§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Cope.]9.18 pm
§ Mr. John Ward (Poole)
I thank my hon. Friend the Minister, who has already had a busy day in his ministerial duties, for being present to answer the debate on standing charges for domestic energy supplies.
The debate is not intended to be a general attack on the suppliers of domestic energy. I shall concentrate on a specific subject—standing charges.
It is a strange coincidence that exactly one year ago tonight the South and West experienced some of the most appalling weather that they had had for many years. There was enormous damage to electricity supplies. I and many of my constituents remember the untiring efforts that were made in Arctic conditions to restore supplies to domestic users.
In the past year, local electricity authorities —certainly that in my area—have used their time wisely to improve means of delivery and communication with the public in time of emergency. They have also been imaginative in their use of local radio, which did such sterling service a year ago.
My constituency is predominantly urban and I am sure that my right hon. Friend the Member for Bournemouth, West (Sir J. Eden), my hon. Friends the Members for Bournemouth, East (Mr. Atkinson) and Christchurch and Lymington (Mr. Adley) will confirm the general anxiety in areas similar to Poole. I understand that if my hon. Friend the Member for Dorset, North (Mr. Baker) catches the eye of the Chair, he will refer to the problem in rural areas, which are not dissimilar to ours.
The House will be aware that, apart from the cost of accommodation, domestic rates and fuel are among the largest items of expenditure in the householder's budget. Like many of my colleagues, I find that much of my mail consists of constituents' complaints about those two items. The Minister and I are unable to do anything tonight about domestic rates, which are the responsibility of my right hon. Friend the Secretary of State for the Environment, who I hope will be making a more welcome announcement in the near future. However, we can again outline the level of hardship that is caused by the standing charge element in domestic fuel bills.
I should also like to refer to the standing charge element in water bills. In some areas that charge is not excessive at present, but if we continue with the expansion of the use of meters we could well get complaints from consumers if the level of standing charges in the water industry are not watched.
I am well aware that the Government have already done much to help the elderly and the underprivileged with their fuel bills and that about £300 million has been made available in the current year for this purpose. Most people who complain to me about their fuel bills say that, although they economise in the use of fuel, standing charges are an increasing burden. In many instances, the standing charge exceeds the cost of the fuel consumed by a considerable amount.
A constituent who finds electric central heating too expensive to run recently wrote: 94A couple of years ago we had a gas fire installed and the standing charge per quarter was £2.16. What logical reason can there be for increasing standing charges from £8.64 per annum to £36 per annum in two years?That constituent was kind enough to include her gas bill, which showed that for the quarter concerned the bill for fuel was zero but the standing charge was £9. That shows maximum economy in the use of fuel, but the £9 standing charge per quarter still applied.
Another constituent wrote that she and her husband are living on a low wage and have had to economise. They did so by not having any heating during the day. She cooks by gas, but tells me that their self-denial is in vain, because as fast as she saves gas the standing charge is increased and up goes her bill.
It is regrettable that, when explanations are sought from gas offices, people are told that it is entirely because of the Government's revenue requirements that standing charges are increased. It would be fairer if the people in gas board showrooms explained to the customers concerned why standing charges are thought to be fair and necessary as part of the domestic energy costing system. They might also explain that domestic gas prices have risen over the last three years because the previous Government held down prices artificially.
It is not generally understood that the power to adjust standing charges rests not with the Secretary of State but directly with the gas and electricity industries. However, My right hon. Friend has asked those industries not to increase standing charges further until the results of two inquiries are known. The first inquiry is being carried out in co-operation with independent consultants, and is examining the level and composition of standing charges. I understand that this is the first time that an independent inquiry into standing charges has been carried out into any of the energy supply industries, and I also understand that the report is likely to be available by Christmas. My right hon. Friend the Secretary of State has asked the industries to re-examine the possibility of limiting standing charges to small consumers to not more than half the total bill. The measure has become known as the 50–50 proposal.
There has been much anxiety and some action has been taken about the level of standing charges but we are now approaching the period of heaviest fuel consumption. It is important that speedy decisions should he made if any action on standing charges is to be effective in the current season.
I do not call for the abolition of standing charges, because I know that they are fixed costs that are incurred by all domestic customers, no matter how much or how little fuel they use. I am also aware that the standing charges are intended to cover the costs in full and that, without standing charges, customers who must maintain a supply for standby purposes would pay nothing. If, as some of my right hon. and hon. Friends have suggested, standing charges were to be abolished, the unit costs of domestic fuel would have to be increased by about 15 per cent. That would be an intolerable burden on consumers.
However, if the 50–50 proposal were adopted, about 1 million gas consumers and ¾ million electricity consumers would benefit. About ½ million of those people would be pensioners. I accept that the Department of Health and Social Security is the only Department geared to help those in most need but the people of whom I am speaking are those not receiving direct help from the Government but those who are trying to live within their means. I am aware 95 that many of the heaviest domestic energy consumers are the elderly and those with young children and it would be wrong if, in trying to help one group by reducing standing charges, we further penalise those who are least able to pay their way. It is not only the less well-off consumers who must watch their pennies, but many who live on fixed incomes that are above the level at which they may receive State assistance.
As a result of media interest in this debate, it has been suggested to me that the 50–50 proposal could mean that heavy consumers of domestic energy will have their standing charges increased to compensate for any reduction for low energy consumers. One worried gentleman took the trouble to phone the House today because he believed that his standing charges could go up to £100, which would be equal to the cost of the fuel that he uses. I have never heard of such a proposal and I would expect that the cost of reducing standing charges for low energy consumers will be conpensated by a marginal increase in the unit rates.
A lady from Scotland phoned me this evening to say that if standing charges were lower she would have gas connected. Perhaps the gas boards would get more business if they reduced standing charges.
I have obtained some figures for the adjustment to the unit and therm rates that would be required to give effect to the 50–50 proposal—when the standing charges would not be greater than half the total bill. Based on October 1982 rates, the 50–50 proposal would increase the price per therm of domestic gas and the unit rate of electricity by small fractions of a penny. That does not seem too high a price to pay to remedy the sense of injustice and frustration felt by so many domestic consumers in trying to live within their means.
There is some good news from the gas and electricity industries. I understand that the average price of electricity will not increase in April 1983. That will help to alleviate some of the problems that I have illustrated. It would also seem that the next review of gas prices will not take place until October 1983. I hope that the breathing space will be used to examine closely the standing charges problem.
Those who oppose a reduction of standing charges to 50 per cent. of the fuel bill sometimes mention second home owners and others who might be considered to benefit unfairly from such a system. Often, when measures are taken to improve the financial circumstances of those most in need, others may also benefit. I accept that, but I feel strongly that it should not be an excuse for failing to act.
While, as I have illustrated, the Government have done much to help and have exerted pressure on both the gas and electricity industries—especially through the two inquiries that I have mentioned—any progress that is being made is much too leisurely. If the two industries did not enjoy an effective monopoly and were in a competitive market, they would be much more responsive to public concern. It is unacceptable that their monopoly position allows them to dictate progress in this matter.
Hon. Members should not underestimate the anger, frustration and resentment of those who are trying to plan their spending and whose efforts are frustrated by the high standing charges. I hope that my hon. Friend the Under-Secretary of State will say tonight that further pressure is being put on the two industries rapidly to bring to a 96 conclusion the two investigations set up by my right hon. Friend the Secretary of State, and that during the next few weeks—no later—we shall hear that some action is being taken to help those who find that, despite all their good housekeeping, their fuel bills are increased to unreason-able levels. The effect of standing charges, when related to the domestic consumption of low energy consumers, is ridiculous. Once again, I thank my hon. Friend the Under-Secretary for being here to answer this debate and I look forward to his reply.
§ Mr. Frank Haynes (Ashfield)
The Under-Secretary of State should listen carefully to what is said tonight, bearing in mind the real pressure that is put on Members of Parliament by their constituents. In my surgeries, and when I go around my constituency, I hear complaints from, in particular, the elderly, the low income groups and the unemployed. The worst hit are those who earn above a certain income and who cannot claim benefit, yet who must meet their energy debts. There is real public concern about the matter.
The hon. Member for Poole (Mr. Ward) referred to price increases during the past few years, but we must consider the present position. Prices could have been kept down either by reducing the standing charge or by halting the price increases encouraged by the Government. The increases cause misery and poverty, but tonight we are talking not about energy price increases but about standing charges, which are a racket for the public industries. We may have had those charges when the Labour Party was in power, but matters have become much worse during the past three and a half years. Statistics prove that to be so.
The press in Nottinghamshire, which supports the Conservative Party, has run a campaign about standing charges for several weeks. It is a beautiful campaign, and I am told in no uncertain terms that many representations have been received from the people who have been hit especially hard by standing charges.
Hon. Members know what happens. Constituents come to surgeries and say "This charge has risen again", and so it continues. The hon. Member for Poole referred to £100. The way that we are going now, it will not be long before we reach that figure. However, it would appear that Ministers have applied pressure to the nationalised industries to hold down their prices in preparation for a general election. I noted that the hon. Member for Morecambe and Lonsdale (Mr. Lennox-Boyd) was nodding in agreement with me until I mentioned the general election.
The Minister and his colleagues have a real responsibility. I do not wish to hear the Minister say tonight "I cannot interfere". The Secretary of State interfered when he wanted the prices jacked up by 10 per cent. above the inflation rate for three years. I hope that the Minister will say tonight that he will do something about standing charges.
I welcome the opportunity to participate in the debate and to congratulate the hon. Member for Poole on initiating it. I shall take great interest in what is said from the Conservative Benches on the subject of standing charges. I recognise that many hon. Members on each side of the House are greatly concerned about standing charges. I hope that the Department, and the Minister in particular, 97 will take note of that feeling, because many representa-tions have been made to hon. Members in the hope that the Government would do something about it.
It is no good having a couple of inquiries and then doing nothing. Those who are hit particularly hard by the standing charges would like to see them abolished. Many hon. Members have suggested that in all sorts of places, including this Chamber, and note should be taken of those suggestions.
The various energy boards are making millions of pounds of profit. How are those profits being spent? That is another question, but the fact that such huge profits are being made gives the Government an opportunity to do something about the massive standing charges. It is high time that something was done about them. It would be a feather in the Government's cap if they were to do something, with a general election looming on the horizon.
I have tried hard not to make political comments, because I feel very strongly on the question, as do other hon. Members. Clearly the Government have a responsibility to do something about standing charges. They can do something, and I hope they will.
§ Mr. Jim Lester (Beeston)
I am delighted to be able to support my hon. Friend the Member for Poole (Mr. Ward) in his most reasonable case, and also to support the hon. Member for Ashfield (Mr. Haynes) in some of his remarks, although not all of them, because he raised rather wider issues than that of standing charges for domestic energy. He and I represent areas which have a great deal to do with the energy industries. We supply the coal for the Trent valley, which supplies the power to the grid for much of the national economy, far beyond our local needs, so we shall always take a particular interest in energy.
The argument relates to the acceptability of the basis on which standing charges are calculated and to an understanding of the principle involved. Those who pay the standing charges, and particularly those who feel most strongly about the matter, are not fools. They are people who have experience of making ends meet over many years. They are not simple people. They understand the basis of bills and the basis of meeting their weekly payments. The principle of minimum use of energy is a proper one for a declining resource, and they understand that principle, but they cannot equate it with the imposition of standing charges which go up at a faster rate than the rate of inflation. That is what causes friction and difficulty.
It is easy to understand the basis of the energy industries' interest in standing charges. They say that there is a basic infrastructure that has to be provided and that that infrastructure has to be divided between the consumers on an equal basis, but that policy does not work in practice for those who are paying the bills.
I should have thought that it would pay the energy industries—it does not matter which facility, and I include water and would go so far as to include petrol—to look at how much worry, concern and public aggravation there is about the basis on which they levy charges. It cannot be worth their while to go further down that route.
My hon. Friend the Member for Ashfield—I call him my hon. Friend because I have known him for a long time—said that our local paper conducted a campaign on this matter and encouraged letters from constituents. The 98 case has been widely expressed. I cannot underestimate the public concern, whether it is in Poole, Nottingham or Scotland. Wherever one goes the concern is similar.
I shall not go as far as to suggest a solution, but I believe in the principle that the cost of energy should be related to the cost per unit, whether the facility is water, electricity, gas or petrol. There is a basic justice in that formula.
We accept that the energy industries must charge a basic minimum. The simplest method, which people could understand, would be a basic cost per unit and a minimum charge. That charge should be well publicised on the bottom of the bill. It should state that below a certain level it is not economic to supply the fuel, whatever it is, and so there has to be a minimum charge. People could understand that. It is based on justice. It is linked to usage. There should be an understanding that there is a minimum charge below which it is not worth while to supply that facility.
If we could move in that direction, there would be much less concern and aggravation and more support for the work done by the energy industries. One should not criticise them too much. There have been tremendous changes in all the industries. They have coped with enormous difficulties, particularly the gas industry when it converted town gas to North Sea gas. One does not want to condemn the industries. A proper basis of charging, which is simple, straightforward and understandable, and which my hon. Friend the Member for Poole has called for, as I do, would be better for everyone, particularly for consumers who feel that they are unjustly treated.
§ The Under-Secretary of State for Energy (Mr. David Mellor)
I am glad that circumstances have allowed us to have a longer debate on this important topic than would have been possible under normal circumstances when the Adjournment debate has to be compressed into the last half hour of the day's sitting.
I join in the congratulations that have been extended to my hon. Friend the Member for Poole (Mr. Ward) on having raised this important subject. Having lived with the issue of standing charges for almost a year almost on a daily basis, I am glad to have an opportunity to speak at greater length than is possible at Question Time about some of the difficulties, which I know many hon. Members would wish me to do, and to make some points about the action that the Government have taken, which is, in my respectful submission, considerable.
I look kindly upon my hon. Friend, not merely because of his many sterling qualities but because he represents the borough of Poole. I was born within a few miles of his constituency. I did not have the privilege to be born within it, but Poole was our nearest big town. For nearly 20 years it was one of the centres of my life. I like Poole. My hon. Friend serves it well as its Member of Parliament.
As the Minister responsible for electricity matters, I should also like to thank my hon. Friend for his gracious tribute to the efforts of the Southern Electricity Board, which covers his constituency, in coping with the enormous problems that were posed by the extreme weather of last winter. I know that many consumers were distressed at losing power last winter. One cannot imagine any more distressing occurrence to disrupt normal family life than the loss of electricity, such is our dependence on this basic commodity. It is equally right, as my hon.
99 Friend made clear, that strenuous efforts were made by men who worked in conditions that none of us would like to experience to restore the supply.
I was in the south-west of England two weeks ago as a guest of the South Western Electricity Board. I had the opportunity to see work being carried out on Dartmoor to replace some poles that had had their day and to strengthen the system in preparation for the winter. I did not care to spend too long even in the fairly mild conditions that were then prevailing. The thought of spending two or three hours at a time on top of a pole and working in those conditions is not pleasant. At a time when it is sometimes suggested that attitudes have polarised on nationalised industries—the saying goes that one is either very much in favour of them or very much against them—it is important to know that my hon. Friends share my conviction that in these technical matters we are well served by those who work for the electricity industry.
My hon. Friend pursued his case with clarity and moderation. He recognised, as did the hon. Member for Ashfield (Mr. Haynes) and my hon. Friend the Member for Beeston (Mr. Lestor), the importance that is attached to the issue by so many of our constituents. As the representative of a socially mixed inner London constituency, I am only too aware of that. My hon. Friend was prepared to recognise—I thank him for it, he having studied the subject with much greater care than some who have dilated upon the matter on other occasions—the seriousness with which the Government take the issue and many of the complexities which lie in the way of the easy solutions that are so often peddled.
I am aware of the wide interest on both sides of the House. Thankfully, it is an interest that transcends party lines and discussion upon it does not degenerate into party squabbling. It cannot be a partisan issue. Standing charges have been around for a long time. It was the hon. Member for Bristol, North-East (Mr. Palmer), who worked for a number of years in the electricity supply industry, who reminded me that standing charges for electricity date back to the 1880s. Consequently, they have been around for nearly a century. We know that they have been a subject of concern for several years.
In 1976 the then Government asked an interdepartmental group of officials to review the scope for helping poor consumers by adjusting the structure of energy tariffs, or by other means such as introducing special concessionary tariffs or free allowances of gas and electricity. The future of the standing charge was at the heart of the 1976 study. The then Government produced a carefully argued document entitled "Energy Tariffs and the Poor", which set out the consequence of making tariff changes, some of which would have had the effect of abolishing the standing charge. That is at the heart of the present political debate.
The interdepartmental group considered four options. The first option was a flat rate, which I suspect is favoured by my hon. Friend the Member for Beeston, but I want further to consider what he said about unit charges. A flat rate would not be so dissimilar from what he was proposing. He advocated that consumers should pay for what they consume unit by unit with no extras, just as we pay for a pound of apples at the greengrocer's shop or for a pint of beer in a pub.
100 The second option was to halve the standing charge and to put the extra revenue that would come from the standing charge at its full level on to the unit charge.
The third option considered by the 1976 group was a two-tier inverted tariff whereby there was a cheaper rate for the first units consumed, and then a higher rate after one crossed the particular threshold from the cheaper rate to the higher rate.
The fourth option was an idea that initially came from Japan, and which is of oriental complexity. It is a three-tier inverted tariff whereby instead of a standing charge there would be a lower rate for the first few units of consumption that would be set about 10 per cent. below the norm. The norm would be a middle range achieved after one had consumed the requisite number in the lower first rate. Having passed through that second rate of tariff, one would come, if one were a large consumer, to a third rate set at a level sufficiently above the norm to yield in overall terms the same income as would have been yielded from the previous existing tariff—in other words, to make up the shortfall for the first initial tranche of units being sold at a discount.
Those four ingenious alternatives to the present system were examined and the consequences of imposing those tariffs were examined in relation to different categories of consumers, particularly those consumers about whom we are all most exercised—poor consumers. It showed that some consumers would benefit from each of those changes in tariff as against the existing system. It also showed that in each and every case many consumers would be worse off if the different tariffs were applied. Sadly for the purposes of making progress, those who would suffer a detriment as a result of any one of those changes would include just as many poor people. Indeed, it would include many people who were as poor if not poorer than those who were in the categories that would benefit.
That came about first because of the one crucial stumbling block to an easy solution to the problem, which is the simple proposition, which I fear is wholly true, that poor consumers are not necessarily small consumers. That means that action that is designed to assist small consumers does not necessarily assist poor consumers as a whole if the consequences are to impose detriments on those who are larger consumers.
That leads me to the second crucial stumbling block to an easy solution found by the 1976 group, which is that because of the industry's financial position, then and now, any shortfall in revenue resulting from giving concessions to one group has to be made good from the rest. That led the interdepartmental group to say in paragraph 8 of the report:We are satisfied that there is a sound case in economic principle for a tariff structure under which standing charges are maintained separate from the unit consumption charge. Though costing cannot be exact the industries' tariffs aim to charge customers what it costs to supply them. This is the appropriate way for the industries to comply with the obligation, which rests on each of them under their governing statutes, not to discriminate or show undue preference as between classes of consumer and individuals.That is nothing more nor less than a defence of the principle of standing charges. The overall document, which is an impressive and cogently argued one, won the full-hearted commendation of the then Secretary of State for Energy, the right hon. Member for Bristol, South-East (Mr. Benn), who said in his signed foreword to the document: 101After considering the group's report, the Government have concluded that none of these possibilities offers a satisfactory way of helping poor consumers with their fuel bills.Thus, standing charges survived the 1976 review.
The Government have had to take up the torch this year following the clear indications from the public and from hon. Members on both sides of the House that it is time to examine this matter afresh because of the extent of public concern about standing charges. In reconsidering the evidence, we have taken account of the views of a large number of colleagues and a large number of groups outside Parliament. This has been a wholly fresh look at the matters examined in 1976 which has taken us into detailed consideration of tariffs not just for electricity, as was done in 1976, but also for gas.
Our initial aim was to see whether the conclusions reached by the interdepartmental working party in 1976 and endorsed by the then Government through their Secretary of State, the right hon. Member for Bristol, South-East, were robust against today's tariff levels, today's standing charge levels and the overall circumstances prevailing.
Our examination is not completed because, having done the initial work of breaking the ground and reaching the sad conclusion that on the figures the balance of advantage and detriment applying the various alternative tariff proposals remains much as it was found to be in 1976, we thought that on this occasion we had to go further, that it was not sufficient to confine the matter wholly to Whitehall and nor was it sufficient on this occasion to leave the matter where it was without asking for some action from the industries on the way in which standing charges were applied to all their consumers.
We took two new initiatives. For the first time, with the full agreement of the industries, the principles of the standard charge are being subjected to independent analysis by accountants and management consultants from the City of London. Never before has there been such an examination by people outside the Government and the public sector. We asked for their report to be concluded speedily, and we expect it to be available shortly. As my right hon. Friend the Secretary of State said earlier today, the results of their examination will be published in the new year. What they have to say will be of fundamental importance in determining what the industries should do about standing charges.
What we are concerned to know is not merely whether standing charges are fair in principle—whether they reflect, as the 1976 group concluded that they did, a valid distinction between two different categories of cost—but also whether the level of standing charges, whatever the case may be on the principle, is proper and not merely a convenient mechanism for passing on inflated costs to the consumer.
The auditors have been asked to satisfy themselves that the level of standing charges properly reflects fixed costs, that the charges imposed on customers are as equitable as can be reasonably hoped, and that the costs are not exaggerated by inefficiency in the industries.
I am happy to say that this proposal for a wholly independent audit has been welcomed in the House and, if my right hon. Friend's mail bag is anything to go by, by groups outside as well.
Our second initiative is to make a specific proposal to the industries that standing charges be limited to not more than 50 per cent. of any bill to help small consumers. To 102 put at rest the mind of the gentleman who contacted my hon. Friend, I can say that there is no counterbalancing proposal that, where the unit charge is higher than the standing charge, the standing charge should be raised to that same level. That would be an iniquitous proposal. I assure him that that plays no part in what we have suggested.
This measure is designed to relieve the industries and Members of Parliament of quite the most painful cases that come to our notice at advice centres such as I hold in my constituency. Quite often I meet a pensioner with a gas bill of perhaps £11 for a quarter, of which £9 is the standing charge.
§ It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.
§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Cope.]
§ Mr. Mellor
It worries me and other colleagues when pensioners present themselves in such circumstances. The effect of what we have proposed to the industries would be that the standing charge for small consumers would be pulled down to the same level as the unit charge. In the oft-quoted case of the pensioner for whom the unit charge is only £1 or £2 a quarter—as it might well be in a summer quarter—the bill would be dramatically reduced.
We made our request because we recognise the resentment felt by some small consumers, particularly the elderly, when standing charges comprise the bulk of their bills. We have asked the industries to calculate how many people would benefit from our proposal. They estimate that about 1 million gas consumers would benefit and perhaps as many as 2 million electricity consumers, and that about half would be pensioners.
It is fair to say that not all beneficiaries would be poor. Some, for example, would be second home owners in good circumstances, who merely have a supply which they do not use much. I acknowledge that, but in defence of our proposal I should point out that a recent study by researchers at the University of York showed that the benefit is tilted towards the poorer off, in that a greater proportion of beneficiaries of such a scheme are poorer off than the proportion of poor people in the community as a whole. Also in defence of our proposal, and the suggestion that some undeserving people will benefit, I should point out that no change in tariff can be targeted precisely only at the poor. As I have already said, consumption levels are not related to means.
We believe, however, that the industries should accept our suggestion. Not to do so would, as my hon. Friend the Member for Poole made abundantly clear, fly in the face of public opinion and in the face of sincerely held opinion in many parts of this House. In our opinion this measure is needed and should and commend itself to the industries as a way of retaining public confidence in their operations and as a means of improving consumer relations. Indeed, knowing the extent of the worry felt by small consumers in this connection, I cannot help feeling that had the industries been in the competitive sector they would have had to respond to public criticism by introducing such a measure long ago.
As I have the opportunity to dilate in more detail than is usual on these occasions, perhaps I should say a word about the cost. It has been quantified at about £16 million for electricity and about £20 million for gas. Those are small amounts in the context of a total turnover of £8 103 billion in the electricity supply industry and more than £5 billion for the gas industry. If the industries accede to our request, we hope that those sums can be swallowed up by greater operating efficiencies. However, there could be a small impact of perhaps 2p or 3p a week on the bills of other consumers. I acknowledge that, but it is unavoidable, because such are the delicate economics of the industries that any concession has to be paid for by other consumers. Neither the industries nor the Government can flout the laws of mathematics in that regard. That was clearly understood and underlay the study in 1976 and has, equally as clearly, for the same reasons, underpinned the consideration that we have been giving to these matters this year.
I want to explain a matter that has caused some concern in the debate and which was raised, in particular, by the hon. Member for Ashfield. I have made it clear that we have asked the industries to accept our proposal. We have no legal power to direct them to do it because ever since those industries were set up 35 years ago in their present nationalised form, tariffs have clearly fallen within the day-to-day management responsibilities of the industries, and those, by statute, are exclusively a matter for the industries and not for the Government.
It must be clearly understood that the Government have no legal power to compel the industries to take a different view, just as the derivation of the standing charge has nothing to do with either the will of this or previous Governments. It is a matter for the industries to consider the best way to carry out their obligations fairly under the statute. As the 1976 report made clear, they must not show undue preference between one class of consumer and another. However, the Government are entitled to tender advice to the industries on matters of public concern and that is why we have made the proposal that we have.
§ Mr. Edward Rowlands (Merthyr Tydfil)
Has the hon. Gentleman any reason to think that the industries will not accept his advice?
§ Mr. Mellor
I hope that they will accept the advice. They are presently considering it and would prefer to await the outcome of the auditor's report before accepting it.
§ Mr. Mellor
We are expecting the auditor's report literally within the next two weeks and hope to be able to make the results available in the new year.
I hope that the industries will accept our advice. They have not said that they will and I cannot anticipate that. However, I think that I would be right in saying that it would be the mood, certainly of those hon. Members present tonight, that they should do so.
As I have made clear, final decisions on the future level of the standing charge and other issues will have to await the outcome of the auditor's report. I do not want to build up false hopes about the complete abolition of standing charges, nor the abolition of standing charges for a particular category of consumers, for example, pensioners. There is a case for a standing charge of some kind. No one can deny that the industries incur some costs in supplying consumers, whatever their consumption. The industries must lay on and maintain a distribution system to each home and supply a meter to monitor supply. Those 104 and other costs are prima facie independent of consumption and it is impossible to deny their existence. I say again that that was the conclusion in 1976 and those basic underlying circumstances have not changed today.
The problem that lies in the way of abolishing the standing charge is by no means exclusively based on the fact that there is a rationale for differentiating between costs of supply and consumption. The real problem that lies in the way of its abolition is that standing charges raise about £500 million for each of the two supply industries. Just as the Labour Government did in 1976, we must work on the basis that that shortfall would have to be made good by increases in other parts of the tariff. As my hon. Friend the Member for Poole has made clear, the consequence to the industries of abolishing the standing charge—which some hon. Members have asked for, but not, I know, my hon. Friend the Member for Poole—would be an increase in the unit rate of around 15 per cent. for each industry. The effect of that needs to be most seriously considered by any who advocate such a course. With the assistance of the industries, we have estimated that abolishing the standard charge would increase the bills of about 40 per cent. of all electricity and gas consumers.
§ Mr. Haynes
The Minister said that the proposal would cost £500 million. He made no reference to the massive profits that the energy industries are making. Has he taken them into account?
§ Mr. Mellor
Such massive profits do not exist in reality. The electricity supply industry, with its turnover in excess of £8 billion, barely breaks even in the view of even the kindest of accountants. When interest is taken into account, it makes a loss. The profit, after tax, by the gas industry in the last financial year was £144 million. That represents a return on assets of 1.4 per cent. That is a decline from the position in 1978–79, when it made a profit of £172 million, or a 2.4 per cent return on assets. That profit of £144 million is not much in the context of a capital investment programme to secure gas supplies and their efficient distribution in the next few years.
The hon. Member for Merthyr Tydfil (Mr. Rowlands) asked about the gas levy, which merely reproduces for the old gas contracts the impact of the petroleum revenue tax imposed by the Administration of which he was a member, on oil and newer gas contracts. It is neutral in relation to profits. The levy is a way of removing windfall profits from a sector which was arbitrarily left out in the decision by the Labour Government to impose petrol revenue tax on the rest of North Sea activities, including new gas contracts.
§ Mr. Mellor
The figures relate to the position after the gas levy has been taken into account. It is not relevant to profitability. The debate is not partisan, and I want hon. Members to recognise that the obstacle to abolishing the standing charge is the impact that it would have on some consumers. All consumers are not necessarily small consumers, and there could be an adverse effect on many poor families. According to our detailed examination, abolishing the standing charge could make some families in extreme circumstances worse off by several pounds a week.
§ Mr. Nicholas Baker (Dorset, North)
I apologise for not being here earlier, Like my hon. Friend the Member 105 for Poole (Mr. Ward), I have received many representations about standing charges. They have all been about the standing charges being inflexible and sometimes amounting to more than the cost of the energy consumed. No one has said to me that standing charges should be abolished. Consumers want them to be graded and more flexible, because they create hardship for many elderly and poor people.
§ Mr. Mellor
I am glad that my hon. Friend, another representative from the county of my birth, should say something with which I agree. His point endorses the Government's view that if the industries accepted our proposals that would do a great deal to satisfy the anger of many who are worried about the plight of small consumers.
I shall give a few more details about the impact of the abolition of standing charges. I appreciate that only one hon. Member participating in the debate has advocated that policy. However, it finds a place in the contributions of a number of hon. Members at Question Time. The subject is often raised in public debate and this is an opportunity for the Government to make clear why it is not such an easy proposition to accept as some might imagine.
We have estimated that, among the 40 per cent. of gas and electricity consumers whose bills would have to increase if the income yielded from the standing charge had to go on the unit charge, there would be about one million households with pensioners at their head. About 350,000 of that 1 million pensioner households would be poor. We estimate also that among those whose bills would be increased would be about half a million households with incomes up to or around supplementary benefit level.
Anyone who used more than 200 therms of gas a quarter would need to pay more. That amount of gas is not very much. It would cover family hot water from a multi-point plus a gas cooker in fairly regular use, plus a gas fire for about six hours' use a day. One is dealing with the average family. If one expressed 200 therms in another way they would cover a single large gas fire on for 11 hours of the day, which might cover the circumstances of a number of single people as well. We estimate that nearly 30 per cent. of pensioners on gas would lose from that proposal.
With regard to electricity, anyone using more than 900 kilowatt hours a quarter would lose and end up paying more if standing charges were abolished. That is the equivalent to a family using a normal electric light and refrigerator plus eight hours a day with a single-bar electric fire. One is not talking about a number of washing machines, hi-fi, and equipment of that kind before that barrier is crossed. We estimate that that barrier is crossed so easily that about 30 per cent. of pensioners using 106 electricity would lose. No one should advocate the abolition of standing charges without the most careful thought. Removing standing charges altogether would cause hardship to many.
I shall discuss the proposal for the abolition of standing charges for pensioners. There are 1,500,000 pensioners benefiting materially already from the DHSS heating allowance, which is now set at about £300 million for the coming winter. The cost of abolishing standing charges for pensioners would be a further £300 million and it has to be asked whether that would represent good value for money. I understand that that proposal will win an easy round of applause at public meetings where there are a number of elderly people present. However, is it a proper way to spend public money?
I suggest that there are a number of reasons why that proposal has to be looked at with great caution. First, the distribution of benefit would be inequitable and unrelated to need. Secondly, the quantity of assistance would depend arbitrarily on which fuel the household uses. Thirdly, no benefit would go to those people who are not registered consumers. That would include many pensioners in rented accommodation. This is a selective list. There are other compelling reasons against the proposal. Of the principal reasons, the fourth would be that it would lead to a significant increase in the bills of other consumers including many who may not be pensioners but who are probably worse off than many pensioners.
The Government are committed to doing all they can for pensioners within available resources. Our record bears comparison with that of any of our predecessors. It is vital, and successive Governments have said this, that help should be given in the most effective way possible. The Government's review of the issue has, as I hope the past half hour may have helped to establish, been as thorough as we can make it.
Our work has established that tariff juggling is not the answer. The previous Government also reached that conclusion. Final judgment on the level of standing charges must await the outcome of the auditor's report, which we expect shortly. The independent evidence that the report will provide will be invaluable in helping industries to reach conclusions on tariff policies which are based on objective analysis and which, I hope, will command the confidence of all consumers.
The Government will continue to play a helpful role as the protector of the public interest in assessing the evidence and, where necessary, making our views clearly known to the industries, the House and the country.
§ Question put and agreed to.
§ Adjourned accordingly at twenty minutes past Ten o'clock.