I would like to repeat a Statement made earlier today in the other place by the Chief Secretary to the Treasury.
“Mr Speaker, our overriding ambition is to lock in recovery, and lay the foundations for growth in the years to come. Because of the action we have taken this year, we are confident that growth will return at the turn of the year. Going forward, the Chancellor set out in the Budget our plan to halve the public sector deficit over four years, once recovery is secured. This entails a return to growth with support for firms and families, fair tax rises for those most able to bear the burden, and slowing the growth of public spending.
As the Chancellor set out in April, an ambitious programme of asset sales is part of our plan; a plan that sets out up to £16 billion of property and other assets sales, with proceeds raised being used to support our priorities, including new capital investment and paying down debt.
Today we set out a few details and in the months to come we will publish a portfolio of assets to be sold. It will cover assets for sale—and assets where we wish to explore opportunities for managing these assets in a different way. The portfolio will include the Tote, Dartford Crossing, the student loan book and the Channel Tunnel rail link.
We know that councils will make a major contribution to the overall level of asset disposals, through sales of housing and other assets, as will central government property. These three elements are expected to deliver £16 billion in receipts over the period 2011-14. In particular, we aim to secure receipts from central government sales within the next two financial years, where market conditions are right.
We have already sold £30 billion of public assets since 2004. This success, building on the £22 billion sale of 3G licences in 2000, played a major role in the reduction of debt over the last decade.
We have made tough choices to cut debt in the past, which allowed us to support the economy now. We will not flinch from tough choices today, to allow us to live within our means for years to come”.
My Lords, I thank the Minister for repeating the Answer to the Urgent Question tabled in another place. One of the Government’s horrid habits is making policy announcements outside Parliament, and it is right that Ministers have had to come to both Houses of Parliament today to deal with the issues that the Prime Minister included in his speech in the City this morning.
We are not opposed to asset sales. Indeed, my party, led by the Government of my noble friend Lady Thatcher, charted the way forward in the 1980s. But we are against selling assets at the wrong time and the wrong value simply to realise cash flow. Our economy may well have been weakened by 12 years of mismanagement by the Prime Minister, but it is not, I hope, so weak that we need to resort to fire sales. We must remember that the Government's track record on selling at the right value is not good. It was the Prime Minister who sold 400 tonnes of gold in 1999 for £3.5 billion. If he had held onto it, our country would today be £5 billion better off. Value for money for taxpayers must be a key consideration. What is the Government’s approach to timing and how will value for money be assured?
We need to put this in the context of the dreadful borrowing figures. Government borrowing this year is forecast to be £175 billion, or £3.3 billion per day. Today’s Statement is rather light on figures merely repeating the Budget figures of £16 billion, but that is but a tiny drop in the ocean—less than five days’ worth of this year's borrowing.
We should also be clear about the impact of asset sales. The Government’s spinmaster-in-chief, the noble Lord, Lord Mandelson, was on the airwaves this morning saying that the Government need to cut the deficit—we all say amen to that—and that selling assets is one way of doing it. It is not. Asset sales can cut the stock of debt, but they will do precious little for the deficit and in particular the structural deficit going forward. Most of what we heard today is not new. It was spun as another example of the Prime Minister's wizardry in saving the world or at least this country, but in practice, it was a rehash of old ideas. If there had been a little less spin this morning, we might not even be taking this Statement here this evening.
I will now deal with the items that we are told might be up for sale. First of all is the Tote. The idea is almost as old as the current Government. There was an explicit manifesto commitment to sell the Tote in 2001. The Government committed to selling the Tote to racing at a 50 per cent discount or that 50 per cent of the proceeds would flow to racing. That was repeated many times during the passage of the Horserace Betting and Olympic Lottery Act 2004. Brussels then ruled out a subsidised price for racing and the Treasury refused to sell the Tote to racing at any price that racing could afford. Will the Minister confirm that the Treasury wanted to raise £400 million in 2007? How much does the Treasury now expect to realise from the Tote? Also, do the Government remain committed to passing 50 per cent of the proceeds to the racing industry?
Secondly, there is the sale of the student loan book. That was first announced by Mr Brown in 1997. It was re-announced in 2007 and legislated for in 2008. Does the Minister think that now would be a good time to sell the loan book? If not now, what economic conditions would make the sale worth while?
The Minister will realise that the sale of the Dartford Crossing, first announced in 2008, raises very different issues given the history of tolls and the involvement of local councils. What is the Government’s policy now towards tolls for the crossing in the long term, since that will be the key ingredient of the sale price that can be realised?
Lastly, we are told that the Channel Tunnel rail link is up for sale, as first announced in 2007, but with no evident progress since. What is happening here? The Statement also referred to council assets. The chairman of the Local Government Association has been quite clear that it is for councils to decide locally what to do about sales and their proceeds. The Minister might like to tell the House how the sale of council assets will help the national finances, because that is far from clear.
The Government might have thought that this set of tired announcements and reannouncements would play well in the media and look like part of a coherent response to the country’s economic woes. It will certainly fool no one in your Lordships’ House and I would be very surprised if it fooled anyone outside it.
My Lords, when the House reconvened last October, the first day started with an emergency Statement by the Minister on the action that the Government had taken that day in recapitalising the banks. Within the first 10 days of coming back there had been three emergency Statements about the scale of the banking crisis. This year, we start by picking up the pieces. In the intervening period, the Government—and the Prime Minister in particular—have been dragged, kicking and screaming, to accept that there will have to be substantial reductions in public expenditure and increases in taxes and revenue. We have had, as it were, a very unseemly dance of the seven veils, conducted by the Prime Minister, of which this is the latest and smallest veil. As the noble Baroness, Lady Noakes, has pointed out, the Statement—all bar one sentence—was contained in the Budget. We knew, and it is in the figures, that £16 billion is expected from asset sales. The Prime Minister says that today they have set out a few details; the very few details are contained in a single sentence which just lists some of the items that the Government will sell from their own central portfolio.
I do not want to repeat everything that the noble Baroness has said about the individual items, although I cannot help at least making a feeble joke about there having been more false starts in selling the Tote than in the Grand National on a bad day. This is a relatively small, unconvincing list of national asset sales. The local government asset sales are, of course, much more substantial than those that are expected to come from national government. We have this wonderful statement:
“We know that councils will make a major contribution”.
The only reason that the Government know this is because they have just told councils that they have to make a major contribution. Councils have not been asked whether they want to make a major contribution. At the moment, many councils are extremely worried about what the consequences of the announcement mean for them. Some £13 billion equates to £20 million per parliamentary constituency, so there are a number of £20 million dollops per local authority. If I am running a local authority, what does that mean in terms of what I have to flog off and when?
When we come to the two sentences about timing, we find across the piece a very considerable degree of muddle. These three elements are expected to deliver £16 billion over the period 2011-14. That is straightforward, except for this:
“In particular, we aim to secure receipts from central government sales within the next two financial years”—
that is, 2010-11—
“where market conditions are right”.
I think it is the general view that market conditions are unlikely to be right in respect of virtually any of these categories of asset, and certainly property, within the next two years. If I had been a senior civil servant or Minister receiving this from a civil servant, in view of the timing I would have said, “Go back and make it clear”. Could the Minister clarify the timing? This is a mouse of an announcement. It will do nothing to deal with the structural deficit and is yet another unedifying example of the Prime Minister attempting desperately to appear in control of the situation and public expenditure, which he manifestly is not.
My Lords, the noble Baroness, Lady Noakes, once again finds herself in a tight knot over how to address a Statement from the Government on financial policy. On the one hand, she says that this is an example of the Government again not respecting Parliament and making announcements outside Parliament. On the other hand, she points out that, in fact, this announcement is merely a further addition of texture and detail to figures and information that have already been provided to the other place by my right honourable friend the Chancellor of the Exchequer. Most of the information contained in the Prime Minister’s speech on this subject had already been detailed in earlier announcements, including, in particular, the sums of money that we believed could sensibly be raised as a result of asset sales.
The Government have a long and successful record of selling public assets to facilitate investment in public infrastructure and important government programmes. Of course, it always easy to pick out something that one could have sold at a higher price if one had waited a little longer. There are other examples, such as QinetiQ, which subsequently traded well below the price at which the Government sold the shares, but I do not hear that being raised by the other side of the House. As regards gold as a component of our reserves, the essence of portfolio diversification in public assets is to have a broad spread of assets. Our Government, along with many others, determined that we were holding more in gold as a proportion of our total reserves than was sensible, particularly with the introduction of the euro, which gave us the opportunity to diversify the national reserves. Our approach to timing in the programme detailed today is to initiate now a process of taking advice, engage with investors to determine interest and formulate an optimal programme for disposal or developing alternative methods for managing these assets. As always, timing will be dictated by value-for-money considerations.
Specific questions were asked about some of the assets identified by the Prime Minister. I cannot tell the House how much the Government expect to raise from the sale of the Tote. If one reflects for a moment, no seller would ever specify how much they thought they were going to raise from an asset, and thereby signal to prospective purchasers the price at which they would sell. That suggestion is absolute nonsense. I would however add that there is nothing in today’s announcement on the Tote that has any relevance to earlier commitments that have been made in respect of its sale. On the sale of student loans, this is a book of assets that does not need to stay in public ownership to provide the public policy purpose, provided there are appropriate regulations in place to cover, for instance, the rate of interest, attitudes towards foreclosure or forbearance in respect of students who are experiencing difficulties, and ensuring that the new owner of the loan book will behave in a manner consistent with public policy.
Similarly, the proposed sale of the Dartford-Thurrock Crossing will have to be subject to appropriate regulation in terms of tariffing to protect the motorist and support transport policy. Our starting point in respect of this asset and many others is that they will be sold where retaining them in public ownership is not critical to the delivery of public policy; that is, that the assets can be better managed by private sector owners or private sector managers.
Council assets have been consistently disposed of and reinvested as part of an important programme of investment that has played a major role in, for instance, ensuring that the stock of housing available through social housing programmes and similar variants is modernised and made habitable for people today.
The noble Lord, Lord Newby, asked a number of questions which I think I have on the whole covered in my response to the noble Baroness’s points. Importantly, we want to ensure that local authorities have every encouragement to be efficient. That is why, when disposing of public assets, local authorities will be able to retain the proceeds for future investment or to pay down debt at their choice. That is consistent with an approach which empowers local government and local authorities but, as always, decisions will be dependent on market conditions. It is this Government’s judgment that the steadily improving economic outlook—already well recognised by the stock market, which has had an extraordinarily strong recovery since the announcement of our successful interventions earlier this year—will create a good environment in which we can make sensible sales in due course.
My Lords, the Tote legally belongs to Government but morally it belongs to racing. The Government have never put a single penny into it at any stage. As the chairman of the former shadow Racing Trust, which was the vehicle through which the Government intended to fulfil their 2005 manifesto pledge to sell the Tote to racing, I fully accept that that route has been blocked by European state aid considerations. However, does the Minister accept that racing will be rightly outraged if the proceeds of a sale of the Tote are used to pay off the Government’s debt and do not go to racing, which created the Tote?
I recognise my noble friend’s deep and long commitment to the turf but, as he correctly identifies, the Tote is a public asset. Clearly, we have an important responsibility to ensure that public assets are disposed of for the public good rather than for individual sectoral interests. However, I remind my noble friend that I made very clear that nothing in today’s announcement in any way modified earlier commitments that have been made in respect of the sale of the Tote.
My Lords, one of the assets that has been the subject of prolonged consideration in this House is the Royal Mail. I notice that there is no reference to that in today’s Statement. The noble Lord says that no one says what they expect to get for their assets. However, a lot of Scottish home owners put advertisements in the papers asking for offers over X thousand pounds, which at least suggests what they are expecting.
I fully acknowledge the observation of the noble and learned Lord, Lord Mackay, about the housing market, although my experience is that the price indicated is not necessarily the price which the vendor is willing to accept when he offers the property for sale. I merely make the point that today is far too soon to flag the price at which we would be willing to sell an asset over the next two or three years but that we remain committed to value for money. There was no mention of the Post Office in the Prime Minister’s Statement and I assume that was intentional.
My Lords, the Prime Minister’s Statement mentioned the sale of Britain’s share in URENCO, held in partnership with the Governments of the Netherlands and Germany under the conditions laid down in the treaty of Almelo. Given that there is worldwide expansion of nuclear power, and therefore that enriched uranium production must be an appreciating asset in our portfolio, it is going to be rather difficult to judge at what time it would be appropriate to seek the sale. But setting that point aside, will my noble friend tell the House what obligations the treaty of Almelo places on Her Majesty’s Government in the event of the Government wanting to dispose of our one-third share in this partnership enterprise?
URENCO is a uranium enrichment business. As my noble friend Lord Cunningham says, the UK owns one-third along with the Dutch Government and two German companies. The Government have long stated their intention to realise proceeds from the UK’s stake. We recognise policy and security concerns and we are in the process of working with the other shareholders, URENCO and other departments within government to reach a position that best serves the taxpayer. Agreements within the shareholder arrangement direct one to a certain route of options in terms of disposal. We may not, of course, be the only shareholder who believes that it would be sensible for URENCO to be in part private sector ownership. I agree with my noble friend that in many ways the outlook for this business is rather attractive, but I suspect that it is not only my noble friend who has noticed that; it will have been noticed by other investors who will be more than happy to pay up for the growth potential which they see coming from the excellent technology of this company.
Does the Minister agree that in carrying out transactions of this kind it is crucial to have good financial judgment and a sense of timing, and that the Prime Minister, as the former Chancellor, does not have a good track record as regards selling off individual bits of the family silver, or indeed, as my noble friend pointed out, selling off the gold reserves? Will the Minister confirm what those gold reserves would be worth at current prices? No doubt his brief will include that.
I wish to raise two points of principle. First, is it the Government’s intention that as a result of these transactions their balance sheet should go up or down, or remain the same? Secondly, with regard to the rates of return, do they intend to save on the rate of interest by reducing the government debt? What comparisons has the Minister made with the rates of return being achieved on the assets whose sale is proposed, because rates of interest on debt are now very low and these assets may well be producing a higher rate of return? Therefore, if the Government go ahead in that way, they may end up losing money rather than saving it.
If my briefing document contains a figure for the value of gold disposed, it is not one that I retain in my head. More important is what one does with the proceeds. The proceeds of gold sales were invested in a more diversified and therefore lower risk portfolio of reserves. Any part of government expenditure, whether funded by taxes or borrowing or from the proceeds of disposal, tells you only one side of the story. The other side is what happens with the proceeds, which is significant investment in education, schools, hospitals and infrastructure. Regrettably, accountants do not have accurate ways of putting a value on this; but if one really wants to judge the capability of the previous Chancellor of the Exchequer in terms of making financial judgments, one has to look at it in the round. My sense is that he will come out of it rather well.
As far as the rate of interest is concerned, I am delighted that the world and its investors are showing great confidence in the Government and in the country, and in funding long-term debt at such low rates of interest. I do not wish to be drawn at this point on quantitative easing, although I am sure that it will not be long before I am on my feet answering questions from the noble Lord, Lord Higgins, on that subject. Again, one has to look at what the issue would be as regards the proceeds from sales. This answers the question on the level of government borrowing, which will entirely depend on whether the proceeds, particularly from local government, are used to pay down debt, in which case the overall volume of outstanding public sector indebtedness will fall; or whether the proceeds are retained as liquid assets, in which case on an offset they would equalise; or whether they are used for further investment. So the impact on the government balance sheet—the public sector balance sheet—will depend upon the use of proceeds.
My Lords, perhaps I may follow the question asked by the noble Lord, Lord Cunningham of Felling, about URENCO, because, as has been said, this has been in the Government’s selling programme for a number of years. That was again confirmed in last year’s Pre-Budget Report and was referred to by the Prime Minister in his speech, to which my noble friend referred. As the noble Lord, Lord Myners, rightly said, URENCO is a very valuable asset; its profits last year were £654 million and it has an £18 billion order book. This must be, by any standards, the jewel in the crown of this plethora of assets for sale. I am just a little surprised that the Answer to the Question in the other place did not mention URENCO, because it is about the biggest of the lot if we are considering all these things.
Can the noble Lord tell us a little more about the difficulties that the Government have faced in trying to sell URENCO? They were able to get rid of Westinghouse very quickly indeed to the Japanese. The result was that Britain no longer had a single company capable of making a nuclear power station. What will happen with URENCO? It has always been a hugely important part of our civil nuclear armoury, whereby we are able to manufacture our own enriched fuel. As the noble Lord rightly said, two German companies, RWE and E.On—through a holding company—have the German share in URENCO. Can he say something about how that works in relation to Germany? Now that there is a new German Government who obviously wish to extend the life of nuclear power stations—and perhaps build some more—how will they ensure that they get their share of the output of that? Can they rely on the companies, or is there some sort of contractual relationship?
I can understand the difficulties that the Government have faced in selling URENCO, but if we are to sell it—which I am not opposed to in principle—how will we ensure the national interest of maintaining, in this nuclear renaissance, that we have sufficient enriched fuel for our nuclear programme?
My Lords, in the process of selling we will be able to insist on certain conditions, if we judge those to be necessary from the perspective of national fuel supply or security. But, as the noble Lord says, the German shareholdings through E.On and RWE—two companies which have had substantial investments here in the UK—are already in the private sector. URENCO will continue to be a significant and important provider of services in the nuclear industry, regardless of whether it is in the part-ownership of the British Government, or whether a larger proportion is in due course in the hands of private sector investors and companies. However, we will certainly insist on appropriate conditions being attached to the sale to ensure that the national interest is not prejudiced. I am most encouraged by the noble Lord’s observation that he has no objection in principle to this being an asset which should or could be held in the hands of private investors, rather than by the Government.
My Lords, perhaps I may follow on from that point. If it is true, as the Minister said, that we are now going for growth and that we should witness what the stock market has done, but on the other hand we are told that we are in for a period of about three years of interest rates at 2 per cent, is it right to realise these assets, which are bound to increase by more than 2 per cent per year? What are we going to do with the money? I am very confused.
I am also confused on another point. The Minister said that he had briefing on what the gold would be worth now. Again, there is a lot of talk about how the £3.5 billion would now be worth £15 billion. Is that not in his briefing? He says that he has his briefing. Is this a state secret or could he look at his briefing and provide the right figure?
Then perish the thought that one would try to make a cheap point about the Conservatives completely failing to correctly calculate the benefit of delaying pensions by a year. I am more than happy to accept the noble Baroness’s figures on this point.
The stock market is a discounting mechanism; it looks forward and often recovers well before the economy. To some extent this improving economic scenario is already reflected in higher EBITDA multiples, price-earnings multiples, price-to-book value multiples and others which will have a bearing on the assets that we are selling, so this is not an issue which should be compared with interest rates. Clearly, this portfolio of assets is in some respects worth considerably more now than it would have been earlier this year.
My Lords, I hope that it is in order for me to ask a question given that I was not here at the start, although I have read the Statement. If it is so essential to reduce accumulated debt—some of us are a bit more sceptical about how essential it is at the moment—should those people criticising today’s announcement not stand up and state whether it is true that their policy is for a rapid reduction in accumulated debt?
I thank my noble friend for his observation. The Government’s policy is that debt will need to be reduced in due course and that we will need to move towards more sustainable public finances. That will be achieved, significantly as a consequence of growth, once the recovery is firmly established. However, there is an underlying structural deficit which we have made very clear we will address, in addition to the cyclical adjustments that will come through the automatic stabilisers, but only at the right time. Now is not the right time, and to move precipitously now to talk about exit or about reducing public expenditure will be to place at risk the economic recovery and to affect the lives of many people in this country. This Government will not do that.
My Lords, when the Dartford tunnel was originally conceived and built, its promoters always intended that, in time, if the revenues were sufficient, the tunnel—or tunnels, as they became—would become toll-free. When the crossing was put into private hands to enhance it to the crossing that we know today, the projections that I saw then suggested that, had that principle been maintained, the crossing would now be toll-free. Will that principle be reinstated in the process of putting the crossing back into private hands? If not, why not?
My Lords, the Dartford-Thurrock Crossing complex will in due course be sold to achieve value for the public. It will be sold with conditions relating to tariffs and maintenance and with other requirements that ensure that the interests of the wider population continue to be protected.