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Privatisation (Costs)

Part of Prayers – in the House of Commons at 1:45 pm on 5th April 1995.

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Photo of George Young George Young The Financial Secretary to the Treasury 1:45 pm, 5th April 1995

The hon. Lady had 15 minutes to make her case, and in courtesy to her, as well as to the House, I must answer her points.

In the days of nationalisation, we had debates about losses, debts, high prices, poor investment decisions, shoddy service and the holder of the latest strike record. In other words, there were costs under nationalisation. There were costs for every householder and business in the land. As my hon. Friend the Member for Hendon, South (Mr. Marshall) has reminded us, they were costs for taxpayers.

The hon. Lady may like to recall what the Leader of the Opposition said about privatisation. He asserted it is barely an issue that prices will rise because of privatisation."—[Official Report, 12 December 1988, Vol. 143, c. 684.] In fact, the cost of domestic electricity has fallen by 8 per cent., excluding value added tax, over the past two years. Under the Labour Government, electricity prices increased in cash terms by 2 per cent. every six weeks. There is a dramatic contrast between public and private ownership.

I do not blame those who worked in the nationalised industries, especially as I was one of them. It was the nature of state ownership, with its excessive centralisation and inevitable short-termism, that was the root of the problem. Privatisation has shown that it can rescue businesses and services from what was a rather depressing scenario.

The domestic consumer has seen dramatic improvements in standards. Privatisation has turned inward-looking businesses into successful ones often globally. I shall mention a few. The House will be interested to know that 45 countries throughout the world have benefited from the skills, knowledge and experience of British Gas since privatisation. Rover, which was once the basket case of the British car industry, is now exporting its Discovery model to Japan.

The hon. Lady mentioned the employees of former nationalised industries. Does she believe that those who now work for British Airways want to be taken back into public ownership? British Airways is now the world's favourite airline. It carries more international passengers than any other carrier. It is a real success story. Back in 1979, the hon. Member for Glasgow, Garscadden (Mr. Dewar) described British Airways as "a potential pantomime horse" of capitalism. How wrong he was. The hon. Lady talked about British Steel. In 1979, it was making losses of £1.7 billion. It is now an industry in profit.

The hon. Lady should reflect on the costs to the country's export position if the Government had adopted what I believe to be her rather short-term view of public ownership. We have heard something today about the wider cost of full public sector services. The hon. Lady mentioned local authorities. Compulsory competitive tendering and privatisation mean that homes and businesses can buy services at competitive prices instead of subsidising them through taxation. That has been of much greater importance to United Kingdom businesses and their customers that the hon. Lady realises.

I shall illustrate my argument by talking about telecommunications and energy supply, which are two key services to virtually every home and business in the country. Telecommunications account for about 2 per cent. of gross domestic product. Electricity and gas together account for a further 2 per cent. The services that they provide are crucial to the competitiveness of each and every business. If telecommunications and energy providers perform badly, other industries feel the pinch. If they are free to charge too much for too little, millions of individual customers pay over the odds for a second-rate service. It is they who suffer.

Privatisation has led to vastly improved investment levels and service standards. Before privatisation, it was the taxpayer who inevitably underwrote investment. After privatisation, companies facing competition and regulation had to shape up their act. The hon. Lady bandied a few figures about. Let us consider some more.

British Telecom has invested a massive £22 billion since privatisation. Mercury has invested £2.7 billion. Mobile phone companies have invested a further £2.6 billion. Investment by British Gas has tripled in real terms in the seven years after sale. The water companies have invested over £12 billion in the five years since privatisation, 75 per cent. more in real terms than in their last five years in the public sector.

Increased investment has clearly had an impact on quality. Everyone now has a real choice of telephone service. People no longer wait to be connected to a telephone service. British Gas now responds quickly to faults. In virtually all cases, supply is restored within 24 hours. No longer must busy customers wait in all day when they would rather be about their business. All utilities now offer timed appointments. Britain's water is now among the cleanest in Europe, despite being cheaper than water in most other European countries.

Let us consider what investing for quality has cost the consumer, and perhaps pause over some of the telling interventions of Opposition Members in previous debates. For example, we were told that 16 million British Gas customers could expect only one result—increased gas prices, higher than the rate of inflation. That was not a startling new Government announcement. It was a forecast made by a Labour Member. It was just a little bit out: since privatisation, the average household gas bill has fallen by 20 per cent. even after inflation. We were told that a minimum estimate of the cost of privatisation to the consumer in terms of increases was 20 per cent. That was said by a Labour Member in the Opposition's haste to oppose electricity privatisation. Wrong again: privatisation has brought down the cost of electricity to the domestic consumer by 9 per cent. in the past two years, even after taking inflation into account.

If hon. Members want to make a phone call when they leave the House to go on a well-earned recess, I am happy to tell them that the three-minute local peak rate call now costs less in cash terms than it did on privatisation. They will find a phone box much more readily, and when they do, it will be working.

The House may recall the scaremongering of the right hon. Member for Salford, East (Mr. Orme). He said in 1983 that the public telephone box could be threatened by extinction. That was a far cry from reality. The number of BT call boxes has increased by over 50 per cent. to 127,000, and 96 per cent. of them work at any one time, compared with about 75 per cent. back in 1987.

It is tempting to tease the hon. Lady about her party's record in getting figures right. The serious point is that her attack on privatisation is narrow and misinformed. At the beginning of her speech, she talked about costs. On average, each privatisation has cost only 2.8 per cent. of the proceeds that have been raised. Those narrow figures belie the knock-on benefits to consumers of which I have spoken. As my hon. Friend the Member for Hendon, South reminded me, privatised industries are contributing about £50 million a week to the Exchequer in taxes and dividends. That is surely relevant.

The criticisms that we have heard about the privatisation programme have ignored improvements in quality, reductions in price and improved service. They ignore the new export potential that privatisation has brought to the country. They ignore also the fact that privatisation has underpinned London's position as the premier centre for financial services and privatisation expertise, which is now being exported throughout the world.

Privatisation has brought solutions, ideas, innovation and investment. I can assure the hon. Lady that the Government will continue down that road. We shall proceed with privatisation—the hon. Lady mentioned British Rail—and take forward the private finance initiative. We shall bring the private sector into areas previously thought to be the preserve of the public sector. We shall continue to apply principles of quality and service in the heart of government and to local services.

A great wave of reform has swept the public sector over the past 15 years. That has set the framework for UK excellence at home and abroad. The Government are proud of their record. We are not complacent, and the process will go forward.