ENERGY RESOURCES AND THE ROLE OF BNOC

HL Deb 04 July 1979 vol 401 cc372-473

3 p.m.

Lord STRABOLGI rose to call attention to the threat of a fuel crisis, to the role of the British National Oil Corporation, and to the importance of developing alternative energy resources; and to move for Papers. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper, and in doing so I should like to say how pleased I am that the House has been given the opportunity to have this debate on energy. It is indeed a great privilege to be able to open it. I am sure that the leaders at the Tokyo economic summit were wise to concentrate on energy and the fuel crisis, and I am glad that there was general agreement to reduce oil consumption and imports and to develop alternative energy resources. Something will certainly have to be done. President Carter, Sheik Yamani and others have predicted a deep recession in the West unless we can cut our oil consumption. Indeed, there will be a major crisis by the 1990s unless there is a change from oil to coal and other alternatives.

I must therefore ask the Government whether they have any plans, both in the short term and in the long term, to deal with what could be a crisis of the first magnitude unless some action is taken. First, there is the question of the present world shortage due to the troubles in Iran, the unsettled situation in the Middle East and the attitudes of some other oil-producing countries such as Libya and Nigeria. I understand that the Saudis decided yesterday to increase their oil output by about 1 million barrels a day; but this will be only on a temporary basis, it appears. The recent shortage, of course, has been made even more difficult by the decision of the OPEC countries, made during the course of the Tokyo summit, to raise the average price by about 15 per cent. This is nearly 50 per cent. up on last year's price.

My Lords, the effect, as we all know, has been dramatic: severe shortages, closed filling stations, queues at the filling stations when they are open and steeply rising petrol prices. Four-Star has risen to nearly £1.20 a gallon and in some areas it is costing £1.40 and even £2 a gallon for larger orders. Essential users, such as hospitals and ambulance services, have had to pay these inflated prices, and there have been great difficulties in rural areas for farmers and others. The petrol companies say that there will be a further increase in August.

The Government do not seem to have any strategy or contingency plans. There has been a cut in rail services; the decision on whether trains should run or not seems to be taken by the fuel suppliers without any Government direction. The Road Haulage and Freight Associations have criticised, quite rightly, the lack of information regarding future supplies. The RAC and other motorists' organisations have said that the increases are a severe blow, coming so soon after the "bitter pill" of the Budget—as they describe it; and they are their words and not mine, although I agree with them—with its 15 per cent. VAT. The Government do not seem to have any idea of what to do beyond hoping that there will be a 5 per cent. reduction in consumption.

My Lords, how do they intend to cut fuel consumption? Have they any contingency plan? Are they hoping for something to turn up; or do they intend to rely solely upon market forces? How do the Government intend to protect essential users? Why cannot the Government take the "U"-turn that most Conservative Governments eventually take a little earlier than usual and reconvene the Price Commission and instruct it to carry out an investigation? Or cannot they take powers to freeze petrol prices until they are satisfied that any increases are justified by the OPEC decisions and are not new prices on old stock? Are the Government going to take a lead over energy conservation? The French Government have already announced that heating in French government buildings will be reduced and that there will be new subsidies soon to improve insulation. The Dutch Parliament has also agreed to compulsory energy-saving measures. Are the Government satisfied that a lead is being taken here by Government departments and local authorities?

In this country we also encourage householders to install home insulation, and I think that grants are given. But then what happens?—the local authority comes along and increases the rateable value. I know that the local authorities are only going by the rules but, from a national point of view, this policy is surely extremely short-sighted and counter-productive. I hope that the Government will try to do something about it. Will they consider allowing generous tax incentives for improved insulation?

My Lords, there are of course several possible renewable energy resources for the future, such as wave and solar energy. Some two months ago, as your Lordships will know, there was an interesting exhibition on alternative energy sources, assembled by British Aerospace, here in the Palace of Westminster. May I ask the Government whether, following this, there has been any proposal from British Aerospace for a feasibility study on solar energy, and what response they have given?

I should like now to say a few words about North Sea oil. I hope that the stories are not true that the Government are proposing to disband BNOC and abolish all control and that they are intending to return the North Sea to the multinational oil companies. I hope it is not true also that they are intending to sell off the North Sea assets of the British Gas Corporation and that the chairman, Sir Denis Rooke, has threatened to resign over this. When we came to office in 1974 we found a very unsatisfactory state of affairs over North Sea oil. There was no petroleum revenue tax and corporation tax was a purely nominal affair, as companies were able to offset losses in other parts of their multinational operations against profits in the North Sea. These largely ineffective tax arrangements, which would have led to substantial losses to the balance of payments by 1980 of over £1,000 million annually, were severely criticised by the all-party Public Accounts Committee of another place.

The Labour Government introduced PRT and a "ring fence" to safeguard corporation tax on North Sea profits. The arrangements made have helped to increase the nation's share to about 85 per cent. of North Sea profits from Fifth Round licences. We also set up BNOC as a State Corporation to advise the Government in their regulatory power over North Sea activity and to provide a national stake in the North Sea, since the private sector is heavily tilted in favour of foreign-owned multinational groups. Under the arrangements made by the then Conservative Government there was no control over development programmes, no control over gas-flaring and no control over the rate of depletion. Companies could have drained the oil fields at once or could have recovered as little oil as possible to give themselves the maximum return.

My Lords, we have always recognised, and will continue to recognise, the important role of the private sector; but this does not mean that as a nation we should not control this vital and valuable resource. As my noble friend Lord Kaldor said when we debated this matter in May of last year, the only controls that the Government could exert in the absence of BNOC would be controls of a negative character. They could discourage things but they could not prevent them. I should like to remind the House of BNOC's achievements. In just over three years the corporation has become a major operator, in both its drilling and its exploration operations. It has also brought on stream the Thistle oil field, which last year produced 2½ million tonnes of oil. BNOC has successfully concluded participation agreements with over a hundred companies and has become an active partner, through participation or equity, in every North Sea oil field. It is surely essential that Britain retains control over her North Sea oil. I hope that the present Government are not going to disband these arrangements and return to the situation of their own Fourth Round, when valuable concessions were given in exchange for only a few beads and trinkets in tax terms.

May I ask the Government to comment on the reported swap deal between BP and Conoco, involving about 1 million tonnes of oil a year, so that at a time of shortage South Africa can be supplied indirectly with North Sea oil at the expense of our home supplies and of supplies to our EEC partners. What effect do they think this deal, which we would certainly not have authorised, will have on future Nigerian supplies to BP?

North Sea oil, and probably world oil, have only a limited life. In the long term we shall have to rely on coal, and possibly on nuclear energy. I should like to ask the Government for their long term policy in the nuclear field. Is it true that they are planning five new power stations? The Prime Minister has said that we must go nuclear on a larger scale than we are now, although I am glad that Mrs. Thatcher emphasised that safety aspects must be taken into consideration. May I ask when the Government intend to approve the site for the commercial fast breeder reactor? Will this also be at Dounreay or will it be sited in the North-East? Will any decision be subject to a public inquiry as the last Government, the Labour Government, had intended?

Nuclear power could probably produce the equivalent of 95 million tons of coal by the year 2000, but one cannot run transport on it in our present state of technical knowledge, and it is an unknown, possibly hazardous, field. This is why the other alternative source, our vast coal deposits, becomes increasingly important. We need coal to replace oil in our power stations, and to replace oil and gas through the processes of liquefaction and gasification. I know that these processes are not commercially competitive with oil at present but, with increasing technical knowledge, they should come into their own when the oil begins to run out.

The United Kingdom has the largest and most modern coal industry in the whole Community and it is the only one with a policy of expansion. By the 1990s, half the total production should be coming from new mines or from extensions to existing mines. I trust that the Government agree—and I hope that the noble Earl will comment on this—that a bipartisan attitude is needed. I hope that this great national industry will not be subject to shortsighted economy cuts, and that the present Government will endorse the investment programme outlined in Plan for Coal. May I also ask the Minister to confirm that the Government do not intend to disband either the Energy Commission or the tripartite machinery, both of which are so important for forward planning? May I further ask what is the Government's policy on the building of more coal-fired generators?

As Mr. Edward Heath said in Vienna yesterday, our prosperity in future will depend increasingly on the use of coal. I am surprised that there was no mention of coal as an energy source in the Government's Statement yesterday following the Summit Meeting—the Statement that the noble Lord, Lord Soames, the Leader of the House, repeated in your Lordships' House. Perhaps the noble Earl will give the House the Government's view on the future of coal as they see it. My Lords, I beg to move for Papers.

3.15 p.m.

The Earl of GOWRIE

My Lords, I am grateful to the noble Lord, Lord Strabolgi, for initiating this debate. I must also congratulate him on the brief, cogent and trenchant way in which he put his points. There are of course quite considerable differences of emphasis and approach between the two principal parties of government on this great issue; but I do not think that we on this side of the House could complain in any sense that the noble Lord has left us in doubt as to where his sympathies are and where his policies and support for them lie.

My noble friends and the House as a whole will realise that the noble Lord has asked me a very considerable number of quite detailed questions. I am grateful to the noble Lord for giving me some advance warning of them. I was going to answer some of them in a wind-up speech, but perhaps now that they are fresh in the minds of the House as the noble Lord put them across, if I may be indulged a little on time—and I will be as fast as I can—I shall answer as many points as I possibly can in my opening remarks. The only time that I thought the noble Lord's approach let him down a little was when he seemed to suggest that the reconvening of the Price Commission would in some way impress those who held the OPEC monopoly. If that was ever throwing a butterfly at a wheel in order to break it, I do not know what is!

The noble Lord was quite right to point out that the events of recent months have pushed the question of fuel supplies to the forefront of all our minds, and he reminded us that energy was the main topic of the Tokyo Summit last week.

It would be idle to pretend that the short term oil market is anything but still very tight. But the Government believe that the measures agreed in the IEA and EEC earlier this year to reduce oil imports and consumption in the short term are now beginning to have a significant effect on the oil market. The co-operation and common determination to deal with the problem of oil supplies shown by our partners at the Summit give hope that further steep oil price rises can be avoided.

Last week's decision by OPEC to raise prices by a further 15 per cent. on average was regrettable and, I would say, premature, in view of the increasing effectiveness of demand restraint by customers round the world. There is now a real danger of world recession which will be in no small measure due to OPEC's pricing policies over the past six months. I do not doubt that these policies will bring the oil market back into balance—and it has been severely and damagingly unbalanced—but only at daunting cost. This cost will include adverse effects on inflation and employment, and spiralling oil import bills for many countries, and we must include those countries in the Third World which are least able to cope with them.

The Tokyo Summit has agreed oil import ceilings for individual countries for 1985. That is something which has not been done before; and it is a clear sign of the seriousness with which the West now views the medium-term energy outlook. The Government are encouraged by the readiness of the Summit countries to agree to the targets, and their fulfilment is of the greatest importance.

The short-term position in the United Kingdom is that there is a shortfall in oil supplies of about 5 per cent. Serious though the situation is, this is a relatively small amount in world terms and what is needed is for all consumers to make reasonable economies in their use of oil products. We have therefore taken steps to achieve an overall cut in demand of 5 per cent., which is in line with our EEC and IEA obligations. Following initiatives which I fully acknowledge were taken by the previous Government, the electricity generating boards are reducing oil burn in favour of increased coal burn—and I shall have something to say about coal in a minute—and the public sector are making a further determined drive to save oil.

The present Administration has pushed ahead wholeheartedly with these measures and has also appealed for voluntary savings on the part of all consumers. I think that is reasonably bi-partisan. Price also has an obvious part to play in encouraging demand restraint and this Government therefore firmly believe that it would be wrong to insulate consumers from the true cost of oil and oil products.

We must all now look closely at our oil consumption, whether in the home, industry or on the roads. If we all play our part then the measures I have mentioned should be sufficient to meet our 5 per cent. target. But the Government will continue to monitor the situation and will be ready to take further conservation measures, both to meet international commitments and the new Tokyo commitment, should that be necessary.

Contingency plans do, of course, exist for rationing or for Government-directed allocation schemes. But, as my right honourable friend the Secretary of State for Energy has made clear in another place, such action would not be justified by the present small level of shortfall. Rationing would be extremely cumbersome and expensive, and it would not produce a drop more oil for consumers. We also feel that it would be inefficient. Instead, the oil industry must be primarily responsible, under the scrutiny of the department, for handling its own supply problem. I acknowledge that at present some consumers are considerably more than 5 per cent. short. The Government have therefore pressed the oil industry to achieve a more even and effective distribution overall and to meet particular difficulties as a matter or urgency, where customers are threatened with real hardship. I imagine that many of your Lordships who will be speaking this afternoon will want to give instances of this and therefore I shall deal with this matter further when wind up later. The oil industry is well aware of the Government's view that it must find a solution to the distribution problem if Government intervention, with a.11 that entails for the industry and for consumers, is to be avoided.

At the same time, the Secretary of State made clear in another place that he was not satisfied with the arrangements he had found for supplies of oil into the United Kingdom market, particularly in circumstances where we are a major oil producer. North Sea production is now running at just over 1½ million barrels a day, compared with our present consumption of about 2 million barrels a day; and we should be self-sufficient in oil by next year. North Sea oil, as your Lordships will be aware, is not on its own the most economical source to use for the refined products needed in the United Kingdom; nor in fact can all the products we need be made from it. We have therefore to import some different types of oil and it makes sense to export a proportion of our own oil, particularly as our own oil is the "caviare", as it were, of the industry. We also have international commitments and we have to recognise that the present shortage of crude oil is a world-wide problem from which no country can expect to isolate itself. But we have to strike a balance between the international markets' needs and securing our own security of oil supplies in the United Kingdom.

With these considerations, particularly the latter, in mind, the Government have been looking very closely at the scope for increasing supplies of oil into our market. One result has been the decision to take the bulk of the royalty payable in the first half of next year in kind as crude oil. This should allow the Government to respond, to some extent, to any supply problems then and to even out irregularities in our own market. The British National Oil Corporation—I fully acknowledge this—has also been able to help the United Kingdom supply position. Noble Lords will already know of the major role BNOC has progressively assumed since the beginning of 1978 as a trader of North Sea oil. The Corporation's oil sales were around 5 million tonnes last year; this year they will reach 25 million tonnes.

With the prospect of this very large increase in the quantity of oil available to it during 1979, and in view of the slackness of the market during most of 1978, BNOC aimed during the last quarter of 1978 to arrange sales contracts for most of its oil. In view of the reluctance of United Kingdom refineries to commit themselves at that time, the Corporation was obliged—and I think the outgoing Government would acknowledge this—to seek overseas customers for a large proportion.

However, the disruptions arising in Iran from November onwards caused the oil supply situation to change rapidly, and by the beginning of this year a number of new requests for oil had been made to the Corporation. Although BNOC's strategy had been to commit most of its oil in advance it was, nevertheless, able to respond to some extent to these calls for increased supplies of oil into the United Kingdom. In February BNOC made arrangements to provide additional supplies this year to the United Kingdom of some 2 million tonnes from previously uncommitted crude. This oil was sold to our refiners.

The Corporation was, however, still exporting a substantially larger proportion of its North Sea oil than some other North Sea operators; it has therefore recently decided to do more to adjust the balance of its disposals. It has opened negotiations with its customers to see whether they could help in the current short-fall situation. Any arrangements will be voluntary and will have advantages on both sides. For example, some customers may agree to a re-phasing of deliveries which will extend BNOC's commitment to supply into next year but release some oil for the remainder of this year. That oil can be used to meet immediate United Kingdom demand. Other customers may agree themselves to deliver a larger proportion of their contracted oil into the United Kingdom in return for further supplies next year. Discussions are still in progress; we do not yet know the quantities involved but we would hope for further assistance at least on the scale of BNOC's initial help to the United Kingdom.

In those words, I have described the role BNOC has been able to play in easing some of the immediate problems. As noble Lords will know, my right honourable friend is undertaking a review of the activities of the Corporation, on the basis of which BNOC's future role will be decided. It therefore seems appropriate at this stage for me to say a few words about this review.

There are a number of reasons why it is desirable to hold such a review. First, it is clearly desirable for the Government closely to consider how each of BNOC's activities or potential activities contributes to the objectives of our national policy. It is not so much a matter of disagreeing with the noble Lord, Lord Strabolgi, as to what the objectives are or should be, but of how they might be achieved. Secondly, in the past three years BNOC has assumed major commitments on the United Kingdom Continental Shelf. It is clearly desirable for the Government to take close stock of these. Naturally, we shall take into account, in our examination, the Corporation's achievement over the past three years, but our main concern must, of course, be for the future. Thirdly, it is clearly right that we should examine the parliamentary and public criticisms of BNOC's role—and they have been very considerable and not restricted to this side of the House—that have been made over the last three years and assess to what extent these are justified.

I cannot, of course, speculate on the outcome of the review and unfortunately am not able to tell the House today when it will be completed, but I can say that great urgency has been lent to the review by the very disturbing decline in exploration drilling activity under the last Government. From the position in 1977, when 67 exploration wells were drilled offshore, the figure slumped last year to 37 and we had a Starred Question about this in your Lordships' House last week.

This has caused the Government considerable concern and we are going to give a first priority to the re-creation of conditions in which enterprise can flourish. Enterprise, of course, means risk, and risk means the possibility of reward.

For this reason, we have not hesitated to end without delay two of the privileges conferred on BNOC by the last Government which could not, in our judgment, be justified whatever view one takes of the company's future. These privileges were the Corporation's exemption from petroleum revenue tax and its right of first refusal in licence assignments. I also have no reluctance in telling the House that we are still sceptical about the claims made for BNOC by the party opposite as an essential instrument in protecting and improving the country's security of supply. It certainly does not appear to have been designed for maximum flexibility of response, as events in the last six months have painfully shown us.

Of course, the impact of the cutback in Iranian production, and the steep rise in oil prices that have followed, have been felt across the world. That was demonstrated by the very high priority accorded to the subject at the Tokyo Summit. And in Britain both parties had long realised that North Sea oil did not, and could not, insulate us from the world oil supply difficulties that might occur at any time. But I really think we could not expect that when those difficulties occurred the British consumer, and particularly the British motorist, would find himself worse off than his counterparts in France and Germany, for example. And yet that, I am sorry to say, has been the case in recent weeks.

There is no particular mystery about why it should have occurred. The last Government so constrained the market in this country that the inevitable effect was for supplies of oil and oil products to be diverted to those other markets close at hand, where the returns were better. From the tone of the noble Lord's speech—and, as I said, I admired the tone—one would have thought that this had been happening only in the last three weeks; in fact, it has been stopped in the last three weeks. So, despite our great wealth in oil, we found ourselves at a clear disadvantage by comparison with our partners and competitors, who, without any appreciable resources of their own, had not completely choked their domestic markets with controls. To put it simply, we also looked extremely silly.

This new Government have abandoned the pretence that Britain can be insulated from the price rises experienced by the rest of the world. Prices net of tax for diesel and petrol have now approximately come into line with the rest of Europe. As a result, in future, I believe that at the very least Britain will now fare as well as her European partners in receiving supplies. Realistic pricing will, of course, help. But we are entitled to ask, I believe, whether the BNOC itself has proved to be so very helpful or responsive in the context of the recent upheavals. I am not saying that this was the fault of the Corporation itself. The criticism that has often been made of the BNOC is that the roles wished upon it by the last Administration were confused or even contradictory, and this was, I think, demonstrated by the position of the BNOC during these last months.

To what extent did the last Government wish to act like other oil companies, to become an Eighth Sister, as it were, and always to behave commercially? And to what extent did they wish it to act as an agent of the Government? During the latter half of last year, the feeling seems to have been that the Corporation should act commercially. Against the background of a constrained home market that inevitably involved the Corporation in seeking long-term contracts abroad, it was exporting vast tonnages of North Sea oil. At the time when this Government came to office, and as the gravity of our supply position became apparent, the BNOC was heavily committed to customers in Europe and the United States. That does not argue to me that this is the best of all possible policies.

As a result, my right honourable friend has moved swiftly, against the background of the much more attractive British market, to encourage the BNOC to revert to a more normal pattern of trading in the third quarter. We are also sensitive to criticisms that, far from encouraging the growth of a vigorous and risk-taking independent sector in Britain, the BNOC has at times acted as a positive disincentive to smaller companies, preferring, in its ambiguous role of acting as an oil company on the one hand, and as an agent to maximise national revenues on the other, to treat principally with the majors. For all the strictures of the noble Lord, Lord Strabolgi, about multi-national oil companies, where you find a multinational oil company you will find the BNOC trading with it.

Speaking for myself, it is really astounding that more native risk capital—and we live in one of the great capital markets of the world—has not devolved into United Kingdom continental shelf exploration. It would surely be an appropriate role for the BNOC to help build up partnership rather than competitive associations with other native companies; and I believe that removal of PRT exemption and the first option rights will be an encouragement there.

I was asked by the noble Lord, Lord Strabolgi, about BNOC's role as an adviser and whether, by virtue of its 51 per cent. participation in offshore licences, it has an overriding role as regards policy and regulatory decisions concerning offshore activities. The position in law is quite clear, that BNOC has no supervisory or regulatory powers over offshore activities. These are vested with my right honourable friend and are exercised through his department. The Corporation can and does tender advice to the department, and what we are obviously examining in our review is the extent to which this advice is useful, and whether the conflicts which derive from its statutory position as an adviser on the one hand, and a commercial oil company on the other, are acceptable or otherwise from the Government's point of view.

We must make it plain, however, that our primary source of advice on oil matters is the special advisers in the Department of Energy. I hope that these remarks will give some indication of the kind of considerations that my right honourable friend will have in mind as he conducts his review. The Government are determined to look fairly at both sides of the equation, in order to assess how best the roles of State and private sectors may be harnessed in the national interest.

The noble Lord raised the question of supplies of oil going to South Africa. He will know that the Government's policy on the export of North Sea oil is to expect companies exporting this oil to do so in the markets of our partners in the IEA and the EEC. This expectation, however, in no way cuts across the maintenance, to the extent possible, of existing patterns of trade outside those regions. BP's plans to make North Sea oil available for sale in IEA or EEC markets in exchange for non-embargoed third country crude, which may be supplied to their South African subsidiary, are entirely consistent with this policy. The Government have therefore told British Petroleum that it has no objections to their plans. Indeed, to prevent the company from making such arrangements to meet contractual obligations would be to seek to impose an oil embargo on South Africa, which is not this Government's policy: and which was certainly not the policy of the last Government. Indeed, there has been no significant change. Oil went to South Africa under the aegis of BP when the previous Government were in office, and the proposals from BP about the Conoco deal were on Ministers' desks at the time of the election and they had made no decision upon them.

Coming now to the short-term problems of oil shortage, these are only manifestations of a much more important longer-term problem. The fact is that over the next 20 years or so we will, as the noble Lord has pointed out, be moving into an era of increasingly scarce and expensive oil. In this country, we are relatively fortunately placed. We have the prospect of being self-sufficient in energy during the early and mid-1980s. North Sea oil and gas, together with coal and the nuclear programme, which the noble Lord mentioned, should then be meeting all our needs. But when the United Kingdom's oil production begins to decline—and on present expectations that will be towards the end of the 1990s—we shall have to return to world markets for oil supplies which are likely then to be growing increasingly scarce and expensive. By the year 2000, energy prices generally could be about double their present levels in real terms.

So like other nations, we have the task of managing the transition to a fuel economy in which energy conservation, coal, nuclear power and, perhaps also, the renewable resources, will have a more important role than at present. Our present self-sufficiency provides the opportunity to achieve the necessary changes smoothly, but developments in the world energy economy will continue, even in the short and medium term, to be of intense concern to us. In no way can we isolate ourselves from the international community, whose well-being affects our own economic health as trading nation. We will also need to continue trading in oil.

Energy conservation and the more economical use of energy are at the very centre of energy policy, and the Government intend to pursue a vigorous policy to promote greater energy efficiency in all sectors of the economy. In the short term, as I said at the beginning, the main effort must clearly be directed at cutting back on oil consumption. Here the Government and the public sector must give a firm and sensible lead, and departments are reviewing the progress made in central Government and their agencies, and by local authorities and nationalised industries. It is no less important for industry and commerce to make further economies in their use of oil—not at the expense of production, but by greater efficiency. Many of our current conservation facilities can assist consumers here. We have the Energy Quick Advice Scheme and the Energy Survey Scheme providing consultant advice to help firms introduce measures which can have an immediate impact on energy consumption. In anticipation of the fact that other noble Lords will raise energy conservation questions, if I may I will proceed to the next part of my remarks and leave those until later.

The noble Lord, Lord Strabolgi, asked me about coal. Total recoverable reserves of coal in the United Kingdom are estimated to be sufficient to support present rates of extraction for over 300 years. Investment of over £4 billion is taking place—that is hardly an atmosphere of cuts, as the noble Lord suggested—to offset the exhaustion of existing pits and to create a modern and efficient coal industry which is capable of further expansion later on. So the Government are making their contribution, and it is now up to the coal industry to maximise production and minimise the kind of practices that keep uneconomic pits in being and coal price levels too high. The noble Lord asked me a number of detailed questions about coal policy. I have answers to these questions and I shall give them in my winding up speech to the House, if it gives me leave.

Mention was made of nuclear power. Already nuclear power makes a significant contribution to our energy supplies and will contribute some 20 per cent. of our electricity in the early 1980s. In the longer term, it has a vital part to play in our energy policy, as the communiqué following the Tokyo summit last week emphasised. The Government will be giving careful consideration to the future development of nuclear power programmes in the United Kingdom. We need to formulate a thermal reactor strategy which will help to meet this country's energy requirements as our reserves of oil and gas decline. We shall need to consider the future of the fast reactor, a technology which has been under development in the United Kingdom since the 1950s, and we shall need to play our part in the EEC's nuclear fusion programme, the next stage of which, the JET project, is sited in this country at Culham.

I can absolutely assure the House that in developing these policies we shall bear in mind the paramount importance of safety matters and in particular of learning the lessons from the Harrisburg incident in the United States earlier this year. But let us make absolutely no mistake about it: Britain needs a mixed economy for energy, and in that "mix" nuclear energy will play a controlled but steadily increasing part.

The very word "nuclear" is full of bad vibrations, as the 'sixties slang would have it. This is not surprising, in view of the way that atomic energy was first harnessed in the world. Death and destruction make for a bad opening chapter of Genesis. However, I am quite convinced that by the end of the century our continental neighbours and competitors will be providing a substantial proportion of their energy needs by nuclear means, and it is grotesque to assume that we ourselves shall be in a position to opt out. Perhaps the noble Lord, Lord Rothschild, would care to put down a Motion, drawing on his thoughtful work on risk assessment.

I am as concerned about safety as anybody. Health and safety at work is a major concern of my own department, but it is also grotesque to assume that a civilisation which quite contentedly consigns one in three cigarette smokers to death from cancer cannot learn to accommodate and control the infinitely lower thresholds of risk contained in advanced nuclear technology.

The noble Lord mentioned gas, and I shall deal with that question in my winding-up speech. Similarly, I shall deal then with the renewable resources, upon which I have a brief.

As members of an industrial civilisation which over the past six years or so has suffered the economic equivalent of a heart attack, a threat to our life's blood—a warning, if you like, that our diet has been too rich and our living too soft—we in this country nevertheless are very lucky. A transfusion is at hand. The most expensive treatment imaginable is available, at relatively small cost to ourselves. But that does not alter the nature of the warning.

As the noble Lord has said, we cannot go on as we are. Either we must change our lifestyle or we must develop alternative resources to invigorate it and allow it to grow. It would be quite wrong to squander this miraculous breathing space by returning to the old life as though nothing had changed. It is the Government's job to show how things have changed, and to let the effects of change be felt. We are as confident of the rightness of our own role as we are of the patient's response and recovery.

3.44 p.m.

Viscount SIMON

My Lords, the word "crisis" is perhaps one of the most overused words in our vocabulary, but I feel that in the matter which has been raised for us by the noble Lord, Lord Strabolgi, it is an appropriate one. In fact, I find myself differing only slightly from his Motion in that I should have thought that what we face now is not so much the threat of a fuel crisis as the promise of a fuel crisis. It is obviously uncertain at what point in history the crisis will be reached, but I am sure that it is not far off.

A good many years ago when we used to discuss these matters, we used the safe estimate of the middle 1980s. The noble Lord, Lord Strabolgi, mentioned the 1990s, and I believe that the noble Earl, Lord Gowrie, spoke about "20 years on". However, I should have thought that the events of recent years are more likely to bring the crisis forward than to postpone it. My own feeling is that we must be prepared within the next 10 years for a much more difficult situation than we have today. At any rate, we have to face up to that possibility in the not too distant future.

The Tokyo communiqué obviously reflects the broad thinking of the Governments who were represented at the summit, including our own Government. One might almost think that the noble Lord, Lord Strabolgi, had influenced those Governments in some way, because his Motion is to close to the wording of the communiqué. If I may read a short passage from the communiqué, they say: The most urgent tasks before us are to reduce oil consumption and to hasten the development of other energy sources". The communiqué goes on to say that the Governments—and that includes our own Government—have already taken significant actions to reduce oil consumption and that they will intensify those efforts. The noble Earl spoke of some of the actions which have been taken, but I must confess that they do not seem to hit the headlines. I was rather alarmed to read on the tape this afternoon that, whatever significant actions have been taken to reduce oil consumption, oil consumption in this country during the first four months of this year was higher than it was in the corresponding period in 1978. Quite evidently, therefore, the significant actions which have been taken are not yet having very much of an effect.

I do not think that any Government, either the past Administration or the present one, would claim that the effect of rapid increases in price restricting demand is the result of any action taken by the Government. It is a very effective restricting influence, but it is not the result of action taken by the Government. When the noble Earl winds up the debate, perhaps he would tell us a little more about the steps which are being taken in this context.

As regards the development of other sources, I noticed too in the Tokyo communiqué the very important reference to the increasing use of coal and 1, like the noble Lord, Lord Strabolgi, was surprised that it was not mentioned in the Statement made yesterday to your Lordships. It seems to me to be an extremely important decision, one which has been long awaited in this country. I have tried to understand the coal position, but it is very difficult for somebody who has no close association with the industry to understand it. However, when I was privileged to sit on one of the EEC sub-committees, it seemed to me from the discussions we had with the Coal Board and others, that we had a vast availability of coal but that the Coal Board were unwilling to develop it any further than their programme called for because they did not think they could sell the coal.

As I understand it, the Central Electricity Generating Board have a statutory obligation to produce electricity as cheaply as they can. Therefore, so long as there is any oil and so long as that oil is a cheaper fuel for this purpose than coal, the board prefer to make their electricity by using oil. However, looking towards the future shortage of oil, which we have been looking at from afar for quite a long time, this seems to be a rather shortsighted policy. It would be preferable to convert to coal some of our oil-fired stations, even though the electricity produced would be more expensive than would be the case if we continued to use oil to produce it. If, though, we wait until the oil runs out, we shall find that we do not have the coal because we shall not have developed the further output of coal.

It may be—perhaps at the end the noble Earl will be able to tell us whether this is so—that it would be physically, though not financially, impossible to increase the output of coal. I do not know whether that is so. However, I should be very much happier if I thought that in the year 2000 there would be adequate supplies of coal to replace a great deal of the oil that is used in power stations today.

I do not want to make a long speech so I will turn now briefly to nuclear power. Here I am in a little difficulty, because, as your Lordships know, the policy of our party is to have no further development of nuclear power until more progress has been made in dealing with the disposal of wastes, and so on. I am sorry that my noble friend Lord Avebury, who was here earlier, was unable to stay and take part in this debate because of appointments elsewhere, as he would be able to explain much better than I can the policy of our party, but I think it is important that the Government and Parliament should understand the basis of that policy.

The noble Earl, Lord Gowrie, actually almost got on to the very same line that I was going to start with: this is not a policy dreamed up in the rarified atmosphere of the party executive. It is the result of very strong "grass roots" pressure, and that, in turn, has originated, as I see it, from what is nowadays rather inelegantly called a "gut reaction". It runs this way: that nuclear power is tainted because, as the noble Earl said, it arose as a spin-off from nuclear weaponry; and I think that on all sides of the House, whether or not noble Lords follow the Campaign for Nuclear Disarmament, they will agree that the development of nuclear weaponry is one of the saddest, the most distressing chapters in the whole history of human endeavour to master science and technology.

Starting like that, as the noble Earl said, there is an instinctive feeling that there is something dirty about this. There are also other risks which are clearly not fully understood. An added difficulty—which I think I am right about although perhaps some technically qualified noble Lord will tell me later that I am wrong—is that, for some reason which I do not clearly understand, nuclear energy can be developed effectively only on a very large scale. All our various sources of energy—steam, normal electric generation, the internal combustion engine—involved risks which were unknown at the time and could not be gauged, but all those could be started on quite a small scale, so that whatever degree of risk there was, the amount of damage which would be caused by an accident was quite small. As I understand it, the difficulty with nuclear power is that we cannot do it on a small scale, and consequently, whatever the degree of risk, the volume of risk is likely to be very great.

I believe that this deep feeling which has underpinned the Liberal Party policy is widely felt. In fact I am sure it is felt by many people who do not vote Liberal—and I wish that there were more who did vote Liberal. I disagree with the policy only because I cannot see how the gap in our energy supplies can possibly be closed except by an expansion of nuclear power. Of course we must give great priority to research and development into the means of disposing of waste products, recycling those that we can use and disposing of those which we cannot.

With regard to the development of other sources of energy, I think the Government are faced with considerable difficulty and I do not envy them, because clearly we have limited resources and priorities must be established. On the face of it, most of the unconventional sources that have been examined seem to be unlikely to contribute very much to meeting our energy needs. The most hopeful prospect is perhaps nuclear fusion, but it is also the furthest away and the most expensive. So in determining the priorities for research and development very difficult balances have to be made.

Whatever is decided upon, it seems to me that it is essential that a substantial amount of our limited resources must be spent on research and development into the control and disposal of nuclear waste products. This is not an easy decision to make, because that money will not produce another ounce of energy; it will merely, we hope, increase the safety of the operation. I hope the noble Earl will be able to say that adequate resources will be devoted to that very important piece of development.

I want now to say one thing about rationing and particularly with reference to petrol. The Government have made it quite clear that they do not think it is required now, and I believe the last Administration took the same view. They may well be right: as I think the noble Earl said, rationing involves the creation of a vast bureaucratic machine, it is not always very fair and equitable and it can lead all too easily to "fiddling" and to a black market. Nevertheless, I do not really think that the allocation of fuel can be left just to the oil companies, and as the position gets worse I believe that some form of rationing will be necessary. I hope that the Government, whose philosophy perhaps runs towards relying on rationing by the purse, will realise that that would be even more unfair than any form of rationing that could be devised. Particularly it would be unfair to people in rural areas whose needs are often greater and whose purses are often more slender than those of people who live in towns. So I hope that there is in preparation a comprehensive plan for rationing, ready to be brought into force when the need arises, because I believe it may arise much more quickly than some people think. Perhaps the comprehensive plan should include not only domestic petrol but also the rationing of energy for domestic heating purposes.

Going back to petrol for a moment, one recalls that during the last War we were very short of petrol. It was not necessary to exhort people very much because they could not go on joy rides, but there was a famous question which was put on hoardings and made on the radio—it would now be shown on television—"Is your journey really necessary?" I wonder how much we really take that to heart. When I came to the House today I saw that the car park outside your Lordships' House was just as full as ever. I do not want anyone to think that I am casting stones, because sometimes my car is there, although it is not there today, as it happens. No doubt some of those cars come from the country, some come from London; but is it always necessary? Is it always necessary for me to bring my car to the House of Lords? I do not think we take the matter seriously enough until we start to ask ourselves those questions. I wonder whether at some stage there could be a carefully worked out propaganda campaign similar to that carried out in the case of seat belts and whether that would really make people think before they took a trip in their car which they could equally well make by public transport.

4 p.m.

Lord ARMSTRONG

My Lords, I venture to speak for the first time in this House, with considerable misgivings and much diffidence, if only because, with the passage of time, one becomes more particularly aware of one's inadequacy. I have listened to debates in the past—it may comfort noble Lords that I have not intervened—and I am very much aware of the high standards of debate which are normally attained and to which I feel I can in no way do justice. However, I have felt that I might speak today, avoiding politically controversial issues and major strategic questions, to comment on a special situation, that of fuel distribution problems in terms of the present crisis in the more remote rural areas. This has been touched on by the noble Viscount who preceded me, but there may perhaps be some more to say about it. I shall confine myself, in a somewhat parochial way, to that part of the country where I live, Northumberland. There is a general feeling that the current crisis in this part of the country has so far affected us with above average severity. It is, I suppose, natural in situations of this kind that the problems which affect us directly loom more severely than those which affect our neighbours. At the same time, I think there is some justification for believing that this is true.

The problem in terms of the present and short-term future is primarily concentrated in two sectors: first, tourism, and, secondly, agriculture. It is probably true that in the past tourism in the North-East has been something of a poor relation. This situation has changed, one might say dramatically, in recent years, and thus one is confronted with a healthy growth industry as a result of active promotion on the part of local authorities and the several tourist boards, the British Tourist Board, the English Tourist Board and the Northumberland Tourist Board, as far as we are concerned.

However, hotel proprietors and catering establishments throughout the district have responded vigorously to the challenge of providing increased and improved facilities. Considerable capital sums have been invested for the purpose, mainly by relatively small family concerns. Apart from the steady progress in the provision of relatively inexpensive family holiday facilities, one is particularly struck by the very rapid increase in the number of overseas visitors in the area. It follows that if the industry is to suffer a major setback the consequences could well be seen to be more severe perhaps than in other areas which have benefited from large-scale tourism for a longer period. Bankruptcies are to be feared, and, further, if the growth were to be checked it could take a long time to restore it.

It is not easy to obtain comprehensive and up to date statistics on the matter, but perhaps your Lordships will allow me to mention a sample example which came my way when I was tempted to do some homework on the matter last week. Lindisfarne Castle on Holy Island, south of Berwick-on-Tweed, is a popular place of pilgrimage in normal times. There is no question, may I say, of personal vested interest in mentioning this matter, because it is most ably administered by the National Trust. Here, however, visitors during the month of June were down by some 40 per cent. as compared with the same period last year, which is a pretty major slice.

There is also evidence that other castles and country houses which form collectively part of the attraction of the area have also been affected, some more than others. The further away one is from the centres of concentrated population, the harder the problem becomes. Lindisfarne is some 70 miles from Newcastle and approximately an equal distance from Edinburgh. But stately homes statistics, comprehensive or otherwise, can only serve as an indicator, and the corresponding losses in the commercial field must represent by far the major part of the overall depression in what has been a very valuable growth industry in the area.

In attempting to state the disquieting aspects of a local problem one is confronted with something of a dilemma. It would certainly be unwise to exaggerate and to overdo one's case; it could well be counterproductive because our visitors may be deterred unnecessarily from coming at all. To some extent this has already happened. In the early stages of the crisis excessively alarmist statements were made, widely reported in the media, which must with hindsight be considered to have been ill-judged. Thus, pronouncements such as—I quote—"Motorists are warned not to travel on the Al; no petrol can be obtained between Newcastle and Edinburgh", have already caused much harm. But equally to take too complacent an attitude would be unwise, and were I to do so your Lordships might well say, "What is this fellow talking about! Why does he not shut up!"

For all that, I am aware that official representations have already been made. Questions have been asked on this particular matter in another place, and I am sure that the local authorities have made their voices heard in the appropriate quarters in Whitehall. There may be, however, a case for attempting some form of shortcut rather than allowing official processes to proceed through the usual channels. Our tourist season is short; it peaks in July and August. July is already well under way. I respectfully suggest that what is required is action today and tomorrow—if not yesterday !—and that if we were to wait for some weeks the solution to the problem would come too late.

I believe that what is required is, first, an immediate injection of additional fuel supplies. The total increase needed is probably not a very massive one, even in terms of regional norms, but needed it is; secondly, one would hopefully seek an authoritative assurance, which could receive the maximum publicity, that visitors to our area will not be stranded and that long planned holidays can be undertaken without undue concern. I believe that the situation is in fact stabilising, but that does not mean that one ought to be complacent.

Finally, I would wish to comment very briefly on what may be in many ways even more important, the agricultural position. The northern harvest is generally a late one and more often than not has to be pushed through in a critically short period of time, a matter of days, and in more senses than one it is all hands to the pumps. Such forecasts of the diesel supply situation as have been made available to date are far from reassuring. There is talk of allocation cuts, not of 5 per cent. but of 20 per cent. plus, and no guarantee of supplies being available at any particular date. The arithmetic involved in any shortage at such a period must be very simple and certainly requires no elaboration on my part. If a farmer needs 1,000 gallons for his combines and subsequent grain drying operations but only receives 750 gallons, then 25 per cent. of his production will be lost. It is evident that this, together with long-term problems must be the subject of responsible and intensive research at all levels. I feel that your Lordships will consider it inappropriate for me to press the matter further.

4.10 p.m.

Lord BALOGH

My Lords, it is a privilege and a pleasure to congratulate the noble Lord, Lord Armstrong, on his maiden speech, which showed profound knowledge of a very complicated question and a real addition to the sum of knowledge of this House. We hope to hear him again very soon.

The Motion before us is wide-ranging and I intend to limit myself to those problems of which I have some slight knowledge—namely, the problem of the BNOC and, secondly, the analysis of the expected crisis originating in the fuel shortage. However, before I move to the positive part of my speech I must take a course which is somewhat unusual in the House and declare an interest. I have been a critic of the North Sea policy of both Labour and Conservative Governments. As the noble Lord, Lord Drumalbyn, can testify, I pestered him for a long period. I then became a Minister and was responsible in this House for the two Bills creating taxation and the BNOC, and since the time I reached the Old Testament limit I have been, in one way or another, connected with the BNOC.

Let us then start with the BNOC. The noble Earl, Lord Gowrie, has voiced certain opinions about it and I should like to go back to the more rarified atmosphere of economic considerations. The BNOC is an important and sadly misunderstood, misjudged and under-estimated means of defending British interests against foreign undertakings. It is especially important because, unfortunately, in one way or another, a very large part of the North Sea was handed over to foreigners. About 60 per cent. of the reserves are in foreign hands. Therefore, unless we participate in the profits or tax, the balance of payments and the revenue will not benefit by it at all. Indeed, in a world economy which is not only influenced but totally controlled by a State cartel monopoly, itself ruling over a tight oligopolistic market dominated by supranational companies, the possession of a State company is an absolutely essential means by which one can get one's due share. Any abandonment of it will wreak a great deal of trouble and losses to our balance of payments and to the Government's revenues.

I am very sad that over the years that I have been in this House, Conservative Members have always preferred private profits, even if foreign, to public weal, even if domestic, and said so. There was an ominous ring in the noble Earl's exposition when he talked about the encouragement necessary to tempt mainly foreign companies to come back and sink wells. In view of the fact that those companies are not deterred by 80 to 85 per cent. agreements with Egypt, in a situation which is full of most obvious political dangers, I am absolutely at a loss to understand how anybody can say that those companies must have additional stimuli in order to condescend to take our oil. It is ridiculous.

When fledgling Ministers, imitating the boss, talk about the market they have obviously a completely different market in mind from what exists in reality. The market and the market forces which they talk about are characterised by the innumerable producers, innumerable consumers, and, what is more, a single price. If the noble Earl tells me that the prices at the gasoline stations are uniform and market clearing I would ask him to take some lessons in sixth form economics.

The Earl of GOWRIE

My Lords, I never said anything of the kind.

Lord BALOGH

My Lords, what the noble Earl said could only be interpreted in that way. One of the most disagreeable aspects of the peculiarity of this market is that the increase in prices by OPEC tends to increase demand and decrease supply. It is a very odd market. For instance, we had the latest OPEC increase, and Gaddafi, who is a sort of super-essential Arab, declared that he was going to cut his exports because he did not need any more money. He would rather hold the oil in the ground. A great deal of fun was had by the noble Earl as regards the abolition of the Price Commission. He said that OPEC would not obey it. However, is it OPEC that has created the present profiteering in this country or is it our garages? Would not the garages be rather discouraged from doing so if the Price Commission were still in action?

The BNOC, by monitoring swaps, transfer prices, arm's length sales and so on, has real knowledge. It is in the business itself, and can help the Inland Revenue, which is not very good at this type of game—it is a very complicated game—to find out the prices which the companies receive and their costs. As regards costs, there is a very important argument in favour of maintaining the BNOC, especially in the medium/long run, and that is that the private discount by which one judges investments is rather high—15 per cent. in the case of most oil companies. However, the social discount (the valuation of oil in the ground) is, of course, very much less.

Here there is a conflict of interest which I am sure the oil companies could be persuaded to heed, because they are quite responsible and intelligent people. However, they have to protect, unless they are pushed, the interests of their shareholders and it is right that they should do so. That means that the structures erected in the sea are minimising the costs relative to profit, and had the companies used a lower rate of discount—say 3 to 4 per cent.—then there would be a different structure and a higher final extraction rate.

Given the fact that we are all afraid of absolute shortages of oil, it seems to me that it would be only too justified—indeed essential—to have a company which can act commercially, but which at the same time takes into account national, rather than firm, interests. Nor can the private company discount increased prices in the future and thereby substitute for the ordinary market forces, forces which in this market do not function. Conservation policy can easily be fostered through BNOC, because, without immediate profit, it can search for and find oil, and at the same time not exploit it but use it as a reserve. If you wish to have a conservative endorsement, I would point out that President Coolidge—who was, I think, the ideal Conservative—after the Teapot Dome scandal, initiated the accumulation of the conservation of naval reserves, now called national reserves, all being in public hands.

Finally, and very importantly, it safeguards and reserves a minimum of oil for Britain without foreign interference, because they will not know. Therefore, I very much hope that before the Government take measures, they will consult some reputable economists in order to hear this general argument, of which there was no sign whatever in the noble Earl's otherwise very intelligent and interesting speech.

I now turn to the crisis. I fear that there is a grave danger that the nature of the threat to the Western industrialised countries will be misinterpreted. For instance, all reports and statements about Tokyo suggest that the leaders of the countries attending that Summit consider the increase in price, through intensifying inflation, as the main menace. Some even suggest that this will lead to a depression. In my view that is the wrong diagnosis. We hardly face an absolute, complicated physical shortage of oil such as we had in 1947, about which the noble Lord, Lord Shinwell, could tell us a few things. We suffer from a price increase. That means a shift of real income from the industrialised countries, which are rich, to the Arab countries, which are richer. It is unfortunate and it is not very equitable; but there it is.

However, it must be considered that this loss is a once-for-all loss. Once you have adjusted, its influence wanes. Unless there is some politically-motivated embargo, I think that we can get through this crisis without very much trouble, provided that sensible policies are followed. In contrast to 1973–74, when the loss was of the order of magnitude of 100,000 million dollars, the present increase is not likely to exceed half that amount, and it will probably he less, depending a little on how much the Arab sheikhs increase it relative to the basic Saudi Arabian price. It will certainly not amout to more than 2 per cent. to 3 per cent. of the national income of the West; that is to say, one very mediocre year's advance in normal times. Even this overstates the real impact, because it is mostly the desert countries which will gain, and, as yet they are unable to accept the real transfer of resources. They must take their gain in terms of increased liquid balances, or, at worst, investment. In the latter case, of course, they would be building up some trouble for our balance of payments in the future, but that is another story.

But even if they were able to absorb this real resource in the form of imports, the national real income of the industrialised countries need not fall. At the moment we have an enormous stock of idle resources, both manpower and capital. Indeed, people are saying that unemployment will increase and that there is a tendency towards a slump. All that is, of course, nonsense if we are sensible. If we are clever and do not allow the money supply to govern our minds, or have that sort of a fetish, we can easily deal with it.

The real problem is what may be called the multiplier effect of the shift in purchasing power. Should that occur, the damage might be extremely serious. There are two ways in which this multiplier effect may come about. The first, and in this country probably the more important, is if the increase in the price of petrol leads to higher wage demands. This would work itself through the system, at each turn increasing its force. It was from this point of view, of course, that the strategy of the Budget, which reinforced inflationary forces by increasing indirect taxes, must be condemned. It creates a situation in which restraint can be enforced only by unemployment and loss of income. I was astonished to see that in the debate on unemployment this particular aspect of the increase in unemployment was not mentioned. We shall pay dearly for the excesses of the unions last winter.

The second way, and perhaps less important from the purely British point of view—as we are shielded by the increasing income from the North Sea—is the impact on the balance of payments. In this respect, we must learn and must know—and nobody has learned it so far, certainly not the central bankers—that most of these excess exports of oil are unrequitable. They cannot be requited by exports from the industrialised countries to the desert Arabs, because they have no absorptive power. From this point of view the present situation is very similar to German reparations in 1929 when, as a result of the American recession, payments could not be absorbed either by us or by the Americans. The Germans forced the payments, thereby transforming a depression into a catastrophe.

Given the basic differences in Government policy and popular reaction in the various industrialised countries, I fear that sterilisation of these excesses—which ought to happen through safety nets—will not happen. In fact, Helmut Schmidt used most undiplomatic language to demand from the Americans exemplary self-infliction of wounds in order to qualify for monetary acclaim, and the bankers of the world, who will lose most if there is a depression, importunely reinforced this policy, and it is now likely that despite the slight recovery in Germany we shall all sink into a totally unnecessary slump. This is the danger in the short term, and with vivid remembrance of what happened in 1931 one should not disregard it. The Third World has over-borrowed, and some of the bankers have made advances, the soundness of which is very questionable. Any default might well have a domino effect. Every effort should be made to avoid such a catastrophe by timely action and timely mobilisation of sufficient funds.

The long-term problem is of a very different character. At present we are threatened with the energy price problem: what would be devastating to our way of life would be an acute physical shortage which might follow measures of conservation by the oil producing countries. I myself disregard this to a large extent because it seems to me that the political situation in the Middle East is such that it is unlikely that the rulers would allow an industrial catastrophe in the United States of America.

It is ironic to see that British Governments, both Labour and Conservative, should want to sell off at bargain prices the mighty asset they have through ownership of a large majority of British Petrol- eum. They both seem to prefer a meaningless diminution of the PSBR at the cost of a long run loss of increasing solid foreign exchange revenue. It is the physical shortage of energy and not the economic transfer of real income which is the real threat to the West. In my opinion the only safeguard of this Government is an agreed incomes policy plus international financial action. In view of the manifestoes published, I do not believe that this is practicable. I therefore think, as a pilot would say, that turbulence is ahead.

4.33 p.m.

Lord LUCAS of CHILWORTH

My Lords, it is my privilege from this side of the House to extend our congratulations to the noble Lord, Lord Armstrong, on the occasion of his making his maiden speech. If I should take up one or two of the points that he made, it is not with any intention of inducing into his remarks any note of controversy; it is just that I wanted to say some of these things in any event, and it should not detract at all from the measured and responsible speech we heard. I am sure that noble Lords will wish to hear the noble Lord, Lord Armstrong, again on other occasions.

Equally, my Lords, you would not expect me to follow the noble Lord, Lord Balogh. Indeed, I wish to come back to some rather more mundane and everyday topics in this debate. I start off by accusing the noble Lord, Lord Strabolgi, of introducing within three minutes of opening the debate a somewhat alarmist element. He spoke quite dramatically of the shortages, the queues, £1.40, £2 per gallon for petrol; he said there was a crisis approaching of the first magnitude. He accused Her Majesty's Government and my noble friend Lord Gowrie of leaving these matters to market forces, and asked what was going to be done.

On 19th March I asked the noble Lord, in his position as a Minister, some questions with regard to the grading of petrol, its price, and the need for investigation into certain matters with regard to conservation and price. He replied, at column 859 of the Official Report for the 19th March: My Lords, we think—and I am sure this should appeal to the noble Lord and his noble friends opposite—that this should be left to market forces". So I do not think he can accuse my noble friend of doing anything too dramatically different from what he was advocating only a few months ago. I would say, indeed, that the critical position in which we find ourselves is more attributable to the Government of the day in the period of the crisis in 1974 and the following years. A crisis did then occur, but the consuming nations did nothing whatever but go on consuming oil at the same rate. The noble Lord's Government did little to assuage that demand.

I turn, if I may, to a subject about which I know perhaps a little more, and that is the transport field. It would be right if I reminded your Lordships that I have the privilege to sit on the National Petrol Committee of the Motor Agents' Association. That Committee met today, so I think I am able to bring some little ray of hope to the noble Lord, Lord Armstrong, and to dissuade some other noble Lords from feeling that things are not quite as right as they would like them to be.

Let us he quite sure that the transport industry use no more, and some few points less, than 20 per cent. of a barrel of oil. It could be argued that a certain amount of freight and some people could be transferred from road transport. We have been over the first point many times. A measure of freight can be moved, and is being moved for other reasons, but it is not going to make a significant difference. Certainly the hauliers will argue that the other ways of moving freight will have to be more efficient.

It can be argued that if people are to be induced to use public or local transport, that service has to be vastly improved. The urban transport systems and the bus services are absolutely appalling. It is not only a question of prices—and they are going way out of the sky—it is that those services are not reliable. They just do not arrive. I am not interested in the reasons why; it is the job of the transport managers to overcome them. That is their opportunity to show their skills. If they cannot show them, they will lose.

Secondly, it has been the policy of successive Governments to house people outside the city centres: in other words, to bring a dependency upon personalised transport. You cannot change this overnight. What you can do is to embark upon housing systems, road systems, that over the years—and the noble Earl talked about the year 2,000—will eventually lead to some change in the pattern of personal transport.

There are other forms of liquid fuel consumption which ought to be looked into. One thinks of heating in public places. Perhaps it would be an idea if the Government looked further at the statutory requirements for heating in offices and factories. Indeed, one looks at this Chamber: there are 10 banks, each of six lights, which makes 60 lights. If we reduced that consumption by, if you like, 10 per cent. or 15 per cent., I do not suppose that we should not be able to see each other across the Floor. It would not make very much difference, but throughout the entire country it would make that little bit of difference that perhaps will go towards the saving of the 5 per cent.

I assure your Lordships that the retail motor trade is selling considerably less than 5 per cent. of gasoline than it was a year ago, so presumably the motorists are making some savings, and more credit to them. Whether it is because their social conscience has pricked them or that the price has hit their pocket, I leave to others to draw conclusions. Inevitably the price of liquid fuel will go up, and rightly it should. If one considers it over the last 20 years, the actual price paid for a gallon of fuel, whether it includes tax or excise duty, has remained about constant with the cost of living and the actual wage packet.

On the question of the shortage and the queues about which the noble Lord spoke, I listened to 23 men from all corners of the United Kingdom and Northern Ireland this morning. Northumbria, the Border counties of Scotland and some parts of East Anglia are suffering from local shortages, not that there is insufficient gasoline to be delivered but insufficient trucks and men to deliver it. The distribution of that liquid fuel which is available is in the hands of the oil companies, the "Seven Sisters", and I am not entirely satisfied that there is not some discrimination made in terms of that distribution. I remind the House that in 1978 the major companies were promoting price support schemes of up to 8p a gallon off. The schemes were being applied to high volume sites and those sites are owned by the petrol companies. The petrol supplying companies own over 52 per cent. of all the outlets by volume in this country.

A monopoly position exists and that was acknowledged by the Monopolies Commission report published earlier this year, although the commission said it need not be to the detriment of the public. I am suggesting today that that position can be detrimental and I urge my noble friend and his colleagues to ensure that the distribution is under the scrutiny of the department because, in my view, the sort of shortages to which the noble Lord, Lord Armstrong, referred occur mainly in the rural areas, mainly where the outlet is small, and where last year, because he did not receive any price support, he did not sell petrol; he was penalised then and he is penalised today because the allocation is on the basis of the 1978 deliveries. Thus, continually the volume of gasoline which may be delivered into the retail market goes to the high volume site, which is in the industrial area. There is no doubt therefore that some smaller outlets will go out of business—because they do not get supplies—and it is my contention that this may suit the long-term retail marketing plans of perhaps three of the "Seven Sisters" who control the bulk of our retail petrol, wholesaling and retailing; and I urge my noble friend to look at this point most carefully.

We have heard a little about rationing and it is not the view of the Motor Agents Association that rationing would be either a practical or a profitable proposition. Who would determine the essential user? Would it be the bureaucratic governmental department? No, I do not think they would be likely to make any better fist of it than almost anybody else. Of course, price is the great rationer. The distress of putting one's hand in one's pocket focuses sharply the need to save when using the heater in the home or the motor-car—when buying 500 gallons of oil or 10 gallons or one gallon of petrol. If the alternatives are made available, people will take to them, and I suggest to the Government that it is not their duty to impose penalties on a certain fuel source but to provide the kind of environment that will allow the developers of alternatives to place before the consumer a reasonable, practical and economic alternative. That is the duty of the Government and I should like to see that duty prosecuted with far greater energy and endeavour. It would be no excuse—no excuse acceptable to me, at least—were my noble friend to say, "Yes, but we have only limited resources." The resources are relative to the other side of the equation, the cost and the growing scarcity of the alternative of liquid fuel.

If this critical situation, focusing as it has today so far on petrol and gasoline products, is a battle—a battle of fuel and a battle of the economy—then the soldier is the driver in the front seat, the householder with his finger on the temperature gauge in his house. He, like any other soldier, will win that battle if he is properly, dynamically and energetically led—and that is the job of the Government.

4.47 p.m.

Baroness MASHAM of ILTON

My Lords, I too wish to add my congratulations to the noble Lord, Lord Armstrong, on his maiden speech which will be of encouragement to those people in the tourist trade. In the North-East our season is indeed short, and our winters are long. On a warm day in London the real dangers of a shortage of oil may seem far away when your Lordships enjoy iced coffee and the bustle of London traffic continues outside. It does not seem far away to me when one looks back a few months to life in the North-East of England last winter. Because of a stoppage of heating oil due to strikes, our schools were closed and we shivered in our houses. The roads were blocked with snow and the industrial towns were shrouded in fog. It was encouraging last night to hear His Royal Highness the Prince of Wales speaking about the needs of disabled people. He said: It can come to anyone at any time". Disability came to me 21 years ago and I can tell your Lordships at first hand that being cold and damp is one of the worst threats to any paralysed person. It grips a person, giving chest pains and making one feel sick and hopeless. The circulation being slowed up in the body is one of the causes, but also urinary infections are an added risk. The elderly people in our community are also at risk due to cold houses, and hypothermia is a well-known danger.

Another at-risk group who come very much from the industrial problem housing areas, such as cities like Glasgow, are young children who contract whooping cough, due to the not taking up vaccine because of the publicity. Many babies with chest conditions will die or be seriously affected unless they have warm houses. I hope the Minister will look into the needs of these groups and that these people living on Social Security benefits will be helped with the rising fuel costs. Many such families heat their houses by paraffin stoves, which in themselves are a danger, especially with young children, as fire becomes an added hazard.

Last winter the noble Earl my husband thought he would sell some logs to help out during the fuel shortage, as we live in a rural area and many people such as old-aged pensioners have open fires. He was horrified to discover that he could no longer sell logs in the traditional way, which was either by the bag or by the load. Because of consumer protection legislation logs would have to be weighed and sold by the hundredweight. To employ someone to undertake the weighing would make the loss too great, so, sadly, no logs were sold. It would be helpful if the Minister would look into this matter and see how badly this legislation is affecting the consumer, instead of protecting him.

Living in a rural area, I should like to bring to the notice of your Lordships the problems which small rural garages seem to be having. Our garages are now closed each weekend, and for several months one of them has been allowing only two gallons of petrol per customer. One garage owner told me that for the past three months he has been allocated 20 per cent. less than he was in the same months last year. If it had not had any petrol shortage, the garage would have expected a 12 per cent. growth. May I ask the Minister this question: As garages pay high rates, can they now expect a rates reduction?

There is great concern in rural areas as public transport is very limited. All the local railway stations around where I live have been closed and the tracks taken up, and local buses are very limited, and in some areas non-existent. If the problems are to become worse, people will be forced to leave the rural areas or go back to nature. Here I should like to declare an interest. I breed Highland ponies. They are hardy and can live out of doors all the year round. They are strong boned and without any problem can carry a man. They are versatile and sure footed, and can pull a trap. On our farm one of the farm men checks the sheep by riding a pony out of choice. This week the Royal Agricultural Show is taking place, and two weeks ago the Royal Highland Show took place in Scotland. Many noble Clydesdales and Shire horses have in the last few years returned to these shows. Perhaps in all seriousness a place can be found again for them on our farms to help out when fuel is short.

There are many fit young people who can use the energy of their bodies by riding bicycles. Could not more be done to make this safer by providing special paths in some of the towns, as is done in Germany? I should like to end by asking the noble Earl not to forget the disabled people who have to rely on their cars for their livelihood and for running their homes. They have no choice. They cannot ride a bicycle or a horse unaided, and they cannot use public transport, should there by any.

4.53 p.m.

Lord RITCHIE-CALDER

My Lords, I, too, should like to congratulate the noble Lord, Lord Armstrong, upon his maiden speech and express the hope that we shall hear him many times in the future. We are talking today about an energy crisis, but I should like to suggest to your Lordships that this is not a crisis; it is a climacteric. In fact, we are now approaching a point of no return. This is the end, or the beginning of the end, of liquid fuel. That is to say, we are to move towards a stage in which essential energy will have to come in a form other than the convenient form (which is comparatively recent) in which oil is put into internal combustion engines. This is a statement of fact. We are moving away from oil as simply a convenient, portable form of fuel which happens to suit us in the car age, the areoplane age—indeed, the age of the internal combustion engine.

When we are talking about the future of fuel let us consider two stages. We are going to go through a rough time because of what I was going to call the abruptness of the situation, but really it was not entirely abrupt. It should not have been abrupt; we had plenty of notice of it. At any rate, it is a situation in which at the moment people are inconvenienced because of shortages of oil arising from price difficulties. But we must think again and ask, what are we going to do in the interim period. We have to look ahead to the physical depletion of oil—not just North Sea reserves, but other reserves as well—and the stage will come when we shall have to find alternatives.

In my view—and I make no apology for returning to a theme that I developed at some length on a previous occasion—a move back to coal is absolutely essential. I do not mean the crude, vulgar and silly wastage which occurs in burning a piece of coal. A piece of coal is in fact an enormous chemical resource. When we again get to grips properly with coal, in the way that I want to see it done—with the development of coal and all its by-products—we must move pretty quickly into the hydrogenation of coal in order to produce and to carry us over the phase when we remain dependent on something which is fluid, which is convenient, and which we call oil. We must prepare now for that stage.

I should like to emphasise another point. This is difficult for someone like myself, as the ex-vice-chairman of the Campaign for Nuclear Disarmament. I do not see, and I cannot see that in the future—certainly in the next 10 or 15 years—we can possibly avoid recourse to atomic energy. I say that with reservations because the point has been made—indeed it was raised by the noble Earl himself in his introduction—that we inherited or acquired atomic energy under the worst possible circumstances. I have used the phrase before, and I repeat it: we are dealing with "nuclear superstition". This arises from the shock, the impact, of the release of atomic energy as a nuclear bomb. I was a member of a World Health Organisation study group which in 1952 considered the mental aspects of atomic energy. The mental aspects of atomic energy were the psychological aspects. We dealt with possible brain effects and so forth, but those matters were far less significant than the psychological, cultural impact. The phrase we used—I make no apologies for repeating it here—was that "we are now back in the childhood of mankind." We are cowering like our Neanderthal ancestors in the dark caves of our own emotions. They were trying to assuage the elemental gods of fire, flame, and earthquakes. But our elemental gods are radioactive; unseen, untasted, unsmelt, unfelt, and all-pervading.

Try, my Lords, to wrestle with and encompass that situation, even within a generation. There was one way in which we could have done it, because the answer to superstition is reason and explanation, but unfortunately we lost even that opportunity. That was because over the years—I say this without any reservation—the scientists, the experts on whom we rely, have indeed been the spokesmen of the atomic energy industry and they have lost the respect of the people whom they have been trying to persuade. Too often in dozens of cases, by prevarication, by deliberate suppression of facts, or by giving a misconstruction of what was happening, they have been proved wrong, demonstrably wrong, in big and sensational ways. I am reminded of what happened at Harrisburg. My hostess said to me, referring to a spokesman for the atomic energy people, "I am sure that I wouldn't buy a used car from that man", because what was said was completely and totally unconvincing. Indeed, it has been true for the last 30 years that my colleagues the scientists, the experts, who should have been explaining and reassuring us, have failed us. We have now got to the point where people do not trust what is said, and the result is that superstition has been exaggerated and people have been exasperated by what they regard as a betrayal.

Now, these are not stupid people. I do not suggest for one moment that we in CND (the Campaign for Nuclear Disarmament) were stupid. We were way ahead of our time. But the thing is that what we were doing was saying then what is now being said and clearly demonstrated; that is, that the risks from atomic energy were the things with which we had to cope. In 1961 I wrote a book called Living with the Atom, and I do not think there has been any question raised in the discussions now about what should be done with regard to the disposal of waste, and so on, which was not anticipated in that book. I am not claiming it as personal foresight, because I was the chairman of a committee which was examining this subject at the University of Chicago; that is, the radiation hazards of nuclear energy.

This is something which is very disturbing, because the fact remains that we shall not have fusion energy in any effective commercial way for at least another 20 years. I am prepared to put my money on the safety of fusion energy, although some of my colleagues question that. One thing I do say is that, if we are going ahead with nuclear energy, as indeed we must, we must look at the situations which are happening at Torness and elsewhere and say, "How can we indeed secure the safety of these places to the point at which we can convince the people who are now demonstrating?" This is something that we have failed to do, and for this I blame the Atomic Energy Authority. I think they have been slightly arrogant, perhaps, in the handling of the public on this matter, because they have said, "This is stupid, this is silly, all these people demonstrating". It is not true. The facts are that we are dealing with ignorance masquerading as knowledge, and we must convince people that it is true knowledge and not ignorance masquerading as knowledge, because it has been proved over and over again that they were ignorant. So we now have to cope with that. That is one thing.

The second thing—and this is the only further point I want to make, as I am dealing with my hobby-horses tonight—is this. I think it is absolutely essential, and will be more rewarding than anything I can think of, to push ahead with wave energy. There is no question about that whatever. Here is the purest of all energy, probably the most powerful of all energy, and certainly the most constant and enduring of all energy; and here we have it all around us, capable of being exploited. If anybody wants to make a real contribution to the solution of the energy crisis, it lies in things like wave energy, solar energy and wind energy. We have not developed them nearly enough. These things take a long lead time to develop. Under the last Government, I think we did pretty well in backing up wave energy, certainly, and I simply want to insist that it is essential to the future survival of this country, if we are going to have energy in abundance in order to have life in abundance, that whatever research and development is needed to promote it must, as from now, be made available, and we must not simply say, "Let us wait and see how much money we make out of what we are doing now".

5.4 p.m.

The Earl of BESSBOROUGH

My Lords, I am always happy to follow the noble Lord, Lord Ritchie-Calder. We have worked very closely together, on highly controversial matters, I may say, and he is always worth listening to on these subjects. In some of the things I shall say I shall certainly be following him. I think we should be grateful to the noble Lord, Lord Strabolgi, for initiating this debate and for giving us this opportunity to discuss these highly important energy questions, even if we do not agree with all he said. I shall refrain from commenting on the future of the BNOC—or "Bee-noc", as my noble friend Lord Gowrie describes it. He has given us the Government's views on that, and I shall confine my remarks to certain general issues concerning the threat of an energy crisis, not only in this country but in the world as a whole, and certain specific points concerning alternative sources.

But I must say this at the outset. I am concerned about the energy situation in Europe and, indeed, the free world as a whole. The cutback of oil supplies from Iran, as we know; the failure of the West to develop nuclear energy at the rate intended, for reasons which the noble Lord, Lord Ritchie-Calder, knows well; the increased petrol consumption earlier this year by motor vehicles in the United States, despite recent restrictions; and the fact that, apart from coal, alternative sources, such as those mentioned by the noble Lord, Lord Ritchie-Calder (solar, wind, tidal, wave, geothermal and, ultimately, fusion), are either likely to meet only a small percentage of the shortfall or are still so much in the research stage that we shall be well into the 21st century before they become practical—all these considerations give some cause for alarm; and the detailed production figures which can be adduced from them, as I have heard from the Director of the International Energy Agency, and even assuming increased Saudi production of oil, could well lead to an oil shortage in the West of 10 million barrels a day by 1990.

Even if nuclear reactors, whether pressurised water, gas-cooled or fast breeder, in fact come on stream in greater numbers in the 'eighties, we have to recognise the fact that nuclear power in the civil field is mainly only good for electricity generation, and perhaps in the future for powering nuclear containerships, and that it will be some time before many motor vehicles can be powered by nuclear fuel cells or even electric batteries, methanol, "gasohol" or even liquefied coal—to which, nonetheless, I believe very high priority should be given in research. The situation can be seen to look grim, as the noble Baroness, Lady Masham, indicated so very vividly indeed; and it makes it absolutely clear that this country—and I speak also, in a sense, like the noble Lord, Lord Bruce, with Europe in mind—as well as the United States, Japan and other larger consumers, must make greater efforts to conserve existing fuel stocks (and I agreed very much with all that my noble friend Lord Lucas said on that point) as well as developing alternative sources.

As my right honourable friend Mr. Geoffrey Rippon says in the foreword to the European Conservative Group's book on Energy for Europe—which I know some of your Lordships have seen, including the noble Lord, Lord Strabolgi, and my noble friend Lord Gowrie: If we wish to sustain and develop social and economic life in the world, public opinion must be mobilised to a greater extent to recognise what is at stake if we fail to take positive action. Some States are more thorough than others in pursuing an energy strategy. Certain projects, such as fusion research, of course, lend themselves to action by the Community—co-operative research—if only because of their enormous cost and speculative character.

The Community has a crucial role to play in co-ordinating such research and development programmes in order to avoid unnecessary and expensive duplication. This country and the Community must also, in conjunction with the International Energy Agency, agree programmes and exchanges for the benefit of all industrialised nations. Only so shall we solve the problem which will shape the destiny of generations to come and, not least, our own personal, political and economic freedom.

Control of the production and supply of important carriers such as oil and uranium resides frequently with non-European Community governments and firms. This political reality forces the urgency with which a coherent and comprehensive energy policy must be formulated. It permeates every sector of economic and political life, so that the very sovereignty of member States can be challenged by an external power. Energy policy cannot therefore concern itself solely with the need for energy investments which anticipate future demand. It must also concern itself with a strengthening of the political freedom of decision. In this sense, our political leaders—as our own Prime Minister has so wisely done in regard to increasing nuclear capacity—must give a lead in policy decisions which relieve people of anxiety as to the energy future, and induce confidence in the economic system in which they lead their individual lives.

I believe that such a policy can be formulated within the Community so that the Community's economy continues to generate prosperity for its own people as well as for those—and this is very important—of the developing world. Indeed, I personally believe that the commitment of European Development Funds to the Community's partners in the Lomé Convention, as well as research and development funds in already-accepted alternative energy sectors, is a fundamental element in assuring reliable suppliers of energy carriers and other vital raw materials. And encouragement of Community investment with others in the Lomé States is essential to the development of the right mutual dependence. It is worth noting that Europe's Arab friends regard these relationships as a test of sincerity. My own visits to the Middle East and talks with some of those most concerned with these matters have made this clear.

I am doubtful whether United States energy policy is yet being effectively implemented. Perhaps that is an understatement. Failure to implement it, compounded with delay in investment decisions, may well have disastrous effects—and not only on the United States' econ- omy. Whether the United States Government will fulfil its responsibility to its own people, I do not know; but the European Community, including Britain, must not fail to meet its responsibility to the citizens of the Community and to the developing countries.

The Community's crude oil imports for 1976 amounted to 46.9 billion dollars and, for 1977, 49.3 billion dollars, representing well over 3 per cent. of the gross domestic product. The Community's imports of crude oil in those years represented one quarter of total imports as compared with about 22 per cent. for the United States. However, the Community is a far more open economy than the United States. Third country imports represent over 12 per cent. of the gross domestic product as compared with only 7 per cent. for the USA. It is therefore fundamental that oil-producing nations should continue to enjoy confidence in the currencies in which they receive payment.

I believe therefore—and this is a point that has not yet been mentioned—that a necessary strengthening of OPEC confidence and of the financial system of the non-Communist world is the creation of the European currency unit, backed by the reserves of member States to parallel—and I use that word with circumspection—the dollar as the medium for world trade. The consequences of a loss of confidence by oil producers in their customers' currencies need no illustration. European monetary union is therefore an important challenge which, in my view, and in this context, must be taken up and won.

The recent report of the Workshop on Alternative Energy Strategies for 1985–2000 concluded that the end of the era of growth in oil production is probably, at the most, only 15 years away. I think that most noble Lords will probably agree with that. However, there may be a decade or so of more or less constant oil production after 1990 in which consumers will have to make adjustments necessary to face a decline in that oil supply. It is possible that oil discovery or recovery factors might be higher than has been assumed, but the effect would be to delay the impact for a few years, I think, rather than to solve the problem of transition to other fuels.

The warning of the Workshop assumes that political relations between oil sup- pliers and oil consumers are unchanging. This is very important. I believe that the risk of changes in these relationships could advance the critical date for the transition to other fuels. For instance, the installation in an oil-supplying State of a Government hostile to the Community might be sufficient to rupture supplies, either to this country or to the Community or even to the world market. During his visit (I think it was last year) to Washington, Sheikh Yamani, commenting on action by the United States Congress to embargo the sale of 60 F15 aircraft to Saudi Arabia, said that such action will diminish Saudi enthusiasm to help the West and co-operate with the United States". Those words were stated moderately but they were not minced.

I should like to emphasise here that the pursuit of an even-handed policy towards Arab and Israeli interests by this country and by the Community, whether in trade policy or foreign policy, is essential not only for peace and stability in the Middle East but also as a yardstick by which Arab oil producers will judge our sincerity and, as a result, remain reliable oil suppliers.

The European Community's energy policy is therefore intimately linked to major international issues such as the Middle East, the North-South dialogue between the rich and poor nations (on which many Arab oil-supplying States place great store) and the East-West confrontation, particularly in the African theatre, where the Community's uranium ore supplies could be endangered. There is therefore an urgent need for the Community to reduce its dependence on oil. It is its responsibility to fulfil its role in the determination of energy policy according to the treaties, the European Coal and Steel Community and the Euratom Treaty, to which we are committed and to co-operate with member-States in their implementation of agreed energy policy so that omissions or delays or needs occurring in one member State do not lead to distortion of the economic development of that State in particular or of the Community in general.

An energy policy, once agreed, can be effective and comprehensive only if the political will exists in the Council of Ministers to implement that policy. Many of us—like the noble Lord opposite—who have served in the European Parliament believe that the Community will remain vulnerable to a possible oil embargo and potentially vulnerable to an enduring suspension of uranium supplies. For this reason, the Community must exploit its abundant coal reserves, search for and exploit existing and new sources for oil and natural gas, maximise the use of coal and nuclear power in electricity generation, identify indigenous sources—and there are some—of uranium ore; foster research into the harnessing of novel energy sources; and seek, as I have said, all reasonable economic means to conserve energy. There must be a concentration of investment in energy systems which will reduce or even might ultimately eliminate the use of oil, which should in any case, in my view, never be used when another fuel would serve the purpose equally well.

To conclude, I should like to remind your Lordships that it was the Soviet physicist Andrei Sacharov who asserted that the development of nuclear technology was one of the necessary conditions for the preservation of the economic and political independence of every country, whether developed or just developing. If the economy of these countries continues to be in any important way dependent on the supply of chemical fuels from the USSR or from countries which are under her influence, the West will find itself under constant threat of the cutting off of supplies. This will result in a humiliating political dependence. We must never be constrained or blackmailed owing to a lack of indigenous energy capacity.

The European council in Paris in March this year renewed its commitment to the achievement of total Community oil production of no more than 500 million tonnes of oil equivalent annually and its call for strengthening and speeding up, whenever conditions permitted, of programmes for nuclear power and the development of novel sources. After increased nuclear capacity, which is in my view and that of the noble Lord, Lord Rothschild, proven as safe as, if not safer than, other principal energy carriers, I would give high priority to liquefying coal. I have seen the latest figures, and the initial price for coal liquid produced by the Gulf plant in West Virginia is expected to he about 26 dollars a barrel; but the backers there tell me that the price will drop later and then not be so very different from expected fuel oil prices of 20 dollars a barrel.

Much as I applaud positive commitments by the European Council, I at times doubt the vigour with which governments of some member-States fulfil their commitments until electors, business leaders, officials and we members of Parliament are convinced of the energy strategy which they must adopt. Only they can bring governments to exercise the necessary political will to achieve essential ends. I was dining last night with the noble and learned Lord (who I was hoping would be sitting on the Woolsack at this time) and I thought what a wonderful example he gives to us of his pedal power and what a good conservationist he is.

5.24 p.m.

Lord TAYLOR of MANSFIELD

My Lords, it is always a pleasure to follow the noble Earl, Lord Bessborough, who is knowledgeable about the past and the present and who always makes very cogent remarks regarding the future and its problems. This is not the first time that I have had the pleasure of following him and, if I may say so, it is a great pleasure this afternoon to congratulate him on the objective speech that he has made in this realm of fuel policy. I am never quite sure whether I should declare an interest in a fuel in an energy debate—it is certainly not a financial interest. It is, within a few weeks, 71 years ago since I started work at the pit; and from that time until this present moment I have always made it my business to take a lively interest in the question of fuel and energy upon which our economy depends. It may be that during the course of the remarks that I have to make there is a partiality and bias towards the fuel of coal, and it is to that that I wish to make my remarks.

All the speeches today confirm the conclusion that I came to when I saw this Motion on the Order Paper, that nothing could have been more timely and more topical than the question of fuel and energy. When my noble friend Lord Ritchie-Calder was talking about the waste that was in a piece of coal, it reminded me of what used to be the normal experience in the pits so far as the production of coal was concerned. I have said for many years that one of the mistakes that I think this nation, both when it had a monopoly in the fuels sphere and even since, has made in the use of coal is that we have been very prodigal indeed and guilty of colossal waste.

It came to my mind while my noble friend was speaking that at one time in the pits no coal below a size of 2 inches was allowed to go out. It is not an exaggeration to say that, over generations, millions of tons of that precious fuel has been thrown into the gulf and can never at any time be retrieved. It is because of experiences like that that one comes to the conclusion, which may not be shared by everybody, that in the use of coal over the generations we have been exceedingly prodigal; and perhaps, with the change of circumstances, many of us now regret it. Fuel for energy at this moment is the preoccupation of the whole world; it is not confined to your Lordships' House. The far East, the American Continent, nations of the West, even the OPEC countries which produce and sell large quantities of fuel oil in one way or another, are discussing energy problems; and well they might be, because the economies of the world are very severely affected by this particular question.

Last week the matter was treated as very urgent and a conference was called—it was rather hurriedly summoned—of the Heads of State in many parts of the world. In fact, to summarise, from Tokyo to Geneva they were discussing the problems as customers and as producers of oil. Today your Lordships' House is no exception to the universal forum that is now taking place in many places throughout the world. I am sure that whatever our individual approach might be to the short-term or long-term problems of the fuels for energy, we are all grateful to my noble friend Lord Strabolgi for introducing this Motion and initiating discussion on this very important question.

On reflection and thinking of the last 20 years, I came to the conclusion that the circumstances of today, as projected by the meetings I have mentioned which have been taking place, the publicity which has been given by the media and the Press, are not bringing new problems but ones which appear in a different form. In the late 1950s and the 1960s, in 1973 and now in 1979 there were then and there are still many problems in the field of fuel and energy. This is the third time in the last 20 years that fuel problems have surfaced and confronted particularly the industrialised nations.

Memories of the 1950s and 1960s must be still fresh and green in all our minds. Oil, by comparison with other fuels—particularly coal—was cheap at that time. There was an oil lobby—let us face it—inside and outside Parliament. Regrettably, I think, they won the day, with dire consequences for the coal industry and particularly in Britain. What were some of those consequences?—pit closures to the extent of 400, a decline of manpower in the industry of 500,000 and a decline in investment. I will refer further to that in a moment.

Since 1973, there have been those who said that what was done then was in no way a solution to the fuel problem in the long term. Would anyone now contest the opinion of those who argued against pit closures and putting men on the road to the magnitude I have mentioned? Would they say that they were wrong in their assumptions and conclusions? I recall saying in another place in the early 1960s that it was my opinion that we were putting too many eggs in the oil basket. I confess that what prompted that statement was not price, as it is today, or restriction of output. They were the two calculations then, but since there have been two additional factors: They were the price and the possibility of the restriction of output. There was also the factor of vulnerability respecting the supply of oil. First, it was a long haul by sea; the Suez Canal was closed and there was the long haul around the Cape. Secondly, there was the explosive nature politically of the area of the Middle East from which this fuel oil came. Nobody would like to have said what might happen or what might still happen.

I remember being in Iraq in 1957 and being told that from the town of Kirkuk, the oil centre of the oilfields of Iraq, there was a pipeline 600 miles long across the Syrian Desert to the landing port of Tripoli in Lebanon before the stuff was put into tankers to he hauled across the Mediterranean.

I thought then, and I still believe, that we made a mistake in running down our coal industry, because at that time fuel oil, as compared with coal, was cheap. With fuel resources in abundance beneath the crust of the earth here in Britain, to run down the coal industry to danger point and place so much on oil, many thousands of miles away from our own refineries and power stations, was a mistake. If I could summarise, it was clutching the immediate advantage but being blinkered to the long-term problems in the fuel sphere. I think this lack of faith and semi-abandonment of coal as a primary fuel has had repercussions in two spheres: first in manpower and, secondly, in investment.

I should like to make just one or two observations on both. The information that I have to give to your Lordships is taken from last year's annual report of the National Coal Board. That was the first year of voluntary retirement, and 9,235 experienced men who had worked underground for 20, 30 and 40 years, took advantage of the agreement that had been arrived at between the National Coal Board and the unions to retire. Surely nobody in your Lordships' House or anyone outside it would complain about the early retirement of miners, who spend one-third of their lives in artificial light: without it in total darkness.

Other wastage brought the total in the industry last year to 31,445. Total recruitment was 28,664, of whom 6,425 were under 18 years of age. The point I am trying to make in quoting these figures is that last year in manpower there was a minus of 2,781. It is to be seen also that the 9,235 men who retired had years of underground experience, and so there has been a loss; while, on the other hand, including the under-18s shown in the table there were 19,236 new entrants recruited. The important point to remember in this connection is that those new entrants, almost 20,000 of them, into the industry need training before they are put on actual production.

I turn to the question of capital expenditure. The figures indicate the minor role which coal has played in the economy of the country. Let us remember one point in this connection. The pits get older and coal, once mined and consumed, cannot be replaced. It is a wasted asset. Even in my county of Nottinghamshire, which is one of the most productive in the country and is regarded as the newest part of the British coalfield, there are only three collieries that are under 50 years of age. Happily, however, virgin areas of coal have been proven in certain parts of the country and, as the Minister indicated this afternoon, we have resources of coal on present production for 300 years.

On the main point of capital expenditure, in 1972–73, prior to the escalation in the price of coal, capital expenditure in the industry was only £76 million. Expenditure on major projects in excess of £500,000 was only £5 million. Faith in coal at that time was at a very low ebb. There were fewer pits and fewer men, as I have indicated. It was in 1973 that prices began to escalate. There was an interesting article in the Guardian of Saturday last, by a well-known lady columnist named Frances Cairncross, who said: In 1973, OPEC, by its price escalation, simply retrieved from the West the profits on oil which they could have been earning themselves long before. At that time, the alarm signals were apparent. The new incoming Government in 1974 were alarmed at the situation and, with the NCB and the unions, they produced A Plan for Coal, which was referred to by the Minister in his opening speech today. So that there must be an increase in public expenditure to meet the challenge of the new situation laid down by the OPEC countries.

Since that time, there has been an upward curve in capital expenditure. The latest figures that I have from last year's annual report of the National Coal Board, are that capital expenditure was £334 million, and on major projects costing more than £500,000 expenditure was £130 million. That is a considerable advance upon the expenditure in those two fields in 1972–73. I just want to ask the Minister one question. I intended to talk about planning procedures and research, but my time is rapidly going. So I will just ask the Minister whether the Government approve of the tripartite plan for coal in the year 2000. In February this year, an assurance was given by the ex-Prime Minister to the NEC of the union, that that Government would continue to give their support to the plan for coal and would provide the necessary resources to ensure its implementation. I trust that this new Government will not depart from that undertaking given by Mr. Callaghan.

There are other points that I should have liked to raise, such as planning procedures and research, but I shall conclude on this note so far as research is concerned. It is sad to relate that throughout my lifetime—at any rate, since the Samuel Commission of 1924, which raised the question of the potential in coal and the fact that something should be done about it—there has been too much procrastination and delay in the field of research into the potential of coal. A scientist, a Member of your Lordships' House, said to me only the other day "The contents of oil and coal are the same. The only difference is that one is a liquid and one is a solid." I urge this Government to do what they can in this field of research into the extraction of petrochemicals and oil from coal, so that we shall be less dependent on fuel which has to be transported all those miles to our refineries and power stations.

5.48 p.m.

Lord COLLISON

My Lords, I regard it as a privilege to follow my noble friend Lord Taylor of Mansfield, whose services to this House and to the coal industry are so well-known. He has had so much practical experience, and this afternoon we have listened to words of wisdom from him which we are all pleased to have had the opportunity of hearing. I should also like to congratulate the noble Lord, Lord Armstrong, on his maiden speech. I found it particularly interesting, because he dealt with tourism and agriculture. I see tourism as an aid to agriculture, because it helps to bring income to farmers, particularly small farmers, in the tourist areas. Of course, my interest in agriculture is well-known. I was particularly interested in what he said about the northern harvest. Indeed, I shall say very much the same when I deal with this question in a moment.

We are, of course, grateful to my noble friend Lord Strabolgi. Certainly, there is a tremendous reaction to the latest fuel crisis. Indeed, everybody is suffering from a sense of shock, though why we should be so shocked I do not know, because for many years we have been warned that this had to come. I so much agreed with my noble friend Lord Ritchie-Calder, when he pointed out that we are reaching the end of one road and have to start to construct another road for the future. I was glad to hear the noble Earl, Lord Bessborough, point out that we have to think not only of ourselves but of the generations to come. I know very little—indeed, practically nothing—about nuclear energy. Therefore, it would be impertinent of me to enter into the controversy about its use or non-use and the type of nuclear energy stations which should be built. What one can say is that it is obvious that there is considerable public concern about the possible dangers. One cannot ignore Windscale and Harrisburg. These incidents happened and the public, quite rightly, want to know whether such incidents can be prevented in the future; they will want cast iron assurances from people whom they trust before they are prepared to consider the rapid development of this new industry.

I, for one, accept that nuclear energy has to come and I, for one, believe that our scientists can overcome and control the dangers which I have mentioned. Also, I believe that the problem of disposing of radioactive waste can be overcome. However, the public have to be satisfied, and I hope that that point will be borne very much in mind. The public have to go along with this, otherwise there will be continuing concern, suspicion and, maybe, even trouble.

However that may be, the crisis has caused genuine concern about ready supplies of fuel. I was very interested to hear what was said by the noble Baroness, Lady Masham of Ilton, about the impact of a cold winter on old and sick people. I have in mind in particular the supply of paraffin which is used by poor people and old people to supplement the warmth in their homes. 1, like other noble Lords, question whether it is good enough to leave it to the oil companies to decide how the oil should be distributed. I believe that the Government have a responsibility. I understand and accept that scrutiny will be exercised, but I want to be assured—and so will the people of this country—that the oil companies will not be left to go their own sweet way, if they appear to be going the wrong way, and that the Government will take action.

There is considerable worry about oil supplies in the agricultural industry. I am the chairman of the Land Settlement Association and therefore declare that interest. My association is responsible for over 200 growers. I know about their concern over future supplies and deliveries of oil. In the horticultural glass house industry, one cannot be absolutely sure what one's oil requirements are going to be. Last winter was very hard, and we had a very long and delayed spring. Because of atmospheric conditions, the use of oil on holdings was very much higher than it is when we have a normal winter. It is therefore impossible to define what the requirements of growers will be. Therefore it is impossible to set down quotas or to determine upon some kind of rationing.

Noble Lords will remember that right at the end of the last Session I asked for an assurance regarding the supply of oil for farming and horticulture. I was told by the noble Earl that he was sure the oil companies would see to it that essential supplies got through to farmers and horticulturalists. I can only repeat that I hope that scrutiny will be exercised, because horticulture and agriculture are our most important industries; those industries keep people alive by supplying them with food. If those supplies came to a stop due to the failure of the harvest, it would be a calamity not only for the people of this county but for the country as a whole in terms of our balance of trade.

If I may continue in the same vein, noble Lords will probably know that the president of the National Farmers' Union, Mr. Richard Butler, pointed out the other day that if we have dry weather at harvest time the industry will get through but that if we have wet weather at harvest time the whole process will slow down. He pointed out that the combine harvesters, tractors and grain driers might suddenly need a massive amount of fuel. This point was also made by the noble Lord, Lord Armstrong.

It is not possible for agriculture, any more than it is possible for horticulture, to define precisely what supplies of oil will be needed. This throws into doubt the whole possibility of quotas or rationing. Also, it raises the issue: who will see to it that essential supplies get through? I know that this might be considered to be special pleading and that people in other industries might make a similar plea for themselves. However, as I have already said, I believe that agriculture is an essential industry and that it ought to receive special consideration.

The Motion set down by the noble Lord, Lord Strabolgi, refers to the: … importance of developing alternative energy resources". As I have said, I have absolutely no qualifications which entitle me to enter into the arguments relating to nuclear energy. Nor do I have any particular scientific skills which entitle me to speak about the conversion of coal into petrol or about the conversion of corn or maize into alcohol. However, there is one small corner of the field about which I do know and which I do understand. I refuse always to get on my feet and talk about things which I do not know about, but I do know about the collection of solar energy for heating domestic hot water.

Noble Lords may remember that about two and a half years ago I informed the House that I had become interested in solar energy. Since then I have continued to experiment. My interest was the result of curiosity. During that remarkable and glorious summer of three years ago, it was the "in" thing to talk about and do something about solar energy in the home. Collectors were being made by amateurs all over the country. I went to several exhibitions. I was so convinced by what I found when I built a quite small collector that I was encouraged to go on with my experiments. Since then, I have built what I call a proper collector. It is larger; it has been "plumbed" into the house system; and it is very successful.

I assure noble Lords that I am no genius with my hands, any more than I am a genius in any other way. All that it amounts to is that one prepares a plate of copper or aluminium, to which one attaches some copper piping. I procured a sheet of copper plate and soldered to it about 35 feet of 28 millimetre copper piping in the form of a snake. The system is supplied with water from a storage tank. The warmer water in the tank is at the top and the colder water is at the bottom. The colder water falls and goes to the bottom of the snake, the sun warms it and it rises to the top. It is very simple, and any handyman could set it up.

Since then I have collected a great deal of data about commercially produced solar collectors. I ought to say in passing that when interest in solar collectors began to be taken as a result of that good summer, cowboys jumped on the bandwagon all over the place. All kinds of small firms were set up, many of which made exaggerated claims for their apparatus. Of course, the people who bought these things and tried them out were bitterly disappointed.

I want to make a special plea because when one explains to people what solar heating for domestic hot water is and that it is a viable proposition, one finds they tend to be disbelieving. However, it is different when people come along to one's house. Quite recently a class of sixth form schoolboys and schoolgirls came to look at mine. It is when people see the apparatus working and put their hands on the pipe or in the hot water that they realise that it really does work. There is a great degree of scepticism about it. People say, "But the sun does not shine much in this country"; but it shines enough and solar collectors will collect energy even when the sun is not shining. The sun does not have to shine all the time, so long as the weather is bright. One can then get temperatures in the storage tank of well over 100°F. One is also told that it is only a very small part of the problem. Perhaps that is so. The figure of 2½ per cent. possible saving is quoted at one as against the 5 per cent. which is required, but again I think it is fallacious to refrain from the development of this procedure because of that. It is results that count and I have kept meticulous records of the results I have obtained.

The average temperature that we have had since the beginning of the year until the day before yesterday, that is including the coldest winter months of January and February, was 91°F in the storage tank. I have kept records for the last 30 days, daily, and since the beginning of May the temperature in the storage tank has never fallen below 100°F. As at yesterday the average temperature over the last 30 days has been 115°F, and we do not have the heat on at all from the month of May until the end of August or the middle of September.

I have also taken a record of the actual savings in gas used, because we are on gas. It is only a small house with two of us living in it and before we had any solar apparatus at all in 1975 we used 744 hundred cubic feet. In 1976, when the original experimental apparatus had been working for three months it fell to 609 hundred cubic feet; in 1977, in a full year, it fell to 448 hundred and last year, 1978, it fell to 408 hundred cubic feet. I converted that into therms and worked out the saving, which amounts to £53 per year. If one is worried about cost-effectiveness, I built the apparatus myself so my own labour went into it but it only cost me £200. The collector cost £70 and the plumbing into the house and the connections only took the figure to just under £200. So I am going to get a payback period of something between four and five years. The percentage of 408 as a percentage of 744 is 54.83—that was the actual saving in gas consumption.

My last word on it is this: The scepticism is there, I know, but I think it is fallacious to hold that scepticism. It may be thought that 2½ per cent. is a very small saving as against the 5 per cent. that is needed, but my point is that to the housewife that saving of fuel is quite significant. The good commercial firms which have kept records concur with my own findings that there is a saving of between 30 and 40 per cent. That is of considerable significance to the housewife and if one multiplied that up by all the houses which could have this apparatus put in, the saving must be colossal, and that is something not to be sneezed at.

I do not think this would apply to the Minister, but there are so many people who react to this in an adverse way because they just do not believe it. It is like the person who saw a giraffe for the first time—and said he did not believe it! People do not appreciate the saving on solar heating until they see it for themselves. I had some trepidation in telling your Lordships what I had done and, believe me, it is said in all humility. It is simply that I did something factual and I got factual results, and I thought it important that it should be recorded. I should now like to revert to the subject on which I started my speech and to ask the Minister to take very seriously the problems of agriculture and horticulture with regard to the possible shortage of oil and to ensure that the industry gets what it needs.

6.6 p.m.

Viscount HANWORTH

My Lords, it is not so very long since we had a debate on much the same lines as today's debate, and I do not want to repeat at length anything that I said then, so I am afraid that the remarks I shall make will be somewhat disjointed. In the first place, I cannot understand why, with the accent on energy saving, nobody yet seems to have done very much about house insulation—certainly not in new houses. We have not yet got a good standard of insulation, and, bearing in mind that extra insulation is cost-effective in two or three years, this would seem to be one of the first things we should do in order to try to save energy. It has practically no disadvantages. I should, therefore, like the Government seriously to consider drafting some further legislation on this subject.

I am quite convinced that the time has come when we have to face up to the breeder reactor and I am sorry that although there is a big programme for new advanced gas-cooled reactors there does not seem to be one for a breeder reactor. It is at least 60 times more efficient in the use of uranium than the ordinary reactor, and at the present time we have a very large stock of uranium which could be used in a breeder reactor and turned into useful fuel. Of course, I know the argument about a plutonium economy and there is the danger of plutonium getting into the wrong hands. It is clearly a danger, but I believe that the real danger in the future will be that the smaller nations will have reactors and therefore potential atom bombs, and anything we can reasonably do to see that the reactors are in the main constructed in the fully developed countries is wise, leaving the oil to meet the needs of the developing countries. I do not believe that constructing a breeder reactor will substantially increase the risk of nuclear blackmail.

I should also like to say a word on research. It seems to me that we should do this with our partners in the EEC so that we do not all duplicate each other's work. I think this could provide a more cost-effective approach to the money we must spend on research.

Then I suggest that we might again dust down the files on the Severn barrage. In that connection, I believe that we should not look entirely at the economic cost on today's basis. Many of the possible projects will have a life of 20 years or more, and if the economics over a 20-year period are considered this will give a much better idea of whether or not we should do it. It is very seldom, it seems to me, that we do that.

I am profoundly unhappy at the present time about petrol distribution, and I have a suspicion, as has been said earlier on, that some companies are pushing out the smaller men so that they can get a larger control of the market. However that may be, there is no doubt whatever that the distribution of petrol is extremely uneven at the moment. I think the Government, whatever their views on trying to leave this to the companies, ought first of all to get from the companies their policies and then see to what extent those are in fact being implemented throughout the country. They can then, if necessary, produce guidelines for the petrol companies. I do not think that the situation can possibly be regarded as satisfactory at the moment. My Lords, these are just a few remarks which I thought perhaps worth making today.

6.12 p.m.

Lord WYNNE-JONES

My Lords, it was a pleasure this afternoon to listen to the noble Lord, Lord Armstrong, making a maiden speech in this House. To anyone coming from the North-East—and there are some of us in this House—it is a particular delight to welcome him as a speaker here. Perhaps I may refer to the fact that it was his ancestor who built Rothbury and who equipped it with the first electric light system in the country, using the lamp invented on Tyneside by Swan. I think I am right in saying that the first Lord Armstrong installed a water-powered electrical generator there in order to light the house. So it is peculiarly appropriate that the noble Lord made his maiden speech on this subject, and we shall look forward to hearing from him frequently.

This debate has been an interesting one and we are grateful to my noble friend Lord Strabolgi for having introduced it. It is particularly interesting because it comes at a time when all the economic aspects of energy are before us. In fact our crisis is not really a crisis of obtaining energy but of paying for energy. It is the economic effect which is the real crisis which is upon us. And here I think we are faced with a situation which is very strange. In this country we have been talking for many years now about the great advantage to us of having North Sea oil. I wonder whether North Sea oil has been of any advantage to us at all, because so far as we are concerned the only thing it seems to have done is to change our balance of trade; and what has that done?—forced up the value of the pound and made our exports uneconomic. In other words, it could be argued that North Sea oil, so far from having benefited our economy, has been a positive disadvantage to our economy, and it will be an even greater disadvantage unless we use North Sea oil for our own purposes in this country.

If we are going to treat North Sea oil simply as something that we produce out of the North Sea because the Arabs have put up the price of oil in their countries so high that it becomes economical to produce North Sea oil, it is going to be something of very little advantage to us. I think that my noble friend Lord Balogh, who spoke earlier in this debate, deserves enormous credit, as I have said before in this House, for having got the last Government to change the policy with regard to oil in order that the country should benefit more than it was doing previously. I think that it is only because he was able to do that that we have had any real benefit at all out of North Sea oil.

When we look towards the future we are told that there is an oil crisis, and we are told that it is now the policy of the Government to solve this oil crisis by producing nuclear energy. But, as the noble Earl, Lord Bessborough, said earlier in this debate, you cannot run a motor car with nuclear energy. Most of the purposes for which you use petroleum are quite unsuitable for nuclear energy. It is true that you can run a power station, but we have already been running our power stations less with oil and more with coal. We already have 12 per cent. of our electrical energy produced by nuclear energy. I believe that we ought to go further, but the idea that we are going to make a sudden magic solution for an oil crisis by nuclear energy is the most extraordinary misconception of energy that I have ever heard of in my life. The noble Earl shakes his head, but that is exactly what the leader of his Party said in Tokyo.

The Earl of GOWRIE

My Lords, no one has said this at all.

Lord WYNNE-JONES

Then, my Lords, all I can say is that if it was not said the right honourable Lady was singularly badly reported. It was certainly said in the Press that that was the policy. In the Guardian on Monday there was an article by Mr. Waldegrave, who is the chairman of the Conservative committee on energy, in which he said quite definitely that the solution of our petroleum problem was to produce more electrical energy by nuclear reactors.

The Earl of GOWRIE

Long term.

Lord WYNNE-JONES

I know it is nonsense. I agree it is utter nonsense, and it is exactly what is being said by the Government at the present time.

The Earl of GOWRIE

My Lords, I did not say "nonsense"; I said "long term".

Lord WYNNE-JONES

My Lords, my lip-reading was bad; I beg the noble Earl's pardon. But it is important to realise that we shall only be able to solve the energy problem if we understand that energy is not one single thing. It is like talking about food; you might say, "We produce enough rice in all the world to feed everyone". But man does not live by rice alone; it is important to have a balanced diet. If one is dealing with energy there has to be a balanced diet of energy. One needs petroleum; of course one does. The chemical industry could not run on nuclear power at the present time; the chemical industry needs petroleum. It could run on coal but it is more difficult. It is also important to realise that you cannot run motor cars at the present time except with petroleum. It is important to realise that there are a lot of purposes, such as heating, where you may use petroleum.

When talking about energy, it is vital that we realise that the highest grade of energy is electrical energy. It is precious and we should not squander it. We can produce it very suitably by nuclear reactors but we can also produce it by coal burning stations. In my opinion we should not use oil or gas for the purpose because they are too precious. The next form of energy, which I shall call high grade heat, is particularly important in chemical processes and for many purposes like that. It can be produced from petroleum, but it can also be produced very well from coal, especially if one uses a fluidised bed combuster. One can produce energy for chemical processes and many works processes extremely cheaply in that way.

Of course, the third form of energy is the one to which reference was made by my noble friend Lord Collison. His speech was of considerable importance to us. He emphasised low grade heat which is heat for which we should never use the best forms of energy. We should not use the best forms of energy for heating our houses, or water. As he said, that can very well be done by something like a solar heater which is a very simple device and not something elaborate which requires high technology.

Therefore, it is essential that we get these matters clear and understand our energy policy. I suggest that to talk at present about nuclear energy is just about as irrelevant as anything can be. It will not contribute anything in the next 10 years towards solving the problems which arise because of our petroleum shortages.

When we consider the industries for which petroleum is, at present, essential, we find that the chemical industry, transport and industries like that need urgent and vital consideration. How shall we be able to cope with transport in the future? There are methods, and my noble friend Lord Ritchie-Calder referred to one—namely, making oil from coal. That could be of very great significance in the future. It can be done now and it will become more important.

However, there is another process that we must think about very seriously and that is the use of hydrogen as a fuel. It is possible—and the Lockheed Company in America believes that it can be done now—to fly aeroplanes on hydrogen. However, in order to do so one must have a complete logistic system. One must be able to supply hydrogen to every airport in the world and one must be able to supply it in liquid form because, so far as I can understand it, one cannot possibly put it into an aeroplane under pressure because the weight of the container would be too great. Therefore, it must be done in liquid form so that a much lighter container can be used. That means that facilities must be available in every airport of the world. However, these things can be done.

It is important that the Western World should begin to think seriously about this matter now and not wait until, in another 10 years, another crisis arises and we find that on that occasion it hits us so hard and so suddenly that we are caught unawares and are unable to cope with it. We should start doing it now. Therefore, it is urgent that the whole of the Western World—this country, the United States, the whole of Europe, indeed everywhere—should be working towards solving these problems. I am not saying that we can solve what is happening today—there is very little that we can do about today except improvise to meet it—but we can start preparing for what will turn up later.

Another matter arises as regards nuclear energy. I hope that the noble Earl does not think that I am an opponent of nuclear energy, because that would be incorrect. I do not object to the Government going ahead with plans for nuclear energy. However, a rushed plan is no good at all because we cannot solve anything very much within a few years in any case. Therefore, there must be a clear plan that will give us the right answer at the right time. As the noble Viscount, Lord Hanworth, has said, I believe that the right answer is to go for the fast breeder reactor. It is important that we should seriously begin to do that.

I know that there has been a good deal of opposition to the fast breeder reactor, because the Commission on the Environment rightly pointed out about three years ago that there were problems which ought to be solved. That is perfectly correct. There was a panic move—and it was indeed a panic move—by the President of the United States to stop work on the fast breeder reactor. The American fast breeder reactor, which is known as the "Clinch River breeder reactor" was going ahead quite well, but work was stopped on it. It is by sheer accident that I received this morning a report from a congressman in America. It is a report to Congress by the Comptroller-General of the United States and the subject of the report is the Clinch River fast breeder reactor. The Comptroller-General points out in this very clear and excellent short report to Congress, that none of the reasons which were put forward by the Administration three years ago, has really borne analysis. When they were carefully analysed—and his Commission did the analysis and took evidence from witnesses—it was concluded that none of the arguments put forward could really be justified.

It is a very interesting report, and particularly interesting to me because it shows the difference between the American way of going about things and our way. The Comptroller-General severely criticises other Government departments and then we can see what the other Government departments reply. It is all down in a very interesting form. I only wish that the same happened in this country and that we could see the arguments put down as clearly as they are here. When one reads them one is able to make up one's own mind and to make one's own judgment. In my opinion the report establishes quite clearly that there is no justification for delaying work on the fast breeder reactor.

In this country we ought to go ahead with building a demonstration commercial reactor. We have had a smaller reactor going but, as has been pointed out, we shall never really reach correct conclusions unless we are able to get a full working model going. Therefore, I ask the noble Earl when he replies to say whether the Government will give serious consideration to the matter of investigating the fast breeder reactor, rather than simply saying, "We shall build as many of the ordinary thermal reactors as possible".

Lord STRATHCLYDE

My Lords, I hestiate to intervene, but is not the fast breeder reactor the reactor that we have been working at Dounreay and Caithness for many years?

Lord WYNNE-JONES

Yes, my Lords, the noble Lord is perfectly correct. Dounreay is a prototype fast breeder reactor. There are fast breeder reactors also in France, the United States and Germany. The point is that the Dounreay reactor is too small to give a full-scale test of its commercial feasibility. We know that it is technically feasible; we do not know its commercial feasibility. The proposal is that there should be built a full-scale reactor in order to test commercial viability.

6.30 p.m.

Lord WOLVERTON

My Lords, I shall be very brief, because this has been a long but a most interesting debate. I should like to thank the noble Lord, Lord Strabolgi, for so kindly tabling this very important Motion today. I wish to talk briefly on the second part, about the importance of developing alternative sources of power for the long-term future which confronts this and other countries. I am greatly obliged to the Central Electricity Generating Board and to British Rail for the small amount of information which I obtained from them for this debate.

First, I want to speak about the atomic energy programme. I understand that Mrs. Thatcher is about to announce—this has been reported in the Press and I agree with it—that we must go ahead with our nuclear programme. There is talk about building five more nuclear power stations. At present we have three nuclear power stations in course of construction at Heysham A in the North-West, Hartlepool in the North-East and Dungeness B. Dungeness B station, which houses an advanced gas-cooled reactor, has been in the process of construction for 10 years, and it is not yet completed. It is hoped to complete it next year. It has been most disappointing. It has suffered from strikes, technical problems and so on. If we are to get this programme going, it must go a little faster. I understand that the construction of the other two nuclear stations, Heysham A and Hartlepool, is also proceeding pretty slowly.

As your Lordships know, the late Government recently authorised two more nuclear stations. One is Heysham B, which has not yet been started, although a start may have been made on the foundations. The other is at Torness, near Dunbar in Scotland. Like the noble Lord, Lord Wynne-Jones, I am a great believer in the fast breeder reactor. It has been running at Dounreay for two and a half years. Dounreay is only an experimental station, but it has done everything that the experts wanted it to do and it has a large safety margin. The great advantage of the faster breeder reactor is that the waste can be reprocessed on site; it does not have to be transferred elsewhere.

We have heard from the Liberal Benches this evening that the Liberal Party is very worried and will not support a programme of increased nuclear energy until the problem of nuclear waste is solved. I am sure that one fast breeder reactor should be put into commercial operation. In a debate on 25th May 1977, the late Government promised that they would set up a high-level inquiry into the feasibility of building a fast breeder reactor. This morning I checked with the Electricity Generating Board, who told me that that inquiry has not yet been set up. A commercial station cannot be built until everyone is satisfied about safety values and so on, and until this high-level inquiry or Royal Commission has been set up. We do not have a great deal of time. If a station like Dungeness B takes 10 years to build and even now is not yet finished, in 10 years time we shall be faced with a great many energy problems, many more than we have today.

The railways still use a large amount of oil. By providing more nuclear power we can carry out much more electrification of the railways. According to the latest figures, there are 11 nuclear power stations in operation, which produce 14 per cent. of the available power produced by the CEGB. It is not a very large amount. I believe that 75 per cent. of the power is produced by coal-fired power stations. Noble Lords probably know that nuclear power stations are even more efficient than the most efficient coal-fired station, like Drax A. Therefore, we must consider the running costs of the stations for the public in order that the price of the unit is not too expensive. I hope that Her Majesty's Government will give very earnest consideration to setting up this high-level inquiry and, if it is satisfactory, authorise at least one commercial fast breeder reactor station. As noble Lords have said, the experimental one has been a tremendous success.

This has been a very long debate, so I should like, briefly, to speak about the railway situation. In the debate on 25th May 1977 I spoke about further electrification of the main line railways. I told noble Lords that the first major electrification from Euston to Crewe to Carlisle to Glasgow, which took about 13 years to construct and which cost about £190 million, has been an outstanding success. I asked the then Government whether they would give earnest consideration to further electrification of the main lines, especially the Eastern line from Kings Cross to Doncaster to York to Newcastle and Edinburgh. That passes through an area housing a large number of highly-efficient coal-fired power stations and many good coal mines. I am sure that that work should be carried out. I know that the population density in that area is not as high as it is on the Western side of the country, and that for a good return on electrification one needs a fairly high population density.

If we do not obtain the oil we need in 10 or 15 years' time, how can we run the railways? British Rail kindly gave me some figures which I thought might interest your Lordships. Twenty-one per cent. of British Rail's route mileage is now electrified, out of a total of 2,341 miles; in other words, 40 per cent. of the train mileage is electrically operated. About half the electrification was completed in the last 20 years. I want to emphasise those figures. If it took 13 years to carry out the highly successful electrification of the Euston to Scotland western route, it will take about the same time to electrify the eastern route. I know that the railways and the Generating Board have to live within their cash limits—it is important that they should, in order to prevent heavy borrowings—but I hope that Her Majesty's Government will look into this matter.

I understand that about 18 months ago the previous Minister of Transport, Mr. Rodgers, set up a very high-level working party, of which the deputy chairman of the British Railways Board is an important member. The working party was to look into the question of further electrification of the main line railways. I am told that that working party will shortly report on its findings. However, time is not on our side and we must press ahead with these improvements. I agree with much of what has been said today. We must find alternative energy sources. Coal is extremely important. The last time I spoke I said that coal was still king, and it is, because 75 per cent. of our electricity is still generated by coal. However, in the future, as the noble Lord, Lord Wynne-Jones, has just said, coal will have to do much more. It will have to produce a large amount of oil, if we are going to have it for motor-cars and agriculture, chemicals, and so on. Coal will be in great demand in 10 or 15 years' time.

So I am sure that Mrs. Thatcher, the Prime Minister, was right when she said in Tokyo that all the Western powers must go in more for atomic energy. If all countries in the West are going in for more atomic energy, uranium, which your Lordships will know is mined in Australia and other countries, will become scarce. The fast breeder reactor re-breeds uranium and turns it into plutonium, and there is a great saving there in the amount of uranium used. I hope that Her Majesty's Government will give this earnest consideration, and get a move on with it.

6.41 p.m.

Lord HATCH of LUSBY

My Lords, I am tempted to follow a number of noble Lords in the subjects they have raised, particularly the noble Baroness, Lady Masham, in what she had to say about the deprivation of rural areas. I share with her the fate of living in such a rural area where both rail and bus transport are almost non-existent. I am also tempted to follow her in what she had to say about small garages. I have previously pointed out to your Lordships that that infamous advertisement which Mobil had in the main Press a couple of weeks ago pointed out that last year 1,500 small garages had closed. It would appear to me that that number is likely to be increased this year. In the Cambridge Econometrics report, which I quoted from earlier this afternoon, a paragraph suggested: Garages will also be squeezed by lower petrol consumption and fewer car sales. But sales of luxury cars should be supported by tax cuts for the well off". I foresee that one of the results of the energy crisis, and the rationing by price, which is the policy of the present Government, is the driving out of a large number of small businesses, including small garages.

I am also tempted to follow the noble Lord, Lord Taylor of Mansfield, whose personal experiences of the coal industry interested us all, and indeed touched us all so greatly. I spent a good deal of time with miners in Yorkshire, Lancashire, the North-East, and Fifeshire in working out plans for the coal industry. I resist these temptations in order to concentrate on one point, which I should like the noble Earl who is to reply to answer when he winds up.

I find it somewhat ironic that we are talking about an energy crisis as a reaction to present circumstances, when so many of us, in particular the noble Lord, Lord Ritchie-Calder, have been pointing out the dangers of the finite quality of energy for so long and have indeed been ignored by governments of both parties. I consider it to be particularly ironic that we are having this debate today, because if your Lordships will examine the gracious Speech you will find no mention of any energy policy. That is only a matter of six weeks ago. There was no apparent consciousness on the part of the Government, when they drew up the gracious Speech, that energy was a matter of national interest. Presumably by now they have learned the lesson that that finite quality of energy is a very present, current, and immediate national interest.

The one issue I find particularly ironic is that at this time of oil shortage in this country the Government are apparently taking specific measures which are going to reduce the amount of oil available to the domestic consumer in the United Kingdom. As the theme of my intervention, I want to quote the letter written by the noble Lord, Lord Carrington, to the right honourable David Owen, the previous Foreign Secretary, on 26th June. Lord Carrington writes—and this is a published letter: In response to an approach from the company we have told BP that we would have no objection to arrangements they propose whereby they would make North Sea oil available for sale in EEC or IEA markets in exchange for non-embargoed third country crude which can be supplied to their South African subsidiary". In his opening remarks the noble Earl said, in mentioning this issue, that they found this on Ministers' desks when they arrived in office. They may have found it on Ministers' desks, but David Owen has gone on record as saying that it was never the intention of the Labour Government to grant the company's request, and that although this request had been made some time ago the previous Administration had not granted that request.

It seems to me that because of the situation in Iran, from where the South Africans obtained most of their oil, the new Government here in Britain are now going to replace the oil supplies that the South Africans have lost from Iran with the use—I say "use"—of North Sea oil. This raises two central issues. The first is domestic. Are the Government saying, or will the Government admit, that what they are doing is to give South Africa priority over the British consumer and our friends and partners in the EEC.

Secondly, on the international level, following the relevations, the exposures, of the Bingham Report, are the Government not aware that this action will be seen throughout the world to be, first, deliberately taking part in a political action to support the South African apartheid Government; and, secondly, to give these resources to that South African Government to supply the Rhodesians, thus continuing to break sanctions, as was exposed in the Bingham Report?

I know that Government spokesmen have said that companies have promised, and guaranteed, that the oil released by this swap agreement to be supplied to South Africa will not go to Rhodesia. I should like to ask a specific question, which I hope the noble Earl will answer in his winding-up speech: what guarantee can the companies, or the Government, give that the oil that is so released by this swap agreement between BP and Conoco will not arrive in Salisbury, because I do not believe that either the Government or the oil companies can give such a guarantee.

The reason I do not believe that they can give that guarantee is that if you look at the South African laws, you will see that those laws prohibit the disclosure of any detailed information on oil movements. Therefore, once that oil arrives in South Africa how can the Government, or the oil companies, give any guarantee that it will not be forwarded to Rhodesia? Neither the British Government nor the oil companies will be able to monitor what happens to the oil once it arrives in South Africa. I should like the noble Earl to answer the specific question, in the light of South African law regarding the disclosure of oil movements, of how they can give this guarantee.

Finally, what will be the effect of the announced arrangement for a British oil company, partly Government-owned, and the effect on the British Government who openly give that oil company permission to supply oil indirectly to South Africa, on public opinion in the rest of the world? What will be the affect in Nigeria? The last time there was any question of supplying oil to South Africa, the Nigerians cut their supplies to BP by 100,000 barrels a day. What do the Government expect the cut to be this time?

It seems to me that this act, particularly if taken in its context—in the context of the speech made by the Prime Minister in Australia about sanctions—is part and parcel of the Government's open flouting of international public opinion and of their international obligations so far as sanctions are concerned. I remind the House that these sanctions were introduced by a British Government, were sustained by successive British Governments, were taken to the United Nations by a British Government and have been applied as a mandatory measure by the United Nations against Rhodesia.

I should like a specific answer from the Minister to that question. Can he assure us and give a guarantee (and if so, how) that under this arrangement, which has been characterised as a normal commercial arrangement—if this is a normal commercial arrangement then we have really seen the bare face of the capitalist system in defiance of international law—between BP and Conoco, oil so released will not find its way to Rhodesia?

6.53 p.m.

Lord KALDOR

My Lords, this has been a wide-ranging debate and I would not have suspected that a debate on energy could have given rise to so many different aspects—political, technological and many others—and I do not envy the Minister's task in trying to reply to all the various points that have been made. I shall confine my remarks to one issue only, and even then I cannot guarantee not to repeat something that has already been said. I shall deal with the economic consequences of OPEC in the near- and medium-term on Britain, on the EEC and on the Western industrialised countries in general.

It must seem surprising to many people that this, the second oil crisis—in contrast to the first in 1974—finds Britain in a very fortunate and potentially strong position. As we heard from the noble Earl this afternoon, we are already producing the equivalent of three-quarters of our total requirements. In fact some statistics say that we shall be producing this year the equivalent of 85 per cent. of our consumption and, as he said, next year we shall be wholly self-sufficient in oil. After that we shall have a surplus of production over consumption to an increasing degree, for five years at least, and be a considerable exporter of oil over above our requirements.

All this may sound surprising. Why, then, should we suffer so much more, or apparently so, as a result of the oil shortage, than other countries in the EEC? There are no petrol queues in Germany or France and no week-end closures of garages. Only yesterday the German Chancellor indignantly rejected any suggestion that a speed limit be introduced on the German autobahns—on which nobody is allowed to drive at less than 90 mph!—for the sake of economising in oil. However, despite our strong position, producing all the oil that we do, we have all the things that have been described in this debate—confusion and hardships here and there, people unable to get petrol on the motorways, garages closed over the weekends, some garages profiteering and the rest.

As the noble Earl explained, this is all part of the usual muddle we have when something unexpected happens—the unexpected in this case being the Iranian revolution and its consequences on oil supplies; and the fact that, before that, we had contracted our own oil to foreign buyers without ensuring that we would get adequate oil in return. The blame for this does not lie with the present Government, but mainly with the previous Government because the contracts to sell our own oil were made before the present Government came to office. If any blame is to be laid on the present Government, it is for the failure of the Secretary of State for Energy to do anything to lessen the chaos and its effect on the motorist. To put it another way, it is due to the failure of the Secretary of State for Energy to operate the free market price system efficiently. An efficient price system operates in such a way that at whatever price, petrol is always available, all day and night and all over the country. Obviously this did not happen, and it does not happen now. One can say that no price system in the world is capable of coping with sudden changes in supply of this kind—that one cannot rely on the price system to do this job. That is true. The price system is all right in normal times, but it is not capable of dealing with sudden changes in conditions, just as the Government of Mr. Asquith found in 1916 when operating a free market system to the last, when they found that all the scarce shipping space had been booked by the brewers for importing barley and not by the millers for importing wheat. That was during the First World War.

California experienced the same thing. There were frightful queues, as those who read the newspapers know, but they did not maintain the position adopted by our Secretary of State for Energy—namely, that any form of rationing is odious and tremendously bureaucratic. Instead, they introduced a simple, rough and ready system under which drivers with plates with even numbers were allowed to fill up on even days and cars with odd numbers on odd days, and that did the trick immediately. The queues diminished or disappeared and petrol was available.

This Government must not be dogmatic on these matters. If they want to operate a free market system, let them do it in such a way that it works and not in such a way that it does not work. Given the fact that we are in this potentially good position, when it is only this year that we are short because of all the muddles—we have given away our oil and not secured equivalent oil to take its place—it is all the more surprising to find our Prime Minister echoing the gloomy pronouncements of Mr. Jenkins, the head of the Brussels Commission, who appears to have been rather badly advised on the subject. According to the Guardian's report from Tokyo last Friday: As the news of the latest OPEC price increases became known, the Prime Minister said that the dearer energy meant that a reduction in living standards was inevitable for Britain and many other industrialised countries". No one seems to have asked the question—at least not until this afternoon—why should a reduction in Britain's living standards be inevitable in consequence of the rise in world oil prices? Surely as a nation we gain as much from the rise in oil prices as producers of oil, as we lose in our capacity as consumers. Perhaps we gain a little less this year, but we will gain a little more next year. But there is no need for the living standard of anyone to fall, not unless we contrive, by special Government policies, to bring about a wholly unnecessary immiserisation of the people.

It is true that the price of oil will rise. It is true that the price of oil should rise. But that does not mean that living standards need fall. Much the greater part of the price rise—85 per cent.—will accrue to the Government in the form of taxation under the existing rules, and they could follow for the remaining 15 per cent. the proposals of the American Government to put on an extra windfall tax for such unrequited gifts as our oil companies will receive as a result of action by the OPEC countries, which was not something they bargained for. So, although the price of oil will rise in relation to other goods and other forms of energy, this can, and should, be compensated for by the reduction of other prices, and there is no reason for an acceleration of inflation, for a rise in the cost of living index, or for a reduction of the real disposable income of wage and salary earners.

Mr. Jenkins suggested that oil should be removed from the retail price index, meaning that the retail price index will necessarily have to rise as a result of the rise in oil prices. This piece of economic masochism is certainly not relevant to Britain. It is not even relevant (as my noble friend Lord Balogh pointed out this afternoon) to other members of the EEC, such as Germany and France, who will have a real loss in the form of a deterioration of the terms of trade but one which they are quite capable of paying for out of increased production, out of resources which are at present idle. The order of magnitude is such that if the OPEC countries spend their increased income on additional imports, this will mean an increased export demand for Germany and other countries which would increase their production and employment and would not cause any fall in their net real income.

If one assumes that the OPEC countries will not spend their increased income, but will accumulate credit balances, then the rise in oil prices will be the equivalent of the imposition of a tax which is not compensated for by any increase in expenditure—has no counterpart in expenditure—and which therefore has a net deflationary effect, in much the same way as if the Governments of consuming countries themselves increased taxation when it was not necessary.

What follows from this? Given inappropriate policies, it may well happen that the rate of economic growth of the world will be reduced, or even that the real income and employment of many countries will fall. But there is no need for any of this to happen, and if it does, it will be a consequence of the inability of the presently ruling Western Governments to understand and master the nature of the problems with which they are confronted. It will mark a failure of the intellect.

For these ill consequences could be wholly avoided if the consuming countries offset increased OPEC surpluses by increased deficit spending in their own countries; in other words, by remitting taxes in their own countries. I fear that this is not understood. There were some ominous remarks in the Statement by the right honourable Lady the Prime Minister in the other place yesterday—a Statement which was repeated in this House. I refer to the passage where she said, as reported at column 244 of the Official Report of 3rd July, We were all determined [in Tokyo] not to print money to compensate for the higher oil prices …". The words "not to print money" can mean all kinds of things. If the OPEC countries do not spend the money, it is inevitable that there will be increased balances in dollars or perhaps in sterling, which is now regarded as a very good currency for holding one's money. If one does not print money in the sense of allowing the balances to increase, obviously the result would be an unnecessary immiserisation of the British people. But it would be due to a lack of understanding of economics—and not to anything more fundamental.

Day after day we read the gloomiest forecasts about our economic future arising as a result not only of OPEC, but of all kinds of other things. There was such a forecast in Monday's Guardian by members of the so-called "Item Club", composed of respectable economists. In fact the main economist used to be the economic adviser, if I remember rightly, in the Conservative Central Office. These economists based their forecasts on the Treasury's computer forecasting model. The danger which they see is that we shall get into a vicious spiral of accelerating decline, due to the toleration or the encouragement of a rapid increase in prices and the belief in the free market mechanism (including free collective bargaining in wages) combined with a rigid adherence to monetary targets. The combination of the removal of any form of price control, the refusal to contemplate any form of rationing, the toleration or even the encouragement of increases in prices and charges, which will be inevitable in the public sector as the Government's plans for cutting expenditure are brought into force and which will result from the planned economies, could well create a situation in which the whole price system will become unhinged. It will lose any point of anchorage.

To believe that an inflationary wave of this kind, once set in motion, can be effectively countered by monetary targets can in practice mean only one thing—that interest rates will be driven higher and higher in a vain attempt to hold down the growth of the so-called money supply. But these high interest rates will increasingly attract funds from abroad, which means that the higher interest rates are, the more the value of the pound will rise in relation to its true purchasing power and in relation to its expected future value because the interest differential, as no doubt some noble Lords know, can be compensated only by a differential between the spot price and the future price. Then, the inflow of funds will bring about a further swelling in the money supply, which will then lead to further attempts to control it by further raising interest rates—there is no other way of doing it; you cannot attempt to control the money supply, as it is ordinarily understood, except by raising interest rates—and so the merry-go-round will go on. In the meantime, our manufactured exports will suffer an accelerated decline, and our manufactured imports an accelerated rise; and the whole of our domestic industry will run down like a clock.

It has also been suggested that the very rise in the pound, by making imports cheaper, will slow down inflation. If the rise in the value of the pound were the natural consequence of a strong balance of payments, as has been the case with Germany until recently, then I think this would undoubtedly follow; but in our case the balance of payments is in a strong deficit. In the first five months of this year the current account, allowing for distortions, showed a deficit of £1,400 million, or £3½ billion a year, at a time when we enjoy all these extra benefits from oil exports; and the increase in the value of the pound is bound to make the current account a great deal worse. It is far from certain that the rise in the pound in such circumstances will bring any net benefit in lower inflation, for the simple reason that it will be accompanied by, and caused by, ever-increasing interest rates.

What most people fail to take into account is that the rate of interest is an element in the costs of industry—in the cost of carrying stocks and in the cost of work in progress. As we know that, in general, stocks are turned over twice a year, so every 1 per cent. increase in short-term interest rates is equivalent to a one-half per cent. rise in cost per unit of output. So it is far from certain that a rise in the pound which is caused by internal factors, a restrictive monetary policy, the attempt to hold down the money supply through raising interest rates, will bring any net benefit in terms of moderating inflation, because the lower import prices will act in one direction but the increase in interest rates will act in another direction.

The Earl of GOWRIE

My Lords, I am much obliged to the noble Lord for giving way. Before he leaves that point, will he not recognise, though, that a stronger pound, which of course has attendant problems for manufacturing industry, may lower inflation on import costs?

Lord KALDOR

I am sorry, my Lords; I was talking about that. I was saying that a stronger pound will lower import costs, but if the stronger pound is brought about by steadily rising interest rates then those rising interest rates will raise costs. It is an entirely different situation when the rise in the currency is artificially brought about in this way. I say "artificially" because the fact that our balance of payments on current account is in large deficit should make the pound weak, and not strong. This is a completely different situation from that in Germany, where the currency rise is accompanied by low interest rates as a result of a large surplus in their balance of payments. It is idle to think that, in the absence of a firmly established qualitative superiority for our goods, such as the Germans have established and now possess, our exports will not be seriously damaged by a rise in the exchange rate, especially in circumstances in which interest costs get higher and higher.

My Lords, none of this, of course, is inevitable—either the predictions of the "Item Club" or what I have just been saying. I am painting a possible scenario; one which at the moment looks likely to happen, given the wholly misguided but firmly-held beliefs of our present Ministers in the cure-all of a monetary target—and I fear that they are going to adhere to their beliefs for much too long. If we are really facing the prospect of the misery of rising unemployment, falling output, low profits and high inflation at the same time, it will not be because there is anything in our situation that makes these things inevitable. It will be because of sheer lack of common sense in the conduct of our affairs.

7.16 p.m.

The Earl of KINTORE

My Lords, I want to begin my few remarks by congratulating my noble friend Lord Armstrong on his very fine speech, in particular because I come from further North and further East than he does, and the points he made are most applicable in my part of the world. Otherwise, by now most of the points that I was going to make have been made by other noble Lords much better than I could have made them, and I merely want, in passing, to underline just a few, without going into them again. As many noble Lords have said, it is an obvious and sensible thing to cut out waste and conserve materials which are in short supply; and I very much agree with the noble Viscount, Lord Simon, that we ought to be thinking of there being virtually no oil in probably 10 years' time. It is no good thinking 30, 40 or 50 years ahead: to my mind, the facts will disprove this timescale. Anyway, time is not on our side.

The noble Baroness, Lady Masham, made a very good point, I thought, which again I was myself going to make, about the value of bicycles and cycling. This, clearly, is something the Government should support, anyway by way of propaganda if in no other way. Again, no real harm would be done to education if we stopped heating to about 80 degrees Fahrenheit all the school swimming pools, which are very numerous, for the four winter months. We could, without any real harm, confine our swimming to the rest of the year, without heating during that period, and we should get quite a saving in that way. Another case is that of illuminated signs. There is no reason why they should not be turned off at, say, 11 o'clock at night. I think that type of thing should be done. What we really want is vigorous—and I mean vigorous—propaganda from the Government; not a sort of laissez-faire attitude. They must tell people what they expect of them. That point has been made by many noble Lords, and I entirely agree with it. Then, I agree with the utilisation of waste heat, far better insulation and lagging. Again, the Government should take a lead in urging this on people.

There is one point which I think has not been touched on, and that concerns the developing countries, in some of which I have worked for quite a number of years. We may be out of oil before these countries have developed. Many of these countries have great advantages which we in this country do not have, and I think these should be stressed. I am referring to the fact that they have large resources of labour and enormous animal resources. It is less than 40 years ago that we were farming and producing food in very reasonable quantities by developing animal power—and, of course, horsepower gives you a clue to that. A developing country which has these resources, whose people are not highly technically skilled but are skilled in the use of animals, could produce cheap implements and cheap equipment—for example, things like the old chain of pots for irrigation. Furthermore, one could apply modern technology on a small scale to the storage of grain. Instead of the bugs getting about 50 per cent. of the stored grain, one could very simply conserve grain on the spot in a number of small village granaries, so that the food is there, on the spot, for the people to eat.

I think that an educational drive on the use of those advantages which exist in such countries should be pushed forward, so that at least people's attention is drawn to them. I do not say that those countries should be starved of oil—of course, not—but they have these advantages. Incidentally, I do not think that any oil was used in the building of the Pyramids. With nothing but animal power I have built conservation dams and roads and other structures of that sort in one of those countries—and, at the end of the day, you could eat the animals. We should be leading these people down the garden path if we tried to develop those countries too rapidly under modern methods.

My Lords, what I really wanted to talk about was the next stage in nuclear power. At the moment, I think there are about 200 nuclear stations working or about to work. They are all producing plutonium and they are all utilising less than 1 per cent. of the uranium fuel put into them. In this country alone, we have the equivalent of 40,000-million tons of coal in stock in the form of uranium 238 which can only be utilised in the fast breeder reactor. It is time that we really got a bit of an urge on in getting a demonstration reactor. One noble Lord asked why things could not be done on a small scale. I should like to point out that things have been done on a small scale. We are now well past the small scale. We started 20 years ago or more at Harwell, then at Dounreay and now we have a prototype reactor with a respectable length of running time "under its belt". What is required now is the full-size demonstration reactor. I gather that there is a good deal of hold up by the Department "dittying" about "Who is going to run it; where is it going to be and what sort of inquiry are we going to have?" It is a matter on which the Government should get a move on. I am sure that this point has been made by other noble Lords and I apologise; but I think it is important.

There is one other point which I think is worth making. Let us take the virulent, highly-reactive effluent produced by a nuclear power station. I have the figures; they are very rough and ready, but are reasonably accurate. A large gas-cooled reactor of 1,320 megawatts (which is the large size now being produced) in one year produces 10,000 gallons of highly active effluent. If you reduce that figure to cubic yards, it is under 60. With that figure in mind, looking at this Chamber, I think it would contain the total virulent effluent output of (I cannot measure it) something well over 100 years' operation. We ought to consider these things in their perspective. Dangerous?—yes. But they are containable.

I think one should draw the attention of the environmentalists to what happens in the same size of station—my figures are a bit tentative and they come from Bodam power station, which is of 1,300 megawatts, the same size, and it is not yet running—which is designed to be oil or gas-fired. Somebody has said that coal and oil are much the same thing; except that, with coal, one has the trouble of disposing of the ash. But the figures are these. In one year's running 90 million kilogrammes of sulphur dioxide are produced. That works out (and I am not too happy with my conversion) at about 81,000 tons of sulphur doxide, 4.5 million tons of carbon dioxide—and that is not necessarily very harmful but some people think it is and that this, pumped into the atmosphere, would alter the heat from the sun. I do not know; I am not a scientist. Also produced are 10½ million kilograms of carbon monoxide, which is highly poisonous. That boils down to about 9,400-odd tons. In addition there are 4.5 kilograms of various oxides of nitrogen—about another 400-odd tons of highly objectionable discharges. This comes from coal and oil. As I said, certainly one gets effluent resulting from nuclear power stations; but one must compare the figures I have just given with the 60 cubic yards or thereabouts, that I have mentioned before. These effluents can be gassified. This has been done fairly successfully.

There are still arguments as to which is the best method, but for me, the facts I have mentioned put nuclear power right ahead of any other method because there is so little harm resulting to the environment. Any other of these stations causes enormous harm because of these undesirable discharges. A lot of this information is in a very fine booklet called Atom which is brought out monthly by the UKAEU. I do not think it is in the Library; but it should be. I think that many noble Lords would find extremely interesting the research information contained in that booklet.

My Lords, I want to finish by saying that time is running out, and, for goodness sake!, get a move on, with proper attention, of course, to safety. The record in safety with ourselves is superb. With regard to the American experience, there is another way of looking at it. Although, apparently, there was crass negligence with the measures of containment and so on, nobody was injured in the end; and the very same thing, of course, can be said of Windscale.

7.30 p.m.

Lord LEE of NEWTON

My Lords, may I join with others in offering congratulations to the noble Lord, Lord Armstrong. I thoroughly enjoyed his maiden speech. When he reminded us of the heavy unemployment in Northumberland, it certainly struck a chord with me. I once had the job of trying to cure the unemployment. When there was a sneeze in London, we had pneumonia up in the North-East. However, I thoroughly enjoyed his speech and I hope to hear him again on very many occasions.

At the moment it would seem that the main cause of public concern is concentrated on shortages of petrol and the increases which are taking place in its price. Of course, that is very understandable. I thought that the debate today suggested that the House considered itself to be in the preliminary stages of perhaps many future discussions that will increasingly concern themselves with the effects on our society as a whole of a permanent change in the provision and use of energy by our manufacturing industries, for space heating and for transport of both goods and people. In other words, I believe that the House was very seriously wanting to know where we are going on the main issues which as yet perhaps have not revealed themselves.

I think the Government's reaction to the oil shortage is causing some confusion. Prior to the Tokyo meeting, we were told by the Minister for power that it was merely a marginal issue requiring a little more care in the use of petrol and other oils. As I understood his statement, that was the reason advanced by the Minister for refusing to have a system of priorities, including priorities for industry, doctors and essential projects.

The noble Earl, Lord Gowrie, repeated that today. In the course of his speech he first of all said that a 5 per cent. saving is all that we need in the way of saving on oil. He went on a little later to tell us that we cannot return to the old life. I would not have thought that a 5 per cent. saving on oil is going to change our lives permanently. The Government must face the fact that at the moment the nation is very confused about what they are saying. Is it merely a question of driving a little more slowly, or is it something else? Indeed, the second quote I made from the noble Earl's speech means that we cannot again hope to return to our former way of life.

Now that the Tokyo arrangements, as outlined in the communique, presuppose long-term restrictions on oil uses, and the OPEC countries are threatening even higher prices within a few months from now, are we still to continue to ration ourselves by the purse or do we attempt to get our priorities right? It seems to me that we cannot continue to permit the price of petrol and oil to go on increasing which means that those with the biggest purses can get them. We must look after the interests of the nation as a whole, including industry and whether the doctors can have priority. I hope the Government will realise that this is causing great anxiety. I am not saying that we want a rigorous type of rationing, but surely we are all agreed that there are within this situation priorities which we really must try to ensure as we go along.

The question which the Government must answer is this. Why is it that at a time when oil producing nations are in such a dominant position as against the consumers we, an oil producer which will be self-sufficient in a short time, are told by the Prime Minister that we must accept a reduction in our living standards? There is an illogical issue here. If indeed to be possessed of your own oil gives you such a dominant situation as against the consumer, where do we come in? Is it really the time when we should be told that, because of the shortages which are now becoming obvious, we must accept a reduction in our living standards? The noble Lord should address himself to why we should accept a statement of that type.

Indeed, not only are we practically self-sufficient with our own oil but every time OPEC increase the price they increase our own oil values. It is not a question that we, in our position of having North Sea oil should be looking forward to a reduction in living standards; as I assert, our situation is improving as OPEC increase the charges. I am not for one moment suggesting that we should adopt the same selfish and rather arrogant policy as some of the OPEC countries are doing. These are straight, simple questions, which I feel are worrying the nation and they require an answer.

We all understand the need for imports of heavy oil. They need to be balanced by exports of our lighter oil. But how much guidance—and, indeed, instruction—are the Government issuing to the oil companies on the amount of exports and the destination of those exports? My noble friend Lord Hatch of Lusby mentioned the South African problem. I was looking at Sir Ian Gilmour's statement to another place, that they had received categorical assurances from the oil companies that no oil would reach Rhodesia. I would have thought that such a statement was quite without value while South African legislation prevented any disclosure about oil movements within South Africa. Noble Lords will recall that that legislation was deliberately passed not all that long ago in order to prevent anybody from knowing whether the oil actually went to Rhodesia. Therefore, I join my noble friend in asking the Government to make quite clear how they can possibly make certain that oil going to South Africa does not in fact reach Rhodesia.

May I also ask whether there is any way in which the Government can affect the spot prices going on at the moment in Rotterdam? This is really a shocking situation. These prices are soaring and I would have thought it a reason why the Government should attempt any way to control exports. Despite what the Tokyo communiqué says about controlling trade in oil, experience tells us that the power of international oil corporations is such that without determined Government intervention there just is no way in which the Tokyo decision can in fact be implemented. Most of those decisions are not really of much value to us because once we agree, as apparently we have, that the United States, whose consumption is far greater than that of any of the other countries, can adopt as a goal for 1985 the figure for 1977, when its imports were at an all-time high, while the Europeans tie themselves to a much more stringent base-date, it is very difficult to understand what satisfaction there is in the Tokyo arrangements, as far as we are concerned.

In their dealings with the oil companies, the British Government have a far better chance of exercising control than most of the other Governments, but of course they have the advantage of a majority holding in BP and the use of the BNOC to achieve that objective. The noble Earl writes books, and in the world inhabited by novelists it would require an author with a particularly sadistic turn of mind to create a plot in which a Government with those advantages proposed to throw away a majority shareholding in the one and actually to emasculate the other. Surely the House will agree that the situation which today we have been discussing demands a far closer working relationship between Government and both of these, in order to strengthen the nation's position. I invite the Minister to tell us why that should not be done.

Many noble Lords today have referred to the coal industry. My noble friend Lord Taylor, who has put many years of his life into it, gave us an account of the past in that industry. Indeed, many of us have echoed his sentiments. I think there is a need for a complete change of attitude towards the coal industry and that we should begin to try to effect such a change. During my period as Minister of Power, I was constantly charged with "propping up a declining coal industry". I have been looking up Hansard, and that was a charge levelled at me by one or two gentlemen who pressed me about it. They said that the industry "belonged to another age"—well, we have now seen the age it does belong to!

I rendered assistance to it by means of short-term measures which increased its market by 5½ million tons during 1965–66. The noble Viscount, Lord Simon, asked whether we could not do more to influence the Generating Board into taking more coal. The fact is that we can: if I may say so, I did it. So if the Government want precedents they have one there. That was purely to me an interim thing. I then wrote off £415 million of capital debt and produced the 1965 White Paper, which co-ordinated for the first time all the various sources of energy production by 1970, in terms of coal equivalent, of which coal was to be the supplier of 180 million tons per annum. I just do not understand why the coal industry did not stick to that, because those targets proved correct for 1970—the total target of 324 million tons of coal equivalent and indeed the 180 million tons which I suggested.

The British coal industry is, of course, among the most modern in the world. It now is in need of men; and I think this arises from this background of young men feeling that they were being written off and that there was no future in the coal industry. I hope that in their public relations work on this the Government will do everything possible to show that this is not something which is consequent upon a temporary crisis but that for as long ahead as men can see we are going to need more and more British coal. If that can be done effiectively, I think the crisis—I will not say, crisis: the shortage of manpower—in the coal industry could yet be rectified.

Noble Lords will remember that we have agreed to try to step up by the end of the century to 170 million tonnes. At the moment—I do not know whether the noble Earl, Lord Bessborough, knows more about this than I do—I am not very sanguine about our ability to do so. If we cannot, it will be another great setback. When all is said and done, the old pick-and-shovel days that my noble friend Lord Taylor could tell us all about are long since over. Technical achievement and engineering skill are now the basis of the kind of work that coalminers will be asked to do.

The communiqué from Tokyo states: We pledge our countries to increase as far as possible coal use, production and trade". The noble Earl, Lord Bessborough, also mentioned that. In Britain we have already embarked on expanding our coal production. What of the other EEC countries? The only other "bulk producer" is West Germany and, as I understand their position, they are not planning to increase their total production of coal but are content to go on researching into technical improvements in the use of the coal that they produce—

The Earl of BESSBOROUGH

My Lords, brown coal.

Lord LEE of NEWTON

My Lords, brown coal: of course it is. I hope I am not arguing a selfish attitude in energy matters, but we are not playing for small stakes in all this; and I hope that in our discussions with our colleagues in the EEC we shall impress upon them that there is a dire need for each of them to go after the resources, wherever they may be in the ground, and to begin at once.

Exports of oil to EEC countries are going to increase, and our increased effort to extract more coal will, I suppose, be looked upon as a bonus for the Nine. We are therefore entitled to expect that, wherever there are coal deposits to be worked, the Community will go after them. The costs of importing all kinds of energy are going to increase rapidly and every effort must be made within the EEC to provide all possible quantities of each of the ingredients we are talking about, in order to minimise our dependence on imports from outside the Community. The part of the Tokyo communiqué that I quoted pledges all of us to increase our own indigenous energy supplies. We really must see to it that all of us pull our weight in that respect.

I am quite conscious that when relics of other days are brought back to the Front Bench there is always the danger that they will relive the past. I have done a little bit of this up to now, but I hope that what I have been saying in that respect has been relevant to our present debate. If I may go a little further with the same theme, it was on 25th May, 1965 that I was able to announce we had chosen to develop our own AGR reactor in preference to the American reactor. As I recall, although the initial installation costs of the AGR were higher than the American reactor, we were satisfied that its economics would be better. We also believed that there was a greater safety factor in the AGR than in the American reactor: that theme has run through many speeches today. Although the AGR, along with every other system of reactor, has had its setbacks, I believe we now know that so far as is humanly possible the safety factor in the AGR is very good indeed. When the noble Earl was talking about the expansion of nuclear energy, I do not think he said whether we are to concentrate purely on the AGR, or whether there are any water reactors or other elements to be brought in.

As I have said, one of the factors that we had in mind was the safety factor. I was very pleased that the Prime Minister mentioned the other day that we would do everything possible to ensure safety. When all is said and done, we are living on a comparatively small, crowded island. We do not have the space of the United States or the other great Continental countries. Therefore, to us the safety factor must be of overriding importance in all that we do. I trust that the Government have this kind of thing very much in mind.

I was struck by what my noble friend Lord Ritchie-Calder said about the mystique that is always attached to the Atomic Energy Authority. I remember one of my colleagues in another place, who would not trust an ordinary boiler for boiling water just because the Atomic Energy Authority in my constituency had bought it. I believe that the noble Earl himself talked about this mystique. Again, this is a field in which there is much work to be done and I hope that the Government will pay attention to it. Inhibitions of this kind could hold us back in our desire to develop atomic energy, and to get the resources of the coal industry up to the levels that we want by the end of the century.

I do not believe that the brain drain has robbed us of our best scientists. I believe that we have the capacity to produce a reactor system which will compete with anything in the world. I attach some importance to this. We were disappointed that we did not get our reactors away in the export markets in competition, especially with the Americans who are not very particular about what they do in getting their products away. I hope that the Government have this very much in mind. If we are to increase our efforts in the production of reactors, we really must try to get across the idea that for export purposes we are pre-dominent, or at least equal to anybody. If we do that, we can help ourselves in the days ahead when none of us is very sanguine about the levels of unemployment. We could get into employment that highly skilled number, which the noble Earl and I were discussing the other day, which, of themselves, could do a great deal to find employment for unskilled people.

Viscount HANWORTH

My Lords, before the noble Lord sits down, may I ask him a question? I avoided interrupting him in the middle of his speech. I think he said that we should use our oil revenue for propping-up the standard of living, when most of us think that it ought to be put to more useful purposes in investment for the longer profitability of this country. Would the noble Lord comment on that point?

Lord LEE of NEWTON

My Lords, either I said it very badly or the noble Viscount's hearing is defective. I did not say that, I did not mean that and I would not support such a policy.

7.54 p.m.

The MINISTER of STATE, DEPARTMENT of EMPLOYMENT (The Earl of Gowrie)

My Lords, it has been a fairly long debate, but I, for one, found it extremely interesting and informative. I start by congratulating the noble Lord, Lord Strabolgi, on the way his debate has gone, and adding my congratulations to my noble friend Lord Armstrong on his maiden speech, which we all enjoyed. It is more than conventional politeness if I say that we hope he will bring to our attention his interests and activities in the North-East, as well as many other items, on many occasions in this House. We are glad to see him here.

It is appropriate that this House should debate energy questions in the present climate, because the present, and still extant, energy policies are largely the creation of three noble Lords—the noble Lord, Lord Balogh, the noble Lord, Lord Kearton, and the noble Viscount, Lord Stansgate. The noble Lord, Lord Balogh, was kind enough to write to me to say that he could not be here for the winding-up, so I shall not deal with his speech but will talk to him and the noble Viscount, Lord Stansgate, who was also otherwise detained, about their speeches. But I am sure the noble Lord, Kearton, when he reads Hansard tomorrow. will pay attention to what we have said. It was also agreeable to have a winding-up speech from a former Minister of Power. When I go along to the Department of Energy for my discussions and briefings for occasions such as this, I go down a long corridor and pass an admirable "mugshot" of the noble Lord, which is of course much admired.

I shall deal first with some of the points made by the noble Lord, Lord Lee of Newton, when he said that there may be some confusion in people's minds as to what the situation is. I have rehearsed the situation fairly carefully in two debates, and your Lordships would not wish me to go over it again, but would rather let me try to deal with an area where there may be confusion.

We have become very accustomed in this country, when there is a difficulty or a problem, to ask "What is the Government doing about it?". To some degree, it takes quite a lot of government to resist charging in and interfering, not with some theoretical notion of a free market—I am not concerned with that—but with the way existing systems of allocating resources work.

What we are doing is not letting the issue go. We are monitoring it very carefully. We are monitoring it in association with the United Kingdom Petroleum Industry Association, which has undertaken to handle the requirements of customers with problems in times of crisis as flexibly and swiftly as supply constraints allow. Where people are confused is between the twin issues of price on the one hand, and supply on the other. When my right honourable friend the Secretary of State talks about a 5 per cent. shortfall being copeable with, without a strict system of rationing or even formalised allocation of priorities, his feeling is not any doctrinaire objection to rationing as such, but the feeling that a shortfall of 5 per cent. simply does not warrant the expense, difficulty and delays that that rationing would involve.

But the pricing issue is very much a different affair. What we have to get over to people is that our whole industrial civilisation is moving into an era of dear energy costs, and very few people, once they have thought about it, even for a few minutes—and certainly very few people in this debate this afternoon—would expect us to use our North Sea oil resources at lower than international price levels in order to protect the standard of living of our own population, thereby, as the noble Lord, Lord Kaldor, pointed out, denying ourselves immense sources of export revenue. We are all simply having to adjust, and rather painfully, to new and higher levels of costs.

My noble friend Lord Armstrong, in his admirable maiden speech—and the noble Baroness, Lady Masham, echoed him in this—was worried about the effects of shortfalls on rural areas and on the farming community, which point was raised again in regard to horticulture by the noble Lord, Lord Collison. Obviously we are concerned with this, particularly at this time of the year, and that is why we are working with the United Kingdom PIA to see that more supplies are encouraged to go to particular areas, to villages and farming communities where the worst shortages exist.

Although particular customers have sometimes reached near crisis—and noble Lords will have their own experiences and tales to tell—we find that we have been able to provide help on a much more selective and efficient basis in this way than by drawing up general priority categories to make whole sectors immune from shortage. I suggest to noble Lords who have called for priority categories that if one starts to apply those there will probably be a sharp drying-up in the balances of supply. We do not feel that our 5 per cent. shortfall, which has been, on the whole, well responded to, at this stage warrants it. But I assured noble Lords in the former debate, and I assure them again, that this is something which, from its crow's nest or watchtower, the Department of Energy is monitoring. We feel, however, that fearful difficulties have occurred in the United States through the attempts to create immunities or privileged classes of customers, and we are trying to learn from their experience. We do not feel that that approach has helped.

We are not allowing any emergency services to be put at risk, and I defy any noble Lord—I say this in a completely friendly spirit—to give me an instance where a life has been lost or where there has been an emergency breakdown of that kind, due to the shortage of oil supplies. If any public service has been in difficulty, the Department has intervened and has provided help with great speed; others have managed to deal with problems through their supplier or their distributor. I am confident that in the present circumstances we can continue with that system.

We are in touch with the Public Service Transport Operators' Committee. This is a committee which, I know, deals with the problems of rural areas. However, as my noble friend Lord Lucas of Chilworth said in his very cogent and commonsense speech, many of the rural transport proplems are not due to shortages energy; they have to do with the breakdown of certain standards of pay ratios in rural public services generally. They are severe problems and we shall deal with them, but they do not have anything to do with the energy shortfall. There is no way in which we feel that we can declare that certain groups will be totally immune from the shortage and the permanent new era of high cost energy which faces this nation and every consumer or worker, whatever his or her position.

My noble friend Lord Armstrong has experience of the tourist industry. I was glad to see on the wires this afternoon that the tourist association has advised tourists that there is no significant shortfall to worry about. The association is monitoring the situation and will give help where blockages occur. It is important to deal with this matter, since it is a question of confidence. If tourists feel that there is no petrol, they will not go touring, and one will find that there are surpluses of petrol.

I want to deal quickly with some of the extremely fascinating points which were made by the noble Lord, Lord Kaldor. His speech, like that of his noble friend, the noble Lord, Lord Balogh, was at a high macro-economic level. When I say that I shall read his speech, it is no mere politeness on my part. The noble Lord usually sends me copies of his speech. His speeches are studied with great care. I know that my right honourable friend the Secretary of State, as an ex-pupil, even though their ways have parted to some extent, is still very aware of what the noble Lord has to say. I do not want to paraphrase the rather unfortunate remark of the last Prime Minister when he said: "What chaos?" However, at the beginning of his speech the noble Lord, Lord Kaldor, painted a portrait of civil breakdown in this country. I have not been in Scotland but I have been on ministerial visits to the North and the West Country, and I have not yet seen evidence of giant pythons roaming in the streets while people are stranded or shooting each other at "gas" stations. We must keep this problem within the context of the 5 per cent. shortfall which I mentioned earlier.

I contest one point which was made by the noble Lord, and several other noble Lords on the other side also mentioned it. We are not relying on a market or pricing system. We are relying on a scissor system of price on the one hand and conservation on the other. I am glad that towards the end of the debate my noble friend Lord Kintore brought back our minds to the conservation issues which are so important and without which our attitudes towards pricing would, I agree, be meaningless. Conservation is dealing with the 5 per cent. shortfall. Pricing is dealing with the new climate which all the industrialised countries of the West are having to deal with.

The noble Lord, Lord Kaldor, ended his speech on a robust and even optimistic note; that bit of it I certainly agree with. He told us to counsel against a wholly unnecessary immiserisation of the people. May I respectfully suggest, as a fledgling Minister, as the noble Lord, Lord Balogh, described me, that we have no interest in immiserating the people. Nevertheless, my right honourable friend the Prime Minister of course recognises that there is a deflationary effect as a result of OPEC not investing back into our economies their dollar surpluses, and we shall do everything that we can to persuade them to do so. Whether my right honourable friend has gone on to make the enormous quantum leap—that the response to this is to go back to deficit financing—I am not yet sure, but I shall bring to her attention the noble Lord's suggestion and will see what sparks fly.

I agree with the noble Lord that I am rather bullish about the higher pound. I see various aspects of inflation responding favourably to it. We should not be over-worried about this. Like the German economy, we have to adjust to manufacturing higher quality and more durable goods. Germany has been able to do that, and I see no reason why, with our many firms which have a reputation for quality, we should not do so as well.

May I turn quickly to the many points which were raised by the noble Lord, Lord Strabolgi, some of which I said I would have to put off until I wound up the debate. The noble Lord asked me about the effect of home insulation on rateable value. Insulation is not the only desirable improvement which one can make to one's home and which therefore affects the rateable value. It would be a little difficult administratively to distinguish between different types of improvement. When is insulation an addition, a decoration, or anything else? In practice, however, minor improvements, which would not increase the annual rateable value by more than £30—which must include the vast majority of home insulation improvements—are disregarded between general revaluations. As my right honourable friend the Secretary of State for the Environment announced recently, the revaluation which would have taken effect in 1982 has been cancelled, pending a total review of the system.

The noble Lord asked me questions about coal and, if I may, I shall deal with all of the coal issues which were raised by several noble Lords. The noble Lord, Lord Taylor of Mansfield, told us that he is coming up to the 71st anniversary of the day that he first went down the pits, and we all congratulate him upon that remarkable achievement. The substantive point about coal, which I made in my opening speech, is that we are making our contribution. A £4 billion investment programme is in train. We feel that now it is up to the industry to maximise production and minimise the kind of practices which keep uneconomic pits in being and the price levels of coal too high. We do not want to be in a situation where we are using our newly strong pound to buy overseas resources with which we are extremely well endowed.

Various noble Lords raised the question of the tripartite machinery. So far as coal is concerned, I can assure them that the Government fully appreciate the value of the tripartite machinery and that we have every intention of making full use of it. My right honourable friend the Secretary of State for Energy will take the chair at his first such meeting with the National Coal Board and the unions on 12th July, thus continuing the tradition of such consultations regarding the coal industry's future.

The noble Lord, Lord Strabolgi, and also the noble Viscount, Lord Simon, asked about the Government's policy on building more coal-fired generators. The generating boards of England, Wales and Scotland are planning this year to burn nearly 90 million tons of coal. The boards expect coal to maintain a significant role throughout the 1980s and beyond, and they also expect to have the capacity to burn all the suitable coal which the Coal Board can make available. As noble Lords will be aware, over 70 per cent. of the fuel requirements last year of the Central Electricity Generating Board were met by coal. I can confirm to the House that the board are proceeding with the completion of the Drax power station which will add a further two gigawatts of efficient coal burning plant to their system in the mid-1980s. Decisions on further capacity will be taken as the need arises.

The noble Lord, Lord Strabolgi, also raised the question of the future of the Energy Commission. I believe that the noble Lord, Lord Taylor of Mansfield, also raised this question. The noble Lord, Lord Strabolgi, will be aware that the future role of all advisory bodies is currently under review. That is all I can say at the moment on this issue.

I dealt with the nuclear questions in my opening speech, but various noble Lords came back to them. There was a consensus in the debate, as reflected by the noble Lord, Lord Collison, that to some degree nuclear energy is necessary, that we shall have to go down a mixed economy road so far as energy is concerned and that our nuclear power future is very important. I have already remarked upon the safety aspect. I do not underestimate safety, simply because, on the grounds of time, I do not reiterate those remarks. I was very impressed by the phrase which was used by the noble Lord, Lord Ritchie-Calder. He said that we are suffering from "nuclear superstition". It will be a long, hard road in this country for us, as communicators, to allay the understandable fears of the public. I think that the noble Viscount, Lord Simon, speaking for the Liberals, was startlingly honest when he said that he disagreed with his Party's response to the nuclear issue. Perhaps the noble Viscount will guide his Party on to the right lines; we should all be glad if he did.

The noble Lord, Lord Strabolgi, referred to a report in the Daily Telegraph that the Government are planning five new nuclear power stations. That is inaccurate; no decisions of the kind described have been taken but we certainly stand by the communiqué issued in Tokyo last week and the importance that it attached to nuclear power.

The noble Viscount, Lord Hanworth, and the noble Lords, Lord Strabolgi, Lord Wynne-Jones and Lord Lee of Newton, asked about our policy on the construction of commercial scale demonstration fast reactors. The present position is that the United Kingdom Atomic Energy Authority and the electricity supply industries are considering the next steps in fast reactor policy, including the possibility of constructing a CDFR in this country with a view to putting proposals before Ministers. Ministers will have their own views about the fast reactor and I certainly have mine, but they should wait until we see what our aides are providing for us.

I said in my opening speech that I would say something about gas. Gas production is expected to rise steadily until about 1990 and then begin to fall slowly and gas, like oil, is of course a finite resource which we must use sparingly. It is therefore sensible to concentrate sales in those markets where gas has a premium value; that is to say, in domestic and commercial and industrial processes where high quality fuels are provided.

The noble Lord, Lord Strabolgi, asked whether the Government intend to sell off the British Gas Corporation's North Sea assets and he also linked with that some of the assets of BNOC. My right honourable friend the Chancellor of the Exchequer announced the Government's intentions with regard to the sale of State owned assets in another place and when he did so he said that we must of course retain flexibility on timing and the precise mix of assets to be sold in order to ensure a fair price. That remains the position, and I think the noble Lord will understand that that is really all I can say about it at the moment.

Mention was made of renewable energy sources. The noble Lord, Lord Ritchie-Calder, spoke about waves and the noble Lord, Lord Collison, about solar energy. I was very impressed by the speech made by the noble Lord, Lord Collison, in this context. We should like to see private industry and small business going into these fields.

The noble Lord described the remarkable bath system which he installed and perhaps he could market it and sell it for £270 to the rest of us! We are allocating quite substantial sums of money to research in these fields: wave energy research gets £5.4 million and solar energy, £6 million. As I have said, it is most important in this field to ensure that adequate industrial involvement is made because it is the private sector which will carry out the eventual commercial development.

Turning now to the speech made by the noble Baroness, Lady Masham of Ilton, I can assure her that this Government are generally conscious—and this Minister particularly conscious—of the needs of disabled people. I am in charge, in my Department, of employment issues as they affect disabled people and of course in these days there is little employment for such people without mobility and therefore energy and fuel shortage questions are of paramount importance to them. As a result we have in fact taken the initiative; we have approached the Motor Agents' Association, of which I think my noble friend Lord Lucas of Chilworth is a member, and who represent the garage trade, about disabled motorists. As a result the association has undertaken to bring the special needs of disabled motorists to the attention of their members.

I wish to congratulate my noble friend Lord Bessborough on his most interesting and stimulating speech. Certainly we must try to co-operate and make initiatives with our Community partners on energy issues as we are thoroughly involved with them. It is a question which my right honourable friend Mr. Heath also raised while speaking in Vienna last night and he emphasised the role that Britain has to play in the discussion of energy questions with our partners. I noticed what the noble Earl said about the European Monetary Union. When safely in Opposition I made some rather "bullish" noises about the European Monetary Union and I am still trying to promote it, so far as I am able. It may have significant energy implications and we should try to go down that road if we can conceivably afford to.

Perhaps I may say to the noble Lord, Lord Wynne-Jones, in great friendship, that he really should not make mischievous representations of a fellow chemist such as my right honourable friend the Prime Minister. No one—certainly not the Prime Minister—suggested that the nuclear is a kind of instant solution but we need to discuss it now because it takes a long time to come to fruition and resources and development have to be allocated at a very early stage.

My noble friend Lord Wolverton said, quite rightly, that there is a working party now looking into further electrification of the railways. The Department of Transport and the British Railways Board are both involved and the energy aspects about which the noble Lord is concerned will bean important element in the study. I agree with him that they have been somewhat slow about it and I will see what can be done to hurry them up.

I come now to the most controversial moment in the speech, as we would expect from him, when the noble Lord, Lord Hatch of Lusby, asked me about the BP-CONOCO deal and the question of petrol getting to Rhodesia via South Africa. There is not very much that I can add to what I have already said. I have spelt out the policies as carefully as I could and I should like to "come clean" with the noble Lord and say that petrol companies have given assurances to Ministers that oil will not get to Rhodesia through this allocation. I could not put my hand on my heart and say that one could earmark a piece of oil, follow it round the world and wonder where it ended up. Therefore it seems to be more reasonable to say that South Africa is a major trading partner of this country. That was certainly the condition that pertained under the last Government and under that Government there was no serious suggestion that it should cease to be. Where we trade with South Africa it is inevitable that some of our international obligations will be broken; as a trading country we have to trade with many countries of whose policies, domestic or foreign, we disapprove. But we will try to keep an eye on the situation. I will simply say that I cannot give him the guarantees that he would like. He should be a little careful in the strictures and the remarks that he makes about Nigeria. would point out to him that Zambia, Nigeria and other countries in black Africa are also trading partners of South Africa and despite their political attitudes probably all sorts of resources are getting through to Rhodesia in that way.

As I said at the beginning, this has been a long debate and the energy of this Minister, in any case, is beginning to wane. I should like to repeat my congratulations to all who took part and to the noble Lord, Lord Strabolgi, for initiating it in a trenchant and timely manner.

Lord HARMAR-NICHOLLS

My Lords, before my noble friend sits down will he make one comment on what is a minor part of the massive and informative speech which he has just given us; namely, the answer which he gave to the point raised by the noble Lord, Lord Strabolgi, about the cost of insulation affecting the rateable value of property? It is a great sadness that he gave precisely the answer that the noble Lord, Lord Strabolgi, and his noble friends used to give to me on that subject. It is possible for the Government to do something about this, if it is only to send a circular to valuation officers asking them not to take into account the cost of something that can clearly he seen as an installation to save energy costs. Can the noble Earl go that far on this point, which is a minor one but which will cause a lot of irritation if we cannot get satisfaction from him?

The Earl of GOWRIE

My Lords, I rather agree with my noble friend, and I am certainly anxious to give better answers than the previous Government, so I will see what I can do.

8.18 p.m.

Lord STRABOLGI

My Lords, I agree with the noble Earl, Lord Gowrie, that we have had a very good debate and I should like to thank noble Lords from all parts of the House who took part in it. I am particularly grateful to the noble Earl, Lord Gowrie, for his careful attention to all the points raised, including mine, and I should like to congratulate him on both his speeches but particularly on his winding-up speech. Having taken part from that Dispatch Box, I know myself how difficult it is to cover all the points raised in the fairly short time available and I should like to congratulate him on the way he did it and on his attention to all the points raised.

I should also like to congratulate most warmly the noble Lord, Lord Armstrong, on his admirable maiden speech and I hope we shall hear from him again on many other occasions. I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.