§ Order for Second Reading read.
§ [Relevant documents: Third report of the Energy Committee of Session 1987–88 on the Structure, Regulation and Economic Consequences of Electricity Supply in the Private Sector ( House of Commons Paper 307), and the third special report of the Committee of the same Session containing the Government's observations on the third report (House of Commons Paper 701).]
§ Mr. Speaker
I must announce to the House that I have selected the reasoned amendment in the name of the hon. Member for Banff and Buchan (Mr. Salmond), and that I propose limiting speeches to 10 minutes between seven and nine o'clock this evening. I hope that right hon. and hon. Members called before seven o'clock will have regard to that limit when they are making their contributions.
§ The Secretary of State for Energy (Mr. Cecil Parkinson)
I beg to move, That the Bill be now read a Second time.
The Bill sets out the Government's proposals for the restructuring and privatisation of the electricity supply industry throughout Great Britain. Today sees an important turning point in the history of that important industry.
Virtually no one now bothers to pretend that if we were starting from scratch, we would choose to recreate the public sector monoliths that dominated key areas of the national economy in the post-war period. They are the tower blocks of our economy, the monuments to the public sector planning that lost sight of the customers' needs.
The right hon. Member for Islwyn (Mr. Kinnock) said that if his party came to power, they would try to make the market economy work better than this Government have made it work. The hon. Member for Kingston upon Hull, East (Mr. Prescott) showed signs of understanding the shortcomings of a monopoly supplier when he said that he wanted to change the electricity industry and make improvements. Perhaps that is the other reason why he was moved on. For the sad truth is that nationalisation has fulfilled neither the hopes nor the promises of his supporters.
§ Mr. Norman Hogg (Cumbernauld and Kilsyth)
How can the right hon. Gentleman make such an assertion about the North of Scotland Hydro-Electric Board, which provided electricity to people who would not have received a supply had the industry been left in private hands? In the context of the hydro-electric board, the right hon. Gentleman's comments are utter nonsense.
§ Mr. Parkinson
That may be the hon. Gentleman's view but it is not ours, and when the hydro-electric board finds its way into the private sector he and his constituents will be very pleased.
It was Labour's own leading post-war theorist, Tony Crosland, who first gave the game away when he likened nationalisation tomaking Marks and Spencer as efficient as the Co-op.670 Some of his contemporaries, and some right hon. and hon. Members seated on the Opposition Benches today, still believe that he was paying the Co-op a compliment.
Those working in the electricity industry have always recognised the concept of public service that the nationalised industries were intended to embody, but for them, the practice has been very different from the theory. There has been insufficient pressure on costs, efficiency or prices. With the encouragement of past Governments, the industry has over-invested in plant that has not been needed and which, in some cases, has not worked. By restructuring the electricity supply industry and returning it to the private sector, we will improve its efficiency, promote competition and give customers a better deal.
Our proposals will open up a genuine market in electricity. They will remove the present institutional barriers to competition and provide a new climate that fosters competition. By giving locally based supply companies a duty to provide a supply to all their customers, they will move the key decisions from a remote monopoly producer towards the customer and the supplier.
§ Mr. Alex Salmond (Banff and Buchan)
Will the Minister specify how he detected the demand for privatisation of the Scottish electricity industry? Did he do so from election results, or by some other means that we do not know about?
§ Mr. Parkinson
I know that the hon. Gentleman resents it, but we have national elections in this country. We have suffered for many years under Labour Governments elected by Scottish and Welsh majorities. He is a member of the national Parliament. The Conservative party won the election on the basis of a promise to privatise the electricity supply industry.
Suppliers will have a direct incentive to seek the cheapest sources of supply from a wide variety of generators. Private generators will benefit from access to transmission on the same terms as everyone else. In that way we shall change the whole culture of the industry from one of cost-plus and take it or leave it, to one of consumer choice and real service to the customer. At the same time, our proposals will ensure that security of supply is maintained, by preserving the integrity of the national grid system and by encouraging diversity in electricity supply.
One of the most surprising allegations is that I am taking excess regulatory powers over the electricity industry. The same people say that we took insufficient regulatory powers in previous privatisations. Perhaps they could make up their minds and decide what they really want. Presumably they want to promote competition. Regulation can help there—for instance, by obliging the industry to allow newcomers to use its wires. Presumably they want customers to be protected against exploitation. Presumably they want the industry to plan for emergencies and interruptions in fuel supply. Presumably they want the industries to meet specified standards of service. Presumably they want the industry to observe safety standards. Presumably they want the Scottish industry to be regulated from Scotland.
If that is what they want, that is what the Bill gives them. If they think that is excessive regulation, perhaps they would say what clauses should be dropped. I suspect that we shall hear nothing about that.
§ Mr. Alfred Morris (Manchester, Wythenshawe)
The drafting of the Bill recognises that competition and the interests of consumers are not necessarily synonymous. It is also clear that where they are not, competition will have priority over consumers' interests. Since the Secretary of State has so often implied that the interests of consumers must come first, is he prepared to amend the Bill and especially clause 3(3)(a)?
§ Mr. Parkinson
The customer's position will be improved in two ways. First, the person who supplies the customer will have access to a market in electricity. Secondly, he will have a regulator with strong powers whose job it will be to ensure that the customer gets a fair deal. The Bill makes possible those two improvements and puts the customer in a much better position. The Electricity Consumers Council agrees wholeheartedly with that, and believes that the customer will be in a far better position under the Bill.
§ Mr. Tony Blair (Sedgefield)
The other point made by the Electricity Consumers Council was that, if competition is to mean anything, it must mean choice for the consumer. Will the Secretary of State tell us precisely what choice will be available to a consumer who does not like his area board and wants to change? What choice is there at the point of consumption?
§ Mr. Parkinson
The hon. Gentleman is being wholly disingenuous and he knows it. We have made it clear that the cost of duplicating the low voltage distribution system—that is what he is asking for—would not be in the customer's interests but would increase costs enormously. We are saying that, in the 80 per cent. of consumers' bills not represented by those costs, there will be competition, and in the remaining 20 per cent. there will be regulation.
§ Mr. Blair
The Secretary of State has told us why it is not practically possible to provide competition for the consumer. That may be right. He claimed that he was not proposing the same for electricity as for British Telecom but was introducing something different. What choice does the consumer—not the monopoly supplier—have?
§ Mr. Parkinson
If the hon. Gentleman will allow me to proceed with my speech, I shall explain to him, as I explained at the Conservative party conference, which seemed to find it easier to understand, that taking two wires to every house would be wasteful and no consumer wants it. That is precisely the point that the hon. Gentleman seems unable to comprehend. The price of what is supplied will be subject to competition. The cost of supplying it will he regulated, and that cost is a small part of the overall bill.
The Bill provides a clear statutory framework for our proposals. The detailed regulatory arrangements for the industry will be contained in licences issued under the Bill, which we shall table when the Bill goes into Committee. The regulatory framework, like the Bill, will enable the six principles set out in the White Paper "Privatising Electricity" to become reality.
The first principle was that decisions about the supply of electricity should be driven by the needs of customers. Our Bill will give every owner or occupier of premises—not, as now, those within 50 yards of an existing main—a right to a supply of electricity on reasonable terms. That will extend the customers' rights. Suppliers will be able to contract for electricity from a wide range of 672 sources with incentives to do so in the most cost-effective manner. Customers will have the right to contract directly with the generators of their choice.
We shall oblige public electricity suppliers and the national grid company to offer fair terms for carrying the electricity generated. That will give the heavy user a more direct choice in who supplies his electricity and will give those who supply the domestic customer a choice in who supplies them—something that they do not have now. At present, we have a monopoly producer compounding a monopoly distributor. That is wrong. All those provisions will exert downward pressure on costs by enabling decisions about electricity supply to be driven by customer needs.
The second principle was that competition was the best guarantee of customers' interests. To promote competition, the Bill will enable the industry to be restructured so that the generating capacity of the Central Electricity Generating Board can be split into two new companies: one, Power Gen, would own about 30 per cent. of the CEGB's existing generating capacity, all of it non-nuclear, and the other, National Power, would own the remainder. The national grid will be transferred to the joint ownership of the area boards' successors.
Privatisation will open an exciting new opportunity for independent power generators. We know already of nearly 20 proposed independent power generation projects that would amount to more than 10 per cent. of our national needs. I give the House two examples. The first, and the closest to the House—just nine miles from here—is Thames Power's proposed 1,000 MW plant at Barking Reach, which will form an important part of the overall plan to revitalise that area. Secondly, in the midlands, Hawker Siddeley is planning a 350 MW station that could produce enough electricity to supply Corby, Kettering and Northampton. There are almost 20 other major projects in the pipeline.
The third principle was that regulation should be designed to promote competition, oversee prices and protect customers' interests where natural monopolies will remain. The hon. Member for Sedgefield (Mr. Blair) seems to have discovered natural monopolies for the first time, but a great deal of the White Paper related to precisely how we should regulate them.
The Bill enables us to appoint a Director General of Electricity Supply and to staff his office. It sets out his duties, the most important of which will be to promote competition and protect the customers' interests. It allows him to issue licences to generate, transmit and supply electricity. He will regulate the industry by granting, modifying and enforcing the licences.
Opposition Members have the strange idea that regulation is a substitute for competition, but it will ensure that competition develops. It will do so in at least five ways. It will require the 12 public electricity suppliers to contract with the most competitive generators; it will penalise them through price control if they contract inefficiently; it will require the public electricity suppliers and the national grid company to allow others to use their network on terms that may be settled by the director; it will prevent the 12 public electricity suppliers and the two large generators from using their position in the market to stifle competition; and it will give new rights to independent generators and suppliers, so putting them on an equal footing with the successors to the CEGB and the area boards. 673 There will be more than just two generators. I have mentioned the independent generation projects being considered; there will also be opportunities to buy from Scotland, from France, from the established independent generators and even from the generating projects in the process of being launched by the area suppliers—[Interruption.] In theory, that could have happened after the 1983 Act. In practice, it did not, because the monopoly generator dominates the market and throws out the independent generator.
The fourth principle was that security and safety of supplies must be maintained. The integrity of the national grid will be preserved with a merit order system building on the benefits of existing arrangements. The national grid company will have a statutory duty to develop and maintain an efficient, co-ordinated and economical system of electricity transmission.
We believe that security of supply is best based on diversity in sources of supply. We believe that nuclear power is a vital part of that diversity. On at least two occasions in the past 10 years, Britain would have faced enormous difficulties but for our nuclear power stations. The oil price explosion and the miners' strike would have caused us almost insuperable problems. The original case for nuclear power remains strong, and fossil fuels remain finite. No major new alternatives to nuclear power have yet been discovered.
As the environmental arguments develop, nuclear power will increasingly be seen as the least polluting major source of electricity. Nobody knows what the price of fossil fuels will be in the decades ahead, but we can all be reasonably certain that they will be a great deal higher than they are now.
To encourage diversity of supply, a statutory obligation will be placed on each public electricity supplier to purchase a minimum amount of non-fossil-fuelled generating capacity, and that includes renewables. It will ensure that any costs associated with this requirement are shared by all electricity users. That obligation will not therefore affect the overall level of prices, but it will enable customers to identify the cost of diversity.
§ Mr. Malcolm Bruce (Gordon)
Why will not the Secretary of State allow effective energy conservation measures to contribute towards that percentage of saving? Does he acknowledge that investing money in energy efficiency can release more units of electricity than investing in power generation? That should be taken as part of that quota.
§ Mr. Parkinson
I shall deal with that point in a minute or two. I should like to deal with it within the framework of my speech: I hope that the hon. Gentleman accepts that.
§ Mr. Stanley Orme (Salford, East)
Is it not true that the Secretary of State will have to rig the market on the cost of nuclear power, both for the four PWRs that are in the pipeline to be built between now and the end of the 1990s and for the decommissioning of plants? Surely market forces will not operate. Can the right hon. Gentleman explain why the taxpayer should have to pay for that aspect?
§ Mr. Parkinson
I have already said why we need a nuclear component in our electricity supply. Security of supplies demands diversity. The hon. Gentleman is a 674 moderate man and he did not want Mr. Scargill to win the miners' strike any more than we did. If we had not had nuclear power in 1985, Mr. Scargill would have won—[Interruption.] Oh yes, he would. If there had been no nuclear power during the oil price explosion, the lights would have gone out. There is a strong case for diversity, which is why we are determined to ensure that that happens. As we said in our election manifesto in 1987, we believe that maintaining a strong nuclear industry is a vital part of that diversity, and that is what we shall achieve.
§ Mr. Parkinson
I have. The hon. Gentleman does not understand the answer, so he should go away and think about it.
Electricity customers will continue to pay, as they do now, the anticipated costs of dealing with spent nuclear fuel and retired nuclear plant. The electricity industry already makes full provision for those costs, and the Government stand behind the CEGB and British Nuclear Fuels. That is the current position. If there are unanticipated increases in the costs—for example, through changes to safety or environmental requirements—the Bill enables the Government to contribute to them. That is right, because such costs are likely to arise from changes in public policy. Our approach will give investors and the industry a more certain future against which to plan, and it will subject costs to scrutiny by Parliament.
From recent statements by the hon. Member for Sedgefield, one would have thought that it was entirely novel for the Government to be prepared to assist an energy industry. He has, of course, said very little about the coal tax that we have been paying for years, both as consumers and as taxpayers. The coal industry has made tremendous efforts, especially since 1985, to reduce its prices and improve its performance. Nevertheless, over the past nine years, the Government have given the coal industry more than £1 billion a year in grants and payments.
Payments to the coal industry do not stop there. In addition, the CEGB estimates that last year it could have saved up to £550 million if its coal had been bought at competitive prices. Those figures show the real scale of the coal tax we are paying now, not the theoretical tax that the hon. Gentleman invented.
The taxpayer has been picking up the cost of fossil-fuel-produced electricity both as a customer and as a taxpayer, making up the loss incurred because the coal is uncompetitive.
§ Mr. Peter Hardy (Wentworth)
Does the right hon. Gentleman accept that, had the CEGB sought to replace the purchase of British coal by the purchase of imports, that increased demand on the international coal trade would have had an enormous inflationary effect on prices? That is one reason why the right hon. Gentleman's Department has been supporting the coal industry.
§ Mr. Parkinson
The coal industry itself recognises the validity of what I have been saying, because in recent years it had been forced to reduce its costs. The CEGB estimates put the figure much higher than the one that I used. Whichever way we look at it, a substantial premium is being paid by the electricity user to British Coal. At the other end, the taxpayer is picking up £;1 billion a year in 675 deficit grants and redundant mineworkers' payments scheme grants paid to the industry. Nothing that the hon. Gentleman says can change those figures.
§ Mr. Blair
The right hon. Gentleman's reason for imposing a nuclear tax on the industry appears to be the fact that we are already paying a coal tax. Surely the key contradiction is why, if he believes in privatisation, the coal industry should be left to the market but the nuclear industry be given special protection.
§ Mr. Parkinson
The nuclear industry will have no more protection than the coal industry already has—[Interruption.] Some 70 per cent. of all our generating capacity is coal burning—[Interruption.] Of course it is privileged; we have developed the technology to burn coal and we have insisted on burning British coal. If there is to be a privileged fuel in future, it will be—as it has been in the past—coal, which will have a five times bigger share of the market than nuclear power.
On safety, the Electricity Supply Regulations lay down the procedures and standards that public electricity suppliers must observe on quality and safety of supply. They have been fully revised and brought up to date and will ensure that the electricity supply system will remain every bit as safe and secure after privatisation as it is now.
§ Dr. Alan Glyn (Windsor and Maidenhead)
Nowhere in the Bill can I see continuity of supply. If supply is cut off, a person's deep freeze or refrigerator or other appliance dependent upon electricity will not work. Is there any means by which he may be compensated for any loss he may have sustained?
§ Mr. Parkinson
Under the present system, the answer is no. Under our system, if the industry fails to perform and restore power and fails to meet targets, there will be brand new rights for customers. I am about to talk about them at this very moment.
The fifth principle was that customers should be given new rights, not just safeguards. I have already referred to the new right to require a supply. Our proposals for consumer protection give customers new rights in two important areas. First, the Bill enables the director general to specify standards which public electricity suppliers should achieve when supplying electricity to domestic premises—for instance, in keeping appointments. If a standard is not met, a customer will receive compensation. That is entirely new.
Secondly, the Bill enables the director general to set standards of overall performance which public electricity suppliers should achieve. The director general will collect and publish information relating to suppliers' performance under both schemes. That will enable comparisons to be drawn between the performance of different suppliers as a further spur to improve standards of customer service. All the benefits of the existing arrangements for consumer protection will be retained in the new stucture after privatisation.
§ Mr. Robert Hughes (Aberdeen, North)
What will happen to standing charges after privatisation? Currently, standing charges bear heavily on the poorest in our society—the pensioners and the low paid.
§ Mr. Parkinson
As the hon. Gentleman knows, the matter was examined carefully. We were told that to abolish standing charges would be an extremely inefficient 676 way to help the elderly. Yes, many standing charges are paid by people with second homes, for instance. The hon. Gentleman is effectively saying, "Let us relieve well-to-do sections." The matter was examined in great detail, and it was on the advice of consumer councils that standing charges were maintained.
The hon. Member for Sedgefield said on 1 December that the Bill does not mention the efficient use of electricity. But if he had read the Bill—I have had my doubts in recent days—and had got as far as clause 3, he would have found that the Bill places a duty on the Secretary of State and on the director general to promote the efficient use of electricity. Supply companies will be required by their licences to provide guidance to their customers on the efficient use of electricity.
The Electricity Bill also carries out a long overdue and highly necessary modernisation and codification of the law on electricity supply. It sets out a new and comprehensive supply code suitable for the industry in its new role. No fewer than 18 whole Acts—the earliest dating back to 1882—are to be replaced and brought up to date in this Bill.
§ Mr. Hugh Dykes (Harrow, East)
Bearing in mind the fact that area boards or replacement companies will retain their complete geographical monopoly, how will my right hon. Friend ensure that showrooms are properly administered to the benefit of consumers? There is evidence, although hazy and vague, that showrooms are inefficiently run by some—not all—area boards. If that were to persist, the consumer would not be served, and costs at the margin would be higher than they would otherwise be.
§ Mr. Parkinson
Showrooms and the non-monopoly parts of the business will be separately accounted for to prevent cross-subsidisation, which would be the way to reinforce unfair competition. That will not be allowed by the regulator.
The sixth principle was that all who work in the industry should be offered a direct stake in their future, with new career opportunities and with freedom to manage their commercial affairs without Government interference. The industry's employees will be transferred to the successor companies which will take over the undertakings where they are working. Their rights and terms and conditions of employment will be safeguarded.
The rules of the existing electricity supply pension scheme will be amended so that the scheme can continue for the benefit of the employees and pensioners of the industry. These will be attractive provisions at the time of flotation to enable employees to acquire shares in the successor companies. I hope that Opposition Members get the same satisfaction as I do from the fact that the unions are anxious to join the Government in discussing the level of the shareholdings that their members are looking forward to having.
The Government's proposals for Scotland were set out in the White Paper "Privatisation of the Scottish Electricity Industry", published last March. That document set out the six guiding aims of my right hon. and learned Friend the Secretary of State for Scotland for the privatisation of the industry in Scotland. The Bill will enable those aims to be put into effect.
§ Mr. Foulkes
Will the Secretary of State explain precisely why privatisation of the Scottish industry had to be dealt with in this Bill and not in a separate Bill?
§ Mr. Parkinson
As a result of the Government and the usual channels getting together, the hon. Gentleman will have an opportunity tomorrow to hear from my right hon. and learned Friend the Secretary of State for Scotland precisely why the Bill is sensibly combined with this one.
§ Mr. Foulkes
The Secretary of State is the principal responsible Minister. Is he saying that he does not know why there is not a separate Bill? He should explain why, so that my hon. Friend the Member for Sedgefield (Mr. Blair) knows about it when he speaks.
§ Mr. Parkinson
We have explained on several occasions. We believe that the measure incorporates the two measures into one Bill. There is a precedent for that.
§ Mr. Dick Douglas (Dunfermline, West)
On a point of order, Mr. Deputy Speaker. We may have to check Hansard, but the Minister said that he and the usual channels had something to do with this being in the one Bill.
§ Mr. Parkinson
That is how we come to have two days of debate, the second of which will be opened by my right hon. and learned Friend. There is a precedent. The industry was nationalised in England and Scotland in one Bill in 1947. We are just privatising it in one Bill in 1988.
I should now like to dispose of the myths about our proposals which the hon. Member for Sedgefield, among others, has been spreading. The first concerns electricity prices after privatisation. The hon. Member has chosen to travel around the country proclaiming that the privatisation of electricity will result in a price increase of 25 per cent. by 1990. That bogus figure is based on his confusion and lack of understanding of the subject.
First, the hon. Gentleman includes all the price increases that result from the increase in the industry's financial targets. They were announced last November. They are nothing new. They were explained. The only thing that is new are the two new increases invented by the hon. Gentleman—one for a non-existent nuclear tax and one to pay dividends. Both are pure fiction. Customers pay nuclear costs now and dividends will be paid, as interest has been paid, out of the profits the industry is making. Not only does the hon. Gentleman invent new costs, but he absolutely ignores any possibility of reducing existing costs.
As the hon. Member knows full well, the increases in the industry's financial target would have been necessary even if it had remained in the public sector. They have nothing at all to do with privatisation. They have everything to do with ensuring that the taxpayer earns a reasonable return and preventing the misallocation of resources. When the hon. Gentleman's party was last in power, it recognised that principle.
678 If Governments invested at an unreasonable rate of return, they were wasting taxpayers' money and pre-empting scarce resources.
The last Labour Government set nationalised industries a target rate of return on investment of 5 per cent. which they said was necessary to prevent the misallocation of national resources.
§ Mr. Salmond
The Secretary of State will know from evidence to the Select Committee that the Hydro Board certainly anticipates a doubling of its rate of return as it moves into the private sector. Does he say that that has nothing to do with privatisation?
§ Mr. Parkinson
My right hon. and learned Friend the Secretary of State for Scotland will give the hon. Gentleman all the answers that he wants about the Hydro Board in the course of the Scottish day tomorrow [Interruption.] I suspect that that is how it will turn out, whether it is called that or not.
We believe that it is right that the electricity supply industry, like other industries in the public sector, should earn a reasonable rate of return. But the financial targets that we have set the electricity supply industry for 1988–89 and 1989–90 still fall short of the figure that the Labour Government declared desirable. Those targets could scarcely be called excessive.
Some statements by Opposition Members appear to suggest that, far from the electricity supply industry earning a reasonable rate of return on its assets, the Government should set the industry a lower financial target. I have to say to the House that to do so would be to sell the taxpayer and the nation short. It is the taxpayer who will be selling this industry and the investor who will buy it. If we sell the industry on the cheap, it is the investor who will benefit and the taxpayer who will lose. We want the electricity supply industry to earn a reasonable rate of return on its assets. One result of that will be that the taxpayer will receive a fair price when the industry is privatised.
If we really wanted to fatten up the industry, it would be easy. We could simply follow the precedent set by the Labour Government. The Labour party should be the last to talk about price increases. During the five years of the Labour Government, ordinary consumers in England and Wales saw their electricity bills go up by more than 180 per cent. in cash terms, and industrial electricity prices in England and Wales during that period rose by 160 per cent. The idea that a Labour Government controlling a monopoly industry is an insurance against price increases is a best a sick joke.
The second myth propagated by the hon. Member for Sedgefield is that our proposals involve a new "nuclear tax". The consumer will pay no increased costs beyond those he would have paid under the existing structure. Our proposals will simply identify costs which had previously remained hidden. The fact that these costs will be identified does not mean that there will be an increase. It simply means that they will be identified and subject to scrutiny not rolled up in the bulk supply as at present.
§ Mr. Allen McKay (Barnsley, West and Penistone)
Would the Secretary of State be surprised if Lord Marshall disagrees with him? Nuclear will have to be ring-fenced to make it sustainable and people in the nuclear industry are aware and afraid of that.
§ Mr. Parkinson
The idea that all of a sudden, on the day after privatisation or as a result of this Bill, the costs of nuclear energy will in some way increase, is wholly bogus. The cost of nuclear is being paid now by electricity customers. They simply are not told how much they are paying for the nuclear industry. We are prepared to expose those figures and to argue the case for diversity.
It may come as a surprise to hon. Members, and clearly it does, that we are paying these costs now. It is a measure of how closely they are in touch with these affairs. We have been paying those costs for nearly 30 years, so it is time that they woke up and found out what was happening.
The clear implication of what the hon. Gentleman says is that his party would not pay these costs in future. I remind him that over 100,000 people work in the nuclear industry, many of them in the north, and not a few in Sedgefield. Cleveland Bridge relies heavily on it and I am sure that the hon. Gentleman's constituents and the country would like to know whether his party, if elected, would close the nuclear programme. I hope that today he will tell us. I am sure that his constituents would be interested to know.
Our proposals represent a once-in-a-lifetime opportunity to improve the electricity supply industry. They combine the benefits of security of supply and of increased competition. We believe that, when the industry is in the private sector, it will benefit from its new-found freedom to offer the customer a better deal, both through improved standards of service and the downward pressure on electricity prices from increased competition.
The essence of this privatisation is to make the industry answerable to the customer and responsive to his needs. The customer wants the best buy. The Bill will bring the benefits of competition to every customer. The customer wants the best service. The Bill will bring new rights and safeguards, and real penalties for poor service. The customer wants a clean, safe environment. The industry will continue to be subject to all the environmental controls now in force. The customer wants a reliable supply of electricity. He will benefit from diversity in electricity generation and the security that that brings.
As a country, we enjoy a wealth of fuels for electricity generation: coal, oil, gas and nuclear power. We have a range of technologies for using those fuels. Decisions about the use of those fuels and the choice of those technologies are central to our economy. The Government reject the notion that the customer is best served by leaving those decisions in the hands of a dominant, state-owned, cost-plus, monopoly producer.
The Bill will put power where it belongs: in the hands of the customer and his supplier. I commend the Bill to the House.
§ Mr. Tony Blair (Sedgefield)
The Secretary of State provided the best comment on his speech when he told us that it had gone down well at the Conservative party conference. Today he has a more demanding audience—an unwilling and sceptical country. He talked about regulation, and the need for diversity of supply and to protect nuclear power, but he never once gave us the reason for privatising the industry. The question that the country asks and that the Secretary of State must answer is why an industry, brought together in the public interest over 100 years to serve the nation, must now in the same 680 public interest be torn apart, broken up, and sold in two years to serve the demands of private profit. What reason did we hear today for privatisation other than privatisation for its own sake?
From the days when only a tiny fraction of the population had access to electricity, to the mushrooming of hundreds of small electricity suppliers and private and municipal generators, when excess capacity was over 80 per cent. and inefficiency was rife, to the establishment of a central electricity board and a national grid in the public sector by a Tory Government, to full public ownership under a Labour government in 1947—throughout all those decades of restructuring, streamlining, innovation and change—there was one driving impulse that has gone today: the creation of an electrical supply industry where the technology of electricity was harnessed to the needs of the nation. Now the Secretary of State says that all that is better left to the market.
It cannot be stressed too strongly that our modern industry was not built on a foundation of success created by market forces. It was created by clearing the rubble of disorganised chaos that they left behind. What is so wrong with the industry today that it is incapable of alteration in public ownership? What are the clear benefits that will flow from it being split and sold?
The right hon. Gentleman cannot answer that question by pointing to some superior experience abroad. There is no simple model of electricity supply anywhere in the world. In some countries it is private; in some it is public, and in some it is mixed; but certain things stand out everywhere. The first is that, whether private as in the United States or Japan, municipal as in West Germany, public as in France or Italy, or mixed as in Belgium, there is no such structure as is proposed here, with generation, transmission and distribution all separately split up and privately owned.
No such structure exists anywhere else in the world. Most electricity supply industries are vertically integrated, which is what the Secretary of State proposes for Scotland. Some have separate generation and transmission, but only where there is a state-owned national grid, and some have separate distribution, but none has what we are contemplating. However, that is not to say that such structures have never existed. They have existed in some form in most countries. Indeed, they have existed in some form here, but they did not work and that is why they were changed. Therefore, what is proposed today is not something radical, evolutionary and new, but something old-fashioned, and failed.
Secondly, even when the industry is privately owned abroad, in most countries major strategic decisions are taken by Governments, not companies. Whether in Switzerland, where the Government have recently ordered the private sector to drop the new nuclear reactor programme, or in Japan where the level of demand and the type and capacity of power stations is fed through the planning process of MITI, the public sector, by the very nature of the energy industry is comprehensively involved.
However, what we learn most of all from abroad is that, until recently, when the Secretary of State forced up prices, our electricity was among the cheapest in the world. It was cheaper than that in Japan, America, West Germany, Italy, and France—it was cheaper than electricity anywhere except for a few countries with access—
§ Mr. Blair
I shall give way to the hon. Gentleman in a moment.
Our electricity was cheaper than anywhere except for a few countries with access to large natural resources, cheap labour or both.
Therefore, we start the debate from the position that, for both industrial and domestic customers, our prices are comparatively low in the public sector. Indeed, that is no doubt why just a short time ago, when he was a Minister at the Department of Energy, the hon. and learned Member for Putney (Mr. Mellor), described our industry as "the envy of the world".
§ Mr. Parkinson
The hon. Gentleman refers to all those countries, but I notice that he carefully avoids any mention of West Germany or Japan. Will he explain why?
§ Mr. Parkinson
The hon. Gentleman is wrong. Prices in Japan are almost twice ours, and prices in West Germany are about 50 per cent. higher.
§ Mr. Blair
The right hon. Gentleman does not understand—that is exactly what I am saying. Electricity prices are more expensive everywhere else in the private sector—for example, they are more expensive in Japan—but they are cheaper in the public sector here. What the right hon. Gentleman is forgetting throughout the debate is that he must make the case for the privatisation of the industry. We start from this position—
§ Mr. Maples
Will the hon. Gentleman help to clear up something about the relative merits of public and private ownership? Will a future Labour Government renationalise the whole industry, and if so, on what terms?
§ Mr. Blair
We import it because the public sector there subsidises it. If the hon. Gentleman looks at prices in France, he will find that the domestic price for French electricity is higher than that in the United Kingdom.
The Secretary of State cannot point to any model abroad, so he is saying that our low prices—until he started forcing up the rate of return, our electricity prices had fallen 17 per cent. in real terms in the past few years in the public sector—can be driven lower still through the structure that he proposes. However, he is rather coy about exactly when that will happen. The Secretary of State has told us that there will be downward pressure on costs. If he is under pressure, he will even say that there will be downward pressure on prices, which is, of course, something different.
682 Central to the Secretary of State's case is that he can, as he put it—somewhat disloyally to his colleagues—at a conference organised by The Economist a few weeks ago,ensure that in contrast to previous privatisations, like British Telecom and Gas, there will be no single monolithic British Electricity, whose customers are effectively left to bear the risks. Real competition will exist from the word go.That was the Secretary of State's boast. He said that there will not be another British Telecom or British Gas, and that he would not repeat the mistakes of his colleagues.
The Secretary of State says that he is introducing real competition. He kept on mentioning competition during his speech, as if, the more he mentioned it, the more real it became. However, he should analyse what is happening.
Let us take the notion that the right hon. Gentleman is introducing competition and examine it in stages. There are 74 stations at the moment, supplying between 50 and 55 GW of electricity. Those power stations are to be divided between the two big companies, big G and little G. They will continue to be contracted to supply the grid, competing as at present under the merit order system, which calls on the stations in order of greatest efficiency. The Secretary of State's proudest boast about that system is that he can maintain it—not change it or improve it. Therefore, any competition in generation will be addressing future new capacity arising either from old stations that are being shut down or from additional demand.
There is some dispute about demand. The Central Electricity Generating Board puts it fairly high, at between 12 and 15 GW, so I shall accept that for the purposes of the argument. The Secretary of State says that there will be competition to supply the new capacity. But wait—one third of that new capacity will be nuclear, so there will not be any competition there. There is to be ring-fenced, protected status for the nuclear industry. Therefore, in reality, we must subtract that from the competition. Wait again—under the Secretary of State's provisions the area boards can build their own power stations, but they are monopoly area board suppliers, so that too must come off the total competition.
The most extraordinary evidence that was given to the Select Committee came from the Association of Independent Electricity Producers, which, when asked about the prospects of private generation stated, as quoted at paragraph 45 of the Select Committee's report:we would view another 4GW over the present situation by the year 2000 as being about the upper end of the range.The Committee added:As one might reasonably expect, that is assuming that everything goes well from the date of the privatisation.
So there we have it; by the year 2000, roughly 4 GW—one fifteenth, just 6 to 7 per cent.—of our generation will be open for real competition. That is the reality of the Secretary of State's proposals. And even then, that assumes that what exists in theory will also exist in practice.
§ Mr. Peter Rost (Erewash)
If the hon. Gentleman knew anything about the industry, he would know, instead of scoring cheap political points, that the estimate given by the independent power producers is only one estimate, and that others are much higher. He would also know that offers of electricity have been made and are now being contracted to the new area boards at lower prices than the CEGB is charging its area boards.
§ Mr. Blair
Yes, the Secretary of State confirms that the number has increased.
We tabled a parliamentary question to find out exactly what the projects were. We were informed that we could not be told that because they were in confidence. Culling through the newspapers, there may well be various assessments of what independent producers can do, but I advise the hon. Member for Erewash (Mr. Rost) that the association that represents independent producers has a slightly better idea than he does of what is likely to happen.
Let us assume that what exists in theory can happen in practice. What then? We know that there is to be a duopoly after privatisation: big G and little G. That duopoly led Professor Robinson and Mr. Sykes of Consolidated Gold Fields plc, whom one would hardly think of as rampant Left wingers, to tell the Select Committee:Duopoly is generally an unsatisfactory market structure. There is a strong incentive to collude … Even without explicit collusion, it is well known that firms in duopoly tend not to compete on price in the hope of avoiding price wars. Consequently, the mechanism that competition normally provides to pass cost reductions on to the consumer is ineffective".They concluded:we would expect prices to be higher than under continued nationalisation.However, it is not merely that. It is the independent projects that he says will exist.
The right hon. Gentleman has talked in recent days about there being power stations built in the expectation that they will then be able to supply the electricity industry. I must tell him that I would have thought that it was highly unlikely—virtually impossible—that anyone would build a power station and invest hundreds of millions of pounds, unless they received a guarantee covering the capital cost, the fuel cost and, probably, as in the United States, the operating costs, too. Therefore, the idea that we will have an influx of power stations, all competing on the grid, is nonsense.
§ Mr. Parkinson
The hon. Gentleman talked about duopoly. He ignored Scotland and the five independent generators that already exist, where there is substantial over-capacity for which English boards are already signing up. He ignored, too, the 2,000 MW French link. I assure him that there are 20 projects, representing 10 GW, which are well on the way to being fully signed up. He will look very foolish in about three years' time when he reads this rubbish.
§ Mr. Blair
I understand that we shall get an answer to that question in three years' time.
The right hon. Gentleman talked about electricity coming from Scotland or France, but that is electricity coming from public ownership. That has nothing to do with privatisation or the arguments about whether the structure should be changed. Even if we accept that there will be more electrical generation and competition, the critical point will be upon whom this competitive pressure will actually operate. The answer is that it will operate on 684 the generators. However, the customers contract not with the generators, but with the area boards, which are monopolies. If it operates at all, competition must operate through choice.
The choice here is given to the monopoly suppliers. They will be able to award contracts to whomever they wish—even to themselves. The truth is that there is no competitive pressure in this structure at the point of consumption, which is the only competitive pressure that matters. In fact, when we analyse what the right hon. Gentleman has said, we see that there is less competition than between British Telecom and Mercury. At least with British Telecom and Mercury, one can pick up the telephone and change the telephone operator so that one contracts with Mercury in that small part of the market. Here, there will be no choice whatever.
In exchange for having no choice, we have the reality of higher prices. That is not something that is in the future, or some vague promise such as the Secretary of State has made, that prices may come down. Indeed, outside of the Conservative party and the Department of Energy, it is barely in issue that prices will rise because of privatisation. The national utility services said that our prices would become among the highest in the world and last week, the CBI called it an inflationary own goal. The National Consumer Council, Cambridge Econometrics, the Electricity Consumers Council and the London Electricity Consultative Council all said that it would mean higher prices.
The Economist said this about what the right hon. Gentleman called our fantasies:Nuclear power is the cause of other headaches. Because it is (for now) the costliest way to generate electricity, and because the industry will be allowed to pass on a chunk of that extra cost, consumers will effectively pay a 'nuclear tax' every time they switch on. On top of that, the taxpayer is to subsidise the cost to National Power of reprocessing and disposing of nuclear fuel, and meet part of its hefty bill for decomissioning nuclear stations. Add all this to a 15 per cent. rise in Britain's electricity bills before the sale and—for consumers—privatisation hardly seems a blessing.
Perhaps the most extraordinary statement came from the present Chancellor of the Exchequer—an expert on rising prices—when he was the Secretary of State for Energy. He was asked by one of his hon. Friends whether the best way of holding down electricity prices was not the private generation of electricity, and he said:I would not like to promise that private generation of electricity is the best way of holding down prices."—[Official Report, 8 February 1982; Vol. 17, c. 726.]Against the right hon. Gentleman's promise of downward pressure on cost, years ahead, we have the fact of the 9 per cent. rise last April, the fact of the 6 per cent. rise this April, and the dividend yield, quite apart form the cost of nuclear power.
Worse than that, because of the mechanism that the right hon. Gentleman has introduced, we will lose the obligation to supply that is presently on the generators. He told us that he is placing that obligation of supply on the area boards—the suppliers. They can only supply what is generated. What determines whether they are planning ahead sufficiently, ensuring that there is enough capacity to meet future demand or ensuring that there is not excess capacity that will cost the industry dear? Who will be given responsibility for planning once generators no longer have that critical obligation of supply?
For losing the right of supply from the only people capable of fulfilling it and for competition, if we are lucky, 685 in 6 or 7 per cent. of generation by the year 2000—twice removed from the customer—we must endure rising prices, huge cost dislocation, and the risks of this Bill. If that is the bargain that the right hon. Gentleman offers Britain's 22 million consumers, it is no wonder that every opinion poll shows how massively it is opposed.
The truth is that the right hon. Gentleman never asked for a moment whether privatising this industry was in the interests of consumers. The only questions that he was permitted to ask were, how he could privatise and how fast. It is the same with the structure. The right hon. Gentleman never asked what was best for the industry. He was simply haunted by one thing—after the embarrassment over the monopoly sale of gas and Telecom, he feared that he would be accused of privatising this industry as a monopoly. That is not a good thing to have on the right hon. Gentleman's job application form to be Chancellor, which was his only concern.
At the heart of this proposal is a gaping black hole where the interests of the consumers should be. The right hon. Gentleman may have started out with the intention of avoiding the errors of Telecom and gas, but, in the event, he has simply compounded them.
He claims that the privatisation of the electrical supply will be in the interests of the nation. He says, especially, that it will guarantee the continuation of the nuclear programme, and he condemns as a figment of our imagination the notion of a nuclear tax. The twists and turns on this aspect have really been extraordinary. I believe that, in its briefing, the National Council for Voluntary Organisations called it outrageous. There have been a series of stories in the press about the existence of a nuclear tax.
§ Mr. Blair
The hon. Gentleman says that they are inspired by me. He pays great tribute to my powers of inspiration, as some of those stories appeared before I became shadow Energy Secretary.
There were leaked stories in detail, culminating in a front-page story on Monday 21 November in the Financial Times—Nuclear Programme Tax to be Imposed on Electricity Consumers"—which set out in detail exactly how this tax was to be imposed and levied, and saying, of course, that it was to build the new PWRs. I checked today and there has been no denial of the truth of that story from the Department of Energy or from any Minister.
When I asked the right hon. Gentleman a month ago at Question Time "to deny unequivocally" that any such plans for a nuclear tax existed, I received this unequivocal denial:We have a declared policy that 15 to 20 per cent. of our electricity will be supplied from nuclear sources because we believe that diversity of supply is essential to security. There will, therefore, be a nuclear component. The question of nuclear economics is extremely hard to settle."—[Official Report, 7 November 1988, Vol. 140, c. 4-5.]That was the ringing denial on 7 November. The truth is that, until this Bill was published, there was never any serious attempt to deny that there would be this tax. 686 Today, we have been given the astonishing explanation that we have been paying it already, and it is just to assist us that it is being made transparent on electricity bills.
I have two questions that I shall ask the right hon. Gentleman about that. First of all, it is curious that we are supposed to be paying it already, because I had understood Ministers to have been telling us for the past 10 years that nuclear power was cheaper, which was why we should be investing in it.
Secondly, if the simple reason is to make it more transparent, why is nuclear made transparent on our bill, and not coal, gas, oil or any of the other sources of energy? In particular, why do clause 31 and the notes to the Bill specifically make mention of a levy to cover the excess cost of nuclear over conventional? Why is all that in the Bill if it is just a figment of our imagination?
The reason is set out in a memorandum from Mr. John Baker, CEGB managing director, shortly to be the director of the new National Power, which will take over nuclear capacity. That memorandum was marked "confidential", which is a sure sign that it was about to be leaked, and was sent to Mr. John Guinness deputy secretary at the Department of Trade and Industry. Mr. Baker said:The only contract which Nuclear Power … will be able to agree to sign will be one in which both parties can have full confidence in the recovery of costs from their respective customers.He said that the CEGB view of the nuclear option was now quite different from its position before privatisation proposals because it would need to become substantially more risk-averse. He then went on to say that that was why the successor companycan no longer make the national case for pressurised water reactors".
The truth of the matter is that the tax will be imposed to meet the costs not of existing stations, but of the four new nuclear-powered reactors. The Government knew that this tax would be necessary, because otherwise the private sector would not build nuclear power stations. They also know that the notion of a special Tory tax to pay for power plants that the country neither wants nor needs, is publicly offensive and politically suicidal. Therefore, their response is not to be honest about the tax, but to suppress admission of its existence. That is the true explanation of what lies behind the nuclear tax.
What about our invention of the likely cost of the nuclear tax? That figure is supplied from evidence given to the Hinkley inquiry by, among others, the London Business School, hardly a left-wing fantasiser, and Dr. Mark Barrett of the earth resources research unit, and the science policy research unit that advises the Select Committee and which has backed up what Labour has said. The CEGB has also said that if the rate of return proposed by the London Business School is accepted, such a nuclear tax will be introduced. It is not us who need to justify our position, but the Secretary of State who should come clean with us.
We could have a debate out diversity of supply. What on earth does that argument have to do with privatising the industry? I do not believe that the Secretary of State understands that the key contradiction that he must resolve about the nuclear industry is why, if that industry is ripe for the private sector, it is to be given special protected status and set apart. If privatisation is the answer, why is it the answer for the rest of the electrical supply industry but not for the nuclear industry? The Secretary of State must answer that question. 687 The risks that will be borne by the taxpayer will also be borne by the country. The nuclear waste bill now stands at £4.5 billion. The Select Committee has said that the decommissioning of power stations could cost between £250 million and £750 million per station. Schedule 12 makes provision for that to be paid for out of grants and loans.
§ Mr. Blair
Yes it does, I am afraid to say.
The Secretary of State tells us that we are already paying such costs, so what are we worried about? We are worried because we shall keep on paying the costs of nuclear power, but we shall be losing the profit from the industry—we shall lose £1.5 billion a year in profits.
What is outrageous about the Bill is that, for the first time that I remember, it enacts public risk and private profit. The Secretary of State's singular achievement has been to bring forward the only privatisation measure where, in exchange for the public underwriting the risks of privatisation, investors will be free to take monopoly profit from the captive consumers providing that subsidy. Such loss is quite apart from the substantial loss on assets that will arise if the industry is sold as an undervalue.
Discount privatisations have happened before with British Telecom, British Gas, the British Airports flotation and Rolls-Royce. The electricity industry is worth almost £40 billion, and if it is sold at £20 billion or less, it will he the first privatisation that is not just cut-price, but half-price. We will lose the benefits of the assets sold.
All those unresolved contradictions underline the stupidity, indeed the impossibility, of an energy policy determined by the interests of the private sector. The very considerations most critical to securing the long-term future electrical supply are the very ones least suited to the inevitable short-term demands of the market. That is why, at the crux of the right hon. Gentleman's proposals, lies a clash of interests that he cannot conceal between ideology that drags him toward market forces and reality that compels him to recognise the need for a strong public sector.
§ Mr. Robert Hughes (Aberdeen, North)
When my hon. Friend asked why we should be worried about this, I do not know whether he overheard the aside from the hon. Member for Birmingham, Northfield (Mr. King), who said that the Opposition should be worried that £20 billion will go into the Government coffers just before the next election.
§ Mr. Blair
There are occasions when Conservative Members lapse into frankness.
The Secretary of State's proposals are now virtually friendless. Mr. Alex Henney, a former supporter, has turned his back on them. Dr. Dieter Helm of Oxford university, a supporter of the privatisation programme, has said:If you take the balance of the degree of competition, the amount of regulation, the disruption caused and the need for lots of investment in this industry, in the future then I find it very hard to believe that the consequences are going to be anything other than price rises. The consumer's going to pick up quite a large bill for this privatisation.Dr. Yarrow, of Oxford university, is another former supporter of privatisation who has deserted the sinking ship.
688 In truth, there is no support left anywhere for the proposals, except from the vested interests that the Government now represent, the vested interests in the City. Hoare Govett, in its recent analysis of the Secretary of State's proposals, which it condemns, rather disarmingly said:At least all of this will provide much-needed work for merchant banks and brokers in the City".That is the only occasion when I have heard privatisation justified as part of a City jobs programmes.
§ Dr. Michael Clark (Rochford)
The hon. Gentlernan has moved on since he accused some Conservative Members of indulging in frankness. Would he care to indulge in some frankness and tell us how his party, when and if it returns to power, will pay for nationalising the electricity supply industry? Will it be through huge tax increases?
§ Mr. Blair
We will reinstate it as a proper public service under public control.
It is not merely the City vested interests who support the Government. They also have the support of senior managers within the electricity industry who expect to be enjoying the same 78 per cent. average increase in the salary enjoyed by the top management of other privatised industries in the year after privatisation. Apart from that, however, what support can the right hon. Gentleman claim for the proposals?
Perhaps the most interesting desertion from the ranks of previous privatisers is that of Mr. Andrew Cooper, self-confessed admirer of the Prime Minister and former head of the Institution of Electrical Engineers. In a letter to the Financial Times on 12 September, he said:I have just returned from a one-week biennial conference of more than 2,000 leading electrical engineers from 79 countries.Having been a member of this organisation for more than 40 years, and its world president for the maximum term of six years, many people talk to me. What seemed to dominate everyone's thinking was the privatisation of the United Kingdom electrical supply industry.Their views could be encapsulated in a single phrase: 'You must be mad.'.
That is what is thought elsewhere of the Government's proposals. Yet it is even worse than that. Take the major issue of energy conservation. We are the worst insulated nation in Europe. The Department of Energy's budget has been slashed by more than a half. Schemes to promote energy conservation, which are cost-effective and of huge environmental benefit, have been scrapped. Consider the major problems and environmental difficulties that we face with coal and nuclear power. Consider the exciting developments in research and technology that the public sector has undertaken, but which the private sector will often find incompatible with its short-term profits. Consider the crippling fuel poverty of the poorest in our society who heat their homes most inefficiently and spend four times the average on heating.
When we consider these new issues on the horizon and appreciate what a real agenda for a modern energy policy for Britain will contain, we see that it is not just the cost that the consumer will pay; it is not just the burden that the country will bear; it is the sheer, breathtaking irrelevance of these proposals to modern issues of today.
I shall tell the House why the Bill comes before us. It staggers on, uncertain in its reasons, untested in its consequences and rejected even by those who gave it intellectual birth, because it is still sustained and propped 689 up by the two most ancient principles of the Tory party, prejudice and greed—greed for profits which are neither earned nor deserved, greed of a Treasury that has for so long paid the country's bills by selling the country's assets that it now knows no other way; and the simple and sinister prejudice that what is private is always right and what is public is always wrong. It is on that slender stem of dogma that the future of our electricity supply industry now rests.
The Conservative party can speak for the vested interests of City speculators and the irrational crusades of the ideologues. The Opposition will speak for the 22 million electricity consumers. We will speak out for industry that needs access to cheap electricity at reasonable prices. We will speak up for a country that knows the good sense of a public industry in public hands.
§ 6.1 pm
§ Mr. David Howell (Guildford)
I listened during the speech of the hon. Member for Sedgefield (Mr. Blair) to find out whether the new generation of Labour whizz kids was striking a different pose from their elders who can no longer whizz. I must conclude from what I have heard that there is no change. The Labour party is still firmly locked, despite the eloquence of the hon. Member for Sedgefield, in its Albanian mood. It is ignoring the new thinking about electricity supply organisation around the planet, in countries as diverse as Malaysia and the Soviet Union. It is ignoring the private pattern of electricity supply in the United States, Germany, Belgium, Spain and Japan. In all those areas, private enterprise is permitting new technology and innovation without the dead hand of the state upon them. All that is ignored, even by the younger generation of the Labour party. Those who thought that in the Labour party there were sprouts of hope and some vague understanding of the more fragmented, less centralised, state-dominated world, would have been utterly disillusioned.
The dramatic move towards privatisation and the injection of competition into the electricity supply industry is welcome, and no one should underrate the difficulties which have been faced by my right hon. Friend the Secretary of State. We are moving towards some competition on the generating side. The new system will include a large generating company, National Power, and a slightly smaller company, Power Gen. Supplies will be available from Scotland and France. The switching station at Sellindge provides 2 GW at full capacity, and I have no doubt that another switching station could be constructed. They are good value. The one which I authorised in 1981 cost £360 million and brought into the British system 2 GW of electricity at competitive prices, which were negotiated by the CEGB. I hope that such ideas will be developed further as the choices of sources of electricity supply open out.
My right hon. Friend the Secretary of State referred to the possibility, which the new area electricity companies will vigorously explore, of developing a range of much smaller gas turbines, supplied by dedicated North sea gas fields. There will also be coastal power stations that depend on coal—I hope that it will be British coal, but it must be the cheapest, which may be imported. There are 690 opportunities for electricity to be brought into the system at highly competitive rates and sold to industrial and domestic consumers.
Over the years, the process of competition and the diversity of sources are bound to lead us away from the hideous pattern of the past, when we depended on a higher cost, coal-dominated electricity system which was not even reliable. The new system will be a vast improvement. Those who cannot see that are still obsessed by views of state ownership and state domination which have been undermined by not only modern economics but modern technology. Economies of scale are being substantially reversed by electronic technology, not least in power generation and distribution.
The remaining monopolies—the area boards which will be turned into 12 new companies—must be regulated. My right hon. Friend the Secretary of State has set out the pattern of regulation under which they will operate. It is eminently sensible and is a vast improvement on the so-called regulation that has occurred in nationalised industries, with "breakfast table" directives and instructions behind closed doors. The Opposition extol that as a system, but it never was a system. It was a miserable mixture of politics and pressure whereby one group of people—the customers and consumers—always came last while wheeling and dealing went on in Whitehall as to how those industries should operate and invest.
I freely confess that I speak as an old lag on this subject. I have been involved, and I know that that system is not good for the allocation of resources or for democracy, because the deals are not transparent. Above all, they are not good for the customer and consumer, or for the future strength and innovative capacity of the industry. My right hon. Friend the Secretary of State has moved boldly and sensibly. This must be the way forward.
I cannot understand why those in the Labour party who have thought about this subject and come to it with fresh minds still cling to the absurd idea of a huge, state-dominated, nationalised electricity supply industry. That is out of date. I urge the hon. Member for Sedgefield, if he wants to influence his party, to move away from that nonsense. I do not know who insisted that he put in his speech all the talk of renationalisation. If he wants to be given a hearing, he must get away from that kind of rubbish.
The most difficult problem to face my right hon. Friend the Secretary of State is covered by clause 30 onwards—how to deal with nuclear power generation under privatisation. It is not my right hon. Friend's fault that the problem has been made more tricky. The cost of nuclear power has increased a little, because of the cost of capital and of increasingly elaborate safety measures—which I welcome—and is said to be about 2-2p per kilowatt hour, whereas the price of electricity supplied from oil, natural gas and, to some extent, coal has been decreasing. That leaves us with an unavoidable dilemma. Even if there were no Bill before us, we would be facing a dilemma. Nuclear power at present, even before we think of new build and the programme after Sizewell, is probably uncompetitive in terms of oil, gas or coal.
Thanks to my right hon. Friend's proposals for greater transparency about the costs of all these fuels and about generating activities, we are beginning to see the very high costs that we have paid for coal. There is no doubt that, as society becomes more concerned about pollution costs and moves towards insisting that there should be emission 691 controls and desulphurisation and so on, the cost of coal-fired electricity will rise. That is inevitable, even if the coal is drawn from the cheapest world sources, let alone drawn from some of the higher cost pits in Britain.
On the whole, it is obvious that, even with those extra costs, coal will continue to play an important part in generation. I hope that United Kingdom coal will be highly competitive. I think that it will. British coal producers, who I hope in due course will also be in the private sector, will be entitled to say that, whatever happened in the past and despite the total unreliability of the coal industry and its betrayal by trade union activity, in future it will be worth paying a premium for what should be a reliable national provision of coal from our superb coalfields.
There is a place for coal, but when all is said and done and the costs are put together, we are left with the difficulty that, for the moment, the existing nuclear power programme looks as if it costs more. That is because one must add the costs of fuel reprocessing, waste disposal and decommissioning.
§ Mr. Parkinson
Does my right hon. Friend agree that, had the industry stayed in the public sector and had Lord Marshall retained the obligation to supply, he has made it quite clear that the four PWRs would have been built and that, whatever they cost, the customer would have paid for them? It is this change in the structure that is opening up the debate.
§ Mr. Howell
My right hon. Friend is right: the debate is indeed opening up. The decision to put nuclear power in the private sector raises quite separate and crucial issues. First, it still leaves us with one extremely large generating company, one of the largest in the world. I wish that my right hon. Friend could have found a way round that. That company will carry the nuclear programme. Some of us would have liked to see a way to have four or five generating boards, all somewhat smaller, rather than an extremely large one and a very large one. I have said that to my right hon. Friend, so it is nothing new.
As I said earlier, I accept that electricity will come from other sources—from Scotland and France and from gas turbines and so on—but the pattern falls a little short of what one hoped for in a competitive electricity supply industry. My right hon. Friend had to grapple with this problem and it raised two issues. First of all, there is the point that we have now reached in the existing nuclear programme and the cost of that. If it had previously cost more to produce electricity from existing nuclear capacity than from oil, coal and gas, that was all lost in the accounts.
My right hon. Friend has had the courage to make changes to ensure that that cost will now be visible. If it is visible and if there are other electricity sources which my right hon. Friend has taken steps to open up and from which distributors of electricity can buy, to what extent does the 20 per cent. non-fossil obligation mean that lower prices from the other competitive sources will not be allowed to work through? That presents a difficulty and we must look carefully at it as we measure the cost of the existing nuclear programme.
My right hon. Friend has said that the CEGB has made a provision of over £3 billion for the existing programe—I thought that it was a little less than that—with associated special tax reliefs for the accumulated provision 692 to meet all these additional costs. Investors will be glad to have had my right hon. Friend's reassurance that powers will be there for the Government to step in to meet the additional costs, if they arise, for reprocessing, waste disposal, and decommissioning and so on in the existing programme to be inherited by National Power. That is the problem for the existing nuclear programme, and I hope that what my right hon. Friend has said resolves it for people who will invest in the industry.
I now come to the completely different question of the cost of new build. My right hon. Friend has put us on exactly the right path. If we had gone on with new build lost in the public sector, we would also have lost any proper measure of competitive costs or of the right pace at which to build. I shall put aside for the moment the question whether we keep open a nuclear programme. My personal view is that it would be crazy to close it, but if we keep it open it must be at a cost that we know. My right hon. Friend's proposals will identify the cost of new build and, more important, will create pressures to reduce those costs.
Such benefits would have been lacking in the state industry proposed by the hon. Member for Sedgefield, although I do not know whether he has the courage to say that he would close the nuclear programme. If he proposes to keep the nuclear programme, he would have to justify the pattern of losing costs in the endless add-on cost system that we have experienced. That pushes on to the consumers the non-transparent costs of nuclear power. He did not justify that at all, but shirked the issue. The issue has now been brought into the light of day by my right hon. Friend and we shall now be able to see the pressures on the industry to ensure that nuclear new build from Sizewell on is conducted on competitive lines and not just on a subsidised pattern.
I should like my right hon. Friend to reassure us that there will be constant and maximum pressure on National Power to ensure that it proceeds with its new build programme and on terms that are as near as possible to those that are settled by the market. I would go further and say that, when it comes to financing new build, we shall be dealing with a company that will have very little debt. That is an attractive proposition for some investors and means that the company can go into the market and raise money. It will be able to do that provided that it does not intend to pursue uneconomic activities.
Oil costs are low and likely to stay low for a long time. Coal costs are also low and, I hope, likely to remain so. Natural gas prices are low. That means that the pressure is on to follow the market solution, and that should be a requirement. It may be that this is a different scene From the one that we faced almost a decade ago when OPEC was alleged to have a grip on oil supplies and when there was a panic among countries to procure oil and prices were shooting through the roof. We are now in a totally different situation and the world's chief oil supplier, Saudi Arabia, is trying to establish a situation in which I here will not be another oil shock. Saudi Arabia wants to re-establish oil as a low-cost reliable fuel producing and selling at about $15 US at 1987 prices indefinitely. The more successful it is with that programme the more challenging it will be to the nuclear power builders to show that they can build nuclear power stations—especially with capital at its current cost—at competitive levels.
There are problems, but I do not think that my right hon. Friend has sought to disguise them. On the contrary, 693 he has sought to expose them, whereas the mish-mash of Socialist Whitehall planning would have lost those costs and ensured that in the end they finished up on the backs of customers, taxpayers and society and, worse, on the back of industry, in an intolerable way that undermined our competitive strength. My right hon. Friend has been true to his principles in seeking to identify where resources ae going and where they should go. That will enable us to debate the matter. I applaud his courage in doing that. He has faced many difficulties in bringing forward the scheme and there could well be more to come. I applaud his courage in bringing the whole scheme and the costs into the light of day.
§ Mr. Alex Eadie (Midlothian)
Now on the Back Benches after 16 years as a Front Bench energy spokesman, I warmly congratulate my hon. Friend the Member for Sedgefield (Mr. Blair) on his speech. He gave the Secretary of State for Energy a bit of a roasting and a bit of an examination, and I expect that all objective commentators will report that tomorrow. It is well known that the Secretary of State for Energy does not like to be examined. He is always available for the "Today" radio car or for television, but he does not like either to be challenged or to have his propositions examined. My hon. Friend's excellent contribution examined the Secretary of State's propositions. We shall hear more of my hon. Friend.
To some extent, the speech of the Secretary of State—we may even hear from the Chairman of the Select Committee on Energy—bore out the uncertainty and confusion that are in the Bill. The Government's proposals for privatisation have already been criticised by the Select Committee, which alleged that the Government have not got their Bill right. On the Order Paper is a motion, in the name of the hon. Member for Havant (Sir I. Lloyd), that the Bill should be committed to a Special Standing Committee. That speaks volumes in support of my assertion that the Secretary of State has not got his proposals right, with resulting confusion in the Bill.
§ Dr. Michael Clark
That motion was signed by about half of the members of the Select Committee. The other half refused to sign it.
§ Mr. Geoffrey Lofthouse (Pontefract and Castleford)
Is my hon. Friend aware that the report was agreed to unanimously, by all the members of the Committee, including the hon. Member for Rochford (Dr. Clark)?
§ Mr. Eadie
The members of the Select Committee can fight this one out themselves. There is tremendous loyalty in the Select Committee, which is Tory-dominated, and this aspect has come to the fore. However, members of the Select Committee can make their own speeches and answer for themselves. If one reads the Bill, one can see that the Select Committee's conclusions are, in general, a criticism of the Bill.
The Secretary of State has never made any secret of his view that electricity prices had to increase to make the industry more attractive to investors. He is on the record 694 as having said that earlier in the year. When he was challenged on that, he said that the industry must be profitable if it is to be privatised. How does he expect private capital to buy the industry unless it is profitable? He cannot deny that, because it is on the record.
§ Mr. Parkinson
The hon. Gentleman's party has recently made a great thing of the fact that Government assets have been sold off too cheaply. What he is saying, is "Depress the profits—don't get a fair or excessive rate of return." Then he is turning round and, because I am getting a fair return, saying that I am helping the investors. I would help the investors by keeping profits down so that they get a bargain. I want a fair return and a fair price for the taxpayer. The taxpayer receives and the investor pays.
§ Mr. Eadie
I had better start to claim injury time. The Secretary of State has made another speech. I am sticking to what I said. The right hon. Gentleman said in the House that, if the electricity industry was privatised, electricity prices would go up to make it a favourable buy. He can wriggle as much as he likes, but he has said it and the House must bear that in mind as we debate the Bill.
The Government's aim is profit first, with the lot of the consumer second. Only a Government with such a large majority would have the audacity to tell users of electricity that increased prices are good for them. They say that competition will be introduced and that that will benefit the consumer. However, when they are trapped, as they were during energy questions today, Ministers imply that prices will not increase as much as they would have without privatisation. Here we have some aspects of the inconsistency and doublespeak of the Government and their spokesmen.
There used to be a saying, "If you go first, I'll go afore you." This is what the Government are saying about prices. If ever the consumers were being offered a pig in the poke, this is it. The Government suggest that the Bill will give more choice, but consumers will not have alternative sources of electricity supply. The Secretary of State made the ridiculous suggestion that consumers would have two plugs. The reality of the Bill is that private monopoly will be the supplier and the consumer will have to like it or lump it.
As a result of the Bill, blatant preference will be given to nuclear power, and tagged on to that is the suggestion that there will be opportunities to develop benign sources of power. No one in the power industry believes that. The arguments in favour of blatant preference for, or even compulsion on, the use of nuclear power are the most unconvincing in the Bill. It cannot be argued on price, and the right hon. Member for Guildford (Mr. Howell) conceded that to some extent. Lord Marshall himself has confessed that nuclear power is more expensive than coal. As we have our debate, the Hinkley Point inquiry is getting the same evidence on prices. This is despite the fact that the argument about favourable prices for the consumer was introduced by Government spokesmen.
It is all very well for the Government to argue their case, but I resent their attempts to build up the case for nuclear power by attacking the coal industry. That is the most unconvincing one of all. We had at energy questions again today the suggestion that coal-generated power is much more polluting than nuclear power, and that it is dangerous for men to work in that industry. That has not 695 stopped British Coal from suggesting, with full Government approval, that miners should now work 10 hours a day underground.
What about the pollution argument? We should all be concerned about the greenhouse effect on our environment, but the coal industry can plead 'not guilty' to being a major pollutant on that. Coal consumption contributes to only a small part of global emissions of greenhouse gases. Other sources of emission include oil, gas, chemical and other industrial processes.
§ Mr. Eadie
Indeed. Coal, however, has been singled out as the major source of the emission that is thought to cause acid rain, but all fossil fuels contribute to the global emission. It is a bit rich when we are told by the Secretary of State that we must have nuclear power because fossil fuels are wasting assets. Of course they are wasting assets. The word that many use is finite. Coal, however, is a fossil fuel which could last the nation for 300 years. There is nothing very finite about that, especially when a comparison is made between coal and oil and gas. The consequence of the Government's policy on oil is that we are probably seeing now the best years of oil from the North sea.
§ Mr. Eadie
No. I want to continue my speech.
It is generally agreed that carbon dioxide is responsible for nearly half of the greenhouse effect, and research shows that the worldwide burning of coal accounts for 15 per cent. of that effect. The British coal industry can plead not guilty because it is responsible for about 0.5 per cent. of the worldwide emission. The new, clean coal technologies will further reduce emissions from coal-fired plants.
We are to have blatant preference for nuclear power, and that will be based on misinformation about coal. There is to be protection for nuclear power for so-called strategic reasons. Coal is to be a sort of sop to the privatisers. Nuclear power is to be protected while coal power is not. Coal can be purchased in many countries at less than the cost of production. One can purchase in Columbia coal that has been mined by 10 or 11-year-old kids. One can purchase in South Africa coal that has been mined by slave labour. Coal is sold by Poland at a price that is below the cost of production. It is the price that counts, however, for British indigenous coal. We are prepared to give blatant preference to nuclear power, which means that we are prepared to sell the coal industry down the river. There is a strategic reason for maintaining the coal industry, for we have more coal in Britain than any other fossil fuel.
This privatisation measure represents the Government's attempt to bury an energy policy for all time. It is a scandal. If we bury an energy policy, we tamper with the future of our kids. We should be planning the use of our energy resources. It is all very well to say that we have a number of energy resources available to us, but it cannot be said at the same time that they are wasting assets and should be burnt away.
I predict that the Bill will lead to gas-fired power stations. In later years we shall probably say how foolish we were to take that course. Similarly, the Government's attitude to coal has been foolish. If we are serious about an energy policy, we should be pursuing energy conservation. 696 Will energy conservation or efficiency be pursued within the terms of the Bill? I know that the Secretary of State has a dream for the Department of Energy. He wants it stripped of all its powers. If that happens, it will be merely a Government advertising agency. It will not be concerned with policy, the giving of directions or security of supply.
The Bill will have a considerable effect on employment. I received information this morning from the Coalfield Communities Campaign, and I shall run through it quickly. The electricity supply industry employs about 550,000 people, and privatisation will place at risk at least 80,000 of those jobs by 1992. In the longer term, up to 165,000 will be at risk. Coal mining employment will be most severely hit. It is estimated that 51,500 jobs will be the cost of electricity supply industry privatisation. That is the hidden message that the Secretary of State does not want to reveal when he is arguing his case for privatisation.
Two major concerns for the United Kingdom economy are the switch to foreign supplies for a privatised electricity supply industry and the threat to the current investment programme for new capacity. Both will make the balance of payments position even worse. There are 200,000 people who depend on electricity supply industry construction and purchasing. The ending of the current "buy British" policy will benefit foreign suppliers and hit United Kingdom equipment and materials firms. There will be a loss of United Kingdom expertise and capability in power station development and heavy electrical engineering. Large-scale coal imports are planned, which will severely hamper British Coal's rapid progress towards competitiveness and profitability. Premature pit closures will mean that the coal industry of the 1990s will have insufficient capacity to supply national demand.
Although electricity supply industry privatisation will not be the sole cause of colliery closures, the deep-mine sector of British Coal will be hit especially. Over the past 30 years, the electricity supply industry has moved from being an important but not dominant customer for United Kingdom coal to being by far the most important. Other markets for coal have declined to such an extent that, in 1987–88, a total of 79 per cent. of British Coal's United Kingdom sales went to power stations.
The joint understandings between the CEGB and British Coal during the 1980s have ensured reliable supplies of coal at prices which have taken into account depressed world-traded prices. Without long-term contracts for coal, such as the 10-year agreement which British Coal is now advocating, it is likely that many economic pits with good reserves will be closed because of future uncertainty.
The impact on coalfield communities of electricity supply industry privatisation is much more severe than the loss of 51,500 British Coal jobs. Local economic multipliers—decline in local spending—and longer-term base multipliers will lead to at least another 50,000 job losses in service sector firms and local economies. These economies are among the most disadvantaged in the country and have yet to recover from the contraction of the coal industry that took place in the 1980s.
That is the real prospectus. That is what is really being presented to us with the Bill's Second Reading. The Bill will lead to more unemployment and misery in coal communities. The Government intend the Bill to lead to more profit and increased prices for consumers. My view 697 is that when we come to examine the Bill and demonstrate its deficiencies, sanity will prevail. I believe that the House will reject the Bill and all that it stands for.
§ Sir Ian Lloyd (Havant)
If I were tempted to follow the hon. Member for Midlothian (Mr. Eadie) down many of the interesting cul-de-sacs that he introduced to the House, I would probably not succeed in making my own speech. I shall deal only with one of his arguments, which was advanced also by the hon. Member for Sedgefield (Mr. Blair). Instead of merely saying that he hoped that an energy policy would unfold in future when a Socialist Government were in office, I hoped that the hon. Member for Sedgefield would give us some idea of what it would be. Over the past nine years, I have listened to an immense amount of evidence from every quarter and throughout the spectrum of opinion on energy. I have not yet heard of one cohesive, convincing and practical energy policy that could be applied to the United Kingdom. Tempting though an energy policy might be, that puts it where it belongs. It is very interesting, but it is very dangerous.
Let me now turn to two or three points made by the hon. Member for Sedgefield. It was a pity that in an interesting if controversial speech he was eventually tempted rather too much by hyperbole and zeal. What a pity that he did not demonstrate with logic what he sought to demonstrate, instead of merely stating that this, that or the other was nonsense.
I noticed with interest that the hon. Gentleman was impressed, as many hon. Members are from time to time, by what he described as technology-driven industries or situations. I am not very impressed by them. It could be said that the whole AGR programme in this country was technology-driven, and the same could be said of the steam-generating heavy water reactor. It could indeed be argued that the whole French PWR programme, which has landed Electricité de France with a total bill of £20,000 million, was a technology-driven project. It could be said of Concorde, and it could be said that joint European torus is and remains such a project, although it is a very exciting and probably important project that we should continue. The point is that, for every technology-driven project, which is usually a loss-maker, we require about 100 market-driven projects which make the profit to pay for it. Opposition Members tend to forget that.
The hon. Member for Sedgefield also made a point based on international comparisons of energy costs. He will not be the first hon. Member—or, I suggest, the last—to have an intellectual arm or leg blown off after entering that minefield. It is prodigiously dangerous. An hon. Member can prove virtually anything he likes. The record of Select Committee inquiries over many years shows that this is a sphere that we, with all our advisers and expertise, enter with the greatest care because it is so difficult to draw firm and provable conclusions.
My remarks are based not on the Select Committee report but on the Bill. Nevertheless, the report will doubtless continue to be quoted in the argument that has already started and will continue over the next few months, and for that we are grateful. We hope to raise the level of the debate, if we do not reduce its intensity.
698 The Committee has contributed on three fronts. The first is in the 919 pages of memoranda and evidence that we have received. The Committee has provided a wide variety of expert and committed opinion to be aired. If the expert opinion is not always committed, it could equally be said that the committed opinion is not always expert, but the whole spectrum of opinion is there. Secondly, we have contributed a considered, if controversial, judgment about the post-privatisation regime, which we formed in a fairly heated crucible of argument. That it was largely unanimous is a tribute to the Committee and to those who advised us. Thirdly, we have managed to stimulate a comprehensive, considered and valuable response from the Government, which has itself broadened the foundations of the debate and contributed valuable information. I am most grateful to all our witnesses, including Ministers, colleagues and staff, who have laboured with such exceptional diligence to produce these documents. If there are gaps in the analysis, it will not be for want of effort on their part.
I should like to comment on a specific recommendation by the Committee. So impressed were we by the wide spectrum of views on the structure, philosophy and operation of various systems employed to regulate public utilities in the private sector throughout the world that we believed it would be immensely rewarding if a Special Standing Committee was established to consider the issue under Standing Order No. 91. I understand that that will be moved formally after Second Reading, but unfortunately there will be no argument then. There is no time for argument now, but I would not wish the House to have the impression that this was a mere afterthought. The procedure has been used five times since 1980, and in our judgment this is another occasion that fully justifies it.
An American friend of mine who is eminent in the field suggested to me recently that all legislation should be followed by a statement setting out clearly and precisely the intended consequences of the policy enshrined in the Bill. It is worth speculating on what such an addendum might have contained had it been prepared for the Electricity Acts 1947 or 1957. I imagine that it would certainly have embraced the following aims, stating perhaps:We will achieve greater economics of scale. We will improve the efficiency of production and distribution. We will lower the cost per unit of energy produced in real terms. We will achieve greater security of supply. We will integrate and enhance research and development throughout the industry. We will improve the ability of the nation to formulate and implement an improved national energy policy, particularly where this involves electricity.
It is easy to assert without much fear of contradiction that most of those objectives have to an extent been achieved. What cannot be asserted is that they would not have been better or more quickly achieved by some alternative form of organisation. A strong impression that I formed from all our evidence was that, despite wide-ranging and detailed comparisons with other systems and countries, the proof remains elusive and tentative. If an attempt was made to provide a similar list of intended consequences of this Bill, it might run rather as follows:We will inject effective competition throughout the structure of the industry"—this is the linchpin of the Government's case.
We will disaggregate the various parts of a monolithic industrial structure that has become cumbersome and sluggish"—for there is much evidence to support that. 699We will lower the real costs and prices per unit for all classes of consumer, yet again. We will maintain the nuclear option and if possible develop it. We will improve the responsiveness of the whole system to the consumer interest. We will maintain security of supply. We will transfer the citizen's stake in a major national asset from the notional ownership of the taxpayer-citizen to the direct ownership of the shareholder-consumer.
§ Mr. Allan Rogers (Rhondda)
The hon. Gentleman's argument is that there is no proof that certain criteria that need to be met could not be fulfilled under a different organisation. Will he cast his mind back to when the coal industry was in private hands and the Sankey commission—whose chairman, later Lord Justice Sankey, was certainly no raving Left winger—suggested that the coal industry was too important to the nation's security to be left in private hands, and that the profit motive was taking precedence over the country's interests? There is indeed proof that energy in private hands does not work in the way that the hon. Gentleman says that it will.
§ Sir Ian Lloyd
I am interested in the hon. Gentleman's argument. It could be said that, in view of the development of coal under national ownership since then, such assertions did not necessarily prove Lord Sankey's arguments.
The list of intended consequences might continue thus:We will extract the state from the need to consider and promote a national energy policy for electricity supply. We will reduce the Government's public sector borrowing requirement.
I have no doubt that my right hon. Friend the Secretary of State will be able in 10 years' time to say that most of those intended consequences have been achieved, but I am not entirely sure that he will have effectively maintained the nuclear option or extracted the state from its wide-ranging involvement in industry, let alone its obligation to think about and respond to the consequences of alternative energy policies.
I say "in 10 years' time" because I think it important to stress that, such is the massive inertia inherent in this industry under any ownership, control or structure, that it will be at least 10 years before significant changes can or will emerge. The lead times are too long, the commitments too great and the energy supply systems too slow to respond for it to be otherwise. There will be many attempts to prove merit, but none in my judgment will be, or deserve to be, convincing.
I count it as one of my greatest privileges that many years ago I sat at the feet of one of the great authorities on welfare economics, Professor A. C. Pigou. If his feet were generally clad in carpet slippers, his mind could only be compared with the Finisterre light, which can be seen for 43 miles on a clear night. Pigou's intellect cast a similar beam over the tormented and confused sea of political judgments. His analysis, which I re-examined only yesterday, remains valid nearly 60 years after it was produced. The House need not fear a long-distance lecture from me or Professor Pigou on welfare economics. I propose to burden the House with only one conclusion, which provides an appropriate preface to my own brief analysis of the Bill.
The problem of the national economy is no longer to effect an instantaneous transformation from one scheme of production to another, but to maintain the best scheme permanently. That is a view that we could have emblazoned on the top of any Bill on energy. My analysis is directed towards an answer to that question. The essence 700 of this measure is not the transfer of ownership or control—important though that may be—but the unique disaggregation or disconnection which it brings about between the major components of the industry. It is significant that, among the 28 organisations on the privatisation list, about 23 have been sold as integrated organisations, one has been brought under private management and only two have been sold off with their component parts or companies. Electricity will be the third and it will completely overshadow all the rest in scale and consequences.
It is clearly the Government's intention, which they have sought to justify by many arguments with and outside the Central Electricity Generating Board, that the replacement of an integrated control and command system by a loosely defined series of contracts between the parts is a worthwhile endeavour. That area caused the greatest disquiet to many witnesses and I share their apprehension that there is a high element of artificiality in the arrangements that no amount of careful legislative drafting can possibly reduce or eliminate. It can work and it might work, given good judgment, great imagination and good will. It is the sort of achievement that we so often seem to pull off rather well against all the odds. However, we would not be wise to underestimate the odds or minimise the unprecedented scale and complexity of the challenge. My verdict is that there will be many unforeseen consequences and I should not like to predict their character or their influence on the outcome.
The Bill provides a well-structured and carefully organised slipway to launch the post-1990 electricity supply industry, but I am not sure that we know much about the shape, speed or efficiency of the ship. I have several fundamental reservations about the Bill. It makes an insufficient distinction between the procedures and consequences of privatisation and the procedures and consequences of liberalisation. I should expect to have the greatest difficulty in judging the contributions made towards any reduction in real costs by reorganisation and by the free access to the whole range of European equipment manufacturers in 1992. I should have even greater difficulty in judging the contribution made by an alteration in the energy production mix and the contribution made by free access to all international sources of fuel supply.
One set of scales has not yet been invented. It is the set of scales in which one attempts to weigh the well-known merits of an integrated, public utility type of organisation—making due allowances for its disadvantages of inertia and manpower—with the merits of a disintegrated system of generators and an independent grid serving a dozen independent distributors. Such a judgment, as Professor Pigou would have advised, were he still alive, would impose an insuperable burden on the apparatus of economic logic and administrative prediction. I remain firmly convinced that only events and experience can indicate the philosophy and judgment that underline the Bill. I say that as a firm believer in the general merits of privatisation and the proven success of much that has gone before in the legislative calendar.
I am also particularly concerned at the extent to which my right hon. Friend the Secretary of State and his successors will remain enmeshed in the affairs of the industry. I made a careful analysis of the Bill at the weekend and discovered that my right hon. Friend will be involved in detailed obligations in no fewer than 67 701 distinct and separate areas of the Bill. Although many may be merely formal, that is a considerable amount. His responsibilities under the clauses concerned with nuclear energy and the innocent-sounding "Miscellaneous" clause 87, seem to negate, if only in theory, one of the principal intended consequences, which I suggested earlier.
I am reminded of the distinguished peer who received a questionnaire from an American sociologist asking whether his family had a suit of armour. He proposed to say no, but his secretary suggested that he should say that he had two—one on and one at the blacksmith's. My right hon. Friend may be shedding one set of responsibilities only to assume another, which is even more arduous. His second suit is at the wordsmith's.
What emerges clearly is that, in numerous and significant areas of the industry, my right hon. Friend, embodying the state, is retaining, and will undoubtedly have to exercise, powers requiring him to formulate and apply what can only be described as a national energy policy for the electricity industry. That is clearly understood and accepted in the area of nuclear energy. I wonder whether the implications are so clearly understood outside that important, if contentious, area. Moreover, I accept the conclusions of Richard Bailey about the regulator. He said that that officialwill be responsible for everything and anything not left to market forces.
It is important, moreover, to emphasise that, for the nation as a whole, there will be no sudden or dramatic escape from the yoke—if that is the right word—that it has created for itself over the past few decades. The real costs, as my right hon. Friend the Secretary of State has emphasised, are whether the industry is nuclear or non-nuclear and they will have to be borne, however they are distributed. Change can only take place on the margin—old systems abandoned and new systems introduced—but by its very nature, it will be slow and almost imperceptible. The costs of new excess capacity and of any new errors of technical judgment may be far more narrowly focused, but those that have already been made—and they are many—will be borne by much the same combination of consumer, taxpayer and shareholder. I refer, of course, to the great mass of shareholders in British industry, for whom energy costs are so significant.
Regrettably, I do not expect the problems that have required Government intervention in the past in this industry to disappear permanently on vesting day. I fear that they will return to plague us in greater or lesser measure and because of the importance of energy, transferring that portfolio to the Department of Trade and Industry, as I understand has been mooted, would not only confer immense burdens on that Department, but would be a grave mistake.
We are left with great hopes but with no proof. We hope that the overall quality of management will be improved and that the productivity of labour will increase more rapidly, as it has in other privatised industries. We hope that the freedom to purchase energy fuels in the world market will reduce net fuel costs per kilowatt generated and we hope that there will be a welcome surge of new initiatives, new methods and new technology, but we have no proof. I hope that those judgments are proved by events to be unduly pessimistic, but I would be failing in my duty if I did not give the House the benefit of the 702 frankest judgment that I could make, having enjoyed, over the best part of the past two years, the great privilege of listening to all the arguments on this subject.
§ Mr. Malcolm Bruce (Gordon)
The hon. Member for Havant (Sir. I. Lloyd), who is the Chairman of the Select Committee on Energy, has told us that the Committee has hopes, but he also expressed a number of doubts. The Secretary of State made it clear that, essentially, the Bill is an enabling Bill, which gives him a great deal of power. We do not know what he will do with that power. No doubt, we shall learn some of the answers during the passage of the Bill, but we shall not learn many of them until privatisation takes place and is up and—we hope—running.
The hon. Member for Sedgefield (Mr. Blair) made an interesting and eloquent contribution. He was right to concentrate on the implications for charges, but in other ways, he missed an important opportunity to address the Government and the House on the real issue of how we deal with energy when we have grave concern for the environment and when there is a great deal of waste, especially in this country. That should be the central concern of any energy Bill brought before the House. Regrettably, however, the polarisation of ideologies precludes such an issue becoming dominant.
In our view, the top priority should be to promote energy conservation. I have tried to elicit from the Secretary of State what role he might give to energy conservation as part of the contribution to the acquisition of non-fuel sources. In other words, will he accept the assertion that energy conservation constitutes a fuel source and that investment in it can reduce the requirements of a generator to buy in extra capacity from elsewhere? I regret to say that I was given no answer of which I could make any sense.
The Government are cutting the budget of the energy efficiency office. Their declared objective is to reduce energy waste by 20 per cent. by 1990, yet the CEGB is planning for a net reduction through energy efficiency of only 4 per cent. by the end of the century. Clearly the objectives are only pious declarations; they are backed up by no real policy and by no practical ideas or measures.
Our future planning should be based on the least cost principle. It has been clearly identified that where that principle is required, energy conservation ceases to be a side issue—a pious declaration and a few leaflets circulated to the customer—and becomes central to the thinking of the supply industry.
As the Chairman of the Select Committee said, the problem is that the electricity supply industry is so conservative and so entrenched in its attitudes that the only way that it can respond to an actual or predicted rise in demand is to contract to build more generating capacity. It cannot apply its mind to the idea that money might be better invested using more efficiently the electricity that we have.
American experience shows that where public utility commissions have imposed on energy suppliers a requirement to work towards energy conservation, they have done so because they have had no choice. In some cases, they have actually improved their profitability in the process. If the industry is left to its own devices, it says, "Let us build another power station. It cannot possibly be 703 sensible to discourage people from using energy or to encourage them to use it more efficiently." It has been proved, however, that every pound invested in saving energy and increasing energy efficiency using existing technology can achieve a return several times greater than the same pound invested in building new power stations. It is remarkable that we are not addressing ourselves to that principle.
So far, the debate has been characterised largely by talk about capacity, over-capacity and under-capacity. Those are important issues, but energy conservation represents the best way of dealing wih the pressure in the environment and giving it space to develop a wide variety of options. A simple 10 per cent. reduction in electricity demand over the next 10 years would reduce the output of sulphur dioxide by 125,000 tonnes a year, of nitrogen oxides by 200,000 tonnes a year and carbon dioxide by 160,000 tonnes a year. That is well within the declared objectives and the technically achievable objective, yet we have not done it because we have no coherent framework in which to pursue such a policy.
We could have space to deal directly with some of the other problems such as reducing sulphur emissions and stepping up research into more efficient ways of burning fossil fuels to reduce the amount of noxious fumes that they put out. We could find out the cost of, and the technical capacity for, decommissioning nuclear power stations to give us some idea of what is involved—to replace the guesstimates that are passed back and forth—and we could discover how to deal with the nuclear waste that we continue to produce. So far, the Bill has not addressed itself seriously to any of those things.
Although we would give top priority to conservation and the environment, we accept that the industry needs restructuring. We accept that it has become over-centralised and monolithic. I am not sure that the colleagues of the Secretary of State will give him credit for pointing it out, but we acknowledge that the Government have learnt from the mistakes of previous privatisations—of gas and telecommunications. Having served on the Committee on the Gas Bill and sought to promote amendments that would have prevented the referral to the Monopolies and Mergers Commission I am tempted to say, "We told you so."
It is a pity that the Secretary of State had to inherit a Bill that is not of his making and that he finds that the complaints that we suggested would be forthcoming have emerged and have been substantiated. I understand why the Secretary of State is anxious to avoid mistakes, but I find his proposals unconvincing and they certainly do not amount to a massive injection of real competition. I do not doubt that the proposals represent a major restructuring. but it is a moot point whether they are beneficial and will achieve their objective.
There is no evidence that the Secretary of State's proposals will increase efficiency and in my view they will distort the market in a number of ways. I do not believe that a duopoly is a convincing mechanism for competition. It will create tension between the two generating boards and between the regional boards which have the option of buying in power and perhaps seeking to promote private generating agencies to build smaller power stations or contracting to build their own.
Where does that leave big G and little G if they have inherited a massive overcapacity that they have to offload? The problem arises that the scope for effective competition 704 is limited and the potential for introducing new methods of generation on any significant scale is simply not there. Those who are anxious to achieve the promotion of benign renewable alternatives, which are getting to the point at which they are significant and could be competitive, given a little more investment in research and development, feel that the Bill is not creating a climate in which expansion is likely to be possible. They feel that quite the reverse is happening.
§ Mr. Parkinson
Does not the hon. Gentleman agree that the existing system allowed a Government to embark without consultation on a AGR programme and to preside over a power station being built 16 years late and at several times the estimated cost? I hope that the hon. Gentleman will concede that, under the system that we propose, such matters will at least have to be opened up to debate, and Parliament will have to be consulted.
§ Mr. Bruce
That problem has been evident all over the United States where people have invested and subsequently found that, because the regulatory mechanism is effective or because city investors are suspicious, power companies have gone broke and some power stations have not come on stream despite the best endeavours of the private sector. Neither mechanism will produce a guaranteed result.
We could be moving towards dangerous uncertainty, which could lead either to substantial over-provision or to circumstances in which no one is willing to invest even though there is clearly a requirement to replace. We could then knock up against the margins and face a series of blackouts and power cuts. We do not know what direction we are moving in.
The Bill proposes different mechanisms for privatisation—one for Scotland and one for England and Wales. Apparently, vertical integration is desirable for Scotland, but completely unacceptable for England and Wales. It is not for me to argue their relative merits, but it would help if Ministers could tell us how they justify the existence of two different mechanisms. I think that we know that they have chosen the easiest way of working matters out.
The problem in Scotland is that there is such massive over-capacity—particularly in nuclear power stations—that it is impossible to imagine how alternative technologies can develop to any significant extent. That is a pity, because Scotland has great potential for developing wind and wave power and so on. There is also the potential to create employment within Scotland because the technology has been developed there. It is unfortunate that the Bill will reduce rather than increase the possibility of that application and of creating jobs that otherwise could exist.
Mention has already been made of the nuclear tax. It is interesting to note that the Bill's provision for the liquidation, transfer or conversion of borrowings is different for Scotland. For England and Wales, it is £400 million to £600 million, but for Scottish boards it is £3,000 million. One can only assume that that difference has something to do with the substantial component of nuclear power stations built in Scotland and rather confirms the view of those critics, myself included, who argued that they should not all have been built in the first place.
When one adds the £2.5 billion earmarked in the Bill for the nuclear power industry, in excess of £5 billion of taxpayers' money is being earmarked to cushion the risk of 705 the nuclear power industry. The Secretary of State may say, "But the consumers are already paying." The hon. Member for Sedgefield (Mr. Blair) is wrong; there is not one nuclear tax but two.
§ Madam Deputy Speaker (Miss Betty Boothroyd)
Order. I bring to the attention of the hon. Member for Gordon (Mr. Bruce) the fact that he has reached his 10-minute limit.
§ Mr. James Wallace (Orkney and Shetland)
On a point of order, Madam Deputy Speaker. Standing Order No. 45A states that Mr. Speakerwill call Members either between six o'clock and ten minutes before eight o'clock or between seven o'clock and ten minutes before nine o'clock on Monday to Thursday sittings … to speak for not more than ten minutes.My hon. Friend was called at two minutes before 7 o'clock and therefore I submit that Standing Order No. 45A does not apply in this instance.
§ Madam Deputy Speaker
The hon. Member for Gordon began his speech at two minutes before 7 o'clock. Therefore, he was on his feet at 7 o'clock, when the Standing Order came into effect.
§ Mr. Wallace
With respect, Madam Deputy Speaker, it is a question of when my hon. Friend was called. He was called before 7 o'clock, and my understanding of Standing Order No. 45A is that the rule should not apply to him.
§ Madam Deputy Speaker
The rule does apply to right hon. or hon. Members speaking before 7 o'clock, and that is the ruling I shall now apply. I have looked again at Standing Order No. 45A, and I have it on good authority that it applies to right hon. or hon. Members called shortly before 7 o'clock.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
Further to that point of order, Madam Deputy Speaker. When the 10-minute speech rule was the subject of widespread discussion in the House after we received the recommendation of the Select Committee on Procedure, assurances were sought that the rule would not be used in such a way as to prevent, as the Procedure Committee described it, representatives of minority parties having substantial support from deploying a case when a major case is deployed by the two main parties.
The fact that it would be possible to call a right hon. or hon. Member before the 10-minute speech rule came into effect, and for him then to be permitted to speak for a reasonable length of time, was one of the ways in which we assumed—
§ Madam Deputy Speaker
Order. I take the hon. Gentleman's point, but it is not the responsibility of the Chair but that of right hon. or hon. Members who make long speeches before the rule comes into effect.
§ Mr. Wallace
Further to that point of order, Madam Deputy Speaker. I refer to the debate on short speeches on 13 July 1988, when the Leader of the House addressed that particular matter. Referring to an amendment that had been moved by the hon. Member for Newham, North-West (Mr. Banks) to restrict all speeches after those made from the Government and Opposition Front Benches to 10 minutes, the right hon. Gentleman said of the rule: 706If it were to extend to all Back-Bench speeches, along the lines of the amendment … I would not be proposing it. I consider it essential that Back Benchers should continue to be able to speak for longer than 10 minutes, if they wish to do so, perhaps because they are spokesmen of other parties."—[Official Report, 13 July 1988; Vol. 137, c. 505.]That was what was indicated by the Leader of the House as being the intention. It was indicated also by the Chairman of the Procedure Committee—and Mr. Speaker, who was in the Chair, heard those remarks.
§ Madam Deputy Speaker
I understand the points that have been made by members of minority parties. Mr. Speaker and anyone else in the Chair is keen to safeguard the rights of minority parties. Nevertheless, I refer the hon. Gentleman to pages 423-424 of "Erskine May":Speeches which began shortly before 7 pm must not continue for more than ten minutes after 7 pm.I have applied the rule. To err is human, but "Erskine May" is divine.
§ Madam Deputy Speaker
Order. I have made the point that I am attempting to safeguard the speeches of Back Benchers and the rights of minority parties. Time has already been taken up, but, as the hon. Member for Berwick-upon-Tweed (Mr. Beith) is a long-standing Member of the House, I shall take his further point of order.
§ Mr. Beith
I suspect that the edition of "Erskine May" from which you, Madam Deputy Speaker, quoted was written, edited, printed and published before Standing Order No. 45A appeared in its present form in July of this year. When in doubt, a Standing Order should surely prevail over "Erskine May", and Standing Order No. 54A states:he will call Members either between six o'clock and ten minutes before eight o'clock or between seven o'clock and ten minutes before nine o'clock … to speak for not more than ten minutes.You, Madam Deputy Speaker, did not call my hon. Friend between 7 o'clock and 10 o'clock. You called him before 7 o'clock, without any such limitation being placed upon him.
§ Madam Deputy Speaker
The hon. Gentleman is right, in that the permanent Standing Order to which he refers came into operation after that appeared in "Erskine May". I believe that this is the first occasion on which that point has been raised since the Standing Order came in, and I shall take it up with Mr. Speaker. I give the hon. Gentleman my assurance that I shall do so at the earliest opportunity.
§ Mr. Wallace
Further to that point of order, Madam Deputy Speaker. I accept your ruling, but raising the matter with Mr. Speaker does not alter the fact that my hon. Friend the Member for Gordon (Mr. Bruce) has been interrupted in mid-flow, and it does not guarantee that our official spokesman will have an opportunity properly to deploy the case—
§ Madam Deputy Speaker
Order. There will be two days of debate on this Bill. I shall do my utmost, as will Mr. Speaker, to safeguard the rights of minority parties. That is the role of the Chair. I shall discuss the point in question with Mr. Speaker at the earliest opportunity, to ensure 707 that minority parties are provided with proper opportunities to contribute to the debate. We must now continue.
§ Sir Trevor Skeet (Bedfordshire, North)
I assume, Madam Deputy Speaker, that I am allowed 10 minutes in which to speak from this moment.
§ Sir Trevor Skeet
I am much obliged to you, Madam Deputy Speaker.
One lesson to be learned from the speech of the hon. Member for Sedgefield (Mr. Blair) was that if the Labour party were to resume power at a later date, they would renationalise the power industry by the time-honoured method of paying compensation, simply by adding to the national debt as they did in 1948—when the present Government are doing their best, through the Cabinet, to pay off part of the national debt, to the tune of £10 billion last year.
As to charges, one can be very wrong. Today's domestic electricity prices are in real terms 8 per cent. lower than five years ago, and charges to industrial customers are 10 per cent. less. Householders in England and Wales pay 6.81p per kilowatt hour, which is less than in any other state in the Community, with the exception of Netherlands and Greece. In Italy, the charge is 9.94p. I am correcting a point made by the hon. Member for Sedgefield, when he argued that electricity prices will rise drastically. Thanks to a Conservative Government, prices have tended to go the other way.
§ Sir Trevor Skeet
I cannot give way in a 10-minute speech.
The allocation of payments under clause 88 and schedule 12 totalling £2.5 billion are purely supplementary, if required for additional costs, and are not part of those items that are already added to the Bill. I thought that I should make that perfectly clear. On the other hand, if one carefully examines the coal industry, it will be seen that coal subsidies, grants, subsidies, social payments, capital write-offs and finance deficit payments total, in my estimation, about £9 billion cumulatively over the years. That is a very large sum. If one is to play one industry off against another, the real costs involved should first be clearly understood.
The Government have incorporated nuclear generation into National Power. One suspects that there may be a more satisfactory method of coping with the problem, with less distortion of the market and less injury to the industry concerned.
Nuclear generation should remain within a Crown company and be closely associated with, and even incorporate, British Nuclear Fuels plc, the United Kingdom Atomic Energy Authority and British Electricity International Ltd. In answer to several parliamentary questions that I put, the Parliamentary Under-Secretary of State said that the Government have no intention of taking those out of public ownership. An additional precedent for that has been provided by the National Rivers Authority which, in the Water Bill, remains a state function.
708 The reasons for that are, first, that the fuel cycle, from power generation and reprocessing to the recycling of plutonium and uranium and waste disposal, would be contained in one company. The obligations contained in clause 88 and schedule 12—which comprise subsidies from the Revenue for nuclear storage, reprocessing, waste disposal and decommissioning—should be monitored and closely scrutinished within the state system. Secondly, civil liability for serious accidents will remain the responsibility of the Government since it is unassignable to the private sector.
Thirdly, the economics of BNFL requires orders from the generator to underpin funding for expensive plant and equipment and that a sympathetic approach be maintained towards the potential of fast reactors for recycling reprocessed products and depleted uranium.
Fourthly, with the eventual rundown of fossil fuels, either fusion or fission will be inevitable, which the Government should be able to direct as a long-term project, undisturbed by short-term considerations and the caprice of the market.
Those reasons show that there are alternatives that the Government could adopt to get themselves off the limb where they are now placed, and where they find it embarrassing to have to go against market trends. An additional reason is that the broader basis of competition would be provided at once, with the emergence of at least three competing companies, plus the two in Scotland. This development would not have to await the fruits of a decade of growth in the private sector. A British nuclear company could become the "swing producer" to help to determine the amounts of surplus capacity needed to be retained to operate effectively a privatised system of electricity.
I hope that the Secretary of State will bear in mind the fact that he could remedy at one stroke the major flaw in the Bill. Of course I support the Bill—it is the right way forward—but it could be improved. There is nothing in the Bill about reserve capacity. Which of the 12 supply companies are responsible for the national interest and assessment of current reserve capacity, since the obligation to supply has been moved away from the generators to the distributors? Will they be able to devise attractive incentives for the generators to build more plant without making industry, commerce and domestic consumers shoulder the risk? In an integrated system such as that in the United Kingdom, the present capacity is about 23 per cent. Privatisation requires a much broader margin of capacity to operate the system. The United States' capacity is 33 per cent., West Germany's is 50 per cent. and Japan's is 49 per cent.
The trouble with contractual arrangements is that, although they may be litigated, they cannot guarantee instant response, especially if the lights are going out and industry's appetite for power remains unsated. New stations take about eight years to build. Although gas turbines are relatively cheaper to build, their running costs are high, and they may have have difficulty operating under the merit order system.
While the price of oil is depressed by a world surplus and the price of coal is forced down by world prices at about £24 per tonne, it is doubtful whether it will be possible in the next two or three years to have any positive modifications, although the economy is expanding at a rate of between 3 and 4 per cent. a year. I stress that point. Perhaps the Government will link into the European grid with the establishment of a second line to the continent 709 and thus provide an essential reserve capacity, not in the United Kingdom but directly through further links with nuclear electricity in France. The Government should make their position prefectly clear during this debate.
My time is rapidly coming to an end, so I conclude by saying that I support the Bill. Details of the grid and of research and development will have to be considered carefully in Committee, and I hope that the Secretary of State will agree to modify the Bill where grave weaknesses appear.
§ Mr. Robert Hughes (Aberdeen, North)
The Secretary of State began with the astonishing assertion that the publicly owned electricity industry had failed to satisfy the ideals of its founders, but he produced not a shred of evidence in support of that. The contrary is the case. The publicly owned electricity industry has been an outstanding success. It has brought benefits to millions of people who, had they depended on private industry, would not have had an electricity supply. The problem with electricity, as with other nationalised industries, is that when the price was held down to protect the customer it was branded as inefficient. Equally, when prices were increased to generate capital, that was branded as inefficient.
The Secretary of State's speech was one of the most unconvincing that I have heard in the introduction of such a major Bill. His only justification for the Bill was that private enterprise is good but public enterprise is bad. All that he wants to do is to sell the industry to his friends in the City. As Prince Philip might have said, there is little difference between a pimp and the Secretary of State. Each is interested only in selling a service, irrespective of the morality of the position or the effect on the individual.
At least during this debate the Secretary of State has said little about the need to spread share ownership. He genuflected gently in that direction when he said that he hoped that some employees would buy shares. He is modest about the aims of share ownership because he knows what happened with other privatisations, including British Aerospace and Jaguar.
Shortly after British Aerospace was floated in 1981, only one shareholder owned more than 1 million shares. By January 1982, a total of 13 shareholders had more than 1 million shares. The latest company accounts, to 31 December 1987, show that 40, or 0.04 per cent. of, shareholders own 41.78 per cent. of the shares. For the next bracket down, which is between 100,000 and 999,999 shares, 334, or 0.32 per cent. of, shareholders own 37.02 per cent. of the shares. Therefore, 374 people, or 0.36 per cent. of shareholders, own 78.8 per cent. of British Aerospace. How is that for concentration of ownership?
When Jaguar was privatised, very few people had large shareholdings. Astonishingly, within six months of flotation the number of shareholders had halved. In May 1985, a total of 207 shareholders owned 76 per cent. of the shares. What is the position now? The number of shareholders has decreased to one third of the original number, with 187, or 0.44 per cent. of, shareholders owning 78.18 per cent. of the shares. Eighteen 710 shareholders own 51.42 per cent. of the shares, which is a controlling interest. How is that for a concentration of ownership?
As for employee share ownership in Jaguar, although the employee share scheme has more than 3 million shares, that represents only 1.8 per cent. of all shares. Only 320 employees own 164,493 shares, which is 0.09 per cent. of the shareholding. How is that for concentration of share ownership? What price the employees in that industry having an influence on their destiny?
The Secretary of State is anxious only to get rid of the shares. The problem is that there is no device in the Bill to stop big G taking over little G or little G taking over big G. There will be a predatory monopoly supplier that the Secretary of State believes will provide competition, but which I believe will be a paper-thin charade.
I want to spend a couple of minutes talking about the problems of Dounreay atomic energy research establishment. The fast breeder research programme has been an outstanding success. The decision to cease that research was both precipitate and wrong in principle; it should be continued. Many other countries are continuing their research, notably Japan, and I suspect that, with its increasing potential and expenditure, within a decade we will be buying Japanese technology. The decision to cease funding research was first taken by Lord Marshall out of pique because he did not get his way on the future structure of the industry, and the Secretary of State then reacted out of equal pique because he did not want Lord Marshall to get away with that. Therefore, funds for research are not being made available.
There is a severe unemployment problem in the area. I have never said that any industry must continue, despite the risk, but we will live to regret the rundown of Dounreay. The decision is disastrous for Caithness, whose people certainly cannot look to this Government for relief. Since the Government have been in office, there has been an end to regional policy, the disappearance of the pulp mill at Corpach and the disappearance of the aluminium smelter at Invergordon. The smelter might well have been saved if the electricity industry had given it a cheaper electricity price. The great fear is that, because future technological research in the fast breeder programme is being stripped away without proper consultation or discussion, Caithness will become the dumping ground for nuclear waste. That could be much more dangerous than the fast breeder technology research.
I intervened in the Secretary of State's speech to ask about standing charges, and he said that they would continue. Standing charges are extremely regressive and bear much more heavily on the poor and the pensioners than on the well off. The Secretary of State dissembled when he spoke of second homes. He said, "Do we want to remove standing charges for people who have second homes?" To use the Prime Minister's expression, he was talking about the tiny, tiny little minority of people who own second homes. It would have been more equitable had the current standing charges been put into the general account and paid for by the customer, per unit of electricity consumed. That is by far the best way to deal with that.
The Secretary of State is abandoning house insulation and conservation of energy. He said nothing about the costs to industries, especially those with large energy needs. I wish that I had time to go into detail about the 711 complaints of the paper industry, which is a heavy user of electricity. It believes that it has been unfairly penalised because a cheaper electricity price is not available.
The Secretary of State did not justify his privatisation plans. Indeed, the game was given away by the hon. Member for Birmingham, Northfield (Mr. King), who said in an intervention that we should be worried about the privatisation of electricity. We are, because it means £20 billion going into the Conservative party kitty for the next general election. That is what privatisation is about. It will raise money to finance future tax cuts. It has nothing to do with rationale, sense or objectivity—it is purely a means to finance future tax cuts. How could we expect objectivity from this Government? The Prime Minister and the Secretary of State have a curious relationship—headmistress and teacher's pet—which does not lead to objectivity. The tragedy is that the public will suffer.
§ Mr. Michael Alison (Selby)
I wish briefly to refer to a unique feature in my constituency that is relevant to this debate on the Electricity Bill. In my constituency is the largest and most productive single coalfield in western Europe, and sitting on top of that coalfield are two of the largest and most significant power stations in Britain, at Drax and at Eggborough.
I warmly welcome the Bill because it will be advantageous both to consumers and to producers of electricity in my constituency. It stands to reason that the proposed new structure, with its injection of the ingredients of competition, will, to quote the White Papercreate downward pressure on generating costs, which last year accounted for some three-quarters of total operating costs.
I cannot follow the argument of the hon. Member for Sedgefield (Mr. Blair), who suggested that there was no prospect of competition under the Bill. The four separate new avenues of competition outlined in paragraph 41 of the White Paper speak for themselves. They all relate to the new distribution companies and it is significant that their predecessor companies, the area boards, warmly welcome the proposed changeover. They know that they will be let off the CEGB's leash and will enjoy a great deal more freedom. If that is the position while the industry is still nationalised, how much more will it be true under the new arrangements and I am leaving out the prospects of competition resulting from the fact that larger users can also buy electricity direct from generators. There will be more competition.
It is nonsense for the hon. Member for Sedgefield to suggest that because there is a natural monopoly in the provision of electricity to the household consumer, the household consumer will not benefit from real competition in the generating sector. There is an analogy with the gas industry. Although there is a natural monopoly in the piping of gas into homes, the domestic consumer has benefited immeasurably from changes in the productive end of the gas industry. I believe that the same will happen in the electricity industry.
I wish to cite a constituency example of how competition will help industrial users. I know of one substantial manufacturing company in Selby that cannot wait for Royal Assent because it has been denied a fair deal under the existing arrangements. It introduced a combined heat and power scheme, but before doing so took the trouble to contact its local electricity board to discover the 712 basis upon which the board would supply the input electricity for the scheme and then buy back the regenerated electricity. The company was told that the electricity board would pay for regenerated electricity at the rate of 80 per cent. of what it charged for supplying electricity to the combined heat and power scheme.
Within two years of installation, the local electricity board moved the goal posts and, without warning or discussion, implemented what amounted to a 17 per cent. drop in the price that it was prepared to pay for the regenerated electricity from the scheme, but with no change in the charge for the input of electricity. That completely upended the computations and reasonable calculations made by the industrial company in exploring the scheme. That is one scenario that will not be repeated in the new competitive environment, when there will be the opportunity for companies to shop around and to buy electricity from different sources.
Those who work on the supply side of the industry—especially the work force in the Selby coalfields—will not be disadvantaged. British Coal's productivity improvements have been quite staggering. There has been a 75 per cent. increase in productivity in the three and a half years since March 1985. It is difficult to imagine any supplier in the world being able to get coal to the Drax or Eggborough power stations more cheaply than the coal which is now being supplied on a merry-go-round basis in trains from Selby, a run of just a few miles. The daily run delivers 38,000 tonnes of coal to Drax alone.
It was encouraging to hear Lord Marshall speak at the opening ceremony for the Drax B power station in May of this year. He referred to the local coal and electricity industries in Selby as "inextricably linked", and he prophesied a bright future for British Coal. If there is a continuation of the amazing productivity improvements that British Coal has been able to make, no foreign buyer or supplier will be able to challenge British Coal in supplying products to Drax and Eggborough.
Will my hon. Friend the Minister of State, Scottish Office confirm that the Bill effectively provides for the facility referred to in the White Paper—I referred to paragraph 42—under which large electricity users would be able to purchase electricity directly from generators and to move power to their sites via the national transmission network, under a system of common tariffs? In its briefing, the Chemical Industries Association Ltd. states that the Bill makes no reference to that matter. I would be glad to have some assurance that that facility is provided for in the Bill.
Will my hon. Friend say something further about the cost implications of fitting FGD—the so-called fluid gas desulphurisation equipment—in power stations? Drax has recently started the costly procedure of installing FGD. It is a little difficult to see how, in future, it will be properly protected in terms of cost. The Department's briefing document stated that FGD costs will be taken into account in future and some sort of compensation made available, as it is likely to be obligatory for existing and new coal-fired power stations to install FGD equipment. There is an analogy with the cost implications of the non-fossil fuel requirement. I hope that my hon. Friend will be able to give us some assurance about FGD costs.
On the basis of the underlying realities and facts in the industry and what is provided in the Bill, I warmly welcome the legislation on behalf of producers and consumers of electricity in my constituency.
§ Mr. Geoffrey Lofthouse (Pontefract and Castleford)
I shall base my remarks purely and simply on the findings of the Energy Committee. It has been referred to several times in the debate. The Energy Committee reported in July of this year—much to the embarrassment of the Secretary of State. He did not want the Committee to take evidence and to report. Pressure was placed on Committee members not to do so. Unfortunately, Conservative Members on the Committee did not get their act together. One or two of them failed to turn up. It was decided to investigate and to take evidence. If that had not happened, we would not have had a Committee report to assist and guide us throughout the passage of the legislation on the privatisation of the electricity industry.
It is always a pleasure to follow the right hon. Member for Selby (Mr. Alison). I shall refer to some of his remarks about Selby later.
In general, the Committee's criticisms remain valid and largely unanswered. The Secretary of State's response to the report avoided most issues. The Committee's unanimous conclusion was that the privatisation timetable is much too tight. It stated:If the Government is intent on introducing a Bill—or Bills—in November 1988, it is faced by a frightfully tight timetable. If at the same time it is discovering new problems, it runs the risk of producing ill-considered, spatchcock legislation. Electricity is too important an industry for the country to gamble that everything will come out right.That seems to be the Secretary of State's wish and intention. The Committee said:There is still time for a fuller process of consultation, even if the result is to defer the privatisation legislation.
The main criticism in the report is that sufficient time has not been allowed and that the White Paper and the Bill were ill-conceived. That opinion is shared by the electricity supply trade unions. Their evidence strongly supported the Committee's strictures on the proposed time scale. A longer time schedule for legislation would have had three clear advantages. First, it would have allowed the Department to consult widely with all interested parties on the details of the legislation, licences and regulatory regime. Secondly, it would have provided an opportunity for the establishment of the regulatory arrangements well before privatisation, as recommended by the Committee. Thirdly, it would have enabled the management of the proposed shadow companies and the new regulator to gain experience before privatisation.
The Committee was privileged to listen to expert evidence from witnesses and to be guided by expertise. At no time was any hon. Member reluctant to support the contents of the report. The Committee stated:The privatised structure is likely to remain for at least a generation … It must be right from the start. Nothing is served by the secrecy or haste in which the process of consultation has been conducted.
The Committee was particularly critical of the proposed structure for generation, which it believes has been devised to accommodate the Government's preoccupation with sustaining nuclear generation. The trade unions share that view. The Committee formed no firm opinion on the effect on prices, and called on the Government to make a detailed assessment. It stated:We have no evidence on which to reach any firm conclusion on one central issue: whether or not a privatised 714 ESI is likely in aggregate to have lower costs, and hence be able to offer its consumers lower prices, than would be the case if the industry remained in public ownership.The Committee clearly said that there is no evidence that the consumer would benefit from privatisation.
The Committee was critical of the Government for promising lower prices but providing no evidence that that will be the case. It called on the Government to publish a detailed assessment of the factors that they believe will lead to lower prices. Several hon. Members have referred to that matter. I doubt whether any assurances will be forthcoming.
Several hon. Members have referred to the problems of regulation, which the Select Committee examined in detail. It said:The way the industry is regulated will affect competition, efficiency, prices and the validity of service for many years into the future. We believe that the regulator will need to be in place well in advance of privatisation to ensure that he is able to have some influence on the regulatory framework which he will be operating.I hope that the Secretary of State will at least give serious consideration to that recommendation which, once again, was supported by the electrical trade unions and other witnesses.
The Committee quotes with approval the statement of John Lyons, general secretary of the Engineers and Managers Association and the Electrical Power Engineers Association, that the sort of detailed regulation which would offer the maximum direct protection to the customer is incompa-tible with the management freedom necessary for an efficient industry. The Committee generally comes down in favour of a much heavier style of regulation. The Committee expressed concern and failed to understand what was meant by light regulation compared with heavy regulation. We would have been in a much better position to make a judgment if what that meant had been spelt out.
The Committee is strongly critical of the Government's proposed nuclear quota:We also find it difficult to reconcile the 20 per cent. non-fossil fuel requirement—effectively a bunkering of the nuclear industry—with the best interests of consumers.The Committee is worried about the cost of nuclear power and believes that at commercial discount rates and realistic coal prices, private companies will be unlikely to invest in nuclear power. Power from that source will be more expensive than that from fossil-fuelled stations. That has been expressed repeatedly in the debate.
I can well understand the right hon. Member for Selby being so enthusiastic about coal mining as the jewel of the coal mining industry is Selby coalfield, but I wonder whether he would have the same enthusiasm if he represented an area where mining has been wiped out. Some 11,000 jobs have been lost in my constituency and we are facing a great threat. No Conservative Member has ever denied that there will be job losses in the mining industry as a result of this privatisation. The average age in the industry is 35, so young men will lose jobs without the prospects of the attractive and generous redundancy terms which were previously enjoyed. Since 1984 no jobs have been replaced. Therefore, would the right hon. Gentleman be so enthusiastic if he represented such an area?
§ Mr. John Hannam (Exeter)
For those of us who have been involved in energy matters over the years, today's debate represents a major step in the Government's progress towards the restoration of a truly free enterprise society. As a strong believer in private ownership, as distinct from state control, I apply the simple principle that it is a question of justifying not why an industry should be privatised, but why it should remain in state ownership. If strong reasons can be given for an industry having to be owned by Government, so be it, but on the record of the nationalised industries, with their higher than average job losses and price increases, especially under Labour Governments, I see no doctinaire ideology in our wanting to put them back into the more competitive and efficient private sector.
§ Mr. Hannam
I cannot, because of the time factor.
For those reasons I welcome my right hon. Friend's determination to take our electricity supply industry into private ownership, albeit with an extensive regulatory regime for the obvious reasons of safety, consumer protection and security of supply of a vital commodity.
The electricity supply industry operated without real competition for 30 years and that resulted in huge distortions of supply capacity, as we swung from cut-offs in the 1950s and 1960s to vast over-capacity in the 1970s and 1980s. From being a pioneer in nuclear technology, we have swapped and changed our reactor systems so often that overseas markets have been lost and our generating costs have suffered. All that time, the accent was on size with bigger and bigger generating stations, operating at less and less energy efficiency and running counter to all the environmental and conservation requirements of today's world.
The radical restructuring of electricity will lead our energy industries down a new path towards greater diversity of supply, better consumer involvement and, most important, a downward pressure on prices. This is where the Labour party is getting it all wrong. With the changeover on the Front Bench from the hon. Member for Kingston upon Hull, East (Mr. Prescott) to the hon. Member for Sedgefield (Mr. Blair), pessimism has been replaced by innumeracy. The hon. Gentleman's forecast of a 25 per cent. rise in electricity prices is wholly irresponsible and based on misconceptions.
First, the hon. Gentleman's assumption that the non-fossil fuel levy represents a new charge on the consumer to cover future nuclear power costs is wrong. Present prices include charges for nuclear power and future decommissioning, and with current cost accounting in the nationalised industries, that is precisely what the consumer is paying for.
In his desire to scare the public, the hon. Gentleman also ignored the basic realities of competition which drives down costs. He fell into the old ideological Socialist trap of assuming that any increase in profits must come from increased prices. If he looks at British Telecom, he will see that it is making record profits, despite a decrease in telephone charges of 12 per cent. in real terms since privatisation. In any event, no Labour Member can talk 716 about price increases when, between 1974 and 1979, electricity prices rose by 180 per cent., or 30 per cent. above inflation.
The factor that will reduce future costs is diversity of supply. For several years, there have been repeated complaints from area boards, industrial companies, independent electricity producers, energy efficiency and combined heat and power organisations that the huge monolithic supply industry was preventing more efficient electricity production. My hon. Friend the Member for Erewash (Mr. Rost) and I have repeatedly brought these frustrations to the attention of the House, especially my hon. Friend, through his work on the Select Committee.
The first official recognition of the energy efficiency case came with the Drax coal-fired power station which harnesses the waste heat for local tomato growing. That was the first occasion when a major power station has tried to use that excessive heat.
§ Mr. Hannam
One per cent. of it, as my hon. Friend says.
Then the 1983 Act appeared to offer more scope for individual generation, but in reality the monopoly supplier has been more interested in large-scale stations, so smaller generators have not been allowed in on the act. Combined heat and power was completely neglected until recent years, but the new community heating schemes in Sheffield, Leicester, Birmingham, Newcastle and south London are a hopeful sign for the future. Nevertheless, we must remember that the original Government study on combined heat and power identified a further 34 urban areas where combined heat and power and community heating could be developed.
It is not only in the context of getting 60 per cent. rather than 30 per cent. energy efficiency that we should develop these schemes. My right hon. Friend the Prime Minister in her "green" speech in September recognised the urgent need to reduce harmful emissions into the atmosphere and referred specifically to "energy production" and "fuel efficiency".
The main ingredient in global warming is carbon dioxide and in a reply to a parliamentary question recently we were told that our present annual coal burn produces some 235 million tonnes of CO2. The use of new combined heat and power combined cycle coal plant would reduce that CO2 output by about 150,000 tonnes a year from a single installation, so that must be desirable. In the context of this Bill and my right hon. Friend's "least cost" basis for future investment, combined heat and power combined cycle schemes satisfy our requirements.
I am more confident than ever before that these small 150 to 300 MW plants will flourish in the new era. However, it is in the context of the controversial 20 per cent. non-fossil option that CHP could have a role. I shall come to the nuclear aspects in a moment, but should like to ask for specific attention to be given to the use of coal and gas CHP schemes within that option.
The Government have made it clear that not only nuclear electricity is included in the non-fossil category, and that they are including the various renewable and "energy from waste" technologies that displace fossil fuels. The Government's energy paper No. 53 identified inner-city CHP as able to displace a fossil fuel burn of 12 million tonnes of coal equivalent. I welcome the inclusion 717 of waste-tip electricity generation schemes in the Bill, but ask my right hon. Friend the Secretary of State to consider whether other CHP fossil fuel replacement schemes could be encouraged within the 20 per cent. option.
From my discussions with the area boards and representatives of the independent electricity producers, I am confident that a wide range of new generation will now come on to the market. If all goes well, those smaller, more efficient stations will contribute to a cleaner lower-cost system, but still fit into our balanced energy supply structure, using coal, gas and nuclear.
We are debating the general principles of this privatisation Bill. There is no doubt that it is essentially an enabling Bill, with a great deal of detail yet to come in the regulatory and licence systems.
The controversial element is obviously the nuclear non-fossil requirement, and there will be a continuing debate about whether, given a need to maintain our nuclear industry, the Bill contains the best method of doing so. I believe strongly that in the next century nuclear power will provide the bulk of the world's electricity. At present, 16 per cent. is provided by nuclear power, but, as the International Atomic Energy Agency pointed out in a recent survey of 100 nations ranging from Argentina to Zambia, the overall picture is of increasing electricity demand, shortage of fuels and worries about the environmental damage caused by fossil fuels.
Belgium has reported that sulphur dioxide emissions were reduced by 60 per cent. per kilowatt hour between 1973 and 1983 because of nuclear power. Finland also reported a reduction in harmful emissions by using nuclear power. Kenya, Malaysia, Morocco, Pakistan, India, Poland and Spain—and most of the other 100 countries—are all planning peaceful nuclear power development.
Here in the United Kingdom, due to the juxtaposition of falling coal prices and a comparatively high cost nuclear station programme—the advanced gas-cooled reactors—we are temporarily at a point where there is no clear cost advantage in nuclear power. However, on environmental and safety grounds, I believe that nuclear power is still well ahead. The Government are right to maintain the nuclear option for all the different reasons given. In my view, it will not be long before the so-called levy becomes a refund as the crossover occurs again when oil, gas and coal prices rise higher than nuclear prices.
My right hon. Friend has shown great determination and bravery in his approach to this privatisation. There is still a lot of detail to come, but I congratulate him on his vision and support the Second Reading.
§ 8.2 pm
§ Mr. Jack Thompson (Wansbeck)
Listening carefully to the Secretary of State's presentation of the Bill on its Second Reading today, I felt that he lacked conviction and commitment. It will be interesting tomorrow to see in cold print in Hansard the detail of his comments because I am sure that the public outside will see only the comments in the newspapers, and not the Secretary of State's full presentation.
Up to this point the input from Conservative Members has not touched on one point. There has been severe criticism by the Secretary of State and other Conservative Members of the Central Electricity Generating Board, the 718 grid system, the distribution boards, and the industry's lack of efficiency and lethargic attitude. However, what has not been mentioned is that the Secretary of State and his predecessors for the past nine years could have influenced anything that happened in the electricity industry because it was state-owned and the direct responsibility of the Secretary of State for Energy.
To understand fully the changes advocated in the Bill, which are designed to dismantle an efficient and integrated service, it is necessary to examine the reasons for the industry being taken into public ownership in the first place some 40 years ago and to relate those reasons to the position now. The policy of public ownership, which was pursued by all political parties at that time, is still valid in the 1980s and will be even more valid in the future.
It cannot be claimed that the propositions enshrined in the Bill will take us back to Victorian times, although much of the legislation introduced by this Government has taken us back to Victorian times. However, electricity is somewhat different, because in Victorian times it was in its infancy. The Secretary of State's proposals lead me to believe that the industry will suffer from some of the problems that it faced in the mid-1920s when the Weir report set the pattern for our present complex integrated system.
Faraday announced his discovery of electro-magnetic induction in 1831; after his subsequent development of more efficient generating sets and the invention of the incandescent lamp, the House passed the Electric Lighting Act 1882 which, incidentally, was framed in such a way that it protected the public against private monopoly—exactly the opposite of what is suggested now. The Bill also limited maximum prices and allowed for the purchase by local authorities of private companies established under the Act. That arrangement was to allow for a write-down value after 21 years. In the context of its time, that was a sensible suggestion. Hon. Members may not be aware that the sponsor of that Bill was Joseph Chamberlain, who was a more sensible and more enlightened Tory than those sponsoring this Bill, the proposals of which will create a new private monopoly and put profit before people.
From the turn of this century, the industry flourished and expanded, mainly organised and funded by municipalities, the objective of which was to provide a public utility, geared to the benefit of their communities. It became more and more evident that large-scale integrated distribution systems were vital to the future of the industry. In the north-east of England, much pioneering work was done both on improving generating techniques, aided by Charles Parson and his turbines, and on the distribution of electricity on a standardised system. The north-east network was the biggest integrated power system in Europe at the time. It was the forerunner of what was to expand into the present grid system.
That brings me to one of my main criticisms of the Bill. Responsibility for regulating and balancing distribution via the grid is to be taken from the generating side of the industry. I am sure that the House would be interested to learn the source of the advice given to the Secretary of State which encouraged him to include this preposterous proposition in his plans. I would hazard a guess that it was not engineers with any intimate knowledge of the grid. The grid has a crucial role in balancing load factors throughout the country, as well as in ensuring the most economic 719 regulation between production and consumption. It can perform its functions effectively only by being linked directly to the generating side of the industry.
On 26 October, New Scientist announced:The CEGB are already considering breaking up its research and development team into three parts, one to be allocated to big G, one to little G and the other to the grid system.That is a retrograde step. In such an industry, research and development must be integrated, just as the service itself must be integrated.
I have experience as an electricial engineer. I also have the benefit of being a fellow of the Parliamentary Trust and visiting the North Western electricity board two or three years ago. It was an invaluable experience because I saw the industry from all sides. The people there were very helpful to me while I gained that experience, which reinforced my belief that breaking up the generating industry and taking control of the grid from the generators is absolute folly.
The industry will suffer from a conglomeration of private companies controlling the grid; each demanding satisfaction for its regional monopoly and seeking improvements and expansion of the grid facility in its own area. That is a recipe for chaos and confusion. I am sure that the Bill will have a rough passage through Committee on the technical aspects of this proposal.
There is another point that is not explained in the Bill, but was raised by the hon. Member for Exeter (Mr. Hannam), and that concerns the large consumer. If the large consumer has the opportunity to receive its supply directly from the generator, it must be fed through the grid system, which is owned by the distribution companies, and, somewhere along the line, that will be an added complication. If I was involved in the distribution companies, I would seek compensation for the use of the grid.
Another criticism of the proposals is the lack of regulation and coal imports. In fact, there is positive encouragement to expand imports, which will not only cause economic problems for our coal industry, but, without regulation, will seriously damage the balance of payments which, on recent evidence, is in a difficult enough position.
The rundown of the coal industry—significantly accelerating in the past two years—will continue. Social and economic effects of further closures will increase the hidden burden of job losses, redundancy payments and the social deprivation that follows, and the abandoning of huge coal reserves some of which will never be recoverable. For example, in my area the coal is under the North Sea. If those coal reserves are abandoned, there will be little chance of getting back to them again. There will be an increased dependency on foreign coal, which will increase in price as the power stations in Britain become more dependent on imports, so removing the short-term advantage of subsidised supplies. We are too dependent on coal produced by low-paid workers in near-slave conditions. The consumption of electricity produced, for instance, by burning South African coal, should weigh heavily on the conscience of the British consumer.
Clause 88 and schedule 12 are diametrically opposed to Tory policies of a free market and is a distortion of fair and even competition. There is already considerable public discontent at the expansion of nuclear plant; the public perception of the conduct of the Sizewell inquiry did not 720 enhance the case for further nuclear expansion. That is evidenced, too, in the strong opposition at the Hinkley Point inquiry.
There is a campaign in the north-east opposing the building of a PWR in the constituency of the hon. Member for Berwick-upon-Tweed (Mr. Beith)—my parliamentary neighbour. Although he and I are from different political parties, we have campaigned during the past 10 years on the platform that a reasoned alternative to a nuclear power station or PWR would be a coal-fired station which could be run economically. However, that alternative will be distorted by the propositions in the Bill.
Of course, at that time the opposition to the nuclear power station at Druridge bay was supported by the Tory candidates in the 1983 election. They stood there on the sand dunes and said, "We do not want a nuclear power station here." That may have been because they were candidates in the election, and they may have changed their views by now. I shall watch carefully to see whether one of them who is now a Member of the House makes a contribution to the debate. Many hon. Members, although they were supporters of the nuclear industry, see no justice in clause 88.
The Secretary of State and the Government are so obsessed with nuclear power and attempts to destroy the mining industry that the clause distorts the future of power generation. It is nothing more than a subsidy for nuclear power. It is a facility which is not offered on the same scale to the coal mining industry. I shall be interested to see whether the Secretary of State, when discussing the proposals for the privatisation of the coal industry, will talk of a coal tax in the same way as he has talked of a nuclear tax.
The industry would have been in a far healthier shape than it has been in the past few years, and the best thing to do with the industry is to leave it alone—
§ Mr. Deputy Speaker (Sir Paul Dean)
Order. I am sorry to interrupt the hon. Gentleman, but, to be fair to other hon. Members, it must now be his last sentence.
§ Mr. Thompson
I shall take note of that.
I shall just make a little recommendation to the Secretary of State. I recommend that over Christmas he reads two books, both by the same author, Lesley Hannah, "Electricity before Nationalisation", a study up to 1948 and "Engineers, Managers and Politicians", a study of the electrical industry up until 1979. He will find them both enlightening and useful.
§ Mr. Peter Rost (Erewash)
The hon. Member for Sedgefield (Mr. Blair), who opened on behalf of the Opposition with an elegant but badly researched speech, challenged the Government to say what benefits would come from privatisation. I have some news for the House—certainly not for my right hon. Friend the Secretary of State, because I am sure he will know it already. We have evidence that there is already pressure for downward prices from the new independent producers and from industry proposing to generate its own.
I have some difficulty in spelling out the details of that, because I must declare an interest as a consultant to the Major Energy Users Council, many of whose members are large industrial firms, which are fed up with uncompetitive electricity prices and the monopoly abuse, and are only too 721 anxious to generate more of their own electricity. After all. we are bottom of the European league in industry producing its own processed heat and electricity, because of the abuse of the CEGB monopoly. I have difficulty, too, because I must declare an interest as an adviser to independent electricity producers interested in proving what they have not been allowed to prove before, which is that there are cheaper ways of generating electricity from which the consumer can benefit.
All I may tell the House, without disclosing what is obviously still sensitive commercial information on contracts which are in the process of being negotiated, is about a number of projects which have already been referred to in the debate, especially schemes of district heating and combined heat and power at Leicester, the gas turbine project at Corby, the district heating scheme that is going ahead in Sheffield, the Thameside scheme and many others. The price at which they are offering their electricity to area boards is between 2.5p and 2.9p per kilowat hour. That compares with more than 3p per kilowatt hour, which the CEGB presently charges area boards. Therefore, there is evidence that the new producers can make a profit and offer electricity to area boards at lower prices than the area boards must now buy it from their monopoly producer, the CEGB.
The estimates of how much of that electricity can come forward in time for privatisation vary, of course. However, they will be fairly limited, because privatisation is only two years away. Only those schemes already under production will be able to sign up for contracts on vesting day. It is estimated that the potential during the next five years is probably nearly 10,000 MW of capacity. A lot of that will come from industry wishing to put up its own plant, from city consortia developing combined heat and power district heating, and from new dependent producers putting up power stations, using the new technology which the CEGB has preferred to ignore.
Of course, some of that technology will be combined cycle gas turbine and some of it will be the new generation of smaller coal-fired power stations, using the fluidised bed technology which, incidentally, is going ahead in the east midlands in partnership with British Coal to produce cheaper electricity than the large, conventional, traditional coal-fired power stations, as well as producing far less pollution.
The other technology, which the CEGB has again preferred to ignore, is the use of municipal refuse as a fuel. That is the cheapest fuel and it is a clean burn technology. If the Swedes can do it in the centres of their cities, we can certainly do it with our pollution. It produces cheaper electricity, of course, where the heat is also marketed. The private sector is going ahead with such technology.
The evidence already exists. I can prove it and I have it on paper, but, unfortunately, it is difficult for me to show it because it is still commercially sensitive. Area boards are shopping around and at the moment they are negotiating contracts for cheaper electricity than that which they presently must buy from the CEGB. One cannot have more proof than that. Competition will put pressure on prices.
Unfortunately, things cannot happen overnight because most of the existing capacity is still with the CEGB. Area boards also have an obligation to supply, so 722 they must sign the contracts. If my right hon. Friend wants competition to develop further, I urge him to allow area boards to sign short-term contracts. They are anxious to do so, but, of course, the successor CEGB companies want to sign long-term contracts.
Area boards are aware that, within four or five years, much more privately produced electricity will be offered to them at a cheaper price than that at which they will have to buy from the successor companies of the CEGB. If the new capacity are cheaper electricity and not to be squeezed out and pre-empted by the successor CEGB companies, it is most important that short-term contracts are encouraged.
If my right hon. Friend genuinely wants to encourage competition, he must ensure that the redundant power station sites that the CEGB has been hoarding for years and has tried to develop rather than allow private enterprise to refurbish them for lower cost electricity production, are sold to the private sector if the successor CEGB companies are not prepared to develop them. There will be a problem about obtaining planning permission for new power stations even if they are the small type that are likely to be built. Therefore, the available sites that are presently held by the CEGB must be redeveloped by private enterprise if the CEGB successor companies are not prepared to refurbish them to enable more efficient electricity production. Those sites must be auctioned in some way so that the new independent producers who are anxious to get going will at least have some sites on which to do so.
I wholeheartedly support the excellent comments of my hon. Friend the Member for Exeter (Mr. Hannam). We could have cheaper electricity, combined with heat production which would also provide cheaper heat for our communities, if the CEGB monopoly had not rejected that offer. The arguments in favour of the city district heating and industrial co-generation have been recognised and developed within the rest of Europe, where some 3,000 towns and cities have cheap heat and cheaper electricity as a result of the two processes working together. The environmental advantages are, of course, enormous because it saves fossil-fuel burning if one can obtain 80 per cent. efficiency out of the fuel burn rather than the present level of 35 per cent. derived from our coal-fired power stations. They generate electricity only and throw out the other two thirds of the fuel in the form of cooling water.
If the arguments in favour of combined heat and power production was environmental alone, I might have second thoughts, but such production is also competitive. The estimated cost of electricity produced in co-generation or combined with heat production is lower than that of electricity produced from coal-fired power stations. Therefore, on the grounds of energy efficiency and the environment, I would strongly urge my right hon. Friend to consider seriously allowing the combined heat and power option to be included in the non-fossil fuel category with nuclear and renewable sources of energy even if it does burn fossil fuels. That can be done because combined heat and power displaces fossil-fuel burn because of its increased efficiency. Therefore, it is justifiably a non-fossil fuel source because it displaces other fossil fuel that would otherwise have to be burnt.
I welcome this long overdue restructuring of our industry leading to privatisation. I congratulate my right hon. Friend on a courageous proposal and on a radical policy.
§ Mr. Alan W. Williams (Carmarthen)
One of the reasons why the Labour party opposes privatisation of electricity is that it will lead to higher prices, and that is what most consumers fear.
Comment has already been made about prices. It should be noted that, between 1982 and 1987, electricity prices fell by 19 per cent. in real terms. Since the privatisation of the industry has been mooted, we have already had an increase of between 8 and 9 per cent. and a further 6 per cent. increase is on the way. Once the industry is privatised, shareholders will want their dividend, and in the future we will also be faced with indeterminate nuclear bills to pay. It strikes me that a minimum estimate of the cost of privatisation to the consumer in terms of price increases is 20 per cent.
The Labour party is also opposed to the privatisation because there will be no competition and therefore no help to the consumer. I also doubt whether there will be much competition within the generating end of the industry. The Bill has nothing to do with competition.
My main argument against the privatisation is the double standards that the Government have adopted in their treatment of coal as opposed to nuclear power. The coal industry is being exposed to the harsh realities of the international market, but the nuclear industry is essentially protected from them.
In the past four years in south Wales, 18 of the 29 coal mines have disappeared—now there are just 11. Two weeks ago it was announced that Cynheidre colliery, just outside my constituency, would be closed. I am delighted that the miners have decided to fight that closure and to take that case to review. The size of the losses that have been incurred by that colliery and by Marine colliery in south Wales are small in comparison to the subsidies given to the coal industries of France, Germany and Belgium.
It is a terrible contradiction that, as we approach 1992 and the single European market, which should create fair competition for energy resources, our coal industry is treated in a completely different way from that in France, Germany and mainland Europe. If Cynheidre was situated anywhere on mainland Europe there would have been no question of its closure because it would be judged a highly successful coal mine. The Government, however, believe in closing anything that is slightly uneconomic in the coal industry, even if loss has been incurred over a short time.
Privatisation of electricity will also allow increased imports of coal. It is obvious that the world price of coal moves up and down as does the value of the pound. If interest rates are to be at 13 per cent., it is clear that we will have an over-valued pound, which will make imported coal temporarily cheaper. We all know, however, that just around the corner, the value of the pound will drop. When that happens, cheap coal imports will disappear. If we were substantially dependent on the world market for the supply of our coal, prices would soon escalate because that market is so small. The importation of coal is the wrong way to plan for our long-term energy supply.
British Coal can offer long-term supply contracts. Over the next 10 years, it will hold its price to the retail prices index. What other industry in Britain could offer such a contract? British Coal offers us security of supply, at an economic price, within a long-term deal. It is now conceded that, compared with coal-produced electricity, nuclear electricity is uneconomic.
724 My first concern is with safety. Even before Chernobyl, the public realised that nuclear power stations could go out of control. The nuclear industry used to say that that happened once every million years. There are about 300 reactors worldwide, most of which have been in operation for only 10 or 20 years, yet there have been two major incidents, at Three Mile Island and Chernobyl. That weighs heavily in the public's mind.
There is a fear that, in privatising the nuclear industry, safety standards will be compromised. The Magnox reactors are reaching the end of their lives. In my part of the world, there is anxiety about the safety of the Trawsfynydd nuclear power station, which is 25 years old. Bits of metal dropped into the reactors's coolant circuits, but a test was postponed. When we hear such news, it leads to worries about these power stations remaining in the public sector, but with privatisation those worries will be greatly increased.
If there is an accident at one of our nuclear power stations, the owners—the new private utilities—will be liable for only £20 million. Chernobyl has cost £20 billion so far. The Government will be left picking up the tab should anything go wrong here. The nuclear industry is a lame duck. The AGR programme is a disaster financially. Dungeness provided only a 1 per cent. load factor last year, 22 years after construction. Hinkley Point is the only reactor acting properly—the performance of the other three is questionable. We are abandoning the AGR technology. The Government have decided to have the world's largest pressurised water reactor, yet generally countries are moving away from the nuclear industry. In privatising electricity, a £6 billion bill will be passed on because of the Government's dogma about nuclear power.
We have no idea of decommissioning costs. Unfortunately, when the nuclear reactors were designed, the authorities did not plan how to take them apart. The amount of £300 million for Berkeley is no better than a guesstimate. It is not an accurate calculation. Many experts think that the cost will be many times that and may even be up to £2 billion per power station. The Government intend underwriting such costs, but the nuclear waste problem is unquantifiable. A recent report said that it would cost about £4 billion to get rid of high-level waste. When we do not know what the technologies will be, we cannot accurately estimate the costs.
The Government have virtually surrendered the case on nuclear economics. Over the past 40 years, nuclear electricity has never been economic. It amounts to a nuclear tax. If the Government legislate for a minimum of 20 per cent. of non-fossil fuel components, they will leave big bills for the public. Nuclear power should be phased out.
I oppose the Bill, first, on the ground of higher prices. Secondly, there is no question but that this is an anti-coal Bill. It will saddle the public with a nuclear industry that they do not want.
§ Dr. Michael Clark (Rochford)
It is interesting that the hon. Member for Carmarthen (Mr. Williams) thinks that this is an anti-coal Bill. In some respects, the nuclear industry does not come out of it too well either. I welcome the Bill in principle and agree with many of its details. I wish it a speedy and safe passage to Royal Assent. 725 The nuclear industry is important because fossil fuels are premium fuels and finite. The nuclear industry is the generating industry for the future. Our great-grandchildren will rely upon it. As my right hon. Friend the Secretary of State said, we need the nuclear industry for diversification. It is a stepping stone to the technology of the future—the fast breeder and fusion. The faster breeder at Dounreay is to close in five years. I deplore that, because some of that plant's technology will die with it. It is a shame that we shall lose that facility.
I hope that the Government will agree to give wholehearted and fulsome support to the European project that follows JET, so that fusion becomes the "great white hope" for electricity generation in the future. The nuclear content of generation is important for those many excellent British engineering contractors that provide so many jobs and have project teams with great expertise. It would be a shame if they were disbanded.
Recently, the nuclear industry has been challenged on prices and costs. In most economic assessments carried out by the Organisation for Economic Co-operation and Development, the cost benefit of the nuclear industry has been shown to be doubtful—generally, it is agreed, because of rising costs in the industry associated with commissioning delays, retrospective fitting of safety equipment and poor performance of several nuclear power stations.
There is cheap domestic coal, cheap world coal and cheap oil and gas, although I do not expect that any of the three will stay cheap for long. If the subsidy were taken from coal, the price would increase immediately. The CEGB has confirmed that, with higher interest rates, and particulary with higher rates of return on investment, the coal industry is favoured for generation over the nuclear industry. That is probably because a nuclear power station is more expensive to build than a coal power station. The nuclear power station gets its benefit from cheaper fuel costs. If a greater rate of return is demanded, there will be a disadvantage to the nuclear industry, and we should tend to build more coal than nuclear power stations.
Independent witnesses who gave evidence to the Select Committee on Energy—on which I have the honour and pleasure to serve—said that, because of "commercial discount rates"—they meant rates of return—and the low price of coal, it was unlikely that unsupported companies would build nuclear power stations.
The Bill states that each distribution company in England and Wales should purchase a specified amount of electricity from non-fossil fuel sources. What will happen if that non-fossil fuel quota is substantially filled from Scotland and France, or there is a dramatic increase in the amount of hydro-electricity or geothermal electricity, or a major tidal scheme is brought into operation? When those forms of benign electricity generation are expanded, will there be a decline in nuclear capacity? If so, that will be a great shame and a great disadvantage.
What will happen if there is substantial investment in building private nuclear power stations, despite my earlier comment about rate of return? If private nuclear power stations are built, does that mean that big G, National Power, can shut down some of its existing power stations without having to build more? Does it mean that it will be divested of its monoply of nuclear power and will thus tend 726 to dispose of its centre of excellence for the nuclear matters that it presently has? If that happens, it will be a great shame.
It is suggested that the regulator might allow distribution companies that are obliged to purchase electricity from nuclear sources to pass on the costs of these obligatory purchases. It should not be allowed to do that. The regulator should be there to prevent the passing on of prices. The nuclear industry must be aware of the cost of generating electricity by nuclear means and must not be shielded by the passing on of costs to the consumer. If that happens, the present nuclear power stations will be cossetted, as is much of the coal industry. If we are not careful, it will mean that privately built nuclear power stations may earn excessive profits by operating a cost-plus policy. We must not allow such a policy.
I shall now return to the closure of Magnox stations. When nuclear stations close, how can we be sure that they will be replaced? We know that all the distribution companies will be obliged to buy electricity generated by nuclear power stations. Will there be an obligation to build a power station to match every one that is shut down? I hope that there is, because otherwise we shall see a decline in the nuclear generating industry. The Secretary of State dealt with decommissioning costs. Either the cost falls on big G, National Power, in which case it will depress the selling price when that company comes to the market, or the Government will pick up the bill. The Secretary of State said that all costs will be borne by the private sector unless there is exceptional or retrospective legislation, in which case the Government will consider whether to help with the cost of decommissioning.
Finally, I should like to go through a quick checklist of items that point to the existence of a case for all nuclear power stations being in one separate company. Whether that company is Government-controlled or private, with the Government having a golden share, can be debated. There is a case for one separate company for the following reasons.
The first is in order to ensure that a percentage of nuclear electricity is purchased by the distribution companies. Secondly, it would guarantee that nuclear-generated electricity is available for purchase. Thirdly, it would undertake the decommissioning and assume its cost and make sure that it is done safely and properly. Fourthly, it would prevent nuclear issues from eroding the selling price of National Power when it comes to the market and prevent the erosion of investors' dividends.
Fifthly, we need to retain a centre of nuclear excellence that is undiluted by the company that owns the nuclear power stations being involved in other forms of generation. That would also enhance the safety aspects of nuclear power. Sixthly, we need to concentrate research and development for the benefit of the nuclear industry, for the scientific training of staff and to ensure Britain's future in the forefront of physics, engineering and chemistry. Seventhly, we need to prevent the true cost of the nuclear industry being concealed. Finally, we need to ensure that public confidence in nuclear electricity continues to develop in the way that it is developing.
Nuclear generation is extremely important for the future of Britain. It is also important that the legislation gets it right, and I hope that the points that I have raised in the short time available to me will be taken carefully into account by the Secretary of State and his Ministers.
§ Mr. Thomas McAvoy (Glasgow, Rutherglen)
Since the war, the Conservative party has peddled the line that the Labour party is rigid and dogmatic and unable to comprehend the complex nature of modern society in terms other than simply nationalising everything in sight. It has portrayed us as pursuing nationalisation pure and simple because we regard nationalisation as the only model by which we can manage industry and services in modern Britain. These accusations are nothing but dogmatic assertions and reflect nothing of the developing nature of our approach to the issues of how to run giant enterprises for the benefit of the public without allowing them to become remote.
As a Co-operative Member, I have been particularly pleased at the continuing interest of the Labour party in developing an approach to industry and commerce based on the co-operative model. The principles of co-operation are an important part of the wide-ranging and flexible approach to how Labour is prepared to run the economy.
In his speech, the Secretary of State directed a sneering remark at the Co-operative Movement. Apart from the fact that the right hon. Gentleman should be the last person to sneer at anyone, he obviously needs reminding of the dramatic recovery in the trading position of the Co-operative Movement. The Bill contains nothing less than the dogma that says that putting industries and services into the private sector will automatically result in a better-run industry that will provide a better service for the public. I have never taken the view that one type of nationalisation or public ownership is the ultimate answer, but what we are now hearing is the parrot cry of the Conservative party, that private is best.
The Opposition maintain that unfettered private enterprise without public accountability has been responsible for untold misery. The pursuit of profit alone results in industry being run to the detriment of the overwhelming majority of our people. Of course, if privatisation were indeed a successful model, we would need to look at it. Let us look at it and see how the public are being ripped off by the throwaway terms of privatisation. A successful flotation is likely to require either a significant writing down of debts or an increase in charges to consumers.
The first course of action would imply that private investors would gain control of public assets at less than their book cost. Moreover, in the South of Scotland electricity board case, £17 million of these assets have been directly paid for by consumers through their electricity bills. The balance has been funded through borrowing, which again has been serviced by charges to consumers. Since, therefore, there is a direct relationship between the board's existing capital structure and its present charges, the corollary of any debt write-off to asist privatisation is that, if the industry were retained in public ownership, such a write-off would permit a significant reduction in charges to consumers.
The second course of action, increasing charges simply in order to increase the financial rate of return to facilitate privatisation, would clearly be against the interests of consumers. Both the process of privatisation itself and the structure proposed for the privatised industry appear to carry the risk of increased charges for consumers in Scotland. Experience of the gas and telecommunications 728 industries also suggest that there might be changes in the relative weight of charges borne by different categories of consumers following privatisation.
The Government lay great stress on the opportunities created by privatisation for consumers and staff to obtain a stake in the electricity industry. However, the Government have not said what steps they propose to take to ensure that ownership of this key strategic industry remains in domestic hands, and doubts must remain about the attainability of this objective.
Future ownership of the industry is also of relevance in assessing the electricity industry's role in wider energy policy. The Government justify the requirement for the English distribution companies to take a proportion of their power from non-fossil-fuelled generating capacity in terms of the need to ensure diversity of supply and to meet strategic objectives. However, the same tension between short-run considerations and long-term security of fuel supplies is also present in the fossil fuel sector, and is likely to be exacerbated if the electricity generating companies pass into the hands of shareholders and managements who are more concerned with maximising profits in the short run by purchasing fuel from the cheapest sources than with balancing immediate price advantage against wider economic interests and the safeguarding of the long-term availability of supplies.
The recent dispute between the South of Scotland electricity board and British Coal is not an encouraging precedent, since it clearly shows how short-term pressures can conflict with other considerations and how a free market solution to sectoral interests may lead to inefficiencies and external diseconomies. Purchases of foreign coal may offer advantages in the short term to the electricity industry, but apart from the transitional costs resulting from the loss of domestic employment in the mining industry, such a policy could well impose immediate costs on others. For example, increased road haulage of coal from ports in the Strathclyde region to power stations in the east of Scotland would have a quantifiable effect in terms of the costs of extra road damage as well as consequences for other road users and for communities on the routes affected.
In the longer term, by affecting the viability of the indigenous coal industry, such action may also leave final consumers unnecessarily exposed to fluctuations in exchange rates and in world energy markets, where there is a strong link between the prices at which coal and oil are traded internationally, and endanger the balance of fuel sourcing that the Government maintain they are seeking to preserve. The dogma from Government Members of "public bad, private good" is but a parrot cry. I have not heard a good case for privatisation tonight, and I doubt whether anybody else has heard one. I am opposed to the Bill.
§ Mr. Michael Stern (Bristol, North-West)
The Bill addresses iself to the basic organisation of the electricity supply industry and the challenges that will face the industry for perhaps the next 100 years. Therefore, in looking at the Bill as a whole, it is important that we define the challenges against which we should measure it. We have heard a lot tonight about the challenges to the industry purely within the United Kingdom. There is the challenge of providing cheap electricity. I do not think that 729 any of my hon. Friends needs any more convincing that to build in any element of competition must, in the long run, provide cheaper electricity. The history of the past 100 years shows us that our civilisation is based largely on the provision of cheap power.
However, we also have to look at the Bill to see whether it will encourage the provision of electricity by environmentally benign methods, and this point has become increasingly important recently. We can point straight away to the non-fossil fuel requirement in the Bill as a sign of the extent to which the Conservative party regards it as important that we should try to pump less poison gas into the atmosphere.
When we measure the Bill against the challenges outside this place, its importance is increased—[Interruption.] If I can be heard over the continuous muttering and yowling from those seated on the Opposition Front Bench, I should point out that we must measure the Bill against the extent to which it will allow us to prevent the production of acid rain and permit us to slow down the warming effect of pumping ever-increasing amounts of hot and non-benign gases into the atmosphere.
In addition—something that dwarfs every other consideration—we have to look at the extent to which the Bill provides an opportunity for the country to play its part in meeting not just our energy needs—those of a developed country with a high standard of living—but those of the developing world. [Interruption.] I am aware that those on the Opposition Front Bench are not interested in this, but I believe that the rest of the House is.
In the free market economies of the world, the average per capita consumption of fuel is 4,452 kg of oil equivalent a year. In the command economies such as the USSR, the figure is almost identical—4,472 kg. However, fuel consumption, which determines the standard of living, is very different in the developing world. In Africa, the per capita consumption is 297 kg oil equivalent, which is less than one fifteenth of the power needs that we regard as normal. In Asia, the average is 387 kg—again, a minute percentage of what we regard as essential.
We have to judge the Bill in terms of whether it will aid or hinder us in helping the developed world to meet this huge energy gap which has opened up between our civilised societies and the fuel-poor societies that occupy most of the rest of the world. The Opposition have come up with some nostrums on energy conservation, but energy conservation in the context of the problem that I have just described is like offering a diet sheet to a starving man.
If we are to meet the energy needs of the developing world and to do so without poisoning the atmosphere, we have to make sure that, in organising our electricity industry, we provide the maximum opportunity for the development of benign, non-poisonous technologies, and get those on board as quickly as possible, so that we can make sure that the rest of the world does not have to go through the same process as we did. We went from wood burning, which is their principal source of energy, through the fossil fuel cycle, to arrive at nuclear and renewable technologies. If we force them to go through that same cycle, we shall end up with a poisoned globe. We cannot afford to see the limited supply of fossil fuels left in the world used in this way.
730 Will the Bill enable our industry to meet the challenges that I have outlined? The Bill will promote competition, and cheapness flows directly from competition. Perhaps more importantly, the Bill will free the industry from the dead hand that it has on it because the Government always have to have a say. The Bill will allow our power engineers and fuel and environmental scientists the opportunity to sell the known expertise of our industry to the rest of the world. [Laughter.]
I am sure that the laughter from the Opposition Benches stems from the fact that Opposition Members do not represent constituencies which contain the more developed sections of the industry. In other words, they have no concept of what the industry is capable of achieving. My right hon. and hon. Friends know that the industry has been conspicuously unsuccessful, with its present organisation, in selling British technology to the rest of the world. It has not succeeded in selling the developments of that technology that have taken place here. The Bill will free our industry by providing an incentive to go out and sell. That is a profit motive, which is the best available incentive for the industry.
The Bill will provide and demand new challenges for and of the industry, rather than allow it to relax within the same old mould in which we have allowed things to run for the past 40 years. As such, it deserves the support of the House.
§ Mr. Eric Illsley (Barnsley, Central)
The proposals in the Bill are another example of the Government's obsession with selling industries into private hands. Once again, public interests will become secondary to the interests of the City and investors. We shall witness again a cheap-rate sell-off. The assets of the electricity supply industry will be sold at well below their value, at about £20 billion.
The supply of electricity is vital to the nation. There are 22 million consumers, both private and within industry, including hospitals and schools. It should not be floated around the stock exchange to speculators and profiteers. Instead, it should be protected. Plans should be made for the future, and the industry should be kept in public ownership so that the United Kingdom can retain a safe and economic supply of electricity.
The Bill will not increase competition. Instead, it will threaten security of supply. It will increase cost to the consumer through the nuclear tax and the nuclear levy. It seems that the taxpayer will have to bail out the nuclear industry, bearing in mind the proposed grants for decommissioning costs.
The idea that the Bill will increase competition is misguided. The CEGB recently told the public inquiry into the Hinkley power station that a minimum of 6 GW of generation will be required over the next 10 years, but we have heard during the debate that that figure could be as high as 15 GW. If there is such a shortage of capacity, or shortfall, there can be no competition. Any new generator will merely be included within the existing capacity. Even if there is sufficient capacity to ensure competition, the Government will ensure that the nuclear industry is not exposed to it. The nuclear tax and nuclear levy will lead to funding for nuclear power stations, and that is unlikely to come from private investment. 731 The Government will give grants to generators to cover the cost of decommissioning. This will cosset the nuclear industry against its unpopularity and the likelihood that it will be shunned by investors who will not take on the inherent risks.
We have heard this evening that there can be no competition at the point of consumption. Area boards cannot be duplicated. As members of the Select Committee on Energy heard, there cannot be two switches in every home. Where is the alleged competition going to come from? There will be only limited competition in generation. There will merely be a duopoly. We have heard of the mysterious 20 companies that are ready and willing to set up within the industry, but they have not yet been identified. We are told, however, that they are there. Even if that is so, there will still be only the duopoly at the outset. There will be the French link, but as we have seen in the past, that is likely to be cut off at any time by the French when their power requirements demand.
The main benefit from competition should be choice for the consumer, but there is no choice in the Bill for the United Kingdom consumer. We have heard that there cannot be competition or choice at the point of consumption. The only benefit that could come from privatisation is lower prices. The Secretary of State has only recently increased prices, and we are likely to see further price increases as a result of the nuclear levy. As I have said, competition cannot be introduced, and it is unlikely that we shall enjoy lower prices.
§ Mr. Illsley
No, I shall not give way.
It is apparent that the cost of nuclear power is far in excess of the cost of coal generation. In evidence to the Hinkley inquiry, the CEGB has admitted that nuclear power could be up to one and a half times as expensive as coal generation. With public sector rates of return of about 5 per cent., coal and nuclear power are neck and neck. Given a private sector rate of return of more than 8 per cent., or perhaps as much as 15 per cent., the balance swings dramatically in favour of coal.
The argument for nuclear power is based on the need for diversity of fuels and security of supply. Both fuels can be achieved without privatisation. The cost of diversity in the form of the pressurised water reactor programme, according to the Council for the Protection of Rural England, would be £432 million a year, and that cost would be passed on to the consumer. The same study showed that simply increasing coal stocks by 2 million tonnes would give the same security of supply as investing in PWRs. The costs of nuclear energy are far in excess of those of coal generation, as the Government have more or less admitted by their support for private Bills to increase coal importing facilities, yet they will still not expose the nuclear industry to even limited competition.
Many other costs will become apparent. For instance, large industrial customers will be able to contract directly with generators: some large industries, indeed, may themselves become generators. The successors to the area boards could lose out on large industrial contracts. Industrial customers account for some 52 per cent. of the total consumption on my area board, the Yorkshire electricity board. If it were to lose those customers, the adverse effect on the board would be huge. Twelve area 732 boards will become public energy suppliers. What of the risk of takeovers, reductions or foreign involvement? Again, the costs will be passed on to ordinary consumers.
A major consideration will be the effect on the British coal industry. It is apparent that one of the Bill's sidelines is to kick the industry again. The Government have never lost an opportunity to try to restrict the industry as far as possible; now there will be further pressure on British Coal, further colliery closures and job losses, although British Coal has increased its productivity by some 70 per cent. over the past three years—a massive contribution.
Only recently, British Coal's half-yearly account announced an operating profit of £119 million, yet at the same time its chairman announced further redundancies. Profits would have been higher had British Coal not been obliged to pay £700 million to the CEGB in price reductions based on the international coal price. Those reductions were forced on British Coal because world prices were artificially low and could not be sustained. Prices would have been increased had the CEGB delved into the international market.
At present, the country cannot import enough coal to satisfy its total energy needs. The £700 million was a subsidy to the CEGB to ensure its profitability in the run-up to the Bill. The Government have taken every opportunity to attack and dismantle the British coal industry over the past 10 years, and they have not lost the opportunity provided by the Bill.
The Select Committee on Energy recommended in its report, which has been referred to several times, that long-term coal contracts be placed before privatisation to ensure the stability of the British coal industry and to give some stability to the industry before privatisation. Those contracts should be for British coal, not for South African, Colombian, Australian or Korean coal. The coal-fired power stations that were proposed for Kingsnorth, West Burton and Fawley have been postponed because of the uncertainty that hangs over their future. The CEGB believes that there would be difficulty in selling output from those stations. The costs of nuclear power are ever increasing, because of decommissioning and construction costs, so there will be a long-term future for coal and it would be short-sighted of the Government to allow the British coal industry to be overtaken and run down in favour of foreign suppliers.
On the Order Paper is a motion in the names of myself and four other hon. Members who were members of the Select Committee on Energy. Members of that Committee recommended in the report that the Bill should be referred to a Special Standing Committee. We have heard this evening that certain members of the Committee declined to put their names to that motion on the basis, perhaps, that they were already aware that the Department of Energy had expressed an opinion that it did not want the Bill to go before a Special Standing Committee. Those hon. Members did not presumably, want to be associated with a motion that went against the opinions of the Department. I ask hon. Members to support the motion when it comes before the House, thereby supporting the idea that this important Bill should go to a Special Standing Committee.
§ Mr. Roger King (Birmingham, Northfield)
Twice during the course of the debate, the hon. Member for Aberdeen, North (Mr. Hughes)—who is not in his place at the moment, which I fully understand—has referred to an aside that I might have made about the fact that, in effect, I thought that the proceeds from the privatisation of an industry such as the electricity industry would be put to very good use by the Government. The Opposition have again illustrated their Luddite attitude towards the new economic regime that most of the world is entering and of which we, as a country, are one of the leaders. We cannot go back to 1947 when we had a war-ravaged economy, in which there was no personal wealth to be distributed in the community and no pension funds or bank balances with which people could invest choice in industry and commerce.
Times have changed since then. We have a substantial amount of economic growth and we have large amounts of investment, which have been accrued by pension funds. We have the opportunity, therefore, for the state to divest itself of many of the undertakings that it has taken upon itself over the past 40 years. It is right and proper to consider electricity as a basis for further implementation of the programme.
I am not surprised that the Opposition are concerned about the future because, with the announcement of further privatisation—in water and electricity—in the Gracious Speech, we are now well on the way to fulfilling our objective of handing back to the people and to the community the operation of all those industries that the state has decided that it could do better than anybody else, at some stage over the past 50 years or so.
I welcome the Bill. It is innovative and imaginative and I am sure that it will prove to be effective. Those people who say that there are problems are the self-same people who said that we could not privatise the airports. They said that we could not make public companies out of municipal airports and that they would not work, they would go out of business and would be of no use to the community. We have seen what a success the British Airports Authority has been and what a success Manchester, Birmingham and Newcastle airports have been under the new regime. It is nonsense to suggest that privatisation and a more rigid discipline in running some of our ex-municipal assets cannot prove effective.
My hon. Friend the Under-Secretary of State played a leading part in presenting to Parliament the Bill that deregulated buses. Opposition Members argued, "No one else in the Western world has privatised their buses. It cannot and will not work for the community. No one will want to buy the services; there will be no investment and no competition." [HON. MEMBERS: "Claptrap."] It was the same old claptrap, as my hon. Friends so clearly say. Two years later, we know what nonsense that argument was, as bus deregulation has proved a substantial success. It has brought with it competition and new services at far less cost to the user. Yet according to the Opposition it could not be done.
There is clearly an analogy between buses and electricity. Take the west midlands, for example. The deregulation of bus services has resulted in one prime operator—West Midlands Travel—retaining about 96 per cent. of the service. The new operators have not proved very successful in wresting routes away from the original 734 operator. Why is that? It is not because anyone has regulated the system or prohibited new operators from coming in but because the prime operator fears the possibility of competition. The law says that competition is allowed but competition has not shown itself because the original operator has become so efficient and effective in providing what the community wants that it has scared off new operators. I believe that the self-same policy will work for electricity.
§ Mr. Salmond
Is not there a difference in entry costs between running a bus and building a power station?
§ Mr. King
The hon. Gentleman will soon realise that costs will come down dramatically as a result of the opening up of the market for power station generation. As a result of privatisation, the industry, which has already committed itself to substantial power creation, will be able to sell its electricity on to the area boards, which it has not been able to do easily until now.
The regime that my right hon. Friend the Secretary of State proposes is eminently workable. Naturally, I should have preferred more of a break-up of some of the operating companies. For example, I should have liked Birmingham to have bought its power from Trent Valley Power and Light, providing an opportunity for the coal stations in the Trent valley to operate as one unit and to sell electricity to anyone who wanted it. I understand the principle of creating the little and big generators as two organisations, which will attract investment from private sector and trade union funds and, inevitably, from elsewhere in Europe. The system that my right hon. Friend proposes will work, and it will work well.
Perhaps one question mark hangs over the proposals, in the form of the nuclear element. One way forward might have been for nuclear energy to be taken on one side, allowing the big and little generators to come to the market free from the nuclear legacy that they are to inherit. That is not to say that nuclear energy could not at some stage have come back into the market place under a reconstituted regime, and once its problems had been solved. From the investors' point of view, however, the little or big generator may not prove so exciting with the nuclear industry attached to it as it would without. Time will tell. Great strides are being made in the nuclear industry and it will account for a substantial part of energy creation in the future.
The White Paper states that the object of privatisation is to eliminate a large amount of interference in day-to-day management over the running of the industry. I am a little unhappy that there appears to be more regulation than, ideally, I personally would like. However, I feel sure that, in Committee, my right hon. and hon. Friends in the Department will spell out in detail just how little is that regulation. To succeed, we must encourage as much freedom of development as we can.
My right hon. Friend said that the obligation to supply will remain. However, although clause 15(1) states:a public electricity supplier shall, upon being required to do so by the owner or occupier of any premises",clause 16(2)(c) says that an exception is whenit is not reasonable in all the circumstances for him to be required to do so.We would welcome clarification of that point. It should be a right to be supplied with electricity in as many cases as possible, although I am sure that there are circumstances, even today, that make that impossible. 735 The hon. Member for Barnsley, Central (Mr. Illsey) mentioned direct contracts between generators and customers. There are opportunities for large car plants, blast furnace industries, smelting, aluminium and other foundry industries to do a deal with generators, which will be welcome. I applaud that proposal, but we must ensure that in taking such sales out of the area boards, arrangements for compensation are made so that the boards' remaining users will not be penalised too heavily by the removal of a substantial element of business.
However, I suspect that taking certain users out of the board arid allowing them to make direct deals will concern only a small percentage—those depending to an enormous extent on electricity for their processes, such as aluminium smelting, where electricity can be their highest single cost factor. I am sure that opting out will be widely welcomed by many industries in the west midlands and elsewhere.
With those few small reservations, I congratulate my right hon. Friend and look forward to the Bill reaching the statute book as soon as possible.
§ Mr. Jimmy Hood (Clydesdale)
In my usual polite way, I have given thought to the best way of describing the Bill. The most polite expression I can think of is that it is a treacherous Bill. My view has been reinforced by comments made by the hon. Member for Rochford (Dr. Clark) who, in referring to the mining industry, spoke of it as cossetted and protected. That comment is insulting to an industry that has improved its productivity by 50 per cent. in the last four years, and says more about the Government's dogma against the mining industry. The Electricity Bill is very much an anti-mining industry Bill.
This is the Government who preach against monopolies, but their Bill proposes creating a most dangerous private cartel. While preaching the gospel according to the consumer, the Government are creating a situation in which the consumer will have to foot the Bill for the fat cats of the City. The Bill is not about the best way to supply energy or the efficiency of power supplies: it is more of the same poison from the politics of dogma. The Government's whole approach to the public sector is one of hostility. Regardless of the service provided, the Government say, "If it is provided by the State, we shall sell it off to our fat cats in the City."
Right hon. and hon. Members will recall the late Viscount Stockton, a former Conservative Prime Minister, condemning the present Government for selling off the family silver. The present Government are the "spiv brokers of the century". There are three balls hanging outside 10 Downing street, the home of the supreme pawnbroker. Bad as that is, even more offensive is the effect this Bill will have on the consumer, the electricity industry and the workers within the energy industry. Its effects will devastate the mining industry. As a Member representing a Scottish constituency, I say that it will be especially devastating to the Scottish mining industry.
The Bill spells the death of the Scottish mining industry. In 1964, I joined the mining industry in Scotland as an apprentice engineer and I was promised a long future. Within four years, I had to get on the proverbial "Tebbit bike" to go down to continue my career in the Nottinghamshire coalfield. Again, I was told that there was a safe and secure future for coal there.
736 Then cheap oil flooded the oil markets. When miners' leaders warned Governments of the dangers of closing pits and giving the energy monopoly to the oil sheikhs, they were laughed at. In the early 1970s, the Arabs cornered the market and quadrupled oil prices. The effect on Western economies was devastating, and we are still feeling the pinch of selling our energy industry to the oil sheikhs.
Sadly, we are going down the same road again. We are closing our mines and allowing the foreign producers of coal to corner our markets. At the same time. we are expanding the nuclear power industry, with its high costs and shady safety record. Nuclear power is the great "That Was" for the Government.
The one thing that we know about the Government is that they will buy coal from anywhere— South Africa, Colombia or China. They will buy coal from anywhere, but they will not support the British mining industry.
Perhaps the Minister of State, Scottish Office will tell us who will foot the bill for the £2.5 billion owed by the SSEB and the Hydro Board. We are interested to know that.
Much has been said in the debate about efficiency and costs. When British Airways was privatised, we were told that writing off debts was an incentive to the private sector. It would be good if the Government had the same faith in the public sector. If they wrote off the debts of the mining industry, which are more than £4 per tonne, that would create incentives for public industry. But the Government are not interested in public industry. They do not consider the public good; they are interested only in private good, monopolies and fat cats in the City.
It is ironic that we are having the Second Reading of the Bill in the same week as the miners in the Nottingham coalfields have finally rumbled the stiletto gang, the leaders of the Union of Democratic Mineworkers in Nottingham. We are told today that 56 per cent. of them voted against the latest pay offer. Last week, there were allegations of ballot rigging, and the word in the Nottingham coalfields today is that the vote would have been 80 per cent. were it not for that. Even in Nottingham, the miners have woken up to this Government. It gives me no joy to say to the Nottingham miners, "I told you so," but we certainly did. The hon. Member for Sherwood (Mr. Stewart) is not in his place. I remember him sneaking through picket lines during the miners' strike, going to hotels, buying dinner for UDM leaders and saying, "We are the party that supports you."
As a result of the Bill, pits will close in the Nottinghamshire coalfields, as well as the Scottish, Welsh and peripheral coalfields. Pits in and around the Gentleman's constituency, including Bilsthorpe, Sherwood, Annesley, 0llerton and Bevercotes, are threatened by the Bill. We are not talking now about economic pits; we are talking about power stations that can be fed from ports that are supported by the high priestess herself, the Prime Minister. She voted for the closure motion in respect of the North Killingholme Cargo Terminal Bill to build a coal terminal on Humberside.
The message to the hon. Member for Sherwood is that he was promised West Burton as a gimmick, but nobody believes that it will be built. Coal and coal miners' jobs will go sailing down the Humber, at the same time as Tory Members in the midlands are selling the miners down the river. The Bill will cost the hon. Member for Sherwood his seat, and when the electorate realise what the Government have done, the Bill will cost them their office.
§ Mr. John Maxton (Glasgow, Cathcart)
During his opening speech, the Secretary of State suggested that tomorrow would be Scottish day—presumably implying that today was English day. He was wrong, because four Scottish Members have already spoken, I am replying on behalf of the Opposition and a Scottish Minister is replying on behalf of the Government.
Nevertheless, I hope that tomorrow will indeed prove to be a Scottish day because that will mean very few contributions from the Conservative Benches. During today's discussion on the privatisation of the Scottish electricity supply industry, not a single Scottish Tory Back Bencher has been in the Chamber. The Minister has been here most of the time, but the Secretary of State for Scotland has not bothered to be here for most of the debate. Of course, there are few Scottish Tory Members. Indeed, following a walk-out, neither has any Scottish Democrat been here to listen to the debate.
There should have been a separate Scottish Bill dealing with privatisation in Scotland because the Scottish industry is different and separate. It is organised differently, it will be privatised differently and different problems will arise for Scotland. In response to my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes), the Secretary of State said that, because the various areas of the industry were nationalised under one Bill, they should be privatised under one Bill. In fact, they were nationalised under the control of the then Minister for Fuel and Power; they were only separated and the Scottish boards put under the responsibility of the Secretary of State for Scotland by a Tory Government in 1955. The Secretary of State should have got that little fact right—[HON. MEMBERS: "He did."] He did not; he was wrong.
The Secretary of State is, as usual, dodging his responsibilities and refusing to be accountable to the Scottish Members of Parliament. He is allowing his junior Minister to take the Bill through Parliament because he knows that he cannot man a Standing Committee to deal with a separate Scottish Bill. He simply does not have enough Back Benchers. It is insulting to the House and to Scottish Members that our business should be conducted in that way. It has nothing to do with nationalism or devolution; it has everything to do with how this House treats its Scottish Members and Scottish business. If there is to be separate Scottish legislation and separate Scottish administration, the House must learn to deal with that properly.
The Secretary of State for Scotland said that the reason for having just one Bill was that its regulatory powers would be common to England, Scotland and Wales. However, as soon as the Scottish press suggested that the regulatory powers would come under the Secretary of State for Energy, the Secretary of State for Scotland quickly denied that and said that the regulatory powers for Scotland would come under his Department. I hope that the Minister will clarify that.
As I understand it, the Bill provides for a director for the regulatory board. Presumably, there will be a deputy director seated in Edinburgh looking after Scottish matters. It will be an odd set-up if the deputy of the board is responsible not to his boss, but to a different Secretary of State. I hope that the Minister will take the opportunity to explain it, but that is the way it appears at present. We 738 shall have the odd separation of regulation between Scotland and England as a result of what the Secretary of State is doing.
Why should we privatise the Scottish boards? What arguments can there possibly be for privatising? The Secretary of State for Energy tries to suggest that the reason for privatising the English boards was to introduce an element of competition and to put into the boards the idea at least that local companies could compete where they get their generation supplies. In an eloquent and logical speech, my hon. Friend the Member for Sedgefield (Mr. Blair) successfully demolished that argument. Even if the arguments of the Secretary of State for Energy stand up in England and Wales—in my view, they do not—they certainly do not stand up in Scotland, where two vertically integrated companies, both generating and distributing companies, are to be established.
There is to be no competition for the consumer. There will not even be competition for generation. Each company will have its own defined areas and its own defined generators. There is to be a split-up between the two companies about which is to get which piece of generating capacity and which is not. The Cruachan power station is to be given to the South of Scotland electricity board. Half the capacity of the Peterhead station is to be given to the South of Scotland electricity board. The Hydro Board is to get so much from the SSEB in return. It is all to be carved up before privatisation even takes place. There is to be no competition.
The hon. Member for Birmingham, Northfield (Mr. King) gave the game away. He said that one area in which there could just possibly be competition in England, Wales and Scotland is among the big industrial users of electricity, and that they might compete and try to get a better deal from another generating board. He said that, if that happens, we must ensure that the company that was supplying before remains viable. He wants regulation and control and some way in which competition is stopped. He does not regard competition as beneficial in the longer term to the companies that are operating.
What on earth is the argument in Scotland? What argument can the Minister of State, Scottish Office provide to show what competitive element will be introduced in Scotland to justify privatising an industry that the people of Scotland have clearly said that they do not wish to be privatised?
I refer not just to the average consumer but to political parties in Scotland, with the sole exception of the Tory party, which, according to the last opinion poll, had 19 per cent. support in Scotland. Even the CBI in Scotland, major industries and the Hydro Board do not want the industry to be privatised. Perhaps the only people who want it to be privatised are members of the SSEB board, presumably because they see themselves getting much larger salaries as a result of privatisation. There is no logical argument for this privatisation taking place.
In his evidence to the Committee, the Secretary of State—I have also heard the Minister speaking on television, certainly within the past fortnight and several times before that—said that the reason for the privatisation of Scottish boards was to transfer control of the Scottish electricity industry from the Treasury in London to Scotland.
It is a remarkable indictment of the Secretary of State and the Minister if they are now saying that they do not control the Scottish electricity industry, have no power over it at present, and do not wish to control it. That is 739 what they have been saying over the past week. They say that ownership of the Scottish electricity supply will be transferred back to Scotland. The Minister tonight and the Secretary of State tomorrow had better tell the House and the Scottish people exactly how they will ensure that the ownership of the Scottish electricity industry will be in the hands of Scots immediately after privatisation and will remain there.
It is interesting that the Secretary of State for Energy did not mention a golden share. The phrase did not cross his lips. Over the past few days we have heard many rumours and much speculation from the Scottish Office about golden shares. Golden shares can only be about ensuring that the companies do not fall into foreign hands, but the Government do not consider England to be foreign. [HON. MEMBERS: "Do you?"] No, I do not. As the Secretary of State and the Scottish people own and run the Scottish electricity supply industry, the Secretary of State for Scotland must give guarantees that the industry will remain in Scottish hands, but he cannot do that.
The chairman of the SSEB, Donald Miller, has said that there are not sufficient funds among Scottish investors to purchase the Scottish companies. How on earth will the Government ensure that the Scottish electricity supply industry, at present controlled by the Secretary of State, will remain in Scotland? I do not think that they can. They have no means of ensuring that, whether through a golden share or whatever. Therefore, we are likely to see the Scottish electricity supply industry, which the Scottish people want to see in the hands of Scots, passed from Scottish hands into the control of others. We do not want that.
If the Scottish companies must be privatised, the Secretary of State must ensure that they are and will remain viable and that prices do not rise. The Secretary of State for Energy and Conservative Members keep saying that competition will force down prices, but Donald Miller is on record as saying that as a result of privatisation prices in Scotland will rise. The Government must tell us how the Scottish industry will remain viable.
Unlike England and Wales, Scotland generates more electricity than it needs and at present it sells electricity to the English boards. If it is not to make a loss, and we do not want to see Scottish power stations, particularly coal burn stations, closing, it will have to sell much more of its over-capacity. We must sell much more if we are not to see dramatic price increases and many people being made redundant. As we shall have to sell much more, the interconnector between Scotland and England will have to be improved to ensure the passage of supply. Who will pay for that? Who will raise the cash to ensure that that interconnector will be put in place quickly? It is a searing indictment of the CEGB and the Government that the interconnector has not been upgraded in the past few years. In the first few years, Scottish boards may well be in serious difficulties because of that, and they will not be able to sell sufficient power to England.
The question that we must ask is, who will be paying for the interconnector? If the Scottish boards are left to pay for it, the price of electricity to Scottish consumers will increase because they will have to find the money to pay for that. If the CEGB or the new local companies in England are to pay for it, they will have to increase prices. Or are the Government to pay for it? Can we have a clear statement from the Government as to whether they will pay?
740 Finally, because this is much more of a problem in Scotland than in England and Wales, we must know who will bear the costs of decommissioning. Donald Miller has made it clear that if the Scottish boards are left to carry the full cost of decommissioning the nuclear power stations, they will be "unsellable". Those were Donald Miller's words, not mine. Again, the Government must make it clear exactly how they will make the companies sellable.
Opposition Members believe that there is no need for privatisation. The electricity supply industry is efficient. It serves a social and economic purpose. Competition will not be introduced as a result of the legislation. The Bill is wrong in principle and will be wrong in practice. I ask my hon. Friends to vote against it.
§ The Minister of State, Scottish Office (Mr. Ian Lang)
My hon. Friend the Member for Worcestershire, South (Mr. Spicer), the Under-Secretary of State for Energy, will reply to tomorrow's debate, so perhaps it will help the House if I now reply to some of the points that have been raised. I shall deal first with the points raised by the hon. Member for Glasgow, Cathcart (Mr. Maxton), who repeated the complaint of Opposition Members, that we have heard much of in Scotland in recent weeks—that there should be a separate Scottish Bill.
It is an interesting doctrine that, because the Labour party is opposed to a piece of legislation, it wants two Bills on that subject so that it can oppose the legislation twice. Perhaps that is to conceal the differences that may exist between Scottish and English Opposition Members on this issue; but, on reflection, that is unlikely, as no differences on this matter could exceed the differences that already exist within the Scottish Labour party on almost every issue facing us today.
There are differences between some of the provisions in the Bill relating to Scotland and those relating to England. However, they reflect the distinctive characteristics of the electricity industry in those countries, sensitively recognised, which presumably is what Opposition Members would wish. They do not reflect any difference in the underlying philosophy. The Scottish industry has much in common with that south of the border. Therefore, it is entirely right and logical, in provisions on issues such as safety, security of supply or regulation, where there is much that is the same in the two countries, that there should be one Bill to avoid duplication.
We should put the Bill in its proper perspective. It privatises 15 undertakings in one piece of legislation. In 1947, the then Labour Government nationalised not 15 but 561 different undertakings throughout Scotland, England and Wales—in one Bill. Fifty-three Scottish undertakings—53 centres of Scottish enterprise and decision-making—were wiped out. The control of their activities was taken south to the Central Electricity Authority, which was established in England by that Labour Government, along with 500 more from England and Wales. So let us hear no more humbug from the Labour party about wanting more than one Bill, when we are bringing the Scottish industry back to Scotland.
The hon. Member for Cathcart complained that five Conservative Back Benchers from Scotland have not been present. I should point out that 40 of his Back Benchers from Scotland are not here either, including, for much of 741 the debate, his hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) who will open the debate for the Opposition tomorrow.
My right hon. Friend the Secretary of State for Energy made it clear that the Electricity Bill will enable the guiding principles and aims set out in our White Papers early this year to become reality.
The Bill marks a turning point in the history of the electricity industry. No longer will there be cosy arrangements between public sector bodies, which mask the real costs of running the industry and provide no incentives for customers and employees to invest in the industry's future. We shall be shaking free the shackles of State control, providing new opportunities for competition and making the electricity industry subject to the rigours of the private sector.
My right hon. Friend the Member for Selby (Mr. Alison) rightly pointed to the extent of competition that is to be introduced by the Bill. One of his examples was the access of major industrial users in England and Wales direct to the generators—
§ Mr. Lang
No, I shall not give way, because I am replying to a point raised by my right hon. Friend the Member for Selby.
I am happy to reassure my right hon. Friend, who asked whether the Bill provides cover for that purpose, that it does and that that will be achieved through the licence arrangements for which clause 7(2) provides the powers.
My right hon. Friend also asked about Drax being protected in terms of the costs for fitting the fluid gas desulphurisation plant. I must say that, while the details are still under consideration, I assure my hon. Friend that our aim is to ensure that stations fitted with fluid gas desulphurisation equipment will not be disadvantaged in the running of the merit order. My right hon. Friend referred to the dramatic improvement of 75 per cent. in productivity at Selby and pointed to the coal to Drax being delivered at the rate of 38,000 tonnes a day, to which Lord Marshall said that the power station was inextricably linked, when he prophesied a bright future for it.
Coal can have a bright future in the electricity generating industry, provided that it is competitive. The hon. Member for Midlothian (Mr. Eadie) suggested that coal was in fact cheaper than nuclear power. That is not the case in Scotland. The SSEB's recent all-in cost figures showed nuclear at 1.9p per unit compared with fossil fuel at 2.4p per unit.
§ Mr. Lang
The position of the debt in the SSEB and the North of Scotland Hydro-Electric Board will be dealt with when it comes to flotation, and the Government will consider to what extent that debt should be converted into equity or debentures in order to maximise the return to the taxpayer. Therefore, the hon. Member for Midlothian does not have a strong point there.
742 To those who said that coal was not guilty as a pollutant, I say that that may be true in Scotland, where to a large extent low-sulphur content coal is used, but I hope that they welcome the desulphurising equipment now being installed in power stations at a cost of £1.6 billion. As my hon. Friend the Member for Bristol, North-West (Mr. Stern) said, nuclear energy in this context will be environmentally preferable.
Coal can be competitive. Indeed, it is precisely that fear of competition presented by the Bill that causes hon. Gentlemen who represent coal mining constituencies to express their anxieties so readily.
§ Mr. Lang
I shall not give way, because the hon. Gentleman has not been present during the debate, and I have many points to which to refer.
The hon. Member for Aberdeen. North (Mr. Hughes) raised the question of wider share ownership. I must say to him that, far from discouraging wider share ownership, the Bill will be one more opportunity to increase share ownership in Scotland and throughout the United Kingdom.
§ Mr. Lang
It has not failed in the past. In Scotland since 1979 the number of individual shareholders has doubled. This is an opportunity for consumers and for employees in the Scottish industry to gain access to ownership of part of their industry.
It was my hon. Friend the Member for Birmingham, Northfield (Mr. King) who drew the analogy with buses and told us of the success which had been achieved by deregulation and privatisation. When we announced our plans to privatise buses in Scotland, the hon. Member for Garscadden said that the measure was not wanted. Yet the next day the newspapers were full of pictures of employers seeking anxiously to establish themselves as candidates for employee buy-outs. That is the enthusiasm that exists in Scotland for ownership of the private bus sector.
The Bill will bring about effective change and improved performance in one of our most important and dynamic industries. The cost-plus era for the electricity consumer will come to an end, and I am happy to reassure my hon. Friend the Member for Rochford (Dr. Clark) of that. Decisions about the supply of electricity will be driven by customer needs. The director general will promote competition—the best guarantee of customers' interests. He will oversee prices and protect customers' interests where natural monopolies remain. Security and safety of supply will be maintained. Customers will get new rights and not just safeguards; and all who work in the industry will be able to have a direct stake in their future, with new career opportunities and freedom to manage their affairs without Government interference.
Opposition Members are aware of the benefits which will flow from our proposals, even though they dare not admit as much. Instead, they resort to idle and misplaced speculation about higher electricity prices, which have absolutely no foundation in the facts.
My hon. Friend the Member for Erewash (Mr. Rost) was right to say that the competition of new entrants to the generating industry was beginning to introduce downward pressure on prices. 743 Many of my hon. Friends have drawn attention to the benefits that the Government's proposals will bring to electricity consumers, to the industry and its employees.
The hon. Member for Sedgefield (Mr. Blair) predicted price rises—predictions made, of course, before the Bill was published—although that did not make much difference, given his contribution today. In his predictions he included price increases that had already taken place. He then added a dividend figure for investors, overlooking the fact that the industry already makes a return on its assets, which will form the basis of that dividend, even though that return is below the rate of return proposed by the Labour Government in 1978.
The hon. Gentleman also added a wholly speculative figure, unfounded in fact, for the fossil fuel levy. He ignored the fact that we are already paying for nuclear generation and that the purpose of the levy is to maintain that level of generation and to make the costs transparent.
Perhaps the hon. Gentleman was at his most sickening when he referred to the heating costs of the poor. Apart from all the extra heating allowances that the Government have introduced in the past nine years, the hon. Gentleman seems to have forgotten that, between 1974 and 1979, prices under the Labour Government rose by 180 per cent., a real terms increase of 20 per cent. In the past five years, under the Government, prices have fallen by 9 per cent. in real terms in Scotland and by 8 per cent. in England and Wales.
§ Mr. Lang
No, I shall not give way.
The hon. Member for Sedgefield was notably silent on whether or not his party is still committed to phasing out nuclear energy, given the increased costs of some 30 per cent. that would result. He asked us why we should privatise; the debate has been permeated by contributions from the Labour party asking why we bother. That is typical of the inert, negative and complacent attitude that the Labour party adopts to such important economic issues. Why bother? If we had not bothered to fight inflation it would still be averaging more than 15.5 per cent., as it did under the Labour Government. If we had not bothered to turn our attention to the state of the economy, unemployment would still be rising, following its doubling under the Labour Government. Industrial relations would still be at their worst ever and probably the IMF would still be running the country.
It is precisely because we have bothered that public expenditure is now under control and falling. It is because we have bothered that taxation is now down, unemployment is falling and, in terms of manufacturing productivity, we have moved from the bottom to the top of the league. It is because we have bothered that we have had seven years of sustained growth and rising prosperity. It is because we have bothered that so many of the nationalised industries are now viable, successful and revenue-generating in private hands.
§ Mr. Lang
No, I am sorry: I shall not give way.
Before we bothered, those nationalised industries were a drain on the taxpayer. They were inefficient, uncompetitive and lacking in investment. With electricity, 744 as with the other industries, there are more benefits to come, following even on the efficiency that has led to the fall in prices in real terms in the past few years.
We have bothered because we care. It is because we have bothered that the failures of the Labour Government are our successes as well as the promised successes of the future.
Our proposals will push electricity costs downwards by ensuring that a competitive environment is created within a Great Britain market for electricity. We shall improve the quality and timing of major investment decisions. The hon. Member for Sedgefield complained about 80 per cent. over-capacity at the time of nationalisation. In Scotland, present over-capacity is not 80 per cent., but 100 per cent. That has been caused by nationalisation and public ownership.
Our proposals will enable larger electricity customers to contract directly with suppliers of their own choice. I do not accept the problem that the hon. Member for Wandsbeck (Mr. Thompson) identified regarding the use of the grid. We shall create new opportunities for private generators to contract with public electricity suppliers or direct with large customers. We shall require public electricity suppliers and transmission licence holders to offer fair terms for carrying electricity generated.
As well as promoting competition, the Government's proposals combine the benefits of security of supply with enhanced consumer rights. The proposals will ensure that, in England and Wales, the electricity consumer continues to benefit from diversity of supply by requiring each public electricity supplier to purchase a specified minimum amount of non-fossil fuel generating capacity. In Scotland, the substantive investment already made in non-fossil fuel generating capacity makes such a requirement unnecessary for the foreseeable future.
We have made clear our intention to create a modern. competitive industry throughout Great Britain in which the public will have a major stake and which will be responsive to the needs of customers.
Privatisation of electricity will offer real benefits and new prospects for the customer, the employee and the economy as a whole. We believe that privatisation of the electricity industry will provide new and exciting opportunities. The Bill represents a major step forward in the Government's privatisation programme. Privatisation of the electricity industry will be good for the consumer, the taxpayer, the industry and its employees and the economy as a whole.
Our proposals will secure even greater efficiency in the provision of a service that is vital to the future economic prosperity of this country. They will provide new opportunities for ownership by consumers, employees and financial institutions, so that they can acquire a stake in one of our most modern and important industries—
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.