HL Deb 14 March 1972 vol 329 cc320-34

3.10 p.m.

EARL FERRERS

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Earl Ferrers.)

On Question, Motion agreed to.

House in Committee accordingly.

[The EARL OF LISTOWEL in the Chair.]

Clause 1 agreed to.

Clause 2 [Contributions by Secretary of State towards expenditure intended to promote employment]:

LORD DIAMOND moved Amendment No. 1: Page 2, line 20, leave out ("£25") and insert ("£24").

The noble Lord said: The Amendment refers to "£25" and "£24", but in the text of the Bill the word "million" also appears. This is in the nature of a probing Amendment; it was put down for that purpose, and there is a good deal to probe. If I may remind the Committee of the circumstances, we are now dealing with a clause in the Bill which provides that a contribution may be made by the Secretary of State towards expenditure intended to promote employment. So far as I am aware, there is no difference between noble Lords anywhere in the Committee with regard to the need to promote employment in present conditions. Nor would there be any difference of view as to the need to go to considerable lengths to promote employment in present conditions. The question before us is not that at all; given that £25 million is to be spent, the question is which is the best way of securing maximum additional employment. The Government have decided that up to £25 million should be spent, and they propose to expend it largely in one particular way. When this was debated at an earlier stage it was not immediately clear that that was, not necessarily the best way, but a good way of spending £25 million to secure additional employment. It was made clear that this expenditure would be likely to produce something of the order of 5,000 jobs; though it was not stated for how long it would produce those jobs. But it has now become clear from a communication which the noble Earl has been good enough to send to me (and I believe that a copy has gone to the noble Lord, Lord Avebury, for which I am sure we are both grateful) that the additional expenditure up to £25 million would be likely to produce up to 5,000 jobs for a period of, shall we say, 18 months—something between one year and two years.

I am indebted to the noble Lord, Lord Avebury, for the arithmetic which he did on the last occasion; and he came up with the conclusion, which I endorse, that something like £5,000 per job will be necessary to employ the average paid worker in this field for 18 months. If we say that this average paid worker would be likely to earn £1,200 a year for 18 months, that would make the figure about £1,800 all told. Then, for something under £2,000 earnings, the Government are proposing to dip into your pockets and mine to the tune of £5.000. I repeat that we are not arguing about whether the Government should go to considerable lengths to reduce unemployment. We are concerned to find out whether this is one of the best ways of spending £25 million in order to secure additional employment, and, if it is not, perhaps to learn lessons from it—to learn perhaps that the Government, in their haste to provide additional employment at any cost, have been grossly extravagant. I may be wrong in that conclusion and no doubt the noble Earl will enlighten us.

He has written a letter which is extremely helpful to the recipients. But it was restricted in its publication to two individuals and it is much too good a letter to be so restricted. So, with the permission of the Committee, I propose to read out parts of it. There are gems within it whose brilliant light ought not to be hidden under any kind of bushel. I refer first to the explanation in paragraph 1 of the letter as to the need for this compensation. The letter is dated March 9: This compensation will almost entirely relate to the interest which will become due on account of the extra interest payments that will become due. Well, there is nothing wrong with that, except perhaps that it is right to say that it is one of the most classical pieces of tautology that anyone has ever read and that it does not take one a great deal further. I am therefore saying to the noble Earl that, so far, having read this letter very carefully, I do not find any justification for this great expenditure. The noble Earl goes on to say that the main expenditure relates to the construction of Ince B power station. That accounts for the major part of the investment being brought forward, and it will extend over five years. There now follows some arithmetic which baffles me completely.

LORD AVEBURY

Hear, hear!

LORD DIAMOND

I have spent a mere one-third of a century in a profession which tries to understand a little bit of simple arithmetic, and it may be my fault. The letter says: If it is anticipated that costs were £110 million, as an example, and if an interest rate of 7 per cent. were charged over 18 months"— and here I interpose that we are all agreed that 18 months is a fair period to choose— it would account for £10 million of interest. All I can say about that is that I would give it no marks out of 10. I may be wrong. I invite the Committee to consider the figures. We are talking about compensation for bringing work forward. This power station would be started in any event and would take five years to build; but the starting date is to be brought forward something like 18 months. It is going to cost £110 million and if one says, therefore, that the Generating Board would have to borrow perhaps —20 million a year in order to finance the construction over a period of five years, one is being very generous indeed. And £20 million a year at 7 per cent. is something like £1.4 million, I suppose—seven twos being 14, still, as they were when I was at school. And over 18 months it is half as much again.

I do not know how we get the figure of £10 million. I am bound to ask the noble Earl whether he or his Department consulted the Treasury before they came out with this proposal. In particular, did they consult the Chief Secretary? If they did, and they got away with it, all I can say is that Chief Secretaries have changed since my time. I hope I have made the position quite clear. There is a long letter of explanation, for which I am grateful. The letter confirms, in my view, the total error of calculation on the part of the Government. So far as I can see, they are proposing to over-compensate to an absurd extent. If I am at fault in understanding it, then I plead guilty and apologise immediately. I would also add that this two-page letter of explanation seems not to have fully justified its purpose if it has not explained what was not explained at the earlier stage in our debates, and what the noble Earl, Lord Ferrers, said he would seek to explain by letter. But as we are in Committee, I do not propose to go further with this matter. I shall listen with great interest to what the noble Lord, Lord Avebury, has to say, if he proposes to intervene, and to what the noble Earl has to say in reply, and then come back to it again. Meantime, I beg to move.

LORD AVEBURY

When I received a copy of the noble Earl's letter which was addressed to the noble Lord, Lord Diamond, I thought that perhaps it was my lack of experience in accountancy which prevented me from understanding some of the arithmetic. But if the noble Lord, Lord Diamond, with his long experience in the accountancy profession cannot understand it, then I do not see that I can be particularly blamed for not being able to follow it myself. I must say that the noble Lord, Lord Diamond, forgot an additional point which he made in an intervention in my speech on an earlier occasion, when he pointed out that it was not actually £5,000 a job, because that was only the amount which was attributable to the Government grant to the Electricity Boards. We are talking about a total capital expenditure of £60 million, not the £25 million which is to be allocated under this Bill; and as the noble Lord pointed out, we are speaking of an expenditure of £12,000 to create one job, a wholly disproportionate amount, one would have thought, indicating that this £25 million might well be spent much better in another way. But it is impossible for us to judge.

I have also tried to do my sums and have calculated what would be the additional interest paid by the Generating Boards on an expenditure of £110 million brought forward by eighteen months in respect of the Ince B power station. I am not going to argue with the noble Lord, Lord Diamond: I make it £1.5 million, and he said £1.4 million. That may be an error in my slide rule. If this expenditure has been brought forward by eighteen months, that is £1.5 in the first year and £0.75 million in the second over half a year, making £2.25 million in total. But the noble Earl, Lord Ferrers, says to us in this letter that the amount attributable to the Ince B power station alone is £10 million. This, he says, accounts for the bulk of the expenditure to be brought forward, and in fact it is £110 million out of £130 million. I think this is a colossally extravagant way of creating employment, on the face of it, but I am quite willing to be convinced by the noble Earl when he comes to reply.

I would echo what the noble Lord, Lord Diamond, said: that it must not be thought that in arguing this case anybody is trying to decry the efforts that the Government are making to increase employment at a time when it is vitally necessary because we have over one million unemployed in this country. We are certainly not arguing that the Government should do much more than they are at the moment. But if there is this £25 million to spare, then I must say that the Government's attitude on this question has changed almost through 180 degrees since they came into office: no talk about "lame ducks" now; £25 million here, £35 million on Upper Clyde and so on. This is all very good; but the question is one of employing whatever money is available to see that unemployment is brought down to the absolute minimum. I must say that unless the noble Earl can convince me that this decision has not been brought out of the hat as a sop to public opinion, when the Government have allowed unemployment to reach these colossal and unacceptable levels, I shall not feel at all happy about this Bill, and, in particular, about Clause 2.

3.25 p.m.

EARL FERRERS

The noble Lord, Lord Avebury, has asked me to try to convince him. I will do my best, and I hope that I shall succeed. I have a great respect for the noble Lord, Lord Diamond, and particularly when he gets involved with figures, which has been his profession for a long time. Again, I hope to try to clear away some of the complications that have arisen. If my letter has served to confuse the noble Lord even more, I am sorry: I had hoped that it would clarify some of the points raised. But I think that one of the problems is that one gets into considerable confusion when one starts doing mathematics either in one's head or across the Floor of the House. I cannot guarantee to follow both noble Lords through their various forms of mathematics. The noble Lord, Lord Diamond, with his experience as a Minister at the Treasury, will I am sure know that it is a difficult and dangerous thing for anybody speaking at a Despatch Box to try to give concrete figures which must necessarily refer to the future, very often on various points the complete details of which are not known at the time. But I wish to be helpful to the noble Lord, and I will do my best to try to make things clear.

In order to do that I must go back to November 23, when it was announced by the Chancellor of the Exchequer that £100 million worth of capital expenditure would be brought forward, of which it was anticipated that £60 million would refer to the electricity industry and £40 million to other nationalised industries. That is how we reach the figure of £60 million. On Second Reading both noble Lords who have just spoken were concerned, because they added a figure of £25 million on to the £60 million. This is one area in which we must be careful not to get confused. So we have it that £60 million worth of projects, which were to have been undertaken later and whose total cost would be greater, would fall into the first two years. The £60 million worth of projects which are brought forward refer to projects whose total cost on completion is estimated to be £130 million. The noble Lords, Lord Diamond and Lord Avebury, said that they reckoned that only the first two years' work was brought forward and that that would attract the interest payable by the Government. I am sure that if the noble Lord, Lord Diamond, were to try an experiment in his home he would discover that this is not so. If he tries to advance the front legs of his dining-room table by one foot, then he will find that the rear two legs of his table will advance by one foot. The result is that if you advance the whole of this £130 million by two years, it will be necessary to reimburse the Generating Board to the extent of the increase in interest which they have incurred by advancing these sums.

The noble Lord, Lord Diamond, still looks confused. I have tried to explain that it is not just the payment on the first two years which will attract the rate of interest that the Government are prepared to pay; but by advancing the whole project some £130 million worth will attract the increase of interest. Taking that figure of £130 million, and assuming a rate of interest in the nature of 7 per cent., if this period were to be of the nature of 1½ years the noble Lord will see that in fact the sum works out to about £17 million. That therefore is the sum of interest which the Government anticipate is likely to be paid on the bringing forward of the proposed works. This is not, of course, the £25 million to which the noble Lord referred earlier. The balance has been kept in this Bill to allow for contingencies, other projects which may be brought forward, and so forth.

The noble Lord, Lord Diamond, asked whether this was the best possible way of getting the maximum additional employment. I would not stand here and say that this is the right way, the only way, or the best way; but what I do say to the noble Lord is that the Government believe that one of the many ways in which they can help and by means of which they hope to alleviate the problem of unemployment in the future is by advancing these projects. I should be the last to say that this is the only way. I hope that the noble Lord will accept that from me.

Then the noble Lord referred to the number of jobs which will be created. This number, as I said in my Second Reading speech, will be of the order of a minimum of 5,000 in the first year. This of course anticipates the increase, and it does not take into account the increase in jobs which will be created by the sub-contractors who provide the materials for these electricity generating stations, and so forth. So in fact the increase in employment is likely to be distributed on a far wider basis throughout industry than might be thought from the figures to which the noble Lord has referred. I hope that he will see that in doing these mathematical calculations it is difficult to give a single answer. All I am trying to point out is that of the £25 million we have in the Bill, £17 million is anticipated to be the interest rate required on the bringing forward of the total of these projects of £130 million, of which £60 million will be likely to fall in the next two years.

3.33 p.m.

LORD DIAMOND

We are all very grateful to the noble Earl for that explanation. We are not concerned here with small figures but with very large ones. We are not concerned with arithmetic but with the principle behind the arithmetic. The first principle which emerges is that, in terms of cost per job provided for the period of the job, this is a very expensive way of providing jobs, whichever way you calculate it. Therefore it is right that we should, having been alerted by this large figure, look to see whether the explanation lies in the fact that money has been spent or is proposed to be spent rather extravagantly, or whether it is in the nature of things that it costs this amount to provide this number of jobs in this field. It seemed to me that the sum was calculated in an extravagant way and that is why I put forward the views that I did. I am grateful for the explanation and I now repeat that it is calculated in an extravagant way, because the error which I thought the Government were making they have not made in fact; but they have made an even bigger one, which I will explain.

We are talking about bringing forward capital expenditure which would arise in any event. We are concerned only with timing. What the noble Earl is apparently saying is that if you borrow at the beginning of five years £X million and do not pay it back and it takes you five years to build your power station, then you are not paying off that £x million until the end of the five years; therefore you have to pay five years' interest on it and not one. That is how the noble Earl arrives at his figure of £10 million. You have to pay for that period or for the whole amount, whichever way you prefer to put it. To give an example, the noble Earl prefers to put it that you borrow not the sum needed each year for the expenditure as it arises, which is in fact what happens in practice; but if you choose to borrow the whole amount at the beginning then you can calculate on the whole amount for a short period or you can calculate on each amount, whichever you prefer. But the error which I now draw to the attention of the noble Earl is that the assumption behind all this is that in years—how shall I describe them?—six and seven, the position is the same as it would otherwise have been. If you have a five-year project and you bring it forward two years, then in years six and seven you will, having brought it forward, have a power station which is—and this is where the noble Lord, Lord Avebury, can help me, because I think the term is "on stream", is that not right?

LORD AVEBURY

Yes.

LORD DIAMOND

The power station at all events is producing electricity, charging for it and producing revenue which services its capital, and pays its expenses and staff, and so on. In years six and seven, having advanced the project, you have a revenue-earning asset, whereas if you had not advanced it, in years six and seven (which would then have been years four and five) you would still have been building up a non-income-producing asset until you had got it to its completed state. So the noble Earl is now saying that the Government think it wise to spend money on the basis that the project is advanced, that there is compensation due to the Electricity Board for having advanced it, but that no calculation has to be made in respect of the fact that in the last two years there will be an income-earning asset as opposed to, not a white elephant but an asset which is only partly completed and not yet at the revenue-earning stage.

Would the noble Earl be good enough to look into this point? It is not a question of bandying figures across the Table, which I quite agree we can all get utterly wrong; it is the principle which is behind the figures. The question is not merely one of assisting employment, but of assisting it in the most fruitful way with the money at the disposal of the Department. I hope therefore that before any expenditure is actually met in terms of compensation the noble Earl will be good enough to say that he will look into this question to see whether the amount is correctly calculated and whether it is heeded. I agree that if he wants to look at the matter in the way he has done, he must provide compensation in the opening stages and take account of the revenue-earning capacity in the closing stages.

EARL FERRERS

There is one point over which, if I understood him correctly, the noble Lord, Lord Diamond, is at variance with me, and I think this should be cleared up if possible. I think he said that the Government have considered that the interest should be payable on the whole of the five-year project. As I see it—and I think there is a difference here—that part of a project which is advanced by two years during the year in which the expenditure will be incurred will in fact attract the interest on that expenditure. Therefore in the first year a certain proportion will be advanced and it will have payable on it the interest which is required. In the second year there will be a further proportion brought forward two years which will involve the Generating Board in the expenditure of money which they would not have had to make at that time. That again will attract the interest payable by virtue of compensation. It is not a question of paying all the interest in one lump sum at the beginning of a project because it is brought forward.

LORD DIAMOND

I had hoped that the noble Earl was going to finish his statement by saying that he was going to look into the point that I raised.

EARL FERRERS

Of course I will consider the point which the noble Lord has raised, and of course he is entirely right in saying that at the end of the period there will be a new generating station which will be in use earlier than it would otherwise have been. But as the noble Lord knows, the Electricity Generating Board will be grateful for all efficient generating stations, as indeed their accounts show.

LORD DIAMOND

I am grateful to the noble Earl for that statement. As I said when I moved this Amendment, it is a probing Amendment and it has produced the explanation which we have heard. Unless the noble Lord, Lord Avebury, wishes to pursue the matter, I think it would be in keeping with the tradition of your Lordships' House that I should now seek to withdraw the Amendment.

Amendment, by leave, withdrawn.

3.40 p.m.

LORD DIAMOND moved Amendment No. 2: Page 2, line 38, leave out from ("incurred") to end of line 39 and insert ("after 1st February 1972").

The noble Lord said: At line 38 in the Bill, on page 2, one finds a subsection which says: This section applies to expenses incurred before as well as after the passing of this Act. I can understand that. It may be that it takes time to pass a Bill and the Government want people to get busy bringing work forward and incurring expenditure. But there must be some date before which expenditure incurred cannot be held to have been incurred as the result of the request of the Government to bring forward work. I have therefore suggested February 1, 1972, for reasons which at the moment escape me, but I imagine that that was probably the date when the Bill was introduced in the other place. I do not have a copy of that Bill at the moment; but what I have said gives an idea of what is in our mind in moving this Amendment. I hope that with that explanation the noble Earl will say why there is no starting date before which it would be inappropriate to consider paying compensation.

EARL FERRERS

The reason why this subsection has been put in is because again on November 23 when the statement was made, the Generating Board were asked to advance such projects as they reasonably could. My right honourable friend the Secretary of State assured the Generating Board that when projects were brought forward compensation would be paid as from November 23. He assured them that he would seek Parliamentary approval at the appropriate time to allow him to pay this compensation on any work brought forward since November 23 when the statement was made. That is the reason why this particular subsection allows the expenses to be paid before the passing of the Act as well as afterwards.

The noble Lord, Lord Diamond, will see that subsection (3) says, "this section applies to expenses …". This is Clause 2, of which subsection (2)(a) refers to expenses incurred which are pursuant to an agreement entered into with the Secretary of State with a view to promoting employment. Therefore this compensation will be applicable only to jobs which have been specifically brought forward with a view to creating employment which has been agreed to by the Secretary of State. That agreement, as I have said, was contained in a letter of November 30 under which the Secretary of State undertook to reimburse the Board where this expenditure was incurred, subject to Parliamentary approval.

LORD DIAMOND

This matter is much clearer but not absolutely clear. The noble Earl has not explained why the commencing date of November 23, for example, was not put in the Bill. I do not know whether any requests were made prior to November 23 which would constitute an agreement. It does not necessarily have to be a written agreement. I do not know whether there were conversations, for example, six months earlier in which the Secretary of State said, "Would it not be nice if, in view of the developing unemployment, you reconsidered the starting date of some of your projects?" Are those to be included or is none of them to be included? Would it not have been simpler to avoid any doubt by putting in a commencing date which, I quite agree if such a statement was made by the Secretary of State, should be the date that he made that statement?

EARL FERRERS

I see the point that the noble Lord has put forward. I assure him—and I think this is reasonable—that the only way in which this payment can be made is where it has been subject to this agreement. No such agreement was made until the statement was made, which was further covered by my right honourable friend's correspondence with the Electricity Generating Board. With respect to the noble Lord's point, which is a valid one, I think that the fears he has are not valid because they are already covered by the wording of the clause.

LORD DIAMOND

I am grateful to the noble Earl who has now said that there was no such agreement before November 23. If there was no such agreement before November 23 there is no need to put "November 23" or any other date in the Bill. Therefore I seek your Lordships' permission to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 2 agreed to.

Clause 3 [Transfer of property between Electricity Boards]:

LORD DIAMOND moved Amendment No. 3: Page 3, line 4, at end insert (";but nothing in this section shall be construed as adding to any power to dispose of assets other than by transfer of property between Electricity Boards.")

The noble Lord said: This clause gives power to transfer property as between Electricity Boards. In another place the Minister in charge of the Bill made it clear, so that those who were working in the industry should not be affected by uncertainty as to their plans, that no major reconstruction was envisaged; but he did not make clear what the position was with regard to any possible hiving off. A hiving off of part of a sectional industry produces the same uncertainty with regard to those concerned with the management and employment within that section as does a complete reorganisation of the industry itself. Therefore it is necessary for good, efficient working of the whole of the industry that people engaged in it should know where they are. I believe that there is nothing in this Bill which adds to the powers previously existing to dispose of assets by way of hiving off; that is to say, other than by transfer of property between Electricity Boards. If you transfer a property from one section of a nationalised industry to another section you are not hiving off; you are hiving off when you transfer from a nationalised sector to the private sector. Therefore I thought the minimum request to make would either be for the noble Earl to confirm that there is nothing in the Bill which gives this additional power, or, if there is anything in the Bill which may be construed as giving additional power, then for this Amendment to be adopted to make it clear that no such additional power is being take. I hope that is the intention of the Government.

I hope the Government are not intending to cloud the issue by taking powers by other than obviously straightforward, candid means. If we are going to have an argument about hiving off, let the Government come forward and say, "We propose to enter into another hiving off", however irrelevant, stupid, irritating and counter-productive it may be. Let them, at all events, say so. I had to table this Amendment because the noble Earl will recollect that the last Bill introduced by this Government was a hiving off Bill which did not say that it was a hiving-off Bill; it had not one word in it about hiving off, but the sole purpose of it, so the Minister in charge in each House said, was to hive off. We are trying to educate the Government to be candid in its legislation, among other things, and that is something which should appeal to all your Lordships. I therefore beg to move.

EARL FERRERS

I did not think that the noble Lord, Lord Diamond, would let the opportunity pass of having a "good old go" against hiving off. I think I can give him the assurance which he is looking for, which is that this Bill as it stands refers entirely to the transfer of property between the Boards and it is not anticipated that it will be used for other purposes such as the noble Lord, Lord Diamond, has in mind. Of course, it is perfectly true that the Government, as all Governments do, have a response- bility and a right to look at the industries for which they have an overall financial responsibility. That is of course being done, as it always is being done. But there is no intention in this Bill to create any hiving-off projects such as the noble Lord has in mind.

LORD DIAMOND

I think your Lordships will feel that I have not wasted the time of your Lordships' Committee in getting that clear assurance, which will remove uncertainty from those engaged in the management of the industry concerned and will enable them to function the more efficiently. Therefore I am grateful to the noble Earl and seek your Lordships' permission to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 3 agreed to.

Remaining clause and Schedule agreed to.

House resumed: Bill reported, without amendment; Report received.