HC Deb 02 July 1979 vol 969 cc907-15
Dr. Owen

(by private notice) asked the Secretary of State for Energy if he will make a statement on the increase in the price of petroleum products and on their distribution.

The Secretary of State for Energy (Mr. David Howell)

Further increases in the price of petroleum products must inevitably flow from the decision of the OPEC producers last week to increase crude oil prices. I understand that one major company operating in the United Kingdom market has increased its product prices from today, partly in response to the upward movement of crude oil prices over the preceding weeks and partly in response to the latest OPEC decision. I regret the increases that were, and are, bound to come, but the United Kingdom consumer cannot be shielded from their effects without endangering supply.

As for distribution, action taken by the Government should contribute to improved supply in the third quarter of the year, though I know that particular difficulties remain in some areas, especially, though not exclusively, for farmers and rural communities.

The United Kingdom Petroleum Industry Association has undertaken to handle the requirements of customers with problems in times of crisis as flexibly and swiftly as supply constraints allow, particularly where the harvest and the weather impose sharp seasonal increases in agricultural fuel needs.

Dr. Owen

Is the Secretary of State aware—it appears from his statement that he is not—that according to the news tapes, Shell has just announced that it is to increase its oil prices from tonight by 7p a gallon for four-star petrol and by 9p a gallon for two-star petrol? The House would have liked to hear the right hon. Gentleman's comments on that.

Is the right hon. Gentleman aware that today's evening newspapers are reporting that motorists are being charged £1.40 a gallon—and even £1.48 a gallon in some instances—and that is totally unjustified by the OPEC decision to increase oil prices since the tankers bringing crude affected by that increase will not reach this country for between two and five weeks?

How does the right hon. Gentleman justify such a large increase? Is it not a complete disavowal of his comments that we should trust market forces? Trusting market forces has led to a considerable shortage of supplies in some areas of the country. Conservative Members should talk to farmers and ask where they are getting their gas oil. Government Back Benchers do not seem to be aware that the chairman of their 1922 Committee wrote to the Minister of Agriculture a few days ago asking for a state of emergency to be declared in order to safeguard supplies for agricultural products. That request was refused but was reported in the Western Morning News, which the Secretary of State ought to read. There is obviously concern on the Government Benches.

Will the Secretary of State take the powers that he has under the Energy Act to hold the price of all petroleum products until he is satisfied, and until he has satisfied the House, that the increases are justified by the recent OPEC decision? Will he use the powers that he has under the Price Commission Act to have an overall look at pricing policy in petroleum products since that would act as a safeguard against the profiteering that will otherwise continue? Is he aware that if that profiteering carries on the only people to suffer will be the consumers?

Mr. Howell

I begin by taking this first opportunity to welcome the right hon. Gentleman to his energy responsibilities. I shall try to answer his lengthy list of questions and observations.

I am aware of the Shell price increase. It is one of a whole range of increases that we must expect. Perhaps the right hon. Gentleman does not understand that oil prices have been rising rapidly through the premiums charged by various OPEC countries, if not officially, in recent months. In many ways, the OPEC announcement from Geneva merely consolidates many of the increases that have occurred. I have never disguised the fact that there will be more increases, but the increase announced in Geneva in many ways confirms and consolidates prices that have been charged. I hope that that explains to the right hon. Gentleman what he may not have understood about the way in which heavier cost crudes are coming through all the time.

As to world prices, I am sure that the right hon. Gentleman recognises that as long as there is an OPEC monopoly that is the area where attention should be concentrated, because that is what is forcing up prices. The right hon. Gentleman asks us to use powers under the Energy Act or to refer matters to the Price Commission, but I must tell him that if we go back to price controls, price suppression or moving our price below that of the world market, we shall simply recreate the sort of shortages that the Government found when we came into office.

The real monopoly is OPEC. If there is evidence of local monopoly abuse or profiteering, it can be referred to my right hon. Friend the Secretary of State for Trade, but the best answer to meet local shortages about which the right hon. Gentleman is worried—and I am sure that he does not want rationing any more than does anyone else—is to get more oil supplies into the difficult regions. That is what we are doing.

Our prices are at about the levels of our Continental neighbours and the world market of which we are part. If we try to escape from that, we shall bring on ourselves all the difficulties that the previous Government were bringing on themselves.

Mr. J. Enoch Powell

What steps do the Government propose to take to counteract the effect that the limitation of imports agreed upon at Tokyo is otherwise bound to have in increasing prices?

Mr. Howell

The House will want to evaluate the results of the Tokyo meeting when it has heard a report of that meeting. That would be the best way to proceed. I respect the right hon. Gentleman's insight and illumination on the workings of markets, but my view is that the Tokyo proposal will provide a means in the medium term of a smoother transition to a new supply-demand equilibrium. It is a matter of judgment, but my view is that that is what it would do.

Mr. Patrick McNair-Wilson

Does my right hon. Friend agree that the upward pressure on prices is likely to continue and that, as a major oil producer, we should take such advantage as we can and not become a bargain basement for oil? Can he tell us what is to be the new price of Forties marker crude, which, I understand, is the price for North Sea oil?

Mr. Howell

The last point is clearly a matter for the producers in the North Sea—both the State oil corporation and the other major producers. My hon. Friend is right in saying that we are a major oil producer and that we are therefore entitled to more satisfactory arrangements than those that we experienced in the first and second quarters of this year. I have taken steps to do what I can to produce more satisfactory arrangements, first by seeking the co-operation of the oil majors, rather than constantly trying to control and frustrate their efforts, secondly by encouraging the British National Oil Corporation to change, in line with proper commercial practice, some of its contract arrangements to a less unsatisfactory pattern than that which we found when we took office, and, thirdly, by seeing that British market prices move to world market prices so that we are not denied our fair share of oil.

Mr. Benn

Does the right hon. Gentleman insist that the oil companies consult him before they raise their prices? Is he aware that he has statutory responsibilities attaching to his office to safeguard supplies in the United Kingdom? Why is he not using the powers available? How does one shop around for petrol if there is no oil in one's tank and no supplies in one's area? Will he not take the responsibility that properly belongs to his office?

Mr. Howell

We are working closely with the United Kingdom Petroleum Industry Association to see that more supplies are encouraged to go to particular areas—villages and farming communities—where the worst shortages exist. Although particular customers have sometimes reached near crisis, we find that we have been able to provide help on a much more selective and efficient basis than by drawing up general priority categories to make whole sectors immune from shortage. The right hon. Gentleman will have read accounts of what has happened in the United States, where the most frightful difficulties have been encountered. I do not think that such an approach has helped.

I have argued—I will continue to argue at this Dispatch Box—that I am right not to take powers restricting supplies to particular customers and particular categories perhaps very unfairly indeed. With the present level of shortfall we should proceed on the basis that has so far produced in the British economy a level of distribution which, although creating problems for some, has put us in a much better position than countries that have rushed into rationing, the taking of powers and the controlling of categories.

Mr. Stephen Ross

This House and the general public will not be very convinced with the answers that the right hon. Gentleman has given. The increases, although justified in the long run, should not be introduced straightaway. They have been described as a "rip off" in one of tonight's evening newspapers. I am sure that is what is happening. Can the right hon. Gentleman ensure continuation of supplies to hospitals? Some hospitals in my constituency have been suffering reductions of up to 20 per cent. Will the right hon. Gentleman give an assurance that the figure will be reduced to a minimum of 5 per cent., which was the Government's policy? What action is the right hon. Gentleman taking in the public sector to fight these increases, which have been imposed so quickly?

Mr. Howell

No emergency services are allowed to be at risk. If any public service has been in difficulty, my Department has intervened and provided help very swiftly. Others have managed to deal with problems through their supplier or distributor. I am confident that we can continue effectively with that system. On what the hon. Gentleman calls a "rip off" he perhaps did not hear what I said earlier. Crude oil prices have been rising rapidly. They have risen by 30 per cent. since the beginning of the year and by leaps and bounds in recent weeks. The figures announced in Geneva were merely consolidating in many cases the prices that had already come through in oil shipments delivered to this country. Oil prices charged by suppliers in this market reflect the increase in costs. It is not the concern of the Department to rush around controlling and intervening on every price setting in the oil sector. If we did so, we would go straight back to the shortages and difficulties of the past. It is my clear policy—I believe it is the right policy—to allow market prices to find world levels that will ensure that the system of supply and demand works and that the British consumer gets a fair deal.

Several Hon. Members


Mr. Speaker

Order. This is an extension of Question Time. I will call another two hon. Members from either side.

Mr. Grylls

Is my right hon. Friend aware that there is evidence that British Gas is showing no interest in industrial customers who want to switch from fuel oil to gas? Will he tell the House, and, more widely, industry, whether he will inform the British Gas Corporation that it should pay attention to these potential customers, because that would help the overall saving of oil?

Mr. Howell

My hon. Friend has asked me a question about gas supplies. I would be happy to answer at the appropriate moment if he would care to table a question. I am billed to appear here next week. If he tables a question, I will seek to answer it.

Mr. Hardy

If the Minister will not see that the Budget increase is reconsidered, will he take into account the fact that residents in rural and country areas have been placed in appalling difficulty in recent weeks? These people represent the most loyal supporters of the present Government. They feel that the Government have betrayed them. Will the right hon. Gentleman take into account that local authorities in those areas have been reluctant to support public transport? Will he encourage the Conservative Party in the country to change its attitude on that facility?

Mr. Howell

Not all rural and county areas face difficulties. Some face difficulties. That is why it is more effective to look at particular areas, with the oil suppliers, to see that those areas get special allocations and a fair deal within supply restraints, which we cannot wish away. There is a world oil scarcity. I appreciate the hon. Gentleman's solicitude. Our approach is much more effective than general categories of priority and more effective than rationing, which I also recognise the hon. Gentleman does not want.

We are in touch with the Public Service Transport Operators Committee. We have been able to help in a number of areas. But all users of oil or consumers of petrol, for the foreseeable future, will have to find some ways of economising. There is no way in which we can declare certain groups totally immune from the shortage and the permanent new era of high cost energy which faces this nation, and every consumer and every worker, whatever his or her position.

Mr. Emery

Does my right hon. Friend recall that when he made a statement two weeks ago a number of Labour Members suggested that the situation in France and Germany was much less acute than in Britain? Will he point out to the public that unless the price of petrol reaches the levels that exist in Europe the spare petrol and petroleum products will go to Europe rather than this country? We have to pay international prices. I would also like to mention tourism. Supplies in the West Country are now much better, but will my right hon. Friend take on board the fact that a number of petrol stations are closing on Saturdays and Sundays in order to save wage costs? Those are the days when there is the normal turnover of holidaymakers—[HON. MEMBERS: "Too long."] They are the constituents of Labour Members. They arrive on a Saturday and leave on a Sunday. It is important to them that they should be able to obtain petrol on those days.

Mr. Howell

My hon. Friend is right on the first point. It has been necessary during the last few weeks, since the new Government took office, to unravel the totally unsatisfactory price arrangements and contract arrangements flowing from the price arrangements that the new Government found. These arrangements were bound to lead to severe shortages and disruption. We have moved back to an international price level. As a result, the oil companies, both BNOC and the majors, have been able to rejig their contracts to suit better and more satisfactory trading conditions from the British consumer's point of view.

On tourism, the oil companies have undertaken to ensure that the allocations to tourist areas reflect the seasonal ups and downs. Where they are related to last year, they are related to the high points of supply during the season. We have drawn the attention of the oil suppliers to needs in particular tourist areas. Like my hon. Friend, I have found, in recent days, that the position has eased. I hope that this will be so over the next two holiday months. I urge commentators and those who make public pronouncements on these matters not to exaggerate the difficulties, particularly where they do not exist. All this does is keep away holiday makers unnecessarily and cause much suffering and disappointment where it is not entirely necessary.

Mr. William Hamilton

Is the right hon. Gentleman aware that every answer that he has given reeks of mind-boggling complacency? If he believes that all these problems can be solved by leaving everything to the market, can he say whether South Africa is now being supplied with North Sea oil by the same market forces? Does he intend to intercede to prevent that trade?

Mr. Howell

I am sorry about the boggling of the hon. Member's mind. I reject the charge of complacency. If there is a charge to be made, it is that I have, perhaps, avoided some of the wilder and more hysterical instant remedies pressed upon me by Opposition Members a few weeks ago, which, it was alleged, would have improved the situation. They certainly would not have done that.

The South Africa position is a matter for my right hon. Friend the Foreign Secretary. I understand that there has been no significant change. Oil went to South Africa under the aegis of BP when the previous Government were in office. The proposal from BP about the Conoco deal was put to the previous Government. They did not say "Yes" and they did not say "No." They merely did not answer the proposal.

As to the recent newspaper reports and the remarks by the right hon. Member for Plymouth, Devonport (Mr. Owen), one should be careful about exaggerating any alleged changes because these can do immense and lasting damage to Britain's national and business interests in Africa and throughout the world.

Mr. Robert Hughes

On a point of order, Mr. Speaker. I appreciate that answers are a matter for Ministers. However, at the weekend, a clear decision was reported—and this has been confirmed by the Secretary of State today—that BP and Conoco have authorised a swap deal under which North Sea oil will go to South Africa. Leaving aside the immorality of that decision, it seems that our own oil supplies will be under threat from Nigeria as a result of that decision. Should we not—

Mr. Speaker

Order. The hon. Member must come to a point of order that I can answer. The issue seems to be a question for the Minister.

Mr. Hughes

The Secretary of State said that this was not a matter for him. Should we not have a statement from the Foreign Office, especially as the Foreign Secretary is not in the House?

Mr. Speaker

I am not responsible for statements by Government Departments.