Nationalised Industries: Indirect Taxation (Hansard, 13 March 1984)

§ Lord Ezra
My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

§ The Parliamentary Under-Secretary of State, Department of Energy (The Earl of Avon)
My Lords, the Government consider that the national interest is best served if nationalised industries are run on sound economic and commercial lines. It is not Government policy to use profitable nationalised industries as a means of raising indirect taxation.

§ Lord Ezra
My Lords, I am indebted for the noble Earl's reply. May I ask him, however, how he reconciles what he has just said with the recent findings of the report issued by the Energy Committee in another place in regard to the intended electricity price increases? Is he aware that they found that there was, in their opinion, no economic or commercial ground for such increases; and that, to use their own words, the only plausible reason for such increases was the determination of the Government to raise additional revenue?

§ The Earl of Avon
My Lords, my attention has been drawn to that report; and I gather it contains a number of recommendations which are being carefully considered. The reply is expected within the timescale recommended by the Procedures Committee.

§ Lord Barnett
My Lords, why does the noble Earl dens the truth of the situation? Is it not a fact that during the course of a public expenditure exercise, the Government decided to increase the external financing limits of the nationalised industries, some of whom therefore had to increase prices higher than they themselves would have liked? What is the difference between that and an indirect tax increase?

§ The Earl of Avon
My Lords, in the Labour Government's last paper in 1978 by the new Member for Chesterfield, it was stated that the principle that prices should reflect the costs of supply on a continuing basis, while providing an adequate return on capital, is now firmly established. That is what the Government believed. May I remind the party opposite that under Labour, electricity prices increased by 170 per cent., which is about 2 per cent. every six weeks.

§ Lord Beswick
My Lords, is the noble Earl aware that he cannot find a comparison with the Labour Government compelling a nationalised industry to put up the prices one day and then the following day criticising that increase for being above the RPI?

§ The Earl of Avon
My Lords, we did not compel the industries to put up their prices.

§ Baroness Burton of Coventry
My Lords, may I ask the Minister whether he has noted paragraph 46 of the report of the Select Committee on Energy, which says that the electricity industry is being required by the Government to make a payment to the Treasury in 1984–85 of some £360 million over and above the figure of £380 million which would be consistent with the financial target? May I also ask the noble Earl whether he is aware, too, that. contrary to all recognised practice, that payment has been imposed on the industry and has not been agreed?

§ The Earl of Avon
My Lords, the pricing decisions remain ultimately matters for the industries. The noble Baroness, I know, will not expect me to comment at the moment on the recommendations of the Select Committee.

§ Lord Simon of Glaisdale
My Lords, has it ever been argued that Government funding of the losses of unprofitable nationalised industries should properly be treated as remission of indirect taxation?

§ The Earl of Avon
My Lords, I am grateful to the noble and learned Lord for putting the other side of the coin.

§ Lord Shinwell
My Lords, may I ask the noble Earl whether he admits—as he must admit—that both gas and electricity are profitable industries? He admits that. Then, if they increase prices, is that not profiteering? Is not profiteering part of Conservative policy?

§ The Earl of Avon
My Lords. I think that we ought to get this matter in perspective. Profits should, I think, he seen in the context of the vast resources employed. British Gas earned a real rate of return of 4.2 per cent. on assets of over £12 billion between 1980–81 and 1982–83, and for the same period the electricity supply industry's rate of return was 2.3 per cent. on assets of over £30 billion.

§ Lord Bruce-Gardyne
My Lords, can my noble friend explain to the House why in certain quarters it should apparently be deemed to be perfectly moral to use oil supplies for the purpose of revenue raising, but not, seemingly, to use electricity supplies for the same purpose?

§ The Earl of Avon
My Lords, I am grateful to my noble friend for that helpful supplementary question.

§ Lord Hooson
My Lords, as there is no commercial reason for increasing gas or electricity prices, what reason do the Government really give for raising them? If it is not indirect taxation through the back door, what is it?

§ The Earl of Avon
My Lords, I think that this is the first general increase for two years, well below both inflation and a rise in the industries' own costs. The idea is to reduce the dangers of an abrupt and large increase in the next year and also to increase the industries' confidence and their ability to meet the external financial limits.

§ The Earl of Lauderdale
My Lords, will my noble friend not agree that over a number of years it was common ground between the two parties that energy prices must in some way be devised to meet the long-range marginal costs of replacement—that was the formula used—and that this is an application of that principle? We are also agreed that, as we are a revising Chamber, it is not incumbent on us to accept as gospel everything that comes up from the other place.

§ The Earl of Avon
My Lords, I am intrigued by my noble friend's comments. In the Guardian of last Saturday there was a letter which put forward some other aspects regarding the Select Committee's report.

§ Lord Molloy
My Lords, would not the noble Earl agree that, bearing in mind that the industry is making a large profit, this unnecessary increase will bring about a needless twist to the prices spiral on the one hand, and on the other hand, will make life much more difficult for the poorer of our citizens, in particular the disabled? Does he not also agree that the whole affair is completely out of balance and is damaging to both industry and the moral structure of the country?

§ The Earl of Avon
My Lords, I should like to correct one point. This is of course a domestic rise, not an industrial one. I wish to say straight away that we believe that this is a prudent rise—and I would use the word "prudent" in both cases where the noble Lord, Lord Molloy, used a stronger word. At the same time we are now paying in benefits over £380 million a year, and this has risen substantially with inflation, whereas of course prices have not.

§ Baroness Gardner of Parkes
My Lords, will my noble friend confirm that there has been considerable help for the poorer people mentioned by the noble Lord. Lord Molloy, in particular in the reduction of standing charges for those who are consuming only small quantities of gas and electricity? Will the Minister confirm that in that regard there has been a marked improvement?

§ The Earl of Avon
Yes, indeed, my Lords; the industries have moved towards that position. There has of course also been a standstill in the standing charges. I should like to take this opportunity to welcome back the noble Baroness from her trip to the States.

§ Lord Ezra
My Lords, in the light of the supplementary question asked by the noble Lord, Lord Bruce-Gardyne, will not the noble Earl agree that in the discussion of this matter it would be much simpler if the Government were to admit that this was a revenue raising operation?

§ The Earl of Avon
My Lords, simplicity may be a certain party's watchword; it is not mine.

§ Lord Irving of Dartford
My Lords, will the noble Earl bear in mind that certain industries, such as the paper industry, are already at a grave disadvantage vis-à-vis their competitors from other countries because of the high price of energy in this country? Perhaps this was an instance in which it was not necessary to have an imposte of this kind, hut rather to agree with the many submissions of the paper industry and other industries that they should obtain their energy at competitive prices?

§ The Earl of Avon
My Lords, I should like to repeat that this is a rise in domestic prices, not in industrial prices.

§ Lord Alexander of Potterhill
My Lords, as a shareholder in the nationalised industries, do I gather that it is an offence for a nationalised industry to make some return to its shareholders?

§ The Earl of Avon
My Lords, perhaps this is a good opportunity on behalf of the House to pay a warm tribute to the gas and the electricity supply industries and the excellent work that they are doing at the moment.