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Local Authority Assets (Hull City Council)

Volume 461: debated on Wednesday 20 June 2007

Motion made, and Question proposed, That this House do now adjourn.—[Tony Cunningham.]

I am delighted to have secured this Adjournment debate this evening on an important issue for my constituents. The debate arises from the sale of the remaining shares held by Liberal Democrat-controlled Hull city council in the local telecommunications company, Kingston Communications. That action was taken without any public debate or discussion, and it deserves some public scrutiny. I know that the Secretary of State for Education and Skills, my right hon. Friend the Member for Kingston upon Hull, West and Hessle (Alan Johnson), and the Deputy Prime Minister, my right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott), are also concerned about that decision and the effect that it will have on local services and jobs, especially at a time when the global activities of private equity companies are causing such public concern.

At the outset, it is certainly worth setting out a little of the proud history of the local telephone company in Hull. In the late 19th and early 20th centuries, like many major cities, Hull developed its own local telephone company, and in 1902 the council gained its first licence to operate services, with the first exchange opening in 1904. To celebrate its golden jubilee, Hull Corporation produced a “golden pages”, a forerunner to the “Yellow Pages”, which was printed on gold paper and distributed with a classified business section. Hull has often pioneered good ideas like that.

Hull became famous for having its own municipally owed telephone company—the only remaining one in the UK—with its own distinctive cream-coloured telephone boxes, designed by Sir Giles Gilbert Scott, who also created BT’s more famous red ones. It also had tariffs that meant that customers could speak for as long as they wanted to other customers in the local area, long before the BT friends and family packages. Local people enjoyed better service for having a local telephone company.

The company has continued to innovate, and was the first telephone network in the world to deploy 100 per cent. digital exchanges. In 1987 the Hull City Telephone Department became Kingston Communications plc, a company in its own right, although still 100 per cent. owned by the council. In 1999 the council took the decision to sell the telephone company, but retained a sizeable shareholding of 44.9 per cent. Many of my constituents bought shares too, such was the local commitment to a local business.

Until a few weeks ago, Hull city council’s shareholding in Kingston Communications stood at 31 per cent. The link between the people of Hull, as service users and employees, and Kingston Communications had lasted for 105 years, but under the Lib Dem council elected in May 2007 the link survived for only 19 days. A link that had survived two world wars was broken by the Lib Dems within 3 weeks.

I want to raise two points in this debate. First, I am particularly concerned about the hasty decision made by the Lib Dem council in Hull, which cashed in the remaining shareholding in Kingston Communications without any room for public debate or discussion. In particular, I want to explore the tension in law that exists when a local authority that owns shares in a publicly listed company has to make decisions about its shareholding. Apparently it must do that in private, but as a local authority it is democratically accountable to the wider electorate. That is a possible blind spot in local democracy.

Secondly, I want to explore what I believe is the lack of strategic thinking by the Liberal Democrats in Hull when they took the decision. They have been timid in their decision making, and have failed to look at what is really in the city’s best interests when it comes to developing a positive telecommunications and digital future for the area. They had the opportunity, by building on the historic telecommunications company, to work on and develop a pioneering approach in Hull. Other cities could only envy that, and I shall say a little more about that later.

I do not intend to go through the pros and cons of the sale, merely to ask how a democratically elected council could take major decisions about its shareholding in a company with apparently no discussion or debate with the people on whose behalf they hold the shares. Given the company’s long history with the people of Hull, and its current status as the city’s only provider of telephone and internet services, the matter must surely be worth some discussion and debate.

The sale took place very soon after the May 2007 local elections. There was no opportunity for a debate about the future of Hull city council’s assets, and there was no mention of the issue in the Liberal Democrat election manifesto. The people of Hull have been denied a chance to have their say on a matter that directly affects their services and provides employment in the community. The suddenness of events and the lack of transparency have had the effect of making local democracy seem somehow irrelevant.

I understand that there are rules that have to be applied when dealing with the disposal of shares, and I know that the Liberal Democrats in Hull have claimed that their hands were tied in this matter and that they could not go public with their plans. Of course I acknowledge that there are rules concerning the disposal of shares, but I also understand that the Financial Services Authority would have had no problem if the Liberal Democrat manifesto had contained a line setting out the council’s intention to review its assets with a view to achieving the best rate of return, and to evaluate its shareholding in Kingston Communications.

Clearly, a manifesto promise may not be realised, if the party that makes the promise is not returned to power. Alternatively, a party may not be able to follow through its manifesto, for all sorts of reasons. However, it is strange that the Liberal Democrats, who are always preaching to politicians about freedom of information, should have failed so miserably, when in power, to practise what they preach.

There is a joke going around Hull at the moment: what is the difference between Hull city council’s Kingston Communications shareholding committee and the local freemasons? The answer is that we have some idea of what goes on among the local freemasons, but we have no idea of what goes on in the Kingston Communications shareholding committee.

It is surprising that the local Liberal Democrat manifesto stated that the party was going to ensure that its councillors engaged in “meaningful consultation” with local people. It claimed that

“for too long in Hull, decisions have been taken behind closed doors with little regard to the views of the people whose communities and families they affect.”

Well, 19 days into its time in office, the Liberal Democrat council blew that one, did it not?

My concern is simply that, in an age when all political parties want to gain the trust of local people, strengthen local democracy and engage and consult in a meaningful way, the action taken by the Liberal Democrats in Hull is arrogant. If there had been discussion in the local election campaign about such an important issue, at least there would have been some debate and discussion about an asset built up by generations of Hull people.

My second point stems directly from that, and has to do with the possibilities flowing from the historical local telephone company and the resulting asset base that the council owned in Kingston Communications. I understand that the portfolio holder for Hull city council was advised that the dividend on the shareholding in Kingston Communications could be higher if the council sold its shares and reinvested in the market. However, I understand that other options, which could have been bolder and more focused on the future needs of the city and its people, were available.

With a 31 per cent. shareholding in Kingston Communications, the council had a real opportunity to look at some interesting ideas to benefit the city where the company was born and had prospered. Since I was elected in May 2005, many of my constituents have contacted me about the monopoly position of Kingston Communications in Hull. It is the only telecommunications and internet provider in the area, with uncontested dominance in the local market. Now the influence of local people through a major shareholding in the company has been lost; we have a straightforward privately owned monopoly supplier in the city, with no guarantees about choice or quality of telephone and internet services. Moreover, people have no say in what happens to local Kingston Communications jobs.

One option Hull city council could have considered was how to use its shareholding to force the management of Kingston Communications to realign the corporate strategy towards what is called an open horizontal model. That would have meant that the cabling in the city was brought under the ownership of the city—perhaps by forming a separate company to do that—to ensure that it benefited all who wanted to use it. There could have been investment to install fibre-optic cabling and to ensure that it was made available to all who needed it. The process is akin to the roads being available to whoever wishes to use them, with services provided by lots of different businesses that use the roads.

I am informed that similar models are under development in cities in Europe, such as Amsterdam. An open access model would allow investment to fund an infrastructure upgrade in the city region and allow for telecom companies to compete with each other for customers by buying access to the fibre-optic network. It would allow the use of other service providers in Hull, so there would no longer be a monopoly supplier as at present. The model would yield great socio-economic wealth to the community of Hull, and put the city on the global map as the first in the UK to adopt it.

The idea has great merit in terms of what would best help the city develop economically and speed up its much needed regeneration. It would put the council at the centre of the process, acting as the guardian for the city, making sure that the cabling in the city was used for everyone. It could secure employment in the city, which of course is now not guaranteed. Kingston Communications is obviously focusing its business on the corporate sector and much of the company’s investment is directed away from Hull at present. The model would ensure that existing and new investments in telecom services and networks were kept in Hull and Humberside. It would be good for the regional economy and local jobs—the modern, skilled local jobs that is Hull is crying out for.

I have set out only one option, but an imaginative and thoughtful debate could have taken place in the city if we had had a far-sighted local authority that was really looking to regenerate the economy in Hull by using digital technology and investing in the wider community. The Lib Dems have again wasted a real opportunity, with a short-term approach to an historic asset of the city. Councillor Sloan, the portfolio holder, said:

“The decision to sell the council’s remaining stake in Kingston Communications was made because it was in the best interests of the city, its people, local businesses, local shareholders and indeed the company.”

I am not sure that it was in the best interests of the city, local people or local businesses simply to grab the money and run. The council could have done something much more imaginative and much bolder. The Lib Dem council in Hull has wasted an opportunity.

The Parliamentary Under-Secretary of State for Communities and Local Government
(Angela E. Smith)

I congratulate my hon. Friend the Member for Kingston upon Hull, North (Ms Johnson) on the way in which she put her case to the House. She clearly has deep concerns, and the passion with which she spoke and her commitment to her constituents does her enormous credit. Her views are shared by other Hull Members. The Secretary of State for Education and Skills, my right hon. Friend the Member for Kingston upon Hull, West and Hessle, has moved to the Back Benches today—unusually and, I hope, temporarily—to show his commitment and his deep feelings about the issue, which are shared by the Deputy Prime Minister, my right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott).

All local authorities, including Hull, have to make complex decisions about how best to manage their assets and investments, but those are matters for the judgment of each authority; central Government have no powers to intervene. We want authorities to have as much flexibility as possible to manage their investments, which was one of the freedoms we conferred under the prudential capital finance system in 2004. Before that, investments were subject to a complex system of regulation that we inherited from the previous Administration. Now, instead of regulations, we have statutory guidance, which is in simple language and gives authorities considerable discretion to make decisions.

Authorities are allowed to pursue any form of investment that they consider appropriate. They may also cash in existing investments whenever they want. No Government consents are required at any stage. It is a matter for the political judgment of the local authority. However, the investment guidance contains important safeguards for local taxpayers. It requires the authority to produce a yearly investment strategy, which must be put to the full council. The strategy must set out the general investment policies of the authority and explain how risks will be monitored and managed.

I listened carefully to what my hon. Friend the Member for Kingston upon Hull, North said that she would like the Government to do, and I understand how deeply concerned she is. However, putting any constraints on the disposal of shares by local authorities would be inconsistent with the freedoms that we have recently conferred on them. When making decisions on whether to acquire, keep or dispose of an investment, an authority’s main concern should be security and seeking to minimise the risk of losing money that it holds in trust for the local community. Having addressed that, the authority may seek to maximise its return from its investments.

All of an authority’s investments need to be monitored carefully, and authorities must be ready to respond to changing market circumstances. That may sometimes lead to long-standing investment policies being reversed or changed. These are complex matters, which require specialised professional advice. There can be differences of opinion between technical experts. It is important that, for any sale to take place, the council must fully investigate all the options that are open to it. When making decisions about the disposal of any asset, we would expect the authority to consider the impact that the disposal would have on the community, the broader local economy and, of course, jobs.

I understand my hon. Friend’s regret at what she feels is a lost opportunity to consider other alternatives. I was struck by her comments about the opportunities available in Amsterdam. If she can undertake that kind of research in the time she has had available, she may want to ask her local authority what opportunities it took to research the available alternatives. Clearly it is too late for that to have an impact on the sale, but she may want to look into the matter to reassure herself and her constituents about whether alternatives were considered.

I appreciate the fact that the council could not have laid out its exact plans in this matter, but I was interested to hear my hon. Friend say that her understanding from the Financial Services Authority was that a commitment in the manifesto to review all assets would have been acceptable and would not have caused any difficulties. I want to refer to a story in a local Hull newspaper; it is regular reading for me. The article is dated 25 May and states:

“A few months ago Lib Dem leader Carl Minns was dismissing the idea of selling off the city council’s remaining stake in Kingston Communications as ‘typical Old Labour thinking’.”

I can assure Councillor Minns that, judging from the comments made by my hon. Friend, it is certainly not Labour party thinking.

Despite the deep concerns that my hon. Friend has raised, there is little that I can do in this matter. It is a matter for the discretion and judgment of the local authority, and the administration in Hull has decided to proceed in this way. If she wants to raise any complaints about financial impropriety, and would like the Audit Commission to look at them, she can look at the rules and regulations to see whether the complaints can be investigated. However, I am not aware that Hull city council has acted improperly financially. We are talking about a matter of judgment, and the council’s judgment is clearly at odds with that of my hon. Friend.

Question put and agreed to.

Adjourned accordingly at eighteen minutes past Seven o’clock.