§ 3.3 p.m.
§ The Minister of State, Scottish Office (The Earl of Mansfield)
My Lords, I beg to move that this Bill be now read a second time. The Bill proposes important changes to the structure of the public sector oil and gas industries. Its provisions concern the future wellbeing and development of these vital energy resources. It represents a major piece of legislation with three principal objectives.
First, it will be a major step forward in reducing the size of the public sector. There is no justification, in our view, for direct state involvement in oil exploration and production. The history of the North Sea shows that the successful development of our oil resources had overwhelmingly been the achievement of the private sector. Privatisation will be in the best interests of the British National Oil Corporation itself. After six years in existence, it is poised to expand and develop its potential without the inevitable constraints of the public sector. Secondly, the Bill will introduce competition into the gas market which is currently dominated by monopoly in both the purchase and supply of gas. Competition and efficiency are the hallmarks of private enterprise and are essential to the economic success of the nation. Thirdly, it will strengthen existing petroleum legislation, particularly to amend and clarify the offshore safety régime. These objectives are reflected in the three main Parts of the Bill. It may be helpful to the House if I describe each of these in turn.
But before doing so I should like to set these objectives against the background of current North Sea activity. In the past year three new oilfields were brought on-stream, bringing oil production to some 90 million tonnes a year and providing, for the first time, a surplus to home requirements. Two more fields started operation this February bringing the total number of fields in production to 20. Exploration activity increased in 1981 with 73 exploration and appraisal wells being drilled, compared to 54 in 1980. Twelve new discoveries have been made. Seven gas fields are in production and four gas terminals have been constructed, together with five oil terminals including Sullom Voe, the largest in Europe. All this represents some £25 billion of investment in the United Kingdom continental shelf between 1965 and 1980. This is a considerable achievement in developing our vital oil and gas resources.
Part I of the Bill enables BNOC to prepare for the disposal of its oil exploration and production business. Clauses 1 and 2 give the corporation the necessary powers, including the power to transfer its oil-producing business to a subsidiary, Britoil, prior to disposal through the operation of a scheme. Clause 3 sets out the Secretary of State's powers and responsibilities in relation to a sale of shares. The remaining clauses in Part I provide a new financial structure for the corporation and for the abolition of the national oil account.
Under this part of the Bill, therefore, BNOC's business will be reorganised, with the oil producing assets identified and transfer by the scheme to Britoil under Clause 2. The remaining assets, mostly those concerned with BNOC's trading function, will stay 468 with the corporation. Once Britoil has been established as a subsidiary and the oil producing assets transferred, the Secretary of State will exercise his powers under Clause 3 to take over the shares in Britoil. The sale of shares will therefore be carried out by the Government. Our initial aim is to sell 51 per cent. of the shares, but the Bill will keep open the way for a further sale from the Government's shareholding at some later date when the Government of the day decide that it is in the national interest to do so.
Subject to the passage of the Bill through this House, our hope is that Britoil will be sold to the public this year unless market conditions are such that there is a convincing case for delaying it until next year. There has been speculation about the effect of the recent fall in oil prices on the Britoil sale, but we take the view that it would be premature to jump to conclusions. Nobody can be sure how the oil market or the stock market will look in, for example, six months' time. In deciding on timing, it will be necessary to weigh up a number of factors of which oil prices will be only one.
Once 51 per cent. of the shares have been sold, Britoil will become a normal private sector company. The residual Government shareholding will not be used by Government to intervene in the company's commercial decisions. It will be then free to develop its business without the inevitable constraints of the public sector. The memorandum and articles of association of the company will, however, contain provisions to protect the independence of Britoil. The contents of the articles have been the subject of some interest, and copies are available in the Library if noble Lords wish to study them in detail. But it may be helpful if I briefly outline the relevant provisions.
These contain effective safeguards against unacceptable changes in control, whatever the nationalities of the parties involved. These safeguards will apply in a range of circumstances from an outright takeover bid to more subtle attempts to gain control over the composition of the board. Yet they have been carefully drawn up as reserved powers only. It is important to preserve the commercial independence of Britoil, responsible for its own management and business strategy. The passive nature of the safe-guards would not permit any interference by Government in the day-to-day running of the company. By definition, they would only be triggered in exceptional circumstances and then for long enough only to prevent a change in control. Otherwise the safeguards will remain dormant. Also, the safeguards in the articles do not depend on the size of the residual Government shareholding in Britoil. They are to be attached to a single special share to be held by the Government.
These, then, are our plans for Britoil. So far as BNOC is concerned, the corporation will continue in being with the reduced role of trading primarily in participation oil. It is necessary to preserve this function under Government control since the oil available under participation agreements is an important contribution to the nation's security of oil supply. The new financial structure under Clauses 4 to 8 can apply to the corporation either as presently constituted or following the disposal of Britoil.
469 I turn now to Clauses 9 to 17 which comprise Part II of the Bill. The provisions fall into three main groups. Clauses 9 to 11 are concerned with the disposal of BGC's assets; Clauses 12 to 14 deal with the breaking of the BGC monopoly to supply gas; and Clauses 15 to 17, which are an important ancilliary to the previous provisions, make it possible for private sector gas suppliers to gain access to the BGC transmission and distribution pipeline network. The gas industry is of great importance to the nation. We are fortunate in possessing substantial reserves of natural gas, and it has become a major source of heat for the home, for industry and for commerce, as well as a feedstock for the petrochemical industry.
But all is not well in the gas industry. It is dominated by the British Gas Corporation, which enjoys a position of great privilege. It has special rights in the purchase of gas, and special rights in the supply of gas by pipe. It owns the onshore gas transmission and distribution pipeline network, and is exempt from the provision of the pipe-lines Act 1962 which applies to private sector onshore pipelines. The BGC has not only an effective monopoly in the purchase and supply of gas by pipe, but also major interests in the production of gas and even in the production of oil. And its position in the retailing of gas appliances has attracted criticism for the Monopolies and Mergers Commission.
The privilege and dominance of the British Gas Corporation have given rise to increasing problems and anomalies. There is no reason why a public sector body—least of all one whose business is gas—should be involved in the production of oil, when the whole history of the development of the North Sea is one of successful private enterprise. The Government therefore intend that BGC's offshore oil business should be transferred to the private sector and the powers proposed in Clauses 9 to 11 of the Bill will enable the Government to act in order to bring this about.
The monopolistic position of the corporation now creates the bizarre situation where there is simultaneously disquiet both among those producing gas and those wishing to consume it. Producers see little incentive to explore for and develop gas reserves because they see that at best they will be faced with a "take-it-or-leave-it" price offer from the Gas Corporation. At worst they may get no offer at all because BGC has decided to take other gas first. In this state of uncertainty is it surprising, my Lords, that companies have been unwilling to invest money in exploration? In the meantime, gas consumers and potential consumers face difficulty. Industrialists faced with a take-it-or-leave-it price for gas from BGC are concerned as to whether the price is fair. Other would-be gas consumers are unable to obtain the supplies they require. This affects both industrial and commercial concerns using large quantities of gas, and also small businesses and domestic householders whose premises are more than 25 yards from a BGC distribution main.
The Government's proposals will bring enterprise and competition into the British gas market. This Bill will open the way for persons other than BGC to supply gas by pipe to all consumers except those who have a statutory right to require BGC to supply gas on demand. For this purpose it creates three tiers of 470 gas consumer. First, consumers whose premises take more than 2 million therms a year may be supplied without the Secretary of State's consent, subject only to a notification procedure which will provide a check on the estimated rate of consumption and cater for circumstances where the rate subsequently drops below 2 million therms a year for at least three years. Secondly, consumers whose premises take less than 2 million therms a year but who do not benefit from BGC's statutory obligation to supply may be supplied with the Secretary of State's consent. The Secretary of State has made it clear in another place that he will only be prepared to give consent where he is satisfied with the safety arrangements proposed. Thirdly, consumers who have the benefit of BGC's statutory obligations to supply, namely those whose premises take less than 25,000 therms a year and are within 25 yards of a BGC main, may be supplied only if BGC do not object to the giving of consent by the Secretary of State. Thus effectively BGC will retain its monopoly where it has a statutory obligation to supply on request, but the door will be opened to competition in all other cases.
The ability of other suppliers to compete effectively with the BGC will be enhanced by the provisions of the Bill concerning use of BGC pipelines by other parties. BGC would start with an enormous advantage if it retained exclusive use of the pipeline grid, and the Bill therefore permits other gas suppliers to appeal to the Secretary of State (if they are unable to reach agreement with BGC by themselves) to determine whether non-BGC gas can be accommodated in BGC pipelines and on what terms. To sum up, the gas provisions in the Bill will enable the Government to remove from the British Gas Corporation assets which it does not require in order to pursue its essential activities of supplying gas to the British market. The sale of the corporation's offshore oil assets will put them in the hands of the private sector where they will be used to better effect. The removal of the BGC's purchase rights will provide the incentive which is needed by the private sector to explore for gas; and the breaking up of the virtual BGC sales monopoly will enable the market to flourish. This is good for the gas producers, suppliers and customers, and indeed good for the nation.
§ Lord Davies of Leek
My Lords, if the noble Earl will kindly give way for a moment, and while thanking him for the care he has taken, may I ask: is he aware that the very opposite has been done in the case of the Venezuelan oil industry? Venezuela has one of the greatest oil industries in the world, but after years of experience it has now been given over to the Government. We are throwing away the British inheritance.
§ The Earl of Mansfield
My Lords, no doubt this is a theme which the noble Lord, Lord Davies of Leek, can develop if he has put his name down to speak—and, indeed, if he has not. But perhaps I might continue with the latter parts of the Bill. The most important elements are those concerning safety, in Part IV. This part provides for important amendments to existing legislation. I would like to review briefly how we see the aims and objectives of the 471 changes we propose, and to put them into proper perspective.
They are not designed to effect fundamental changes in our safety practices; nor do they aim to consolidate the separate Acts, regulations and codes which regulate the offshore oil and gas industry. As our experience has accumulated on operating in the difficult environment of the North Sea, inevitably some inadequacies and some uncertainties about the interpretation of existing legislation have become apparent. We are taking the opportunity afforded by this Bill to deal with these matters. Thus in Part IV we are dealing with the clarification, up-dating and re-enactment of key legal and safety provisions of the Continental Shelf Act 1964 and the Mineral Workings (Offshore Installations) Act 1971. I would illustrate this by particular reference to the safety régime set up under the 1971 Act. It was suggested following the capsize of the "Alexander Kielland" in March 1980 that there was doubt about whether the safety régime applied to installations which accommodate workers but do not engage in drilling. The Department of Energy believes that the safety régime already applies to these installations, but to put this beyond doubt it will now be made explicit. Thus we are implementing in full one of the major recommendations of the Burgoyne Report on Offshore Safety which called for clarification of the legal status of accommodation installations under the 1971 Act. Similarly, we are extending the safety legislation to cover gas storage in anticipation of the first gas storage scheme.
There is no room whatsoever for complacency when dealing with safety. However, there is, I hope, much common ground concerning the effectiveness of the United Kingdom safety régime. In the years between 1971 and 1981, the number of fatalities and serious accidents did not increase proportionately in relation to activity, the scale of the increase in the offshore workforce or the increase in the number of installations on the UKCS. In 1971, when there were estimated to be 1,260 persons employed in 11 installations, there were 4 fatalities and 15 serious accidents. By 1981, the numbers employed offshore had reached 21,000 and there were 64 installations; the number of fatalities in that year was 6 and the number of serious accidents 59. Successive Governments have striven to develop a régime at once effective and yet flexible enough to take account of new techniques and new situations. The amendments to the safety régime proposed in this Bill are consistent with this practical approach and should be welcomed by the offshore workforce and those who are responsible for their safety and the safety of installations.
My Lords, the provisions in this Bill are far-reaching but necessary to the continued successful development of our oil and gas resources. It will help to secure our oil and gas supplies effectively yet safely to the benefit of the nation as a whole. I therefore commend the Bill to the House.
§ Moved, That the Bill be now read a second time.—(The Earl of Mansfield.)
§ 3.21 p.m.
Lord Bruce of Donington
My Lords, the House will 472 be indebted to the noble Earl for having taken us through the Bill and explained it, thus relieving me of the necessity of going over the same ground. I am bound to say that he introduced the Bill without any noticeable enthusiasm, and there was not a deal of enthusiasm that I detected on the Benches behind him, because of course this is at the same time a squalid and completely irrelevant Bill. One finds it difficult to understand.
Does the noble Earl realise that at the present time in this country we have very serious economic problems indeed, that we have over 3 million unemployed, that our manufacturing production is at its lowest level since 1975, just teetering up and down slightly on the bottom, that investment is at an all-time low, that businesses are going out of existence in the first three months of this year, either in liquidation or bankruptcy, at the rate of one per hour, that inflation is still running at a very high rate? Does he really think that a Bill of this kind makes the slightest contribution in any remote or indirect sense of the term to the national recovery to which his party pays perpetual and deferred lip-service? Does he really think that the Bill itself is going to help to unify the nation? Does he think that it does anything to better relations between employers and employees. Does it help industrial relations in any way? What practical good is it? So much so—
§ The Earl of Mansfield
My Lords, the noble Lord has asked me three rhetorical questions and I do not think they really should be rhetorical. It is not my practice to interrupt noble Lords' speeches, but I think I must on this occasion. The reserves of energy which we have on the United Kingdom continental shelf are proving, and in the future will continue to prove, of the most vital interest to this country and its economic recovery. It would be a shame if they were prevented from being exploited to the full by the out-of-date nostrums of the party opposite and a belief in economic theories which have been exploded years and years ago.
Lord Bruce of Donington
My Lords, I am very grateful for the noble Earl's intervention, with which I will deal at a convenient point in my remarks upon the Bill. But I ask myself, why should the Bill have been introduced at all—a completely irrelevant Bill—as if structural changes of the kind described are going to have the slightest impact or the slightest beneficial effect upon the planning and constructive use of our energy resources? It is not even in the Tory Party manifesto, which I have here; they have no mandate for it which they can quote to us. At least, if they can, there must be some small print somewhere which I have not been able to understand.
What, therefore, is the reason for it? The noble Earl accused me of supporting outmoded party dogma. The real fact of the matter is that they are the party that have the dogma; they have a pathological hatred of any nationalised industry. They do not cease to belittle nationalised industries when they can. As a Briton, I find it very difficult to understand why there should be this attitude. Most other free democracies of the West agree, and indeed have put into practice, measures by virtue of which some industries function 473 under national control however exercised, whether by public board or by whatever means, and work alongside and in co-operation with the private sector of industry. This is so in practically all of the free democracies of the world. Only in this country, by reason of an outdated dogma, resting to some extent on Hayek and more recently upon Friedman, is this ridiculous attitude taken.
So there has been a continued campaign of denigration against all the nationalised industries. There has been a refusal to accept that social imperatives do occasionally mean that some industries and services in any country have to be run at a loss. This is so, once again, in most of the free democracies of the West. For example, in the German Republic the amount of losses that are subsidised by the state are four times the amount of the deficit which we subsidise here, about which the Government continuously moan that there can be no acceptance of this.
It seems to me, therefore, that one of the reasons why there is this attack on BNOC and upon the Gas Corporation is that they have the temerity to make profits; they have committed the sin, in the eyes of the Tory Party, notwithstanding the fact that they are under national control, of actually making profits. This is a grave offence to the Conservative Party. So without much more ado they must seek to dismantle what they can of these concerns, so that they can be up for grabs by their political friends to the detriment of the nation as a whole. I am quite willing to be examined on this point, and I have the accounts of BNOC in front of me. In 1980 they made a profit before tax of £308 million. British Gas made a profit of £433 million in 1980 and £510 million in 1981, before deducting the gas levy imposed by the Government in the course of raising the price of gas.
One of their propaganda steps was to try to make British Gas unpopular. They can do that very easily with the support of the popular press, by ordering the Gas Board to raise its prices, so that then of course the Gas Board will be blamed by the public for the ever-increasing price of gas. That is why the Government themselves deliberately increased the price of gas in 1980 by 27 per cent., in 1981 by 25 per cent., and in 1982 by 22 per cent. That gas levy, of course, has gone into the pockets of the Treasury; a form of indirect taxation which has gone to help subsidise the taxation benefits that have accrued to the wealthier people ever since this Government have been in office. The money has gone out of the gas meters of the poor into the wallets of the rich. If the noble Earl wishes to query that, I can assure him that I have all the figures here.
No, my Lords, what has really happened is that the Government know that on the basis of their miserable record to date they must have something with which to go to the Tory Party conference in October. They hope to be able to slur over their monumental failures by saying to them, "Ah, but we have made progress in denationalisation. We have made progress in handing industry back to private enterprise"; thereby, I have no doubt, getting uproarious applause from the "hang 'em and shoot 'em brigade" that evidences itself so prominently in the more vocal portions of Conservative Party conferences.
The benefits claimed by this Bill so far are, first, 474 that somehow the return of certain sections, or the hiving off of certain sections, of the oil industry and of the gas industry to private enterprise will somehow mean that the public are able to acquire shares; that there will be a wider diffusion of public ownership. The noble Earl opposite knows better than that. He indeed has not argued it seriously here as it was argued in another place.
He knows quite well that 70 per cent. of the population of Great Britain have no opportunity, or resources, to invest in anything at all, and that when he is talking about investment of the public he is first of all talking about, in the initial stages, the professional stag, who must always be given the opportunity of making £300 or £400 for nothing in every new issue, and indeed some of the institutional and other shareholders. The amount of public diffusion of ownership that is occasioned by this is very small indeed.
The other benefit that the noble Earl claims is that it will remove the disincentive, which he alleges exists at the present time, further to exploit the oil resources that are available to this country. This comes a little odd from the party opposite. It is only about a year ago that they were enthusing about a new main gas line in order to avoid the losses that are occurring at the rate of £1 million a day of flaring off gas in the North Sea. Great benefits were claimed for that. The Gas Corporation were perfectly willing to participate in it. But no, it came up against the good, stolid dogma of the noble Lord, Lord Cockfield, and that the public sector borrowing requirement did not permit the country to finance what would have been a gigantic operation which would have paid for itself in very few years indeed, and would have enabled this running waste of natural resources to stop.
But no. Even after having claimed all these benefits about which they enthused in another place, there was a sudden change of mind because dogma, and nothing else but dogma, said that state money, or the taxpayers' money, should not be used to finance national measures of this kind; that this should be left to the claims of those who seek to make their private fortunes out of it. This was the dogmatic decision. It goes a little odd. The noble Earl has been speaking as though to keep his courage up: that these moves, with the swap around in shares, the disposal of assets, are in fact going to mean some dynamic thrust into the North Sea for the exploration of new resources, and for the avoidance of the wastage of gas. If he likes to read today's Financial Times he will find that his enthusiasm may be a little dimmed.
The third benefit that is claimed for this idea was referred to by the noble Earl when he mentioned competitive prices. It would be very nice indeed to feel that these measures would result in some kind of price reduction, but I observe what the Minister said in another place. Mr. Lawson, speaking in another place on 19th January at column 174, said:Competition here, as elsewhere, will tend to reduce prices below what they otherwise would have been, …".That of course introduces an element of delightful speculation into it, because of course if perchance prices go up his right honourable friend can always go back on his caveat and say, "But, of course, if we had not denationalised, prices would have gone up by much more." So that will not wash.
475 Indeed, we have here the words of a prominent Conservative, Sir Ernest Woodroofe, former Unilever chairman. Not, be it noted, a civil servant. Not, be it noted, a politician, but a distinguished industrialist —and a distinguished and progressive firm—whose credentials are impeccable, and a self-confessed staunch Conservative. Mind you, my Lords, passing over for the moment that that would appear to be a contradiction in terms, let us see what he says about this Bill:I see nothing in this Bill which will reduce the price to the consumer, and since British Gas will have to compete for supplies at higher costs to the corporation, I see the effect of the Bill as likely to make the price of gas to the consumer higher than it would have been.Many of us in this House, and indeed outside, would probably prefer to accept the verdict of Sir Ernest Woodroofe than the speculations of the noble Earl and his right honourable friend in another place.
I have some questions to ask the noble Earl, or the noble Lord who is to reply. We are talking of the disposal of assets, the selling of assets which, through the Government and a public corporation, belong to the British people. Who is going to put a value on these assets? Who is going to determine the share price of the various companies whose shares are going on to the market? Who is going to determine the capital worth of the assets, aside from their ordinary balance-sheet asset valuation, with their valuation on an earnings basis?—which forms the normal basis for the public dealing in shares of companies.
Does the Minister himself even know? Has he an approximate idea of the value of the assets that he is selling? If he does not have an idea of the value, what business has he to sell them? He is dealing with the nation's assets. We are given to understand that S. G. Warburg have been appointed to act as the financial advisers to the Government in these and other matters. We should like to know the terms of the firm's engagement. We should also like to know what underwriting arrangements are to be made regarding the sale of any shares, bearing in mind the results of the Amersham deal, on which I shall not at present enlarge. What is the position of Rothschilds? There were press reports that they had already been paid £500,000 as an interim fee for the services that they are to render to the Government. I have no means of checking the accuracy of that, and of course I shall immediately accept any correction. What are to be the ultimate fees paid to the City of London for these services?
The other question I have to ask is this. Have the Government in any way taken into account the morale of the staffs of the organisations that they propose to hive off and dismantle? The function of all leadership is always to bring out the best in people. The function of leadership is never to divide. The function of leadership is never to attain the execution of plans by fear or division. Have the Government seriously considered how the people who occupy executive, and indeed lower positions, in the corporations feel about this matter? What will be their reaction? How are their individual lives going to be affected? How is their whole attitude towards their professions or occupations going to be affected? 476 Politicians like the noble Earl opposite can always juggle these things about as being of no consequence. But the party opposite, above all, particularly in the light of their experiences over the last three years, ought to know that those who rule by fear sooner or later are brought down by hate. Have the noble Earl and the Government taken into account the organisational effects on the staff and the other changes that will come about in the social organisms that all companies are? Those are the questions.
Now I should like to make some comments. I must say that one of the most unfortunate parts of the Bill lies in the provisions in Clause 31, which lays down that the Secretary of State may proceed by statutory instrument subject to the negative procedure in both Houses. The powers given to the Secretary of State under various other clauses of the Bill to make decisions are such as to fill us with considerable concern, and in our view are designed to circumvent the ordinary democratic processes that one expects in Parliament. The noble Earl has touched on these points only very lightly, if in fact at all.
If he will turn to Clause 3, he will find that it gives the Secretary of State power to do virtually anything he likes. Under Clause 31:it shall be the duty of [the] Corporation (notwithstanding any duty imposed on it by or under any enactment) to comply with the directions".These are powers that ought not to be given lightly, more particularly in view of the known performance of the noble Earl's right honourable friend the Secretary of State for Energy. He is the last person, in what remains of the Government after the recent resignations, to whom one would lightly entrust any powers so all pervasive as these.
We also observe that the national oil account has been closed. The Government did that with alacrity. On the very day that the Third Reading took place in the House of Commons £1,000 million was transferred from the national oil account into the Consolidated Fund. There must have been very considerable satisfaction in the Treasury at that time. So far, by the end of 1983 £1,687 million will have been transferred out of gas levy into the Consolidated Fund, all paid for by the consumer.
Our policy towards the Bill may be clearly stated. We shall repeal it in order to restore the position as regards the national ownership of national resources. So far as compensation is concerned, we shall take such steps as are necessary to ensure that those who have profited unduly by a series of sordid transactions do not get away with the swag. It might be necessary—
§ Lord Harris of Greenwich
My Lords, will the noble Lord allow me to ask a question on this matter, which I am sure fills us all with considerable interest? Can he explain what would be the attitude of a future Labour Government to the miners' superannuation fund and other funds of that kind which had invested in such stocks as we are now considering?
Lord Bruce of Donington
My Lords, if the noble Lord cares to defer putting down that question until my party are in office, I shall give him a reply from the proper Dispatch Box, in the proper place. My own view—to which I do not in any way commit the next 477 Labour Government—is that when the shares come back on the market to be reacquired by the state, there should be a deduction from the market price equivalent to the percentage that is made upon them, being the difference between the issue price when the sale takes place and the market value immediately thereafter. That would then ensure, in broad and general terms, that undue profitability did not pass unnoticed.
The Bill will ultimately go into Committee, unless of course it is withdrawn. I am bound to say that there are precedents for withdrawal. The right honourable gentleman the Secretary of State for the Environment found it necessary to withdraw a Bill dealing with local authority reorganisation. So there are good precedents for withdrawal. It might well be that, as soon as the House and the country perceive what a squalid little Bill this is, the Government will decide to withdraw it. If so, no one will support them more than I shall. I assure them of my most benevolent support in facilitating such an arrangement.
If, however, the Bill does go into Committee, I think that the noble Earl is being a little optimistic if he expects it to be clear of this House by the end of June bearing in mind that we have to go through a detailed examination of the memorandum and articles of association of Britoil which was originally produced on the day of the Report stage in the House of Commons and which they had not very great opportunity of examining. These and other things we shall examine.
This is a Bill to "privatise". That is a new word, of course, in the English language, Noble Lords will not find it in the Oxford Dictionary. However, what they will find is the verb "private" which means to rob, to deprive. That, indeed, is what the Bill is all about: it is to take away from the use of the nation, for the private gain of a comparatively few individuals, valuable resources which ought to be developed in the interests of the nation as a whole. I am convinced that the first thing that we shall do when we get back into office again—which we surely shall—is to initiate an investigation into the whole manner in which these deals have in fact been carried out. Make no mistake, we shall form the next Government. As soon as the British people realise the extent to which they have been taken for a ride, the full purpose of the Government's activities, and realise the nature of their bungling incompetence, they will not return them for a second period of office.
§ 3.52 p.m.
§ Lord Tanlaw
My Lords, we from these Benches wish to express our gratitude to the noble Earl for his presentation of the Second Reading of this Bill. I am rather inclined to agree with the noble Lord, Lord Bruce of Donington, that it was a low key approach, but gratifyingly short, and helpfully split up into the three different parts of which this Bill consists. We are not at this stage going to take the approach that the noble Lord, Lord Bruce, has just taken, of robust confrontation. We shall attempt perhaps more constructive interrogation of the Government in some of the matters of principle that are contained in the Bill and which will reflect very clearly what will be our attitudes towards it, in Committee.
I believe that this is an important opportunity to 478 restate some of the guiding principles which will affect our attitude from these Benches throughout the course of the Committee stage. The first concerns nationalisation. We are not in favour of nationalisation because we support the principle of a mixed economy in which the state and the public join together in providing capital for industry. Secondly, with regard to monopolies, we are against monopolies whether they be in the private or in the public sector as, in our opinion, they do not necessarily confer benefits on the general public or on industry. Thirdly, with regard to privatisation—which I agree is a new and ungainly word—if that means wider share ownership which includes worker shareholdings and representation at board level, then we have no objection to this policy in principle. However, if "privatisation" in the context of this Bill means "foreignisation"—another new and ungainly word—and by that I mean greater non-British participation in our national resources through the sale of the Government's 49 per cent. holding, then we should oppose it. Therefore, I must ask the Minister whether he is in a position to give an assurance not given by his right honourable friend the Minister of State in another place, that the Government's shareholding in Britoil will be retained in spite of the powers given to the Secretary of State to dispose of it.
We are quite convinced that the "golden share" device will maintain control of the company in a legalistic sense, but there is nothing to stop overseas interests from buying 51 per cent. of the company for investment purposes only. That is not as unlikely as it sounds, for why should not Middle East oil interests spread their risk by an investment of this nature? Indeed, £1 billion—for that is what it might cost—is not an impossible sum to raise from these areas, and in that case the dividends would be remittable outside this country. Or are the Government saying that these shares will be such a poor investment that it will not attract overseas interests? I do not think so at all, in which case we feel that the powers given to the Secretary of State to dispose of the balance of 49 per cent. should be taken away in Committee.
If the Minister cannot give this reassurance, will he at least say that small individual investors will be able to apply for participation in Britoil with an equal chance of success as those institutional and large block shareholders who have applied? Whatever his answer may be to that question, we welcome in Clause 1 and elsewhere in Part II, the provision for the Liberal principle of employees working in Britoil being able to participate as shareholders, we hope on a privileged basis.
That leads me on to ask about the Government representation on the board. I really see that it is only necessary to require one director to represent the Secretary of State and the so-called "golden shareholding". Further nominations which I would deem "stooge directors"—that is Government appointee directors—can hardly be expected to contribute to the operational running of the company or the deliberations of the board. Would this not be an excellent opportunity for the Government to create instead a director nominated by the employees to sit on the board? In our view, this would be a positive and exciting step forward, for which the Government would be duly acclaimed in the management of their 479 affairs, rather than creating entities as a result of dogma or other promises of that kind.
Much has been said about the unfortunate timing —and this was mentioned by the noble Lord, Lord Bruce—of this issue of shares; the reason being, as we all know, that oil shares are presently at a low ebb due to the temporary surplus of all oil products, coupled with a world economic recession. I do not want to quote Sheikh Yamani twice in two days in your Lordships' House. He made such a good speech and I recommend it to all of your Lordships. However, I shall quote him again as regards the speech which he made in London on 31st March this year. He said:At times of over-supply, stocks are built up in order to hedge against the detrimental effects of price declines on the suppliers. In the case of oil, whether by design or coincidence, inventories have been used to achieve exactly the opposite objective. They were mainly built up during the shortfalls of 1979–1980, thereby contributing vigorously to the pronounced increases in spot prices. They are now being drawn down massively, thereby contributing effectively to the price deterioration in the spot market. This is obviously a paradox which defeats the purposes of security and economic stability".Sheikh Yamani has been right far too often for us to ignore his warning yet again. What he is saying—and I am sure that the noble Earl appreciates this—is that there will be a sudden and violent possible upsurge in the spot market which will create all the panics that we have had in the past. At the moment this is not so. I am wondering whether perhaps the Government will bear this in mind, because as I understand the objective is to raise funds—the maximum amount of funds—the timing of this issue should be delayed until the oil markets and the world economic position improve. I think that merely to go ahead regardless of market conditions or market forces, in which this Government so strongly believe, would hardly be to the benefit of the taxpayers, and would defeat, as I have said, the primary object of the Bill which is to raise, as I understand it in this part, capital funds.
That leads me on to a far more serious problem which concerns re-nationalisation, which the noble Lord, Lord Bruce, has robustly put forward as his party's policy. There is a very serious problem here, because what the noble Lord has said is that in the event of re-nationalisation some form of compensation or possibly no compensation will be given. In fact, I think that there are two theories—
Lord Bruce of Donington
My Lords, at no point in my remarks did I say that no compensation would be paid.
§ Lord Tanlaw
My Lords, the noble Lord should wait. Mr. Wedgwood Benn, who is known to the noble Lord, has declared that compensation would be unlikely to be given in the event of renationalisation. However, in the debate on the Nationalised Industries Bill in another place on 10th November 1981, at col. 438 Mr. Rees said:As the Shadow Cabinet recently said, we wish to make public and plain to any outside interests contemplating the purchase of these shares our firm resolve to restore the assets to public ownership on terms that will ensure that no private speculative gains are made at the nation's expense".480 That is quite clear, and it has been confirmed by the noble Lord, Lord Bruce of Donington, that that is where the party stands.
The noble Lord has added another factor—that, in his view, there is a possibility that there may be a difference in the price of issue and the market price. That is all right if it goes up; I am not quite sure what will happen if it goes down. Perhaps the Government will recompensate back again, but I do not know. The Labour Party cannot have it both ways. If employees are to participate in these companies, they, as small investors, as well as institutions, should be told quite clearly that they are doing so at a considerable risk and would be holding shares that could become virtually worthless in the event of the Government of the day maintaining a policy of renationalisation of these companies without adequate compensation. In particular, it is to be assumed that Britoil shareholders will have a greatly appreciating stock—for the reasons that I have mentioned and for the reasons that Sheikh Yamani has given—as the oil surpluses become mopped up and new shortages occur either through demand or through political instability in the Middle East. Will a Labour Administration be prepared to pay the increased value of these shares? The answer seems to be, "No"; I think that that is quite clear. But I do not think that this has been thought through very fully, because this is a risk that all shareholders carry by investment in Government industries, which is far greater than that of other ordinary shares in the private sector. There may be a considerable unwillingness on behalf of the small shareholder or the worker shareholder or the pension fund manager, as has been mentioned, if this kind of investment, however attractive it might be in principle, might be a dangerous and unwise method of saving his money.
Alternatively, it is possible that the shares of Amersham, Cable and Wireless, British Aerospace and National Freight will be put in a special high-risk category which could affect their value adversely in comparison with other ordinary shares quoted on the Stock Exchange. These matters must be thought through and clarified quite clearly in everyone's interest, and I am not making a party point here.
I should like to go on from that to talk, very briefly, about accountability. The noble Earl was very clear in his presentation of the Bill, that the trading activities will be separated and will not be made available to the investing public. We come to this problem again. Once the money has gone across into these trading activities in the state sector, then we shall lose track of the accounts. There are first-class accounts by BNOC and Britoil; they are comprehensible and understandable. But I believe that the accountability of this money in the trading sector will again get lost. We, in the Opposiion, will not know—and I am not entirely sure whether even Government Ministers will know—where the money is going until they start restructuring their accountancy system so that we all understand where the money has gone. I do not want to dwell on this because I have raised it time and time again. This is a factor which has been glossed over in the Bill, certainly in another place, and I hope that that will not be the case in your Lordships' House.
Basically, this is an enabling Bill giving vast powers to the Secretary of State in various forms in various 481 parts of the oil and gas industries. In fact, we shall look very carefully in Committee at the powers given to the Secretary of State, in particular the power in Part I to sell off 49 per cent. of BNOC at his discretion without further reference to Parliament. In Committee we hope to draft a clause to limit that power.
Similarly, the discretion given to the Secretary of State and the Treasury in Clause 9 is, in our opinion, unacceptably wide in its powers to sell off any British Gas Corporation asset when and how it likes without debate in Parliament. I am sure that it was not the intention of the authors of this Bill to use it merely as a vehicle for asset stripping for the benefit of the PSBR. We sec it instead as an excellent opportunity for restructuring both BNOC and British Gas for the benefit of the community, for the industry and the consumers as a whole.
We are pleased that the Government have changed their attitude towards BNOC, which, as some noble Lords will recall—and no doubt they will do so in this debate—was much castigated in the past by Conservatives as an irrelevance and a burden. They felt that it should be wound up, and it is jolly lucky that it exists today. Now, the merits of BNOC have apparently been recognised at last by the Government under this Bill, but, if the expertise built up by BNOC over the years is to be lost somehow in the small print of its clauses, then the baby will be thrown out with the bath water. We, on these benches, will do our utmost to ensure that this does not happen.
On the other hand, we think that the powers given to the Secretary of State to extend BNOC's activities in a multinational role must surely be wrong. Why dilute the expertise of a national asset in this way and run the unnecessary risk of a conflict of interest or political retaliation? For instance, what if BNOC had been producing in Libya or, for that matter, in Argentina? We believe these extra powers to be unnecessary and dangerous and, indeed, superfluous to the needs of the Bill.
I now want to turn to Part II of the Bill, as regards which our attitude can be summed up by saying that too much is said about giving immense commercial control to civil servants, while too little is said about how the Secretary of State intends to use his unacceptably wide powers to sell off the corporation's assets. In particular, we shall study carefully what controls, if any, there are to operate a sensible depletion policy. Above all, we shall want to be assured that the premium uses for gas are maintained in the current order of priorities, which are, as we see them, domestic, industrial (and in particular the chemical industry) and lastly, of course, steam raising. Will the Minister confirm that some controls of this nature are envisaged, or is there to be just a free-for-all?
I should like to say a few brief words on steam raising. In the case of steam raising, there is one area in which it would be most helpful to have the Government's view. I am thinking in particular of coal-fired power stations which require standby facilities to meet peak load demands. Will it now be possible for these power stations to apply for an interruptible supply of gas to meet these short-term demands? Will the private sector gain permission to offer this service under the terms of this Bill? I understand that there is only one station, which is at Thurrock, which uses this process, 482 which has already proved to be an economic and effective means of satisfying peak load demands. Why are there not others? Can we perhaps be given some explanation as to the policy with regard to the use of gas as a standby facility or, if you like, booster for coal-fired power stations? This would be immensely beneficial to the generation of electricity and would stabilise some of the problems that exist in the industry. Indeed, it might even save the construction of one nuclear power station, in the sense that the coal-fired power stations can be used more effectively up to the turn of the century.
Then there is the question of the oil assets owned by British Gas. I was very interested to hear the noble Earl, in his presentation of the Bill, put his case, but he put only one half of it. What reason is being given by the Government for selling them off? Is it merely to release capital to meet current expenditure, or is it a matter of principle? The matter of principle seemed to be expressed by the noble Earl; it was that it would seem to be in order for oil companies to engage in the supply of gas, but it would not seem to be in order for the British Gas Corporation to continue in the oil business. The Government must make themselves clear. If they want to stick out on principle and pretend that they just do not want the money —which, of course, they do—they must put up a slightly better excuse. If the private sector oil companies can get into the gas business, why cannot the gas business maintain its interest in the oil business? I hope that that, as a matter of principle, will be cleared up because it would be most helpful when we come to our attitude in Committee on this.
Finally, we shall be asking the Government in more detail as to why they are hesitant about breaking the Gas Corporation's monopoly of the retail trade. The Monopolies and Mergers Commission was, as the noble Earl, Lord Mansfield, rightly said, quite clear in its 1980 Report on Domestic Gas Appliances. It drew attention to the damage done to consumer interests by the British Gas Corporation's very effective monopoly in this area. We support these conclusions. We are not convinced that the domestic consumer or the gas appliance industry are obtaining any benefits from allowing this monopoly to continue. Nor are we convinced that the British Gas Corporation has a monopoly of' the only expertise capable of ensuring that adequate safety precautions are taken in either domestic or industrial markets. However, the Government must show more clearly than they have to date how they see the safety factor being maintained effectively under the Bill. Perhaps the Minister will say what kind of body is envisaged to look after that side of the business, once privatisation has been achieved, in both the domestic and industrial markets.
One could go on at length and I do not want to go into more detail than I have—possibly too much at this stage—but we cannot welcome the Bill as it stands. There are too many unanswered questions, some of them concerned with very wide-ranging principles involving the powers of the Secretary of State, principles as regards which we are not clear what the Government are trying to achieve by certain provisions in the Bill. We should need a number of reassurances before feeling we could give it our support. I hope the Government will give some indication that they will use this as an 483 opportunity to restructure primarily the gas industry for the benefit of all its consumers through the powers given in the Bill. Merely to see it as a fund-raising or enabling Bill weakens the Government's case considerably and reduces any support that we on these Benches might have for it.
§ 4.12 p.m.
The Earl of Bessborough
My Lords, as the House may guess, unlike the noble Lord, Lord Bruce, I strongly support the Bill, and I shall not indulge in the type of rhetoric which he employed. I greatly appreciated the more balanced views of the noble Lord, Lord Tanlaw. I support the Bill, having been concerned with energy questions as a Minister and on the Opposition Front Bench in the 'sixties; and, as my noble friend Lord Mansfield knows, as an energy spokesman at the European Parliament for six-and-a-half years; and now, for some three years, as a member of the Energy Sub-Committee of the European Communities Committee of your Lordships' House, of which the noble Lord, Lord Kings Norton, is the chairman and of which the noble Lord, Lord Kearton, is a member, and I am sorry he has not put his name down to speak today because I intend to refer later to a few of his public utterances.
That considerable experience has led me to conclude that the disposal of BNOC's oil exploration and production business is a wise measure. It also leads me to agree with the Government's main objectives as outlined by my noble friend the Minister of State. I agree that this major step in reducing the size of the public sector should be taken. No industrial corporation should, in my view, be owned and controlled by the state unless there is a positive and specific reason for such an arrangement. There seems to be no such reason for direct state involvement in oil exploration and production. I must also admit, as my noble friend said, that the successful development of the North Sea has been overwhelmingly achieved by the private sector. Enterprise and competition are essential to the industrial success of the nation, and that applies essentially in the energy sector and particularly in offshore oil and gas development.
It is easy to be wise in retrospect, but I think the same kind of argument could have been used, as it was effectively in the United States, about the atomic energy industry in so far as it is concerned with civil uses such as the generation of electricity and the manufacture of isotopes. That is why I also welcome the privatisation—I regard that as a perfectly respectable new word—of Amersham International. The privatisation of BNOC will, in my view, be in the best interests of the corporation itself. After six years of existence, the corporation has built up very considerable expertise. It is rightly looking to expand and develop its potential without the inevitable constraints of the public sector. Britoil, as I think my noble friend made clear, will be free to develop on its own initiative and will, in my view, rank alongside other successful British private sector companies.
Another aim, as I understand it, is to achieve wide-spread share ownership among the public. Thus, the British people will have the opportunity to share more directly in the oil wealth of the country. Employees 484 of Britoil will also be able to acquire shares in the company, both as a reward and an incentive in its future success. I also agree that it must be important to maintain conditions which encourage the oil industry to invest in the North Sea. BNOC's preferential position in licensing rounds and its role as advisor to the Government have been rightly criticised by the oil industry as a disincentive to invest.
We should not, I think, jump to conclusions about falling oil prices and their effect on the sale of Britoil. Nobody can be sure how the oil market or the Stock Market will look in, say, six months' time. In deciding on timing, I feel sure the Government will consider it necessary to weigh up a variety of factors, of which current oil prices will he only one. In regard to share prices, I would say that in the case of Amersham International the taxpayer got a very fair price—19 times the prospective price-earnings ratio. Similarly, there is no reason why the taxpayer should not get a fair price in the case of Britoil.
It is clear that BNOC's prime purpose, after privatisation, will be to trade in participation oil. Participation makes an important contribution to strengthening our security of supply. It is obviously necessary therefore, in the national interest, to maintain under state control the 65 participation agreements currently in existence. It is also clearly desirable and necessary that those agreements should be managed by a fully professional trading organisation. With BNOC's trading experience, it will be well fitted for that role. I understand that directions will be issued to bar BNOC, after privatisation, from engaging in upstream and downstream activity, except to the extent necessary to discharge its participation trading role. I also understand that BNOC will continue to he a party to licences and related agreements and to hold any rights which are necessary for the exercise of participation options, such as access to relevant information, attendance at relevant operating and management committees and lifting rights.
But it is in regard to the British Gas Corporation, BGC, that the Bill is even more necessary. While recognising that the nationalised control of gas may have been desirable in the early days, I agree with the noble Lord, Lord Kearton—who was chairman of BNOC, appointed by the last Government—that monopoly buying, distribution and pricing had been had for industry, the country and the North Sea. Moreover, from listening to witnesses who appeared before the Energy Sub-Committee of the European Communities Committee, and while admitting that the job of the corporation is to transmit and distribute gas in Great Britain, I cannot see what possible justification there can be in their being involved in the business of producing offshore oil. There is none.
As for industrial gas prices, there is no doubt that in the past British industrial consumers have paid more for gas than their European competitors. That was abundantly clear from our deliberations in the European Communities Committee. Moreover, potential new industrial gas consumers were until recently deterred by British Gas pricing policy which required payment at an inflated tariff for an initial period before supplies could be obtained at normal renewal prices. That policy, fortunately, has now 485 been abandoned, but it is an example of the kind of malpractice which occurs when consumers are at the mercy of a monopoly supplier.
It is good to note that the recent NEDC Task Force report showed that, partly as a result of Government action to freeze renewal prices, the price of gas to industrial users is now in line with or below the prices paid by industrial users in other European Community countries. In future, we should have greater confidence that prices paid for industrial gas supplies will be fair, because they will be dictated by the market.
In so far as gas prices generally are concerned, I think we must be on our guard against those who suggest that the Government will cause gas prices to rise through the measures we are now discussing. It is, I fear, perhaps inevitable that prices will rise. The prices currently being paid by BGC are up to 10 times higher, in money terms, than they were before the oil crisis in 1973.
Some of the pre-1973 contracts are still running, but as supplies under those old contracts diminish the gas corporation will be forced to increase its prices. Whatever noble Lords opposite may say, this inevitable process is nothing to do with the provisions of this Bill. The important point is that gas prices in future will come under the influence of market forces, and this must be good for the consumer.
The Government's critics say that breaking the gas corporation's monopoly will reduce competition as the oil companies who undertake the supply of gas in the future will make sure that it does not undercut the oil products with which it will be competing. This is nonsense. For the oil companies to hold the price of their gas artificially above the price of their oil products would require the companies to act as a cartel. But in fact there is no cartel, and companies compete with each other in the market, as has recently been illustrated by the example of petrol prices. In the case of gas, competition is, if anything, more likely, as in any one area at any one time some companies will be marketing both oil and gas, others oil alone, others perhaps gas alone. Each will be competing with the others to win customers and sell products.
I should have liked, towards the end of my remarks, to say a word about the effect on conservation, but I think I have detained your Lordships quite long enough. There are just one or two final things I should like to say. Perhaps, in so far as conservation is concerned, I might just say this. In my view, by introducing competition and allowing market forces to operate, we should improve the ability of consumers to take sensible and well-informed decisions about conservation.
Overall, I am glad that the present Government are committed wherever possible to reducing the size of the public sector in industry by selling companies partly or wholly into the private sector. This policy is desirable because it not only brings in the fresh breeze of competition but also benefits the industries concerned in so far as it frees them from Treasury supervision and the inclusion of their borrowing in the public sector borrowing requirement. In the private sector they can develop and expand free from inevitable public sector constraints.
The Bill will undoubtedly help the consumer. As my right honourable friend Sir Geoffrey Howe remarked in July last year, all too often subsidies have been paid 486 in order to maintain production in those industries which were failing to sell their output profitably to the public. There is no doubt that we have tended to subsidise production of those goods the public sometimes wants least, produced by those processes which are relatively least efficient.
Protected from the market by monopoly or subsidy, state-owned industries have all too often deprived consumers of choice and failed to keep their prices down. In the private sector, companies will feel the spur of competition and be encouraged to maximise profits by providing good, efficient service at competitive prices. Thus the economy must inevitably benefit because the receipt of money from the sale of assets helps reduce the public sector borrowing requirement; and the public also benefits from the opportunity to buy stakes in the wealth of some of our major industries.
I was much encouraged to support this case when I heard what was said by the noble Lord, Lord Kearton, who I see is still in his place and who I wish was speaking later. I was interested to hear him last October on, I think it was, the BBC's "The World Tonight" programme. He was first of all asked whether the decision to denationalise BNOC represented a "black day" for Britain, and he replied as I heard it (no doubt he will correct me if I am wrong):No, in no sense. I would say that with the tax regime as it is, with the political control as it is, with the participation agreements remaining in being, I think it will go a long way to get the whole North Sea development given a new lease of life".That was the noble Lord, Lord Kearton, and I was very glad to hear that. It made me even more convinced of the wisdom of supporting this Bill.
One final point, my Lords. I hope my noble friends on the Front Bench are indeed happy about the safety regulations and the safety régime. From what my noble friend said I am assured that they will be adequate, but if the noble Lord, Lord Skelmersdale, would like to amplify points regarding the safety regulations I should be very happy to listen to them. Also, I would be interested if he has anything to say on the question of conservation. For the reasons I have given, I strongly support this Bill.
§ 4.28 p.m.
§ Lord Wilson of Langside
My Lords, in spite of the weight which we would all surely wish to give to the views of the noble Lord, Lord Kearton, which have just been quoted to us, I and we on these Benches would agree with the noble Lord, Lord Bruce of Donington, that the best thing the Government could do would be to withdraw this Bill and have another look at the problem. I only hope that the noble Lord, Lord Bruce of Donington, will not regard this as something of a "kiss of death", coming from these Benches, because in my recent experiences in the hustings in Hillhead my impression was that the mutual distaste of members of the Labour and Conservative Parties is far surpassed by their distaste for the Social Democratic Party.
This Bill has, of course, like all measures which come from another place, been variously described before it came here. Thus it has been praised as "tackling the problems of the nationalised industries in a common sense and undogmatic way", and "its purpose is to rescue two great public corporations from both the 487 bureaucratic embrace and the perversion to which immunity from bankruptcy inevitably leads." Behind this, there is the implication that with the spirit of enterprise liberated by the Oil and Gas (Enterprise) Bill the promised land will be ours. On the other hand, it has been attacked as an unprecedented exercise in public asset stripping, the biggest programme—and here comes the alliteration so beloved of politicians—of plundering of the public purse ever before Parliament.
The older and wiser ones, like us, in the House of Lords can smile tolerantly at these political punch-ups; but what will they make of it outside, in the real world, the real world where people work and play—and quite hardily at both—where they make love and make war and live and die, probably knowing just about as much of the technology of the oil and gas industry as I do myself. What will they make of it? The truth lies somewhere else and the reality lies somewhere else; and it occurs to me that it was to establish that truth that the Social Democratic Party came into existence.
This is not a wholly bad Bill; it is just that it has one or two flaws which are quite fatal. Let me seek to establish this, I hope, shortly, by looking at it from two aspects, first the particular and then the more general. Let me try to illustrate the particular aspect from the provisions of Part II of the Bill, which confers extraordinary and quite draconian powers on the Secretary of State. There is no dispute about that. The powers of Clauses 9 to 11 (which correspond in Part II to Clauses 1 to 3 in Part I) are quite draconian. Indeed, the Secretary of State, I cannot help feeling, somewhat puts Draco to shame.
The power is a power completely to dismantle the entire undertaking of the British Gas Corporation. There is no doubt about that. The power to do that is there. Of course, it is said reassuringly, as it always is on such occasions, that this power will not be used. Why, then, is it there?—because it is not just a matter of giving the power completely to dismantle the British Gas Corporation to the Secretary of State. It does not rest there. The noble Lord, Lord Bruce of Donington, has already touched on this and I make no apology for elaborating further upon it. It does not rest there. We go to Clause 31 and find that it shall be the duty of the corporation to comply with directions given by the Secretary of State:notwithstanding"—and these are the words that I emphasise—any duty imposed on it by or under any enactment".I wonder whether the Government have really thought of the full implications of this provision compared with what was put in the other measure of the Conservative Government in 1972, the Gas Act. In Section 7(2), of that Act there was the similar usual power in this context which allows the Secretary of State to give directions to the corporation and requires that the corporation shall give effect to such directions. Then the proviso there, in sharp contradistinction to the one in the present Bill, provides that the Secretary of Stateshall not give any direction under this subsection unless he is satisfied that he will not thereby impede or prevent the proper discharge of the corporation's duties".488 Very proper! Before the Secretary of State gave any directions he had to be satisfied, he had to ask himself the question: Is this direction which I am about to give consistent with other duties resting upon the corporation?
This now all goes by the board in the present Bill. Under Section 2 of the Gas Act, there are the principal duties and powers of the corporation. The principal one is the duty to develop and maintain an efficient, co-ordinated and economical system of gas supply for Britain and to satisfy, as far as it is economical to do so, all reasonable demands for gas in Britain. The position now, if this Bill goes through as it stands—and there is no control over this except in the negative resolution procedure—is that the Secretary of State can give a direction to the Gas Corporation and, if the chairman of the Gas Corporation says, "But, Secretary of State, if I do that, it will conflict with my over-riding duties under Section 2 of the 1972 Act", then I can hear the Secretary of State saying, "Do not worry about that. You just do as you are told".
I am advised that this sort of thing can happen. It is not something imaginary. It could happen in the real world. The Secretary of State is not taking away the responsibilities from the Gas Corporation, but he is taking the power to tell it how to do its business—and this is the Secretary of State who has said, and said more than once, that the business of Government is not the government of business. If it is said that the power would never be used in that way, why take it? Why protect it with nothing better than the negative resolution procedure? It is really a classic example of the power without responsibility syndrome the implications of which I need not remind your Lordships.
The matter of the Secretary of State's powers does not rest just there. The Bill is essentially an enabling Bill. Under its provisions, control of the development of the transmission system, I am advised, will effectively pass from the British Gas Corporation to the Secretary of State. That is a radical departure from existing practice. It offends against the principle that responsibility for development must rest with those who carry the responsibility for the safe and efficient operation of the system. This is quite crucial. I am advised that, since, in terms of Clause 12 of this Bill and the new Section 29A of the 1972 Act, the Secretary of State will have no control of supplies above two million therms a year, this effectively means the abandonment of the current depletion strategy which has been agreed between the British Gas Corporation and successive Administrations. My point about this particular part of the Bill is that, unless some effective Parliamentary control is introduced at Committee by someone, then the Bill should he regarded by your Lordships as quite unacceptable.
May I turn briefly to the more general aspect by reference to which I would seek to establish that there are fatal flaws in this Bill? Surely one matter is, if not certain, then reasonably clear to most peole in this country outside Parliament who think about it. Of course all is not well in the public sector. No one claims that. We know that there are problems which must be tackled. Having said that, the argument about nationalisation and private enterprise which had real relevance in the years before and immediately after the Second World War—relevance, I venture to suggest, 489 both to the political and social and to the economic and industrial state of the nation—today is largely sterile and irrelevant. Yet in the Mother of Parliaments that argument rumbles on to the intense boredom of most of the people outside. They know—do they not?—that if we are to achieve economic and industrial success and, above all, stability we can only do so on the basis of a mixed economy; and they know too that the functioning of a mixed economy is only hampered and added when Government have a doctrinal commitment to either the public or the private sector and an ill-concealed doctrinal distaste for the other. I say ill-concealed, but of course, as the noble Lord, Lord Beswick, has frequently said in this House and as the noble Lord, Lord Bruce, said today, there is no attempt on the Government side of the House to conceal their doctrinal distaste for the public sector, and that can only hamper and addle our attempts to achieve economic and industrial success and stability.
Recent events over a considerable range from that week-end just about a year ago in Brixton to events in the Falkland Islands suggests that the Government's thinking is more than somewhat confused. That would explain much, including the question mark of the grave doubts raised in the minds of many as to their competence in a range of spheres from law and order to foreign affairs. Here in the controversy that has surrounded this Bill in the other place and outside in the country I see further evidence of this confused thinking.
It has been said—not just once but more than once, and I have referred to this already—that the Conservative Party does not believe that the government of business is the business of Government. I cannot recall what attitude the Conservative Party took when the business of the slave trade was abolished in 1807 and slavery was abolished throughout the Empire in 1833. I have not checked from the history books, but my suspicion is that the 1807 event took place during the short interregnum of a Whig Government during the Napoleonic Wars. Of course, the events in 1833 must have taken place just after the first Reform Act. I do not know what their attitude was then, but of course the Conservative Party since then have done their share of governmental regulation of business.
So far as oil is concerned, there is the tax régime, taking into the public coffers up to 90 per cent. of the oil revenues from individual fields—more, I believe, than when the Labour Party were in office. On top of the participation agreements and the tax régime, there is the host of regulatory controls of various kinds. How do we ensure that all development is carried out in accordance with good oilfield practice, that recovery of oil and gas is maximised, that wasteful or inefficient development is avoided, and that production limits for oil and gas are in accord with the national interest? We do it by power to achieve these aims conferred on Government, and this Government acknowledge the need with one voice for such power and with another say that the government of business is not the business of Government. That, my Lords, is what I mean by confused thinking, and, when the Government's thinking is confused, their competence is impaired.
§ 4.47 p.m.
§ Lord Lovell-Davis
My Lords, when this Bill was first announced, the Secretary of State said that it represented the biggest programme of privatisation ever to come before Parliament. In my view, it also represents potentially the most disastrous programme of privatisation ever to come before Parliament. What is more, it will be implemented by a Government whose financial acumen in such matters hardly inspires confidence.
Basically, the Bill is the battle plan for a major attack on our two most successful public sector energy corporations. The motives are all too depressingly familiar. This is yet another manifestation of the dogma of monetarism and the belief in the miraculous powers of free market forces.
However, I do not wish to pursue the political argument. Nor do I want to re-run the arguments for and against nationalisation. I believe that there are certain sectors which, in the public interest, have to be taken into public ownership. I should like to see much more Government participation in others which greatly affect our lives and well-being, but I happen not to be a wild-eyed, or wide-eyed, all-out nationaliser. What I am trying to do is to look at this Bill as a one-time Minister at the Department of Energy and a junior member of the Government which set up the British National Oil Corporation, and to assess its possible effects on our overall energy policy and on the long-term interest of this country.
Since the first eight clauses refer specifically to BNOC and the national oil account, perhaps it is as well to consider why the corporation was established. The first broad reason was, as my noble friend Lord Balogh pointed out when introducing the proposal to set up BNOC in July 1975, the need,to strike a just balance between the need for the Government to have adequate control over and adequate revenue from the oil and gas, and the oil industry's legitimate commercial interests".It was clear at the time from a PAC Report that this balance had not been achieved as a result of the 1964 Act and the licensing rounds that had taken place. Other countries were doing a great deal better from their oil than we were from ours. Therefore, the sensible thing was to emulate their example in developing state participation in the oil industry, and this necessarily meant the creation of a state oil company. There was also the matter of control: control of the rate of production—a depletion policy—control of dealing with licence rights and many other activities of the oil companies operating in the North Sea. One can hardly exercise proper control in any situation without adequate information. It was essential—in my view it still is—that we should be able to gain our information at first hand and not be dependent for it upon vast impersonal companies with no special allegiance to our long-term national interest.
Today, six years after commencing operations, BNOC has proved to be an enormous success and it is achieving the aims for which it was created. It is a direct operator, an equity partner in fields in production and under development, and it is in equity partnership with nearly 90 companies on the United Kingdom continental shelf. What is more, the corporation has made a pre-tax profit, as has been pointed out already this afternoon, of £309 million in 1980. I understand 491 that figure is likely to rise to £500 million in the following financial year. So BNOC is a large successful operator, active in exploration and production; it is a profitable company and the eyes and ears of the nation in safeguarding vital but not inexhaustible assets: our oil and gas.
On the face of it, except for the fact that it demonstrates by its very existence what is for the present Government the dreaded combination of success and public ownership, there seems every reason for encouraging it on its way and indeed helping it to extend its activities overseas as well. But we find that the first eight clauses of the Bill destroy the whole concept on which the corporation is based. It is to be smashed up and split into two ineffectual parts. One of them will be a middling, not to say trifling, oil company attempting to keep its end up in exploitation and production among its much bigger sisters, and the other will be a corporation simply involved in selling participation oil, living on small management fees and capable of making big losses. The whole proposal is incomprehensible. What is the purpose of breaking up a successful state corporation and handing the North Sea over to private enterprise, except to create a sort of marine version of the Yukon in the interests of political dogma?
Instead of our having a major presence in the North Sea, we are to be given 49 per cent. of a minor oil company and the public—which will almost certainly mean only large investors since, whatever Tory philosophy says, the British public are not heavily into dealing with stocks and shares—will be offered 51 per cent. of Britoil. It seems a sorry and wholly unnecessary end to a great and successful enterprise. The Secretary of State at Second Reading in another place referred to the Bill as,a landmark in the history of national policy towards Britain's energy resources in the North Sea".That is a nice way of describing what I see as a half-submerged reef on which our energy policies may well founder.
The treatment proposed for British Gas is equally astonishing. No one is pretending that the corporation is perfect in every detail, but it provides a remarkable service, it takes a highly responsible attitude to its duties to its customers and the long-term interests of the nation; and the efficiency and speed of its turn-round to natural gas was an immense achievement. Its reward seems extraordinary by any standards of judgment, for it, too, is to be penalised for its success. Apparently the fact that British Gas enjoys a monopoly in the supply of gas and quite fairly negotiated low prices for Southern Gas is preventing the producers from exploring for and exploiting new sources of supply. They want more money and the Government, on the admission of the Secretary of State and confirmed this afternoon by the noble Earl the Minister, intend to give it to them. The effect on gas prices to the consumer as a result of introducing what has been described as a North Sea gas auction, is foreseeable. Neither the domestic nor the industrial consumer need expect lower priced gas once these proposals are implemented. I think my noble friend Lord Bruce of Donington has nailed any claim that they will, or are even expected to, lead to lower gas prices.
492 More worrying, however, is the matter of depletion. If the producers are given their heads, if the monopoly of the supply of gas is taken from the corporation and the distinction between premium and non-premium uses is removed, we could be set on a dangerous course of exhausting supplies which, however large they may turn out to be, are not limitless. I hope that, when he comes to sum up the debate, the noble Lord will have some crumbs of reassurance to throw to us on this score. There is precious little about it in the Bill.
The cost to the consumer and depletion of supplies are only two of the many disturbing questions that this Bill leaves unanswered. There is the matter of the British Gas Corporation's ability to guarantee supply to its domestic consumers. It has a statutory duty to do so, but what is its position going to be if it has to dispose of assets which are essential to the carrying out of that duty? And how is the consent procedure going to operate in practice for private suppliers providing less than 2 million therms?
There is also the question of safety. As the noble Earl the Minister said, there is certainly no reason for complacency. The use of British Gas pipe-lines by private suppliers will call for the most stringent of safety regulations. And do the safety arrangements referred to in the Bill deal with the regulations which will certainly be needed before the gas showrooms are sold off? It seems to me that we need to know a great deal more from the Government, and in specific terms, about safety, both offshore and onshore, and for both oil and gas, before the Bill leaves this House.
We also need to know more about possible foreign intervention in British energy supplies, as the noble Lord, Lord Tanlaw, has pointed out. It is essential that we retain control over these vital assets. How does the Bill meet this particular threat? There are so many worrying issues raised by the Bill which have been aired during its passage through another place and again raised by noble Lords this afternoon, that it is difficult for any individual to cover them adequately, and I shall not try to do so. But perhaps the most disturbing aspect of this Bill is the tremendous power it gives to the Secretary of State. That has been referred to by other noble Lords today and in some frightening detail by the noble and learned Lord, Lord Wilson of Langside. This power underlines everything else in the Bill. As my right honourable friend Mr. Merlyn Rees said in another place:The Secretary of State will be able to do what he likes".That is true. Under Clause 2 he can, as my honourable friend Mr. Rowlands pointed out—and I quote—amend, alter, approve or disapprove any scheme proposed by the BNOC. He also has such power in relation to any schemes proposed by the British Gas Corporation. According to Clause 2, not one of the schemes will be subject to any form of parliamentary approval, amendment or scrutiny".That is a state of affairs which, frankly, I would not have thought would commend itself to many noble Lords opposite; nor does it seem to square with the words of the Secretary of State when he led off his introduction of the Bill in the other place, at Second Reading, by saying, as Lord Wilson of Langside has just reminded us,the proper business of government is not the government of business".493 My fundamental objection to this Bill can be stated quite simply. It is this. We are in a very favoured position, so far as natural energy resources are concerned, but that does not mean that we can be profligate or fail to plan ahead, and to plan carefully and in great detail. We should be aiming for an integrated energy policy, making the optimum use of the resources we have.
We should, in this instance, be asking ourselves: who will develop the marginal oilfields on the United Kingdom continental shelf, if there is no strong state oil company to do so? What is the likely effect on the coal industry of making gas freely available for a possible range of uses for which coal should, in fact, be burned—not gas? The noble Lord, Lord Tanlaw, has already referred to the possibility of gas being used for steam-raising. It never should be used for such a purpose. Can we really, with any confidence, abandon such a crucially important matter as our energy future to the play of free market forces?
In my view, these are not constructive proposals. The Bill seeks, for reasons which I consider reprehensible, to break up and destroy, rather than to build on the firm foundations that already exist. It offers nothing to the concept of an integrated energy programme, which is the only hope that we have of realising the full potential of the priceless assets that have accrued to the British people—our coal, oil and gas. As my noble friend Lord Bruce of Donington said, it offers nothing either to our economic recovery or to solving the problems of unemployment.
The strength of the Government's determination to privatise what should be taken in trust for the whole of our people has already been demonstrated in another place, where the guillotine procedure was applied to the Bill. No doubt they will marshall the forces which they have available to them in this Chamber to carry it through. One can only hope—forlornly, I suppose—that noble Lords whose support they seek to enlist will not adopt a wholly dogmatic approach to the Bill, as it goes through its various stages in this House, but will consider its full and depressing implications for the future prosperity and well-being of this country.
§ 5.2 p.m.
§ The Earl of Lauderdale
My Lords, it is a real pleasure to follow the noble Lord, Lord Lovell-Davis I was going to say that it is quite like old times, but he has mellowed a good deal since the days when he and his noble friend Lord Balogh—and I count them both personal friends, anyway—piloted the Bill through this House creating the BNOC.
The noble Lord, Lord Lovell-Davis, clearly knows quite a lot about this Bill. He raised one or two serious points relating to depletion and so on, and did so in a manner markedly more moderate and more relevant than those of the noble Lord who spoke for 31 minutes from the Front Bench. He gave us all but one of the clichés which are known to the public—"squalid and completely irrelevant", "3 million unemployed", "low production", "industrial relations", "not in the Tory manifesto", "pathological hatred and social imperatives". All the lot. There is only one cliché, which is known to noble Lords, but out of deference to ladies in the Gallery I shall not allude 494 to it, which he did not mention. More to the point is the very simple claim that this Bill is bad for the oil industry, bad for the gas industry, bad for industry in general, bad for the economy and bad for jobs, whether we are talking about the BNOC or the BGC.
Noble Lords opposite may be interested to be reminded of a very remarkable testimony which issued on 19th October last from the very man whom they invited to preside, and who did preside with such spectacular success, over the early fortunes of the British National Oil Corporation. I refer to the noble Lord, Lord Kearton. I have given him warning that I proposed to quote from something that he said, and I gathered that he has no objection to it. But in "The World Tonight" programme on 19th October last, he was asked whether the news that the BNOC was to be denationalised was a black day for Britain, and I quote his answer. He said:No, no, in no sense. I would say that with the tax régime as it is, with the political control as it is, with the participation agreements remaining in being, I think it will go a long way to get the whole North Sea development given a new lease of life.I invite the noble Lord, Lord Bruce of Donington, who does not, apparently, suffer at present from laryngitis, but I think he will get it one day, just to swallow those words again:… it will go a long way to get the whole North Sea development given a new lease of life".Those are the words of the man who was invited to preside, and who did preside with brilliance, over the first years of the British National Oil Corporation.
Then what about the BGC? The same noble Lord was also asked in the same programme what he thought about that, and I again quote, with his permission, from the public record. He said:I think that the nationalised control of gas was essential in the early days, and I think it has been brilliantly successful, and I think that the Gas Corporation have been brilliantly led not only by Sir Denis Rooke, but by his predecessor"—wait for it, my Lords—But I do think the time has now arrived"—Lord Kearton speaking—where the control of complete monopoly buying, monopoly distribution and monopoly pricing is, in fact, bad; bad both for industry, for the country and for the development of the North Sea. So I think to break up the Gas Corporation's monopoly is extremely sensible".Those are not my words. Those are the words of a brilliant tycoon who took over the British National Oil Corporation and presided over it brilliantly, but who is a realist and understands the business of the North Sea.
For a moment, I should like to distance myself a little from the controversial issues of this Bill and state the case, as I see it, for going down this road. The real question is how the main energy decisions should be reached for a situation 20 or 30 years hence, when lead times are 10 to 15 years each, whether we are talking about power stations, collieries or oilfields. Focussing those decisions principally in Whitehall, and on the nationalised industries, has led to several consequences.
First, successive Governments have usually ducked the long-term question with the motto "Keep your options open". Secondly, Governments have put short-term issues first and the classic example—and I shall not hesitate to repeat it in the ears of my own 495 Front Bench—is a change in the tax régime in the North Sea six times over in less than three years. Then, again—I think noble Lords will find that I am pretty balanced and even-handed in what I am saying—there were the silly arm-twisting exercises to try to get a gas-gathering pipeline, a public utility, going, without a public Government support guarantee. Then another area of mistake—error, shall I say?—has resulted from this endeavour to focus energy decision-making either in Whitehall or in the centralised, nationalised industries. The gas, the coal, the electricity and the oil supply industries have been taking long-term decisions on a disaggregated basis in isolation, and, as a rule, in response to current fashions of thought—for example, as to what the price of oil is or is thought likely to be. This has not provided for our country a coherent energy strategy for the future.
The alternative to trying to get Whitehall and centralised organisations like nationalised industries to take these decisions—and they quarrel like Kilkenny cats—is to go down a different road altogether. That is the road initiated by this Government and pursued by the Bill. It is to leave the free market to send the right price signals to consumers on the one hand and to investors on the other. But there are drawbacks. I see three straight away.
First, the price signals to consumers are often slow in getting through. Secondly, the price signals to investors with regard to long-term trends are by no means always clear. Finally—this is the counterpart to which I hope a future Tory Government will address their mind or, at any rate, the free economy will give its mind to—there is no energy futures market. If there were such a market, the mistakes of investors and others could always be hedged. Then the market would be giving signals which were effective.
What we are looking at in the Bill is a first substantial step towards a completely different system of energy decision-taking in the long-term. I do not pretend that the Bill will solve more than a certain number of problems. It may be that the Bill will raise as many as it solves.
§ The Earl of Lauderdale
It is all very well for noble Lords to cheer, but some of them know very little about it—very little indeed. That is true. Noble Lords know that very well. However, a degree of Government intervention remains inevitable if only to hold the ring and create the context. That is and will remain inevitable until the fiscal régime is seen to be stabilised. On that may I say that the Government's decision in the Budget to stabilise, as they said, the tax régime for the North Sea is not good enough as it stands. It needs to have the support of all parties in Parliament. Then the industry would see that it would stick like the Varley assurances. I should like to see a Varley assurances kind of régime applied to the North Sea fiscal system. Secondly, this approach to stability in energy decision-making requires that a stable fiscal régime is underpinned by a broad parliamentary consensus surviving through more than two Parliaments at the least.
This, as I see it, is the real argument for taking this 496 route. It is to get price signals going. I do not pretend that the Bill goes very far in the direction that we need to go. However, I do believe that it goes in the right direction. With regard in particular to the tirades—I think "tirades" is the word—which we have heard about national assets being thrown to the wind, a very telling phrase was used about the meter pennies of the poor going into the pockets of the rich. It was a very colourful phrase, and I may borrow it from the noble Lord, Lord Bruce, and use it on another occasion to my own advantage. But all that is a lot of rhetoric. With regard to the BNOC, the present chairman, Philip Shelbourne, has made no secret whatever of the corporation's wish first of all to be free of Treasury control; secondly, to be free of the Oil Account (a lot of money is going into it but not much money is coming out); to be free of the mystique of the PSBR; to be free of restrictions on expanding and investing overseas; and, above all, to be free of restriction on its exploration operations. On all those points, the present chairman of BNOC is on public record. However, there are some reasonable anxieties about the approach of the Government to BNOC and I ask this question: having hived off the exploration side from the trading side, can the trading side in fact flourish with a falling oil price and a falling or, at any rate, a low exchange rate as between sterling and the dollar? And if it does not succeed, then will it end up as part of the Department of Energy? And nobody will be the better off for that.
My second question, which is a serious one already raised by other speakers, is how is Britoil to be floated off? After the Amersham International affair, I hope that the Government will consider the possibility of a two-stage operation. The first stage might be the sale of, say, 10 per cent. of the shares by tender to the institutions so that a market price can be established. Then, later, let the balance be offered to the public at, let us say, a discount of 5 or 10 per cent. with careful arrangements made to make sure that it goes to small savers and that there is no duplication of applications. People must not only pay their cheques but the cheques must be cashed straight away, even if the money has to be returned later, so that the stags are cut off at the ankles. This I believe is an approach to flotation which might be worth considerating.
One of the difficulties about the British Gas Corporation is that, thanks to its monopoly, it has been able to push its market on very favourable terms against the interests of coal, electricity and heavily taxed oil, indeed, it has been a kind of pirate—a kind of state pirate in an area where co-ordination of energy decisions and energy consumption is urgently needed. The British Gas Corporation charged such low prices to domestic and commercial consumers that their demand rocketed until industry could not get what it needed. This is, of course, why the Chemical Industry Association and other bodies pleaded with the Government to undertake some such measure as this.
We have been told much about BGC's profit record. I am not a financial man. All I know about balance sheets is that if you get it right, the assets are on the right side and the others on the other side. However, I do follow the Financial Times. I notice that the Financial Times are by no means so enthusiastic about BGC's vaunted profit record as are noble Lords oppo- 497 site. I am now quoting from recent articles in the Financial Times. One of them draws attention to the gross profit of £54 million over 1981–80 on one aspect of its operations. How did that relate to costs? How did the oil revenues of £92 million affect costs and profits? Why did the regular service contracts and the installation of new appliances make so great a loss? The answer to that question is to be found in some tart comments by the National Gas Consumers Council, who relate a whole saga. Finally, when almost every other industry in the country is improving its productivity notably—this is particularly true of the coal industry and of many aspects of manufacturing—how is it that the gas volume per employee stayed more or less the same for three years in succession?
Then we have had a virulent political campaign by Sir Denis Rooke, who has not scrupled to tell the oil companies that this Bill will not take effect, anyway. He has told people not to mind what Parliament does and he has ground out the old socialist argument that we are being deprived of our great natural resources. In fact, the British National Oil Corporaton and BGC together do not own more than 8 or 9 per cent. of all the North Sea oil output. So much for our heritage being scattered to the winds.
It is forgotten, although I will remind noble Lords opposite, that the Labour Government in 1976 sold off some 17 per cent. of the Government's share in BP. This was because they had to borrow £1 billion or so from the IMF. They sold those shares for some £500 million. It is as well to remind them also that the Petroleum and Submarine Pipe-lines Act 1975 transferred £100 million worth of BGC oil assets to the British National Oil Corporation for a mere £50,000 or so.
The British Gas Corporation's complaint that the common carrier system will end flexibility in deliveries is one that has caught a certain amount of attention. But that complaint speaks for itself. There will be no damage to the flexibility of supply, if BGC play the game as laid down by Parliament when this Bill becomes an Act. What is important is that BGC, from the chairman down to the humblest employee, realise that their role from now on is to be a trustee for a pipe-line system. They will have to see that various measures are taken which make that trusteeship real. For example, there must be gas exchange and balancing servicing services, both between the BGC and private enterprise and between the private enterprise companies themselves. There must be facilities for private enterprise suppliers to borrow gas from present supplies contracted under monopoly against repayment in other supplies later on.
Finally—and this is very important—BGC must disclose costs, revenues and volumes relating to the performance of the common carrier pipe-line in order to make serious tariff negotiations possible. I believe that the Government should write into the Bill either a direct or an enabling provision so that there can be quick and simple arbitration mechanisms should it happen, as many people fear it will, that BGC obstruct negotiations with private enterprise. The Government should also concede—and this is critical—a full right to export gas, otherwise there is virtually no market mechanism coming into effect. We have heard from the Secretary of State that he is prepared to consider export once United Kingdom needs have 498 been satisfied. But, in the context of Europe as a whole, in the context of a Europe which has enormous gas resources in the Norwegian sector, that is an unrealistic restriction. The only real way in which to bring the market mechanism to bear on gas supply, exchange, and price is by allowing export as well as import. One hopes that the Government will take a further look.
It is because some parts of the industry suspect that the Government are going to hold back on allowing the export of gas, that there will not be adequate arbitration procedures, and that BGC will in fact obstruct at every level the endeavour to enter negotiations, that they still remain to be convinced that the monopoly is really going to be broken. However, there was the hopeful news today in the Financial Times that two of the largest American companies—Conoco and Amoco—are getting together with others to form a consortium to face the problems which will arise.
One point that has been given very little attention in the speeches of noble Lords on the Benches opposite is the need for more gas exploration. The fact that gas exploration has been positively discouraged by the low prices paid by BGC as a monopoly has been overlooked. I believe that we need more gas—but less hot air.
§ 5.25 p.m.
§ Lord Balogh
My Lords, the noble Earl and I have fought very many battles—most of them good natured. But today I felt that the noble Earl wanted to emulate his noble friend Lord Thorneycroft—the chief entertainer of this House. Perhaps I misunderstood him, but it seemed to me that he claimed that a figure of three million unemployed is somehow an achievement.
§ The Earl of Lauderdale
My Lords, the noble Lord, Lord Balogh, would not want to misrepresent me and neither would I wish to misrepresent him. All I said was that the existence of three million unemployed and all these arguments about industrial relations are not in this Bill. This is a Second Reading debate on the Bill, and not a debate on the general economic situation.
§ Lord Balogh
My Lords, the oil problem has been historically determined. The industry has had its ups and downs. At one point, the industry became a sort of political football, and it still continues to be so. That is a pity, because in many other cases, mainly involving loss-making industries, the Government have been quite prepared to leave them alone.
The first steps taken by the British Government into the oil industry were undoubtedly unfortunate. The Geneva Convention divided the sea-bed according to the shelf being a part of the structure of the whole country. As a result of that, our shelf ought to have embraced a large part of what is now the Norwegian shelf. The negotiations were very lengthy and not 499 very conclusive. At first, the then Tory Government did not ratify the Geneva Convention for four years. Then it enacted the 1934 Act. At the same time, the Government also let a number of licences. These licences had no provisions for controls or for collective determination of prices. At the same time, the gas situation about which the noble Earl was so discontented allowed us to charge very low prices for gas and even lower prices paid to the oil companies. The oil companies were paid on a cost-plus basis. What they wanted was to be paid on a world price parity basis. The difference, of course, would have been colossal. It would have meant that the most valuable of our national natural resources, which surely ought to belong to the community, would be handed over to the oil companies.
What was worse was that among the oil companies it was the Americans and the French who got an undue share. At the moment the British share is 40 per cent., even if we include Shell as a British company, which of course is not altogether so. How the Minister was persuaded to accept this as the original line is still a secret, but he certainly was very much influenced by the department, the department then having a view very much like the noble Earl's.
Much the most important break, with the possibility of having a rational system of exploitation in the North Sea, was the licensing fourth round. This assigned the best territory, an enormous extension of territory, by a discretionary process. The licensing did not regulate the procedures in the oilfields, and no technical supervision was secured. The licences were in the form of contracts rather than by way of regulations. Thus unilateral change would attract compensation which a change of regulation would not.
Even more typical was the refusal to indicate what measures could be taken to secure a due part of the vast profit for the community as a whole. There were some vague references to heavy taxation—I think by Lord Carrington; heavy taxation may have been in preparation, but there was no action followed until the end of the Government in 1964. This was accompanied by a refusal to end the favourite tax loophole which permitted the charging of tax payments abroad against North Sea profits. It was an all-party committee, the PAC, which brought this scandalous situation to the fore and to the public. Had no action been taken it would have cost the Exchequer £4,800 million accumulated in the past, and the claim would grow at the rate of £240 million per annum. The departmental brief gave a completely misleading picture of the situation and the consequences of the policy followed.
This was the situation when I found myself as Minister in the Energy Department more or less in charge of oil. We proceeded on two parallel lines. The revision of the technical aspects came quickly, still operated through the licensing procedure so as to avoid any legal difficulties about retrospection. Licences would be given to firms under the following conditions: firms should submit production plans and follow advice; firms should allow 51 per cent. equity participation to BNOC; firms should carry all expenditure until commercially viable finds were made, but the BNOC would then have to pay its share of investment. I do not think there is any unfairness in that. Any 500 change in the composition of the private sector consortia would be subject to departmental approval, which could lay down further conditions and did so, so far as mergers and that sort of thing were concerned. What was even more important, indeed the most important, was that BNOC representative would have the right of membership of the boards and operating committees of all licensees.
Such was the position, and it would have enabled us to have a pretty confident knowledge of the profits and the tendencies and the working habits of the various corporations. Why did all this happen? I think this is explained by the speeches which the noble Lord, Lord Cockfield, from time to time lets loose upon us. They are obviously befuddled by their conviction that we still live in a neo-classical market; that is to say, that supply and demand are automatically balanced; that is to say, that no participant could influence the market signals, that is prices.
This, of course, was rubbish, but it has been accepted implicitly and explicitly by the present Government. Yet is is an undeniable fact that in all manufacturing and most service industries oligopoly persists, so that price movements and the sort of thing the noble Earl wants to call in to help us to establish an optimal system does not work. The labour market has also been transformed from what it was in the old days, when you had price and wage cutting in a slump, into a battle of monopolies, which is as bad for trade unions as it is for the country and the Government. Unless a more civilised way of solving the problem of wages and differentials can be found—that is, a conscious substitution of rational discussion instead of working through the "new" price system—the automatism of the market would be displaced into sectional struggles.
Much of my time and effort was spent in repairing the damage done in the first four licence rounds by Mr. Heath's Administration. Once it was accepted that the country was faced with a complicated matrix of corporations which could and would influence the market, all these claims for using the market of course disappear. Some means had to be found to monitor the real costs and prices so as to arrive at a balanced view of policy means and policy aims. In our own particular case it might open the possibility of repossessing for the community step by step what had been given away in 1972. The BNOC could supply the department with essential information from the inside. This, in my opinion, is indispensable in the case of giants dominating our most important markets. At the same time the BNOC could then have an inside view of the overall situation and could inform the Government. The recent hapless hesitation over North Sea oil prices, which really ended up with losses to us, shows clearly how needful this is. It is difficult to get at the truth, but we must do so. The department could not possibly afford really first class people because of the American competition and their completely different wage/salary systems.
Noble Lords opposite will be delighted at the sale of BP and BNOC shares, as we heard just now, because in their view this will transform industry and the small investor will again acquire a voice. However, there are very few of these small investors, except through pension funds. But, whatever happens, the 501 dispersal of stock, the more widely spread holding of shares, would in fact be likely to result in the increase in the independence of the managers. They would be in a completely dominant situation because the scattered shareholders would not be able to combine in order to vote against them. In modern economics and finance shareholders will not change their policy. If the shareholders are dissatisfied they sell their shares and buy something which pleases one more or which is probably more successful. There is no real accountability to anyone.
Much the most important and disgraceful measure was that to the gas corporation to divest itself of the best on-shore field it had discovered together with BP. Hardly had we heard the news than they wanted to force the BGC to sell it, when it was learned that the estimated oil reserve of the field had doubled. I can imagine that there was some sort of conscious action behind this, but it must be said that it emphasised the enormous risk of not having some sort of overall control of an industry which has become as powerful—indeed, more powerful in some countries—as the Government themselves.
By the way, gas is not monopolised; it is monoposonised. There is a monopoly of purchasing and not a monopoly of selling. However, perhaps that is something which need not worry us.
According to the Government, the revenue gained by selling capital assets reduces the PSBR and therefore is deflationary. Not a bit of it. When deposits are passed to the Government in exchange for shares, those deposits are likely to be used. That is to say, their velocity of circulation, in comparison with the pre-action, increases, and thus any net influence on the economy is lost.
Much play was made by Mr. Lawson about the joys of the reprivatisation of exploration and production. He claimed once more that this will also relieve the balance of payments. It may support the balance of payments for a time, but not for very long. In the future the cumulative sales will create a situation in which the stock market will be uncontrollable—which has happened about four or five times in the last three years—and the expenditure side of the equation will be negative. This is a striking further example where an unrecorded movement of the true velocity of circulation of money might cause disturbances which the new quantity theory simply ignores.
The reprivatisation and suppression of the BNOC will endanger the attainment of a due "take", because the structure of the market will be decisive and will no longer be restrained by the forces of the imaginary neoclassical world. I suggest that the present policy, especially in gas, will inevitably cut the "take" from the hydrocarbon discoveries, and the balance of payments will be much the most affected. I assert that all these things put together add up to a permanent slowing down of increase in our national income and a fall back into an even worse position than we are in at present. The escape from this will be very difficult indeed.
I think that I subscribe totally to what my noble friend Lord Bruce of Donington has said about what measures a future Labour Government ought to take. I completely agree that the restoration of the status quo 502 is an essential step in harmonising the various economic factors for a speedy recovery.
§ 5.48 p.m.
§ Lord Donnet of Balgay
My Lords, it is perhaps not unexpected that the introduction of a Bill which changes the existing state of things in two of our most important energy industries, should cause some heat and some controversy. It has certainly raised the point as to whether or not the public or the private interest is being served. I am to be numbered among those who express concern that the Government have found it necessary to provide a new legislative background for the privatisation of a great deal of the British National Oil Corporation and of the British Gas Corporation. I would assert that the two national public industries mentioned are, in anybody's language, and subject to the depression which we are going through, dynamic and enterprising; in world energy terms of the highest importance; and in financial and employment terms, running at the head of the United Kingdom league. Industries that qualify for those descriptions are the stuff of which prosperity is made, and this country of ours badly needs that.
Coming from my part of the United Kingdom, I am specially sensitive to the fact that the Scottish community, of which I am part, is deeply interested in this Bill, especially perhaps because at present it is the areas in and around Scottish seas that are being exploited for the raw materials that form a base for the industries mentioned in this Bill. It is also worth a mention that among the by-products are the consequential material benefits to the United Kingdom economy and to the nation's central fund in the British Treasury.
As this is a Second Reading debate, I shall try to make my concern manifest by speaking to those clauses which are described as the "gas" part of the Bill. Incidentally, I am informed that when the Bill was being examined in the other place the process of explanation and answer was somewhat affected by that French instrument, the guillotine. This debate should go some way towards rectifying that shortcoming.
I have another appropriate reason for dwelling on the "gas" part of the Bill. For many a long year I was national chairman of the gasworkers' union, during which period I helped to co-operate in the build-up of the outstanding industrial relationships that exist in that old industry—relationships that carried the industry through its long history to its present peak with the minimum of dislocation. Over the last 30 years in the gas industry in this country we have seen a complete revolution: gas produced by the carbonisation of coal, moving on to the use of the light distillates, moving on to the almost complete use of natural gas, and perhaps the present preparations continuing and the process going back again to substitutes for natural gas.
We had a very robust explanation of the principles of the Bill, not from the noble Earl who introduced the Bill on behalf of the Government, but from my noble friend Lord Bruce of Donington. I think that his first point dealt with the first point in the Bill. The Bill's first concern is the removal of the existing legislative qualifications preventing the disposal of assets if 503 they are required to meet the gas corporation's statutory obligations. Therefore, I should like to support his assertion that the provisions of the Bill are a complete irrelevance to the operational vitality of the British gas industry.
The second point about this legislation is that British Gas would also suffer a loss of buying rights. However, I am sure that Members of your Lordships' House will be aware that, although British Gas has the first opportunity of buying gas at a reasonable price, where an offer is not considered reasonable the Secretary of State has the power to consent to an alternative supply. Thirdly, this Bill puts at risk the gas corporation's supply monopoly, including that to domestic customers beyond 25 yards of the gas main in the distribution system.
Subject to the direction of the Secretary of State, this Bill provides that British Gas would be required to provide a transmission service to carry gas on behalf of others. With such a direction on this and other things the Department of Energy might need, therefore, to become involved in the detailed planning processes of British Gas. As has already been said in this debate, it seems to me that that would offend certain principles and it would certainly affect fundamentally the existing relationships.
Reference has been made in this debate to an opinion of the Monopolies and Mergers Commission last year. As a former member of the Price Commission, may I say that in 1979 the Price Commission subscribed to a point of view, and published its point of view, that the British Gas Corporation, both with its transmission and its distribution systems, operates an efficiently controlled industry, and very high engineering standards, In the opinion of the Price Commission, the Government would have been wise to do what they are now being asked to do, because the Opposition considers the provisions of this Bill to be irrelevant. It is also my opinion that the Government would have been wise to leave well alone.
§ 5.58 p.m.
§ Lord Polwarth
My Lords, I do not think that the noble Lord, Lord Donnet of Balgay, would necessarily expect me to support his views on the Bill, but I think that we all appreciate his experience in one of the industries affected by it and the service that he has given to it in Scotland. I think that we should all be grateful to my noble friend Lord Lauderdale (who I am sorry is not here at the moment) for his extremely knowledgeable contribution to the debate and for giving us a refreshing dash of realism in a debate which for a good deal of its course has tended to wander in the arid wastes of ideology.
Very briefly, I should like to look at the main points of the Bill in the wider context of the whole North Sea scene, because I think that we are in danger of losing sight of some of our objectives. In recent times, once the developments had come on stream, we have been looking at two main objectives: first, to become self-sufficient in hydrocarbons—and that we have now done, and indeed are becoming an exporter; and, secondly, to ensure a fair take of profits for the state, which again is as it should be.
However, now that the first objective is achieved, 504 I fear that the Government are becoming over-zealous in the drive towards the second, of the tax-take that they can get out of the industry, which is, after all, understandable in times of financial stress. But I sincerely submit that the evidence is that they have gone a bit too far, whatever Treasury Ministers may say. The repercussions are beginning to be felt fairly widely and seriously.
We should remind ourselves of another of the main objectives of the North Sea development from its early days; namely, as bringing a great benefit to the economy in general in the creation of all the supporting industries and services; the supply services, and the employment and the skills that it creates. I should like to pay a tribute to the work of the Offshore Supplies Office in encouraging more British industry to get into this business, and bring up the proportion of the total supplies and services from a very small minority one to a majority proportion of all that the oil industry requires.
A whole new infrastructure was created—I do not like the word, but it is the only one that meets it—in support of the offshore industry, particularly in Scotland. We improved harbours, communications, built great new housing developments. I speak with some experience having at that time been responsible in the Scottish Office for these problems. This brought new life to many areas which had seen their employment prospects fading away. That is something that warmed my heart as a fellow countryman of the noble Lord, Lord Donnet.
Perhaps one could sum up that benefit in one figure; namely, that some 100,000 new jobs are estimated to have arisen onshore from the industry, of which 70,000 are in Scotland alone. The great majority of those, I would remind your Lordships, were created by private enterprise with Government and local authority support.
But what now? I am sorry to say that North Sea development appears to have gone into rather a low gear. There have been no major new development plans for fields agreed with the Department of Energy since the Hutton field in 1980. As a result, the orders coming to the principal manufacturers have fallen off seriously. I speak here with experience and declare my interest as a director of one of the companies engaged in manufacturing platforms. Less than a month ago we floated out at Nigg in Ross-shire the largest steel platform yet built in Britain, 40,000 tonnes, for the Magnus field, completed on time and with no labour troubles whatever. We have one more platform on order and building in the yard. That will provide work through until next spring. However, already we are having to lay off 300 to 400 men in that area because the new job cannot accommodate them all. That is a serious matter in an area where there is little alternative employment.
Beyond next spring the prospects of orders are bleak indeed. We have seen that other yards are in the same position. Lewis Offshore on the Island of Lewis have had provisionally to give 400 men notice. Howard Doris of Kishorn on the West coast are following the same path. This is because the orders for new hardware are just not there. There is at the moment not sufficient incentive to the oil companies to press ahead with these developments. We must remember that 505 most of the rich and profitable fields have probably already been developed and are in production. The new prospects are harder; they are further offshore; they mean deeper drilling, and are altogether more expensive to embark on.
What is equally depressing with the long lead time for this kind of work—the design and engineering commences at least a year before any actual construction takes place—is that I am also assured that at that end, design and engineering, there is a dearth of orders too, which means that there is not a good outlook for many of these companies in this kind of work. There could be wholesale closures, and in areas where we have the prospect of so much to come in the future. That does not apply only to platform construction but to many other activities in support of the North Sea.
Some people will say that of course the oil companies are holding off because of the fall in oil prices. Obviously that is a contributory factor, but it is a very recent one because this is a phenomenon of only the last few months. One must only conclude that it is the high level of total taxation that is the major disincentive that is preventing companies from going ahead. I would earnestly ask the Government to be prepared to look at this again.
It is all very well for them to quote as, with great respect, my noble friend Lord Mansfield did in his introduction, figures of the numbers of fields in production, yes, and of the number of exploratory wells drilled, yes; but the exploratory end is not where the larger amounts of equipment are required. That only comes when you get to the stage of development for production.
Perhaps I could ask the Government to take a leaf from Canada where, 18 months ago, the Government introduced a particularly onerous tax régime for the oil and gas industry. The rigs upped and went and moved south of the border, and new development came practically to a halt. I am delighted to see that now the Federal Government and the Government of Alberta are urgently discussing with the industry a major relief on the tax front to encourage further development in Canada. I am sure it will be well worth their while.
What is the relevance of all this to the Bill, or of the Bill to all this? So far as the oil clauses of the Bill are concerned, what we are talking about in the BNOC case is, as my noble friend Lord Lauderdale said, a very small proportion of the total United Kingdom oil production. It is about 7 per cent. I feel that really an undue fuss is being made about this transfer. One should consider whether, in the first place, it was really justified that it should have been set up in this way.
If you can look at it like this I believe that freeing the BNOC production end, as it were, from the restraints of being a publicly financed industry can only he beneficial. Remember the Clyde field development with which they were anxious to proceed. They were prevented from doing so by financial restraints by the Government because of the effect on the public sector borrowing requirement. I think the sooner they are released, or untethered, from the sacred cow of the PSBR the more likely we are to see further development of their oil territory.
506 It is on the front of the natural gas that I see a real hope for an increase in activity benefiting all these other industries. There is no question but that the gas corporation monopoly has inhibited the exploration for new gas fields. There has been no search for new gas fields as such since the earlier days of the southern North Sea, simply because the monopoly price offered by the gas corporation has not justified the companies in doing that work.
It is all very well to say that the consumer is benefiting from low gas prices. That may well be so long as those southern North Sea fields are on stream. But the day is coming soon when the gas corporation will have to get supplies from elsewhere, and they are going to have to pay a great deal more than they paid in the early days of the southern North Sea. I believe it will be a great boost too to the chemical industry, as their association has said, to have the chance of alternative supplies, because there is no doubt that at the present prices they are being charged they are not competitive with their colleagues overseas.
I would simply say that in those two industries in this way I see the Bill helping to increase activity and work for a wide sector of industry in support of the oil and gas companies, and if the Government will at the same time take seriously this question of the level of taxation, then I think we can see a real resurgence in the North Sea.
§ 6.10 p.m.
§ Lord Whaddon
My Lords, one of the most frustrating experiences can be arguing a contentious issue with a religious zealot, because however much one reasons with such a person one tends to run up against the quotation of some heavenly authority who will work miracles and whose word is law. We tend to be in that position when speaking to the Government on anything which criticises monetarism, and we are in that position with this Bill.
Her Majesty's Government have not complained of inefficiency on the part of the British National Oil Corporation, though it is claimed that in future it will be of advantage for that highly successful firm to be in private hands. The Labour Party, on the other hand, is already promising renationalisation. We are not clear what the terms will be—whether it will be by expropriation or payment on some rather arbitrary formula—but it is already certain that the attitude of the Labour Party, in response to the Government's unjustified moves, has created a political football which will do no good for the country, no good for the reputation of our two main parties and no good whatever for the people working in the industry who, above all, need stability.
Indeed, it makes precious little difference to the workers whether they are working under a nationalised régime or a privately-owned one, so long as it is reasonably efficiently run and they have stability to get on with the job.
By their proposals for BNOC, the Government are quite unnecessarily, creating a political football which will be to the detriment of the nation. We on this Bench prefer to maintain a more pragmatic stance and say that each case (be it of nationalisation, denationalisation or renationalisation) should be proved— 507By the fruits shall ye know them"—but in this case we have not seen the justification established and must therefore regret what the Government are proposing.
As for oil, there is no monopoly. Government supporters in another place said on Second Reading that the main reason behind the measure was to get rid of the inefficiencies of monopoly. In fact, there is no monopoly in BNOC. As has been said, it controls only 7 per cent. of the exploration and production in the North Sea. What a lot of fuss is being made. The Government are proposing that 3½ per cent. shall go over to the 80 per cent, which is already in the hands of private enterprise. It seems a great deal of effort to produce such a minor shift, one which will be highly contentious.
If the Government were so keen on extending the scope for private capital—which, goodness knows, is not lacking in that area; it already dominates the North Sea—why did they not sell off some further shares in BP and maintain the BNOC structure, which has values other than its purely financial ones? It has been said that BNOC should not have to go to the Treasury for its funds, and there are two thoughts on that. The first is that if the prospects for BNOC are so good as to tempt private capital, surely they are good enough to tempt public capital as well. The second is that, in any case, if the Government are so determined not to involve public capital, there is no reason in the world why BNOC should not be allowed to go out into the private market. But that is not to be; it offends the monetarist dogmatists.
The advantages which are alleged are therefore highly contentious and certainly not proven. The disadvantages are very obvious. The first and most important I have already mentioned, that it creates a political football when there is absolutely no necessity to do so. The price of the immediate sale of shares is likely to be depressed below its market level because of Labour's threat of renationalisation, so in selling off those shares—rather than, say, BP's shares—the Government will be selling off a national asset at a discount, which seems hardly in the best interests of the country.
The instability being introduced into the industry must be deplored by those who operate in it. But beyond that, any Government responsible for the depletion policy, for conservation, for the rate of exploration, for safety regulations and pricing policy—huge areas of vital importance to this country—must have the most intimate knowledge of the whole integrated structure of oil exploration, production and sale. Yet they are getting rid of the main means of providing that, and that must be a great disadvantage which can only in part be replaced by the recruitment into the Department of Energy of some of the most expensive experts in the world today. I cannot see the Government producing that money. Nor can I see top experts preferring to work for a Ministry department rather than in the field. Thus, the Government are putting themselves at a disadvantage in any negotiations they have in future with the great multinationals, which are well capable of upholding their end in any price and licence negotiations. The whole thing is so unnecessary—in order to get rid of 508 this little 7 per cent. interest—and for what? For those reasons I find that part of the Bill deplorable and quite unnecessary.
As for the gas sections, I have more sympathy. I have read arguments and depositions of those for and against, and I still find myself in some confusion when faced with masses of figures from the experts. However, I cannot get over the feeling that in this sphere the Government are much stronger. There is a very strong element of monopoly in the Gas Corporation and I always have suspicions of the efficiency of monopolies, be they private or public. Therefore, in principle, I do not object to the introduction of a measure of competition into this area. It seems to me that the British Gas Corporation has shown insensitive tendencies at times; its discussions with the chemical interests I know only too well, and they have been mentioned already by noble Lords. The fact that we have a restrictive asset here has been mentioned time and again by Gas Corporation interests.
I remember about 30 years ago working in the oil industry, when expert opinion was that we had only 30 years' oil left in the world. Today, we still have only 30 years' oil left in the world. I regard the argument about the limited life of the fields as highly suspect, and I strongly feel that if we throw open the development of the gas fields to greater competition, we shall be amazed at the extra amount that will emerge within a few years.
I also believe that the opening out of the non-premium market to the use of gas under private contracts is likely to produce much more inventiveness, which I am sure many noble Lords have already seen, as I have seen, in the United States, in particular in the southern area—Texas—in industry where very efficient use indeed has been made of natural gas. The use of total energy is a concept accepted throughout industry in those states, but it seems to have made very little progress here. I expect that area heating and the total energy concept of getting the most out of the gas will move forward rapidly as the contracts for gas are opened up, as proposed by the Government. So I do not in principle object to this move.
However, there are some questions which arise because of the Government's great haste. The negative resolution procedure has already been criticised many times, and I must add my criticism. It is not a satisfactory method of democratic control. Further, I have to ask whether the effects on the coal industry have really been assessed. It is calculated that the non-premium market which will be opened up to the new procedures is equivalent to about 40 million tons of coal a year. This is an almighty slice of Britain's present coal production. Are we sure what effect the proposal will have on the future planning of the coal industry? I am not condemning it, but the implications are considerable and need weighing up. Many people's jobs are at stake.
The restructuring of British Gas is not obvious in the Bill. The Minister will have voted to him enormous, draconian powers. Throughout the gas industry, and among users of gas, the restructuring of the whole of the British Gas Corporation has become very necessary. There is need for much more sensitivity and for organs to ensure that the corporation responds to the opinions 509 of its own users. The retailing activities involving gas have come in for much criticism. What is to be done about that aspect?
We are also very unclear as to the Government's intentions with regard to exports. Reading through Hansard of the other place I find it very difficult to determine exactly what the Government's attitude would be, but if gas exports are to be allowed, then the effect on the pricing of all fuels throughout Europe would become very marked, quite dramatic. I happen to believe that to work towards one European market in energy is probably the most sensible thing to do. But we really need to know how it is to work out, before we commit ourselves on legislation, yet all we are to have from here on are negative orders.
Therefore, my conclusion is that the Bill is very much a curate's egg—good in parts, bad in parts. Quite clearly there should have been two Bills. The guillotine procedure that has been used means that the legislation has come through in a very half-baked manner, and we are likely to be faced with a prolonged, hard job in Committee.
§ 6.24 p.m.
§ Lord Underhill
My Lords, first, I must apologise for the fact that I did not hear the noble Earl's introductory speech. That was because I was engaged upstairs in one of your Lordships' Select Committees. It is generally agreed—and this has been emphasised by Ministers, too—that both BNOC and British Gas are highly efficient industries and that both have served the country very well. Therefore, right at the outset one must ask, why is there talk of introducing competition to achieve efficiency? Mr. Nigel Lawson, the Secretary of State for Energy, speaking during the Second Reading debate in the other place on 19th January, said, when referring to BNOC—and I give a brief quotation from column 169 of the Official Report:It has now been in existence for six years and has an oil-producing business with considerable expertise and potential".But he then went on to say:While the business remains in the State sector, its activities will inevitably be subject to the politicisation and to the constraints that that entails".His latter statement contradicted his earlier one. I would suggest that the only politicisation that we are going to have is that which is contained in the present Bill before your Lordships, and that the only constraints that will be placed on BNOC will be that it will be left merely as a trader in oil, working on a management fee basis.
I completely agree with the noble Lord, Lord Whaddon, who emphasised that BNOC is not a statutory monopoly, and therefore the question of the introduction of competition being the reason for the Bill hardly applies. The Government's intentions clearly are not in accordance with the praise that they have already given to the achievements of BNOC. I ask your Lordships, why should Britain not be in the same position as most other countries and have its own state oil-producing business? Why should it be good enough for other countries—whether they have social democratic, socialist, or capitalist governments—to have state oil concerns, but not he good enough for the British Conservative Government?
510 In the other place, the Minister expressed the hope that the sale of shares will take place before the end of the year. I must ask the obvious question: is before the end of the year the appropriate time for such a large flotation, bearing in mind the present level of oil prices? We on these Benches oppose the entire policy towards BNOC, and surely the intention of an early flotation amounts to selling a national asset cheaply, bearing in mind present conditions. I must ask whether the price to be gained will sufficiently compensate for the annual proceeds that have been received?—and there is no reason why they should not continue to be received if the position is left as it is at present.
In the debate in the other place to which I referred earlier, the Secretary of State said, at column 177:If the problems are less acute now with BNOC than with the gas corporation, that is partly because BNOC is one of the newest of the public corporations, and its spirit of enterprise has not been stifled by the bureaucratic embrace or perverted by immunity from bankruptcy".That statement must be a fantastic excuse for the Government's intentions towards BNOC.
If it is said that those words do not apply to BNOC, then we must look at the position of the British Gas Corporation. I am old enough to recall the state of the British gas industry before public ownership in 1949, with the 2,000-odd small concerns, both municipal and private, dotted up and down the country. Many of them looked as though they were liable to fall down almost at any moment. There were many derelict-looking plants. That old-fashioned, locally-based industry was brought into a great national undertaking, and I make the claim that without public ownership in 1949, we should not have the type of gas industry that we have today. Surely we can all recall the massive effort that was made by the Gas Corporation in the reorganisation that was carried out over a period of years during the changeover to natural gas. That was a really massive undertaking and a credit, surely, to any corporation. I should like to hear Government Ministers praise this public concern for that achievement.
It is generally agreed that the corporation has carried out considerable research, with a highly expert staff. How did the Government react to such an entrepreneurial attitude, enterprise and initiative? They reacted by instructing the Gas Corporation to sell off the profitable venture at the Wytch Farm oilfield in Dorset. That, surely, was not stifled by bureaucracy. It was a great enterprise which nobody else had thought of until the Gas Corporation undertook it. The argument is: why should not a gas undertaking also have oil interests where such enterprises as Wytch Farm can be undertaken? If diversification is good for big private enterprises, surely diversification by a public enterprise which is proved to be efficient and worthwhile should not be killed. Only a doctrinaire Conservative Government could behave like that; and I echo the words of the noble Lord, Lord Polwarth, who spoke of "the arid wastes of ideology". That applies, I believe, to what has taken place in relation to the Gas Corporation and Wytch Farm.
The corporation will in effect be reduced to supplying gas to customers of 25,000 therms or less. I would 511 ask: what will be the criteria for the Secretary of State to give his approval for private supplies between 25,000 and two million therms? It has been said that the Secretary of State will envisage granting permission where safety arrangements are adequate. I must ask the Minister: is that to be the only criterion? Because, if so, surely it does not go anywhere near far enough. Then, for supplies of over two million therms, there is apparently to be no hindrance or restriction whatever. That, surely, must be a disastrous policy.
There is even worse in the Bill, my Lords. As has been pointed out already, it will provide statutory provision for the private suppliers to have access to the Gas Corporation's pipeline network; and the Secretary of State will have power to determine the terms on which BGC shall carry the gas in its own network. The Secretary of State has stated that he hopes the terms for such transmission will be negotiated. I should like to ask whether any charge which he may approve will include the large cost of the network, which has been paid for out of revenue provided mainly by the present consumers.
The Secretary of State has also said that the private gas suppliers will have a right of appeal to him. In all fairness, if anyone reads the Secretary of State's Second Reading speech they will see that in effect it is a right of appeal to a Minister who, by his speeches, is clearly antagonistic to public ownership and favours the maximum of private access. But the Secretary of State threatened to go even further. He said that although the introduction of private gas would be the main market for gas competition, he did not rule out the possibility of private supplies to new housing estates, et cetera.
Once again we have the Government's policy of endeavouring to encourage private interests where they believe the maximum return can be achieved for those interests. We all know that on more than one occasion the Government compelled the Gas Corporation to increase prices to consumers when it did not wish to do so. I must ask what assurances there are that the so-called competition planned in the Bill will not lead to further price increases.
Apart from the principles involved in what I regard as this tragic interference with an efficient industry, and despite what the noble Lord, Lord Whaddon, said, at the present moment we have to keep it in mind that our gas supplies are not infinite. We have to work on the supplies of which we have knowledge at the present time; and unless a sensible depletion policy is followed, which has been the case with British Gas, this country could find itself in dire straits. With the introduction of the proposals in relation to private gas, that depletion policy could be in danger.
As reserves are diminished, and with virtually uncontrolled or loosely-controlled private supplies, there is bound to be a type of auction for the supply of gas, and that will almost certainly have an adverse effect on domestic consumers. Surely, also, the loss of the "first purchase" right, to which reference has been made by other noble Lords, is one which we must consider, as to how that will affect the obligation of the corporation to supply gas to the non-industrial consumers. Also, under the Bill oil companies will be allowed to sell direct to private suppliers. Surely 512 this will be a further auction of gas supplies, and I must ask: At what prices, and by how much will the price to the consumer be increased?
My Lords, I understand that the National Gas Consumers' Council is concerned with aspects of the Bill, particularly Schedule 3, which will in future prevent the council from representing many of the industrial and commercial consumers. I hope noble Lords will agree with me that it is desirable for consumers' representations to be made under one head, under one body. Surely there should not be any split in representations made by a consumer body. The question has been asked: What is there in the Bill which will prevent oil companies from selling British gas to the Continent, even if that has an effect on depletion policy? I hope the Minister may be able to deal with that question.
Mr. Hamish Gray, the Minister of State for Energy, speaking on the Third Reading of this Bill in the other place on 1st April of this year, said at col. 451:At present the Government have no plans to require the corporation to dispose of its interests in gas fields or to dispose of its transmission and distribution pipelines".Note what he says, my Lords—they have no plans "at present" In the Bill there is power to instruct the corporation to do that. I must echo what other noble Lords have said about the excessive powers given to the Secretary of State, and the fact that this is in effect an enabling Bill in which the Secretary of State is enabled to do very many things.
The Minister may say in reply that the Secretary of State will act reasonably in this respect. This is a matter I have taken up on two transport Bills; and I can remember what happened in the case of the judgment of the noble and learned Law Lords in the London Transport case. It is not what is said by Ministers and what is said in this House or in another place that matters: it is what is in the Bill, and the Bill gives the Secretary of State power to act in the way I have suggested.
The last point I want to raise is this. Little has been said in the debate today, or even in the debates in the other House, about the gas showrooms. The Bill still leaves the power in the Minister, the Secretary of State, to compel the Gas Corporation to dispose of its 900-odd gas showrooms. The Minister made it clear in the other place that this will be carried into effect possibly in 1983, when other safety legislation has been introduced. The power is there. The question of safety legislation was overlooked, apparently, by the Government when they made their original statement in this House and in the other place.
I am not going to go into the position of the showrooms at any length, although a lot could be said. We must remember that selling gas appliances has been a basic part of the gas industry since long before nationalisation in 1949. Both private undertakings and public undertakings sold appliances prior to nationalisation. In fact, the Monopolies Commission report said that they sold and installed nearly all the appliances sold to domestic consumers prior to nationalsation. When the Monopolies Commission commenced its review there were only 500 private outlets, but by the time it produced its report there were 1,000, and by June 1981 these had increased to 2,000. But there are only just over 900 outlets through the Gas Corporation showrooms.
513 The 1972 Act gave the corporation a statutory monopoly for gas supply. It also gave it power to manufacture, supply, install repair and maintain gas appliances and fittings, but the corporation has not a statutory monopoly for those latter things. The Government, which revel in the advocacy of competition, are even going to the extent of refusing to permit the Gas Corporation—this is not in the Bill but it has been said by the Secretary of State in statements—to compete in the sale of appliances. It is their intention to use this Bill to make the corporation dispose of its showrooms and to cease trading in appliances. That will come about when they have the necessary safety legislation and they will introduce that power in 1983.
I should be happy if the Minister could say that I am wrong, that it is not the intention of the Government now to make the Gas Corporation cease trading in appliances. If the Government believe in competition, if they believe that competition will help the publicly-owned sector to get on with the job, they ought to leave them free to carry on with the work that they have been doing magnificently in safety and in other respects in the sale of appliances through their showrooms.
§ 6.41 p.m.
§ Lord Bishopston
My Lords, I speak at the end of a long and detailed debate on this important measure. I am sure that we are indebted to the noble Earl the Minister for the way in which he introduced the measure and the explanation he gave. I must admit (and I am sure that other noble Lords may agree with me) that I was sorry that he did not set out the main provisions of the Bill because he gave the reasons for the measure as being very pedestrian. He said it was a major step forward in reducing the size of the public sector. That was the first objective. Then, the introduction of competition into the gas market; and the third objective, he said, was the strengthening of the existing petroleum legislation. That lacks any semblance of excitement or of real policy. He went on to refer to the considerable achievements of the energy sector.
I feel that most noble Lords would have wished the Minister to begin the introduction to the Bill by saying that it was absolutely essential for more productive use of a limited asset, to the better integration of vital resources, to the greater economy, to greater development of R and D, to better financial returns, to lower prices to the consumer and to the reduction in imports and expansion in exports. Those ought to have been the objectives of this Bill. But the Minister was honest when he mentioned the purely doctrinaire political motives behind this measure to deal with this great industry.
I can tell your Lordships what the Bill is about. It is about energy and power, the provision of the energy that our country needs and the massive power it gives to the Secretary of State to ensure that it is organised with the energy supply in the public interest being a mere by-product of the private interest. This Bill does not follow in the wake of the failure of a great enterprise to fulfil high hopes expected of it; it does not follow in the experience of an enterprise wrongly conceived, badly run and failing the nation. It is not 514 dealing with an undertaking with a record of great financial losses. It follows in the wake of a great public enterprise which has led the way in profitability to ensure our independence in the vital field of energy resources. I think it has been a story of real enterprise and real partnership between the public and the private sectors, run with true co-operation between both. I know that my noble friends have detailed many objections to the Bill and we have had a number of speeches on the other side. I thought that some of the comments by the noble Lord, Lord Polwarth, gave a fair view from his experience about the way the partnerships has been pursued.
We come now to this squalid Bill which is facing us, despite the fact that Britain has the largest energy resources of any country in the EEC. In 1980, the value of mineral production was 43 per cent. higher at constant prices than in 1970, virtually all the increase being in the oil and gas sectors. Our self-sufficiency in energy in 1980 in net terms resulted from the growth of offshore oil production, a situation which must continue for some years to come. Our prosperity and security depends on whether Britain has a developing and comprehensive energy policy where all our resources are subject to the overriding national interest.
Having heard the Minister and other speakers today, I am sure that that is a hope that we cannot expect to he achieved. The question which arises is this. Is this the time to smash up something which has been growing successfully for a number of years with a partnership of the public and private enterprise? Is this the time to create uncertainty? In our energy resources we have a priceless asset which has been transformed by the substantial oil and gas reserves offshore in the United Kingdom continental shelf. We must continue to ensure that our industry can continue to compete effectively in respect of offshore equipment and services. We must encourage, too, with national initiatives, the promotion of new ventures in alternative energy resources.
The changes in energy consumption between 1970 and 1980 show the changing pattern of energy availability. In 1970, coal accounted for 46 per cent. and, in 1980, for 36 per cent. Meanwhile, natural gas consumption rose by 16 per cent. over those years. The two leading British oil companies are BP and Shell Transport and Trading, the two largest industrial companies in Britain in turnover terms. The Government's policy in the Conservative manifesto has been quoted by my noble friend Lord Bruce of Donington. But in the general election campaign, the Daily Mail on the 26th April 1979 referred to various lies by the Labour Party about Government intentions. This, they say is "Lie No. 12":They are promising to sell off the Government's majority holdings in one of our more priceless national assets—British Petroleum".The Daily Mail says that this was a quotation from Denis Healey on April 11th. The Daily Mail goes on to say, having contacted the Conservative Office:Truth: 'We have never suggested any such thing. Where did Denis Healey get this idea?'—Tory spokesman".We know now that the idea was there all the time but they dared not expose it at the time of the general election. If there had been any one reason why people should not have supported the party opposite at the 515 last election, it can be this reason: the matter that we are dealing with today in the management of these great energy resources, and, as I have said, the two leading British oil companies, BP and Shell Transport and Trading, the two largest industrial firms in Britain in turnover terms. Our current barrelage was achieved in crude oil and petroleum products with a gross income of about £26,000 million in 1980.
BNOC is, of course, a public corporation set up under the Petroleum and Submarine Pipe-lines Act 1975 with two main activities, that of an oil trader and with development, exploration and production responsibilities. The growth of our own energy resources has led also to a great reduction in imports. That is essential at this time when our financial situation is so perilous. This represents a great improvement not only in terms of foreign currency but in terms of our independence of world resources—a great asset indeed in these times of great instability worldwide and in the changing balance of world power which is before us.
Is this the moment for us to say that we will smash up the integrated workings of our great energy resources, to a fragmentation where only market considerations are paramount? The Labour Party and others who care for the national wellbeing have always insisted that our national resources should be under public control and publicly accountable. That goes not only for energy resources including oil, gas, coal, electricity, and nuclear power, but also the means of transport and in other aspects, too.
Such a policy is not doctrinaire but is essential especially to secure an integrated and co-ordinated national policy with adequate resources devoted to research and development and for exploitation generally. This great industry—this great national asset—has been gradually but surely built up over many years. Tributes have been paid to those who have been responsible for these developments over the years.
Now, at this time, when there is so much doubt about the future, when the international situation has been more uncertain than for decades, the Government are to decimate it in the private interests regardless of the public overall interest. The public sector is sometimes unprofitable through having to fulfil a social and national interest role. The Government seem to want to add to their problems by deliberately forcing up costs. Noble Lords have mentioned this. The recent gas levy order that went through Parliament a few weeks ago meant that for the third year in succession domestic gas prices will be increased well above the rate of inflation. In the three years, this has meant a 100 per cent. increase in the price of domestic gas. Yet we are told from time to time by the Prime Minister and other Ministers that the higher prices in the public sector show that this is not serving the nation. But this is due to political interference by the Government themselves.
The Government are trying to force the public sector to behave in a way no private enterprise operator would behave. As my noble friend Lord Underhill has just mentioned, one can say: what firm would sell off profit-making assets such as the gas showrooms and the BGC sales of appliances while keeping the loss-making aspects to themselves? Why should British Gas have to be responsible for safety aspects of 516 appliances of which they may not approve and from which they get no profit? Will the Minister tell us whether the private sector will take on more social responsibility in this respect? Will the private sector be responsible for the safety aspects of the changes? Why should a public body have to supply pipelines for the transmission of energy to the private operator at prices decided by the Secretary of State himself, who he would admit is far from impartial in this way and, as my noble friend has said, shows a deep and bitter hatred of the public sector? Why sell off oil fields owned by British Gas or plan to terminate British Gas's right to buy more North Sea gas? How can we ensure that energy assets sold to the private sector do not fall into foreign hands or under foreign control? That, of course, is a very important question at this particular time.
On the subject of profitability, it is interesting to note that in 1980 BNOC made a profit of £315 million with prospects of rising profitability for the national interest. That is to change because the profits are in future to flow into the private sector. Then one can ask about the prices which will come from the sale of these priceless assets. With the experience of Amersham International still fresh in our minds, where millions of pounds went from the public to the private sector, what will happen to the oil and the gas sector when that is put on the market? If any commodity has to be sold regardless and not subject to a fair price, the buyer can hold the seller to ransom, and the buyer will be the private sector and the seller will be the public sector—and that means all of us.
On competition, with the immense overheads for R and D and exploration costs, the public sector will not be able to face fairly competition from the private sector where sheer profitability is to be the sole criteria. This is bound to mean higher prices for energy and fuel. It will mean less competitiveness and it will mean the dissipation of resources and no guatantee of adequate supplies in uncertain times, and a free-for-all.
Why should the Secretary of State have the immense powers which various noble Lords have referred to? I refer of course to Clause 31, which says:Where the Secretary of State gives directions—So the Secretary of State is going to be the dictator in all this. One would not mind if he had the public interest in mind instead of the private free-for-all. These are aspects which we shall want to consider in Committee.
it shall be the duty of that Corporation (notwithstanding any duty imposed on it by or under any enactment) to comply with the directions".
- (a) to the Oil Corporation under any provision of Part of this Act; or
- (b) to the Gas Corporation under any provision of Part II of this Act;
We have had a long debate. Many noble Lords have detailed objections and criticisms of the measure. The Bill had 27 sittings in the other place, followed by the guillotine, so that much of it was not discussed. I think that we can say that, although, as is our usual way, we shall not vote against a Bill from the other place, nevertheless we feel duty bound to pursue the Committee stage constructively and responsibly so that we have a measure at the end of the day which, so far as possible, will have in mind the overriding public interest.
§ 6.56 p.m.
§ Lord Skelmersdale
My Lords, I believe that this is the first major debate in this House, under the present Government, which has dealt specifically with oil and gas matters. The debate demonstrated that considerable experience and expertise of the oil and gas industries which exists in this House. Whatever our respective views are about the Bill, and very naturally there are differences both between the parties, and individual Members within each party, it has given rise to an interesting and wide-ranging debate. There have been many excellent speeches, for which I am truly grateful.
I am particularly glad that the speeches of my three noble friends have reduced my own by a good 30 minutes and I am sure that your Lordships will be glad of that as well. I agreed with my noble friend Lord Lauderdale, until he started speculating and making novel suggestions. I shall have to read very carefully what he said. This has, though, been a long debate and I propose to break with tradition in a way and probably will not deal with as many of the points raised today as I might otherwise have done. The Second Reading of the Bill is after all the time for a discussion of points of principle, and I trust that your Lordships will forgive me if I follow the inference of Lord Tanlaw's remarks and suggest that we wait until the Committee stage before we consider the detailed points of this Bill, which are often complex. Knowing Lord Bruce of Donington's sword play (to which he referred at question-time today) I look forward to the cut and thrust of debate then. I hope that he will find my remarks today a little more robust than he obviously found those of my noble friend Lord Mansfield. No doubt in Committee the noble Lord, Lord Whaddon, will seek to change this curate's egg, as he called it, to what in his opinion will make a better Bill. We shall see. He may be joined either in amity or even battle by the noble Lord, Lord Underhill. Again, we shall see.
Before moving on to the Bill itself, I should like to consider the subject of nationalised industries per se. I have said it before and I make no apologies for saying it again; but in my book there are only three reasons for nationalisation. These are for companies which are concerned with defence; where it is in the national interest; or where the Government in some exceptional circumstances should provide a safety net.
I am glad that my noble friend Lord Bessborough agrees basically with this. Perhaps I may quote the sentence following the one by my right honourable friend the Secretary of State, to which the Opposition have taken such exception today. He said in column 169 of the Commons Official Report of 19th January, as your Lordships have so obviously noted, that the proper business of government is not the government of business. He went on to say:No industrial corporation should be owned and controlled by the state unless there is a positive and specific reason for such an arrangement".That is one of the foundations of this Bill.
A few months ago I heard a speech by the noble Lord, Lord Oram, in which he might have been arguing with his noble friend Lord Bruce. He said this—and I quote from the Official Report of Wednesday, 3rd February this year, at col. 1347: 518I acknowledge that there are weaknesses in the public sector".Later in the same column he said this:… in other words, in my view, both in terms of industrial democracy—that is, the role of the worker within the nationalised industry—and of consumer democracy, nationalisation has so far largely failed".This Government on all fronts is actively pursuing a policy of correcting this against a background of a very deep recession and the need to limit both the size of the public sector borrowing requirement and the very real restraint imposed by the public sector borrowing requirement on the nationalised industries. In that same speech the noble Lord, Lord Oram, referred to the famous Clause 4 of the Labour Party's Constitution which calls for the common ownership of the means of production, distribution and exchange. There is nothing in this Bill which conflicts with that aim. The Government contend that common ownership does not necessarily mean state ownership. The first two parts of this Bill will give a wide spread of ownership to a previously entirely state-controlled industry.
The noble Lord, Lord Bruce of Donington, complained that Conservative governments only disposed of those industries that make a profit. I should like to turn the question back to him. When he considers my previous remarks, may I suggest that he would do well to ask himself: Why should the state continue to run industries it has no need to run? I should also like to ask him—I am sure we shall get back to this point in later discussions—whether he agrees with his noble friend Lord Balogh, who said at col. 1936 of the Official Report of 7th August 1975:The pattern established for the nationalised industries has not worked outstandingly well under governments of either party".
Lord Bruce of Donington
My Lords, does the noble Lord wish me to answer his questions now, or is he inviting responses at some later stage?
§ Lord Skelmersdale
My Lords, I think your Lordships would all agree that it would be better if the noble Lord considered his answer and would be good enough to give it to us at some later stage. I should now like to go on to emphasise three points about the Bill. First, the powers to dispose of BNOC's oil-producing business and to provide in the first instance for the disposal of the British Gas Corporation's North Sea oil assets are important changes. I appreciate that change, however necessary, is rarely welcome to everybody, but there is a clear need to reduce the size of the public sector. This is especially so where there is no justification for direct state involvement in oil exploration and production. It will therefore be a major step forward in reducing the size of the public sector. I have been asked about the timing, about valuation and how much the sale would raise. I must say that unless any noble Lord objects I intend to regard these as Committee points.
It is no accident that nearly all the £25–30 billion capital investment in the North Sea has come from the private sector, using the private sector's traditional methods of fund raising. That this same private sector has been enormously successful in developing the mineral assets of the North Sea cannot be questioned. Therefore, noble Lords should not under estimate the 519 scale of the investment required in the North Sea. After a period of consolidation, BNOC is quite rightly looking to expand. This calls for freedom and enterprise. The latter word is therefore in the Title of this Bill, which will achieve both objectives. The large North Sea acreage which Britoil will have will give it the potential to be one of the biggest explorers in the North Sea. While in the public sector, BNOC's financial requirements—which will not always remain within the size of its internally-generated resources—must compete with other claims on the public purse, thus stunting the spirit of enterprise. Privatisation will allow Britoil to finance its operations free of the public sector. That, I believe, is the answer to at least one of the questions put by the noble Lord, Lord Lovell-Davis. It is for that reason that the Government intend removing oil production from the state-owned BNOC and the British Gas Corporation.
We have had from the Opposition what, were my right honourable friend the Secretary of State for Transport still Secretary of State for Energy, I would be tempted to call "howls of anguish" over the disposal of BGC's oil assets. But we are doing nothing more than what was done by the last Labour Government when it set up BNOC. Among the assets transferred at that time was the public stake in the Viking field, which had previously belonged to the National Coal Board. So, as I say, we are doing nothing new here.
However, the last Labour Government went further than this and enacted a statute, the Petroleum and Submarine Pipelines Act 1975, which in Section 12 enabled the Secretary of State to call for a report on the rationalisation of the businesses of BNOC and BGC. That Government therefore envisaged that this rationalisation would happen, including the possibility of transferring BGC's oil-producing assets. So why now, in Opposition, have they had second thoughts? Why the screams?
The business of the British Gas Corporation is the distribution and supply of gas. There can be no possible justification for its involvement in the production of oil. That this should be stopped is to BGC's advantage, in that it will enable them to concentrate on their main business, which is the supply of gas to consumers in Great Britain. That apart, in the Government's view, as I have already made clear, the job of developing offshore resources is one that should be left to the private sector.
Before leaving the subject of gas, I should like to refer to the question put by the noble Lord, Lord Tanlaw, about asset stripping in Clause 9. The use of the term "asset stripping" in relation to the disposal powers of Clauses 9 to 11 is, I suggest, rather emotive and ignores the history of gas legislation. There is nothing fundamentally new about the provisions of these clauses. They are an extension and development of principles which have been with us for a decade. The Gas Act 1972 already gives the British Gas Corporation certain powers of disposal and gives the Secretary of State certain powers to direct BGC to carry out disposals. Disposal powers are in no sense a matter of asset stripping: rather they are a sensible recognition that there is nothing sacrosanct about the present distribution of assets, and we make no apology for our view. But at present the distribution results in an unnecessarily extensive public sector.
§ Lord Tanlaw
My Lords, I am most grateful to the noble Lord the Minister but perhaps I might intervene on a point of clarification. The term "asset stripping" was used—he himself just used it inadvertently before mentioning my name. The money from the sale of the oil assets of the Gas Corporation will not go back into the Gas Corporation. Where will the money go? In my view, the asset has been stripped because the money has left the corporation and gone elsewhere.
§ Lord Skelmersdale
My Lords, as I understand it, asset stripping happens in the conventional sense—and I am sure the noble Lord, Lord Bruce, is poised to correct me—and it occurs where one company buys another company, strips off its assets and then sells it. This cannot happen here—no, my Lords, it cannot happen.
§ Lord Tanlaw
My Lords, the noble Lord has just described it happening. I will not argue with him now: just let us let it ride at that for the time being.
§ Lord Skelmersdale
My Lords, the noble Lord is very generous. I think perhaps I will have to take up this matter with him afterwards. He also mentioned, as did other noble Lords, the matter of steam raising through the use of gas. I should like to draw the attention of the noble Lord and of the House to Section 14 of the Energy Act 1976 which governs the use of gas in power stations and is unaffected by this Bill. Section 14 implements our obligations under an EEC directive, which expresses the premise that in general the use of gas in power stations is undesirable. While some of our EEC partners use large volumes of gas in electricity generation, we in Britain have avoided this and have used gas in power stations only where, as the noble Lord said, such use has a particular value as an interruptible supply, assisting the security of gas supplies to non-interruptible consumers. There are, in fact, two—not one—power stations which are currently taking such supplies. At present, the gas comes from the BGC, but in future it could come from private suppliers. In both cases, Section 14 of the Energy Act 1976 will apply.
Our plans fully recognise the national interest, both in terms of the Government's economic strategy and in ensuring that the nation continues to benefit from our oil and gas resources. In particular, we are retaining BNOC's trading arm under state control, together with the participation agreements which are an important element in our security of oil supplies. Here I should like to pay a tribute to the last Labour Government for setting up BNOC's trading organisation which has since its inception been extremely successful.
I should also like to take the opportunity to pay a tribute to the work of successive chairmen and deputy chairmen of BNOC, three of whom have been here in your Lordships' House this afternoon. My right honourable friend the Secretary of State has made it clear in another place that the noble Earl, Lord Cromer, the present chairman of the BNOC, and a man of great experience, has agreed to have a special responsibility for overseeing the interests of the trading arm of the BNOC during the privatisation exercise, as it develops in the months ahead. We are all grateful to him for this.
521 I was talking about the success of the BNOC's trading organisation just now; and, indeed, speaking from an oil industry standpoint, one oil company said in a seminar which I attended this last weekend that BNOC was often too successful. Good! In this regard it means that BNOC is making an effective contribution to the security of the nation's oil supplies.
§ Lord Bishopston
My Lords, as the noble Lord has rightly paid tribute to various leaders of the oil and gas enterprises over the years, and to the valuable work that they have done, is that not a reason for leaving the thing alone to get on with the job it has been doing so successfully in the past decade?
§ Lord Skelmersdale
My Lords, BNOC, as an entity, has been doing two jobs and we do not accept that the two jobs should continue to be done by one organisation within the public sector. I should now like to look briefly at some of the gas provisions in this Bill. The introduction of competition in place of monopoly in the purchase and supply of gas will benefit consumers, not only in the short-term, by allowing consumers, particularly large industrial consumers, a choice of suppliers, but also in the longer term by stimulating gas exploration and production.
We believe that being effectively a monopoly supplier to all types of consumers, as well as having virtual monopoly buying rights of offshore natural gas, there is a resulting air of stagnation throughout the gas industry, as illustrated by two facts. These are not only that a number of industrialists have been denied supplies even though they are willing and able to pay for them, but also that new gas industrial users have been charged a premium price for their initial three-year contract. This was mentioned by noble friends behind me. While we recognise the corporation's considerable achievements in the development of the gas industry, we believe that this has now reached a state of maturity where excessive monopoly power will be almost damaging and stifling. But we are not using unprecedented powers to deal with this.
The noble Lord, Lord Bruce of Donington, asked in his inimitable fashion for amplification of the comments of my honourable friend the Minister of State on pricing. One must be careful to distinguish, when discussing the future price of gas, between the effects which allegedly arise from measures contained in the Bill and those which would arise in any case. Over recent years, the gas consumer has benefited considerably from contracts negotiated by BGC before the 1973 oil crisis. Many of these contracts, at prices which by present day standards are low, are still running. Prices negotiated by BGC more recently are up to 10 times as great as pre-1973 prices. Prices to the consumer are, therefore, certain to rise as the proportion of gas from old contracts diminishes. It remains the Government's view that the measures contained in the Bill will not result in prices any higher than they would otherwise have been. Furthermore, the free competition for those suppliers outlined in this Bill will ensure that gas is supplied at a competitive price which is currently impossible to determine.
Thirdly, Part IV of the Bill contains important 522 amendments to the existing legislation on offshore safety. The Government recognise, of course, as did my noble friend Lord Bessborough, that safety is not just a matter of legislation or regulation. The state of mind of each individual worker is also highly relevant. This part of the Bill does not bring about fundamental changes in our safety practices, but it is nonetheless important for that. Naturally, as is the case with all such legislation, it has "teeth". One always hopes that they will not be needed, although it is right and proper that they should be there.
I recognise fully that the industry has invested considerable resources in safety. However, no matter how high the standard of self-regulation by industry, no Government can abrogate their responsibility for the safety of workers offshore. It would, for example, be completely unacceptable if workers housed on accommodation units did not have the same degree of protection as they receive when on drilling and production platforms. It is this thinking which underpins the proposals contained in Clause 23. My department is currently discussing with the United Kingdom Offshore Operators Association the application to accommodation installations of the various regulations made under the 1971 Act and the time scale of their implementations.
My noble friend Lord Mansfield, in introducing this Bill, mentioned the Burgoyne Committee's Report on offshore safety. This was presented to Parliament in March 1980 by the then Secretary of State. It contained over 60 recommendations. The majority were of a technical nature and do not call for changes. In this Bill, we are implementing in full one of the major recommendations which called for clarification of the legal position of offshore accommodation installations under the 1971 Act.
Overall some 29 recommendations have been implemented in whole or in part. Work on some is complete; others are of the nature of a continuing remit for Department of Energy officials. Studies or consultations are under way in relation to 12 others, and there are prospects for a further 18 being implemented this year—by which time nearly 60 recommendations will have been dealt with. Therefore, nothing that is proposed in this Bill will prevent these recommendations from being put into effect.
I think that at this point I should, very quickly, clear up some misconceptions which have arisen during the course of this Second Reading debate. First, it was argued that our aim of achieving a wide spread of ownership was irrelevant, since only a small minority have an interest in shares. But the noble Lord, Lord Bruce, overlooked the importance for many ordinary people of their indirect holdings, through pension funds and other institutions, and was corrected by the noble Lord, Lord Balogh. Almost 2 million people, I am told, hold shares directly. A much larger number, possibly a majority of adults, have indirect investments in shares.
Be that as it may, what people are interested in is their own disposable income. Perhaps I should be grateful that the noble Lord, Lord Balogh, is not present to hear my homespun economics. If taxes are raised to pay for nationalised industries they will complain, because of the depression of their own disposable incomes. What about borrowings by the 523 public sector? Equally, these are taxes on the people. As my noble friend Lord Cockfield never loses an opportunity to point out, that is called inflation.
Secondly, I was asked about merchant bank advisers. I should like to make it clear that there was no truth in the press report about Rothschild's having already received £½ million for their work on the sale of shares in Britoil last year and this. The BNOC have issued a denial setting the record straight. I commend it to the noble Lord. Rothschild's are, of course, advising the BNOC. The Government's advisers for this exercise are S. G. Warburg and Company Limited. They will advise on key issues of timing and pricing. No decision has been taken on underwriting, let alone on underwriting arrangements.
Thirdly, it was said that the memorandum and articles of association were produced in another place only on the day of the Report stage. For the record, the noble Lord is not quite correct. They were made available on 12th March while the Committee stage was still in full swing, though I admit that they were received after consideration of the BNOC provisions was completed.
Another point referred to was the transfer of funds from the National Oil Account to the Consolidated Fund at the end of March. I must stress that this was a routine operation carried out in accordance with the requirements of Section 40(3) of the Petroleum and Submarine Pipelines Act 1975, an enactment of the last Government, and has nothing whatever to do with the winding up of the National Oil Account. The last Labour Government similarly transferred £75 million from the National Oil Account to the Consolidated Fund on 23rd March 1979. The sums have increased since then, largely because the flow of cash into the National Oil Account has grown with increased royalty receipts.
To sum up, we believe that what we are proposing provides fresh challenges and opportunities for the oil and gas industries. I believe that the principles underlying what we are proposing are sound and deserve the full support of your Lordships. If I may answer the noble Lord, Lord Bishopston, I believe that this is the time to introduce the Bill. There is no time like the present, we are told. Furthermore, I believe that in one respect the Bill is already having an effect, even though it is not on the statute book. I referred earlier to the fact that new industrial gas users have been charged a premium price for their initial three-year contract. A typical price up to a month ago was 48p per therm. I have heard in the last three days of a new contract being made for 30.5p per therm—in other words, the normal non-premium price. This is an average decrease of over 30 per cent. in the price of a new contract. It is a remarkable achievement, and I therefore have no hesitation in asking your Lordships to give this Bill a Second Reading tonight.
§ On Question, Bill read a second time and committed to a Committee of the Whole House.