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Mr. Baldry : I shall say something on the rate of return shortly. My hon. Friend the Member for Erewash, who is also a keen member of the Select Committee on Energy, succinctly and effectively made clear the benefits that privatisation will bring to the consumer and to the environment.

Despite the best efforts and the good humour of the hon. Members for Wentworth (Mr. Hardy), for Gordon (Mr. Bruce), for Pontefract and Castleford (Mr. Lofthouse), for Midlothian (Mr. Eadie) and for Pontypridd (Dr. Howells), the debate has demonstrated beyond doubt that the Opposition have lost the argument and have got it wrong. They are wrong on electricity prices, on protecting the environment and on privatisation. Clearly, their motion is wholly misconceived. In the words of the hon. Member for Pontefract and Castleford, they have "spatchcocked" themselves.

Mr. Lofthouse : Does the Minister agree that his hon. Friends who are members of the Select Committee also got it wrong in their report?

Mr. Baldry : I always have great regard for the reports of Select Committees. However, the hon. Gentleman would be surprised if the Government of the day agreed with every word of every Select Committee. I have great respect for my hon. Friends who are members of the Select Committee. Nothing will detract from the fact that the hon. Gentleman and his hon. Friends have spatchcocked this debate. The position on electricity prices could not be more

straightforward. In the past five years of this Government, we have seen industrial prices decrease by some 10 per

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cent. in real terms. Indeed, industrial prices in real terms have been on a downward path since 1982 and are now at their lowest level since 1973. Industrial electricity prices are lower in the United Kingdom than in leading industrial nations such as Japan and Germany, and are comparable with those in the United States.

There has been some comment in the debate about the position of intensive users. International tariff comparisons for very intensive customers are notoriously difficult owing to the large number of special deals, the relatively few companies prepared to reveal the real price that they pay for electricity and the unwillingness of some countries to declare the state aids that they are giving their electricity industries.

In future, users over 1 MW will be able to negotiate prices in a competitive market. Those businesses are used to purchasing commodities competitively in the marketplace. Electricity will be no different and we expect many of them to benefit from price reductions. However, because it may take them time to negotiate longer-term arrangements, we have asked the electricity industry to ensure that larger customers--customers over 1 MW-- are offered a real price freeze for one year if they cannot negotiate reductions. In the past five years of this Government, we have seen domestic prices decrease by some 8 per cent. in real terms. Indeed, in real terms, domestic prices have been on a downward path since 1982. We see no reason why domestic prices should increase by much more than the rate of inflation this year and the price control formula should ensure that the price does not rise in real terms for the next three years.

As my right hon. Friend the Secretary of State made clear in opening the debate, we expect the average price increase overall for electricity consumers in April to be significantly below the current rate of inflation.

I want to make it clear to the Opposition, as they do not appear to recognise it when considering rates of return, that the returns earned by the electricity industry at current price levels are not excessive. Over the three years from 1985-86 to 1987-88, the returns earned were only 2.75 per cent., which was well below the average for the private sector. That was also below the greater return of 5 per cent. for the public sector set by the previous Labour Government. The position is equally straightforward on the environment. The Government will ensure compliance with the EC large combustion plant directive.

Mr. Barron : I asked a specific question in my speech and in an intervention. What is the Government's estimate of the rate of return of the new generators when they are privatised? It is an important question when one considers the amendment, which refers to electricity prices.

Mr. Baldry : I urge the hon. Gentleman to curb his enthusiasm and to look forward with anticipation to the publication of the prospectuses for the generators. To return to my earlier point, the hon. Gentleman complains about the rate of return, although the rates of return earned by the electricity industry are not excessive at current price levels and are well below the rate of return of 5 per cent. that the previous Labour Government set.

The Government intend to ensure compliance with the EC large combustion plant directive. I must make it clear what that directive involves, because some Opposition

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Members, including the hon. Member for Gordon, seem confused. It was suggested that the European Community wanted a reduction of 60 per cent. in sulphur dioxide emissions by 1995. That is not the case. The directive sets limits for 1993, 1998 and 2003 for emissions from existing plants. For the United Kingdom, those are as stated by my right hon. Friend : a 20 per cent. reduction by 1993, a 40 per cent. reduction by 1998 and a 60 per cent. reduction by 2003, all compared with 1980 emissions. We are determined to meet those targets and to ensure compliance with the directive.

The Environmental Protection Bill, now before the House, will provide the Department of the Environment and Her Majesty's inspectorate of pollution with the power to ensure compliance with the directive. We are determined that the directive will be implemented in full. The retrofitting of the 4 GW Drax power station with flue gas desulphurisation is already in hand at an estimated cost of well over £500 million and further retrofits are in prospect. The successor companies to the Central Electricity Generating Board--National Power and PowerGen--will complete a programme of fitting low-nitrogen oxide burners to all 12 major coal-fired stations. The capital cost of FGD will be taken into account in setting the capital structure of the generators.

It is clearly important that the international community should move to stabilise carbon and other greenhouse gas emissions at the earliest possible moment.

The United Kingdom is playing a leading role in the international work on climate change. Privatisation will help. Competition and market forces will encourage more efficient, cleaner and more diverse forms of electricity generation such as combined heat and power, and combined cycle gas turbines.

At present all of us still waste far too much energy. Energy efficiency--a fuel of the future--will clearly be greatly enhanced by the rise of competition and market forces. In short, competition will have increased the efficiency with which energy is used, while our legislation contains a totally new duty for public electricity suppliers to meet set standards of performance in promoting energy efficiency.

Perhaps the Opposition's confusion, as evidenced in both the motion and their comments in the debate tonight, is a result of the fact that they still do not appreciate the contribution that privatisation can make to our economy. We have a firm belief that competition in free markets is preferable to state-controlled industrial strategies, that the promotion of enterprise is preferable to bureaucratic interference and that there should always be a business philosophy designed to meet the needs of customers and consumers, rather than the convenience of producers. In electricity, privatisation will lead to an increase in efficiency by introducing more competition, so that decisions are shaped by market forces rather than being taken by Government Departments.

Perhaps the Opposition confusion is that they still do not appreciate that we are determined to have the most competitive electricity industry in the world. Perhaps they do not understand that a radical new structure is now in place, which introduces fundamental changes in the way in which electricity itself will be traded--through a pool or

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spot market in which the price will be determined during every half hour of trading by the balance between supply and demand--a very competitive marketplace.

So let me make it clear. Electricity privatisation is well on course. Sixteen new and exciting companies are being created and people, including employees, will be able to invest in 14 of them. I have no doubt that in due course large numbers of those working in the electricity industry will wish to become shareholders in their industry.

There will be a completely new operating regime, with genuine competition being introduced. That competition will lead to greater energy efficiency and protection for the environment. In addition, we are determined to continue to play a leading role in tackling global warming. Competition will ensure downward pressure on prices. So our policies are good news for the customer, the consumer, industry and the environment.

The Opposition motion is misconceived and misconstrued. I urge the House to reject it and to support the Government amendment. Question put, That the original words stand part of the Question :--

The House divided : Ayes 207, Noes 289.

Division No. 85] [7 pm

AYES

Abbott, Ms Diane

Adams, Allen (Paisley N)

Allen, Graham

Anderson, Donald

Archer, Rt Hon Peter

Ashley, Rt Hon Jack

Ashton, Joe

Banks, Tony (Newham NW)

Barnes, Harry (Derbyshire NE)

Barron, Kevin

Battle, John

Beckett, Margaret

Beggs, Roy

Beith, A. J.

Bell, Stuart

Benn, Rt Hon Tony

Bennett, A. F. (D'nt'n & R'dish)

Bermingham, Gerald

Bidwell, Sydney

Blunkett, David

Boateng, Paul

Boyes, Roland

Bradley, Keith

Bray, Dr Jeremy

Brown, Nicholas (Newcastle E)

Brown, Ron (Edinburgh Leith)

Bruce, Malcolm (Gordon)

Buchan, Norman

Buckley, George J.

Caborn, Richard

Callaghan, Jim

Campbell, Menzies (Fife NE)

Campbell, Ron (Blyth Valley)

Campbell-Savours, D. N.

Canavan, Dennis

Clark, Dr David (S Shields)

Clarke, Tom (Monklands W)

Clay, Bob

Clelland, David

Clwyd, Mrs Ann

Cohen, Harry

Cook, Robin (Livingston)

Corbett, Robin

Cox, Tom

Cryer, Bob

Cummings, John

Cunliffe, Lawrence

Cunningham, Dr John

Dalyell, Tam

Davies, Rt Hon Denzil (Llanelli)

Davies, Ron (Caerphilly)

Davis, Terry (B'ham Hodge H'l)

Dewar, Donald

Dixon, Don

Dobson, Frank

Doran, Frank

Douglas, Dick

Duffy, A. E. P.

Dunwoody, Hon Mrs Gwyneth

Eadie, Alexander

Eastham, Ken

Evans, John (St Helens N)

Ewing, Harry (Falkirk E)

Ewing, Mrs Margaret (Moray)

Fatchett, Derek

Faulds, Andrew

Fearn, Ronald

Fields, Terry (L'pool B G'n)

Fisher, Mark

Flannery, Martin

Flynn, Paul

Foot, Rt Hon Michael

Forsythe, Clifford (Antrim S)

Foster, Derek

Fraser, John

Fyfe, Maria

Garrett, John (Norwich South)

Garrett, Ted (Wallsend)

George, Bruce

Golding, Mrs Llin

Gordon, Mildred

Gould, Bryan

Graham, Thomas

Griffiths, Win (Bridgend)

Hardy, Peter

Harman, Ms Harriet

Haynes, Frank

Healey, Rt Hon Denis

Heffer, Eric S.

Henderson, Doug

Hinchliffe, David

Hoey, Ms Kate (Vauxhall)

Hogg, N. (C'nauld & Kilsyth)

Home Robertson, John

Hood, Jimmy

Howarth, George (Knowsley N)

Howells, Geraint

Howells, Dr. Kim (Pontypridd)

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