§ 10.20 a.m.
§ The Minister of Power (Mr. Richard Marsh)
I beg to moveThat the Gas (Borrowing Powers) Order 1967, a draft of which was laid before this House on 31st May, be approved.In three of the last four years we have had debates on the gas borrowing powers. This has become almost an annual event. The reason for this is that throughout the whole of that period the demand for gas has consistently outstripped all our expectations and all the forecasts. This Order is necesary because by the end of June the level of the borrowings of the gas industry will be £891 million and 978 we shall be only £9 million below the initial limit laid down in the original Act. If investment is to proceed as planned, the limit in the Act is liable to be exceeded at some time in the course of next month. Next year even the upper limit of £1,200 million will be exceeded and I shall almost certainly return to the House with a Bill to provide for still higher limits which will give an opportunity for a much wider debate on the whole subject.
This is becoming an annual event, but, as hon. Members on both sides of the House will accept, there are very special reasons in this case and this particular industry because of the rapid changes which are taking place.
§ Sir Gerald Nabarro (Worcestershire, South)
We want an annual event on all borrowing powers Orders for the gas industry, the electricity industry and coal industry. That is what I have advocated for 15 years. We want an annual scrutiny of how much money the Minister authorises. When he said that it is an annual event, so long as he does not make it always on Derby Day we do not mind.
§ Mr. Marsh
The purpose of my remark was to provide the hon. Member with this annual opportunity. I am not going to make a general statement about fuel policy. I hope to say something about this before the Summer Recess, but in this rather limited framework of this Order I should like to give an idea of how capital—the hon. Member says that large sums of money are being spent, and the House should have explanations—can be spent so rapidly and how this extra £300 million which will be made available if this Order is approved, will be spent.
I draw the attention of hon. Members on both sides of the House to the Gas Council publication yesterday, copies of which I think have been sent to hon. Members, entitled "Gas Goes Natural". Leaving aside the choice of title, I think this is an extraordinarily useful book and gives a great deal of information. In many ways North Sea gas is the key to the whole present situation. Drilling started on the United Kingdom Continental Shelf in December, 1964, and in two years the whole future of the gas industry has been radically changed. So far we have found 979 at least four, and possibly live, commercial gas fields and since March this year parts of the East Midlands have already been receiving North Sea gas, although so far only as feedstock for town gas.
We do not know the extent of the present discoveries. That will not be known accurately for some time, but, on the evidence we have available, there will certainly be not less than 2,000 million cubic feet a day on shore by 1970. To get this in perspective it means that we shall have twice the present consumption of the gas industry available within something like two-and-a-half years. This is an incredible feat of marketing and a hefty challenge faces the industry in having to double its market in two-and-a-half years. By the mid-1970s the amount could rise to 3,000 m.c.f.d., which is roughly three times the present gas consumption.
These are big figures but they have to be seen in the context of a growing energy market in the United Kingdom. It does not amount to a revolution in the pattern of energy supplies, but amounts to a revolution in the nature of the gas industry and the sources of its product. Exploration is still continuing and there are many promising structures which have as yet been unexplored. The quantities which will ultimately be available in the North Sea may well be very much bigger even than the figures I have mentioned.
We compare this situation with the situation in July, 1965, when no one expected that any discovery in the North Sea could lead to large additional supplies of cheap gas much before 1970. That was the considered opinion in the light of the then available facts. The only thing which has outdated that forecast has been the discovery of natural gas on a scale and at a rate which are quite unique in the experience of the world oil industry. There is reference to this in the Gas Council's prospectus in support of its request for raising the current borrowing limit.
The other question is the speed with which it is hoped to absorb the gas in the North Sea. As these factors emerged they outdated the old assumptions about future investment levels. We have still to set the price of North Sea gas.
§ Mr. Marsh
I shall come to the point about being long enough about it. It is a relatively simple procedure to give away taxpayers' money and I think it not a bad thing to find some reasons to back that up. I cannot see what the argument is about. When I met some of the gas companies and they asked for our views about the price of North Sea gas, I said that it was essential to fix a fair price. The answer was, "Absolutely right", and they have gone on arguing about it ever since. The price has been under discussion for some months. The negotiations lie between the Gas Council, as purchasers on behalf of the gas industry, and groups which have gas to offer. It is sometimes overlooked that not all companies buy foreign gas. The groups with which we are involved are Shell and ESSO, the Council's own partners, Amoco, Amerada and Texas Eastern, and the Arpet and Phillips Groups.
As the House will be aware, my Department has been taking a prominent part in discussions with certain companies and with the Council in recent weeks. I have made quite clear to all concerned the Government's position in this matter, which is that in the interest of the national economy and the balance of payments the price paid for the gas should be as low as possible consistent with giving a fair return to the producers and encouragement to further exploration. Obviously it would not help for me to quote figures at this juncture, and I do not intend to do so, but I believe there is ample scope for a commercial agreement which will meet the legitimate interests of all parties, and I hope that negotiations will proceed to a satisfactory conclusion in the not-too-distant future.
It has been suggested in some quarters, and was a moment ago, that these discussions are being unduly prolonged. I accept that it is not in anyone's interest for the negotiations to be unnecessarily drawn out and I believe that those taking part are of the same opinion. At the same time, we must recognise that these are important issues with a lot at stake for both sides and it is more important to get the right answer than to reach a hasty conclusion. Before people begin to get excited about the length of time 981 taken over these negotiations, we should look at the general practice in relation to other countries.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
Before the right hon. Gentleman leaves that point would he say something about the position after the price has been determined when there will be fuller competition in the light of circumstances at a later stage? Has he concentrated on the problem of providing machinery for altering prices in five or 10 years time, whatever it may be, from what they are now?
§ Mr. Marsh
This will be a feature of the contract. It is wrong to say that the settling of the price is the easiest part of the exercise. It is certainly the shortest part of it. The contracts for these sales will be enormous and very involved documents. The features of various clauses, and so forth, will be an important part to be negotiated. I agree with the hon. Gentleman that there will be much to be negotiated long after the price has been settled.
Dealing with the question of delay, one of the problems of Ministers is that they are always under pressure to produce rapid results on demand. It is important that they should not be stampeded. It can be seen from what has happened in other countries which have had to face the same problem that it is by no means usual for the first natural gas contracts—these are the first we have ever entered into—to take many months, or even many years, to settle. For example, in Australia, where gas was found offshore in the Bass Strait in 1965, it took nearly 16 months to reach agreement in principle on the price. In East Pakistan negotiations took nearly two years. In New Zealand they took over three years.
As we are here talking about much bigger quantities of gas than were at stake there, I do not think that the progress to date compares badly with that in the other countries which I have mentioned. There is no evidence that delay in reaching agreement on the price has held up the physcial work of developing the fields and bringing the gas ashore. However, having said all that, I repeat that negotiations should not be unnecessarily protracted, and I am sure that this is the view of the 982 companies as much as it is of the Government and of the Gas Council.
§ Mr. Edwin Wainwright (Dearne Valley)
Would my right hon. Friend bear in mind that if he fixes the price of gas too low, he will be subjected to a tremendous amount of criticism from the Opposition? Further, if he fixes the price too high, he will meet with an even greater amount of opposition from this side of the House?
§ Mr. Norman Atkinson (Tottenham)
Does my right hon. Friend recognise that if he is thinking in terms of negotiating a settlement at about 1.8d. or 1.9d. per therm based on an average size field, he will entirely lose his own reputation? If the price is fixed at anything like that which is rumoured at the moment of about 0.3d. per therm, he will be in for the biggest row on this side of the House since 1964.
§ Mr. Marsh
It was ever thus. The negotiations are between the Gas Council and the companies. As to the figures which my hon. Friend mentioned—in fact, he means 3d. per therm and not 0.3d. per therm—there is a wide range of negotiation to be concluded. I am sure that when the price is fixed it will be, as I said some months ago, a fair one.
§ Mr. Michael McGuire (Ince)
This is very important. Does not my right hon. Friend agree mat his room for manoeuvre is very limited because it appears from Written Answers that the competition from oil delivered at power stations and from coal being produced and delivered at present is much less than some of the figures which have been quoted might 983 suggest? It is certainly much less than the 3d. per therm which has been mentioned.
§ Mr. Marsh
I am being led astray. It is too early in the morning for me to enjoy that. I will leave that question, except to say that there are many arguments about this. Clearly, there has to be a price at which it can be absorbed. It is not an unimportant factor that to double the market in two and a half years requires a pretty low price to achieve that level of market penetration. This is something for the Gas Council and the industry to determine between them.
I turn to the two main reasons for the exhaustion of the industry's borrowing powers, which has happened rather more rapidly than was expected. One of the two main factors has been the more rapid increase in demand than was forecast about two years ago. This has resulted in increased expenditure on plant and distribution. The second factor has been very heavy expenditure on facilities to enable the industry to absorb natural gas as quickly as possible. These two factors have, in turn, resulted in smaller than hoped for surpluses, resulting in a reduction in self-financing and much heavier calls on the Exchequer.
Taking the demand first, the rate of increase in demand is expected to rise very substantially indeed. The price of natural gas in bulk, whatever it proves to be, is certain to be well below the present cost of manufactured town gas. Obviously this prospect of cheaper gas may well have influenced demand already. It is pretty clear that it has. Over the last two years demand has been increasing at an average rate of 9 per cent., which is 1½per cent, above that which was forecast in 1965. The present demand forecasts obviously contain a considerable element of uncertainty, since the price of bulk supplies of gas has yet to be decided, but the demand is expected to increase by about 12½ per cent. per annum over the next five years, excluding any direct sales by the Gas Council. This compares with about 7½ per cent. previously forecast.
This very rapid rate of expansion in the last two years has required additional expenditure on gas-making plant and on the distribution system. The industry has 984 had to apply for supplementary capital for the financial year just past of more than £40 million. The final figure for expenditure is £69 million above the 1965 forecast. A similar effect is seen in estimates for the current financial year. Although the discussions are still proceeding, it is likely to result in an expenditure of over £130 million more than was envisaged in 1965, though much of this additional investment is already directly attributable to natural gas.
The investment in production plant is being subjected, quite rightly, to very special scrutiny, but the bulk of the investment is already committed. It was suggested to Boards that, in considering new committals, some calculated risks may be justified to avoid expenditure on plant that might have only a very short life. This is one of those difficult choices that have to be made, but we have to be prepared to accept that we cannot afford to pay the vast sums involved to meet any level of risk. The Government recognise that they must bear their share of responsibility for consciously taking these risks.
This is one of the problems arising with new forms of energy and which we have had in other fields—in nuclear energy, and so forth. It means that to get the benefits in the future, heavy expenditure has to be incurred in the immediate future. To give an example, largely on account of natural gas there will be expenditures in the period from the passing of the Act until 1969 on trunk pipelines and associated facilities totalling about £220 million, for which no provision was made in the 1965 forecast, because no one at that stage was thinking of natural gas on this scale.
The Gas Council is laying a high pressure transmission system which is extending and strengthening the existing methane grid. This will bring natural gas to all the area boards by 1970. It will also provide room for future expansion. This involves immediate expenditure. It involves the purchase and the laying of 1,300 miles of pipe. This has to be paid for. In addition, the Area Boards have to incur further heavy expenditure on associated distribution projects. The total expenditure on transmission and distribution over the next five years in the gas industry will be about £800 million.
§ Mr. Marsh
I am coming to conversions in a moment. This is for transmission and distribution. The conversion of appliances to use natural gas introduces an entirely new type of expenditure. The scale of the finds in the North Sea is such that conversion to direct supply of natural gas is, clearly, the right policy. Over the next five years, the expenditure will be, very approximately, £190 million for conversion, out of a total of about £400 million for the whole operation. The great problem is that North Sea gas happens to be so good that every appliance has to be changed to use it. The total cost will be about £400 million, and over the next five years it will be about £190 million.
Conversion on the scale required in this country is an enormously complex and lengthy task, but the returns will be well worth it. It is well worth spending the money now for the substantial savings likely to come to us from it. We estimate the total benefit of this exercise— this is the problem of having to embark on expenditure now for a return to come in the future—at about £1,400 million over a period of 30 years.
The phasing of the conversion has to be planned so as to avoid further expenditure on production plant, but, in the lengthy interim period before the conversion is completed, there will be some expenditure on the conversion of oil reforming plant to use natural gas instead of naphtha for reforming. This should have an immediate favourable effect on our balance of payments in terms of import substitution.
I may be asked whether the gas industry will be severely handicapped, if not crippled, by the repayments and interest involved in the proposed level of capital expenditure, which is at least twice that envisaged two years ago. The answer lies in the accelerated rate of expansion now envisaged. Without natural gas, expansion would have been much slower, and so, of course, would have been the rate of investment. To have had to meet the expansion now expected, without natural gas, would have required an even higher rate of investment.
§ Sir G. Nabarro
We have just witnessed the biggest increase in electricity prices since nationalisation, 10 per cent. over the country as a whole and 15 per cent. in the Midlands, the plea being that the electricity industry has fallen short of its targets. The gas industry is now expected to exceed its targets. May we not, in logic, expect a reduction in the price of gas on account of this huge increase in production envisaged?
§ Mr. McGuire rose—
§ Mr. Marsh
I would like to conclude at some stage because I know that others wish to take part in the debate. I am sure that the hon. Member for Worcestershire, South (Sir G. Nabarro) will, and we shall all enjoy listening to him—in varying degrees.
It is our intention that this sort of expenditure will enable us in the future to have an industry with a much cheaper supply of fuel. The picture is of an industry in a state of very rapid growth and with an expectancy of even higher growth rates in the future. There has been a dramatic change from the 1950s, when there were those who questioned whether the industry could survive and when it was faced with static or even declining sales. Technological advances in gas production have combined with improvements in gas appliances, and this began the advance. Natural gas is bound to accelerate it. It is an expanding industry which is bound to require much more capital. A margin of error in the forecast of capital requirements, though large, can be explained, I think, even apart from the new situation brought about by natural gas. The industry's capital requirements —we have to face this—may well need to be revised further as the pattern of natural gas absorption becomes clearer. 987 This is why we have a flexible approach in dealing with this subject.
The Order is essentially a stop-gap measure to maintain the flow of finance over the next year or so and to give us flexibility in dealing with this rather new feature. A further programme will be formulated in the light of the fuel policy review and will be submitted to the House next year when the new borrowing powers Bill is tabled.
The industry has spent its capital wisely. Occasionally, there are criticisms of the nationalised industries, and it is worth saying that productivity in this industry is extraordinarily good and continues to improve. The number of employees in the industry has been reduced by 5,000 since 1961, and output has risen by 42 per cent. If the private sector of industry produced the same sort of performance, life would be very happy for us all.
The problems of the future distribution of natural gas, of conversion and of phasing out gas-making plants are all formidable, but they are soluble. If one had any doubts at all about that, we would not be asking the House to approve this Order today.
§ Mr. Michael Alison (Barkston Ash)
Will the right hon. Gentleman confirm one figure? Is it 2,000 million cubic feet a day by 1970 to be landed, as it were?
§ 10.46 a.m.
§ Mr. Michael Alison (Barkston Ash)
The Minister will not be surprised, though, no doubt, he will be relieved, to know that we do not intend to oppose this Order—
§ Mr. Alison
—or, perhaps, I should say, to divide on it. I least of all have any right to speak for my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro). However, we are unitedly opposed to having to take this sort of Order at a morning sitting.
§ Mr. Alison
And on Derby Day, though there are other reasons. Very 988 large sums of money are involved in this substantial first tranche of borrowing, £300 million. We find all sorts of things to be taken at this morning's sitting— tractor cabs, agricultural subsidies for calves and so on—but in this Order the Minister of Power produces something which is really a lion nestling among the dandelions, expecting us to sanction the expenditure of so enormous a sum of money.
The Minister has shown a lack of imagination as well. In our present circumstances, particularly with the Middle East oil crisis, he had an opportunity to say something to reinforce and substantiate some of the things which the Prime Minister said in the House yesterday or the day before about certain people thinking very carefully on the question of United Kingdom oil demand in future if the cut-off which we have been suffering in the last 36 hours goes on. If the Minister had taken this Order at the right time, he would have had an opportunity to touch a little on that aspect of the matter.
§ Mr. Alex Eadie (Midlothian)
Would not the hon. Gentleman include the question of this country's indigenous coal resources as well?
§ Mr. Alison
I certainly would, and I should have immediate support from all quarters. We have already had something of a debate on gas-pricing policy raised by the hon. Member for Dearne Valley (Mr. Edwin Wainwright). These are some of the fundamental issues confronting the country today, the future security of our indigenous and imported fuel supplies, the future of the coal industry, of gas pricing and so on; yet here we are discussing this Order at a morning sitting.
§ Mr. Marsh
Before the hon. Gentleman works himself into too much of a frenzy, will he consider this? Given the importance of the Order which we are discussing and the vast size of the sums involved, does he still think that, even on Derby Day, more than six of his hon. Friends would have turned up?
§ Mr. Alison
What the right hon. Gentleman does not appreciate is that my right hon. and hon. Friends are extremely hard put to it because we are opposing the Finance Bill in detail and have been up all night, as is our duty as Opposition Members, subjecting the Finance Bill to rigorous scrutiny.
§ Mr. Ridley rose—
§ Mr. Speaker
Order. The Chair is listening with interest to all that is said about Derby Day and the international crisis. But we must stick to the subject of the debate. It is wide enough.
§ Mr. Alison
I bow to your ruling, Mr. Speaker, but I want to remind the Minister that he must not be too coy about coming to the Dispatch Box. We like to see him here. He hides his light under a bushel. He produced a sensational announcement about electricity prices the day before the Whitsun holiday when nobody was here, and brings this Order this morning. Let him come more regularly and when more Members are here. They have been up all night reading the Finance Bill.
Now that we have been confronted with the Order at a morning sitting we find that there is a number of disturbing features about plans for capital development in the gas industry on which we want reassurance. We are grateful for the publication of the admirably clear booklet provided by the Gas Council, called "Gas Goes Natural", which is very helpful. It is so clear and has so many interesting facts and figures that it serves rather to emphasise some of our anxieties than to reassure us on them.
Our first anxiety arises from the enormous increase in the sales of domestic gas expected in the five years up to 1970. I am referring to the figures given on pages 4 and 5 of the booklet, where we find that domestic consumption of gas in the next five years is expected to increase by about 2,000 million therms per annum. That is stated on page 5. Those 2,000 million therms represent nearly a 100 per cent. increase in the consumption of gas in the domestic sector. The table on page 4 shows that the domestic sector consumed 2,250 million therms in the current year, and page 5 tells us that that is likely to be another 2,000 million, bringing it up to 4,000 million-odd by 1970–1971–1972.
Associated with this substantial increase in sales to the domestic sector is a long list of appliances at the bottom of page 5, under the subheading "Forecast". These will also show a substantial increase in this five-year period. There will be huge increases in the numbers of gas space heaters,warm air and central heating 990 appliances, cookers and water heaters. Domestic consumption, including this great number of appliances, will increase by about 100 per cent. in the next five years.
But it is difficult to see how much, if any, of this huge increase in the domestic sector is likely to be burning natural gas. The Minister has reassured us a bit by pointing out that there will be available about 7,000 million therms a year "on the beach"—that is, some 2,000 million cubic feet a day per annum—in the form of natural gas by 1970–71. But we find that the sum which will be spent on conversion of appliances by that year is well under half the total cost of conversion—about £190 million out of the £400 million the Minister mentioned. In other words, the £190 million which he has budgeted for the five-year period to be spent on appliances, represents under half what will have to be spent on conversion over the decade. This means that the huge increase in the domestic consumption of gas will still be geared almost entirely on the old-fashioned gas burning sector. Is this the right way to set about the next five years? It is very disturbing.
The domestic sector will probably have the most revolutionary increase in sales in its history, and this coincides with the most striking discovery of indigenous primary fuel since the discovery of coal in this country. Yet in this period of change the big increase in the domestic market will apparently be geared to the burning of the wrong sort of gas, the manufactured fuel for the past. We read on page 5 of the booklet that the expansion of the domestic market will include expansion through new housing completions, and particularly the requirement that all local authority houses built after 1st January, 1969, must have some form of central heating. I hope that the Parliamentary Secretary can reassure us that the gas industry will not be installing in this period appliances, whether space heating, central heating, water heating or any other kind, that will need conversion.
It is crazy to be budgeting now for enormous expansion, a doubling of the domestic load of gas, but using appliances which will have to be converted at a later stage. We want reassurance that all local authority homes built after 1969, 991 for example, will have built into them appliances which are adapted for natural gas and will not need conversion. Otherwise, it seems very unlikely that the cost of conversion of £400 million over a 10-year period will be realised, because the cost of conversion will increase proportionately with the increase in the domestic market built to burn the old manufactured gas. We want reassurance that the expansion of the domestic market will be geared to natural gas.
Our second anxiety is associated with that concerning domestic consumption. It surrounds the question of the scope there will be for industrial use of natural gas in the next five years. This has been heightened by the Middle East crisis. I know that the Minister has not been in a position yet to give us his review for the next decade, or whatever the period may be. But he will know very well that many figures have been bandied about, many of them apparently originating from semi- and fully-official conferences and get-togethers of the Minister with the "barons" of the fuel industry. One of the figures which emerged from the conference at Selsdon Park Hotel was an increase in the likely quantity of oil to be used as a fuel between now and 1970 of about 30 million or 40 million tons a year, approaching a 50 per cent. increase on the amount being used at present.
That figure must be thrown into immediate question by the sort of events that have occurred in the past few days, particularly the announcement by the Prime Minister that those who assumed that they had a safe market for oil in this country must be ready to think again. If we are going to suffer the cutting off of oil supplies overnight to the extent of 20 million or 30 million tons, as in the past 36 hours, we must not be budgeting at the same time to increase our oil consumption—for industry primarily—by about 50 per cent. in the next five years. I hope that the Parliamentary Secretary will reassure us that the fullest priority has been given to scope for the industrial use of natural gas at the earliest possible date.
§ Mr. Eric G. Varley (Chesterfield)
Is the hon. Gentleman arguing on behalf of the Opposition that as a result of events in the Middle East in the past few days we should now start reducing our de- 992 pendence on oil and concentrate on indigenous sources like gas and coal and that sort of thing?
§ Mr. Alison
I think that it is self-evident that we shall concentrate on indigenous sources like gas from the nature of the discovery. I am saying that as a strategic argument this is the moment to evaluate whether we shall concentrate our indigenous gas supply on the industrial or domestic market. This is the moment, when oil is being cut off, to consider whether to give priority to the industrial use of natural gas rather than its use for the domestic market.
§ Mr. Alison
I am thinking more in terms of using gas as a fuel for industry and for electricity generation. I am thinking particularly of the chemical industry, where there is scope for the consumption of an enormous quantity. The industry has said that by 1970 it could use about 3,000 million therms a year. This is about half what the Minister is likely to have available on the beach. There is enormous scope for the industrial use of natural gas but unfortunately there is uncertainty and doubt in this document.
On the question of price, this useful booklet says, on page 5, that… if the terms of purchase … permitin other words, if the price is low enough to compete with oil and other fuels there will be a striking increase in demand by large industrial consumers. I draw the House's attention again to that big "if"—…if the terms of purchase … permit…The Gas Council cannot, however, promise that it will be able to boost the scale of supplies to industrial users. The booklet says that sales to industrial users will only increase by half the rate of sales to the domestic user.
§ Mr. Marsh
Clearly the Gas Council has to say: "… if the terms of purchase … permit…993 If the price did not permit, there would be no point in buying the stuff. If we are talking about doubling the market of the gas industry in two and a half years, it follows automatically that we are talking also of a very big penetration of the industrial market by gas, because the domestic consumers simply could not absorb that amount of fuel. The whole absorption policy is based on large and rapid penetration of the industrial market.
§ Mr. Alison
I am a little reassured. But the Gas Council's own estimate for the next five years is that domestic sales will be double those to the industrial user. That seems to us on this side of the House at least questionable in the light of present developments, particularly in view of the possibility that domestic users may, in the main, be using old-fashioned appliances and will have to be converted at a later stage.
We feel most anxious that the Government should reassure us that there will be the most vigorous attention to bringing this natural gas rapidly to the industrial users and not just to the domestic consumers. Indeed, it may be necessary to hold back and discourage the advertising campaign aimed at the domestic market for gas, particularly if the domestic market will, in the main, use not natural gas but old-fashioned gas. Such a campaign would tend to divert capacity from possible industrial application.
One of the disadvantages of extending the domestic sector is that one gets a poor load factor of supplies—because, for example, the gas is used much less in summer and is turned off at night. But the chemical industry could give a steady load of half the quantity of natural gas that the Minister will have on shore by 1970. It would be a steady day and night load with an increasingly satisfactory load factor as a result. All this reinforces the strategic need not only to be planning but to show to the outside world that we are quite capable of switching over on a massive scale from imported fuels, if the need arises, for industry primarily, to this new and marvellous indigenous fuel that we have.
I turn now to the capital position as it is likely to be in 1970–71. What proportion of the capital needs of the gas industry is likely to be self-generated? 994 The right hon. Gentleman said that it would be about £500 million out of £1,400 million or £1,500 million, he says will be spent in the next five years. Is this one-third proportion of domestic generation of capital to be a long-term feature of the industry? The proportion is below what the proportion for electricity generation has to be. I believe that, in the case of electricity, the figure must be over 50 per cent. The figure estimated for the gas industry is likely to pose serious problems for the Exchequer, particularly with the scale of public expenditure running at the present level.
Can the Parliamentary Secretary enlighten us more about the apparently conflicting figures for growth in gas sales which relate to the present year? In the middle of March, Sir Henry Jones said that the growth rate of sales for the first 11 months of the current selling year were running at a cumulative rate of 7 per cent. This compared with 9 per cent. for the previous year. If the right hon. Gentleman says that the scale of gas sales overall is to increase by about 12½ per cent. per annum in the next quenquennium and, only a few weeks earlier, before the booklet appears, Sir Henry Jones says that sales have slumped somewhat lower than expected, we want to know what the position is likely to be. Have gas sales taken a knock as a result of the freeze, as electricity sales have?
I know that a number of my hon. Friends have more and probably weightier points to make so that we shall have quite a lot on which we want reassurance.
§ 11.7 a.m.
§ Mr. Eric G. Varley (Chesterfield)
My right hon. Friend the Minister of Power explained that this money is needed to bring North Sea gas ashore and ensure that it is put into both domestic and industrial use as quickly as possible. Whilst I have no desire to make reference to the negotiations on gas prices, I believe that price is the key to the situation. If the price is too high, obviously industrial users will not change from the fuels they are using now.
Another of the great imponderables is the amount of North Sea Gas that there will be. Will it be, as my right hon. Friend said, 2,000 million cubic feet to be landed by 1970, or nearer 3,000 million 995 cubic feet? It appears that it will be double the existing gas market for gas made from traditional methods. Obviously, it will be attractive to manufacturing industry and industry generally and it will come into greater use at the expense of one of the existing primary fuels, either coal or oil or perhaps nuclear energy, although I do not think that that is a major problem at present. But I have no hesitation—and here I agree with the hon. Member for Barkston Ash (Mr. Alison)—in saying that it is essential that, if North Sea gas is to make inroads into traditional fuel markets, it should be at the expense of oil. The events of the last few days have proved beyond doubt that the political instability of the oil-producing areas means that our dependence on oil should be reduced as quickly as possible and that we should concentrate more and more on indigenous sources.
Here, of course, indigenous sources also include coal, but I would be going beyond the rules of order if I were to dwell too long on that. But in this connection we can only look at gas as an indigenous fuel from the North Sea in connection with other indigenous sources. There is speculation at present about the coal industry in view of the North Sea Gas finds and the political instability in oil-producing countries. People have often said that one cannot turn a coal pit on and off like a tap but that one can do so with North Sea gas. While I am in favour of bringing it ashore as quickly as possible, it should be phased into our fuel economy in a proper manner. I hope that my right hon. Friend is aware that this is essentially a job of phasing natural gas into the fuel economy.
§ Mr. Marsh
One of the difficulties of the argument which my hon. Friend the Member for Chesterfield (Mr. Varley) is putting forward is that if gas is not bought quickly, the corollary is that one has a higher price to compensate the producer for not being able to sell as rapidly as possible. He wants a quick return so that he can keep going.
§ Mr. Varley
I appreciate that point. What I am saying is that once it is ex-loited and brought ashore it can then be turned off. The North Sea is a natural 996 gas holder. It can be used for phasing rather than for a free-for-all. The exploitation should be carried out as quickly as possible with existing primary fuel markets.
It is anticipated that North Sea gas can be brought into industrial use very quickly and can be put under the boilers of power stations. This would be catastrophic to the planning of the coal industry and other industries. If it is envisaged that North Sea gas will be put under power station boilers it should be phased and done properly and all the other decisions taken so that it synchronises.
The next point I want to make is the point made by the Minister about the high pressure transmission system that is envisaged in the gas industry. A lot of money will be spent on new machinery and equipment of this sort. When one talks about high pressure equipment one thinks about compressors and similar equipment. The gas industry is actively pursuing possible types of compressor for this particular process in the American market. The manufacturers of mechanical compressors are concerned about this trend. They have supplied the gas industry with all the equipment it needs, and now they find that the gas industry is likely to alter its specifications for compressors and go in for the sort of integral compressor that is produced in America. It has come to my ears that a lot of sharp practice is being undertaken in this process.
As the Minister said, natural gas has been discovered not only off our shores, but in many other countries—Australia, Latin America, the Middle East, Russia and Europe. This aspect of providing equipment for it—
§ Mr. Atkinson
My hon. Friend mentions sharp practice. Presumably he is talking about gas board contracts in connection with the supply of compressors and other equipment. He mentions the Americans. Is he suggesting that there are unfair methods being used in order to secure contracts from the gas boards? Is he referring to sharp practices from this quarter and is he about to ask the Minister to make an inquiry into this sort of thing?
§ Mr. Varley
I am leading up to that. There is no doubt that this transmission 997 process will be undertaken as a result of new and probably sophisticated compressor equipment. The area gas boards are pursuing this type of equipment in American markets, but I think there is adequate machinery in our own mechanical engineering industry which should be looked at first.
The sort of sharp practices which were referred to by myself and repeated by my hon. Friend do exist. Whilst the evidence is not conclusive, I know that the Americans are very interested in capturing the compressor market for the high pressure transmission of natural gas and I hope this matter will be examined by the Minister and his Department.
That brings me to my final point. It appears to me that North Sea gas ought to be phased properly into our fuel economy. I was interested to read the evidence given before the Select Committee on Nationalised Industries a few weeks ago. It was suggested that the Ministry of Power was not necessarily technically equipped to deal with many of these complex problems that beset our industry. There was a suggestion that we should have an energy investment board. I am not sure about that. If there is to be an energy supremo, I should like to see the Minister of Power as the energy supremo. I should like him to take the decisions which are necessary to be taken of ensuring that we get integrated fuel policies.
§ Mr. Albert Roberts (Normanton)
It is not a question of having a supremo. In the whole history of this country we have never had a proper fuel and power policy. That has been our problem.
§ Mr. Varley
I agree that there has not been a proper fuel and power policy and I hope the Minister of Power will take note of the evidence given before the Select Committee on Nationalised Industries and has determined to take crucial decisions in the energy field.
Over the last six years there have been about six Ministers at the Ministry of Power and four Permanent Secretaries. In my opinion, there has not been proper co-ordination in the relationship between the Minister and the fuel boards. I hope that the Minister of Power is aware of the very considerable and weighty decisions which will have to be taken about North 998 Sea gas and how it is to be phased into our economy.
§ 11.16 a.m.
§ Sir Gerald Nabarro (Worcestershire, South)
I thought that the Patronage Secretary was singularly sanguine in putting on the Order Paper four ensuing Orders to be taken this morning after the Gas Borrowing Powers Order. My experience over the last 15 years has been that all borrowing powers' Orders for nationalised industries, but with particular emphasis on the fuel and power industry, attract a very great deal of attention from both sides of the House. They are of great interest to us all.
One complex problem this nation has not succeeded in solving in the post-war years is the correct management and Parliamentary accountability of nationalised industries. That is common ground between us. We are still groping in the dark as to how these industries should be run and to what extent Parliament should interfere with them. I do not want to interfere with them. I only want two things. The first is to ensure that the best men available within their respective fields are appointed to run them, at appropriate salaries, and the second is that Parliament should have reasonable control over the sums of money which are spent by these industries.
I congratulate the Minister on his objective speech and his use of the term this morning "taxpayers' money". I fancy he was alluding to money to be employed by the Gas Council in connection with North Sea exploration, development and extractive processes in the years ahead. The Coal Board is interested financially as well. I am delighted that the Minister at long last takes slow faltering steps in my direction and controverts what so many of his predecessors have said, because both Tory and Labour Ministers of Power have pointed an accusing and criticising finger at me, on many occasions, and have said, "We do not employ taxpayers' money in the nationalised industries."
Last year the Chancellor of the Exchequer budgeted for an overall surplus in excess of £1,000 million. Why did he do it? It was to cover, on Crippsian standards and principles, below the line capital expenditure largely required for nationalised industries. The 999 £300 million additional borrowing powers of the Gas Council which we are considering this morning is taxpayers' money. I hope that we will not have any nonsense about it from hon. Members on either side.
This is taxpayers' money and as the Chancellor of the Exchequer stood at the Dispatch Box answering me shortly before midnight last night saying that he could not afford a few million £s to alleviate the burden on Surtax-payers— and I voted firmly and enthusiastically against him—I consider that we should be careful in scrutinising this morning the application of this £300 million. I wished to establish the affinity between these two considerations; the money raised by the Finance Bill, which we considered late last night, and the money being expended today as a result of this Order.
This is a singularly unpropitious day to be considering capital investment in the gas industry. We are all pregnant with expectancy in awaiting the Minister's review of fuel and power policy. I give not an inch to the hon. Member for Liverpool, West Derby (Mr. Ogden), who is associated with the National Union of Mineworkers, or the hon. Member for Chesterfield (Mr. Varley), who represents an important coal-mining industry, in my interest in the coal industry with which they have been associated for many years.
It is almost impossible to consider the probity and appliciation of the funds contained in this Order unless we know what is to be the policy for the coal industry in the next 10 years. It is almost impossible to consider this large sum of money for the gas industry in isolation from the coal, electricity and oil industries, although I would not stray from the paths of order by going in detail into the economic and financial affairs of those industries. Hon. Gentlemen opposite were cross with me 12 months ago when I said that the output of the coal industry in 1966 would decline to 175 million tons—compared with Lord Robens' estimate of selling 200 million tons of bituminous coal in Britain. I forecast 175 million tons, and the figure turned out to be 174 million tons. I was uncannily accurate.
I said the other day that I considered this year that the output of the coal industry would result in the sale of 1000 bituminous coal in Britain to the extent of 160 million tons. The coal mining labour force is now down to approximately 400,000. I remember the days, not so long ago when the right hon Member for Derby, South (Mr. Philip Noel-Baker) was saying that 712,000 men in the coal mining industry was an inadeqate force. Now it is down to 400,000. How much further down is it going?
Economists are now talking about a British coal industry which produces only 80 million tons a year within 10 years. That may or may not be accurate. I am endeavouring to stress that we should not be called upon to judge the probity and application of £300 million of investment monies, taxpayers monies, under this Order without parallel, commensurate and corresponding investment programmes in the coal, electricity and oil industries, all of which are contained within the Ministerial fuel and power review.
§ Mr. Albert Roberts
Would the hon. Gentleman remember the damage done in 1954–55, when glaring speeches were being made from this side of the House by hon. Gentlemen opposite? Would he also bear in mind the unknown future of the coal industry, something which he failed to mention in his pamphlet "Ten Steps To Power"?
§ Sir G. Nabarro
"Ten Steps To Power" was written by me in 1950, 17 years ago. I preceded the Ridley Committee's Report on fuel and power policy. Much of what I wrote has come true; but I did not envisage the total turn-round in the availability of oil supplies for this country as a result of the policies of my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd), which was brought to spate during 1957–58. But that is a separate issue and I am endeavouring to point out that this order is unpropitious because it should have followed, rather than precede, the fuel and power review.
My next point is little more than academic in character. I have always found absorbing reading in the encyclopaedic productions of the fuel and power nationalised industries, notably in the form of their annual reports and accounts. I read the Gas Council's annual reports assiduously.
§ Sir G. Nabarro
They are indeed fascinating.
The last Report of the Gas Council is in respect of the year to 31st March, 1966, published in August of that year. I find it difficult to judge the probity and application of this Order without the Report of the Gas Council for the year to 31st March, 1967, though I fear, in view of the Parliamentary routine, that I shall be forced to so judge it. I will compare the capital investment programmes set out in the Gas Council's last Report with those set out in the National Plan and now brought before the House in the form of this Order. I do so because there are glaring differences. Paragraph 108 of the last Annual Report and Accounts of the Gas Council stated:The aggregate amount of investment for 1965–66 approved by the Minister, was (on the basis of constant prices) £92.5 million, but during the year this approval was increased to £116.9 million to provide additional production and distribution capacity needed to cover increasing gas sales. Actual investment was £119 million. The continued acceleration of the demand for gas and the provision of the transmission systems required to exploit the discoveries of North Sea gas will cause future investment to be much higher: investment currently planned amounts to £190 million for 1966–67 and the level is then expected to rise for two or three years to around £250 million per annum. These sums do not include the finance required to convert consumers' appliances to use natural gas.I end the quote there. I draw the attention of the Minister to the fact that whereas we started last year with an estimate of capital investment by the gas industry of £92 million, subsequently it was corrected to £116 million and it finished up as £119 million. Now it is envisaged that it will go forward to £250 million. Thus, we are multiplying gas investment by approximately 2½ times.
That is a very far fling from the National Plan, published at roughly the same time and after the exploration for North Sea gas has commenced. The National Plan envisaged that capital investment in 1964 would be £89 million, in 1965 it would be £111 million, in 1966 it would be £142 million, in 1967 it would be £155 million, in 1968 it would be £140 million, in 1969 it would be £143 million, and in 1970 it would be £149 million. The National Plan envisaged investment on the part of the 1002 gas industry at one half the rate that we are now proposing, all of which shows that the National Plan, on publication and ever since, ought to have been consigned to the scrap heap. It is the most drivelling rot ever published by any Government in living memory.
So much for the National Plan—a mere mistake of £125 million a year of the taxpayers' money; nearly as reprehensible as the mistake made by the Chancellor in computing the yield of Income Tax last year, when he made a mistake in his sums of £354 million in a year. I have drawn both mistakes to the attention of the House within the short Parliamentary span of 16 hours. Mistakes in money calculations and in financial statistics of this magnitude are a national disgrace. The Minister of Power—this same Minister of Power—is responsible for the mistakes made in the National Plan, and the fact that within 18 months he has had to double his earlier figures is disgraceful.
Having said all that about the hopelessly inadequate financial forecasting of the Socialist Government—a national scandal and disgrace—[Laughter.] It is not a matter for the hon. Member for Dearne Valley (Mr. Edwin Wainwright) to laugh at; this is taxpayers' money. My constituents in South Worcestershire object to it very much.
§ Mr. Eric Ogden (Liverpool, West Derby)
Does the hon. Member agree that the Minister of Power is only human, as are his servants in other industries? Does not he agree that such mistakes— perhaps not on the same scale—occur in private enterprise or in industrial forecasts? Will he say whether he is pleased that the forecast was wrong and that there is an increase?
§ Sir G. Nabarro
In the days of the late Sir Stafford Cripps—who was a man for whom I had tremendous admiration; notwithstanding his politics, which could not have been more antipathetic to my own political convictions and philosophies, I still had respect for him as a man—I always told him when he was at the Treasury what nonsense it was to publish an Economic Survey before each Budget, trying to forecast over years ahead what was going to happen. One cannot do it.
1003 A local authority in North Wales wrote me a letter a few weeks ago. I refer to this in the context of the Order that we are debating. It asked me how many skilled, semi-skilled and unskilled men I would employ in the engineering works; how many male and female hands I would employ in the shops, in the tool room and in the production shops, in the transport bays and the remainder, during every year forward until 1977. In reply to the distinguished gentleman who addressed the letter to me I wrote across the document in my own fair hand, "Drivelling rot. You have asked me to estimate whom I will employ 10 years from now. I do not know whom I will employ 10 weeks from now, so uncertain is trade, industry and commerce in our country today, let alone 10 years hence." The same considerations apply to the Treasury and the Ministry of Power.
I conclude by referring to the capital employed in the industry, and the return on it. It is averaging 10 per cent. The Minister will know that the Gas Council has proclaimed proudly on page 24 of its Annual Report and Accounts for the year ended 31st March, 1966, that the gross return on capital employed in the industry in 1962–63 was 9.3 per cent.; in 1963–64 it was 10 per cent.; in 1964–65 it was 10.8 per cent.; and in 1965–66 it was 10 per cent., averaging over four years, in retrospection, 10 per cent., as compared with 12 per cent, in the electricity industry. This £300 million of additional investment—and I shall not oppose it—makes me ask whether we may be certain that the rate of return on capital investment in the gas industry will continue to average 10 per cent., taking one year with another.
I intervened in the Minister's speech to point out that on 12th May in the House he announced that electricity charges would rise by 10 per cent., on average—as he said—over the whole country. In fact, the Midlands area has prognosticated an increase of 15 per cent. in its electricity charges.
§ Sir G. Nabarro
"Shocking" says my hon. Friend the Member for Barkston Ash (Mr. Alison). It is the biggest such increase ever suffered. It means busting the prices and incomes policy of Her 1004 Majesty's Government. That alone will bust it. Yet the nationalised electricity industry made a profit, or surplus, of more than £80 million last year. Notwithstanding a surplus of £80 million, electricity prices will rise by between 10 per cent. and 15 per cent. Why? Because, according to the Minister, a grave error was made in calculating the capital investment programme of the industry, and it will now be greatly over-provided with plant between 1968 and 1970, for which the consumer must pay in advance for amortisation of the prospective capital assets.
So, when the industry's plant is under-occupied the poor, battered, long suffering domestic consumer has his electricity tariff raised by between 10 per cent. and 15 per cent., when the capital assets are under-employed.
What happens in the gas industry? We are told that the capital assets will be fully employed and that these additional moneys—taxpayers' moneys—are being pumped into the industry in order that North Sea gas may augment the former supplies of gas derived from coal and fuel oil. Cannot we reasonably expect a reduction in the price of gas for the housewife? The plant will be completely occupied. It is said that the price tariffs of a nationalised industry have never been known to come down. They have not in my lifetime, but I am still hopeful, because I like the gas industry. I always have been, and I always shall be, its friend.
When the right hon. Member for Easington (Mr. Shinwell) nationalised the industry it was in a kind of atmosphere of "Fanny by gaslight"—a piece of Victoriana, the smallest of the nationalised industries, something obsolescent, decrepit and shortly to expire. But it has grown apace and is competing effectively with electricity. I love the industry's slogan "Instant Gas", which is so much more effective than the Labour Party's slogan, "Let's go with Labour". "Instant Gas" is so much more effective because it is successful, and the Labour Party is not successful.
My message to the gas industry today is that, if it wants these large sums of money on the highly attractive prospectus —that is what it is—of bringing in North Sea gas, it should be against an undertaking that gas prices for consumers of 1005 "Instant Gas" will steadily and progressively decline, compatible with the industry earning 10 per cent. return on the capital employed.
With those few words, and in anticipation of detailed replies from the Treasury Bench in due course, but not this morning —we shall undoubtedly have to return on another morning to hear the Ministerial answer; too many coalminers opposite want to speak and too many of my hon. Friends want to ask penetrating questions about North Sea gas for us to finish this morning—I promise the Minister that I shall not vote against the Order, but I shall continue to press that we scrutinise the investment programmes of all nationalised fuel industries, including gas, at least on an annual basis.
§ 11.42 a.m.
§ Mr. Norman Atkinson (Tottenham)
I am not sure what the difference is between instant gas and instant rhetoric, but it is always a pleasure to follow the hon. Member for the Royal Shakespeare, who is, I understand, a shire Member—I think for Worcestershire, South. I have never understood what that is either. [HON. MEMBERS: "Sauce."] The hon. Gentleman always insists that he is a shire Member. He began his speech this morning by announcing to the House that he was pregnant with expectancy. He said it with such immaculate diction that I think we were rather pleasantly surprised by the fact that he failed then to tell us why he was pregnant with expectancy.
One thing on which I agree with the hon. Gentleman is that we cannot adequately discuss the Order this morning in the absence of a fuel policy. I think we are unanimous about that. This is a question of timing. It is unfortunate, because our knowledge of the fuel industry will not be made clear to us for, I understand, some three or four weeks to come.
§ Mr. Ridley
As we have been discussing these matters for the past 200 or 300 years in the absence of a fuel policy, why cannot we go on doing so? Is not the hon. Gentleman aware that we shall always be without a fuel policy, because such a thing is not possible?
§ Mr. Atkinson
One of the reasons for the arrival of the new intake in 1964 and 1966 was to stop a repetition of the 1006 mistakes which occurred during the 13 years prior to 1964. It is because the country objects to the absence of policies such as a fuel policy that the people elected a new Government. This was the whole purpose of the exercise. We are under new management. Therefore, we have a right to talk in terms of a fuel policy under the Labour Government. Because of the timing, we cannot discuss it in detail in the absence of a fuel policy.
It is the Minister's responsibility not to delay making that statement for too long. I hope that the rumours to the effect that it will be postponed until after the Recess are ill-founded and that we shall have the statement before the Recess so that we can make a much more accurate assessment of what is going on.
The second thing on which I agree with the hon. Member for Worcestershire, South is on the question of the management of our nationalised industries. I agree with what he said about the necessity of having adequately paid people. We should now try to initiate a new trend in management by having younger people. It is now necessary in our science-based industries, which is what our fuel industries are, to have in command people between 30 and 35. I should like to see people getting to the top of the tree in publicly-owned industries at about the age of 30 or 32, being seconded, perhaps, either from other sections of industry or from the academic world. The management of these nationalised industries now needs a stimulus. We need much more adventurous people in control of the nationalised industries.
I appeal to younger people to come into the nationalised industries. Many of our more progressive firms are pushing forward their talented young people at about 30 to 35 into top management positions. I should like to see this happening in this nationalised industry. I want this Labour Government to be adventurous in bringing in young people at that sort of age to take over command of the industry.
My hon. Friend the Member for Chesterfield (Mr. Varley) made an excellent speech, which I wholeheartedly support. As I entirely support what he said, my remarks will be brief. There is a great difference between raising the capital required for the electricity industry and raising the capital required for the gas 1007 industry. The electricity industry found it necessary to raise part of its new capital from revenue. This was totally wrong and will be disastrous for the development of the industry. The Government are to be condemned for adopting that method, particularly at such a time, because the industry has, of necessity, had to announce price increases of about 10 per cent. From that point of view, I totally favour my right hon. Friend's approach this morning and welcome the way in which this capital is to be raised for the gas industry.
§ Sir G. Nabarro
I believe that I am correct in saying—perhaps the Ministerial reply will cover this point—that 30 per cent. of the new capital required by this industry will be raised from its own resources, which is approximately the same as what has happened in the electricity industry, the principal difference between the two being that hitherto the capital assets of the electricity industry have always been so much more expensive than the capital assets of the gas industry.
§ Mr. Atkinson
I thank the hon. Gentleman for that intervention. I was just coming on to that aspect, because I believe that the amount of capital raised in the electricity industry is far less than that. In the negotiations now taking place about natural gas, there should be a complete reappraisal of the whole of the capital assets of this industry and those responsible should write into the negotiations now going on a method of raising the necessary capital. I hope that the Minister will tell us later that he is talking in terms of linking the capital needed for the industry's future development with the negotiations now going on.
In commenting on the negotiations about the price of natural gas, we are again talking in the absence of hard facts on what is now being discussed between the Government and the oil industry and it is difficult to make a proper assessment, but we know something about the course of negotiations. Taking an average field of about 500 million cubic feet and using that as the basis to which we can relate prices, it is a common view on this side that the negotiations should in the end fix a price at about 1.8d. or 1.9d. per therm. We are alarmed to hear of some of the extravagant figures being quoted. I repeat what I said earlier. 1008 There are rumours that the price may be 3d. a therm, but even if the final settlement is 2½d., there will be revolution on this side. We are not prepared to accept agreements which give such an extra-ordinarly large return on the capital involved and guarantee it in that way, while, at the same time, the capital needs of the industry have to be met from other sources.
§ Mr. Edwin Wainwright
Does my hon. Friend appreciate that there is a great demand from the Opposition for a reduction in the price of gas throughout the country, and, on the other hand, they want to compel the gas industry to buy natural gas from the North Sea at more than 3d. a therm? They cannot have it both ways.
§ Mr. Atkinson
Again, I thank my hon. Friend for his intervention. We must be clear what we are talking about in terms of return on capital. I understand that the Gas Council is negotiating on the basis of figures which will guarantee the oil company investors between 25 and 30 per cent. return on capital. This is a fantastic figure. If the price ultimately amounts to anything like 2½d. a therm, there will be the biggest row on this side of the House since 1964, and quite rightly.
Our basic criticism is that the development is being done not by a publicly owned concern but by private industry. We have carefully considered all the arguments to show why a public concern could not explore for this gas and initiate the development, and we reject them. They are inadequate grounds for saying that it was not possible for the Government to acquire the necessary rigs and expertise to do the job. What nonsense it all is. This development should have been undertaken by a public corporation, with public accountability and using public capital.
Now that the development has been handed over to private enterprise, we warn the Minister that his own reputation is involved in the price which he fixes. Far be it for him to become a power "supremo", as one of my hon. Friends suggested. He will not last that long in the job if his reputation is so tarnished that we no longer have faith in negotiations of this kind. We would regard anything like the rumoured figure above 2½d. a therm as a complete sell-out.
§ Mr. Alison
Does the hon. Gentleman approve or disapprove of the initial price of 5d. a therm negotiated and agreed with B.P. for the first load of 100 million cubic feet a day?
§ Mr. Atkinson
That is an entirely different figure and it relates to an entirely different set of circumstances. I was basing my figures on a field of 500 million cubic feet. The initial discussions at that time, in different circumstances, led to a temporary arrangement, and, in addition, no one then knew what sort of reservoir was available and what sort of gas was there. Obviously, in those circumstances, with the risk capital involved, there was some justification for that price, though I am not saying that I agree with it.
§ Mr. Alison
Does the country yet know what the reserves are, and will it ever know unless the exploration continues?
§ Mr. Atkinson
Obviously, the hon. Gentleman realises that we now know sufficient about the reserves to be able to talk in terms of the capital involved. He himself has discussed the conversion programme and so on, so he must be reassured about the amount of gas which is there. We have sufficient knowledge now to be able to talk in terms of minimum amounts of gas available. Whether there is sufficient knowledge to assess the need for the extensive capital developments envisaged in one or two quarters, I am in no position to say. I can only read the reports submitted to us by the experts.
I reiterate my support for what was said by my hon. Friend the Member for Chesterfield, which reflects the views of the majority of Members on this side. We hope that, before long, we shall have the Minister's statement on fuel policy and an assessment of the whole situation so that we may accurately evaluate it. All of us, whether we be mine workers or not, are watching very closely to see that we get from the Ministry of Power a balanced fuel policy designed not only to protect the interests of the coal mining industry but to take advantage of all the new sources of power which are being made available to the nation, in the knowledge that, with this Government, they will be exploited to our betterment.
§ 11.57 a.m.
§ Mr. John Nott (St. Ives)
I agree with the hon. Member for Tottenham (Mr. Atkinson) when he says that the nationalised industries need to attract more younger people than they are at present. But this goes to the root of the whole question of salary structures within the nationalised industries. I recall debates in this Chamber, both in the morning and in the afternoon, when the suggestion that salaries should be raised to a level commensurate with those received in private industry was resisted by almost every hon. Member opposite. It is impossible to attract into the nationalised industries the sort of people to whom the hon. Gentleman referred on the salary scales now paid, which fall far below those obtainable elsewhere by people of 30 to 35 years of age. I agree with the point which the hon. Gentleman makes, but it calls for a basic change in Government policy and I hope that he will press it on Ministers.
I am not sure about people reaching the top of the tree at 32 years of age. I have a high regard for the present chairmen of the nationalised industries. The present chairman of the Gas Council has spent all his working life in the gas industry, and it would not be possible for this country to find a better qualified or more excellent person to run it. I very much doubt whether someone in his early 30s would have the sort of experience which Sir Henry Jones has had of the gas industry throughout his life.
I cannot agree with what the hon. Gentleman said about the price of North Sea gas. I forget the exact figures— perhaps my hon. Friends will correct me if I have it wrong—but I believe that the comparison is of this order: the coal industry is producing 175 million tons of coal equivalent, and North Sea gas discoveries will amount to about 30 million tons of coal equivalent.
§ Mr. Nott
I mentioned the figure of 30 million tons of coal equivalent. The Minister corrects me and says it will be 26 million tons of coal equivalent. I use 1011 these figures to illustrate the point that, even on the most optimistic estimates, North Sea gas still provides a very small proportion of our total fuel requirements. If we want to increase supplies, which must be the right thing to do from all sorts of strategic and balance of payments considerations, it is still necessary to give the maximum incentive to those companies which are exploring in the North Sea. It is not enough merely to say that since B.P. made its find and 5d. per therm was the figure agreed, a great deal more gas has been found and, therefore, 2½d. is sufficient. The point is that there is probably a great deal of North Sea gas still to be found, and the maximum incentive must be given to those carrying out exploration in order to increase the supplies even more.
§ Mr. McGuire
What is the point of arguing this way if coal is competitive at a figure less than 5d. per therm? Why chase this elusive shadow and pay an extraordinarily high price for it at the expense of coal?
§ Mr. Nott
I do not want to be led into a discussion on fuel policy generally. The specific point with which I want to deal is the figure of £500 million which it is estimated will be the amount that the gas industry will find from its own resources out of the total of £1,450 million, which is the figure being mentioned as the total capital requirements of the gas industry over the next five years. I want to concentrate on that estimate of £500 million, which is the self-financing portion of the capital requirements of the gas industry, and I do so with reference to the anticipated rise in gas prices which will be necessary to generate that £500 million worth of capital out of the industry's profits over the next five years.
In spite of the Minister's comments when opening the debate to the effect that prices will not rise as steeply in future as they have in the past, it is true to say that gas prices generally, taking a twenty-year period, have been remarkably stable when compared with inflation.
1012 This has come about as a result of technical developments such as the Lurgi process and the I.C.I, process for naphtha cracking, and the agreement with Algeria for the importation of methane. All those have kept gas prices stable in terms of the rise in the cost of living which has occurred. Incidentally, if the Algerians terminate their methane shipments to this country temporarily, I hope that the Government will take the opportunity to rescind the contract which they entered into. I can see no object in continuing that contract at a price of something like 5d. to 6½d. a therm when we can obtain natural gas from the North Sea at 2½|d. or slightly more a therm.
§ Mr. Nott
I was not talking about coal but about methane imports from Algeria. If the methane contract involves a landed price in this country of 6½d. a therm when we can obtain it for approximately 2½d. from the North Sea, I hope that we shall take advantage of the present situation and rescind our contract with Algeria. I have already stated that the figure of 2½d. is too low, but even if it is 3½d. or 4½d., it is still cheaper than the price in the contract under which we receive Algerian methane. If the Algerian Government seek to throw over their contractual arrangements with this country, I hope that we shall take the opportunity to rescind the contract.
§ Sir G. Nabarro
I agree with my hon. Friend about the extraordinary stability of gas prices over the last 15 years, but with this momentous discovery of North Sea gas and bringing it in in large quantities, surely we want something much better than stability in domestic gas prices. What we want is a reduction in gas prices as a result of North Sea gas. I have launched my campaign this morning to start in the direction of a reduction of prices to gas consumers. Will my hon. Friend be my lieutenant in these matters?
§ Mr. Nott
I will not necessarily volunteer to be my hon. Friend's lieutenant, 1013 but, if we can reduce gas prices, that will be even more admirable than holding them stable.
The Government are considering a rise in gas prices because they have to generate additional profits in the gas industry to finance its huge capital commitments over the next five years. Taking the figures which the Chairman of the Gas Council mentioned yesterday, of the total of £1,450 million of capital required, nearly £500 million is for bulk storage and bulk transmission facilities. All that £500 million will be self-financing and will be self-liquidating over a period of time. When these capital investments have been made, North Sea gas can be brought in and distributed, sales will increase, and profits in the gas industry will rise. The money will come back to the gas industry in the form of additional earnings.
We are talking about a large slice of self-liquidating money which is required for a five or six-year period. Why, then, does the Treasury insist on providing the money from two sources—one from Treasury borrowing, which raises the whole problem of public sector finance, and the other from increased gas prices, providing the capital out of self-generated profits? This is a perfectly straightforward five-year credit, and there are many ways in which at least half of the £500 million could be provided by the private sector as a straightforward credit which could be self-liquidating within a period of five years as a result of rising profits and increased sales in the gas industry from supplies of North Sea gas.
It would be more than possible to arrange an international credit and a national one for up to £200 million over the next five to eight years. That would provide for the Treasury and the Government the sums required to meet the necessary capital expenditure without raising gas prices, which obviously increase costs in industry, and without resorting more and more to the gilt-edged market to borrow, with all the problems which increased Government borrowing create.
The area boards of the electricity industry, and the gas industry itself, are in favour of raising part of this money from the private sector which would be prepared to provide it in the form of a credit. A large proportion of it could be financed in dollars, which would be to the immedi- 1014 ate benefit of our balance of payments and it would be self-liquidating within five or six years, yet we never finance this type of medium-term capital project from the private sector. This is basically because the Treasury will not allow the power to borrow to slip out of its hands. One of the basic and most important problems which we have ultimately to decide is whether we ought to continue disregarding available funds in the private sector to finance public sector expenditure when such funds are available.
The Ministry is confronted with the problem either of raising gas prices— which will increase costs throughout the private sector—to provide this additional money for medium-term capital projects which will in due course be self-financing because of increased profits, or by increasing Government borrowing, what my hon. Friend the Member for Worcestershire, South referred to as borrowing taxpayers' money. The effect of inceasing Government borrowing is inflationary, and I am sure that everyone would welcome an opportunity of reducing Government borrowing for these purposes if this could be avoided.
§ 12.12 p.m.
§ Mr. Michael McGuire (Ince)
I do not wish to follow the hon. Member for St. Ives (Mr. Nott) in what he said, save to refer to what I think was a contradiction. When referring to methane imported from Algeria he said that we should have a price range below the landed price of 7½d. per therm, but at the same time he argued that the 5d. per therm for B.P. should continue.
We sometimes hear talk about the nationalised industries being in danger of running down because they cannot attract men who are worth £3,000 to £5,000 a year. The problem of the coal industry is attracting men into the pits at very much lower salaries than this, because the demoralisation of the industry is now almost complete, whatever anybody might say from that Dispatch Box.
§ Mr. Eadie
I tried to make this point a little earlier, because when the hon. Member for St. Ives (Mr. Nott) was talking about 7½d. a therm for Algerian gas I do not think he quite appreciated the situation in the coal industry. I know that my hon. Friend has considerable knowledge of this matter, but it is a fact 1015 that coal is being produced at a price equivalent to 3d. per therm.
§ Mr. McGuire
I am glad that my hon. Friend said that. It reinforces what I was going to say. I am sure that if he gets an opportunity to take part in this debate he will develop the matter still further.
The big weakness of this debate is that this Order is only part of the whole picture. We cannot get the proper picture until we have the long-awaited fuel and energy policy. When this matter was discussed in 1965 my hon. Friend the Member for Bristol, Central (Mr. Palmer), the distinguished Chairman of the Select Committee on Science and Technology, said that whatever meals we had made out of the nationalised industries, we had certainly made a good one out of debating the gas industry in one form or another. I am sorry that we have not had similar opportunities to debate the coal industry. I know that the Chair is always very generous if we stray from the paths of order because of our in-built desire to debate the coal industry, and I hope that if I stray today I shall be allowed a little latitude.
In the energy programme we are given the figures for coal, oil, natural gas, and nuclear power. It has been said by Government spokesmen that notwithstanding the expenditure of about £1,500 million, the benefits which will accrue to the public—and as a member of the public I welcome this—is that if we do not get cheaper gas we will at least get greater price stability. I suppose by that they mean that if we did not have this natural gas prices would rise. I hope that the public will benefit in this way, but I have some doubts about it.
I think that the figure of conversions following the Canvey Island project is far too low. I think that it has been depressed to make us more enthusiastic about the importation of natural gas. I hope that when my hon. Friend replies to the debate he will tell us how this figure in the Canvey Island experiment has been linked with the total figure for conversion.
My hon. Friend the Member for Chesterfield (Mr. Varley) said that natural gas, this new indigenous fuel, would have to be phased into the energy requirements of this country. Like all hon. Members who are proud to represent the mining 1016 industry, I accept that and endorse it. I accept that it is not only in the interests of the miners that this should be done, but also that it is in the national interest. I am not ashamed to declare my interest because I maintain that the miners have served this country very well indeed in co-operating with both Tory and Labour Governments to provide our energy requirements.
Arthur Horner, once said, "We can pull down the temple of nationalisation because our demands will not be able to be resisted", yet the miners had to wait until 1961 before there was any reduction in their working hours, and even when that reduction of a quarter of an hour was made, it did not put them back to what they had prior to 1926, but they accepted it in the national interest. I am therefore not ashamed to declare my interest in the miners, but I am interested also in trying to get lower prices by importing this natural gas, because these are in the national interest as well as in the interests of the miners.
§ Mr. McGuire
I had to leave the Chamber for ten minutes when the hon. Gentleman was coming to the beginning of what I think would have been his twenty-minute peroration. I always listen to the hon. Member with great interest because he generates tremendous enthusiasm, such enthusiasm that I think even he believes what he says.
§ Sir G. Nabarro
The hon. Member said that we will have reduced prices for domestic gas supplies when we have natural gas from the North Sea. I invited my hon. Friend the Member for St. Ives to become a principle lieutenant to me in the campaign I have launched this morning for reduced prices for instant gas. Will the hon. Member for Ince (Mr. McGuire) join the campaign?
§ Mr. McGuire
The hon. Member has appointed one P.P.S.; I do not know whether he wants a second. I have not said that we will get reduced prices, but I thought that we would get price stability When he was questioned, my right hon. Friend the Minister answered that there would be greater price stability. I do not think he said that the price would be reduced to the consumer.
§ Mr. Marsh
Since I have been taken in vain on the subject, may I say that the point I was making—which was in an aside to the hon. Member for Worcestershire, South as large parts of most of these debates usually are—was that we have to have this enormous investment now to enable us to obtain for the future what will be a much cheaper fuel. Clearly, we need to have the higher income now. However it is obtained, the public have to provide it in one way or another to get the benefits for the future, but in real terms the price of fuel should be cheaper. That is the purpose.
§ Mr. McGuire
No doubt the hon. Member for Worcestershire, South has digested that. I want this natural gas to be phased into our energy requirements in the national interest. I also believe it to be in the miners' interest and I have declared my interest in that matter. My hon. Friend the Member for Chesterfield (Mr. Varley) will forgive me if I got it wrong, but I think he said that it will be at the expense of something else. He seemed to indicate that it would probably not be at the expense of nuclear-generated electricity.
If there has been any field in which public money has been squandered it has been in nuclear energy. All we have got from nuclear-generated electricity has been a very expensive form of electricity. At the present stage there does not appear to be any redirection of this policy. If there is to be any phasing in, quite apart from the question of oil which for strategic and tactical reasons is in everyone's mind now, it should not be at the expense of coal. Nuclear energy requirements should be revised. There has been a very expensive experiment. I think all the evidence supports this view. It is often assumed when miners' Members speak in debates that they adopt the posture of Luddites.
§ Mr. McGuire
Miners' M.P.s are always accused of trying to put forward a case to keep men in a very dangerous, dirty, low-paid and socially dis-esteemed job. That is not my view, but I warn the Government that if we do not very soon get an energy policy which will allow the coal mining industry to meet the challenge in its reorganisation and not to 1018 have more burdens thrust upon it which it cannot stand, the result will be to make deserts out of the mining areas to compensate for the deserts lost abroad. To use a miner's expression "there will be dirt down". All the protests we have had about prices and incomes policy will be a mere feather if we do not get what we consider as the duty of a Labour Government to provide. That is not to give an absolute priority to coal, but to fit it into fuel policy in the nation's interest and in the interests of the miners.
I am thinking of the men in the industry and of their families. It is no good thinking that we can go on with a hotch-potch policy and that now this gas has been discovered nuclear energy can be supported at the expense of coal or that we will traipse through the Lobbies in support of such a policy. This is a forerunner of what we should have had before, a proper fuel supply for the country with coal given its proper place. I welcome the opportunity for a nationalised industry to demonstrate its success, but I warn the Government and I hope that it will not be at the expense of the industry which I am proud to represent.
§ 12.26 p.m.
§ Mr. Edward M. Taylor (Glasgow, Cathcart)
We were all very much impressed by the speech of the hon. Member for Ince (Mr. McGuire) about the coal industry. Such concern as there is in the country at large is felt even more in Scotland where we have very real problems relating to the coal industry and especially if we are to enter the Coal and Steel Community.
Several hon. Members and people outside have praised the energy, enthusiasm and flexibility of the new Minister of Power, but I think the Minister knows that I have been rather disturbed and distressed by the handling of and his attitude to Scottish fuel problems. I want to concentrate on the Scottish aspect of this Order. I have written letters, made speeches and asked Questions about the particular problems affecting Scottish fuel and I have not had any adequate answers. Here we have a unique opportunity in which the Minister is asking for £300 million for the gas industry. Before he gets the money I think he is under an obligation to answer some specific questions about where we are going in fuel policy, particularly on gas.
1019 First, I remind him of the recommendation which was made to him in Prices and Incomes Report No. 7 specifically on the question of the Scottish gas industry. It was indicated in that Report that the Board could see no reason whatever for having a different Ministerial responsibility for gas and electricity in Scotland. The Board also indicated that if investment suggestions and pricing suggestions were not phased, something would have to be done about this. The Report was published in December, 1965. The Board thought then that this was an urgent matter for the gas industry in Scotland because of the different financial objectives given by the Minister and the Secretary of State for Scotland. A long time has passed since then and we have had no indication of any change which might or might not come.
We have the suggestion that most of this extra £300 million will be used for natural gas and work associated with it, but we have no indication whatever of the basis on which this natural gas at the low price which my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) wants to ensure for the housewife will be provided universally throughout the country. On 17th April I asked the Minister if it was his general policy that natural gasshould be made available to the various gas boards at a uniform price",One would have thought that a simple Question on which he need not commit himself but on which he could give an opinion if he thought it fair or just. His Answer was that he wasnot in a position to say what will be the terms for supply of natural gas to the Gas Boards."—[OFFICIAL REPORT, 17th April, 1967; Vol. 745, c. 28.]Particularly in the last few years we have had very high prices for gas. Some time ago I gave figures which showed that in 1965–66 the price of gas in Scotland per therm realised about 15 per cent. above the average for the rest of the country. Over the last two years we have had a 9 per cent. increase in the price of Scottish gas. No other gas board has reached even half of that figure. If we vote this £300 million, has the Minister the slightest intention of reviewing the question of 1020 differentials in gas prices' throughout the country? Can he give us even a glimmer of hope that natural gas—
§ It being half-past Twelve o'clock, the debate stood adjourned.
§ Debate to be resumed Tomorrow.