§ 10.46 p.m.
§ Mr. John H. Osborn (Sheffield, Hallam)
It has been fascinating listening to an expert on the Consolidated Fund Bill, albeit he is now a poacher turned gamekeeper, drawing his views to our attention in such a pleasant manner, although he is on the Front Bench.
I want to raise a different question, namely, coal pricing policy in so far as it is affected by the cost of coal produced in the pits, in so far as it affects industries using coal, and in so far as it is concerned with recent offers of cheap coal to selected industries, and particularly the aluminium smelting industry.
I am glad that the Parliamentary Secretary is here, because he will remember the debates on the Coal Industry Bill, now the 1967 Act, which deals entirely with various elements of subsidy, including the subsidy in Section 6 which reimburses all additional costs involved in using coal for generating electricity or for producing gas. If I stray into the effect of coal pricing policy on electricity and power to the industrial user and consumer. I assure my hon. Friend the Member for Horsham (Mr. Hordern), who is not here, that I do not wish to stray all the way into fuel policy, which is to be the subject of a debate later tonight.
My thinking on these subjects, following not only the debates on the Bill, but reports of the Labour Party conference at Scarborough that proposals were being considered to develop aluminium smelting, has developed on a number of lines, and during the last three months I have put down Questions relating directly and indirectly to these points.
My main lines of thought have been twofold. The first problem, which might be considered to be somewhat unrelated to the main one, is that of the grey areas, and concerns the South Yorkshire area, particularly in the vicinity of Sheffield. This area is faced with the closure of a number of pits, and the contraction of the traditional industries in Sheffield. It is an area which needs fresh industries.
I am disappointed that I did not advise the hon. Member for Derbyshire, North-East (Mr. Swain) who is the Chairman of the 44 Group, of the scope of this 1305 debate, but it so happens that local authorities have come together with Sheffield to form what is known as the 44 Group to look into the future of this area. In the past this area has boasted cheap electricity and cheap gas, and in fact cheap power, for its main industry, steel. Sheffield has pioneered electric melting by the electric are furnace, and the high frequency furnace.
The 1947 Act had two results. First, over the last 20 years or so there has been an averaging of coal prices. This has meant that within the coal industry there has been no incentive to exploit the cheap production, high productivity pits at the expense of less efficient ones. To put it another way, even under the Conservative Government, who had to operate the Act, social considerations were given a high priority.
I make this comment with one qualification. There is no doubt that the National Coal Board has sunk new pits, and it has not held back closures, but it has also mechanised pits. The charts in the last Annual Report issued by the Board in relation to output per man shift and mechanisation show an upward trend, and are indeed encouraging.
But the result, not only of the Coal Act, but of the Electricity Act, was that the 1945–51 Labour Governments brought about a much greater averaging of electricity prices. Transmission costs have become a national responsibility and have been shared by all the area generating boards. This led to a practical compromise which has been developed over the years. General overheads in the nationalised coal and electricity industries have been spread, resulting in an averaging of prices.
This raises a number of issues and prompted my Question to the Minister of Power on 25th January:… if he will take steps to ensure that in grey areas, such as South Yorkshire, industrial tariffs for the use of electricity based on indigenous fuels, namely coal in East Yorkshire, and natural gas from the North Sea, are realistically low and do not carry transmission charges to other parts of the country.The Parliamentary Secretary said that the bulk supply tariff had been… referred for examination by the National Board for Prices and Incomes."—[OFFICIAL REPORT, 25th January, 1968; Vol. 757, c. 182.]We have had Report No. 59, Cmnd. 3575, from the Board, which did not 1306 deal with the averaging, and the Parliamentary Secretary will have noticed that his point has not been covered.
Assuming that the price of coal is being averaged, it is being averaged to different electricity undertakings and coal-fired thermal power stations. The average energy costs of coal, oil and nuclear power are obviously pooled into the cost structure generating system and there is a strong national averaging element, which has resulted in an essentially uniform price structure.
To return to the constituency point, Yorkshire and Sheffield and the region covered by the 44 Group has a close proximity to natural gas, to some of the most modern and efficient collieries, which enjoy cheap production costs and high output per man shift, and to the most modern coal-fired power stations. Only the other day, I passed Drax, Cot-torn and High Marnham, the performance of all of which is of great interest. But to what extent is Yorkshire and Humberside, and particularly South Yorkshire, subsidising coal and, indirectly, electricity and other sources of energy to other parts of the country? I have posed this question and we are still waiting for a satisfactory answer.
The next problem following the announcement and which has been going on concurrently with the Scarborough Conference, is the decision to set up an aluminium smelter, amplified, in a D.E.A. Press release on 4th October. My hon. Friend the Member for Louth (Sir C. Osborne) subsequently asked whether or not there would be an element of subsidy. The Prime Minister said categorically that there would not be, but the outcome is still awaited. We are still waiting for the Ministerial statement which we were promised. We know that the assessment has been done by the Industrial Reorganisation Corporation and that its report has been in the hands of the appropriate Ministers for some time.
At one time Rio Tinto Zinc, using nuclear power, and British Aluminium were considered the favourites. Then Alcan came into the picture. The exact terms of the offer for the sale of coal to Alcan are not known. Various guesses have been made—of 3.5d. and 3.25d. per therm. Suggestions have also been made 1307 about the time limit involved. Some have suggested 20 years, others 25 years. In any event, if coal is sold in this one instance at this price, it surely means that it should be sold to other industries at comparable prices. And if coal is sold at this price, does it still mean that the Coal Board and the collieries concerned are meeting their obligations outlined in the White Paper on fuel, "The Nationalised Industries. A review of economic and financial incentives?" In that document it was clearly stated what was required if the Coal Board was to break even, after interest and depreciation, including the £10 million per year. Is the objective of the White Paper going to be met? When this and other questions were asked in January, a number of useful articles appeared in the Press. Christopher Tugendhat, writing about what he described as the "real reason" why Alcan had chosen coal, wrote in the Financial Times:
If oil were untaxed Alcan would probably have wanted to build an oil-fired power station.He added:In the context of these negotiations two points must be remembered about the position of the electricity authorities. First, because of the Nationalisation Acts it is almost impossible for them to act as normal commercial concerns since they are forbidden to pursue a preferential pricing policy. Secondly, the condition of the grid is such that it would be impossible to guarantee uninterrupted supplies unless the power station was built beside a smelter or unless the smelter was linked to the grid in three separate places—which would be very expensive.Alcan decided to build its own power station, as that article indicated, and it suggested:… the delivered cost of the coal will he rather higher than the 3d. a therm, which has been generally reported. This probably means that it is about 3.25d. a therm …".At about the same time Don Perry pointed out in an article in the Sunday Express that:Steel chiefs to ask for cut-price coal.Immediately, the offer to Alcan began to interest other industries. The Sheffield Telegraph pointed out:Britain's steel producers—particularly those in Sheffield—are hoping to get cheaper electric power in line with the supplies being proposed for aluminium smelting firms.1308 Shortly after that I asked the Minister of Power what steps he had in mind for large consumers of electricity and
… what steps he proposes to take to make available cheap electric power on realistic bulk tariff rates to the steel industry of Sheffield melting steel by means of the electric are, high frequency and other modern processes.…" [OFFICIAL REPORT, 26th. Jan., 1968; Vol. 757, c. 200.]We learned from the Answer that no applications had been received from steel melters in Sheffield for special terms. That is not true today. Industry is now interested in the fact that special terms for electricity and coal have been offered to the aluminium industry, and this immediately brings us to the question of the pricing policy of the nationalised industries.
In December I asked the Minister of Power, in connection with the fuel White Paper, to
… publish the average cost per ton at the pithead and cost per therm of the coal mined from the best 50 pits in the country.…" [OFFICIAL REPORT, 19th Dec., 1967; Vol. 756, c. 364.]In his reply, the Parliamentary Secretary said that 14 collieries were producing coal at a cost per ton of 56s. 4d.; 107 at 79s. 5d.; and 81 at 94s. 1d. The hon. Gentleman circulated in the OFFICIAL REPORT a useful table giving this information.
The equivalent cost per therm in the region of 2.6d., 3.67d. and 4.3d. is well below the price available to selected users.
At the same time we came to the question of the best way of generating electricity. In reply to a Question the Minister of Power pointed out that at Hinkley Point construction cost £71/kW. and generating cost 0.52d. kWh. Drax is £52/kW. and the generating cost 0.6d. kWh. After that a series of Questions was asked, to some of which the Minister or the Parliamentary Secretary replied and to others they did not reply. I was told on 30th January that if the average pithead cost per ton of coal was 56s. 4d. that a modern coal-fired power station would generate electricity at 0.52d. per unit, or per kilowatt hour. Therefore coal-fired power stations are at present able to produce at a comparable price to that of nuclear power.
1309 Only as recently as 12th March, I asked the Minister of Power, based on revised estimates of coal demand and as a result of the proposed reorganisation of the coal mining industry in mechanised cheap production collieries, at what price range per ton and per therm pithead he estimated coal would be available to the C.E.G.B. and industrial users requiring deliveries in bulk with a view to implementing a cheap energy policy. We had in mind a time cycle of the 1971–75 period. We learned from the Minister that he was in consultation with the National Coal Board about its price structure. That is as far as we have got. Of course, price structure entirely controls the amount of any one fuel used. Unless the price structure is established, predictions of demand and supply in the 1970s are essentially hazy.
I have also asked a number of Parliamentary Questions which have resulted in correspondence with the Chairman of the Coal Board. He reaffirmed some of the Answers given by the Parliamentary Secretary. I understand that I may quote from a reply the Chairman gave. He said:I have now had an opportunity of reading your letter to the Minister… You have. of course, put your finger on the real issue: it is, and must be, the aim of the Board to maximise production of coal at the lowest cost pits and eliminate the high cost output by pit closures. Only the vast social upheaval involved prevents us from closing pits at a greater pace and indeed the Government have already felt it necessary to defer the closure of some heavy losers. Parliament has provided for this in the Coal Industry Act to which you refer and the cost of the deferment falls upon the public purse. We are, however, carrying on our own revenue account a substantial quantity of high cost coal which is masking the cheaply-produced coal within the average price to the C.E.G.B.I think I can help you far better in the assessment you want to make by giving you the breakdown of our output by costs of production for the financial year 1966–67, the latest period for which figures are available.He then gives the following figures:Under 3d. a therm 11 m. tons.Between 3d. and 4d. a therm 51 m. tons.Between 4d. and 4½d. a therm 35 m. tons.Between 4½d. and 5d. a therm 25 m. tons.Between 5d. and 6d. a therm 27 m. tons.Over 6d. a therm 9 m. tons.Finally, he says:You will note that we are already producing 122 million tons at under 5d. a therm. 1310 As productivity is rising rapidly, we can see this coming down in cost very considerably—say, to under 3½d. a therm—by the 1970s. The 36 million tons now being produced at over 5d. a therm will be eliminated by closures and made good partly from new or reconstructed pits, building up to full output, and partly from the remaining pits at higher rates of productivity.He then gives an assurance that he will send further information.
In a letter to me dated 12th March, Lord Robens tells me about the pithead prices of coal sent to the C.E.G.B. He says:There is no general answer; everything would depend on the location of the customers and location and costs of production of the supplying collieries.In regard to the supply of coal to selected users near cheap coal pits, he says:In certain circumstances we can offer coal for new business on long-term contracts at prices related to the costs of production at designated pits without in any way affecting the price of coal to other customers. Indeed, it is quite likely that if we failed to win the new business the coal would not be required elsewhere anyway.I would like to make it clear that the average pithead price of coal supplied to the C.E.G.B. hides a considerable tonnage of cheap coal. The breakdown for the calendar year 1967 is as follows:
|Pithead prices of C.E.G.B. coats|
|Over 5d. a therm||8 million tons|
|Between 5d. and 4d. a therm||20 million tons|
|Between 4d. and 3½d. a therm||20 million tons|
|Under 3½d. a therm||12 million tons|
That provides an interesting contrast with the proposals for the 1970s. He goes on to say:
On average the 60 million tons were sup-lied at a little over 4d. a therm.
§ I give those matters in full because I have the authority of the Chairman of the Coal Board to quote directly, not paraphrasing, because he does not wish to be misunderstood.
I have been in touch with the Electricity Council as well. I have not the authority of the deputy secretary to publish this letter, but I am certain that I shall be in order in quoting certain passages. This is what was said by the Electricity Council:
You will appreciate that Boards are not in a position to divulge confidential information relating to their commercial relationships with individual consumers. However, you might find it useful to know that the twenty-five largest consumers of the Area Boards in England and Wales are nearly all in the chemical or iron and steel industries, and in the Midlands or North or the country.
In view of the other matters which I have mentioned, that is interesting news.
Their annual consumption ranges from 225 to 1,000 million kWh and the average price per unit paid varies according to the load characteristics of each supply, and is particularly affected by the proportion of load taken outside periods of high system demand. Broadly, the average price varies from around ¾d. per unit to over 1d. per unit.
In the last paragraph of the letter, the Electricity Council says:
Of course, what the electricity industry is worried about is being denied access to this cheap coal and having to take dearer coal for the stations that exist and are under construction; thus preventing a reduction in the cost of producing electricity.
§ It is clear from these letters that, if the Coal Board makes cheap coal available to one or two users, this is likely to raise the cost of coal to the Central Electricity Generating Board. Much of our electricity will for some time come from coal-fired thermal power stations, not nuclear stations. The pricing policy of coal is all important.
§ To conclude, we have had the White Paper on the Nationalised Industries, which gives us a review of the objectives. How does this affect the Coal Board? We have had the White Paper on Fuel Policy, which will be discussed later this evening. We have had the pricing policy within the nationalised industries to which I have referred. This has obviously been the subject of discussion in the Select Committee on Nationalised Industries and I understand that one of the witnesses this evening was Mr. Aubrey Jones. I should be out of order to refer to that now. But the Coal Board's pricing policy and pricing structure is, according to an answer from the Ministry of Power, the "subject of consultation".
§ Which are the area boards producing the cheapest coal and at what average price are they producing that coal? I am certain, as my hon. Friend the Member for the Isle of Ely (Sir H. Legge-Bourke) has pointed out, that they are the East Midlands and the Yorkshire areas. Which are the specific collieries producing this cheap coal? I have asked a number of questions of the Parliamentary Secretary to find out which they are, but this information is not available.
§ To what extent do the industries which are closest to collieries producing the 1312 cheapest coal benefit by it? Not only does the electricity industry have the chance of benefiting from it, but so do the users of electricity.
§ The price of coal and the extent to which it is available to a modern power station is obviously going to affect the price structure of the electricity industry in the future. Are electricity users obtaining electricity at sufficiently generous prices or are they subsidising domestic and other users? To what extent will the sale of cheap coal to selected industrial users increase the cost of coal to other users?
§ I know that this is bringing us into fuel policy, but we must bear in mind that if selected industries are given cheap coal for their own power stations or nearby power stations this will distort the tariff structure of other area boards and other industrial users.
§ I introduced this debate because I believe that the ground rules for the pricing policy of coal need careful reappraisal. We understand that they are being reappraised. The Parliamentary Secretary should take the opportunity tonight, because so much money is being invested in the coal industry and in other nationalised industries, to lift that veil so that we may know what is going on between the Minister of Power and the nationalised industries at this time.
§ 11.13 p.m.
§ Mr. David Lane (Cambridge)
This is a welcome debate because coal pricing policy is a highly topical and important subject. I am glad to be able to support my hon. Friend the Member for Sheffield, Hallam (Mr. J. H. Osborn).
What we are doing this evening is trying to probe that mysterious thing known as the Government's mind. The Parliamentary Secretary seemed to be in a benevolent mood earlier today and I hope that he will be more frank tonight than he has been on some recent occasions when we have questioned him on this and related subjects. Then he has been the reverse of forthcoming.
Before I put certain questions I should like to make three general observations. In the aftermath of the most burdensome Budget in peace time there is great public anxiety about rising public expenditure. I hope that the Government will not underrate this anxiety. We have to be doubly 1313 careful that the nationalised industries do not rush into policies which will add still further to the burdens of the taxpayers.
Secondly, industry, particularly private and exporting industry, has taken on its back yet another instalment of cost burdens. Industrialists are like travellers across a desert thirsting for any lower costs, particularly lower costs of electricity.
Thirdly, I believe that as a nation we need still more knowledge of both the private and public sectors of industry in taking our economic decisions and making our judgments. There is a very healthy trend in the private sector at this moment, as the floodlight of publicity and public understanding is playing more and more widely on the activities of companies. This should be at least matched in the public sector. Yet the field of policy we are discussing is still shrouded in mist or, as my hon. Friend said, concealed behind a veil.
In putting questions to the hon. Gentleman, I am in no way knocking the coal industry or any other nationalised industry. On the contrary, I want to see the coal industry and other nationalised industries concentrated and efficient, prosperous and profitable. In particular, I want to see the coal industry aggressive in its marketing policy. But aggression is one thing and rashness is another. There are some disquieting signs today of the coal industry going over the border-line into rashness. I was delighted when we were told two weeks ago that the Minister of Power is in consultation with the Board on its price structure.
My first question echoes what my hon. Friend has already said about the smelter decision, which we hope soon to hear about from the President of the Board of Trade. The Prime Minister said last November, in reply to a Question by my hon. Friend the Member for Louth (Sir C. Osborne):The arrangements now being discussed between interested companies and the generating boards would neither involve an Exchequer subvention nor an increase in the cost of electricity to other users,…—[OFFICIAL REPORT, 14th November, 1967; Vol. 754, c. 213.]Do the Government still stand squarely by that undertaking? If so, can they explain how, at the sort of figures so far reported for any offer of coal for smelting it will be possible for the 1314 National Coal Board to avoid a still bigger deficit?
Second, do the Government share the optimistic view of the Chairman of the Board about the future trend of coal costs? We are always hearing publicly from Lord Robens about that. I applaud his aggressive spirit and optimism, because I am a natural optimist myself, but we must be a little careful. My hon. Friend mentioned the optimism in the correspondence the noble Lord has been having with him. Another example, the latest as far as I know, appeared in the Financial Times yesterday. Lord Robens wrote:With the productivity curve set sharply upwards and costs progressively tumbling down, coal's competitiveness as a fuel for electricity is being strengthened all the time, and all of us in the coal industry are eager to see our most substantial customer sharing in the accumulating benefits.I am sure that the electricity industry will say "Hear, hear" to that. I understand that there was the same optimism in the evidence Lord Robens gave to the Select Committee on Science and Technology last year.
We must have in mind past experience in the matter of coal costs. It does not seem to me to be all as plain and easy sailing in the years ahead as Lord Robens is now telling us. The Government's White Paper on Fuel Policy said at paragraph 62:The average cost of coal per ton (before interest) rose by 4.6 per cent. between 1964–65 and 1965–66, and by 6.4 per cent. between 1965–66 and 1966–67, notwithstanding increases in productivity of 3.7 per cent. and 1.4 per cent. in these years. This indicates the magnitude of the task facing the Board if they are to achieve their declared aim of reducing costs in the coming years, so as to improve their competitive position.This is borne out on page 1 of the Board's Report for 1966–67 where we read:The effects"—of price increases—were, moreover, partly offset by rising costs: revision of wage and salary agreements cost £13 million; other expenditure—including the costs of materials and stores, power supplies, local rates and National Insurance charges—"—and I stress the next words——almost entirely outside the Board's direct control, increased by £8 million during the year.In view of this past experience would we not be wiser to take the optimism 1315 of the Chairman of the National Coal Board with a large grain of salt?
Thirdly, how do the Government view the duty laid on the National Coal Board not to discriminate? We are all familiar with the words in the Coal Industry Nationalisation Act, 1946, that the duty of the Board is to makesupplies of coal available, … in such quantities and at such prices, as may seem to them best calculated to further the public interest in all respects, including the avoidance of any undue or unreasonable preference or advantage".How does the Parliamentary Secretary interpret that duty in the present situation? We got on to this at Question Time two weeks ago, when the Minister of Power, in answer to my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), said:It is not really for me to say. The Act lays this responsibility on the Board.This is not good enough from the Minister in this situation, and we are entitled to more explanation today.
My fourth question really leads on from that. Granted that thus far we have only read about the aluminium smelter in leaks to the Press, what consequences do the Government see from offers of that kind by the National Coal Board?
Let us be clear about the magnitude of the sums we are discussing. Take the figure given by my hon. Friend, a reasonable guess, of the offer to Alcan. Whether or not this is finally accepted, it is an indication of what is in the Coal Board's mind, and this price is for coal at around a delivered price of 3¼d. per therm. We can compare that with the average delivered price of coal to the Central Electricity Generating Board last year of 5d. per therm. The gap between 3¼d. and 5d. per therm is large by any reckoning.
If the Coal Board is going to offer coal at as low a price as that to one comparatively small user, must it not be ready to lower its prices to other, much bigger users, and beyond that, to brace itself for some reduction in its present protected position in the British market?
Lord Robens made another remark, in the Financial Times yesterday, where he said:Let us match price for price.1316 I can hear the electricity industry saying "Hear, Hear" to that. Looking at two of the big groups of users, the Electricity Board is restricted in its use of oil which is already heavily taxed, and the steel companies have for many years been forbidden to import any low-cost coking coal, which they would have liked to have imported from overseas.
In this situation, in the Answers given two weeks ago, the Minister said:I assure him"—my hon. Friend the Member for Cirencester and Tewkesbury—that I have received no complaints about unfair advantage being given by the National Coal Board."—[OFFICIAL REPORT, 12th March, 1968; Vol. 760, c. 1154.]Surely it cannot be that the Minister has heard nothing from other users, and if he has, the House is entitled to some explanation.
My fifth and last question is, will the Minister and the Parliamentary Secretary undertake to urge the National Coal Board and other publicly-owned industries for which they are responsible to be more open in the information they give to the public year by year about operations and policies? Looking through the National Coal Board's Report for 1966–67, I can find very few references, and those superficial, to the vital question of pricing policy. Will the hon. Gentleman use his influence to get the Board, and others, to be more forthcoming in future?
We have a dilemma. If the Coal Board goes through with the contract for the smelter or any other similar contract at the sort of low price we have heard about, it can either be at the cost of raising the price to other big users, contrary to what they would expect and what should happen in the national interest, or at the cost of a still greater deficit. Mr. Michael Shanks, who held a responsible position in the Department of Economic Affairs in its palmier days, wrote this relevant passage in The Times on 19th February:If the Government wishes to use the nationalised industries as weapons in its overall industrial strategy, it needs to think much more carefully about the kind of ground-rules against which they should operate and the degree and latitude to bargain with individual customers which they should enjoy. In particular, it should re-examine the present tendency 1317 to subsidise the domestic consumer at the expense of the industrial consumer—a practice which the smelter debate makes more anomalous than ever.I admire the Government for the courage shown in the recent White Paper on Fuel Policy. I ask them to show similar courage now, first, in recognising that there have in the past been serious miscalculations and over-optimism about the coal industry and, secondly, in urging the Board, and particularly the Chairman, to be bold but also realistic and to avoid the sort of commercial rashness which will be ultimately damaging and not beneficial to the national economy.
§ 11.27 p.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
My hon. Friend the Member for Sheffield, Hallam (Mr. J. H. Osborn) did a service to the House in raising this question of coal pricing policy. His speech was full of facts and was well-informed about a situation which is causing concern to those who are customers or spectators. My hon. Friend the Member for Cambridge (Mr. Lane) clearly put basic points of public policy which arise from the situation. I want to summarise some of the arguments and reinforce the request to the Parliamentary Secretary for answers to these questions, because they are not merely matters for the private commercial judgment of the National Coal Board but are of public concern, for these are publicly-owned industries, responsible to the public and it is therefore justifiable that they should be publicly accountable.
So far as we know, there have been three tenders by the Board at below average costs—the tender for the Longannet power station, in Fife, the tender for Seaton Carew and the tender for Alcan at Invergordon. Although it has never been confirmed, rumour has it that the price has been around 3¼d. a therm for each of these three major power installations. Is that figure correct?
Assuming for the moment that it is, it appears that the average cost of mining coal in this country is 4.6d. This figure was given by the Minister in answer to a Parliamentary Question and has been confirmed by Lord Robens in his letter to my hon. Friend the Member for Hallam. As far as I can make out it is the case that the average cost is about 4½d.
§ Mr. J. D. Concannon (Mansfield)
To talk in averages is misleading. To say that there have only been three contracts at under average prices is misleading also because contracts are being made every day to sell coal to the C.E.G.B. at a far lower price than 5d. a therm.
§ Mr. Ridley
I will come to the discussion on averages and variations. These are exceptionally low offers. I may be wrong, but to my knowledge these are the only three offers which have been made at prices so greatly below the average cost of production. They represent tenders of approximately 75 per cent. of the average, which means that there is a very big element of price cutting here.
We also do not know for how long these tenders are current and the arrangements for "break" clauses. My hon. Friend the Member for Cambridge argued cogently that in the past, price increases due to wages or taxes or factors beyond the Coal Board's control have always falsified its costs estimates. It seems odd that it should have such confidence in making long forecasts of the prices at which it can stabilise coal.
We have a right to expect the Board at least to make public the prices at which it is offering this coal. This has been countered by the argument from the Front Bench opposite that ordinary commercial concerns do not necessarily make public the prices they tender for supplying goods. With respect to that argument, there is a totally different situation as between a publicly-owned industry and a private industry. We, the shareholders, the taxpayers, have every right to know what offers have been made by a publicly-owned monopoly such as the Coal Board.
It would be intolerable to find that one's competitors were getting coal at a cheaper price than oneself. The whole idea of publicly-owned monopolies serving the whole country makes it imperative that prices should be quoted in public and available for all to study. I do not say that they should all be the same, but they should be publicly quoted. The Iron and Steel Act, 1967, which is the only analagous Act, because steel and coal are the only two commodities in 1319 public ownership, as opposed to services such as electricity or lines, says in Section 5:The Corporation shall from time to time publish, in such manner as appears to them best adapted for informing the persons affected, and in such form as appears to them appropriate, notices containing prices which they propose should normally be charged in the United Kingdom by them and publicly-owned companies for iron and steel products. …So there is a statutory duty upon the Steel Corporation to publish its prices. We the representatives of the public, have a right to demand that the Coal Board's prices should be made public and that public tenders should be put in for any contracts for which the Coal Board wish to tender. We have a very distinct interest in stopping the Board from drifting into a further deficit, and unless we know the prices at which it is tendering, it is impossible for us to assess this.
It seems that my hon. Friend the Member for Cambridge was quite right when he said that the Board had a statutory duty, rightly or wrongly, not to discriminate. He quoted the relevant passage from the 1947 Act. That phrase,including the avoidance of undue or unreasonable preference or advantage …clearly means that the Board has a duty to offer the same prices, broadly speaking, to similar customers. This duty was recognised by Lord Robens when he came before the Select Committee on Nationalised Industries on 21st December, 1965. He said in column 41:Now the Act under which we operate does not permit us to give any undue discrimination to any buyer no matter what the quantity is, and it also prevents us from a commercial point of view from selecting our best and cheapest pits and supplying that cheap coal to that power station at the proper economic and commercial price.I have no less a witness in support of my contention that the Board has a statutory duty not to do what it is doing than the Chairman of the Board. I should like to know what has happened between 21st December, 1965, and now which makes Lord Robens think that he can do this, when two years ago he was of the opinion that he was prevented from doing so. To leave this matter to Lord Robens's conscience is not quite good enough. This House has a duty to make sure that Ministers and chairmen of nationalised boards obey the 1320 law, just as the humblest and most menial citizen has to do.
The fact that the Minister does not intend to intervene seems to me very wrong of him. If the law is being broken in this respect it is surely the Minister's duty to do something about it. There is certainly nobody else who can do anything about it. I am not going to sue the noble Lord because he has broken a statutory requirement on him; this is clearly not a matter for ordinary individuals. Therefore, I suggest that this apparent discrepancy between his statutory duty and what is happening needs a little more investigation and clearing up than the Minister has so far been prepared to afford.
I now come to the question whether this is the right policy for the Coal Board to pursue. We hear a lot nowadays about long-run marginal costing. That is the current catch phrase for what nationalised industries should do with their pricing. The White Paper Cmnd. 3437 contains the phraseThe aim of pricing policy should be that the consumer should pay the true costs of providing the goods and services he consumes …".It then deals with a very abstruse set of examples covering almost any conceivable price that one would want to charge in almost any conceivable set of circumstances.
But if we are going to use the argument of long-run marginal costing in relation to the Coal Board, the argument must surely run like this: The Coal Board is declining in output. It has these different pits producing at different costs, and as its output declines it attempts to close down the most expensive pits in order to concentrate production in the cheapest pits. If in the long run and at the margin it lands extra business, the effect of this on the Coal Board's pricing structure must surely be to cause it to keep open pits which it would otherwise have closed. Nobody will suggest that what the Coal Board would do would be to go on closing pits which were producing at something over the average, and sink new shafts and invest vast capital expenditure in order to produce coal from new cheap pits.
Undoubtedly, the effect of applying long-run marginal costing criteria to the Coal Board's activities would be that 1321 each extra million tons of production that it can acquire in the future it will acquire with more expensive coal. So, if we are going to use the long-run marginal cost argument, the argument works against making these low tenders. It would be better to rely on covering costs and on averages.
The two policies which are open to the Government are quite clear. Either they can say that they will cause the Coal Board to quote an average cost and supply coal at the average price to all corners; or they will allow some high-cost coal and some low-cost coal to be sold. But this is immediately going to cause the Coal Board to find markets for its high-cost coal.
I remember the uproar when the Coal Board decided to charge more for expensively-mined Scottish coal. There was a good deal to be said for and against that idea, but at least it had the effect of requiring the expensive coal to find its own markets, and therefore to justify the continued existence of the pits which produced it. But simply to find markets for the low-priced coal—the cheap coal—is bound to cause the Board difficulty in selling the high-cost coal which it admits that it is still producing.
I think I am right in saying that there are still about 36 million tons being produced at over 5d. a therm, so there is plenty of this high-priced coal about, and before we can sell the cheap coal we must find markets for that.
The problem is acute, because of discrimination. There is discrimination against the steel industry, as has been mentioned by my hon. Friend the Member for Hallam—and he of all people should know—and my hon. Friend the Member for Cambridge was right to stress this. Again, why should the electricity industry, which is by far the biggest customer of coal, sit back and pay 5d. a therm while it hears tales of tenders for 3¼d. a therm? Why should it not switch to oil if it is not to have the benefit of this cheap coal?
The Minister naively replied to a Question of mine to the effect that he had heard no official complaints about unfair advantage being given to the National Coal Board. If he has not he is fortunate, because I have. I have had a great number of complaints about this 1322 matter, and I know many people who would be happy to accept coal at 3¼d. a therm—and the C.E.G.B. is one of them. The Minister owes it to us to tell us what he is going to do about this.
At the moment the Prime Minister's pledge that there would not be a subsidy from the taxpayers or consumers of electricity if the Alcan deal went through does not sound convincing. We want from the Parliamentary Secretary a clear statement of the pricing policy for the Coal Board and what the discussions and consultations that he has been having with the Board have produced. The fact that he had held them makes it clear that he is worried, and that the door against which we are pushing has certainly been partially opened. But I want to open it fully and throw a little light on this dingy area of public enterprise, which is not entirely satisfying to those who follow these matters with care.
Would not this be a suitable subject to be referred to the Prices and Incomes Board? With a flourish of trumpets we have been told that all the nationalised industry price increases will be referred to the Jones Board. Would not this be just the sort of area where the clearheaded, free market, economic skill of Mr. Aubrey Jones would clear away some of the cobwebs and small anomalies and uncommercial activities which have been going on? Would not this be a first-class subject for the Prices and Incomes Board to reveal the truth about?
I do not know what prices have been offered, and what lengths of contract have been tendered for. The House has not been informed about this matter. But I suggest that the Consolidated Fund Bill debate is an ideal opportunity for the Parliamentary Secretary to tell us what is going on in this field, and I hope—because we all have the future of the coal industry very much in mind—that he can make it clear that none of these fears and worries are justified, and can reassure the public that there is no danger of something which we would not like to happen going on.
§ 11.45 p.m.
§ The Parliamentary Secretary to the Ministry of Power (Mr. Reginald Freeson)
I will endeavour to answer most, if not all, the points which have been put. I shall do so as concisely as 1323 I can, as I am sure the House would wish at this time of the night.
I must confess I found some difficulty, not for the first time, in following the speech of the hon. Member for Sheffield, Hallam (Mr. J. H. Osborn). I always find it a little easier to read his speeches afterwards, and cogitate on what he was saying, for he tends to overload them with a long series of statistics, so that it is a little difficult to see the argument—for the trees, if I may put it that way. However, as far as I was able to make out, he seemed to be making some rather contradictory pleas. He was advocating at one stage, it seemed to me, that cheap coal should go to particular areas such as the vicinity of his constituency, and to industries other than aluminium smelting, which has come into the debate so much. At the same time he suggested, I gathered, that this was in conflict with the White Paper on the financial objectives of the nationalised industries. I gathered that in the opening stages of his speech he was complaining about high averaging of coal prices to the Central Electricity Generating Board. However, the letters from the National Coal Board, which he quoted quite correctly in full, contradict this general complaint to a large extent. I shall, perhaps, come to that again a little later.
§ Mr. J. H Osborn
The Minister mentioned that there was a conflict between the target in the White Paper and making cheap coal available. There should be no conflict. If there is a conflict between one user and another, and if, overall, the industry does not meet its yardsticks, there is a need to question the basis of pricing policy in the future.
§ Mr. Freeson
I thank the hon. Member for that, because that was precisely the answer I was going to give to his query. I am not saying there was a conflict. I was quoting the hon. Member, who suggested that there was a conflict, I gathered, by the way he was putting his point. I would have given him the reply which he has now given himself. So that is one complaint or query which, I trust, has been stilled.
He also complained, I gathered, about failure to supply cheap power to firms, not aluminium firms, and quoted a letter from the Electricity Council, which 1324 showed that cheap power was being supplied to other firms, apart from aluminium smelters. Those were the two or three main points the hon. Member was seeking to make—I think I have got them correctly, through the statistics—which I found, I think justifiably, to be contradictory. It may be that the constituency points which he was quite rightly seeking to make did not gell with the general point he was seeking to make. I am not quite sure why this should have been so.
I had a number of questions put to me by the hon. Member for Cambridge (Mr. Lane), and I will go through them as specifically as I can. He asked do we still stand by the undertaking which the Prime Minister and the Minister of Power have given that there is no subvention or subsidy involved in the contract or offer which has been reported in regard to Alcan and the N.C.B.? The answer is, Yes. It has been given on more than one occasion. The same answer still stands: there is no subsidy involved. The price is low. I must resist the pleas made tonight and say I am not prepared to discuss on the Floor of the House details of a commercial offer by the N.C.B. in this case or similar cases elsewhere. Perhaps we can come back on this in a few moments.
This led to the subsidiary question, if there is no subsidy, how do we explain the avoidance of a contribution towards a possible deficit? If that was the effect of the question, it was rather hypothetical. To a large extent, it has been answered by the hon. Gentleman's intervention, which was ahead of me in giving the same answer.
When we talk about the annual returns, we are concerned with the whole industry. This does not prevent an area of commercial freedom to negotiate special contracts, to which I hope to return in a moment. In other words, one cannot single out the issue of Alcan, for example, and say that if long-run costs are to be negotiated without a subsidy, this surely must help produce a deficit. One has to look at the operations of the industry as a whole, and not consider merely one offer which has been the subject of recent discussion.
The second main question asked if we stood by the N.C.B. in its broad estimates 1325 about future trends in coal pricing as a result of changes in the industry. I should have thought that that was an unnecessary question, because the White Paper slates the position. We stand by the broad trend estimates of the N.C.B., subject to the achievements already in hand inside the industry which have been discussed in the House on more than one occasion in the last twelve months.
The third main question was how the policy represented by the Alcan offer tallied with the statutory responsibility of the N.C.B. to avoid undue preference. Since, understandably, this was a point to which hon. Members came back to several times in their remarks, it will be as well to deal with it at some length so as to have the issue clearly stated on the record.
The N.C.B. has a clear statutory responsibility in the matter. It is not the responsibility of the Department as such. Under the 1946 Act which nationalised the industry, there is a statutory duty on the Board to supply coal'… in such quantities and at such prices as may seem to them best calculated to further the public interest in all aspects, including the avoidance of any undue or unreasonable preference or advantage.The Board's policy must be directed to securing that… the revenues of the Board shall not be less than sufficient for meeting all their outgoings properly chargeable to revenue account on an average of good and bad years.
§ Mr. Ridley
Would the hon. Gentleman assure the House that these offers do not contain any undue or unreasonable advantage or preference?
§ Mr. Freeson
If the Government thought that there was undue preference or unreasonable advantage, they would take the appropriate steps. We do not believe that to be the position. I think that we have made our views on this clear in a previous debate.
§ Mr. Freeson
I have answered that question on more than one occasion. It will not vary, and the hon. Gentleman will weary himself and not me by asking the same question, because he will get the same answer.
1326 To continue with this statement about the position concerning the N.C.B.'s pricing duties, the Board aims to sell coal at prices which will cover costs, provide for the replacement of fixed assets at current prices, make such further contribution towards the financing of capital investment as may be agreed between the Board and the Government, and make the best use of its assets.
Concerning the undue preference aspect, as with other nationalised industries—and it would not be wrong to apply the same point to other large privately owned industries—the formal price structure for coal is a guide, not the sole determinant. The Board operates in a competitive market and it should have commercial freedom in negotiating contracts. Prices may vary according to the source of supply, and any special factors, such as the length of contract, size of market, stock surpluses and transport economies must also be taken into account or are likely to be taken into account in particular negotiations.
One of the difficulties of coal pricing is determining what criteria should be used to define "public interest" and "undue or unreasonable preference or advantage". The Board is statutorily responsible for this, not the Government. But clearly we must be aware of the criteria. It was for this reason, after a good many years since the industry was first nationalised and the framework laid down, that the Minister indicated recently in Parliament that consultation was to be initiated with the Board on the principles involved in its pricing structure. This is inevitably a complex matter and it will take some time to produce the results.
The future general level of prices has been referred to by hon. Members. These will depend upon the success of the N.C.B. in dealing with costs. This issue has been discussed frequently in the House and elsewhere. As I indicated earlier, we go along with the Board in believing that it will achieve success in this matter.
§ Mr. Ridley
As the Board's Chairman does not believe it is legal to do what it is doing, how can the hon. Gentleman be so complacent and smug about the whole situation?
§ Mr. Freeson
I assure the hon. Gentleman that I am not complacent. I will no doubt get hold of the report to which the hon. Gentleman referred and I will read it with great interest in its full context. No doubt the hon. Gentleman will return to the subject on a future occasion.
I fear that one of the troubles here is that the hon. Member for Cirencester and Tewkesbury does not do sufficient homework. What is more, he is not listening with sufficient care to some of the facts which have been adequately dealt with by other hon. Gentlemen behind him.
The hon. Member for Cirencester and Tewkesbury referred to Longannet, Invergordon and Seaton Carew as the only cases where offers below the average cost price had been made by the N.C.B. I do not think I am doing him an injustice in putting it like that. He asked why. The answer is that it is an ill-founded question, because it is not correct. The information quoted by the hon. Member for Hallam showed this. I have a copy of the letter from which he was quoting. To be specific, he quoted a letter from the Chairman of the N.C.B. which said that there were 12 million tons of coal on sale to the C.E.G.B. at under 3½d. a therm. That is one example. I could give others, but I do not intend to repeat the details of the correspondence. The hon. Gentleman must listen very carefully to his hon. Friends.
§ Mr. J. H. Osborn
I apologise for jamming too many statistics into my speech. The hon. Gentleman explained earlier that he had difficulty in absorbing the lot, so I hope that he will forgive my hon. Friend.
§ Mr. Freeson
An admirable defence.
The hon. Member for Cirencester and Tewkesbury said that this was the only industry which was not required to publish all its special prices. He has said this on previous occasions. He quoted steel as an example, and referred to the nationalisation Act. The steel industry is not required to publish all specially negotiated prices, and rightly so. As he knows, there has been an inheritance of specially negotiated prices, and no doubt, as one would expect in an undertaking of this kind, they will continue to be 1328 negotiated. The same is true of other nationalised industries and private companies.
§ Mr. J. H. Osborn
I raised this in connection with electricity, and referred to a letter, but there are a number of large industrial users. The N.C.B. has a large number of industrial users. The ground rules are known, even if the specific prices are not. Will the hon. Gentleman reconsider this and give some indication of the basis on which commercial contracts are reached, without necessarily divulging the detail of each contract?
§ Mr. Freeson
Having said that we are in consultation with the industry, I do not think that it would be right at this stage to go further than to refer to the Act and also to the White Paper on financial objectives which lay down, if not specific ground rules, certain guide lines and principles on which pricing policy decisions should be based. For the rest, we must await the outcome of the consultations. I cannot go into that tonight.
§ Mr. J. H. Osborn
The hon. Gentleman is lifting the veil and giving some indication of what is going on. What form is the consultation taking? We do not know very much about it. Will the hon. Gentleman elaborate on that?
§ Mr. Freeson
I have not announced anything new tonight. On a previous occasion my right hon. Friend said that consultations are going on. When these are complete, the results will be considered by the Department. I cannot go into these now, and I have said that I am not going to.
The hon. Gentleman made some play of long run marginal costs. Having said that this was the policy, and having quoted from the White Paper, he then asserted that the operation of prices on this basis meant that expensive coal would be used, and that there would be a slowing down in the reorganisation of the industry. Assertion is not an argument. I did not follow the hon. Gentleman's reasoning. It struck me as being a non-sequitur. I could quote examples of not basing prices on long-run marginal costs. We might seek to ensure a long-term market related to future estimated average prices. This is one factor which might be taken into account.
1329 I think that I have dealt as fairly and as reasonably as I can with all the questions and points which have been put to me.
§ Mr. Lane
Will the hon. Gentleman say something about a point which was raised earlier, particularly as he has wrapped around himself this veil of commercial secrecy. I am referring to the Board's offer to Alcan. Will he assure us that when the Board next publishes its annual report it will give a full account of the reasoning underlying its pricing policy?
§ Mr. Freeson
I am not sure about the term "reasoning". The principles on which the Board operates, subject to the consultations which we have discussed, are laid down in the Act, and in the White Paper on "Nationalised Industries—A Review of Economic and Financial Objectives". I have said more than once that we do not intend to state on the Floor of the House the details of these commercial contracts. This is not a new policy. It would be no more right to give those details in respect of the N.C.B., or any other nationalised industry, than it would be to expect this kind of publication by large-scale, or indeed small-scale, private enterprise. I do not see—[Interruption.]—I know what the hon. Gentleman has in mind. I do not see why there should be such great advocacy of this for the N.C.B. and not for the oil industry, for example. The hon. Member is thinking of public accountability. But no industry in this country is publicly debated and examined to the extent that the nationalised industries are. There is no cause for complaint about this against the background of our whole economy.
§ Mr. Lane
The hon. Gentleman is slightly beside the point. I am riot urging him to give details of the Alcan contract tonight. We understand that until he has made a decision he cannot do this. But in view of the importance of the pricing policy over the whole of the Coal Board's activities, we have been told far too little in its past Reports about it. We are asking that it should be more forthcoming in future Reports. I am sure that much more is known about the oil industry's general pricing policies than the Coal Board has up to now published about its own.
§ Mr. Freeson
I have nothing to add to the answer I have given more than once to this question tonight and on a previous occasion.