§ 8.31 p.m.
§ The Under-Secretary of State for Development, Scottish Office (Mr. George Younger)
I beg to move,That the Electricity (Borrowing Powers) (Scotland) Order 1971, a draft of which was laid before this House on 8th June, be approved.The draft Order would raise the limit on the borrowing powers of the Scottish Electricity Boards from its present level of £700 million to £800 million, the maximum provided for in Section 47(7) of the Electricity Act, 1947, as amended by the Electricity (Scotland) Act, 1969. This limit applies to the combined total of the outstanding borrowings of the two Scottish Electricity Boards, including any borrowing in foreign currency under the Gas and Electricity Act, 1968.
The Explanatory Memorandum which was published in October, 1968 with the Scottish Bill explained that the limit of £800 million was estimated to meet the Boards' net borrowing requirements to 31st March, 1975. To ensure that Parliament would have an opportunity of reviewing the Boards' progress during the period, the Bill prescribed an interim limit of £700 million beyond which the Boards would not have power to borrow unless the Secretary of State made an Order, subject to the approval of the House of Commons. In the debate on the Bill it was stated that this interim limit was expected to be reached in 1972. This limit is now likely to be reached in the second half of this year, and it gives us a slightly earlier opportunity than expected to review the Scottish electricity position.
The efficient planning and the continued expansion of electricity resources are essential to the economic growth of Scotland. To maximise efficiency, the forward planning of new generating capacity and the operation of the stations are undertaken as combined exercises by the two Boards. This gives the greatest benefit to Scotland as a whole and it means that the investment in a particular generating station is not solely to meet the needs of the Board responsible for building the station. For this reason the investment and borrowing requirements must be looked at from the point of view of the overall needs of Scotland.
130 The rate of increase in the demand for electricity in Scotland has fallen considerably during the past three years and the rate of growth in future years is now expected to be rather lower than was estimated in 1968. This is the general experience throughout Britain. This has brought reductions in the transmission and distribution investment programmes of the Boards which have more than compensated for changes in price levels which have taken place. Investment in generating stations, which take five to seven years to design and build, is not, however, so susceptible to short-term adjustments and current capital expediture is mainly on stations which were either under construction or in the final planning stage in 1968. These, of course have been affected by subsequent cost increases. The capital requirements of the Boards in the four years to 31st March, 1972—now estimated at £325 million—are therefore expected to be about £23 million higher than the 1968 estimate. This together with a fall of £28 million in the sums available from internal resources—that is lower profits—has meant that borrowing in the four-year period will be some £51 million more than expected.
The reaching of the £700 million limit rather earlier than expected can, therefore, be attributed to the inflationary situation which has troubled all sectors of the economy and has resulted in both higher capital costs and in a lower level of self-financing. The 1968 estimates were based on prices ruling at that time and made no allowance for any price increases. The effect of these, unfortunately, may be increasingly pronounced in future years. Moreover, as considerable sums of retention money on construction contracts are due to be paid during the next financial year, it is unlikely that the £800 million final limit fixed by the 1969 Act will last beyond the end of 1972. The draft Order, therefore, provides for the extension of the limit to the statutory maximum of £800 million and it will probably be necessary for the Secretary of State to introduce legislation next Session fixing a new limit.
As I have said, the increase in the estimated borrowing requirements of the two Boards is due mainly to the effects of the inflationary situation which was inherited by the present Administration and which they are determined to get 131 under control. It is affecting every part of the economy, both private and public, and it is perhaps a useful reminder to those who would press for a relaxation of the Government's efforts to see before them examples such as this of the way in which efficient management can be frustrated by this inflationary spiral.
The Scottish Electricity Boards are, rightly, very proud of their record in improving productivity and efficiency. Productivity payment schemes have been pressed forward at maximum speed with highly successful results and I am assured by both Boards that this will continue. The Boards are very well advanced in this field, but even they cannot in this way absorb cost increases of recent levels.
To have met these higher costs and at the same time to have maintained the estimated level of self-financing would have required tariff increases of an unacceptably high level which would themselves have added to the inflationary spiral. It was for this reason that the Boards were asked, when framing the tariff increase proposals introduced in February of this year, to take full account of the Government's view that in existing circumstances price increases should be kept to a minimum. Both Boards have had two tariff increases during the past year. In its annual report the South Board mention that a period of stability of tariffs is desirable and that for this reason-although 1971–72 will be a loss-making year—the Board would prefer to make no immediate move towards a further increase in tariffs.
It is our policy as a Government to avoid as far as possible intervention in the internal and day-to-day management of the nationalised industries. I am satisfied that both Boards are doing everything possible to meet the present difficult situation and to supply their consumers as efficiently and cheaply as possible. Their need for the extension of the present limit to £800 million is beyond doubt and I ask the House to approve the Order so that the Boards can be provided with the funds necessary to carry out their important functions on which the economic and social welfare of Scotland depends so much.
§ 8.38 p.m.
§ Mr. Dick Douglas (Clackmannan and East Stirlingshire)
Perhaps the Minister 132 would answer a few questions before we pass the Order.
As the Minister explained, the Order raises the borrowing limit, but he has not indicated the level of borrowing by the two Boards. I understand that it is well in excess of £600 million. One of the anomalies of the total borrowing of the two Boards is the large percentage of borrowing in relation to demand emanating from the North of Scotland Board. I estimate that 39 per cent. of the total borrowing commitment arises from the North of Scotland Board. Could the Minister say a word about the reasons for that? I have my own views.
The North of Scotland Board is engaged in a highly capital-intensive enterprise. We ought to congratulate the Board on its policy of expanding demand in the area, on its social purpose, and on its policy to assist in promoting the attraction of industry to its area. I should like to hear comment from the Minister on the amount of borrowing in which the North of Scotland Board is involved, in particular, with reference to its work in connection with the aluminium smelter at Invergordon. I know that the bulk of the supply there will come from Hunterston B, but the transmission costs will come to the North of Scotland Board.
The Minister made one or two points which are of interest not only in connection with the Order but in connection with electricity supply in Scotland generally. Although my constituency does not cover the power station at Longannet, a number of my constituents work in the mines supplying coal to that station. During the weekend, I had representations made to me about the failure of some of the turbo-generators there. The South of Scotland Board is involved in costs in this connection, and these are of relevance in considering its borrowing requirement. These failures are an embarrassment to the Board, and I should like to know what sort of contracts the Board has concluded with its suppliers and whether there are clauses in the contracts allowing the Board to recoup any losses caused, in part, by the failure of materials supplied to it. The Board itself ought not to be embarrassed, and its consumers ought not to be indirectly embarrassed, particularly when there are inflationary pressures in society generally. It ought not to suffer 133 further embarrassment due to additional costs brought about by the failure of certain suppliers to meet agreed specifications and standards of performance.
The Minister rightly pointed to the remarkable achievements and improvements in efficiency of both Boards. The Boards have to meet certain targets of return on their assets specified by Governments of both parties, although the North of Scotland Board's target is of a somewhat different type. One of the reasons for the failure to meet these targets has been excessive inflationary pressure. But the Minister seemed to suggest that the inflationary pressure might have come from one of two sources, perhaps the inflationary effect of wage claims or, on the other hand, excessive prices of raw materials which the Board uses to produce its final product. He did not mention that the cost of money has been rising, but this is an important factor outside the Board's own orbit.
It is proposed to raise the borrowing limit, but it is to be raised in the context of high interest rates prevailing in the economy as a whole. The return on net assets is made up of three components, depreciation, interest, and additional profitability. On this basis, it seems to me that the South of Scotland Board should, in general, be reaching about 12.5 per cent., but its inability to reach this figure is due partly to high interest charges, and especially so in relation to what it has to bear in capital construction before it takes its product to the grid. We can argue about this. We must concede that if the interest charge rises it might be part of the Government's policy to make certain allowances for that in the Boards' targets. But the inflationary pressures are not wholly of the Boards' making; they relate to the Government's overall strategy.
The Minister has said that we are bouncing about near the ceiling of £700 million. I understand that the ceiling of £800 million about which he spoke tonight will last only until 1973–74. The Boards cannot assess demand merely for a year or two ahead. They must look seven years ahead. Demand management, particularly of electricity, relates directly to the growth of the gross domestic product.
134 It is a serious thing for the Minister to acknowledge that we are likely to be bouncing about at the ceiling. A Board can be embarrassed in two ways. If the growth of the G.D.P. exceeds its target it is likely to find itself with insufficient supply to meet eventual demand, which can be very costly to it, but if the growth of G.D.P. is less than its target it is still caught, because its assets are not being fully deployed. Therefore, whilst the Minister rightly emphasises the responsibility of the Boards for day-to-day management, the economic atmosphere in which they operate is conditioned by the Government overall.
I should like an indication from the Minister whether the Boards are being given sufficient assurances that the Government's growth target, particularly for the Scottish region, will be met. There is no evidence that the rather meagre growth target set by the present Government will be met. What discussions is the Department having with the Scottish Boards to give them some assurances about future capital investment? If they are to be allowed to borrow, it is very important not to place an exorbitant charge on the public purse by embarrassing them at the end of the day, by having allowed them to create assets which are not fully deployed, because of the Government's economic policies.
The Boards have had an insufficient allowance for self-financing, partly because of the inflationary pressures within the economy, which show no signs of lessening. The Minister's remarks gave no hope that he will assist in creating an atmosphere in which those pressures on the Boards will be lessened. If they get into difficulties in meeting the onerous targets they have been set, particularly the South of Scotland Electricity Board, will the Government immediately step in to give them some assurances that there will be no restriction on their necessary capital expenditure because of excessive inflationary pressures?
The Boards are entitled to borrow in foreign currencies. We can get some indication from its annual reports of the foreign currency borrowings by the North of Scotland Board, but a cursory glance at the balance sheets gives no indication of the foreign currency borrowings by the South of Scotland Board. My right hon. and hon. Friends who are suspicious 135 about entry into the European Economic Community can see here a welcome example of public corporations having crossed barriers, presumably because of more favourable rates of interest on the Continent. I imagine that one of the reasons why they chose to borrow on the Continent—although the relatively small sum of about £3 million in all was borrowed by the North of Scotland Board—was that the rate of interest prevailing on the Continent was lower.
§ 8.50 p.m.
§ Mr. Adam Hunter (Dunfermline Burghs)
I intervene briefly. It was customary when we had these debates in the cosy confines of the Scottish Grand Committee to make much longer speeches. Tonight, however, I am here to impress upon the Minister the need to recognise the changed position in the coal mining industry, not only in Britain as a whole, but in Scotland in particular. I suggest that he should impress upon the South of Scotland Electricity Board that coal is on the way up again and that he should do his best to impress upon the Board to make the main use of coal in the production of electricity in Scotland. We have heard over a number of years that coal was not competitive with oil, but I think it is now widely understood that coal can stand on its own against oil. I sincerely hope that the Minister will take note of this and impress it upon the Board at a suitable opportunity.
The purpose of my intervention is to follow my hon. Friend the Member for East Stirlingshire (Mr. Douglas) concerning Longannet power station. I put down a Written Question last week to the Secretary of State for Scotland asking the reasons for the cause of the breakdown and what would be the result. The Secretary of State was able to tell me that it would be nearly the end of the year before two of the generators were ready for use again and that it would not be until later, perhaps early in 1972, that the third generator would be ready for use. This would seem to me to be a very costly business and I am sure that the limit of borrowing which has been brought forward tonight will not be sufficient, because I understand that the cost of meeting the breakdown will be very heavy.
136 It has been said—I do not know whether it is correct—that no one at the power station, where many people work, will be out of a job. This means that this body of men will be employed throughout this period without any production. It was also pointed out in answer to my Question that the supply to consumers in Scotland would not be affected. I sincerely hope that it will not be affected, but I cannot understand how a breakdown at the power station, which has been operating for almost a year, will not affect the supply to consumers.
I also raised in my Question the important matter of cost. I asked the Secretary of State for Scotland whether he would not initiate a public inquiry into the cause or the reasons for the breakdown. The Secretary of State replied that he felt that a public inquiry was not necessary at this time. In my view, an inquiry of some kind is necessary because, with my hon. Friend the Member for East Stirlingshire, I feel that this will be a costly affair. After all, someone must be to blame for the three generators breaking down, and I feel that it can only be the supplier. I therefore ask the Minister to ask his right hon. Friend to institute an inquiry into the causes of the breakdown of the three generators at Longannet power station.
§ 8.55 p.m.
§ Mr. Alex Eadie (Midlothian)
The Under-Secretary will not expect any prizes for guessing the subject which I wish to raise. I thought that it might be easy to mention the coal industry in the course of the debate, but little did I dream that we could become involved in the merits of joining the Common Market. My hon. Friend the Member for East Stirlingshire (Mr. Douglas) knows that I am one of those who are sceptical about what he suggests will be the wonderful results to be obtained from joining the Common Market.
The South of Scotland Electricity Board is somewhat out of date and it must realise that coal now enjoys a seller's market and that the propaganda in which the S.S.E.B. is engaged does not do the indigenous industry any good. It must appreciate that is a seller's market not only for coal but for oil. No Minister can promise that oil supplies will be safeguarded, or that there will be price 137 stability. The S.S.E.B. should adopt a more modern approach when it draws comparisons between the prices of coal and oil. The "knocking" of coal is out of date, and the sooner that is understood, the better.
I apologise to the Under-Secretary for not being here when he began his speech; I was detained elsewhere. He spoke about the cost element. He will recollect that my hon. Friend the Member for Edinburgh, East (Mr. Strang) and I took part in an Adjournment debate when in the time available to us we drew attention to the S.S.E.B.'s proposal that the Portobello coal-fired power station should be converted to oil-fired.
Portobello power station is in my hon. Friend's constituency and he argued a valiant case which was much appreciated by his constituents and by the miners. He and I have a joint interest in that the jobs of many miners are involved. We are talking about 1,200 or 1,300 jobs when the unemployment situation in Scotland is uncertain. With the state of the Scottish economy, we can ill afford to lose that many jobs, and the cost element argument of the S.S.E.B. does not stand examination. That is why I said that it was out of date. The men affected work at pits such as the Lady Victoria and the Whitrigg pit in my constituency.
During the Adjournment debate, the Under-Secretary said that he was considering the facts and figures, and he admitted that the case for continuing coal-firing was probably stronger than that for converting to oil-firing, because of the present world situation.
Since this Order is concerned with vast capital sums, I hope that the hon. Gentleman will give some consideration to this matter before he replies to the debate. The decision is awaited anxiously. One might be forgiven for thinking otherwise in view of recent temperatures, but we shall be passing shortly from summer. At this time of year, in view of the lack of job opportunity in Scotland, it is unfair that there should be any doubt about the future of 1,300 jobs there. I hope that the hon. Gentleman will be able to assure the House that this mad suggestion of the S.S.E.B.—made in economic terms—is a non-starter and that the jobs which are in peril in the area will be safeguarded.
138 The hon. Gentleman may also wish to comment on the situation at Inverkip. Some years ago, there was considerable optimism about the fact that Inverkip power station would be oil-fired. Despite the doubts of a number of hon. Members, we were told that there would be an oil bonanza and that price stability was assured. I hope that the hon. Gentleman is in a position to say that he has received assurances about the availability of oil supplies to Inverkip. At the time, we were told that the station had to be oil-fired because of the non-availability of coal and the cost factors involved. In the recent Adjournment debate, I gave figures to show conclusively that the cost factor element is rapidly disappearing. I hope that the hon. Gentleman will comment on the present position. Are oil supplies to Inverkip assured, or is there any question of a change of mind because of the introduction of new factors arising in the altered world situation?
I return, however, to what is probably the most important point. I hope that the hon. Gentleman can assure the House that the 1,300 jobs in doubt in relation to the Portobello station are in fact perfectly safe, in the interests of the miners in the area.
§ 9.3 p.m.
§ Mr. Arthur Palmer (Bristol, Central)
I, too, must apologise to the Under-Secretary of State for not being here when he introduced the Order. I hasten to say that it was not because I have been in Scotland. I have been in Bristol. I must also apologise, as Englishmen do on these occasions, for intervening in a Scottish debate, though there is no reason why I should since my interest in electricity is fairly well known to hon. Members.
In March of this year, there was an Electricity (Borrowing Powers) Order for England and Wales; in other words, for that part of the nationalised electricity supply industry south of the Border which comes under the general supervision of the Electricity Council. I had an opportunity to take part in the debate on that Order, and I made three principal points.
The first was that the amount extra required to be borrowed was extremely moderate for the electricity supply industry generally and that the fact that it was moderate was no cause for congratulation since the electricity supply industry is peculiar in the sense that it tends to 139 reflect, almost in a straight line relationship, the prosperity of industry generally. If electricity does not require so much capital for the future, it is because the economy generally is much more restrained than it should be.
The second point was that in terms of return on capital, in terms of numbers of industrial, technical and clerical staff employed in proportion to capacity or kilowatts installed, and in terms of relative price levels, the electricity supply industry was extremely efficient.
The third point was that this efficient public utility gives excellent service to the nation. If it is now in danger of being forced into deficit, as is the South of Scotland Electricity Board, it is not the fault of the industry, but the arbitrary enforcement of Government policies, often against the best judgment of the industry. I propose to concentrate my remarks on that point, taking as my illustration the S.S.E.B. rather than the North of Scotland Electricity Board.
I have studied the last annual report of the S.S.E.B. It is obvious, though it is not put in direct terms, that the Board, in the guarded language which it uses, is deeply hurt and indignant at the treatment that it has received from the Government. The S.S.E.B. shows up in cold concentrated reality the practical effects of the confusion, the ambiguity and the indecision of the Government's policies towards all the nationalised industries. This, more than any previous Conservative Government, is a Government of doctrine. They appear unable to make up their minds how far, if at all, the nationalised industries fit their theories. They are often in the position that they cannot live with the nationalised industries, nor can they live without them. They cannot decide just how mixed the mixed economy should be. On the other hand, the Government state that the nationalised industries must be commercially motivated.
§ Mr. Deputy Speaker (Miss Harvie Anderson)
Order. The Order is very limited. I hope that the hon. Gentleman will restrict his remarks to what is contained in the Order.
§ Mr. Palmer
I am obliged to you, Mr. Deputy Speaker, for your warning. 140 I shall do my best to keep within the bounds of order. However, without going too wide, it is interesting to see how the S.S.E.B.'s difficulties reflect the problems which have been brought about for all the nationalised industries by the Government's policies. Subject to your Ruling, I should have thought that that point was perfectly fair.
If, as one might suppose, the Government's policy is that the nationalised industries, including the S.S.E.B., should work on commercial trading lines, then their policies have made nonsense of that proposition so far as it affects the South of Scotland Electricity Board. First, the Government have interfered with the Board's price policies. This is clear from the Board's last annual report in which, on page 2, it says :When eventually the new tariffs were introduced … the increases were smaller than what was strictly demanded by the situation.That followed discussions with the Government, because the Board says in its report :Before finally determining the extent of these essential tariff increases the Board had to give consideration to the views expressed by the Government …".I suggest that it is not fair to the Board, any more than it would be fair to any other electricity board, that it should be told, on the one hand, to follow commercial considerations, while on the other the Government, without being frank and open enough to give a specific direction, influence it to keep its prices lower than it should do on strict commercial lines.
Second, the South of Scotland Board—like the Central Electricity Generating Board south of the Border—is restricted in its liberty to choose its own fuels. Third, the Government are investigating the Board's profitable contracting and consumer utilisation activities. For those reasons it is impossible for the South of Scotland Board to work on commercial lines at all.
In the matter of price policies, in the last two decades—and this point is made in the report—it is interesting to note that electricity has risen in price, in real terms, by only about one-third of the general rise in prices. That is a remarkable achievement, and when the Board proposed certain adjustments it 141 was not because its prices had been excessive in the past. In fact, it was the other way round. In terms of sheer price level, even against the other electricity boards in the United Kingdom, the South of Scotland Board comes out very well.
In the matter of the choice of fuels, it has been the general contention of the electricity supply industry that if electricity prices are to be kept at a reasonable level, not only in relation to particular industries, and not only in relation to other fuels used by its competitors in this country, but also in relation to prices that are charged for industrial energy in other countries which, internationally, are our competitiors, and where price enters into the cost of the product, it should be allowed to choose freely between the various primary fuels that are available. These are, coal, oil, nuclear fission and, if I dare mention it, natural gas. I hold the view that the electricity supply industry should be free to use natural gas, in the same way as any other industrial plant is, if it is prepared to pay the going rate.
There are many reasons why the electricity supply industry should always show a bias towards coal, because it is still its first primary fuel, and unless it looks upon the coal industry as a necessary prop to its existence things would be difficult for it. The view that I take—and it is shared by the unions—is that if the coal industry, as most of us would expect, for social and other reasons, requires a subsidy, it should be paid out of general community funds, and not out of the revenues of the electricity supply industry by overcharging for fuel.
It is also particularly hard on the electricity supply industry that, while the gas industry gets its fuel oil free of tax, it has to pay a considerable amount of tax. In its last year of working, the South of Scotland Board had to pay more than £2 million in tax, while its close competitor, the gas industry, got off literally scot free.
I should be interested to hear from the hon. Member what the Government propose to do about this, if anything. I must be fair about it, and point out that the previous Government, which I supported, also did little about it. It would be interesting to know whether the Secretary of State, in collaboration with other Ministers, proposes to make a change now.
142 I have referred to the foregoing interferences with the reasonable commercial freedom of the electricity supply industry. I have in mind finally the suggested proposal, still going the rounds within the industry, to hive off the more profitable contracting and utilisation activities of the boards. The South of Scotland Electricity Board—I know this without having to be told it by any public relations officer; I have much sounder information resources—has had to make a report to the Government, presumably through the Secretary of State, from its point of view, about the possibility of separating from the Board's own normal finances its contracting and utilisation activities.
Traditionally the electricity supply industry has always consisted of generation, transmission, distribution and utilisation. That is the way that it has evolved and developed. The contracting and utilisation activities operated by electricity undertakings did not date from nationalisation; they go back to the days of municipal and company undertakings.
In those circumstances it is very hard that electricity boards such as the South of Scotland Board, struggling against the dead weight of Governmental policies generally, should have this time-wasting interference with their right to do something they have always done. I suggest to the hon. Member and those of his colleagues who think about these things south of the Border that it would be very interesting. if the Scottish Electricity Boards, in collaboration and conjunction with Electricity Boards generally, took a poll of their consumers to find out whether they agreed that the Boards should not in future carry on these utilisation activities. I believe that the consumers would say, "Certainly not a change; they should be allowed to carry on as in the past!"
When the consumers are dealing with an Electricity Board they know they are dealing with something solid and reliable. If work is not done correctly, or is not maintained at a proper standard, they can return to the Electricity Board; it does not disappear. If the consumers are handed over to the tender mercies of private contractors they will be very much worse off in general and they know it.
I put that point forward seriously. It is the first time that I have had the opportunity to do so. If they think that these 143 policies will meet with the general approval of the population the Government should be bold enough to give the Boards freedom to take a local consumer poll on the matter. It would be to have the courage of their convictions.
§ 9.18 p.m.
§ Mr. George Lawson (Motherwell)
I, too, must apologise to the Minister for not having heard his opening remarks. I have no excuse. I have been in the House all the time. I did not notice the annunciator showing that the Minister was on his feet and that the subject had been raised. I hastened in when I saw it on the annunciator, but I was much too late.
I want to make a point from an angle different from that referred to by my hon. Friend the Member for Bristol, Central (Mr. Palmer). He has been talking about the need for the South of Scotland Electricity Board to operate under reasonable commercial considerations or criteria. It seems to me that that Board is operating under criteria that might be regarded as rather questionable—utilising its monopoly power to do things that many other industries or firms might like to do but are unable to do. I am referring to the practice of charging a deposit before supplying electricity. This relates closely to the question whether the Board requires more borrowing powers or can generate more money itself.
I can see the Board's case. It claims to have considerable bad debts—I think about £400,000. It has adopted a practice which in my area has caused considerable feeling among social works departments. When someone falls into debt and the department is prepared to help him out, the Board demands not merely the outstanding amount but a considerable deposit in addition. The social works department either says that it can do nothing or has to find the extra money. In one case, it was a large sum relative to the actual debt. The task of the social works departments was made more difficult. Unfortunately, there are many bad payers, and some measures must be adopted, but on the occasion with which I was concerned and about which I wrote to the Chairman of the Board, the terms were pretty harsh.
There is also the practice of charging a deposit to a newcomer. When a young 144 couple move into an all-electric flat, they have to put down a deposit perhaps of six months' estimated expenditure. I wonder whether this practice is acceptable to the Minister. I should like to know under which powers this is done, whether it is a forced loan without interest and whether the money can be paid by instalments. What are the practices elsewhere? If other Boards with the same problems are not engaging in these practices, why should the South of Scotland Electricity Board get away with this and have the practice endorsed by the consultative committee? I support my hon. Friend the Member for Bristol, Central. We have had the voice of the miners' representative and that of the ex-electricity worker. I am neither, so, representing a steel constituency, perhaps I can adjudicate fairly easily.
This Report, and an excellent Report it is, the Report and Accounts of the South of Scotland Electricity Board, is a cry of protest at the continuance of practices which no normal commercial firm would be expected to put up with. It shows how in a whole range of ways the Board is made to suffer. I want to be fair to the Under-Secretary, and I am not picking on his Government, because I recognise that my Government, too, followed practices comparable with those which the present Government are following. The practices of the one Government and the other are not very different, though it may be that they are a little more intensively followed by the present Government, and followed a little more under cover, the present Government not being so open about them. Perhaps the Under-Secretary will tell us a little about that. However, there is tight control of prices and the failure to take account of increased costs, which have been very substantial.
My hon. Friend the Member for Midlothian (Mr. Eadie) talked about coal now being in a seller's market. The S.S.E.B. will say it has been made to pay through the nose. Let us not put it that way. I had better say that it has been made to pay very substantially more for coal.
§ Mr. Adam Hunter
My hon. Friend is looking at last year's Report. There have been dramatic changes since then, particularly with oil-producing countries demanding more for their products.
§ Mr. Lawson
I am not arguing for or against that, but, on the basis of last year's Report, why has the Board found it necessary to come to this House and to ask for increased borrowing powers?
§ Mr. Lawson
I am not quarrelling with my hon. Friend, but, if what he says is so, all the more reason why the Electricity Board should be allowed to choose which fuel it wants. My hon. Friend cannot have it all ways, nor can my hon. Friend the Member for Dunfermline Burghs (Mr. Adam Hunter). If his argument is that oil is going up and up in price—
§ Mr. Lawson
—well, fair enough; but what I understand the Electricity Board to be arguing is that it should be enabled to choose the fuel it wants and not be compelled to adopt any one fuel. That is what I understand the Board to be crying out for, or one of the things that it is crying out for. I say to my hon. Friend the Member for Midlothian that, if coal is now in a seller's market, he should be prepared to say of the Electricity Board, "All right, let it pick its fuel".
§ Mr. Douglas
I think my hon. Friend ought to know that, in terms of agreements made between the N.C.B. and the S.S.E.B. on occasion—I am particularly interested in Longannet—the long-term contract prices have been extremely favourably negotiated between the two Boards, and, in so far as the Coal Board has accepted long-term commitments, they are of benefit to both of the Boards That has to be kept in mind.
§ Mr. Lawson
I am prepared to accept that from my hon. Friend, but, presumably, under the contract entered into there is long-term advantage to the Coal Board, too, because that pit would not have been developed had it not been for that power station. So there is mutual advantage. I accept this. I am not arguing about it. 146 I am not aware that this sort of thing is being argued against in the Electricity Board's Report. If the circumstances have so changed that coal has become so scarce and there is a sellers' market, there should be no need to insist so stringently that, come what may, coal it shall be.
This is one of the features which the Board mentions and it is right that we should be able to say this sort of thing if we are to argue on commercial practice. Otherwise I fully subscribe to what has been said by my hon. Friend the Member for Bristol, Central. If we are to insist that those commercial practices shall not over a considerable area apply, we should not apply the measuring criterion normally applied to fully commercial concerns.
Another example of how the Board was badly treated, and badly treated, again, by my own Government—although in some respects and in a rather queer way not so badly treated by the present Government—is that of investment grants. In spite of the hundreds of millions of pounds which the Board spent over the years on property which would normally have been assessed for investment grant, in some cases 40 per cent., it was not able to obtain grants which any large private concern which wanted to put in its own generating plant was obtaining. That happened under my Government. The difference is that the present Government have wiped out investment grants, or propose to do so, which means that in this sense the Board may be said not to be suffering from that injustice. But it does not spring from any desire on the part of the Government to assist the Board. It just happens to work that way in this case.
Even at a cursory glance at the electricity generating industry—and this is true of the whole United Kingdom industry—there is no question about its exceptional efficiency. It measures up to what is done anywhere else. At a time when the characteristic of any other British industry is that we are at the bottom of every production league—and this is the case even with our great chemical concerns—we are pretty well at the top of the electricity generating league, and this is most commendable. Even over the short period of five years mentioned in the Order, electricity units sold per employee have gone up by over 60 per cent. That is quite remarkable, 147 and very much in excess of what has been done in agriculture, about which the hon. Gentleman and his hon. Friends often brag. The agricultural achievement pales into insignificance in comparison with that of electricity generation.
The electricity generating industry is remarkably successful, but it is at this stage carrying unfair burdens. It should be given much greater freedom than it enjoyed under my Government or is enjoying under the present Government. If it had had that freedom, it would not now be necessary for the Board to seek power to borrow another £100 million. The intention initially was that the Board should pay out of its internal resources 66 per cent. of the cost of fresh development, but because of the policy that has been followed it has been able to pay not quite 40 per cent. It could easily have reached its 66 per cent., and possibly more, if it had been given reasonable freedom not to act in a way that is injurious to the interest of the nation—that is, if it had been given sufficient freedom to enable it to pay for the necessary developments in a way that can be seen to be fair to it as well as to us.
I hope that the hon. Gentleman, despite the fact that he represents a different Government, wil say that he agrees, and that the intention is to give the electricity authority much more scope for action than it has had up to the present.
§ 9.35 p.m.
§ Dr. J. Dickson Mabon (Greenock)
My hon. Friend the Member for Motherwell (Mr. Lawson) has occupied a very unusual position tonight—the middle of the road. He has called himself a referee. Only one thing ever happens to someone in the middle of the road : he gets knecked down. If my hon. Friend is to be criticised, it is for trying to comment on past performances of the Labour Government on this matter, especially when he talks about matters affecting the coal industry, which are rapidly changing, in ways I may be able to touch upon shortly.
The speech that we are about to bear from the Under-Secretary of State for Development, Scottish Office, will be, perhaps, the most significant speech we shall hear about Scottish thermal economics—I think that is the phrase used in the 148 Office—in the current parliamentary year. We will be given a slight lift of the veil on the Bill that is to come after this Order. We are all concerned about how long the Order will last. In his opening remarks, the hon. Gentleman said that the figure would go so far. When we were in government it was intended that the figure would go until 1972. The Order will not go as long as that. Therefore, I hope that the Under-Secretary will tell us that the date when this Order will run out, on present estimates, affecting both Boards, will be some time this year or early next year. That will mean, therefore, that he is promising us a Bill early in the next Parliamentary Session to carry on the work of both Boards.
This raises the question of whether both Boards will continue. The hon. Gentleman has to satisfy us about that because there is a great deal of speculation at the moment about whether this and other monies voted to nationalised industries will be committed for Boards that will remain as Boards. For example, in The Guardian today there is an article by a very responsible journalist about what the Minister for Industry is about to do to the Gas Council. We are wondering what the Secretary of State for Scotland, in the light of what is the doctrinaire thought of the Government, is about to do with the North of Scotland Hydro-Electric Board. The North of Scotland Board has done extremely well in the last year. We have noted the Minister's commendations and we will use them against him and his colleagues if they attempt to merge the North Board with the South Board in their coming Bill. There have been temptations to do that in the past, and as a Government we rejected that proposition.
The financial return on the North Board is much less than that on the South Board, for obvious reasons. We are wondering whether the Under-Secretary is being beguiled into the idea that after the Order, perhaps both Boards should be merged, because the financial performance does not seem to fit in with what is the precondition for return on investment under the present Administration.
§ Mr. Palmer
Will my hon. Friend bear in mind that the McKenzie Report 149 generally came down against the amalgamation of the two Boards?
§ Dr. Mabon
That is true. In the Report of the North Board there is a reference on page 13 as follows :Rainfall was heavy in the north in 1970 and this enabled reductions to be made, in the interests of economy, in the amount of generation undertaken by the thermal stations in the pool operated by the two Boards.When we were in office we stopped this antagonism of the two Boards. We instituted, not only a joint account, but also a pooling arrangement for generation. That stopped all the rivalry between the two boards.
The North of Scotland Board has a very difficult task in trying to connect everyone in its area to the electricity system. It is strange that, with all the argument, Parliament might be considering a situation in which people are not able to get such a simple thing as electricity. When we came into office in 1964 about 90 per cent. of the population there was connected. The Board's most recent report records, with a certain commendation, that 97 per cent. of all potential consumers in the North of Scotland have now been provided for. Three per cent. of the population of the North of Scotland does not represent many people. However, if the two boards were to be merged those people might as well write off any hope of being connected to the system. We will not allow the boards to merge.
The Report of the North of Scotland Board this year has on its front page a photograph of the Invergordon smelter which was introduced by the last Government and which is acknowledged by everyone to be a great success, not only for its intrinsic value, but for what it means in terms of Highland development. I am glad that there are other investors outside the public sphere in Invergordon seeking to open up the area, which is an excellent deep water harbour, for further commercial activities. This is not just a matter of a board helping people in far off areas. It is also the possibility of bringing industry to areas which were formerly written off.
The very existence within the North of Scotland Board's area of the Atomic Energy Authority prototype fast reactor, the most modern in the world—we lead 150 the world in atomic energy and feed into the North of Scotland system electricity from this most advanced science—is a proof of the tremendous importance of the North of Scotland Board.
The Opposition would resent and fight any attempt to merge the Boards. What merging is needed has been done. It is important to leave the North Board as it is, to leave it to connect up its consumers and to advocate its peculiar point of view of development at the so-called periphery. I do not accept that word, but that is what the Board calls it.
Page 3 of the Report of the North of Scotland Board contains a number of comments about new generating plant. I want some information about these. There is Foyers which we started and which we think will begin production in 1974. The erection of the plant may begin this summer. We are told also that the Board, under the excellent leadership of our old colleague, Tom Fraser, may construct a generating station with a total capacity of 1,320 megawatts at Stake Ness in Banffshire. This is an excellent addition to the economy of the North-East of Scotland. May we know a little more about that? May we be told a little more about the surveys for a pumped storage development using Loch Lomond as the lower reservoir?
I should like the House tonight to pat the North of Scotland Board on the back and to say to it, "Let us know what you are doing. Know that your existence over the next decade is assured. We will ensure that you prosper well and we will not interfere with what you are doing. Indeed, we will encourage you to do even better".
I turn to the affairs of the South of Scotland Board. My hon. Friend the Member for East Stirlingshire (Mr. Douglas) mentioned our concern about Longannet. Is it not interesting that Longannet, which was initiated by the Conservative Administration in 1963, is now the subject of discussion? It takes that long to plan a station. Similarly Inverkip, which we instituted, will not be the subject of much discussion until 1972 or 1974. In a sense, perhaps, the Under-Secretary of State has more responsibility for answering questions about Longannet than about Inverkip. There is genuine concern, perhaps with pressure from outside and indeed inside the Board, that 151 Longannet will not be given the consideration that we thought it would be given.
The South Board is embarrassed by the high level of interest rates. It says on page 7 of its Report :The high level of interest rates was made more burdensome by the necessity not only of borrowing the finance required for new capital investment but of borrowing to cover the repayment of earlier loans. The average interest rate on loans repaid in the year was 6'8 per cent. compared with 9.1 per cent. on the loans which replace them, the difference in interest amounting to £0.4 million in a full year".It is interesting that the heading to Chapter I of the South Board's Report is "Fight against inflation". This is one on the jaw for the Government. They cannot say, "We have been the Government for only a year. It takes a long time to work these things out." That argument is getting a bit thin. The Report should have started by saying, "Fight against inflation : Government nearly winning". This is a very sad Report from the South Board about all the embarrassments of the present and how it does not see much relief coming in the reasonably near future. Perhaps the Minister will say something to encourage the Board. We should like to hear a bit more about the forthcoming Bill.
I turn to the argument about coal and oil and nuclear energy. The Minister is an absolute dab hand—and I hope that that is a parliamentary expression—at telling us things without giving us the figures and skating over the most difficult situations. For example, he attempted to bamboozle my hon. Friend the Member for Edinburgh, East (Mr. Strang) the other night when he talked about the situation concerning Portobello. He gave no figures. He is the man without figures—no targets, no figures, no nothing, just nice, charming sugar-lolly words. But he should give us the figures concerning Portobello. Before my hon. Friend the Member for Motherwell can become the referee, he must know the figures. There may be a judgment to be made about the figures from the commercial point of view of the Board and from the social point of view of the Government. I accept that. As a Minister, I have had to confront such situations myself.
But the commercial facts should be known so that we can weigh the matter in the Beeching manner when it came 152 to giving subsidies on railway lines and in the manner adopted by my right hon. Friend the Member for Blackburn (Mrs. Castle) in her Transport Act, 1968, namely, that if a subsidy is to be provided, then let it be known and let us know what the community is paying rather than pretend that the economics are this or that when they are not.
I should like the Minister to grasp the nettle instead of making nice noises about the miners and the coal mining industry and expressing anxiety about social matters. The miners of Great Britain have an enormous opportunity ahead of them. We can sell much more coal than we buy if we go into this matter vigorously. The economics of selling coal to electricity stations in Scotland might be different in as much as the attraction of other markets would give a better return for the Coal Board. Mr. Ezra, the new chairman, whom we all wish well, prophesies that he can not only sell coal at home but he can sell more abroad.
In this changed atmosphere, I should like to see new attitudes being adopted towards electricity. Let us get away from the idea that we regard the mining industry paternalistically as an industry which is, sadly, running down, an industry with no great future, and so on. We have had the battle fought over coal versus nuclear energy, coal versus oil, coal versus natural gas—
§ Mr. Eadie
My hon. Friend is enlarging on an interesting argument about a seller's market, saying that there may be better and more profitable markets, but he should remember that for years the argument has been about price. If he talks about alternative fuels, he must talk about price as well, because the argument against using coal has been on price. Now we hear from my hon. Friend the reverse argument, to some extent, that we can sell elsewhere with the price becoming more favourable.
§ Dr. Mabon
My hon. Friend may have a point there, but what I am inviting the Under-Secretary of State to embrace is the fact that coal is no longer in a restrictionist market, that it is entering a phase of expansion, not expansion necessarily in Great Britain but expansion in wider markets. That being so, the economics of this Order and the Bill to 153 come, and our whole generating system in this country, are affected by the new situation. [Interruption] My hon. Friend the Member for Midlothian (Mr. Eadie) should be glad about that and rejoice. I am not a referee. I never was, and I do not want to be. I am simply saying that he should rejoice, and I am inviting the Under-Secretary of State to say, in commending the Order to the House, that he will follow it with a Bill which will not merge both Boards but keep them as separate entities. The thermal economics of all fuels are changing, and the last matters which I have introduced are, perhaps, the most significant in terms of changed circumstances that we have seen in the last decade. If the hon. Gentleman says that, I shall be happy to see the Order go through, and my hon. Friends will be joyful, too.
§ 9.53 p.m.
§ Mr. Younger
There was a moment during the last few minutes when I thought I might be able to go out and have a cup of tea and leave hon. Members opposite to it. I shall not try to usurp the new-found and, no doubt, happy position of the hon. Member for Motherwell (Mr. Lawson) as referee in these matters. I was not quite sure while he was speaking whether his self-appointed position was altogether acceptable to all sections of opinion in the House, but from my point of view I can think of no more suitable, more charming or more balanced person to be the referee, and I look forward to watching the hon. Gentleman at work, although I suspect that it will be pretty hard work when he gets started.
Perhaps I may put right at the outset some misconceptions about the timing of the Order and where it fits into the scheme of things. I mentioned this at the beginning, but some hon. Members, perhaps those who were not able to be here at the commencement of the debate, may not have appreciated the point. The £700 million limit was originally expected to last until 1972, but, as I said, due to inflation and various other factors, it looks as though that limit will be reached towards the end of 1971. So there is a difference there which, though not enormous, is of some significance.
We expect the £700 million limit to be reached towards the end of 1971, and that is why we have a further Order 154 tonight to raise the limit to £800 million. Also, as there are considerable sums of retention money on construction contracts due to be paid during the next financial year, we expect it to be unlikely that the £800 million final limit fixed by the 1969 Act, which this Order brings us up to, will last beyond the end of 1972.
This draft Order, therefore, provides for the extension of the limit to the end of 1972 up to the statutory maximum of £800 million, and it will probably be necessary for the Secretary of State to introduce legislation next Session fixing a new limit.
The hon. Member for Greenock (Dr. Dickson Mabon) asked me to say whether the Bill would include a proposal to merge the North and South Boards. No such proposal has come my way. The Bill I mentioned would be to fix a new limit for borrowing powers and nothing else.
§ Dr. Dickson Mabon
Is not it a fact that there will be a Bill in the next Session? If there is, can the Minister give us a categorical assurance that both Boards will remain intact?
§ Mr. Younger
I cannot commit us to having a Bill in the next Session. I have said that it will probably be necessary for the Secretary of State to introduce legislation in the next Session to fix a new limit. The Bill to which I am referring has nothing to do with any proposal the hon. Gentleman may have in mind for merging the Boards.
The general tenor of what the hon. Member for East Stirlingshire (Mr. Douglas) said related to my remarks earlier about the relationship between having to increase the borrowing limit and whether the industry was able through its income from sales to finance a larger or smaller proportion of its capital investment from its own resources. I made the point that inflation such as we have experienced for the past two or three years reduces the Boards' ability to finance from their own resources. It means a bigger call on borrowing, if investment is to be kept at the level we need, and therefore greater borrowing limits.
The hon. Gentleman asked what was the proportion of borrowing by the North of Scotland Board. The total borrowing of the two Boards against the limit stands 155 at about £670 million, which is within £30 million of the present limit. The North Board accounts for about £260 million, which is about 40 per cent.
The hon. Gentleman also rightly asked about the need for the North Board to have such a relatively high level of investment. It has invested considerably in the past in the highly capital-intensive hydroelectric schemes. The capital cost of generating capacity and transmission for Invergordon is met by the capital contribution of the British Aluminium Company and does not fall upon the electricity consumer.
The North Board has £3.3 million of foreign currency borrowings—8,000,000 European units of account, borrowed in 1969 at 8 per cent. The South Board has £6.3 million of foreign borrowings, 60 million Deutschemark borrowed in 1969 at 8¼ per cent. That is a fairly substantial amount of borrowing, but is not very large compared with the two Boards' programmes.
We welcomed the intervention of the hon. Member for Bristol, Central (Mr. Palmer). The hon. Gentleman, who is no stranger to electricity debates, and no stranger to Scottish debates on this subject, asked about the use of natural gas and about the fuel oil tax, which other hon. Members also mentioned. There has been discussion about this tax for many years. Some regard it as an imposition, while some regard it as right that, as some commercial undertakings have to bear it, others should, too. But it is entirely a matter for my right hon. Friend the Chancellor of the Exchequer. It is not for me to say whether there is to be any change in fuel oil tax, or whether there should be. I am sure that my right hon. Friend the Chancellor will note what is said in these debates, as he always does.
§ Mr. Palmer
I appreciate that it is the Chancellor's responsibility, but my point was the different treatment of gas as against the electricity industry.
§ It being Ten o'clock, the debate stood adjourned.