ELECTRICITY (BORROWING POWERS)

HC Deb 02 March 1971 vol 812 cc1631-54

3.31 a.m.

The Minister for Industry (Sir John Eden)

I beg to move, That the Electricity (Borrowing Powers) Order 1971, a draft of which was laid before this House on 18th February, be approved. The draft Order now before the House would raise the limit on the borrowing powers of the Electricity Council and electricity boards in England and Wales from its present level of £4,100 million to £4,400 million, the maximum provided for in Section 15 (5) of the Electricity Act, 1957, as amended by the Electricity and Gas Act, 1963. When the 1963 Act was before the House an Explanatory Memorandum was published which explained that the need to establish a new limit of £4,400 million was based on estimates of the industry's net borrowing requirements over a period of seven years up to about 31st March, 1970.

The present limit was laid down by the Electricity (Borrowing Powers) Order, 1966, a draft of which was approved by this House on 2nd November, 1966. In moving the Motion to approve that draft Order, the then Minister of Power, the right hon. Member for Greenwich (Mr. Marsh), envisaged a new Order to raise the limit further would be needed in 1969, although he recognised that the estimates of the industry's borrowing were subject to considerable uncertainty. In fact the industry's requirements have been less than was expected and outstanding borrowings are only now reaching the limit laid down in 1966.

The reasons for the lower rate of borrowing in recent years than was foreseen in 1963 or even 1966 are the scaling down of the industry's investment programme and the fact that a rather higher proportion of capital requirements than had been expected has been financed from internal resources. In consequence, the capital requirements of the industry which had been expected to total £4,600 million over the seven years up to March, 1970 in fact reached only £3,800 million. For several years past tentative plans for future investment have been cut back year by year as it became apparent that earlier assumptions about the growth of the economy and the rate of demand for electricity had been over optimistic. Over the period 1964 to 1970, for example, the average annual increase in the simultaneous maximum demand on the grid has been around 4 per cent.—only half the rate in the ten years before that, which was expected to continue.

In the same period the annual rate of growth of the domestic product has been only about 2 per cent., again only half the rate of growth anticipated in the National Plan. The Electricity Council's forecast in 1965 was that the demand in 1970–71, this winter, would reach 54,000 megawatts. Five years later than that original forecast was made, the Electricity Council was still expecting demand to be at that level in the winter of 1975–76.

In view of the poor rate of growth in demand in the past year it seems likely that this year's forecast will again be reduced. There has recently been an announcement that, in anticipation of such a reduction, the C.E.G.B. has decided to defer the start of its new power station at Sizewell B. This deferment, like others over the past five years, will result in a continuing low rate of capital expenditure.

Borrowing has been tending to run at a lower rate in recent years, having fallen from its highest level of £379 million in 1966–67 to a low point in 1969–70 of £101 million. Preliminary indications are that borrowing will be higher this year.

Mr. Stanley Orme (Salford, West)

Is there any special reason for this application at this moment, other than the reasons that the Minister has given? Is the Electricity Council short of capital for any reason at the moment?

Sir J. Eden

It is not a case so much of shortage as the fact that the borrowing is approaching the statutory limit. Some of the reasons I have already given, others I shall try to give. The main reason why some of the borrowing is likely to be higher this year is that there has been a sharp rise in the industry's costs. Fuel costs are up. About a third of the industry's total costs have risen sharply. There have been three increases in the price of coal to the C.E.G.B. in the past 18 months. Oil prices have also been rising substantially. In addition, supply and distribution problems have meant that the authority has had to operate plants out of merit order to conserve coal stocks. Labour costs are a smaller element than fuel in total costs. Earnings have increased, but improved productivity has meant that unit labour costs have tended to fall in recent years. More recently there has been a levelling-off as a result of the much bigger pay settlements than in earlier years.

Even though costs have been increasing electricity prices have been held fairly stable. Indeed, one or two boards were able to make minor reductions early last year, but with cost increases out-running revenue increases, borrowing was inevitably greater than would otherwise have been the case. In addition there was disappointing progress in commissioning new plant and poor initial performance of new plant when commissioned. Consequently the improvements in efficiency and the economies which had been expected were delayed. This in turn has kept fuel consumption up and aggravated the coal shortage. Clearly it is essential to improve power station performance and every effort is being made by the C.E.G.B. and the manufacturers of generating equipment to this end.

As the House knows, there were investigations by the Wilson Committee, which reported in 1969, by the N.E.D.C. Working Party on Large Industrial Construction Sites in 1970 and the report from the Select Committee on Science and Technology, 1970. These showed that there are no easy remedies. Indeed, the postal strike, with the resultant reduction in cash receipts, has not exactly helped.

Mr. Orme

Would the hon. Gentleman tell the House exactly what is the Board losing in revenue through not being able to collect bills and so forth?

Sir J. Eden

It is hard to quantify it exactly. The total impact is likely to be something in the order of £70 million in cash flow. This was initially compressed in the early stages of the postal strike. Now I think I am right in saying that all area boards have virtually overcome that problem. They have now got their organisations well established and are getting in 80 per cent. or more of normal revenue. I do not have all the figures before me, but the picture is by no means all black and I would not be right to leave that impression with the House. There has been a substantial reduction, for example, in manpower, from 229,000 at 31st March, 1967, to 197,000 at 31st March, 1970, a reduction of 30,000 in three years in an industry which increased its output by over 15 per cent. in that period. This is not just the result of capital expenditure. It has resulted from improved working methods. Also, a lot of new plant has been brought into operation and is producing worth-while economies.

The C.E.G.B. achieved a record commissioning performance in 1970, bringing 4,509 mW into service and making inroads into the arrears which had been building up for a long time. A further encouraging sign is that a substantial amount of plant, although not fully commissioned, has been capable of making a significant contribution to peak demand during the winter.

The industry's outstanding borrowings are now almost at the permitted limit, and further provision is essential for its continued development in the next year or two. The industry estimates that outstanding borrowings may reach £4,300 million by March 1973 and, because of seasonal and day to day fluctuations in the cash flow, borrowings may rise above that level before the end of the financial year 1972–73. I may, therefore, have to return to the House to seek amending legislation during that year, but for the present it is clearly desirable to raise the borrowing limit to the maximum permitted by the existing legislation, that is £4,400 million, and I ask the House to approve the Order.

3.41 a.m.

Mr. Arthur Palmer (Bristol, Central)

I want first to protest at the way in which the Order has been brought before the House. I have no objection to sitting into the small hours, which I regard as a normal part of the life of a Member of Parliament, but the Minister may remember the history of these borrowing powers for electricity. The purpose of having to come to the House at frequent intervals to raise money on what is bound to be a large scale because of the nature of this capital intensive industry was to give the Government much greater parliamentary accountability. To bring this Order before the House in a series of about nine Orders upsets entirely the intention of the procedure. As one who has taken part in every debate on electricity borrowing powers Orders during the time I have been in the House, I hope the Minister will note my protest.

The Minister is right in saying that the 1966 Order raised the borrowing limit to £4,100 million. My right hon. Friend the Member for Greenwich (Mr. Marsh) at that time promised that a new Order would be brought in later to bring the advance up to the present figure. I take it that it is for this reason, apart from the present cash flow position, which is not quite so rosy as the hon. Gentleman supposes, that it is necessary to have the Order.

My right hon. Friend the Member for Greenwich, who was about the fifth Minister back responsible for electricity, expected that the limit would run out in March, 1969—I remember his making that remark at the time. It has lasted longer because, unfortunately, the rate of expansion of the industry has slowed down, although it will always go ahead at some rate because one cannot imagine an industrial society where electricity does not advance from year to year. This slowing down of electricity expansion is serious for the country, because the use of electricity in modern societies reflects the measure of industrial activity. It is almost a straightline progression. Slowing down means that we are falling rather faster than we should be back into a state of semi-slump in the country.

I believe that the industry—and the House knows my considerable interest—is being treated shabilly by the Government. I am not sure that the last Government treated it as well as it should have been. It is being subjected to an over-strict discipline in the matter of capital investment. It is not free as it was at one time to act as traditionally public utilities acted. Utilities are not, after all, free to pick and choose their markets. The electricity supply industry must not only supply electricity but do so, under a legal obligation, 24 hours a day to any consumer who requires the service. Therefore, the modern fashion of imposing upon public utilities an arbitrary rate of return on capital is not always as sound as some might think.

The industry has been imposed upon in relation to its rate of return. The Electricity Council has protested vigorously. The situation is reflected in the figure of external borrowing as against the internal raising of capital. In 1968–69, external borrowing was 30 per cent. and the proportion raised by the industry from its own resources—as I interpret it—was no less than 70 per cent. As I read the Annual Report of the Electricity Council, the industry in 1969–70 seems to have raised no less than 77 per cent. from its own resources. This means that the consumer is being asked to an enormous extent to supply the capital for development of electricity and therefore to pay far more for electricity than he would normally be expected to do. The enormous surpluses the industry is expected to build up and the reserves it must put aside in order to meet the arbitrary rate of return on capital amount to nothing less than a tax on the consumer and have the unfortunate effect of limiting the industry's development.

The policy of imposing such a tight discipline on electricity supply is aggravating a semi-recession into which it is tending to move. I hope that the hon. Gentleman will not suggest—he was cautious about it—that wages and salaries are to blame. Wilberforce did not. It is remarkable how coy the Government have been about Wilberforce generally. They appointed the Court of Inquiry and it was looked forward to extensively, but they must have been disappointed by the outcome. although not as much as by Scamp. Wilberforce commented on costs due to wages and salaries as against the cost commitment to high capital charges. On page 28 of this report of the "three wise men", we read: We would not wish to generalise about the relation between profitability and the ability to pay higher wages and salaries in the public sector of industry. Circumstances vary widely, but in view of the extent to which the electricity industry has a virtual monopoly of supply, and the relatively small proportion of total costs represented by labour costs, we do not think it necessary to go into the question of the relation between these factors and the ability of the industry to pay. So there is no echo in Wilberforce of the Government's theme song that inflation is brought about just by higher wages and salaries.

There is another interesting reference on page 34: It is true that in the electricity supply industry pay of the industrial staff, or indeed total labour costs, do not represent a pre- ponderant part of the total costs. In the last financial year … pay of the industrial staff represented about 10 per cent. of total costs, and all labour costs represented about 20 per cent. of total costs. The tribunal ends with this sentence: These figures are not negligible but neither are they, in themselves, alarming. Therefore, although the argument is being used, as it freely is by Government spokesmen, that the cause of runaway inflation is too high wages and salaries, in a capital-intensive industry like electricity supply, Wilberforce was wise enough to conclude that the argument did not make a great deal of sense.

This industry, therefore, has to carry considerable burdens, which are not seriously heightened by excessive wage and salary costs. There is not only the arbitrary rate of return imposed by Government policy; it has been forced by successive Governments to use more coal than it would with and at prices which would not be economical if the industry were working on a straight commercial basis. 1 do not say that there are not good social reasons for this, but the House should remember the services which the electricity supply industry has thereby rendered to social harmony.

The investment grant system is to end, but at the moment it is still working and the House should not also overlook the fact that, two decades after nationalisation, 20–21 per cent. of our industrial power is generated privately. This is a form of competition to which the nationalised industry is now subject because the private industrialist who puts in plant to generate his own power has been getting the advantage of the investment grants which the nationalised industry does not get. Here again, the industry has protested strongly to Governments about this, and I should be glad to know whether the Minister has now any policy for dealing with what is a substantial grievance of the industry.

When we consider how much extra capital the industry should have, I make again the point that the prosperity of electricity is the prosperity of the country, because, in the matter of energy supply, electricity is the great joiner. We hear a lot about the new varying primary sources of energy and how, in the course of 25 years, the country has moved from its dependence on one primary source, coal, to spreading sources of energy supply between coal, oil, uranium and now natural gas. However, these primary sources of energy cannot be applied to the life of industry without electricity as the intermediary. If the electricity industry is handicapped and held back too much, the industrial life of the nation will suffer for the new energy sources will remain less flexible.

I notice from my evening paper that money is said to be pouring into the City of London. Presumably it is being attracted by the very high interest rates which are available. While unemployment increases, bankruptcies multiply and industrial share values tumble, money pours into the City of London. I can only say, as a citizen who is also an engineer, that this kind of statement gives me no comfort. It has the smell of the 1930s about it. I do not want to be too extravagant in my words, but that is my feeling.

I am sure that the City of London renders useful financial services. But it creates nothing very much in terms of real wealth. Real wealth is created by the improved productive efficiency of industry, and that is the only long-term solution for inflation and the only long-term way in which we can hope to obtain higher real incomes. Those objectives are not attained by policies which attempt to limit the natural reaction of individuals to match their incomes to their expenditure. It is not done either by having high interest rates and then being pleased that money is coming into the City of London. Inflation will only be dealt with by an advancing productivity rate.

Perhaps I might give a small piece of advice to the Government, not that they are likely to take it. It is that 2 per cent. off interest rates and 4 per cent. on productivity would do infinitely more to end inflation than any other means of which I can think. If we are to attain this, it means more industrial investment generally and, as the underlying base to that extra industrial investment, the country badly needs more electricity investment.

I noted with some small shred of pleasure that last year the electricity boards succeeded in selling 4.3 per cent. more energy to industry compared with an increase in industrial output of 2.6 per cent. Hence, British industry at long last is using more electricity at the point of production—and it certainly needs to do so.

We talk of the need for increased investment all round. I am trying to make the point then that the fact that the electricity industry is borrowing less is not something which should give us great joy. If the country was really booming the electricity supply industry would be borrowing infinitely more.

But increased investment in electricity generating plant as the basis for industrial expansion implies that it is available for use after it is commissioned.

The Minister referred to the technical engineering difficulties which the electricity supply industry—especially the C.E.G.B.—has been having with some of the new alternators which it has installed—the 500 megawatt sets in particular. Britain is not the only country which is having problems of this kind. The United States has had somewhat similar problems.

The situation seemed to be so serious in our industry that, over a year ago now. the Select Committee on Science and Technology, which I had the privilege to chair at that time, decided to look into it. The inquiry was done quite independently of the Government. I do not think that the then Government, for the best of motives, were keen that the Select Committee should investigate, but it did. The Committee's I hope constructive report rendered considerable service to knowledge. The Committee made some useful practical suggestions which the industry perhaps took to heart.

Touching the question of how much generating capacity is available, it seems that this winter we are on the edge of a great mystery which I am doing my best to clear up. During the work-to-rule in December last there was load shedding on a scale which has not been experienced before. I was brought up in the tradition of electricity supply that to maintain the continuity of the supply was a primary responsibility; to let the supply go due to some mishance for even 10 minutes was almost a crime. This was the tradition which I and many others in the industry grew up to observe. Therefore, to have the situation which we had last December was for me a sad experience.

At that time the Ministers vied with each other in blaming the workers in the industry for doing what Wilberforce said afterwards was within their rights. However, the workers were blamed entirely, particularly by the Secretary of State for Trade and Industry, for the inconvenience and hardship undoubtedly suffered by the public. After the blackouts commenced, the first statement by the Secretary of State for Trade and Industry on the situation was on 8th December. I have the reference in HANSARD, but I think that I can quote from memory what the right hon. Gentleman said: that the actions of the industrial staff in electricity supply had resulted in a reduction in the electrical capacity which was not available by from 20 to 25 per cent. Therefore, anyone reading that statement, or reading the figures subsequently, would suppose that the industry was lacking only 5 per cent. of plant in December; in other words, that 95 per cent. of plant could have been run.

That staggered me, knowing something of the internal affairs of the industry, and having conducted the investigation into the plant troubles about a year before. I could hardly believe that the situation was so good, so I took the step of putting down a Parliamentary Question, and the Written Answer which I received on the 8th February was that the hon. Gentleman was asking Sir Stanley Brown, Chairman of the C.E.G.B., to write to me. As it happened, Sir Stanley was away and it was Mr. Owen Francis, the Deputy Chairman, who wrote to me. Let us see what he had to say about the electricity capacity that was available, and about how it compared with the loss of output due to under-manning. The second paragraph of his letter, which I am sure has been studied in the Department, stated: The approximate daily loss in total output capacity during the period 7th to 11th December, 1970, which can be attributed to electrical and mechanical causes was 24 per cent. And yet, apparently, according to the Answer given to the House by the Minister, it was 5 per cent. Mr. Francis went on: A further 17 per cent. approximately was lost because of under-manning. The public should really know the situation, which is that they suffered the in- convenience they did mainly because—according to Mr. Owen Francis—commissioned plant was not available, and not primarily because of the action of the industrial staff. I hope I am fair enough to admit that 17 per cent. on top of 24 per cent. did not help the situation at all of course. But if the situation had been as the Secretary of State for Trade and Industry had put it in the House, then the public would not have noticed, at least for some time, the effect of the work to rule. I am therefore bound to put these Questions to the Minister. I hope that in due course we are going to have an explanation. In fact, I have written to his right hon. Friend, asking him to make a correcting statement, but if a correcting statement is not necessary and we have all misunderstood the figures, I should like an explanation.

I must point out to the hon. Gentleman that if 24 per cent. of the commissioned plant was not available in December, that represents nearly a quarter of the total installed capacity. The total installed capaciy or the peak demand, which is roughly the same, is about 40,000 megawatts, and a quarter of that is 10,000 megawatts. If I may put that in terms which can be readily appreciated, 10,000 megawatts is roughly the output of 20 medium size power stations. It is staggering if it is the case because it would represent the whole of the electricity supply of some countries. I hope that at some stage, if not tonight, these mysteries will be explained.

Many subjects are in order in debating this Instrument, but I wish now to curtail my remarks at this hour. As the Minister knows, I have taken a keen interest in the proposed reorganisation of the electricity supply industry. I appeal to the Government to make an announcement soon on their intentions in this connection.

My right hon. Friend the Member for Greenwich (Mr. Marsh) was the Minister when the Labour Government announced the need for, at that time, a limited amount of reorganisation. The then Conservative Opposition did not challenge that need, though they objected to the Bill which was finally produced on a number of secondary grounds, including the proposal, which I thought was sound, that the C.E.G.B. should have the right to manufacture on its own account. That Bill was introduced in April of last year by the then Labour Government, and the present Minister and I served on the Committee upstairs. Unfortunately the General Election intervened during the Bill's progress, and the Measure fell.

The main proposal in what was a moderate, perhaps too moderate, Bill was that the industry should be given stronger central direction. It was said by the then Government that the Electricity Council lacked executive authority and that that was a great weakness in an industry which was so large and important. The Bill therefore proposed a new central authority to guide the industry's strategy and to help it meet the increasing severe challenge from its competitors. It also contained an interesting provision relating to the possibility of the industry reorganising its own structure as a matter of normal managerial and technical evolution without coming to Parliament for legislation.

That still-born Bill of 1970 was a mild Measure which proposed nothing really drastic in the way of alteration and reform. The Minister, who at that time led for his party, was then clearly bent on doing something much more radical. Also he pointed out the need for prior discussion and consultation and called for a White Paper to be issued. I cannot remember how long the Government have been in office. It seems longer than it probably is. I should have thought that it would have been possible for the hon. Gentleman and his right hon. Friend by now to have done us the courtesy of producing a White Paper setting out the problems of reorganisation of the industry in the way that they demanded this, when in opposition, from the Labour Government. Why can we not have the White Paper? If we are to have it, when will it be published?

When in Opposition. the hon. Gentleman talked about a break up of the Central Electricity Generating Board and suggested that there should be a North and a South Generating Board. He thought that this apparently would give more competition on the wholesale side. But that is not a good solution. I have solutions, with which I shall not now weary the House, but I have written a little on the subject. The right way is to bring the industry much nearer to the consumer by making the generating side subordinate to the area boards, by turning the C.E.G.B. into a kind of generating-transmission-service company for the area boards. That would not mean breaking the industry into two parts, which would be a bad course and help not at all.

Many people in the industry have a present feeling of uncertainty. They do not know where their jobs will be and how they will work in the future. They are concerned about security of employment when big changes are threatened on which there is silence. I ask the Minister to remove the suspense hanging over the industry and to let us know what is proposed.

There are widespread hints that the Government, as part and parcel of their abrasive, right wing radicalism, are considering compelling the area boards to make over to private enterprise the attractive appliance selling parts of their activities. I hope that these hints have no firm foundation. Showrooms, and other consumer services generally, were an integral part of the electricity supply business long before nationalisation. Therefore, to speak of utilisation, of showrooms and consumer services, as peripheral activities is absurd, because the utilisation function of electricity supply completes the natural process chain within the control of the undertaking, which starts with generation, moves to transmission, becomes distribution and ends with utilisation.

It is sometimes said that in other industrially advanced countries arrangements are different. But that does not help because the evolution of the industry in the United Kingdom has taken its own special course historically. To change that course now would be wasteful of resources and destructive of staff morale.

I hope that the Minister will stay his hand and forget these foolish ideas of breaking away utilisation, which is a classical activity of the industry, from the other natural processes of electricity supply.

On staff morale, the experiences of December of last year showed beyond any doubt the indispensability of electricity to an industrial community. The public clearly now regard electricity as they regard the air and sunlight, as part of the natural order of things, a part which should be available, unlike the sunlight, for 24 hours a day.

I do not know whether it has occurred to the public, including those of its members who were abusive of the electricity workers, that electricity supply could not be available 24 hours a day, sometimes in the most remote and difficult areas, were it not for the work of electricity staff of all grades who understand their obligations to the public and who are prepared to turn out in all weathers when there are breakdowns. It is not something for which they need or seek special praise but it happens.

I believe, knowing the traditions of the industry and the great service which of necessity it renders to the public and the way that continuity of supply is normally maintained, that Ministers should ask themselves whether, when good relations suddenly cease between trade unions and management—this did not apply only to the industrial unions; the Boards succeeded in quarrelling with both their industrial and their technical staff at the same time—there is not something wrong with the way in which the industry is being managed.

The Minister should consider strengthening the industry's leadership. Napoleon said that there were not bad soldiers but there were always bad officers. I would not withhold my admiration from the technical leadership of the industry, its engineering skill, and its considerable managerial ability, but something has been been wrong in recent times with the way in which its labour relations have been conducted.

This is a matter to which Ministers should direct their minds, because it cannot be for nothing that staffs—industrial and supervisory—who are normally devoted public servants are in conflict with the management. Is the fault entirely that of the unions and of the employees? I do not believe that it is, and no one in the industry believes it. It may not be the fault of individuals. It may be the fault of the system. The whole thing wants looking at.

I am glad that, even in these small hours, the Order which I support has given me the opportunity of making these points.

4.22 a.m.

Mr. Stanley Orme (Salford, West)

Following the interesting, lengthy and informative discourse by my hon. Friend the Member for Bristol, Central (Mr. Palmer), which was backed by his background in the industry, I wish to return to the question of cash flow and the effect that the Post Office strike has had on the electricity industry.

The Minister mentioned a figure of about £70 million and said that things were back to near normal or to 80 per cent. normal in most area boards. This does not accord with my knowledge. The general impression is that large numbers of bills are outstanding and that the public have not got the facilities to pay them. This is hindering the industry at a time when it needs the money, as is shown by the fact that the Order is before the House.

The Government have not discharged their responsibility of seeking to end the Post Office dispute; they have not played their full part, either by setting up a court of inquiry or by taking other action. If increased borrowing is necessary, the consumer will have to Pay for the increased interest charges on money that the Boards could have collected through the payment of bills. The Minister cannot dodge this issue. It is more serious and more central to the problem than he has told the House. We are entitled to a little more information about it.

The Minister said that productivity in the industry had been affected recently by a higher increase in wages and therefore a higher pressure on the Electricity Council. The Wilberforce Inquiry took productivity into account and used it as the basis for the award that it advocated. It singled out the electricity industry and tried to isolate it from others because of its productivity. The Minister has told us of the fall in manpower through normal wastage. The productivity in the electricity supply industry and the reduction in labour employed in it cannot be over-emphasised. A great deal of public feeling was aroused against the electricity workers at the time of the go-slow. I think that the general public was not aware that the productivity in the industry had been raised to such a level that one man was now doing two jobs.

Mr. Dennis Skinner (Bolsover)

I have heard many times the comment about public resentment over the electricity power dispute. What concerns me is that while many hon. Members talked about receiving quantities of letters on the subject I received only one, and that was a complaint about the astronomical increase in the price of candles.

Mr. Orme

I am grateful to my hon. Friend for that intervention. It is fairly widely acknowledged that the resentment was whipped up by television and the general Press. This hysteria has not done labour relations in the industry any good. It may have damaged them.

The workers in the industry are worthy of a fair return for their labour. A few years ago the electricity workers were among the first to come under the new productivity bargains. The late Sir Leslie Cannon negotiated the agreement which led to the reduction in the labour force and a higher rate for the workers that came under the agreement. I do not think that the Electrical Trades Union realised that at the end of 1970 the productivity deal would be used against it, and that its increased productivity would not be rewarded by increased wages. They conceded so much on the question of productivity that they suffered. They found it impossible to increase their productivity but were losing ground to other industrial workers which placed them in a very difficult situation.

I turn to the possible hiving off of sections of the industry, particularly on the distribution side, which is profitable. The Minister has explained the need for increased finance, which will have to come basically from the public. It would be criminal if a profitable side of this industry, with its record of expansion and development, which could help to balance the payments that the authority has to make, were hived off. The possibility of hiving off arose on the Coal Industry Bill. I warn the Minister that the public resentment which would be aroused if it were to happen in the electricity supply industry would outmatch anything we have seen previously.

Mr. Palmer

A point which should not be overlooked by the Government is this. If we take from the industry its opportunity to push load development—that is, promote load—we run the risk of not improving the load factor, and this will reduce the general efficiency of the industry.

Mr. Orme

I acknowledge my hon. Friend's technical expertise in these matters.

We make no complaint that this matter is being discussed at this time in the morning. We accept that if we want to discuss it we must stay up late, as the Minister has stayed up late. But we are concerned about labour relations, productivity, profitability and financial status in the industry.

Sir J. Eden

Further borrowing would be a matter for new legislation probably in 1972–73.

Mr. Orme

I thank the Minister for that explanation.

We will keep a watch on the situation. I do not think that my hon. Friends will want to stop this Order, particularly if the Minister can give satisfactory answers to our questions, particularly about the shortfall in the cash flow arising from the Post Office dispute.

4.33 a.m.

Mr. Michael English (Nottingham, West)

This is a borrowing Order. My hon. Friend the Member for Bristol, Central (Mr. Palmer) did not make it plain whether he approved of capital investment being financed from revenue or whether he preferred it to be financed by borrowing.

Mr. Palmer

It is a question of the balance at any particular time.

Mr. English

My hon. Friend made it clear that the balance was heavily weighted in favour of financing from revenue. I believe he gave 77 per cent. as last year's figure.

1 should like the Minister to comment on the mix as between the two forms of financing. A great deal is to be said for borrowing where there is considerable capital investment which is going to tail off. But where, as is the case in the electricity industry, there is constantly increasing demand and therefore constant continuing capital investment, there is a much greater case for even more than 77 per cent. to be financed from revenue. By the time the borrowed capital is repaid, the power station is out of date in terms of cost—it will be a high-cost power station because technology will have moved on. It would seem better to finance from revenue to a larger extent than happens at the moment.

I should like to have the Minister's opinion about the mix, which obviously is increasing, since this must affect the extent to which such Orders as this are required. The Minister mentioned capital investment but did not mention the question of mix in regard to methods of financing.

The Minister made the complacent statement that prices had been fairly stable over the last few years. To take only the recent round of price increases, they will involve the consumer in figures of the order of 20 per cent. in South Wales which occurred in July, 1970, to 12 per cent. in many other boards, and 15 per cent. in the case of the North Eastern Board. The domestic consumer in the East Midlands has just experienced a 12 per cent. increase in his prices. The commercial consumer has just suffered a 21 per cent. increase. If this is regarded as "fairly stable" pricing, then we begin to see how the present Government are so utterly incapable of controlling inflation in the economy as a whole. If these figures are to be regarded as fairly stable pricing, it is no wonder that the Government are unable to control the situation of the country.

I should like the Minister to comment on one small point arising from the explanatory note in the Order on the matter of borrowing. The note states …the Electricity Council, the Generating Board or any Area Board may raise money for capital purposes …". Has the Minister figures showing the various matters for which money is raised?

The Central Electricity Generating Board is presumably, financed from a revenue point of view, by the area boards. Presumably, there is an outstanding balance at any given time owed by each area board to the Central Electricity Generating Board. I have some reason to believe that this may be considerable and that it is a situation which could be altered by administrative action. I wonder if the Minister has figures about this. It seems clear that in such a case one is raising money because of an inefficient piece of administration. I am sure that the Minister will take the point and be good enough at a later stage to look into it.

I would not suggest to my hon. Friends that we should vote against this Order which obviously is desirable in principle and should be approved.

4.42 a.m.

Sir Eden

With the leave of the House, I should like to try to answer some of the points raised in this very useful and interesting short debate.

The House always listens with great respect to the hon. Member for Bristol, Central (Mr. palmer) when he speaks on this subject. As his hon. Friend the Member for Salford, West (Mr. Orme) said, he is recognised as an authority on the matter. The hon. Member asked a number of questions, not all of which I can answer straight away, but I will look carefully at the record of his speech and if there is any further information I can give him I shall gladly do so. He quite rightly said that electricity is indispensable to the industrial community, in fact to a developing industrial society as a whole. I absolutely agree that the rate of growth in electricity is to a considerable extent a symbol of the rate of growth in the national economy and the general prosperity of the country. The two march together.

The rate of expansion, therefore, in electricity is very much affected by the rate of growth in demand for electricity, which itself is a reflection of the rate of growth in the economy. In the early 1960s, after the shortfall which had taken place and the gaps in supply meeting the demand experienced earlier, there followed the major plant build-up programme to try to bring in extra capacity as fast as possible. It would, therefore, be wrong to relate the present rate of commissioning of new plant or approval of consents for new plant to that particular period of intensity, which I think it is now generally assumed was rather greater than was fully justified by subsequent events. This was related to a rate of growth in the national economy which did not, in fact, materialise.

I hope that we can get to what I consider the most important point, which is a steady rate of growth. The difficulty is to find exactly what that is. It matters tremendously both to those who have to manage the industry itself and to those concerned with the supply and manufacture of plant and equipment for the industry that we should get as far as possible a steady rate of growth over a period. The rate of return of capital was a point to which the hon. Member referred. It is important that there is a rate of return. I do not think it an unreasonable one.

I recognise the difficulties the industry has experienced. Those difficulties are highlighted by the need to raise prices and to increase tariffs to cover the costs and ensure that it meets its obligations over a period of time. The rate of return is related to a five-year period, and undoubtedly in that period there will be fluctuations. It is that sort of discipline, in management terms, which needs to be applied to a capital-intensive monopoly supplier of this kind.

The hon. Gentleman asked me about investment grants. The investment grant system is coming to an end and, therefore, the point will not be quite so high in the C.E.G.B. list of matters to be brought to the attention of Ministers as it has been. I endorse what the hon. Gentleman says, that the industry has expressed its objection to the way this has been conducted in the past. Obviously, when the new system of allowances comes into being that will no longer obtain.

I thought that the hon. Gentleman was a bit harsh on the City of London, although the City can stand up to those things. He fell, rather surprisingly for him, for the old line, saying that these things could not be much value because they did not produce anything. As he knows only too well, they have immense value, particularly in terms of the invisible earning capacity and the assistance they give to our overall balance of payments.

The main point of the hon. Gentleman's observations centred round Wilberforce. In a few remarks in my introduction I tried to put the thing in balance, and I hope I was not unfair. I have been brief, and in that sense I probably did not cover it as fully as I might have done. I am aware of the observations in the report. I imagine that the hon. Member for Salford, West will be familiar with the terms of paragraph 12(2) where this is said: We concluded that over the period since 1964 the industrial staff in the industry have co-operated in major changes in working practices and conditions which have facilitated the effective use of the large capital investment programme, have contributed to a far more effective use of manpower, and have made possible a reduction of nearly 20 per cent. in the industrial labour force in the past three years. I agree that the report singled out the special circumstances of the electricity supply industry. Those were some of the factors militating in its favour, in the view of the Inquiry.

The hon. Member for Bristol, Central asked me to consider a question he had put down to the Secretary of State for Trade and Industry. I am sure that he will get a reply to his letter. I do not know that there is any discrepancy here. He will recognise that in this industry particularly, there are a whole variety of terms by which to measure performance or output or whatever. There is a difference between output capacity and available capacity. I know that the hon. Gentleman will immediately recognise the difference. Output capacity is the maximum output of plant which inevitably varies gradually as new plant is commissioned or old plant is scrapped.

Mr. Palmer

I am anxious to obtain an explanation of what appear to be contradictions. Unless this is done the workers in the industry will have a real sense of continuing grievance about the way in which they were treated.

Sir J. Eden

We have had exchanges across the Floor of the House on that, and I do not want to be drawn into it at this time of the morning on this borrowing powers Order. I just hope that this can be settled speedily, in the interests of all concerned in the industry.

The difference between output capacity and available capacity has to be watched. Available capacity is necessarily less than output capacity, and the percentage of one would be a smaller figure than the percentage of the other. A lot of plant was out for normal engineering and technical reasons, but that does not make it easier to face the fact that a lot more plant was taken out in addition.

I have been asked about hiving off. "Hiving off" has become an unnecessarily emotive term. We are looking at the industry and at reorganisation and are not yet in a position to give a firm answer. I see no need for an atmosphere of suspense to hang over the industry on the wider question to which the hon. Member for Bristol, Central referred. As soon as we are able to give any information to the House we shall do so. I cannot say now whether there will be a White Paper, because I am not anywhere near that point. I recollect speaking about this when I was in opposition, and if it ever came to the point I should have what I said then in the forefront of my mind.

I have said that I find it difficult to give precise figures about the impact of the postal strike. I know why the hon. Member for Salford, West brought this out. I am not deliberately underplaying it, but it is unnecessary to exaggerate it. Earlier estimates were that it might mean £15 million a week in cash flow. That sounds an enormous sum, but in the industry it is not so great proportionately, as the hon. Gentleman recognises. The reduced estimates suggest that it will be much less, probably about £10 million a week. This reflects the efforts of the council and the area boards in collecting the debts. I am sure that anyone who owes money to the electricity industry could find a way of paying it. The showrooms might provide a useful means for collecting the money.

Mr. Orme

There are many people who have a moral objection to doing work normally done by the Post Office.

Sir J. Eden

I understand that, and the easiest way of getting over it is for the postal strike to end.

The hon. Member for Nottingham, West (Mr. English) asked me about the balance between borrowing and self-financing. The proportion of self-financing has always been high in the industry and that is a matter for praise. It is well that it does finance so much of its requirements from its own resources. I am unable to say what the desirable proportion should be—whether it has gone too far or not far enough—but it has to measure this against the over all borrowing limits to which it must be subject in the interests of proper accountability.

Until the last few years, self-financing was under 50 per cent. from depreciation and retained profits, which meant that just over 50 per cent. came from borrowing. This rose to over 70 per cent. in 1968–69 and 1969–70. This was because of the low investment which has been taking place recently. If the growth becomes faster and investment goes up again, then the self-financing ratio is Vol. 812 likely automatically to fall back to probably about 60 per cent. During the period of low growth and low investment, it is right that self-financing should be high, and as high as it has been.

The hon. Gentleman asked me an interesting question about the relationship between the area boards and the C.E.G.B. 1 do not think that it would be possible to allocate portions of this £300 million, for example, in borrowing powers to the Electricity Council, the C.E.G.B. and the area boards. The allocations would depend on the requirements of the boards themselves and the extent to which they can provide finance from their own resources.

In this rather brief summary, I hope I have covered the main points raised by hon. Members. I am grateful to them for the way they have done so and for the interesting debate. I hope that they will now feel able to support the Order.

Question put and agreed to.

Resolved, That the Electricity (Borrowing Powers) Order 1971, a draft of which was laid before this House on 18th February, be approved.