HC Deb 26 January 1981 vol 997 cc625-7
7. Mr. Canavan

asked the Secretary of State for Energy what representations he has received about energy prices; and if he will make a statement.

10. Mr. Campbell-Savours

asked the Secretary of State for Energy what consultations he has had with the leaders of the Confederation of British Industry on energy pricing policy.

17. Mr. Douglas

asked the Secretary of State for Energy if he will make a statement on the discussions which have taken place on energy pricing.

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

Representations from trade associations, the CBI and others have culminated in discussions in the January National Economic Development Council. The National Economic Development Office study concluded that, while British industry generally did not suffer a disadvantage compared with European competitors over energy prices, bulk users in energy-intensive industries could do so. From early last year, a number of measures to deal with specific problems have been taken.

Mr. Canavan

Does the Secretary of State realise that by forcing the fuel boards to increase their prices he is responsible not only for crippling British industry but for creating poverty and the possibility of hypothermia for countless thousands, including pensioners, who cannot afford to pay escalating fuel bills? As the existing scheme of Government assistance for heating costs is hopelessly inadequate and confined to those on supplementary benefit or family income supplement, will the Government introduce a more generous and comprehensive scheme to help all people with low incomes.

Mr. Howell

The hon. Gentleman may feel strongly about this matter, but he is blinding himself and, I am afraid, others, to reality. We must do as much as we can to protect those in difficulties in an age of high energy costs. However, energy prices have risen world-wide. Tariffs must cover the long-run cost of supply. It is not a matter of the Government forcing up tariffs, but we must ensure that industry and individuals are able to respond in order to meet the new and undoubtedly difficult conditions.

Mr. Douglas

Will the Secretary of State do us the kindness of not trying to kid us that there is a market price for oil and gas, when we know that the prices result from OPEC's administration and one cartel facing another? Will he take urgent steps to ensure that specific bulk users of oil and gas in the United Kingdom are given the same consideration as those in the United States?

Mr. Howell

I shall try to gain your smile, Mr. Speaker, by answering only the second question, concerning bulk users. As I said earlier, it was recognised in the NEDC that bulk users in energy-intensive industries could be at a disadvantage vis-a-vis their European competitors. However, the United States has vastly greater hydro power, very much cheaper coal and, even now, a considerably greater nuclear proportion of electricity. On a cost basis alone, it will be a long time before we can get the competitive coal and the greater nuclear component to deliver electricity at a price competitive with our world trading rivals.

Mr. Crouch

Does my right hon. Friend agree that the nationalised industries in the energy sector hardly present an understanding of the realities of industry today? Does he also agree that the CEGB and the Gas Corporation, in the absence of any competitive pressure at home whatsoever, have a duty to recognise the value of big business as intensive energy consumers?

Mr. Howell

Yes. The great nationalised industries have been supplying under monopoly conditions. In the case of gas, there was not an opportunity for users to switch to oil. Those industries therefore have a duty to act sensitively and to understand their customers' problems in very tight market conditions. I have urged the industries concerned to act sensitively, without abandoning their proper commercial commitment to sensible economic pricing, which must be overriding and which makes sense.

Mr. Park

Given the Minister's support for free competition, may I ask whether he will consider amending that view to include free and fair competition and altering his Department's attitude in that direction?

Mr. Howell

I am not sure what lies behind the hon. Gentleman's question. Where there is direct competition between oil suppliers and oil consumers—and there is completely free, open and fair competition in oil and oil product supplies—or between gas and oil, where a firm has both the facilities and the back-up to switch from fuel oil to gas, that is free and fair competition and prices are set by the market accordingly.

Mr. Forman

Is my right hon. Friend aware that the Government's policy of realistic energy pricing in the only responsible and long-term approach and that present and future generations will be deeply grateful to him for his firm but flexible attitude?

Mr. Howell

I am grateful to my hon. Friend for his support.

Mr. Merlyn Rees

Does the Secretary of State accept that we await the Neddy report with interest? However, is it the Government's policy to insist that the charges of nationalised energy industries are set at rates greater than marginal or average cost?

Mr. Howell

The policy is that tariffs should be set to cover the long run cost of supply. There is a difference between short run and long run costs. Where there is a market, the market price is charged. Where fuel is supplied under monopoly conditions—under a statutory obligation to supply—the charge is calculated on the long run cost of supply.