HC Deb 07 March 1988 vol 129 cc48-128

5 pm

The Secretary of State for Energy (Mr. Cecil Parkinson)

I beg to move, That this House, recognising the importance of introducing competition into the electricity supply industry, the advantages of new rights for customers, and the benefits of privatisation, approves the proposals set out in the Government's White Papers on the privatisation of the electricity supply industry in England and Wales, and Scotland, Cm. 322 and 327.

Mr. Speaker

I have selected the amendment in the name of the Leader of the Opposition. In view of the late start to this debate, may I appeal for brief speeches, both from the Front Benches and the Back Benches.

Mr. Parkinson

The motion refers to Scotland as well as to England and Wales. I shall cover Scotland in part of my speech, but in the main I shall concentrate on my responsibilities, which are for England and Wales. My right hon. and learned Friend the Secretary of State for Scotland will deal with Scotland in detail if he is fortunate enough to catch your eye, Mr. Speaker.

I am glad that the House has this early opportunity to debate our proposals. The subject is important and the issues are complex. It is obviously right for the House to comment now that we have taken our decisions on the structure of the industry, but there is much detailed work to be done before legislation can be introduced. The debate will set the scene for our consultations with the industry. In our legislation we can then build on what is said by the House and the industry. The Select Committee report will be an important part of that process. In bringing forward our proposals, we have already consulted widely. We have listened to many people and many views. We shall continue to consult as we develop the detailed legislation. The day after I had made my statement to the House, a copy of the White Paper was delivered to every employee in the industry—all 131,000 of them. We intended that each employee should have a chance to read the proposals, as they will greatly affect his or her future.

I ask the House to approve the White Papers for three reasons. First, our proposals will mean a better deal for the customer; secondly, they will provide wider opportunities and new freedoms for employees; and, thirdly, they will be of real benefit to the economy.

Our proposals are radical in their objectives, but they are also evolutionary. We are not in the business of transforming the electricity industry over night. That would not be possible or desirable. We have at least two years from now to put in place the new structure, and it will preserve what is best about the industry. The new structure will be just the start. It will create a framework in which a modern, competitive industry will develop. It will create a customer-led industry, with the 15 distribution companies free to find the cheapest sources of power for their 22 million customers. A new industry will evolve and will be shaped by the needs of its customers.

Since my statement last week there has been much ill-informed comment from Opposition Members, who talk about a continuing monopoly, rising prices and a bleak future for British coal. One thing is clear about these myths. They are the Labour party's vision of the future; they are certainly not ours. They describe a future for the industry under state control, not the prospects after privatisation. The facts are that our proposals will introduce competition into the generation of electricity, give new rights to customers, regulate the monopolies that remain, protect the rights of the employees and allow management to use its initiative.

I have always made it clear that we cannot have two competing light switches on the wall, or two sets of wires in the streets. However, it is nonsense to suggest that there cannot be competition to supply the cheapest electricity into those wires. The fact that there is only one shop in the village does not mean that there has to be only one supplier to that shop. We do not need a monopoly in the power stations just because there is only one set of wires to the customer. Opposition Members do not agree with that. They say, "Pile monopoly on monopoly." That is characteristic of the Labour party, and characteristically nonsensical. At the Conservative party conference last year I pointed out that nine months after the hon. Member for Kingston upon Hull, East (Mr. Prescott) took on his present responsibilities he suddenly started to become aware of a few of the problems. It came to him as a great enlightenment that there would be a monopoly in distribution. If he did not know that, he should have given up his job months ago, yet he portrayed it as something that had only recently been discovered.

Mr. Eric S. Heffer (Liverpool, Walton)

The Secretary of State has just said that there will be only one supplier because one cannot have two wires coming into a house. That means that there will be a monopoly supplier for each area. At the moment the people are getting a good deal. Why do we need a change? The change is being made purely for doctrinaire reasons and has nothing to do with the needs of the people.

Mr. Parkinson

Not for the first time this afternoon, the hon. Gentleman is wrong. As I shall explain, there is a natural monopoly in distribution, and no one has over denied that, but 80 per cent. of the costs of electricity come from generation, and there is nothing natural about a monopoly in generation.

As I was saying, Opposition Members' arguments on this matter are characteristically nonsensical and, when one considers the costs, irresponsible. Last year the Central Electricity Generating Board handed a bill for roughly £7,000 million to its 12 customers, the area boards. That made up about three-quarters of the bill that the area boards passed on to their 22 million customers. Several times that figure of £7 billion could be spent on building the new power stations needed by the end of the century. We have to introduce competition into the power stations to keep the costs clown. Parliament agreed that when it passed the Energy Act 1983, which was meant to encourage competition in generation. It has not worked, because it left the CEGB in control as the dominant monopoly supplier. Our proposals will work because that monopoly will be ended. Companies can compete to build and operate power stations more efficiently.

The distribution companies will be the key to change. With a turnover of between £500 million and £1,500 million each last year, they will be among the largest private sector companies in their region. They will have a strong local identity and a real incentive to strike the best deal for their customers. Our proposals will give them the freedom to use that initiative. They will become a force for development in their local economies. They will become real independent companies looking after local interests, not just the distributors of the CEGB's electricity.

Because the CEGB's monopoly will be ended, and because its obligation to supply will be removed, the distribution companies will no longer be obliged to take all their electricity from one supplier. Because the companies will own the grid, they will be able to bring new suppliers on to the system. They will be able to buy in the cheapest electricity and will have plenty of choice. The customer cannot have more than one switch, but the distribution companies can and will have more than one supplier. They will be able to contract for local sources of power supply into their own distribution networks. They will be able to contract from Scotland or France, from the two large generating companies or from the new private generators. A framework will have been created in which a modern competitive industry can develop. Already a number of private sector concerns have expressed interest in generating electricity. The area boards are interested in developing their own local generation. The industry already recognises the need to strengthen the link with Scotland.

Mr. Geoffrey Lofthouse (Pontefract and Castleford)

The Secretary of State referred to Labour party fears about the effect that privatisation might have on the coal mining industry. Does he not realise that he could allay the fears by instructing both the coal industry and the electricity industry to enter into a formal binding contract on supplies to the electricity industry before privatisation takes place?

Mr. Parkinson

The Government did not impose the present arrangement on the industry. The CEGB and the National Coal Board entered into it because they believed that it was in their mutual interests. I have no doubt, as I hope to explain later, that a substantial part of the remaining huge demand for coal will continue to be met from the British industry, subject to certain qualifications.

I was talking about strengthening the link with Scotland. The Scottish industry will be a real force in the English market. It has a large surplus of modern and efficient power stations. The Scottish boards will be important competitors in supplying the 12 distribution companies and the generators south of the border, who will also be able to compete in Scotland. My right hon. and learned Friend the Secretary of State for Scotland will wind up the debate and answer points on his proposals for the Scottish industry. These were clearly set out in his White Paper. They recognise the different circumstances in Scotland. The industry has, for some time, been structured differently in Scotland, and the structure will remain different. The competition between the industry north and south of the border can only benefit the customer.

Mr. George Foulkes (Carrick, Cumnock and Doon Valley)

The Secretary of State will be aware that, in preparation for privatisation, a big struggle is taking place between the South of Scotland electricity board and British Coal in Scotland. So far, the Secretary of State for Scotland has refused to intervene. Because of the huge investment of taxpayers' money in British Coal in Scotland, because of the importance of security of coal supplies, and because of his responsibility for employment and industry in Scotland, the Secretary of State for Energy has a locus in this matter. Therefore, will he encourage his right hon. and learned Friend the Secretary of State for Scotland to intervene and take some action, and at the very least knock the heads of the two parties together and get them round a table so that they can come to some kind of agreement before the coal industry in Scotland is decimated?

Mr. Parkinson

Both my right hon. and learned Friend and I have made it clear that we would like to see agreement between the SSEB and British Coal, but we cannot force that agreement on them. The chairman of the SSEB has another important statutory duty, and that is to supply electricity at the most competitive price. Therefore, we want to see these two industries get together and work out a deal. This is not a by-product or a part of privatisation. The chairman of the SSEB believes that he is fulfilling his statutory duties, and we can only make sure that a modern coal industry is available. We can encourage the parties, but, at the end of the day, this must be a commercial arrangement between them.

Mr. Alexander Eadie (Midlothian)

In reply to my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) the right hon. Gentleman made great play of the statutory duties of the SSEB. Has he read the agreement on those duties? I counsel him to do so, because he will see from it that the Secretary of State for Scotland has the power to direct and to intervene if he deems it to be in the national interest. I submit that a Scottish deep-mined coal industry is in the national interest.

Mr. Parkinson

I am sure that my right hon. and learned Friend has heard everything that has been said, and I am sure also that he will deal with this subject. It is important to us all, but I recognise that it is particularly important to Scotland, and it is appropriate that my right hon. and learned Friend should deal with it.

I have heard Opposition Members say that there cannot he competition because there will be regulation. Again, there is confusion. There will be competition in the power stations. Regulation will ensure that the benefits of that competition are passed on to the customer in electricity prices. There will be a clear and effective regulatory system, and the White Paper sets out the principles on which it will be based. The emphasis will be on regulating the prices charged by the distribution companies. This will prevent monopoly profits being taken by any part of the industry. The initial contract put in place for the supplies from existing power stations will also have to be regulated. Detailed proposals can be put to the House only after consultations with the industry. The Government's principal aim is clear, and that will be to promote competition.

The regulatory system will reinforce the distribution companies' incentives to seek the cheapest supplies, but we shall also put competitive pressures on the distribution companies themselves. Neighbouring companies will be free to compete for large customers on their borders, and large customers will be free to buy electricity direct from the generators. The regulatory system will ensure that they can use the grid and distribution systems to do that. It will improve the existing provisions on common carriage in the Energy Act 1983. It will ensure that distribution companies do not develop local monopolies in generating electricity themselves. It will prevent them subsidising their high street shops with income from electricity sales.

Mr. Tam Dalyell (Linlithgow)

A number of us were the guests of the CEGB in the control room in Southwark. What does the Secretary of State say to controllers, such as Edgar McCarthy, who say that if, for example, in the Sundon incident in 1986, they had not had the authority to exercise control, the whole of London would have been in great difficulty within two minutes? The technical arguments of Mr. McCarthy and his colleagues weighed heavily with some of us. What is the Secretary of State's reply to that?

Mr. Parkinson

I noted that the hon. Gentleman asked this question earlier. We believe that the grid control will have the same ability to deal with emergencies under our arrangements as it does under the present ones. At present those arrangements depend upon common ownership, and we believe, on the basis of the contracts struck between the parties, that exactly the same reaction will be possible in a similar emergency.

Let me take it a stage further. In the recent hurricane, although the CEGB suffered some damage, by 11 o'clock that morning it was able to offer supplies to all the regions. The real problems were incurred by the area boards, and they had to sort out the massive job of restoring the low voltage distribution system. They did it extremely well, cooperating with one another and swapping personnel and equipment. That was a good example of how a diverse industry—not an integrated one; once again the hon. Member for Linlithgow (Mr. Dalyell) misses the point—with 12 separate companies can work together for the common good.

Dr. Michael Clark (Rochford)

Will there not be the same continuity of supply whether the information for the merit order comes from internal information, in-house within a massive CEGB, or externally, from several generators, all of whom are supplying useful information to help sustain contracts and get contracts the next time they are for offer?

Mr. Parkinson

As I said earlier, the emergency arrangements will work just as well under this system as they have done in the past.

Mr. Peter Hardy (Wentworth)

Will the right hon. Gentleman give way?

Mr. Parkinson

This must he the last time for some time.

Mr. Hardy

The Secretary of State overlooks the fact that the various bodies will be commercial undertakings devoted to profit. After the hurricane, constituents from my area went to the south of England where they gave assistance to ensure that electricity supplies were restored as rapidly as possible. In many cases they were restored in a matter of hours. Does the Secretary of State seriously believe that commercial companies will rush to aid one another, thereby diminishing their profits?

Mr. Parkinson

That is just a measure of the hon. Gentleman's basic prejudice against the private enterprise on which this country depends for its prosperity.

Competition in generation will provide the best protection for the consumer, because it will put pressure on three quarters of the cost of electricity. Price regulation of the 12 distribution companies will put pressure on the remainder. Customers will not just benefit from competition and regulation. They will be given new rights, too.

Guaranteed levels of service will be set by the regulator, in consultation with the industry. For example, the distribution companies could be required to meet all agreed appointments, to provide new supplies within a reasonable period, to replace meters by an agreed deadline, and so on. When they fail to meet these levels of service, the customer will receive compensation. Where the industry has a monopoly, the consumer will have a right of redress. This will be a novel feature of our privatisation of electricity. We are determined to ensure that the customer benefits from privatisation, not just in price, but in quality of service.

I believe that this scheme will be welcomed by the industry. It builds on a scheme that was introduced by the East Midlands electricity board. It will not just help customers. It will give management useful information on failures of service and an incentive to make improvements. It will be feasible and it will be effective.

Arrangements will also be made to represent consumer interests in the new structure of the industry. The advantages of the existing consumer and consultative councils will be preserved. Employees will also benefit. They will have the right to acquire a direct stake in the industry. There will be attractive provisions to help them to acquire shares. Their national negotiating and consultation machinery will be unaffected by the legislation. Their pension rights will be safeguarded.

Most important, the new structure of the industry will provide more diverse career opportunities. More companies will enter the market, and they will be looking for people with experience. There will be fair competition for the highest positions in the industry. Boards will no longer be chosen by Ministers. They will be filled by those with ability from within the industry, and with a minority of non-executives.

The majority of the employees work for the area boards, which are enthusiastic about the new structure. They are confident that it will provide real benefits for their customers. The chairman of the Electricity Council, the head of the industry, supports our proposals. So, too, does the Electricity Consumers Council. If the Labour party is concerned about the customer, it should listen to those who deal with the industry's customers and to those who represent them. It should not just listen, as it always does, to the producer.

I do not expect the CEGB to welcome the reorganisation. Proposals for change are often taken as criticism, but that is not the case here. The Government have the highest regard for the CEGB and its employees. We are confident that the CEGB will make a success of the new structure. It builds on its strengths. It will preserve the integrity of the grid and the operation of the power stations in merit order. It will preserve the CEGB's nuclear resources intact, ensuring continuity and high standards in managing the nuclear programme. As competition develops, there will be a developing market for the skills of those who know about electricity generation. Those are the facts about privatisation.

I should now like to deal with a few of the myths that the hon. Member for Kingston upon Hull, East seems to spend most of his time pursuing. The first of these myths is that privatisation will increase prices. That is not the case. My proposals will introduce competition, which will put pressure on costs. The Opposition seem to think that competition is impossible. They argue that the customer is best served by a monopoly. I find that surprising. It is not what their spokesman said last October, when he claimed to understand the theory that a monopoly was more inefficient, takes more profit and exploits by charging higher prices. He also said: The industry is also not consumer-sensitive. That followed his statement that The concentration of power in one huge corporation is a questionable aspect."—[Official Report, 21 October 1987; Vol. 120, c. 816.] The hon. Gentleman now appears to remember that his party has always believed in nationalised monopolies. He has therefore changed his ground.

The industry is facing a substantial investment programme. For years it has had surplus capacity. It has not had to order power stations. Those days are over. Demand is growing. More than 70 per cent. of the CEGB's plant is 15 years old, or more. The CEGB forecasts the need for 13 GW of new capacity by the end of the century — equivalent to about 10 large power stations. Inevitably, that will have an impact on prices. That is why it is important to introduce competition into the industry.

We need competition to make sure that the stations are built efficiently, to time and to cost. If the hon. Member for Kingston upon Hull, East is really concerned about prices, he should argue for competition, which is what I think he believes in, rather than monopolies, for which the unions tell him he must argue.

Another myth about privatisation is that the Government have abandoned the coal industry. That is nonsense. Last year the CEGB spent almost £3,500 million on coal. It bought about 75 million tonnes of coal from British Coal and accounted for three quarters of British Coal's sales to the United Kingdom market. Coal is the major source of fuel for our power stations and will remain so for years to come. About 60 per cent.of our electricity last year came from just a dozen coal-fired power stations. In total, about three quarters of our electricity comes from coal. The existence of those stations provides a solid guarantee of a market for coal.

The Government's commitment to the future of British Coal is not in doubt. More than £6 billion has been invested by the taxpayer since we took office, and about £2 million of taxpayers' money each working day is still being invested to make British Coal a modern industry. Those plans stretch through for the next three years.

The miners can help to make it a modern, competitive industry. They know that strikes and stoppages cost jobs. My hon. Friend the Under-Secretary of State for Energy said earlier that the loss from the recent overtime ban was about £100 million, the same as the likely investment in Margam—a brand new pit offering 800 new jobs. If British Coal can invest in new pits and adopt modern working practices, it can become a competitive supplier.

The Labour party talks continuously as though British Coal is a no-hope industry. It makes it sound as though the House is being invited to breathe life into a corpse—a most unrewarding occupation. We do not accept that view of British Coal. We believe that if the Labour party worked with us, by encouraging modern working practices to go with modern investment, British Coal would have a secure future. I have listened to what Mr. Scargill had to say this morning, and I have to tell the House that I believe he has learnt nothing from his recent experiences and that he has nothing that he really wishes to talk to British Coal about. What he looks forward to is finding yet another excuse for holding yet another ballot about more industrial action. It makes one wonder whether, with friends like Mr. Scargill, the coal industry needs any enemies.

Mr. Alex Salmond (Banff and Buchan)

If the Secretary of State is so concerned about the future of British Coal, why is he not prepared to provide a guaranteed market for coal in the same way as he is prepared to provide a guaranteed market to the nuclear industry?

Mr. Parkinson

A proportion of our electricity will be supplied from nuclear power stations, but I have just told the House that three and a half times that amount will continue to be supplied by the coal industry. Three quarters of our electricity will come from coal-fired power stations, way into the future. The amount of electricity supplied by nuclear power stations will remain fairly constant. Whether it is British coal that is used is in the hands of the British miner and British Coal. It is not in the hands of the Government. We are doing our bit, and it is about time that Opposition Members did theirs.

The Opposition have also complained about our policy on nuclear power, but our proposals are an insurance policy for the customer. There are no alternatives to electricity in many of its uses, so security of supply is important. If the Opposition were really concerned about customers, they would realise the folly of relying only on finite fossil fuel resources to generate all our electricity. It takes a long time to build power stations. We cannot wait until the next jump in fossil fuel prices and then decide to build nuclear power stations or large-scale projects for the use of renewable resources. We need diversity if we are to have a secure energy supply.

Our commitment to nuclear power is only one part of that strategy. The obligation that will be placed on the distribution companies is not to ensure that the nuclear proportion grows—that will be up to the market. It is simply to ensure that nuclear or other non-fossil fuels continue to form part of a balanced portfolio. That proportion will be roughly equal to present levels, and the nuclear programme will itself be subject to new competitive pressures.

Mr. Rhodri Morgan (Cardiff, West)

Why cannot nuclear power stand on its own two feet?

Mr. Parkinson

The hon. Member for Cardiff, West (Mr. Morgan) asks why nuclear power cannot stand on its own two feet. It is doing so. It is British Coal that has not stood on its own two feet for years. Earlier this afternoon my hon. Friend the Parliamentary Under-Secretary mentioned the figure of £916 million in deficit grant in a single year. There is a big market for coal, but we need other fuels as well. All sensible people who think about energy recognise that. The 18 per cent. of our electricity that comes from nuclear power now should he maintained at about that level in the future. That is no threat to coal. It offers security of supply, as I have said over and over again.

The Opposition may claim that the privatised industry will cut corners on safety and environment, but there can be no question of that. Whether the industry is in the public or the private sector, it will still have to meet the same safety and environmental standards. I am sure that the hon. Member for Kingston upon Hull, East has not forgotten that Chernobyl was a state-owned power station. Private ownership will not lower the standards that the industry has to meet.

Opposition Members will go on believing in their myths, because they still believe that public ownership is necessary to provide a public service. However, 3 million new shareholders and more than 1 million new freeholders say that they are wrong. I expect many more new shareholders when the industry is privatised, and I expect many of them to be members of trade unions. The industry will then be properly accountable to the public. I expect more of the employees to take up shares. They will then have a real stake in their performance and in the future of their companies. The industry will be free to raise finance in the private sector, and its investment plans will be subject to commercial tests.

Public ownership means state control. It means monopoly. Privatisation will be of benefit by itself, and this will be the biggest privatisation of them all. In England and Wales it will create 15 new private sector companies, with more than 130,000 employees and a combined income of more than £10,000 million. In Scotland, it will create two new companies, with more than 15,000 employees, and an income of 1,200 million. There will be competition and choice. There will be a new force for deployment in the regions. There will be new, wider share ownership. There will be individual initiative, where there was state-controlled monopoly. There will be new rights for customers. There will be new opportunities for employees. There will be a better deal for the taxpayer, and for Britain.

5.33 pm
Mr. John Prescott (Kingston upon Hull, East)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: 'rejects the White Papers Cm. 322 and 327 which seek, in the name of a doctrinaire concept of competition, to dismantle a successful publicly-owned and integrated system of electricity supply which has produced a reliable and efficient supply of electricity at a price amongst the lowest of any developed economy; which will create a series of lightly regulated private monopolies and a less secure system, producing high profits for shareholders and high prices for consumers; which will have detrimental consequences for employment in the coal, power plant and other dependent industries; and which ignore the crucial strategic importance of a long-term integrated energy policy, aimed at sensible utilisation of the country's various indigenous fuel resources.'. The Secretary of State's speech really proved the first criticism that I made of the White Paper—that it was a triumph of ideology over common sense. It was thin on detail, and it told us little about how the right hon. Gentleman's proposals were to be achieved. The White Paper is a statement of intent, a fraudulent prospectus high on promises and low on detail. It is a statement of blind faith that competition equals efficiency and is always beneficial to the consumer, which a good deal of evidence shows not to be so.

This is an unjustifiable, reckless experiment with a very successful public utility. It makes no attempt, as the White Paper makes no attempt, to justify the Government's aim to break up the electricity supply industry, and to replace the present certainty of supply with greater instability and uncertainty in this most important provision.

The White Paper is full of contradictions. For instance, it suggests that it is possible to abolish the present structure, but retain the advantages that that structure has provided over the past 30 years. The Secretary of State has made clear, in both his speech and the White Paper, that the electricity supply industry has a successful record; he has not gone on to explain why he believes that it has failed the country. That should be the first step in any White Paper.

The White Paper is bereft of detail. It smacks of haste and a lack of thought. I do not know whether the Secretary of State has chosen to read the report of the Plowden committee on the electricity supply industry in 1976. He nods; he will therefore know the difference between the quality and quantity of the analysis engaged in by the Plowden committee, and that of the shabby report that he has presented to the House. The Plowden report at least attempted to examine the different options that are available if the electricity supply industry is to he broken up. The Secretary of State has said that Plowden got it wrong, but at least it is possible to look at the reasons that he gave in the report's recommendations.

The White Paper contains no such substance or detail. It presents no alternative strategies. It is not a real White Paper; it is purely the kind of propaganda that we have learnt to expect from the present Government, masked as a White Paper. It has no contribution to make on the important and radical change that is being proposed—for I fully agree that it is a radical change. That is why it is all the more important that the Government try to justify giving up what we know to be a successful way of supplying electricity.

Mr. John Redwood (Wokingham)

If the CEGB and the current industry are so successful, why are they being so slow to bring forward combined heat and power, combined cycle gas turbines and reuse of redundant power stations, which could be so much better at generating cheap power at little fossil fuel cost? Does the hon. Gentleman agree that the private sector might do that job rather better?

Mr. Prescott

The hon. Gentleman has proved that he should wait to hear my criticism before he rises to speak. I shall come to that point later in my speech. I appreciate that he may not know what I am going to say.

The Secretary of State has referred to a point that I made in my speech on the Public Utility Transfers and Water Charges Bill. I made it clear then that ours is the most integrated and secure electricity supply industry in any developed economy. It has not only achieved but exceeded all the profit targets that Parliament gave it. It has trebled its productivity in 30 years and, in the last 50 years, has increased prices by a factor of nine—a sixth of the increase in fuel costs and half that in the cost of living. Can any other private or public industry claim that record? I shall sit down if any hon. Member can cite one.

Mr. Redwood

The private sector computer industry could more than match that record.

Mr. Prescott

That is only over a period of five, six or 10 years during which it has been in existence. I am talking about 50 years of success by a public industry.

The fairest thing would be to compare the industry with other electricity supply industries in the rest of the world. An analysis has been done by the Electricity Council, which shows that on prices alone Britain is producing one of the cheapest forms of electricity when compared with the 20 developed countries in the OECD. That is a considerable record.

In the Sunday press, the Secretary of State is quoted as saying that his plans for electricity will cut bills. It does not say that in the article. Is the Secretary of State predicting that his plans will improve the record of the industry? Will they do better than make us the sixth cheapest electricity supplier in the OECD? Will he do better than that? Will he cut the bills?

Mr. Parkinson

I am grateful to the hon. Gentleman for proving that even after our price increases British electricity will remain competitive. He has spent the past few months saying that that is not the case.

Mr. Prescott

I shall deal with the price increases shortly. However, will the Secretary of State predict that the prices will come down as a result of the changes announced in the White Paper?

Mr. Parkinson

I spent quite a bit of time in my speech pointing out that competition will put pressure on costs, which will force prices down. Therefore, prices will be lower in the private sector than in the public sector.

Mr. Prescott

That is another example of a statement of faith. We are asking the electorate to accept the Secretary of State's belief that competitive forces will do better than the proven record of the past 30 years which, as I have said, has made us the sixth cheapest electricity supplier in the OECD.

We should bear in mind that the industry has carried the burden of the Treasury putting its hand in the till over the past few years. The Treasury has taken £2 billion from the industry in the external financing limits. It has now calculated that it will take another £1 billion in next year's accounts. Therefore, £3 billion will have been taken since the Tories took office, and that will have been financed out of the present price structure. The industry has had considerable money taken away from it by the Tory Government, but still it has a considerable price record.

I pray in aid the work of the Monopolies and Mergers Commission, which was set up by the Government. It looked into the operation of the electricity industry and examined transmission and generation. It has made legitimate criticisms, but, in the main, it said that the industry had operated in the best interests of the country. That is a good argument to put for the retention of a publicly owned electricity supply industry.

Of course, there are criticisms of the industry. The Labour party does not stand for the status quo. We want a change and we want improvements. However, we believe that a public sector electricity industry does the job far better than the private sector could, and the record shows that. I shall list some of the criticisms. The generation side of the industry is too powerful. I have suspicions of power when it is concentrated in that form, whether in public or private ownership. The industry has been obsessed with nuclear power and has had too little to do with combined heat and power schemes. It is not sensitive enough to consumer demands and it needs tighter control in the construction of nuclear plants—which, by the way, is done by the private sector—and in its demand forecasts.

The industry has shown insufficient consideration for conservation and the environment. Nevertheless, it is still one of the most successful electricity supply industries of the developed economies. It has a proven record as a public industry and utility. That is why I restate the Labour party's commitment to retaining such an industry in public control and ownership. It has been of direct benefit to the country, to consumers and to industry. It is worthy of the title of a successful publicly-owned industry.

Our criticism of the White Paper is that it has a confused logic and blind faith. That is shown in the six principles set out on the first page. It says: Competition is the best guarantee of the consumers' interests. That is precisely what the Secretary of State keeps saying.

The right hon. Gentleman made it clear at Question Time today that when he says "consumer" we should read "distribution boards." The distribution boards will receive the advantages of the reduced costs, in which he so blindly believes. How can the Secretary of State be sure that the distribution boards will pass on those advantages—if they take place—to the consumer? It will not be by the operation of supply and demand, but by a regulator; somebody who will intervene in the market. The Secretary of State has discovered that it will be a monopoly, and I am glad that he has discovered that. I happen to believe that this monopoly has worked in our interest by producing electricity more cheaply. That is contained in the report of the Monopolies and Mergers Commission. The assumption must not be that monopoly industries cannot achieve economies of scale. One of the advantages is that current prices have been achieved through economies of scale. That is one of the comparisons between the private and public sectors. One must ask whether it is necessary to have that sort of structure in order to achieve those benefits.

It is clear that we are talking about regulation. The Secretary of State seems to be suggesting that by breaking up the CEGB into a big part and a little part—70 per cent. and 30 per cent.—with some piddling little bits on the side, the two parts will be competitive. There are many examples of two or three big companies getting together with all the characteristics of a monopoly. They agree prices. Why does the Secretary of State think that there would be competition? He said that it will be because of contracts between them. All the evidence we have seen from abroad shows that contracts are usually negotiated over long periods of time. Nobody will invest in generation unless a contract is guaranteed. All private and public utilities in the United States want guarantees of long-term supply. It is called a market condition of supply.

Mr. Parkinson

The hon. Gentleman has been carved up by the Leader and deputy leader of the Opposition. Therefore, I can well understand why the hon. Gentleman firmly believes in collusive duopolies. However, we will not have a collusive duopoly in the electricity industry.

Mr. Prescott

The Secretary of State has a justifiable reputation for cheap and nasty comments. I wish he would address himself to the argument. I may have it wrong; he may have it wrong. We are debating the White Paper and a difference of view about the operation of an industry and the experience we have seen in other parts of the world. The Secretary of State has totally failed to take that experience into account in the White Paper. Before arriving at his conclusions, he should have seen how privatised electricity industries operate in other parts of the world. If he had done that he might not have had to say, as he did at the beginning of his speech, that a lot more detail has to be faced yet and that there is a lot more to he worked out. Apparently, the Secretary of State arrives at his conclusions without thinking of the details and without looking at other experiences.

Mr. Quentin Davies (Stamford and Spalding)

Will the hon. Gentleman give way?

Mr. Prescott

I will not give way because I do not have much time.

Mr. Davies

rose—

Mr. Prescott

Sit down. The Secretary of State faced the same problem. We have to achieve a balance as to how many people we allow to intervene. Many people want to contribute to the debate. We were asked by Mr. Speaker to try to cut the length of speeches. That is the problem.

Consumers of the regional distribution boards will not have two switches. As the Secretary of State said, they are natural monopolies. He said in the White Paper that the privatised electricity industry will be a consumer-driven organisation. Presumably, the consumer cannot choose between different switches in order to make a choice between electricity hoard A and electricity board B. Therefore, the consumer has to depend on the distributors, in one form or another, passing on any advantage that the Secretary of State's competitive model—that is what he calls it — has achieved. Any advantages in generation will be passed on to the distributors.

How can we be sure that those advantages will be passed on? The Secretary of State said that it would be done by the regulator. Presumably, many of the distribution companies will begin their own generation. Why should they not begin to emulate what has happened in Scotland where they are both generators and distributors? Will they not then become regional monopolies of generation and distribution? The Secretary of State is shaking his head. It does not mention that in the White Paper. Perhaps that is something else that he is thinking about, but about which he has not told us. That shows the difference between the Plowden approach and the shabby White Paper of the Secretary of State.

We are talking about the possibility of the market producing a regional monopoly in generation and distribution. Presumably, even if the regulator wants to intervene, he will have to take account of the fact that the regional boards may have diversified into other investment interests. Those boards will not necessarily remain involved in the production of electricity. The market logic is to diversify. How will the regulator begin to find out how to deal with the cross-subsidisation in a joint company? There is no mention of that in the White Paper. There may be gold-plating of the assets, as happens in America, instead of the advantage being passed on to the consumer. There may he an answer to these points, but they were not even addressed as a problem by the Secretary of State. The board would be the link between the saving on the generator and the consumer, yet the distributor, in desiring to maximise profit, could do all sorts of other things in the private market system. The regulator would have no control over that. There are many questions involved, including the problem of cross-subsidisation.

The White Paper states that the obligation to supply is to be given to 12 distribution companies. We have an excellent integrated national grid, as the Secretary of State has said, and no one disputes it. Spain is the only country whose national grid is owned by the distributors, and no one is experimenting with that way forward. Because power stations in Britain are owned by the generators, they can be directed, in order of merit, to come on line. The proposal is that contracts will be negotiated and within the terms of those contracts the generators can be brought on line.

In view of the dispute on COAC contracts in Scotland, would anyone believe that was one way of bringing greater security into a grid contract system? What happens if there is an emergency resulting in a blackout and some generators do not comply with their contracts? That happened in a blackout in New York because the contractors supplying the power did not co-operate. Presumably, if that happens here, it will be a point of issue between the generating board or company and the network. That will become sub judice, so hon. Members will not be able to discuss it. What a prospect to face! We have an integrated national network based on merit and efficiency but now contracts are to be introduced. Even if people believe that the new system is good, they must accept that it introduces uncertainty into a system in which certainty is needed. Under the present publicly-owned system, certainty is guaranteed. Competition by contract will bring about greater uncertainty on essential conditions of the market.

The Secretary of State has said in his statements that it will cost quite a lot to break the national grid away from the generators. The people who now operate it say that it will cost £1 billion. I do not know what the costs are, although they have been highlighted in a number of board statements. Presumably, the Secretary of State has accepted that it will cost something, but he says that it will be balanced against the savings which will he made in the industry. We know that it will certainly have a cost in money and uncertainty.

There was no mention in the White Paper or in the statements of the Secretary of State of the savings likely to come from the new system. The logic of the argument is that we cannot tell what those savings are because the market economy determines them. That is supply and demand. The Secretary of State assumes that savings arc guaranteed. I do not accept that or believe that there is a great deal of evidence to support it. There will be greater uncertainty.

Who will manage all the areas and make the system better? How will the Government ensure that the public interest is observed? Apparently the answer is to have some form of regulator. We know that a regulator is required in all privatised systems in order to intervene, but this approach has not been successful in some industries and countries. There are doubts about the system, with its many side effects, in America. There is no one who would argue that the examples of regulators for British Gas and British Telecom are good examples — indeed, the Secretary of State distances himself from that method and calls for a more powerful form of regulation. I should be interested to hear the right hon. Gentleman's comments on that. The Secretary of State will face considerable difficulties, as we know from experiences abroad and from British Gas and British Telecom.

I had hoped that the Secretary of State would tell us about the extra powers for the regulator. I believe that, even with a publicly-owned facility, there is a role for the regulator to act on the consumer's behalf, to intervene and call on people to justify their actions. That is nothing to do with ownership as such. It is about accountability in one form or another. Although I pay credit to the excellent work of the Select Committee on Energy, its efforts are not sufficient to provide the necessary accountability in the day-to-day running of an industry. In its report on the gas industry, the Energy Committee said that it did not accept the formula for the price controls imposed by the regulator in the gas industry. It appears that the Committee was right. Anyone can read of the factors. The Secretary of State has ignored the fact that the Committee asked for a White Paper, but one that would tell us how the energy market would be dealt with in regulations before any further privatisation. The Committee wanted to know how the regulator would operate. The Secretary of State has totally ignored that request. There is no mention of it in the White Paper. He ignored that justifiable recommendation by a Committee, the observations of which in these matters have been far more useful than the Government's.

The regulator's role is a problem, and I draw in support of that comment a statement from a meeting on 29 February of the Bow Group energy committee, which the Parliamentary Under-Secretary of State for Energy attended. After the White Paper was published, the hon. Gentleman reported that he was concerned about the safety of nuclear installations, about consumers having to fund the massive industrial investment through price rises, about the effects on the coal industry and about whether private sector competition would be encouraged to enter the market. I liked his statement that he was concerned about how the new regulators can sort this out". The hon. Gentleman asked for comments to be sent to him, since he has to publish a paper on the subject.

Mr. Peter Rost (Erewash)

Will the hon. Gentleman give way?

Mr. Prescott

I shall give way to the hon. Gentleman, because he was present at that meeting

Mr. Rost

In fact, I chaired that meeting. I am not clear where those supposed minutes came from. They certainly have not been approved by me yet and, from what I have heard of the hon. Gentleman's presentation of them, that is a gross misrepresentation of what took place.

Mr. Prescott

I shall accept from the hon. Member who chaired the meeting of the Bow Group energy committee that this is a gross misrepresentation of what went on. There is nothing in the statements of the Secretary of State or the answers of the Under-Secretary of State during Question Time that gives us an inkling that they understand what a regulator has to do. If my information from the meeting is wrong, I shall give the Secretary of State and the Under-Secretary of State a chance to show that they know precisely how the regulator will work in respect of the critical matters of price and control.

Mr. Parkinson

I made it clear in my speech that we were debating the structure. I then said that there was an enormous amount of detailed work to do. I said that we looked forward to the views of the Select Committee on Energy. There is no secret about this matter. I have discussed it with the unions and the management. I explained the outline of our regulation policy in the White Paper and in my remarks today. There is much detailed work to be done now that the structure is out in the open.

Mr. Prescott

That rather confirms my view about the operation of the regulator. That aspect is critical to the question whether the Government can get the kind of competitive industry about which the Secretary of State talks. This system has not worked before for British Gas and British Telecom. It is not working successfully in America. The Secretary of State is merely confirming the report of the Bow Group energy committee—that if anyone has any ideas, they should be sent to him and his Minister. At least that point must be correct, because the right hon. Gentleman has confirmed it. This confirms that the Secretary of State speaks about the ideology but does not know how it is to be achieved. That is all that the White Paper has presented to us.

Mr. Morgan

This is not so much a White Paper as a suggestions box in which everyone may put ideas.

Mr. Prescott

That is a very good point. It is a pity that the Government did not have the suggestion box out before. They could have taken account of the sound advice that was available before they reached these conclusions. But I do not think that that has anything to do with it. The Secretary of State told the Tory party conference that this is what the people would get. The members at that conference gave him a cheer, and it was a triumph again for him. Frankly, I presume that we are faced with the consequences. We all know the importance of this change. The Prime Minister came in at statement time to hold the hand of the Secretary of State. She must be convinced that the right hon. Gentleman is OK, as he is on his own tonight.

It is a bit rich for the Secretary of State to say that he wants to privatise the industry to stop Government interference because they are for ever pinching money from the electricity supply industry to fund their financial programmes — £3 billion during the past four to six years. The Secretary of State has said, "Please protect me from putting my hand in the till." If that is why we have this White Paper, it is not a justifiable reason.

The Secretary of State also referred to his opposition to Government interference. But he is imposing a 15 per cent. price increase on the industry against all the judgments about whether such an increase is necessary. He has also referred to regulated profits, and whether they will be fair, and to future investment programmes. The Secretary of State did not say anything about the golden share. We heard in the statement a fortnight ago that there will be a golden share in the industry. If there is, I hope that it will be more effective than that of Britoil's which the Secretary of State admitted did not work. The Secretary of State is interfering in nuclear power. He has agreed that strategically we want a nuclear industry and that the electricity supply industry will be forced to buy some nuclear supply. That is considerable Government interference. It is agreed that the Government constantly interfere in oil taxation policies and in cheap gas imports from Norway. Therefore, to assume that there is no Government interference, whether the industry is in the old or new form, is nonsense.

The only rule of the market will be for the coal industry, which will have to face massive imports and which will be encouraged to do that. Indeed, we can see what is happening in Scotland at present. That is the only area in which the Secretary of State says that we can make savings of about £500 million—[Interruption.] No, I acquit the Secretary of State of that; he does not give us such details. The industry has assessed that it can save £500 million or £700 million costs. What will be the effect on the balance of payments and on prices? Is the future of the coal industry to be determined on the short-run effects of international coal prices? That seems to be the coal industry's future. That will have an effect on many thousands of miners, on pit closures, and on the railways and shipping industries. It has been estimated that it will affect about 100,000 jobs.

I wish that the Secretary of State had given us an indication of what he thinks the effects will be on jobs, instead of lecturing us about how to work harder, especially those in the mining industry, which produces the cheapest deep mine coal in Europe, when he knows that its record in the past few years has shown a considerable changeabout—[Interruption.] For whatever reason, the changeabout has been considerable. We cannot assume that it is just the status quo because there have been considerable changes.

The Secretary of State should he telling us what the coal industry's future is—there must be a future for the coal industry — instead of saying that its future will be determined by price, the results of that, limitations on the balance of payments and imports. Why does the Secretary of State not say, "I am going to ensure a future for nuclear power, so I shall ensure one for coal; I shall develop a plan for coal just as I have for nuclear"? That is precisely what he is doing, but for one reason or another—for the Government's own political prejudices—he wants to sort out the miners, and that will have consequences for their jobs and major costs to the community and the taxpayer.

If the Secretary of State reads his White Paper, he will see that most of the benefits that he claims will be the result of the structural changes could come about whether the industry is owned publicly or privately. The grid could be separated under public ownership. The CEGB could be broken up into the forms that the Secretary of State is talking about with the industry still in public ownership. There could be the competitive yardstick that the Secretary of State says replaces competition; there could be consumer benefits and regulated powers — all under public ownership. More powers could be given to the regulators in line with the Monopolies and Mergers Commission—again, under public ownership.

The reality is that the only difference under the changes in the White Paper is that the Goverment need to sell the industry to get the money. That is an ideological requirement, which has nothing to do with efficiency or the consumer. It is about maximising money for the Treasury so that it can utilise it for tax cuts. If one considers the fattening-up prices—the 15 per cent. price increase — which the CBI has rejected in its Oxford report — [Interruption.] When the Secretary of State argues the case of short-run costs and long-run costs, he should look in detail—

Mr. Quentin Davies

Will the hon. Gentleman give way?

Mr. Prescott

No; I do not have the time.

The Secretary of State should look in detail at the report. As an accountant, he will see that it makes clear that that price increase is not necessary to justify investment or to increase the rate of return—it increases the value of the assets. By running off capital debts so that the industry is free from capital debt by the end of the decade, the Secretary of State is guaranteeing the maximisation of resources and prices for the selling off of the electricity industry. This is what it is all about — maximising the price to the Government.

When the Secretary of State, at Question Time, said, "The hon. Gentleman" — that is, myself—"apparently realises that money goes to the Treasury and therefore to the benefit of the taxpayers," he missed out two essential points. First, money may go to the Treasury, but, if it is used for tax cuts, it is hardly of benefit to all the people of this country. Secondly, all the people will pay that price because they all pay for electricity. The consumer will pay a privatisation tax for a benefit that will be given to the City, the Treasury and the 3 million shareholders he hopes will invest in the industry. However, there are already over 40 million shareholders in the industry at present, when it is in public ownership, and they are concerned to maintain cheap electricity supplies.

We are faced with an electricity supply industry that, when privatised, requires higher profits and higher finances to attract investment and equity. It is a price far higher than the public sector has to provide because a low-risk industry can provide all the investment and produce lower prices at about half the level of the rate of return, which apparently is 2.5 per cent. at present. The only reason that we are increasing that rate of return—it is why a Labour Government recommended it and increased the rate of return—is primarily to get money for long-term investment. However, as has been pointed out, the Electricity Council, in its report for the industry, says tat all the extra prices that came from those changes in the Labour Government's White Paper are already embodied in the price structure, and investment requirements up to the year 2000, under the Electricity Council, have been catered for.

Therefore, the only reason for these resources is to provide cash for the Treasury. All the organisational changes that the Secretary of State talks about— the benefits to the consumer and the competition that is to come from a regulated monopoly system—are a sham. There is no advantage to the consumer. This measure will not introduce competition into the industry in the form in which the Secretary of State desires it. It will result in greater uncertainty of supply, less integration, higher prices, higher profits, and higher unemployment. The public sector has done far better than that. We shall ensure that the industry is returned to public control if the Secretary of State is successful in privatising it.

6.6 pm

Mr. Mick Buchanan-Smith (Kincardine and Deeside)

The hon. Member for Kingston upon Hull, East (Mr. Prescott) accused my right hon. Friend the Secretary of State of indulging in rhetoric, but having listened to the hon. Gentleman I should say that I have rarely listened to so much empty rhetoric as in the past half hour. It was rhetoric without content. I might have a little more respect for the hon. Gentleman if he had addressed the right questions. My right hon. Friend never criticised the record or achievements of the CEGB. What he is seeking to do, and what all of us are seeking to do, is to make the industry even more successful in the future than it has been in the past.

It is a bit rich for the hon. Gentleman to accuse the Conservative party and a Conservative Chancellor of the Exchequer of taking money out of the industry in higher prices. Does he not remember that probably the most predatory Chancellor of the Exchequer in regard to the energy industry was his right hon. Friend the Member for Leeds, East (Mr. Healey), because when he was Chancellor of the Exchequer we saw one of the biggest energy price rises at any one time? The hon. Gentleman would have done better to do his research a little more thoroughly than to come up with such arguments.

I strongly support the privatisation of the electricity industry, specifically on the grounds that the hon. Member for Kingston upon Hull, East rejected—the grounds of interference by Government. I served for four years in the Department of Energy. Before entering that Department, which was my first departmental experience of a nationalised industry, I would not have believed the degree of interference with the industry, not only through the Department itself, but through the Treasury and its oversight. Sometimes it made me wonder how anybody with any commercial ability would ever want to serve in high executive office in such industries, given the degree of interference that he would experience.

Having said that I support the privatisation of this important industry, I believe it is critical that we get the privatisation process right. This is important for the Government's policies as a whole—for the policies that we have carried through already, and for the future. It is no use simply legislating now and regretting later if the practicalities of the privatisation do not work out in the way in which many of us would like.

I am glad to note that my right hon. and learned Friend the Secretary of State for Scotland is present. I believe that the structure plan that he has proposed for Scotland is good. It makes sense and it is extremely welcome to my area and the area served by the North of Scotland hydroelectric board. I hope that the discussions on items still to be decided upon will be carried through vigorously. There is still work to be done on the exchange of generating capacity. Will there be an exchange of territory to try to get a better balance between the two boards? Assurances are also necessary with regard to how — as a result of contracts or otherwise — we will maximise export opportunities for Scottish-generated electricity south of the border.

Mr. Hardy

rose—

Mr. Lofthouse

rose—

Mr. Buchanan-Smith

I shall not give way, because I wish to be brief as many hon. Members wish to speak.

As a result of examining the issues involved, I am well aware of the difficult questions that my right hon. Friend has had to address with regard to England and Wales. I understand that my right hon. Friend must comply with a fairly tight flotation timetable. Given the split that he is seeking within the CEGB, and between the CEGB and the grid, I wonder whether there will be sufficient time for the track record of the new companies to be established to meet the flotation timetable, which I believe my right hon. Friend has set for this Parliament. If the timetable extends beyond this Parliament, I hope that my right hon. Friend will inform us of that when he replies.

I have reservations about the merits of the split of the CEGB and about ownership of the grid. My right hon. Friend was right to pay a lot of attention to the need for competition, but the House must ask whether the competition that is to be introduced will be real or illusory. We must be certain about that. I believe that the only true competition is from Scotland, from France and from other energies, especially gas. My right hon. Friend has acknowledged that.

I acknowledge and understand the political attraction of breaking up the CEGB. However, I believe that it is questionable whether there can be real competition in the generating sector of the industry. For there to be competition there must be surplus capacity. Without that, I do not believe that competition can exist. My right hon. Friend has acknowledged that at present there is no surplus capacity within the CEGB. I believe that there will be no true competition until the least efficient capacity has been phased out and new investment has taken place.

I cannot quite understand, nor has my right hon. Friend explained, how the proposed split at 70:30 has been arrived at. I believe that as a result of such a split certain economies of scale and the attendant benefits to the consumer will be lost. I also question whether the 70 per cent. share left with the CEGB will be big enough to attract the investment that is needed, especially for nuclear power and for the new conventional capacity required. I believe that there is an alternative to that split. My right hon. Friend has said that the evolutionary process is the right one, and I believe that there is a certain evolutionary process that would enable competition to build the new, necessary generation capacity. Such competition could be introduced on the basis of giving opportunity to those who can build new statons most economically and, equally, by encouraging better access to the grid.

I do not undertstand what is achieved by the grid structure proposed by my right hon. Friend. We must realise that, basically, the grid is a utility. Simply to split it does not necessarily achieve the sorts of things that my right hon. Friend has claimed. We must also realise that the grid is not just about transferring megawatts from one part of the country to another. The transmission system is basically unstable because of the nature of electricity, that is, alternating current and voltage. The transmission system is not simply a matter of transferring power. Voltage and frequency must also be kept within acceptable limits to ensure the continued integrity of the supply. Therefore, the system is much more difficult and complex than the simple operation of a merit order system as proposed by my right hon. Friend.

I am concerned that, under the structure proposed by my right hon. Friend, there could be conflicts, inefficiency and also, of critical importance, instability of supply. I agree that there must be access to the grid, but I believe that it is unnecessary to separate the grid from the generating end of the industry to achieve that access. I believe that my right hon. Friend may pay too high a price to achieve it. Access to the grid can be better insured through the use of the regulator, or as a result of the shared ownership of the grid under integrated managment from the generating side. That alternative commends itself to me.

I know that many hon. Members wish to participate in this debate, and the final subject to which I wish to address my remarks is coal. I believe that coal is of equal importance to this debate. A week ago, when my right hon. Friend made his statement on privatisation, my hon. Friend the Member for Sherwood (Mr. Stewart) asked about coal, and I believe that its importance is highlighted by the current dispute in Scotland.

In the White Paper my right hon. Friend has singled out nuclear power as requiring special circumstances and considerations. I do not understand why coal has not been singled out to receive similar attention. My right hon. Friend paid tribute to the need for the security of supply and the variety of supply, the merits of which are underlined in the White Paper, particularly in paragraph 46. He was correct to underline those considerations.

We had an analogous situation — not an exact parallel—with the privatisation of British Gas and the import and export of gas. Hon. Members who served on the Committee on that Bill will remember that the Government, as a result of pressure, gave undertakings about the considerations that they would apply to the import and export of gas because it was a natural resource that required such special consideration.

I accept that British Coal must be competitive against imported coal, but the enormous progress that has been made by British Coal must also be considered. In Scotland I am concerned by the somewhat hysterical, emotional outbursts from one individual head of a nationalised board. In such instances, I wonder whether the long-term considerations are taken into account. I believe that it is dangerous to set short-term profit against long-term stability and predictability.

Some facts must be borne in mind. About 4 per cent. of the total steam coal production in the world is seaborne. If the CEGB or its successor enters the world market, it may destabilise that market, which is relatively small in relation to its requirements. Equally, prices on the world market are highly volatile and they follow oil prices.

Mr. Neil Hamilton (Tatton)

rose—

Mr. Buchanan-Smith

I would rather not give way at this stage.

The spot availability of coal is uncertain. Examples of that are the current shipping problems from China and the problems in Colombia, one of the major sources in the world market, which appears to have oversold.

The most important matter from the national point of view is that once a deep mine is closed it will not reopen. That worries me, because we risk the loss of an indigenous energy source and, in the longer term, the higher cost in foreign exchange of having to import coal.

I ask my right hon. Friend the Secretary of State to reconsider this before he brings legislation before the House. I was encouraged by the statements that emanated from the Scottish Office at the weekend to believe that more interest is being taken by Ministers in the present position, and I hope that recognition will be given to the longer term as well. I wish my right hon. and learned Friend the Secretary of State for Scotland well in trying to preserve the position in Scotland, and I hope we can ensure that our indigenous energy resources play a proper and full role in the future.

6.20 pm
Mr. Bruce Milian (Glasgow, Govan)

The right hon. Member for Kincardine and Deeside (Mr. Buchanan-Smith) started by giving a general welcome to the Government's proposals, but it was a pretty tepid welcome by the end of his speech. Almost everything that he said contained either explicit or implicit criticism of the Government's proposals. The Opposition welcome his remarks about the future and importance of the coal industry, especially in relation to the present crisis in Scotland.

I shall relate my remarks exclusively to Scotland. Last week, the Secretary of State for Energy gave no convincing argument for upsetting the present arrangements and introducing privatisation, but we were at least promised two companies in Scotland. In view of the behaviour of the South of Scotland electricity board during the past few weeks, I am happy that there will be more than one company in Scotland. I would not trust the present SSEB and its leadership with anything.

But we have heard no details. There will be adjustments in generating capacity between the northern and southern companies. The right hon. Member for Kincardine and Deeside mentioned adjustments of geographical areas. That was not discussed in the White Paper, and we do not know whether it will form part of the Government's proposals. There was an odd proposal for the joint ownership of the nuclear industry in Scotland, but the implications of passing the nuclear industry into private hands have not been properly explained by the Government. Indeed, it may pass into foreign ownership, because we have heard nothing about the protection of the national interest.

We have heard completely unconvincing arguments about competition, and the new concept in Scotland of competition by comparison. The ordinary domestic consumer in Glasgow can compare the accounts of the two companies to see which is more efficient, but he will still have to take his electricity from the southern company because of where he lives. What will be the good of his having all that information—which, incidentally, he can obtain now?

Private generation in Scotland would be a non-starter because we have such an excess capacity. The argument that the major industrial users can choose between the two competing companies does not bear serious examination. In Scotland, we shall have an arrangement different from that south of the border. We shall have two private monopolies set up with little regard for the public interest and an undefined role for the regulator on prices and other matters.

The present problem of excess capacity in Scotland will be worsened when Torness comes on stream later this year. In 1978, when I was Secretary of State for Scotland, I gave permission in principle for the building of Torness, although the decision to go ahead with the construction was not made until April 1980 by the former Secretary of State for Scotland, now the Secretary of State for Defence. At that time, there was a good case for deferring its construction for several years, but I shall not make too much of that point, because I have always supported nuclear power as part of our generating capacity. Now that I am outside Government, I shall not change the views that I held then, although there are now more public worries about the nuclear generating industry, in the light of Chernobyl and other incidents.

The problem of excess generating capacity in a publicly owned system, with the possibility of selling excess capacity to England, is entirely different from the problems that will arise under these proposals, when we shall have to sell electricity not to the CEGB but to a distribution company south of the border. That will be much more complicated, and I believe that it forms part of the background to the recent extraordinary behaviour of the SSEB. When the industry is privately owned, it will be landed with the problem of excess generating capacity, which is not a problem now, given the fact that there is no excess capacity in England and Wales.

This afternoon, the Secretary of State for Energy had the impertinence to say that it was a myth that the privatisation proposals pose any dangers to the Scottish coal industry. In view of the present crisis in the industry, he would be lynched if he made such a statement at a public meeting in Scotland. Here we have two nationalised industries in a public dispute that has gone to the courts. The SSEB denies that it has received a tender offer from British Coal at the price which British Coal says it has tendered. British Coal accuses the SSEB of telling lies. Last week, Lord Prosser, granting an interdict to British Coal in relation to coal supplies for Longannet and Cockenzie, said that if the SSEB went ahead with its present intention to buy all its coal from abroad, it would be catastrophic and irreversible for the Scottish coal industry.

The chairman of the SSEB, Mr. Donald Miller, says that he will abide by the court decision—that is very generous of him—but that he will evade it as much as he can. Despite what the court has said, he will buy no more coal from British Coal. If necessary, he will use Kincardine power station to its full capacity, burning foreign coal. He will use the maximum amount of oil generating capacity. Indeed, he will do anything rather than use the produce of the Scottish coal industry.

The head of a nationalised industry in Scotland is behaving outrageously, and the Secretary of State for Scotland has stood by and done nothing about it. In this case, standing by is an act of deliberate treachery to the Scottish coal industry. We learn from statements made on Sunday that the Secretary of State is now worried about the matter. When he made his statement in the House last week, and during Scottish Question Time, he was pressed many times to take action to bring the two parties together, find out what was happening and do something to resolve their differences.

Mr. Dick Douglas (Dunfermline, West)

The Secretary of State for Scotland should wipe the smile off his face.

Mr. Millan

As my hon. Friend says, the Secretary of State is smiling.

There have been problems before between the SSEB and the coal industry. Difficulties arose in 1977 and the then Labour Government intervened. I was personally involved in negotiations with the SSEB and the National Coal Board in Scotland. The problem was resolved, and long-term agreements resulted from our negotiations and discussions. The contrast between those events and those that are taking place now is that the Secretary of State is standing back and saying that he cannot intervene in a commercial agreement between two nationalised boards. He has done nothing. He has made many excuses for doing nothing, and now we are told in a Scottish Office statement—we are supposed to admire him for this—that he is concerned about the demise of the Scottish coal industry. He has behaved abominably, and he should be ashamed of himself.

It is a lie to suggest that these issues have nothing to do with privatisation, that they would have arisen anyway. This is all to do with privatisation. The SSEB is adopting a tough attitude because it is anticipating privatisation under the Government's proposals. It is a scandal and an outrage that this should have been allowed to happen in Scotland. It is a foretaste of what we shall have in Scotland and the rest of the United Kingdom under the Government's privatisation proposals, and it is one of the reasons why we shall be voting against them tonight.

6.33 pm
Mr. John Hannam (Exeter)

First, I wish to congratulate my right hon. Friend the Secretary of State and the Department of Energy on producing a White Paper that is clear and understandable, and on getting absolutely right the proposals that are set out within it. Having been involved in energy matters since the early 1970s, I know of the problems that faced my right hon. Friend when he began to study the means of arriving at the declared 1987 general election commitment of a privatised electricity industry.

It is easy to say that we should privatise the industry and introduce competition but not so easy to implement that policy. My right hon. deserves admiration for producing the programme that is set out in the White Paper. It was obvious from the start that the various vested interests — the unions, the CEGB and the Electricity Council—would all have an axe to grind and would be advancing different arguments. It was important to find a method that achieved three basic objectives: first, to create competition; secondly, to protect consumer interests; thirdly, to maintain security and safety of supply.

For many years, the industry has been a huge monopoly involved in the generation and distribution of electricity with the national grid linking the Central Electricity Generating Board and the area boards. I have always believed that transmission and distribution form a natural monopoly because of the impracticability of laying competing cables under the streets of our cities and towns. The generation of electricity is not a natural monopoly. As it represents over 80 per cent. of the costs of electricity to consumers, it was vital to try to find ways of bringing true competition into this massive industry.

With the grid as the common carrier, it should always be possible to generate power in any one place in the United Kingdom and to sell it in any other place. It is obvious that the further that electricity is transmitted the greater the loss and the greater the cost. The 1983 legislation was intended to create opportunities for independent generators to supply through the grid. With the CEGB's restrictive policies of buying-in rates and conditions, and with it being limited by existing statutory tariff and supply requirements, very little progress has been made.

Alternative forms of energy have never been given a real chance. Major industries such as chemicals and oil refining, which already generate for their own needs, should be able to dispose of surpluses to neighbouring industries or towns. I welcome the decision to separate the grid and to put it truly into our distribution system with availability to it being open to a wide and new range of small and large generators of electricity.

The argument advanced that the use of the grid as a merit order system will offer better safeguards for the consumer is, I believe, wrong. There is no money or financial risk involved, and therefore no real competition. We find ourselves now with a system that is dependent on huge and expensive power stations that are buying high-cost fuel and using it less efficiently than anywhere else in Europe. These large stations sell only 31 per cent. of the energy that they burn. They waste the other 69 per cent. and deposit huge amounts of pollution throughout the countryside both here and abroad. The energy that is thrown away from our power stations is greater than the whole output of British Gas. The energy that is wasted would heat every home in Britain.

The cost emphasis on large power stations has meant that combined heat and power has not been developed in Britain, unlike other countries. Our most efficient station just about reaches 38 per cent. efficiency, whereas in Holland, Germany, Denmark, Sweden and Finland there are hundreds of stations reaching 80 per cent. efficiency through CHP and heating over 160 towns. Although we had 150 potential CHP schemes projected in about 50 towns, none was really promoted by the CEGB and we now have a bare five city schemes that are struggling for survival. There were more than 20 in 1981.

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