significant problems in industry is that there has been simply too little business investment, particularly in R&D. I have said before in this House that Volkswagen commits €12 billion to R&D research each year. I know it has problems but I suspect that, because it has made that investment in its products and in its customer loyalty, despite all its problems it will see through the current crisis because basically people like its products. In this country our management incentives are aimed too much at the short term and not at the long-term achievements that companies need to make.
During the coalition Vince Cable commissioned a report from John Kay to review UK equity markets and encourage long-term decision-making. Action has been delayed while the Law Commission considers the whole legal concept of fiduciary duties, but will the Minister confirm that the Government remain a strong supporter of the stewardship code, that they want to see investor forums in companies to facilitate collective engagement by investors in UK companies, and that they want management incentive schemes to focus much more on the longer-term results rather than the short term? I also hope that the Government remain sceptical of excessive merger activity and are keeping under review the power of regulators and the competitive authorities to counter this.
The Government are right to get the economy in balance and they are right to promote a climate to encourage business investment in all its forms, but I do not believe we should concentrate simply on the issue of ownership. We must emphasise that managers need to improve their sectors and concentrate on the long term. There remain major problems in our balance of payments, productivity and skills and those major challenges can be resolved so that we can compete globally and raise companies’ prosperity only if we give attention to the long term.
Lord Stevenson of Balmacara (Lab)
My Lords, I would like to thank the noble Lord, Lord Howell, for securing this debate. Like a number of other speakers, when I saw the title I felt slightly at a disadvantage, as I was not quite sure where he was going to come from. Your Lordships will not need me to remind them that I am in a slightly trickier situation in responding to this debate since, to take a cricketing metaphor, the pitch is rather sticky and I am not entirely sure that I have got all the messages that are coming out from the other end in the right order, but I will certainly try to do justice to where the party that he criticised so strongly in his comments believes it stands on the matters that he raised.
I would also like to congratulate the pedalling Peer on his maiden speech. I think everybody who heard that and those who will read about it will recognise that we have a rare talent joining us here. He is steeped in the traditions of Parliament and has quickly understood the way in which we operate, so he will fit in very well. I am sure I am more of a battery rather than free-range person myself, but if he is going to find the Achilles heel in Ministerial Statements, well done—I like this; this is going to be fun. I look forward to many of those occasions.
In preparing for this debate, I looked at the interesting brief prepared by the Library which was good to have, although somewhat gnomic, possibly because the Library was also not quite clear where we were going to go on this topic, which meant that you had to read quite a lot of stuff in order to understand where one might go with it. I am going to take one or two points from that, because my response here is going to be partly theoretical and partly practical. I am not going to be quite as pragmatic as one of our earlier speakers but I am hoping to see where the intellectual case lies and then perhaps articulate what that means in terms of policy. I will also be drawing on a speech given by the then Chancellor of the Exchequer, Gordon Brown, in 2003 to the Social Market Foundation which dealt extensively with what a modern, progressive democratic party should do in relation to ownership questions about strategic industries.
My first point is a slight criticism of where the noble Lord, Lord Howell, came from on his journey. I thought his reflections on his experiences were interesting but there was an underlying teleological approach that there is a march of progress and it is inevitable that anything that starts off in state ownership will eventually end up in private ownership and that, really, those who call for nationalisation are misguided bigots—all would be perfect if Mrs Thatcher’s founding themes were taken forward and allowed to flourish, because then the state could withdraw from most things and everything would be right as roses. I am not sure about that. I think the problem with this argument is that it is mainly based around cost issues and ignores value. The issues are much wider than that. Government will always have a role in every aspect of human endeavour and must not lose that role because it is an expression of the will of the people, and it needs to be in all aspects of our society.
After all, this starts with Adam Smith. I am a bit surprised that nobody has quoted the great thinker, but every modern generation since Adam Smith put the question about the relationship between the invisible hand of the market and the helping hand of government has had to think about how to interpret that tension for their times. What are the respective spheres of individuals, markets and communities in achieving opportunity and security for their citizens? If you address the problem from that perspective, you cannot ignore the role of the state. It is true that direct state involvement in industry was pretty much a rarity in the 18th and 19th centuries following Adam Smith, but the experiences that we have been talking about today are not the only ones that one can draw on. We ignore at our peril the New Deal of the 1930s in America and the way in which that combination of state intervention, state borrowing and state investment enabled the world to come out of a recession which could otherwise have been much, much worse.
There are obvious resonances with the situation in 2006 to 2008, brought on by the behaviour of the banks. At that time, public ownership was one tool used by the UK Government, nationalising three of the UK’s largest high street banks: Northern Rock, HBOS and the Royal Bank of Scotland and Lloyds. At the height of that crisis, a sum of what I understand to be £1.162 trillion of public money had been committed to provide loans, share purchases and guarantees to the banking sector. At that stage, I think that all sides in Parliament were on the same page: we were all saying that that had to happen in order to secure the economic future of our country. We did not say, “Oh no, we don’t invest in private assets”. We took those steps because they were the right thing to do, although it is fair to say that the then Chancellor of the Exchequer, Alistair Darling, said at the time:
“It is better for the Government to hold on to Northern Rock for a temporary period and as and when market conditions improve the value of Northern Rock will grow and therefore the taxpayer will gain. … The long-term ownership of this bank must lie in the private sector”.
So my first point is to recognise that, although there is a long and complex story involving ownership of assets which are now in private hands, there are occasions when this will still be an issue, and the fundamental questions behind that, raised originally by Adam Smith, still need to be addressed. There must be a debate about whether an economy can be left in private vested interests, except when it is necessary to instigate a short-term palliative for market failure of that type.
Let us not forget that three decades of privatisation and marketisation in the UK have not only increased social inequality but resulted in economic decision-making being captured and concentrated in far fewer hands. The opening up of very large parts of the public sector to private capital has created a situation in which the UK is shifting towards a rentier economy, dominated by financial interests and shareholder values, as was mentioned by the noble Lord, Lord Stoneham. There is obviously a good and a bad side to that, but the assumption one makes is that the economy, although it is working for private vested interests, might also have a conception of public good, and I think that that is a bit of a stretch at times. Although it is true that the private sector has brought in investment, we are still an economy dogged by bad productivity. Although there are hot spots and the economy is beginning to grow again, it is still not the balanced, wider-ranging economy that I think that all sides want. My point here is that, if possible, we should avoid a simplistic approach to questions of who owns the assets that we are talking about.
I take it, and will argue, that a sound macroeconomic framework is a necessary but not sufficient condition to achieve for Britain a society dominated by opportunity and security for all, but I shall mention three areas of this debate where there are questions to which we will want to return. The first, the health service, which, since it was first introduced after the Second World War, has always been in public ownership, is dogged by expense, new technology and rising expectations. The question has to be whether patients will benefit through a public healthcare system or whether, by bringing the market in, you could get a better route to advancing the public interest. Higher education is another example. Universities are very much operating in the global marketplace, with their excellence depending on drawing in a wide pool of talent. The question, again, is whether universities should really become sellers setting a price for their services and prospective graduates becoming buyers of higher education at the going rate. What does that mean in practice for the economy and how growth will be supported? Then there is industrial policy. When global competition is challenging every industry, the state has options to replace market forces when they fail—the example of the steel industry was mentioned today—but is it right always to have an ideological assumption that the state will refuse to intervene at any stage? Those are complicated questions. They are really about whether or not the public interest is best served by a particular model or approach to that thinking.
The noble Lord, Lord Howell, in introducing his remarks, tried to pitch himself as a one-nation Tory—I think that that would be an appropriate way of explaining it; certainly not, he says. He certainly had some very harsh words to say about those with views on the matter on the very far right of his party. I think that he would accept that there has been a divide over the years about whether the market solution or a public ownership solution was the right one, and I do not dissent from him. Within that divide, there has also been an agreement that there are certain areas of public activity and the economy in particular where we have accepted, without going into it in any great detail, that things like family, faith and civic society are not transactions that could be marketised.
In his book The Dignity of Difference, the former Chief Rabbi, the noble Lord, Lord Sacks, says that he accepts—as I do, too—that there are areas where the market is legitimate and there are areas where to impose market transactions in human relations is to go beyond the bounds of what is acceptable and corrodes the very virtues that markets rely upon for success. He says that markets may be the best way of constructing exchanges and providing many goods and services efficiently, but they are not good ways of structuring human relationships. This point was picked up by Michael Sandel in his Reith lectures a few years ago, when he talked about something he called “the moral limits of markets”.
Therefore, we need to be a bit nuanced about how we talk about the economy in terms of markets. The debate about left and right need no longer be a debate about whether there should be a market-based economy, because it is absolutely right to say that markets work very well for the distribution of services, and for most of the time we want to make sure that they continue. I do not accept that the public interest requires us to regulate the impact and scope of the market by having greater public ownership, regulation or state intervention. On the other hand, I hope that those who are on the right of this argument would agree that it is not always the case that the markets are going to provide that combination of liberty, equality, efficiency and prosperity that every state would wish to look for.
Given those points about the areas where the market is not appropriate, we can only agree that, on some occasions, the market is the right approach, and on some occasions there are areas where it is not. We need to get beyond the constant debate about that. I recognise that progressive democratic governments seeking strong economies should not only support, but possibly enhance, markets and make sure that they are working effectively and efficiently. We accept, however, that there are limits to the markets, and that there are some areas—particularly in moral matters—where there should not be markets, but we should always have a concern for productivity and efficiency in these areas.
That is the theory behind my views, but I would like to make a couple of points about how it might apply in practice. First, we need to look much wider than we have in this debate so far about what the Government are responsible for and what they can contribute. The economy is supposed to be British based; it is supposed to create jobs, invest, innovate and export. It should have high productivity, and be highly skilled and should have innovation. These are all points made by various speakers. We need a balanced, resilient economy, succeeding in the world, creating good jobs and opportunities, and offering people a ladder up and the chance to make the most of their potential. In that, there are things we need to accept would be done better by, or initiated by, the state.
The first of these would be to make sure that we can, as a Government and as a country, liberate the talents of all. We cannot hope to succeed as a nation if we are not giving everyone in every part of Britain a platform to succeed as individuals. The economy has to be built on the contribution of all, and we must extend opportunity and remove barriers to success. This is about good primary and secondary schooling; training and higher educational opportunities on a lifelong basis; fixing broken markets, intensifying competition and reducing barriers to market entry for new businesses, and supporting entrepreneurship. That is the area where the Government have a legitimate and important role and most people involved in industry would accept that, in partnership with what their interests are.
The second pillar to consider is innovation. We have to recognise that, in a previous period, there was a lot of blue-sky research funded and operated through the Government and the nationalised industries. The noble Lord, Lord Stoneham, might remember that. Even the Post Office or GPO had its research branch areas as well. That has all gone in the wake of privatisation, which is to be regretted, but we have other ways that that could be taken forward. In particular, the role of the research council system, which is under threat because of possible further cuts to public spending, must be looked at. The science budget, which was given a 10-year focus under the last Labour Government and was supported during the coalition Government, needs to be protected as we go forward.
An active Government should invest in the long term; the short-termism has already been mentioned. What does that mean in practice? It means issues like infrastructure on a long-term, consistent basis. We look forward to the emerging thinking of the present Government on what I take to be an extension of Sir John Armitt’s recommendation of a National Infrastructure Commission under the noble Lord, Lord Adonis. We also need an industry strategy: not in the sense of direction, but making sure that all the facilities that are available in many other countries for their successful winners get the chance to come forward.
Thirdly, the Government have a role to secure an open approach to the world, and we should not be isolated, either as an economy or as a country. This means international engagement and an open, outward-looking approach to the world. It also involves, of course, the big question before us that will be coming up in the next year or so: the question of whether we stay in Europe. In my view—and I am sure it is shared widely around this House—it would be disastrous if Britain were to leave the EU. Shutting ourselves off would pose a huge threat to our future prosperity.
I have tried to give a theoretical basis as to why the party that I represent regards the sort of market economy that we now have as the one that is appropriate for us. I worry about the concerns that I have expressed in regard to whether the market will go far enough to ensure a proper public-interest concern for people and their aspirations. I think there are practical implications that this Government should take ahead.
The Earl of Courtown (Con)
My Lords, I thank my noble friend Lord Howell for moving this debate and I am grateful for this opportunity to speak. It was fascinating to hear his journey through his old department and the extent of the work he carried out. I also join other noble Lords in welcoming my noble friend Lord Young of Cookham, particularly as just over 20 years ago, as he may remember, I, as a very junior member of the Government, worked with him as a Whip in this House.
It is always wise to remind ourselves from time to time of the benefits to our economy of markets that operate efficiently and effectively and the important role the private sector plays in achieving this. We have spent considerable time over recent decades debating all sides of these issues. It is fair to say—as was also said by my noble friend Lord Young—that the arguments in favour of the market economy and of private ownership of industries and, indeed, some institutions, have been won and are now generally accepted by most across the political spectrum.
As my noble friend Lord Howell said, since the 1980s all serving Governments have committed to privatisation to a greater or lesser extent. Depending on the nature of the business an organisation is involved in, privatisation can come in a variety of shapes and sizes. There are, for example, the large utilities that provide consumers with critical services, which were privatised in the mid-1980s. During the period from the 1980s to the mid-1990s, both British Telecom and Cable & Wireless were wholly or partly privatised. Combined with the introduction of economic regulation, these privatisations resulted in strong competition in the telecoms market place and significant gains for consumers.
Other utilities such as water, gas, electricity and airports have also been privatised successfully. Some people may argue that these privatisations have created privatised monopolies. However, privatisation has proved very successful in reducing costs to the consumer. By 1995, telecoms prices had fallen by 40% since privatisation while gas prices had fallen by 25%.
The regulation of the sector, which has gone hand in hand with privatisation, has also helped to drive investment to ensure that the system can cope with the demands placed on it by industry and the population.
These privatisations brought with them an end to ministerial control and led to the creation of independent economic regulators such as Ofcom to monitor the market and regulate the behaviour of newly privatised industries in the interests of consumers. Over the years, these and other sectors which saw significant privatisation have matured and developed and in most cases have delivered good performance and positive consumer benefits. More recently we have seen the successful privatisations of the Tote and Royal Mail, as well as the continued divestment of the taxpayers’ stake in UK financial institutions back to private investors. Why, however, is privatisation seen as necessary, and what are the benefits? What is the case for private ownership of industries and institutions in the UK?
The more cynical among us may emphasise the raising of income for the Exchequer as the very objective of privatisation. This has certainly been the case in the past and is still a useful tool for Governments to deploy in support of other important initiatives. An interesting example of this, cited in a House of Commons research paper, is the sale in 1977 of 17% of the Government’s shares in BP, which raised £560 million to help them meet the terms required to secure a loan from the IMF, including the reduction of the UK budget deficit. Indeed, the Government have recently announced their intention to bring forward sales of land, buildings and other assets the Government bought or built, which will raise up to £5 billion over the course of this Parliament. The proceeds from these sales will be recycled to help fund new infrastructure projects and capital investment.
However, we know that there are more long-term benefits from the private ownership of industries. Where there is no longer a strong policy reason for continued public ownership or where the asset would clearly operate more effectively in the private sector, there is clearly no argument for retaining it within the public sector and at a cost to the taxpayer. Privatisation is a step on the road towards competition, and many of the privatised monopolies are now competing in competitive markets. Where competition is not possible, economic regulation has created the incentives for efficiency gains and investment. Energy network costs have halved in the 15 years post-privatisation, while the water sector has received £116 billion of investment since 1989.
The “political interference” from all angles experienced by nationalised industries in the past led to some perverse strategic decisions that did not make any kind of commercial sense. The businesses did not become more innovative or competitive; in fact, just the opposite happened, and many, such as British Leyland, were sold off. Both Jaguar and Land Rover, which split up when British Leyland was sold in 1984, are now major British multinational brands, albeit foreign-owned. Without the private foreign investment we have seen in our car industry over recent decades, it is unlikely that we would have the strong, internationally competitive industry we now have in the United Kingdom or the highly skilled workforce and good-quality jobs in regions such as the West Midlands and Northumberland.
Removing the burden of national ownership from Governments and Ministers, as many noble Lords have said, has allowed industries to seek critical investment from elsewhere and has enabled Governments to focus their attention and limited resources on more strategic cross-cutting issues that will have the most impact on our industries and the economy, such as apprenticeships, and on encouraging a more entrepreneurial spirit that will help our industries succeed in global markets. However, of course we need to ensure that the other ingredients are in place to allow business to operate free from unnecessary constraints or unfair practices of other firms, so that it can compete and innovate. At the same time, Governments must also look after the interests of consumers and the workforce, and protect the integrity of the market.
We are fortunate in this country to have one of the most effective competition regimes in the world. The Government have worked hard, both during the last coalition Government, as mentioned by noble Lords on the Liberal Democrat Benches, and since May to make the system more efficient. Last year we created the Competition and Markets Authority by bringing together the Office of Fair Trading and the Competition Commission into a single unitary authority.
Competition, as my noble friend Lord Howell said, is a key driver of growth and one of the pillars of a vibrant economy. A strong competition regime ensures that the most efficient and innovative businesses can thrive, allowing the best to grow and enter new markets. It also gives confidence to businesses wanting to set up in the UK. It drives investment in new and better products and pushes prices down and quality up. This is good for growth, for consumers and for the economy.
Competition and productivity go hand in hand. In July this year the Government published their “productivity plan”, which was jointly developed and signed off by the Chancellor of the Exchequer and the Secretary of State for Business, Innovation and Skills. The Government’s plan for improving our productivity performance is built around two key drivers or principles: encouraging long-term investment in economic capital, including infrastructure, skills and knowledge; and promoting a dynamic economy that encourages innovation and helps resources flow to their most productive use. The plan includes 15 action points which set out the Government’s objectives to establish and enable a long-term investment culture in this country, and which help address the structural challenges in areas such as pay, finance, regulation, infrastructure and rebalancing the economy.
Given the focus of this debate, I will direct my next comments to investment rather than the other aspects of the plan. As highlighted by the noble Lord, Lord Stoneham, and other noble Lords, traditionally, United Kingdom investment levels as a share of GDP have been lower than those of competitors such as France, Germany and Japan. In the run-up to the financial crisis, the growth in investment spending was focused on property rather than capital spend on equipment and machinery. We need to change this. Investment in new ideas and equipment is crucial to growing our economy. Access to finance to support investment enables companies to compete globally. Companies need to be able to anticipate fluctuations in markets and identify and respond quickly to opportunities.
How can we make the UK an even more attractive investment option? Among other things, the plan proposes reductions over time to corporation tax; increases the annual investment allowance to £200,000, its highest-ever permanent level; welcomes proposals to encourage and incentivise longer-term investment put forward by business leaders; and addresses issues around skills and education at school level, university and beyond, as highlighted by the noble Lord, Lord Stoneham. It is also ambitious in its plan to address a number of existing transport and infrastructure challenges, including long-term access to reliable, low-carbon energy at an affordable price, and establishing world-class digital infrastructure across the whole country.
However, crucially, on top of these very tangible and welcome initiatives, we need to create a long-term attitude to investment in companies and innovation and end short-termism. Financiers often focus on short-term investments and the quick return. This can have a clear and noticeably negative impact on funding for research and development innovation, which can be a risky pursuit and may also have a fairly long payback period.
A number of initiatives are included in the productivity plan which focus on creating financial services in the UK that lead the world in investing for growth. Our financial services sector has suffered since the financial crisis and we can do more to promote the most productive forms of investment. To this end, the Government have highlighted the importance of ensuring the supply of finance to support productive investment in setting the Financial Policy Committee’s 2015 remit; directed the Prudential Regulation Authority and the Financial Conduct Authority to create a joint new bank unit to promote competition; championed the development of new and innovative technologies and ideas, including through the appointment of a special envoy for FinTech; and are implementing a long-term plan for the taxation of banks, giving stability and sustainability and securing competitiveness.
I also draw attention to the speech of the noble Lord, Lord Wrigglesworth, and his pragmatic approach. I particularly agree with what he and many other noble Lords had to say about the pink-tinted specs the railways are sometimes viewed with. As a regular user of the railways I find it a great service. My noble friend Lord Cavendish emphasised the importance of small and medium-sized enterprises, and I could not agree more with what he said; they are often described as the backbone of our economy. The noble Lord, Lord Stoneham, mentioned training. I draw his attention to the debate I took part in last week, which emphasised the great successes of the apprenticeship system we have put in place. The noble Lord also asked whether the Government would support the Stewardship Code, which aims to support the quality of engagement between asset managers and companies to help improve long-term risk-adjusted returns for shareholders. The FRC is reviewing the code to ensure it works as effectively as possible. The Government support this voluntary code.
Private ownership with suitable safeguards seems constantly to have been shown to be the best approach to running the economy. It has encouraged the best performance from the vast majority of industries over the years. I should draw attention to the fascinating speech of the noble Lord, Lord Stevenson—even though it might be on a slightly sticky wicket. Private ownership and the competitive markets which follow lead to more efficient firms, owing to the profit motive and the need to be, or to become, a commercially viable proposition, whether at home or globally. There tend to be better outcomes because of the desire, or perhaps the need, to please consumers and to keep and develop their businesses, facilitated by the competition regime. Of course, competition provides companies with incentives to improve the quality of products or services, and to reduce prices as far as possible, all of which are of huge benefit to consumers.
Finally, competition and private ownership provide strong incentives for companies to innovate and develop their offerings so that they meet consumer needs more closely. It is the companies that can do this effectively that will grow and survive and provide the much-needed employment and sustainable wealth creation for our economy. A flexible, open marketplace that supports and encourages such private endeavour is also attractive for investors, including foreign direct investment, as the UK experience has proved so effectively over recent decades. All of these contribute to productivity and growth.
Lord Howell of Guildford
My Lords, it remains for me to thank very warmly all noble Lords who have taken part in this debate. In a way I am quite gladdened that it has been a low-key debate and your Lordships’ House has not been infected with too much of the frenzy from outside and nobody has made blood-curdling speeches about returning to the commanding heights of the economy and all that, or blood-curdling speeches about the need for unbridled capitalism. In fact, in my view, all capitalism should be, and always will be, bridled and that is really the answer to the ideological battles of the past. The market has to be regulated and work in a framework of control; if the framework is right the market works and if it does not then the Government begin to carry the can.
I am grateful for the support of the noble Lord, Lord Wrigglesworth, who broadly supported my view that technology and the technical wonders of the past 30 years have driven us away from the idea of the great state industries of the past or the state industries of other countries such as Russia as they simply became undesirable, unnecessary and unworkable. Some 30 years ago in the Department of Energy I was told by engineers, scientists and civil servants that it was impossible to privatise the utility industries because it was absurd to imagine there could ever be two telephone wires to a house or two electric cables or two gas pipes. It could not be done so we might as well forget the whole idea. Indeed, I remember that in India people said it was impossible to privatise the telephone industry because there were 9 million villages that had to get a cable to them. Well, we know what happened. Technology simply leaped all over that and transferred the argument into a completely different world in which, particularly with digitalisation and the computer, it became possible to operate a vast variety of diverse services within an overall organised framework.
I am very grateful to my noble friend Lord Young—he lived entirely up to my personal, and all our, expectations in that he spoke a lot of common sense and I think he will add to the common-sense resource of this Chamber, which is more and more difficult to maintain sometimes in a very tumultuous world. As he said, our job is to scrutinise legislation. We will go on doing that thoroughly. In addition, through debates such as this one we have a stabilising role in the frenzy outside. Although, I just put in a slight reminder that in our present condition where the Government keep losing the vote in the end they must be allowed to get their business. If that common-sense view about this Chamber is thrown away then we are heading for a really disastrous period in which the basis on which the House of Lords is able to contribute will be undermined.
I am very grateful to my noble friend Lord Cavendish with his wisdom on localism and the need for strong local authorities with expertise. We want to see more of that. If we are going to go for northern powerhouses we need northern powerful and intelligent regulation and administration in local government, and that must come back in a way we have not seen before.
I thank the noble Lord, Lord Stoneham, who made interesting points about ownership. I am not sure I agree with him about it not mattering. It was Anthony Crosland’s idea that it did not matter. He told the old Socialist Party that you should not have to nationalise everything. In the end it does matter. If you do not think about who owns and organises and competes in the great resources of this economy, disasters follow. I thank the noble Lord, Lord Stevenson, for pointing out that, of course, in the end the Government always do have a role, particularly in all the vital services and where the investor will not invest. Where it is too long-term, as we have seen—we mentioned nuclear power—Governments have to step in. It is as simple as that. They become political decisions. The taxpayer and the consumer will have to be ordered to pay up if an investor is not willing to do so.
My only disappointment, if I may end on this note, is that there was no further comment on wider ownership and some attempt to calm down and overcome the eternal alleged ideological battle between capital and labour which has gone on for most of my lifetime. I believed in the 1970s and I believe even more strongly today that, where wealth is being created, resources must be spread so that everyone in the community who wishes to be involved—there are always some who reject participating—benefits from the growth of wealth and resources in the economy. To put it in crude terms, where there is butter it must be spread to all corners of the toast. I think that is the answer to past battles. If all share in prosperity then all will feel that they have a stake and will contribute. That must be the ideal not only of one-nation Conservatives but of the social democrat Labour Party as I have worked with it and understood it in the past and, indeed, the Liberal Democrats as well.
I thank again your Lordships for a very interesting passing comment, in a way, on the storms outside. Let us hope that we continue to be an oasis of stability, quietness, calmness and common sense in a very difficult and chaotic world.