Earl of Courtown
Main Page: Earl of Courtown (Conservative - Excepted Hereditary)
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.