HL Deb 07 May 1985 vol 463 cc561-8

4.48 p.m.

The Minister of State, Scottish Office (Lord Gray of Contin)

My Lords, by leave I shall repeat a Statement made in another place by my right honourable friend the Secretary of State for Energy. The Statement is as follows:

"With permission, Mr. Speaker, I would like to make a Statement about the future of the British gas industry.

"Major progress has been made with the Government's privatisation programme. Management and enterprise have been freed from bureaucratic intervention in industries as diverse as aerospace, the ports and cross-Channel services, the oil industry and British Telecom.

"The Government have decided that the time has come for a further major step in the transfer of state industry to the private sector. I propose to introduce legislation at the earliest opportunity to provide for the transfer to a new private sector company of all the assets of the British Gas Corporation, and for appropriate regulation of monopoly aspects of the gas supply business. Following that legislation the Government intend that the shares in the new company should be sold to those employed in the industry and to the public.

"This change, like the earlier ones, will remove state intervention and substitute realistic tests of performance for bureaucratic or political ones. It will create a real ownership by the public and employees in place of the nominal public ownership of the nationalisation statute. It will place new emphasis on efficiency for the benefit of consumers and give employees a new stake in the business.

"The legislation will protect the consumer by establishing regulatory arrangements to oversee gas prices to the consumer and terms and conditions of supply. The new company will have an appropriate obligation to supply consumers, as has been the case with the British Gas Corporation. The legislation will protect consumers against discrimination and will contain necessary safety provisions, including the obligation on the new company to maintain the emergency services.

"The opportunities for greater competition opened up by the Oil and Gas (Enterprise) Act will be maintained and kept under review. In particular it is the Government's intention that competitors should be able to supply not only large industrial consumers but also smaller domestic and commercial consumers in areas not already supplied by the British Gas Corporation with suitable safeguards for safety.

"Outside the areas of gas supply, the new company will be able to develop other areas of its business in a competitive environment, subject like any other company to the general framework of competition legislation.

"I intend to provide special opportunities to gas consumers and other small investors to purchase shares, in line with our policy on wider share ownership. All gas consumers will benefit from the emphasis on efficiency which will be built into the regulatory system and from a straightforward system of gas pricing related directly to achieved commercial performance.

"As with previous privatisation measures I propose to make generous provision to enable all who work in the industry to acquire shares and thus to take a new stake in the company's performance and success. There will be new opportunities, as well as new challenges, for management and employees in the new company.

"The British gas industry is now nearly two centuries old. It has spent nearly 40 years as a nationalised industry but was developed for a century and a half in the private sector. It has undergone great change in the last two decades with the transition to natural gas, which has linked it to the great expansion of British industry into the North Sea. I believe that today's announcement will mark a new and long period of successful development into which the management and all who work in the industry can bring their present talents and link them with new freedoms in the interests of the nation".

That concludes the Statement.

Lord Stoddart of Swindon

My Lords, perhaps I may first of all thank the noble Lord for repeating in this House the Statement that was made in another place. Is the noble Lord aware that this Statement has come as a very unwelcome surprise, indeed shock, to the Opposition, the gas industry and the general public? It proves yet again that this Government are prepared to squander the nation's long-term assets for short-term political gain. Will not the Government's proposals create a new private monopoly at the expense of the public? Can the noble Lord say for what purpose and to what end it is being done? Will it introduce new competition into the gas industry? What benefits will there be for consumers? For example, will gas prices be lower and will service to customers improve? So far as I can see, there is no evidence that customers will be better off; indeed, quite the reverse.

The Statement boasts that gas consumers will be offered special opportunities to buy the shares. However, is the noble Lord not aware—indeed he must be aware—that the huge majority of consumers have difficulty enough in paying their gas bills, inflated by Government action in imposing price increases 10 per cent. above the rate of inflation for three years running, plus the gas levy which has imposed a further £1.5 billion on consumers, let alone buying shares? Very few of them will be able to afford to buy shares under those circumstances.

May I ask the noble Lord about safety? As he particularly knows, the British Gas Corporation has an outstanding safety record. Is there not a danger that a private monopoly might cut corners on safety to inflate profits? What additional safeguards are planned against the possibility of lower safety standards?

Can the noble Lord tell me about employment? The Secretary of State for Energy made a great issue of job creation in his Cambridge speech last week. How many new jobs will this measure create? Can the noble Lord give an assurance that there will be no redundancies in the gas industry as a result of this privatisation measure? Can he say what the effect will be on the thousands of people who supply the industry?

The Statement makes no mention of the percentage of capital to be privatised. Can the noble Lord say what percentage of shares are to be sold and how much the Government expect to realise from this sale? What price will be put on them? Will it be a similar price to the British Telecom issue, where people have made 200 per cent. profit at the public's expense over the last three or four months? Is the noble Lord further aware that there is no national energy case for these proposals? Does he not understand that it is not far short of criminal to be selling off BGC, which has been one of the great success stories over the past 20 years? Can he not accept that there is every reason to maintain the British Gas Corporation in its present form in the national interest?

Finally, I have to tell the noble Lord that the Opposition are diametrically opposed to these proposals and believe they stem from the disreputable motive of finding money to pay for a Tory pre-election tax bonanza. We shall oppose the proposals and shall contest any Bill at every stage.

Lord Ezra

My Lords, I, too, am grateful for the Statement which the noble Lord has repeated in this House. I should like to ask three questions. First, it is difficult to see, in all the circumstances, the industrial logic for this proposal. The British gas industry has been one of the success stories of British industry in recent years. I was associated with the gas industry in my previous occupation in the 'fifties. That was an industry in the doldrums. By remarkable achievement and great technological advances, it has turned out to be one of the most successful industries in Britain, with a turnover in excess of £6 billion and profits of £1 billion. It seems remarkable that anything should be done to interfere with this success. In view of the fact that, as the Statement has said, many of the safeguards and other qualifications to protect the consumer in the existing Act will be introduced in the new Act, it becomes even more difficult to understand why this transfer is being made. That is the first point I should like to put to the noble Lord.

Secondly, I should like to ask him about the financial implications of this transaction. It is rumoured in the financial press that £8 billion will be realised as a result of this. That means that £8 billion of private money will be transferred into the public purse. That £8 billion could otherwise have been used for investment in wealth creating activities. Thus my question is: what are the Government going to do with the £8 billion? Are they going to improve our road system? Are they going to improve the quality of housing? Are they going to look at the water supply, sewage systems and all the other things which we on this side of the House have been saying should be done? Or will this £8 billion just disappear into the coffers of the Treasury, never to be seen again by man?

The third question is about the cost of the operation. An £8 billion transfer of funds from the private to the public sector will require an enormous amount of underwriting. Great cost will be involved in the prospectus and in working out how the shareholding shall be undertaken. In addition to that, there is the cost of the regulatory body to do all the things which existing legislation does to safeguard the interests of the consumer. I should like to ask the noble Lord whether he can give us some indication of what this massive cost will be and whether he thinks it will be justified.

4.59 p.m.

Lord Gray of Contin

My Lords, I am grateful to the noble Lord, Lord Stoddart, and to the noble Lord, Lord Ezra, for their comments on the Statement which I have just repeated. I am surprised that the noble Lord, Lord Stoddart, should say that the Opposition feel shocked by this decision. I think that only reveals the fact that the Opposition are still totally wedded to their old Clause 4 of nationalisation, and any movement away from that is repulsive to them; that is, just as any movement away from it, as far as this side of the House is concerned, is in line with our belief that the less Government involvement in industry the better.

I am rather surprised that the noble Lord, Lord Ezra, also should have gone down that road. I had always understood that his party stood up for the right of those employed in industry to have a share in that industry. This is precisely what we are doing, or will be doing, in the legislation. We are ensuring that those who are employed in the industry will have a right to participate in the shareholding of it.

The noble Lord, Lord Stoddart, made particular running on the question of prices. He asked what this would do for gas prices. Let me say that I believe that privatisation will achieve three things. It will give a clear and straightforward system of gas pricing based on a company's costs and achieved commercial performance. It will put pressure on the company through the regulatory system to reduce the onshore costs which are directly within its control. It will engender the new commercial spirit and entrepreneurial drive that the changes can be expected to unlock. That is what it will do for prices.

The noble Lord asked about safety. There is already wide-ranging safety legislation both under gas legislation and the health and safety Acts. There may be a need for some reinforcement. Officials are examining this urgently with the Health and Safety Executive which has day-to-day responsibility for the safety regime. I agree entirely with the noble Lord that the industry has a good safety record. It has an excellent safety record. We believe that the new utility will want to maintain the high standards set by the British Gas Corporation in this area. We see no reason whatever why it should not.

The noble Lord mentioned capital, as did the noble Lord. Lord Ezra. At this stage, obviously, it is impossible to assess the value. But it is fair to say that we are talking about a flotation getting on towards the British Telecom flotation. We are talking about a quite major flotation. The noble Lord mentioned the gas levy. Of course, when the company is privatised, it will be in the same position as any other company and will be subject to the taxation laws of the land. The gas levy may form part of that. That is a matter for the future.

The question of Government participation has been mentioned. I would not call it Government participation. I would call it Government interference. Some of the matters that were worrying the noble Lord, and may be worrying some of his noble friends, will not exist when the Government are no longer directly involved in a nationalised industry. The industry will no longer be nationalised; therefore, it will not be subject to the constraints and interference of Government and Ministers. For those, among a great many other reasons that I shall hope to deploy during the Second Reading, the Committee stage and the Report stage of the Bill, I believe that the Statement indicates a significant change and a change for the better for the gas industry.

Lord Boyd-Carpenter

My Lords, is my noble friend aware that some of us, unlike him, were not at all surprised at the predictable reaction of the noble Lord, Lord Stoddart of Swindon? Is he equally aware that many of us are very glad indeed to see that the impetus of the Government in moving industries from the public to the private sector is being fully maintained? Can my noble friend, however, clarify two points? He talked of a large flotation. Is it intended, at the first stage, to put the whole 100 per cent. of the shares of the new set-up on the market or only, as happened to begin with in the case of one or two other industries, a proportion? If the latter, what is that proportion? Secondly, will this change, when it has taken effect, inhibit the steps taken by the Government a little time ago—some of us were very critical of them—to force up gas prices for general economic reasons?

Lord Gray of Contin

My Lords, I am grateful to my noble friend for his comments. I can tell him that it is the intention to place the British Gas Corporation firmly in the private sector. I cannot at this stage tell him what percentage of shares it is intended to offer. I think that I have partially answered already the second point that my noble friend raised. I said that when the company is removed from the constraints and controls of Government, it will be free to exercise its rights as it sees fit.

The Earl of Lauderdale

My Lords, will my noble friend not agree that, thanks to this Government's progressive policy in the last few years, there is now a bonanza in North Sea gas with some 46 wells being drilled last year against 26 the year before, with nine annexed fields for gas exploration now under study at the department and with an upgrading of probable and crude reserves of 15 per cent. over the past year? Will he not agree that all these are beneficial results of the Government's general approach to freeing the exploration industry? Does he not also agree that it would be logical, in the light of that, if the Government proceeded to consider seriously the possibility of allowing the export of gas found on the United Kingdom Continental Shelf, as there is likely to be a surplus?

Lord Gray of Contin

My Lords, I thank my noble friend for his comments. I answer him by saying, yes, I agree that there is a potential bonanza at present, particularly in the southern basin of the North Sea. The action taken by the Government in recent legislation has made that possible. My noble friend is absolutely correct in saying that. Many jobs will be created as a result.

As to his second point, concerning the export of gas, 1 have to remind him that at present our licences insist that gas shall be landed in this country unless special dispensation is given otherwise. At the moment, the Government have no intention of changing that rule.

Lord Monson

My Lords, will the noble Lord give an assurance that the new company to be privatised will be subject to substantially greater competition than the nationalised British Gas Corporation has faced, in order to keep prices down and generally to help the consumer?

Lord Gray of Contin

My Lords, the whole intention of removing the British Gas Corporation from the constraints of Government is to try to ensure that its entrepreneurial spirit will be developed. This should lead to what the noble Lord wishes.

Lord Bruce-Gardyne

My Lords, is not the answer to the point raised by the noble Lord, Lord Ezra, about where the money is to come from, that most of it is likely to come from money that otherwise would be invested in gilts and would therefore go to the Treasury in any case? However, is my noble friend aware that some reservations about the wisdom of passing a monopoly into the private sector may not be held exclusively on the opposite side of the Chamber? Am I not right in thinking that the Government, at the election, promised the electorate that competition would be injected into the gas industry and that this was over and above the provisions of the Oil and Gas (Enterprise) Act? What has happened about that commitment?

Lord Gray of Contin

My Lords, I am grateful to my noble friend. What he probably has in mind is the question of gas showrooms—

Noble Lords


Lord Gray of Contin

I shall come to the other things that he may have in mind in a moment. To deal with that point first, I would remind my noble friend that considerable progress has already been made. Where showrooms have not been paying their way a number have been closed down. It will be entirely for the new company to decide how to proceed on this matter.

The other point that my noble friend had, I think, in mind was the breaking up of the British Gas Corporation into small units. I would remind my noble friend that the Government considered this possibility. It is not, however, realistic for a distribution system such as that which has been built up over the years to be completely broken down again, with the possibility of competitive distribution systems being introduced and all the environmental hazards that this would create. The course upon which the Government have decided is far and away the most satisfactory.

Finally, my noble friend referred to the estimate, I think, of the noble Lord, Lord Ezra, of about £8 billion. Obviously, I shall not comment on the accuracy of that estimate, because we do not know. That will come much nearer the time when the British Gas Corporation is actually floated off. However, my noble friend is absolutely correct about from where the money will come. The money will come from the private sector, and that is from where it should come.

Lord Stoddart of Swindon

My Lords, I hope that noble Lords will forgive me if I ask a couple of short questions. The noble Lord has not told us from where, in the absence of competition—because this will be a private monopoly—and bearing in mind that Sir Denis Rooke has brought all the entrepreneurial drive and spirit that can be brought, this is all coming under the new set-up. As the noble Lord has criticised the noble Lord, Lord Ezra, as regards employee share ownership, will he say how many employees of British Telecom still hold shares in the undertaking?

Lord Gray of Contin

My Lords, perhaps I may deal with the last point first. I find it difficult enough to master the brief on an involved Statement such as I have given this afternoon, without diverting my attention to British Telecom just at this moment, but I have no doubt that the noble Lord will have his own way in which to ascertain the figure. However, I would say that anybody who has sold shares in British Telecom has probably sold them to his own satisfaction. Therefore, that justifies the principle involved.

The point which I have to make to the noble Lord is, I am afraid, one which he will find very difficult to accept because it is a difference in philosophy. I am referring to removing from the nationalised sector an industry which has been successful but with which there is very little to compare it. We believe that such an industry can be very much more successful in the private sector. I pay tribute to Sir Denis Rooke who was mentioned by the noble Lord. He has been a very successful chairman and, as an engineer, there are few who can compare with him. I am quite sure that Sir Denis will do all that he can to ensure the easy transition of the British Gas Corporation from the public to the private sector. I am sure that when it is privatised and thriving in the private sector, the noble Lord will, along with others, recognise the wisdom of the move which we are making.