A History of Modern Britain

by Andrew Marr

  In the event 2 million people, or 5 per cent of the adult population, bought BT shares, almost doubling the number of people who owned shares in a single day. After this came British Gas. Natural gas fields had been supplying Britain from the North Sea since the late sixties, pumping ashore at Yarmouth and Hull, and replacing the old ‘town gas’ system of coal-produced gas, which had long given so many neighbourhoods their distinctive architecture and smell. With its national pipe network and showrooms it had become the country’s favourite source of domestic energy and was, in most respects, a straightforwardly monopolistic business. Its chairman Sir Dennis Rooke fought a riotously aggressive private campaign to avoid British Gas being broken up before the sale, and was successful. Again, the government and its advisers prepared for the sale with a TV campaign featuring an anonymous neighbour who had to be kept away from a good thing – ‘Don’t Tell Sid’ – and then, when the issue details were finally announced, ‘Tell Sid’. This raised £5.4 bn, the biggest single privatization of all.

  Yet there was something about the very name that fell oddly on the ear. Does ‘Sid’ perhaps have a half-echo of ‘spiv’? Was someone in the advertising team subconsciously sending a message? For the truth was that the huge oversubscribing of shares reflected a general and accurate belief that something was being given away for nothing, that this was a one-way bet. Sid knew which side his bread was buttered on, but this did not necessarily make him a kitchen capitalist. With the equally bargain-price shares offered to members of building societies, such as Abbey National, when they demutualized and turned themselves into banks, Britain developed a ‘thank you very much’ class of one-off shareholders. In the early years of the twenty-first century, the Office of National Statistics looked back at the privatization story and found that the proportion of stockmarket wealth held by private shareholders had fallen from 20 per cent in 1994 to 14 per cent. ‘Many shareholders’, they said, ‘have clearly subsequently disposed of their holdings rather than become long-term stockmarket investors as was once hoped.’ Of the 22 per cent of adults holding stocks or shares, more than half only had their old privatization or building society ones. The UK Shareholders’ Association concluded that ‘there are enormous number of shareholders in the UK (about 10m perhaps) but the vast majority hold only a few shares, and many of those will have come from privatisations, demutualisations or former employments. Such shares are rarely traded.’

  The failure to get a shareholding democracy properly rooted, despite endless Treasury initiatives to nurture it, is a more telling criticism of privatization than the one most commonly heard at the time, which was that the assets were being sold off too cheaply. They were – to the tune in total of some £2.5 bn, according to the National Audit Office. But in part this was deliberate – ‘wider share ownership was an important policy objective and we were prepared to pay a price for it,’ said Lawson. Second, as the government and its advisers learned from each privatization, the pricing grew shrewder. Third, the price critics would not have sold the companies anyway. What the stultified share ownership pattern showed was that, below the level of political rhetoric, there were limits to the Thatcher revolution.

  The other great question is whether privatization increased the efficiency and responsiveness of the corporations being sold. This was supposed to happen not because public sector managers were inherently lazy but because they lacked the spur and whip of a stockmarket price and the possibility of going out of business. Yet the impetus of being in the private sector would be much less if the business was still a monopoly. The most successful privatizations in that sense were the ones where the company was pushed instantly into full competition, as British Airways was, or Rolls-Royce, or British Aerospace. But the utilities – gas, electricity, water – were always different. It was hard to envisage rival North Sea natural gas companies competing in every part of the country with their own system of pipes and storage. It was hard to imagine many different energy companies with their own grids. Yet without competition, where would the efficiency gains come from? The technical and political argument behind these privatizations was how to break up the state monopolies to create competition, without infuriating and discommoding the consumer.

  In the heyday of the Thatcher privatizations, it was more common for public corporations to be sold as single entities than broken up. British Telecom made the case that to compete in international markets, it must stay as a single unit, able to make the big investments needed for the telecommunications revolution. British Gas, under its pugnacious boss, managed to play the Whitehall power game sufficiently well to stay single. The water and electricity industries were split up, but to create local monopolies, with power generation being split into just two mega-companies, National Power and Powergen. (The railway industry would prove one of the most intellectually demanding and least successful of all, though this story comes later.) In essence, what ministers did was to replace competition by regulation and the growth of new public bodies, such as the National Rivers Authority. Oftel, Ofcom, Ofgas, Ofwat were all given detailed targets and penalty systems to oversee the newly privatized utilities. Only much later would some of them, such as British Gas, be further broken up in the private sector, generally by government diktat through new competition policies, and exposed to more realistic market pressures. Soon, foreign firms would begin to move in and buy up the fragmented privatized utilities, causing remarkably little public protest, except when years of poor investment or management meant a service was patently failing, such as the leaking pipe systems of German-owned Thames Water.

  Politicians learned two things. The first was that outside the Westminster village, few British people seemed to care at all who owned the companies and services they depended upon, so long as the service was acceptable. This was becoming a much less ideological country. The second thing they learned was that politics could not step back and wash its hands of what the privatized companies then did. Ministers, not simply chief executives, would still be the target of public anger and held responsible for any failings. This was becoming a more aggressively consumerist country. The result was that, while hundreds of thousands of employees left the public sector to work for newly private corporations, the State grew in other ways, through the quangos, regulatory bodies and bureaucrats now found necessary to regulate and oversee the privatized services.

  93

  Rainbows and Pots of Black Gold

  Jim Callaghan was brought up piously, so when he told an audience in 1977 that God had given Britain her best opportunity for a hundred years in the shape of North Sea oil, there is a chance that he meant it. The Foreign Office, in a memo a little earlier, had called it ‘a rainbow spanning the sombre horizon’. These had been terrible days for Britain, with 25 per cent inflation and the stockmarket plunging. The oil seemed like a fairytale intervention, for whichever group of politicians found themselves in power when the pot of gold could finally be yanked open. The story of what happened to the Almighty’s handout, a ripple of organic residue left 9,000 feet below the seabed from dinosaur-haunted landscapes and warm seas of 200 million years earlier, is one of the most remarkable and under-discussed in modern British history. The discovery and exploitation of huge oil and gas fields far out under cold, stormy and turbulent waters – so far out that the biggest fields were roughly equidistant between Scotland and Norway – is a modern epic of technical skill, bold finance, endurance and individual courage. Hundreds would die, few fortunes would be made. By the boom year before prices suddenly fell, 1985, Britain was producing 127 million tonnes and was responsible for nearly a tenth of world exports. She had broken free from the old shackles of oil dependency, at least for a while. Official figures suggest Britain will be importing oil again by 2010 though many economists think it will be sooner. So we are talking about a span of between thirty and forty years. Was it well managed, that great gift?

  This story is, to begin with, technically awe-inspiring. The oil in most of the rest of the world
was ridiculously easy to win compared to the job of finding and pumping out very deep deposits a long way from dry land in very stormy seas. In civil engineering terms, from the steel and concrete jackets as tall as the Post Office Tower that had to be built in specially chosen havens and floated hundreds of miles out, to the huge undersea pipelines dropped from boats, this was a project unlike any other in peacetime since the Victorians’ creation of the railways in the 1840s. Its impact on the politics and public finances of Britain, first in the dying days of old Labour and then during the crucial years of the early Thatcherite experiment in monetarism, can hardly be exaggerated. It helped bankroll Thatcherism, for Britain was self-sufficient in oil by 1980. As the future Chancellor, Nigel Lawson, noted, revenues for the government ‘soared from zero in 1975 to nearly £8 billion in 1982-3, at which point they accounted for almost 8.5 per cent of all tax revenues.’ Some economists, though certainly not Lawson, have argued that without it the Thatcher experiment would have collapsed during 1981-2. One observer says: ‘The industrial shake-out of the early eighties, of which unemployment above three million was the consequence, was indeed financed with the considerable help of the oil revenues.’ So there, to start with, is an irony. A great new source of national wealth helped to produce mass unemployment, or at least make it politically possible.

  The possibilities of the oil boom were not underestimated at the time. Thanks to the oil price shocks of earlier years, the power and wealth of the Sheikhs, epitomized by the ebullient Saudi oil minister Yamani, was well understood. Could Britain have a little of that? In the seventies, in clubs of St James’s and the City offices of the Financial Times, or the new little tower-block where The Economist was edited, they argued about whether oil would so boost the pound that manufacturing industry would be destroyed; or alternatively whether it would mean a golden age for Britain, when vast fortunes could be reinvested in wonderful schools and cutting-edge high-tech industries.

  Whitehall’s defence experts worried about how to defend the hundreds of miles of pipes against Irish terrorists, and the rigs against the Soviet navy. In those parts of the Commons tea-room and bars colonized by Labour MPs, there was a vigorous argument between those who wanted to see oil nationalized and kept under direct government control and those who felt this was impracticable. For by the time the big strikes had been made, the great American ‘oil majors’ were the people who had actually invested in the risky and technically difficult business of finding the stuff and preparing to bring it ashore. In the first few years, official Britain was hugely excited by the whole thing. When the first oil arrived ashore in November 1975 at Cruden Bay in Aberdeenshire, the Queen was present with the Prime Minister, assorted other ministers, pipers, a huge tent, red carpets and crowds with Union Jacks. (The oil workers, being in general rather hairy and impolite, were kept well out of the way.)

  So it is curious that this great technical, economic and social story features so little afterwards in the memoirs and biographies of the politicians most affected by it. In her autobiography Margaret Thatcher barely touches on North Sea oil, even though her husband Denis was an oilman, involved in the near-collapse of Burmah Oil in 1975, and even though she took a close day-to-day interest in the relevant cabinet committees. About this awesome story she manages just four or five throwaway references, tacked to the end of remarks about exchange controls or tax policy. Geoffrey Howe dismisses the epic tale in a few words, far fewer than he devotes to the mildly amusing theft of his trousers from a train. Neither of them mentions the great tragedy of Piper Alpha, when 185 men were burned or blown to death (two thirds of the British toll in the Falklands War). The great tomes on Wilson and Callaghan, Major and Blair, likewise find nothing much to say about North Sea oil. Nigel Lawson writes lucidly about it, brushing aside the arguments in favour of treating oil as a national resource to be husbanded with his customary panache. In many of the more general histories, economic and political, North Sea oil gets meagre treatment. Its cultural legacy seems slender, too: the occasional agitprop play, a few poems, but no memorable novel, television drama or film, unless one counts Local Hero, which is more about a village community. Those wild years, when 80,000 hard-drinking, hard-working, brave and often dysfunctional men turned a corner of Scotland into the Wild East have left few footprints. A rare historian of the industry points out that among Scotland’s hundreds of museums there is not one devoted to oil. Compared to the much-discussed miners’ strikes, or the IMF crisis, or the City rude-boys of the Big Bang, North Sea oil – which continues to profitably flow – is already forgotten.

  Why is this? Those parts of the national story that nobody seems keen to talk about have messages of their own. In the case of oil, embarrassment and confusion are part of the answer. For the truth is that the great adventure was lived at the edge of the British experience. It was not just that the rigs were so far from the coast, halfway to Scandinavia, and that the wild scenes were played out in the bars of Aberdeen and Shetland, both remote from the media in Glasgow, never mind London. It was also that the funding of the exploration and production was so heavily dominated by the United States and that so much of the technology was designed and built outside Britain that it is hard to tell, thirty years after it began to flow, quite what message God was really sending with the oil. The number of British refineries actually fell during the great oil decade of 1980-90, from twenty-one to thirteen, and 40 per cent of that was American-owned. Government advisers had prepared detailed plans about how to grab a great industrial bonanza on the back of the oil boom but by 1974, when the rigs were desperately needed to cope with the huge discoveries out at sea, only three rigs out of 119 were being built in Britain. The ageing, underfinanced yards of the Clyde, Tyneside and Belfast, which in the forties had still produced nearly 40 per cent of the world’s ships, were now down to 4 per cent. Cheaper, better-equipped deep-water yards overseas had taken over. So when it came to the rigs, Norway, Finland even France were getting more of the business. Scotland’s specialist yards for the huge ‘jackets’, like the Meccano sets of giants, at Nigg, Ardersier and Methil, lurched, it has been well said, ‘between clamour and closure’. It was the same story with the all-important service boats bringing vital drilling supplies alongside. The technical breakthrough of positioning propellers at the bow as well as the stern, so they could keep position in heavy waters beside the platforms was made by Norwegian yards. It was their boats, not British ones, which were then sold around the world. Even when it came to oil supply services, which more or less had to come locally, British companies were slow to catch up and won little extra business overseas.

  Finance was a similar story. In the early days of exploration, the US giants were able to fund their work in the North Sea themselves, developing rigs from their earlier experiences in the Gulf of Mexico. The opaque nature of their internal accounting, and the much higher cost of getting any oil out, meant they were appallingly hard for British ministers and the Treasury to deal with. The government’s handling of early leases for exploration, blocks of a hundred square miles each, was criticized by the Commons public accounts committee in 1972 as far too generous, ‘as though Britain were a gullible Sheikhdom’. In the Middle East, they thought so too. Among the odder political vignettes of the seventies was an interview between Britain’s energy minister Tony Benn and the Shah of Iran, at the latter’s palace in Tehran. There, after noting the signed photographs of Brezhnev, Mao and the Queen, Benn was informed that North Sea oil could transform Britain’s prospects ‘if we were not imprudent’. The Shah warned Benn to stand up to the American giants of the oil business. Benn went back and did his best which in the case of Amoco left him ‘boiling with rage – I felt like the president of a banana republic negotiating with a multinational’. Labour’s answer was to set up the British National Oil Corporation, BNOC, in 1976, which was meant to be both the government’s eyes and ears in the industry, to buy 51 per cent of the oil landed, and then to sell it on. It gave the government some gr
ip on the developing industry and built up formidable expertise at its Scottish headquarters. Yet it was essentially a bystander with modest powers, compared to the great oil companies. Its oil-producing business was in any case privatized by Nigel Lawson in 1982, the largest privatization the world had then seen; and the subsequent company Britoil was taken over by BP six years later.

  British business as well as British manufacturing was slow to seize the possibilities of the oil boom, though the Scottish banks and the merchant banks clustered round Edinburgh’s genteel Charlotte Square began forming oil subsidiaries and hiring expert economists by the end of the seventies. Among the partnerships was one between Thomson Scottish Petroleum, part of the group which also owned the Scotsman newspaper; and Armand Hammer, the one-time business ally of Lenin, with Occidental. They found the Piper field, one of the big ones following the huge Forties find by BP and Brent by Shell and Exxon. There were many smaller oil-investing companies, some of them successful. Onshore, some Aberdeenshire companies did well in building the offices and prefabricated living quarters, servicing the endless helicopter flights, developing expertise in valves and electronic equipment. Yet the grand hopes of ministers back in the mid-seventies that the oil discoveries would kick-start a great renaissance in banking, engineering, shipbuilding and new service industry, was very wide of the mark.