HC Deb 28 November 1983 vol 49 cc638-44
6. Mr. Straw

asked the Secretary of State for Energy what representations he has received in respect of the increase in gas and electricity prices.

9. Mr. Hal Miller

asked the Secretary of State for Energy what representations he has received from the gas and electricity industries about the future level of prices.

15. Mr. Madden

asked the Secretary of State for Energy what representations he has received in the past six months urging that the price of gas and electricity be increased.

18. Mr. Dykes

asked the Secretary of State for Energy if he has replied to the letter sent by the chairman of the National Gas Consumers Council to hon. Members of this House on 10 November concerning future gas price increases.

Mr. Peter Walker

I regularly receive representations on gas and electricity prices. The gas and electricity industries will announce any increases in the normal way.

I have arranged for my reply to the chairman of the National Gas Consumers Council to be placed in the Official Report.

Mr. Straw

Since the Secretary of State is no amateur in self-publicity—[Interruption.] I say that as a compliment—may we take it as rather more than a coincidence that the right hon. Gentleman has remained as silent as a Trappist monk since the announcement of fuel price increases was made by the Chancellor of the Exchequer? Leaving aside what happened in the Cabinet, will the right hon. Gentleman take this opportunity to express what we are told by the Lobby is his private view, namely, that he wholly disagrees with the change; or is his silence explained by the fact that he cannot quite find the superlatives to reflect his respect and admiration for the Chancellor of the Exchequer?

Mr. Walker

I thank the hon. Gentleman for that rather wandering supplementary question. Gas and electricity prices will be decided and announced by the industries. The Government have no powers to fix gas and electricity prices. I suggest that the hon. Gentleman waits to see what the gas and electricity industries finally decide. Perhaps it was different during the period in office of the last Labour Government, when gas prices for the industrial user went up by 288 per cent. and for the domestic user by 73 per cent.

Mr. Miller

Does my right hon. Friend agree that it makes neither economic nor political sense for the Opposition to talk of electricity price increases when the economy demands that a state monopoly should become more efficient, which is what its managers are trying to do? It makes no political sense to try to put the wind up pensioners before Christmas about increases which are not being imposed.

Mr. Walker

It is unlikely that any increases of any description will be imposed this year. That will mean that we will have had a 21-month freeze on electricity prices and a 15-month freeze on gas prices. That compares very favourably with what happened under Labour Governments.

Mr. Madden

Will the Secretary of State confirm that neither the gas industry nor the electricity industry is pressing for increases? Does he understand that many people, especially pensioners, have to choose between heating and eating each day? Does he also appreciate that there is no reason why such people should be the victims of the Government's economic incompetence, which is compelling industries to introduce fuel taxes?

Mr. Walker

The Government's alleged incompetence is as nothing compared with the incompetence of the hon. Gentleman's supplementary question. In reality, the British Gas Corporation is pressing for price increases. It has suggested that they should be introduced, under no pressure from the Government. Before the hon. Gentleman makes allegations of that kind, he should try to discover the facts.

Mr. Dykes

Does my right hon. Friend agree that we do not need sanctimonious lectures from the Opposition about gas prices policy, in view of their record? Bearing in mind all future priorities, including the long-term investment programme and the fact that the Treasury take from the gas levy last year was, I think, £523 million, what does he think would be a fair figure for the levy over the next few years?

Mr. Walker

I shall not make a prediction without knowing the world conditions of prices and the finds from the North sea. We must consider the returns on capital of the two nationalised industries and their performance in keeping down prices recently. As I very much doubt that any increase in the foreseeable future will be as much as the increase in inflation in general, it can be said that industry and domestic users are benefiting to that extent at present.

Mr. Wilson

Does the Secretary of State realise that the fuel tax increases proposed for next year will attack most heavily the sick, the unemployed, the elderly, and particularly people in those categories who live in areas such as Scotland, where it costs much more to heat houses? What proposals does the right hon. Gentleman have to ease the problems of those people?

Mr. Walker

I thank the hon. Gentleman for giving me the opportunity to point out that, since the Government came to power, assistance to people in the categories that he mentions has increased three and a half fold. Moreover, the additions to help for those people has increased 40 per cent. more than inflation and energy prices.

Mr. McCrindle

I accept what my right hon. Friend has just said, but does he agree that one of the main burdens of pensioners and people on low incomes and social benefits is the relationship between standing charges on gas and electricity accounts and the amount of gas and electricity actually consumed? Will my right hon. Friend take the opportunity of any proposal to increase the cost of fuels to talk to the undertakings to see whether a fairer relationship can be created so that people who economise actually save on their bills?

Mr. Walker

I understand my hon. Friend's view. I believe I am correct in saying that the British Gas Corporation, in any price increase that it may be contemplating, is considering making the standing charge a lower proportion of the total cost.

Mr. Orme

May we assume from the right hon. Gentleman's reply that if the chairmen of the corporation and the electricity supply authority refuse to put up prices the Government will do nothing, because it appears from his answer that the decision is now for them? Does he agree that if the levy were removed there would be no need for any increase in gas prices? Will the Secretary of State say what effect on employment these increases will have in some of the major industries that use up to 40 per cent. of their costs on energy?

Mr. Walker

I categorically repeat that the statutory power on prices is totally with the nationalised industries and that the Government have no such powers. In answer to what the right hon. Gentleman said about loss of jobs, may I point out that, under the Conservative Government, the industrial price of gas has gone up by 89 per cent., whereas the Labour Government put it up by 288 per cent. Did the Labour Government think about jobs then?

Following is the information:

Miss S. P. Black


National Gas Consumers' Council

5th Floor: Estate House

130 Jermyn Street

London SW1Y 4UJ 22 November 1983

Miss Black

You wrote to me on 10 November about press reports that gas prices might rise more than the British Gas Corporation considered necessary.

These stories were misleading. Pricing decisions are a matter for the industry, in the light of its costs and financial constraints. The Government has no powers to impose price increases on the industry. I understand that the Corporation have not yet taken any final decisions about next year's price, and that they are presently in the process of consulting you about their proposals. I would expect any price rise which results to be within the rate of inflation.

Prices to the domestic consumer have not risen since October 1982. After allowing for inflation the price of gas to the home is still about the same as it was in 1970. Gas is still the cheapest fuel for most consumers and United Kingdom prices are still amongst the lowest in Europe. The Corporation have made clear their view that a modest increase is necessary to reflect rising costs, particularly the cost of new gas supplies, which are rising much faster than inflation. We must avoid a return to the situation under the last Labour Government where artificial holding down of prices led to the Corporation making losses on sales of gas to the home. The Government supports the case for a steady and consistent approach to pricing in order to avoid the need for large catching up increases of the kind which no-one likes, but which have been necessary in recent years.

You also mentioned the gas levy and the sale of the Corporation's oil assets. There has been much misunderstanding of the purpose of the levy. The position is simply that BGC will continue to purchase some gas from early North Sea discoveries, which are exempt from Petroleum Revenue Tax (PRT), at well below its current market value. If the Government had taken no action the Corporation would, as a result, have made large excess profits. The Government therefore decided to introduce a levy to transfer this windfall from British Gas to the nation as a whole, in much the same way as PRT does for oil and newer gas supplies. The levy has had, as the Government promised when introducing it, no effect on prices, since BGC's financial target was reduced specifically to take account of the effect of the levy on BGC's profits.

Nor is there any reason to believe that the sale of the Corporation's oil assets will lead to an increase in gas prices. Gas prices would only be affected if BGC would otherwise have used profits from oil operations to finance its gas operations. Such cross-subsidisation would have been quite wrong both from an economic and commercial point of view. The extraordinary provision which BGC made in their 1982/83 Accounts to cover the disposal of the oil assets is merely an accounting device to write the assets out of the Corporation's books. It is not in any real sense a "cost" borne by gas consumers, and is marginal when set against the Corporation's retained profits of over £1.5 billion.

Finally, may I say that I agree with everything you say about the importance of maintaining incentives for the industry to increase its efficiency. We are working closely with the Corporation to follow up the Deloitte's Report, and I hope soon to be able to announce that agreement has been reached with the industry on a new Performance Objective which will build on their previous successes in cutting costs.

Peter Walker

7. Mr. Skeet

asked the Secretary of State for Energy what is the Government's policy on energy pricing.

19. Mr. Greenway

asked the Secretary of State for Energy by what amount he expects gas and electricity prices to rise over the next two years; and if he will make a statement.

Mr. Peter Walker

In those areas such as electricity and gas, where there is a monopoly supplier, the Government consider that prices should reflect the cost of producing the energy and the need to achieve an adequate return on capital. Gas and electricity prices are determined by the industries concerned. I believe that gas and electricity prices will rise by less than the rate of inflation over the next two years.

Mr. Skeet

Will my right hon. Friend bear in mind that some industries, such as chemicals, steel, paper and the metallurgical industries, will suffer heavily from increases? Will he therefore exempt them from the increases? Will he further bear in mind that chlorine producers in the United Kingdom have to pay twice as much for electricity as is paid by producers in France and that that will ulitmately mean that many chemical interests will have to transfer to France?

Mr. Walker

Many negotiations have taken place on this matter with the heavy users over the past six to nine months. Arrangements and new facilities have been made available, which I think have been of considerable benefit. I have had expressions of gratitude from some of the heavy users. France has, of course, an overall advantage in electricity prices, because it has a much larger nuclear contribution to its electricity supply, which is cheaper.

Mr. Greenway

I welcome my right hon. Friend's assurance that energy prices are likely to rise by less than the rate of inflation over the next two years. Will he give the comparative figures for the rise in domestic electricity prices under both this Government and the last Labour Government?

Mr. Walker

Under this Government domestic electricity prices have risen by 81 per cent. Under the previous Labour Government they went up by 170 per cent.

Mr. Wrigglesworth

In view of the real fear and misery among lower paid people when there is speculation about an increase in energy prices, will the Secretary of State stop looking backwards over the record of the Labour Government and of the present Government and look to the future? Will he look, in particular, at the first three months of next year, when the cold weather will hit the energy bills of the old and the low-paid particularly hard? Will he say when energy prices will be increased, and whether they can be delayed until after the likely period of cold weather?

Mr. Walker

I understand the hon. Gentleman's reluctance to look back to the period of Government that made him leave the Labour party. I do not share his reluctance. The Government recently announced that heating allowances would be increased by 8 per cent., and that is well above any of the suggested price increases of either utility.

Mr. Beaumont-Dark

Does my right hon. Friend nevertheless agree that one of the great problems, particularly in foundaries and in industries which are big users of electricity and gas, is that our prices seem to be rather higher than those of our competitors? Does my right hon. Friend agree that we must keep in line if we are to compete in this difficult world?

Mr. Walker

I agree, but I should point out that recently our prices have not increased as fast as those of our competitors. In a number of European countries the increases have been much greater than in this country. We have had a freeze for about 21 months in one industry and 15 months in the other, with no prospect of increases other than below the rate of inflation.

Mr. Norman Atkinson

The Secretary of State has reiterated for the second time that the Government have no jurisdiction over electricity and gas prices. Why has he said today for the second time that the British Gas Corporation is now pressing him for an increase? Who is it pressing, and why, if the Secretary of State has no jurisdiction?

Mr. Walker

I did not mean that it was pressing. I knew that BGC was interested in obtaining an increase. It will announce it when it wishes to do so.

Mr. Wallace

As the Secretary of State attributed cheaper energy prices in France to the use of nuclear power there, can he explain why energy costs in Scotland are higher than in France, although Scotland has a higher contribution of nuclear power? Is it not a contradiction of Government economic policy that, to make industry more efficient and in an effort to make industry more competitive, the Government have apparently made industry less competitive as a result of the increase in energy costs that has just been announced?

Mr. Walker

There are a number of things wrong with the hon. Gentleman's supplementary question. First, no increase has been announced. That supposition is totally unfounded. In answer to what he said about Scottish electricity costs, I suggest that he looks at Scotland's capacity for electricity generation compared with its use, and also the use of coal. I should like to hear his observations on that.

Mr. Winnick

The Secretary of State knows that there is no justification whatever for any increase in fuel prices. Is he aware that there will be much disappointment that he did not put up a stronger fight in the Cabinet against the proposals of the Chancellor of the Exchequer? What provision has the Chancellor of the Exchequer made in public expenditure next year for the increases that we all know are coming? Is the Secretary of State aware of the damage that these proposals will cause to many people on low incomes and to British industry?

Mr. Walker

It is nothing like as damaging as the 170 per cent. increase in domestic electricity prices under the last Labour Government. I have been more successful in the battles in which I have been involved than the hon. Gentleman.

Mr. Orme

Will the right hon. Gentleman now give the reasons for these increases, which will hit both industry and the consumer? Are these not merely public expenditure cuts which will affect the unemployed and the socially deprived?

Mr. Walker

The right hon. Gentleman talks as if vast increases have taken place, but he knows full well that any increases in either industry will be below the rate of inflation. Those on low incomes have already been protected. The gas industry and the Government consider that there is justification for an increase because gas from the cheaper fields is running out and more expensive gas must be purchased. That is a good, valid reason for some modest increase in gas prices.