HC Deb 03 November 1987 vol 121 cc801-14 4.46 pm
The Secretary of State for Energy (Mr. Cecil Parkinson)

With permission, Mr. Speaker, I should like to make a statement.

As the House knows, it has been the policy of successive Governments to agree targets for the nationalised industries which set their financial framework and which enable them to plan their operations in a commercial manner. The industries then decide how to achieve these targets either through price increases, cost savings or a combination of both.

The present target for the electricity supply industry, which covers the three years 1985–86 to 1987–88, is a 2.75 per cent. average return on current cost assets. The Government have therefore been discussing with the Electricity Council the targets for the years ahead. Although the details of individual boards' targets have yet to be finalised, they have agreed an overall target for 1988–89 and 1989–90. The industry's external financial limit, which was announced by my right hon. Friend this afternoon, is based on this target.

In considering the target for these years, the Government have had to take into account the fact that, although in the recent past the electricity supply industry has had surplus capacity, that position is now changing. On current forecasts, the Central Electricity Generating Board envisages that at least 13GW of new capacity will be needed to meet demand by the end of the century. The industry also needs to modernise its transmission and distribution system if it is to maintain secure and economical supplies into the next century.

At a time of surplus capacity, it is possible to meet extra demand by using that surplus at relatively little extra cost. In the past, this has been reflected in a low rate of return. It took account of the fact that some of the industry's assets were under-used. That has resulted in the industry's prices effectively remaining unchanged since April 1985, and in prices falling by at least 15 per cent. in real terms over the last five years.

When new capacity has to be built to meet additional demand, the costs of meeting that extra demand rise. It must be right that the rate of return should rise to a level closer to that which nationalised industries are required to earn on new investment as a whole. This is currently 5 per cent. The Government have therefore agreed that the industry's overall target return on current cost assets should be 3.75 per cent. in 1988–89 and 4.75 per cent. in 1989–90.

The CEGB and the area boards are now considering their individual profit targets. Until this process is completed it will not be possible for the industry to be specific about the consequences for electricity prices. In particular, the Government expect the industry to consider carefully the scope for improving the rate of return through increased cost efficiency. However, preliminary indications are that it will be necessary to increase prices by an overall average of 8 to 9 per cent. on 1 April 1988 and substantially less in the following year. There is likely to be some variation in these figures for individual boards and different groups of customers. I am determined that Britain will have a modern, secure and efficient electricity supply industry in the years ahead. This will involve a massive investment programme and that in turn demands an improved rate of return for the industry.

Mr. John Prescott (Kingston upon Hull, East)

The statement by the Secretary of State confirms our worst fears about the intentions of the Government in privatising the electricity industry. They are proposing a totally unnecessary price increase that has to do with the confiscation of the electricity supply industry income so as to provide the Treasury with funds and fatten the industry for the process of privatisation. Will the Secretary of State confirm that the electricity supply industry has exceeded all the statutory financial targets set for it by the Government, the present target being 2.75 per cent.? In the last five years the industry has exceeded its targets by almost £1 billion. It has met all its investment requirements and presently has an excess capacity of about 30 per cent. It has reduced its costs and prices by 15 per cent. since 1982.

Does not the Secretary of State accept what the Electricity Consumers Council says, that achieving those targets is a success by any criterion? Can he confirm, as the Chancellor did, that electricity prices are already the lowest in Europe? Will he tell his right hon. Friend that, as pointed out by Mr. Baker, the managing director of the CEGB in his speech to the CBI conference yesterday, prices charged by publicly owned electricity industries—such as those of Britain and France—are half those charged by the privately owned electricity industries in America and Japan? Perhaps the Minister could confirm that.

Does the Minister accept, as pointed out in the Electricity Consumers' Council report on privatisation, that over the last five years the Treasury has confiscated from the electricity supply industry a total of £2 billion by way of the negative EFL targets imposed upon it? That was equivalent to £1 billion last year alone and by any stretch of the imagination that is an energy tax imposed upon our people solely for Treasury requirements. Is the Secretary of State also aware that the Chancellor's statement not only added £1 billion to electricity prices — which is what 9 per cent. actually means — but imposed negative EFL requirement of a further £1 billion? Does he accept that the £1 billion EFL requirement and the £1 billion increase in prices is a £2 billion burden on the industry and will be paid for solely by the consumer for Treasury and privatisation reasons?

Does the Secretary of State expect the House to believe that an increase is necessary for the investment programme that he has spelt out? The recent report by the Electricity Council called a medium term development plan makes it clear that the investment programme for both conventional and nuclear energy right up to the end of the century does not require a price increase to finance it, provided that there is no significant increase in the industry's financial target. The point is clear and the Secretary of State must admit that these taxes, these charges, have nothing to do with an investment programme or with sufficient resources to pay the costs in the industry. They are solely about fattening the electricity industry for privatisation. The Secretary of State's call for further cost reductions will encourage the: electricity boards in their desire to switch from British coal to further coal imports. Some estimates say that that will cut manpower in the coal industry by 50 per cent. That is a further price to be paid for the privatisation of electricity.

Is the Secretary of State not ashamed to impose this privatisation tax on the electricity consumer at a time when he is a member of a Cabinet that is removing the fuel allowances from many of our poor and our pensioners? We already have the obscene record of far more people dying from hypothermia than in any other civilised country. This increase is totally unnecessary and is imposed as a privatisation tax. It bears out precisely what we said, that privatisation means people will get less and pay more for it.

Mr. Parkinson

May I tell the hon. Gentleman, in the midst of his fine fury, that he supported a Government who put up electricity prices by more than 30 per cent. above the rate of inflation? Even after this price increase, we shall have seen prices fall in real terms. We shall take no lectures from the hon. Gentleman about price increases. The hon. Gentleman talked about the industry achieving its targets. In 1978 his own Government said that it was important for nationalised industries to achieve their targets, because out of the profits came the necessary future investment. Although an average rate of return of 2.75 per cent. has been achieved, the rate of return this year is 2.45 per cent. The industry goes into a period of a massive increase in investment with a rate of return which is less than half the rate of return that his own Government said was desirable for nationalised industries.

The hon. Gentleman asked me to confirm that electricity prices are the lowest in Europe. Even after these increases they will remain the lowest in Europe. The hon. Gentleman's point about public and private companies is irrelevant. He is comparing prices from different countries with varying exchange rates and is drawing the wrong conclusions. There is no reason at all why we should follow the pattern of American prices. When the hon. Gentleman talks about Treasury confiscation, he is describing the repayment of debt. The Treasury advanced substantial funds to the industry when it went into its investment programme and the money now being repaid is outstanding debt. The hon. Gentleman had better learn that repaying debt is not the same as confiscating anything. The hon. Gentleman has added together the price increase and the negative EFL and said they added up to £2 billion. In part, the price increases fund the EFL, so there is no point in adding them together. The increases are a source of the funds needed to produce the negative EFL.

The medium-term development plan is now out of date and the investment programme is being accelerated. The medium-term plan was introduced in 1986 and covers three years and seven years on the investment programme. If the hon. Gentleman looks at the tables he will see that. We are bringing forward a massive increase in investment. The hon. Gentleman said that the reduction in coal costs is a way of putting pressure on costs and said that the industry will interpret this as an invitation from the Government to reduce the price that it pays for coal. There are other costs that are capable of being reduced, and I hope that the electricity industry will focus on those. For example, there is a salary bill of nearly £2 billion. There is scope for cost savings. The industry has been achieving such cost savings and is convinced that it can continue to do so.

Mr. John Hannam (Exeter)

Does my right hon. Friend accept that those who wish to see the proper financing of the massive £1 billion a year investment programme for the future of our electricity supplies will commend his realistic approach to the problem of raising that finance? Will he confirm that this is the first price increase since 1985 and that if it is averaged over the past two years it comes to far less than the increases that were experienced when the right hon. Member for Chesterfield (Mr. Benn) was Secretary of State for Energy?

Mr. Parkinson

My hon. Friend is right. He recognises, as I do, the need for a modern, efficient electricity industry if British industry is to have a chance in the future. My hon. Friend is absolutely right in his second point.

Mr. William O'Brien (Normanton)

Is the Secretary of State aware of the devastation and damage that his statement will have on local government? The additional cost to the Leeds education department will be about £0.25 million and, to the local authority in Wakefield, which is in my constituency, it will be more than £1 million. It will have an even more devastating effect on hospital services in the Yorkshire and Humberside regions because we are already witnessing hospital closures in the Pontefract and Wakefield health authority areas. Is he aware of the damage that his statement will do to those authorities? Will he take his head out of the sands of political dogma and take note of what is happening in the regions?

Mr. Parkinson

The hon. Gentleman must understand that, if Britain is to have a modern industry, we must invest a great deal of money. Some of his hon. Friends came to see me recently to urge me to bring forward orders for companies which make electricity supply equipment. They recognised that a huge investment programme will produce many extra jobs. The proper price for electricity is a vital part of the cost of an efficient electricity service, and that is what we are determined to have.

Mr. John Watts (Slough)

Does my right hon. Friend find it strange that the Opposition make constant demands for increased public investment in infrastructure and, particularly, for new coal-fired power stations, yet they seek to deny the electricity industry the necessary funds to pay for that investment? Will he explain to the Opposition Front Bench that, just as taxpayers have invested money in the industry in the past, it is right that they should reap some reward and that, if further investment is needed, it should be funded by electricity consumers, not by the taxpayers at large?

Mr. Parkinson

My hon. Friend is right. The industry is about to embark on a £40,000 million investment programme. It did not order any new power stations for eight years—[HON. MEMBERS: "Why?"]—because of an overestimate of needs, as a result of which we had massive spare capacity. Twenty-seven of our coal-fired stations are now regarded as approaching redundant technology. Magnox stations will have to be replaced in the foreseeable future. Opposition Members must understand that a massive programme which in itself will produce many jobs in the industries that make the equipment—as my hon. Friend the Member for Slough (Mr. Watts) said—is a vital element in the modernisation of Britain.

Mr. Matthew Taylor (Truro)

Will the Secretary of State accept that the only people to gain from the totally unnecessary £1 billion increase in prices to consumers will be the get-rich-quick merchants on the stock exchange, when electricity is privatised? Will he accept that that is the purpose of this move and that the losers will be the old and the cold, the poor and the sick who cannot afford to pay these prices? They may well argue that a better return would be gained from a proper investment programme in energy conservation which protects both the Government's investment in the CEGB and those people who find it hard to pay their bills, including the 1,200 who die as a result of energy poverty each year and the 90,000 who have their electricity supplies cut each year?

Mr. Parkinson

The chairman of the Electricity Council, Sir Philip Jones, said today that an increased rate of return is both inevitable and necessary. He recognises, as I do, that we need a modern industry. I am tired of hon. Members who come to my office to ask me to encourage the industry to invest huge sums of money in modern plant and then complain about the cost.

Mr. Peter Rost (Erewash)

Are not these higher targets, which are in the long-term national interest, well below real commercial rates of return? Will they not leave the private electricity producers with an enormously unfair competitive advantage against the CEGB, thus holding up investment from the private sector, which could give us cheaper energy?

Mr. Parkinson

My hon. Friend is correct. We are aiming to achieve targets in two years' time that are less than the rate of return that a Labour Government identified as desirable for nationalised industries. We are moving from a low base to a base that is still below the figure that the Labour Government said was necessary.

Mr. Geoffrey Lofthouse (Pontefract and Castleford)

Is the Secretary of State aware that very few hon. Members and people outside the House will be deceived about the real reason for the statement this afternoon? Is not the real reason for the statement simply to fatten up the industry in preparation for privatisation? Does the right hon. Gentleman agree that that privatisation means the further demise of the mining industry, as was admitted yesterday by the Under-Secretary of State for Energy, who said that miners could lose jobs? Will the Secretary of State confirm that a minimum of 30,000 more miners' jobs will be lost through the privatisation of electricity?

Mr. Parkinson

The Government have invested more than £9,000 million in the mining industry since we took office. That is more than the market capitalisation of ICI. The Government have shown their commitment to producing a modern, efficient coal industry. We have an investment programme amounting to £2 million a day. If that investment is worked properly, and modern working methods are put into place to accompany the modern machinery, I see a bright future for British Coal. However, if there are wasteful overtime bans and waste and strife in the industry, the industry will have a grim future and it will have earned it.

Dr. Michael Clark (Rochford)

Does my right hon. Friend agree that no company in the public or private sector can hope to stand on its own two feet commercially with a rate of return of 2.45 per cent. and that any company that wants to be independent of Government subsidy must raise its rate of return and do so either by increasing prices to the appropriate level or by reducing costs and one hopes, by doing both?

Mr. Parkinson

I want to quote from the previous Labour Government's White Paper on the nationalised industries: An adequate level of nationalised industry profits is essential to the continuing well-being of the industries and of the economy as a whole. They provide some of the funds for very large investment programmes necessary to maintain supplies and services to the public. That is a Labour Government explaining the need for nationalised industries to make a sensible rate of return. We do not believe that 2.45 per cent is sufficient. My hon. Friend is right to stress that.

Mr. Tam Dalyell (Linlithgow)

As a member of the Association of Scientific, Technical and Managerial Staffs group of hon. Members which was courteously, patiently and constructively received by the Secretary of State for Energy on Tuesday, may I ask what assurance the Secretary of State can give to the power engineering industry about the consistency of the flow of orders that many employed in the industry so badly need over the next two or three years? Will he comment on the financial assessment in relation to privatised nuclear stations?

Mr. Parkinson

The hon. Gentleman is right. Our power supply industry has been through a very difficult time. As I said earlier, no power station was ordered for eight years. That period is now coming to an end and we see a steady flow of orders for power stations to be commissioned in this country between now and the year 2000 and for a considerable time after that. We can look forward to a period of growth and stability in that industry. One of the principal limiting factors at the moment is the length of time taken by public inquiries. However, we are anxious to get ahead and make major investment in the industry and that means orders for the power supply industry. In our manifesto we made it quite clear that the Government are committed to a continuing nuclear programme. I have to fit that commitment into our plans to privatise the industry and I am doing that.

Mr. Robert McCrindle (Brentwood and Ongar)

Although I am a supporter of the privatisation of electricity and although I understand the need for an investment programme and the desirability of increasing the rate of investment, at the risk of sounding a slightly discordant note, may I ask whether my right hon. Friend appreciates that the prospect of an increase of the order of 9 per cent. is a cause for some concern, particularly as one contemplates the effect that that increase might have on the low paid and those on social benefits? Will he give the House an undertaking before we move to price increases of the order of 9 per cent. in what is after all an essential service that he will have discussions with his right hon. Friend the Chancellor of the Exchequer and his right hon. Friend the Secretary of State for Social Services to see whether they can take into account the considerable effect that such an increase would have on certain sections of the community?

Mr. Parkinson

No Minister likes to come to the House of Commons to announce that there will be a price increase of this size. I believe that a failure of supply in the years ahead is a much more fundamental threat. It is absolutely vital that we modernise the industry. Of course the figures feed through into the retail price index and most benefits reflect that. However, I note my hon. Friend's comments and I am sure that my right hon. Friend the Chancellor and my right hon. Friend the Secretary of State for Social Services will also have heard him.

Mr. Harry Ewing (Falkirk, East)

Following the question from the hon. Member for Brentwood and Ongar (Mr. McCrindle) may I ask whether the Secretary of State really appreciates the impact that his announcement today will have on those on low, fixed incomes and particularly on old-age pensioners? While the Secretary of State has said that the increase will feed into the RPI, does he agree that it is a cruel deception of our old-age pensioners for the Secretary of State for Social Services to come to the House last week and announce a pension increase on the basis of a 4.2 per cent. cost of living increase and then for the Secretary of State for Energy to come here today and take back a very large proportion of that which was given to our pensioners by his right hon. Friend last week? Does the right hon. Gentleman appreciate that millions of old-age pensioners in this country tonight will wish that he had remained in the wilderness a little longer?

Mr. Parkinson

I want to repeat the point that I made earlier. I believe that it is absolutely vital for the elderly and everyone else that we have secure supplies of electricity. That is what the Government are trying to ensure. The exact details of the increases have not been settled for the reasons that I have explained and they will take place next April. They will not take place this winter. I hope that the hon. Gentleman will stress that to pensioners who express concern to him.

Mr. David Heathcoat-Amory (Wells)

Is it not hypocritical of the Opposition to complain of the prospect of higher electricity prices when their policies for coal would increase the price of coal and therefore the price of electricity enormously? With regard to a greater contribution from nuclear energy, will my right hon. Friend confirm that a higher contribution from that source would tend to keep electricity prices down? Does he agree that the Opposition's opposition to projects such as Sizewell B and Hinkley Point C remove their right to claim to be the friend of the old-age pensioner?

Mr. Parkinson

My hon. Friend is right about coal costs. The electricity industry pays a substantial premium to British Coal for the right to use British coal, because it recognises that British Coal is in the process of modernising itself and it recognises the long-term value of a reliable, competitive supplier. Opposition Members today have really asked why we did not pay more for our coal. That would have increased prices still higher. We believe that the country needs a diverse source of energy supplies. We believe that a nuclear component in the electricity supply industry is essential as a reliable long-term supplier of base load power.

Mr. Dennis Skinner (Bolsover)

Was the Secretary of State for Energy in the Chamber when the Chancellor of the Exchequer was answering questions on the Autumn Statement? Did he hear the Chancellor say to his hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) that he expected basic commodity prices to fall? If he did, what is the Secretary of State doing making this statement?

Mr. Parkinson

I do not need to answer for my right hon. Friend the Chancellor of the Exchequer. He seemed to be doing pretty well for himself when I listened to him and the hon. Gentleman did not seem to be able to lay a finger on him. I am dealing with the cost of electricity and the need to improve the rate of return, which is to improve the security of supply.

Mr. Edward Leigh (Gainsborough and Horncastle)

How does the praise lavished on the cheapness of French electricity by the hon. Member for Kingston upon Hull, East (Mr. Prescott) today lie side by side with the Labour party's opposition to any investment in and expansion of our nuclear power industry?

Mr. Parkinson

Far be it from me to defend the hon. Member for Kingston upon Hull, East (Mr. Prescott), but I do not think that he did say that our prices were higher than the French. He said that French prices were higher than ours. However, I agree that the Labour party has a problem because the nuclear industry is a vital part of our future plans and we need it to secure supplies and to give us diversity. Yet the Labour party opposes it without suggesting anything but to use more coal at a higher price, which will shove up prices even further.

Mr. Kevin Barron (Rother Valley)

Does the Secretary of State accept that everything that he has said today about the cost of capital expenditure on the electricity supply industry has been common knowledge to people with an interest in the matter for 18 months? Does he accept that the medium-term development plan specifically said that capital expenditure until the year 2002 had been taken into account in the electricity supply industry's pricing policy and went on to say that retail tariff increases would be below the rate of general inflation? Will the Secretary of State come clean and admit, as all Labour Members know, that he is fattening the calf before the privatisation of the industry?

Mr. Parkinson

That is not true, as I have said before. I have explained why we are doing it and the reasons that I have given are the true reasons. I am not prepared to pander to the hon. Gentleman's prejudices.

Mr. Michael Jack (Fylde)

Are any of the proposed increases in charges required for any reason other than the achievement of financial returns? Secondly, to help mitigate the burden of those increased charges on some people, will my right hon. Friend, in his discussions with members of the electricity supply industry, suggest an extension of the Economy Seven hours? Thirdly, will my right hon. Friend confirm that the increased returns that will be derived as a result of his statement will ensure that there will be no delay in Sizewell B and thus in orders coming to the nuclear industry based in my constituency, which will save jobs?

Mr. Parkinson

Financial returns are not an end in themselves; they are being achieved so that they generate an income base which will support investment, the need for which I have tried to explain to the House today. I note what my hon. Friend says about Economy Seven and the nuclear industry and I am pleased to tell him that Sizewell B is going ahead to schedule. Orders worth more than £700 million have already been placed with British companies for equipment for that, and it is on target to be finished on the set date.

Mr. Brian Wilson (Cunninghame, North)

Did the Secretary of State overhear the hon. Member for Mid-Worcestershire (Mr. Forth), in response to the charge that the right hon. Gentleman was fattening the calf for privatisation, exclaim "Nothing wrong with that"? Does the greedy and unpleasant face of the hon. Member for Mid-Worcestershire speak for the official Conservative party or does the right hon. Gentleman's Uriah Heep hand-wringing reflect the official view? Will not many British people despise the moral imbalance between such a swingeing increase and the fact, which the right hon. Gentleman has refused to confront in his answers, that at the same time the Government are withdrawing the pitiful means of support for those who rely on fuel subsidy?

Mr. Parkinson

I do not think that the hon. Gentleman was a Member when the Labour Government were putting up prices by 30 per cent. more than the rate of inflation and I do not think that he was listening when I told him that, even after this increase, price increases in the past six years will have been lower than the rate of inflation. There will have been a fall in the real price, something that the Labour Government never managed to achieve, despite all its post-dated concern.

Mr. Eric Forth (Mid-Worcestershire)

I rise in response to popular demand from the Opposition.

Will my right hon. Friend remind us of the trend in prices in the electricity industry over the past few years, before and taking into account, the projected increase that he has mentioned? Can he confirm that any distinction between consumers of electricity arid taxpayers is rather artificial, since we are all in our different ways taxpayers and consumers?

Mr. Parkinson

On price increases, the simple fact is that for five years under the Labour Government prices increased by 30 per cent. more than a high rate of inflation and under this Government, after this proposed increase, prices will still have increased by less than the rate of inflation. There will have been a real reduction in prices.

Mr. John Evans (St. Helens, North)

Will the Secretary of State acknowledge that the price increases that he has announced today will be a severe burden to Britain's manufacturing industry, particularly to high energy users such as the glass industry? How much of the 13 GW of new capacity that he has announced for before the end of the century will be nuclear and how much will be coal-fired?

Mr. Parkinson

Six of the stations will be pressurised water reactors and four will be major coal-fired stations and they are roughly equal in size. There is also a substantial investment programme to clean up the emissions from the existing stations, costing about £800 million, which must also be taken into account as part of the cost of maintaining a coal-burning capacity. Therefore, substantial money will be spent on the coal side of generation as well as on the nuclear side.

Mr. Bob Hayward (Kingswood)

Can my right hon. Friend give the approximate number of jobs that will be involved in the modernisation programme over the next few years? Will not the vast majority of those jobs be concentrated in the midlands, the north of England and Scotland, and thus be a major economic generator in those regions?

Mr. Parkinson

I cannot give my hon. Friend the figure for which he asks, but I can tell him that an industry which has been starved of orders—the industry that supplies the electricity supply industry—will receive more than £40,000 million worth of orders over the next 12 years, and that must be good news. Moreover, virtually all those jobs are in the regions and in Scotland.

Mr. Eddie Loyden (Liverpool, Garston)

Is the Secretary of State aware of the serious damage that the price of electricity has caused the poorest and most vulnerable sections of Britain who now perceive energy as almost a luxury? The right hon. Gentleman must be aware that disconnections have had a direct effect on the ability of such people to heat their homes during the winter. Is it not clear that the Government are placing profit beyond the recognition of people's needs, which will create a clear understanding of the Tory party's energy policy?

Mr. Parkinson

A major programme which is running at the moment will be enlarged to help the elderly in particular to use energy more efficiently. It is tragic that: at present people of limited means cannot afford to spend money on saving money by insulating their houses properly. We have a major programme, for which I have obtained extra funding, to help with that. We hope this winter to complete another 150,000 houses, which will take us well beyond the half million. Therefore, we have a programme for helping the most vulnerable to save on their energy bills.

Mr. Tony Baldry (Banbury)

Will my right hon. Friend confirm that by April next year there will have been a three-year period with no increase in electricity prices, equivalent to a reduction in real terms and prices of some 15 per cent? Therefore, even with the new increases, we are still ahead in ensuring a reduction in real terms and prices overall for the consumer, the pensioner and everyone who uses electricity in Britain.

Mr. Parkinson

My hon. Friend is correct. Prices have been stable, which means that when inflation is taken into account there has been a real reduction in prices over the past five, not just the past three, years. The period of spare capacity is coming to an end and we are entering into a period when we must make substantial investment, which must be paid for. Of course it is with reluctance that we propose these increased rates of return. We are doing so to enable the industry to fund necessary programmes.

Mr. Jim Cousins (Newcastle upon Tyne, Central)

As for the starvation of orders during the past eight years, to which the right hon. Gentleman referred, does he agree that he appears to be an innocent casualty of lack of forethought and planning by others? Does he further agree that 3,000 power engineering workers on Tyneside who have paid for the lack of investment and lack of forethought with their jobs during the past two years and will pay through their electricity bills because of unnecessary price increases during the next two years, will have paid rather a high price? Does he further agree that privatisation—

Mr. Speaker

Order. It is not fair to ask a second question when so many hon. Members wish to get in.

Mr. Parkinson

The starvation of orders about which I spoke arises because a major nationalised industry made a major howler in predicting the energy requirement for the country. That created overcapacity, and as a result. the industry had a period of plenty followed by one of famine. The hon. Gentleman might like to reflect on the fact that his party was in government for much of that time.

Mr. Peter Thurnham (Bolton, North-East)

Although I recognise the need for proper returns, may I ask my right hon. Friend to consider the number of thefts and disconnections? Is he aware of the new cashless token meters which are being developed by the North-Western electricity board?

Mr. Parkinson

I know that the problem of disconnection is serious, and I have taken up the matter with the industry and the area boards. I know that they are aware of the problems faced by the elderly. I shall draw that point to the attention of the industry again.

Mr. Michael J. Martin (Glasgow, Springburn)

Today's announcement is good news to Babcocks in Paisley, which has had many redundancies recently. Does the Minister intend to meet the chairmen of the regional electricity boards and ask them how many cut-offs there have been in the past financial year and if this increase will mean more electricity cut-offs?

Mr. Parkinson

The House should know that it is in the Register of Members' Interests that I was a non-executive director of Babcocks for some years. I learnt of the problems for the electricity supply industry when there is a flood of orders and then there is none. I know this from experience; I have been to Renfrew, and seen the huge investment there. There is a factory capable of excellent work. It has a first-class work force, but the one thing it does not have is orders. The Government are determined to create a modern industry using modern equipment.

Mr. Kenneth Hind (Lancashire, West)

Does my right hon. Friend agree that, had it not been for the privatisation programme for the electricity industry, the Opposition would have been faced with the embarrassment of a Secretary of State for Energy taking the advice of the Labour party to raise the rate of return on assets? Does he also agree that, whether the electricity industry is in private or state ownership, investment is needed to replace the Magnox stations which are running out of time? It would make no difference whether that industry was in private or public hands.

Mr. Parkinson

My hon. Friend is right that in this context the question of privatisation is a red herring. Whether the industry remains in public ownership or is privatised, investment will have to be made. A previous Labour Government who instituted a policy on nationalised industries said that a proper rate of return is a vital part of an investment programme.

Several Hon. Members


Mr. Speaker

Order. We have a very important debate ahead of us. I will allow questions to go on until 5.35 pm. I hope that every hon. Member who is rising in his place will be able to ask a brief question by then.

Mr. David Winnick (Walsall, North)

Is the Secretary of State aware that if these proceedings were televised millions of people would have had the opportunity to see the Secretary of State, who has shown no adequate understanding of the heavy blow that will be dealt to those on low incomes when the increases come into effect? Why should pensioners and others on low incomes have to bear the brunt of the increases and suffer the consequences during the winter months when they cannot heat their homes adequately now? Why should they suffer all that just so that the Government can pave the way for privatisation?

Mr. Parkinson

I shall return the compliment to the hon. Gentleman — why should they have suffered massive real increases under his Government, when under this Government they have benefited from real reductions? Quite frankly, his crocodile tears are being shed rather late. If he had been a little more forceful when his party was in government, perhaps he would have had more influence. We will not take any lectures from him.

Mr. David Clelland (Tyne Bridge)

Further to the right hon. Gentleman's earlier responses on the future of the power engineering industry, which will come as welcome news to my constituents who rely on Northern Engineering Industries for their livelihoods, will he assure the House that no part of the investment programme that he has announced today will be delayed by his determination to carry on with privatisation?

Mr. Parkinson

I wish to make it clear that the prime consideration is the security of supply. Recently we have had a good example of the dangers of an interruption to supply. Our transmission system is becoming old and needs modernising. Our power generation industry needs modern power generating plant. We are determined to ensure that that modernisation is not interrupted—it is top priority.

Mr. Frank Doran (Aberdeen, South)

Has not the Secretary of State made it clear that he intends to privatise the industry, and no question about it? Why is there such a rush to press ahead with the investment, which he described as being much needed, under the umbrella of the public sector? Why is he not prepared to wait until the industry is privatised and then allow it to go to the market in the usual way to raise the money and to suffer the consequences of that and of imposing price increases?

Mr. Parkinson

I hope that the hon. Gentleman was listening to his hon. Friend the Member for Tyne Bridge (Mr. Clelland) who just asked me to give an assurance that the investment programme would not be interrupted. The point that I am trying to put across to the House is that the industry must develop an income base that will support the huge investment programme that is needed both now, when it is in the public sector, and later when it is in the private sector. We shall not allow the investment programme to be interrupted pending privatisation, as the hon. Gentleman suggested.

Mr. Stanley Orme (Salford, East)

If a price increase is so essential, why were we not told about it in June before the election? Why, suddenly, are we faced with a 9 per cent. increase? I challenge the right hon. Gentleman to admit that that increase is not necessary for the investment programme. Why does he not come clean with the House and admit that privatisation is at the centre of the issue?

Mr. Parkinson

I know that the right hon. Gentleman is very well informed on these matters. I assure him that privatisation was not part of the consideration about this increase. The reason I have come to the House to announce revised rates of return is that the Government set targets for three years, and that period ends next April. We must now set new targets for the industry. The chairman of the Electricity Council agrees that an improved rate of return is necessary. We are setting new targets at the end of a three-year term and in circumstances where the position has changed.

Mr. Alistair Darling (Edinburgh, Central)

Does the Secretary of State accept that the proposed price increase will have a disproportionate effect on those on low or no income? Does that not make a mockery of the Chancellor's purported generosity when he made his Autumn Statement only a short time ago? Is it not true that consumers, who are the majority in this country, are being invited to pay high prices simply to boost the profitability of the industry to make it attractive to investors, who are a small minority?

Mr. Parkinson

The consumer is being invited to pay a higher price so that the industry, on which we all depend for our electricity supplies, can modernise itself and get ready to meet the capacity gap that has been identified and that everybody agrees exists.

Mr. Frank Haynes (Ashfield)

Does the right hon. Gentleman accept that now that he has heard what has been said from the Labour Benches, his statement is a disgrace and he is a disgrace for making it? Is he aware that his party and his Government knew about this increase before the election, but said nothing about it? They never said—[Interruption.] It is no good Ministers shaking their heads. They never said a word about it. May I tell the right hon. Gentleman something that he does not know—that as sure as night follows day, standing charges will be increased alongside the increase he has anounced today? He probably did not know about that.

Mr. Parkinson

I think that we have just seen a fine example of the hon. Gentleman at his self-indulgent worst.

Mr. Haynes

You are such a smooth one—

M. Speaker


Mr. Haynes

I will see the right hon. Gentleman outside.

Mr. Seamus Mallon (Newry and Armagh)

What advice does the right hon. Gentleman have for those living in the north of Ireland, where the cost of electricity is 33 per cent. more than in any other region, where the cost of coal is 12 per cent. more and where there is no mains gas? Will he consider this matter and try to impress upon his colleagues that there should be some recognition of that disparity in the Social Security Bill, and especially in the social fund that, unfortunately, will come upon us very soon?

Mr. Parkinson

I think that I am right in saying that my announcement does not cover Northern Ireland and does not affect Northern Ireland prices. That is a matter for my right hon. Friend the Secretary of State for Northern Ireland.

Mr. Donald Dewar (Glasgow, Garscadden)

I recognise that the right hon. Gentleman does not ususally speak on Scotland, but can I assume that his announcement about the return on capital employed and the likely prices impact will not apply to Scotland? Does he accept that, because of what he had said, there will be widespread anxiety about what might happen north of the border? Does he further accept that the position is different in Scotland, with a different investment pattern over the next few years? Given those circumstances and the fact that the combined profit for the two Scottish boards in 1986 was £422 million, would it not be monstrous if Scotland was threatened with the sort of increases to which the right hon. Gentleman referred? If he cannot reassure us on that point, will he use his considerable powers of persuasion to ensure that the Secretary of State for Scotland comes to the House soon to clarify the position?

Mr. Parkinson

I will do that. I think that I know the answer to the hon. Gentleman's question, but I do not wish to give it in case it is wrong. These matters are in the province of my right hon. and learned Friend the Secretary of State for Scotland. However—[Interruption.]s I am sorry that the hon. Member for Ashfield (Mr. Haynes) is proving only that an empty vessel makes the loudest noise, and doing so very successfully. I will ensure that the remarks of the hon. Member for Glasgow, Garscadden (Mr. Dewar) are brought to the attention of my right hon. and learned Friend.