§ 7.58 p.m.
§ Baroness Burton of Coventry rose to ask Her Majesty's Government whether they will re-examine their decision to increase prices of gas and electricity.
§ The noble Baroness said: My Lords. I want to speak first of all about the insensitivity of the Government. Apart from actual finance and actual hardship, to which I will come later. I believe that this lack of 1254 sensitivity is the most serious aspect of what we are discussing tonight.
I am wondering if it is impossible to make a breakthrough here, or can we convey to the Government, through the Minister who is to reply to this debate, just some of the feelings of the general public. It seems to me, leaving aside the rights and the wrongs of this matter, that the policy-makers are completely out of touch. Does the Minister not see that it is really very difficult for the ordinary domestic consumer to comprehend, let alone understand? In July we were told that British Gas had doubled its profits to £665 million, and while more and more consumers are finding it difficult to pay their bills, apparently the series of price rises had been so profitable to British Gas that in addition to the £665 million profit the board had paid a levy of £470 million to the Government. Indeed, in The Times of 27th July an article by its financial correspondent, Jonathan Davis, stated that the profits of the Gas Board,
were greater than those of ICI, Beecham, and Marks & Spencer combined".
That, of course, was excellent. But what about the ordinary domestic consumer? Surely such results merit some reduction in price?
§ The Government just did not seem to understand that the many people having difficulty in paying their bills, and only managing to do so by effort and sacrifice elsewhere, were going to look askance at a profit that had doubled and to which they, the consumers, had all had to contribute. On top of that, the very possibility that prices should rise was adding insult to injury. It was just not good enough. I want to ask: do those who foot the bills have to pay more, however big the profits? While we domestic consumers may not be financial experts, it seemed to us that such an attitude was the economics of the madhouse.
We were supported in this view by a leader in the Guardian on 14th November. I wonder whether the Minister has read it. I wonder whether it is in his brief and whether he will be dealing with this nonsensical Government attitude tonight. The leader was headed:
A tax by any other name".
I quote from the first paragraph:
The Government says it is ruthlessly committed to curbing inflation, yet here it is about to impose unwanted price rises on nationalised industries which are already making profits large enough to bring into question their obligation to break even 'taking one year with another. 'The price rises are to be some 4 per cent. for gas and 3 per cent. for electricity coming shortly after the sharpest real increase in the price of these utilities for several decades. The Government's reasoning is apparently that the extra profits will help to curb its borrowing, which needs to be restrained if inflation is to be brought down. In short, the Government is proposing to bring prices down by putting them up. This is unlikely to be the most direct way of achieving its objective.
A further comment in that leader was to the effect that there is no rhyme or reason in this policy.
It has always been my understanding—and perhaps the Minister will correct me if I am wrong—that we had a principle in this country that nationalised industry prices should not be regarded by the Treasury as just another tax. On this very point, I was glad to note that the National Gas Consumers' Council expressed "deep concern" that domestic and industrial gas prices were being forced up by the
Treasury above the immediate needs of the industry itself. The Chairman of the Council, Miss Sheila Black, said:
We are completely opposed to the use of British Gas as a milch cow.
I have noted the letter sent to Miss Sheila Black by the Secretary of State and included by him in the Commons Hansard for 28th November. But this does not deal with the point I have just made. What it does say very clearly—and more than once—is:
The Government has no powers to impose price increases on the industry." [Official Report, Commons, 28/11/83; col. 425.]
We all know that, in reality, that that is complete nonsense. As the Economist remarked on 19th November under the heading:
Market prices, or Ministers' ones?
—it was asking that question—
To help in holding down next year's public spending, the nationalised British Gas Corporation and the nationalised electricity supply industry are being set tighter financial targets so that they can produce a higher profit to be handed over to the Treasury.
§ Mr. Michael Barnes, chairman of the Electricity Consumers' Council, said that electricity prices should be held at their present levels until at least the beginning of 1985. He was commenting on the announcement that the electricity industry had made an operating profit of £868 million in 1982–83.
These profit figures are substantial and clearly show that the electricity industry has over-shot its financial target significantly. We are therefore calling on the industry to extend the existing price standstill beyond next April and at least till January 1985.
In The Times of yesterday I read:
The Cabinet, before the autumn statement of Mr. Nigel Lawson, the Chancellor of the Exchequer, decided to increase the sum the Treasury will require from the industry by £322 million".
An increase for the Treasury of £322 million after an operating profit of £868 million last year! I hope that goes home to the British public. It is absolute financial nonsense so far as the consumers are concerned.
Are we supposed to he grateful that, following this operating profit of £868 million, the Electricity Council proposes,
only a small increase midway through the next financial year"?
It appears that the comment in the Economist which I quoted was indeed correct.
What about industry itself? The CBI promptly condemned the rises as "bad news" and the Director General of the Associated British Chambers of Commerce, Mr. Tony New come, said:
We are appalled by the Chancellor's decision to rake in more money for the Treasury from higher charges.
Furthermore, Mr. New come wrote to the Secretary of State to say that his members had reacted "sharply and angrily" to the proposal.
§ On the other side of the coin the Minister may call in aid the report commissioned from the accountants, Deloitte Haskins & Sells, on the efficiency of British Gas. Most of us will have noted their recommendations at that time, particularly the one saying that gas prices should be higher. I would only comment that obviously accountants are not in touch with public opinion or, to be fair, the brief probably did not require that they should be. I draw comfort from two points here. First, even the experts cannot agree on 1256 what the proper price for gas should be. Secondly, Mr. David Howell, the former Secretary of State for Energy who was responsible for the three-year crash programme of price rises, now says that enough is enough and that prices should be frozen. I gain some comfort from that.
I draw even more comfort from the report made by accountants Coopers and Lybrand. reported in the Financial Times of 1st December. I wonder what comment the Minister has to offer on the first three paragraphs by Mr. Ian Hargreaves in that paper, which are as follows:
Electricity prices could be cut by as much as 7 per cent. and then be held stable for a period without damage to the supply industry, according to an independent report circulating in Whitehall.
The report, by accountants Coopers and Lybrand. argues that the present formula used by the industry in setting electricity prices takes insufficient account of the gap in power station building caused by over-capacity.
But the report says that if allowance is made for the gap in power station building, it would trim the industry's annual requirement by between £500 million and £700 million—a saving which could be passed on as lower prices.
As I expect the Minister knows, this report was commissioned by Mr. Nigel Lawson when he was Secretary of State for Energy.
It would be interesting to know the opinion of Mr. Walker, who is the present Secretary of State. on the article in The Times on 23rd August by Alex Henney, which was headed, "Give the watchdogs more bite". Without going into detail on the question of consumer councils in nationalised industry—a subject that the Government have every intention of avoiding for as long as possible—I would point out that the subject matter of the article was the American-style regulation on monopoly services. I wish to quote only two sentences:
In New York last year, the regulatory commission ordered the private gas and electric utilities to return 104 million dollars excess profits to customers. Monopoly services in Britain are publicly owned and rarely give anything back.
The author of the article, Mr. Alex Henney, is chairman of the London Electricity Consultative Council and a board member of the London Electricity Board. Indeed, he wrote to The Times on 1st August in support of my original letter of 29th July.
Obviously a considerable amount of correspondence ensued. Some of it has been published, but most of it is in our respective files. There is not the time—and indeed the House would not wish it—to have a detailed discussion on these letters, but there is one that I wish to mention. It came from a correspondent describing himself as,
a pensioner terrified of a cold winter".
He took the months June 1980, 1981, 1982 and 1983 as examples of the charge per therm and the quarterly standing charge levied on him each year. The price per therm started at 17.06p. It then went up to 21.29p, then to 27.20p, and in the last year. 1983, it was 33.50p. The quarterly standing charge started at £1.62, the next year it was £4.50, the following year, £7. and in 1983, £8.60. There is no need for your Lordships to remember those figures, but over three years the price per therm for this pensioner went up by 16.44p, or 96.4 per cent., and the quarterly standing charge by £6.98, or 431 per cent.
§ I included those figures in my letter to The Times. The newspaper was good enough to say that it hoped to use them, but it asked whether I was sure they were right, as they seemed so extraordinary. We got in touch with the writer and discovered that they were correct. I venture to hope that some of your Lordships might be sufficiently interested—or horrified—to turn up The Times for Saturday, 22nd October, where these facts are set out in a letter that I wrote, challenging the managing director, finance, British Gas Corporation, on his denial that he followed a high selling price policy. I hope very much that the Minister will he able to answer some of these points and will not just read the brief that he came into the Chamber with. His brief will not cover all these points.
§ In conclusion, I revert to my opening remarks. There is a blockage somewhere in the mind of the Government which prevents them from realising or understanding what ordinary people feel. They have no conception of what it is like for somebody who is struggling to pay these bills who knows that the winter is coming, who needs the heat and just does not know how he will be able to afford it. What is suggested by the Government is a fuel tax imposed on industries not needing the money, making huge profits, and inflicting unnecessary financial hardship on the general public, many of whom are, indeed, terrified not only of a cold winter, but of price rises that they cannot afford; and so they do without.
§ We have many financial experts in this House. Not one to whom I have spoken believes that these price rises are justified, or are even a wise policy. I should he glad if the Minister can answer this question, as it puzzles me. Does he consider that present consumers should foot the bill for generations to come? If he does, for how many generations should that apply? I should be glad if the Minister would answer that. I have never heard the Government state their position.
§ Finally, whatever his reply tonight, I must ask the Under-Secretary to draw the attention of the noble Viscount, Lord Whitelaw, to this debate, not of course in the latter's capacity as Leader of this House, but as the overlord or chairman, of the special ministerial committee which is deciding great financial issues for this country. Those of us who know the noble Viscount arc quite sure that he will regard unjust financial hardship for ordinary members of the community as for him a problem every bit as serious as what might be termed more important matters. We hope that the noble Viscount will feel able to look at what we have said on behalf of the many poeple who are deeply worried about what they see as an unfair imposition in the form of a fuel tax, and who have come to us for help.
§ 8.16 p.m.
§ Baroness Elliot of Harwood
My Lords, I rise from these Benches, having for a great many years been a keen supporter of the Consumer Council and consumer policy generally. We could not have heard a better or more complete analysis of the situation in regard to the gas industry than we have heard from the noble Baroness, Lady Burton of Coventry. In my opinion she is one of the greatest exponents of the feelings and views of consumers in any House of 1258 Parliament anywhere. I follow her with great humility, but I entirely support her on all this.
Being a great supporter of this Government, I do not like to make critical statements, but I do so tonight, as I am speaking for the consumer. Strangely enough, in my house I use gas for almost everything. I have gas heaters, cookers, and almost everything else. The only things which I have that are electric are the lights. I am a heavy user of gas and a strong supporter of gas consumers and of the industry.
I do not understand why, when we have a successful and well run industry which is supplying what people want and is making big profits, the price must go up. The noble Baroness, Lady Burton of Coventry, has put the point clearly. If a private, ordinary business, such as Marks and Spencer, or ICI, made those great profits. it would distribute them in dividends to those who had invested their money. It would not put up the price: it would distribute the profits. Admittedly, industries such as gas and electricity are slightly different, but the principle is surely the same. When a successful industry makes high profits, that is the moment to pass something on to the consumer. In this case a lower price should be passed on. That would not injure the industry in any way. It would probably mean that more people used and paid for gas, and consumption was increased, which in itself would be useful for the gas industry.
There is something strange in the theory which appears to be put forward by the Treasury, or whoever, that when something is very successful, a tax is instantly imposed. so that it becomes less successful. It is wrong to use the gas industry and its profits to impose a fuel tax. A fuel tax is not something that should be paid by the ordinary people consuming the fuel. That is something altogether different. If this kind of policy were adopted by the Government or by industry it would kill the enterprise of businesses; businesses which, on the whole, we all want to help, since without encouraging business, without increasing opportunities for employment, we are only injuring our country in a way in which I personally, and I am sure everybody else, will very much oppose.
If this is a way of increasing taxation, then I think it is very' unwise indeed. We do not want to increase taxation; if we possibly can, we want to lower taxation. That would help to restrict inflation. One suddenly finds oneself with the position which has been described most eloquently by the noble Baroness, Lady Burton of Coventry, and in the letters which she has referred to. I have read a certain number of them, but not the ones which appered only yesterday or the day before, and they do indeed accurately describe the very bad principle involved in this particular matter.
Increases in gas or electricity prices hit every single person, and some can afford to pay them more than others. They hit harder than anybody else old people and the people who have small incomes; although these are the people we do not want to hit. These are the people we want to try to help if we possibly can. I hope the Government will look at this again; not increase this taxation, not increase the price of gas, but enable us to be fairer and have a fairer distribution to consumers in a way which would he wise, sensible and fair. I think this particular form of taxation is most unfair and most unwise.
§ 8.22 p.m.
§ Lord Molloy
My Lords, I apologise to the House for being late to listen to everything that has already been said in this debate. I know your Lordships understand that I have participated in Questions on this particular subject matter of increases in the price of gas and electricity. In the very short contribution I wish to make I want to ask the Government whether they will bear in mind—and the probability is that the point has already been made—that these increases in charges have not in any way been requested by the administrators in charge of these publicly owned industries. We realise that the party opposite is almost pathologically opposed to anything that is publicly owned, except the police, the Army, the Navy and the Air Force, and to anything else which contributes fundamentally, as these great industries have, to the economy of Great Britain.
Many of us are still young enough to remember the experience of something like 290 privately-owned electricity organisations which could not get electricity to British farmers; when the gas organisations could in no way get gas to the outskirts of our great cities. But it took the same endeavour which constructed our mighty defence organisations to see to it that British hillside farmers could get electricity and that outlying districts could he supplied with gas.
Now we have the discovery of North Sea gas. The point is that ordinary people contributed to these great ventures. North Sea gas has become almost a shareholder, as I understand it, in North Sea oil. I could readily understand it if a Government made requests of the chairmen and the boards of direction of these great industries about massive expense such as occurs in, say, the coal industry. In the capitalist system expense means money, not human beings: not shot firers, not coal miners, not those who are damaged for life, not those who are slain outright. One realises that before the war we were slaying coal miners at the rate of 400 a year. What would be said if we were killing doctors and school teachers at the rate of 400 a year?
We have seen this magnificent endeavour. I had thought that the whole principle of the public ownership of these great industries was finished and done with. We acknowledge that they are there to help people. Then suddenly we are faced with this distressing and disturbing news. It would be really distressing and disturbing if we had to face the fact that they were in financial difficulty. The argument of the Government would have been that everybody had got to contribute to help the gas industry and the electricity industries to get on their feet. If that were so, one could to a degree understand it; but that is not the case. Not so very long ago justified criticism was being made because the profits of the gas board were so enormous, particularly from their entrepreneurial endeavours in regard to North Sea oil.
The last time that gas prices were increased it was also ludicrous, and it was a very unhappy situation because it coincided with the Government making tax reliefs for the very wealthy while pushing up gas and electricity charges for the rest of the community.
The gravamen of my submission tonight is this. I do not want to hear arguments that the old and infirm 1260 who need to be kept warm can get supplementary benefits; I think that is an appalling argument to put to the old-age pensioners of this country who have made their contribution in their youth, in their middle age and in their latter years. It is not only an indignity, but they feel it an embarrassment that in Great Britain in 1983 they have to subject themselves to some form of supplementary benefit to keep warm in winter.
I listened some time ago to a speech which struck very hard within me. It ws a speech of one of the most experienced Britons (in a variety of ways) in this land today: I refer to the noble Lord. Lord Hill of Luton. I do not suppose for one moment that he is personally particularly worried about increases in charges for electricity and gas. The thing that makes me so proud to be in this place is to know that we can still produce people like the noble Lord, Lord Hill of Luton, who probably personally is not too much affected but who at least can come here and make the point that for tens of thousands of old people this is going to be a difficulty: and it is on that particular aspect that I await the reply of the Minister.
This is not a crowded Chamber; this is not a burning issue like the televising of Parliament. But I can tell the Minister this. There are tens of thousands of old people from John o' Groats to Lands' End who will hope that there will be some tiny semblance of compassion in the attitude of the Government today with regard to these proposals. It may not be too late for them to be abandoned. There is no reason whatever for the increases: the industries do not want them: the old-age pensioners do not want them. I have no evidence, but I should like to say in conclusion that I believe, after examining the situation, that the mass of ordinary people of these islands do not want them to be inflicted on the old of our country. It does not matter what excuses are given with regard to supplementary benefit. There is no need to subject so many of our fellow Britons to this form of indignity. The Government should drop the proposals.
§ 8.30 p.m.
§ Lord Hill of Luton
My Lords, we are indebted to the noble Baroness. Lady Burton of Coventry, not for the first time, for raising a very important issue affecting ordinary people. I want to base what I say on a physiological fact. It is that the regulatory system of some people, usually young or old, is very much less capable of resisting coldness than that of normally healthy people of middle years. The result of that failure to react as the remainder of healthy people do may well be hypothermia—a relatively new word that has been used in the medical press to describe this condition only over the last 15 or 20 years. The sufferers from hypothermia are likely to be those on low incomes and living alone.
Of every 100 cases of hypothermia reported 85 are old people. These are the people who may suffer—I am choosing my words carefully—from hypothermia, which can be a most dangerous or a fatal condition, when their expenditure on fuel has to increase as are sult of higher prices. It may be argued that they could economise in other fields. But we are speaking of people on low incomes who have no other fields that are ripe for economy. The reduction therefore is likely to be a reduction in expenditure on fuel. Expressed another way, any rise in fuel costs for these elderly 1261 people—often elderly and sick—without a compensatory increase in their incomes adds to the danger of hypothermia.
This leads me to put a question to the Minister who is to reply. In the light of the physiological facts, do the Government intend to increase social security payments to compensate for increases in fuel costs which lessen the capacity of the poor and elderly to buy fuel? This consideration applies whether the increase is in gas or electricity prices or both. I simply do not know whether the rumour in the press about the abolition of the proposed higher charges for electricity for the time being is true. Whether the increase is for one sort of fuel or the other, there is a danger to the health of people who have to make economies in their expenditure on the fuel.
The first question is this. Do the Government intend to introduce a compensatory increase in social security rates to meet this increase in fuel costs for the poor and elderly? If not, what other remedies do they propose to avoid the risk of hypothermia in some old people? This is the crucial question. It is no good saying in reply, "Ah, but in the past month or so social security payments have risen in accordance with the cost of living or pensions have increased in accordance with the cost of living". Those payments have increased because of the cost of living. There is no compensation for the inevitable increased expenditure on fuel by these people.
The second question is of a more general character. If the Government need additional income, why not use the fairer method of taxation in relation to people's incomes instead of adding to the pains and strains of old people? My third point relates to a Question that I put down to which an Answer was recently given. It concerned the case of an old lady of 85, nearly blind, who had suffered a £1.90 decrease in her income as a result—to many of us, the unexpected result—of the regulation passed in Parliament a year ago. I am glad to say that there was a satisfactory outcome in that case. The local authority reached the conclusion that the old lady needed more heating than the general level of heating it provided for its tenants and certified that fact to the DHSS. Immediately the drop in pension was restored and back money was paid. I therefore wish to ask the Minister this: will the appropriate Minister advise local authorities, wherever they have a case of someone whose heating needs are exceptional and above those that are normally necessary, to notify the DHSS local office so that the problem can be solved? Should not that procedure be generally known and generally recommended in order to avoid decreases of income for a particular group of people with requirements for heating over and above the average requirement? I should be grateful if the Minister can say whether that can be done as a partial, but not a complete, solution to the problem.
The Government must realise that, if there is insufficient fuel, the danger to old people is real. There must be compensatory payments to such people. I am not referring to increases in relation to the cost of living that have been given for everyone in this category and outside. I therefore say to the Minister that increased fuel costs—again, I choose my words carefully—for elderly and poor people without steps being taken to 1262 protect them from the danger of hypothermia following upon insufficient fuel, is just not good enough in a civilised country.
§ 8.39 p.m.
§ Baroness Macleod of Borve
My Lords, like other noble Lords, I am grateful to the noble Baroness, Lady Burton of Coventry, for drawing our attention to some of the problems relating to fuel in this country today. The noble Baroness, as we know, is an absolute expert in your Lordships' House on consumer affairs. The hard-hitting speech to which we have listened this evening was one that we are used to hearing. The noble Baroness never minces her words; she is always on target. I personally always enjoy what she says, although I do not always agree with it.
The noble Baroness has given figures this evening for the increases in both industries. I have tried to find out what the increases are likely to be, but I was told that they had not yet been settled. Therefore, I do not quite know who is holding out on me, or who is giving the noble Baroness information that perhaps has not yet been agreed.
§ Baroness Burton of Coventry
My Lords, I am grateful to the noble Baroness for giving way. I quoted from one of the newspapers; I do not know whether it was the Guardian or perhaps the Financial Times.
§ Baroness Macleod of Borve
My Lords, the few remarks that I wish to make this evening—and they will be few—are made in my capacity, some years ago, as the first chairman of the Gas Consumers' Council. I hope that noble Lords will forgive me if I cannot allude to the Electricity Council although I was aware, in those years, of what it was doing. However, I obviously had more knowledge of what the Gas Consumers' Council, and British Gas in particular, were thinking.
I should like at the beginning of my brief remarks to pay a tribute to British Gas. I had five particularly helpful years knowing what it was doing and I came away realising that it was one of the most efficient industries in this country. It was a cost-effective and also a very caring industry. There has not been an increase in gas prices since 1982 and gas is still the cheapest fuel. Indeed, it is one of the cheapest fuels in Europe. The increase in charges—whatever the cost must be—must obviously be borne by the consumer. Even the ever-increasing wages bill has to be met and the new gas supplies which have to be found also have to paid for. I submit that a gradual increase is very much better for the consumer than the artificial holding down of prices which, during the previous Government, led to the British Gas Corporation making a loss on sales of gas to the home.
Like the noble Lord, Lord Hill of Luton, who has much expertise in this matter, many of us are worried about the possible deaths due to hypothermia which are causing concern in the country at the moment. But it has not been brought to your Lordships' notice that in October 1982 the Secretary of State announced that the gas and electricity industries had agreed to commission independent reviews of their standing charges. One of the results of the findings is that British Gas has decided to introduce a standing charge rebate 1263 scheme for tariff customers who use small quantities of gas. The concessions on standing charges will, it is estimated, benefit about I million customers and will cost British Gas about £2 million in a full year. For the credit customers and the pre-payment meter customers, where the standing charge is greater than the charge for therms supplied, there will be a rebate to bring the standing charge down. I submit that that in itself should go a long way to allay the fears of elderly people who live alone and who use very litttle gas.
§ Lord Molloy
My Lords, I acknowledge that the noble Baroness does her homework very thoroughly indeed. But is she aware that, notwithstanding the very telling argument that she has just put forward, last year British Gas made a profit of £660 million, so the £2 million it is going to give away is absolutely trivial?
§ Baroness Macleod of Borve
My Lords, the noble Lord is entitled to his opinion.
As we all know, the social services are empowered to help in cases of need. They were able to do so when I was chairman of the Gas Consumers' Council. Indeed, I should like to take a little bit of' credit, because I was instrumental in getting that through. However, I should like to know from my noble friend the Minister whether the electricity industry is making the same provisions. As I have said, British Gas is a very caring industry and the consumers' council, as I am sure the noble Baroness would agree, is an excellent watchdog. It monitors the industry to ensure that it is as efficient as possible.
From what I have said this evening I hope that the Minister will he able to allay some of the fears of the older people in our society for whom everyone in this House, on all sides, cares very deeply. Again, I am grateful to the noble Baroness for introducing this subject.
§ 8.46 p.m.
§ Lord Banks
My Lords, I must apologise to the House for the fact that my name is not on the list of speakers, but I withdrew it when it seemed likely that the previous debate would end so late that I would be unable to he present. However, I under-estimated the restraint which noble Lords are capable of exercising on occasion. I should like to join in thanking my noble friend Lady Burton for raising this important Question this evening, and I should like also to support her plea that gas and electricity prices should not rise—a plea I think supported by most of the other speakers who have joined in the debate.
At the time that the autumn Statement was made it was understood that the Government were suggesting that there should be an increase in gas prices of 5 per cent. and in electricity prices of 3 per cent. Of course ultimately the industries decide their own prices, but the influence which the Government are able to exercise on the industries through the financial targets which they set, and the performance aims which they set out, usually tends to be paramount.
However, according to the press, it would appear that the Chancellor of the Exchequer and the Secretary of State for Energy have had some measure of disagreement, which may have altered the situation. It 1264 is now suggested in some reports that there will be no increases at least for nine months in electricity prices, and we read that the gas industry has attained financial targets over a four-year period. That represents a settled financial regime which may not affect the prices that the Government are suggesting they should charge, but it is in itself an advance, since they have not had such a regime since last April. I am sure that we shall look to the reply by the noble Earl for further clarification on these particular matters.
In considering whether prices should rise, we have to bear in mind a number of matters. First, we have to bear in mind how prices have already risen in recent years. If we take the period from January 1974 to April 1983, we find that prices generally—all prices—have risen by 233 per cent.; earnings have risen by 246 per cent.; gas prices by 274 per cent.; and electricity prices by 392 per cent. So over that period of some nine years both gas and electricity prices have risen faster than earnings and the general level of prices.
If we take a shorter period of time—the period during which the present Government have been responsible for our affairs—from May 1979 to September 1983, we find that the retail price index has risen by 57 per cent.; electricity prices by 83 per cent.; and gas prices by 122 per cent. That period of course includes the period to which reference has already been made when the Government requested that for three years prices should be increased at 10 per cent. above the rate of inflation.
Having considered how prices have risen, and having discovered that they have risen quite considerably and faster than the general level of prices whether we take nine years or three years as the period of time by which we are judging, we then have to consider what the profits have been, and these have already been mentioned: some £330 million last year for electricity and some £660 million for gas, after a levy of £530 million had been imposed by the Government, which makes the total of £1,190 million.
Then, as several noble Lords have pointed out, we have to consider the effect on the poorest, because fuel is a very important item in the budget of the lowest income groups. Low income pensioners and lone parents spend roughly twice as much of their income on fuel as people on average incomes. The noble Lord, Lord Hill of Luton, has referred with authority to the problem of hypothermia, and experts tell us that before next spring arrives we can reliably expect cold homes to have caused the death of 44,000 people over the age of 50 and 500 babies under a year old.
Disconnections are still running at 120,000 a year; 214,000 households have deductions from their supplementary benefit for fuel arrears; and a further 500,000 gas customers and about 600,000 electricity customers are paying off arrears through other arrangements. The Government are spending some £350 million on heating additions, but only about 65 per cent. of supplementary benefit claimants get these additions, and those not on supplementary benefit and only marginally above the supplementary benefit level do not qualify for the heating addition. Altogether fuel poverty is a serious-problem.
Then we have to consider the effect on industry. I must confess that I find it difficult to get accurate 1265 comparisons, but at least some countries have cheaper fuel than we do in this country, and there is a danger that an increase in United Kingdom prices will put United Kingdom industrialists at a disadvantage—that a gap that was perceived earlier on will open up again. We are a large producer of energy and it would seem absurd that industrialists in other countries should have an advantage over our own in this particular field.
Against these arguments, it is argued that we must increase the price in order to promote conservation, although experience would seem to suggest that price is not a good weapon for this purpose. Then there is the problem referred to by the noble Baroness, Lady Macleod, about the increasing extraction costs and whether prices should rise in order to take account of them. I think that profits of the size that we have been considering are sufficient to absorb—at any rate for the time being as far as one can see—any extra costs which undoubtedly will occur on those grounds.
An argument which is made by the Government is that the return on capital as it is at the moment is not satisfactory. In the gas industry there were profits of £660 million after a levy of £530 million. Yet Mr. Walker, the Secretary of State for Energy, speaks of a profit of £188 million on a capital of £12 billion. That capital of £12 billion was described in the Economist as "complicatedly calculated capital", and we have to bear in mind the effects of current cost accounting and the historic method when we are looking at that figure of £12 billion. If one takes £188 million on £12 billion the return is 1.6 per cent. which perhaps does not sound very great, but that £188 million is after the deduction of £295 million for the sale of assets which were forced on the industry by the Government. It is also after the payment of some £208 million in tax, which the Government get anyway.
The return, before allowing for the sale of assets, before allowing for this tax of £208 million and before allowing for the gas levy of £530 million was 57 per cent., and that seems satisfactory to me. I should have thought that consumers are paying enough to provide a reasonable return and are making a substantial contribution in tax at the same time.
My noble friend Lady Burton referred to the report commissioned from the accountants, Coopers and Lybrand, by Mr. Lawson when he was Secretary of State for Energy, and the fact that that report suggested that electricity prices should be cut—not raised—by 7 per cent. For all these reasons—for the sake of the poorest, for the sake of British industry and for the sake of the general body of consumers—in view of the profits earned and the taxation paid, I urge the Government not to seek higher gas and electricity prices.
§ 8.56 p.m.
§ Lord Stoddart of Swindon
My Lords, like other noble Lords, I too am very grateful to the noble Baroness, Lady Burton, for raising this subject tonight, which is of great concern to domestic, industrial and commercial consumers of gas and electricity alike. I think it is unfortunate that the preceding candyfloss debate which has just ended has overshadowed this debate, which deals with the very real and acute problems that so many people have as a result of high 1266 heating costs. It really matters not one jot whether or not the proceedings of this House are televised. On the other hand, inadequate heating can be a matter of life or death for some.
As the noble Baroness, Lady Burton, said, the Government have shown awful insensitivity in this matter; the public have the spectacle of the gas and electricity industries making large profits and at the same time forcing further increases in prices down the throats of the consumers. I have to agree—and I am sure that the House will agree—that the Government's handling of the fuel industries and, indeed, of the prices charged for electricity and gas has been appalling. The bitter quarrel between the Energy Secretary and the Chancellor of the Exchequer has been an unedifying spectacle, to say the least. I think that perhaps we are bound to have a sneaking sympathy for the Energy Secretary, Mr. Walker, who returned from his recent visit to China only to find that, while his back was turned, the gas and electricity industries had been ripped off by the Chancellor of the Exchequer for his own particular ends.
The decision of the Government to force increases in gas and electricity prices has been universally condemned not only in this House tonight but in another place, by the consumer organisations and also by industry. I am sure that noble Lords will have heard what Sir Terence Beckett said on the "World At One"—and if they did not hear him on the "World At One", they will have read what he said in the newspapers—about the increases in energy prices. What he had to say was that the increases in fuel charges would be extremely bad for industry and, indeed, may very well send some industries to the wall just at a time when, far from wanting to destroy our industrial potential, we should he building it up.
Undoubtedly, the price increases which are completely unnecessary in terms of the financial viability of the gas and electricity industries, as we have heard from many noble Lords tonight, will cause particular hardship to the old, the poor and the deprived. Indeed, the noble Lord, Lord Hill, with his expertise in this subject, made it clear that the physiological characteristics of the very old and the very young made them subject to hypothermia, and that these people were in real danger. I believe that the Government should listen to that expert warning, and indeed answer the very real and pertinent questions which the noble Lord put to the Government tonight. What in fact are the Government going to do, particularly if it is a hard winter, to save these people from hypothermia as a result of already high and rising fuel prices?
I am sure that noble Lords who are here will have seen the press release which was issued—in fact it is a report called Cold Homes—so I shall not read it in its entirety, but I should like to quote some of the things that it says. First:Before next spring arrives we can reliably expect cold homes to have caused the deaths of 44,000 people over 50 and 500 babies under a year old. If it is a hard winter more will die".It goes on to say:This is real poverty in 'civilised' Britain in 1983. Those men, women and babies who arc physically vulnerable by their age or disability will die simply because their leaking homes cannot be heated by their low incomes at today's energy prices".1267 We have already heard from the noble Lord, Lord Banks. that disconnections are running at a very high level, and, in terms of long-term disconnections, 21,000—one-fifth of all electricity cut-offs—are without supply for a month or more. Many of those disconnections involve families with young children. What is more, in their outgoings those people—and they are usually old people and young people who are forced to remain at home and do not enjoy freewarmth at work—spend a percentage of their total expenditure on fuel costs which is twice the average and nearly three times the proportion spent by the richest. But, despite the high proportion of their expenditure, they still only purchase 57 per cent. of the fuel bought by the richest. That of course is a very good reason again why the strictures and the demands of the noble Lord, Lord Hill, should be treated seriously by the Government tonight.
These increases in prices are undoubtedly a furthermean tax on the poor in order that the Chancellor shall be able to store up future tax cuts in favour of the already rich or the well-off. Furthermore, as we have already noted, the unfavourable position of old people and others on supplementary benefit has been further compounded by the muddle and administrative chaos over combined housing benefit and the new regulations, which have reduced overall supplementary benefit for some claimants by up to £2 a week. That again was a point noted last Thursday at Question Time by the noble Lord, Lord Hill.
It is also a fact that many people who would qualify for additional heating allowance do not claim it because they cannot find their way around the complicated regulations. The Department of Health and Social Security ought to do more to identify those who need additional heating, and I hope that the Minister will be able to announce tonight that that is precisely what is going to happen.
I want to come now to the treatment of the gas and electricity industries by the present Government. They have in fact since 1979 used these industries as milch cows. In fact, my noble friend Lord Molloy mentioned that the Government do not like the nationalised industries, although in fact they will use them for their benefit. But of course the Government cannot lose on this. On the one hand they criticise the nationalised industries when they make losses, and when they make profits they use them for taxation so that the Government are always on a good wicket in this respect.
Now the electricity industry, in which I at one time worked, in particular has had to bear the consequences of twists in Government policy over a long period of time. For example, the switch from coal to oil-fired power stations now involves the industry in carrying loan charges on hundreds of millions of pounds of capital lying idle due to the mothballing of oil-fired stations following the oil price crisis. There has been also over-concern for security of supply, coupled with the present Government's economic policy, which has severely reduced industrial production, led to a severe drop in demand for electricity and saddled the electricity supply industry with 60 per cent. more capacity than it actually needs to run the system and produce reasonable security of supply to consumers.
1268 To foist a negative EFL—because an external financing limit is what it amounts to—of £740 million on the electricity industry, which has been so buffeted by events and Government interference, is quite intolerable, particularly when that negative EFL is going to force up prices, although one has to say that, according to the latest press reports, the electricity supply industry has decided to defy the Government and to hold prices for 9 months. Good for them! The Government. I guess, will not dare to introduce the legislation which would be necessary if they wished to force the electricity supply industry to comply with their policy of increased fuel prices.
However, that negative EFL of £740 million will injure the capacity of the electricity supply industry to hold prices for an even longer period, which is really necessary not only to assist domestic and industrial consumers but also to get the industry itself hack on its feet. We have already heard about the report of Coopers and Lybrand, which suggests that because the electricity industry has such a large amount of surplus capacity which will carry on for the next decade, prices, far from being increased, should he reduced by as much as 7 per cent. That would not only help consumers, that would help the electricity supply industry to make use of that 30 per cent. of spare capacity that it has at the present time, and that would be good for us all.
I should also point out that it is not only the Electricity Council which is against the increases in prices. As my noble friend pointed out, the industries themselves do not want these increases—neither the gas nor the electricity industry. But it is not only the Electricity Council that does not want the increases; the trade unions in the industry are also against the increases, and have written to the Secretary of State and the Electricity Council urging that the increases should not be applied.
In the gas industry there has been an even greater blatant raiding by the Government of the coffers of that industry at the expense of the gas consumer. Indeed, the extent of the raids is almost unbelievable. We have heard about those raids from the noble Baroness, Lady Burton of Coventry. We have heard about them from the noble Lord, Lord Banks. We have had criticism from the noble Baroness, Lady Elliot of Harwood, and from the noble Lord, Lord Hill of Luton, about the use of these industries as a means of taxation. Indeed, the extent of the raids is almost unbelievable.
That Her Majesty's Government have been able to get away with their depredations for so long is due to the complexity of the industry's finances and the public's inability to probe the accounts thoroughly. The noble Lord, Lord Banks, has obviously been able to probe, because he gave us some very interesting figures tonight. But in stark terms the Government have enforced the transfer of over £1,000 million from the Gas Corporation to the Exchequer since 1980. In 1982–83 alone, according to the Gas Corporation, the amount transferred was £600 million and that is equal to the total annual revenue from capital gains tax. The Government are getting as much from the gas consumer in one year as they are from people who can well afford to pay tax in respect of capital gains that are made—that is after the £5,300 a year exemption.
1269 Transfers of this order—we must not forget this—will continue in the future because the gas levy will continue unless the Government removes it. Let us make no mistake about it. This is a straight tax on gas consumers and it amounts to 4 pence per therm on gas prices, which is roughly a 12 per cent. tax on every therm sold. That is the extent.
In a letter to Miss Sheila Black, the chairman of the National Gas Consumers' Council, the Secretary of State seeks to justify the gas levy in the following terms—and I shall quote from Hansard. This letter has already been mentioned once this evening. It states:The position is simply that the BGC will continue to purchase some gas from early North Sea discoveries, which are exempt for Petroleum Revenue Tax (PRT), at well below its current market value. If the Government had taken no action the Corporation would, as a result, have made large excess profits. The Government therefore decided to introduce a levy to transfer the windfall from British Gas to the nation as a whole, in much the same way as PRT does for oil and newer gas supplies". [Official Report, Commons 28/11/83; col. 425.]That sounds reasonable until we consider the figures. Let us examine the attempted justification of the gas levy as being in lieu of PRT. The gas levy netted by the Government is as follows: £129 million in 1981–82; £394million in 1982–83; and £600 million in 1983–84, making a grand total to date of £1,123 million.
Estimates in the annual public expenditure White Paper of cost to the Government of exemption of taxes from North Sea gas fields under pre-1975 contracts showed that the Gas Corporation would have been paid, in 1979, £15 million petroleum revenue tax; in 1980–81, £10 million in petroleum revenue tax; and, in 1981–82, £50 million in petroleum tax and£50 million in special petroleum duty. So the total for the three years would have been £125 million. Therefore British Gas has paid over £1,000 million more in tax than if it had paid petroleum revenue tax and special petroleum duty. It is ironical, and quite inequitable, that British Gas should be taxed to the hilt at the same time as the present Government are relieving the oil companies of royalties which will cost the Government thousands of millions of pounds in lost revenue in future years.
But that is not the end of the sad story of raids on the Gas Corporation's assets. As the noble Lord, Lord Banks, pointed out, from a reading of the accounts for 1982–83, it would seem that the Government intend that proceeds from the enforced sale of British Gas assets of off-shore and in-shore oil will be transferred to the Exchequer, instead of remaining with the Gas Corporation for the benefit of the gas consumers. But for the provisions of this transfer of funds to the Government, British Gas would have earned, it is true, a rate of 5.7 per cent.—well above the Government target. It seems that we have a case of privatisation without compensation. It seems to be not nationalisation without compensation, but privatisation without compensation. But for these impositions by the Government, the Gas Corporation could cut the cost of gas by 10 per cent. and still be able to earn a reasonable return on net assets employed. That is the extent of what the Government are doing to the industry.
1270 A great deal more could be said if the time were available, and I should in particular have liked to deal with the point of the noble Baroness, Lady Burton, about long-run, marginal-cost pricing. However, I would merely remind her that the Commons Select Committee on Energy considered this matter in its second report on industrial energy pricing policy. I had the honour to be a member of the committee when it considered the matter. Its conclusion was:For all these reasons, we are not convinced that Long Run Marginal Cost Pricing, as advocated by the Government, is either efficient or sustainable as a method of pricing energy".So in fact the committee came out against that principle because it believed that it was wrong that the consumer of today should pay for the consumer of the future. Instead, the committee favoured some system of average cost pricing. So the Commons Select Committee on Energy is on the side of the noble Baroness.
As I have said, a great deal more could be said, but there is not the time this evening. However, sufficient has been said by the speakers in this debate—and all speeches tonight have been excellent, to the point, and very knowledgable—to show that Government policy on gas and electricity prices is, to say the least, misguided and injurious, in particular to the poor and to industry.
The only fuel policy that the Government have is to jack-up fuel prices beyond the maximum which the market can bear and, by so doing, encourage both higher wage demands and inflation. They should abandon this policy and, instead, adopt an integrated rational fuel policy combined with conservation measures. They should make a start by abandoning these most recent impositions, and that would lead to a freeze on gas and electricity prices for at least a year, if not longer. As we have already said, if the Government really wanted to do so, they could cut the prices of these fuels, with great benefit to the consumer and to the country as a whole.
§ 9.19 p.m.
§ The Parliamentary Under-Secretary of State, Department of Energy (The Earl of Avon)
My Lords, I should like to join in the general warmth of welcome to the noble Baroness, Lady Burton, for raising this matter tonight. Having listened to the various speeches I think that it is very timely that the Government should put on record how they stand at the moment. I should like to say a little more about the timing, but unfortunately it is a little early on actually to know how to refer to some of the points made by the noble Baroness.
I find myself in some difficulty with the noble Baroness because she quotes from newspapers. For very many years of my life, I have never believed a word that I have read in the papers and, having listened to some of the comments tonight, I am still in that particular frame of mind. The noble Baroness—and, I think, speakers from other parts of the House—referred, for instance, to the Coopers and Lybrand report. That was an internal document in the department, commissioned, as was rightly said, in 1982. As far as I know, it has not as yet been published. It has some commercial confidentiality within it, and it is therefore unlikely that we shall be able to publish it. Therefore, the leaks that one reads 1271 about it, I am afraid, have to be taken with a pinch of salt: they are not accurate.
The noble Baroness referred at one stage to Mr. Alex Henney, who is indeed well-known to me. He is, for instance, a member of the London Electricity Board and, through his own council, can always make his views known through Mr. Barnes, to whom the noble Baroness also referred, who is the chairman of the Electricity Consultative Council.
I indeed recognise that concern has arisen over the possibility of increases in gas and electricity prices, and I hope now to be able to assist. Last month, the Government announced the external financing limits for the gas and electricity industries for next year, and many commentators have interpreted this as a decision on gas and electricity prices. In fact, this is not the case: prices are determined by the industries concerned, and the Government have neither the power nor the wish to impose price changes on the industries. I understand that the industries have taken no final decisions on prices for next year. But I cansay that present indications are that, if any increases are announced by the industries in the normal way after consultation with their consumer councils, they should be below the rate of inflation.
In the case of gas prices, it is important to understand the reasons why the corporation have indicated that a modest increase is necessary. The corporation has a creditable record in reducing controllable onshore costs—it has already been referred to—such as, pipelines, vehicles, labour, equipment and so on. These actually fell by 5 per cent. in real terms in 1982–83, as compared with 1980–81. Since many of these costs are included in the standing charge, I hope that these savings will feed through to the benefit of consumers by allowing the corporation to hold these charges for the present. But other costs—and this is the point—particularly the cost of new gas supplies, are rising. For example, it is often forgotten that nearly a quarter of our gas supplies have to be imported at prices which are four to five times the price of the original Southern Basin supplies.
The corporation must take account of these trends in setting prices. If it did not, we should soon be hack to the situation under the last Labour Government, where artificial holding down of prices led to the BGC making losses on sales of gas to the home. That would be bad for the corporation, bad for the taxpayer and, in the long run. bad for consumers—
§ The Earl of Avon
No, my Lords, I will not for the moment. The noble Lord was not present during the opening speeches and I think he can, at least, sit down and listen to my arguments. If I may repeat what I said, that would be bad for the corporation, bad for the taxpayer and, in the long run, bad for consumers, who would be receiving unrealistic signals about the true cost of consumption.
§ Lord Molloy
My Lords, I am most grateful to the noble Earl for giving way, and I thank him very much 1272 indeed. I do not know who wrote the speech that he is reading—which civil servant it was. I have heard some appalling bloomers in civil servant-written speeches spouted from Dispatch Boxes. But does the noble Earl realise that it is a fact that over the past two years electricity prices have increased by 43 per cent. above the inflation level and gas prices have increased by nearly 90 per cent. above inflation? Those are the facts. He cannot say now whether I am right or wrong, but I am willing for that to go on the record and he can contradict me at any future time and say that I am wrong.
§ The Earl of Avon
My Lords, I shall contradict the noble Lord right now. He is wrong. They have not. Neither of those two prices has increased by the amount which the noble Lord said. If he will let me develop my argument, I shall come on to how much they have gone up, and if he listens he will know.
That then is the corporation's case. I understand that the National Gas Consumers' Council—which is a farsighted and responsible organisation—accepts that a modest increase in gas prices is justified. Certainly, no one could argue with the view that a steady and consistent approach to pricing is much to he preferred to holding down prices artificially, which is inevitably followed by large catching-up increases of the type which have been necessary in recent years. Prices to the domestic consumer have not risen—
§ Lord Stoddart of Swindon
No, my Lords, that is quite true. The noble Earl has just said that it was wrong to hold down prices artificially, but was it not equally wrong to increase prices artificially in 1980, 1981 and 1982 by means of the gas levy?
§ The Earl of Avon
My Lords, the noble Lord has made two different points. We increased prices by 10 per cent. over each of the three years. That was not the gas levy. The three prices rises of 10 per cent. were too ffset the holding back of prices by the previous Labour Government. It is a different point. Then there is the gas levy on top. I shall be turning to many of these points. Then noble Lords can come back to me on them, if they wish to do so.
Prices to the domestic consumer have not risen since October 1982. There has therefore been a standstill of over 14 months for the ordinary consumer. Industrial contract prices have been frozen since April 1982 and renewal terms have risen by only about 3½ to 4per cent. since the end of 1980. Earlier today I was informed that the corporation expect to be able to extend this price freeze until April 1984. I am sure that noble Lords and industry will welcome this news (the noble Lord, Lord Banks, referred to industry) which means that industrial contract prices will have been frozen for two years at a time when prices abroad have been rising steadily. This can only be good for our industrial competitiveness and hence for jobs.
1273 In the case of electricity, the freeze on prices this year means that electricity prices in real terms are about 5 per cent. lower than they were last year. The prospects for prices next year are also good. The Electricity Council, as I indicated earlier, have not yet made any announcement. I understand that at present they are considering how to meet the external financing limit announced by my right honourable friend the Chancellor of the Exchequer.
I believe that this is all good news. I hope that it will help to dispel the gloom and dismay with which some noble Lords seem to face this prospect. There is a tendency—
§ Baroness Burton of Coventry
My Lords, the noble Earl the Minister has been interrupted many times but he has just said something which I cannot follow. I understood him to say that prices had fallen in real terms and were less than they were last year. Does the noble Earl pay gas and electricity bills? Do they ever come his way? Mine have not gone down.
§ The Earl of Avon
My Lords, the mathematics of the noble Baronessare so difficult that it is hard for me to know where to start. There was no change in the price of electricity over the last 12 months. Would the noble Baroness agree with me about that?
§ The Earl of Avon
I hope the noble Baroness will send me her bills because these are the facts. If the noble Baroness will do so, I shall have a look at them. On average, over the last 12 months electricity prices have remained constant, which means that, as there was a rate of inflation during that time, the price of electricity has gone down in real terms.
There is a tendency among members of the Opposition to grudge any success achieved by the Government's economic policies and to question whether it is real. Electricity prices have proved that these policies are working. Real prices are steady because costs are coming down; inflation is down; and interest rates are down; coal prices to the generating hoard have come down. I believe that this is good news and I hope that it is good news to which we shall become accustomed.
The other half of this success story belongs to the electricity industry itself, and I pay tribute to it. We have been accused of knocking the nationalised industries. I do not do so. I believe that this industry is doing a good job. It has been successful in containing its costs. This year it has been enabled both to reduce its prices in real terms and to over-achieve the profit target agreed with the Government over the past three years. The industry is meeting its performance aim. It is able to reduce its controllable cost. It is doing so by improving thermal efficiency at power stations, by improving the efficiency of the transmission and distribution system and by reducing manpower and raising productivity.
Efficiency is a long haul and the industry has further to go, but I believe that the management deserve credit for the success they have achieved and for the efforts they are making. I hope noble Lords will join me in giving credit to them for this achievement.
1274 Some noble Lords, in particular the noble Lord, Lord Banks, have expressed concern about the cost of electricity to manufacturing industry. All the evidence that we have—it has been compiled and agreed by the Electricity Council with the CBI—is that industrial prices in this country are no higher than average prices on the Continent. This average is, of course, made up of some prices that are higher than ours and of some that are lower. In France, for example, all prices are lower than ours and those of other countries in Europe, largely because of their successful and growing nuclear power programmes.
On the subject of standing charges, the general outlook for fuel prices is better than it has been for years. Despite this, I know there is concern expressed over the standing charges included in gas and electricity bills. Those charges reflect the fixed costs of providing a supply—for example, meter reading and billing. The Government have considered suggestions that standing charges should be abolished but have concluded, as did the Labour Government in 1976, that this would not be a satisfactory way of helping those in need.
However, the Government have not been inactive on standing charges. First, at our request the industries commissioned studies by independent consultants. Their reports have been published: they support the principle and broad lever of these charges, and they identify certain areas where still further savings may be possible through increased efficiency.
The noble Lord, Lord Hill of Luton, and other noble Lords, spoke about help for the needy. The Government have also taken practical action to ensure that the less well-off can afford the fuel they need. Keeping prices artificially low is not, we believe, the way to do that. What needs to be done, and what the Government are actually doing, is to direct help specifically to those who would otherwise he unable to pay for the energy that they need and so would suffer hardship.
Supplementary benefit rates are intended to meet the cost of the normal amount of fuel needed by the average person on benefit, and the rates of benefit are increased annually in line with increases in the retail prices index over the year to the previous May. Obviously, there is an element of choice in the amount of fuel people use, so that some will spend more than others. But extra benefit is given to those who need to spend more on fuel because they are sick, disabled or frail and so need extra warmth, or because their homes are hard to heat.
In all, the Government expect to spend well over £350 million this year on such heating additions. That is no mean feat, and the Government's record is one of which we are proud. The rates of heating addition are presently at the highest level ever. On 21st November they were increased in line with the increase in fuel prices of 8.6 per cent. in the year to last May. Since November 1978, the basic rate of heating addition has increased by 140 per cent.—from 85 pence to £2.05 per week. 'That increase—I am pleased to be able to tell the noble Lord, Lord Hill of Luton—is well ahead of the increase in fuel prices over the same period. The heating allowance for those in greatest need is adjusted each year to reflect changes in fuel prices as well as other changes.
§ Lord Hill of Luton
My Lords, will the noble Earl, Lord Avon, allow me to intervene because I wish to get this point quite clear? Am I to understand from what he has said that no increases in the prices of fuel are contemplated in the foreseeable future?
§ The Earl of Avon
No, my Lords—I am afraid that is not the point. What I said earlier was, that the prices of the fuels are a matter for the two industries to settle for themselves.
I was going on to speak about the particular comment which the noble Lord, Lord Hill of Luton, made about the case history of which he was kind enough to give me notice. I should like to tell him that the local office are taking steps to establish whether others have been affected; and arrears will he paid as appropriate. I thank the noble Lord very much for bringing that matter to our attention. We are taking steps to deal with it.
I should like to comment also on the remark that was made about the additional number of deaths numbering, I believe. 44,000 and given in a report recently. I believe that it was the noble Lord, Lord Banks, who mentioned that matter. That number relates of course to all causes of death—the main ones being heart disease, respiratory diseases and cancer. The figure for hypothermia—to which the noble Lord, Lord Hill of Luton, also referred—is somewhere between 600 and 700 deaths per year.
More than 2½ million households now benefit from heating additions compared with 1½ million in 1978; 90 per cent. of supplementary pensioners get heating additions at a total cost of over £200 million this year. The Conservative Government introduced automatic heating additions for householders on supplementary benefit who are over 70 years of age or who have a dependant over 70 or under 5 years old. That means that more people than ever before get heating additions in their supplementary benefit, and that the additions. too, are worth more than ever before.
Finally, as a long stop for those on supplementary benefit who get into debt with their fuel board, DHSS and the boards have worked out a scheme, known as the "fuel direct scheme", which means they can avoid having their supply disconnected. An amount is deducted from their weekly benefit to pay for fuel they use and a further small sum is deducted and paid to the fuel board to reduce their debt. Over 180,000 people have taken advantage of this scheme and are presently on "fuel direct".
The noble Lord, Lord Banks, referred to diconnections. The industries operate a code of practice designed to safeguard those who suffer real hardship from disconnections. For example, the code provides that pensioners shall not be disconnected during the winter months. In fact, disconnections have been falling: between 1980 and 1982 the annual rate of gas disconnections fell by over 30 per cent., and electricity disconnections in England and Wales fell by nearly a quarter.
The noble Lord, Lord Stoddart, mentioned the gas levy. The levy is imposed only on old contracts which are exempt from PRT. It is levied on British Gas rather than the oil producers because it is British Gas to 1276 whom the windfall profits resulting from the relatively low cost of the gas compared to its high market value would otherwise accrue. Thus, although the detail of the levy may be unique, the principle is exactly the same as for other North Sea taxations.
The noble Lord also mentioned the remarks in Hansard. If I may continue reading what I have here, it goes on:The introduction of the levy had no effect on prices since the Government reduced BGC's financial target specifically to take account of its introduction".The noble Lord, Lord Stoddart, also mentioned the effects of asset disposals on BGC's finances. There is no reason for BGC to receive any part of the disposal proceeds. These will pass directly to the Exchequer and will therefore benefit taxpayers as a whole. BGC's financing limits take account of the needs of resources in its continuing operations and there is no reason to suppose that the disposals will cause an increase in gas prices. Gas prices will only be affected if BGC would otherwise have used profits to finance its gas operations, and such cross-subsidisation would have been quite wrong from both an economic and a commercial point of view.
The noble Baroness, Lady Burton. in her opening remarks asked about the future generating costs. The Government believe that prices should reflect the cost today of providing a supply on a continuing basis. To do otherwise would be to charge future generations for the cost today of supplying present consumers. I am sorry I have not been able to cover all the points made by the noble Lords and particularly Lady Burton. She asked me a specific point on figures which I could not take down, but I will look at it and let her have the answer.
§ Lord Molloy
My Lords, before the noble Earl sits down if he cannot give the answer tonight, which I do not expect, will he write to me—can he confirm or deny that these increases in gas and electricity were decided on 10th November at a full meeting of the Cabinet?
§ The Earl of Avon
My Lords, I imagine the noble Lord means "gas and electricity prices". The answer is, no, they were not.
§ House adjourned at twenty-one minutes before ten o'clock.