Lord Stoneham of Droxford
Main Page: Lord Stoneham of Droxford (Liberal Democrat - Life peer)
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.