Private Ownership

Lord Cavendish of Furness Excerpts

Thursday 22nd October 2015 Lords Chamber

[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.