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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
Column 674moderate 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. George Foulkes (Carrick, Cumnock and Doon Valley) : Answer the question.
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
Column 675deficit 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
Column 676way 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 : Will the right hon. Gentleman give way?
Mr. Foulkes : It is important.
Mr. Parkinson : I shall give way to the hon. Gentleman.
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. Deputy Speaker (Sir Paul Dean) : That is not a point of order for the Chair.
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.
Column 678If 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. 5.26 pm
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
Column 680public 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. Keith Mans (Wyre) rose--
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. Blair : I have just mentioned them.
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. Mans rose --
Mr. John Maples (Lewisham, West) rose --
Mr. Blair : I give way to the hon. Member for Lewisham, West (Mr. Maples).
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 are proud that we took the industry into public ownership. When we come to power it will be reinstated as a public service for the people of this country, and will not be run for private profit.
There is no answer to our question there about what happens abroad--
Mr. Mans : I am grateful to the hon. Gentleman for giving way. If he is saying that publicly generated electricity in France is more expensive than it is in this country, why do we import electricity from France?
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.
Column 682Central 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 : I was interested in what the Secretary of State said about that. He said that independent producers now wanted to contract some 20 projects in the electricity industry. The figure has increased by five or six since a few days ago, when the Secretary of State referred to 14 or 15.
Mr. Parkinson indicated assent.
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.