HL Deb 25 June 1980 vol 410 cc1673-81

6.24 p.m.

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

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

Moved, that the House do now resolve itself into Committee.—(The Earl of Gowrie.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD ABERDARE in the Chair.]

[Amendment I not moved.]

Lord IRVING of DARTFORD: moved Amendment No. 2:

Before Clause 1, insert the following new clause:

"Obligation not to discriminate

(. The General obligation of the British Gas Corporation to supply gas on demand shall include an obligation not to discriminate against industrial Consumers of gas in terms of either—

  1. (a) supply opportunities; or
  2. (b) price.").

The noble Lord said: In seeking to move my new clause I would ask the leave of the Committee for permission to discuss my second new clause at the same time.

This little Bill, of only two clauses, is nevertheless of the greatest importance to most industrialists in this country. Not all of them have yet realised the significance of the Bill, and I think that is why it had such an easy passage through another place. I speak on behalf of the paper and board industry, with which I am associated, and I am very happy to declare that interest. The Paper and Board Industry Federation is very disturbed at the con- sequences of the Bill. It has 26 of its member companies who use more than 25,000 therms a year, a total of 113 million therms in any year. It believes that these, and possible new, users of gas will be at a great disadvantage in regard to the availability of gas if the Bill is not amended to give equal oppotunity to industrial and domestic users.

But the paper industry is not the only group of industrialists which is worried. There was a very telling article in The Times of 7th March, in which the President of the Chemical Industries Association, Mr. Eric Sharp, was quoted as saying, that, projects were being postponed or scrapped and foreign investment in Britain deterred because of the inability of companies to secure gas supplies". He also said that the British Gas Corporation's inability to meet demands from industry arises from the overwhelming demand from domestic users. This was stimulated, as the noble Earl, Lord Gowrie, said on Second Reading, by higher prices for oil and, of course, one knows that it was also stimulated by a very powerful campaign over a number of years directed at domestic users by the British Gas Corporation. This morning the National Federation of Clay Industries was in touch with me and expressed its anxiety about the Bill, and they asked for what the paper and pulp industry asks for—a fair crack of the whip between industrial and domestic consumers and a proper continuity of supplies.

The Bill is seeking powers to allow the British Gas Corporation to have further powers over whether and how it supplies gas to industrial users—that is, users of more than 25,000 therms a year—while obliging them to guarantee supplies to all domestic users and others where the use is below 25,000 therms a year. As far as we are concerned, the Bill provides further evidence that the policy of the British Gas Corporation is to give priority to domestic users in both supply and price terms, while adopting an exploitive and "take-it-or-leave-it" attitude with industrial users—that is, users of more than 25,000 therms a year—which in many cases results in supplies not being given, or in severe interruption of supplies being made, and exceedingly high prices being charged—which in many cases are substantially higher than those charged to industrial users in countries with which the United Kingdom is in competition. That is why my new clause before Clause 1 wants to place an obligation on the British Gas Corporation not to discriminate against industrial consumers of gas in terms of either (a) supply opportunities or (b) price.

In supply contracts there have been a number of cases, both within the paper and board industry, and within other industrial sectors, where the British Gas Corporation has either refused to agree to supply gas, without any grounds for doing so, or where the board has adopted an attitude and set prices in such a way as to make the supply conditions totally unacceptable to the consumer. When these cases have been made known to senior officials of the British Gas Corporation, the response has usually been, "It is the Gas Corporation's policy to be interested in supplying gas to domestic consumers or to industrial users who are prepared to pay premium prices". This policy has put Britain at a grave disadvantage as against its continental and other competitors. The President of the Chemical Industries Association Mr. Sharp, has estimated—and it is very ironic in view of our gas resources in the North Sea—that industry pays an average of 5p a therm more for comparable supplies than continental chemical manufacturers. This amounts to an annual gross additional burden of £60 million.

The energy costs in the paper and board industry are fairly high although they are not the only problem, because they constitute 15 per cent. of total costs. So it is a highly significant additional cost which makes competing with other countries, which is already difficult enough, in some cases almost impossible. But the average of 5p mentioned by the President of the Chemical Industries Association covers a wide variation in foreign gas prices. A recent survey of gas prices revealed that British gas customers pay the world's highest prices for supply; they also receive less benefit from price discounting than any other country in the world. In the survey Britain topped the list as the most expensive of the eight countries surveyed.

In the United Kingdom, 100,000 therms cost 24p, with no process price reduction. Belgium was next with 23.7p. Germany came third with 22.6p per therm, but with a 13 per cent. process price reduction. Fourth was Italy with 22p per therm, and a 22 per cent. process price reduction. The United States came next with 14.8p with a 10 per cent. reduction. In other words, United States customers, the industrial users, are getting their gas at half the price that our own industrial users have to pay in this country; and we are still expected to compete with them, New Zealand pay 13.6p per therm and Canada 8.1p per therm, with a 7 per cent. reduction for process use.

United Kingdom users get no benefit from either process or load use, and when you go up to the higher lever of the purchase of 1 million therms they get only a half of 1 per cent. reduction, which is lower than the reduction that almost any other country, with the exception of two, gives at the purchase level of 100,000 therms. It really seems to some of us an extraordinary way to treat industry when the Government's policy is to do everything to help the regeneration of industry, to help it compare, and when it is vital to the recovery of the whole country.

In asking for no discrimination in favour of domestic users, I want to point to the intolerable situation in which the price to the domestic consumer in the United Kingdom is 19.3p per therm. The noble Earl may say, of course, that the first 52 therms are at 24.6p per therm compared with 26p to 33p a therm to industry. Even when industry takes supplies on an interruptible basis, which it is usually obliged to do, the price is between 23p and 24p per therm, again much higher than the domestic price. That is for volume purchased in excess of 1 million therms a year. This is why one of my new clauses asks first that prices to all consumers, industrial and domestic, should be charged on an equitable and fair basis; secondly, that pricing policies shall be established on a normal commercial basis; and, thirdly, that some price concession shall be given to high volume users.

I mentioned interruptible supply contracts. Supplies to industry are mainly on an interruptible contract basis for the reasons I have mentioned. This means that when supplies are limited (for example, during winter high-load conditions) it is the industrial consumer who has his supplies cut. This has resulted in severe hardships for many industrial concerns, when cuts have had to be made, often with as little as 12 hours' notice. Altogether, we need to ask the Government to look again at this Bill and to remove from it the impediments to industry in its struggle to compete in the world. Industry's struggle is the country's struggle, and it deserves better treatment than is given in this Bill.

The Earl of GOWRIE

I apologise to the noble Lord, Lord Irving, if I did not hear him aright, but did he say that he was addressing himself also to his leave out Clause 1 amendment, or does he want me to speak simply to his first two amendments?

Lord IRVING of DARTFORD

I hoped that the noble Earl, as I had the leave of the Committee to discuss the second new clause, might reply to the substance of the second new clause at the same time.

6.35 p.m.

The Earl of GOWRIE

I will then proceed along that line. By these amendments, the noble Lord is proposing, as he has very clearly and trenchantly set out, that there should be no discrimination between industrial customers and domestic gas customers; he would therefore continue the preference for the pre-1976 customers, and by doing so—I am not quite going so far as to accuse him of putting forward wrecking amendments—he would altogether create the circumstances for the arbitrary rationing that our Bill seeks to avoid.

May I just remind the Committee of the problem that we are trying to face and deal with in the Bill. It is an acknowledged fact, I think, that because of oil pricing and supply problems the British Gas Corporation are at present unable to satisfy all new demands for gas. That is likely to remain the position for the next few years until the investment projects aimed at increasing supplies come into fruition. On Second Reading we had some discussion about the new gas gathering line, and the like. As long as demand exceeds supply, there must inevitably be some form of rationing of available supplies.

This situation can only be made worse if the consumer is charged unrealistically low prices for his gas supplies. For the domestic market the Government have recognised on a number of occasions—and indeed I made this point myself in a debate in your Lordships' House on 30th January of this year—that the price of domestic gas should be raised to a proper economic level so as to ensure a balance of supply and demand, and avoid the risk that supplies would be diverted from the industrial to the domestic sector, thereby treating industry unfairly, as the noble Lord wishes us not to do.

As your Lordships know, the Government have already set the British Gas Corporation a three-year financial target which is based on a gradual correction of this under-pricing. We have also endorsed British Gas's well-established policy of relating industrial and commercial gas prices to the competing oil products, because not to do so would make suicidal demands, in our view, on our gas reserves. The Bill removes an impediment to the implementation of this policy in the present legislation, and aims to allow need and price—rather than an arbitrary entitlement—to determine supply. That is not a new departure from policy. Because of the under-pricing of domestic gas, the noble Lord's amendments would either cause British Gas to relate domestic prices to oil, which would result in higher domestic prices than would be necessary if British Gas are to meet their target, or the effect would be to cause the under-pricing of large volumes of gas in the industrial and commercial sector. That, in our view, would create enormous supply difficulties by sending demand through the roof.

Lord IRVING of DARTFORD

I am most grateful to the noble Earl for giving way. He talks about the under-pricing of gas. Will he explain why, if our gas is under-priced, almost every other major country can receive it at a cheaper price than ours?

The Earl of GOWRIE

In a nutshell, they will not be able to get away with that much longer, because any country which fails to relate the price of gas to the price of oil, unless it is in almost unique circumstances such as very few countries find themselves in, is either going to create a demand for gas, whether at home or abroad, that it is not going to be able to fulfil, or it is going to deny itself enormous sources of revenue. Therefore I should very much doubt that that situation would continue; but in fact I am also somewhat dubious as to whether it is at present the case. We are often asked why it is that gas prices in other European Community countries are lower than in Britain. I find that somewhat difficult to confirm or refute, because valid international comparisons of representative contract prices are especially difficult at this time, when oil price increases, as I said, are still working their way through into gas prices. The short answer to the noble Lord is that he needs to watch the degree at which other countries are allowing oil price rises to work their way through gas prices. I think that will inevitably have to happen in other countries as well as in our own.

I think the substantive point to make in the context of this country is that the fact that domestic gas is currently under-priced and has been so for some considerable time is no reason for industrial gas to become also more under-priced than it already is, because then again the balance of supply and demand would be put out of kilter altogether.

May I turn quickly to the noble Lord's amendments in rather more detail? I have really been making Second Reading points so far, and the noble Lord, no doubt through no fault of his own, was not able to be with us at Second Reading. Amendments Nos. 3 and 4 seek to place on the BGC certain obligations in respect of those customers to whom they have a statutory obligation to supply. Clause 1(1) of the Bill will amend the Corporation's obligations to supply gas set out in paragraph 2 of Schedule 4 to the Gas Act 1972, so that they will no longer be obliged to supply any premises at all with more than 25,000 therms a year. The provisions in the proposed new clauses would therefore apply only to customers receiving quantities up to that amount; that is to say, the new maximum statutory entitlement.

The Gas Act already requires British Gas to avoid undue preference in the supply or pricing of gas to tariff customers. The relevant provisions here are contained in Sections 24(1) and 25(5) of the 1972 Act. Since virtually all British Gas customers who are consuming less than 25,000 therms a year are supplied on tariff and will remain so under this Bill, including the vast majority of small businesses, the provisions in Sections 24 and 25 to which I have referred will continue to apply to them after this Bill is enacted. So, in our contention, these amendments will add nothing of great significance to the existing protection given to customers with a statutory right to supply.

With regard to the other proposal made by the noble Lord in his Amendment No. 3—the proposal that British Gas should be placed under an obligation to give high-volume users a price concession—that, in our view, would represent an unwarranted involvement in the management of the Corporation's business. It is a matter for the Corporation, where contracts are being negotiated, to negotiate with its customers without interference from ourselves.

Finally, in asking the noble Lord not to press his amendments I would ask him to consider the very grave consequences for this country of our failing to adjust, as the entire Western world is having to adjust, to the new terms of trade in relation to energy. We are in a very fortunate position in respect of North Sea oil and gas which theoretically enable us to do that, but I do not think anybody or any political programme is seriously suggesting that we should not have to make this adjustment, whether we have to adjust as domestic consumers or as an industrial nation, because that would be the surest way to turn our backs on the very great good fortune in the North Sea which we have found. I would ask the House to resist these amendments.

Lord IRVING of DARTFORD

I find a number of the statements made by the noble Earl contentious, but I do not want to detain the Committee tonight. I hope perhaps to return to these matters at a later stage of the Bill, and I ask leave to withdraw these amendments.

Amendment No. 2, by leave, withdrawn.

[Amendment No. 3 not moved.]

6.46 p.m.

On Question, Whether Clause 1 shall stand part of the Bill?

The Earl of GOWRIE

I wanted to explain to your Lordships at this point that it was no fault of my noble friend Lord Lauderdale that he could not be here. He thought the Bill was coming on at an earlier stage. I have had a word with him and it is satisfactory to him if I write to him in detail about his amendment, which he has kindly told me he would not seek to press. If any of your Lordships feel rather short-changed by this, I shall be delighted to send them copies of my letter to my noble friend.

Clause 1 agreed to.

Clause 2 agreed to.

Title agreed to.

House resumed: Bill reported without amendment; Report received.