Gas Levy Bill

HC Deb 16 February 1981 vol 999 cc69-109

Order for Second Reading read.

7 pm

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

I beg to move. That the Bill be now read a Second time.

The House will recall that on 8 May last year I announced that the Government had decided in principle to impose a levy on the British Gas Corporation in respect of gas purchased from the United Kingdom continental shelf and sold to the corporation under contracts which were not subject to petroleum revenue tax. I should like to explain the background to that decision.

Natural gas was first discovered under the North Sea in 1965. The Gas Council and its successor, the British Gas Corporation, contracted to buy gas from the newly discovered fields, first in the southern basin, off the coast of East Anglia, and later from more northerly waters. Virtually all the gas that at present comes ashore from the United Kingdom continental shelf is supplied to the British Gas Corporation by the producers under long-term contracts signed before the oil price explosion of 1973–74, let alone the oil price explosion of 1979–80. In consequence, the prices currently paid for gas from these fields reflect the prices and the escalation clauses agreed upon in a quite different era of cheap energy which no longer exists and which I do not believe will return.

In fact, the average basic cost to British Gas of all its gas purchases in the current financial year will be about 8p a therm. That is a figure which includes the much more expensive northern basin gas and Norwegian imports. Eight pence a therm as the average cost of gas has to be compared with prices more, and in some cases considerably more, than double this figure now being not merely sought but achieved by producers for new supplies or renegotiated contracts in recent international deals. That these much higher prices are being charged, together with provisions that they should be raised substantially further in line with subsequent oil price increases, is a reflection of the massive demand for gas supplies by the European utilities that are scrambling to acquire them from the North Sea and are prepared to pay these very much higher prices.

So cheap gas is a rapidly declining asset. New supplies from the more distant northern waters will cost anything up to 10 times—1,000 per cent.— the prices originally paid for gas under the old contracts from the southern basin of the North Sea. Prices must reflect the costs of supply on a continuing basis. Any company which ignored that principle would go out of business. If we do not follow that principle for pricing our gas, we run a number of very serious risks, details of which I should like to share with the House.

Mr. Frank Haynes (Ashfield)

On the question of the clawback over the three-year period, as stated in the Bill, will the Secretary of State indicate clearly where the money will go? Bearing in mind the amount of money that the consumer is expected to pay and that that money will not be left for the industry to expand to provide the proper service, where will the £1,300 million mentioned in the Bill be going? What will the Government be doing with this money which is to be clawed back from consumers?

Mr. Howell

Perhaps it was a mistake to give way at that point, because I shall be covering in great detail the whole position posed by the Bill and meeting some of the hon. Gentleman's questions.

Unless we follow this principle for pricing our gas, we run very serious risks. The first risk is that demand will grow more rapidly than supply, so that industry could again find itself short of gas, as it did two winters ago.

Mr. Haynes

On a point of order, Mr. Deputy Speaker.[Interruption.] What is all the bawling for?

I asked a specific question of the Secretary of State, Mr. Deputy Speaker. I am entitled to ask a question. I accept the reaction from the Conservative Benches, but surely I should be told, for the benefit of the people of this nation, where the money is going. They are entitled to know that.

Mr. Deputy Speaker (Mr. Richard Crawshaw)

The hon. Gentleman is obviously entitled to intervene and to ask a question, but the Minister has hardly started his speech on the Bill. He has not really started to explain the Bill.

Mr. Howell

The hon. Member is also entitled to an answer. Perhaps he will show a little patience and courtesy.

Secondly, consumers will switch to gas, based on a thoroughly misleading belief about price, only to find—this is the danger—that in the following years the price of gas will jump by percentages that make anything that we have experienced so far look small—difficult though that may be. Thirdly, meanwhile, new gas supplies will obviously not be forthcoming, because the price will not be there to attract the new reservoirs to be opened and invested in. Finally, we run the risk of wasting what is available because the price does not reflect the gas's true value.

That final point was put very clearly, and rather well, in the Labour Government's Green Paper on energy prices, in which they set out clearly the obvious proposition that the gas industry's prices need to be related to the expected cost of future supplies, rather than to its historic costs. They went on to say that this could give rise to large surpluses—as indeed it is doing—and that decisions would be needed on the use to which these surpluses should be put, although they were not able to get around to making those decisions.

It was considerations of this kind which lay behind the Government's decision a year ago to set the British Gas Corporation a new three-year financial target. The target was based on the corporation's and the Government's belief in charging prices based on sensible economic principles—or, at least, moving towards them. For domestic gas the plan was, and is, to move towards the economic level at the rate of 10 per cent. a year, over and above the rate of inflation. For industrial gas the target is founded on the corporation's own policy of selling gas to industrial consumers at prices broadly related to those of the competing oil products.

As I have indicated from the Green Paper as well as in what I have said today, it was always recognised that the effect of this policy of economic pricing was bound to result in a period of big windfall profits accruing to British Gas. This is because it continues to benefit from supplies of gas from the southern basin on contracts negotiated on terms and at prices agreed many years ago. Last year the corporation's pre-tax profits were £425 million. Within a year or two, they would be, without the approval of the House for this Bill, over £1,000 million—well in excess of the corporation's current needs, even given the very substantial capital investment programme now under way.

The purpose of the proposed gas levy is to transfer this windfall profit from the corporation to the Exchequer so that the Government and this House are then free to debate and decide where the benefits should go. In a similar way, our oil taxation regime is intended to remove the windfall gain resulting from rising international oil prices from the producers for the benefit of the community generally. By removal of the unearned windfall, the corporation will be left in a more normal commercial situation. This will help to encourage it to maintain standards of efficiency which would otherwise have been at risk.

Mr. T. H. H. Skeet (Bedford)

I have been following my right hon. Friend's argument. He wants a transfer from the British Gas Corporation to the Treasury. Why does he not do it in the Finance Bill? We could then have killed two birds with one stone. Why have two Bills?

Mr. Howell

I shall explain later, when discussing the impact on the British Gas Cororation, that this is not a tax on profits. It is a levy on costs. I shall explain the pattern by which that is achieved.

The Bill proposes a levy on the British Gas Corporation's purchases of gas that are at present exempt from petroleum revenue tax. This tax was introduced under the Oil Taxation Act 1975. Section 10 of that Act exempted from PRT gas sold to the corporation under contracts made before the end of June 1975. The reason for this exemption was, in essence, that the price and escalation provisions of those contracts prevented any substantial windfall gain accruing to the producers. Instead, the windfall resulting from rising energy prices in respect of exempt gas has accrued, and is accruing, to the British Gas Corporation. It is clearly appropriate for the levy to be restricted to the corporation's purchases of gas from reservoirs in the United Kingdom continental shelf under contracts not subject to PRT.

By imposing the levy on the corporation in respect of gas taken under old contracts, we avoid both introducing a new tax regime on the producers and disturbing existing contractual relationships.

I have indicated, in responding to my hon. Friend's intervention, that the gas levy is not a crude profits tax. Taxing profits at a high rate could act as a disincentive to efficiency and could encourage extravagance in expenditure. The levy is a charge on the corporation's gas purchases, fixed for three years ahead to cover the period of the current financial target and limited to PRT-exempt gas. Such gas at present comprises the bulk of the corporation's supplies, but by the early years of the next decade this proportion will have fallen very considerably. So the impact of the levy on PRT-exempt gas will decline as this cheap gas runs out.

Let me make it clear, too, that the levy will make no difference to what happens to prices. The rates of the levy specified in the Bill have been set to be consistent with the pricing policy that I outlined earlier. Although, as the preamble indicates, the Bill takes the form of a Ways and Means measure, intended to make an addition to the public revenue, in reality neither the purpose nor the effect of the Bill would be to draw additional moneys into the public sector, only into the Exchequer. In the absence of the gas levy, the corporation's surplus cash would continue to be deposited with the national loans fund and would continue to bear interest. For the reasons I have already indicated, it would be wrong to allow such surpluses to continue to accumulate. I think that that was recognised in the Green Paper to which I have referred. The effect of the Bill will be to transfer these cash surpluses from the corporation permanently to the Exchequer.

Mr. Dick Douglas (Dunfermline)

In view of the length of time that the Secretary of State proposes that the levy should run—three years—what is his estimate of the length of life of the contracts which might be applicable to the levy in future years? How long will they have to run?

Mr. Howell

They will run down at different speeds. If it helps the hon. Gentleman, we would move from about two-thirds of our gas from the tax-exempt contracts down to less than 40 per cent. in the next eight or nine years.

I should now like to turn to the Bill itself. Clause 1 provides, in effect that for the current year, 1980–81, and subsequent years a levy shall be payable in respect of gas purchased by the corporation from gas fields or reservoirs on the United Kingdom continental shelf under contracts which are at present not subject to PRT.

Clause 2 specifies the rate of the levy for the three financial years 1980–81 to 1982–83. This is specified at lp, 3p and 5p per therm for each of those three years. A rising rate of levy is consistent with the movement towards economic prices in the domestic sector and with likely movements in oil prices. On the basis of the most recent financial forecasts of the BGC, the amounts of levy payable are expected to be about £130 million in 1980–81, £420 million in 1981–82 and £750 million in 1982–83. Post-levy profits in the current year are forecast to be in the region of £300 million with expectation of similar outturns in the following years.

The precise rate of the levy inevitably contains an element of judgment. The rates proposed in the Bill represent a sensible balance, reflecting the need both to remove windfall gains from British Gas while enabling the corporation to operate viably in a commercial context.

Clause 2 enables me, with the approval of the Treasury, to vary by order, subject to affirmative resolution of this House, the rates of levy set out in the Bill. This power is a precaution against unexpected changes in circumstances, while recognising the merits of leaving the levy unchanged so far as possible so that British Gas can have a settled financial framework within which to work. This framework comprises the financial target and the levy, both currently proposed for the three-year period 1980–81 to 1982–83.

For subsequent years, the intention is that the rate of levy should be specified by order, again subject to affirmative resolution. No decisions have been taken in respect of the rate of levy appropriate for subsequent periods.

Clause 3 deals with the manner and timing of payments of the levy. We intend that quarterly instalments should be paid in arrears.

Clause 4 covers the situation where gas is extracted and charged for levy or for PRT, and then stored in a PRT-exempt reservoir. The aim here is to ensure that no stored gas should be "double-charged".

Clause 5 deals with measuring and testing equipment. The intention in general is that, where British Gas is purchasing gas at arm's length from producers, the levy will be based on the corporation's audited returns. But where the corporation or one of its own subsidiaries is responsible for producing gas liable to the levy, it may be necessary to specify and examine the metering equipment used to measure the number of therms of gas taken. Clause 5 provides the necessary powers.

Clause 6 specifies that the sums received by the Secretary of State in respect of the levy shall be paid into the Consolidated Fund. An account, certified by the Comptroller and Auditor General, shall be laid before Parliament each year.

That is the detail of the clause. I turn now to the effect of the levy on the financial position of the British Gas Corporation. This is obviously important. When I announced our intention to impose the levy, I said that the corporation's three-year financial target would be modified to compensate for it so that there would be no effect on gas prices. As I announced last week, in a written reply to my hon. Friend the Member for Derbyshire, South-East (Mr. Rost), I have agreed with British Gas a revised finacial target, expressed as an average annual rate of return to be achieved over the period April 1980 to March 1983, of 3½ percent. on net assets valued at current cost. This target is related to current cost operating profit after taking account of depreciation but before interest and tax. This revised target, which is subject to passage of this Bill, reflects the forecast effects of the proposed rates of levy and of the new current cost accounting standard on the target of 9 per cent. that was set on 16 January 1980.

A return of 3½ per cent. on revalued assets would be appropriate, in the Government's view, for an industry such as British Gas, taking into account the nature of the business and the sort of return made by industry generally, both in the past and at present.

The corporation's post-levy profits over the three-year period, together with the provision for depreciation, should be sufficient to finance its current major capital investment programme which is currently under way, aimed at improving gas supplies to industrial and domestic consumers and providing secure supplies to more of those seeking them.

To conclude, let me state again the main elements of the policy behind the Bill. First, the Government believe, as does the industry, as do those outside who have examined the matter, and as did the Labour Government, that the aim should be for prices to be economic. That means that prices must reflect: the costs of bringing forward new supplies, not the costs of old supplies under historically cheap contracts. Only in this way will supply and demand be kept in reasonable balance and sensible investment and consumption decisions be made. Cheap gas is no use if there is no gas to be cheap and if industry and jobs go begging.

Second, this approach, incidentally, results in big windfall gains accruing to the British Gas Corporation. It makes no sense that these gains should be held in reserve solely for the ultimate use of the corporation. It makes every sense that they should be at the disposal of the Exchequer.

Third, the proposed gas levy on PRT-exempted gas is a simple, efficient and appropriate means for removing the windfall gain for the benefit of the nation as a whole and without affecting gas prices.

7.20 pm

Mr. Merlyn Rees (Leeds, South)

We are grateful to the Secretary of State for explaining the technical clauses.. It is only in the past two or three months that I have moved into an economic-industrial sector. I have visited and listened but talked very little to those involved in the energy industry outside the House. I must report a sense of frustration. Energy matters are discussed in symposia throughout Britain, but rarely on the Floor of the House. For example, everyone except the House is talking about the problems of the coal industry.

I shall relate some general matters to what arises from the Bill. The right hon. Gentleman talked about investment. He said that the money within the charge of the British Gas Corporation was for the purpose of investment, but we have heard little about investment. It has been mentioned purely in Gladstonian revenue terms. The right hon. Gentleman talked about the Green Paper of the Labour Government, which observed that there would be surpluses. That paper discussed the uses to which the money would be put. The right hon. Gentleman said that the House would be free to debate the uses to which the money should be put. That is an issue that should be discussed during the debate.

I take up the procedural matter that was raised by the hon. Member for Bedford (Mr. Skeet). A Ways and Means motion was resolved on 3–4 February. I presume that that was done because of the Budget-taxation nature of the proposals. The moneys went into the Consolidated Fund with all the other moneys that go into that fund. I understood that the resolution was unamendable, by its very nature. I hope that that procedure will not prevent us from discussing and trying to amend the nature of the levy and the amount of the money.

The gas industry is most successful. It has transformed itself. It is highly productive. In the short time that I have been involved in energy matters there have been great changes. Those involved in the corporation are proud of their industry, as people always are when they are in a successful industry. However, it is an industry that will have to be ready to find alternative supplies and alternative sources of gas in future.

If the corporation were a joint stock limited liability company, having to look forward five, 10, 15 or 20 years in determining its financial policy, it would have to put aside money for the long-term future. It is a nationalised monopoly and it has to adopt the same approach. We say that it will be about 20 years—I do not know whether the estimate is right—before the gas industry will have to find alternative supplies in the United Kingdom. It is necessary to engage in research now. Are there sufficient moneys in the corporation to enable the necessary fundamental research and development to take place, when account is taken of the moneys that will be taken from it by the levy?

Mr. Tim Eggar (Enfield, North)

Does the right hon. Gentleman use the same argument when he discusses PRT on oil companies?

Mr. Rees

I do not. I understand the hon. Gentleman's argument. When an oil company is arguing with the Government about the rate of PRT, I, for one, would consider more sympathetically its representations if they were based on ploughing back profits for the future rather than distributed profits. It is perfectly proper for a company to think of the long-term future.

The annual report refers to that. It refers to coal gasification and a development centre on the North-East Coast and another at Killingholme, on Humberside. Are there enough resources for the corporation to do its job properly? The money for future projects will have to come from profits, namely, the surplus within industry. Whatever else economic history shows, it shows that industrial capital is its own progenitor. I want to be sure that the corporation has sufficient reserves to undertake the task that it has to meet in the next decade. If the levy makes it more difficult for the corporation to do that, we should all be concerned.

In another place on 22 October we were reminded by Lord Strathcona that the profits of the corporation are needed to finance the very substantial British Gas capital programme which is around £4,000 million over the next four years. Has the levy taken that into account, despite the fact that it is an equation that uses the former cash limit? Lord Strathcona observed that the programme is aimed at strengthening the gas transmission, distribution and storage system and bringing ashore some of the expensive additional supplies."—[Official Report, House of Lords, 22 October 1981; Vol. 413, c. 2034.] I read the report of the Select Committee on European Matters—the Select Committee of another place—that was printed on 16 December. I was interested to read that Lord Kearton argued that not enough drilling was being done to determine the extent of gas reserves, which he thought were being underestimated. If the reserves of money capital are not available to the corporation because they have been taken by the Governmentc the corporation will have to return to borrowing. At present it is earning such surpluses that the Government consider that it is proper to take part of them. What will happen when it needs to borrow? When that happens it will be said, on a political level, "Here is another industry asking for money". What will be said if it asks for subsidies?

Mr. Skeet

It will be self-financing.

Mr. Rees

If that is so, and the money is raised elsewhere, that is one thing, but I am entitled to ask whether the levy that is placed on the corporation will have an effect on future financing. The 1979–80 accounts show quite clearly that the corporation's total profit was £466.3 million. The accounts explain that the corporation met its financial target, and refer to the Secretary of State's words about future cash limits.

One part of the financial and economic framework within which the corporation operates, as with other nationalised industries, is the external financial limit. All outstanding financial advances were repaid early in 1980. It is said in the accounts that the Government required the corporation to repay a further £190 million, thereby increasing the external financial limit for 1979–80 to minus £499 million. It is explained that two-thirds of the £190 million originated from internal sources and that some areas of planned expenditure had to be deferred. Was that necessary capital investment that had to be deferred, and does it affect the long-term position of the corporation?

The price increases a year or two ago were investigated by the Price Commission. The corporation's proposals were approved. What about Government policy? In general, the Government say that they are non-interventionist, but with the corporation they are interventionist. The report states: While details of the tariff changes necessary to achieve the financial target for the three years April 1980 to March 1983 are a matter for British Gas, the Government has informed the Corporation that it had in mind the importance of correcting the underpricing of domestic gas and of narrowing the gap between the price to the domestic consumer and that to industry. The Secretary of State stated, in connection with his announcement of the new financial target, that the Government expected domestic gas prices to increase in 1980–81 by 10 per cent. over and above the rate of inflation, followed by comparable real increases in the following two years. The report spells out the increases that follow.

Soon, by Government fiat the price of gas will go up again. In The Times on Saturday the Government announced that April's increase will be the third in 12 months, and that domestic prices will rise by about 15 per cent. from April, with a further 10 percent. increase from October.

The total 25 per cent. increase is a Government decision. It must be justified at a time of recession. What is done in the upturn from the slump or in the normal boom and slump which seems to have disappeared, is one matter. If prices are increased in a classical slump, less money is available to the community for the necessary reflation. In the context of the Bill, profits will rise, and that is Government policy. I listened to the Prime Minister on the Brian Walden show on 1 February, talking about monopolies. She said that even the nationalised industries could not continue to put up prices. In this instance the Government are putting up prices.

The moneys for the levy are to be paid into the Consolidated Fund. It is incredible that moneys paid to the Government from productive industry should be treated as pure revenue, in the old-fashioned sense of the term. It works both ways. It is also incredible that loans to industry should come from the Consolidated Fund. It is not the vehicle for the judgments involved. The source is suspect in that respect.

Government Members talk often of the judgments that have to be made about whether money in the private sector should be used. I understand their thoughts. They talk about the return on capital and its relationship to the rate of interest and the minimum lending rate. When money comes out of the Consolidated Fund, or goes into it, it is not a source of revenue, nor is it where the money should go when right judgments have to be made.

That is relevant to the Bill, because of the nature of the legislative process. The money is to go into the Consolidated Fund, with everything else. At least the Consolidated Fund should be divided into two, so that the division is clear. It should be clear in the Budget which money has come from industry and which has gone to industry. The money received from industry, including North Sea oil, should be paid into an investment account. We can argue at some other time whether that should involve an investment bank. The name matters, because judgments have to be made about the use of the money and about the benefit that it brings to the nation in the long term.

There is concern about the treatment of nationalised industries' money, whether the payments are in or out. There is talk of subsidisation, which is the wrong approach to investment industries, which, by their nature, cannot be treated as though they are normal types of company.

I turn to the question of cash limits. The money that is to go into the Consolidated Fund is taken out of the cash limit—the external finance limit. It has to be adjusted to take the levy into account. Sir Leslie Murphy, amongst others, has talked recently about the problem and the effect of cash limits on nationalised industries. He said that there had been a catastrophic effect on capital formation in the public sector, and that the justification was to reduce the public sector borrowing requirement.

Time and again in recent weeks, people that I have met in industry—people not of my political persuasion—have questioned the public sector borrowing requirement and the treating of investment in industry as if it were normal expenditure by the Government. In an article in The Guardian, Sir Leslie said: In fact, all nationalised industries are in need of huge capital expenditure. The argument for the cuts is, of course, to reduce the Public Sector Borrowing Requirement; but it seems nonsensical to lump together revenue items, such as social security payments, and capital expenditure on wealth producing assets for purposes of arriving at PSBR.

Mr. Peter Rost (Derbyshire, South-East)

I am in sympathy with the right hon. Gentleman's argument, but does he agree that there is a difficulty in drawing the line between revenue expenditure and capital expenditure in relation to spending Government money? For example, how would he categorise the support that the Government have given to the British Steel Corporation and British Leyland? Is that capital expenditure, social security, or subsidy?

Mr. Rees

It is right to question what proportion of Government money is investment, in the classical sense, to keep the motor car industry going. Investment in the British Steel Corporation is almost entirely in order to maintain an investment industry. There is a need for investment in such industries. I do not pretend to be an accountant, but to put the levies in the Consolidated Fund is the wrong approach.

In the short debate that we had recently the Minister said of the levy: It will not affect the pricing policy of the corporation."— [Official Report, 3 February 1981, Vol. 998, col. 261.] That appears not to be the view of the corporation. In its view the implementation of the levy will lead to an increase after five years. I hesitate to say that it will be 5p, although that figure goes round in my mind. What I am sure is that the chairman in his report to the employees said It is inevitable that this new tax will lead to higher gas prices within the next few years. The Minister the other night and the Secretary of State today said that it will not increase prices, but the chairman of the Gas Corporation thought differently in the document sent to workers.

In June 1980 the cash limit was 9 per cent. and prices were to go up. The cash limit has changed twice since then. It was announced on 4 February that from April 1980 to March 1983 the revised financial target was 3½ percent. on net assets valued on the new current cost basis, which was introduced since the first cash limit was set. The revision reflects the forecast effects of the proposed rates of levy and of the new current cost occounting. What happens if, after three years, the levy is still there? Surely it is a cost to the corporation that will affect prices.

I did not understand the Secretary of State's reply about the length of contracts. The question referred to a period of three years. The Secretary of State mentioned seven, eight or nine years. We must be clear. The Government say one thing and the British Gas Corporation another.

The Bill is about the financing of the corporation. It is a tax measure that affects the amount of money available for all the purposes for which an industrial concern needs money. It also, therefore, affects prices. On Friday I met representatives of the chamber of commerce for Yorkshire and Humberside. They brought to my notice a document called "Utility Newsbriefs", with the headline: British firms still pay top world prices for natural gas. The Government and the CBI take different views of gas prices in different parts of the world. A task force is to report on the matter just before or just after the Budget. It may make a recommendation on energy prices. By this measure we are taking over£l billion from the British Gas Corporation over the next three years, which will leave it precious little room for freedom of action.

The levy can be paid only because the corporation raises charges. The representatives of the chambers of commerce also state that it is common ground not only that our industry pays more for its energy supplies than our overseas competitors but that the corporation is secretly negotiating large gas contracts. A user will negotiate a contract believing that he has done well. Months later he may discover that someone else in the area has paid a good deal less. They argue that contract prices in such nationalised industries should be generally known.

The money from the corporation will go to the Consolidated Fund. What about the finance for the £700 million pipeline? A consortium is involved. The corporation recently stated that onshore and offshore work was proceeding according to schedule. The aim is to have the first gas ashore by 1983–84. It has been put to me that if the matter had been left to the corporation to handle out of its own pocket the system would have been in operation much sooner, and time would not have been wasted on negotiations with the Scottish banks.

Finally, Northern Ireland, which is part of the United Kingdom, has a fragmented gas industry. It had not been associated with the nationalised corporations for 40 years or more. Who will pay for a gas system to be developed in Northern Ireland, whether it comes from Kinsale in the South or across St. George's channel or the Irish sea? I presume that the money will come from the Consolidated Fund and will be a direct charge on the Exchequer. I do not believe that such a development in Northern Ireland would be undertaken by an entrepreneur. What is the Government's view on financing the new gas industry in Northern Ireland?

On paper the Bill is a simple transaction, but it is not so simple when it comes to pricing. The British Gas Corporation says one thing and the Government another. I have raised wider issues, such as the pricing policy of nationalised industries. The time has come to reconsider the policy. The Government have given no convincing answers to justify putting the money into the Consolidated Fund. Capital investment in the corporation is far too low, which adds to the general industrial depression. The nationalised industries should take the lead in pulling us out of the depression.

The technicalities of the Bill are impeccable, but during the later stages of the Bill we must probe the Government's actions. We should use the Bill as a vehicle for wider discussion about the financial organisation of the nationalised industries, particularly as it affects the PSBR and the Consolidated Fund. We should not vote against the Bill on its technicalities. It is a small technical Bill, but it enables us to probe the Government's views on much more important matters. In the past 10 or 15 years, under both Governments, we have not got the policy right. We should use this Bill to get it right. The money should not be paid into the Consolidated Fund. It is not merely revenue; it is money for investment that may have to be used in a wide variety of industries in the months and years to come.

Mr. Albert Roberts (Normanton)

Does my right hon. Friend agree that some of the money could be used to electrify British Railways, which would stimulate industry and mean that over the next 20 years our railway system could become dependent on electricity from coal?

Mr. Rees

That would be a reasonable and sensible investment policy. However, I should be much happier if we had an investment account, so that when such judgments were made the money would be available.

Mr. Skeet

The right hon. Gentleman made a very good point about a separate investment fund. I have been pursuing that argument for a long time. The right hon. Gentleman will recollect that his own Government talked about this but never got around to establishing the fund. The Treasury was in control and would not allow them to do so. Is the right hon. Gentleman suggesting, as part of the policy of the current Labour Party—the one to which he belongs—the establishment of a separate investment fund for North Sea assets?

Mr. Rees

I think that that is the sensible thing to do. I believe that it is what will be done, and that changes will be made towards it long before there is a change of Government. The fact that a Government went in a certain direction, whether because of the Treasury or for whatever reason, does not matter very much. I think that this is a change that ought to be made. It is in that sense, and not on the technicalities, that, on behalf of the Opposition, I put it forward tonight as one of the major reasons why I believe that we should vote against the Bill.

7.51 pm

Sir Hugh Fraser (Stafford and Stone)

My hon. Friend the Under-Secretary will have to respond to a number of questions when he replies to the debate. The first is why the Bill was not brought forward as part of the Budget, since it is essentially a taxation Bill on an industry. I, personally, am opposed to all windfall or retroactive taxes. I believe that they are bad for investment, set up a bad relationship between the investor and the Government and can cause breaches of trust.

I know that the powers of my right hon. Friend the Secretary of State are not dissimilar to those of Mr. Rockefeller at the height of Standard Oil. He controls all that he sees. He controls the North Sea. He controls the coal mines. He is the czar of energy. Yet he has feet of clay, because the props are always being chipped away from under him by the Treasury, and by the trade unions as well. This is a serious point. The Treasury is here intervening wrongfully, I believe, because there are far more serious energy problems to be faced.

The Minister referred to the future. It is only fair to refer to two matters which need to be more properly developed than they have been so far. One is North Sea oil. Last year saw the lowest number of drillings for oil since 1973. The other is the North Sea gas pipeline. I believe that those are the two most important investments that this country can make. My right hon. Friend is the mastermind of these affairs. But what happens? Only two months ago the Treasury, because it gets its sums wrong by an average of 50 per cent., rushed at the oil companies asking for £1,000 million more. That does not exactly encourage the oil companies to go ahead with the necessary drilling programmes.

Will the Bill be helpful in the major investment that British Gas and the British nation must make in establishing the North Sea gas pipeline, which will prevent hundreds of millions of cubic feet of gas from being burnt off to nothing? That is the biggest and most important investment that my right hon. Friend should undertake—in addition, of course, to the gas pipeline to Northern Ireland. These are matters of great importance and I question very much whether the correct way of dealing with the energy industries is for my right hon. Friend to allow himself to be treated as a footstool and to be trampled upon by the Treasury. Unfortunately, we see this again and again. When the Treasury makes mistakes, it lashes out in all directions trying to scoop in everything that it can. This is where my right hon. Friend must really fight a proper action.

I agree with the right hon. Member for Leeds, South (Mr. Rees) in drawing attention to the views of the Gas Corporation. That is a very able body, which has done a wonderful technical job. The corporation makes it quite clear that in its view the proposed levy of £1,300 million over three years will eventually put up the price of gas to the consumer. That is my first main objection. As I have said, I am opposed to windfall and retroactive taxes.

Another aspect must be questioned. I am proud to have in my constituency both Wedgwood and Comings, which is an important glass manufacturer. I must question whether, at a time when unemployment is rising faster in the West Midlands than anywhere else, it is proper to impose a burden on the gas industry, especially when in most instances our prices are considerably higher than those in competitive countries. I therefore question very much the policies put forward by my right hon. Friend in relation to gas.

I believe that it is perfectly proper, although it has never popular, to bring domestic prices more into line with industrial prices. One of the great problems of this country over the past 40 or 50 years since I have been in the House is that the consumer has been subsidised by industry, whether in relation to electricity, gas or coal. Unpalatable though it may be, and faced with mounting unemployment and export problems, and with unfair competition from the United States where chemical processing is infinitely cheaper because of its cheaper gas, I am sure that the time has come for the Government to consider using these windfall profits and this unearned income to get the furnaces of British industry going again.

I do not wish to see the 1,300 million put into reducing the domestic tariff. We can all switch on, and we can be encouraged to switch off unnecessary gas. That is not so for industry. The potteries, the glass manufacturers and the steel industry need a continuous supply. In my view, that supply is too expensive here compared with that of our rivals.

There has been an investigation by a powerful, rather secretive committee. If one rings up, one is told that it cannot give the information. The information has been given to this great Government committee. I believe it is called a task force. Perhaps it has hats and helmets and assault troops. More likely, perhaps, it is a lot of dreary old men stuck in an office. If one rings up this great assault force and asks for the figures, one finds that they cannot be given.

Fortunately, however, I have one or two figures that are worth giving to the House in relation to the competitive situation. First, in the glasshouse industry, which some of my hon. Friends know about, the Dutch are giving a 40 per cent. subsidy. Indeed, our growers are dragging them before the great justices of the European Court. The glass industry has a variety of processes, but I know that in respect of identical processes such as heavy melting of glass, the price of energy for Cornings is 24.7p per therm in Staffordshire. In France it is 19.3p per therm for precisely the same activity. That is a difference of about 20 to 25 per cent.

I now take the figures from the British Pottery Manufacturing Association. German potters have gas costs that are 10 per cent. cheaper than the price at which British companies must purchase it. Those are serious figures. If the Government want to pump prime a recovery in certain industries, to bring these international costs into line is surely the way in which it should be done.

Gas costs in the glass industry are about 6 per cent. of total costs. The cost in pottery manufacture is rather higher. In the sanitary and tile sectors of the industry, gas supplies amount to 13 percent. of their costs. The average for the pottery industry as a whole is about 9 per cent. Potteries use between £15 million and £18 million worth of gas each year. A price reduction of 10 per cent. would make a tremendous difference to jobs, profitability and competition overseas. That is where some of this money should go, instead of flowing into the maw of the Treasury.

I hope that what should have happened on the previous Budget day will happen on the next one, namely, that the Government will make some concessions. They should make concessions on their calculation of the price of oil—£8 which is not put into European prices—and above all make concessions so that gas prices for industry and heavy users are reduced and brought into line with those in Europe. Unless that happens, I must warn the Government that I shall be forced to vote against the Bill when it comes back to the House.

8.2 pm

Mr. J. Enoch Powell (Down, South)

As I indicated when the House considered the Ways and Means resolution on which this Bill is founded, my hon. Friends and I could not possibly support a measure which raises from the gas industry sums hugely greater than would be necessary to embody Northern Ireland integrally into the gas and energy economy of the United Kingdom.

Before I turn to that more domestic matter, I should like to make some general comments on the Bill, which in this sense I find to be a jewel of a Bill, in that like a cut diamond, as one moves it around in the light, new and ever newer financial facets present themselves to our contemplation.

At the outset, I must say that I could not share the enthusiasm of the right hon. Member for Leeds, South (Mr. Rees) for reversing the principle of the Consolidated Fund, which we owe to the Younger Pitt. I do not believe that there can result anything but confusion in national finance from dismantling or sub-dividing the Consolidated Fund. There was a moment when the right hon. Gentleman was perilously near hitting the trail towards a road fund, thereby entering that financial quagmire known as an assigned revenue, and sure enough, as he trembled upon the brink, Nemesis appeared in the person of his hon. Friend the Member for Normanton (Mr. Roberts), who, hearing that there was to be a fund for investment, said "Well, we could do with that on the railways as well".

There simply is no reason why the application of a particular revenue should be related to the source from which that revenue is raised. At this end of the century, I should have hoped we would not need to go through the old, long and bitter adventure of the road fund, from which that lesson at least should have been learnt.

The Secretary of State was anxious to say that this was not a taxation measure. Indeed, said he, the Government would have been just as well off without this measure. That was a remarkable and significant admission. He said that if these funds are not raised by the levy, they would go to the national loans fund; in other words, the British Gas Corporation would lend them to the Government. Therefore, the Government are no better or worse off in total as a result of this levy than they would be had the Bill not been introduced.

There is an interesting facet to that which I should be surprised accounting to find was absent from the mind of the Treasury. After a bit, one learns the way in which the Treasury mind moves. The Treasury mind is much directed towards the size of the PSBR. If one can convert an item from borrowing into revenue, one will of course reduce the PSBR—hooray, hooray—and that among other things is a device whereby that daunting total can be lessened.

The Under-Secretary of State for Energy (Mr. Norman Lamont)

indicated dissent.

Mr. Powell

The Minister shakes his head, but that is what the Secretary of State said. He said that this sum, if not raised and attributed to revenue by this levy, would have been lent to the Government and so have gone to meet the PSBR.

Mr. Skeet

I am obliged to the right hon. Gentleman for giving way. How is it possible, if it goes to the national loans fund, that it can only be by agreement with the industry in question? This is not an industry which can be given a specific direction. If it were, the chairman could be directed, but he cannot be so directed.

Mr. Powell

I follow the hon. Gentleman's point. Indeed, it was exactly what I was coming to. The Government's conviction that these huge sums would in any case have had to be loaned to the national loans commissioners was based upon their conviction that the British Gas Corporation would not wish to spend them, or would not be allowed to spend them, upon capital investment. Thus, the whole proposition depends upon a foregone decision as to the investment programme of the corporation, an assumption that the British Gas Corporation will not invest more than can be covered by the £300 million per annum which it is estimated it will retain. This is merely financial hocus-pocus and the shift of a huge sum of money over three years from one superscription in the national accounts to another superscription.

I turn to consider that underlying assumption regarding the £300 million per annum which will remain to the corporation for use, among other things, for or towards its new investment. Turn the Bill through another angle and it becomes a study in monopoly. This huge sum, of which the House is partially disposing tonight in the Bill, is a producer surplus which has accrued, and could only accrue, because of the monopoly character of the British Gas Corporation.

It is instructive for a moment to consider what the position would have been in the absence of that monopoly. In that case, the fact that the raw material of the gas industry was so much more cheaply available than other raw materials would have produced intense competition in the promotion and expansion of this form of energy at the expense of others. It would also have produced intense competition in the exploitation of the sources of gas. Indeed, as was said at an earlier stage of the debate, there would have been more drilling in those different circumstances.

Mr. Eggar

Would it not also have led to the Government of the day imposing very heavy taxes on the people producing the gas and developing it from the North Sea?

Mr. Powell

No, because that makes an assumption about what those producing the gas would have done with the surplus. If they had reinvested that surplus in the course of the more intense competition that I have posed, only a fraction of the additional surplus would have gone to revenue.

Mr. Eggar

While the right hon. Gentleman may be right, will he point to the instances in the North Sea with regard to the oil industry where that has happened? Will he also point to other areas where what he said would happen has happened?

Mr. Douglas

Prices.

Mr. Powell

I shall come to the question of prices in a moment; I had anticipated the intervention of the hon. Gentleman.

To the hon. Member for Enfield, North (Mr. Eggar) I say that we are comparing the size of a producer surplus in one set of circumstances with that in another. If there had been a monopoly in the supply of oil, as there is in the supply of gas, there would have a been a much larger producer surplus to be disposed of by the oil industry.

So, in effect, we are seeing the consequences of monopoly in the distortion that it has imposed upon what otherwise would have been the pattern both of investment and consumption. The Government say—I have on the record an epistolary debate with the Secretary of State on this subject—that they have engaged in economic pricing of the gas industry and that gas prices have been drawn up towards the level at which they approach the marginal cost of alternative sources of energy. Even there, a fallacy is fed into the consideration; for the marginal unit cost of a particular form of energy varies with the volume of production and consumption of that type of energy. The nationalised status of the energy industries has resulted in a complete distortion and unreality in the marginal costs that fall to be compared, so that an inescapable argument in a circle underlies the pricing policy that the Government are imposing on the gas industry—a consequence, in turn, of the monopoly in most of the energy industries, and particularly in this one, the gas industry.

There is thus a great deal to be learnt from study of the implications that lie behind this apparently innocent and, as the right hon. Member for Leeds, South said, technically impeccable Bill.

I turn now to more domestic matters. There has not yet been a proper open public debate and discussion, either inside or outside the House, on the comparative economics of bringing Northern Ireland into the gas economy of the United Kingdom or liquidating the gas industry of the Province—which is the Government's present policy—or alternatively linking Northern Ireland to the energy economy of the Irish Republic. Obviously there are political aspects; but the economic aspects have not been properly displayed or argued either inside or outside the House. No doubt that is why the Economic Council for Northern Ireland and Coopers and Lybrand are in profound disagreement with the conclusions upon which the Government based their decision to write off the gas industry in Northern Ireland and abjure the prospect of linking it with the mainland.

Against that background, a background in which nothing would do more to maintain and revive employment and economic activity within the Province than a reduction in the real cost of energy, we are presented with a Bill by means of which there will be transferred to the general purposes of the State annual sums of money rising over three years from £130 million to £750 million. The figure that we are talking about in deliberating upon a gas link with Northern Ireland is about £100 million. That is the approximate capital investment, little more than peanuts in comparison with the accrued surplus of the gas industry of Great Britain that the Government have decided will not be required for investment purposes.

The right hon. Member for Leeds, South is right in saying that we are taking an economic decision—an investment decision—by omission. My hon. Friends and I believe that if that decision is to be taken, it should be taken openly, upon the basis of the full facts and debated; and that contention is strengthened in our minds by a Bill of this sort, illustrating the huge surpluses with which, particularly in the context of gas, the nation is dealing.

My hon. Friends and I would deserve not to be allowed to go home if, having registered the case and the complaint of the Province, we did not vote against the Bill tonight.

8.17 pm

Mr. Peter Rost (Derbyshire, South-East)

It is with some humility and trepidation that I follow the right hon. Member for Down, South (Mr. Powell). I support his argument that the State gas monopoly has distorted the market and the marginal cost. The State monopoly has distorted the market by holding down the price of gas to a level where the exploration and development of new resources have been made uneconomic and so far below the free market price that could now be obtained if producers were in a position to obtain the best market price—which is much higher, particularly in Europe. For that reason, I support the Bill.

My constituents ask angrily why the Government should have to tax gas. Whatever fineness we put on it, this is a tax, a royalty. My constituents do not understand. They may accept, reluctantly, that we have to tax gambling, drink, tobacco and even dog licences, but they wonder why such an essential commodity as heat should be subjected to a tax by a Conservative Government, of all Governments. We can reply—as some hon. Members perhaps do—by saying that we need the tax because we must have the revenue. We can say "Why should we not tax gas when we tax almost everything else, including the essentials of living, such as earnings, and when we impose VAT on most commodities? We even tax employment, petrol and North Sea oil, so why should we not tax gas?"

Such a simplistic answer is not reassuring to my annoyed constituents, particularly those who cannot afford adequate levels of heating at these prices, let alone those that they will undoubtedly have to pay in the years to come. In view of the existing profits of British Gas and the forecast of higher profits, they find it difficult to understand why a tax, royalty or levy shoud be imposed. They also believe that we are taxed highly enough already.

I understand those complaints and sympathise with them, but despite that I have no reservations about wholeheartedly supporting the Bill. I congratulate the Government on tackling courageously policies that will lead to realistic energy pricing. Indeed, I shall try to present an argument that it is the failure of previous Governments to tackle this unpopular policy that has acted against the best interests of consumers in this country. Industrial as well as domestic consumers feel angry because misguided politicians have in the past deliberately led us to believe that gas would be cheap and plentiful, as if tomorrow would never come. Now, having realised that tomorrow is on its way, politicians are too gutless—or have been until the present Government took office—to warn the nation that realistic energy pricing in an increasing area of finite gas resources has to come.

It is quite understandable, therefore, that the gas consumer should now feel cheated, just as the electricity consumer has felt conned by politicians who in the 1960s deliberately subsidised electricity prices by subsidising coal, by subsidising the construction of power stations, and by persuading the consumer to install all-electric central heating and off-peak storage heating because at that time it appeared to be the cheapest form of fuel. Those consumers feel cheated because thay can no longer afford to switch on their electric heating appliances now that the world price of energy has had to assert itself in electricity prices.

I believe that gas consumers will feel just as aggrieved as, for example, the American public feel aggrieved now because politicians in America have deliberately tried to hold down domestic oil and gas prices below world prices, pretending that the rest of the world did not exist. The holding down of those prices has encouraged the importation of more oil because it has discouraged conservation and discouraged the development of indigenous oil and gas, and alternative energy policies.

The result of that disastrous policy can be seen in the declining value of the dollar over the past two years, the importation of inflation, and a recession that has rebounded on the rest of the world. Moreover, because the Americans have become increasingly dependent upon imported oil, and because they have held down the indigenous price of the product they have contributed to the world rise in oil prices by underwriting and supporting the OPEC price, simply because they are dependent upon importing so much from the OPEC countries.

I have used that as an example—just as I have used the example of our subsidisation of electricity prices in the 1960s—to illustrate my case that we are in danger of making the same mistake over North Sea gas unless we now do as the Government are courageously proposing to do.

We must get across to the public that the gas from which we are at present benefiting as consumers comes from the early contracts that were obtained because British Gas was given a State monopoly as a sole buyer. The early contracts in the southern North Sea basin were obtained at screwed down prices which are now so unrealistic that there has been practically no development of new gas resources. The result of that low-pricing long-term contract was that British Gas could not fail to make huge profits and could not fail to over-exploit its marker. Anyone who was not an absolute idiot sought to join the scramble for North Sea gas.

The market has now become over-developed, as any market will if the product is sold at half the price of alternative products. The ludicrous position has arisen that we have now so over-developed the market and so discouraged the development of new gas reserves that we are having to import our gas from Norway at five times the price that we are paying our suppliers in the southern North Sea basin, and we are even scrambling to buy more from Norway to meet the growing demand.

These southern North Sea basin fields will soon be exhausted, and as more expensive reserves have to be brought in the gas price must rise very much more steeply than it is rising now—unless we are to do without it or to have rationing. I am sure that that would not appeal to those of us who believe in a free market economy. Therefore, we must warn the consumer now that he will have to pay the long-run marginal cost of gas if he is to have that gas. If we do not warn the consumer now and start charging a price that is related to the expected cost of future supplies, the consumer will not simply feel real hardship, but will feel just as cheated as did those consumers who installed all-electric central heating in the 1960s.

I therefore maintain that it must be in the consumers' interest that we tax the present exceptional profits that British Gas is still making from those cheap contracts, and regard them as windfall profits, in order to smooth out the inevitable price rises that will come as the more expensive gas becomes an increasingly large proportion of the gas consumed. This is the only way in which we can fairly distribute the benefits of that North Sea windfall gas to the nation as a whole.

I argue further that the holding down of the gas price because of the artificial monopoly position has already harmed the nation and the consumer. It has, for example. undermined the development of more efficient energy systems. I refer, as one example, to the development of combined heat and power and district heating in this country. It is because the electricity industry was subsidised in the 1960s and because gas has been under-priced in the 1970s that any scheme that might have been economically viable for the use of hot water from our existing power stations has not proved economic. Feasibility studies that have been done over the years have shown that there is not much point in using that hot water. We might just as well go on throwing it away into the rivers, simply because gas has been under-priced and electricity has been subsidised.

Compare that position with what has happened on the Continent, where, increasingly, a heat grid has been developed and where whole cities are heated by hot water, relatively cheaply. That is the sort of energy that we throw away. We have an example of how well-meaning and well-intentioned but muddle-minded politicians have so meddled in the energy market that they have worked against the consumers' best interests, Whereas consumers in other countries are benefiting from cheap heat in their homes, we have virtually no district heating and no combined heat and power in this country.

This is the direct result of the distortion of energy pricing. The countries on the Continent have had to pay the world price for oil and gas, and therefore it has proved to be economic to use the hot water from power stations—hot water that we throw away—and channel it into cities and use it for heating. We have not gone along that road because of our do-gooding politicians and their feeble attitude to doing what might prove unpopular. In pursuing that policy they have harmed the consumer and deprived millions of the heat that they could have had, which is now available to consumers on the Continent. In doing that we have also wasted vast amounts of precious energy and capital resources.

That brings me to my second argument in support of the Bill and why I believe that it is a disservice to the consumer to continue the present artificial pricing of gas under the State monopoly. Underpricing of fuel or any other commodity in a free market discourages the efficient use of it.

Like most hon. Members, I have two homes. One is in my constituency and is heated by gas. The other is nearer London and is heated by solid fuel. I have spent much money in insulating the home heated by solid fuel, because the fuel bills are twice those for heating the home with natural gas. I have worked out that it has not yet paid me to insulate the latter home. That may be all right for me, but if that experience is multiplied millions of times, one sees the disincentive that there has been for investment in energy conservation.

What applies to the domestic consumer applies more to industry. In the past year or so relatively cheap gas has not been made available to industry, which has subsidised the domestic consumer. Nevertheless, in earlier years gas to industry was supplied on relatively low-price contracts. As a result, industry did not have the incentive to invest in more energy-efficient processes.

The energy-intensive industries are suffering because of the increased cost of fuel, but many of those problems could have been avoided. If we had phased the price to world levels earlier, industry would have been provided with that incentive for investment in more efficient fuel consumption. Not only would that have reduced the fuel bills for industry, which is struggling to survive, but it would have increased productivity. As a result, we might have had less unemployment because more of our industry would have been able to remain competitive. We have paid a high price for policies of holding down energy prices. It has been a short-term delusion for the consumer and a mortgage on the future. That is a further example of the fact that it is not in the consumer's best interests to hold down the price of energy, but that it is very much in the consumer's and the nation's interest to price it at a realistic market level.

A more courageous, even-handed taxation system between gas and oil, if applied a few years earlier, would have allowed the North Sea gas-gathering pipeline to have been built long ago. The question was raised as to why we had not built that pipeline. The associated gas is being flared in vast quantities because it has not paid before to build the pipeline. The price that British Gas has been prepared to pay as a monopoly buyer has not been high enough to justify the capital investment. If the gas price had risen sooner to a European market level the gas pipeline would have been built and we would now be enjoying the benefit of that associated gas. Industry would be benefiting from it. The petrochemical industry would be more flourishing and more competitive. The consumer would have that extra supply of gas.

That has not happened because politicians have meddled in order to create the monopoly that has held down the price. I therefore argue that more competition might have made more gas available. Although the price would have risen earlier, it would not necessarily be higher today than it will be in any case—on the contrary. As the right hon. Member for Down, South (Mr. Powell) said, with more competition, more gas would have been marketed and therefore the price in earlier years would have been higher and might not be rising so fast as it will during the next two or three years. Our associated gas and new gas fields would have been developed because that would have been cost effective, instead of the development being held back by the reluctance of British Gas to pay a market price for our gas, while it was eager to pay a higher price for the gas from Norway.

I therefore maintain that the evidence supports the case that the more well-meaning but misguided Governments have intervened in energy pricing by creating monopolies that have held down the price, competition and the development of gas resources, the more we have taxed oil, the worse the consumer has been hit, and the worse the nation has suffered, with its wealth-creating processes held in check. Such policies have undermined the economic viability of alternative and more cost-effective fuel saving schemes such as combined heat and power and district heating. Such policies have distorted the energy market and hit the coal industry. The demand for coal has slackened because industry switched to gas at a time when it was half the price of coal.

Such policies have failed to provide incentives for investment in conservation. They have deprived the economy of desperately needed revenue and have wasted valuable resources of energy and public expenditure. Therefore they have hit not just the consumer but the economic progress of the nation as a whole.

Unpopular decisions are hard to take, but often it is more beneficial to take them than to duck them. I congratulate the Government on being prepared to take the unpopular decisions instead of ducking them. It is only this course that will see us on to a more realistic energy policy.

8.36 pm

Mr. Robert C. Brown (Newcastle upon Tyne, West)

I declare a dual interest. First, I am a Member sponsored by the General and Municipal Workers Union, which represents 50,000 employees of the British Gas Corporation. Secondly, and more personally, I spent the first 30 years of my working life in the gas industry before being elected to Parliament. Some may say that I am still in the gas industry.

The gas industry commands great loyalty from its staff, and that has. enabled it to become one of the most efficent in the country. It was largely through the efforts of the staff that the industry organised a fourfold expansion on time. In addition, 14 million consumers were converted to natural gas on time in the biggest conversion operation in the world. The gas transmission system was modernised, again on time. All that was largely achieved by the efficiency of the workers utilising worthwhile public investment.

Those people, with whom I worked for so many years, are disgusted that their efficiency and loyalty are being rewarded with the penalties being imposed on their industry by the Bill. It is those workers who bear the brunt of consumers' disgust about the even higher prices which seem only to generate massive paper profits. The members of my union are at the sharp end, as I was for 30 years, on the consumer service side, and they get the complaints when prices go up to a level which bears no relation to the value of the end product.

A leading article in the News of the World yesterday was headed "The State dead-beats". I wonder which dead-beat wrote it. It stated: Two gas price rises this year, bigger bills ahead for electricity and telephones are only part of the dismal fare to be offered us by public services. These undertakings, which face no competition, have raised their prices by an average of 27 per cent. over 12 months. Clearly they are playing no part in the efforts to bring down living costs. Hard-pressed families and firms striving desperately to survive should not be dragged down by protected dead-beats. I do not know who the editor of that rag is, but I imagine that he saw the Prime Minister's broadcast on the Brian Walden show a fortnight ago making the quite unworthy statement that the nationalised industries cannot be allowed to push up prices in the way that they have in the past. It was palpably dishonest of the Prime Minister to make that statement on television. Either the editor of the News of the World is valiantly seeking a knighthood, like the editor of the sister paper, or he is a prejudiced idiot.

Mr. Merlyn Rees

He could be both.

Mr. Brown

As my right hon. Friend says, he could be both.

There is no doubt that that type of leading article conveys less than the truth. It creates a great deal of "aggro" on the doorstep among colleagues of mine with whom I used to work. It is they who are blamed while, on the Government's own admission—that is, the more honest members of the Government—price rises would have been significantly less if the British Gas corporation had had a free hand in fixing domestic tariffs.

The members of my union deeply resent their role as tax collectors. That is what they have become, particularly at a time when pressure on domestic budgets is increasing from other directions. The levy is seen by them as a direct tax on their efficiency. Resentment aside, the levy will be extremely damaging to the industry—an effect which is of extreme concern to all employees. Unlike the Secretary of State, I have not noticed great joy among employees of the British Gas Corporation, including the chairman.

The gas industry has an enviable record of investment. Investment is necessary if the industry is to maintain its record of success. By creaming off the top of the industry's profits the levy will reduce the amount of money left for investment. It is estimated that the corporation will make a pre-tax profit of £ 1,500 million in 1983. From that about £800 million will be paid in corporation tax. Under the Bill, a further £750 million will be taken off by direct taxation, turning a profitable industry into a loss maker. There will be no money left for this major energy industry to invest in the future. That is a direct contradiction of any sensible plan for energy supply.

In addition, there will be little left for major mains renewal programmes which, apart from the public safety aspects, will have appalling implications for jobs not only in the gas industry but in those industries which supply the corporation.

Is it really the Minister's intention to force a profitable nationalised industry to declare a loss after tax? How does that square with the Minister's statement to the House on Second Reading that the levy will not affect the pricing policy of the British Gas Corporation? Of course it will.

The proposed gas levy will affect different income groups disproportionately. By levying a flat rate for each therm, the lower income groups, who already spend a higher proportion of their incomes on fuel, will suffer most. Those at the top end of the scale will hardly notice the extra tax, but for the low-paid households with children, pensioners, those on supplementary benefit and one-parent families in the first year alone, the tax will increase their expenditure on fuel by 5 per cent. By 1983, the poorest households will be spending nearly 15 per cent. of their disposable income on fuel compared with only 6 per cent. for those earning £250 a week or more.

The levy is yet another aspect of the Government's excuse for a conservation policy ensuring that those who need fuel the most do the most conserving for the rest of the community. This is simply an extension of the Government's policy of penalising those who cannot avoid using more energy because of their domestic circumstances. Pricing will be geared to consumption rather than to any sensible use of the appropriate fuel. This rationing by price or, more aptly, by the purse. When a person does not have a very full purse, the choice is stark indeed—"Do I eat, or do I freeze?" I am afraid that with the onset of winter we shall have many more old people and the very young dying from hypothermia.

Another aspect of the levy which must be touched upon is the effect on industry. What is the use of setting up NEDO task forces to examine the cost of energy to industry in one month when in the very next month the Government impose on the industry a direct tax which is bound to increase the price of gas to the industries which are already crying out for tax relief?

The right hon. Member for Stafford and Stone (Sir H. Fraser) spoke about Cornings and its problems. I have much sympathy with him. Leamington glassworks is situated in my constituency. The work force of more than 1,000 has been decimated to about 200, with the latest redundancies only last week.

In the interests of conservation, we ought to be thinking of using the right fuels for the right jobs. In my opinion, gas should be used for small-scale central heating and small-scale industry. It certainly should not be used for large-scale industry. That is the job for coal.

The Secretary of State said that the levy would be a form of windfall profits tax. That makes it appear that British Gas is responsible for its excess profits. But it has already been admitted that the Government forced the corporation to make such profits so that afterwards they could take their slice.

The Prime Minister prides herself on being consistent—sticking dogmatically and rigidly to her policies. Where is the consistency here? If the Government are interested in hiving off the windfall profits of British Gas, why not the clearing banks as well? I understand that last year the four clearing banks made profits of £1.5 billion. But we do not hear anything from the Government about hiving off those profits.

It is interesting to note that in the third year of the levy the tax on gas will be 15 per cent.—equivalent to value added tax, which successive Governments have said will not be put on energy. Will the Government's next step be to put VAT on food—another item about which promises have been made?

In 1983 the levy will raise £750 million direct for the Exchequer. What will it be used for? Will it enable the Government, in a bonanza pre-election year Budget, to cut l.5p off the standard rate of income tax, forgetting to mention, of course, that they have clawed this out of people's fuel bills already? Forgive me, Mr. Deputy Speaker, for having a suspicious mind, but I suspect that this is the type of thing for which the Government will use the money.

8.49 pm

Mr. T. H. H. Skeet (Bedford)

The hon. Member for Newcastle upon Tyne, West (Mr. Brown) was in the gas industry for many years. He will remember the co-partnership schemes which unfortunately were demolished when the industry was nationalised. Of course, time has passed.

The hon. Gentleman referred to domestic tariffs being unreasonably high. The United Kingdom has the cheapest domestic gas in Western Europe, and this is likely to continue even after the increases come through.

The levy will not add to price. The hon. Gentleman should bear in mind that value added tax on gas in Belgium is more than 20 per cent.; in Denmark it is 17.6 per cent.; and in France it is 13 per cent., whereas in the United Kingdom it is zero rated. Therefore, we have certain advantages.

In his speech, my right hon. Friend referred to profits being made of £425 million which are likely to approach £1,000 million over the course of years. Then he talked about a new tax regime. That sounds to me like a tax. Whatever verbiage Ministers use, it is a tax in substance and we have to recognise it as such.

I fail to understand why the Bill has not been merged in the Finance Bill which will be forthcoming on 10 March. It could form five or six clauses in that Bill. We could have dealt with the matter in the Budget debate and got the whole thing out of the way without a separate Second Reading, Committee stage and Third Reading.

I was surprised that my right hon. Friend the Minister took 11 days to answer a parliamentary question that I tabled on those very lines. That would have been a much more convenient way of dealing with the subject. After all, clause 3(1) provides that payments are to be made to the Secretary of State and, ultimately, in clause 6(1), paid into the Consolidated Fund. So why not pay it directly to the Treasury and be done with it?

I have tried to discover when we had a similar levy. The only one that I found was the once-and-for-all levy laid down by Sir Stafford Cripps on 6 April 1948. It was not a specific measure. It was contained in part V of the Finance (No. 2) Act 1948.

I wonder whether it has been done in this way because the Government are foreshadowing a tax on banks in the Budget? This may be an initial shot across their bows. I hope that I am wrong. Had the matter been deferred until the Budget it would have been a clear indication that there was to be tax on the banks, and we should have had only one measure to deal with.

In the 1978 Green Paper, paragraph 8.16, page 43, there was a levy which enabled the Government of the day to reduce the public sector borrowing requirement, and a 10 per cent. contribution was made in that instance by the gas industry. On 16 January 1980, my right hon. Friend indicated that domestic prices would have to go up by an average of 10 per cent. over three years, over and above inflation, in order to bring the pricing more in line.

That is all very well, but now we are faced with a separate Bill. It starts off with three years. It will probably go on for many subsequent years at a rate that we do not know. Moreover, there is no upward terminal to which it may be limited. That is something that should be written in the Bill.

Let me give one or two reasons for the levy. The British Gas Corporation has made windfall profits through paying the oil companies, the suppliers of natural gas, too little and much below the market rates on contracts made prior to July 1975, pursuant to section 9 of the Continental Shelf Act 1964 and section 8 of the Energy Act 1976. If the input or supply of gas was at 8p per therm, and the gas is sold at between 20p and 30p per therm, only a fool could not make a profit. In the circumstances, the Government are quite right to take this measure. If they were paying realistic prices to the suppliers, the companies operating in the North Sea, this would never have happened. The companies would have got the money and in due course they would have paid taxes. Thus, the money would have gone back to the Treasury.

Let us examine how the matter developed. Payments were made initially on the United Kingdom side of the United Kingdom median line at 1.87 old pence per therm, and the initial contracts carried escalation clauses to bring it up to, in my judgment, between 6p and 7p per therm.

Mr. Eggar

It is much lower than that.

Mr. Skeet

I am trying to be fair. For Frigg the prices were roughly between 12p and 15p per therm. For Statfjord gas the offer was not enough. I understand that the British Gas Corporation made a payment of over 18p a therm.

On one side of the median line the prices were kept as low as possible. But what are the Norwegians paid, on the other side of the median line? They are offered over 20p a therm—and more. When the British Gas Corporation recently had negotiations with Sonatrach of Algeria, it offered that company $4.60 per million BTU for LNG, which is about 26p a therm. The price continues to rise, but more money is coming in due to the very low input price from the southern North Sea.

Mr. Rost

A monopoly buyer.

Mr. Skeet

Of course it is a monopoly situation, which is governed by two Acts of Parliament—the Continental Shelf Act 1964 and the Energy Act 1976. Of course the British Gas Corporation could afford to pay a higher price.

I now refer to the report to the Select Committee on the European Communties "Harmonisation of energy prices and taxes." Some of the evidence which was given by Mr. C. W. Brierley and others was this: do the best we can to get gas for Britain at a good price for Britain. I do not think that that policy is actually leading people to take a different attitude about exploration. On an earlier page, I found something very interesting: It is very important in this situation to remember that there is—this may be a slightly dramatic way of expressing it—only one organisation here which is looking for gas and that is British Gas. Everbody else is looking for oil. Obviously they are looking for oil, because they are not paid a sufficient economic for price to look gas. That is why no more gas was found, and that is why the different fields in the southern part of the North Sea were not fully exploited at the time.

Mr. Eggar

Does my hon. Friend agree that because of this absurd pricing policy and monopoly position of British Gas there are a number of gas reservoirs in the southern basin of the North Sea which could very easily be developed if British Gas were prepared to pay a reasonable price?

Mr. Skeet

I fully agree with that. My hon. Friend sums it up rather neatly. But in the old days the cost of gas purchased from the suppliers was on a cost-plus basis. So it is cost-plus purchase for the gas, but when one is pricing gas to industry and customers generally it is not on a cost-plus basis; first, it is related to the competing oil product, and, secondly, it is partly determined by the external financing limits and, of course, a return on the net assets, which has now been reduced to 3 ½ per cent. We find that Governments of the day since 1964 are entirely responsible for the accumulation, which would never have occurred if an economic price had been paid for supplies.

I support the Government on imposing this tax. It became inevitable. It is after the event. The horse has bolted from the stable, but we shall be able to pick him up on the course and see that some of the moneys are drafted over to the public purse. I am very concerned about the use of moneys. I agree with the right hon. Member for Leeds, South (Mr. Rees), who indicated that a separate fund should be established. I know that the right hon. Member for Down, South (Mr. Powell) indicated that he would not accept a concept which has been thrown around for many years, and he had in mind the road fund. However, if one has a specific fund allocated, when one is taking moneys out of it one can see that the funds are properly used for selected purposes. These moneys should not simply go into the Consolidated Fund to be spent on the payment of salaries, however good that purpose. They should be spent on research and development, for the development of alternative energy strategies and to reduce the burden on energy intensive industries. I have mentioned previously those which I consider should be selected, such as iron and steel, where fuel costs amount to at least I8½ per cent. of total costs, and bricks, pottery, glass and cement where fuel costs amount to 18 per cent. of total costs. I should also mention the chemical industry. Enormous costs are involved.

I would not be opposed to money being utilised for specific advanced projects, through the British Gas Corporation or the energy field generally, for example, on secondary and tertiary recovery from oilfields. I hope that the Under-Secretary will bear in mind that we have embarked on a dangerous course. Sir Stafford Cripps was the last man to introduce a levy, in the true form, in this House. There are difficulties. Where do we draw the line? Is a levy to be imposed on one company simply because it makes a substantial profit? Will such a policy be extended to all commodities in the course of time? Will it be extended from oil to copper and to others? All have reached their own heights on the market. We should draw the line distinctly to avoid a regular recurrence of such taxes.

I should like to mention clause 2, which is the centre of the Bill. The legislation is unfortunately backdated to 1 April 1980. I should like to see directions relating to how payments are to be made. I dare say that this will be done on a quarterly rather than on an annual basis. I should like information on the cash limits adjustment, not for the first three years, which is already known, but for ensuing years. If the Secretary of State were prepared to advise an annual or periodic revision, that would be an understandable move.

Clause 2(2) gives power to increase the levy. It is totally open-ended. I would have thought that this power should be debatable by both Houses of Parliament and not simply by the House of Commons. As there is no extended definition of gas in the Gas Act 1972, it should be included in this Bill.

If there is time tonight, I should like to hear some assumptions on which clause 2 is based. The levy will rise with the steady movement towards economic pricing of domestic gas. I understand that. Therefore, as prices rise, more money will accrue but initial contract prices remain low. There will also be an anticipated increase in oil prices.

Can the House be given a sample of open government? I should like to be told what the Government consider will be the price of oil by 1985 and 1990. After all, they have worked on certain assumptions. Why cannot the House have them? It might be a good idea if the Under-Secretary scatched his head and gave the information. It has been indicated that the amount of gas to be drawn from the southern fields will drop to about 40 per cent. in the next decade. This is significant.

The oil and gas industries are making a substantial contribution to the revenue of the State. These revenues will amount to about £4 billion from the North Sea in 1980–81. I work that out at about 35 per cent. of the total public sector borrowing requirement assessed at £11.5 billion. This will be expected to rise later to between 40 and 44 per cent. If one considers all the payments made, including those from gasoline and various taxes on fuel oil, one industry carries a large part of the public sector borrowing requirement. This should not be forgotten. The bigger the imposition, the more difficult it becomes for competition to operate in the United Kingdom.

We must have the levy on this occasion. The House, however, must understand how it was caused in the first instance. Hon. Members should be guided in the future by learning some of the reasons for it. If we are rapaciously to pursue one industry after another because it makes a substantial profit, we should be pursuing the course of Diocletian. We should be looking for more taxation. We should regrettably become more greedy and rape the economy for the taxes that it will produce.

9.5 pm

Mr. Stephen Ross (Isle of Wight)

It was reported in one of the Sunday newspapers that Cabinet colleagues of the Secretary of State did not understand the Government's energy policy. I am not an expert on energy matters. I shall merely refer to one or two issues that concern industry but having listened to the contributions of those whom I know to be knowledgeable on energy—I recognise that the hon. Member for Bedford (Mr. Skeet) specialises in energy—I must confess that I am as confused as I was when I entered the Chamber.

The right hon. Member for Stafford and Stone (Sir H. Fraser) indicated that Corning Glass was paying more for its gas in the Potteries than it was paying on the Continent. That view was expressed to me a fortnight ago by a trade consul in America, who had encouraged and helped firms to come to Britain to set up a European base. He told me that these firms were reporting back that energy costs in Britain were so high that they were having to think of moving out and transferring their base to the Continent.

I support the idea of the levy. If a tax is being imposed on the oil companies, it seems only logical that one should be imposed on the British Gas Corporation. However, some Conservative Members are saying that a great deal more research needs to be done and that there are fields that should be exploited. It can therefore be argued that the corporation is not being allowed to retain the money to do it, because it is to be taken by this tax.

One can understand that British Gas is feeling aggrieved that the levy is being imposed at a time when it should be doing a great deal more research. I know that it is spending vast sums just off my constituency and within it. Only a year ago it was doing some boring in my constituency.

Mr. Rost

Additional gas has been found in the North Sea, but it has not been developed. It has been found by private enterprise oil companies. The discoveries have not been made by British Gas entirely. These finds have not been developed, because the corporation has not been prepared to pay a realistic price. When it is prepared to do that the development will take place.

Mr. Ross

The hon. Gentleman has answered my point. We are now talking about taking quite sizeable sums from the corporation. Presumably it will argue that it no longer has the money in the kitty to pay a realistic price to extract gas. The Guardian reported last week: The Corporation does, however, grudgingly accept the Government's view that British Gas will still be able to self-finance its £4 billion investment programme up to 1985. The article went on to confirm the argument of the right hon. Member for Leeds, South (Mr. Rees), namely: British Gas participation—of around 30 per cent.—in the proposed North Sea gas-gathering system is outside the programme and will be financed through a subsidiary company to keep the cost outside the public sector borrowing requirement. It is logical, to my mind, that gas should face the same tax burden as oil, which is subject to petroleum revenue tax. I wish to question the Government on the way in which the money raised by the levy will be spent. It is on this issue that I think that we shall part company. The hon. Member for Newcastle upon Tyne, West (Mr. Brown) spoke of the effect of increased gas prices on domestic consumers. We know that domestic tariffs will be increased by another 15 per cent. in April. It may be true that we have had gas on the cheap, but I am sure that hon. Members will have had their constituents writing to them about present charges. We have been fortunate this winter, because it has been quite mild, but I am receiving letters from constituents who tell me that they cannot meet their electricity and gas bills, and especially their water bills.

We must set up a comprehensive heating allowance to enable those who are retired and who are not entitled to supplementary benefit to have something on which they can fall back. I fear that as these charges continue increasing we shall have people dying of hypothermia. I hope that some of the money that is directed to the Consolidated Fund will be used to set up a sensible and fair heating allowance overall.

I agree entirely with the hon. Member for Bedford that the levy should be dedicated to conservation projects, further research and development in alternative energy sources, and aid to certain industries to enable them to convert to more fuel-efficient plant.

Large glasshouse growers have operated in my constituency for about 15 years. They are efficient. Expensive houses and modern plant have been built. However, they do not have the advantages of their Continental competitors. The Dutch growers receive gas on the cheap. The Germans receive a £12½ million subsidy and the French and Irish also receive subsidies. The growers in my constituency are closing their plants. One of the biggest companies, A. B. Stevens, has just closed its doors. It spent a great deal of money installing gas. It is a tragedy. The industry should benefit from help, even if it is only temporary.

Everybody knows that small firms are one of the great hopes for our future and that we must try to encourage them. However, a firm in my constituency is moving from a starter factory to slightly larger premises. It used gas in the original factory and gas is available on the new premises. The quote for being connected to gas was £448.64. That is high enough, but I was shaken when the firm said that it was told that it would be required to pay a security deposit of £352 against the future gas consumption. This deposit will be held by Southern Gas and revised after a period of two years. During retention, interest at a rate of 7 per cent. will be applied at the end of each six month period. That company has paid its bills on the dot. How can small firms survive when such impositions are applied and when they are clobbered by high interest rates and an overvalued pound? So many problems face industry that I believe that the money should not go into the Consolidated Fund but to help companies which deserve it most.

I trust that my words will not fall on deaf ears. I hope that the Secretary of State will stand up and fight in the Cabinet on this issue. If he does not, many modern and efficient firms will go to the wall because they cannot meet their energy costs.

9.12 pm

Mr. Tim Eggar (Enfield, North)

It gives me pleasure to speak after the hon. Member for Isle of Wight (Mr. Ross) who, on this occasion, is the energy spokesman for the Liberal Party. His knowledge of the gas industry is certainly comparable to that of his hon. Friend, who always begins arguments on the nuclear industry on the basis that if it is nuclear he disagrees with it.

I hope that the oil companies will pick up the advocacy of the right hon. Member for Leeds, South (Mr. Rees) on behalf of the BGC and press him into service when they make representations to the Treasury about the level of PRT and the supplementary petroleum tax. His arguments about the need for sufficient funds for future investment and the need for research and development were wholly admirable. I am sure that they will find sympathy in the oil industry. There could be an interesting alliance between the Opposition Front Bench and the oil majors.

I welcome the Bill wholeheartedly, not only because it contains one of the 10 recommendations that my hon. Friend the Member for Birmingham, Northfield (Mr. Cadbury) and I made in a pamphlet published last year on the future of the BGC, but because we are talking of the most efficient tax, from the point of view of Government income and the cost of collecting it, that this country or any other has known.

I hope that the Bill marks the first perhaps rather tentative step by the Government towards a far-reaching reform of the British Gas Corporation. The majority of hon. Members on the Conservative Benches hope that the Government will rapidly decide to sell off certain of its peripheral activities, such as the showrooms, which it has been hanging on to over the years. We should like to see the monopoly right of purchase of gas from the United Kingdom domestic continental shelf taken away from the corporation. It has led to the problems that have given rise to the Bill. I go further. I should like to see the corporation's distribution monopoly broken. I trust that before the next election the Conservative Party will make a clear pledge that we are looking to introduce private capital to the corporation. However, that lies in the future.

The British Gas Corporation deserves at least some support from the House for its success not only in the massive programme of conversion from town to North Sea gas but for being the first corporation world-wide to opt for the development of LNG from Algeria, which was a far-seeing move. It was personally managed and superintended by Sir Denis Rooke, and was a remarkable achievement in 1964.

However, we may praise the management, but we cannot say that the corporation is effecient. We have no yardstick by which to measure efficiency. We cannot take profits as the only yardstick. Why is the corporation so profitable? It is taking the economic rent from the southern basin North Sea that rightly belongs to the nation. Just as the country has rightly said that we will take away the economic rent that naturally accrues to those who are developing North Sea oil, so should the Government take away the economic rent that accrues from the development of our gas reserves. The corporation's profits are based not on efficiency but on the fact that it has access to the cheapest gas in the Western world. That should be emphasised.

Why has the feedstock been so cheap? This point was mentioned by my hon. Friends the Members for Bedford (Mr. Skeet) and Derbyshire, South-East (Mr. Rost). When the gas was first discovered, no tax was imposed on the producers by the Government. The abscence of competition to purchase the gas in the southern basin meant that the Government could screw down the oil companies that made the discoveries. The matter went to arbitration. The oil companies stated that they were losing money under the contract that the Government had extracted from them. They could not continue to produce gas from the southern basin at the price that the Government were paying. After a long arbitration, an agreement was apparently reached between the corporation and the oil companies which led to a small increase in world terms in the price paid for southern North Sea gas in return for the companies installing compressor equipment and increasing recoverability.

Unfortunately, the attitude that has developed at the BGC as a result of its monopoly right of purchase in the United Kingdom has led, or at least has been a major contributory factor in leading, to the Norwegians' decision not to put Statfjord and Heimdal gas through to the United Kingdom. They had had experience of the negotiations for Frigg. They had seen what had happened in the southern North sea. It was so appalling that they decided that if there were any alternative they would not be prepared to put their gas at the mercy of a monopoly nationalised British Gas Corporation.

Mr. Douglas

That is what Statoil is.

Mr. Eggar

I recognise the position held by Statoil in Norway, but the problem is the exploitation and, I might say, the lack of foresight of the BGC. I am convinced that if it had got away from its normal attitude it could have teamed up with Ruhrgas and Gaz de France and agreed to purchase gas from the Norwegian sector of the North sea. It could have made an offer to the Norwegians that was competitive with the price that the Germans could make from Emden to bring that gas through the United Kingdom and through cross-Channel pipeline from the southern coast to France. That gas could have been routed through the United Kingdom and would have created jobs and opportunities for United Kingdom industry—things that we could well have done with.

But I digress. The fact is that the BGC has been making super profits. It has been taking the economic rent from the southern basin of the North sea, and it is right that the Government should take that away from the BGC.

I go along to a certain extent with the argument of the right hon. Member for Leeds, South and the hon. Member for Isle of Wight, the Liberal spokesman. I hope that in its negotiations with the Treasury, the Department of Energy will point to the considerable revenues both from the levy and the additional tax on the oil companies and say that the presentation of our energy package and policy to the country represents a significant source of income coming in.

We need additional money as part of that strategy for the purpose of energy conservation, particularly to assist funding to local authorities. There is a strong argument for a specific sum to be put aside for insulation of lofts, and so on, in local authority buildings. I go along a certain way, though not the whole way, with the argument of the hon. Member for Isle of Wight that we should edge towards some form of fuel energy assistance scheme for the elderly and others who need it.

The Department should therefore use the argument of the vast sums that it is delivering to the Treasury to say that it must have something back to help to market its energy policy. I accept the points that were forcefully put by the right hon. Member for Down, South (Mr. Powell). I agree that one cannot have funds earmarked in or earmarked out. That is not a sensible way to proceed.

I wish to put a few questions, to which I hope the Minister will be able to address himself. First, can he state what percentage of the BGC's profits will actually be paid over to the Treasury once the monopoly levy is in place? We know that at present the oil companies pay between 80 per cent. and 87 per cent. of their profits to the Treasury. What will be the equivalent figure for the BGC after the levy? Can we now assume that the corporation will actually start paying corporation tax, or are all the projections based upon the assumption that no corporation tax will be payable in the future?

It is important that the BGC should be allowed some form of forward planning. Will we see a three-year forward rolling programme for the levy? In other words, next year will we have an announcement of what the levy will be in 1983–84 and 1984–85? It is only fair that the BGC should know three yearas in advance what the levy is likely to be. However, I accept that the Secretary of State must have a right to alter the levy if pricing changes on relatively short-term grounds, because nationalised industries should be given the benefit of an ability to plan forward as far as possible.

I have an additional question. What tax regime will apply to the fields in the southern basin, which are probably marginal gas fields and for which PRT as presently constructed is not suitable? Will we have pre-1975 levy taxes paid under the terms of the Bill—in other words, no tax paid by the producer but a tax paid by the BGC—or will amendments be made to the existing PRT laws? I should like clarification on that point.

I do not wish to develop my arguments any further, except in respect of pricing. Both sides of the House must accept responsibility for the difficult position in which we find ourselves with regard to gas pricing. The fact is that Governments of both parties have said "We are worried about the RPI impact of an increase in domestic gas prices". Of course the BGC has welcomed that. It has wanted to keep domestic gas prices down, because it has given it some political power as against the Department of Energy.

It is quite clear that it has suited the BGC and the Department of Energy, under whatever Government, to make their profits from industry. Many of the problems that we now face have arisen from that basic political approach. I wish that the new Opposition spokesmen would seriously consider whether or not it is possible to develop a co-ordinated approach to domestic gas pricing policy, because the BGC must be allowed to make profits.

The economic rent should rightly accrue to the Government, and we should not go in for subsidised energy policies. It cannot be right for the BGC's profits to come from industry. Cannot we move towards some form of informal agreement on domestic pricing?

If, as a Government or a country, we get into a position of artificially low energy pricing, we shall be on a slippery slope from which there is no recovery. We are then in an artificial world, which will eventually come to an end, be it in 20 or 30 years' time.

I listened carefully to my right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) There is strong evidence that our industry is paying more for gas in particular instances than industry in France. I have a case in my own constituency. It relates to a company called E and E Kaye, which is a subsidiary of a French company. It has compared directly similar processes in the plant in Enfield and the plant in France. I am assured and convinced that there is a difference of around 20 per cent. I realise that this is shifting the whole time, but in present economic circumstances we must move towards at least comparable industrial energy pricing, although I do not think that it should be subsidised industrial energy pricing. I am afraid that the profit must come from the domestic gas consumers, with all that that involves. I commend the Bill to the House.

9.30 pm

Mr. Dick Douglas (Dunfermline)

I am a little tempted to follow the hon. Member for Enfield, North (Mr. Eggar) in his argument. One of the strange things about the Tories in relation to public corporations is that they despise them when they are failures, and they hate them when they are successes. There has been no analysis in this debate of why these windfall profits—if we can call them that—have fallen to the Gas Corporation.

In the whole energy debate, in this House and elsewhere, I resent the underlying supposition that we have to curtail and manage our industry at the behest of a pricing policy that is laid down not by the long-run marginal costs of our indigenous sources but by the pricing policy of OPEC. When we talk about reflecting "world market" prices for energy, we are talking about reflecting the prices that are managed by the OPEC cartel. There may or may not be an argument for doing that, but there is an argument on this side of the House—I hope that we shall carry Conservative Members with us—that we should not decimate our industry by doing so. Of course, if we have an OPEC cartel we have to try to come to terms with it, and we have to shape our policy towards it.

We are in a favoured position in comparison with other Western industrialised nations. I shall not go into the historic reasons for that, because time is not available. The Japanese will not necessarily tailor their industry to the OPEC structure. They will protect their industry. The Americans will not tailor their industry overnight to reflect world economic pricing. They will resist it and phase in managed prices. Of all nations, we slavishly follow OPEC prices.

The Bill illustrates clearly the Government's confusion in economic policy. They have managed to screen their activities by adopting a dual image. While the Prime Minister gives the impression that everything is on course, other perhaps more truthful, members of the Administration realise that a rigid monetarist stance has been and is damaging to our industry. They have sought piecemeal to obtain changes, which sometimes have been costly. The Secretary of State for Energy does not know whether he is a hard or soft monetarist. This Bill illustrates that confusion.

There has been no dispute—except by the hon. Member for Enfield, North—that British Gas is a success story. In an aside, he illustrated the innovative capability of British Gas in experimenting with LNG. If it had not experimented with LNG, it is possible that there would not have been an expansion in the southern sector. In the northern sector British Gas does not have a monopolistic position in regard to gases from the gas gathering system. It has a monopolistic position in relation to methane only. Conservative Members should know that when they make their criticisms.

Few would deny that British Gas is a success story. It has 20 per cent. of the United Kingdom energy market at present, and, in this case, the public sector has transformed a backward industry into one that leads in technological terms. The oil companies do not like it, not because it has been a failure but because it has been a success.

Mr. Eggar

Has it been successful in keeping gas in the ground in the southern basin of the North Sea?

Mr. Douglas

I hope that the hon. Member, in his studies of the question, spent some time reading the report of the Public Accounts Committee that was published in May 1973. If he did, he will know what the oil companies were up to at that time. We are talking in terms of windfall profits. If the regime had continued, the oil companies would not have paid one penny of tax into the United Kingdom. What is happening now arises from a position that was developing in the North Sea. The reason why the oil companies do not like British Gas and have certain reservations—[Interruption.] In terms of the southern gas field, the oil companies had an assured market and were in a bargaining position. What the hon. Member has said is partly true, but we have moved on from that stage.

I admit that because of the current bargaining position it is possible—indeed, probable—that there is gas in certain areas in the southern sector that is not being exploited. I concede that, and also that one has to have an energy regime that does not leave one drop of oil or gas in one's sector of the North Sea that can be exploited. But that is a managed market; it is not a free market.

Mr. Skeet

But surely it is a managed price. If, under section 8 of the Energy Act 1976, the British Gas Corporation negotiates with the campanies, it can lay down the price. It is the sole buyer and therefore it dictates it. Is that right and reasonable?

Mr. Douglas

Whether or not it is right and reasonable, the position is that the people of this country through this House have given the British Gas Corporation these powers. The powers have to be viewed as beneficial or detrimental in the national interest. Looking at the question over the period, I would argue that the powers have been beneficial in the national interest.

If hon. Members want to jack up the prices of gas and other fuels in order to meet the long-run marginal cost, which is the replacement cost—we are talking about the cost of replacement fuel in X years' time—there is an argument for that, but we have to face the economic implications of doing that. There is no point in hon. Members saying that they are in favour of that policy and at the same time crying wolf about key industries which have been tied to gas, and which have been priced out of the world market for their export products and suffered job losses. The right hon. Member for Stafford and Stone (Sir. H. Fraser) referred to those industries.

Mr. Skeet rose—

Mr. Douglas

I shall not give way again, because I want to deal with an essential point about the Bill.

British Gas has been a commercial success, and the Government want to cream back some of the present windfall profits and some of the future windfall profits by means of a levy. Whether or not the Government accept it, that levy will be reflected, albeit indirectly, in the gas industry's pricing policy.

Let us consider for a moment the nature of the levy. The hon. Member for Enfield, North tried to compare it in some ways with the petroleum revenue tax. One of the reasons why the Government are building in what might be called a new excess profits tax on the oil industry is that the oil industry, rightly or wrongly, is being good and is avoiding PRT. But there is no way in which the gas industry can avoid the levy, because it is a quantity tax. equivalent to a barrelage tax. If hon. Members want to impose a quantity tax on oil, the people in the oil industry will die with their feet up. That is what we recommended in the Public Accounts Committee in 1973, and that tax cannot be avoided and evaded. I am willing to look at that case and argue it. I was very attracted by the idea of a quantity tax—I do not speak for the Labour Party—that could be varied. So the position is not on all fours with that in the gas industry. The levy is a detrimental burden imposed on our gas industry. The NEDC paper states: Industrial gas users on the Continent have a cost advantage over the United Kingdom users of up to 20 per cent. for firm supplies and up to about 10 pet cent. for interruptable supplies. That applies to Continental users. No reference is made to users in the United States.

The slavish pursuit of world market prices for fuel is extremely damaging to industry. When it is related to overvalued sterling and high interest rates, major sectors of our industry are severly penalised. The Government say that they will collect £1.3 billion, from 1980 to 1983, from the implications of the Bill. Whether we like it or not, it is directly related to the public sector borrowing requirement. It will create more unemployment, which will in turn increase the PSBR. That is bad enough.

As the hon. Member for Stafford and Stone said, we are concerned about the need to stop the flaring of gas in the North Sea. That is why we all welcomed the arguments to promote the gas gathering system, or at least its southern leg. Daily, press reports state that there could be delays in creating that structure, which is an important piece of capital investment in the North Sea. Why? It is because the banks are standing back and viewing it in risk terms. If they are doing so, that is related to the rate at which they will lend capital. If they lend capital to the project at a higher rate than the rate at which the Government and the public sector can borrow it, that is detrimental to the public interest. Perhaps I am wrong, but I believe that any transmission company formed for the gases in the North Sea would have what would be tantamount to a Government guarantee. The cost of borrowing should reflect the Government's own costs.

The PAC report No. 32, said in paragraph 8: In our view there can be no doubt that the nationalised industries and other statutory public corporations are fully backed by the Exchequer—and if they borrow money in their own name they are effectively doing so on an Exchequer credit, irrespective of their actual or prospective profitability. We, therefore, assume that the rates of interest which they pay for fixed interest money from the private capital market should reflect this credit standing. There would in our view be no justification in principle for paying more. That is the utter confusion of Government policy. They are penalising British Gas on the one hand, and putting the money into the Consolidated Fund on the other, to reduce the PSRB, and endangering—I hope that I am wrong—a valuable piece of capital development in the North Sea, because the banks will want the nation to pay more than the public corporation would pay if the Government were the borrower. That is a direct reflection of the Government's doctrinaire approach.

I should like to raise one or two tangential items. What is the new role of the British Gas Corporation in the gas gathering system when the gas comes ashore? Is it true, as has been reported in the press, that it will be the dispenser of the ethane? That is important to my constituents and other constituents in Kirkcaldy and in Central Fife. It is important in analysing what will happen at Moss Morran and Braefoot Bay.

I oppose the Bill, not because there is not an argument for creaming off windfall profits but because it is a piecemeal, ill-thought-out development and proposal by the Government.

9.45 pm

Mr. Martin Stevens (Fulham)

I am a consultant to the British Gas Corporation, but that does not mean that it has put out a brief on this subject. I certainly have not seen one. It is a bit unfair to talk about windfall profits as even the hon. Member for Dunfermline (Mr. Douglas), who, like me, supports the industry, did. As the Price Commission pointed out barely a year ago, but for the increases last year British Gas would have made a loss on the domestic side of the business. On the industrial side there has been an effort to relate prices to the market, and to some extent that has been achieved. It is misleading to suggest, however, that the British Gas Corporation has been or is enjoying an unearned increment or bonanza.

The biggest investment in the corporation is in the pipelines, which are its greatest single asset. That investment would be wasted if in years to come it could not use the pipelines that it is developing and expanding for the transmission of gas. In other words, it would be wasteful if, five or 10 years from now, the supply of North Sea gas, the more readily, easily and cheaply obtainable natural gas, were no longer available or were reduced in quantity, and if there were inadequate funds either to develop other forms of gas perhaps through coal, or to import gas.

The levy is a discriminatory tax on gas customers because no one else pays a levy of this kind. It was the Government, not the corporation, who asked for the gas price to be raised to the inflation level plus 10 per cent. The key anxiety expressed by hon. Members on both sides of the House is this. The corporation will clearly have to invest much more extensively in about five years from now when the present supply of gas from the continental shelf begins to dry up.

Profits not required for immediate investment go to the Government as loans, and they show up in the public sector borrowing requirement. But it is only right that we should put down markers tonight lest five or six years from now the corporation needs money that it does not then have in order to embark on investment in new ways of producing gas and new forms of gas. People may then know, when that moment comes and the corporation has to ask the Government for financial help, that this is the case not of a nationalised industry with a begging bowl but of an industry which had its loans to the Government converted into a levy, which meant that it was unable, without recourse to the Government, to invest further in order to derive the benefit of the current investment in pipelines

I do not think that one can oppose what the Government are suggesting but we should pass the Bill with greater regard than has been shown for the problems of the industry and, wht is more important, the likely investment requirements in future years.

9.50 pm

Mr. Frank Haynes (Ashfield)

I welcome the opportunity to contribute to the debate. In the interests of time, I shall be brief.

The speeches that we have heard from Conservative Members do not surprise me in the least. All the speeches except one were flashy, and not really to the point. They constituted a cover-up and a smokescreen for what the Government are doing. The public sector borrowing requirement has been mentioned time and again. That is what the debate is all about.

The Government Front Bench is full of financial wizards, but they get their figures wrong all the time. That means that they have to change policy and switch direction to find the money to cover up the mistakes that they have made. It is an appalling situation when the elderly, the lower-income groups and people with children have to finance the mistakes of the Government. That is a shocking state of affairs. It is high time that it was said in the House. I hope that it will be said in future.

This is a highwayman's Bill. It is robbing the consumer. I regularly have industrialists at the door of my surgery. When I visit factories I am told about the crippling energy costs that have been imposed by the Government. Such costs will continue to be imposed because of the three-year policy in the Bill. These provisions will continue to cripple industry. The whole essence of the Bill is to try to draw in moneys that the Government have lost. The public sector borrowing requirement is a mire compared with what it was in May 1979.

The Government are trying to stoke up finance to cover their mistakes. They are making consumers pay. By God, they are making them pay. The Government say that they are concerned about the elderly. In reality they could not care less. We have pressed the Government to do something about heating allowances for the elderly, but that is nowhere near enough. In addition, the children's allowance was cut. That is part of the policy to draw in money that the Government have lost because of their mistakes. The two-week delay in increasing pensions was another way to draw in money to cover up mistakes. It is a pure smokescreen.

Before I came to the House I used to work in the pits. From time to time there were deaths at the pits. The mining industry is a benevolent society, and a notice would be pinned to the wall. It would tell the men that next Friday, when they drew their pay-packets, there would be a levy to enable some kind of grant to be paid to the widows. When the men came out of the pit on the day on which the notice was posted they would say "God, Levi's here again". We have much the same situation with the Bill.

It is high time that the Government changed direction. From time to time, particularly in the last few days, we have been told that perhaps a change of direction is coming. By God, we need a change of direction here.

One could list a number of things, affecting the ordinary folk, that have been introduced to cover up the Government's mistakes—prescription charges, social security benefits, and child allowances. The Government will not get away with it. People now realise what is going on. The people of this nation will react strongly to the Government because of the wicked policies that they are imposing on the nation.

9.55 pm

The Under-Seeretary of State for Energy (Mr. Norman Lainont)

The speech of the hon. Member for Ashfield (Mr. Haynes) was not typical of the debate. I make no complaint about his contribution. However, I am glad to say that this has not been a partisan debate, and I welcome the spirit in which the right hon. Member for Leeds, South (Mr. Rees) spoke.

One of the recurring questions in the debate was: why was the levy not included in the Finance Bill? It is normal for a wholly new income-gathering measure to be introduced in a separate Bill. That is what happened with the Oil Taxation Act 1975 and the levy on the television companies. It is also a convention that receipts and payments are a matter for the Consolidated Fund.

The hon. Member for Ashfield asked what the money would be used for. I think that he received a good reply from the right hon. Member for Down, South (Mr. Powell), who drew attention to the fact that it is not the habit in the House to hypothecate revenue. I am grateful to the right hon. Gentleman for finding a new word to substitute for hypothecation. "Assignment" is a much less ugly word. But as the right hon. Gentleman pointed out, what is being argued very much leads down the trail of the road tax fund.

However, I felt that the right hon. Gentleman came near to the hypothecation argument when he talked about £100 million being reserved for a Northern Ireland gas pipeline. That would be an assignment of revenue. As the right hon. Gentleman knows, investments in new gas supply need to be justified by themselves and they have to satisfy a rate of return irrespective of the source of the money or whether the British Gas Corporation is generating sufficient profits to finance such a pipeline.

The right hon. Gentleman dwelt at some length, as he did in the debate on the Ways and Means resolution, on the question of gas for Northern Ireland. The gas industry in Northern Ireland is a matter for my right hon. Friend the Secretary of State for Northern Ireland, and it would not be right for me to trespass on his territory. However, I am well aware of the arguments for making a supply of natural gas available to the Province. Recently, however, there have been indications that the Government of the Republic of Ireland may be prepared to supply natural gas from their own resources to Northern Ireland. The Northern Ireland Office has asked the Dublin Government to provide detailed information so that a full evaluation of the proposal can take place. It is expected that this will be completed shortly.

The right hon. Member for Down, South referred to this measure as a diamond of a Bill. I think that his speech was something of a jewel which illuminated certain parts of the Bill. However, on one point—the effect of the Bill on the public sector borrowing requirement—the right hon. Gentleman was not quite correct. The PSBR covers the whole of the public sector, and transactions within the public sector have no effect on it. The BGC's surpluses reduce the PSBR whether they are lent to the national loans fund or whether BGC holds on to them.

My hon. Friend the Member for Enfield, North (Mr. Eggar) supported the Bill and the levy. That is hardly surprising, because only a few months ago he wrote a pamphlet advocating a levy on the British Gas Corporation. So in a way he can claim to be one of the authors and inspirers of this measure.

My hon. Friend asked a number of questions. First, he asked what would be the percentage of profits comparable to the percentage of profits taken by PRT from the oil companies. I should point out that the levy is not a profits tax. As the hon. Member for Dunfermline (Mr. Douglas) said, it is put on the costs of the corporation. It is a tax on costs. The revenues are set out in the explanatory and financial memorandum. The profits of the BGC that will remain after the levy are approximately £300 million a year.

My hon. Friend also asked about corporation tax liability. At present, the corporation is incurring liability for corporation tax, though I cannot give an exact figure of what it is likely to pay either this year or next year. It is just beginning to build up.

My hon. Friend also asked whether we would roll forward the levy. We expect to set the levy and the three-year financial target at the same time. Thus, the BGC will have an opportunity to plan ahead.

My hon. Friend's last question related to the tax regime on the southern basin. There is no reason why PRT should not apply to new gas in the southern basin. The levy will not apply to gas in such a situation.

The hon. Member for Dunfermline asked about the position of ethane in the gas-gathering system. That matter does not fall strictly within the Bill, but I can tell him that the BGC has reached agreement with the BNOC about the handling of the ethane. The BGC will handle the ethane and the BNOC will handle the liquids. If I can find any other information to amplify what I have said I shall write to the hon. Gentleman.

The right hon. Member for Leeds, South and others wondered whether the levy would leave the BGC with enough funds for future investment and whether, at a time when the BGC was to invest some £4,000 million over four years, the levy would cause difficulties. The BGC will have available for investment not just its profits but its depreciation and the money loaned by it to the national loans fund. In 1981–82, we are expecting profits in excess of £300 million, and depreciation in excess of £600 million, and the NLF deposits will be on top of that.

It is, of course, precisely how much should be left with the corporation for its investment programme that is a matter of judgment. But that is the judgment that the Government have had to make in deciding on the precise level at which the levy should be fixed. It goes without saying that each investment project has to justify itself and has to meet a required rate of return. We do not believe that the levy will so deprive BGC of money that it will be unable to finance its own investment. It is our intention that the corporation should be able to do that.

Inevitably, much of the debate has been about prices. The right hon. Member for Leeds, South mentioned both domestic and industrial prices. He said that insufficient justificaton had been given for the domestic price increases that had already taken place and those that were in the pipeline. However, my right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) gave one of the best justifications, namely, the imbalance between domestic and industrial prices in this country. It is a fact that in this country, in contrast to the situation on the Continent, the domestic consumer pays less than does the average industrial consumer. In this country the British Gas Corporation is barely breaking even on its sales of domestic gas. The price of domestic gas in Britain is only about half of that paid by householders in Germany or France, for the very same gas from the North Sea.

It is also a fact that the new supplies of gas from the North Sea are costing up to 10 times as much as the original gas from the North Sea. That is why many industrialists are saying, as my right hon. Friend the Member for Stafford and Stone did so forcefully, that there has to be a very considerable rise in domestic prices after a period in which they have been falling sharply in real terms.

Another part of the speech of my right hon. Friend the Member for Stafford and Stone related to industrial prices. It is not the Government's intention that British industry should be placed at a disadvantage by energy prices. It is our view that our industrial energy prices, while not out of line generally acorss the board, may pose a problem for certain energy-intensive sectors, certain of the larger users. That is precisely the question being looked at by the NEDO task force. My right hon. Friend will also recall that the Secretary of State has asked the British Gas Corporation to look at discounts for bulk users and at a number of different ways of helping the large users of gas.

My right hon. Friend quoted a number of figures for comparative gas costs. I do not want to go into those in detail, although he will bear in mind that some part of the difference may be explained by the very recent movement in the exchange rate. It is quite difficult to argue that the BGC ought to price its gas in anticipation of movements in the exchange rate.

Mr. Robert C. Brown

Surely the Minister must take on board the point about energy conservation. Natural gas has a projected life of 20 of 30 years. Coal has one of hundreds of years. It is completely wrong for the Minister to be talking in terms of encouraging industry to use natural gas. Hes should be dicouraging it rather than encouraging it.

Mr. Lamont

I do not agree with that entirely. There are certain usages in industry for which gas is appropiate. Certainly we ought to have a pricing regime which ensures that gas is used only for premium purposes, for the pruposes for which it is most appropriate.

A number of hon. Members have questioned the Government's assertion that the levy does not affect prices. But the reason why the levy does not affect prices is that the pricing regime has already been determined. The financial target has already been set on the assumption that the BGC will be charging market rates and the long-run marginal cost for its gas, and the purpose of the levy is to make sure that the proceeds in the BGC are recouped for the benefit of the community as a whole.

My right hon. Friend the Member for Stafford and Stone said that he was against all windfall profits taxes of any kind. But it seems right that when one is dealing with a natural resource and when the price of that rises and is of benefit to companies, that windfall element should not accrue just to the company but should accure to the Government and the community more generally. That is the principle behind the petroleum revenue tax. One of the purposes of the gas levy is to see that there is a tax on those gas fields that were exempt from the petroleum revenue tax because contracts were signed before PRT was introduced.

That seems to me a right principle. As my hon. Friends the Members for Derbyshire, South-East (Mr. Rost), for Enfield, North and for Bedford (Mr. Skeet), and also the right hon. Member for Down, South, pointed out, that principle seems even more right when one is talking of a monopoly industry with near monopoly rights in the North Sea. In that case, it seems even more right that the profits should accrue not just to the corporation but to the community more generally.

The right hon. Member for Down, South, in a fascinating part of his speech, speculated on what would be the effect if there were no gas monopoly and if there were competing gas companies and utilities. I do not want to follow him too far down that road. One effect would follow. The prices paid for gas in the North Sea would have been very much higher than in the past.

I note what some of my hon. Friends, including my hon. Friend the Member for Bedford, said about the regime in the North Sea and the near-monopoly position of the corporation. It was President Carter who said that the energy crisis was the moral equivalent of war. The energy crisis—how we are to use scarce, precious and finite resources—is one of the most important issues that faces this generation and generations to come. The period when oil is running out and gas begins to run out is not far off. There is no way that we in this country can be immune from the pressures that are taking place all over the world where energy prices are rising generally. There is no industrialised country where energy prices are not rising more quickly than prices in general. There is no way that we in this country can be immune from that development.

The principles behind the Bill were largely supported by the Labour Party when in Government, the Green Paper put forward by the Labour Government advocated market pricing of North Sea oil and added that the nation's participation in the surplus thereby yielded should be secured by taxation and other policies rather than by artificially low prices to the consumer. If that applies to oil, why does it not equally apply to gas? The former right hon. Member for Birkenhead, Mr. Dell, the then Paymaster General, went on to amplify the point when he said: the gas supplied from the North Sea … really should be as liable to PRT as oil".—[Official Report, Standing Committee D, 6 February 1975, c. 703.] That was how the Labour Party saw things when in Government.

Mr. Douglas

Finish the quote.

Mr. Lamont

Of course, everything seems different in Opposition. Things are better seen in perspective standing on one's head.

We cannot expect the Labour Party, which is falling apart at the seams, to do anything except grub for votes. We cannot expect it to do other than oppose the Bill. The Government have taken a difficult and courageous decision. They, unlike the Opposition, are prepared to look to the longer term. The Bill seeks to convert the temporary and transient advantages of the North Sea into permanent advantage for this country. I commend it to my right hon. and hon. Friends.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 153, Noes 104.

Division No. 71]	[10.14 pm
AYES
Aitken, Jonathan	Lawson, Rt Hon Nigel
Alexander, Richard	LeMarchant, Spencer
Banks, Robert	Lloyd, Peter (Fareham)
Beaumont-Dark, Anthony	Loveridge, John
Benyon, Thomas(A'don)	Lyell, Nicholas
Berry, HonAnthony	McCrindle, Robert
Biggs-Davison, John	Macfarlane, Neil
Blackburn, John	MacGregor, John
Boyson, Dr Rhodes	McNair-Wilson, M. (N'bury)
Braine, SirBernard	Madel, David
Brinton, Tim	Major, John
Brooke, Hon Peter	Marlow, Tony
Brotherton, Michael	MarshallMichael(Arundel)
Brown,M,(BriggandScun)	Mawby, Ray
Bruce-Gardyne, John	Maxwell-Hyslop, Robin
Bryan, Sir Paul	Miller, Hal(B'grove)
Buchanan-Smith, Hon Alick	Mills lain(Meriden)
Buck, Antony	Mills, Peter (West Devon)
Budgen, Nick	Moate, Roger
Bulmer, Esmond	Moore, John
Carlisle, John (Luton West)	Mudd, David
Carlisle, Kenneth (Lincoln)	Murphy, Christopher
Chalker, Mrs. Lynda	Needham, Richard
Chapman, Sydney	Nelson, Anthony
Clark, Hon A. (Plym'th, S'n)	Neubert, Michael
Cockeram, Eric	Newton, Tony
Colvin, Michael	Normanton, Tom
Cope, John	Page, John (Harrow, West)
Costain, SirAlbert	Page, Rt Hon SirG. (Crosby)
Cranborne, Viscount	Page, Richard (SW Herts)
Crouch, David	Parris, Matthew
Dean, Paul (North Somerset)	Pattie, Geoffrey
Douglas-Hamilton, LordJ.	Pawsey, James
Dover, Denshora	Percival, Sirlan
Dunn, Robert(Dartford)	Pink, R. Bonner
Dykes, Hugh	Pollock, Alexander
Eggar, Tim	Porter, Barry
Faith, Mrs Sheila	Proctor, K. Harvey
Fisher, SirNigel	Renton, Tim
Fletcher-Cooke, SirCharles	RhodesJames, Robert
Fowler, Rt Hon Norman	Rhys Williams, Sir Brandon
Gardiner, George (Reigate)	Ridley, Hon Nicholas
Garel-Jones, Tristan	Roberts, M. (Cardiff NW)
Glyn, Dr Alan	Rossi, Hugh
Goodlad, Alastair	Rost, Peter
Gorst, John	Sainsbury, Hon Timothy
Gow, Ian	Shepherd,Colin(Hereford)
Gray, Hamish	Sims, Roger
Greenway, Harry	Skeet, T. H. H.
Griffiths, Peter Portsm'thN)	Speed, Keith
Grist, Ian	Spicer, Jim (West Dorset)
Grylls, Michael	Spicer, Michael (S Worcs)
Hamilton, Michael (Salisbury)	Stainton, Keith
Hawksley, Warren	Stanbrook, lvor
Heddle, John	Steen, Anthony
Henderson, Barry	Stewart, Ian (Hitchin)
Higgins, Rt Hon Terence L.	Stradling Thomas, J.
Hill, James	Taylor, Teddy (S' end E)
Hogg, Hon Douglas (Gr'th'm)	Tebbit, Norman
Holland, Philip (Carlton)	Temple-Morris, Peter
Hooson, Tom	Thatcher, Rt Hon Mrs M.
Hordern, Peter	Thomas, Rt Hon Peter
Howell, Rt Hon D. (G'ldf'd)	Thompson, Donald
Hunt, David (Wirral)	Townend, John (Bridlington)
Hunt, John (Ravensbourne)	Townsend, Cyril D,(B'heath)
Jessel, Toby	Trippier, David
Jopling, RtHonMichael	van Straubenzee, W. R.
Joseph, Rt Hon Sir Keith	Viggers, Peter
Knight, MrsJill	Waddington, David
Knox, David	Wakeham, John
Lamont, Norman	Waller, Gary
Lang, Ian	Ward, John
Langford-Holt, SirJohn	Warren, Kenneth
Lawrence, Ivan	Watson, John

Wells, John(Maidstone)
Wells, Bowen	Tellers for the Ayes:
Wheeler, John	Mr. Carol Mather and
Wickenden, Keith	Mr. Robert Boscawen.
Wolfson, Mark
NOES
Allaun, Frank	Lofthouse, Geoffrey
Alton, David	Lyon, Alexander(York)
Atkinson, N.(H'gey,)	McCartney, Hugh
Bagier, Gordon A.T.	McDonald, DrOonagh
Beith, A. J.	McGuire, Michael(Ince)
Booth, Rt Hon Albert	McKay, Allen(Penistone)
Bradford, Rev R.	McKelvey, William
Bray, Dr Jeremy	McWilliam, John
Brown, Hugh D.(Provan)	Marks, Kenneth
Brown, R. C. (N'castle W)	Mason, Rt Hon Roy
Buchan, Norman	Maynard, MissJoan
Callaghan, Jim (Midd't n&P)	Mitchell,Austin(Grimsby)
Campbell-Savours, Dale	Mitchell, R.C.(Sotonltchen)
Carter-Jones, Lewis	Molyneaux, James
Clark, Dr David (S Shields)	Morris, Rt Hon J. (Aberavon)
Cocks, Rt Hon M. (B'stolS)	O'Neill,Martin
Concannon, Rt Hon J. D.	Palmer, Arthur
Conlan, Bernard	Park, George
Cowans, Harry	Parry, Robert
Cryer, Bob	Powell, RtHon J.E. (S Down)
Cunliffe, Lawrence	Powell, Baymond(Ogmore)
Cunningham, DrJ.(W'h'n)	Prescott, John
Davidson, Arthur	Rees, Rt Hon M (Leeds S)
Davis, T. (B'ham, Stechf'd)	Roberts,Albert(Normanton)
Deakins, Eric	Roberts, Ernest (Hackney N)
Dixon, Donald	Robertson, George
Dormand, Jack	Rooker, J. W.
Douglas, Dick	Ross, Ernest (Dundee West)
Dubs, Alfred	Ross, Stephen (Isle of Wight)
Dunlop, john	Ross, Wm.(Londonderry)
Dunwoody, Hon MrsG.	Rowlands, Ted
Eadie, Alex	Sandelson, Neville
Eastham, Ken	Sever, John
Ellis, Tom (Wrexham)	Silkin, Rt HonJ. (Deptford)
Evans, John(Newton)	Silverman, Julius
Flannery, Martin	Skinner, Dennis
Fletcher, Ted (Darlington)	Snape, Peter
Foster, Derek	Spriggs, Leslie
Freud, Clement	Stallard, A. W.
George, Bruce	Steel, Rt Hon David
Gourlay, Harry	Wainwright, E.(DearneV)
Hamilton, James(Bothwell)	Wainwright, R.(ColneV)
Hamilton, W.W.(C'tral Fife)	Welsh, Michael
Harrison, Rt Hon Walter	Whitehead, Phillip
Haynes, Frank	Whitlock, William
Janner, Hon Greville	Williams, Rt Hon A.(S'sea W)
Johnston, Russell(Inverness)	Williams, Sir T.(W'ton)
Kilfedder, James A.	Wilson, William (C'trySE)
Lambie, David	Winnick, David
Lamborn, Harry	Woodall, Alec
Lamond,James
Leadbitter, Ted	Tellers for the Noes:
Leighton, Ronald	Mr. Joseph Dean and
Litherland, Robert	Mr. George Morton.

Question accordingly agreed to.

Bill read a Second time.

Bill committed to a Committee of the whole House.— [Mr. Goodlad.]

Committee tomorrow.