§ 4.3 p.m.
§ Order of the Day for the Second Reading read.
§ LORD DERWENT
My Lords, this Bill enables the borrowing limits of the electricity and gas industries to be raised by £2,390 million in all. The borrowing powers of the Electricity Council and Boards in England and Wales are to be raised from £2,300 million to £3,300 million, or such sum not exceeding £4,400 million as the Minister may Specify by Order. The present combined borrowing limits of the two Scottish Electricity Boards amount to £415 million. The Bill provides for a new joint limit of £500 million, which may be raised by Order to £580 million. The Gas Council and Boards are now limited to borrowing £525 million, and the new limit is £600 million, which may be raised by Order to £650 million. In each case the initial limit is likely to be reached in about three years' time, and the final limit after a further three years or so. The Bill further brings the provisions for financing the nationalised industries from the Exchequer into line with those for the other nationalised industries. It also provides that if a Council or Board member leaves before his term of office has expired, the Minister may require the Council or the Board to pay compensation.
Your Lordships may find it convenient if I say something about each of these 34 groups of industries separately. Let us look first at the electricity industry in England and Wales. The borrowing figures I have mentioned are very large, yet the industry expects to provide from revenue almost as much again to make up a total investment of £4,600 million over seven years. The reason for the increase is an expanding economy and rising standards of living, and electricity consumption is growing to match them. It is an index of better living in our homes, and of greater industrial prosperity.
The forecasting of demand is critical because generating stations take five or more years to bring into operation, and therefore the capacity on which we depend at any time has to be planned that much earlier. Perhaps the industry should have recognised the acceleration of demand sooner, and should have planned sooner for capacity to meet it. The Chairman of the Electricity Council has said—and I agree with him—that there ought to have been a major survey of domestic demand between 1955 and 1961. However, the industry has of recent years greatly strengthened its forecasting arrangements. The estimates this year take account of the effects on the industry of the Government's backing for the N.E.D.C. 4 per cent. objective.
Peak demand is estimated to increase at a rate of 91¼ per cent. a year, compared with a figure of 6 per cent. only five years ago. Within the period up to March, 1970, the Generating Board hope to restore a plant margin of 14 per cent. above the estimated maximum demand in average cold weather. Such a margin is essential for safety, mainly because some plant will always be out of service when the maximum demand occurs. Last winter the growth of load had outpaced the installation of new plant so far that the industry started with a margin of only 7 per cent. The results we all know, and we are all concerned about the coming winter.
The Electricity Council and the Generating Board have done a very great deal since the end of last winter to prepare for bad weather, and we hope that they will be able to get through this year without serious difficulty. But the shortage of plant capacity must be made good as soon as possible. This 35 will take time, even with a very large investment programme, because demand is still expected to grow rapidly, and because of the five or more years needed to build power stations. In addition to the expansion of generating capacity, the industry must also greatly increase expenditure on transmission and distribution to get the extra power to the consumers. As can be seen from the figures, this programme will call for heavy capital expenditure, and will make great claims on the energy and resourcefulness of the Boards and their contractors.
Most of the power stations built in the period covered by the Bill will burn coal or oil. The increase in size of generating sets to 500 megawatts is expected to secure large economies in capital costs and operating costs. This period will also see the completion of our present nuclear power programme, bringing about 5,000 megawatts into commission. Berkeley and Bradwell were already contributing to electricity supplies last winter; Hunterston will soon start supplying power for the South of Scotland Electricity Board; and six other stations are now in various stages towards commissioning. As your Lordships are probably aware, the future of the nuclear power programme is being reviewed, and the Government expect shortly to be able to consider the Committee's report.
Let me now turn to the electricity supply industry in Scotland. As in England and Wales, demand for electricity has grown enormously. The rate of growth in Scotland is more than 10 per cent. a year, and maximum demand has grown to match it. The Scottish Boards consider that they should plan to increase the amount of generating capacity by some 4,000 megawatts by 1970, taking account of the National Economic Development Council's objective of 4 per cent. annual economic growth. Obviously, in Scotland, as in England and Wales, this means very large investment. Nearly £500 million will be needed over the seven years from 1963 to 1970. The Boards hope to finance about £260 million of this from their own resources, but they will also have to borrow large sums.
36 A novel feature of the Bill is that it provides a single borrowing limit for the two Scottish Boards, in place of the present separate limits. The Government believe that this provision will create the conditions favourable to the achievement of its policy for electricity in Scotland. It will make it possible for the generation, transmission and distribution of electricity in Scotland to be carried out on the most economic basis possible. It will encourage close consultation and co-operation between the Boards. It will enable the Boards to take decisions on investment for the maximum benefit of Scottish consumers, free from the restriction of separate borrowing limits.
It has been a notable feature of the nationalised electricity supply industries throughout the country—in England, Wales and Scotland—that they have contributed so greatly to the well-being of country people. Rural electrification has brought modern production methods and better living within the reach of people living often many miles from towns and cities. Last March 89 per cent. of farms and 97 per cent. of other rural premises had been connected in England and Wales. In the South of Scotland rural electrification is almost complete. In the North of Scotland, in spite of the large area and sparse population, 92 per cent. of the work has been done. This is a great achievement.
Now I come to the gas industry. Here the last few years have seen a dramatic change in the industry's prospects. When we last considered a borrowing Bill for gas in 1960, the industry was struggling to keep its place in the market. Now many new developments have come to fruition, and others are in sight. There is real hope for reductions in the cost of gas manufacture, and so great promise for the expansion of gas sales. An annual increase of 3 per cent. seems to be established, and the Gas Council has estimated its future capital needs on the basis of a possible 5 per cent. annual increase in sales.
New raw materials are the key to this remarkable change in the industry's prospects. Until very recently gas making was based solely on coal of special gas making quality. Now non-coking coals are being used in the two Lurgi plants; gas is being made from a 37 variety of oil fractions, and early next year gas will be made here from imported liquid methane. The industry's own research efforts have contributed much to these developments. It is obviously a great strength to the industry to have its raw material supplies so broadly based. Nor is this the end of the possibilities for raw materials. Recently your Lordships gave the Continental Shelf Bill a Second Reading, and discussed the Government's proposals for regulating the exploration and exploitation of the raw materials which may lie under the sea bed. And your Lordships will be aware of the major find of natural gas in Holland.
All in all, there are remarkable opportunities for gas, and it is wholly in the country's interest to enable the gas industry to take full advantage of them. Innovation and expansion cost money. Over the seven years to which the Bill relates the gas industry may need to spend as much as £540 million. The Gas Boards will be able to provide more than two-thirds of this themselves, but they will still need to borrow the remainder.
My Lords, to-day we are considering two competing industries. There must be competition between them if the consumer is to have his choice, at the lowest cost to himself and the community. But the Minister of Power has the work of co-ordinating the expansion of these industries. The borrowing powers in this Bill will be exercised within investment programmes which the Minister will review annually and approve from time to time. The aim will be to ensure that there is enough energy for the economic expansion the Government have in view, and that the supply from each industry will regularly reflect its economic and competitive position. We need investment in both industries. I invite your Lordships to approve the proposals for investment in electricity and gas reflected in this Bill. I beg to move that this Bill be read a second time.
§ Moved, That the Bill be now read 2a.—(Lord Derwent.)
§ 4.15 p.m.
§ LORD LINDGREN
My Lords, may I first of all say how much I appreciated the detailed explanation which the noble Lord, Lord Derwent, has given to the House. From his sipping of water it 38 seems that he has been making that explanation under some discomfort; and we all wish him a speedy recovery from his obviously sore throat. To put the noble Lord at his ease—if he wants to be put at ease—may I assure him that there will be no opposition to the Second Reading of this Bill from this side of the House; but I feel I must register some protest, and if not some protest, some regret, that we should be discussing this Bill in an afternoon when there is so much business before the House, because one therefore feels a little restrained from going beyond the real scope of the Bill.
I think, in fairness to these industries and to those associated with them and to the country, that the annual reports of the Gas Council and the Electricity Council—those very fine pamphlets, Gas Goes Ahead and Finance for More Power—ought really to be discussed in this House. It is not so very long since we had the Report of the Select Committee on the Nationalised Industries both for the gas and for the electrical industry; and although in this House we are not associated with the Select Committee I think it would be a little churlish if we did not express our appreciation of the excellent work done by them and the diligent inquiry which is undertaken by members of another place. We must bear in mind that they do not work in the glare of publicity, with headlines in the London evening newspapers or in the national Press; but they carry out really sound and solid work on behalf of the nation in our nationalised industries. The effect of the Reports of the Select Committee has really been to give a very good bill of health to both the gas and the electrical industries.
With some fairness, noble Lords opposite might say that we on this side of the House, and our colleagues in another place, are a little biased in favour of nationalised industries; but no one can really accuse the Tory party of being in favour of nationalised industries. In fact, with a little spitefulness we might say from this side of the House that if there is the possibility of their putting a spoke in the wheel they are only too glad to do it. But when one appreciates the fact that the Select Committee give such a Report on the efficiency and the national effectiveness of these two industries (the added facilities for capital development of which we are discussing) 39 then I think the industries and the country may be proud of what has been done since their nationalisation.
But, as the Minister has pointed out, it would be foolish not to admit that there have been some shortcomings—especially, perhaps, in the electrical industry. The noble Lord, Lord Derwent, referred to the "average" cold snap or "average" cold weather. I do not know exactly what average cold weather is. As a trade unionist and a wage earner in the old days, I was always being confronted with the average wage—which I never seemed to reach. But last year we did have very difficult weather; and I would concede that it was above average in its intensity. At least, we can say that it was very exceptional and we had to suffer cuts in the electrical industry.
I have admitted that there was a shortage in capacity to meet this exceptional demand, but the noble Lord, Lord Derwent, rather implied that the fault for not being able to meet the additional requirements lay with the industry. I would not admit that. There may have been some underestimating on the part of the industry and some selling of equipment to use electricity over the capacity to meet the peak. But the Government have a heavy responsibility for the capital provision within this industry. Apart from the 1958 cuts that were required—and let me point out that the noble Lord rightly referred to the period from the conception of a generating station to production as between five and ten years—the Government have interfered with the industry, cutting back the programme developments and the availability of capital, and for this they have to take a heavy responsibility. Their "Stop and Go" policy affecting the capital programme makes it extremely difficult, not only for the industry itself, but also for all those outside the industry providing the equipment which is required.
Another point is the insistence of this Government that the industry should provide its own finance for development. The noble Lord, Lord Derwent, referred to the provision for capital development from revenue as being nearly 50 per cent. I have been associated with local government over a long period of time, and all Governments—not only Tory Govern- 40 ments—have insisted, when we have tried to finance projects from revenue, that we have no right to charge the ratepayers of to-day for the capital expenditure which is going to benefit the ratepayers ten or fifteen years hence. Yet here we are, forcing charges on present consumers in order to provide capital development which will benefit consumers who are not yet within the range of the industry.
Here one may criticise the nationalised industries, but there are no private enterprise industries which provide from their own revenues 50 per cent. of their capital development. I feel that this insistence upon the provision of capital development from revenue is a heavy burden on the industry, though I admit that in fifteen or twenty years' time future consumers will derive some benefit from what the present consumers are paying in additional charges. May I point out that even a predecessor of the present Minister of Fuel and Power (I think it was Mr. Richard Wood, but there have been so many changes in ministerial appointments by the present Government that it is a little difficult to keep up with who are in office), in meeting criticisms of the electricity industry for not being able to meet the excessive demands of last winter, said that it was not the function of the industry to provide excess capacity to meet a demand which might arise once every ten, fifteen or twenty years. But this is equally the responsibility of the Government, in not having allowed the industry to meet its own development plans in its own way.
If I have a complaint about the present Government, it is of the manner in which they interfere with the day-to-day management, not only of the electricity industry but of all the nationalised industries. It is necessary to give a nationalised industry opportunities to develop as an industry. Here again, the Government fall down. The electricity industry does not stand on its own feet as an industry. It is part of the national fuel system of the country. We cannot deal with gas and electricity as separate viable industries without considering the national economy and our fuel and power requirements as a whole. Let us face it. We have only one basic raw material for the production of power—that is, coal. The alternatives are materials derived outside the country; and when 41 it comes to national defence, and dependence on our own resources in time of urgent national need, then we have to rely on coal alone.
I do not intend to refer at length to the position of Scotland and its two Boards. I have read the speech of my honourable friend the Member for Hamilton, Mr. Tom Fraser, on the Second Reading of the Bill in another place, and I think that it would be—I was going to say "saucy", but that is hardly a word for your Lordships' House—unfitting for me to develop the Scottish position, when he has dealt with it in such an admirable manner in another place.
I would conclude by dealing with rural development, to which the noble Lord, Lord Derwent, referred. Here again, one has to admit that, since 1947, electricity has been able to develop in the countryside in a manner which would not have been possible under private enterprise, where the companies were considering only the interests of the capital investments within their own industry, or under local authorities, which were concerned only with making a supply available at the cheapest possible rates to the consumers within their own locality.
Although this point must be a little outside the scope of the Bill, I have been disturbed by the suggestion that, because of the additional costs which are bound to arise in rural development, there should be a special tariff for rural areas. It is easy to make comparatively cheap distribution in a densely populated urban area, where one has consumers on either side of every street within the area. But when one comes to rural areas, with isolated farms, and small pockets of housing, the amount of capital required for the comparatively small amount of supply is, I admit, very high indeed. There has been some talk of special tariffs in order to meet that added cost. I hope that no such tariffs will be imposed. If we are to maintain the rural population of this country, and stop the drift from the countryside to the town, then we must supply the rural areas, so far as possible (one cannot do it altogether), with the amenities for the home, particularly for the housewife—electric supply, water supply, sanitation and the rest.
42 If I have one complaint against the distribution side of the electrical industry, it is that we have (I believe it is) twelve Boards in England and Wales, and we have twelve general arrangements in regard to tariffs, with varying charges from one area to another. After all, we talk in this country about the redevelopment of areas which are at the moment having a difficult time. It is quite obvious from what I said before that the development within the South-East of England will be much easier—the tariffs and everything else will be easier—than it will be in the North-East, or in areas which are comparatively wanting development. If I have a criticism, it is that, rather than have twelve Boards, with twelve different tariffs, we should perhaps retain the twelve Boards, but at least work towards the unification of tariffs, including those in the rural areas.
We give this Bill a Second Reading and, if necessary, we should even like to see it expanded. We hope that there will be no interference from the Government side with the plans which will be made by the generating industry and by the Boards as a result of the authorisation which this Bill gives them. If we give them authorisation to go ahead with programmes one day, and interfere with them the next, then we cannot expect the industry to carry out an ordered progress; and it is the ordered progress of the industry which we on this side of the House most earnestly desire, as I am certain noble Lords opposite do, too.
§ 4.35 p.m.
§ LORD MERRIVALE
My Lords, I do not propose to follow the noble Lord in his criticism of the Government's handling of the gas and electricity industry. I propose to confine my remarks to the electricity industry. In 1962–63 that industry took approximately 50 per cent. of the nationalised industries' investment, and will account for 70 cent. of the projected increase in investment between 1962–63 and 1964–65. My noble friend Lord Derwent referred to the growing demand, and he called it "an index of better living". In view of that, I think it is understandable that we should be asked to approve these proposals earlier than expected. We are told in a Treasury publication that the 43 biggest increase during that period will be for the building up of the main transmission system, and there is to be an expected expenditure of £162 million in 1964–65, as against £57 million in 1962–63. I should like to take this opportunity to echo the words of the Select Committee on Nationalised Industries, as regards electricity, when they said they were impressed by the care and skill shown by the industry in reconciling its engineering needs with the claims of amenity. Naturally, this refers also to the question of the siting of new generating stations.
This question of the siting of generating stations leads me to a point on the supply of fuel. We have been told in various publications and Government statements that the generating stations of the future will mainly be of the 2,000-megawatt variety, incorporating units of 500 megawatts. No doubt coal will remain the principal fuel for quite a long time to come, and I am glad that the noble Lord, Lord Lindgren, stressed the use of coal for the fuelling of our stations of the future. Therefore, I think its efficient deployment is a major consideration.
I would recognise here the flexibility of our railway system, but, in view of an encouraging policy on the part of the Government, the Boards and the Council of siting new power stations with careful regard to probable fuel sources and transport flows, should not careful consideration be given to the economic potential of supplying these power stations by pipe-line? For instance, on an average working day the fuelling of a 2,000-megawatt station calls for 20 of the heaviest coal trains that the railways can handle at the present time; and that involves the corresponding problem of the returning empty wagons, while a 20 inch pipeline for the hydraulic movement of coal would achieve exactly the same result.
Here, too, I think we should mention, because it is a welcome development, the close relations which exist between the Generating Board and the Coal Board. I should like to take this opportunity of asking my noble friend what progress has been achieved, or what conclusions have been reached, regarding the experimental ten-mile 44 pipe-line from Ollerton Colliery to High Marnham Power Station, or the shorter one, the two-mile pipe-line connecting Walton Colliery to Wakefield Power Station. I think it is true to say that in the next few years the biggest supplies of power station coal will be coming from the East Midlands and Yorkshire coalfields. Therefore, a hydraulic system of transport of these fuels may indeed be an efficient and cheap form of transport.
I should like to ask my noble friend, further, whether the possibility of the piped movement of fuel into inland generating plant is being considered, as against the other method of a continuous development in overhead movement of power from seaboard stations to inland centres of consumption. On this question of pipe-line transport, Mr. W. V. Sheppard. who is the Director General, Production, of the National Coal Board, on current experimental and development work which is going on at the moment on the hydraulic transport of coal states that we cannot expect any worthwhile contribution before 1970. As the ten-year agreement between the Generating Board and the railways expires in 1968, could not the programme concerning this question of whether it is feasible or economic to move coal in the form of a slurry be speeded up so as to coincide a little better with the expiry of the agreement?
To turn now to the question of load factor and demand, one is no doubt pleased to learn that the Boards are putting a considerable effort into the development of off-peak loads, by the promotion of storage heaters, to which the noble Lord, Lord Lindgren, referred, and by encouraging industry to use more electricity at off-peak times. But the fact still remains that the load factor has been decreasing since 1960–61, when it was 48.5 per cent. In 1961–62 it was 47.9 per cent. and in 1962–63 it was 47.7 per cent. The Select Committee, to which the noble Lord, Lord Lindgren, referred rightly stated, I feel with humility, that a full-scale marketing organisation is needed also for the purpose of influencing demand in order to improve the load factor by the right design of tariffs. I understand that the Electricity Council has a working party who seem to be studying alternative tariff systems, but I feel that the fact 45 still remains that effective electric space heating is expensive with regard to running costs. I remember a few years ago making inquiries with the British Electrical Development Association on this question of running costs for under-floor heating. I came to the conclusion that it would be reasonable to operate this under-floor heating, provided that I was satisfied with a room temperature of the order of 60° Fahrenheit. But I did not feel it was very high, and so I did not take this project any further.
Could consideration be given to a preferential tariff for fitted appliances—by "fitted" I mean not mobile appliances—which are thermostatically controlled; in other words, for temperature-sensitive loads, as they are called in the official publication. I feel that such a step might encourage a further use of that form of space heating and, at the same time, provide a satisfactory base load for the power stations.
Possibly my noble friend's right honourable friend might also impress upon the Minister of Transport the merits of developing railway electrification as a type of load which has a high load factor. I should like, with respect, to draw his attention to an interesting article which appeared in an American technical publication in May, 1960. The publication was called Electrical Engineering, and the title of the article was "Economic trends make railroad electrification inevitable". Although I do not want to discuss the question of the railways, electrified railways can provide a good base load, and that is why I refer to it. I feel too there have been uncertainties about the programme of electrification projects and a lack of information as to the intentions of the British Railways Board. However, I believe that the Board should be commended for their joint action in setting up this electric traction course—a twelve-months course—at the Imperial College, London, for in the past it was only at Loughborough, I think, where one could attend such a course.
Finally, I should like to say a few words on the question of peak demand. In another place, on the Second Reading of this Bill, the Minister said that the shortage of plant capacity must be made good as soon as possible. Those are most encouraging words. One can but welcome a further statement that in 46 view of last winter's experience the whole question of safety margins is being seriously considered. That matter was mentioned by a Ministry witness before the Select Committee, and I believe it appears in paragraph 118 of the Report. If France can have gone since 1950 without any breakdowns of supply, one fails to see why we in this country cannot attain the same security of supply. France must surely at times have been faced with the same problems of insulator flashovers, for instance, of industrial dirt on, or of icing of, the insulators, and so forth, so I cannot see why we cannot satisfactorily tackle this problem for the future. I believe that there is cause for anxiety when under severe weather conditions supplies can be cut off to the extent of up to 20 per cent. of normal consumption.
On the question of available plant or available generating capacity, I am led to wonder whether the proposed margin of 14 per cent., to which my noble friend Lord Derwent referred, is sufficient when one remembers, as he stressed, that five to six years are needed for a station to be operative—that is, from plant planning to installation and operation—and remembering again last winter's experience, when there was a peak demand of the order from 32,100 megawatts, 6,100 more than the 1957 estimate, that is, around one-fifth or 20 per cent. in excess demand. That is why I am wondering whether the 14 per cent. is sufficient. My Lords, those are the only remarks I propose to make on this Bill. I certainly support the Government on this question of providing further investment for the electricity and the gas industries.
§ 4.50 p.m.
§ LORD CHAMPION
My Lords, I agree with the noble Lord, Lord Merrivale, on some of the points that he has made, certainly on the point of the desirability of ensuring the continuation and, indeed, the extension of the use of our indigenous fuel, coal, for the electricity industry. I believe we must do this in relation to gas, too, and I hope to return to this point later on in my speech. I must say, on the piped movement of coal, to which the noble Lord referred, that I hope, as a transport man, we shall not embark too hastily upon this without very careful consideration. Clearly, we shall have 47 to consider this in regard to the amount of railway capacity that would be disused and the capital involved in it. Nevertheless, I would say, with him, that if it were found, on balance, to be better for the national economy to send our coal by these methods from the pits to the various places where it is used, it is not for transport men to stand in the way but to consider the national economy rather than narrow sectional interests.
Like my noble friend Lord Lindgren, I was grateful to the noble Lord, Lord Derwent, for the way in which he introduced this Bill. I thought he did it fairly and placed the facts of the Bill clearly before the House. The Bill, as he rightly said, is a simple Bill to extend the borrowing powers of these two nationalised industries. If it is a simple Bill, I regard it as important not only for the fact that it sanctions a large amount of capital but also for the fact that it enables us, on Second Reading, to examine the functioning of these two industries. We are, I think, better able to do this because of the outstanding Reports on the two industries by the Select Committee on the Nationalised Industries. That Committee applied the surgeon's knife with great skill and laid the entrails of these two industries open to microscopic examination such as is seldom, if ever, applied to a private industry. I would say that these two industries have emerged extraordinarily well from this close and searching examination by the Select Committee on Estimates. Both examinations were, indeed, positively ruthless in their character, but I am bound to say that I think their conclusions fair in relation to the industries, and that they show that these two industries were well managed and efficiently run.
When I was a Member in the other place I was a Member of the Select Committee which actually led to the setting up of the Select Committee on the Nationalised Industries, and after it was set up I sat on it for some little time. I must admit that in its early days I never thought it possible for such a Committee to do such outstanding work as is shown in the Report of 1961 on the Gas Industry and the Report of May of this year on the Electricity Industry. I admit too, that before this 48 Committee was set up I entertained a fear that the Select Committee on Estimates might do something that Parliament had never intended it to do, namely, to some extent to interfere in the day-to-day running of the industries. I also had the fear that its Reports might be heavily weighted by the Government majority and that the conclusions might be a little bit twisted. I must admit I had that slight fear. But under the skilled chairmanship of those who have chaired that Committee—I am thinking here of the two Reports I have just mentioned, the first under Sir Toby Low, now the noble Lord, Lord Aldington, and the second under Sir Richard Nugent—the Committee have laid bare the vitals of these industries for inspection by Parliament, but not, so far as it seems to me, to justify the fears that I held about the possibility of undue Parliamentary interference in the day-to-day running of the industries; and certainly I see no trace in the conclusions to which they have arrived of undue Party political bias.
In passing, I am bound to say that these important Reports from this Committee do not receive from Parliament the attention they deserve. The first of these two Reports issued in 1961, had to wait 2½ years before being considered, and it was considered then only because this Bill was presented to another place. The second Report, in May of this year, may very well have had to wait as long or very much longer if such a Bill had not come along. Incidentally—and the noble Lord, Lord Lindgren, referred to this—the Second Reading of this Bill took place in another place on a Friday in a very thin House, and here to-day we are debating this Bill, when these two Reports are bound to enter into our consideration, in what is also a very thin House. I believe that this Committee, its Reports and this Bill deserve very much more attention than they have received in the other place or in this House to-day.
As a result of reading these two Reports I have no doubts at all about the wisdom of passing this Bill. Both undertakings have emerged as well-managed, essential undertakings which have, within the limits imposed upon them by Ministerial interference and by physical and financial considerations, done extraordinarily well. I believe I 49 should have had to say that, even if I had not already had a personal predilection in favour of the nationalisation measures passed by the Government of 1945–50. However, there are a few points which appear to me to emerge from the Report that ought to be stressed.
The first of these I have already mentioned, Ministerial interference in the industry. The Select Committee, quite fairly, points to a number of examples of this in its Report on the Gas Industry. It is clearly the Government's intention that the nationalised industries should be to a much larger extent self-financing. My noble friend Lord Lindgren cast some doubts upon this, but I must say that, on balance, I believe these industries should be more self-financing than they have been in the past, although I agree with him that there is always a danger of making the present consumer pay too much towards the cost of the undertaking to be used in the future. But, on balance, I think that they must self-finance a little more of their capital than they have done in the past.
If they are going to be more self-financing, however, they must be allowed to raise out of their tariffs sufficient money to enable them to do so. In 1957, the Eastern Gas Board, realising that they needed more revenue, planned to raise their tariffs by 3d. a therm. They received a letter from the Ministry allowing them to raise them by 2d. The result was, that instead of making a surplus of about £600,000 in 1958–59 and a deficit of £250,000 in 1959–60, they had deficits of £400,000 and £1,300,000 for those years respectively, a total deficit of £1,700,000, instead of a surplus of about £350,000 for those two years. The Minister also intervened in 1957 when he allowed the North Thames Gas Board to make an increase of 2d. a therm when that Board sought to increase its tariffs by 2.15d. That Board, it is true, did manage to make a surplus for that year, but it was a small one. It was seeking to make a surplus because it knew that the Government wanted the industry to be to a greater degree self-financing. But they were not able to make anything like as much as they ought to have been able to make, and that was due purely to 50 the interference by the Minister in the tariffs to be charged.
Another example of Ministerial interference was in the case of the Northern Gas Board, where the hiring out of gas appliances is traditional. In the national interest in 1955 the Gas and Electricity Boards agreed that this kind of business ought not to expand for a period of two years, and the Northern Gas Board reluctantly agreed. The Minister heard with approval of this arrangement, and he kept it in operation until 1961, four years after the expiration of the joint arrangement, even although that Gas Board is convinced that this hiring business is highly profitable. The Statute under which the Gas Council was set up foresaw that certain checks on prices might be necessary. But the power was vested in the Gas Council and not in the Minister. This is the point that I think one must stress in this connection: that it was the Council and not the Minister of Power, which was given by Statute the job of interference in tariffs.
The electricity industry has the same story of ministerial interference. In 1958 the Government asked the Central Electricity Generating Board whether the bulk supply tariff could be reduced as a contribution to the Government's endeavour to stabilise prices. It did so, and as a result its revenue for that year was reduced by over £2 million, a factor, as my noble friend said, in this business of getting sufficient plant to meet the emergency when it comes along. The Merseyside, North Wales and Midlands Boards proposed in 1956 to raise their tariffs. In the national interest the Minister advised against the increases, although the Boards had made it clear that they were seeking a higher level of self-financing, which was part of the story outlined by the noble Lord, Lord Derwent, to-day. The Merseyside and North Wales Boards brought forward their proposals again in 1958, but they were not allowed to raise their tariffs until 1961, with serious consequences to those Boards' finances and the inevitable postponement of a higher degree of self-financing. As I have said, I agree with the Government's wish that these industries should be to a greater degree self-financing, they must be allowed sufficient money with 51 which to do it, and it must be earned out of income.
I completely support the Select Committee in their statement in paragraph 44 of the 1963 Report:Your Committee equally accept that when the Minister of Power made these interventions he did so in the belief that the national interest demanded them. Nevertheless, your Committee criticised them for the same reason as the Select Committee of 1960–61 criticised similar interventions by the Minister of Power in the tariffs of the gas industry; Parliament has laid down what, in relation to the nationalised industries, Ministers must do, and Ministers have been doing something else. The result has been that the accounts laid before Parliament by the Boards in the affected years did not give a true picture of their managerial capabilities".I believe this is important and I would underline that last sentence; that the Reports cannot present a true picture of the managerial capacity and capabilities of this undertaking purely because of the fact that the Minister interferes and intervenes from time to time in their work. There is no doubt that to some extent, the Minister's interference did have some effect, particularly in cuts of transmission capital expenditure, in the difficulties experienced by the country, though I would not place too much emphasis on this.
The fact is that this industry, despite what I have said about its managerial capacity and so on, failed to forecast the phenomenal growth of demand that took place. They did not really appreciate what was going on, despite the fact that they must have been able to see to what extent domestic space heaters were being sold, apparatus that could be bought cheaply and switched on easily once it was plugged in. The Minister has told us they have now devised a better method for forecasting for the future, but I am sure that that will not mean that all the problems will be solved in the coming winter, or the winter we are now in, or any winter in the immediate future if we run into the same sort of difficulties again. The electricity industry suffers, as does London Transport, for example, from the shape of its demand, the peaks and valleys, with capital earning very much too little for too much of its time. The Electricity Council miscalculated, I have said, the effect of the growth of the use of the domestic heater. But there can be no 52 doubt, whatever miscalculations they might have made, that the valley will be for many years to come during the period 11 p.m. to 7 a.m.
In this connection I believe that the domestic storage heater is a large part of the answer, for a large part of the peak demand comes from the easily switched on domestic heater. But I believe that the storage heater, the one that can take electricity during the 11 p.m. to 7 a.m. period and give it out over the rest of the day, should go a long way towards lifting that valley towards the peak, which is so much of the trouble—and, indeed, will have the opposite effect of lowering the peak, because the electricity taken during the night, and perhaps boosted during the lunch-hour of the day, would be giving off its heat. I believe that in this respect the Electricity Council fell down badly. The domestic storage heater was developed in 1952, but the Electricity Council wasted a great deal of time, before altering its tariffs to meet and encourage the sale of this storage heater, fighting Customs and Excise over purchase tax. It was perhaps understandable that it should do that, but, by its fight, and by failing to adjust its tariffs to meet this exceptionally good form of domestic heating, the Council delayed its introduction generally in this country until 1961. The result has been that many people who during the period 1952 to 1963 have been looking for some form of reasonably cheap heating for their houses went in for oil and solid fuel heating, when they might very well have gone in for this storage heating. The noble Lord, Lord Merrivale, I think might be an example of this, judging by what he said a few minutes ago.
On this point, the Select Committee on the Nationalised Industries clearly support the industry's plea for the removal of purchase tax from this form of electric heater, the storage heater: and the Select Committee point out the inconsistency of the Treasury's approach. They say:On the one hand, financial objectives have been set to ensure that the industry makes an economic use of capital furnished by the Exchequer: on the other, a tax is kept on an appliance which, if used on a large enough scale, would materially reduce the demand on the system's peak and the need for so much capital.53 On this whole point of ministerial intervention in the working of these two nationalised industries, I am bound to say that I believe that the use of them as a means of regulating our economy is particularly justified in the present state of our knowledge of managing the economy. But I would say that when the Minister does intervene in the working of these industries it should be done by clear-cut directives, reported to Parliament at the lime, and intervention on tariffs should be done only after the Minister's position vis-à-vis these industries has been regularised by statutory powers. In saying this I am merely dotting the i's and crossing the t's of the Select Committee on the Nationalised Industries.
The final point I would make relates to research, first on the generating side of the electricity industry. The Generating Board's expenditure on research is in the region of about 1 per cent. of their turnover, which I notice is about the figure suggested as the broad objective for the Iron and Steel Industry, by a special committee on research in that industry. I know it is a different industry, but I should have thought that this might be just about right when one takes into consideration the fact that there is being spent by the manufacturing industry £65 million a year, which is the equivalent of 4 per cent. on the total turnover. So I should have thought that 1 per cent. is not too far out. On the other hand, it seems to me that the gas industry, considering the problems facing it on the supply of its raw material, might very well step up its research, particularly in relation to the use of our sole indigenous raw material, coal. Quite clearly, in this the National Coal Board must co-operate to the full, otherwise it will see the use of coal in the gas industry being squeezed out by oil, natural gas and the like, as was mentioned to some extent by the noble Lord, Lord Derwent, in his opening speech.
I believe, too, that research into the underground storage of gas is extremely important, and in this connection I understand that legislation is urgently required. Underground storage and the mass production of gas, feeding into a national gas grid, may well require a change in the structure of the gas industry so that production and feeding into 54 the grid may take place on a national rather than a regional basis. Of course, the gas industry is highly regionalised, and some change of structure might be necessary to enable this mass production to be achieved. I think that a thorough study of all this demands the attention of the Government.
When I was asked to look at this Bill I wondered what I could find to say. The more I studied the Reports upon these industries the more I wondered what I could leave out. And when I look at the clock I realise that there are some things that I have said that, in the interests of the comfort of the House, I ought to have left out. But I have not touched on many vital matters, such as the relationship of the Generating Board with the Atomic Energy Authority and the manufacturing firms. I must admit that I rather expected to see the noble Lord, Lord Coleraine, in his place to-day, firing his broadsides at the Government on this point, as he did not so long ago in a debate. But this Bill provides the necessary capital for these industries. I believe it is a worthwhile Bill. I believe it is a Bill which will provide the money for industries that I consider reasonably well managed and efficient, and in the national interest, and I certainly support the Bill.
§ 5.16 p.m.
§ LORD DERWENT
My Lords, I thank all noble Lords who have spoken for the support they have given to this Bill. As the noble Lord, Lord Lindgren, said when he started, much of what he had to say was not really directly applicable to this Bill; and the other two noble Lords have followed his example. May I say that I am glad they did. I quite agree with noble Lords that these Reports have not been properly debated. We have not been able to debate them to-day. But I am glad they raised the questions that they have in fact raised. I do not know that I can answer all their points, but I shall do my best to answer at any rate some of them.
The first question that was put by the noble Lord, Lord Lindgren, was: what is average cold weather? That is quite easy: it is weather that is not exceptionally cold. I want to put right one thing that the noble Lord said. He said that I accused the electricity industry of being responsible for breakdowns last 55 year—it was not quite in those words, I really did not say that, and I would not say it. What I said was that the Chairman of the Electricity Council has said they had made an error in having no major survey of domestic demands in the particular years he mentioned. That, I think, is true, and I think it should be known; and it should also be known that we believe their method of estimating now to be a much more efficient one than hitherto.
Then there was the question raised by the noble Lord, Lord Lindgren, about profits being ploughed back into capital expenditure. I do not think I shall go into that now. I think the noble Lord, Lord Champion, had better argue it out with the noble Lord, Lord Lindgren. But there is quite another side to that question, and, considering the amount of money available, it speeds up the provision of new plant which is to the great benefit of existing consumers. If plant is allowed to run down, the cost of either gas or electricity will go up because of inefficiency. There is not only one side to the question, but I will not expand on that.
There was the important question of the noble Lord, Lord Lindgren, with regard to whether there could, or might, be differentiation of tariffs between urban and rural areas. This is a question for the Boards. The Boards are opposed to having differentiation. Their urban and rural networks are fully integrated, and differential tariffs would be bound to lead to trouble and ill will because of anomalies on the boundaries between the zones where there are different charges. My right honourable friend accepts in full their view that this is undesirable.
My noble friend Lord Merrivale asked a whole series of questions which were highly technical, and I do not think they were all particularly applicable to this Bill. However, he mentioned one or two points on which I should like to say a word. One concerned the siting of power stations and the kind of fuel they use. This depends on the circumstances. If, for instance, a power station is sited near to an oil refinery, then the station will use oil. That is quite obvious, for purely economic reasons. How one conveys the power or the fuel depends on the locality; and in so far as the Minis- 56 ter is involved at all, and, indeed, so far as the Boards are concerned, it must be a question of which is the most economic method of handling the matter. It might be right in one case to use the fuel at hand, and in another case to move the power. These matters are very much under consideration both by the Boards and by the Ministry, and discussions are going on all the time.
The more technical aspect of his question concerned piped movements of fuel. My best answer, and certainly the easiest, is to refer your Lordships to the Central Electricity Generating Board Report and Accounts, 1962–63. There are two paragraphs which I should like to read. The first one, paragraph 185, deals with the hydraulic transport of coal and reads as follows:The experimental 2,000 ft. pipe-line at Marchwood provided design information for relatively short-distance hydraulic transport of coal from pithead to power station.—this deals with my noble friend's question about the short-haul. Then the paragraph continues:A 5-in. diameter pipe-line, 2,000 yards long, between Walton colliery and Wakefield power station in the North-Eastern Region is being constructed for research and operational use; it is expected to convey up to 1,000 tons of coal a day. In the same region, the relative rates of wear for various metals are being measured in laboratory work; these measurements will be correlated with the results obtained using the Walton-Wakefield pipe-line, and then used to predict the life of pipe-line materials. Theoretical and experimental research is also in progress to see whether pumping costs can be reduced by the use of higher density mixtures.
§ LORD MERRIVALE
My Lords, I was aware of that information. I was asking merely whether the programme of research could be speeded up, so that it could be implemented not about 1970 but, possibly, 1968.
§ LORD DERWENT
At this experimental stage, when one has no experimental decision, it is a little difficult to say how quickly one can move thereafter. That is the important thing. Until we have gone further with the experimental work, we cannot say whether it can be speeded up.
The other particular point raised by my noble friend was whether we considered the 14 per cent. reserve margin 57 adequate. To the best of our knowledge, we believe that it should be adequate. It allows for certain plant to be out of use at the most critical moment, as is bound to happen. That reserve will be watched, but we hope that it is all right.
Various questions were raised by the noble Lord, Lord Champion, which I have, to some extent, answered already, in replying to the noble Lord, Lord Lindgren. I am most grateful to the noble Lord, Lord Champion, for his general support. I should like to add that there are continual experiments going on (and this has nothing to do with the Government) as between the Railways Board and the various fuel industries in regard to the different forms of trucks, containers and so on, including experiments at the moment with continuously moving trucks—that is to say, trucks which never halt. This is a matter in which the various Boards are working together closely and doing much experimental work.
Both noble Lords opposite complained about Government interference, and the noble Lord, Lord Champion, explained in more detail, I think, what they meant. During the early years when these new nationalised industries started we had not found the right connection between Government and nationalised industries. One must remember that the Government of to-day not only watches the expenditure of money but is also a guardian, in the overall fuel policy, of the public. That has always been one of the difficulties. I would point out to the noble Lord, Lord Champion, that the examples he gave of ministerial interference in electricity and gas in regard to prices and tariffs and so on belonged to a period before the Government's policy of agreeing the financial objectives with the industry. Government policy was altered, and the Government then decided that they must agree with the industries' future objectives, particularly from the financial point of view.
§ LORD CHAMPION
My Lords, would the noble Lord agree that the White Paper to which he refers merely gave in words to Parliament what had been the existing policy for quite a long time before? I am going by replies given to the Select Committee on the Nationalised Industries by Ministry officials and others.
§ LORD DERWENT
That had been what was going on, I am not denying it. Government policy was altered some time ago and the financial objectives have been agreed to by noble Lords, and they will involve increases in prices. It is part of the understanding that where prices have to be increased of necessity, the industry should be free to do so. I hope that makes the present position quite clear, whatever happened in the past.
The noble Lord, Lord Champion, raised the question of purchase tax on storage heaters. The purchase tax was taken off last September.
§ LORD DERWENT
Nearly half of the gas industry's total expenditure on research is directed to coal-based processes. I think there is not the slightest doubt that coal will be the main form of material used by the gas industry for a great many years.
The proposals to modernise the structure of the gas industry will in due course be put before Parliament. I cannot say very much at the moment as to whether the question of underground storage of gas will involve legislation. I doubt whether legislation will be possible in this Parliament. I can go so far as to say that the necessary legislation—nobody has seen it except the civil servants who are working on it—is being prepared, so that when we have time to go ahead something should be ready. I hope I have answered all the main questions and that your Lordships will now give the Bill a Second Reading.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.