My Lords, this group of amendments addresses two crucial issues—first, the Crown guarantee on BT pensions and, secondly, the relationship between Openreach and BT. In relation to the Crown guarantee, I have added my name to Amendments 33ZYEA and 33ZYEB in the name of my noble friend Lady Drake. These Benches support her arguments completely, and I hope that the clear, comprehensive and compelling case that she made will receive a good reception across the whole House. I thank her for her excellent and assiduous work on this matter.
It is clear that these government amendments do not yet have the robustness that assures this House, and I think that my noble friend’s unequalled expertise has come up with an impressive formulation. I look forward to hearing the Minister respond to these issues and would wish to hear some specific reassurances, if he is not minded to accept her amendments. It is important that nothing weakens the covenant on pensions; it is extremely important that the Crown guarantee is carried across and that nothing undermines the responsibilities of the trustees in exercising their duties properly. It is a colossal task. BT has the second-worst-funded pension scheme in the world, according to the MSCI survey of 5,000 company pensions, second only to Du Pont, which is the subject of a merger which will make it better funded, so BT will become the worst-funded pension scheme in the world. In addition to uncertainties
about the Crown guarantee, that will put trustees in an impossible position, if these amendments are not addressed as my noble friend suggested. The Government and all those concerned in this discussion should be in a position to confirm—as indeed Matthew Hancock, the Minister responsible, did in a meeting with Members of this House—that the proposed arrangements for the pension scheme should ensure long-term assurance to pension holders whether Openreach is legally or structurally separated.
This brings us to Amendment 33M in my name and that of my noble friend Lord Stevenson of Balmacara, which proposes the structural separation of Openreach. I will make a few very brief points to support this view. This is not a negative statement about BT, which is an excellent British company and one that we hope will continue to grow and thrive. There are many keen to criticise BT’s behaviour in relation to the supply of broadband but this must be properly balanced by the realities of the regulatory framework and policy context in which it was given to operate and which has incentivised and guided its approach. It is slightly unfair to create such arrangements and then criticise someone for following them, and many of the criticisms of BT have been unfair and misdirected.
The differences between the benefits of legal and structural separation are important to note. Legal separation, which has been proposed by Ofcom, is where the upstream business is established as a separate legal entity within the wider group but remains under BT’s complete ownership. It includes functional separation with independent governance. There is a clear benefit to a regulator that would lend itself to suggesting this approach. It certainly makes the regulatory task of overseeing this arrangement much more economic. But having one place to look at is a benefit only for the regulator. The alternative is structural separation, where the vertically integrated operation is split with no significant common ownership and “line of business” restrictions to prevent them re-entering each other’s markets. There are some issues that people think are reasons to achieve separation, such as improvements to service levels, broadband speeds and end-customer services, but these are not dependent on separation.
BT has contributed massively to getting us to where we are now, where we have—in relative terms to international peers—availability of superfast average speeds and lowish prices. But the challenge is the future, and this is where investment needs to be higher. Crucially the UK is lagging in fibre to the premises; the majority of the network is either fibre to the cabinet or cable. The future will require us to commit to FTTP. Other solutions such as G.fast will not keep us as a leading nation. Structural separation is the only mechanism that can sufficiently address the investment issues, and this was the matter that Ofcom did not adequately address in its proposal. The legal separation does not address the problem that strategic decisions on investment will still be dependent on BT, even though I hope that it takes note of the Minister’s exhortation for it to do better.
Ofcom’s statement of reasons for its approach says that this will provide improved investment outcomes from new models of investment such as co-investment
and risk sharing. But BT has never lacked access to capital, which is why even Ofcom acknowledges that this model will be reviewed in order to ensure that the new structure achieves its objectives. This is not an equivocal “may” or “could”, but an emphatic “must” and “should” be reviewed. I hope that the Minister can confirm that this will be done and a broad timetable for it.
Our concern is that policy is drifting and opportunities to ensure that we maintain a leading position in the new communications technologies are being weighed down by compromise, confusion and a terrible lack of clarity. It is surely better to provide leadership and certainty by choosing the only arrangement that will ensure the necessary level of investment to make our broadband fit for the future.