Chris Whiteside MBE is Conservative health spokesman on Cumbria County Council and Deputy Chairman (Political & Campaigning) of North-West Region. He was Conservative parliamentary candidate for Copeland in 2005 and 2010.
This general election is one of the most extraordinary in living memory. One reason for that is the number of preposterous ideas which various political parties are trying to persuade people to take seriously. It seems as if our entire political class expect us to believe in free unicorns.
And in my opinion, the biggest unicorn of the lot is Labour’s preposterous and potentially disastrous proposal for the industry I have worked in for more than 30 years. The party’s promise of free broadband for everyone would be extremely difficult to deliver and the attempt to deliver it would probably be found contrary to both to WTO rules and to EU ones – which would be relevant were, under Labour Government, Brexit not to take place. It would cost far more than they suggest and would devastate the industry.
Let me “declare an interest”: I am employed by Openreach, the part of BT which Labour propose to nationalise, I own shares in BT, and I am a member of the BT pension scheme. However, the views I express in this article are entirely my own and not necessarily those of BT or Openreach.
I joined BT from university just after the company was split off from the Post Office and privatised, and in the earliest stages of competition. The effects of the years the telecommunications industry had spent as a nationalised monopoly were still present, and I remember only too clearly what those effects were.
For a start, the industry was not just operating, but manufacturing and installing in telephone exchanges mechanical switching equipment which was two generations out of date. There was a reason for this.
While the company was on the books of the public sector, its capital programme had been liable to be cut back whenever government borrowing needed to be reduced, making it difficult to plan and leading to a reliance on tried and trusted technologies rather than making full use of the innovative first and second general digital technologies which were already available.
It is no coincidence that BT planned and converted to a digital core network as soon after privatisation as possible, but the technology had been available several years before. Our earliest competitor had built a digital core network as soon as they started operating.
When the telephone service was a nationalised monopoly, there was a very limited choice of phones available, you often had to wait several months for a basic telephone line to be installed (these days it is usually not more than a couple of weeks) and you often had to have a shared “party line” with another “subscriber” (the word “customer” only came in with privatisation.)
This gets to the core of why Labour’s proposals would be disastrous. The old “British Telecom” wasn’t as badly run as some nationalised industries, but its mindset was that we were doing subscribers a favour by providing them with a service. By contrast, competition means customers could go to someone else if they were not satisfied. This forced BT to think like an organisation which must provide a service as good or better than its competitors if it wants to survive.
That isn’t a theoretical consideration: in countries with competitive telecommunications markets huge phone companies have gone bust or been taken over. Are BT and its Openreach subsidiary perfect? Of course not, and they wouldn’t claim to be. Do they provide better service than they would if there was no competition? You bet they do.
Labour’s proposals would kill competition. In all probability, their proposed nationalised “British Broadband” company would have to spend vast amounts of the management time which it ought to be spending on accelerating the rollout of ultrafast broadband on absorbing the networks of competitors who abandoned the market because competing against a free product provided by the government would be untenable.
Anyone who knows the first thing about the UK broadband market – which obviously does not include the Labour leadership or anyone who is defending their plans – is aware that BT has just over a third of this competitive market. Its main rivals, Virgin, Sky and TalkTalk all have millions of customers, and their broadband service arms employ thousands of people between them.
The odds that all these companies would be able to stay in the market if the government took over their main competitor and offered the service free are zero. Labour’s proposals would put those jobs at risk and destroy the return on the billions of pounds of investment those companies have made in the UK’s digital infrastructure.
It’s not just if Labour win the election that the existence of these proposals will reduce competition and investment in broadband – it is happening already. According to the Financial Times, Telecoms company City Fibre had planned to announce the investment of £1.5 billion in their fibre broadband network this week but have put off these plans until after the election.
It is because of the impact on competition that Labour’s proposals are likely to run into trouble with both European Union and World Trade Organisation rules. Those media “experts” who would defend anything the Labour party said even if they proposed the slaughter of the first born have been pointing out that nationalisation is not necessarily contrary to EU rules and nor is public investment in an industry if it helps customers. What they miss is that an important criterion for whether state aid is acceptable is whether it damages competition – and this proposal is about as harmful to competition as it is possible to get.
That’s not the only difficulty. Labour have almost certainly underestimated the cost of their proposals. Labour say it would cost £20 billion to provide ultrafast broadband “for everyone” and £230 million a year to maintain it. But the National Infrastructure Commission estimated the cost of building a national full fibre network last year at £33 billion: which is a more credible figure.
Then there is the cost of actually buying Openreach and the strong possibility that Labour would have to negotiate some form of compensation or buy-out for companies who have invested billions in UK fibre networks which their policy would render non-viable. Even if they refused to pay compensation, there would still be costs involved in integrating those networks with the Openreach one. Because it is difficult to predict how many extra people “British Broadband” would have to take on just to deliver the same level of service and speed of rollout, never mind improve it, it is impossible to say how large a subsidy would be required to provide the service for free.
However, BT’s published accounts show that last year Openreach had revenues of £5 billion, operating costs of just over half that, and invested £2.08 billion on improving and growing the network. The idea that the main products the company currently sells can be provided for free at a cost to the taxpayer as low as £230 million a year is beyond ludicrous – it would be at least an order of magnitude larger.
A nationalised broadband network offered for free would be less efficient, less responsive, and in the long run less capable because there would be no revenue to provide re-investment and no source of external capital other than the taxpayer.
As for the idea that the Government could fund that network by a big increase on the tax paid by tech giants, who have demonstrated consummate ability to move their profits to whichever country in the world offers them the best deal, I can only say “Good luck with that.”
There is an important message that we Conservatives must recognise. The fact that this policy is stupid beyond belief does not mean it will not be attractive to some voters. One woman tweeted despairingly that her non-political boyfriend had said “Woo-hoo, free broadband if Labour win” and showed no interest in her attempt to explain to him why it wasn’t a good idea.
Margaret Thatcher once said that “you may have to fight a battle more than once to win it.” As on so many things, she was right. We thought we had won the argument against nationalisation. Those of us who are old enough to remember how awful nationalised utilities like British Rail were find it difficult to understand why anyone in their right mind would want to go back to them.
Labour is capitalising on the fact that voters who were not born when companies like BT and British Rail were state monopolies can see the failings of the phone and rail suppliers we have today but have no idea how much worse their predecessors were under the failed model which political dinosaurs like Jeremy Corbyn and John McDonnell want to recreate.
We must stop assuming we have won the battle of ideas and start making the arguments for private enterprise and for competition afresh for a new generation. Both during this election campaign and after it. If we fail to make and win that argument, then even if we win this election, sooner or later Britain will elect a government which makes the same mistakes which did so much damage in the post-war years all over again.