Electricity, Gas and Water: Charges (Hansard, 17 October 1985)

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

§ The Minister of State, Scottish Office (Lord Gray of Contin)
My Lords, these charges are a matter for the industries concerned. In setting prices they must take account of the cost of supply, as well as the financial framework agreed with the Government.

§ Lord Grimond
My Lords, am I to take it from the reply of the noble Minister that the Government have no intention whatever of encouraging these industries to put up charges more than commercial needs demand? Is he aware that there have been widespread suggestions that they intend to use these industries as a method of taxation and, in spite of the high charges and their large profits, to enforce increases in prices which will bear exceedingly heavily on the poorer people of this country, who cannot afford them? I take it from his Answer today that that is out of the question. I also take it that the Government will not use any increase in the charges for public services as a method of allowing a decrease in other forms of taxation in the forthcoming Budget.

§ Lord Gray of Contin
My Lords, the noble Lord is of course aware of the system of external financial limits which the Government operate. However, I should tell him that discussions on external financial limits are met by actions across the range of industry's activities and not simply worked through to prices. If the past is anything to go by, it is significant that domestic electricity prices have risen by only about 6 per cent. in total over the last three years, whereas under the previous Labour Government they rose on average by 6 per cent. every four months.

§ Baroness Burton of Coventry
My Lords, may I ask the Minister whether he is aware that it is not true, or, to put it more politely, it is not correct to say, as I think he did, that the question of raising charges such as these was the responsibility of the industry concerned. 707 Does the noble Lord, Lord Gray, not recall that over the past 18 months gas, water and electricity charges were raised on the insistence of the Government and against the wishes of all those industries concerned?

§ Lord Gray of Contin
My Lords, with respect, I think I should point out to the noble Baroness that the increase in domestic gas prices in 1984 was below the rate of inflation then, and the increase implemented from 1st February 1985 is less than the present rate of inflation and includes a continued freeze on standing charges. In real terms, the price of gas to the home is still about the same as it was in 1970.

§ Baroness Burton of Coventry
My Lords, the Minister is far too experienced to expect the House, never mind me, to take that answer. That is not what I said. I was not referring to the amounts. I was saying that prices were raised by Government diktat and against the wishes of the industries concerned.

§ Lord Gray of Contin
My Lords, the noble Baroness must be fair in her comments, as I am sure she means to be. She will be aware that the industries have means of consultation and discussion with the Government, and the ultimate decision must obviously be with the industry. Because this Government are able to boast of low increases in both electricty and gas prices compared with their predecessor, that is no reason to cast aspersions on the way in which those were achieved.

Lord Bruce of Donington
My Lords, is the noble Lord aware that in his Answer to the noble Lord, Lord Grimond, he said what these public bodies must do? Is he aware that Government policy on this matter has already been enunciated in this House by the noble Earl, Lord Gowrie, who said that it was Government policy that the price of electricity should rise by 10 per cent. above the rate of inflation? If the noble Lord will consult the records, he will find that that is absolutely correct. Will the noble Lord give the House an assurance that no special levy will be laid either on the national gas authority or on the electricity authority for the purpose of enabling the Chancellor of the Exchequer to give income tax reliefs in his next Budget?

§ Lord Gray of Contin
My Lords, the authorities to which the noble Lord refers have to take account of the cost of producing what they sell in deciding what they are going to charge for it. The noble Lord has asked me to give assurances which are not in my gift, and therefore he will not expect me to acquiesce.

§ Lord Barnett
My Lords, is the noble Lord the Minister really telling us that the Treasury, in considering the public expenditure exercise, does not set external financial limits that take account of prices, so as to ensure that the public expenditure figure comes to the one it had in mind in the first instance?

§ Lord Gray of Contin
My Lords, the noble Lord has considerable experience in this matter, as we all know to our cost. Perhaps I may remind him of what I said to the noble Lord, Lord Grimond: that external 708 financial limits, as he well knows, are met by actions across the range of industry's activities, not simply worked through to prices. There is a broad spectrum considered, as he knows, in deciding EFLs.

§ Lord Barnett
Yes, my Lords, I do. But can the noble Lord the Minister confirm for your Lordships' better information that the Treasury, in fixing these external financial limits, is not primarily concerned with commercial matters but concerned with public expenditure exercises?

§ Lord Gray of Contin
My Lords, I think that the noble Lord (although he probably knows the answer, anyway) should refer this to the Treasury Ministers.

Lord Paget of Northampton
My Lords, is the noble Lord aware that this noble House has learned from experience that when the noble Baroness, Lady Burton, makes a statement of fact she is correct? On this occasion, she has made a statement of fact that the Government overruled the industries on various occasions when the industries did not wish to raise prices. Is she correct, or is the noble Baroness wrong?

§ Lord Gray of Contin
My Lords, I am afraid that on this occasion the noble Baroness is wrong. These matters are resolved after discussion between the industry concerned and the Government, and an arrangement is reached in that way.

§ Baroness Burton of Coventry
My Lords, if I may reply to the Minister's last statement, while I may be wrong on occasions I was not wrong on that one. May I ask the Minister whether he remembers—I revert to the water industry and leave gas and electricity—that Mr. Roy Watts fought for weeks, and I asked Question after Question in this House, about the raising of the rates by the Thames Water Authority? Mr. Roy Watts refused to do that and said it was far too much. It was only when the Government decided to steamroller his suggestions and force the increase through Parliament that that was done.

§ Lord Gray of Contin
My Lords, in regard to water I would certainly not argue with the noble Baroness. I suggest that if she is aware of a matter affecting water authorities she should put down a Question to the Department of the Environment and my noble friend Lord Elton will deal with it.

§ Viscount Trenchard
My Lords, has my noble friend any figures which indicate the rough return on capital of these public bodies over recent years? These figures might put the matter a little more into perspective, as I believe them to be of a fairly reasonable order.

§ Lord Gray of Contin
My Lords, my noble friend is absolutely correct. These corporations and authorities do require to earn a reasonable return on capital. For example, the profits of the industries expressed as a percentage of their assets are not excessive—about 3.2 per cent. for British Gas and about 1.3 per cent. for the electricity supply industry. But we must bear in mind that we are talking about public investment of something in the region of £50 billion.

§ Lord Diamond
My Lords, I am afraid that I must trouble the Minister a little more. He made a statement saying quite simply that my noble friend Lady Burton was wrong on this occasion. In a subsequent answer he said that he would not argue with my noble friend. The noble Lord is capable of a much more generous kind of apology than that and we had hoped to hear from him.

§ Lord Gray of Contin
My Lords, I am surprised. The noble Lord, Lord Diamond, must have misunderstood what I said. I thought I made it perfectly clear that on the subject of water I would not argue with the noble Baroness because that is not something which comes within my remit; and I suggested that that was a matter for the Department of the Environment and that my noble friend would deal with it. If, on the other hand, I in any way suggested that the noble Baroness was wilfully trying to mislead us then of course I wholly withdraw what I said. That was not my intention. I merely wished to say that I wholly disagreed with her and that as far as energy subjects were concerned I believed that she was in error.

§ Lord Grimond
My Lords, perhaps I may remind the Minister that the subject of water was explicitly mentioned in my Question, so that presumably he was briefed about water. Now that he has in fact withdrawn his statement about the activities of the Government on water, may I ask him to look into the activities of the Government in relation to other services as well? May I also ask him to reiterate the statement that he made in answer to my first question—that the Government will not press these services to raise their charges above what the services think necessary from their commercial point of view?

§ Lord Gray of Contin
My Lords, I can tell the noble Lord, Lord Grimond, that the Government will continue in their dealings with those services and in their discussions with them on prices exactly as they have done in the past.