Government Trading Funds Bill

Part of New Schedule – in the House of Commons at 12:00 am on 19th June 1973.

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Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury 12:00 am, 19th June 1973

I should like to give the Bill a warm welcome and say only that my hon. Friend moved it too apologetically and claimed that it was modest. He even seemed to be on the defensive about it, whereas to me it is far too small a step and I should like to see much more progress in this direction.

I always find it extraordinary, with half the administration and economy of the country in the hands of the State, that we spend so much time arguing about the efficiency of the private sector, putting in management consultants and generally arguing about how we can improve the performance of the private sector, with no thought or time at all spent on trying to improve the performance of the public sector.

When the right hon. Member for Bristol, South-East (Mr. Benn) wants to take the 25 leading private companies into public ownership, it occurs to me that he might achieve greater efficiency if he were to take 25 leading trading organisations from the public sector back into private ownership. There is no doubt in my mind that the efficiency of our public sector is abysmal, not only in industry, but in the administration of many services performed by the State. That thinking and legislation should be starting, designed to improve the performance of the public sector, is a development that I welcome strongly.

What I should like to see is the splitting-up of the public sector into its component functions. The first thing to do is to analyse what are the various services provided. My hon. Friend is right to choose the six services mentioned in the Bill, because they are readily identifiable and readily separable from the mass of the public administration. But there is no reason why we should not carry this process a great deal further and separate out a large number of activities that could be established with trading funds and made to perform as separate organisations.

Secondly, we must have more disclosure. I am delighted to hear that there is to be disclosure in the private sector, but certainly there must be a great more disclosure in the public sector. Until the various functions of the services are separated out it is impossible, but when that has been done, each must be required to put down on paper its financial results and general progress in administering its service.

Thirdly—and this is the first point where increased efficiency comes into the argument—we must have motivation within the public sector units to increase the efficiency of the service provided. It seems to be impossible to achieve the proper motivation for efficiency until the units have, first, been identified and, secondly, increased disclosure.

The basic requirement of managing a service is that it should employ the capital in the business in the proper fashion. That cannot be done unless the trading fund organisation has a capital structure and complete financial autonomy. The secret of success in a free enterprise economy is that organisations that need more capital borrow it to employ it profitably, and organisations that need less capital lend it to others which can employ it more profitably. I should like to see the public sector go that far so that it takes, borrows and lends capital surplus to its requirements in order to ensure the proper use of the State's capital.

Whether public dividend capital is relevant to this I sometimes doubt. Certainly, I should not like to come to a firm conclusion, but in our experience, limited though it is hitherto, it has so often been the case that public dividend capital is used as an excuse for a nationalised industry not to pay interest on its capital, probably not through its own fault, but because the Government have been leaning on the prices of its products. I am not so sure whether it is relevant in the new direction which the Government are taking by the Bill, but if my hon. Friend can build into his new structures the free movement of capital among various parts of the public sector, he will be achieving a major contribution to increasing efficiency.

It is regrettable, however, that the Bill does not include freedom for the trading fund organisations to pay the going wage or salary rate. I believe that the employees should continue to be civil servants and that if it is necessary to hire a manager or a plumber, a skilled welder or a clerk, the organisation should be free to pay the going rate and to make such pension and fringe benefits arrangements as suit that service, not be dictated to by the general level of Civil Service agreements. As I say, I am sad that it does not include freedom for the organisations to borrow and lend capital with that quickness and skill which is the essential feature of a successful organisation.

The third feature—I regret its absence from the Bill—is that there is no attempt yet to motivate those who will manage these fixed services so that they are on the side of increasing the efficiency of their organisations. If one runs a large block of State trading or State service, the basic motivation deep in the mind of the person who runs it is the hope that he may one day have a bigger organisation. That is empire building and it is this desire to see one's corner grow and expand which is probably the main psychological motivation of those who are in charge.

It should, of course, be the other way round. The motivation should be to reduce the numbers of people employed and the amount of materials and capital consumed in order to provide the cheapest possible service, thereby leaving a greater amount available for those who have done the management. There is about to be published a book by an American professor which advocates three degrees of motivation for public sector organisations such as those mentioned in the Bill.

The first degree would no doubt be unacceptable to the Committee. It is that the managers of a State service should be allowed to keep a proportion of the difference between the selling price of their product and what it has cost them to produce it. This would probably greatly reduce costs in all State services, but I think it would be politically unacceptable at present. I do not know why the idea that somebody could actually make money out of reducing costs, particularly in the public service, is, for some reason, repugnant, but it seems perfectly obvious that if the costs of naval dockyards could be cut by 10 per cent., it would not be amiss if 1 per cent. of that 10 per cent. went to the managers who had achieved that remarkable result.

If that is unacceptable, the second suggestion is that those who operate public service profitably should be enabled to undertake activities in other public services. For instance, if the manager of the Royal Dockyards succeeds in reducing his costs, he should be allowed to go into the employment exchange business, or the management of State pensions, so that he may demonstrate that by his skill and efforts he was able to reduce costs not only in his own field, but in others. That would satisfy his desire for empire building and at the same time would have the effect of reducing costs throughout the public service.

The third suggestion is that it might be possible to base the rewards of the managers of a State service not on finance but on terms of status. The man who got his costs down 10 per cent.—the man who runs the Royal Mint might get his costs down by 10 per cent.—would be given a Bentley, but the man who did not succeed in reducing his costs would have only a Mini-Minor. The quality of the carpet on office floors, the pictures on the walls, are all things which motivate civil servants, and it would seem to me perfectly right and proper, if we are not prepared to go as far as financial rewards for the successful, to give amenities rewards instead.

The Government are the main customer of all of the six services mentioned and there is no market price for the repair of ships or the Royal Ordnance Factories or the minting of coins, so it is not so easy to determine the price which the Government should be charged for the product of the six organisations.

I wish particularly to congratulate the Government on going so far as to force themselves to determine the price for the work done by these six organisations to pay to them because it will not be easy for them to do so, but having done so the Government will be able to assess whether it will be worth while to have coin minted in Cardiff or elsewhere. That would give them the ability to compare the costs of minting by various competing, minters. That is a major step forward, because it not only gives the trading fund organisation a yardstick by which to judge its efficiency, but it gives the Government a yardstick by which to judge whether they are purchasing services in the cheapest market.

I cannot see why, if we are able to go this far with these six organisations, we should not go as far as treating all those Government organisations which actually sell to the public in the market in exactly the same way. For instance, the Patent Office and Companies House are typical examples of where a trading fund could be set up, and where it could be even easier than for the six items mentioned in the Bill because they already operate commercially with the public. If we are to enter this sphere where the Government are the main customer, let us extend it to the employment exchanges, payment of social security benefits and other government activities where there is room for increased efficiency and motivation of those who manage the service.

I greatly welcome the Bill, but it is far too modest; it does not go nearly far enough. I hope that my hon. Friend will agree that we have a major task before us to revolutionise the standard of administration and management in the public service. Having settled for having 50 per cent. of our gross national product in public hands, we now have an obligation to increase the efficiency with which that 50 per cent. of our economy is managed.