Oil and Other Fuel Prices (Hansard, 6 February 1986)

§ Lord Stoddart of Swindon
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, it is too soon at this juncture to be clear whether recent lower trends of oil prices will persist or how sterling oil prices will react. Continuing low oil prices would, of course, exert downward market pressure on the prices of competing fuels such as coal and gas in certain markets, but detailed 1275 decisions on coal and gas prices in the United Kingdom are for the boards concerned.

§ Lord Stoddart of Swindon
My Lords, I thank the noble Lord for his reply. May I ask whether the noble Lord does not believe that in fact we are now on a long-term decline in oil prices? May I ask also whether he recalls the Statement to the House of Commons by the right honourable David Howell on 16th January 1980 when he announced that domestic gas prices would be increased by 10 per cent. per annum over and above the rate of inflation over three years on the basis that the policy of the British Gas Corporation, endorsed by the Government, was to sell gas at a price broadly related to that of the competing oil product? Further, since in 1980 the price of oil was between 35 and 40 dollars a barrel but is now only 16 to 17 dollars a barrel, should not the price of gas be reduced by 33 per cent? Similarly, should not the price of coal be cut to keep it competitive with oil for the generation of electricity and other steam-raising activities?

§ Lord Gray of Contin
My Lords, in my initial reply to the noble Lord I said that at this juncture it was too soon to be clear whether recent lower trends in oil prices will persist or how sterling oil prices will react. We can go no further than that. This may not be a situation which will last for a very long time. As we have experienced in the past, the price of oil can rise just as quickly as it can fall.
The effect on gas prices will depend on such factors as how far the oil companies pass on the lower crude prices in their prices for heavy fuel oil and gas oil, and secondly, the commercial decisions made by the British Gas Corporation. I have no wish to speculate about hypothetical outcomes.
With regard to coal, the same answer applies, but of course the ultimate price of coal will depend on the extent to which the delivered prices of heavy fuel oil and gas oil fall in sympathy, together with the commercial perceptions of the National Coal Board and its largest customers. All those things will come into the equation.

Lord Morris
My Lords, to back up the point that my noble friend has just made, may I ask whether he is aware that even today, according to the papers, there has been a modest surge in oil prices?

§ Lord Gray of Contin
My Lords, I take the point which my noble friend makes and it does re-emphasise what I have said. As we have found in years gone by, I am afraid, oil prices can rise as quickly as they can fall.

§ Lord Mellish
My Lords, is the Minister aware that in today's late press it is said that oil may well drop to 10 dollars a barrel? What is remarkable is that in fact the public, who are entitled to be worried and unhappy about the economic problems of this country, receive no advantages at all. It cannot be justifiable that oil and gas prices should remain constant. To speak on behalf of the motorist, it is really a scandal that the moment oil prices rise the prices at the pump also rise 1276 automatically, but when oil prices go down petrol at the pump does not. Why is this?

§ Lord Gray of Contin
My Lords, I think the noble Lord is not quite correct in what he says. On many occasions in recent years the oil companies have taken a collective decision that prices would rise but those prices did not stabilise and in a reasonably short time there was a price war which resulted in prices coming down again. So far as the present situation goes, my information is that there has been a drop in the price of petrol at the pumps; and if oil were to drop to 10 dollars a barrel I do not think there is any doubt but that we should see a very substantial drop at the pumps.

§ Baroness Gardner of Parkes
My Lords, may I ask the noble Lord what is the position concerning oil for fuel for heating in the home? At the moment that is very much more expensive as a means of heating than gas or coal, yet time was when it was much cheaper. When can those people who are now finding they have an installation which is very costly to run expect to see some improvement in their oil prices? Can the Government do anything to encourage the companies to bring down prices to the consumers?

§ Lord Gray of Contin
My Lords, I take the point the noble Baroness has made. I think what will happen if the oil prices continue to remain low is that we shall see this reflected in the price charged for the fuel oil to which my noble friend refers, just as in the price at the pumps.

§ Lord Molloy
My Lords, in support of his submission that when oil prices drop so also do gas prices, can the noble Lord give us one example to substantiate this claim?

§ Lord Gray of Contin
My Lords, I am afraid that the noble Lord has not been following closely what I said. I said nothing of the sort. I said that the price of gas would be a matter for the British Gas Corporation and a lot would depend on whether the drop in oil prices was reflected and passed on to the main suppliers, of whom the gas corporation would be one.

§ Lord Stoddart of Swindon
My Lords, can the noble Lord reply briefly to this? I think he just did not get the point I was making, which was that when oil prices went up to 40 dollars a barrel the Government forced up the price of gas; I want to know whether the Government will force down the price of gas since oil prices have halved?

§ Lord Gray of Contin
My Lords, I really must suggest to the noble Lord that he is not being completely fair. He referred to the statement made by my right honourable friend the Secretary of State for Energy on 16th January 1980. Now 1980 followed very closely upon 1979, and of course until June 1979 the party of which he is a member had been in office for some considerable time. My right honourable friend found it necessary to make his statement as to how the price of gas was to be treated because our predecessors had not faced up to the problem. Indeed, 1277 the result was very successful. The result of this may well be that the British Gas Corporation itself will take a commercial decision on the matter if the prices remain at a low level, but that must be for the gas corporation.

Lord Bruce of Donington
My Lords, is the noble Lord aware that his noble friend Lord Gowrie made exactly the same point, not in 1980 but 18 months later, thereby reiterating the Government's right and indeed their intention to force up prices?

§ Lord Gray of Contin
My Lords, the policy which was followed was followed for a period of three years in order to re-establish the position whch had been lost during the time in which the party of the noble Lord was in power and the situation was not faced up to.

§ Baroness Burton of Coventry
My Lords, does the noble Lord recall—and it is a point that consumers remember—that during the lifetime of this Government, which is more recent than the one to which he referred, they have forced up the prices of water, gas and electricity, when not one of the chairmen of those industries thought it was necessary?

§ Lord Gray of Contin
My Lords, on a previous occasion I think I have paid tribute to the work of the noble Baroness and her concern for the consumer; but sometimes, when dealing with a situation which has got very much out of hand, it is necessary to take steps which are unpopular at the time in order to achieve the proper results in the longer term.

§ Lord Diamond
My Lords, having regard to the prepenultimate answer which the noble Lord gave, is he assuring us that the gas board will have recourse only to commercial considerations in any prices which it charges between now and the time of privatisation?

§ Lord Gray of Contin
No, my Lords, I am not giving the noble Lord any such assurance. I made it absolutely clear that this must be a matter for the British Gas Corporation, and if he has any doubt about that I suggest he writes to the chairman of that corporation.