House of Commons Hansard Debates for 16 Jan 1991

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worked with distinction for the CEGB, a substantial period of time in which to bring about any necessary changes. Until that date I shall neither float the shares nor be prepared to entertain offers from trade buyers.

Secondly, I should make it clear that I am not committing the Government to dispose of their holdings on or immediately after 1 April 1993. They may sell the shares in 1993, 1994, 1995 or at a later date. That will properly depend upon market conditions and opportunities. The Government will consult the directors of the company before making any decision on a sale.

Thirdly, all other things being equal, the Government would prefer to sell the shares in a way that contributes to wider share ownership. However, I have a duty to the taxpayer to maximise the proceeds from the sale of these important national assets. To that end I must have the option of selling the shares to one or more trade buyers. It is not possible to say what will happen in two years' time or later and I therefore propose to make it clear in the prospectus that some time after two years I have the option of selling the shares in either company through a flotation, a trade sale to one or more companies or through a private placement. The Labour party also threatened that if it were to win power at the next election, it would use the Government's 40 per cent. retained stake in the industry as a means of renationalising the national grid.

Mr. Dobson : We have not said that. All we said is that we would use the powers available to a major minority shareholder with 40 per cent. All the other things will have to be considered once we get into office.

Mr. Wakeham : Perhaps the hon. Gentleman suffers from leaks as well, but I am happy to accept what he says. Of course, the

renationalising of the national grid is clear. That is a matter for the Labour party, but I scarcely think that further threats of renationalisation are likely to appeal to the shareholders in the industry or to boost Labour's electoral prospects.

Mr. Peter Hardy (Wentworth) : The Minister emphasised the point that workers in the industry would own 7 per cent. of the distribution companies. Does he anticipate that any different position will apply for the generating companies and does he accept that it would be wrong and anomalous for a different arrangement to apply within different parts of the electricity supply industry? Will he assure the House that he recognises that, although employees in the industry may own 7 per cent. of the equity of the distribution companies, that is probably only a third and certainly less than half the shareholding of people who are not resident in this country and that many in the industry and outside it find that deplorable?

Mr. Wakeham : We want to encourage employees in the generating companies to take up their entitlement of employee shares. It is not absolutely possible for the arrangements for employees in the generating business to be on exactly the same basis because, for example, we have some obligations to the employees of Nuclear Electric who were at one time to be employees of National Power. As far as I know--I shall check the details-- the terms are the same or comparable, but if I am wrong I shall write to the hon. Gentleman. On the question of privatisation generally, Opposition Members face an awkward political dilemma.

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Privatisation was pioneered in this country and has now been taken up by countries all over the world. It is manifestly popular and successful. However, it has not prevented the reluctant converts to the market economy sitting on the Opposition Benches from voting against every privatisation measure that we have brought before the House. The Opposition voted against the privatisation of British Telecom, British Gas, British Airways, the British Airports Authority, water and now electricity. At least that has the virtue of consistency, which seems to have been a theme of this debate, but it does not reflect

Mr. Alexander Eadie (Midlothian) : I get the feeling that the right hon. Gentleman is reaching the end of his remarks. I hope that he will comment on the direct question posed by my hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson) about what will happen to the electricity industry in Scotland.

Mr. Wakeham : I do not have direct responsibility for the industry in Scotland. In all privatisations it is not the practice to announce the percentage of shares to be sold until a relatively short time before the privatisation. Therefore, I would not have expected my right hon. Friend the Secretary of State for Scotland to have yet stated his position on that. The reasons I have used as the basis for my decision to sell only 60 per cent. of the generating companies are not the same as those applying in Scotland because Scottish companies are integrated and are not generating companies operating in the same way in a new market. That was at the heart of the reason why I thought it right for the taxpayer to retain 40 per cent. of the shares. I cannot give a direct answer, but I can say that, as far as I know, no decision has yet been made--I would not have expected one --and the arguments used for the decision in England and Wales are not the same as those applying in Scotland.

I was referring to the Labour party's dilemma--their opposition to privatisation in practice and their acceptance of market forces to a greater extent than in the past.

Mr. Harry Barnes (Derbyshire, North-East) : Was it not the case that market forces were seriously interfered with at the time of the share flotation because there was an electricity supply crisis caused by the severe weather conditions that especially hit the east midlands? The Minister did not make a statement about that severe crisis, no offer of Government help was made and there was no declaration of an emergency because it would have seriously affected the market and the sale of East Midlands electricity shares. Some hon. Members from the east midlands have not been able to have the meeting with the Minister that he promised in order to discuss these matters.

Mr. Wakeham : The hon. Gentleman can have a meeting with me if he wants, but he should recall that there was a debate in the House which he could not attend

Mr. Barnes : I did ; it was my debate.

Mr. Wakeham : Let me finish. There was a debate, and it was perfectly appropriate for my hon. Friend the Under-Secretary to give a full account of the position.

In the western world, and increasingly in the communist world, the argument about whether market

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mechanisms represent the most efficient way of allocating resources and meeting human needs appears to have been decisively won. I thought that we had all become believers in the market economy, but Opposition Members still hesitate about the creation of a market in electricity and a sale which produces a clear and welcome separation between the objects of regulation and those of ownership. I invite the House to reject the Opposition's motion. They have demonstrated confusion, both in principle and practice. By contrast, we have taken a state monopoly and set it on the path to full competition. We have ensured a better deal for consumers, we have achieved an excellent return for the taxpayer, and we have given more than 80,000 employees a stake in the future of their industry. I commend the amendment to the House.

8.21 pm

Mr. John McAllion (Dundee, East) : We heard much from the Secretary of State about the successful sale of the distribution companies in England and Wales. I think that he said that the sale had been totally vindicated, that it had been a major success and that it was the latest and biggest in the line of privatisation successes for the Government.

There was never any danger of the sale not being successfully concluded by the Government. If the price is pitched low enough, buyers will always be prepared to make a quick profit, which is exactly what happened with the sale of the distribution companies. The substantial premiums enjoyed in post-privatisation trading proved that the sale was nothing less than a wanton giveaway at the taxpayers' expense, by a Government who are now so profligate with public assets that they do not realise when they have been ripped off by their own supporters. We should be grateful that, unlike British Aerospace, the Government did not pay someone to take the distribution companies off their hands.

My hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson) raised the issue of whether the Scottish companies will be given the same treatment that National Power and PowerGen received in the past week. I know that the Secretary of State said that he was not directly responsible, but a Scottish Office Minister is on the Front Bench who should be able to pass information to the Minister who will reply to the debate.

I have three specific questions to which not only I but the people of Scotland have a right to hear an answer. First, will less than 100 per cent. of the equity in the two Scottish power companies be sold in the first instance? Secondly, will shares be offered in a linked package that can be split only when dealings commence? Will Scottish Hydro-Electric and Scottish Power be sold together in one flotation? Critically, will the Government consider a minority trade buyer for the remaining blocks at any point after 1993?

The answers to those questions are vital, not only for the Scottish electric supply industry but the whole Scottish economy, which is so tightly integrated that, if the Government intervene or interfere with power generation, they interfere with the prospects for the Scottish coal industry, they call into question the viability of Scotland's railway network and they affect the prospects of the

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Scottish power engineering industry. The whole Scottish economy can be affected by the outcome of those decisions.

I can well understand why the Government are anxious about the flotation prospects of the power companies. Their huge debt burdens and capital investment requirements could make prospective buyers nervous about the prospect of investing in them. I understand why the Government are offering only 60 per cent. of the equity in the first instance : they fear an almighty flop if they do otherwise and that the market will not respond to a 100 per cent. flotation. I understand, too, why the Government are considering allowing a trade buyer to take up the remaining blocks in two or three years' time : they know not only that any such trade buyer would thereby acquire a block of shares that would serve as a tremendous platform for the takeover of the company, but that stock exchange rules would require anyone with that number of shares to make a bid for the whole company.

The Government well understand that such a scenario will foster hopes among potential small investors of windfall takeover profits in two or three years' time, when they can sell their shares to the person who bids for the entire company. By holding out such a scenario, the Government hope to make a success of the sale of the power companies.

If the answers to my questions are, yes, less than 100 per cent. equity will be put on sale in the summer, yes, the companies will be sold in a linked package and, yes, trade buyers will be offered the remaining blocks in the future, a series of other questions arise. First, what are we to make of the Minister's claim that there will be the maximum benefit to customers if the electricity companies fall under the monopoly control of a single person or company? He said, for example, that he expects enhanced rights of supply and improved standards of performance to benefit customers.

Earlier tonight, I spoke to my hon. Friend the Member for Paisley, South (Mr. McMaster), who drew to my attention what is happening under Scottish Power in the run-up to privatisation, never mind what might happen in its aftermath. He told me that one of his constituents, a 74-year-old pensioner who struggles to get by on an income of only £48.50 a week, had a budget account with Scottish Power, which it mismanaged to the extent that she suddenly found that she had arrears of £190. It contacted her and said that it expected her to repay the arrears at about £14.10 a week from an income of £48.50.

My hon. Friend intervened and asked Scottish Power to send an engineer to check the electricity supply to ensure that the figures were correct. Once the engineer had called and checked, the pensioner received a bill of £20 for his visit. Is that what the Minister means by enhanced rights of supply and improved standard of performance for customers in the aftermath of privatisation? The reality for customers is that standards and performance will be much worse and more costly than under the public sector.

How will the decisions that are being taken about the privatisation of the Scottish power companies affect current negotiations between the Scottish Office and Scottish power companies about the debt burden which the privatised companies will inherit? If, as is entirely possible under the Government's current strategy, Scottish Power and Scottish Hydro-Electric end up in the control of someone such as Lord Hanson, the question arises, why

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should the taxpayer write off accumulated debts incurred by the Scottish power companies when the main beneficiary will be the majority shareholders in the companies? Surely, if the likes of Lord Hanson want the power, they should accept the responsibility of the debt that goes with it. We are talking about big sums, because Scottish Power's most recent balance sheet shows about £509 million in long- term borrowing. Taxpayers and voters will want to know why they are expected to pay for someone else's profits in that way. Another important question is, who will make the important decisions about the future capital investment programmes with which these power companies are faced? The European Commission's large combustion plants directive will have to be applied by the Government. That means that flue gas desulphurisation equipment will have to be retrofitted to the coal-fired power stations at Longannet and Cockenzie. We know that retrofitting at Drax in Yorkshire is costing £650 million, so whoever takes control of the Scottish power companies will have to make an early decision on the immense and urgent capital projects facing the Scottish electricity industry. That is not the only investment decision in the pipeline ; there are also plans to upgrade the Scottish interconnector with the south. Almost the only argument that the Government put forward to justify the sale of the Scottish power companies was that it would facilitate the sale of surplus Scottish electricity to the English market. However, the investment required--about £100 million--to upgrade the interconnector would have to compete with the investment that is required to retrofit FGD equipment at Longannet and Cockenzie. Which of these investment projects will come first? Which will have the higher priority accorded to it? Who will make the decisions? Even if the decisions are both positive, and retrofitting and upgrading of the interconnector go ahead, what will be the impact of those investment decisions on the competitive pricing of Scottish electricity? It certainly will not make it any cheaper in the short or the long run.

Two years ago, the former Secretary of State for Scotland said : "England is short of electricity and for a few years it will have to purchase it either from the Scottish industry or through the French industry or through building extra capacity."

The right hon. and learned Gentleman pointed out :

"the 5,000 megawatts of spare Scottish capacity might prove the cheapest option for the English power industry"

in the long run. But it might not prove the cheapest option if major capital investments must be made by the Scottish power industry and if, as a result, the price of Scottish coal goes up. Remember, it is a privatised English industry, which will look not to the interests of Scotland, or indeed of England and Wales, but solely to the interests of its shareholders who will make those decisions. The sanguine view held by the former Secretary of State for the prospects for the future of the Scottish industry can be called into question. In the years ahead, much cheaper coal will be available to the English power companies. It is now being brought in from all around the world. Associated British Ports is planning a big coal importing facility close to Immingham, which will be able to accommodate the largest ships for carrying coal--Cape size ships. They enable the United Kingdom to benefit from direct shipments from South

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Africa, Colombia, the United States and Australia. Scottish coal will have to compete with all that cheap coal. This is a serious matter.

Certainly, the interests of the electricity users and the interests of the Scottish people and the Scottish economy will not even arise in the calculations of a privately owned electricity industry. Those who doubt that should look to the example that has been set by a privatised British Steel, as it slowly strangles the Scottish steel industry and in the process shows nothing but contempt for a Scottish Office that is powerless to do anything about British Steel. The irony is that, having created one Frankenstein's monster which they cannot control, the Government are creating a new family of Frankenstein's monsters which they will not be able to control. It is difficult to overestimate the folly of the Government's drive towards privatising the electricity industry.

Vital national issues are at stake in this industry. We could be on the eve of a Gulf war which will send the price of oil spiralling. Many experts predict that gas prices will double over the next 10 years. The future of the nuclear industry is grim, to say the least. More than ever, we need a Government in charge of energy policy and directing it towards an integrated energy policy ; yet the Government are selling off our electricity industry and leaving the key decisions on investment and strategy to private sector companies rather than taking responsibility themselves. It is sheer madness. Workers in the power engineering industry, such as those at Babcock in Renfrewshire, have technology and expertise which is unrivalled anywhere in the world, but they must face the fact that key decisions about their home market will be made not by the Government but by the private sector interests which will take over control of the electricity industry.

Coal, a vital national resource, depends upon key investment decisions which will be taken by the electricity supply industry. That, too, has been surrendered by the Government to those who have no concern for national interests, national security or anything else. Indeed, there is even talk of winding up the Department of Energy and doing away with the role of the Secretary of State for Energy--which, given the present incumbent, some people may think is not a bad idea. The answer is not to do away with the Department of Energy or the role of the Secretary of State but to change them, and the people of Britain will do that at the next general election. 8.35 pm

Mr. Alick Buchanan-Smith (Kincardine and Deeside) : As ever, the House was entertained by the hon. Member for Holborn and St. Pancras (Mr. Dobson). I certainly was, but I should have regarded his speech as slightly more credible if he had gone wider than the issue of flotation, which he made the centre of his speech. Flotation is obviously an important issue, but the hon. Gentleman's comments might have been more credible if, on the general issue of flotation, the Labour party did not always try to have it both ways. I refer the hon. Gentleman and other Labour Members to their comments on the recent flotation of BP shares, when the Government were equally heavily criticised for having set the price too high. The hon. Gentleman described the flotation as a failure. My right hon. Friend the Secretary of State exposed the hon. Gentleman's failure to appreciate how assets are valued

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and particularly how markets can change between the fixing of a price and flotation. The hon. Gentleman's speech was also incredible because it did not deal with the wider issue. He chose to ignore the many benefits that electricity privatisation has brought, on which I should like to dwell.

A surprising benefit of electricity privatisation, but perhaps one of the most significant, has been the number of direct contracts that are springing up between North sea producers of gas and onshore generators of electricity. In taking together privatisation of the gas industry and privatisation of the electricity industry, we have clear evidence before our eyes of the way in which the market has opened up and the fact that new competition exists. This can be seen in the proposals to pipe gas from the North sea into the east end of London and generate it into electricity, where the main consumption takes place. This opening up of the market was brought about only by the privatisation of those two industries. No one can deny that it opened up competition in a major way.

Mr. Dobson : In referring to proposals for a gas-fired power station in the east end of London, is the right hon. Gentleman referring to Thames Power's proposals? Does he agree that it might have been wise to point out to the House that that company intends to import gas from abroad, not to use British gas?

Mr. Buchanan-Smith : No ; I was referring to the proposals by Conoco, which is involved in a consortium. That is direct evidence. There is a great deal of other evidence of contracts under discussion involving projects along the east coast of England where gas may be piped ashore to generate electricity.

That underlines two other points. The first, which again stems from Government legislation, is the importance, on the gas side, of the role of the regulator, which is making possible the common use of the British Gas pipeline. The positive role of the regulator, James Mackinnon, is another example of the way in which Government policies are leading to success. Secondly, we have witnessed not only the opening-up of competition but the more efficient use of energy--something that the hon. Member for Holborn and St. Pancras passed over very quickly in his opening speech. The generation of electricity from gas is leading to much efficient conversion, through combined cycle generation, and I hope that a number of proposals on combined heat and power will also shortly come into effect. That is another example that the privatisation of the gas and electricity industries together is leading not only to more competition but to a much more efficient use of energy than we have had in the past--certainly much more efficient than was apparent under the nationalised industries.

There is also a major widening of competition in the contracts between generators and industrial users. The hon. Member for Dundee, East (Mr. McAllion) referred specifically to what is happening in the Scottish industry, so let me take an example from the Scottish industry. What was one of the first contracts between a generating company and a major industrial user? To many people's surprise, one of the smaller generating companies, Scottish Hydro Electric, obtained a contract with British Oxygen for that company's activities throughout the United

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Kingdom. If direct contracts between generators and major industrial users do not open up competition, I do not know what does. Moreover, the privatised structure has allowed not only more competition but more enterprise on the part of a relatively small company in obtaining a United Kingdom-wide contract, giving it the opportunity to develop a far larger market and to enjoy new-found vitality.

I hope that, when Scottish Hydro Electric is floated, it will be on the basis of a complete sale. Through its enterprise, the company has shown itself to be highly attractive to investors--particularly small investors. I speak as a consumer of the power generated by Scottish Hydro Electric. Like many others, I shall be delighted to invest in the company that generates the electricity that I use, which, in the short period since privatisation, has shown itself to be a company that is prepared to go out and win markets throughout the rest of the United Kingdom.

Dr. Kim Howells (Pontypridd) : Does the right hon. Gentleman agree that, when a contract runs out, a large industrial company may be able to shop around for alternative sources of supply, but that the ordinary domestic consumer will not only be unable to shop around but will have to make up for the earnings that the district regional company will lose when such a large industrial concern changes its source of electricity?

Mr. Buchanan-Smith : The hon. Gentleman used the critical words "shop around". When the contract ends, industrial users of electricity can shop around. That will impose on the generating companies the disciplines of the market which will make them more efficient. Given the role of the regulator, there will also be a far greater certainty of the domestic consumer benefiting from the rigours of the market.

I have one further point to make about Scottish Hydro Electric. Despite pressures from those of us who represent constituencies in the north of Scotland, who pointed out that it was somewhat anomalous that the company-- albeit for historical reasons--should have its headquarters in Edinburgh, outwith its area of operation, nothing was done. It is significant that in the past few days--after the privatisation of the company--it has miraculously chosen to move its headquarters to Perth, in the area in which it operates. We pressed such a move on the Government and on Ministers for many years, but only when the company was privatised did it choose of its own volition to respond to the consumers in its area and move its headquarters. I welcome that decision and commend the management on it.

I find it difficult to understand some of what Opposition Members have said about nuclear power. One of the things that the privatisation process has done is to expose the nuclear industry to the high costs involved. That did not happen when the whole industry, including the nuclear industry, was nationalised. There was a change in the Government's policy on privatisation, which I welcomed, but that end was nevertheless achieved as a result of the privatisation process. As a result, the nuclear industry, which--in my judgment, correctly--has been kept in the public sector, has been given a new market discipline. I should have thought that Opposition Members would welcome that.

I hope that the industry will respond ; I believe that it will. In terms of production costs, Scottish Nuclear Fuels

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has a very good record relative to nuclear companies elsewhere in Britain and in the world. I hope that the Government will continue to support the nuclear industry. It is important that we should maintain a proportion of our electricity supplies from that source to ensure variety of supply, security of supply--which will obviously be necessary from time to time--and the development of new technologies. I believe that, so far from proving the case that privatisation has not worked, by ignoring the wider issues--the real benefit of competition, for example--the hon. Member for Holborn and St. Pancras has condemned his own case. I hope that the House, too, will condemn it tonight.

8.46 pm

Mr. Malcolm Bruce (Gordon) : The right hon. Member for Kincardine and Deeside (Mr. Buchanan-Smith) made a good fist of justifying a policy whose limited benefits and interesting consequences were certainly not forecast or foreseen by the Government when they embarked on the privatisation of the electricity industry. The privatisation strategy has changed almost daily under different Ministers and in different circumstances. The right hon. Gentleman is entitled to point out the consequences, but he is not entitled to claim credit on behalf of the Government and praise the far-sightedness of Ministers who launched the projects.

Part of the problem with the whole exercise is that it has been undertaken fundamentally for ideological purposes, with no real thought about how to serve the interests of the industry or the consumer. That is why it is flawed. The Liberal Democrats made it clear that we accepted the need for changes in the structure of the industry. Throughout the proceedings on the Electricity Bill, we tabled amendments in an attempt to achieve such changes. We were proved right in a number of cases--not the least of which concerned the withdrawal of nuclear power from the flotation. When we first suggested that, we were ridiculed by the then Secretary of State. He said that our suggestion was absurd and that nuclear power was a wonderfully profitable operation which would command support once its profitability had been clearly demonstrated to the market. When it did not command that support, the Secretary of State claimed that it was terribly clever of him to have identified the fact that nuclear power was such a loss-maker and to have withdrawn it from the flotation. That argument was touched on by the right hon. Member for Kincardine and Deeside.

It is fair to say that the Government's electricity privatisation plans were not only ideologically motivated, but were ill thought-out and shambolic. Privatisation has also been a cheapskate exercise in terms of what has been achieved on behalf of both taxpayers and those who have sought to purchase shares, many of whom failed to be allocated any shares at all.

The Secretary of State said tonight that he thought that the total yield from the sale of the electricity industry would be about £8 billion. That is a far cry from the £20 billion that the Government originally thought would be the likely yield from the industry. That suggests that the price was pitched very low indeed.

When the Minister replies, I hope that he will tell me whether my calculations are correct. The money resolution to the Electricity Bill amounted to more than £6 billion for

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contingencies, debt write-offs and related costs of the flotation and that is before we consider advertising, underwriting and other consequential costs. On that basis, it appears that the net return to the Government from the sale of the entire industry is under £2 billion. That is a very poor return for an industry of such crucial importance. Regardless of the debate on whether we are talking about current cost accounting or replacement cost accounting, that figure is a tiny fraction of the worth of the industry to the United Kingdom economy by any measure that we care to use--current, capital or any other kind of accounting.

The hon. Member for Dundee, East (Mr. McAllion) referred to the rather anomalous situation in Scotland which has developed in an extraordinary way. Originally, the Scottish companies thought that they were going to be substantially disadvantaged by being placed at the end of the queue. However, ironically, the chaos and confusion that has reigned in England and Wales compared with the relative consistency of approach in Scotland has given the Scottish companies an opportunity which, as the right hon. Member for Kincardine and Deeside pointed out, they have not been slow to exploit.

If you, Mr. Speaker, were to drive to Aberdeen airport, as I frequently do, going north out of Aberdeen you would pass a very large poster just short of the turning for the airport. That poster is an advert for Hydro Electric and it states :

"We charge over the border at every opportunity."

That is a sign of that company's success in selling our electricity to English consumers and good luck to the management operating in those circumstances. It shows that there is a market for that power, but it does not give a clear tilt to the idea that there is a coherent, consistent United Kingdom-wide market operating in any predictable direction.

We have a problem and the Minister should respond to the questions posed by the hon. Member for Dundee, East and tell us whether the flotation of the Scottish companies is likely to take place in about May. Will there be a full flotation and what would happen to the 40 per cent. if there was not? Presumably that percentage would be held by the Secretary of State for Scotland and that would have the advantage of helping to anchor those companies within Scotland. Many of us are worried that the industry in Scotland may be floated as two independent companies based in Scotland in the short term, but those companies may merge or be taken over by interests from outside Scotland. That might not be in the long-term interests of the Scottish economy or the Scottish consumer.

There is a further concern in that Scotland offers one of the best potentials for developing renewable energies in Europe, but it is still not clear whether the regime that is being established will help or hinder that development. There is no evidence to suggest that the development will be brought forward at the pace that many of us would like.

Ironically, the Government have been so embarrassed by the under-pricing of the flotation of the regional companies in England that after some convolutions they have decided to float only 60 per cent. of the generating companies when the industry comes to market. The Government have created an uncertainty to which the Secretary of State for Energy alluded earlier. The Government have created the nucleus for the renationalisation of the industry if that is the wish of a future

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Government. That is an odd position for them to have adopted given that, in general, they have tried to create a privatisation regime which would make re-nationalisation difficult and would not create the sort of football uncertainty in which industries have been kicked backwards and forwards in the past.

The issues that were raised during consideration of the electricity privatisation legislation have not been settled. We do not have a regime that is likely to encourage greater energy efficiency or conservation or the development of renewables and the reduction of our dependence on imports. Given the windfall accruing to the new companies, the suggestion mooted by myself and my hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) during consideration of the Electricity Bill, that all consumers not currently connected to the national grid should be connected and that that should be part of the terms of the privatisation, could now be afforded. The electricity industry's public relations have been substantially damaged by the mismanagement of the flotation. In rural areas, connection to the national grid might be a way of rebuilding confidence and demonstrating that privatisation does not mean that people in remote areas who require connection for socially desirable purposes should remain cut off because the market is no longer interested in them. The market can afford now to provide that connection and it should do so. People in rural areas are entitled to expect that.

If we have, as I believe as a nation we should have, an objective for electricity, it should be to promote conservation and the efficient use of our resources to ensure the rapid, efficient development of renewable alternatives to existing sources and to encourage diversity and reduce our dependence on imports. The Government are not entitled to claim that their privatisation is likely to achieve any of those things.

The Government have created a market, but one which they did not predict and one that has produced results which they could not have forecast and which has no coherent sense of direction. It may end up almost anywhere and result in a quite different set of speeches in a debate on the electricity industry in two, three, four or five years' time. If the right hon. Member for Kincardine and Deeside is honest, he will be forced to acknowledge that.

It is time that the Government came clean about what they believe the future of the electricity industry should be in the national interest in practical terms. Frankly, the rhetoric as to whether it should be a nationalised industry or a privatised one, or whether the market should solve the problem, is irrelevant. If the industry does not meet our national interests, our economy will suffer extreme consequences. The Government have manifestly failed to demonstrate that the privatisation of electricity will meet the national interests which we believe are necessary and which I have defined. In a few years' time, I believe that they will be found wanting. 8.57 pm

Dr. Michael Clark (Rochford) : You will have noticed during this debate, Mr. Deputy Speaker, that there have been references to doubts about the continuity of electricity supplies when the generators are privatised. Are

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you aware that, while clockwork clocks are working in the Chamber, we do not have a continuity of supply to our electric clocks even before the electricity generators are privatised?

Some people wonder why we should want privatisation of the electricity industry. I have heard people in the street ask, "Why should we have privatisation when so many nationalised assets belong to the people already? They are our assets and they belong to us. Why should they be privatised and transferred to us in other ways?" I heard that said also about the privatisation of the water industry in particular and, to some extent, about the privatisation of the electricity industry. Even sceptics would agree that road transport performs far better when privatised, that British Telecom offers more choice, has better technology and is giving a far better service to the public in private ownership than it did in public ownership, and that the steel industry has changed from a loss maker to a profit maker as it has gone into private hands.

If proof is wanted of a new attitude that is brought about by privatisation, let us consider the privatisation of council houses--one of the greatest reforms of the Thatcher years, second only, probably, to handing the unions back to union members. Nobody believed that we, the people, owned council houses. Certainly the occupiers of council houses did not believe that they owned them, and those who did not live in council houses did not believe that they owned them, any more than Russian peasants believed that they owned the collective land that they were reluctant to farm. When council houses were owned by councils and occupied by tenants, no one bothered to paint their front doors bright colours, build extensions, or tidy their gardens as they do when they own their own property. When one really owns something, one invests in it, cares about it and has control over it, and that applies whether that is individual or collective ownership, or whether ownership is through using one's own money and savings or through a mortgage or borrowed money. So it is with nationalised industries. It is only when nationalised industries are privatised and are truly owned by individuals that people begin to care about them.

British Telecom shareholders are now quite rightly in uproar about the proposal to spend £50 million--some even say £100 million--on changing BT's logo and repainting all its vans and assets. I share their concern, particularly as the proposed logo seems to be nothing more than Mercury blowing his own trumpet.

As my right hon. Friend the Secretary of State has said, there is no doubt that the electricity privatisation is an outstanding success. The Jeremiahs said that the shares would not be sold, that there would be no demand for them and that privatisation would not work. In particular, the employees said that privatisation would not work. I attended meetings in Essex and elsewhere in this country, and hundreds of employees said that privatisation would not work, that the electricity industry would crumble, that we would not have continuity of supply, and that we would press light switches and nothing would happen. The directors of the Central Electricity Generating Board said that it would not work, and that we could not have proper control of a grid system if generators were outside public ownership.

However, when the electricity industry was offered to the public it was a record privatisation. There were 13 million applications, and 98 per cent. of eligible employees applied. They were not all Tories--many of them must

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have been Labour voters. I wonder who the 2 per cent. who did not buy shares were. Could it be that the 2 per cent. of employees who did not buy shares were the managers and directors who doubted whether the privatisation would work? I do not think so, for two reasons. First, under nationalisation, the number of managers and directors in the electricity industry was far greater than 2 per cent. of the employees. Secondly, those same managers and directors are now busy organising consortia to build new power stations, coming up with schemes and projects to put up new plants, and arranging management buy-outs if they possibly can.

There has been a total reversal of the pessimistic views of the managers and directors. There is now realism. They are wholeheartedly entering into the privatisation process and bringing in more plant, capacity and equipment to help to create the competition that privatisation is all about.

Also, 97 per cent. of valid customers applied for shares, and 70 per cent. of all those who applied were able to get share allocations, all except the greedy who applied for far too many and were rightly ruled out perhaps because of their greed.

The hon. Member for Holborn and St. Pancras (Mr. Dobson) said that far too little money was raised on privatisation, that another £8 billion could have been raised and that it would have paid for repairing all schools in the country and taken £100 off everyone's community charge. That may be so--£8 billion may do that ; the hon. Gentleman did the calculation ; I did not. However, I suspect that, if the price of electricity shares had been doubled to attempt to raise that extra £8 billion, no extra money would have been raised. On the contrary, far less would have been raised because I for one would not have bought my shares at twice the present price, and most people would think exactly the same.

I now refer to electricity prices. Relative to the recent past, electricity prices in this country are quite good. The Government have an excellent record. Over the past four years electricity prices fell by 4 per cent. in real terms. That is equivalent to about 1 per cent. in real terms each year. Under the Labour Government electricity prices rose, not by 1 per cent. per year but by 2 per cent. every six weeks. Therefore, our record is excellent in keeping price increases down. In the last year alone the price rise for electricity was 4 per cent. below inflation. The safeguards that have been brought in for the early years of privatisation mean that there should not be an increase above inflation until at least March 1993. Although United Kingdom electricity prices are satisfactory relative to the recent past, we have to consider how they compare with prices outside the country. I do not think that they compare well with prices abroad. Yesterday I had a meeting with two main board directors of ICI who were talking to me about the chlorine industry which is a heavy user of electricity. They pointed out to me that the price of electricity to industry here is 2.9p per kWh, in Germany 2.4p per kWh, in the Netherlands 1.9p per kWh and in Italy, France and the United States 1.5p per kWh-- almost half what British industry pays. Granted, the chlorine industry in this country is a beneficiary of the so-called large industrial consumer scheme which brings the price of electricity down to 2.4p per kWh ; that enables the industry to compete with Germany at least if not with France and the United States.

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The chlorine industry, which also produces alkali as a by-product, is a cornerstone of British industry. It is a globally competitive business. It is an important element of the United Kingdom economy, contributing £800 million a year to exports. It employs 18,000 directly and 54,000 indirectly. Yet the large industrial user scheme will be withdrawn as a result of privatisation and ICI will find that its chlorine industry can no longer compete with France and the United States. If the Secretary of State were here, he would know that the transitional arrangements for electricity privatisation last for eight years for the nuclear industry, eight years for renewables, five years for private generators, three years for British Coal, but only one year for large industrial consumers.

What are large companies like ICI to do? They are very worried about the loss of cheap electricity ; they will have to pay many millions extra for electricity. They may stop investment in chlorine and alkali plant. Even worse, they may take their investment abroad. That would be much worse because it would never come back to this country, whereas, if they stop investment here, there is always an opportunity later for them to renew the investment and build here. Ironically, the solution comes from the same source as the problem itself, namely, privatisation. If privatisation, by removing subsidies, puts up electricity prices to large users, privatisation would also enable them to build their own power stations and bring prices down again. It is the ICIs of the world that will build their own gas-fired generators and bring prices down by entering into consortia with the oil companies, the generators or the regional electricity companies.

There is another solution to high electricity prices. The high prices are to a large extent based on the fact that our coal prices are high. I give credit to the British coal industry. It has increased productivity, introduced high technology and brought prices down 40 per cent. in the last five years. But the fact remains that British coal is considerably more expensive than coal brought in from abroad.

So if we are to continue to use British coal we must bring prices down even further. British Coal said recently in response to threats from National Power that it will bring in at least half of its coal for electricity generation from abroad :

"We are confident that when talks with National Power start we can put forward a competitive package. We think we can offer them a deal."

That was reported in the Financial Times on 15 January. I hope that British Coal can offer National Power a good deal because it is important that our coal industry should survive. It must survive not only for the sake of employment in Britain which is important, or social reasons, which are significant, but because British coal is a form of indigenous energy which we cannot afford to ignore. A case could possibly be made for abandoning coal for electricity generation in favour of home-produced gas or oil from United Kingdom continental shale. But we cannot make the case for abandoning our coal in favour of foreign coal. There seems to be a scheme to abandon our coal in favour of either 100 per cent. foreign coal--which does not make much sense--or 50 per cent. foreign coal which does not make much more sense.

The case for maintaining a British coal industry is particularly relevant at times such as this when the world

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may go into conflict. The Gulf crisis and other crises like it could affect international shipping as well as oil supplies. Yet to continue to maintain the high price of electricity for domestic or industrial use, particularly in export-led industries, makes no sense either. We must have internationally competitive electricity prices. That means that we must have internationally competitive prices for domestically produced coal.

The privatisation of the electricity industry is forcing down the cost of generating and distributing electricity. I am convinced that privatisation of the mining industry will bring down the price of coal, to the benefit of both the coal mining industry and the electricity industry and, indeed, our whole economy. Electricity privatisation has been a great success. I am sure that in due course privatisation of the coal industry will also be a great success, not least for those who work in it.

9.12 pm

Mr. Geoffrey Lofthouse (Pontefract and Castleford) : I am grateful to the hon. Member for Rochford (Dr. Clark) for some of his remarks, particularly as he holds the position of Chairman of the Energy Select Committee. He has expressed his anxiety about the coal industry on previous occasions.

I shall be brief because I know that other hon. Members wish to speak. The House will not be surprised if I direct my remarks to the effect that privatisation of the electricity industry has had on the coal industry. I am pleased that the Minister with responsibility for the coal industry is in his place.

Mr. Dobson : At present.

Mr. Lofthouse : At present, as my hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson) says. In his opening remarks, my hon. Friend referred to the duff advice that the Secretary of State has received from all these highly paid advisers. The previous Secretary of State, the right hon. Member for Hertsmere (Mr. Parkinson), about whom we do not hear much these days, was in receipt of some first class advice in the Energy Select Committee report on the privatisation of electricity. The Committee sat for a long time and listened to much expert evidence. It came to a unanimous conclusion in its report. It advised the Government that they were in danger of receiving ill-conceived and misjudged advice. That proved to be the case. We heard this evening from my hon. Friend that the advice that the Government received from City advisers and others was later found to be wholly incorrect. If that right hon. Gentleman had taken the advice and delayed the privatisation of electricity until he had had time to think the matter out, he would not have got himself into such a mess and had to be replaced by the present Secretary of State to salvage something from it.

We are always expressing concern about the effect of electricity privatisation on the coal industry. We are aware that, since the miners' strike in 1984, the coal industry has come under attack from the Government. They have been hell-bent on running it down. From time to time, we have pointed out in this Chamber and in Select Committee reports that to run down the industry to the extent that the Government intend borders on the criminal. We have pointed out that, if we close so many mines that we cannot

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