§ 8.48 p.m.
§ The Minister of Power (Mr. Richard Marsh)
I beg to move,That the Electricity (Borrowing Powers) Order 1966, a draft of which was laid before this House on 18th October, be approved.
§ Mr. Deputy Speaker (Sir Eric Fletcher)
It might be for the convenience of the House to consider, at the same time the Scottish Order.
§ Mr. Marsh
That would be convenient. It is probably appropriate for me to mention that, as hon. Member for Greenwich, this is the eighth year that I have sat through a debate on the Greenwich Hospital and Travers' Foundation and have not been called. Perhaps it would have been inappropriate for me to be called tonight.
The subject with which we now deal is important. These are short and very clear Orders, but they involve very large sums of money and raise a very important issue. The electricity industry is characterised by a very fast rate of growth and by very large capital requirements. An adequate and efficient supply is clearly essential not only for the future of the electricity industry as such but for the growth and prosperity of the economy as a whole and the improvement of the entire nation's living standards. For these reasons, the provision of the necessary plant and equipment must have very high priority. It is, therefore, inevitable that from time to time the industry will need to increase its powers to borrow.
The House last considered the industry's borrowing powers in 1963, when the Electricity and Gas Bill was debated. That Act raised the limit of borrowings—and I am afraid that there are many figures in this speech, but they are important—for the industry in England and Wales to £3,300 million, with provision for raising the limit by Order by a further £1,100 million to £4,400 million.
I will come to Scotland in a moment and deal, first, with England and Wales. At the time of the Electricity and Gas Act, the Electricity Council estimated that the capital requirements of the industry in England and Wales for the years 1963–64 to 1966–67 would total £2,375 million. On 563 this basis, the interim limit of £3,300 million was expected to be reached by about March, 1967, and the upper limit of £4,400 million by about March, 1970. To date, the forecast has proved almost surprisingly accurate. The total amount borrowed at the end of last March had reached £2,867 million and the £3,300 million interim limit is still expected to be reached by about next March.
During the three years 1963–64 to 1965–66, capital requirements totalled about £1,580 million, of which £734 million, or about 46.5 per cent., was financed from the industry's own resources. In its Annual Report for 1965, the Electricity Council estimates the industry's capital requirements over the period 1967–68 to 1971–72 at £3,281 million. The programme on which this estimate is based is subject to the Government's approval and to annual review, but there are a number of uncertainties surrounding the industry's capital programme and its financing.
I will be referring presently to some of those uncertainties, but I should say straight away, because this is the purpose of the debate tonight, that they have led me to the conclusion that the House should at this stage have another opportunity of considering the industry's borrowing requirements again before the upper limit of £4,400 million is reached.
The Order before the House tonight will, therefore, raise the industry's borrowing limit to a new interim figure of £4,100 million, which, on current expectations, the Electricity Council considers should meet its demands until about March, 1969. As I have said, however, this forecast is subject to considerable uncertainty, and a new Order will then be required and the House will be able to take a fresh look at the industry's borrowing requirements at that stage.
For the two Scottish electricity boards, the Electricity and Gas Act fixed a borrowing limit of £500 million with an increase permissible by Order of up to £80 million. The outstanding borrowings of the two boards at the end of March totalled £474 million. Therefore, again, the interim limit is expected to be reached in December. This also is very close indeed to the forecast made in 1963, when the limit was expected to be reached by about March, 1967. The uncertainties 564 applying to the borrowing requirments of the industry in England and Wales also apply to Scotland, with the difference that in the case of the Scottish boards their upper limit is not likely to carry them much beyond March, 1969. In the circumstances, therefore, it seems appropriate in their case to go to the upper limit of £580 million.
§ Mr. Gordon Campbell (Moray and Nairn)
The Minister has said that in the case of England and Wales, the House will have a second opportunity to consider the matter, but what he has just said will not give us the chance of a second consideration concerning Scotland.
§ Mr. Marsh
I think that that is so. I would like to discuss it with my hon. Friend the Under-Secretary of State for Scotland, who will be replying to the debate.
I would like to refer in rather more detail to some of the uncertainties which make the estimating of this industry's future borrowing unusually difficult on this occasion. In the first place, there is the uncertainty about the likely trend in the growth of electricity demand on which the boards' capital development proposals have to be faced.
§ Mr. Marsh
I am grateful, even if it is for the first and last time, to have the hon. Gentleman agreeing with me.
The Electricity Council and the boards in England and Wales have prepared their latest plans on the basis of a growth in demand of rather more than 8 per cent. per annum. On the basis of that forecast, and in an effort to improve the width of safety margin, the industry expects to bring into service about 27,000 megawatts of new generating plant between now and 1971, together with additions to the transmission and distribution networks.
The Electricity Council's forecast of load growth was made last January. It was prepared, I freely admit, on the assumption that the rate of growth in the economy for the period to 1970 of 3.8 per cent. per year envisaged in the National Plan would be achieved and, of course, it will not. We do not want to spend the evening debating that topic but it is a major factor in this connection, and it 565 increases the level of uncertainty in forecasting the prospects for this industry.
Another uncertainty is the impact on the electricity industry of supplies of natural gas from the North Sea. Yesterday, in a debate on the coal industry in which some hon. Members now present took part, I said that the prospects in the North Sea look very encouraging, but the effect that natural gas will have on electricity demand cannot be assessed until we have a great deal more knowledge of the size of the discoveries and the price of the supply, and how the gas will be best taken in this country.
The effect that natural gas will have will depend on so many unknowns that any assessment is bound to be highly speculative. I sometimes believe that people who make such dogmatic assertions, sometimes in the Press and sometimes in this House—though not, of course, by hon. Members present—should bear in mind this factor of very considerable uncertainty. The implications, including the effect on the other fuels will, of course, be carefully considered during the review of fuel policy which I have in hand.
The problem is that we do not yet have the information, because we do not know how much natural gas is there, but we cannot wait until we do know before beginning to plan the policies which will continue during the period when natural gas is on shore. So we have to take into account the assumption, bearing in mind that we do not yet know the difficulties.
Besides the uncertainties as to the likely rate of growth of electricity demand and, consequently, the size of the industry's capital development programme, there are also uncertainties about the proportion of the industry's investment requirements which it will be able to finance out of its own resources and the proportion which it will require to borrow. In the light of the White Paper on the Financial and Economic Obligations of the Nationalised Industries, the boards in England and Wales agreed to seek to earn an average gross return, before depreciation, of about 12½ per cent. on their average net assets for the five years 1962–63 to 1966–67.
During the first four years, the industry as a whole has achieved a return of 12.3 per cent., representing some £1,411million, 566 of which £262 million was balance of revenue. The gross return for these years has been quite close to the objective, despite the fact that, because of a larger capital programme and higher costs, investment is now expected to be about £600 million greater than was originally estimated. In those circumstances, the figures represent quite a considerable achievement.
As to the immediate future, the effect of the prices standstill and the general economic retrenchment, which will affect sales—and, therefore, profits—will be to reduce the proportion of capital requirements which the boards will be able to finance from their own resources. Another factor which will bear on the industry's financial position is the financial objective for the period after 1966–67, which has yet to be agreed.
Because of these uncertainties about load growth, capital requirements and the size of the contribution which the boards will be able to make out of their internal resources towards their capital investment, the Order before the House places an interim limit on borrowing for the industry in England and Wales of £4,100 million so that the House may look again at the position within the next two or three years. I hope that, in the circumstances, the House will endorse this proposal, because I feel very strongly—and I am sure that virtually all hon. Members who who are regular attenders at this sort of debate recognise—that these are very vast sums, and the House should have an opportunity to look at them.
§ Sir G. Nabarro
They are too long term. Having regard to the assertions that the Minister has made so cogently about uncertainties, why have we to estimate this evening three years ahead? Having regard to the fact that capital plant today does not need a three-year look ahead, why cannot we just go 18 months' ahead, and then look at it again?
§ Mr. Marsh
I shall come later to some of the answers to the point raised by the hon. Member. All I say at the moment is that we have made a move towards virtue and we should get a modicum of credit for coming thus far.
I should now like to say a few words about the massive expansion in the industry's plant which the borrowing under this Order will help to make possible. The 567 Central Electricity Generating Board's present plans, which are subject to approval by the Government, envisage that a total output capacity of about 62,000 MW. will be in service for the 1971–72 winter. The bulk of the new capacity to be commissioned in the next five years will be in 500 MW units, most of which will be in 2,000 MW stations. These very large units represent a notable advance in technology which will earn economies both in capital and operating cost. The first of the 500 MW units began producing electricity at Ferrybridge "C" in February and another at West Burton, in September. Others are expected to come into service shortly.
In addition to the expansion of generating capacity, the Generating Board plans substantial expenditure on strengthening the national grid to take electricity from the power stations to the area boards. The Board is now building a new 400 kV. transmission system which should be largely completed by the early 1970s. The operation of the super grid at 400 kV. will greatly improve both the flexibility and the economy of the Board's operations. When completed, it should suffice, with relatively minor extensions, through to the 1980s. The area boards will also require to spend large sums strengthening their distribution networks to meet the increasing demand from existing consumers and connecting new consumers to the supply.
I move to another connected point. It is not surprising that the winter position is very much in mind at the moment. A journalist said to me shortly after I became Minister of Power, "What is your ambition?" That is the sort of daft question one is asked on these occasions. I thought carefully and said, "If I still had any friends by the end of next winter I would be very happy and it would satisfy me." Everyone is very much concerned with the winter position. The Generating Board plans on the basis of a 17 per cent. margin of generating plant over the estimated demand in average cold spells. This margin is to cover plant which will inevitably be out of service for one reason or another, and also to guard against the risks of errors in forecasts necessarily made in winters ahead and severe weather.
568 We sometimes tend to believe that it is possible to forecast at long range changes in the weather, but I am not sure that my grandmother could not have done as well as regards forecasts for six months ahead as those who employ other methods. This is a very inaccurate business and planning has to take account of it. It also has to take account of exceptionally severe winters. Our winters are not even and when exceptionally severe the additional load placed on the services is very real.
Last winter the Board had a maximum margin of about 7 per cent. although for the first part of the winter the figure was lower. We all know what happened durnig the cold weather last November and January. When the plant to be in service last winter and this coming winter was ordered in the late 1950s and early 1960s the Generating Board was planning on the basis of a margin of 14 per cent. There was a shortfall from that, and the shortfall was the result of two factors, underestimation of load growth and plant not being in service as early as planned.
The difficulties caused by the inadequate margin were seriously increased last winter, when one of the coldest spells on record for November occurred at a time when the Board had some plant out of service for annual overhaul. We have been trying hard for the last few months—all through the all-to-few hot summer days—to try to ensure that this does not happen again and to plan for this coming winter. I hope that we shall be spared serious difficulties—I underline the word "serious"—this coming winter. The local distribution systems and the Generating Board's grid have been strengthened during the past year so that better use can be made of available generating plant.
In the middle of all this planning, in the summer came the seamen's strike, in May and June. I am not going into the rights and wrongs of this—that is another argument—but the effect on our winter fuel supplies was very serious indeed. Despite this, coal stocks at power stations are now at a record level and we should look at what this means in terms of the Board's contribution, and how it has affected the industry.
The strike put out of service for 47 days 45 ships normally engaged in supplying coal to about half the generating 569 plant in southern England at a time of the year when stocks were low after the winter. During that period we should have been building stocks up, but not only were we not building them up, we were running them down very rapidly. By using the national grid to the maximum extent the Board managed to maintain supplies of electricity in full during the whole of the period when coal shipments were stopped. This is an excellent illustration of the value of the grid system which enabled coal, which could not be transported by ships, to be shipped by wire through the national grid system. It went from the Midlands to enable the husbanding of stocks in the South.
It was a very expensive business. The community should be aware that the really magnificent exercise of the Generating Board, which got us through the winter, has now produced a situation where stocks are at a record level in power stations. That was not done without cost, and the cost to the C.E.G.B. for uneconomic operation during this period was about £2 million. This amount has to be found and paid for by somebody at some time. This was done without interfering with the summer plant maintenance programme or the construction programme for reinforcing the transmission system. At the same time, 1½ million tons of coal had been planned to be shipped to southern power stations during the period of the strike. The shortfall in stocks had to be made good before the winter, while, at the same time, keeping to the rest of the programme.
The fact that this has been achieved in view of all the difficulties reflects great credit on all concerned in the electricity, coal and transport industries. All of us at some stage or another have thrown brickbats at the Board, when the television picture got smaller, or when the lights got dimmer, or on those very rare occasions when there was a cut-off in the current. It is time the Board was given credit for what was an incredible achievement during that period.
What about the safety margin of the generating plant? With the new power stations coming into service, I think that it will be rather better than last winter. However, the margin will still not be satisfactory, and the Government are determined that the shortage will be made good as soon as possible. As I have said. 570 the Generating Board has a very substantial plant programme in hand, and it is now a question of getting this plant delivered, erected and working. On present plans, the Board should certainly have a satisfactory margin by the winter of 1967–68. However, it does depend on all these people getting plant delivered, erected and working, and the rate at which we can erect this plant, and the extent to which we can cut down the difficulties of construction, will be a major contribution.
Perhaps at this point I should say a word about the reduction in investment which the industry has agreed to make in 1967–68 as part of the economic measures announced in July. The reduction represents about 3 per cent. of the industry's annual investment and it will have no effect on the Generating Board's plant commissioning programme for a number of years ahead. The main short-term burden will fall on the distribution programmes of the area boards. Several years ago the area boards' networks were in many places inadequate, but since then there has been a very real all-round improvement. The reductions in investment will mean that the boards will make less progress than they had hoped in further strenghthening their distribution systems. I repeat that there is no reason to believe that the delay will be serious.
Now I will say a few words about the bearing the electricity industry's plans have on its rôle as a user of primary fuels. The elecricity industry produces a secondary fuel usually made from one or other of the primary fuels—coal, oil or nuclear energy. It is too early yet to say whether North Sea natural gas will be available in sufficient quantities for use in power stations, but this possibility is not being overlooked.
I have asked the Gas Council and the Central Electricity Generating Board to study jointly the factors involved. There are a number of factors in this decision. It may be possible, for example, for a dual-fired power station to use gas at times when the gas industry's demand is low. This would enable the better use of capital equipment for the benefit of both industries. The results of this and of related studies will be carefully considered during the review of fuel policy which is now well under way. Fortunately, the 571 conversion to natural gas-firing of existing power stations can be carried out comparatively quickly, so that waiting until we are sure that there will be adequate supplies should not result in any serious delay in using the gas.
The Generating Board is by far the country's largest user of fuel, accounting alone for about 74 million tons of coal equivalent in 1965–66, in addition to the uranium fuel used in nuclear power stations. The Board used about one-third of the coal industry's total output. No less than three-quarters of plant now being built will be coal-fired, so there can be no doubt that the electricity industry will be a very large user of coal for many years to come.
While recognising the interdependence of the electricity and coal industries, we all ought to be proud of and spare a word for the developments in the field of nuclear power. This is an area where Britain leads the world. I sometimes think that in this country self-denigration is the contemporary malaise anglais, which is neither beneficial nor attractive.
With the commissioning in September of the second reactor at the Sizewell Station, in Suffolk, the Generating Board, the South of Scotland Electricity Board and the Atomic Energy Authority between them have over 3,300 megawatts of nuclear power in full service. When Wylfa, the last station in the first nuclear programme, is commissioned in 1969, this country will have 5,000 megawatts of nuclear capacity in service.
The most significant development during the last year has been the announcement of the prospect of economic nuclear power from the second station to be built at Dungeness in Kent. Dungeness "B", which will incorporate an A.E.A. advanced gas-cooled reactor, will be the first station in the second nuclear power programme for the period 1970 to 1975. As a result of the low generating costs expected from the A.G.R. system, the Government decided that the industry should plan on the basis of an enlarged second programme of 8,000 megawatts.
I have made some of these points because they meet a few of the points which have been made by the hon. Member for Worcestershire, South (Sir G. Nabarro). This is why, even at this stage, the industry 572 has to be able to plan for a fairly long distance ahead, because these are major activities which have to be planned far in advance.
I want to refer briefly to the electricity industry in Scotland.
§ Sir G. Nabarro
Before the Minister goes north of the Border, there is a Sassenach matter I want dealt with; and perhaps he would apply himself to it. Electricity consumers last year paid £12 million sterling in duty on fuel oil burned in power stations. Is it not a pernicious policy to tax electricity for industry in this fashion, and will not the right hon. Gentleman make representations to the Chancellor of the Exchequer at an early date to stabilise costs by removing altogether this pernicious form of taxation in England? Scotland is mostly water, anyway.
§ Mr. Marsh
I was very pleased to have the hon. Gentleman's intervention. He so seldom goes so long without saying something that I thought that there must be something seriously wrong with him. It will be a relief to the whole House that there is not. His was a perfectly reasonable and major point to make in a fuel policy debate. It goes much wider than the Orders.
The Government are at present concerned with three exercises in fuel planning, one a very short-term, immediate exercise to find out the position for next winter. That is very short-term indeed. Secondly, there is a rather larger exercise which will be finished in the early part of next year to try to create the framework, based on a series of assumptions, for a fuel policy which will take account of new developments in the North Sea.
Ultimately, we must have a flexible policy, some sort of very unsophisticated econometric model which will enable us to find the best contribution all the fuel industries can make to energy policy. There is a case for the protection of the coal industry on straight economic grounds that are nothing to do with social factors, which are sometimes exaggerated in these arguments. We are examining the argument, and the whole fuel economy will certainly be changed by the emergence of North Sea gas.
I am sure that when, at some future stage, we have gone further with the fuel 573 policy review we shall have a longer—I would not say more interesting—contribution from the hon. Gentleman, certainly as lively and as sonorous as on this occasion. But that is an issue that must be debated separately and at some length.
§ Mr. Edward M. Taylor (Glasgow, Cathcart)
Would the right hon. Gentleman also make clear to the House that not only does the Scots industry, as well as the English, pay the pernicious fuel tax, but also 35s. extra per ton for coal.
§ Mr. Speaker
Order. I hope that the only policies the hon. Gentleman will defend will relate to these Orders.
§ Mr. Marsh
They certainly will, Mr. Speaker, because there is a separate Order for Scotland which we are taking at the same time. I meant only that my hon. Friend will deal with more of it than I shall. He will be able to deal much more specifically with Scottish problems.
In Scotland, the rate of increase in electricity demand has for some years been at a higher level than in England and Wales, and no sudden reversal of this trend is anticipated. Last winter, the maximum demand, adjusted to average cold spell conditions, was 4,100 megawatts, representing an annual rate of growth of 9 per cent. since 1956–57, and this is expected to grow to about 6,800 megawatts in 1971–72. Stations at present under construction are planned to meet the demand and to provide a plant margin of over 15 per cent.
To provide this generating plant, and to reinforce the transmission and distribution network to keep pace with the demands which will be made upon them, the Scottish boards will be investing at about £70 million a year. But the uncertainties which affect forecasts of load growth and financing apply equally to the Scottish electricity boards. In their case, also, new financial objectives must be agreed. The price increases announced by the South of Scotland Board in July were overtaken by the 574 prices standstill and have not been implemented.
Until financial objectives have been agreed and tariffs adjusted accordingly it is difficult to assess the level of future borrowing, but an increase of £80 million in their borrowing limit would be unlikely to carry the boards much beyond March, 1969. My hon. Friend is, therefore, asking the House to agree to the Secretary of State's proposal to extend the limit to the full £580 million.
I conclude with a few words about the rôle of electricity in fuel and power policy generally. There are a number of very important developments now taking place in fuel and power. I have already referred to the progress being made in nuclear power with the development of the A.G.R. and to the hopes of large discoveries of natural gas under the North Sea. Important technological developments are taking place in the coal industry, too.
These developments are bound to mean that the balance between the different industries is continually changing and throwing up new problems. This calls more than ever for a co-ordinated fuel policy, but one which is flexible enough to adjust itself to changing circumstances and needs. I have already referred to some of the uncertainties affecting the borrowing requirements of the electricity industry. The problem of reconciling the need for adequate and secure supplies with the need to avoid over-investment and wasteful competition is one of the most important facing the industries and the Ministry of Power. It is right, therefore, that from time to time, when really important changes are taking place, the broad objectives of fuel policy should be looked at again.
Developments since the fuel policy White Paper of October, 1965, have made such a review necessary now, and, as I have announced, this is now in hand. But, whatever the results of the review, it is quite certain that the demand for electricity will go on increasing and that the industry must plan to build the necessary plant to meet this growth. For this reason, I ask the House to approve the Order to raise the borrowing limits.
§ 9.22 p.m.
§ Mr. Gordon Campbell (Moray and Nairn)
As the Minister explained, these 575 two Orders are designed to raise the upper limits of borrowing by the boards in both Scotland and England. In the case of England, the limit is to be raised, but not to the maximum laid down by the Act. In Scotland, on the other hand, the limit is raised by £80 million, to the limit provided for by existing legislation. Before the Under-Secretary of State arrived, I intervened to put this point to the Minister. He explained that this had been contrived in the case of England in order to give the House of Commons an opportunity to discuss the matter again before the upper limit was reached. In the case of Scotland, if the upper limit is to be reached now, this cannot apply unless some other arrangement is made.
I hope, therefore, that the Under-Secretary of State will tell us whether the point which the Minister made with reference to England will be covered in some other way with reference to Scotland. I assure him that we should like to have another opportunity to consider the question in Scotland.
In speaking to these Orders, the Minister told us of the uncertainties surrounding the programme for electricity in the future. We can only agree with him about that. If I understood him aright, he said that there would be annual reviews of the investment programme, but at the same time he implicitly paid tribute to the amazing accuracy of the forecasts which had been made about investment in 1963——
§ Mr. Campbell
And earlier. In the circumstances, it was quite a triumph that they worked out fairly precisely.
We are glad of the opportunity this evening to hear the Minister's explanation of the Orders, but it is also a timely opportunity to consider the investment position of the electricity industry as a whole. There has been some comment and conjecture about the industry's investment programme in the coming years in the light of the rapidly changing situation in fuel and power supplies to which the right hon. Gentleman himself referred. Technological advance together with new discoveries have altered the picture from anything which anyone could have foreseen four or five years ago. With whatever wisdom he might 576 have been endowed, anyone would have needed almost supernatural powers of prophecy to foresee what has happened in the last four or five years.
One example is the discovery of the process for producing gas from oil, and producing it cheaply. The Minister and I met recently during the Recess in the north of Scotland when he was opening one of the new plants for one of these processes.
Then there is the discovery of gas and oil below the North. Sea. All these facts are lessons for planners generally. This is eminently a matter in which rigid planning for years ahead could be costly, with the investment programme being more than is needed in the event. My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), in an excellent speech yesterday, spoke about the effects of the discovery of oil and gas on fuel and power as a whole. I shall not go further on that because it is fresh in our memories. But, clearly, flexibility is essential for the investment programme of the electricity industry.
I was glad to hear that the right hon. Gentleman is already thinking about natural gas-fired power stations in the future. This is the kind of thing that must be thought about and, at an early stage, given the uncertainties the right hon. Gentleman referred to. In asking for higher limits for borrowing by the boards, the right hon. Gentleman should tell us more about how he foresees investment in the coming years. It seems likely that natural gas will be available (more cheaply, especially for domestic consumer requirements. Are the Government really ready for this? Are the investment plans flexible enough for such changes and also for other changes which may come about and which it is as impossible for us to foresee now as it was for others to be foreseen four or five years ago? Flexibility must be the essence of planning ahead in the fuel and power industries at the moment.
Then there was the Government's July measures to deal with the economic situation. The right hon. Gentleman touched upon this and said that the electricity industry was going to reduce by 3 per cent., mostly, if not all, on the distribution side. I was not sure whether he was 577 speaking about Scotland as well as England at that stage, and I ask the Under-Secretary of State to deal with this. I put a Question down about it some time ago and was told that it had not yet been worked out, along with the reductions by other nationalised industries in Scotland.
Electricity is expensive when there are heavy loads at peak periods and it is always the job of anyone in the industry to seek to spread the load over a period and to try to cut down the peak. This will not only assist—if it can be carried out—the investment programme, because less plant will be needed if one can cut down peak loads, but it will also cut the price to the consumer. Is the right hon. Gentleman doing all he can to help the campaign of the boards to encourage off-peak use of electricity?
I commend to the right hon. Gentleman's notice what has happened recently in Scotland. Upstairs in Committee, we have been considering a Scottish Bill. We on this side pressed for the derating of off-peak storage heaters. Although this was resisted at the time, I am glad to tell the House that only last week the Secretary of State for Scotland made it clear that he would accept this proposal and has himself put forward an Amendment.
§ Mr. Speaker
Order. Has the Standing Committee reported to the House? If not, the hon. Gentleman cannot refer to its proceedings.
§ Mr. Campbell
I apologise, Mr. Speaker. If I referred to the Committee it was because it was so topical in relation to the recent attitude of the Government.
§ Mr. Speaker
The hon. Gentleman can refer to the subject but not to what has taken place upstairs unless it has been reported to the House.
§ Mr. Campbell
I am sorry that I made that reference, Mr. Speaker, which was not necessary to my main point, which is that it is important that the industry's campaign to assist people to use electricity at off-peak periods should be encouraged by the Government and that anything which the Government do in this direction, assisted by us, has our commendation.
I turn now to some particularly Scottish matters, and my hon. Friend the Member for Barkston Ash (Mr. Alison) will 578 address himself particularly to some English matters. In Scotland we have all forms of generation of electricity, including hydro-electric. In considering this extra £80 million now to be available for investment by the boards if the Scottish Order is passed, can the Under-Secretary say what progress there has been with some of the generating stations which are nearing completion? Can he say whether the Loch Awe scheme and the Cruachan power station, which was a great engineering achievement quite apart from the generation, are finished or nearly complete? The latter was a pump storage scheme, and we would like to know whether there is any plan for further pump storage. We have heard it said that the Loch Sloy scheme is a possibility. Is this one of the schemes which the Government have in mind when considering their plans for Scotland?
The House will remember that the Secretary of State for Scotland at the end of last year turned a complete somersault on the issue of small hydro-electric schemes. I know that my hon. Friend the Member for Worcestershire, South will be interested in this. The right hon. Gentleman suspended for ten year two schemes which had been put forward. The somersault was performed because, when we were in Government and I was at the Government Despatch Box answering, he criticised us because we had set up an inquiry to see whether the schemes were economic. It is clear that wiser counsels prevailed when the right hon. Gentleman came to office and no doubt his decision was actuated by his discovery that small schemes of that kind were no longer economic or practicable.
In his speech tonight, the Minister extolled large units and said that nowadays it was economic to have large units. He spoke in terms of 2,000 megawatts. I return to the issue of pump storage. With hydro-electricity there can be a place for pumped storage, which can be used at a time of peak demand and so assist the supply position generally. Can we be told about the progress with the two coal-fired stations at Cockenzie and Longannet which were based on the use of low-grade coal on or near the site of the stations?
I turn now to nuclear generation. The station at Hunterston was opened just over two years ago—I was also present 579 at the opening—and appears to have made a successful contribution to the generating capacity of the South of Scotland Board. The Minister said that Britain led the world in nuclear energy. There was certainly a time then—and I hope that it is still continuing—two years ago when within that it could be said that Scotland led the world, because at that time all the electricity in Scotland at night, admittedly during the summer, was being provided entirely by nuclear power.
Last week the Secretary of State announced the consideration of a new unit at Hunterston which was described as an advanced gas cooled reactor generating station. The terms of the announcement were as follows:Notice of the application will be published by the Board and, when the statutory procedure is completed and all relevant information is available, I shall decide whether this consent should be granted."—[OFFICIAL REPORT, 26th October, 1966; Vol. 734, c. 183.]It appears that the Under-Secretary of State still has to decide whether to go ahead. With the uncertainties which we have been discussing this is clearly correct, but I hope that the hon. Gentleman when he replies will say whether this is the kind of nuclear generating which has been described as a break-through at Dungeness, and whether he can tell us more about the position. Is it just an idea or has it advanced beyond that?
We hope that the Under-Secretary, when he replies, will be able to give us information on the progress of these stations, and the projects, in the light of the need for flexibility which I mentioned, related to the foreseeable demand. It is clear that in Scotland as in England, we want to see the latest and cheapest methods of generating electricity brought in at the optimum time. We know that this is difficult because a technological break-through can happen just after one has authorised some station on what was previously the latest and cheapest process. We hope that within the possible limits, the uncertainties described and the need for flexibility, the hon. Gentleman can tell us something of the progress so far and a little about future plans.
§ 9.35 p.m.
§ Mr. Arthur Palmer (Bristol, Central)
When we discussed last night the Bill to 580 give the National Coal Board powers to exploit natural gas beneath the North Sea, the hon. Gentleman the Member for Yeovil (Mr. Peyton) referred to me as a kind of electrical terrorist who would wish to see the gas industry liquidated if I had half a chance. I would merely say that this is an exaggeration. It is not true. I do, however, claim to be an electrical enthusiast.
As the House knows, most of my life has been spent connected with the electrical supply industry. Apart from that personal reflection may I say that the electricity supply industry has a very special relationship to the other fuel and power industries, because it is a kind of universal currency of fuel and power and the prosperity of electricity is very much bound up with the prosperity of fuel and power generally.
I do not propose to go into technical questions; I would probably be out of order, in any event. I shall address myself, as a Parliamentarian, to the Orders in front of us. The House has three duties in relation to Orders of this kind. I entirely agree with the hon. Gentleman the Member for Worcestershire, South (Sir G. Nabarro) that it is a good thing that from time to time the fuel and power industries should have to come to the House to justify their expenditure and to seek more money. I do not share his view that the gap between applications should be any shorter than it is, because one cannot set exact periods and this present gap is just about right. These industries, particularly electricity, have to plan ahead. There should be some uncertainty as to whether they will get the capital, but there should not be too much.
The first duty of the House in relation to Orders of this kind is to examine the request. Here the request is to extend the borrowing powers of the electricity boards in England, Wales and Scotland. I do not think that we should be scared by the extent of the sums involved because the industry is fantastically large. It is a fundamental industry basic to the whole economy. It is expanding so rapidly that considerable sums of capital are bound to be locked up in the industry. Sometimes those large sums are not directly earning revenue for the moment. But when this sort of Order is put before the House it has a perfect right to ask certain questions. 581 I have listed four or five questions which I think it is proper for the House to ask.
First, is the industry earning a good return on the capital already expended? Secondly, is the industry accumulating adequate reserves from its own resources? Thirdly, is productivity rising? I think that that is a fair question because it gives a measure of the efficiency of the industry. The fourth question, which I will not go into now, is: are labour relations good? The fifth, and by no means least important, question concerns the relationship with the consumer. This industry must operate for the benefit of the community, the consumer. The question which has to be asked here is: is the price about right in relation to the general price level? Is the service good? Is the supply satisfactory and reliable? I do not propose to take time in answering every one of those questions because the figures are available in the annual reports of the electricity boards.
My right hon. Friend, in talking about the return on capital, pointed out—and it was as well that he should do so—that the expected return is 12.4 per cent. and that the actual return so far is 12.3 per cent. That is an excellent performance. He did not mention one or two other points which I propose to mention.
On productivity, this is an industry which has done very well. In 1949, when price levels were vastly different, the cost for the construction of new generating stations per kilowatt was £50. Now, in spite of the great change in prices and labour costs, it is down to £40. That is a measure of improved efficiency. On the matter of employees per megawatt, in 1957, there were nine employees. Today, there are six. When one thinks of the great changes that there have been in the average level of retail prices, it is interesting to note that in this industry the average price to consumers in 1957 was l.5d. It has gone up over the considerable period since by 0.2 of Id. It is now l.7d. When the industry comes to the House and says, "We want more money", we must in all fairness say that the record is excellent. I am speaking of the boards as a whole.
The financial return position in Scotland is not as happy as it is in the rest of the country. The South of Scotland 582 Board, in particular, is getting itself into difficulties.
§ Mr. Palmer
Yes. I think that that is fair. Those who opposed in the House in 1953, as I did, the separation of the South of Scotland from the rest of the United Kingdom in the generation of electricity have been proved right by events. Remembering that that board started with excellent reserves which it inherited from the general organisation for electricity supply, I believe that a number of the financial troubles can be traced back to the separation.
There were political reasons for the separation which we cannot go into tonight. It is unlikely, however, that any Government will change it back. But the South of Scotland area is too small to have a joint generation-distribution organisation; it is not viable. A possible solution—I say possible—which might help the general financial position of both Scottish boards is their amalgamation.
§ Mr. Palmer
I shall in a moment. The hon. Member will agree that last, night he jumped up and down quite a lot, like a gilded jack-in-the-box. Perhaps he will allow me to make my final point on this aspect.
The Under-Secretary of State who is to reply on behalf of the Scottish Office should try to deal with the financial position of the South of Scotland Board. He should confirm that the board has made application to the Secretary of State for some kind of remission or relief in the amount of the return that it is expected to earn on its capital. I should like to know from him what is the attitude of the Scottish Office in respect of that request.
§ Sir G. Nabarro
The hon. Gentleman is a little unfair. I intervened only once in his speech yesterday. In 1955, when the Electricity Reorganisation (Scotland) Bill was going through the House, I was the only Tory Member who advocated 583 the amalgamation of the two boards. The whole Socialist Party was opposed to that because the North of Scotland Board, dating back to 1943, is a sacred cow of Scottish Socialists.
§ Mr. Palmer
If the hon. Member will look up the record he will find that he interrupted me more than once. I do not mind about it. I am not worried about it. As for the Scottish Act to which he has referred, I believe that it went through the House in 1953 and not 1955.
§ Mr. Palmer
I think that it was the 1954 Act. In any case, I had paid a tribute to him. I do not know why he is so bothered about it.
I now turn to what I regard as the second duty of the House and the nation in considering this kind of Order, namely to look at some of the grievances of the industry. The hon. Member for Worcestershire, South referred to one of the grievances. I am glad to be able to support him in this. It concerns the tax on fuel oil that the industry has to pay. I entirely agree with him that it is wrong. This question has been raised on many occasions, both with Ministers of Power and Chancellors of the Excheuer of this and previous Governments, but nothing has been done about it. The industry feels that it is time that something was done about it. The electricity supply industry has a perfect right to ask for fair treatment compared to its rivals. Fuel taxation and fair access to other primary fuels should also be considered.
This point was raised last night, when we discussed natural gas. I hope that my right hon. Friend will not too easily take the view that the electricity industry must be subordinated to the gas industry. The two should have impartial treatment in access to natural gas. There is a long established relationship between the coal industry and the electricity supply industry, but, of course, at the moment the latter supports the former beyond the limit to which it would wish to go if free to follow its own commercial judgment.
It is generally felt in the electricity industry that if a subsidy must be paid to any industry it is right that it should come out of general taxation and not be paid by the electricity consumer——
§ Mr. Palmer
I am glad to have the assent of the hon. Gentleman.
A further substantial grievance in the electricity industry which should be considered is that it is expected to return 12.4 per cent. on its investment, whereas the figure for the gas industry is only 9 or 10 per cent. This was done deliberately some years ago, presumably because it was felt that the electricity industry was in a better and stronger position to pay and that the gas industry had to be encouraged. But surely, if there is to be a realistic fuel and power policy, this should now be revised.
Another important issue for electricity supply is that the industry is expected to give a reliable supply, but often, since the war it has been kept short of capital to provide the necessary capacity. Much evidence on this point was given to the Select Committee on the Nationalised Industries, on which I serve and whose Report is available. The Chairman of the Electricity Council, Sir Ronald Edwards, told the Committee that when there is a fuel crisis, a shortage of fuels generally and very severe weather, if coal cannot be delivered, if the gas supply fails and the oil tankers do not get through, people turn out their spare electric radiators in their lofts and lumber rooms and plug them in. So the electricity industry is always uncomfortably placed when other fuel industries fail.
However, apart from having to maintain a domestic supply, which can be very peaky indeed, the electricity industry has a special relationship to the growth of national productivity and the general prosperity of industry. This is a point which I made in a supplementary question to my right hon. Friend with some force a little time ago—that it is absolute folly to propose cutting back capital expenditure of the electricity industry, as in the long run such action will be regretted.
Critics of the industry have talked for years about the possibility of the load curve of growth flattening out. This has happened in no other industrial country and I am certain that it will not happen here. When my right hon. Friend, no doubt under pressure from the Treasury, asks the electricity supply industry to look at its capital expenditure, I hope that he will not take this too far. I hope 585 that he will act instead as a defender of the industry against the Treasury. It is all very easy to say that the cuts are not in generating capacity but in distribution, but in the long run there is an absolute relationship between generation capacity and distribution capacity; we cannot separate the two.
We in the House are representatives of the shareholders in this industry and we should look at industry in that spirit. Our third duty, therefore, is to point out to the industry where it fails; whether it fails in whole or in part. There are a number of points which I could make. Some I have made in the past and some I hope to make in the future. In particular, they concern questions of publicity and of organisation and, particularly, the neglect by the industry in relation to the development of the industrial load. But because of the nature of the Order and the lateness of the hour, I intend to spare the House my reflections on that subject at this stage.
I feel that I have said enough to justify claiming that the industry has a right to ask for this capital and, on its record a right to have it approved by the House. Very soon the nationalised industry will come of age. It will be 21 years since the first nationalisation Act. I wish, in a bipartisan spirit for once, perhaps, to say that the two major parties in the House have contributed a great deal to the improvement of the organisation of this industry. The 1947 Act brought in a new era, although the principles of public ownership were already established in the industry. The 1957 Act in the main brought about a necessary reorganisation; it was introduced by the then Conservative Government. We did not, on this side, oppose that Act in principle.
Together both parties have therefore contributed to the improvement of the organisation and the success of this great industry. It has become very much a school of social management, because industrial management in an industry of this kind, with public accountability very much to the fore, is an art in itself. The engineers, managers and employees in the industry have well justified the trust which has been placed in them. I hope that the House will approve the Order.
§ 9.58 p.m.
Earl of Dalkeith (Edinburgh, North)
We are dealing with Orders which involve very considerable sums of money and it is right that questions should be asked before we pass them. I was particularly interested in the speech of the hon. Member for Bristol, Central (Mr. Palmer), which raised some very objective questions, and I look forward to hearing the answers.
I understand that in Scotland the Government are seeking powers to raise the borrowing to its maximum figure. As my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) said, this seems to mean that this will be the last opportunity which we shall have for discussing what is to happen north of the Border in expenditure on electricity, whereas in England, I gather, there will be another opportunity.
I cannot help reflecting on the Government's wisdom in arranging the debate at the beginning of winter rather than at the end of it, and, from the point of view of the comfort of the population, I hope that the Minister will look as cheerful and as self-confident in March and April as he appears to look now. I was encouraged when I heard that the coal stocks, which were threatened at the time of the seamen's strike, are now at a good level, and I am sure that hon. Members would like to join in paying tribute to all those involved in the industry who have made this possible. At one time—I remember asking a Question during the summer—it looked as though there might be very great difficulties in stocking up supplies, particularly in the South of England.
I would like to ask one or two questions concerning planning and forecasting. I am a forester by trade and, therefore, I am accustomed to planning in terms of 60 to 80 years and I regard anything less as inadequate. Perhaps, therefore, I am not entirely at one with my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) in this regard. I was pleased to hear the tribute paid to the previous Administration for making such accurate forecasts in 1963 in relation to the results achieved to date.
As to forecasting, I understand that the Government are working on the basis of a 587 9 per cent. growth rate in Scotland and a rate of growth of 8 per cent. in England. I assume that this growth is likely to be projected in the years to come in accordance with the National Plan. I should like the Under-Secretary of State for Scotland, when he replies to the debate, to say whether the present economic setback from which we are suffering will have any marked effect upon that rate of growth.
A related question is whether the hon. Gentleman can tell us what proportion of the total planned investment will be financed from the industry's own resources. From the speech by the Minister, I was encouraged to hear that there has been a return of about 12.3 per cent. on investments which have been made. This shows that the industry is in a fairly sound state.
In connection with the use of various forms of fuel to generate electricity, I should like to know from the Under-Secretary whether either of the two Scottish boards will be using the liquefied gas which is being imported by ship. I understand that the Scottish Gas Board is doing this. It seems to me that this is an alternative form of fuel the use of which might be examined.
Another question arising from the remarks of my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) concerns the nuclear reactor at Hunter-ston, where there has been mention of a new plant being added to the existing one. I would like to know whether this has been budgeted for and whether the cost of this will come out of the money which the Government are tonight asking us to grant.
A very important point in all this is the interest of the consumer, to which the hon. Member for Bristol, Central referred. Considering that electricity is a nationalised industry—not so much perhaps for that reason, but because it is a monopoly industry—it has a surprisingly good record of relations with consumers. This reflects great credit on the individuals concerned. It is, however, something about which we should never become in the least complacent and I hope the Government will pay strict attention to this aspect.
§ 10.4 p.m.
§ Mr. Edward M. Taylor (Glasgow, Cathcart)
I would like to say a few things, particularly about the South of Scotland Electricity Board, along the lines mentioned by the hon. Member for Bristol, Central (Mr. Palmer) in his interesting and informative speech. The Minister's approach in coming forward with the Scottish Order was in his usual pleasant, non-controversial and very uninformative manner. When we consider that for Scotland the right hon. Gentleman is asking seeking power to spend an extra £80 million, I consider that the information which he has given is inadequate and that there are certain questions which should be answered straight away.
First of all, can the Minister give a clear indication of the extent to which the South of Scotland Electricity Board is in financial difficulties at present? We know that under the present organisation of the electricity industry the South of Scotland Board comes under the Secretary of State for Scotland, whereas the English boards come under the Minister of Power. This devolution is all very well in principle as long as some benefits accrue from it, but to me as an individual it seems that we are obtaining no benefit at all from the separate control of the Board, and there are some serious disadvantages.
An example is the rating of the various boards compared with the situation in Scotland, where it is believed generally by people in the supply industry that the division of rating costs amongst the various boards has resulted in the South of Scotland Board paying what amounts to an extra £¾ million in relation to the proportion paid by the various boards for local rates. The Board pays £2.81 million to the Secretary of State for Scotland to be distributed to the various local authorities for local rates. It believes that the formula under which it pays this money is so disadvantageous that for several years it has been paying about £¾ million too much. It wants to know precisely who is doing something about it.
I suggest that if the organisation had been under one Ministry, this kind of problem would have been faced a long time ago. That is not just my view. The annual report of the S.S.E.B. published this year asks what is being done about this programme. We know that new arrangements are coming forward in the 589 Local Government (Scotland) Bill, but will that Measure deal with this point.
There is also the question of the basic costs of the S.S.E.B. About 40 per cent. of all its costs are fuel costs—what it pays for coal and other fuels in order to produce the electricity. The S.S.E.B. pays very much more for its coal than do the board in England and Wales. In fact, the difference is so substantial that reference was made to it in the S.S.E.B. report, from which I should like to read two short sentences:As mentioned in the previous Report, the Council "—that is, the Consultative Council:are critical of the National Coal Board's policy of charging substantially more for coal in Scotland than in England. The differentials in coal prices have been a matter of continuing concern…and the Council are most disturbed and disappointed to hear that as from 1st April, 1966, the National Coal Board had decided to increase the surcharge "——
§ Mr. Speaker
Order. The hon. Member must link what he has to say with the Order we have before us. We are not discussing coal at the moment.
§ Mr. Taylor
I was not intending to discuss coal, Mr. Speaker. I was trying to point out that before this sum of £80 million is granted we should have some indication whether there is to be continuity in the cost of fuels for the various electricity boards. This is a decision that the Minister of Power should make before we approve the granting of such a substantial sum which, in Scotland, is to cover the cost for three years. This is the kind of decision we must have from the Ministries before we approve capital spending to carry the boards forward three years. I shall not dwell on the point, but I hope that it is in order to refer briefly to it.
The surcharge increase on 1st April was one of 5s. a ton. Fuel represents 40 per sent. of the costs of the S.S.E.B. and we find a situation in which the Board appears to be penalised because of the very substantial difference in the price of basic fuel coming from another organisation under the control of the Ministry of Power. On previous occasions I have drawn attention to the differential in the prices of various commodities of the nationalised industries and in almost every case there is a factor operating against the interests of Scotland. But the Secretary of State has said that in 590 this case, as an exception, Scotland gets a fair deal.
I took the opportunity to get in touch with two shipyards, one very near if not next to the constituency of the hon. Gentleman, and the other in the North of England. I put the question to them, "What is the electricity cost in an average ship?" In Scotland, the average charge was l.535d. per unit, in England 1.313d. The differential cost in the construction of a small ship is £5,000 and it is over £12,000 for larger ships.
It is all very well to talk of current prices, but the Secretary of State knows that we had a substantial increase which was held up by the freeze. I should like to know what is to happen about that increase once the thaw comes. Are we to have the increase at the end of the freeze? I do not think that is at all likely. I think there will be an even greater increase. What is the sense in holding up a price increase during a time when we are having a so-called freeze and at the end of the period having a more substantial increase? I should like to know precisely what is the relationship of the S.S.E.B. with the Secretary of State and what alterations are envisaged. I should like to know why we cannot have an indication that that is being done by the Secretary of State to protect the S.S.E.B. from unreasonably high fuel and rates charges.
Before we approve this expenditure we should like to know what the Government have in mind about capital expenditure. It is an alarming situation that we seem to have stopped all proposed capital schemes in the North of Scotland Hydro-Electric Board and in the South of Scotland Electricity Board we are not sure of the plans for capital investment. I keep in touch with some firms undertaking very large projects for the Central Electricity Generating Board. They tell me that they have plenty of work at present and some of the projects are very large, but looking to the future they find that new contracts are not coming forward for the stations which will be built in four or five years' time. We should like to know what contracts have been approved, how many for next year and so on, because unless there can be continuity on the capital programme there will be a grim outlook for these services.
Another point of significance is that the emphasis appears to be going from 591 hydro-electric power. There have been no schemes approved for the North of Scotland Hydro-Electric Board for what is by far the cheapest way of producing electric power. In the South of Scotland Electricity Board Report we see that the cost of getting electricity from coal-fired stations is .905d. a unit, from nuclear stations it is just over 1d. a unit and from the Hydro-Electric Board it is about .189d., about one-sixth of that coming from the nuclear stations. We want a clear indication of whether emphasis is to be on capital projects and whether there will be further hydro-electric stations.
§ Sir G. Nabarro
Does my hon. Friend realise that what these Orders are about is capital investment? He is quoting comparative costs per unit of electricity generated from hydro-electric stations and coal-fired stations. The fact is that the capital cost of hydro-electric stations is vastly greater than that of coal-fired stations.
§ Mr. Taylor
I am well aware of my hon. Friend's knowledge in this matter, but when there is a differentiation of this kind in the running cost a considerably greater capital expenditure on the stations would be justified. I know my hon. Friend's interest in and love for Scotland will make it possible for him to support the North of Scotland Hydro-Electric Board continuing to make a contribution to our national economy.
There are two other small points on which I should like to have some clarification before we approve this extra borrowing power. This may be the last opportunity we will have for raising this matter affecting Scotland for a period of three or more years. There is the question of what we are to do with consumers, of whom a large number will be forced to have electricity because they are moving into a small number of multi-storey houses which the Government are now building in Scotland. These houses have under-floor heating and a substantial number of consumers are being forced to accept this method as the only means of heating their homes. Their electricity bills are extremely high.
As this change is taking place we find that the South of Scotland Electricity Board has decided that no more pre-payment meters will be 592 installed. Many of the older people in these houses are having heavy bills to pay and are finding great difficulty in paying them. They are having more difficulty under this new system than under the old system of pre-payment meters. The South of Scotland Electricity Board officials have been very helpful in my discussions with them, and they have agreed, in particuluar cases of hardship, to look into the possibility of installing pre-payment meters.
We know the serious danger of vandalism. The problem of vandalism and the robbing of meters were never as great as they are in multi-storey houses, and it is in this type of house that we have this under-floor heating. I should like the Under-Secretary to indicate if he will view sympathetically the installing of prepayment meters in multi-storey houses which have under-floor heating, where heating bills are substantial and cause hardship to the occupants.
My final point is on the important question of organisation. There is room for more devolution in many aspects of Government control in our two nations. Here is a case of devolution where we have the Scottish Office controlling the S.S.E.B. and the Ministry of Power controlling the other boards. I cannot see what possible benefit we get from this arrangement. There are many substantial problems continuing in Scotland, and if we had the Ministry of Power taking an interest in us, we would have far greater continuity and interest.
Why is it that the Secretary of State for Scotland has not made stronger representations to get equality on fuel charges? It costs more for the S.S.E.B. to buy fuel than it does similar boards in other areas. Why has not something been done about the rates? This is one of the many tasks for which the Secretary of State is responsible, and we are not receiving the kind of attention which should be given to such an industry.
Apart from that, if all the boards were under one Ministry there would be the possibility of harmonising the prices charged by all the boards. As it is a nationalised industry, I cannot see the real justification for having such a wide differential in prices charged by a nationalised undertaking. If we gained on one side what we lost on the other, 593 then it would be all right. If we had cheaper gas and dearer coal, so what? But this seems to act against Scotland in almost every single aspect, and before we approve this substantial increase in borrowing powers I should like to know whether the Government are thinking about this question of having the same charge for coal, for gas, for electricity and for other forms of power in every 594 part of the United Kingdom, whether it is London, Manchester, Birmingham, Edinburgh, or John o'Groats.
This would be justice and, in view of Scotland's present economic difficulties it would be a real help and it would help to stem the flood of migration which is becoming so serious that even the Secretary of State has noticed it.
§ 10.19 p.m.
§ Sir Gerald Nabarro (Worcestershire, South)
Mr. Speaker, a predecessor of yours observed on one occasion when I was being singularly fractious during a Scottish electricity debate, that the Border had been crossed both ways more than once. This evening, the three speakers so far from this side of the House have all been Scots. I am the first Sassenach to speak. I draw attention to the fact, Mr. Speaker, that the two Orders are concerned with capital investment for the future and are overwhelmingly concerned with investment in England and Wales. Scotland is relatively a small minority.
§ Mr. Speaker
I am certain that the hon. Gentleman does not wish to criticise the selection of orators by Mr. Speaker.
§ Sir G. Nabarro
Certainly not, Sir. I am merely observing that three Scots have spoken. That is no criticism of the Chair, implied or otherwise.
I am the first Sassenach to speak. As these Orders are overwhelmingly concerned with Sassenach investment, I am pleased to be able to speak upon them. They are seven-eighths investment in England and Wales, and very large sums of money are involved. I do not disparage the Scots by saying that.
The limit for electricity borrowing—that is, the aggregation of the Electricity Council, the Central Electricity Generating Board, and the area boards in England and Wales—was £3,300 million under existing legislation. These Orders raise that figure, surprisingly, not to the limit of the legislative enactment of some years ago of £4,400 million, but only to £4,100 million. I thought that the Minister of Power made a mistake when he said that £2,867 had been appropriated up to 31st March last. My information is that the correct figure is £2,875.
I think that the Minister of Power made a further mistake in his assessment that this investment would last until March, 1969; that is, about two and a half years ahead. I think not. I think that it will run out a good deal before then, for the very good reason that the investment in England and Wales in massive additional generating plant originated by Tory Governments prior 596 to 1964, and quite largely nuclear plant, will run at its peak 18 months' hence in the installation of the mammoth figure of 6,000 megawatts of new generating capacity in a single year—1968—and in 1969 the figure will drop very sharply to 2,000 megawatts installed. In other words, we reach a very high figure and then come down sharply. The highest level of electricity generating investment ever know in this nation is during the period of the next two years.
Here I pause to say something about the scale of this investment. It is notorious that electricity corporations the world over, whether publicly or privately owned, have to draw their moneys for new investment from three sources: first, the surplus or the profit they earn in the course of their operations; secondly, their depreciation account annually; and, thirdly, by borrowing new money.
In the nation's present economic condition it is very important that the maximum contribution to new investment in electricity should come from the first two of those sources—that is, from the surplus earned, first, and from the depreciation account, second—in order to lighten as greatly as possible the burden put on new borrowing at a time when money for new investment is the most valuable single commodity in demand in this country.
The pressure for new investment from public and private sources is eternally and continuously above our resources. I am glad to see the Parliamentary Secretary nodding assent. The most expensive single form of investment, public or private, is electricity generation for the future. Perhaps I might underline that by quoting the scale of this investment, postulated for the next year or two in an official publication "Public Expenditure: Planning and Control". Cmnd. 2915. It says in Table 5 that the 1964–65 actual outturn of new investment for electricity was £572 million. For 1965–66—that is, the year to last 31st March—it was estimated at £624 million and for 1966–67 £695 million. That is bigger than all the other public corporations put together, in a single year.
I do not quarrel with it. Were I the Minister I would be doing substantially the same thing. But I am asking the right hon. Gentleman to examine the quality of this investment for, as I endeavoured to 597 put to the House yesterday in another context, that of oil and gas under the North Sea, the word "investment" has become almost a sacred cow on both sides of the House in the past few years. But the monetary expression of investment means nothing. For comparative or other purposes what matters is the quality of the investment.
I give the House in the context of the most expensive form of public investment the four desiderata that I consider should be applied to electricity investment, and I hope that the Minister replying will endorse that this is in fact being done in the matter of the huge sum called for under the Orders. The first is that for every million pounds invested there should be the maximum energy provision. That is why I pause to quarrel with my hon. Friend the Member for Glasgow, Cathcart (Mr. Edward M. Taylor) who compared hydro-electric power with power from coal-fired stations north of the Border in terms of cost per unit generated. That is entirely fallacious. What he should have done was to say that the cost per kilowatt installed for a hydroelectric station is about four times as great as the capital cost in a coal-fired station. It is approximately £160 per kilowatt installed for water power, excluding pump storage, which is much cheaper and much more economic, whereas working on 500 mW sets of the most modern kind installed in coal-fired stations the cost is less than £40 per kW installed. In conditions of extreme stringency of moneys for capital investment, that is the critical factor. That is the first of my desiderata—maximum energy provision per £1 million vested.
The second is the maximum conservation of capital resources. I have underlined that point in a reference north of the Border, but it applies equally to construction plans for power stations south of the Border. The third is the maximum return for capital vested, and while I do not wish to join in paeans of praise for the electricity authority in the matter of the return on capital vested I do praise Sir Christopher Hinton, as he then was, and his successor, Professor Sir Ronald Edwards, the present Chairman of the Electricity Council, for maintaining a high level of returns on the capital vested. The fourth and last of my desiderata is 598 the lowest economic price per unit of electricity supplied.
Having set down those broad principles in the form of four desiderata, I say a word now about a different aspect of the problem, to which the Minister referred, as the uncertainty of the future. The figures in these Orders are, presumably, based on a certain postulated rate of economic growth. Electricity generation is the reflex of a country's prosperity. On what have these mammoth figures been based? I hope that we shall have a straight and unequivocal answer to that question. It is most important that we have it. I shall not vote against the Orders, because I could not be guilty of denying this industry capital money supplies, but I want an assurance on this point.
Have these large additional capital sums in the Orders been related to the postulated rate of economic growth enunciated in the National Plan of July, 1965, a rate of growth of 3.8 per cent. per annum? If not upon that rate, upon what rate of economic growth have the figures been based? I hope that the Under-Secretary, the hon. Member for Greenock (Dr. Dickson Mabon), will give me an unequivocal reply to that question. If he cannot do so this evening, because this is really the Minister of Power's responsibility, not that of a Scottish junior Minister, I hope that the Minister of Power will at least write to me or publicise the answer.
§ Sir G. Nabarro
But that is not the point. If these figures are not related to the 3.8 per cent. rate of growth in the National Plan, to what figure of economic growth are they related? Unless we can ascertain the rate of economic growth, we have no means of ascertaining whether these figures for electricity investment in the next few years are correct. I must, therefore, press the hon. Gentleman for a much better answer than the one given by the right hon. Gentleman.
During the first five years of the 1960s, the rate of electricity growth was 8.6 percent. 599 per annum. It is supposed, according to the electricity authority, that the rate of growth will be 8.2 per cent. per annum for the remainder of the 1960s. It is roughly the same in the second five years of the decade as in the first. But I am not sure about that one. I think that Professor Sir Ronald Edwards is wrong in his assessment, in view of what has happened with Government policy during the last few weeks.
The electricity authority always makes certain that Members of Parliament are well briefed. It always ensures that the explanatory memoranda about electricity investment descend on Members a day or two before the debate. The House should have before it this quotation, which comes from "Electricity—Progress and Plans" published by the Electricity Council in October, 1966. It is on page 17:As mentioned in the Foreword to this booklet, it will shortly be necessary to seek Parliament's approval to increase the present interim limit on borrowing of £3,300 million to the maximum of £4,400 million fixed by the Electricity and Gas Act, 1963. In the Electricity Council's report for the year 1962–63, which preceded the passage of that Act through Parliament, it was estimated that a £4,400 million limit would cover the industry's requirements up to about 31st March, 1970. It was pointed out, however, that the forecast could only be approximate. The current view, again tentative, would not suggest that the statutory borrowing limit will be reached earlier than this, and might be somewhat later. This, however, depends inter alia on the financial objectives to be set by the Government for the ensuing quinquennium, and the extent to which the National Plan is achieved, which in turn will affect electricity sales, income and costs".From page 13 I quote:It must be emphasised that if the National Plan is varied then the demand forecast for the supply industry will be varied, too.As the economy is now stagnant, and is likely to remain stagnant for at least 12 months, as the rate of output of British industry in 1967 and perhaps in 1968 is likely to be lower than in 1966, I believe that the right hon. Gentleman has exaggerated the money requirements of the electricity industry in these Orders tonight. He is over-providing for future plant, which will not be matched by the national rate of growth of production and productivity.
I arrive at those conclusions simply from reading all the documents available to me and based on the assumption, 600 which I believe is correct, that these monetary figures, the financial investment figures in these two Orders, were drafted and agreed between the electricity industry and the Ministry of Power before the Prime Minister's statement on 20th July, and have not been adjusted for the future in the experience of the stagnation which has now descended on us, and the likelihood of falling production during the next two years.
I conclude with these comments. I am not alone in this prognosis this evening. I am listened to by a Socialist opposite in complete silence. I have been waiting to be interrupted at 10-second intervals. Nothing has been said to me about my arguments.
§ Sir G. Nabarro
Giving me a night off, the hon. Member says. I am enjoying a night on.
But I am not alone in this view and this prognosis of the future, in the matter of the electricity industry, and it is no laughing matter when hundreds of millions of pounds of national investment are involved, a substantial part of which could have been turned to very much better effect than in the electricity industry, where perhaps the additional power may not be wanted. This was written in the Financial Times of 1st September, 1966, under the heading, "Generating plant in the 1970s: A trough or a slump?" The opening passage I quote:At the beginning of this year we suggested, in a survey of the investment programme of the Central Electricity Generating Board, that it was not likely that the very high rate of expansion now in hand could be maintained. Since that time no new orders for generating plant have been placed. Economic expansion has ground to a virtual halt; discoveries of natural gas have started a new debate on national energy policy, and there have been a number of suggestions that the current investment programme in electricity is over-blown, especially at a time of economic stringency.That is expressing in different terms the case I have endeavoured to put to the House this evening. I hope I have not been guilty of gloom about the future. I do not want to see, for political or partisan purposes, the economy of Britain grind to a halt, or remain static or stagnant. I wish to see a steady rate of growth. I repeat, electricity generation 601 and supply is the reflex of the prosperity of our country. I do not want to see hold-ups in the winter time, or shut downs of plant, freeze-ups, as they are called, load shedding or the remainder. I want to see the 14 to 17 per cent. margin in generating capacity which has been referred to earlier in this debate. But I feel that, in view of the huge sums of money involved, there is a real danger, in the amendments being allocated by these Orders to future investment in the electricity, that we may be overproviding, unless the economy starts at a very early date to grow again. That was the purpose of my intervention in the right hon. Gentleman's speech, when he so courteously gave way to me—not on the matter of the oil, but on the matter of the frequency with which we look at these matters.
We shall not be able to look at electricity investment again for two or three years under these Orders unless we have a "nationalisation day" for debating gas and electricity or unless the Opposition choose this topic for one of their Supply days—and I shall urge them to do so. For years, when I sat on that side of the House, from 1951 onwards, two or three times a year I urged on Conservative Ministers to allow annual examination under Statutory Instrument of the investment programmes of every one of the nationalised industries, notably electricity.
To go for 2½ years until March, 1969, before we can look at this matter again is, in my judgment, too long and I hope, therefore, that the right hon. Gentleman will take my point and endeavour to furnish an earlier opportunity for it to be re-examined, albeit to prove my prognosis tonight wrong. I should not demur if he did prove it wrong. I should be happy, in fact. If I am proved wrong in my prognosis, it will mean that the national economy will indeed have begun to grow again at the rate we all desire to see it grow.
§ 10.41 p.m.
§ Mr. Michael Alison (Barkston Ash)
The right hon. Gentleman will agree that we have had a friendly and constructive debate so far, perhaps slightly different from that of yesterday. It has also ranged fairly widely and it has included a good deal of English as well as Scottish business. I hope that the Under-Secretary of 602 State for Scotland will be able to cast his net sufficiently wide to catch all the fish not only from Scotland but from England that have been swimming about in the debate.
We would like to associate ourselves with what the right hon. Gentleman said about the debt we owe to the electricity industry. We take it for granted, perhaps. We are absolutely dependent upon it. We only really look at it when something goes wrong, which is rare.
We also express considerable relief at the undertaking the right hon. Gentleman has given, and implied by the limit he has set on the Order, that we shall have a chance of looking at this matter again in the fairly near future before the final limit is topped up. This is not only because we question the borrowing limits, but because of the enormous sums of money involved. The Minister has taken a pragmatic and practical and, perhaps, quite short-term look at the future of the industry on the basis of what he described as uncertainty.
My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), in referring to these enormous figures, quoted from the White Paper on Public Expenditure, Planning and Control. What struck my imagination was the fact that investment by the electricity industry in an average year has been equivalent of half the total investment of private manufacturing industry. What is disturbing about this is that it is a colossal swinging movement almost impossible to stop once under way. It is like a ship broken adrift from its moorings in harbour. Once it has started to move it is difficult to correct over a five year period.
We have misgivings about the Government's judgment of the future demand for electricity. These misgivings quite naturally and properly arise from the figures given in the National Plan. I do not want to make any comments about the down turn in demand which is associated with the present freeze. I am thinking of something rather more long-term. I remind the Minister that page 42 of the second part of the Plan quite explicitly states that the industry expects the rate of increase in sales in the six years up to 1970 to be rather greater than in the period 1960–64. My information is that the rate of increase in 1965–66 over 1964–65 has actually gone down. This is the 603 first base year of the trend in which it was expected to increase at a greater rate. For that to have happened already is significant, and it obviously has nothing to do with the freeze, because the year relates to a period before the freeze began.
We also read that sales to domestic consumers are expected to increase at an average annual rate somewhat lower. This is obviously borne out by some of the things said by the Minister and by the trends which we are facing, but the phrase was "an increase at a rate lower", and the information which I have is that in 1965 total consumption for homes and farms was actually down on the year.
It is very striking if even before the present economic squeeze arrived the whole prognosis of the five-year plan was out to this extent in its first base year, which means that we have to be extremely careful. We certainly share the uncertainty to which the right hon. Gentleman referred.
§ Mr. Palmer
Is not this a very dangerous doctrine? The history of electricity supply and its expansion over many generations now, in good times and bad, shows that there is an almost straight line relationship which has not varied in any industrial country.
§ Mr. Alison
I shall hope to show that there is a certain imbalance between the trend of domestic electricity consumption in this country as compared with certain other European countries, and this is where certain readjustment may be necessary in the coming years.
I want to mention the obvious explanation for this trend. I am sorry to have to say this in the presence of the hon. Member for Bristol, Central (Mr. Palmer), whose praises of the electricity supply industry we understand and echo, and whom we recognise to be a champion of the industry. However, we have to face the fact that there is nibbling at our present electricity supply situation a tendency for gas consumption to increase.
It is a very striking fact that in the two years 1964–65 and 1965–66 the rate of expansion of gas sales has been greater than that of electricity. Furthermore, this has happened at a time when net production costs of gas have been about l0d. a therm and when they are likely to go 604 down possibly to half of that when the North Sea gas field gets under way. But, even before the North Sea gas has been exploited, we find this marked swing to gas. It may be just a fashion, but it has happened already. It is no wonder that some people are saying that the use of electricity as a major source of home heat is doomed in the long run. That statement may be exaggerated, but it is extremely important to ponder and weigh and evaluate if we are to get right this colossal sum of capital expenditure in the next few years.
I want briefly to refer to the comparison between ourselves and certain European countries. I have seen some figures and read some articles recently which have given the impression that this country is what might be described as over-electrified in terms of domestic sales as compared with certain European countries. It is striking that in France, Germany, Italy and the Netherlands, a smaller country, the relationship between domestic sales and industrial sales is as low as one quarter, that is to say, the non-industrial use of electricity is only one quarter of the industrial use, whereas in the country it is three quarters, a staggering imbalance between ourselves and the Continent of Europe.
To look at the German figure, which is probably the interesting one, because they are competitors, we find that in Germany, in terms of millions of units, industry for the year 1963—and this is an O.E.C.D. figure—consumed 86,000 million units, while domestic use was only 18,000 million units. In the case of the United Kingdom, the industrial use was a bit lower, about 70,000 odd units, but the domestic use was over twice as much.
It cannot really be claimed that this country is twice as cold or twice as exposed to Alpine and other winds as Germany, yet the fact is that this domestic market for electricity has grown out of all proportion as compared with Europe in recent years. This is one reason why industrial users in this country complain that in comparison with their European competitors they are paying more for electricity. This is crucially important, having regard to the future of the steel industry, for example, with which the Parliamentary Secretary and the Minister are concerned in another contest. 605 Industrial users feel that they have got the thin end of the wedge in this country because in some ways domestic users have been given an enormous priority, which may be very good but which will have bad industrial effects. If, as we rather suspect, there is going to be a marked swing away from domestic electricity consumption, partly because of the sort of imbalance that I have suggested between ourselves and the Europeans and partly because of the advant of gas, what future, industrially, is there for the electricity supply industry? Is the future there as rosy as it has been in the past for domestic consumption?
We want the Minister to tell us what the future is for the industrial use of electricity, having regard to the present run-down in the industry. Has this been taken into account seriously, and will he also bear in mind that the National Plan figure for the likely demand of electricity consumption is based upon a different growth rate to that given in the National Plan? The industry was originally asked, in making its estimates, to assume that the consumers' expenditure would rise at an average of 2.7 per cent. per annum. The implication of increasing that figure to 3.2 per cent. The National Plan forecast was not considered at the time of the National Plan, so the plan figure is misleading in this respect.
We want the Minister's estimate of the use of electricity in the light of the run down in the industry. We also want him to reassure us about the technological changes which are going on in industry. I had an instance brought to my attention the other day of a private steel company—I do not know how much longer this will be possible—dissatisfied with the industrial tariff that it was paying for electricity, positively going into the development of the fuel-oxygen scrap process in order to avoid the electricity charge. This is something which is going to be opened up with the advent of gas, oil and other similar steel-making technologies coming forward. We ought to remember that the steel industry is the electricity supply industry's best industrial customer.
If there is to be a marked swing away from electricity in steel-making and at the same time a marked swing away from electricity in domestic consumption, then 606 the hon. Member for Bristol, Central and others who have the electricity industry at heart will find that they are in a slightly defensive position.
§ Mr. Palmer
Surely the moral is not that we should cut back on the domestic use of electricity, which adds to our amenity and comfort, but rather that we should step up investment in the use of electricity in industry?
§ Mr. Alison
I would feel that there was at least a valid argument for restraining domestic consumption in view of the impact this has upon peak demand and the cost level, but I would feel much more sympathy with the hon. Member's point about the moving of the tax burden away from a particular area which the electricity industry is going to use, namely oil, and spreading it over the whole tax base. This is a positive proposal which will encourage industry to maintain its present favourable disposition towards electricity.
Although it is rather short notice, I should like the Under-Secretary of State to deal with comments on industrial users' own generation of electricity. This is substantial—10 per cent. Will this be encouraged? Will they continue to make electricity on a growing scale? It is an enormous volume of electricity. Where does it fit into the picture? The big customers of the electricity supply industry will be industrial users. What is to be the scope allowed to them to generate their own electricity?
I re-emphasise the point made by the hon. Member for Bristol, Central about spreading the tax burden, and I ask the Minister seriously to consider encouraging the electricity supply industry to look again at the question of a special consumer tariff for big industrial users. This will be worth looking at if there is to be a swing away from domestic use.
I should like to say a few words about the problem of peak demand, which is vitally important. It imposes a substantial cost burden upon the industry in having to bring in old plant to meet the peak demand. May we have an assurance that consideration will be given to the fact that there are some traditional uses for electricity for which gas can be used? I am thinking, in particular, of air conditioning, which hitherto has been largely electric and certainly is electric 607 in the United States. If we could have gas used for air conditioning, it would mean a big improvement in the domestic use of power in the coming decade.
May we have an assurance that every effort will be made to meet the peak demand out of gas generation sets? In looking at the problems of oil, gas and electricity, one of the most striking things I remember was on Das Island in the Arabian Gulf where B.P. have a huge off-shore rig. They burn off more surplus gas, they tell me, than is obtained from the whole of the North Sea find, and they supply all their own power from a small compact generator. May we have more of these?
I ask the Minister to look ahead to the Channel Tunnel, even though it may seem irrelevant at this stage. Some thought should be given to the possibility of including a pumped storage scheme of some kind in the work, in view of the enormous capital development and investment involved in digging under the sea in a tidal situation. Is there no possibility at all of making use of these underwater tunnelling operations? Is there no possibility of a pumped storage scheme, possibly involving natural gas, with the ebb and flow of sea water through propeller turbines? The French know all about this—they have their scheme at Rance and they would be only too delighted to collaborate.
The Under-Secretary of State has many diverse power topics to which he must address his mind. This is a debate in which we are discussing an enormous volume of capital for the electricity supply industry. I hope that he will comment on some of the points which have been raised.
§ 10.58 p.m.
§ The Under-Secretary of State for Scotland (Dr. J. Dickson Mabon)
First, may I congratulate the hon. Member for Barkston Ash (Mr. Alison) on his appearance at the Dispatch Box? I do not know whether it was his first appearance there, but I congratulate him on what he said and on his appearance at the Box. We all remember his predecessor in the constituency with affection; those who were interested in shipbuilding and shipping know how dedicated he was to the interests of those industries. The hon. Member is showing the same conscientious 608 endeavour as his predecessor in these matters.
I agree that I have much to seek to answer tonight, and I do not pretend for a moment that I can cover all the points, possibly not even all the major points, raised in the debate. I shall try earnestly to deal with as many as I can.
On behalf of my right hon. Friend the Minister of Power, I would say that not all contributors to the debate took in all that he said in his opening remarks. My right hon. Friend made a short but concise and deliberate speech, and I hope that hon. Members will do him the courtesy of reading the report of it, because it contained a great deal of information, and some hon. Members in their speeches asked me to confirm, reaffirm or recite some of this information. I do not propose to do that. I have much more to do than that.
I should like to take, first, the principal point raised by the hon. Member for Moray and Nairn (Mr. G. Campbell) concerning the difference between the Scottish and English position in relation to these figures. The limit of £580 million for which approval is now being asked should, we think, last until March, 1969.
I accept the point made by the hon. Member for Worcestershire, South (Sir G. Nabarro), who made an admirable speech. I tried hard to find points of disagreement, but it was not easy to find them. I take the point made by the hon. Member that we might be wrong in this, although to date we have been right and the party opposite can take some satisfaction for that. It does not necessarily follow that in later years these estimates made some time ago will still be right. The hon. Member for Worcestershire, South is right in reminding us of this. Hence the need for the review on which my right hon. Friend has embarked and about which, I am sure, we would all like to hear at the appropriate time when it is complete.
The £580 million for which approval is now being asked for Scotland should, we think, last until March, 1969. This is roughly the same as the time for which the new interim limit for England and Wales would seem to last. This was confirmed by my right hon. Friend. In that event, of course, legislation would certainly be needed to extend the limit in Scotland. That would mean that the 609 House would have another opportunity of reviewing the position in Scotland—or, if not in Scotland, certainly in England, but I would be surprised if that were not the case for both countries—within about two years. I take the point made by the hon. Member for Worcestershire, South that perhaps we should debate these matters a little more often. This is entirely a matter for the usual channels to resolve in their normally efficient and satisfactory way.
My hon. Friend the Member for Bristol, Central (Mr. Palmer) talked of the separation of the North of Scotland Hydro Electricity Board and the South of Scotland Electricity Board——
§ Mr. Palmer
I was referring not to that, but to the separation under, I think, the 1954 Act, of the South of Scotland organisation from the organisation for the rest of Great Britain, because the North of Scotland Board was always independent from 1943 onwards.
§ Dr. Mabon
I hope that my hon. Friend will forgive me. The hon. Member for Worcestershire, South made the point of the separation of the two Scottish boards and how, in 1953 and 1955, he said in the House, long before the previous Government, either before or after the Mackenzie Report, had indicated that they might favour an amalgamation——
§ Sir G. Nabarro
I gave evidence before the Mackenzie Committee in Edinburgh. One of the points that I made to that Committee was that the viability of the two boards in Scotland would be enhanced, and that Scottish interests would be enhanced, if the boards were amalgamated.
§ Dr. Mabon
I will try, therefore, to separate the two points.
The hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) rather surprised me by going completely against the policy of his own party when in office, when they saw the hiving off of the Scottish boards, with the result that in representing my right hon. Friend the Secretary of State here tonight I am speaking on behalf of the South of Scotland Board in the strict matter of responsibility. The hon. Member surprised me, because I always thought that this was a matter in which Scottish 610 Members were united. However, the hon. Member has always been a Maverick and, no doubt, will continue to behave so.
To take the two points separately—that is, the Hydro Board and its connection with the South of Scotland Board, and, for that matter, the connection of both boards with the general British position—I do not agree with the hon. Member for Cathcart that the South Board and the North Board do not enjoy advantages which they would enjoy if they were amalgamated on a Great Britain basis. I do not want to argue the case too much tonight and I will return to this presently.
When discussing the financial aspect, there is obviously a financial advantage to the Hydro Board, and, possibly to the Scottish Board, in relation to the present position which they would not enjoy if they were working on the same basis as that advanced by the hon. Member for Cathcart—that is, on the basis of a Great Britain amalgamation, with homogeneity of tariffs throughout and, of course, homogeneity of financial return also.
My hon. Friend the Member for Bristol, Central pointed out that the South of Scotland Board, for various reasons which I can explain, has not met the financial target which has been set.
As to the internal Scottish position, it is quite true that in the years up to 1964 the co-operation between the two boards was not of that degree of desirability that we would have liked. I do not make a party point here; it is a question of the Fada-Fionn inquiry, the Mackenzie Committee and the disputes that resulted therefrom. Since coming to office and inheriting this position, we have tried very hard to get better co-operation between them.
We have done three very important things. We now have the fixing of a joint borrowing limit for the two boards, which is, perhaps, the first step in the right direction, and our progress has since been quite considerable. Last year the boards agreed to new arrangements for the exchange of power and the operation of generating plants. Generating capacity is now pooled, and operated jointly in the most efficient way. A joint generating account removes from the control engineers the continual need to consider each decision in the light of its effect 611 on their own boards finances. With the introduction of large new thermal stations in the South supplying pumping energy for pumped storage schemes in the North, close co-ordination of these two systems is obviously essential. By going beyond this to joint operation of the Scottish system, the boards have ensured that Scotland is receiving the cheapest and most efficient power available.
Joint operation, however, is not enough. Joint planning, which is the third point, of the means of generation, is equally important, and very relevant to these Orders. Here, again, the boards have undertaken a joint study to determine the best ways in which to meet the needs of Scotland as a whole. Their recommendations were contained in a joint report which they submitted to the Secretary of State early this year. No longer does the Secretary of State have the invidious task of deciding between the competing claims of the two boards for generating capacity. He now has a joint recommendation from both boards based on computer simulations of the whole Scottish system and carried out by the engineers of the two boards. While the hon. Member for Worcestershire, South may not have got all his way in the matter, these are very significant steps towards the goal he thinks is desirable.
§ Dr. Mabon
I can reveal a number of points in my reply. The hon. Gentleman asked a lot of detail, and I will try to deal with as much as I can. The hon. Member for Worcestershire, South has given a good hint of how we could discuss this subject at another time, and there is another mechanism which the hon. Gentleman might use later in the parliamentary year.
The stations already under construction will meet the needs of the Scottish system up to 1972, and the recommendation of the boards is that this should be followed by a 1,200 megawatt advanced gas-cooled reactor nuclear station sited at Hunterston. As the Secretary of State has already informed the House, the South of Scotland Board has been authorised to proceed with obtaining tenders for such a station, and to put the statutory procedures in motion so that he may have 612 all the necessary information and be in a position to give his decision early next year. This is a serious matter. My right hon. Friend must have all the information before him before he makes a final decision, and obviously this preliminary step must be taken to make this assessment——
Earl of Dalkeith
Is this budgeted for in any way at all in the present sum of money for which we are being asked?
§ Dr. Mabon
I was about to say that of the £80 being sought, in addition to what we already have, part, in as much as it falls within the two years we are talking about, will cover this particular project if, of course, the Secretary of State agrees to go forward with it early next year.
In relation to the investment cuts, I confirm—because it is very relevant to this problem of generation and future possibilities—that, as my right hon. Friend said earlier about England and Wales, the cuts will not affect the generating programme and the construction of generating capacity for some years ahead. I cannot go further than what the hon. Gentleman learned earlier. It is not so much a question of how the cuts will affect Scotland, but I can give the assurance that it will not be the generating programme which will suffer.
I was asked for various details about the schemes and this is a very good opportunity to make a few comments. On Cruachan, I think that the scheme is going ahead reasonably well. No. 1 machine was damaged during tests, and is now under repair. No. 2 machine was commissioned early in 1966, and we hope that the remaining two machines, together with the other two, will be in operation this year. So far as Cockenzie is concerned, there was a failure of the boiler of the first set and the board is trying to bring forward the other sets to fill the temporary gap. It is hoped to start work on the first boiler at Longannet by the end of this year.
I must say a word about pumped storage. The fact is that this depends to a large extent on what the position will be at Hunterston, and until more nuclear stations are commissioned pumped storage would not be so economically sound a proposition as a nuclear station. Of course, some events depend 613 upon each other, but both boards are acting jointly. There is no conflict as there was on occasion in the past over priorities.
§ Mr. Gordon Campbell
Could we be told if this extra £80 millions involves the possibility of pump storage, for example, as at Loch Sloy?
§ Dr. Mabon
We have been prudent in asking for such a large sum in that, in the long term, there may be such a scheme. We are prudent in going to the limit which the Statute allows us. I am glad that we have the support of right hon. and hon. Members opposite in having taken on such responsibility and going as far as we can go.
§ Mr. A. Woodburn (Clackmannan and East Stirlingshire)
Perhaps my hon. Friend has explained it, and I have missed it, but when Hunterston is so near Galloway, could there be pumped storage in Galloway as well as in the Highlands?
§ Dr. Mabon
That is for the board to decide. Both boards can comment on the position about that, but the plans at present do not involve this. I cannot say where in the order of priorities this might stand, but the board is concerned about Loch Sloy in relation to pumped storage; this will come after consideration of the Hunterston proposition.
I would like to return to the point raised by the hon. Member for Cathcart and my hon. Friend the Member for Bristol, Central on the question of the financial position of both boards. The Scottish boards have been seriously affected by the prices standstill. The coal price increase, which came into effect on 1st April last, will cost the South of Scotland Board £4½ millions a year, and the tariff increase which was intended to recoup this and help put the Board's finances on a more satisfactory basis, had to be withdrawn when the standstill was announced. No proposal to increase tariffs had been announced by the North of Scotland Board, but in accordance with the undertaking given by them pending the fixing of a financial target, a similar increase in their tariffs might have been expected to follow the South. Until they can increase their income, the financial position of the two boards must remain a matter of concern.
614 In the meantime, the boards have been making every effort to reduce costs by improved efficiency and productivity and, in the long run, this enforced discipline must prove of value.
The hon. Member for Cathcart has referred to industrial consumption, but I would point out that when I spoke on 27th May last about the cost of living, I was speaking generally. So far as domestic consumption is concerned, electricity is cheaper in Scotland than anywhere in the British Isles, despite the high costs of transmission and distribution in sparsely populated areas. More than 98 per cent. of all potential consumers in the south and 93 per cent. in the north are connected to the supply, and the question of the position of both boards as a result of the prices and incomes standstill is being most carefully considered. The forthcoming White Paper on the next stage in the prices and incomes policy will undoubtedly take into account the position of the South of Scotland Electricity Board as well as the North of Scotland Board.
I do not think it is fair at this time to go into the performance of the Scottish boards, in relation to their financial targets, compared with the English boards, but I should welcome a later opportunity of commenting on the matter.
I turn to some of the points raised by the hon. Member for Worcestershire, South. A great many of his desiderata, as he rather modestly called them, are certainly desirable, though I do not say "all". However, I know that my right hon. Friend the Minister of Power, having heard the speech, will want to read more closely what the hon. Gentleman has said and see how far he can go in meeting his points.
The hon. Gentleman made the very fair point that we could be wrong in claiming that extending these borrowing powers will carry us to March, 1969, just as the comment has been made that it might be too much. I think it prudent that we should take into account the comment that the powers may not carry us this far. That is the reason for the importance of the review that my right hon. Friend is carrying out, and I hope that later on when things are clearer we shall be able to see the next stage in electricity development take into account 615 the very sensible points made by the hon. Gentleman.
§ Question put and agreed to.
That the Electricity (Borrowing Powers) Order, 1966, a draft of which was laid before this House on 18th October, be approved.
Electricity (Borrowing Powers) (Scotland) Order 1966 [draft laid before the House, 18th October], approved.—[Dr. Dickson Mabon.]