§ 2.57 p.m.
§ Lord STRABOLGI rose to call attention to the huge price increases for gas and electricity authorised by Her Majesty's Government, which, following the severe cuts imposed on local authorities' expenditure, will fall heavily on all consumers but particularly on the poorer sections of the community; and to move for Papers. The noble Lord said: My Lords, in rising to move the Motion standing in my name, I should like to say at the outset how grateful we are to the noble Lord, Lord Ferrier, for withdrawing the Unstarred Question that be put down for last week on the increased price of gas so that the House could have a full debate today. I am very glad that the noble Lord will be taking part in this debate and I am sure that we are all looking forward to his speech. I understand that yesterday was the noble Lord's 80th birthday. Perhaps we may be permitted on this side of the House to wish him many happy returns. I must say with respect that he does not look it, and we are glad to see him here and full of vigour.
§ We have put down this Motion to enable the House to consider the huge price increases for gas and electricity that the Government insisted upon earlier this month and to debate these in the context of the severe cuts imposed on local authorities' expenditure.
§ In real terms, the Government's decision will mean increases of 29 per cent. on gas and 23 per cent. on electricity prices during 1980. The Government have also decided that prices must con- 846 tinue to rise every year for the next three years by 10 per cent. for gas and 5 per cent. for electricity more than the inflation rate. A forecast by the London Business School calculates that within three years gas prices will have increased by more than 80 per cent. and electricity prices by nearly 60 per cent. Indeed, they would double over this period. The rate and pace of these increases, far above the rate of inflation, have caused considerable alarm throughout the country. They will fall most heavily upon the poorer section of the community, particularly on those who used gas because it was cheaper. The higher rates will have a grave effect particularly in Scotland and the North of England where the climate is more severe, and there will be increased risk of deaths from hypothermia.
§ People whose earnings are below average spend at least 10 per cent. of their income on fuel, light and power, compared with 6 per cent. for the average household, and only 4 per cent. for the richest 20 per cent. of households. The Government have, in effect, imposed a savage extra tax on the poorest consumers and those least able to bear it. Why has this been done? The Government have insisted on higher profit targets than the British Gas Corporation wanted, and the British Gas Corporation have said the increases cannot be justified on commercial grounds. The Price Commission has said that the increases should be phased. Over the next financial year there will be between £200 million to £300 million extra resulting from the increased prices. Is it the Government's intention that this surplus should be paid into a fund to help other nationalised industries, or is it to be diverted for some other purpose? Will the increased revenue from the poorer consumers be used to reduce income tax which will mainly benefit the rich and all those who enjoy large incomes, and who are better cushioned against inflation, such as the £20,000 a year man who received a £2,000 tax-free bonus in last year's Budget?
§ I understand that the BGC wanted to phase the increases over a longer period to make it less painful for the consumer. Why was this advice disregarded with seeming indifference to the financial problems of many consumers, particularly the most vulnerable?847
The National Consumer Council consider that it is essential that price increases are phased in gradually so that the consumers can adapt and plan ahead on a rational basis. It is surely an unwarranted intervention by Government in the commercial dealings of a nationalised board to force the British Gas Corporation to make larger increases than the board wished to make. The Government claim that the enormous increases in the price of gas are to be used to reduce demand, and to conserve a finite source of energy. But it will be those least able to bear it who will be used as the instruments of conservation. As a doctor put it recently in a letter to The Times—and here I quote:
the old and the poor are to be deprived of heat so that there is more of it available for those who can afford to pay for it. This may be a ' rational ' policy, but it would be difficult to think of one that was less defensible on moral grounds".
§ I am aware that the present Government have introduced a limited scheme to assist those on supplementary benefits who are over 75 or who have a dependant over 75, and to assist householders on supplementary benefits where there is a child under five. Presumably those pensioners aged 65, who have not yet reached the qualifying age, in ten years' time will not qualify although most will feel just as cold and many householders will have great difficulty in paying their fuel bills. The present scheme helps only 350,000 people at a cost of about £16 million. Labour's rebate scheme helped over 3 million people at a cost of £45 million and helped them with the equivalent of a lump sum when they most needed the money—that is, when the fuel bill was received. The Government should consider urgently bringing in a much more comprehensive fuel allowance than their present one. If this is not done, poor people in particular will suffer severe hardship. The Government stated in the other place yesterday that they are reviewing the whole range of help available to consumers who need assistance. We urge them to introduce a scheme for fuel that is not only humane but also wide ranging and designed to help all those in need.
I realise that supplies of North Sea gas are finite and will not last, unless there are further discoveries, much beyond the end of the century; but would it not
be more sensible for the Government instead of rationing by the purse to have a determined policy of conservation and to step up the production of substitute natural gas from coal? I hope that R and D expenditure in this area at least is not going to be axed. There should also be a positive conservation programme and more encouragement and more cash to encourage homeowners to install insulation. Perhaps I may remind the Government that the Tory manifesto said—and here I quote:
We attach particular importance to measures to reduce fuel consumption by improving insulation".
§ There was not much said by the Tories at the time of the election about the rationing of essential domestic fuel by the purse. However, I agree with the Government about the importance of insulation. But many people are going to find it difficult to raise the cash quickly to insulate their lofts, or to buy more efficient heating appliances on top of their higher fuel bills. I hope the Government will increase the grants available to help householders under the Homes Insulation Scheme. It is not much good for the authorities to pay a proportion of the cost if the consumer has not got the balance of the money required. The only alternative for many people in the lower income groups will be to switch off and shiver. Surely there should be a more humane way to conserve energy than causing severe hardship to those least able to help themselves.
§ Part of the surplus money from these fuel increases should be used to finance energy conservation, particularly conservation in the homes of the poorer consumers. I think there is likely to be an increased number of disconnections resulting from the fact that many families will be unable to pay their gas bills. The last Government introduced a Code of Practice for Disconnections, and I understand that this was recently reviewed by the Department of Energy's working party. May I ask the noble Earl, Lord Gowrie, to confirm that the Government intend to continue the code, and will he also give the House some idea how it is working out in practice?
§ I think the House should have some reassurance on these points, since clearly the poorer consumers are going increasingly to need the code's protection. 849 The present Government, which is by far the most reactionary Administration since the war, seem determined to dismantle the Welfare State, which their predecessors helped to build, and to abandon it to the jungle of an uncaring society. These rocketing increases in gas and electricity prices follow increased VAT and the savage cuts imposed on local authorities, all of which will fall heavily on every section of the community, but particularly on the less well off, whether they are young parents with families, the elderly or the disabled.
§ Since this Government came into power we have seen cuts in teachers and nursery provision; cuts in home helps; cuts in health ancillaries; cuts in meals-onwheels and old people's homes. Free school transport for long distances will be discontinued in many areas, except for the children of parents on supplementary benefit, and added to this charge of several pounds a week the low income worker will have to pay an extra £5 a week for school dinners if he has two children.
§ On top of all these cuts and high inflation, people will have to endure the highest minimum lending rate on record and all the hardships and difficulties that result from that, particularly for young couples buying a house and for small traders and the owners of small businesses. I sometimes wonder whether the present Government have any idea how most people manage. After only eight months in office, the Government's record on the home front seems to be an almost total disaster. We on this side of the House urge them to step back and consider where they are leading the country, and to change their present policies before it is too late. My Lords, I beg to move for Papers.
§ 3.11 p.m.
The MINISTER of STATE, DEPARTMENT of EMPLOYMENT (The Earl of Gowrie)
My Lords, I congratulate the noble Lord, Lord Strabolgi, for the clear and trenchant way in which he has put his case. If I may say this to him, he did rather better than his right honourable friend, Dr. Owen, in another place yesterday, and really he should lose no time in persuading the Shadow Cabinet to take a few more Peers on board ! 850 He might have put into his speech that his right honourable friend had suggested in his speech yesterday that there should be a minimum rise of at least 17½ per cent. in the price of gas this year; that point was not taken on board by the noble Lord, Lord Strabolgi. I want to answer the noble Lord in some detail about the general cuts issue later in my speech. If the House gives me leave and if it is convenient to the noble Lord, Lord Strabolgi, I should like to deal with his particular points on insulation and the rest when I come to wind up. I am sure other speakers will raise similar points and that will provide a better context.
I know, of course, that price increases of any kind are never welcome, and I do not expect the recently announced rises in gas and electricity prices to be any exception. However, I believe it is most important that the general economic background to the Government's recent statement on the financial targets for the gas and electricity industries should be understood. That is why I welcome the opportunity this afternoon to explain the Government's views on the matter.
We all recognise, and recent events have surely underlined it, that we are living in a world of great international uncertainty over energy supplies and of rising energy costs. In my view, we are facing a decade in which the challenges to our security and way of life may be more acute than at any time since the end of the last war. These dangers have been vividly illustrated recently, in Iran and Afghanistan. The revolution in Iran led to a sudden drop last May in the supply of oil from which the Western industrialised economies have yet to recover. The Russian presence in Afghanistan threatens the stability of the whole Gulf area, from which the Free World draws 50 per cent. of its oil. I do not know whether it is generally known that 50 per cent. of the entire imports of oil of the American economy—that enormous economy of 200 million people—comes from two oil wells in Saudi Arabia.
This is a literally terrifying world in which we are trying to stage our economic recovery. It will therefore be essential, in dealing with the problems of the coming decade that, together with our allies, we try to reduce our consumption 851 of energy in general and of fossil fuels in particular. Living in a world of international uncertainty of energy supplies in addition to rising fuel costs, it would, in our view, be grossly irresponsible of any Government not to recognise this fact and not to face up to it.
With oil becoming increasingly scarce and expensive, we are of course relatively well placed in this country, endowed as we are with substantial indigenous resources of oil. But these reserves do not allow us to insulate ourselves from world developments. Indeed, they underline the need for us to make the best possible use of our own resources so as not to bring forward unnecessarily the time when we may once more be dependent on external suppliers. Security of supply is in itself a very valuable asset—at least as valuable as any price considerations out of the source of supply—and it is one which this country must preserve for itself as long as it can.
However, we must not withdraw in upon ourselves. As I said, this is a problem of wider dimension and it affects all the oil-consuming economies of the industralised world. We are working with the nineteen other Member States of the International Energy Agency to reduce demand for oil in the industrialised West. Energy ministers of the IEA expressed their determination in December to work together to restore order and reduce pressures on the world oil market. If we cannot achieve this aim by agreement among the main oil-consuming countries, then an intensification of the economic disruption we had last year is inevitable: it will occur again. We cannot count on the OPEC countries being willing in the future to produce significantly more oil than they are producing at present; so our own ability and that of the non-OPEC suppliers to produce more oil is very limited.
What I am trying to say is that if the Western economies are to grow, oil will constantly become an increasingly scarce resource. We have to face up to the implications of the fact that oil—and leading on into other energy items, also, therefore, gas and coal—are finite resources. We have to face also the implications in the long run for prices of their 852 being finite: the implications for rational pricing policies which have a key role to play in ensuring a more efficient use of the world's energy resources. Only in this way can we avoid a scramble for oil of the kind which led to the very sharp and disruptive price increases of 1979 and which could lead to something worse—to an armed scramble for these resources. So it is the Government's intention, and that of our partners in the International Energy Agency, to work together to avoid further sharp price increases. But we cannot, and I believe that we should not, try to delude ourselves that the days of cheap and superabundant fossil fuel will return ever again.
Frequent repetition of the statement that we are living in an era of high energy costs may perhaps have dulled its impact, and your Lordships may find it helpful to have a few reminders of the dimensions of the problems we are facing. Over the past decade, for instance, the price of crude oil has gone up some 15 or 20 times, so that the barrel of oil which could be bought for well under 2 dollars at the beginning of the 1970s costs some 25 to 30 dollars or more by the close of the decade. In the last year alone, the price of crude oil rose by over 100 per cent. in most cases, and further increases have already taken place this year. Indeed, my Lords, since I wrote that paragraph the price of oil has risen by 2 dollars per barrel.
The price of oil affects that of all other forms of energy, both directly, in forcing up the costs of production or generation, and indirectly, in increasing the market value of fuels which are in competition with oil products. Although the last decade has seen significant increases in the cost of all forms of energy, they have by no means kept pace with the very significant rises in the price of oil which I have just outlined to the House. This is partly due to intervention by Government; and I ought perhaps to explain that I am not here making party political points, since successive Governments throughout the 1970s have alternately stepped in to hold down the price of fuel or, on occasion, to bump it up again. So the process of price increases in the last decade has been characterised by a series of fits and starts—sudden jumps followed by periods of relative stability. This has undeniably proved 853 confusing to consumers, as well as damaging to the industries themselves, since the real trend of energy costs has not become apparent and consumers have had no basis upon which to plan rationally for the future, for instance in the choice of alternative fuels or in evaluating a potential investment in energy conservation. We cannot escape entirely from this situation, while OPEC and the world market continue to determine the level of oil prices in a similarly erratic fashion. But what the Government can do, and have done, is to give consumers a clear indication of their intentions and of the likely trend in fuel prices, in so far as it relates to matters within the Government's power to control.
Returning to the question of the high energy cost era, although I have illustrated the force of this description by reference to the price of oil, consumers of other fuels have not experienced the same direct impact of rising energy costs. Looking back again over the past decade, to the era of presumably low energy costs before the events of 1973 and subsequently, we find that the price of fuel for domestic consumers has risen only very slightly more than prices generally; it has roughly kept pace with inflation. Indeed, in some cases, the rise has been slower. Domestic gas, in particular, on which the noble Lord, Lord Strabolgi, concentrated, has fallen in price by over 30 per cent. in the past decade, as compared with the rate of inflation, while consumption of domestic gas has, as one would expect, risen fourfold. So in the case of gas, many people have actually experienced, in this world of high energy costs, falling real energy prices.
Indeed, when taken along with the general rise in living standards over the period, most people will have been well placed to cope with the price rises of the 1970s in this area. Pensions and benefits have comfortably outstripped both general inflation and the rise in fuel prices during this period. The proportion of an old-age pension required to pay for a given quantity of gas has, in fact, fallen by half. Even after the increase in gas prices just announced, the real price of domestic gas will not be above its 1970 level, while real income will, of course, have shown considerable increases as against that basis.
854 I hope that the House will bear these points in mind when considering the recently announced price increases. I readily accept that the increases involved will be substantial; but when set against the events of the last 10 years, and in particular against the 100 per cent. increase in oil prices last year alone, they can, I think, be seen in slightly better perspective. Against this background, it will be seen that the reality of high energy prices may not really have conic home to all of us. It would be a tragedy, in our view, if this concealed from us the need to husband our energy resources and treat them with all the care they deserve. A sensible energy pricing policy is essential for a balanced energy conservation policy.
It may be more helpful if I were to set out briefly, in a little more detail, the background to the Government's decision for each fuel. I shall deal with gas first.
The situation may require more explanation to people here, in the light of the Gas Corporation's high level of profitability. I should perhaps explain that in some ways the Corporation's apparent profitability may be misleading. First, the profit does not at present stem from domestic sales. In the current financial year, British Gas expects its domestic gas sales to do no more than break even, as was mentioned in the Price Commission's Report of last July. Virtually the whole of its forecast profit—which is expected to be close to last year's figure of £360 million—will come from sales to the industrial and commercial markets. In earlier years, by contrast, domestic sales had contributed their fair share towards the Corporation's overall profitability. The increases in the 1980–81 domestic tariff make a modest contribution only to the overall profitability of BGC in that year, with a greater contribution thereafter over the financial target period.
Secondly, in large measure, the level of British Gas profits stems from the very favourable price at which at present it purchases a large proportion of its supplies under contracts which were, in fact, negotiated some years ago. But gas from newer contracts from now on, which will form an increasing proportion of its supplies over the coming years, is several times more expensive; because it is more expensive to get gas from the northern waters of the North Sea than it is from the 855 southern waters of the North Sea. What I am saying, therefore, is that the level of BGC's profits is not the best guide to the prices which it should be charging. There are a number of other factors to be taken into account, in both the long and the short term. In the short term, a sensible approach to pricing is essential, as I said earlier, to keep supply and demand in balance.
Noble Lords may have heard of the "flight from oil", which took place last year in response to oil price rises and supply uncertainties. Against this background, there arose a situation where British Gas was not competing for customers, but customers were competing for gas. So economic pricing is the only way to ensure that the available supplies are distributed fairly, without recourse to arbitrary rationing or the risk of ever-increasing supply shortages. That is why we have endorsed the British Gas Corporation's policy of selling to industrial and commercial markets at a price which is broadly related to that of the competing oil product. The price of domestic gas should also be set at a proper economic level, to ensure a balance of supply and demand as between all gas consumers, and to avoid the risk that supplies will be diverted to the domestic consumer from the industrial customer; the industrial customer being prepared to pay the proper cost. When the price of gas to the domestic consumer is too low, this also increases the risk of shortages and supply cuts on cold winter days.
There is also another consideration, and one which should appeal to noble Lords opposite and to the Labour Party generally. There is an important consideration of equity. I would remind the House that not everyone is fortunate enough to have access to a gas supply. Under-pricing of domestic gas benefits those who have gas—especially those who have been able to make use of it by installing gas central heating—at the expense of others who may not have access to gas, or may, through no fault of their own, be locked into some other form of heating. So economic pricing is essential to secure the benefits of North Sea gas for the nation as a whole.
I have seen it argued that in setting the target for British Gas the Government are interfering with free market pricing. 856 In fact, the reverse is the case. If a free and competitive market for the supply of gas was in existence in the United Kingdom, prices would already have risen to at least the level now proposed. The price to the consumer would have risen to the price charged to the industrial customer. What British Gas, with the monopoly advantages it enjoys, may prefer to do with price levels is quite understandable, but it is no reflection of the real market situation where demand so exceeds supply that thousands of customers are, at the moment, queueing to be connected. So let there be no misunderstanding that this Government are artificially pushing up prices. What we are doing is progressively phasing out artificially low domestic gas price levels and bringing them up to something approaching the true market value. If the noble Lord, Lord Davies, and others do not believe me, let them take my text to the noble Lord, Lord Kaldor, and the noble Lord, Lord Balogh, tomorrow and ask them whether that is not, in fact, the case.
§ Lord DAVIES of LEEK
My Lords, will the noble Earl please give way? I hate interrupting; I have done my utmost not to. Will he explain to me how he hopes to help British industry, particularly the pottery industry—which uses gas for firing in our domestic efforts to gain markets overseas—by these prices? Could he not have evolved a differential system of gas prices to help British exports?
The EARL of GOWRIE
My Lords, it is exactly because there has been an unfairly differential price between what the British pottery industry pays for gas and what domestic consumers pay for gas—and consumers are using up gas at a rate of knots—that is probably causing the difficulties to that industry which the noble Lord mentioned. What we are doing, as I said, is progressively phasing out artificially low domestic gas price levels, and bringing them up to something closer to their true market value in relation to world energy costs from which, as I have argued, we cannot afford to isolate ourselves.
This is not just the Government's view. All recent studies have shown that gas prices to domestic consumers need to rise. As I have said, the right honourable gentleman, Dr. David Owen, said yesterday that they would have to rise. Even 857 the Price Commission last year concluded that the price should be higher, in real terms, by 30 to 35 per cent. So the Government have a clear responsibility which, unlike their predecessor, they have not ducked, to correct the present unsatisfactory situation. But we do recognise that price increases must be phased in gradually and we have not attempted to make up all the shortfall in one go. Instead, we have proposed a phased programme of increases over the next three years, and the point of doing it over three years is to give consumers a chance to adjust to the situation and take it into account in their planning and their budgeting.
With electricity, the same broad considerations of economic pricing of course apply. Electricity is produced mainly from fossil fuels and its price must reflect this, both in order to enable the industry to make a proper return on its assets and to provide for its future investment programme in order to cover the cost of the fuels involved.
I recognise that there are substantial increases, as I said at the beginning, although, as I also pointed out then, I believe that the dimensions ought not to be exaggerated. I want to close by saying that I am also fully aware of the problems that adapting to higher energy prices will cause for many consumers, and I share noble Lords' concern especially for the situation of the old and the poor. But there is no solution to the situation of the old and the poor in general price restraint. That would be inefficient and wasteful, helping the rich along with the poor. By making resources available to those who do not need them, you are depriving those who do need them of the possibility that those resources could be more effectively used elsewhere.
The proper way to provide help in this area, as the Government have done against a very difficult public expenditure background this winter, is to concentrate a worthwhile degree of help where it is most needed. I admit to the noble Lord, Lord Strabolgi, that fewer people are benefiting this winter than those who collected discounts—including people who did not really need such discounts—under the previous Government's scheme, but it is worth stressing that this winter the benefit, which is £50, is big enough to make a substantial dent in the heavy 858 winter quarter's bill. It is seven times larger than was the average amount of help the previous winter.
As I told this House a fortnight ago, the Government will take proper account of the cost of energy in their social policies and in determining benefit levels, particularly the level of extra heating additions. In this way, the most vulnerable groups will receive valuable protection. In addition, we are reviewing the whole range of help available to assist consumers with their fuel bills. I am not in a position today to forecast to the House what will be the outcome of the review, but I can assure noble Lords that the special needs of the old and the poor will be taken into account. The purpose of our announcing these price increases now is that they will not come into real function until next winter.
Let me sum up briefly, in the clearest and most straightforward way I can. The reason why these unpopular price rises are to take place is that the nation cannot afford to encourage people to burn up a scarce energy resource by means of the Government subsidising that resource by maintaining its price below energy market levels. Nor can the nation afford—this is only another way of saying exactly the same thing—the losses to the Exchequer which this kind of subsidy involves. Gas is a national, indeed a nationalised, asset. Selling it cheaply denies the nation the value of that asset, and in a way which is particularly unfair to other energy users.
However, in a caring society subsidies are, of course, necessary. They should be directed towards those who need them. The best way to insulate the poor, the elderly and the disabled from high energy costs, if that is what society wishes to do, is to enable them to pay the price for energy. The worst way is to subsidise across the board. That insulates everyone from the realities of the world we live in, a world in which energy is dear and food is dear and a world, in the Western economies, in which labour is dear.
Like all Governments, we loathe taking unpopular decisions and decisions which lose us votes, but the central platform of our claim to government is the need to restore this country to a sense of economic reality—to hid the sleeper awake. Unlike 859 our opponents, we are not frightened about the capacity of the British people to deal with reality, to face its difficulties and to take hold of its opportunities. What we dislike and despise is the politics of evasion. A lot has been said in the debate, and more will be said, about compassion. Compassion and caring have nothing whatever to do with evasion. Compassion is not something you do on borrowed money, on "tick", or on credit. We are determined to protect in every way we can all those who cannot help themselves. We invite everyone else to join us in the real world where things cost what people will pay for them, where livings have to be earned and where rewards and incentives are available. There is no credible alternative. Whatever argument there may be between us in Parliament about the scale, or the timing, or the presentation of such things, these are just the packaging, and I believe that all of us know it.
§ Lord KALDOR
My Lords, before the noble Earl sits down, may I ask him a simple, factual question which arises out of his remarks, the answer to which he may or may not be able to give me but which will have a considerable bearing on the subsequent discussion? The noble Earl made considerable play with the fact that, in the case of gas, domestic consumers are being specially favourably treated, as against industrial consumers. Does the noble Earl know what the figures actually are? I am looking at the latest issue of December 1979 of——
The MINISTER of STATE, MINISTRY of AGRICULTURE, FISHERIES and FOOD (Earl Ferrers)
My Lords, I think that the noble Lord is extending the bounds of his question. He is down to speak later on. To ask the noble Earl a short question is one thing but to read from a document, when he is down to speak later, is another.
§ Lord KALDOR
My Lords, may I, then, ask the noble Earl what is the price per therm to the industrial consumer as against the price per therm to the domestic consumer?
The Earl of GOWRIE
My Lords, I will take advice on that question and give the answer to the noble Lord when I come to wind up.
§ 3.37 p.m.
§ Lord TANLAW
My Lords, we are very grateful to the noble Lord, Lord Ferrier, for withdrawing his Question and for allowing this debate to take place. May I also say that we on these Benches would like to add our congratulations to him on his birthday. Those of us who listened to the debate yesterday in another place must have been struck by the very poor attendance it attracted. I feel that the social conscience of Members of another place is rather thinly spread. That is not the case in your Lordships' House. Your Lordships have given a great deal of support to the noble Lord, Lord Strabolgi, in what I believe will be a much more deep-rooted debate than that which took place yesterday.
My party voted last night against the Government, mainly because of their poor presentation of these gas price rises to the public and their apparently uncaring manner about the way in which they could affect those who are less well off. We also felt that there was no provision fur proper conservation measures as a result of the increased income which is hound to accrue to the industry concerned. Furthermore, there seemed to be inconsistency in some of the Government thinking and in their relationship with the chairman of the Gas Board.
The right honourable Minister's Statement on the new pricing structure for gas and the 29 per cent. increase specified indicates a far wider change in Government policies than at first is apparent. The gas policy announced by the Government appears to reflect some confusion of purpose in my view, for the new price rises, as with all fuel costs, are a discriminatory form of indirect taxation, made on this occasion in the name of conservation. Furthermore, these prices will affect most those members of the community least able to pay because they do not pay income tax, due to insufficient income.
This new kind of taxation by the public corporations would be much better presented as part of a Budget speech than as a Statement from the Department of Energy, because the surplus profits are absorbed by the central Exchequer and have not been put aside for an energy loan fund, for instance, or for any other means of promoting a conservation policy. 861 A sum has already been mentioned by the noble Lord, Lord Strabolgi, for insulation measures.
The other argument used relating to the timing of the announcement was the need for the conservation of the gas reserves in the North Sea. Regrettably, I do not feel that this argument stands up to investigation, because there was no statement by the right honourable Minister for Energy about a general depletion policy. By that, I mean that there was no mention of any change in the attitude towards the flaring-off of gas, nor was there any indication of a review of the pricing structure for the oil companies to pursue exploration for new gas fields in the northern sector and to continue to exploit those gas fields that remain in the southern sector. It must therefore be difficult, if not impossible, for the Minister to know for sure the full extent of our gas reserves and for how long gas will be available for both industrial and domestic use. Indeed, one of the spokesmen for the Government in another place spoke about 50 or 60 years' gas available, so there seems to be a wide span of opinion as to how much gas is available. Perhaps the noble Earl will be able to clarify this in his winding-up speech.
There was also reference in the Statement to strict financial disciplines for the gas and electricity industries, but again there was no mention of how the capital structure of these corporations was to be reorganised in order that they may be assured of the capital funds available for their future investment programmes. This applies both to gas and electricity. Yet there was a very precise target set of 9 per cent. for the expected return on capital, which is exactly five times the target the Minister has set for the electricity industry; and we must ask: on what basis does the Minister set these targets, and why does he make this distinction between one industry and another? Again perhaps the noble Earl can enlighten us.
I now return to the possible hardship areas caused by the increase in prices and for clarification as to how the Minister intends to alleviate the position of those least able to absorb the new price increases in both gas and electricity. The new allowances announced with the Statement are presumably—and this has been con- 862 firmed by the noble Earl—to assist the needy and will amount on average to approximately either just under £50 a year or 95p a week. The categories which will benefit from this extra allowance are those over 75 years of age and those with young children under the age of five who are claiming social security benefits. It was these same categories of people, living in all-electric flats or who relied on space heating or overnight domestic electric storage heaters, who went out to buy paraffin heaters after the recent increase in electricity prices. It is our concern that this situation may be repeated with similar families who are using gas appliances for space heating in poor housing areas. The Minister must understand that it is the elderly and the very young who are most vulnerable to accidents from the misuse of paraffin heaters, and therefore will the Minister make it abundantly clear, through his Department and through all the means of publicity available to him, that it may not be cheaper to use paraffin heaters to compensate for the increase in gas prices.
I can only tell the House that my first reaction after the announcement of the price rises was that 95p a week could be better spent by using paraffin heat and not gas; but after consultation with the Department of Energy I believe that this could be a false economy and in fact the paraffin heater will give less heat for 95p a week than a similar gas convector heater of the same capacity. So I think there is some urgency for the Minister to make this information more readily available, because I still believe that gas is a good buy.
People have spoken about hypothermia as a result of high energy prices to the elderly and to the poor. I think we should look at this somewhat differently. I believe the statistics available of accidents by fire should be looked at again because my concern is that people do not die from hypothermia; in order to keep warm they huddle closer to the fire which they have turned down. I think there is a danger here which we should try to prevent, and safety measures should be issued by the department at the same time as they are issuing their economy measures. From these Benches I say that I think we should look very carefully at statistics of accidents in the home, especially fire accidents in poor housing areas, in order to see whether there is any connection 863 between them and the increase in energy prices.
One of the most disturbing aspects of these price increases is the admission by the Government that the excess profits of the Gas Corporation will not be put aside in a special fund for the benefit of the energy industry and its consumers or to promote conservation, but will be absorbed by the central Exchequer. The £2 million to £3 million a year that will be raised through these extra charges will be mainly at the expense of the poorer members of the community, as has already been said; but will the Government therefore consider the propositions put forward by the chairmen of the nationalised industries, that a separate system of funding should be used by those industries to ensure that their capital programmes can be implemented and that their industries can be run along businesslike lines, as the noble Earl has been telling them to do, to face reality?
For a Government who are committed to a policy of what they call "market forces" it would seem a sensible and logical step for the nationalised industries in the energy sector to be freed from the present restrictions on their borrowing requirements. This leads me on to inquire from the Government the policy regarding intervention and non-intervention. Can the Minister clarify the present position, which appears to be that if a nationalised industry is unprofitable the Government do not interfere, on the basis that it is a bit "dodgy"; and if an industry is profitable then the Government interfere in a most abrupt manner——
The Earl of GOWRIE
My Lords, since it will be a long time before I wind up this debate and the noble Lord is making this point perhaps he will allow me to answer it right away. All Governments interfere with nationalised industries all the time by setting them financial targets. This procedure was initiated by the last Government; we have decided to continue it. It is very worthwhile and sensible and it is a form of interference. It is the only way in which a monopoly industry can, as it were, imitate the conditions available in free competition.
§ Lord TANLAW
My Lords, I am grateful to the noble Earl for interposing 864 those remarks because I am coming on to that subject. I have already asked on what basis these financial targets are made. It is not clear to me, and I am sure it is not clear to a lot of other people, because there appears to be a clear division of policy and of purpose in the treatment of the energy industries and other industries outside. The leaders of the nationalised industries are clearly worried that the cash limits already set for 1980–81 could be cut back, and this must needlessly create internal problems for the industry concerned on income account, while their capital programmes still remain equally uncertain.
In spite of what the noble Earl has said, it is difficult to understand the position of the Government with regard to their relationship with the chairmen and boards of the public utilities. What is the point of these corporations establishing a link through their Consumer Councils with their market and attempting to run their businesses—to use the Government's phrase—"within strict financial disciplines", while at the same time not being allowed to manage the price structure of their market? I believe that this attitude by the Government to the energy industry is based on a total incomprehension of how a business of any kind operates. We have already had the example of the steel industry having been brought to its present condition mainly as a result of constant Government interference. The concern I feel is that similar interference could reduce the highly profitable energy industries to the same level of disarray due to mismanagement and misguided interference by Government and their departments.
This might be a good opportunity to get another clarification from Her Majesty's Government on the terminology which they use with regard to the running of energy industries. I have made reference to market forces, which used to mean the price obtainable for any product in the open market, and consumers of the gas and electricity monopolies have learned to their cost that this does not apply. The noble Earl touched on that in his speech. That is because their costs are being affected by matters from outside this country, by political events in the Middle East, by the pricing policy of OPEC and not by the laws of supply and demand on the home market, namely, market forces. There- 865 fore, how can the Minister for Energy be so sure that he can predict the future price rises for the next three years without that information? Does he have special access to the conclaves of OPEC? Can he control events in Afghanistan? I do not think he can, although I may be wrong. But perhaps he is not basing his prices on events outside the country, as the noble Earl has specified, but is basing his pricing in the gas market on some other matters. Please, can he advise us on what basis this price structure is established?
There is one more expression which I think we must just develop—"strict financial disciplines". That phrase would normally refer in a business context to considerations of cash flow and capital expenditure. Within the context of the Department of Energy this would imply that the income is dependent on Government policy and not market forces, and the profit available to the industry concerned is not retainable for capital expenditure purposes but is merely an added source of revenue for the Exchequer. I believe there is a difference here between monetary policies and money-grubbing policies and I have a feeling that the Government are running a money-grubbing policy which conies under the guise of conservation, economy or whatever.
If the chairman of a commercial organisation were not given the authority for pricing his products, or retaining profits for capital expenditure or distribution, he would be unable to fulfil his duties. Yet this is precisely the position in which the chairman of a nationalised industry board finds himself today. They have no proper control over pricing, capital or profits, and, therefore, as far as I can see, they might well be tempted to take up midweek golf instead of attending the office. The present policy of the Department of Energy has brought the role of the chairmen of the energy industries to a head. What is it to be? Are they to become government servants again without any pretensions to responding to so-called market forces, or are they to be allowed to get on with their job of supplying energy to the consumer at the best possible price and the price least likely to add to inflation? These questions cannot remain unanswered much longer. Who really sets the price for energy to the consumer? Is it the chairmen of the gas and electricity industries or is it the Department of Energy? 866 If it is the department then on what basis, I keep asking, is this price worked out?
My Lords, this finally leads me to the lack of a depletion policy for the gas industry in the North Sea, and it is relevant to some of the comments the noble Earl has made. Some further clarification is needed immediately as to the Government's attitude towards the flaring off of natural gas by the oil companies. The present price structure gives no incentive to the oil companies to prevent this wasteful process where up to one-third of the total gas available to the housewife and to industry is going up in smoke. It is a matter of some urgency that the Government allow the Corporation to renegotiate this policy with the oil companies concerned. I fully realise that this will slow down production of oil, and this is why a definitive statement from the Department of Energy is required as to what they consider to be the right rate of oil depletion from the North Sea field. I suspect that once again the Treasury is insisting that the present rate of extraction of oil from the North Sea should be maintained simply to satisfy the annual balance of payment deficits, which bear no relation to a sound energy strategy for this country.
It must be pointed out that by maintaining this policy the Government are reducing the amount of gas available to the consumer at a time when the demand, as the noble Earl said, is exceeding supply. Yet just the opposite situation exists for the supply of oil; it is still possible to import heavy crude from the Middle East, and demand for oil is falling slightly at home. This trend may continue for the next three years, even if some of the least pessimistic forecasts for the economy prove to be correct. The situation five years from now is very difficult to predict, when supplies of heavy crude from the Middle East could be very seriously interrupted. But only then will the United Kingdom need to use the maximum from the North Sea fields.
I see no point in achieving so-called self-sufficiency, as the Government is proclaiming, this year. It must make much more sense to retain as much oil as possible in our own fields in the early part of the 'eighties, in anticipation of further and greater interruptions in supply later on in the decade. I see no point at 867 all in achieving self-sufficiency in 1980 or 1981. Both these goals can be achieved in some of the ways that I mentioned in the hope of opening up this debate so that further questions can be asked of the Government to clarify their position. We on these Benches are quite confused as to where the Government think they are going, and the reality which the noble Earl talked about is not apparent in the Government's policy.
§ 3.54 p.m.
§ Lord JACQUES
My Lords, hitherto gas and electricity have been classified with housing and food and have been regarded as essentials to the consumer, and have been free of VAT. But now we are to go to the other extreme and have what in effect is a special tax on gas and electricity. While I have no doubt that the need for equalisation of fuel prices and the need for conservation of energy have been important questions in the Government's reasoning, I do not believe that they have been the overriding considerations. I believe that the overriding consideration in the Government's reasoning is the need, as they see it, to reduce the public sector borrowing requirement, the PSBR, and consequently I am going to devote my time to that particular point.
To get at the Government's reasoning one has to go back to some of the political shorthand that was used at the time of the election. They said, "There will be free collective bargaining, but if wages settlements are too high we will not print the money". That did not mean, of course, that when a joint stock bank ordered currency from the Bank of England to be charged to its account the Bank of England would say, "Sorry, we are not printing today". That would be default by the Bank of England, and in due course default by the joint stock bank to its customers, and no British Government would contemplate that. That piece of political shorthand could only have one meaning. It meant that if the wage settlements, in the opinion of the Government, gave rise to business increasing the demand for money the Government would take steps to reduce the demand for money elsewhere, so that additional money had not got to be printed. That was the real meaning. Here you have an 868 example par excellence. The Government view the wages settlements as too high, as attracting too much money, and consequently they are going to reduce the demand for money elsewhere by reducing the PSBR.
My Lords, we talk a good deal about Governments controlling the supply of money. No British Government attempts to control the supply of money. They could not do so without involving the possibility of default by the Bank of England. What Governments do is to try to control the demand for money, which is a different thing. In controlling the demand for money they have three principal instruments, and the difficulties into which this Government have got themselves are due to the fact that they are using only two instead of three of the instruments available to them.
The first and obvious instrument in the control of the demand for money is for the Government to control their own demands by reducing the credit they require which in due course will reduce the money required; in other words, to reduce the PSBR. This, of course, has a number of disadvantages. It clashes with the unions in the Civil Service, because much of Government money is spent on wages. Even in the case of increases in the price of fuel there will undoubtedly be clashes with the unions in the energy industries. The Government's philosophy is that increases of wages can only be paid when the profits are there to pay them. Consequently in the next round of wages the workers in the gas and electricity industries are going to say, "Well, there is plenty of profit available now. What about the workers having a bigger share of the profits? "Consequently, even in this case there will be some clash with the unions.
Attempts to reduce the PSBR also bring clashes with sections of the public. Either their services are reduced or alternatively they have to pay higher prices for the services which they receive, and there are objections to that. But, in this case, the Government have a very excellent answer, "Oh, it is due to the need for conserving energy. It is not due to the need to reduce the PSBR, it is due to the need for conserving energy." They have an answer which they think will satisfy the public. In the first place a reduction in the PSBR 869 adds to prices. It is estimated that in the period from mid-1979 to mid-1980 Government action in reducing the PSBR will have increased the retail price index by 3 per cent., and that is even before we consider the increases which are now proposed for gas and electricity.
The second instrument which the Government have for controlling the demand for money is the minimum lending rate. Clearly, if the minimum lending rate is high it will reduce the demand for credit and, in due course, reduce the demand for money. However, it also has a number of serious disadvantages. First, a high rate of interest increases the costs of industry and hinders our competitiveness in exports. It inhibits investment, and investment is the surest way to achieve increased productivity which the Government say they want. Furthermore, a high rate of interest attracts money from overseas to this country and that increases the lending base of the joint stock banks and their subsidiaries. Consequently, they are in a position to lend more money, and not less, because of the increase in their funds by the inflow of money due to the high interest rate. That inflow of funds strengthens the pound and the strengthening of the pound makes our exports dear and our imports cheap.
Therefore, the use of the MLR is extremely damaging to the economy. It also makes an immediate addition to prices. It is estimated that from mid-1979 to mid-1980 the higher rates of interest charged will have added 1.75 per cent. to the retail price index. We see a good example of that when we look at the mortgage rate.
The third instrument which is available to any Government for controlling the demand for money, is an incomes policy—either statutory or voluntary—because an incomes policy will reduce the demand for money by industry. The Government decline to use that third instrument which is available to them. Instead, they depend upon the other two and their use of them has to be heavy-handed. Free collective bargaining which the Government are using instead of an incomes policy, means that Government-induced inflation is perpetuated in the future. For example, in the period mid-1979 to mid-1980 it is estimated that Government policies will increase the retail price 870 index by 8.5 per cent.—3 per cent. due to their policies in trying to reduce the PSBR; 1.75 per cent. due to the high interest rates; and a further 3.75 per cent. due to the increase in VAT. That makes a total of 8.5 per cent., almost one half of the present rate of inflation.
Government-induced inflation of that kind does not end there. When there is free collective bargaining all trade union members expect their negotiators at least to try to maintain their standard of living. That is part of human nature. We would all do that; we do not need to be on any side of politics to take that view. Consequently, the rate of inflation at any point of time in wage negotiations, when there is free collective bargaining, is a paramount consideration. Therefore, if the Government by their policies have induced an increase in the retail price index of 8.5 per cent., they can expect that 8.5 per cent. to be perpetuated in wage claims in the following year and successive years. So Government-induced inflation, like we have now, is something which affects us not just for one year but for successive years because of the philosophy of free collective bargaining.
§ Lord ROBERTHALL
My Lords, I very much agree with what the noble Lord is saying about incomes policy, but it would help if he could explain how this Government could carry it through when the TUC turned it down as regards the last Government.
§ Lord JACQUES
My Lords, we had, indeed, a statutory incomes policy when the last Conservative Government were in power. An incomes policy can be either voluntary or statutory. The real point is that this Government did not wish to work with the TUC. If they had gone to the TUC in a spirit of cooperation, instead of a spirit of antagonism, there could probably have been an incomes policy.
§ Lord JACQUES
My Lords, the noble Viscount may speak when I have finished. I shall finish my speech. Of the three instruments which are available for controlling the demand for money, as I have 871 shown, the first two—that is, a reduction in the PSBR and use of the MLR—add to inflation. An incomes policy is the only instrument available to the Government which does not add to inflation, but that is the policy which the Government have cared to ignore. Granted, it could be said: All right, when the incomes policy is at an end the floodgates are opened. However, there is one way of dealing with that situation and that is to make it a permanent incomes policy.
It is also said that incomes policies are inflexible and that they handicap the skilled, whose differentials are reduced. The cure for that is to make such a policy flexible. What this country needs—and it will make no real progress until it gets it—is a permanent but flexible incomes policy. By "incomes policy", I mean an incomes policy and not just a wage policy. There would have to be some control of profits. However, I would not call for the reinstatement of the mechanism that we had under the Price Commission. I would be satisfied with a much simpler way of dealing with the question of excess profits. We need to revise our corporation tax so that the tax is related to the amount of capital which is employed in the business. Moreover, we need to have a graduated rate of tax so that excess profits are caught by the tax. I believe that that is a sensible and easy way of dealing with excess profits and one which would be acceptable to the trade unions if there were negotiations on an incomes policy.
It has never been any part of my socialist philosophy that the wages of any sector of the community should depend upon their ability to disrupt the economy and inconvenience the public. That is the opposite of socialism, and many on this side of the House have no room for such a view. Our sympathies are with the school-leaver who at present cannot get a job. Our sympathies are with the poorly paid, the people who have had an increase of something less than the going rate, who will nevertheless have to pay these increased fuel charges but will not have the wherewithal to pay them and consequently will have to switch off. That is where our sympathies lie.
In conclusion, I should like to say that I believe it is becoming abundantly clear 872 where the Government's policies are taking us. In the short run they are clearly adding to inflation; in the middle term there are clear indications that their policies are going to bring great hardships on the country by unnecessary unemployment and bankruptcies; and in the long term they are going to give this country the most Left-Wing Government it has ever had.
§ 4.11 p.m.
§ Lord FERRIER
My Lords, first I should like to thank noble Lords who have spoken for referring to the withdrawal of my Unstarred Question last Wednesday. Despite my belief in the importance of the Unstarred Question, I am certain that it is better that we should have a full-scale debate of this nature, although I must say that the last speaker has made it go a little wider than I had originally thought. I should like to thank noble Lords who have congratulated me on my advancing years. I shall not conceal from your Lordships that I turned to the 90th Psalm and saw the 10th verse. It says:….if by reason of strength they be fourscore years, yet is their strength labour and sorrow".I only hope that my speech is not going to be labour to you, though in a measure it is sorrow to me, as you shall hear, in that I seem to have been striving for many years to improve the availability of power for domestic space heating with absolutely minimal success.
Thanks to the fact that a great deal of water has flowed under the bridge since last Wednesday much has been said, much has been written, and much has been printed about the subject, and there has been an interesting correspondence in the Press. It enables me to concentrate on only one facet of this fairly wide-ranging subject. I accept straight away the basic thesis that it has turned out that gas prices have been too low and that conservation must be the order of today while mankind searches for alternative sources of energy. I have listened with great interest to Lord Tanlaw's speech on the problem of what to do in the next few years. I contend that within this strategic framework the Government have their tactics wrong.
Looking back over the years I recall that in my maiden speech I pleaded for better care for domestic heating for the aged and infirm. In those days added to the problem 873 of ignorance as to what assistance was available, we had to face the pride of folk who were too proud to apply to "go on the parish", as they called it. This was overcome in great measure by substituting for "National Assistance" the words "Supplementary Benefits" which are much more acceptable in the eyes of old people.
What is more, in twenty years people have come to accept that the State wants to protect them from hardship, but the problem of ignorance remains. Too many people, aged or infirm, overworked mothers with young families beset by the problems of inflation, do not know of all the assistance which is available to them; nor do many of them know what they can do about it. I have had the benefit of discussing this problem with a busy and hard working health visitor who confirms that this is so; people do not know. One has only to read the Hansard of yesterday's debate in the other place, and the Government's published statement of interest, to realise that this is appreciated. But what is being done about it? That is what I ask.
There are two things which should be done at once. First of all the steep—as this Motion says "huge" price increases—measure of increase must be abandoned for a much more gradual acceleration. Surely the Department of Energy can temper the wind. Why do I say "must"? It is because looking back over the years the public in the lower income groups have been disappointed far too often for this final blow to be acceptable. For instance, what about the excellent and economical electrical appliance, the night store heater? Purchase tax taken off; a massive advertising campaign; expanded manufacturing facilities; off-peak equipment, wiring and the like applied; all crumbling in dust and ashes when, thanks to the rise in the cost of coal, off-peak tariffs increase fivefold. No fault of the apparatus; no fault of the consumer.
Then came the gas expansion, to which reference has been made. Quite the most efficient medium of distributing thermal energy. More advertising; more encouragement to domestic capital expenditure; more Government financial assistance to increase consumption and add to equipment. Now look; blow after blow on the meagre resources of the 874 average householder. What about house insulation?—regarding which your Lordships gave much valuable time and thought, and passed a Bill during the last Government.
I do not know how many of your Lordships have seen a couple of Questions for Written Answer which show that some applicants have been unable to obtain any money in grants because their local authority's funds have run out. Admittedly the Government have undertaken to see if they can help by distributing funds which are available from local authorities who have not spent all their allocation. I wonder whether they can.
In my view, this series of blow after blow is sufficient excuse for the energy department to go slow; certainly at first, and far slower than they presently plan. "Beginning in April" they say; the "incidence will not be felt until the autumn". Will not it just! As I think the noble Lord, Lord Strabolgi, pointed out, parts of Scotland and the North can have frost and snow in May and June, and it may be a real hardship if this 17 per cent. increase is to be applied in April.
To return to my health visitor, she got me these folders from the Post Office. They are obtainable from civic centres and the like. But—now I come to my point, and it is a very big "but"—many of those who need help, many of those who would apply if they knew how, cannot get to the civic centres, especially in rural areas and areas of wide distribution. I understand that health visitors and district nurses are not in a position to collect applications or to overlap into the social security side of looking after the aged. I think that the meals-on-wheels people are in the same situation; they are unable to assist. They can advise but not assist over the getting of these supplementary income benefits. They are all available if people are able to apply for them. There was a letter in The Times on the 23rd from a Mr. Posner, who said:If the effect on the locked in consumer of gas amongst the poorer families is judged a problem, it would be just as right for the Government to face their responsibilities for spending more on the social services as it is right for them to face their responsibilities in the field of energy".The large sums which are likely to be clawed back should in some measure be 875 used to further a programme of this sort. I think the noble Lord, Lord Strabolgi, was in error in saying that the Welfare State had been abandoned. The party to which I belong is part of a caring society and it is wrong to say that because we are not Socialists we do not believe in society. I vividly remember seeing the Chancellor of the Exchequer in an interview on television when he was asked why he went into politics. After a pause he said, in effect, "It is because I am deeply concerned about the welfare of the society in which I live and I find myself in a position to do something about it". That applies to me and, I believe, to all noble Lords on this side of the House.
I welcomed the noble Earl's assurances at the end of his speech in regard to the measures which are to be taken to deal with the problems to which I have referred, and, regarding strategy, this is not the occasion to go deeply into that. As for the problem to which the noble Lord, Lord Tanlaw, referred and to which the noble Lord, Lord Hammett, referred in a short intervention when we had exchanges last Wednesday—the problem of the need for an overall strategy for energy—that need has come out in our debates, including a debate which the noble Lord, Lord Strabolgi, and I had on domestic heating in 1978, when it was pointed out that, although it might be an ideal solution, it would take a long time before anything could be done to merge the whole thing together. By the way, what has happened to the Energy Commission which the Minister for Energy in the last Government spoke of?
§ Lord FERRIER
My Lords, at least there was a spark of something which I and perhaps the noble Lord, Lord Tanlaw, had in mind. We are faced today with today's situation, which is not of this Government's making. It calls for energetic and well-directed action by the energy and social services departments, so what do the social services staff intend to do about it? Will there be a fuel rebate scheme? Perhaps, in view of what the noble Earl said, this is in mind; and I hope it is.
876 In my maiden speech, referring to a lady who was concerned with benevolent work, I said she had found that house visitation was the only real way of getting to the bottom of some people's troubles. I urge the Government to bear that in mind when, as I hope they will, they tackle this problem of letting the poor people know as soon as possible what benefits are available. That is the challenge—and let it be met with alacrity. I close with a quotation from the prologue of a poem:The toad beneath the harrow knowsExactly where each tooth-point goes;The butterfly upon the roadPreaches contentment to that toad".I appeal to the noble Earl to ensure that he and his friends down the corridor do not adopt an attitude which emulates that of Kipling's butterfly.
§ 4.25 p.m.
§ Baroness STEDMAN
My Lords, I am grateful to the noble Lord, Lord Strabolgi, for the very able way in which he moved the Motion, but I must confess that the very competent Ministerial brief from the noble Earl, Lord Gowrie, did nothing to allay my perhaps unworthy suspicions that these sudden price increases in gas and electricity are mainly because the Government are having difficulty in balancing their books because of the overgenerous tax concessions to the better-off in their last Budget, and that they are perhaps hoping that this penal increase will help to pay for those concessions.
British Gas did not ask for these increases, neither have they asked for further increases over the next two years. Indeed, only six months ago the Prime Minister herself vetoed any increase in gas prices for domestic consumers. Yet now her energy Secretary has swung right to the other extreme, against the advice of the Gas Corporation, by doubling the price over the next three years. One could be cynical and say that perhaps we should take heart in that the Government can do a U-turn, even if this time it is in the wrong direction.
British Gas is already expected to make nearly £500 million profit this year and, on the Government's own estimates, next year it will make between £700 million and £800 million, and by 1981 it could make £1 billion. As the noble Lord, Lord Strabolgi, said, the poorer 877 people spend a greater proportion of their income on fuel and power than do the better-off, so this increase is really regressive against the poorer sections of the community.
The Government seem to accept that we have to live with high cost energy and will make economies in its use only when all the fuel costs are roughly the same, and the Energy Secretary himself said on Friday that the only alternative to raising the price was rationing. What is this but rationing by price? The Government have not even been fair in setting their targets. The target rate of return for gas this year is given as 9 per cent. after allowing for inflation, which is something like five times as high as the target for electricity, according to the Statement given to this House on 16th January.
Maybe there is an economic case for saying gas is too cheap. Maybe there is a case for saying North Sea gas resources should be preserved and conserved by some form of price mechanism. But I have yet to find an ordinary voter who can understand why, with inflation at over 17 per cent., the profits of a very profitable corporation should be made to rise by another 29 per cent. And even less does the ordinary man or woman understand why the price must leap ahead of the market force of inflation for another three years. The Government are inconsistent. They avow that the steel dispute is none of their concern and that no more money will be forthcoming, whereas with gas they are interfering like mad, ordering the industry to increase its prices over and above what the industry thinks either necessary or justifiable.
One must ask: if gas is worth preserving, then surely our steel industry is also. The difference seems to be that saving steel will cost money, while saving gas will raise revenue. If the Government can intervene in British Gas, they should also intervene in the steel industry.
The Government are proposing to grab back the huge surplus from British Gas, and, as I have said, most people will suspect that it is to help to pay for the tax concessions to the better off. I believe that there is an unresolved doubt as to whether Ministers even have the power to control the prices in the nation- 878 alised industries. The Select Committee, in its report on nationalised industries in 1968, certainly had such a doubt. Can the Government simply grab the Gas Corporation's surplus, or that of any other nationalised industry?
Part of the case for such a disquieting rise in the price of gas and electricity is conservation, but it is a very crude way and a very cruel way of enforcing conservation, and the poor, especially the elderly poor, cannot possibly stretch their meagre budgets to meet increases of 29 per cent. in gas and 23 per cent. in electricity. If many elderly people are not to suffer from hypothermia, they will have to go without the other basic necessities of food and warm clothing.
Conservation must be achieved, but it must be achieved with a degree of humanity. I believe that if the Government are foolish enough to go ahead with this costlier fuel policy, they should at the same time introduce better and much wider schemes for discounts and rebates for the poorer families. I join my noble friend Lord Strabolgi in asking them to do this and, at the same time, restore and increase the insulations grants to enable people to establish modern and well-insulated heating systems.
What has happened to the "Save it" campaign, which was launched by my noble friend Lord Lovell-Davis and his colleagues some years ago? Are we perhaps committing too much to new sources of supply, such as power stations, which generally yield less energy and employ fewer people than saving would do? The Department of Energy has scrapped a pilot project setting up centres in the regions to advise on the insulation of homes. It would have cost a mere half a million pounds a year, and it could have played a very important part in conservation. The Department of Industry had a £25 million programme to help insulate business buildings and to improve boilers in buildings. That was widely expected to be extended after June, but I understand that the department has now said, No.
The Manpower Services Commission paid groups of people to insulate older persons' homes and help them to get grants. This was financed by the STEP project, but that budget has been cut by half. The Department of the Environ- 879 ment—my own old department—is putting forward new proposals in building regulations for increasing energy conservation. These proposals will stipulate only three-inch insulation for roofs, though the Department of Energy has for a long time been pressing for four inches of insulation. One can only ask: Do not the two departments or their Ministers ever get together and speak to each other?
I have spent 30 years in local government in a shire county, where the administration has been streamlined and where there is no fat left to prune. In my county of Cambridgeshire, notwithstanding still more drastic pruning of the personal social services and education, the county rate is going up by 19p, or 21.8 per cent., and the district rate is going up by 3p, or over 14 per cent. The owners of business premises will pay the full amount, and even with domestic rate relief, householders will pay a combined county and district rate of 111.5p in the pound. On top of that, the water rate is going up by 6p, or 28 per cent., to 27p in the pound—that is a total of 136.5p in the pound for householders to find.
What about the Government's statutory obligation to provide education and ensure that all children receive it? With cuts in school transport and increase in the cost of school meals and transport, how are parents to be able to afford to send their children to school? In the rural areas the transport costs alone will cripple many household budgets—and add to that, my Lords, the increased VAT, inflation that is running at over 17 per cent., increased prescription charges, and extra charges for home helps, meals-on-wheels, and care at day centres. Where will the average working class family find the money for necessities; and do the Government still hope that wage claims will be moderate?
What about cash limits and local authority budgets? What increase orders are going to be made, and what cash limits lifted in order to meet the increases in the price of gas and electricity? Or are these increases to be found by a further round of cuts and increased charges for services?
What about the pensioners and those on low fixed incomes? The recent pension increase has already been swallowed up 880 by inflation and higher prices and charges. These are the people who do not benefit from the tax cuts for the better off. They just go on making do and mending and providing, through VAT and other charges, the wherewithal to give the tax rebates to those who are richer. Is that fair Does it create anything like a just society? Is it really a sign of a caring society—which was referred to by the noble Lord, Lord Ferrier—to abrogate the responsibility for looking after the frail, the handicapped, and the elderly, as well as the children in our midst? If this kind of economic and fiscal policy is pursued by the Government, the only people who will be able to afford to vote Conservative at the next election will be those who can afford to pay for the cuts.
The Tories complain about vandalism and about the anti-social behaviour of our young people, yet they have actively encouraged it. Youth unemployment has increased, and young people are being denied their educational opportunities and recreational facilities. The Manpower Services Commission has predicted that the number of unemployed youngsters under 19 will be almost double by 1982, to 478,000. Yet the Tories have cut the Youth Opportunity Programme by £25 million, and have cut another £42 million from the STEP programme. They have cut discretionary awards; they are not going on with any mandatory grants to the 16 to 18 year-olds who are still studying full time——
The Earl of GOWRIE
My Lords, I am most grateful to the noble Baroness for giving way. I do not see what this general issue of public spending has to do with a debate on energy costs. That is my first point. The second point that I would put to the noble Baroness is as follows. Her party was in Government for 11 out of 15 years during which time the poor in this society became progressively poorer and more and more people who could afford to jumped on the wagon of the Welfare State, which is exactly why we are in the pickle we are in today.
§ Baroness STEDMAN
My Lords, the points that I have raised come within the terms of the Motion that is before us today, which is looking at the rises in gas and electricity charges in the light of the local authority cuts that have taken place 881 under this Government. My Government, when they were in power, did as much for the poorer people of this country as any Government have done. It is the idle hands and the idle minds of the young people that encourage them to get into mischief, and the only answer that the party opposite has to offer is a negative one—a short, sharp shock for young offenders. I say to Her Majesty's Government, if they will accept a word of warning, that if they go on like this, it will be the Conservative Party that will get a sharp shock at the next election, and it will not be a short one!
I now return to the question of Government interference in the price of gas. Is it really their policy to do this; and, if so, can the noble Earl say whether they will be prepared to intervene with North Thames Gas Board? The Beckton development in Newham Council district has been dealt a savage blow by North Thames Gas, which is refusing to supply gas to non-housing developments at Beckton unless they are within 25 yards of an existing gas main or will use no more than 25,000 therms a year. Only three years ago North Thames Gas gave assurances to the council that it was confident that there was sufficient spare capacity to serve the proposed development, which is the largest as yet in Dockland. The Newham Director of Engineering has now told his council that thelack of gas could well be the last straw in turning industrial developers away from Beckton".The Minister referred to the fact that we must have some consideration for those people who are not near a gas supply, but Beckton is; some of that development will be very little more than 25 yards away from a main. Not only would new factories not have gas, but schools, community centres, and shops would also suffer. I thought successive Governments had been anxious to see Dockland redevelopment, and I hope that the noble Earl will take this up with his department and perhaps be able to intervene and authorise this supply for Beckton. If they can intervene on the price of gas, then I am sure they can intervene on the supply to a development like the one envisaged.
My Lords, for years we have argued, in successive Governments, about the need for a national fuel policy. It would 882 seem that we have now got one: simply to make fuel as expensive as possible. They want to conserve stocks by making it expensive enough to deter people from using it, and with this we are all supposed to agree. That is exactly what OPEC said when they blasted up the price of oil. We did not agree with them when they did that, and we are really being no better now than the oil sheiks were at that time. I believe that many voters are becoming disillusioned. Some 13½ million—many of them misguidedly, in my view—thought it worth voting Conservative at the last election, to cut costs by being efficient and by letting people make their own choice. Certainly great play was made of these two points at the time of the election when the party opposite was touting for votes in May. Some of those 13½ million must be very disillusioned and extremely disgruntled by now.
Perhaps I may end on a slightly lighter note. My local newspaper mulled over the derivation of the word "expert"—those people who advise Governments. They decided that "X" was an unknown quantity, and "spurt" (wrongly spelt, I will admit) was a drip under pressure. My Lords, 10 or 15 years ago, when the potential of North Sea oil and gas was being realised, the experts led us all to believe that there was plenty of gas just around the corner and that is would be cheap. They all led us to believe that. Today, 10 or 15 years later, we know that neither is it cheap nor is there as much of it as we were told at that time. Perhaps that was just the experts talking.
§ Viscount MASSEREENE and FERRARD
My Lords, before the noble Baroness sits down, may I point out that she said in her speech that the increase in the price of gas was 29 per cent. But that is spread over 3 years, and, of course, in that period——
§ Baroness STEDMAN
My Lords, the increase in April is to meet inflation, and then, in October, it is to go up by another 10 per cent., which makes 29 per cent. in this year.
§ Viscount MASSEREENE and FERRARD
My Lords, I think the increase in wages, though, will be more than that. 883 But, of course, the Government have said that they are going to look after the old people, so I do not really see——
§ Baroness STEDMAN
My Lords, the trade unions would be delighted, I think, to hear that wages are going up as much as that. The steelmen would be.
§ 4.43 p.m.
§ Lord ORR-EWING
My Lords, may I first apologise to the House in that I have to leave at 5 o'clock because I need to attend Lord Shinwell's all-party Defence Committee, which is being addressed by the Secretary of State for Defence. I will of course return; so it is not discourtesy if I do not sit here for the next speech from the opposite side. I should like to start by congratulating the noble Lord for the manner and the succinctness with which he introduced this debate. He was only 13 minutes, which I think is currently a record, and I hope to match him.
I also noticed that the Opposition were rather more moderate in their wording, as behoves an Opposition in the House of Lords. There was rather less dramatic phraseology, in that they talked about "huge" price increases. In the other place, when I went to listen to the debate yesterday, the Motion said "savage" price increases, with a "devastating effect" on the cost of living. I imagine that the wisdom of your Lordships' House, and the fact that they do not have to try to score cheap political runs, made them more moderate in their phraseology, because they also have a much greater regard for honesty and truth, I hope. In fact, the effect on the cost of living is that in the current winter these price increases will not affect it, because the first price increase comes into effect on 1st April. That will put .25 per cent. on the cost of living, and the one in October will be .16 per cent.; and, of course, from the point of view of the consumers, it will be spread as gas bills are submitted over the next three months. So it is a total of .41 per cent. Of course, for the needy it is serious, but it is not a tremendous increase compared with some of the other increases that one has had to face.
It has been suggested from the Opposition Benches that this is something outrageous that has never been done 884 before. Have they forgotten that Eric Varley put on 28 per cent. in one tremendous hike, bang in the middle of the parliamentary year, in March? Of course, it was slipped in by means of a Written Answer, so no one actually noticed it at the time and we did not move votes of censure and say dramatic things about the situation being serious and devastating, about hypothermia, and all this. Have they also forgotten that there was an increase in the price of gas by 10 per cent., announced, again, as Parliament rose for the Christmas Recess in 1976—when, incidentally, there was pressure from the IMF to reduce the public sector borrowing requirement? Have they not noticed that when the Gas Corporation applied to the Price Commission for an 8 per cent. increase they were given it forthwith? Furthermore, the Price Commission, not normally given to these viewpoints, said that the price increases should be between 30 and 35 per cent. more. That is not a recommendation which comes lightly from a Commission not normally prone to advocate bigger price increases. Of course, the fact of the matter is that there have been increases over the years in the price of both electricity and gas. I recognise that.
I want to concentrate on the gas side, because electricity prices are geared so much to the cost of coal, which is geared so much to the cost of the miners' wages and their earnings, and is related to absenteeism and a whole lot of other questions concerning productivity; and, of course, it is geared to the price of oil. I think the noble Baroness who has just sat down went rather far to suggest that we were the sheikhs and were hiking up the price of oil. We do not influence the price of oil; we just follow, rather reluctantly, the world price of oil.
§ Baroness STEDMAN
My Lords, will the noble Lord give way? Perhaps I did not make myself as clear as I should have done. I said that the 29 per cent. increase now in the gas price could be likened to the tremendous increase that the OPEC countries introduced. We did not complain about that; we had to accept it. But we are now complaining about this.
§ Lord ORR-EWING
Yes, my Lords, but I would point out that the price of 885 oil has increased 100 per cent. in the last year, and that this is 29 per cent., so the oil increase is much more serious.
I am going to concentrate on gas and on the half which is taken up by domestic consumers. That percentage, by the way, will increase according to the forecast by the Gas Council. If noble Lords will read their very well prepared and thoughtfully prepared report for the current year, they will see it shows that they are expecting domestic consumers to take 60 per cent. within the next four years. Incidentally, according to yesterday's debate the price was 20p a therm for domestic consumers and 28p a therm, now being negotiated, for industrial consumers. I say that in answer to the point put in an interruption by the noble Lord, Lord Kaldor.
I am rather surprised myself that the Opposition chose this particular subject, more especially because it was debated down the corridor yesterday. I wonder whether we get the best, both in publicity and in additional information, by having debates two days running on exactly the same subject. But I thought, mischievously, that they probably could not find another subject that would not leave them either open to quarrels within their own party between the Marxist wing and the social democrats or might conceivably force them to state their policies in this direction. Here is something on which they could just attack and try to forget the past of which I have tried to remind them.
Of course, these increases should have been undertaken, like so much else, before they left Government after 11 years during the last 15, but it was put off, again like so much else, in the interests of not alienating any further voters. God knows!, enough voters had already been alienated judging from the electoral results of which the noble Baroness reminded us after the agonising strikes last winter and the trade union and pickets' behaviour. One of the many tasks when this Government came to power was to consider—and this is one of the factors, one of the reasons for this price increase—the tremendous increase planned in the public sector borrowing requirement. It has now been recognised that they had planned for £4 billion more than could possibly have been absorbed by the economy.
886 I say this because the noble Lord in starting this debate kept saying that there were cuts here and cuts there and cuts elsewhere; but they are not cuts. They are cuts in what was planned in all the areas by the Labour Government. Why did the Labour Government do this? Were they so ignorant? I do not believe that; they were well advised and are not without some very clever people. They did it because they assumed that there was going to be a 3 per cent. increase in the productivity and output of wealth-creating industry. What made them think in the run up to a general election that there would be a 3 per cent. increase in our GNP? Certainly, it was not on past performance. In the last five years, the increase averaged 0.3 per cent.—one tenth of what they were planning to happen that year. On that basis they said they would increase this, and increase expenditure here and there, and increase local Government expenditure. They have since recognised—and Denis Healey has said this—that there would have had to be reduction in the public sector borrowing requirement to the amount of £4,000 million.
They had the great advantage, in making plans on a totally false assumption, that they could then turn round and say that the unthinking and hard hearted Tory Government are now cutting this, that and the other—none of which is a cut. I am sure that the noble Lord who introduced the debate does not want to use his words inaccurately. They are cuts on what was planned by the Labour Government and not cuts in what they would have achieved.
§ Lord KALDOR
My Lords, I am grateful to the noble Lord for allowing me to intervene. Most of the public expenditure cuts represented an increase in charges for services which had already been provided for a long time, but provided without charges. They imposed charges of all kinds, the increase of charges for prescriptions, for this, that and the other which are not charges. You cannot say that this is a reduction in Government expenditure planned. It is not even a reduction in Government expenditure; it is a concealed increase in regressive taxation.
§ Lord ORR-EWING
My Lords, I do not agree with the noble Lord. I did not 887 make the point that, as a result of the comparability commission and other machinery, they had already put in the pipeline huge increases in many cases in the salaries and earnings of public servants. These have now come through. If money is absorbed for increased pay, then you must cut other services. The Socialist local governments have been all too keen to cut the welfare services for poor people and the children's services rather than to cut their own staff and save money in that way.
I take serious note of two points. The British Gas Corporation in its report, to which I would draw the attention of noble Lords, set out on page 18 the financial standards. It says that it greatly regrets that the Labour Government only gave financial targets for one year ahead, when the White Paper on national expenditure set out the suggestion that at least three years should be set down by Governments in respect of financial targets. Then a Select Committee the year before sitting on this matter, and chaired by a Labour chairman, Mr. Russell Kerr, who is not known to be at the extreme right of his Party, and with a Labour majority on that committee, also recommended that the Government should give financial targets for three years ahead. Unfortunately, the Labour Government, I think for electoral reasons, gave one year ahead and no more.
Now, Her Majesty's Government have done this for reasons which I think the average person would understand if only the Government of the day could get their message across. I am grateful in that respect for this added occasion. Perhaps through the admirable speech which my noble friend Lord Gowrie made from this side this message will begin drip by drip on stone gradually to get the message across. I support this because I think it is done as part of energy policy, for reasons which I believe to be most sensible. It does not pay to have one source of energy artificially cheap. I think it has been done so that the domestic consumers (whose share of total gas is going to increase, as I stated) do not have to face a swingeing increase in prices at a future date—because, at some time, sooner or later, we must pay for the more costly gas from the northern parts of the North Sea and for imported gas. Algeria is now 888 negotiating to double the price of the gas that she sends to us. Now that we no longer are self-sufficient in North Sea oil-produced gas we are going to have to pay bigger prices and it is only prudent to spread the increases over a period. It is done also so that the Gas Corporation can go ahead with large capital programmes. I would mention that their planning is for £450 million a year in capital expenditure over each of the next four years. That is very substantial. It is also to store gas, to bring gas from Morecambe Bay and to undertake the fresh exploration which the noble Lord mentioned.
We are running out of cheaper resources and running out of the period where there was a fixed-price gas contract at very favourable terms. It was done, too, because I think it wrong to encourage people to invest in gas fires, gas appliances and gas cookers and then say to them later, You may have spent hundreds of pounds on hire purchase contributions, but now we are going to increase the price of gas"—because of all the factors I have mentioned.
I support it—and this is a point I should like to stress—because there is associated with this policy a policy of compassion. My noble friend Lord Ferrier spoke of this. I am a Tory for the same reason that he is, and for the same reason as is the present Chancellor of the Exchequer. It is not because I believe intrinsically only in private enterprise but now, realistically, in a mixed economy. But it is desperately important to create the wealth first before distributing it to those who are most in need. It seems that the noble Baroness who has just sat down, gives us all hard hearted faces and pretends we do it for the love of it. We are doing it because we want to get the financial control of the country and the economy in a system where wealth is being created and where we can then begin to benefit those in need. I would stress that the Government in another place have promised a scheme which will concentrate the financial help—and in larger amount than the financial help possible under the Labour Government's electricity scheme, which was a failure and which cost £4 million a year—on those most in need; those who are old and poor and those with large families.
889 Finally, I would support the noble Lord who started and the noble Baroness—who I may say was just as sweet and effective from these Benches as she is vituperative from the opposite ones. I have no doubt that she will become quieter and more conciliatory as she matures on those Benches—in saying that I believe that the insulation of houses is a really essential part of the saving of energy of our country.
§ 4.59 p.m.
§ Lord KALDOR
My Lords, I should like to begin, unexpectedly perhaps, by paying a tribute to the Government of the noble Lords opposite. They certainly have not lacked courage in introducing a whole host of measures which are bound to have a highly adverse effect on their popularity. In fairness, one has to admit that they did not shirk such measures even when their main impact was likely to fall on their own supporters, as with mortgage rates. But no previous measure in the field of taxation or prices or wages or interest rates has given rise to such a universal chorus of criticism from all sides as has the Statement of the Secretary of State for Energy on the future of electricity prices in the coming year and in the following three years.
One need only look at the letter columns of The Times or the commentaries of people like Mr. Searjeant in the Sunday Times or Mr. David Wood in The Times—neither of whom could be described as being antagonists of the present Government—or read in Hansard of the other place (I am referring not to yesterday's debate but to that on the original Statement)the numerous interventions by Back-Benchers on the Government side to realise that criticism on this occasion has reached well beyond its usual boundaries and penetrated deep into Government territory, if I may use that phrase. This, in the view of several commentators, was partly because of the unfortunate way in which the matter was presented by the Secretary of State for Energy.
At this stage, if your Lordships will allow me to do so, I should like to introduce a personal note. I was Mr. David Howell's supervisor when he was an undergraduate at Cambridge. He was for two years at least my favourite and 890 most promising pupil who duly ended up with carrying off the top first of his year in the Economics Tripos. Since then our intellectual paths have diverged markedly—a development which showed an independence of mind which one can only respect. It is therefore with considerable reluctance that I find myself, not for the first time, having to criticise him in the same way as if he had written an unsatisfactory essay which marshalled the arguments in an inconvincing and faulty manner. Having said that, I must also confess that I am not impressed by those critics who argue that he made the worst of a good job—implying that the case for Government proposals is in fact much stronger than he made out.
The major weakness of the presentation—and I am sorry to say that the noble Earl was inclined to follow the same line this afternoon—was in listing no fewer than five reasons for increasing the price of gas. It is always a bad thing to list a number of causes for taking a certain action. It implies that one is not confident that any one of them will stand up to examination and is thus driven to seek safety in numbers. However, when in a particular case any one of the arguments looks weak, listing them and adding them together does not make the case any better.
I shall not detain the House with a detailed point-by-point critique of each of the reasons presented. Suffice it to say that some of them at least are so poor that the case would have been a great deal stronger without them. For example the argument—which the noble Earl repeated this afternoon—that low prices,concentrate the benefits on those who have access to gas supplies at the expense of the rest of the population",looks distinctly shady when it is remembered that 15 million households have the benefit of gas supplies and fewer than 5 million are without. The argument about conserving supplies for future generations also looks dubious, as Mr. Enoch Powell observed,when we cannot know what the circumstances of those future generations will be".For all we know, as a result of an atomic war—which looks less improbable this week than it did last week—there may be no such generations to enjoy the benefits.
Again, the argument that the marginal costs will rise when present supplies are 891 augmented from the new North Sea fields does not justify price increases now in anticipation of such future events. That is not how free markets operate. Last but not least—and this is the main point—the argument about the risk of supply cuts due to excessive peak demand and the need to achieve a proper balance of supply and demand as between domestic and industrial customers does not imply, as the Statement suggests—and this point was emphasised by the noble Earl—that:some form of arbitrary rationing and the risk of ever-increasing supply shortagesare the only alternative to a "stiff increase" in the price of gas to domestic consumers. The Secretary of State himself emphasised that it is the marginal cost which matters in this connection; and the marginal cost to consumers could be raised to any desired extent by the time-honoured method of a two-part tariff (which some people call a "two-tier" tariff) without the need of an indiscriminate levy affecting all consumers.
As it is the "stiff" rise in the price serves two distinct purposes. One is to deprive consumers of a certain amount of money in the same way as by the imposition of an unavoidable tax, and thereby reduce their power to consume, not just gas, but goods in general. The other and legitimate purpose is to make gas less attractive in relation to competing forms of fuel, such as electricity.
The case for the second objective looks greatly exaggerated when one examines the figures. Though one could hardly guess it from the tone of the official pronouncements, the low price charged to domestic consumers has increased the proportion of total gas supplies consumed by domestic users in the five years from 1973 to 1978 by only three per cent.—that is, from 44 to 47 per cent.—whereas in the case of electricity, where industrial consumers are greatly favoured at the expense of domestic consumers, the proportion of domestic consumption fell by only three per cent.—from 40 to 37 per cent.—over the same period. (All these figures are from the latest monthly issue of Energy Trends, which is an official publication of the Department of Energy).
The resulting difference in the share of domestic consumption—37 per cent. for electricity, 47 per cent. for gas—is in itself not nearly large enough to justify 892 large increases in gas prices—this year, next year and the year after—as a means of reining back consumption. But whether or not it is so justified, this objective could perfectly well be satisfied by a tariff which charged a high price above a certain basic standard of consumption, but which left the basic cost unchanged. At present I understand that the average annual consumption of the 15 million gas-using households is 550 therms a year, or 137½ therms a quarter. It would be perfectly easy to adopt a system already in force in many other countries, including such paragons of capitalist virtue as Japan—where they have not only a two-tier but a three-tier system—under which a lower price is charged for a certain basic consumption—say, the first 150 therms a quarter—and an appropriately higher price, which could be 30 or 50 per cent. higher, is charged for consumption in excess of this amount.
This would avoid the consequence described by the Director of the National Consumer Council—to which the noble Earl has already alluded this afternoon—The old and the poor will be deprived of heat so that there is more of it available for those who can afford to pay for it".It is for this very reason that I fear such a solution is unlikely to commend itself to Her Majesty's present Ministers, for it is likely to produce the very opposite of the results which they seek—it would reduce economic inequalities instead of increasing them. Rightly or wrongly, our present Ministers believe that the way to national salvation lies in making the poor poorer and the rich richer.
§ A noble Lord: No!
§ Lord KALDOR
They have set about the task of reversing the major historical trends of this century and intend to dismantle the Welfare State. I very much agree with what my noble friend, Lord Strabolgi, said on this point: they are only at the beginning of this process. The Chancellor and other Ministers have repeatedly asserted that the cuts which have already been made are only a foretaste of things to come. They have set about this task with a verve and determination which stand in sharp contrast to the policies followed by all other industrialised Western countries. Indeed, one has to go as far as Chile to find a contemporary 893 parallel for such a systematic attempt to favour a wealthy minority of top people at the expense of the majority of the nation's citizens. But, in bringing about higher productivity or increased prosperity, the Chilean experiment under Pinochet, however much it may excite the admiration of at least some noble Lords opposite, was a failure and not an example to emulate.
To return to the Government's proposals, these extend to electricity as well as gas, but none of the arguments used for gas justify raising electricity prices by 25 per cent. when gas is increased by 29 per cent. I suppose electricity had to be included because misery loves company—it would have been unfair to leave it alone. Yet it goes a long way to offset the Government's declared objective of giving incentives for the use of electricity in preference to gas.
Indeed, there is some justification for encouraging the use of electricity from a long-run point of view, since we shall be wholly dependent upon electricity, whether generated by coal or nuclear fuel, after the supply of oil and gas is exhausted. That is bound to happen some day, even though the day may be far more distant than is now estimated, since we do not know how much more gas and oil will be discovered in the future. But, as Keynes said:In the long run we are all dead".I may add that he said those words long before the atomic bomb was thought of.
A further argument which finds support with the Prime Minister and with some noble Lords on various Benches around this House is that because oil was made so dear at the behest of the Arab sheikhs, it is our bounden duty to economise on energy in all its forms, in fairness to other countries, which are not so lucky as we are in possessing a lot of coal as well as a lot of oil and natural gas, if for no other reason. But does this argument really hold water? Thanks to Nature or to the Almighty, but very little to the policies of successive Governments, this country is in an almost unique position of facing the prospect—alone among major industrialised countries in the world—of being more than self-sufficient in energy, if not for ever at least for many years to come.
894 That being so, our natural comparative advantage should lie in the development of energy-intensive industries, in the same way as our comparative advantage was in iron and steel and the heavy industries based on coal in the nineteenth century. We should go in for this and leave other countries which have little by way of indigenous fuel supplies—countries such as France, Japan and Germany—to concentrate on branches of activity which require comparatively little energy. But that would require a complete reversal of our present policies; it would require us to expand our steel capacity instead of shrinking it so drastically, and it would require us to subsidise coal, gas and even oil to industrial users in this country, instead of using the oil and gas as new sources of taxation for the Government.
The question which the Government need to answer is why they do not subsidise coal in the same way as our partners in the European Community. It would ensure a medium-term demand for coal, the lack of which may cause a shrinkage in the coal-mining industry for which this country would have to pay dearly later on. It would also serve to offset the uncompetitiveness of much of British industry caused by the prevailing high exchange rate and would, incidentally, go a long way towards solving the problems which beset the steel industry.
§ 5.17 p.m.
§ Baroness GAITSKELL
My Lords, I should like to congratulate my noble friend, Lord Strabolgi, on the excellent speech he made in starting this debate. I shall be very brief because, following my noble friend Lord Kaldor, I feel rather inferior. I am surprised that the noble Earl, Lord Gowrie, should be so complacent about the sharp increase in gas prices, for no good reason except that the Conservatives seem still enamoured of the short, sharp shocks which they like to impose on the country. This shows a great divide between the political parties, and it was made very clear by the remarkably good debate in the other place yesterday, and by the excellent contribution on the Labour side in this debate.
The short, sharp shock extended to the most vulnerable of poor families. The true champions of the family have abandoned them, it seems, because no one 895 goes on more about the family than the Conservatives. Some rise in gas prices is understandable and the British Gas Corporation are aware of this, and they know that any gas increases must, or should, be phased out. The Labour Party, with courage, slowed down gas prices, always bearing in mind the poor families and the pensioners, because 60 per cent. of pensioners are known to have their homes under-heated. Everyone knows that these rises are thinly disguised taxes.
The great divide between the political parties is shown up through their individual ways of dealing with the recession. Is that surprising, when the heroes of the Conservatives are the monetarists, Sir Keith Joseph and, in the United States, Milton Friedman? They are the messiahs of the monetarist movement. I am deeply agnostic about these economic messiahs. Their policies lead people only to the human scrap heap and create mountains of unemployed people. I do not believe that there is a great future in their recommendations or their policies and measures and the fact that this Conservative Government revere them fills me with doubt about any propositions that they put forward. I do not believe that any country can prosper today with measures that multiply unemployment. That is as much as I want to say on these issues.
§ 5.21 p.m.
§ Lord LUCAS of CHILWORTH
My Lords, one of the nice things about following the noble Baroness, Lady Gaitskell, is that one can always congratulate her upon the sincerity of what she has to say, even if one does not necessarily agree with it. The noble Baroness is always sincere in what she has to say. However, I should like to turn from the more intricate subject of the debate to the rather more ordinary.
My first criticism of the Government's actions with regard to gas and electricity is the appalling presentation of their case, with the probable exception of the opening speech of the noble Earl, Lord Gowrie, this afternoon. But he went so fast that I shall have to read the report of it tomorrow, to see whether that should be the exception. Certainly, people outside Parliament do not understand why these rises have to be 896 made, and made in the manner in which they are being made. I find that the marketing of this idea is quite appalling. The people whom they employ in public relations should look to something in this connection, but certainly not to their laurels.
Also, I find it quite extraordinary—and I certainly have not heard any explanation—that Her Majesty's Government feel fit to interfere in a nationalised industry, in as direct a matter as pricing. So often one hears questions asked in your Lordships' House and the Minister answers quite blandly, and I think quite fairly," Ah! This is for the management or the executive of the industry to answer and we do not interfere." But when it suits them, the Government apparently can. If there were an energy commission—and I think it was my noble friend Lord Ferrier who spoke about this—then one might feel that there was some justification for Government interfering in what can only be called the domestic affairs of an energy producing industry. So I find that strange. When the British Gas Corporation has not asked for this kind of increase and may well have wished to act in a different way, I find it even more odd that it has been over-ruled.
The noble Earl gave explanations which were rather complex, but I do not think it is fair to liken the Electricity Board to the Gas Board, to BNOC or to any other board, because the accounting systems in the public sector industries are totally different. One cannot draw fair comparisons and, therefore, a number of questions that are asked—for example, where does the surplus revenue end up?—can never be satisfactorily answered. So even if one accepts in good faith what the Minister has to say, or indeed what the Government say elsewhere, there remains a sneaking thought outside that the truth—at least, the whole truth—is not being told.
I can certainly accept, although I do not remember it, that from the end of the First World War up to the beginning of the second this country adopted policies of cheap food, cheap energy and cheap wages and we were shielded from the real effects of the world. So be it. But bit by bit during the post-war years, and for a variety of reasons, cheap food and cheap energy have disappeared. Cheap wages still remain, and I think that this is a 897 tragedy. Cheap wages are not just the amount of money we are paid. It is a question of what we get for them. If we got more for what we are paying, there would be some left over and we should all get more. But, for a variety of reasons, it does not work in that way.
The fact is that industry, which has little chance in the next 15 or 20 years of changing its fuel supply from gas to something else, will have to absorb increases which are equivalent to 12½or 15 per cent. on its wage bill. That seems to me to be absolutely disastrous, because it will defeat an object of providing more wages and—and this is more likely—a great number of small and medium size businesses will go completely out of business, with all the problems that will ensue.
My last point, which has been mentioned by previous speakers, concerns the absence of a comprehensive fuel energy policy. We have had so many debates about conservation and have discussed the alternatives, and yet the only thing that Governments appear able to do is to impose punitive practices as deterrents. There is no encouragement at all to conserve anything. All the encouragement is to save the pocket. I can remember when I used to be in the petrol business, and during the Yom Kippur war the price of petrol went up by 8d per gallon overnight. It was such a savage rise that consumption dropped markedly for about 12 months. Then the 8d did not seem to be very important, and a few pence on this or that did not really matter. Certainly, various people—perhaps the oil companies, perhaps the Exchequer—get richer by all these small increases, but there is little effect on the overall consumption.
Somewhere along the line we have to make a far more determined effort, and we must have advisers to help people put into practice that which they know they should do by way of conservation. The reward can then be seen. Furthermore, Her Majesty's Government must produce an energy policy, coupled with a conservation policy, which is understood not just by your Lordships, of whom there are only 300 or 400 here, or necessarily by the other place, but by all the masses of people who cannot understand, and indeed do not want to understand, because 898 they say: "That is your job. It is not our job". If they are to go along with the policies, they must be made easy for them to understand.
This is where I started. This is where Her Majesty's Government have gone totally wrong over this issue. I hope that the Minister's opening speech will be widely reported. I hope, too, that when he comes to wind up he will be able to answer some of the comments and criticisms, and that those answers, too, will be widely acceptable and widely reported.
§ Lord FERRIER
My Lords, before the noble Lord sits down, may I ask him one question? He referred to the desirability of an overall energy policy. Would not the noble Lord agree that this is an immensely complex matter, because anything of the sort would involve the repeal of the legislation nationalising coal, electricity and gas?
§ Lord LUCAS of CHILWORTH
My Lords, I am sure that my noble friend Lord Ferrier will accept that if I knew the answer to that question I might be speaking from there and not from here!
§ 5.31 p.m.
§ Lord BALOGH
My Lords, I shall begin by looking at the organisation of the Gas Corporation because some of the difficulties which have arisen can be dated back to wrong decisions taken in past years, especially on the part of the two Tory Governments which we have lately had. Before I do so, however, I must congratulate my noble friend Lord Strabolgi for the way in which he introduced the debate, which gave it its tone. I must also declare an interest—unfortunately, only an intellectual interest. During the 1964–70 Government I was engaged in a long and atrocious battle with the oil companies about the price of gas. This story has been told very well by Dr. Bray in another place, and I would recommend your Lordships to look at it. In the end, we succeeded in getting a price for gas to be paid by the Gas Corporation to the oil companies which was nearer to a cost-plus than what a monopolistically controlled market could have borne.
899 The fruit of this victory ran into billions of pounds, and we all thought at that time that it should accrue to the nation and not to the consumers of gas. This could be achieved either by a special tax or by creating a buying organisation which would have bought at the price which was achieved and then sold to a second distributive corporation, which would have retailed it to the consumers. I, for one, favoured the second alternative—the two corporations—because I felt that somebody who was in the business and who did the work was the only person able to control the oil companies, the excellence of which all noble Lords who have heard debates on oil pricing and oil organisation will remember.
May I say in parentheses that the combination of the 1972 licensing round with the recent decision not to allow BNOC its original right to participate in the operating committees in the various fields will again cost the country billions of dollars—at a stroke, my Lords. At a stroke the ayatollahs of the creed of Friedman in the Government have increased the PSBR and have decreased revenue by as much as they want to get out of the parents of children, the sick and so on. At its worst, 60 per cent. of it is on the wrong side of the balance of payments. If one looks at what has happened in this particular instance, the asseverations of the noble Lord, Lord Cockfield, about the central importance of the PSBR seem to be even more ludicrous than before.
I must confess that I myself do not take such a dim view, in principle, of the rise in the price of gas and electricity, as do some noble Lords. I do not see why geography and cleverness in the original choice should result in the subsidisation of well-to-do people relative to others who, poor as they are, are locked into oil and electricity.
It has been suggested that while the achievement of a greater harmony can be thought to be helpful as between electricity and gas, that harmony ought to be brought about by decreasing oil prices. I think that this proposition would fail, because our non-discriminatory arrangements with the EEC mean that we would have to export subsidised oil at a cheaper price, to the detriment of our balance of payments, 900 which I am sure nobody would want to propose.
However, the scenario of this gas and electricity price increase was really horrible. The Government did not show any social sensitivity or even technical knowledge. In so far as technical knowledge is concerned, we now have anti-social types of energy tariff. There is a basic tariff, which is at a very high price level, and in the case of slot machines I think that another 30 per cent. goes on top. The rest of it is at a lower price. Obviously, this is the result of the great surplus production of electricity and even of gas in the previous period when the two corporations fought each other in every newspaper and periodical to do down the other and to increase sales. It has absolutely no justification at the moment and ought immediately to be changed. When energy is dear, the basic energy should be cheap and any excess consumption ought to be made progressively dearer.
Finally, measures must be taken and widely publicised relating to heating subsidies to be given to those who would be hit hardest by the rise in energy prices. An unsafe promise was extracted from the Secretary of State, like a bad tooth—though he is not a dentist but a doctor—by my right honourable friend in another place. I think that we shall have to be very careful and watch how this promise is fulfilled. The way in which gas prices have been raised will exacerbate the problem of wage control over incomes policy. That is perhaps the most regrettable part of it, because it can only stimulate cynicism on the one hand and anger on the other. Once more the Government have shown themselves in their true characteristics of technical ignorance and social insensitivity.
§ 5.40 p.m.
§ Lord SOPER
My Lords, I wish to add my thanks to those already expressed by others at the opportunity which my noble friend has given us to take part in this debate and for the excellent opening speech which he made. I am particularly attracted, of course, to that part of the Motion which has to do with the impact particularly on the poorer sections of the community. It is to that, that I wish to speak.
I appear to be the only representative of the cloth who is to speak in this debate, 901 although I have some support already from my ecclesiastical friend. I am quite sure that, were this debate being conducted with the advantage of speeches by a number of Prelates, we should be in a consensus of conviction that there is grave danger that a particular and desolate part of the community is being lamentably ignored; and if it is not impertinent to say so, I wonder whether the Government really understand the conditions under which many members of that unfortunate community are compelled to live. I mean those who are very low paid, those who fall into the poverty trap, and those who are very old and incompetent in many of the affairs which they were able to discharge quite efficiently in earlier years.
I will spend a little time in describing their plight. I know that it is difficult to quantify penury: one man's penury may be another man's affluence, but here are some figures which I think are significant. At the beginning of last year 2,200 households were officially deprived of electricity. During the year 11,500 such deprivations took place within the County of London. Now I know that there are scrimshankers about and that some people may be forgetful, but it is an alarming figure when one adds it to the fact that 400,000 intentions so to disconnect electricity were passed on officially to householders. I cannot measure the degree of deprivation that that must have caused, but as a social worker I know of so many individual cases which supply me with enough evidence to suggest that the poverty line runs through a different section of the community today, and not least the lower paid workers and those who are old. It is a savage increase—and I will interpolate that word lest it should not be included in our debate—that at present this process seems to be accelerating and the prospects are grim.
I will now turn to those prospects for a little. There is something which in many cases is worse than actual deprivation of amenities, and it is anxiety. Where people are old and have much time on their hands and much loneliness to contend with, the likelihood of an increase in that anxiety is unmistakable; and I could give chapter and verse of those whose lives are made miserable, not necessarily by the actual experience 902 of privation but by the nagging sense of misery, the sickness of hope deferred and the prospect of further troubles to come, as of course applied to some of those who know that the electricity restraint rate was in fact ended at the end of last year.
But there is even a third element in this particular and dreadful situation for so many people. It is that they feel that the benefits that they may receive, the benefactions which are offered by the Government, are much more in the line of charity than they are in the line of compassion. I see the Minister is shaking his head, but I would ask him to try to put himself in the place of those who regard the various proposals, not specified yet, as something which the Government intend to do. I am sure that people who have come towards the end of their lives are particularly impatient when they are invited to wait for a Government who intend to do things but on whose record very little has yet been done; and in any case I have a rooted objection to the attitude which assumes that people will be grateful for what is offered to them by others in a general environment in which they feel an overall sense of injustice in the system in which they live. Therefore, I ask the Minister to accept at least, whether or not there is statistical evidence to support it, that I could take him to many old people who are resistant to the whole process of going and asking for things, because they believe that such a process is demeaning and they do not intend to do it. They may be foolish, but I respect them and I ask this House to respect them.
Why is this so? We have heard this afternoon again that the monetary policy of the Government demands that you should create wealth before you distribute it, as though the benefactions of goodwill are dependent upon cash. The other day in an interview the Prime Minister ventured into the realm of parable and spoke about the Good Samaritan, and inferred that the Samaritan would have been useless had he not been in possession of cash. This was very poor theology and I regret it the more because the Prime Minister was brought up as a Methodist. But let me just point out as clearly as I can that when the question was asked, "Who is my neighbour?", the answer Jesus gave was, "What does a neighbour do? "And, whether or not that neighbour has 903 the coin at the end of the process, he is not prohibited from serving the interests of the man cut down on the road by robbers because he does not possess cash. The Good Samaritan went and tended the man's wounds and put him on his own ass and looked after him. That is part of the wealth that belongs to any community long before it provides the requisite amount of cash to satisfy certain monetary demands.
I believe that is of the utmost importance in the consideration of this present issue. What disturbs me, and I am sure disturbs a great many other people, is that we are living in a society in which the imposition of sacrifices is made upon those who are least responsible for the situation; the sacrifices are required from those least able to fulfil them.
The Earl of GOWRIE
My Lords, if the noble Lord will give way, I really hate interrupting him but the whole burden of our argument is that in this society subsidisation affects those who can afford to pay and leaves increasingly less every year for those who cannot afford to pay. That argument may not be agreed by the noble Lord, but he must at least take it on board and must not argue back as though that argument were not there.
§ Lord SOPER
My Lords, of course I do not accept that correction. I believe it is a misunderstanding of the primary situation, which to me is that we live in a class society and these various cuts are increasing the acerbity of the class society rather than encouraging the one thing which a Government can expect. A Government can expect the co-operation of those who feel that the burdens are invariously and generously accepted and borne by the community as a whole. We do not live in a community as a whole. Ask any of these old people who are required to deal with these slashing cuts and enormous increases in prices, and it will be found that they will feel the more alienated from the general condition that is at least advertised as a community—the noble Lord may shake his head but these are my convictions and I am not going to be deflected from declaring them. I declare them, my Lords, because I have had some experience 904 over many years of endeavouring to persuade people to support justice, which in the first instance is of rather more importance than compassion; and justice is not being seen by those who suffer the cuts and suffer the increased charges from which we are all suffering, but in relatively different degrees.
I accept that the Government are compelled to act in the light of inflationary problems, and for the solution of international issues over which they have precious little control. I agree that conservation is necessary, and I have no debate whatsoever with those who think that everybody should tighten his belt in ways which will increase his own activity and the activity of his fellows. What I object to, and what I believe is highlighted in much of the conversation in your Lordships' House this afternoon, is that this particular measure and this continuing process is increasing the divisions within society rather than beginning to heal them. Until we can begin to create a sense that all are together in this struggle we have no right to ask one group within that struggle to bear the major burden. That is my complaint.
I hope that the Minister—and I have already asked his indulgence because I have an ecclesiastical engagement not unconnected with this matter—will be able to say that those things which are being contemplated as an answer to this particular problem of the indigency and I the poverty of many groups in the community today, will not appear as charity, but will appear as a constructive attempt to spread the area of sacrifice and to share the problem. In that I wish him well, but I have my doubts as to whether or not this is within the competence of a Government pledged to the kind of practices to which they have already been addicted.
§ 5.52 p.m.
§ Lord GISBOROUGH
My Lords. I must first of all apologise to the House and the Minister that I shall not be able to stay, because I have a previous appointment and I am surprised by the great number of excellent speakers in the debate. At first sight it seems a sorry situation when the Government instruct a profitable nationalised industry making a profit of some £400 million a year further to jack up the 905 price of its product by 29 per cent. in three years. However, during the last 10 years retail prices have risen by 240 per cent., coal and electricity by 400 per cent. and oil by 1,500 per cent., but gas has gone up only 123 per cent. Its relative cheapness has led to a huge upsurge in demand, which is accepted, for gas appliances and conversions, and more than one million new customers have been connected within the last three years. Gas now accounts for 20 per cent. of British energy needs against only 2 per cent. 12 years ago. The industry can no longer cope with this increased demand, which contributes to the inability to supply new customers mentioned by the noble Baroness, Lady Stedman.
Demand is still increasing faster than the foreseeable ability to supply it, and this can only lead either to rationing or to very steep price rises in the future. Shortage of gas has already become apparent. For example, on New Year's Day the heavy demand would have closed down supply to many factories that were on interruptable supply contracts had it not been a holiday. Further, cheap gas has reduced the incentive to householders to insulate their houses adequately, to turn down thermostats and to economise, unlike the users of expensive oil, and this has further increased the demand for gas. If low-price demand kept going, the North Sea reserves would be used up by the 1990s and we should soon be back to importing at sky high prices. Long before that, the pre-1975 fields of cheap gas would have run out and we should be into the more expensive newer wells.
While domestic gas prices barely cover historic costs—the price in real terms has fallen by a third over the past 10 years—industrial gas is having to carry the whole industry, and it is said to be the dearest in the world. Yet while much gas is burned for heating, the chemical industry needs three-quarters of a billion therms as feedstock. This feedstock demand will continue, and with no extra substantial gas coming into the system till 1984 this calls for less burning of gas for heating by those who can use oil or coal, to protect the chemical industry and to the employment and wealth it creates.
To meet this problem the Price Commission in its penultimate report advocated that the Gas Corporation should charge 906 more rather than less for its gas as being in the long-term interests of consumers. The Commission recommended that the price should be based on the cost of imported Norwegian gas. Mr. Benn said last February that it would not be sensible for electricity and gas prices to fall in real terms, which indicates that he also would have raised prices had he kept his job.
This Government inherited a position of uncertainty in the industry as regards pricing policies and of political uncertainty as regards how to handle the thorny issue of gas pricing. It was probably a mistake for this Government not to tackle the problem sooner, and price control during the last year has helped to ensure that demand exceeds supply, with the problems that this has brought. In a period of energy scarcity price is by far the most effective medium for conservation and no purpose is served by making such a high quality resource available at bargain prices. It is certainly always a very had policy to keep prices artificially low in any field, as inevitably, whether it is gas or whether it is wages, the result is an explosion of price when the time expires. So gas is to be priced up in stages of 10 per cent., but the flaw in this argument is that electricity prices are also going up and gas will still remain relatively cheap. So one could argue that it should go up further. Demand can only be reduced by the expectation of comparability of price to oil at some time in the future.
Gas is a scarce resource and our supply will run out before the North Sea oil wells run dry of oil, and high prices are needed to help finance the heavy investment needed to bring new marginal fields on stream. But even this promised heavy expenditure will not use up all the Corporation's profits, and they should not be pushed into unnecessary investment just because the money is there. Part of the profit should be used to help with grants for insulation to reduce future energy demand. There is still 52 trillion feet of gas in the North Sea, 30 years supply at current demand. But much of this gas is still being bought by the board on 20 year contract at 3 to 4p per therm from the older wells, and obviously it is this lower price paid by the monopoly buyer that has allowed a cheap sale price and a high profit. But the penalty is now a shortage even to existing customers. The price the Corporation 907 pays is nothing like high enough to encourage oil companies into more exploration or to make development of existing finds economical.
Last, but most important, there are sections of the community, which have been mentioned over and over again, unable to afford these increases, and it will, as always, be vital for the Government to ensure that the scheme of assistance announced on 22nd October is adequately publicised. I hope they will announce whatever further schemes they have soon, to allay the genuine fears that old people will have for next winter.
§ 5.58 p.m.
§ Lord LOVELL-DAVIS
My Lords, I should like to start by shooting down one of the many canards this Government has launched into the air, and, incidentally, wing another. The first is that the massive price rises proposed for gas and electricity are being set primarily in the cause of conservation, the key factor, as the Secretary of State said in yesterday's debate in another place. Anyone with any awareness of the massive and complex problems that face us in continuing to fuel our industries, our homes, our means of transport, our whole developing future, recognises the need for the efficient use of energy. It is also clear that without a realistic pricing policy to reinforce the message attempts at energy conservation will be largely wasted. Your Lordships know this; so does the British Gas Corporation, and so apparently do the Government.
So why did Mrs. Thatcher not allow British Gas to raise its prices when it asked to do so last year? Why is she now forcing British Gas to increase its domestic tariff far in excess of the sum the corporation needs to meet its statutory objectives of covering costs and providing for reserves which will at the same time serve the cause of conservation? The answer to the first question, no doubt, has something to do with the presentation of her Government's last Budget; and to the second question, that this is seen as a way for this monetarily obsessed Government to raise money, and a pretty crude and cruel way it is, too.
The Gas Corporation is going to have some hefty profits for the Government 908 to heist after the sort of increases that we are in for. What is more, despite what the noble Earl, Lord Gowrie, said, is not this intervention really somewhat at odds with the avowed market economy, noninterference policies which the Conservative Government parade as a panacea for all our ills? As the noble Lord, Lord Tanlaw, has said, if they are going to intervene in this way they might as well scrap the Gas Board and discharge its board and chairman. If they are going to intervene in gas, charging in like the Keystone Cops and creating about as much havoc, why do they not at least try to give some respectability to reneging on their election promises by intervening in a positive way in the British Steel dispute?
Setting aside the Government's right to grab the Corporation's cash——
The Earl of GOWRIE
My Lords, will the noble Lord allow me to take up that point while it is fresh in your Lordships' minds? The Government are in permanent and enormous intervention in the steel industry—intervention to the tune of millions of pounds every year. The question which all Governments have to ask themselves is: When does the intervening have to stop?
§ Lord LOVELL-DAVIS
My Lords, that is a question that the Government obviously must answer. They are not intervening in any positive way in the British steel dispute: they are allowing the steel industry to get into an appalling condition and they are standing back from it. However, they are quite prepared to intervene in this matter because it is simple and it fits in with their monetarist policies.
As I was saying, I question the Government's right to grab the cash of the Gas Corporation, but I would be interested to know whether the Minister can give us some idea of how the Government propose to use the enormous additional sums which will be swallowed by the Treasury, apart, presumably, from raising the funeral allowance. The only other matter that I think will be fuelled by this latest action is inflation.
If it is conservation that they are after, are the Government proposing to increase the home insulation grants and give real financial support to energy saving? After 909 all, a programme aimed at providing simply draft-proofing, hot water tank jackets and adequate loft insulation, might involve a substantial capital outlay, but the savings accruing year after year would rapidly repay the initial cost. It would make national economic sense and at the same time directly benefit those who will be the hardest hit by the new prices—the elderly, the sick and disabled, the low income families, especially those with young children at home during the day. All I can say is that the Government show no signs so far of doing anything of the sort.
On the contrary, we are falling further and further behind the rest of the Common Market—the EEC—in energy conservation. The Prime Minister may go about proclaiming the cause of energy conservation, but the facts are that her Government are busily cutting back on important schemes. The Department of Energy has scrapped a pilot scheme for setting up regional centres advising people on how to insulate their homes. They would have cost £500,000 a year. The Department of Industry has been running a £25 million programme to help businesses insulate buildings and improve boilers. It ends in June and the department say that it will not be extended. The Manpower Services Commission has been paying groups of people to insulate old people's homes free and help get them grants. Last summer the Special Temporary Employment Programme which financed the scheme had its budget halved.
A couple of weeks ago the Department of the Environment published new proposals for increasing energy conservation requirements. They stipulated only three inches of insulation for rooms, in spite of the fact that the Department of Energy has been pressing for four inches for years. Moreover, even the Department of Energy itself is, I understand, considering cutting by half its information staff on energy conservation.
Perhaps it is not such a canard after all. Perhaps all the Government intend to do is to save energy by a process of refrigerating the people. It is a novel, albeit uncomfortable, way of tackling energy conservation, the problems of the aging population, unemployment, the needs of the poor and the sick—all at the same time. It is simply a matter of imposing on us— 910 never mind the fact that we are supposed to be the owners of the industries concerned—an extra, totally unreasonable and unbearable burden, when we are already reeling under massive and rising financial demands all round, unemployment, further recession and, in the Chancellor's own words, "a bleak future". How different it all seems from the sunny uplands that we were promised in May.
There is, indeed, a much darker side to these shocking increases in the cost of fuel. I cannot indicate it more clearly than by quoting from the editorial of the Daily Mail—scarcely one of the Conservative Party's harshest critics—of 21st January. It readsThe argument for gas price rises is firmly grounded in the need for Britain to conserve and to diversify its energy resources. But energy conservation policies, however intellectually elegant, do not pay gas bills. Nor do they explain who exactly is going to benefit from the whacking great excess profits the Government is going to force the Gas Corporation to make.The old and the poor cannot be expected to meet in full such punitive increases in their gas bills. They will have to have special help. And the scale and the scope of that help should have been made known simultaneously with the news of the forthcoming price rises. It was not".The question is: Will it be made known now? At the time of the announcement the Secretary of State for Energy, Mr. Howell, did in fact make some brief reference to giving direct assistance to the poor, but he took good care not to define that assistance. Nor was he more specific yesterday in the debate in another place.
I had hoped that the noble Earl, Lord Gowrie, would be saying something which might help alleviate the very real fears of those who cannot meet their fuel hills now, let alone the bills they are likely to get from next April; and those who have so far been able to scrape along but for whom the next massive increase will be the last straw. This is not the time for general palliative remarks, but for specific assurances for people who are desperately worried and in dire need—those referred to with such understanding by my noble friend Lord Soper.
For truly disadvantaged people, talk of conservation is only a cruel joke. Those of us who have the money to pay our fuel bills, may complain, but we can respond by being more careful in the way we use gas and electricity. The poor can con- 911 serve fuel only by putting their health at risk. I believe, as does this party, that the right to fuel, to the warmth and light necessary to survive in reasonable comfort, is fundamental. May I suggest to the Minister that it will not be enough if, in winding up the debate, he lays the responsibility for what is in fact social policy—or lack of it—upon British Gas or the Central Electricity Generating Board and their codes of practice for the payment of fuel bills. British Gas did not want increases of this magnitude. The ultimate responsibility for the problems created for the poor must be borne by the social security system—by the Government.
Recently, in an article in the Sunday Times,David Donnison, who retires as chairman of the Supplementary Benefits Commission in the autumn, asked the question:Why are the Tories discouraging work, encouraging idleness and weakening the family? That's not what they promised, but it's happening".He points out that although the Conservative manifesto promised toreunite a divided and disillusioned people, to restore incentives so that hard work pays"—and—to support family lifethings seem to be moving in the opposite direction.The key developments to watch"—he writes—are those which affect the poor".Comparing two large poor families, one with the husband in work and the other with the husband unemployed, he demonstrates that it is the working poor who are bearing the brunt of the cuts in benefits which are now being made—in rent and rate rebates, free school meals, free transport to school, grants for school uniform and other clothing. Far from creating incentive by their cuts, the Government are simply on the road to giving some semblance of truth to the myth that many people are better off out of work than in work.
The poorest people of all are those with children and, my Lords, if we are talking of conservation, the most precious thing we have to conserve is the health and wellbeing of our children—all our children. T can think of no more grotesque interpretation of an undertaking to 912 "support the family" than to deprive children of the right to be decently fed, clothed, housed and kept warm.
The Conservatives invented the child benefit scheme, and we should return to the original principle that child benefits are part of the fiscal system and should be regularly up-rated to keep pace with inflation. Instead, they too are frozen. They should have been reviewed this April, but now that will not happen until at least November, by which time inflation will have reduced the real value of the £4 a Week benefit to £3 since the last increase in April 1979. That may seem to some on the other side rather wide of the subject that we are debating this afternoon. I and many of my noble friends do not take that view.
At the very least, as the National Consumer Council, among others, has suggested, the price increases should be phased in gradually so that consumers can adapt and plan ahead on a rational basis; and they should offer a more comprehensive fuel allowance scheme which will avert widespread and severe hardship among the poor. But, whatever short-term steps the Government may take—and the onus is upon them to ensure that the elderly the disadvantaged, the unemployed or working poor and their children, are not pushed out into the cold by the fuel pricing policies they choose to adopt—they have a corresponding and wider responsibility which does not seem to be accepted by the noble Earl, Lord Gowrie. It is to protect the poorest and most vulnerable of our people. Only then should they increase fuel prices, not in this arbitrary and excessive fashion, to the levels the rest of us should properly pay.
§ Lord FERRIER
My Lords, before the noble Lord sits down, he made a comment about the position in the steel industry. Does he bear in mind the monstrous indignities of the Llanwern plant and the Hunterston ore terminal?
§ Lord LOVELL-DAVIS
My Lords, I am sorry, I did not hear the noble Lord. Will he repeat his question?
§ Lord FERRIER
My Lords, I said words to the effect that when you are talking about the steel industry, is it not worthwhile bearing in mind the monstrous 913 indignities of the Llanwern steel plant, which lay closed for years, and the Hunterston ore terminal?
§ Lord LOVELL-DAVIS
My Lords, do not know what the noble Lord means by the monstrous indignities of them lying open, I am afraid.
§ 6.12 p.m.
§ Lord UNDERHILL
My Lords, one thing certain is that the Government's announcements of the extra charges for gas and electricity were a great bombshell to a vast number of people in our country. I am concerned that some noble Lords opposite have referred to the gas increases as being 29 per cent. spread over three years. I may be wrong, but my understanding is that the gas charges will be in two stages this year, 29 per cent. in the coming year; and that electricity will be in two stages, 23 per cent. in the coming year. Perhaps the noble Earl, Lord Gowrie, will make this clear in his reply, because it is clear that some noble Lords opposite disagree with the view that I have just put forward.
It has also been stated by the noble Lord opposite that the increase in gas charges w ill not make a tremendous difference in the cost of living. It was stated in another place recently that the gas prices will only be about 50p a week for the average householder. Before I left for the House this morning I turned up my accounts for last year. My gas and electricity charges, based on the figures I have mentioned, will be an extra £1.40 weekly. I am the average householder; three bedrooms, only two people living there, all the children have gone, and so often I am here and elsewhere, not at home. I wonder whether people understand what £1, or £1.40, really means to millions of families. We can toss £2 over a bar counter and it is gone. Millions of families are still not able to work out how they will pay the mortgage interest increase—and now bang on top of that they have the announcement of gas and electricity charges.
When my noble friend Lady Stedman was detailing quite a number of additional burdens which are either having to be met now or are coming in the future, the noble Earl, Lord Gowrie, said, What has this to do with gas?" It is to do with gas in 914 this way. One cannot take gas and electricity charges as though they were isolated. As other speakers and my noble friends have said, it is one thing coming after another which is worrying millions of people. Only today we read in the paper of the Thames water rates going up by 23 per cent. Again it can be said, "That is only an average of £9 a year". But it is these little sums—the £9, the £20, the £50—that are worrying a large number of our people.
The noble Lord, Lord Orr-Ewing, said that local council expenditures do not involve cuts. If they do not involve cuts, perhaps somebody in this House will tell me why local authorities throughout the land are sitting in almost turmoil to see how they can make ends meet and what services they have to cut. That is not imagination on my part; it is what is happening in local councils up and down the country, and I am certain that Members on both sides of the House can confirm that.
What is the Government's justification for what I call swingeing increases, and my noble friend called slashing increases? Whatever it is, they are massive increases in gas and electricity charges. The British Gas Corporation is at present making a surplus of over £1 million a day. The Secretary of State said in another place on 16th January, at column 1651 of the Official Report:While the British Gas Corporation may have a large surplus and is efficient"—I shall remember those words when we have legislation for dismantling other sectors of nationalised industries—it does not mean that it is competing for customers. On the contrary, customers are competing for gas …".The Secretary of State then added that any increase in the surplus will help to reduce public sector borrowing requirement. He said that it is rubbish to suggest that it will be used to subsidise loss-making industries. I presume that "Rubbish" is the sort of reply that will be given to my noble friend Lord Kaldor for his suggestion that, if there is this massive surplus, it might be used for subsidising coal, or it might be used, as others have suggested, in the steel industry.
The noble Earl, Lord Gowrie, during a short debate in this House on the Government's statement on the increased charges, 915 also said that any profit in exceess of investment need of the gas industry, which he said will not be considerable, will go to the Exchequer and reduce PSBR. If that is to be the case, can anybody deny that it is not some form of indirect taxation? It must surely be some form of indirect taxation. All of us know that indirect taxation falls more heavily upon the needy than on the other sections of the community.
Government Ministers have also made clear that the British Gas Corporation did not ask for this amount of increase. I understand that what the Corporation sought was an increase to meet expected increased prices that they may be called upon to pay for gas, and that the amount of the increase is deliberate Government policy. It is nothing else but deliberate Government policy. As my noble friends have said, the Government have stated repeatedly that they would not intervene in industrial troubles or industrial matters, but here we have—and I must emphasise this, although others of my noble friends have said it—the Government literally instructing the gas industry on its price increases. They are no longer relying upon market forces which, as has been emphasised in other debates in this House, is Government policy. I must repeat, at the risk of being boring, that if we intervene in gas, why not intervene in steel?
§ Lord UNDERHILL
My Lords, we have a situation where a moderate trade union has been forced into an industrial dispute for the first time for 50 years. We have a situation where a moderate and excellent trade union leader is forced into a situation of threatening to defy a recently—I will not say a trumped-up law but a made-up law. This surely is a case for intervention if ever there was one, but the Government are remaining quiet, and yet they can deal with this instruction to the gas industry.
916 In all the debates on this matter in this House and in another place, so far I have not heard any reference whatever to the views of the gas and electricity consultative councils. I do not know what they are, but it might be useful if we could know the views of those two consultative councils unless of course they also are being wiped away in this merry pursuit of demolishing every organisation whether it is of help or not.
It has been said that the Government will adjust social benefits for the needy to take account of all these increased charges for gas and electricity. I would make the point that some of my noble friends have already made; namely, that it might be possible to deal with the situation of those pensioners in need and for those on supplementary benefit, but there are large numbers of people who one would not classify immediately as needy but who are in the poverty trap and who become needy. How does one deal with those if we are to deal only with the sort of schemes the Government have so far put forward?
Secondly, I am sure many of us await with interest the details of a Government scheme of help, because we cannot be encouraged by what the Government have done in their own electricity discount scheme. It is argued that more money will be given to fewer people, but the fact is that the Government have found it convenient to reduce the figure from £45 million a year to £14 million a year. That does not give me great encouragement to believe that large sums will be made available to help everyone in need, and surely what we must aim at is to ensure that there is a scheme not only for gas and electricity but for all fuels, so that no one will be in danger of going without heat or light in their homes; and it seems clear to me that price rises must go hand in hand with an increasing discount scheme covering all fuels.
The other justification given by the Government is the question of conservation. I accept that, as far as we are aware at present, gas supplies are finite, but it may well be that new gas fields will be found and that research into the development of natural gas from coal will go ahead very rapidly; things may change. But whatever may be in the future, we know at present that the 917 Government's policy is clearly that of rationing by price, and that will hit the less well-off in our society.
Reference has been made to the bad press or bad public relations on the part of the Government and there is no doubt that this increase has had a bad press from all sides of the Press; and I was interested in the proposals of the noble Lord, Lord Kaldor, for differential charging. It is interesting to note that the Sunday Timeson 20th January, in a leader headed "Conservation without inhumaneness", said that unless such a policy were followed there would be much inhumaneness in relation to the new charges; and they suggested there should be a system whereby the more gas or electricity one used the more one should pay, that there should be different bands. I do not know whether the Government have examined that. There could be a standard band and, if one used more, the price would increase for the next band, and so on. It is obvious that if such a scheme were adopted, serious attention would have to be given to improvement grants for insulation, because many poorer people live in homes which use more electricity because of the lack of proper insulation.
Certain replies were given to questions raised in a debate in the other place, and I looked at those carefully to see whether the Minister who was replying dealt with those questions, but he made no mention of them whatever and I therefore propose to pose some of the questions that were asked. My noble friend Lady Stedman mentioned some of these, but I feel they bear repeating. It is suggested that expenditure on advertising for the" Save It "conservation campaign is to be severely cut. Will the noble Earl, when he replies, say whether that is correct? If it is correct, why? If it is, it is another example of a foolish and indiscriminate cut.
I have already mentioned the need for improving grants for home insulation. It has been stated that the Department of Energy is to scrap pilot schemes for setting up centres in regional capitals to advise on home insulation at a cost of only £500,000 a year. Is that correct? If so, why? If so, that would seem to be another foolish and indiscriminate cut. 918 Is it true that after June the scheme to help businessmen insulate their buildings and improve boilers is not to be continued? If it is not to be continued, why not? If it is to be discontinued, that seems to be another foolish and indiscriminate cut. Finally, is the Advisory Council on Energy Conservation to be continued, or do the Government believe that they have all the answers?
I should like to know, as the noble Lord, Lord Lucas of Chilworth, asked, whether the Government have a clear energy policy. At present we can see increased charges, a regressive tax which will hit the needy, when what we need is a really progressive and forward-looking energy policy for the nation.
§ 6.26 p.m.
§ The Earl of LAUDERDALE
My Lords, this is the first occasion when I have had the pleasure of hearing the noble Lord, Lord Underhill, speak. I was looking forward to his speech with anticipation and that anticipation was not disappointed. He has of course been exposed to much honourable mention of late, but the subject of that honourable mention is not the subject of our debate today. He asked a number of questions which I think one can summarise in this way: why these swingeing, savage, massive increases in gas pricing while the BGC earns such a surplus and, anyway, why should any of that surplus go back to the PSBR? These are matters to which I shall return.
First, I wish, along with other noble Lords, to thank the noble Lord, Lord Strabolgi, for introducing this debate in his best moderate scowling manner which we enjoy so much, and I know that he was not seeking, as others have done, to over-egg the pudding with too much political rhetoric. This debate is on a very serious matter and is to be welcomed because there has been much misunderstanding, some of it deliberate and some natural. I was most taken by a remark of the noble Lord, Lord Bruce of Donington, when he rose to question my noble friend on his Statement the other day and said, in effect, that what we really needed was for the Government to govern in the interests of the whole country. That is right. By the same token, I believe that energy, like defence, 919 is pre-eminently an area which deserves to be treated as an area of consensus and is best not made a political football. The fact that lead-times in energy are of the order of ten years means that Governments seldom get the credit or blame for their long-term decisions.
I have an interest to declare—namely, that I am a director of the Elf-Aquitaine Oil Company, a group which has a 51 per cent. holding, in the Frigg gasfield, providing about 33 per cent. of Britain's present gas consumption at the rate of about 46 million cubic metres a day. But the views which I express are my own entirely. I have not sought the company's advice as to the kind of speech I should make and I do not commit my company in any way. It is worth mentioning before I pass on that the Secretary of State explained last week—for reference, in col. 1656 of the Official Report—first that the producers are unaffected by these decisions to raise the consumer gas price and secondly that the price of gas from the Frigg field is related by a fixed formula to the price of oil.
There has been political pressure for a consensus policy on energy for a very long time and the last Government felt it as much as we do. It goes back to the very earliest days of the last Government. In March 1975 they announced that the domestic electricity price would be raised by more than 28 per cent., which in turn was 10 per cent. above the prevailing rate of inflation. On 6th May 1975 Mr Alex Eadie, an old coal-mining friend of mine who is in the other place, explained, as reported at column 426 of the Official Report:We need to secure more realistic energy prices, and reduce demands on the Exchequer by eliminating the electricity industry's deficit".Those were the words of a respected Minister of the last Government in the other place, in May 1975. He said that, I may say, in answer to pleas for old age pensioners, the poor, and so on.
As to gas, the 1976 Budget forced—and I say "forced" deliberately; I chose my words with care—a 10 per cent. increase in gas prices on an unwilling British Gas Corporation, and did so for the express purpose of reducing the public sector borrowing requirement, and said so.
On 17th March 1977 Dr. Dickson Mabon, again replying to pleas about 920 pensioners and so on—and I am sure that he is a person whom all of us on both sides hold in great respect and affection—said, as reported at column 251, of the Official Report:An increase in gas prices was necessary to reduce the level of Government financing".Then, my Lords, listen to that love child of the last Government, the Price Commission, and their 1979 report at Chapter 10. I propose to quote as briefly as I can, but I hope sufficiently, because this should go into the wider record that the public reads. The report said:We share BGC's view that there needs to be a reasonable relationship between domestic and non-domestic gas tariff…We believe that this means ensuring that all customers pay prices that reflect the underlying costs"—I shall repeat that: "that all customers"—it does not say only 'the rich'—of a scarce and increasingly expensive natural resource. This cannot be done, in our opinion, without paying particular attention to long run marginal costs".Then it goes on:To a considerable extent these costs are dependent on the purchase cost for obtaining gas supplies from the Northern basin of the North Sea, which are themselves related to oil prices".It continues:The estimate of the long range marginal cost value of gas that we have used is the price paid for gas imported from Norway. This is gas imported in order that more British gas can be left in the ground for use in the future".At this point I interpolate that there has been much complaint about the present Government's attitude to conservation. But having just drawn attention to that, I pass on to a further quotation. The Price Commission's report goes on:adoption of LRMC-based prices would not imply that the customers of today would be making sacrifices for the next generation: only that the present generation bears its fair share of cost".It continues:We would not wish to see any significant deviation from the policy of relating the prices charged to industrial and commercial users of gas to the price of oil because we believe that any change would adversely affect the balance between supply and demand in both oil and gas markets".Finally, the report says:The price of gas to domestic users is clearly well below our estimate of long run marginal cost, which suggests that an increase of about six to seven pence per therm would be needed to bring domestic tariffs to our estimates of the marginal I cost levels".921 There I end the quotation, but there is a further passage in the report in which it is said that that difference is between 30 and 35 per cent.
The simple point is that the domestic gas price was frozen from April 1977 to June 1979, which was equivalent to a 15 per cent. reduction in real terms, while the price of crude oil doubled. If the domestic price is frozen indefinitely, supply will run out. Last year some 80 per cent. of the extra supplies earmarked for contract sales to industry by the BGC were committed within three months—I repeat, 80 per cent. About a million new domestic users have been connected in the past three years. The situation has not in any way been assisted or improved by the last Government's delays in approving the Mossmoran processing plant in Fife which, had it been ready and approved, would have taken the associated gas from Brent and would have saved wasteful flaring. The situation was also by no means improved by a tendency to duck the whole issue.
Between February 1974 and April 1979 domestic gas prices rose by about 73 per cent., while the retail price index rose by 110 per cent., that is a real fall overall of 18 per cent., and domestic electricity prices rose 168 per cent., an increase in real terms of 28 per cent.
There has been much confusion about gas supplies running out. The point is that cheap gas supplies are well on the way to running out, and those are from the southern gas fields. The Frigg gas is now at about 14p per therm. Enormous new gas fields were found in Statfjord and in block 31/2 of the Norwegian sector last September. But those are in deeper and more difficult waters—so much more difficult that RhurGas, one of the consortia on the Continent which is very eager to buy that gas, is prepared to try to pipe it and bases its calculations on a figure not of 14p per therm but of about 18p per therm. So to bring that gas, or much of it, to Britain would be very costly. One year's current BGC surplus would not fund more than a relatively short, cheap pipeline. The Frigg pipeline and processing plant did not cost £300 million, it cost £720 million—and that was several years ago; that is equivalent to about two years of the current BGC surplus.
I ask the indulgence of the House to 922 listen to one more quotation because I believe that this is a serious, independent assessment from the industry. The Offshore Engineer wrote in November, 1979:While it may be difficult for the public to swallow the idea of higher gas prices when the BGC is reporting record profits, the fact remains that last year's surplus would barely be enough to build one short pipeline from the northern North Sea, let alone the complex of gas-gathering lines and possible recompression stations necessary to make an efficient and economical system of gas collection in the central and northern areas of the North Sea. It would be little short of tragic if short-term political expediency … aimed at pleasing the domestic consumer, prevented the BGC from being able to finance new supplies of gas as present reserves begin seriously to decline".It is worth mentioning in parenthesis what was mentioned by my noble friend Lord Orr-Ewing—that the contract for gas from Algeria is about to run out, and the signs are that Algeria will be asking twice the previous price.
As to inflation, the answer was given very succinctly by the noble Lord, Lord Roberthall, when my noble friend Lord Gowrie made his Statement last week. But, without recapitulating what he said at column 139, may I just remind your Lordships that Mr. Alex Eadie said in 1975, the Chancellor of the Exchequer said in 1976, and Dr. Dickson Mabon said in 1977, that the rises in gas and electricity prices were needed to reduce the PSBR. The 100 per cent. rise in crude oil prices last year has accounted for something like 5 percentage points in the retail price index as we know it.
This Government have inherited not so much a crisis as a chronic malady of indecision and funk.Nothing is more difficult "—said Napoleon—and therefore more precious, than to be able to decide".But I also say, my Lords: Beware of complicated solutions. To be always ready a man must be able to cut a knot, for not everything can be untied. Much of the debate tonight has been on other matters altogether—dismantling the Welfare State; the uncaring society;" savage cuts (I quote the noble Lord, Lord Strabolgi); savage price rises; rises to meet the tax remissions for the wealthy, according to the noble Baroness, Lady Stedman (she is such a nice person; much nicer than her speech tonight); 923 helping the better off, and so on. All of that is rhetoric—
§ The Earl of LAUDERDALE: My Lords, I repeat
all of that is rhetoric, and some of it is humbug. I believe it is designed, and that these two debates have been designed, not seriously to throw light on the problems of the energy industry but to rally faint hearts and hide the gaping divisions of the party opposite.
There is an infinity of political errors which, once adopted, become principles, such as easy emotional preachments about compassion. As one looks back on the past and listens to the Opposition at the present time, one wonders whether there is not, in among their philosophy and political make-up, the thought that politics is a systematic organisation of hatreds if it is not also a principle that all that is not compulsory is forbidden. For us—realism, self-reliance and, as my noble friend Lord Gowrie said,Bid the sleeping giant awake to the facts of life and the light of day".
§ Baroness GAITSKELL
My Lords, before my noble friend (if I may call him that) sits down, may I ask him a very short question? Why is it that when Conservatives speak about "realistic" prices they are always higher than they should be?
§ The Earl of LAUDERDALE
My Lords, I think the noble Baroness will probably share the recollection of a mutual friend of hers and mine who sits on her Benches, who once said in my hearing that all women are mini-Chancellors of the Exchequer. They all know that at the end of the week sixpence does not go quite as far as it did on Monday.
In our experience, prices go up. They go up whether it is the Tories or the Socialists who are in office. But in this case our energy crisis has struck as it were from outer space by being doubled in a year.
§ Lord TANLAW
My Lords, before the noble Earl sits down, can he clarify one point? He did not include in his figures the gas fields off the Morecambe Bay, and I would be grateful if he can clarify that one point.
§ The Earl of LAUDERDALE
My Lords, I am not surprised that the noble Lord, Lord Tanlaw, who is learned in these matters, drew attention to that omission, which was deliberate. The fact is that I have no really reliable facts about it, and I always find—and I must confess this—that when I read of so many trillion cubic feet I can never remember how many noughts there are in a trillion, or whether we are talking about American or British billions. I wanted to say something about Morecambe Bay, but I thought it safer not to do so.
§ 6.44 p.m.
§ Lord DAVIES of LEEK
My Lords, I am glad the noble Earl did not go on with that, because he had already twitted this side of the House for irrelevancy. When I marched into this debate I thought we were having a foreign affairs debate, because Afghanistan cropped up and the movement in South-East Asia, and then we had "points of reality" and the need for defence. Then, half the House disappeared—I should have liked to have gone with them myself—because there was an important defence meeting upstairs. I, too, am a member of the Defence Group, but I decided that at this moment the realities of the way in which high prices are hitting the poor meant that I should stay in my seat to take part in this debate. Consequently, I have heard the noble Earl boondoggling to the end of his speech—and if he does not know that beautiful American expression "boondoggling", it means messing around and saying nothing.
§ Lord DAVIES of LEEK
My Lords, I cannot give way now. Yes, I usually give way, because we have been on committees together.
§ The Earl of LAUDERDALE
My Lords, will the noble Lord assure me that the word "boondoggling" is not an achronym?
§ Lord DAVIES of LEEK
My Lords, I did not mean that in a nasty way. I know the tricks of the noble Earl, and he 925 hides reality behind his sort of euphoric use of phraseology. Let me get down to brass tacks. What are we talking about? Let us first read what the debate is all about. The debate is:To call attention to the huge price increases for gas and electricity authorised by Her Majesty's Government, which, following the severe cuts imposed on local authorities' expenditure, will fall heavily on all consumers but particularly on the poorer sections of the community; and to move for Papers".Nobody can disagree with that. The fact is that they do hit the poorer sections of the community; and if we talk for a week nobody can defy the logic of that sentence.
There are many men of both sides of this House who have had vast experience—just as much as myself; some 30 or more years in the other place—of the reality and responsibility either of being Ministers or of accepting the realities and responsibility of Government. The chickens have now come home to roost. How is the party opposite using its power? The latest example in the Government's dealings with the Gas Board are strange, and they are bizarre. The Tories tend to carp on about the need to let the nationalised industries stand on their own two feet, without the baleful influence of the politicians. It is all part of the old "Great Britain Limited" syndrome. All would be well if these tycoons and giants were left to manage industry; then, Britain would be all right.
Unfortunately, there are some of us here who lived through the 'twenties and the 'thirties, and we had exactly this monetarism then. I have in my study at home the entire May Report, which I could use and quote today word for word. The economists came up with all sorts of ideas, including ideas for saving money by cuts. We had a 10 per cent. cut in the Army and 10 per cent. cuts in local government. What did it solve? Nothing—because one of the terrible dilemmas of the acquisitive system of society (one can qualify this, so I am not being dogmatic) is that it appears to be able to give full employment only when it is at war or preparing for war. I am not too dogmatic about it, but I want that expression disproved. One would find it very difficult, in the history of European economics, to disprove the fact that the greatest reaction in most employment is when you are re-arming or when you are moving into war. Let us leave it at that.
926 On the matter of gas, there has been so much said about it. Let us get one fact straight on the record. The Gas Corporation were told to raise prices, not in line with inflation but 10 per cent. above inflation. Consequently, the claim on this side of the House today, that this is a regressive system of taxation, stands proven. The Government asked for 10 per cent. more than the graph of inflation. Next, we were accused by the noble Earl who has just spoken of increasing prices. Of course we increased prices. But we made a social cushion for the under-privileged and the poor, and a social security system, that has now been destroyed, for them to fall back on. I will give the figures. The Labour Government had an electricity discount scheme which helped 3½ million consumers.
§ Lord DAVIES of LEEK
My Lords, it helped 3½ million consumers. The Tories have improved it in typical fashion and now their scheme benefits only 350,000. They argue that it is now more effective; but the figures tell the bleak, bleak truth. The cash involved has been cut by this Government from £45 million (that gave a cushion for the under-privileged and poor) to £14 million. There is no argument about that.
§ Lord ORR-EWING
My Lords, the noble Lord may be right; but the figure given in the other place was not £45 million. The cost of the existing electricity aid scheme was £4 million. It is printed in Hansard.
§ Lord DAVIES of LEEK
I am talking of over the period when this was the cushion. The other thing is manifestos. They are wonderful things. Sally Oppenheim, this beautiful girl—actually she is not a rebarbative feminine piece of architecture—during the election walked around with a shopping basket talking about high prices. It was lovely to look at. It brought tears to my eyes. She was seen clutching a shopping basket. Let us be fair, she must have done shopping as I do. And we were told that they would bring the prices down and that there would be wonderful things.
I was in the House, and so was the noble Lord opposite, when that great 927 figure, Sir Winston Churchill, was on that side of the House—and it was in this building—and we were talking about general elections and manifestos. What did he say? You can check me in the Library. He said:I do not admit as a democratic constitutional doctrine that anything that is stuck"—and he emphasised that, stamping his foot—into a party manifesto thereupon becomes a mandated right if the electors vote for the party who draw up the manifesto".He was interrupted there. But the old dragon went on:We are all allowed to have our opinions about constitutional matters. If that principle is accepted, why not shove a dozen items in? One can always leave them out if there is not time, or circumstances change. But it is not for our convenience to have a lot to play with, and surely it costs nothing to a party seeking a change or a new deal. Why not add the word etc.' I ask the Lord President and the Chief Whip, why not …".Then he said thatin the list of planks of the party platformwe can put in what we like.
We could then be told, Do you not see these letters etc.' written at that point in our party manifesto? Does that not give us the right and impose upon on us the obligation to do anything we please?That is the position. Here is the manifesto. He is dealing with health—The prospect of very high mortgage rates deters some people from buying their homes and the reality can cause acute difficulties to those who have done so. Mortgage rates have risen steeply because of the Government's financial mismanagements. Our plans for cutting Government spending and borrowing will lower them".That was in their manifesto when fighting the election.
On 1st January, the mortgage rate went higher than it ever has been in its history.
It is not our intention"—they said in the same manifestoto reduce spending on the Health Service".Tell me, what is truth? This sanctimonious sincerity! Come on! Party politics is a game to some people. It never was with our people. It was a sad reality.
§ Lord ORR-EWING
My Lords, I happen to have the 1945 Labour Party manifesto before they nationalised gas and electricity. May I read what it says? 928 It talks of the tremendous benefits of public ownership. We do not hear much about that nowadays. It says that public ownership of gas and electricity undertakings will lower charges all round. It has been 168 per cent. since 1974 on electricity. Manifestos are not sacrosanct on either side.
§ Lord DAVIES of LEEK
My Lords, it gave the British collier the highest wage in history. Instead of being 80th on the list—and I know about it because I come from colliers and farmers—in the pay roll, it came to the top. We saved the mines, as we are losing them today by the policy now followed. We will not have any young men going into the pits unless we are careful. It was fair enough! I think there is a tendency in party politics to fill manifestos unrealistically. It is time for the realities of the world we live in.
I was pleased to find today, on that side of the House, dissenting noises, not following Maggie. What did she say? You must cure this young lady of being so rebarbative. On February 1st on the media she said that some unions are confronting the sick, they are confronting the old; they are confronting the children. "By God! I will confront them". Talk about Amazonian. It was frightening; absolutely terrifying. You should not let a Prime Minister, despite the fact that she is a beautiful lady, talk like that. It frightens people—especially when you know that straight afterwards you cut school meals and cut back local government current expenditure £485 million in real terms for 1980–81; and, over the year, spending no less than £240 million, and chopped off school meals and school transport.
I represented an area where milk, meals and transport are important, with nearly 1,000 square miles and 3,000 farmers, 1,400 of them with under 30 acres and where the children go miles to school. Now some of them will not be able to pay the bus fares. Is this making a nation fit to take leadership in the world? Where are the men coming from who have the ability to go into industry and to deal with the problems of life if you cut at the roots.
I will finish with Ruskin's famous phrase: 929There is no wealth but life, and a nation's greatest asset is its children".Certainly, local government expenditure is also being cut in a most regressive fashion, and the day will come when the party opposite—for all its greatness and the great men who have helped to make our history great—will regret this most reactionary Government we have had since the 1930s.
§ 6.58 p.m.
§ Lord GRANVILLE of EYE:
My Lords, it is always a pleasure to follow my noble friend Lord Davies of Leek, who nearly always charms the House with his speeches. I have listened to most of the speeches in this debate in this House and also to those in another place by the Minister and the shadow Minister. I should like to compliment my noble friend Lord Strabolgi (who also listened to those speeches) on a 13-minute speech which cogently put the case in clear terms. I think there is very little more that one can say at this hour which has not already been said. I should like to refer to part of a letter in yesterday's Times. It reads:The Government has promised to help the very poor to meet the cost of the unprecedented cost in fuel prices, but what of the typical pensioner couple whose income is just a little too high for them to qualify for heating allowances?Such people have frequently worked and saved hard prior to retirement in order to feel financially secure in old age. To be treated in such a cavalier fashion must bring bitterness to what should be happy years. These are the people who will turn off the heating and suffer the ensuing misery, rather than risk receiving bills they are unable to pay.This nation will not achieve the greatness needed to win through our troubled times if it ignores the needs of the old and needy in this way".The letter was from the Director of Help the Aged. The problem of these people today is very much one of hypothermia Their problem is not about getting a car, a colour television set or a hi-fl which is vastly advertised in all the national newspapers. It has nothing to do with holidays abroad. They are the victims of multiplication inflation, the boundary of which we have not yet seen or even under stood. They are the new underdogs in our social life. Day and night from the middle of December colour television pressurises with high powered salesmanship; day after day it booms out all the advantages of spending holidays abroad 930 and all the rest of it—but not for them. It is obvious that we are now—though not in Disraeli's sense—two nations. We have the old, the pensioners and those below the poverty level struggling against inflation on the one side; and, on the other side, we have the entrepreneurs, the well-to-do and—and this is going to be controversial—those with enough industrial muscle to bring in £120 a week, as well as some who, with "moonlighting", are in a class of up to £200 a week.
Ask those who operate the check-outs at the supermarkets in the high streets which people have the notes in their purses. It is certainly not the old people today. In the debate in the other place the Minister—and again today, the noble Earl—said that that Government are considering what concessions they are going to make, and that they are going to announce them well before the period of autumn and next winter when the cost of fuel will be at its highest. I very much hope that they will take note of what the Director of Help the Aged said with regard to those who are just above the social benefit level. Many of these elderly people have earned their social justice in the days of high productivity and in two World Wars. For them it is not a case of chasing a fast buck and holding the country to ransom.
I hope that the Government are not going to leave it until the autumn to make this announcement. I hope that they will make it as soon as they possibly can when they have finished their considerations, so that these elderly people will know what they have to face in the coming winter.
§ 7.4 p.m.
§ Lord BANKS
My Lords, I should like to join in thanking the noble Lord, Lord Strabolgi, for drawing our attention this afternoon to this very important matter. The increase in domestic gas and electricity prices are, as noble Lords have already said, massive. Increases of 29 per cent. and 22 per cent. respectively are alarming. They are even more alarming when one thinks of them in the context of what is happening elsewhere, when one realises that they come on top of an inflation rate already at 17 per cent.; when they come on top of a steep increase in mortgage interest; when they come on top of all 931 that has happened and all that is going to happen to railway fares in this coming year; and when they come on top of all that is likely to happen this year with regard to rates.
Life is becoming very difficult indeed for people on moderate incomes, let alone the poorest. Increases in gas and electricity prices will hit the poorest hardest. We have heard that gas prices are to be increased by the amount of inflation plus 10 per cent. each year over the next three years. Having listened to the debate so far, I do not believe that the Government have justified increases on this scale at this time in current circumstances.
The Government put forward five reasons for increasing the price of gas on this scale. They say first that we must not burn up our reserves of natural gas too quickly. At what speed should we burn it? The Guardian on 18th January, in a leading article, said that it was downright impossible to define the answer to that question. My noble friend Lord Tanlaw said earlier that there has been no information from the Government about a depletion policy. What rate of depletion do the Government recommend? Is it the intention to raise prices higher than other factors might dictate in order to safeguard reserves? That is an important question. If conservation were the only factor, what increase in price would the Government seek? We need to know that.
Secondly, the Government say that low prices cause peak demand with the risk of shortage. How serious are the shortages at the present time? How serious do the Government think they would become over the next three years if there was no increase in the price of gas or if the increase were—shall we say?—half that which is now proposed? These are the questions to which we need the answers. If the risk of shortage were the only factor, what increase in price would the Government seek?
The noble Lords, Lord Strabolgi, Lord Tanlaw and Lord Lovell-Davis, have stressed the importance of limiting consumption by means of insulation. Should not any increase in price be used, as noble Lords have suggested, in part to promote this on a wide scale? What is the Government's reaction to the suggestion 932 made by the noble Lord, Lord Underhill, that there should be a higher rate, the more gas that is consumed and that the price should increase in bands?
Thirdly, we are told that gas from new North Sea fields will cost several times more. Presumably this will result in higher prices in due course anyway. If that did not happen, profits would be replaced by losses. Normal commercial considerations would dictate a rise in price and British Gas would not need the Government to tell them that the price should go up. Would the rise necessary to cover increased costs be sufficient to solve also the demand problems? Would that rise be sufficient to produce a rate of depletion regarded as satisfactory by the Government? I think again that we need to know the answer to that question. Should the rise due to economic considerations, due to the rise in prices, when it happens, take care of these other problems, the question is whether it should be anticipated? Assuming it will cover conservation and demand, would it matter, so far as conservation and demand are concerned, if it were not anticipated but left to take its normal commercial course?
We shall be told that it is better to spread the cost so that, by allowing it to begin to rise now, we shall not have so steep a rise at the end; but as against that there are two factors. First, there is the factor that the Government tell us their inflation policy will reduce inflation very considerably indeed in, say, two to three years. They say in effect that if the patient does not die within the next two years the patient will have a very wonderful recovery. If the Government really have faith in that, would it not be more sensible to have their increases in the price of gas at that time rather than now, when the rate of inflation is 17 per cent. and likely to rise further?
The second point is one that has already been expressed: that British Gas did not want such high increases now. That would seem to militate against the argument that the rise that would automatically come eventually should be anticipated at the present time. It is said that British Gas agreed with inflation plus 10 per cent. for the first year, but wanted the rest phased. But that is not how it was expressed by the Secretary of 933 State in another place on 16th January at column 1659 of the Official Report, where he is reported as saying:… the British Gas Corporation did not express a view in precise terms but took the view that, while it agreed with the aim and objective of moving to economic pricing, for the present year, it would have wanted a somewhat lower figure".Fourthly, we are told that we should secure a proper balance between supply and demand over all the consumers of gas; and the noble Lord, Lord Kaldor, when he intervened following the repeating of the Statement in this House a week or two ago. drew the attention of your Lordships to what he called "the logical incongruity" involved in arguing that our domestic oil price must be raised to the full extent of every rise in the OPEC price of oil in order to make consumers in this country substitute other fuels for oil. It is now argued that it is necessary to raise the gas price because it has become too cheap in relation to oil. The noble Earl, Lord Gowrie, said it was unfair on consumers of other fuels that gas should be comparatively cheap, but I do not suppose it is much consolation to them to know that the price of gas for gas consumers is going to be raised.
Fifthly, the Government say that a price rise is essential if some of the financial proceeds from our national gas resources are to be secured for the benefit of the nation as a whole. That cannot surely be true at the moment, since there are substantial profits which are helping to reduce the public sector borrowing requirement. Perhaps if we had a gas tax the contribution to Government expenditure might be more direct, but any change in the position where the public sector borrowing requirement is benefiting from these profits would be due to the increased cost of production—but the increased cost of production has already been given as one of the arguments in favour of a price rise, so it would seem that this argument falls.
Having looked at the five arguments, there seem to be a great many questions as yet unanswered, and I remain to be convinced that a case for an increase on the scale proposed has been made out at this juncture and in present circumstances. If the Government intend nevertheless to proceed, what about the impact on the poorest, to which many noble Lords have addressed themselves this 934 afternoon? We have discussed in this House on at least two occasions previously the Government's new scheme for helping with fuel bills. Fewer people are helped by it and less money is spent on it, but those who are helped are helped rather more substantially. The figures are: £1 per week for those in receipt of family income supplement and 95p for those on supplementary benefit who have children under five or who are over 75. Those figures, in the light of the increases, will surely need increasing and we have heard that the Government are reviewing this whole subject. I hope they will take into account those who were previously left out—for example, pensioners under 75 and families with children over five on supplementary benefit and pensioners of over 75 on rent and rate rebates.
The electricity discount scheme was far from perfect, but it helped 2 million people who were poor but not poor enough to claim supplementary benefit or family income supplement. A more comprehensive scheme, as the noble Lord, Lord Strabolgi, said, is necessary. In other words, figures have to be increased and the breadth and scope of the scheme have to be extended.
I think it is right to see this problem against the background of what has already happened to the poorest section of the community since the present Government came to power. In an intervention earlier, the noble Earl, Lord Gowrie, seemed to think that it was not relevant; but I think it is very relevant because we are thinking about the people who are going to be most affected by these increases.
One could give a great many examples of what has happened to them, and some noble Lords have already given examples. Let me just give a few quickly. First, child benefit is apparently not be raised until November 1980 at the earliest, and perhaps November 1981. The value will have been sadly eroded by then and, since it is the only way of taking account of children when there are tax reductions, it should have been increased at the time of the last Budget. Secondly, according to statute, long-term benefits, including pensions, should be raised according to increases in prices or earnings, whichever is the higher. There is a shortfall in relation to earnings so far as last Novem- 935 ber's uprating is concerned and that shortfall is not to be made good.
Thirdly, in future, long-term benefits, including pensions, are to be related to prices only. If that had applied in the last few years the long-term benefits would be considerably lower than they are now. Fourthly, the previous year's shortfall on short-term benefits has not been made good. Fifthly, consideration is being given, we understand, to ceasing to relate short-term benefits to prices. That would mean a gradual decline in the value of those benefits.
Sixthly, simplification of the supplementary benefits scheme is being proposed on a no-cost basis, although the Supplementary Benefits Commission has stated that the problems of supplementary benefit, which it says is too low, cannot be solved on a no-cost basis. Seventhly, we have heard already reference to cuts in the education system, school meals, milk and transport.
Eighthly, there is the question of the National Health Service and the fact that the increased resources to be allocated to that will fall short of the sum necessary to meet the extra demand caused simply by demographic changes. Then there are the cuts in the personal social services. These are real cuts. Nicholas Stacey, the Director of Social Services for Kent, writing in The Times on 23rd January, pointed out that if they have to cut by 10 per cent. next year, as seems likely, the bulk of that would have to come from closing homes, reducing home help service and cutting back on social workers. The Personal Social Services Council, in their review of what local authorities are doing throughout the country, have reported on cuts in residential care, sheltered housing, day care and meals services. Hostels for the mentally ill are being closed: I have all the details here: we could go on all night reading them out. It is an alarming catalogue and it is utterly wrong, I believe, that the personal social services should have been singled out for such savage cutbacks. These are the very services which are supporting the people who will be most hit by these increases in prices.
I believe there are good grounds for questioning the Government's whole 936 philosophy in respect of expenditure cuts. I, for one, do not accept that if you cut down the public sector the private sector will expand. That is a field which perhaps we had better not enter into tonight. Even if it is accepted that cuts are necessary, we on these Benches do not believe that the most deprived, the most vulnerable, should be expected to take their share through cuts in social security and in welfare.
§ 7.20 p.m.
§ Lord WELLS-PESTELL
My Lords, I should like to begin by saying that I am glad that the noble Earl, Lord Gowrie, is leading for the Government. When we were in office, we were at some great pains to present the things that we introduced in your Lordships' House with reason and with argument. Although on this matter there is no common ground whatsoever between those of us on this side of the House and the Government, one can take comfort from the fact that, however much one disagrees—as I do, and as my noble friends do—with the noble Earl, at least he will be reasonable and will try to pursue an argument. I mention this, because we on this side are getting a little tired of an introduction of arrogance from the Government Front Bench from time to time in our discussions and deliberations. I shall say no more.
Some time ago, when the noble Earl was presenting certain financial matters, he argued that it was necessary to introduce some financial discipline. Today, it is not financial discipline; it is conservation. I suppose that it is a good enough cover to introduce this matter. But we do not accept that the sole reason is conservation; although we accept that this is partially so. While I am on this matter of conservation, I saw on the tape a few minutes ago that the Second Division Oldham Athletic Football Club is having undersoil heating installed at their ground by a Swedish firm, in the close season, at a cost of £60,000. Are the Government really going to allow this? If we really are bent on conservation and if it is necessary, should this be allowed?
I say this in all sincerity to the noble Earl. The real reason for all these increases in gas and electricity prices is what my noble friend Lord Jacques said. It is purely and simply to help the public sector borrowing requirement. When the 937 Conservative Government took over, we were told that it would be fixed at £8,500 million. That figure was broken a long time ago. It is now much more than that. So that they have to find ways and means, fair and foul, by hook or by crook, to get money to bolster up the public sector borrowing requirement.
I want to ask the noble Earl why the Government do not take the advice of the newly appointed Chief Economic Adviser to the Treasury. Before he was appointed by this Government, he worked for the London Business School. He argued that a level of public borrowing £3,250 million above the present level would be consistent with the monetary stance of the Government last year. If that is so, why do the Government not take his advice?
Twenty minutes ago, I had almost made up my mind that I would not come to the Dispatch Box to speak this evening. I was appalled, for the first time in 15 years, at the divide that exists between the Government party opposite and my noble friends on this side of the House. I listened carefully to the speakers from the Government side, and I was forced to the conclusion that it is doubtful whether they really know or understand what we are talking about. We are talking about the survival of poor people. No, my Lords, this is not funny. One of the irritating features that I find in the debate today is the large number of noble Lords on the Back-Benches who have done nothing but smirk when my noble friends have been calling attention to the situation as it is. We really must face the fact that there is no understanding between the Government side and this side on the matters which we have been discussing for the last four and a half hours.
This debate, which we initiated, is not a ritual exercise to criticise the Government. It is a measure of our deep-seated concern for those who are badly placed financially, through no fault of their own. We are appalled at the extent of the increases in gas and electricity prices, and at what they will mean not to a small army but a vast army; not only of people living below the poverty line, but those who are living just above it and, more especially, to the 10½ million pensioners—and perhaps I had better disclose an interest. We are shattered that an industry should be required to make a donation to the Treasury, 938 which means that millions of people will be indirectly taxed. One can deny this, but when the Gas Board and the Electricity Board do not find it necessary to increase their charges beyond a certain level, and a Government come along and say that they have to be increased not only to a certain level but even further, it can only be a means of getting money by some form of indirect taxation, which the Government can use in any way they want; mainly, I think, to bolster up the Government's monetary policy, which is failing fast and is now in a shambles.
The Government admit that the current account deficit will continue this year at around £2,000 million, with inflation at about 14 per cent. Outside the Treasury, the economic and financial pundits forecast a current account deficit of something like £3,300 million and an average inflation of over 16 per cent. So the Government resort to a particularly reprehensible and, I think, disgraceful action, which will have a very serious effect upon the poor people in this country. At one point, the Prime Minister was aiming at further cuts for this year of something like £2,000 million, but I understand that the Government are now budgeting for cuts in public spending in 1980–81 of about £3,600 million. So instead of a better New Year we are faced with a bitter New Year: the highest unemployment for six years, rising, I suspect, to something like 1,900,000 this year, with an inflation rate, I believe, of about 22 per cent. by June or July. I hope that I am wrong. When the time comes, I hope that the noble Earl will be able to say that I was wrong. A 15 per cent. mortgage rate means that a married man, with two children, earning £5,000 a year is over 16 per cent. worse off as a result of the tax changes, the mortgage rate increase and price increases; while those earning £25,000 a year are 5 per cent. better off—"To him that hath it shall be given".
§ Lord WELLS-PESTELL
Yes, my Lords, by the Tories. If I may say so, it is quite an achievement in eight months of government. My noble friend was wrong when he said that this is the worst Government that we have had since the 939 war. It is the worst Government that we have had since 1931. They lack understanding; they have no feeling; and by these increases and the method they have employed to get them they have lost their integrity.
I want the House to look carefully at the effect of these price increases. They are going to be disastrous for pensioners. Pensioners spend a much higher percentage of their income on heating than any other section of the community. I will give your Lordships the exact figures. A survey which was undertaken recently into family expenditure shows that the single pensioner spends no less than 13 per cent. of his or her income on heating, while couples spend 11 per cent. This is more than twice the percentage that is spent by other people in the community.
The Government have already abolished the previous electricity scheme, and so far as I can find out they have no plans for giving rebates. At present, the heating additions are £3.95, £1.90 and £2.85. These amounts relate to certain health conditions and are payable only to people on supplementary benefit. These rates were fixed following the first rise in electricity prices in 1979. No increase was given in respect of the second increase last year. May I say to the noble Earl that in order to meet that increase, plus the new increase, heating additions will need to be raised by 50 per cent., not by 50p, next November, if not before. It is no good my asking the noble Earl whether the Government will do this. I appreciate that he cannot say yes or no. He can only say that the Secretary of State for Energy has given an undertaking to look at it.
Pensioners' standards of living must of necessity fall. The Government have clearly stated that they will not make up the shortfall in the last pension uprating because it would cost £195 million. Are we seriously asked to believe that the Government cannot find £195 million for the old folk? People on supplementary benefit who run into difficulty with their fuel bills have deductions made from their benefit by the Supplementary Benefits Commission. I wonder whether the Government realise that one in five of the people who have deductions made from 940 their weekly allowance from the Supplementary Benefits Commission suffered deductions of £7 a week? This is an indication of the amount of heat that they use. The Supplementary Benefits Commission recently estimated that 60 per cent. of supplementary pensioners are afraid to heat their homes adequately because of the fear of large fuel bills, a point which was made by my noble friend Lord Soper. And he went on to talk about anxiety. I wonder whether any noble Lord opposite, present or absent, has ever had a real anxiety over being short of money?
§ Lord WELLS-PESTELL
I remember, my Lords, another noble Lord opposite talking about being unemployed. When I asked him for particulars he said that he was unemployed for six months after he came out of the army and while he was waiting to go into another job. The question of being short of money and having anxiety is a relative matter. I do not expect noble Lords opposite to understand what it means not to be adequately warm at a time in life when people need heating most. In this field, Tory policy is a policy of no hope for the elderly, many of whom have to end their days inadequately fed, inadequately housed and certainly inadequately warmed.
§ Lord WELLS-PESTELL
They believe it now, my Lords. They do not have to wait until it happens. I know that this is the truth. Very few noble Lords opposite have ever done any real social work.
§ Lord WELLS-PESTELL
That is very nice! I wonder how many noble Lords opposite really understand how some 941 people live. The Budget reduced taxation by about £4,500 million, giving 2 per cent. of that amount to the poorest 10 per cent. of the people, and more than one-third of that amount—that is £1,500 million—to the richest 7 per cent. Because of the increase in the cost of school meals, school bus fares, rent, VAT, inflation and the other charges about to be levied, a family of four will be about £9 a week worse off under this Government. Can the Minister say whether adequate provision will be made for pensioners and those receiving supplementary benefit so that they can have what others have got; namely, the means of keeping warm?
§ Lord WELLS-PESTELL
May I also ask the noble Earl whether there will be a special spring bonus to assist towards closing the gap caused by the pension shortfall, and whether it will be paid at a time which coincides with the issue of fuel bills, so that it can be used for that purpose? May I further ask the noble Earl whether there will be an increased heating payment to take into account the second rise in 1979 and the new increases, and whether the Government will introduce a discount scheme that is applicable to all who are receiving supplementary benefit and pensions, as well as rate and rent rebates and rent allowances? We on this side of the House cannot and will not sit back quietly while the Government continue to make a frightening and devastating attack on the less fortunate members of our society.
§ Lord WELLS-PESTELL
Governments have a responsibility to provide for those in need, particularly the aged, and the sooner this Government wake up to the fact that there are enormous numbers of people who will be seriously affected by these colossal increases in gas and electricity prices and they do something about it, the better it will be, not only for this country's name but for the people concerned.
§ 7.40 p.m.
The Earl of GOWRIE
My Lords, the noble Lord, Lord Wells-Pestell, said at 942 the beginning of his speech that some little way into the debate he had rather wished that he did not have to wind it up. I must say that it would have been better if he had decided not to do so, in view of a contribution which I can only account for by saying that the noble Lord was in a highly emotional state and was certainly not himself. I would always acquit the noble Lord of unscrupulous political behaviour, but I must say to those who cheered him, at any rate at the onset of his speech—until he went rather overboard, when I noticed a significant diminution in the applause—that it really is unscrupulous and misleading to give people who might be listening to this debate, or who might read about it in the papers, or who might listen to it on the radio tomorrow, the idea that in some way this Government or any other Government do not protect old people from the consequences of price rises. If the noble Lord had listened to my opening remarks he would have learned that domestic gas has fallen in price by over 30 per cent. in the last ten years, and he has only to look at the level of changes in pensions, supplementary benefit and other national benefits, as well as at the level of wage increases in that decade, to see that his remarks were wholly irresponsible and I hope that they will be ignored.
I will concede to him and to the noble Lord, Lord Soper, that a danger exists that people will exaggerate the effects of these price increases by the political rhetoric which has become attached to them, but the noble Lord, Lord Wells-Pestell, did not go any way towards alleviating that danger. In my respectful submission, he tended to inflame it. In a calmer frame of mind in a few minutes I will come back to some of the points he made and which were also echoed by other noble Lords.
I want to deal with one of the central charges against the Government made by many members of the party opposite: the noble Lord himself made it; the noble Lord, Lord Jacques, did; the noble Baroness, Lady Stedman, the noble Lord, Lord Lovell-Davis, the noble Lord, Lord Underhill, and the noble Lord, Lord Banks, and maybe others. Their line was that this is a form of indirect taxation; that the overriding reason for the price increases is in fact to reduce the public sector borrowing requirement. I gave 943 as the overriding reason the necessity for energy conservation. Noble Lords would have to convince the Government—it is a matter for debate, and perhaps they could do so—that there was no necessity, in an age of very high energy cost, for energy conservation of this kind.
Neither I nor my colleagues, particularly my senior colleague, my right honourable friend the Secretary of State for Energy, have concealed that while there are compelling energy conservation reasons for increasing gas prices it would be profligate of any Government to lose the PSBR effects of the fact that the British Gas Corporation's profits are remitted to the Treasury. The last Government admitted that and its own price rises were made, as my noble friend Lord Lauderdale demonstrated to the House, with that declared intention in mind. If anybody thinks that this Government have some-how concealed that intention I would refer them to the words of my right honourable friend yesterday, when he said in another place:The fact that there are two additional reinforcing arguments for the policy makes it stronger not weaker".—[Official Report, Commons; 29/1/80, col. 1048.]We are not concealing the effects of the public sector borrowing requirements. As I said in my opening speech, gas is a national asset and it is also a nationalised industry; and if it is making large profits, profits which are surplus to its requirements for its own financing and for the day-to-day decisions of its management (which is of course a matter for that management), naturally they will devolve back to the Exchequer. Various noble Lords have suggested that some sort of excess profits or gas tax has been suggested. I am perfectly prepared to look at that, and so is my right honourable friend. But we must all be clear—as the last Government were clear—that whether the profits of British Gas are left in its name and are looked upon by the public as belonging to British Gas, or whether they are taken away by some form of tax, the net effects on the borrowing requirement are the same.
The "borrowing requirement" is perhaps a technical or jargon phrase, but where does the noble Lord, Lord Wells-Pestell, think that the present level of 944 benefits or pensions or social measures, education or anything else in the economy, comes from? It comes from the public sector borrowing requirement, and any methods by which that is reduced will only improve this social policy and not diminish it. So we have no apology to make there and no shame whatsoever.
I also found it extraordinary that the noble Lord, Lord Wells-Pestell, said that there was no common ground whatsoever between noble Lords on my side of the House and the Party opposite. That has been refuted most eloquently and precisely by my noble friend Lord Orr-Ewing, and also by my noble friend Lord Lauderdale. If noble Lords will kindly read their speeches tomorrow they will see that a considerable degree of continuity exists in this, as in many other fields of policy, between ourselves and the last Government.
I am really almost getting exhausted by repeating that the model that we are taking in our broad economic policy at present is the policy pursued when the last Government were in the hands of the IMF, directed by the noble Lord, Lord Lever, by Mr. Healey and by Mr. Joel Barnett. That Government succeeded in one year in taking £4,000 million out of the public sector and inflation immediately started to improve. Unfortunately, under electoral and other constraints they changed that policy; they paid dearly for it in electoral terms, and we are now paying for it in having to wrestle with a great deal worse position on current account than we anticipated when we came to office.
I would reinforce this point, that here, in the general economic policy as well as in gas pricing, and electricity policies, and the Price Commission—a point mentioned by my noble friend—there is a very considerable degree of continuity between the two parties, and it is the purest electioneering at a highly unsuitable time, for the party opposite to suggest that this continuity is not there.
If your Lordships do not believe me, will you study the speech of the right honourable gentleman the shadow spokesman on energy affairs, Dr. Owen, yesterday, when he acknowledged that price increases would have to be made and, as I said in my opening remarks, his view was that a minimum of 17½ per cent. this year would be necessary? The difference between us 945 is about the scale and timing and degree of the announcement. The noble Lord acknowledges that, but saying that differences of degree of that kind means that there is no common ground whatsoever is, as my noble friend suggested, rhetoric at best and humbug at worst.
I shall be returning to some of the points raised by the noble Lord, Lord Strabolgi, about insulation and the rest, but I will turn now to one or two specific questions put to me by the noble Lord, Lord Tanlaw. He asked for a justification of the 10 per cent. real price increase, and I should like to clear up any confusion here. We are speaking about price increases over three years of 10 per cent. per year in real terms, that is after the rate of inflation. Before deciding on what targets to set British Gas, the Government considered most carefully the question of domestic gas. As a result we concluded that domestic gas was up to 55 per cent. under priced—the Price Commission, as has been mentioned many times, identified a 30 to 35 per cent. degree of under-pricing. We decided that this degree of under-pricing could not be corrected at one go and therefore we aimed substantially to correct the minimum degree of under-pricing over three years. Many noble Lords, notably the noble Lord, Lord Banks, asked why three years, why announce the bad news now? Our answer is that we wish to give consumers time to prepare for any changes in their budgeting or their attitudes to fuel conservation, insulation and the rest with due warning. We feel that noble Lords who call for a common energy policy, who want a coherent view by the Government across the field of all energy issues, must agree that that is a coherent view to take, to give ample advance warning of what is necessary.
The noble Lord, Lord Tanlaw, echoed disquiet, which I have often heard expressed in this House, that at a time of high gas prices and high energy costs a lot of flaring is going on. May I refer him to the answer given by my noble friend Lord Lauderdale? One would dearly like not to flare, hut that has two difficulties; you have to have a gas pipe nearby, and these are enormously expensive, and while you are installing your gas pipe you are not able to draw any benefits from the oil as well. We have made our policy on flaring clear 946 and we have significantly reduced the amount of flaring of gas. To reduce this further we are examining the possibility of constructing a common pipeline to collect gas from the fields which could not justify a pipeline of their own.
I would say to the noble Lord, Lord Tanlaw, that gas is still a good buy and will remain a good buy over the next three years. We would anticipate that it would continue in real terms to be a cheaper form of heating one's house than, for instance, either coal or electricity.
I was asked questions about the extent of the gas reserves. The Government and the British Gas Corporation estimate available gas reserves to be about 70 trillion cubic feet. Current rates of usage is about two trillion feet a year. By the end of the century, therefore, we shall be needing a contribution to our gas supplies from oil based substitute natural gas, and, while that is available, it will be very expensive compared with natural gas. The imbalances I talked about in my opening speech mean that at present there are about 70,000 domestic customers and 4,000 firms waiting for a gas supply. Surely holding down prices, as noble Lords opposite suggest we should, would only exacerbate that situation.
The noble Lord, Lord Jacques, ranged wide into matters of economic policy. He and I have had exchanges about incomes policy many times. Whatever the merits of incomes policy, I have always argued that incomes policy is not available to this Government and it was not available to the last Government either. So we have all got a long way to go—whether forward or backward I leave to your Lordships' tastes in these issues—before there is sufficient consensus in the economy to achieve such a scheme.
My noble friend, Lord Ferrier—may I add my congratulations on his four score years; I have never associated him either with labour or with sorrow—raised the point of insulation grants, and so did the noble Lord, Lord Strabolgi. There are grants of two-thirds—that is, up to £50—of the cost of domestic insulation. We have made a significant shift of policy. People used to have to pay for the work and get receipts before they got the grant, which made it difficult if they were short 947 of money in the initial phase. But now receipts are not required, so they can get a grant and use it to pay for the work. All those in favour of insulation should be pleased about that. On energy conservation, the Government recognise the importance in their longer-term energy strategy. An effective energy conservation programme is impossible without a serious approach to energy pricing. Of course, there is an element of rationing by price in any scarce commodity. Our aim is to reinforce that by directing help to those who most need it.
The noble Baroness, Lady Stedman—who seemed, if I am not wrong, to be talking to a rather similar brief as the noble Lord, Lord Underhill; I think Transport House must have been doing its stuff pretty effectively—said that the Government were altogether inconsistent in their treatment of the nationalised industries in terms of steel and the nationalised industries in terms of gas. I have been repeating until I am exhausted—but exhaustion is the ministerial lot and I shall continue to repeat it—that the Government are consistently, constantly and massively, savagely if you like, interfering in the economy through the public sector. In the case of the British Steel Corporation we are interfering to the degree of providing £775 million of other people's money, and the troubles of that industry, which I deeply regret and find largely unnecessary—there are faults on both sides maybe—do not preclude the fact that the Government are intimately involved in the name of the taxpaper.
The issue is, at what point does the taxpayers' contribution have to be overtaken or added to by a contribution by a stripped down and more productive industry? I do not deny that there are many difficulties and headaches to go before that decision is reached. In the case of the British Gas Corporation we are dealing with something quite different, in the sense that we are dealing with an energy source, a finite energy source, and one that cannot be isolated, as noble Lord after noble Lord on this side has said, from world market prices, unless this country, in the shape of the Exchequer, as well as the Corporation itself, is not to be a colossal net debtor.
The noble Baroness asked me a particular question about Becton. I have an 948 answer, but in the interests of time, I would prefer, if she will forgive me, to give it to her in writing. She should feel quite free to return to me if in some way she finds the answer unsatisfactory.
My Lords, unlike my right honourable friend the Secretary of State for Energy, I did not have the good fortune to be the star pupil of the noble Lord, Lord Kaldor. No doubt if I had been I should now be the Secretary of State and not a mere Minister. However, one of the pleasures of working in this House is that life is a constant tutorial from the noble Lord. Today he seems to be saying burn, subsidise and be merry, for tomorrow we die. I have noticed, too, that he cited Mr. Powell. Mr. Enoch Powell really has reached the status of a guru in our society, for people of strongly opposing views have got into the habit of citing him in support, but very few people, even those who cite him, appear actually to follow him.
The noble Lord raised the issue of tariffs and asked whether the poor—all of us indeed—would not be helped by the restructuring of fuel tariffs. We have studied this possibility and it was studied by the last Government, but the general conclusion has been that tariff restructuring is not an altogether satisfactory way of helping poor consumers with their fuel costs. The difficulty is that it benefits all consumers regardless of their ability to pay while simultaneously doing significant harm to the considerable numbers of less well-off consumers who already face high bills. Noble Lords may have seen a recent statement on energy pricing policy issued by the nationalised industries' consumers' councils, which were cited in the debate. This also concluded, with us, that tariff restructuring is not the answer to the problems of poorer consumers. But if the noble Lord continues to press his case we will, of course, examine it carefully.
The noble Baroness, Lady Gaitskell, confessed to being an agnostic about economic messiahs, and I really think most of the Government are agnostic too. I do not think it is quite right for her to play the unemployment card, having supported, as she did, a Government which doubled unemployment. This was not wholly their own fault but nevertheless they did it, and the Government have to carry the can 949 during their period of office. I can assure noble Lords that we have no intention of equalling that record.
My noble friend Lord Lucas of Chit-worth criticised us on grounds of presentation and he criticised us also for lack of a coherent energy policy. The presentation point has been made by a number of Government supporters. I believe that the short answer—and this is only my own personal opinion—is that bad news is always bad: it is never easy to present it as good. It may be more sensible to present it as necessary and then try to point out what measures one is taking—when one comes to conclusions about them—for protecting those who need protection. We are looking at nationalised industry accounting. I acknowledge, with my noble friend, that all is not satisfactory in that respect.
I should like to make one more personal point. I am a passionate believer in high wages and I feel that many of the economic ills of this country have come from low industrial wages. However, unlike the party opposite I do not think that high industrial wages can be accompanied by a high social wage or a Welfare State on the level which we now enjoy.
The noble Lord, Lord Underhill, and others raised the question of insulation grants and asked me some questions about insulation grants for industrial users. The noble Lord is right in thinking that the industrial grant scheme is not to be extened after its projected life. The present tranche, of course, will continue; the scheme will, however, operate up till that time. The Government have decided not to introduce a pilot advice service on home energy saving, planned by their predecessors. I regret that, but that decision has been taken on grounds of cost. We must decide the most effective way of presenting our case, and we decided against that one.
The noble Lord, Lord Soper, kindly advised me that he would not be able to be present at the end of this debate. However, he made an important point with which I should like to deal. He told us that the elderly do not like having to ask for help as if it were charity. I altogether endorse that, and that is one of the reasons why the help this Government have made available to assist the elderly 950 this winter was in the form of automatic heating additions to supplementary benefit, without the need for separate claims. I do not consider—and I am sure that noble Lords opposite agree with me, at least in this regard—that supplementary benefit is a form of charity: it is a benefit awarded as of right. The Social Security Bill, currently being considered in the other place, will extend further the process of entitlement to supplementary benefit by placing all the rules regarding that benefit in the Act.
The noble Lord, Lord Granville of Eye, said that we should make an early announcement regarding fuel cost assistance. Perhaps the Government have left themselves vulnerable by announcing their energy price policy in such good time, although we considered that it was right to do so and to announce it before announcing our concomitant social policy on fuel costing. We must get that right and we must get it effective. We shall make an announcement in good time for people to be able to plan how to manage next winter.
I wish to wind up by saying that I think there is one profound difference between ourselves and the Party opposite. The Labour Party believes in subsidising everyone from general taxation, whereas we believe in subsidising those who cannot help themselves. The gap between those points of view is difficult to bridge, but I have nevertheless enjoyed the debate and found it useful. I shall ensure that all points of substance made by noble Lords on all sides of the House are brought to the attention of my right honourable friend.
§ Lord KALDOR
My Lords, before the Minister sits down, may I remind him that I asked him a question at the beginning of the debate and he told me that he would supply the answer at the end of the debate? My question concerned the relative prices of gas for industrial and domestic consumers respectively.
The EARL of GOWRIE
My Lords, I am sorry if I missed that point. However, I have a note of it here. The average price to the large industrial consumer, as shown in the latest edition of Energy Trends, is 12.64 pence a therm compared with about 19.6 pence a therm for the 951 current domestic tariff. That is misleading because it costs 9 pence a therm more to supply the domestic market—another imbalance here. Most industrial contracts are renewed annually, and British Gas is currently renewing these at about 24 pence a therm. New industrial contracts are in fact being negotiated in excess of 28 pence a therm.
§ 8.5 p.m.
§ Lord STRABOLGI
My Lords, I think that this has been a very good, hard-hitting and well-informed debate. Having had the great good fortune to hear every speech and to have been on this Bench since 2.30 p.m., I am sure that your Lordships will be glad to hear that I intend to say very little at this stage. I must comment briefly on what the noble Lord, Lord Orr-Ewing, said about the timing of this debate. He implied somehow that we put our Motion down after the debate had been arranged in another place. In fact, our Motion was put down about 10 days ago, long before the debate in the other place. However, it does not really matter. What is important is that the Government must by now realise the amount of feeling that there is in both Houses and throughout the country about these increases. As my noble friend Lord Kaldor said, there has been a barrage of criticism. My noble friend Lord Underhill was perfectly correct when he said that the Government have had a very bad Press.
As a result of this pressure of opinion we welcome the Government's concession—which was described by the noble Earl today—to consider the special needs of the old, the poor and the elderly and those who are just above the extreme poverty level. I agree very much with what my noble friends Lady Stedman and Lord Granville of Eye said about this matter when they drew attention to the plight of many people living on small, fixed incomes, and to the help needed by the aged.
I must make a few comments about the term "rhetoric" which was used by the noble Earl, Lord Lauderdale, who is a friend of mine outside the Chamber. It was repeated also by the noble Earl, Lord Gowrie. We on this side of the House were not just using rhetorical 952 terms for the sake of using them, nor playing at party politics. We feel deeply about these matters, and my friends and I were very sincere in our speeches. We hope that the noble Earl will take note of that when we return to the matter.
We shall look forward to seeing the Government's scheme when it is announced, and if it does not go far enough we shall put down another Motion. I must say that it was my noble friend Lord Soper who said that he hoped that any help coming from the Government would be in the line of compassion rather than of charity.
We are also very grateful to the two Liberal Peers, the noble Lord, Lord Tanlaw, and the noble Lord, Lord Banks, for their support. I should like to thank all noble Lords who took part in the debate, especially my noble friend Lord Wells-Pestell for his winding up, and the noble Earl, Lord Gowrie, for the careful attention which he always gives to the various points raised, and for the trouble he has taken to answer them. My Lords, I beg leave to withdraw the Motion.
§ Motion for Papers, by leave, withdrawn.