HL Deb 26 July 1954 vol 189 cc40-7

4.38 p.m.

Order of the Day for the Second Reading read.


My Lords, I assume that in considering this Bill your Lordships do not on this occasion want a major review of the gas and electricity industries, but would rather leave that until their Reports are published, as they will be by the time we return from the Recess. I propose, however, to make a few basic remarks to justify the borrowing of this very large sum. Taking electricity, we estimate that by 1960 the maximum call under the most severe conditions will go up from 16.6 million kilowatts to-day to 23.4 million kilowatts—an increase of 6.8 million kilowatts. The planned increase of generating capacity over these years is 9.8 million kilowatts. After allowing for plant becoming obsolete, it is expected this will result in nearly 8 million kilowatts becoming available to meet fresh load. On the other hand, at the end of the year 1953–54 we were 1.6 million kilowatts short on maximum peak load. We should therefore expect by 1960 to reduce this maximum peak load deficit to something under 600,000 kilowatts. The sum to be provided for transmission and generation is slightly less than half of the total. The increase in generating capacity by 1960 is expected to involve the burning of 14 million additional tons of coal, bringing the total consumption of coal up to 50 million tons. We must earnestly hope that the coal will be there; but, in any case, the British Electricity Authority are examining the question of equipping certain power stations, particularly these on estuaries where they car get waterborne oil, with a dual apparatus to burn oil or coal, and there seems a possibility of saving between 10 million and 11 million tons of coal in this way.

Noble Lords may wonder whether all these great capital works will be wasted when atomic power is developed. In the first place, that portion which goes on distribution and transmission would, of course, certainly be required, and theoretically there is no reason why atomic steam-raising plant should not be coupled up to existing generators. In practice, however, it seems that the atomic energy will become available probably at no greater pace than will be necessary to cater for the inevitable further increase in demand and to replace plant which is becoming out of date. Moreover, if one were to assume—and I think it is a fair assumption—that atomic plant would be very expensive in capital cost and would be used to run continuously to provide the base load, there would be plenty of scope for the existing power stations for years ahead to come in on the non-continuous load.

Incidentally, it is interesting to know that roughly one-quarter of the generating capacity, running continuously, can provide roughly half the volume of current used, this being the base load, which is again about one-third of the peak load. The capital cost of the programme over the full twelve years from April, 1948, to March 31, 1960, is estimated to be £2,121 million. Of this £627 million is to be provided from internal resources and £75 million separately for Scotland, leaving £1,419 million. The existing borrowing power is £700 million. It is expected to be exhausted by Christmas. Hence this Bill in which we ask for the borrowing powers to be increased to £1,400 million.

To turn to gas. Gas started as an industry selling illuminating power, though I sometimes wonder whether the naked gas jets by which up to about the year 1916 we were expected to study our books at one of the greatest English public schools were really very illuminating. However, gas has now become an industry for the resolving of coal into its component parts, and for selling it to the best advantage. Out of its total turnover of nearly £300 million, sales of products other than gas account for something between one-quarter and one-third of the whole, while purchases of gas from outside sources, mainly coke ovens, represent about one-eighth of the total gas sales. The various fronts on which the industry has tried to progress are set out in the industry's booklet Fuel for the Nation, which is really rather an exciting pamphlet. The main aims are to get more gas from the traditional gas-making coal, to widen the range of coal uses, to use gas to greater advantage by making it more possible to move it from place to place, with the aid of oil to make more gas from coke for use in emergency, to make gas from oil direct, and finally, if possible, to find sources of natural gas in this island.

The programme envisages the extension of gas sales by 400 million therms or some 15 per cent. by 1960. Of this increase it is expected to produce 260 million therms internally and to buy another 140 million therms. The chief difficulty facing the gas industry is naturally that it requires a special quality coal for which there is a big competitive demand. At the present time it is using some 28 million tons a year, and the programme we envisage will increase that amount by a further 1,500,000 tons or so. Hence the researches which are being actively pursued in the gas industry to see whether further economy can be made in coal. The total capital programme from vesting date, May 1, 1949, to March 31, 1960, amounts to £579 million, of which £129 million is to be provided from internal resources, leaving £450 million to borrow. The existing powers are for £250 million and they will be exhausted very shortly. We now seek further powers for £200 million, making £450 million in all. I must emphasise that both in the case of gas and electricity these borrowing powers are exercisable from time to time only with the permission both of the Minister of Fuel and Power and the Treasury, who review the matter very frequently. My Lords, I have endeavoured to compress into the shortest time the maximum number of basic facts, but I shall be only too pleased, if I receive the permission of the House, to answer any questions that noble Lords may like to put to me. I beg to move that the Bill be now read a second time.

Moved, That the Bill be now read 2a.—(Lord Hawke.)

4.46 p.m.


My Lords, I do not rise to make a long speech on the Second Reading of this Bill but rather, in a few words, to express pleasure that two public enterprises are not only proving successful within the resources they have had at their disposal up to now, but are looking forward with great confidence to the future, and are, therefore, wishing to develop much beyond the high marks hitherto reached. I am also glad that the Government which is promoting the Bill on this occasion is not a Socialist Government. I want to see a Socialist Government in power as soon as possible, but it pleases me that in regard to two industries, at any rate, the two Parties can have a common purpose, and that there is no proposal in this Bill that we should go back to private enterprise. That, I think, is a distinct advantage and it is one that we on this side of the House welcome. Then look at the foresight of those backing this Bill in another direction. Not only do gas and electricity undertakings want to make progress within the scope of their old-time raw materials or in the forms in which they have distributed the products of those raw materials; they are now visualising the possibility of atomic power being brought into use, and are making allowance for it not merely to be taken into consideration but to be made active for us when the time comes. With these few words, I would only say that we wish the Bill every success. We want to see it pass through your Lordships' House and we want these industries to be given all the money they require for their purposes. In conclusion, I wish to say that we should like to see private enterprise in this country show the same kind of confident enterprise in capital development that has been shown in these two nationalised industries.

4.50 p.m.


My Lords, if you will allow me to speak for a few moments on this important Bill I shall try to be as brief as possible. I should like to say first that I support the Bill. Though I fought nationalisation tooth and nail, I have always been an advocate of more power, either electricity or gas, for the nation, especially for our great industries, because in this country, compared with American standards, we are extremely short. Therefore I welcome the Bill. I have a few words that I should like to say—and I hope I shall not detain your Lordships too long—on the financial details of the Bill. I am also glad, like the noble Lord, Lord Shepherd, to see that in the Report, Power and Prosperity, provision is made for setting up a special division of the British Electricity Authority to put atomic energy to useful purposes in the production of electricity, although, of course, they have a long way to go. There are to be two experimental stations, one in Cumberland and the other in the North East of Scotland, which will be small but extremely important pilot schemes.

The Minister comes forward and asks for another £900 million. This is a vast sum, but I think that further borrowing powers are justified. During the last five years the electricity and gas undertakings have gone through the £700 million and £250 million which were the amounts of their original borrowing powers. I have here two books—Power and Prosperity, published by the British Electricity Authority, and Fuel for the Nation, published by the Gas Council—from which I have taken the following figures. From 1921 to 1948, when the electricity industry was nationalised, the industry spent £900 million on capital development; and between 1948 and 1952 it spent another £676 million, making a total of £1,576 million. During the years 1948 to 1952 the industry provided from depreciation, trading profits and capital surpluses, because they sold some of their extraneous assets, a sum of £192 million—including a sum from depreciation alone of £182 million. The rest, £395 million, they had to provide by external borrowing. Thus they provided only 28 per cent. for capital development from internal resources, and had to borrow 72 per cent. from external sources. That is the important point which I want to emphasise. The depreciation they earned was a full depreciation on the amount of the old assets, but to-day in all industries we are faced with assets which are historical assets based on 1939 (and even earlier) prices; and as your Lordships know, if these assets are replaced, they cost about three times those prices.

My criticism is that these undertakings are not putting sufficient into general reserve. If we take a glance at some of the area boards—the figures are given on Table 119 of Power and Prosperity—we see that three of the area boards, the Eastern, South Western and Midlands, have not been able to set aside a proper proportion of reserves. The whole prosperity of the industry during the next five years depends on its being able to plough back not only depreciation reserves but adequate general reserves, otherwise, in my opinion—an opinion which is shared by many of my noble friends on these Benches—the industry may become over-capitalised, with too heavy borrowings and not enough internal reserve. Having spent some years in the industry, I fully realise that, when such an internal general reserve is built up, it affects the price of the product, the unit of electricity or the therm of gas. Nobody wants to put up the price of the product unless absolutely necessary and I think we must attack this problem in a two-fold way. I hope that the noble Lord, Lord Hawke, will be good enough to bring this to the notice of his right honourable friend the Minister.

One means is to try to earn as much as possible, so as to build up these reserves in the next five years; the other is to spend this money in the most economical way. I know that both the B.E.A. and the Gas Council are trying to economise in the construction of power stations and gas plants; that is extremely important. There are many other projects we should like to start. We have been talking in this House recently about the impossibility of having further large expenditure on roads because of the inflationary effect, and because we could not afford the money. Of course we must try to afford this money for the provision of power and fuel for the nation. But there are many other people in the queue. The private sector of industry has to go to the Capital Issues Committee and queue up for its money. It is much easier to get the money than it was, thanks to further savings and the prudent management of our national finances by the Government. The nationalised industries have to get the permission of their Ministries and the Treasury, and I hope that the Ministries and the Treasury will bear that in mind. I turn for a moment to the gas industry which, although nothing like the size of the electrical industry, is of great importance. When the industry was nationalised in 1949 the book value of the assets taken over was £226 million. The total capital expenditure of the gas industry from 1949 to 1952, given in their book, added £212.6 million to these, making a total of £438.6 million. During that period depreciation was about £36.7 million, and the industry placed to reserve in the neighbourhood of £6 million—£4.4 million by the area boards and £1.6 million in the central reserve fund of the Gas Council. The proportion of internal savings out of depreciation and capital trading was about 20 per cent., and the external borrowing was 80 per cent.—not so good a percentage as in the electricity industry. Again, the Gas Report says that seven out of the ten area boards made sufficient sums which they were able to place to reserve, but that the others made insufficient sums and were unable to plough back anything during the last five years. I hope that we shall get stringent economy in these vast undertakings, as they sometimes tend to be extravagant. I am not being critical, but this point needs watching carefully, because other industries, the roads and the private sector of industry, badly want capital for urgent repairs and renewals. With those few words, I should like to support the Bill.

5.0 p.m.


My Lords, by leave of the House, may I reply to what has been said by the noble Lords who have spoken? I am glad that the Bill has received a general welcome from noble Lords on both sides of the House. I should like to suggest that if the noble Lord, Lord Shepherd, feels at all anxious about the quantity of investment on private account he might visit Merseyside. There he will see the most immense conglomerations of capital that have been created, particularly by oil companies, in the last few years, but I believe that he might quote figures of more recent date, from which one might conclude that there had been a falling off in the tempo.

My noble friend Lord Wolverton always examines Bills of this nature with great care, and we value his advice, coming from one who was connected with the electricity industry. First of all, he wishes the industry to spend as economically as possible. The power of the Minister in that direction is really exercised through the appointments to the Authority. He appoints men whom he expects to administer the industry in the most economical way possible. Apart from that, he has no concern with the day-to-day administration. The second point of my noble friend is that they should earn as much as possible, in order to build up their replacement funds, so as to be able to do more from their internal funds instead of borrowing. I have here some figures which might interest my noble friend. If the gas and electricity industry went over to depreciating on a replacement basis they would have to raise their tariffs by about 10 per cent. If, on the other hand, they went over to providing their full capital outlay from internal resources, as some oil companies, I believe, have done, they would have to put up their tariffs by something like 60 per cent., in the case of electricity, and something like 40 per cent., in the case of gas. Weighing up the various arguments for and against the basis that they have adopted, which is the historic cost basis, they have come to the conclusion that, on the whole, this is the fairest balance as between present and future consumers. Needless to say, I will bring to the attention of my right honourable friend the point which my noble friend particularly asked me to raise with the Minister, and I may say that, so far as I was able to check his figures en passant, they seemed to me accurate.

On Question, Bill read 2a; committee negatived.

Then, Standing Order No. 41 having been suspended (pursuant to the Resolution of July 21), Bill read 3a, and passed.