§ 3.3 p.m.
§ The Earl of Lauderdale rose to call attention to the need to transfer resources from heavy industries with high-cost output and surplus capacity, particularly in the field of energy, into others whose future offers prospects of continuing demand, of profitability, and of jobs; and to move for Papers.
§
The noble Earl said: My Lords, a bitter thumbnail sketch of our industrial almanac of shame appeared on the front page of The Times yesterday in a comment on the Scott Lithgow affair. The passage reads as follows:
The scenario being played in and around Scott Lithgow has convinced many overseas oil companies, as well as British, that the industry is determinedly on a course of-self-destruction".
That comes from the columns of The Times of yesterday.
§
Less than a month ago there was a feature article in the Financial Times headed:
Hard truths on Britain's industrial decline";
and in the very first paragraph we were told that for the first time since the Industrial Revolution our visible trade balance in manufactures went into deficit last year. In the 20 years to 1980 our manufactured exports exceeded imports by a value of more than £2 billion a year. Last year there was an adverse balance of no less than £5 billion. There are many examples. A simple one is passenger cars, but there is another about Leyland Trucks, which perhaps is worth quoting. Overseas sales have fallen from 10,000 a year to 3,000 last year and Nigeria, which took 2,500 a year in the past, took only 100 last year. There is no point in wearying your Lordships with a long catalogue, the general drift of which is well known.
§ In our galloping obsolescence there are, of couse, many factors—including management, unions, social values, inflation and lack of investment for lack of profit perspective—but I wish to submit that there are two which are politically avoidable. The first is the burden of old plant. I have in mind collieries, on the one hand, and electricity generating stations, on the other. The second is the consequential on-cost of energy.
§ My Motion, which focuses on energy costs, is procedurally bracketed with the Scrutiny Committee's coal study. That committee was chaired with predictable elegance and distinction by the noble Lord, Lord Kearton, who in turn was assisted by the noble Lord, Lord Ezra, who I am glad to see will speak later, and the noble Lord, Lord Gormley, whose return to our company is much welcomed and to whose full recovery we look forward.
§ As a one-time Member of Parliament for a mining constituency—Lanark—the social horror of mine closures is to me bitter and vivid, but that is the subject of quite a different debate. We on the Scrutiny Committee were faced with some macabre figures. One-twelfth of the output of the Coal Board clocked up some £300 million in losses. While the best 20 pits produce at about £30 a tonne—which matches any price anywhere in the world—the worst 20 produce at about thrice that figure, nearly £90 a tonne.
769§ In 10 years the Coal Board's annual deficit grants have risen from £48 million to more than £400 million, and the other day Mr. Walker said that the 1984 limit would be raised to £600 million. The Coal Board's EFL for 1984—in effect, its charge on the public sector borrowing requirement—has just been raised another £200 million, from £1.195 billion to £1.409 billion.
§ Having heard the evidence submitted by the National Union of Mineworkers and the National Association of Colliery Managers—the case, in effect, for "no annihilation without representation"—we almost seemed to hear a case for mining regardless of cost, and never mind the figures. At one point it even seemed to me that everything was true except the facts. Broadly, they told us that the cost of 10 years' closures on the present programme, including social costs, would be of the order of £4.3 billion, while the cost of keeping the pits open would be only £2 billion.
§ We then received material from the Department of Energy, which told us that closure costs were half that figure and that the cost of keeping pits open was double what we had been told. Amid malodorous facts, a nose that can see is said to be worth two that can smell. Mammoth imports of coal are not on as a practical possibility for years ahead because of the enormous capital costs involved in the equipment to export it. International marketing of coal is, in fact, a relatively small factor in volume terms in world trade. But, as with the Rotterdam spot price for oil, the price at the margin is a critical marker and, therefore, the international price from South Africa and Australia—of the order of £31 a tonne delivered in Britain—is a marker. Prudence does require a diversification of source uncertainty. So despite the world price at the margin, the case for supporting coal at more than the natural market level is a strong one on grounds of diversification of uncertainty. The political question is: how much?
§ Whatever may be said about the losses of the Coal Board—and one appreciates that members involved in the coal industry sometimes resent this—the fact is that the future of the coal industry is certain at competitive prices. Coal is going to be required to some extent at prices higher than that. It is an essential fail-safe as a fuel for electricity generation. It is essential for the critical change as we move from an abundance of oil produced on the continental shelf to purchasing it elsewhere.
§ Coal should benefit, and has every prospect of benefiting, from better and cheaper use arising from fluidised combustion and, indeed, as a satisfactory source of petrochemical feedstuffs in years to come. It must, too, be a fail-safe back-up for natural gas, for which demand is rising at 2 or 3 per cent. a year. It is worth bearing in mind that Britain's natural gas supplies from 1995 onwards are not yet assured from the continental shelf, neither are they as yet contracted from the Sleipner field of Norway, which could provide a quarter of our needs; nor have they been contracted from the Soviet pipeline, which might well he an interesting source, and still less again by LNG tanker from Africa, the Mediterranean or the Middle East.
770§ The future of coal at a competitive price is not and never has been in doubt, but the overall cost of energy has to be better than competitive if we are to recognise this as the very sinew of our industrial renewal. It has been said that knowledge makes one laugh but wealth makes one dance. The performance of electricity as a source of energy might well make one dance. While total energy use in the last 15 or 20 years has in fact shown a falling curve as against gross national product both here and throughout Western Europe, the use of electricity has been rising all the time. Between 1960 and 1980 the use of electricity rose by 50 per cent., and figures from the World Energy Conference in Delhi last year predict a further 20 per cent. rise by 1990.
§ What is often overlooked—and, with respect, I bring it to the attention of your Lordships—is that electricity is itself a lever for growth in all sorts of ways. There are the technical developments, such as electromagnetic induction and electric beams which focus electricity on the elementary particles themselves and make sure, in the case of plasma jets, that heat is directed only where needed. These are highly technical matters, but they are examples widely quoted. The fact is that the use of electricity is growing faster than the use of other kinds of energy, and is a factor of growth. Furthermore—what has hitherto been brushed aside—there is a possibility that within 20 years, or perhaps sooner, electricity will be a serious factor in road transport. In the laboratories of Europe there are now 12-volt car batteries the size, believe it or not, of a £1 coin. The meaning of that for the future speaks for itself.
§ The question is: how much more electricity are we going to need? The Central Electricity Generating Board told the Sizewell inquiry that they think the 1973 levels of consumption will be recovered and will be again required by about 1990, the dip having been due to the slump following the rise in oil prices. But what about the period from 1990 to the year 2000, or 2010? There are serious estimates from researchers in the oil industry which suggest that between the years 1990 and 2000, or certainly the year 2010, we may well need 40 per cent. more electricity than we have now. The figures quoted rise from 320 million to 450 million tonnes of oil equivalent.
§ What if negligence or political pressures leading to a failure to extend, let alone simply to renew, our generating capacity run us into black-outs of the scale of 1947? The Cooper Lybrand report to the last Secretary of State for Energy relative to electricity pricing reckoned that it would be prudent to consider electricity generating stations as ready to be retired "from 15 years onwards". Seventy-five per cent. of the generating capacity of this country is more than 15 years old; 61 stations are of that age and generating 40 per cent.; 52 stations are 20 years or more, generating 25 per cent.; and 33 stations are more than 25 years old and generate 10 per cent. We have an ageing element in our generating capacity amounting to three-quarters. Yet, what is being constructed now?—not more than a replacement of about 20 per cent. of our capacity at eight sites whose stations will eventually generate nearly 10 gigawatt towards the present total of 55.0.
§ Here is a tale of inertia, a tale of feet dragging. In the administration of inertia we still lead the world. By any 771 measurement we shall be short by the year 2000, if not before, and with lead times at anything up to ten years from planning a power station to its actual commissioning, new provision is urgent now. Here is indeed a task for giants, and in energy terms the year 2000 is really tomorrow.
§ In political terms the Sizewell B inquiry and its result could be critical. I would say this is one of the greatest filibusters known to British history. The inquiry began in 1983 and is by no means running out of steam. Will the violence of the peaceful push it beyond 1985? Who can tell? Some pessimists think it will run to 1986. The Sizewell B inquiry has been focused more on the surplus of current capacity, of which three-quarters is ageing anyway, than on the need for replacement, for the needs of tomorrow, and on the costs of energy themselves.
§ Coal accounts for about 60 per cent. of the costs of the Central Electricity Generating Board. This is generally the picture with coal-fired stations. Nuclear fuel in a thermal reactor accounts for only 20 per cent. of the costs. A tonne of uranium fuel in a thermal reactor is approximately equal to 25,000 tonnes of coal, so that the economy of a nuclear system is manifest. The importance of Sizewell is not so much the extra 2 per cent. of capacity that it will add to current stock: the fact is that if the recommendation is to go forward, then there is a go-ahead for a balanced nuclear programme of AGRs and PWRs. The time is short for all this—so short, indeed, that one almost seems to be reading the advice columns of a rootless society.
§ In this negative and dispiriting context it is welcome, to me at any rate, to read of the steps being taken by the Central Electricity Generating Board to link up with Electricité de France. They have built 25 PWRs in 20 years and are currently building another 20. France expects to have an exportable surplus of electricity before long. The cross-Channel power link, phase 1. should be ready next year, and phase 2 the year after. We read that the CEGB are studying a large investment of the order of £100 million in Electricité de France for a swap arrangement.
§ Sir Walter Marshall, chairman, is quoted for the claim that French energy prices are about 30 per cent. below ours. That is a controversial figure because many questions have been asked (but never answered) about the way the French accounts are drawn and the provisions for writing off. But, whether or not French electricity is going to be cheaper, it is going to be there; and it is not going to be from run-down stations, it is going to be from new stations, and that is a matter of great significance.
§ Even more exciting, continuing on the European theme, are the plans now being generated by the Electricity Council and activated through the CEGB for Franco-German-British collaboration on the commercial scale fast reactor in which, may I say, a tonne of fuel is not just worth 25,000 tonnes of coal but more than a million. At the galloping tempo of France at the present time you might well see the commercial fast reactor early next century, if not before.
§ No matter how miraculously management-labour relations may be transformed into common sense, let 772 alone into a sense of common cause, cheap energy aplenty must be the bloodstream of our industrial renewal and ability to compete. Diversification of source uncertainty is mere common prudence—coal on the one hand, nuclear on the other, for oil is likely to become dearer and scarcer. Life is neither a spectacle nor a feast, it is a predicament, and that could be an epitaph. In Britain's name, we have to take it as a challenge. My Lords, I beg to move for Papers.
§ 3.22 p.m.
§ Lord Kearton had given notice of his intention to move, That this House takes note of the Report of the European Communities Committee on European Community Coal Policy (10th Report, 1983–84, H.L. 80).
§ The noble Lord said: My Lords, in rising to speak to the Motion so powerfully and ably presented by the noble Earl, Lord Lauderdale, I should perhaps make it clear that I shall also he speaking on the Motion which is down in my own name and which follows his on the Order Paper, with the result that I shall be speaking a little longer than I would like, and I therefore apologise in advance to your Lordships.
§ It would be churlish not to give the Government credit for considerable achievements in the economic field over the last few years. Inflation is down, interest rates are down, the trough of the recession has passed, and there has been a considerable surplus on the balance of payments account. In many areas productivity is up and there is a growing acceptance of the idea that too high wages leads to loss of jobs. The country is becoming virtually strike free, and union stridency has, nearly everywhere, been replaced by reasonableness, even if not sweet reasonableness.
§ But there is a darker side to the picture. While economic growth has resumed, it is still at a very modest level. Unemployment is historically very high, although do not let us forget that there is nearly a record number in jobs, and there is no expectation on the part of the Government that unemployment will fall to any extent in the next three years. The recent White Paper on Expenditure Forecasts shows how difficult it is to control Government and municipal spending. To bring the total taxation take in percentage terms down to the level of 1979 is calling for stern housekeeping; and the published tables in the White Paper are based on the continuation of 1983's internal growth trends and on a continual recovery in world trade.
§ To help to balance, cuts in expenditure are being made in some areas, particularly in higher education—a not very clever place to make cuts. To keep the public sector borrowing requirement within tolerable limits recourse is had to once-for-all sales of national assets and to some fairly blatant over-pricing of gas and electricity. But while the neat balancing, which does prudently include contingency amounts for the unexpected, can be admired, the economic outlook for the late 1980s and for the 1990s looks very fragile.
§ In the next three years, the period covered by the White Paper, a major component of taxation take comes from North Sea oil. It will not be far short of £10 billion for 1983–84 and could be even higher in the following two or three years. At the same time a 773 major plus on the balance of payments accounts is the net oil figure, which is almost £7 billion for 1983, and which again could be even higher in the next two or three years.
§ Looking ahead a bit further, it seems likely that North Sea oil production will start to fall in 1987 or 1988. The steepness of the fall will depend on what new oil fields will be initiated this year and next. The list of probables and possibles is a credit to the oil industry and its exploration efforts. But the list is one of small fields with relatively low maximum daily production rates. Opinion in the oil industry clusters around the view that oil self-sufficiency, about 60 per cent. of current output, is still a 50/50 chance for the early 1990s, but the net exportable surplus will disappear, and the new oil will not provide the same tax revenue as current oil.
§ A halving, or more, of the oil tax take at present money values is on the cards. Even the import bill element of natural gas is set to go up. The proposed price for gas from the Norwegian Sleipner field to replace gas from the Norwegian side of the mature Frigg field will add about £1 billion a year to the import bill. It seems crystal clear that our economic future will once again rest primarily on the strength of our manufacturing industry—our battered, reduced, manufacturing industry, where some 2½ million jobs have been lost in the last decade.
§ The balance of our non-oil visible trade was nearly £8 billion in the red in 1983. We imported nearly £45 billion of manufactured goods and exported just under £40 billion. An historic surplus on the manufacturing account, as the noble Earl, Lord Lauderdale, pointed out, a surplus existing with hardly a hiccup for 200 years, has turned into a substantial deficit. Last year it was the culmination of a trend evident over the last few years.
§ It is true that there is a handsome surplus on invisible trade, probably £3 billion in 1983, and with the big increase in overseas direct and portfolio investment since 1979 the invisible surplus should rise. But there is not the remotest possibility in my view that net invisibles could ever pay for more than a very small fraction of the current import bill for maufactures—the massive figure of£45 billion already mentioned.
§ In our manufacturing industry there is a continuous development. Older standbys decline in importance and newer products take up the running. But decline is not the same thing as elimination. If we lost our basic heavyweights and had to import all our steel, all our textiles, all our cars and lorries, all our chemicals, all our glass, and all our multitudinous older metal products, then the balance of trade, including loss of current exports in these fields, would suffer by up to £30 billion. Unemployment would soar, the budget would be wildly unbalanced, and, in a word, we would be sunk.
§ Basic industries are indeed basic, and the newer industries, so many of them rooted in electronic manipulation, could not make good the vast lacuna which loss of the heavyweights would entail, and we have to bear in mind that we are not currently exactly world beaters in the sunrise electronic industries. To 774 keep up competitively with the Americans, the Japanese, and our colleagues in Europe will call for all our ingenuity, our inventiveness, our application and our drive. It is encouraging to me personally that we have been sensible enough not to have abandoned steel; not to have abandoned the vehicles industry, but to have supported them from taxation during their recent travails; and that we are taking a similar attitude with aero engines and aeroplanes. The support has been conditional, quite rightly, on vigorous self-help and revitalisation within the industries themselves. I hope that something similar can be worked out for commercial shipbuilding, including a capability to build offshore oil exploration vessels.
§ The example which Sir Michael Edwardes set at British Leyland and the achievements of Mr John Egan at Jaguar highlight the crucial importance of management and leadership in what can be recovery situations. We have had a net trade deficit, as my noble friend Lord Lauderdale has pointed out, of £2.4 billion in the United Kingdom motor industry in 1983. If we could turn this into a net surplus of £2.4 billion in the next two or three years, it would be the most positive single sign that our economic future could be assured.
§ I have not time to deal with recent developments owing so much to strong and positive leadership in the private sector. I shall mention just textiles and chemicals. These two industries were fiercely hit by the absurdly high exchange rates from 1980 to 1982; rates which, at the time, the Government regarded with complacency and which did nearly mortal damage. Without any Government aid, these two industries are more prosperous again, although not at a level equal to their former outputs. Many other old industries are also on their toes, more productive with good labour forces and with aggressive management. They could grow again.
§ The Government could give immediate encouragement, very definitely needed, by action and stimulus along the lines that the Confederation of British Industries has suggested to the Chancellor, and I hope he takes the CBI's advice.
§ The Motion which Lord Lauderdale has so eloquently introduced calls for the need to transfer resources from heavy industry with high cost output and surplus capacity into others with better prospects. This provides a peg on which we might hang the recent report of the European Community sub-committee dealing with European Community coal policy. The sub-committee, on which it was a privilege to serve, included Members of your Lordships' House with great experience in energy matters. It was particularly happy that these included the noble Lords, Lord Ezra and Lord Gormley, whose valiant strivings for the welfare of the United Kingdom coal industry and all those who work in it have given rise to such admiration. The committee was also fortunate in its specialist adviser and in its clerk. At the conclusion of its work the committee paid these two gentlemen a heartfelt tribute.
§ In considering the Commission's proposals—modest indeed compared with those made a few years ago—the committee was travelling in part on well-trodden ground. Nevertheless the inquiry was thorough. The committee trusts that your Lordships will find the conclusions, summarised in 23 775 paragraphs at pages 37 and 38 of the report, realistic. In brief, the key finding was that, while European coal demand is likely to increase appreciably by the year 2000, almost all the increase will be met by imports from outside the EEC. These imports are likely to be available from a wide variety of sources at landed prices which are comparable with the costs achieved at the most economic pits within the Community. The substitution of a measure of coal import dependence for the existing oil import dependence is regarded as tolerable. It is clear that both domestic and worldwide coal reserves will last long after oil and gas reserves are exhausted.
§ It was deeply disappointing that the sub-committee had to conclude that there was no hope for the United Kingdom to supply more than a tiny fraction of the Community's import demand. The landed cost of United Kingdom coal from inland sites to Community reception ports is forecast to be appreciably higher than the landed cost of coal imported in bulk over deep water. To match imported coal prices in any volume would lead to large losses for the United Kingdom industry.
§ Within the United Kingdom itself the main conclusion of the committee was that it was unlikely that demand up to the year 2000 would differ much from present levels. The Plan for Coal drawn up in 1974 and the subsequent reviews of the plan have all proved to be much too optimistic. There is absolutely no case in terms of coal need to keep open grossly uneconomic mines. Indeed, if your Lordships will forgive the language, it is nonsensical. The way forward is to spend money on new investment in the presently profitable mines which have adequate long-term reserves and to open up new coalfields which hold the promise of high productivity and low costs of production. This is so obvious that one can only marvel at the obtuseness of the long and ultimately futile rearguard action which obstructs the rapid implementation of such a policy.
§ Clearly the social consequences of a realistic policy have to be faced and the costs met. These costs, in the sub-committee's view, should fall on the United Kingdom Government, representing the full body of the taxpayers, with help from the Community. They should not just fall on the Coal Board. Present practice piles nearly all the costs of adjustments on to the board's accounts, as it does the costs of serving past unproductive capital expenditure and the costs of making good past environmental damage. A committee recommendation is that at a convenient time the Coal Board's balance sheet should be reconstructed on a realistic basis. Similar action has already been taken with respect of the steel corporation, and write-offs are not new costs but a tidying up of past misjudgments and expenditures.
§ The future of the United Kingdom coal industry in the early years of the 21st century depends to a considerable extent on decisions about new nuclear power stations. The Magnox units of the 1960s are now over half-way through their useful lives. The fossil fuel fired stations of the 1960s and 1970s which carry the bulk of today's electrical load will have a much longer life than originally supposed; it could be more than 40 years.
§ Here is where, with regret, I part company to some 776 extent with my noble friend Lord Lauderdale. These giant stations are now working well after a decade or more of running-in troubles. They operate with great reliability, great flexibility and with high thermal efficiencies. The individual boiler turbo-generator units are about the optimum size for this country. New stations do not offer much hope for any greater thermal efficiency or greater flexibility. A programme of steady replacement of critical parts for existing stations represents sound economic policy. This is the policy which the generating board is following. But an ordering programme of one, or perhaps two, new 2,000 megawatt stations a year, whether coal or nuclear, could be prudent.
§ The Sizewell PWR option is being thoroughly evaluated at the current inquiry. The longer it goes on the more time the successful and reliable AGR design—the design exemplified in Hinckley Point 2 and Hunterston 2—has to show its value as the alternative to the PWR design. The up-to-date version of this particular AGR design at Heysham 2 and Torness stations, currently under construction, is being built to time and at well below budget. In contrast, the record of the cost overruns of recent stations of PWR design in America has become, to say the least, disturbing.
§ Another 21st century use for coal is in steam raising for industrial purposes—an area where coal lost out massively to oil in the years after 1960. The EEC is encouraging such development and the sub-committee endorses this approach.
§ On the other hand, the once great hopes that coal liquefaction and gasification would soon provide major markets have been deferred. But the sub-committee believes that research into these developments should be pressed forward with EEC support. Liquefaction and gasification could still be great industries with high technological content some 30 years on. Coal, economically produced, could be a sunrise industry itself and a source of further sunshine in its offshoots.
§ I must mention in this connection one aspect of the United Kingdom coal position which your sub-committee would like to see firmed up. This is the question of economically recoverable reserves. The figure of from 4 billion tonnes to 5 billion tonnes—sufficient for from 30 years to 40 years of production—is well established. The much larger figure of 45 billion tonnes often bandied about requires more verification. It is double the amount of coal produced in total since the start of the industry hundreds of years ago. Your sub-committee recommends that the Institute of Geological Sciences and the Department of Energy should engage themselves in an authoritative assessment and review of the Coal Board figures.
§ My Lords, in conclusion, perhaps I may restate my view that our national economic position is currently strong but is precariously based and that, while pressing on with the development and encouragement of new industries and of more diverse service activities, we should give major attention and attach due importance to what are generally known as basic industries. These industries will remain truly basic for as long as we want to enjoy the fruits of a prosperous economy.