HC Deb 25 July 1983 vol 46 cc840-55

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Archie Hamilton.]

Mr. Deputy Speaker (Mr. Harold Walker)

Order. Before I call the hon. Member for Darlington (Mr. Fallon), perhaps I should remind the House of the statement made by Mr. Speaker last week that, except when otherwise indicated on the list of Adjournment debates which has been pinned in the No Lobby, debates should not exceed one and a half hours.

7.31 pm
Mr. Michael Fallon (Darlington)

You will recall, Mr. Deputy Speaker, that on Friday when the House last met I drew attention to the need in government for a medium-term taxation strategy, to run in parallel with the medium-term financial strategy to illustrate to taxpayers the Government's proposals for a steady and gradual reduction in direct taxation of all types. I favour the complete abolition of income tax—a tax on earnings—and its substitution by a purchase tax—a tax on spending. But in the event that such a proposal might be thought too radical even for a radical Chancellor, I welcome the opportunity tonight to draw attention to another area of direct taxation, an area that was once subtle but is now more blatant—I refer to standing charges.

Standing charges are levied in the gas, electricity, water and telecommunications industries. They are now considerable. In the gas and electricity industries they generate a revenue of about £500 million a year. It amounts to 7.4 per cent. of the British Gas Corporation's revenue, 13 per cent. of the revenue of all electricity boards, and, in the case of British Telecom, which has the nerve to charge us in rental each quarter a sum now greater than that required to purchase a single machine available on the private market, the rental charge now comprises 32 per cent. of current revenue.

Not only are these charges large but they have risen with great rapidity in recent years. The British Gas Corporation's standing charge in 1977 was £1.50. Last autumn it had reached £9.20—a 600 per cent. increase in five years. These charges have caused wide annoyance in all sections of our community, but in particular they hit single people, those who have to make choices—hard choices — for themselves, especially the elderly. Standing charges are the pensioner's curse.

I make no apology for raising this subject again, although I know that it was raised frequently during the last Parliament. I believe that it is appropriate to raise it again tonight for three reasons. First, we have before us now the consultants' reports. I have read the reports on the British Gas Corporation's standing charges. Secondly, it is six months since both the gas and electricity industries introduced a 50–50 rebate scheme to which I shall return in a moment. It is time enough, therefore, to review the working of that scheme. Thirdly, we have a new Government not perhaps fog-bound by previous thinking. In the Under-Secretary of State for Energy I am sure that we have a Minister not only for energy but of energy—a Minister of speed and determination who can cut through to the heart of the problem that seems to have bedevilled Governments of both complexions who have commissioned a series of internal and external reviews over the past few years.

Governments have suggested that two principles are involved. First, there is the distinction between unit charge and standing charge and, secondly, the fairness of the actual costs that are put into the standing charge itself. I do not accept that the distinction between the unit charge and the standing charge is necessarily valid. It appears to me that standing charges benefit producers, particularly public monopolies. Standing charges benefit administrators and their work forces rather than the consumer who has to make the choice. They actually make it more difficult for the consumer to make more efficient use of the resources that he needs.

I do not accept the principle that is often alleged in defence of standing charges — the principle of nondiscrimination between one group of consumers and another. It appears to me that that principle itself is invalidated by subsequent and worse types of discrimination—discrimination against the low user in particular. Standing charges, in short, are the logical expression of the system whereby monopoly producers make life easier for themselves at the expense of consumers who need to make efficient use of their resources.

At this point I come to the rebate schemes that were announced and implemented for gas and electricity in February this year and the similar lower user rebate scheme operated by British Telecom. The introduction of that rebate shows some anxiety in the heart of Government—in the Department itself perhaps—and certainly in the public utilities concerned not only about the fairness of the level at which standing charges are assessed but about the principle itself. That must have been so because the changes were made well before the consultants' reports were available. The changes were made not simply to the level of the standing charge but to the relationship that it bore to the unit charge. The introduction of the rebate scheme in gas and electricity, rather like the 13th stroke of the clock, is not only unusual in itself but casts a shadow of doubt over what has gone before.

The principle of the rebate is suspicious, but the practice has also been criticised. The North-East gas consumers' council has criticised the rebate scheme as illogical, as a limited form of help to poorer consumers and, indeed, as a scheme which benefits the owners of second homes and stand-by users—in particular those who insist on being connected but do not necessarily make a large use of the supply.

The Minister may also be interested to learn that it has been criticised by Age Concern, which has made representations to me that a considerable number of old-age pensioners are cutting back on their use of gas and electricity to derive full benefit from the rebate, and may thus be cutting back on supplies they need.

I imagine that in developing the 50–50 scheme the Department and public utilities carefully considered a whole range of schemes. But any such scheme—any attempt to redistribute what are said to be the standing costs of supply by a system of differential tariffs—is bound to have significant advantages for one group and significant disadvantages for another. Of course that will be true, and some poorer consumers will be hit by whatever scheme is implemented.

Nevertheless, I would oppose standing charges even if their abolition meant higher charges for everybody. However, let us consider the facts. If standing charges were abolished—no more messing about with rebates-60 per cent. of all consumers of gas and electricity would pay less and 70 per cent. of old-age pensioners would pay less.

There would be other advantages. The consumer, large and small, would know the cost he would incur because he would have information before using the resource. He could check that his quarterly consumption figures were in line with those of previous years. Above all, the fear would be taken out of charging by public utilities, the fear of the large sudden bill and, particularly in poorer areas, of the sudden summons or of being cut off from a much-needed supply. Those fears would be removed by the abolition of standing charges.

I do not decry the usefulness of the reports that have been commissioned. The Price Waterhouse report concluded: The net effect of adjusting for the matters described in paragraphs 9 and 10 above"— that is, the recommendations about transferring various costs between the standing and unit charges— is to reduce the amount which, in our opinion, should be recovered through the standing charge. The Deloitte's report concluded similarly: We consider that there is significant scope for gradually reducing the costs underlying the Standing Charge. I urge the Government, therefore, to swallow the principle underlying the standing charge. It would take time to remove it completely, but that should not be impossible in the lifetime of a Government. I accept that some residual costs would remain; it is only right and proper that public utilities should be allowed a connection charge. Indeed, I see no objection in principle to a minimum charge for the minimum consumption of a particular resource. But everything else should be put back into the unit charge.

Let us consider what is not in the unit charge and what is presently in the standing charge: metering, the sending out of accounts, the replacement of supply, the cost of meter reading and the armies of people, vans and trucks employed by British Gas, electricity boards and water authorities.

I hope that the Minister will say that he has been through the two accountants' reports and has looked at the significant reductions which they believe are possible in the elements that constitute the standing charge. There is no reason why the efficiencies perceived could not be achieved and brought into effect to help us work towards the gradual abolition of the standing charge.

7.45 pm
Mr. Patrick Nicholls (Teignbridge)

The issue of standing charges is of particular importance for my constituents, about 27 per cent. of whom are of pensionable age, which is considerably higher than the national average of 17.7 per cent. I am sure that other hon. Members have found that the elderly in particular feel that standing charges are an unfair burden on them.

At first sight it seems a very un-Conservative charge in that there is no reward for thrift. In a way it is quite the contrary: the more frugal one is with gas and electricity, the higher the proportion of one's bill which will constitute the standing charge. It is therefore vital that the public should understand what the charges are for and what steps the Government have taken to mitigate their effect on the elderly and those on low incomes.

I have no doubt that, despite their unpopularity, standing charges are a proper ingredient of gas and electricity bills. Apart from the cost of the commodity itself, there must be provision for providing the commodity in the first place; and it costs as much to maintain the supply to a household which consumes a little as to a household which consumes a great deal. Nevertheless, there is a feeling in many quarters, as we heard from my hon. Friend the Member for Darlington (Mr. Fallon), that standing charges should be abolished.

The question is whether, if we did that, it would work. There have been a number of studies over the years into that point, and I recall one that concluded that there was a sound case for a tariff structure that incorporated standing charges. The foreword put it succinctly when it concluded: After considering the Group's Report, the Government have concluded that none of these possibilities … by way of alternatives … offers a satisfactory way of helping poor consumers with their fuel bills. That foreword was written by the former right hon. Member for Bristol, South-East, Mr. Anthony Wedgwood Benn, and the report had been commissioned by the then Labour Government.

It can therefore be said that there has been a consensus up to now on both sides of the House about the principle of having standing charges. That is hardly surprising, for if standing charges were abolished and a charge added to the unit cost, the unit cost for each industry would, it has been estimated, increase by about 15 per cent. That in turn would mean an increase in the bills of about 40 per cent. of electricity and gas consumers. Of those, about 1 million would be households with a pensioner at their head and about 350,000 of those people would be classified as poor; and about 500,000 households that would suffer would have incomes of up to or about the supplementary benefit level.

Against that scenario it is hardly surprising that a 1976 review concluded that the best way of helping poor consumers was through DHSS grants towards the cost of fuel bills. Again, it is hardly surprising that the Conservative Government have been spending more in real terms on help with fuel bills than ever before.

Given the help that the Government had given, I was concerned to find in my general election campaign that many people were unaware that the gas and electricity industries had taken up a suggestion made by the Government in 1982 and introduced a scheme by which standing charges could not amount to more than 50 per cent. of anybody's bill.

The reason for that reform was the understandable feeling of outrage in particular on the part of the poor and elderly who, having economised, were still finding that the standing charge represented all too great a proportion of the bill. That reform, introduced in 1983, has been estimated as benefiting up to 3 million consumers, about half of them pensioners. Therefore, while I should like to think that we could move towards the abolition of standing charges, they will probably have to remain for the foreseeable future. However, there must be a rigorous and constant review of the effect that the charges have on the poor and the elderly. The factor that most benefits those sectors of the community is stable fuel prices, and we are now moving towards a stage at which fuel prices should not be beyond the rate of inflation. That will benefit especially the poor and the elderly—those sectors of the community about which we are most concerned when we talk about standing charges.

It would be a mistake, and ultimately of no service to those whom we are trying to protect, to suggest that there is a realistic alternative to financing the gas and electricity industries, other than by standing charges. It seems that all the options would cause more hardship and unfairness to the sectors of society that we want most to protect.

When I have explained the reasoning behind standing charges, what the Government have done by way of the rebate and by making people aware of what will be done to provide help in meeting fuel bills, it is grudgingly admitted that there is no alternative to standing charges. I think that the answer lies in stating that argument with considerable force whenever we meet counter arguments.

Mr. Deputy Speaker

I apologise to the hon. Member for Teignbridge (Mr. Nicholls) for not recognising him. I am going through a learning curve, like those who were elected to this place for the first time in June.

7.52 pm
Mr. David Penhaligon (Truro)

I can claim, Mr. Deputy Speaker, that I recognise a regional colleague, if not a political one. As the House knows, I do not have many political colleagues in my region.

Despite what the hon. Member for Teignbridge (Mr. Nicholls) says, I do not think that any principle can be attached to standing charges. I understand that standing charges would have to be doubled or trebled if we 'were to charge for electricity and gas on the basis of the costs incurred, which would enable the charge per unit to be greatly reduced. That would certainly be so for gas, but perhaps it would be less so for electricity. If no fundamental principle is attached to how the bill is made up, I can see no great case for defending standing charges. If that is so, the standing charge should reflect the real cost of providing gas, for example.

I have always had a great deal of time for the minimum charge argument, not least because of second home and summer-let problems, of which I am perhaps more aware in the area which I represent than are some hon. Members. For about six months of the year, 5 or 6 per cent. of the house owners in my constituency will make no contribution to the cost of providing gas and electricity services. That seems crazy when those who own second homes or who enter into summer lets are not the first to come to mind when one turns to the poorest and most hard pressed, who find the greatest difficulty in paying their gas and electricity bills. A minimum charge could overcome some of the difficulties while offering the advantage to which the hon. Member for Darlington (Mr. Fallon) referred. Only a small fraction of consumers would use fewer units than those which produce the minimum charge. That would certainly be so for full occupancy of a home.

The standing charge argument has enabled parliamentarians of all colours to avoid the real problem. During the winter months many of our constituents—the problem may be more acute in Scotland than in the area which I represent, but this is a real problem in Truro—do not have sufficient incomes to enable them to warm their draughty houses. They find that it is not possible to do so at a realistic cost. The Government's continual praise of themselves for what they allow claimants to obtain through the DHSS system is somewhat exaggerated and does not solve the problem. We are all familiar with the old problem which turns on someone who has £2,000 in the bank and who wishes to make a claim for supplementary benefit to help him meet his heating costs. The basic capital rule precludes such a person from receiving supplementary benefit payments.

If we wish to do something to help those who are experiencing difficulty in meeting their heating bills—they may be unable to afford them, or they may be economising to their own physical disadvantage so that they can manage to meet the bill—we must face the reality that the solution will cost money and that the House will have to vote it. I understand that that is not a popular view to express in current circumstances.

The water authority in the area which I represent reviews its charges annually. I do not complain about that, but it seems endlessly to increase its standing charge, which proportionately is increased by more than any other section of the charge. I have said to the chairman of the authority, Mr. Len Hill, "You are skewing the bill away from the wealthy who own the large and glorious houses to those who live in small two-up, two-down terraced cottages." He admits that that is true. What is the logic in such a policy? What is the rationale behind that approach?

The rate bill for my personal home is slightly more than £300 a year, but the water charges are £110. That gives the House an idea of the significance of water charges in my region. It is not possible to claim a rebate for water charges, and charges are being skewed to disadvantage those with limited means. Surely a minimum charge would be easier to administer than the 50–50 arrangement.

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

At what level could it be fixed?

Mr. Penhaligon

That question is not for me to answer. It is not for me to say what the standing charge should be.

Mr. Rowlands

On what basis would a minimum charge be determined?

Mr. Penhaligon

There are various criteria, including the realistic standing charge irrespective of whether the service is used. If that proved to be too high, it could be reduced with intelligence and decorum. I cannot see any rationale in allowing many householders to make no contribution to the maintenance of gas and electricity systems when others who are worse off, are having to make larger contributions. That is the result of the concession that is offered to the wealthy. I cannot see the logic in that approach and, knowing the Minister as well as I do, I suspect that he cannot either. Of course, his brief might insist that he says something else when he replies to the debate.

I suspect that hon. Members on both sides of the House have great sympathy with constituents who experience difficulties with their heating bills, especially the standing charges. If the House genuinely wants to do something to alleviate the problem for those who are embarrassed by their heating bills, it will have to spend more money. I suspect that there is no other solution. It will make only a marginal contribution to solving the problem by playing around with standing charges. The Government do not have as good a record on standing charges as they would have us believe. I plead on behalf of those whose incomes or savings mean that they are just above the qualifying level for supplementary benefit.

7.59 pm
Mr. Roger Gale (Thanet, North)

I am grateful to my hon. Friend the Member for Darlington (Mr. Fallon) for raising this issue. It exercises the minds of more constituents than the number of hon. Members present would imply.

The standing charge is an anachronism. Either it is a charge for a service that was provided many years ago and has been paid for many times over — the charge for connection of a house to the main—or it is a charge for the use of a utility service in which case, as the hon. Member for Truro (Mr. Penhaligon) said, it is no charge at all. However, there are problems. The abolition of standing charges would favour second-home owners. There is a danger that abolition would lead to higher unit charges. If so, that would lead to larger, not smaller, bills for the least well off.

The Government have an honourable record on standing charges and have made some inroads into their injustices. I should like standing charges to be abolished, but not at the expense of those who are most at risk. I do not believe that the 33 per cent. of my constituents who are over retirement age would thank any Government who replaced one charge with a higher charge. I should like standing charges to be abolished but only if it does not lead directly to higher charges on those who can least afford them.

8.1 pm

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

The hon. Member for Darlington (Mr. Fallon) spoke about his philosophy on taxation. I shall draw attention to some aspects of taxation that he entirely forgot to mention—taxation on British Gas and other forms of energy. The hon. Gentleman failed to complete his equation.

Anyone who gets into the mire of detail on standing charges is unlikely to get out of it easily. If one reads the Price Waterhouse report and the rest, one is drawn into pitching one relatively poor consumer against another. The hon. Member for Thanet, North (Mr. Gale) mentioned that. The House should resist that temptation. If it does not, it should recognise what it is doing and say so to each of those consumers.

When one reads the Price Waterhouse report and considers the systems of analysis that were imposed on British Gas one discovers that it is being argued that poor prepayment meter consumers, rather than the credit consumers, should pay more. I cannot speak for other hon. Members but it is my experience that prepayment meter consumers tend to be at the poorest end of the scale. They are not necessarily old-age pensioners, but tend to be families on supplementary benefit who cannot cope with other bills. The prepayment meter is often the consequence of other financial and social problems.

The reports and the analyses lead us to the mire of agreeing with a bunch of accountants who say, "If we balance the relative costs and discover that there is cross-subsidisation, we should transfer a portion of that cost from the credit consumer to the pre-payment meter consumer". The reports are characteristic of the Government's attitude to the subject. We should resist the idea of pitching one relatively poor consumer against another.

I have been the Opposition spokesman on this subject for about three years. I have witnessed the issue of standing charges growing at Question Time. That is little wonder. I shall take gas charges as an illustration. The hon. Member for Darlington said that there has been a 600 per cent. increase in standing charges since 1977. From April 1981 to October 1982, there has been a 40 per cent. increase in standing charges for gas consumers. However, that does not describe the amount of money that is involved. In 1981, standing charges on gas consumers raised about £387 million. I understand that British Gas now raises more than £500 million. Those figures are based on my understanding of the Price Waterhouse report. It is not the easiest thing to read, and I am happy to be corrected. I calculate that gas consumers are paying an extra £120 million a year in standing charges. British Gas, like other suppliers of energy, has increased its standing charges to meet the cost of its operations for the year. Even then, I understand that there is a discrepancy of a mere £77 million between the standard charge costs that the industry claims and what British Gas collects in standing charges.

I have some sympathy with the argument of the hon. Member for Truro (Mr. Penhaligon) that the system is becoming unhinged and that there is no direct relationship between the costs that are claimed to be represented by standing charges and what is collected in standing charges. When one discounts that argument one becomes involved in an argument about where the balance Lies and how much should be collected in standing charges as opposed to unit costs.

Although we are discussing increases in standing charges we must consider price increases. As the Minister admitted during Question Time today, gas prices have increased by 112 per cent. since 1979. Irrespective of what is happening to standing charges, gas consumers are paying 112 per cent. more than they paid in 1979.

The hon. Member for Darlington said that he believed —I think that I caught his words—that charges, whether for electricity or gas, ought to reflect inflation. I remind him that this Government ruled that gas prices had to go up in general, irrespective of standing charges, by 10 per cent. over the rate of inflation during the past three years. Gas consumers have had to face a vicious double problem. They have been faced with an increase in standing charges, based on cost analysis, to reflect related costs. On top of that, as a result of Government policy, there has been a deliberate increase of gas prices to all consumers of 10 per cent. above the rate of inflation every year for three years. The result has been an incredible 112 per cent. increase over 1979.

One can, understand all the arguments about consumption, about relating costs to consumption and standing charges to the cost of services to the consumer. However, I should like to bring another set of figures into the argument. They relate to British Gas.

The hon. Member for Darlington does not believe in direct taxation. He believes that we should have indirect taxation. Let us consider what taxes have been imposed on gas consumers not only through consumption or through standing charges but through the direct tax claimed from British Gas by the Government.

I remind the hon. Gentleman of the Government's attitude towards the taxation of British gas. The Government will claim £541 million from British Gas in 1982–83 as a result of the gas levy. That sum is greater than the total amount collected by British Gas from consumers through standing charges. That is only a part of it. As the White Paper on Government expenditure of February 1983 points out, British Gas made an operating profit of £500 million this year. On top of that, the Government managed to claim over £540 million in gas levy. The Government have managed to claim from British Gas in one year a sum greater than that which British Gas has managed to collect in standing charges from all its consumers, whether wealthy or poor, pensioners, average working families or large families.

Mr. Fallon

I hope that the hon. Member is not assuming that had I been in this House at the time when the levy was instituted I would necessarily have supported the Government.

Mr. Rowlands

I am grateful for the hon. Member's prospective support. I hope that there will be a re-run one day and that I shall see the hon. Gentleman in the Lobby. I argued this case from the Dispatch Box 18 months ago. I welcome the hon. Gentleman's support.

It is not only £540 million a year that is to be claimed from British Gas. There is another £952 million in taxation payments in 1982–83 to 1985–86. I refer to paragraph 28 of part 3 of the White Paper on public expenditure. In other words, one nationalised energy industry, British Gas, will pay £3,089 million to the Government in tax in the three-year period 1982–83 to 1985–86.

Before the House understandably gets bogged down in arguments about whether we should have a minimum charge or abolish standing charges, about whether we should switch to unit costs or—as the Price Waterhouse report suggests—alter the relationship of the cost as between credit and prepayment consumers, we must ask what the point and purpose is of raising such huge sums of money in taxation from BGC if, as a result, there is an additional cost in standing charges or an increase in gas prices over and above that which is necessary or demanded. Before the Minister answers any other questions, he must answer that point. Let him defend that.

Holding such debates is like opening a can of worms. For example, I have a very good Welsh point to make. In its detailed analysis of costs and so on, the Price Waterhouse report mentioned the regional differences in such charges and, in paragraph 83, concluded: Similar arguments apply to the calculation of standing charges for prepayment meters. For example, the cost recoverable in the standing charge for Wales region"— part of which I represent— are less than any other region, and yet it is included in the General Zone which has the highest standing charge. I have tried to make some sense of that. Stripped down, the report apparently says that when all these incredible analyses are taken into account, together with the question of BGC's efficiency in every region, the Welsh region is ostensibly a low-cost area which nevertheless has to bear a high basic standard charge. I hope that the Minister will confirm that I have understood that correctly. If that is so, many other arguments are turned on their head.

The hon. Member for Truro tried to link such arguments to water charges. We Welshmen understand the argument about water charges better than do those from the south-west. My constituents have higher water charges than almost everyone else in the country. However, we are told that one reason for having to bear such costs—an argument that we do not agree with—is that we must suffer the exceptional costs of our Principality. We are told that it is all about self-financing and the relative costs of our water authority area. We are also told that the last thing that we should do is to try to have any form of national cost equalisation. In part, such equalisation once existed, but we now find ourselves arguing for it against an intransigent Government.

If I have understood paragraph 83 correctly, although our costs in relation to standing charges are some of the lowest, the charge itself is classified as one of the highest. There must be some consistency of attitude. We probably cannot abolish the standing charge for the reasons that have been given. There is a case for having a basic set of costs that are borne by all consumers irrespective of consumption, based on the idea that a set of services is provided in one form or another. If one tried to transfer all the costs of the services to the consumer through the unit cost, or if a consumer had to bear the full cost of something going wrong with his service, many angry comments would still be made on both sides of the House about the additional instant burdens falling on constituents, whether they be elderly or members of a working family. There is no easy answer. We are in a mire, and valid questions arise from those reports and our debates, which must be answered.

The foremost question to be answered is the level at which to pitch charges for energy. If one uses gas costs, prices, charges and tariffs as a form of taxation, as the Government have done by excessively increasing prices to the domestic gas consumer and by imposing a gratuitous gas levy on British Gas, the charge to answer is greater than other dilemmas with which we are grappling.

8.21 pm
The Under-Secretary of State for Energy (Mr. Giles Shaw)

My hon. Friend the Member for Darlington (Mr. Fallon) struck a chord with hon. Members on both sides of the House when he introduced the debate. As the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) said, the matter can be described as a can of worms or a Pandora's Box. The more one observes the case for detailed examination of standing charges and considers the effects on different consumers, the more one is drawn to the conclusion that any small-scale tinkering with the standing charge will disproportionately affect a large group of people but be proportionately beneficial to a small group, or vice versa. It is not easy to offer a delicate thread of new understanding.

That does not mean that we should seek to hide the rationale for the standing charge system in the several industries that have been discussed tonight. The hon. Member for Truro (Mr. Penhaligon) said that the rationale for standing charges in the water industry, where the basic method of direct charging is on a rateable value basis, is different from that in British Telecom, where a connection or standing charge is made in relation to a network communication system, which at any time of the day or night connects different parts of the world at the turn of a dial. Those concepts are different, yet there is a general connection between them, which I shall endeavour to make clear to the House.

My hon. Friend the Member for Darlington set out, as was made clear by the hon. Member for Merthyr Tydfil and Rhymney, to equate standing charges with taxation, or at least to imply that we were dealing with what is clearly an impost and, therefore, should be considered in such a way as would lead us to eliminate the principle of the standing charge. As he said, we should swallow the principle and get back to a more orthodox form of charging.

My hon. Friend the Member for Teignbridge (Mr. Nicholls) took an opposite view and gave a realistic appraisal of the problems involved in doing that. He suggested that it would be very useful if we maintained pressure by whatever means we could to reduce the price of fuel, especially for the energy industry, and to reduce prices in the water and telecommunications industries to ease the burden on large and small consumers.

My hon. Friend the Member for Thanet, North (Mr. Gale) put forward a perfectly clear view on the problem and we must bear it in mind. Whatever view we take about individual cases in our constituencies, we return, as did the hon. Member for Truro, to the conclusion that the question must be approached either from an entirely different principle, such as the minimum charge that he advocated, or through various forms of discrimination.

We must always remind ourselves that the statutory background to almost all those industries, including the Water Act 1983, with which the hon. Member for Truro was involved last year, provided in some sections that nondiscriminatory policies must be observed. Section 30 of the Water Act 1973 provided that a non-discriminatory pricing policy should be observed. We must be careful within the general context of the development of standing charges.

I should state why the utilities make standing charges. No one who considers the business involved can deny that the industries incur some costs in supplying consumers, whatever their consumption might be. In the water, telecommunications, gas and electricity industries there has been much investment in hardware and in the method of distribution—especially in the water industry, where distribution accounts for a high proportion of costs—to ensure that the service is on call to everyone 24 hours a day at the turn of a tap or the flick of a switch. Such availability of supply requires substantial resources, however little or much the consumer uses. Those costs are, traditionally, met by standing charges, so I do not accept my hon. Friend's argument—

Mr. Penhaligon

The Minister's comment is accurate, but the point made by constituents is that what he has described is no different from the experience of Tesco's or any other services provided to the population. They all have standing charges to enable them to open their doors on Monday morning, but one is not expected to pay half a crown, or whatever the modern equivalent is, to enter the store.

Mr. Shaw

The more correct analogy would be to have Tesco in one's basement 24 hours a day, available for the individual consumer to buy a quarter of tea or 15 tins of pineapples. The hon. Gentleman should bear in mind that problem.

Mr. Fallon

Perhaps I could supply a slightly more suitable analogy, which is that of petrol station forecourts, which are open 24 hours a day, but where the customer is not expected to pay a standing charge before he enters.

Mr. Shaw

My hon. Friend is not correct to say that they are all open 24 hours a day. Some stations have 24-hour services, but the national availability of petrol stations providing a 24-hour service cannot be equated with the public utilities. We are not dealing with tax, nor with an arbitrary measure to boost industries' revenue, although I fully recognise that on some occasions that may have happened. We are dealing with a payment for connection to a source or supply.

Standing charges have been a feature of such businesses since long before nationalisation. I do not know whether my hon. Friends will find it a helpful observation, but standing charges have featured in the electricity tariff since before the start of this century and almost back to the beginning of public supply. There are genuine costs underlying the charges, and the figures quoted by the hon. Member for Merthyr Tydfil and Rhymney and by my hon. Friend the Member for Teignbridge were correct.

Standing charges in the gas and electricity industries amount to £500 million each a year. Telephone rentals provide British Telecom with more than £800 million a year, and the water industry receives about £200 million in standing charges. However, the industries have substantial costs which I am sure hon. Members on both sides of the House will agree cannot bit written off. The question is how they can be recovered more sensibly.

The effects of abolishing standing charges have featured in the debate. It is proper to ask whether costs are being recovered correctly or whether tariff restructuring, exemptions, or the minimum charge policy suggested by the hon. Member for Truro could be introduced. Should there be special treatment for some groups, and would it not be more beneficial to poor consumers to recover charges in a different way?

In recent years that has been discussed by Governments of both persuasions. My hon. Friend the Member for Teignbridge referred to the thorough study that was published in 1976 when the then right hon. Member for Bristol, South-East (Mr. Benn) was in charge of energy tariffs. The study concluded that reorganising tariffs was not an effective way to help poorer consumers. Last year the Government undertook to re-examine the impact of gas and electricity standing charges on disadvantaged consumers, including the elderly. It was a careful examination of the consequences of a number of alternative tariff structures.

I shall spell out some of those consequences which would flow from abolishing standing charges and redistributing the costs of unit rates. If, for example, standing charges on gas and electricity were abolished, unit rates would increase by about 15 per cent. Such a measure, as my hon. Friend the Member for Teignbridge said, would increase the annual bills of at least 1 million pensioners, over 350,000 poorer pensioner households and 500,000 households with incomes up to or around supplementary benefit levels. It would increase al so the bills of those who face large bills through no fault of their own—those who have special heating needs, the sick, families with young children and those in all-electric houses or houses without alternative energy sources.

By contrast, those who would benefit from such a measure would in general do so by small amounts—pence each week—but those who did not benefit could face bills which increased by pounds each week. The overall effect would be a straight subsidy paid by those who already face larger bills in favour of those who face small bills and would not relate to how well off the donors or recipients were.

I accept the point made by the hon. Member for Truro, that costs are always attached to any offsetting of high charges on the poorer consumers. Governments of both persuasions have made little secret of that. I do not entirely claim credit for what is done by the Government to provide assistance for the poor, but the hon. Gentleman is right to say that these large sums are not an excuse for avoiding the argument.

What would happen if, as has been suggested, we abolished standing charges for pensioners? My predecessor, now the Under-Secretary of State for the Home Department, met pensioners' representatives more than once. We are in favour of helping pensioners, but the cost would be about £300 million per annum for gas and electricity alone. The distribution of benefit which would result would be neither equitable nor related to need. The amount of assistance provided would depend upon the fuels used by the households, and no benefit would go to those who were not registered consumers or tenants. The measure would lead to increases in the bills of other poor consumers. If the Exchequer met the cost, that would use up most of the resources being used to provide direct assistance with fuel bills to those most in need. This year over £350 million will be given in direct assistance to people who have difficulty in meeting fuel bills.

Some of the organisations which have the elderly and pensioners in their charge were far from persuaded that this tariff-juggling arrangement was the answer to the problems of people with low incomes. Last year a paper put out by the Electricity Consumers' Council stated: It is clear that moves to abolish or reduce the standing charge would penalise some poor consumers who are operating on tight budgets. The same arguments would apply to standing charges for the water industry or telephones. British Telecom must maintain exchange equipment and sophisticated networks. The water authorities are responsible for the development of all kinds of resources—the water supply, sewerage and sewage disposal, the control of pollution, drainage, sea defences, fisheries and so on. About 99 per cent. of households receive a water supply and 96 per cent. are connected to mains sewers. If we removed the standing charges we would have to pay for the large structures of the water industry and British Telecom.

Water authorities have particular difficulties with charges, as was mentioned by the hon. Member for Truro. The National Water Council has been studying this problem and, as he knows, there has been some move towards a metered system where it seems to be appropriate. However, as he knows well, and has argued before me on an Adjournment debate, that system does not apply fairly in areas that have a low rateable value. Nevertheless, the principle of buying water through metering should be applied as widely as can be justified by rateable value.

I wish to deal with independent examinations, which my hon. Friend the Member for Darlington mentioned. They have been undertaken by the Government as a matter of priority because we accept that standing charges should be studied thoroughly in relation to the legislative framework — the taxation framework, as the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) said — and because we are dealing with monopoly suppliers. One of the crucial factors which the Government take into account more often than the hon. Gentleman does is the monopoly power of the utilities in the market place, which can often lead to a distortion of the pricing system, be it the standing charge mechanism or the unit price system. Last autumn we asked two independent bodies to examine the gas and electricity industries to see whether standing charges were related properly to costs and whether there was scope for improvement in efficiency to cut those costs. The consultants reported earlier this year, and copies of their reports are available in the Library for hon. Members to assess. Hon. Members taking part in the debate have clearly done just that.

The consultants endorsed the principle of standing charges. In its report on the British Gas Corporation, Price Waterhouse said: Indeed, we consider that in comparison to the alternative tariff systems which we have reviewed, the present two-part system operated by BGC most accurately reflects the costs imposed by the consumer on the system and should continue to be used by the Corporation. A similar conclusion was drawn by Deloitte's on the area electricity boards.

However, Deloitte's reports on efficiency in the two industries made recommendations to help them contain their costs for the future benefit of all consumers. Deloitte's made recommendations about BGC that could lead to the elimination of more than £30 million worth of costs over the next five years. With electricity too, it identified substantial possibilities for the adoption of the best practice by different boards which could hold out the opportunity for even greater savings.

I assure my hon. Friend the Member for Darlington that I and my colleagues at the Department of Energy will go through these reports with a fine toothed comb and will put pressure upon the supply industries to ensure that they apply the lessons which the consultants have analysed in their reports.

Judging by the initial responses, the utilities are fully aware that, where they can be shown to have opportunities for greater efficiency and rationalisation of tariff structure or the application of tariffs, improvements should first be made in those areas. The answer to this problem is to be found in the reduction of costs.

Mr. Rowlands

Will the Minister answer the points that we have raised about the taxation of the British Gas Corporation? The £13 million over five years should be compared with the £2 billion that he will cream off the British Gas Corporation in gas levy. If he handed back just a proportion of that and effected some of the efficiencies which he states will pressurise the British Gas Corporation, those gas consumers who face standing charges would be greater beneficiaries. Will he comment upon the regional differences that were mentioned in these reports?

Mr. Shaw

I shall not enter into a debate with the hon. Gentleman on the taxation policies on British Gas, because he knows that that is a much wider issue than standing charges.

He would be the first to recognise that to use the revenue that we have been discussing as an alternative benefit for disadvantaged pensioners is a legitimate way for the Government to set about framing their policy on taxation where this can be shown to be justified. There is little doubt that the corporation benefits from having monopoly control over the supply of gas, and it is sensible to seek some financial advantage from that which can be used for revenue purposes, and not least for those facing higher fuel charges.

The hon. Gentleman is right to remind me of his second point. My understanding is that the report that Price Waterhouse made on the three British Gas Corporation zones—I remind the hon. Gentleman and the House that the report was not national, but looked at three zones—found that the different levels of standing charges between the three zones did not correspond with the levels of cost within the component regions of the zone. It is that anomaly to which Price Waterhouse has drawn the attention of the corporation. That probably accounts for the peculiarities in Wales to which the hon. Gentleman referred. There may be room for the transfer of some regions from one zone to another for standing charge purposes, or the differentiation might be dropped altogether and a national standing charge adopted. That was the recommendation made by Price Waterhouse and I am sure that this, among its other recommendations, will be studied.

I return now to the point that I was seeking to make on the pressure to reduce costs and ultimately therefore to give greater efficiency to the consumer. The theme of the debate has been that when we are dealing with a monopoly practice we must from time to time examine it with great care to see that the consumer is getting fair value for money. There can be, and we shall continue to offer, support for fuel charges for those who are unable to meet them. The system devised under the social security mechanism is the best and most equitable system that we can devise. It is also available through the social security system, to those who find themselves unable to pay their water bills.

Mr. Penhaligon

Why no rebate?

Mr. Shaw

There is no rebate because with water charges we are dealing with a charge that has been accumulated for a service already delivered. It is quite the best way to deal with this through a social security benefit for those who cannot meet the bills rather than through a rebate.

We must ensure that the industries ate as efficient as we can make them. The greatest benefits to all consumers are to be gained, not by juggling with tariffs, but by real increases in the efficiency with which our energy is supplied, and real reductions in its costs. I am sure that hon. Members will have noted that the stability that we have recently had in electricity prices over 1982 and 1983 gives the greatest confidence that we can find some end to the spiralling charge that most consumers face for all these industries. It is the prospect of increased stability in fuel prices in general that will provide most encouragement to consumers. That is the way in which we shall proceed.

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