HC Deb 18 March 1968 vol 761 cc50-4
The Minister of Power (Mr. Richard Marsh)

The National Board for Prices and Incomes has submitted its reports on gas and coke prices and on the bulk electricity tariff to my right hon. Friend the Secretary of State for Economic Affairs and to me. They are being laid before the House today.

For gas, the Board recommends the approval of increases in tariffs varying from board to board and averaging 8.7 per cent. over the industry as a whole; and of increases in coke prices to yield additional revenue of about £5 million. In the light of the analysis contained in the Board's report, the Government accept these recommendations. Revised tariffs will accordingly be presented by the area gas boards to the appropriate consultative councils.

Of the 8.7 per cent. increase in gas tariffs, 2.7 per cent. is due to the effects of last year's Middle East crisis on the costs of the industry's oil feedstocks. When the need for this part of the increase has passed, boards will be asked to review their tariffs in the light of the circumstances then prevailing.

The Prices and Incomes Board has, in the interests of speed, made these recommendations in advance of its report on the further studies which it is making into certain aspects of the industry's operations and problems of pricing policy. It has emphasised that the increases now proposed should be effected in such a way as to secure that the true costs of supplying different types of consumer are reflected more closely in the tariff.

The electricity bulk supply tariff governs the price charged to the area boards by the Generating Board and is thus separate from retail tariffs. The Prices and Incomes Board has recommended that the average price per unit under the Central Electricity Generating Board's bulk supply tariff for 1968–69 should be increased by about 3¾ per cent. over the 1967–68 level, which will give the Generating Board £3.6 million less revenue than it had proposed. The Government accept this recommendation and the Generating Board is being asked to take it into account in drawing up the 1968–69 tariff. The higher bulk supply tariff will not, however, affect retail tariffs.

Mrs. Thatcher

We shall, of course, need to look at the reports in detail. In the meantime, may I ask the Minister two questions? With regard to the electricity bulk tariff, as the Prices and Incomes Board has granted increases much less than the Generating Board wanted, would it not be reasonable to assume that the increases in the retail price of electricity which the Government granted last autumn would have been much less had the Prices and Incomes Board had the chance of adjudicating on them in the ordinary way? Will the right hon. Gentleman, therefore, now take steps to refer that claim to the Prices and Incomes Board for comment?

The very large increase in gas prices is, however, less than the Government's allotted increase in electricity prices. The Minister has given an average figure of an increase of 8.7 per cent. Will he say what the maximum increase will be and in which areas?

Mr. Marsh

The hon. Lady is right to wish to examine more closely the Board's report before she commits herself to views on it, because the Prices and Incomes Board recommends that the Central Electricity Generating Board should increase its prices by £3½ million less than the C.E.G.B. proposed. This, however, will still represent a higher price per unit than the area boards allowed for in drawing up their retail price increases announcement in September and there will not as a result be a further increase in retail prices. The one cancels out the other.

As to gas prices, it is, of course, impossible to say how the increase will be distributed within the areas, because it is now for the area boards to draw up their proposals in the light of the overall recommendation and to submit them to the consultative councils. It is worth pointing out that the increase for an average domestic consumer of, say, 200 therms a year will be between 6d. and 1s. 6d. a week.

Mr. Palmer

Would not my right hon. Friend agree that, in view of the recommendation concerning the C.E.G.B. tariff, it would be wise to look again at the area board electricity tariffs which were so steeply increased?

Mr. Marsh

No. There is a confusion between the bulk supply tariff and the retail tariffs. This announcement does not call for a reassessment of the area board tariffs.

Mr. Peyton

In so far as there is a difference of view between the Central Electricity Generating Board and the Prices and Incomes Board, on which side of the argument do the Minister and his Department come down?

Mr. Marsh

We are always in favour of that which is right. As I have said, the Government accept the report of the Prices and Incomes Board.

Mr. Lipton

Is my right hon. Friend aware that the general public will view with some degree of suspicion this proposed estimated figure of an 8.7 per cent. increase in gas prices? Is he aware that after he made a similar estimate of the extent by which electricity prices would increase, in the London area the increase is working out at twice as much as he originally estimated?

Mr. Marsh

The problem has to be faced. No area gas board has put up its prices since the first half of 1966. Six of the 12 area boards have not increased their prices for over four years. Between 1962 and 1967, the average revenue per therm sold rose by less than one-half of 1 per cent. compared with a 15 per cent. increase in prices generally over the same period.

Mr. Lubbock

Will not people find it difficult to understand why the Minister should agree to increases of 8.7 per cent. in the cost of gas so soon after the Minister has announced in the House that the Gas Council is buying gas from Phillips at a price of one-quarter of what it costs at present to produce?

With regard to the electricity tariffs, is it not also quite extraordinary that when nuclear power is coming into its own and is able to produce electricity at far less than it is produced from oil or coal, suddenly these enormous increases have to be imposed upon the consumer?

Mr. Marsh

But there is an immediate problem. The gas industry, for example, has financial objectives which were set in the first place by hon. Members opposite. Without these increases, the shortfall this year would have been about £40 million. That money has to be met by the public in one way or another and, on the whole, it seems right that it should be met by the people who use the service.

Mr. William Hamilton

With regard to the gas price increases, can my right hon. Friend say whether there is any differentiation in treatment as between domestic and industrial consumers? Can he give an assurance that the gap between Scottish and English gas prices will not be widened, but will be reduced?

Mr. Marsh

I appreciate the point made by my hon. Friend. In its report, the Prices and Incomes Board devotes attention to the question of the difference between domestic and industrial consumers. Again, it has to be accepted that there is a need to ensure that manufacturing industry gets the benefits of cheaper fuels. To that extent, while one cannot say in detail how the increases will be distributed until area boards have had an opportunity to look at the position, the movement will be towards the advantage of industrial consumers.

Mr. Edward M. Taylor

Is the Minister aware that Scottish gas prices are at present 24 per cent. above the national average? Will the increase announced today reduce or increase the differential?

Mr. Marsh

We have to wait, first, to see the recommendations of the area boards, which, in turn, will go to the consultative committees.

Mr. Wilkins

When might we hope that the electricity industry becomes a truly nationalised industry with standardised domestic tariffs throughout the country?

Mr. Marsh

That raises a very big issue indeed.

Mr. Wilkins

It was promised after five years.

Mr. Marsh

It raises a very big and different issue. It raises issues of the extent to which one wants the costs of particular services to reflect the true costs of a particular area.

Mr. Doughty

Will the Minister tell us how much of the gas and electricity boards' revenue which is now being in creased will be spent upon new capital works—works which ought to be financed not from revenue but from capital?

Mr. Marsh

One of the problems we face as far as gas is concerned is that even after this increase the level of self-financing is only at around 22 per cent. I do not think anyone would regard that as particularly high.

Several Hon. Members rose—

Mr. Speaker

Order. We must pass on. I must protect the business of the House.