HL Deb 04 July 1986 vol 477 cc1153-7

11.14 a.m.

Lord Ezra

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

The Question was as follows:

To ask Her Majesty's Government why the price for electricity is being increased while the prices for primary energy have been reduced.

Lord Brabazon of Tara

My Lords, the increase in electricity prices which took effect from 1st April has been offset to a great extent by the reductions announced on 5th June following the conclusion of the agreement on coal prices between the Central Electricity Generating Board and British Coal. That agreement takes account of the recent fall in the price of oil.

Lord Ezra

My Lords, does the noble Lord agree that this affair has been handled in a somewhat confusing manner, bearing in mind that, according to a document that I have received from the Electricity Council, tariff rates for electricity went up by an average of 5 per cent. on the 1st April and it was then announced that they would be reduced by 3½ per cent. with effect from 1st July, the publicity being related exclusively to the subsequent smaller reduction? Furthermore, in view of the massive reduction in the price of coal charged to the CEGB—namely, a reduction of £600 million over two years—and the fact that the oil price has more than halved since the 1st January, was it not to be concluded that the least that the tariff consumer of electricity could have expected would be a net reduction and not a net increase in the tariff charges?

Lord Brabazon of Tara

My Lords, in answer to the first point of the noble Lord, Lord Ezra, it was unfortunate perhaps that the deal between British Coal and the Central Electricity Generating Board was not concluded before the 1st April when the price increases were announced. In regard to the noble Lord's second point, about the possibility of further reductions, the Electricity Council has said that the industry is reviewing the impact of lower fuel prices, lower inflation, high sales growth and improved efficiency, with a view to determining tariffs in the longer term, and the Electricity Council intends to make a further statement later in the year.

Lord Boyd-Carpenter

My Lords, will my noble friend take note that the noble Lord, Lord Ezra, is advocating, however obliquely, the privatisation of the electricity industry?

Lord Brabazon of Tara

My Lords, I take note of my noble friend's views on that point and I shall no doubt come back to this at another stage.

Lord Mellish

My Lords, is the Minister aware that some time ago in this House the Minister of the day proudly announced that in fact there were supplies of electricity to be obtained from France (which, by the way, obtains most of its electricity from nuclear energy)? It seems that they had such a surplus of energy that they were going to sell it to us at a cut price—and a figure was mentioned which was quite extraordinary. I should like to ask a very simple question. Did we get that electricity at a cut price, and was that reduction passed on to the consumer? If not, why not, Why do prices have to go up when they should go down?

Lord Brabazon of Tara

My Lords, I understand that the link with France, which I do not think is yet complete, will result in the Central Electricity Generating Board being able to purchase electricity 25 per cent. cheaper than it could be generated on average in the United Kingdom, and of course this will benefit the United Kingdom consumers. However, I do not think that the link is yet complete.

Lord Grimond

My Lords, will the Government make it quite clear to the industry that it is intolerable that prices should go up at all when its raw materials have fallen so greatly in price? Will the Government bear in mind this experience with this monopoly when they look at consumer protection over gas and telecommunications and so forth. It is quite clear that these monopolies are out to exploit the consumer to the maximum that they think they can get away with.

Lord Brabazon of Tara

My Lords, I do not accept that at all. The deal was done between British Coal and the electricity board. It was the best deal that could be done between them bearing in mind the circumstances and it was a deal which was endorsed by the Government.

Baroness Gardner of Parkes

My Lords, do not people have short memories? The new deal with the Coal Board is welcome, but people are entirely overlooking the fact that the electricity industry had to burn an enormous amount of expensive oil during the miners' strike. In the London board area alone that represented many millions of pounds of extra expenditure. It was to recoup the losses in that period that the increase in April was announced. As soon as the price of fuel used by the industry came down. both through the drop in the price of oil and through the new negotiated price of coal, the price was reduced, and it is hoped to continue that over the long term.

Lord Brabazon of Tara

My Lords, my noble friend is right; the electricity board suffered considerably from the miners' strike and its costs were increased enormously. However, since the end of the strike British Coal has been doing extremely well. Productivity is at record levels. We hope that that will continue and that the benefits will be passed on to consumers.

The Earl of Lauderdale

My Lords, does my noble friend agree that the prices are distorted by the coal element, which in turn derives from great subsidies from the taxpayers?

Lord Brabazon of Tara

My Lords, that is quite true. Coal counts for nearly 65 per cent. of the production of electricity and at the moment it is an important factor in the equation.

Lord Stoddart of Swindon

My Lords, were we not assured by the Secretary of State that the additional costs borne by the electricity board during the coal strike would not be passed on to the consumer, and so surely that is not relevant? Does the noble Lord agree that the point of issue is that electricity prices have been increased at a time when primary energy costs are falling? In April in the Netherlands there was a 10 per cent. cut in electricity charges and in Italy it was 5.5 per cent. British consumers are being taken for a ride. Have not the Government put pressure on the electricity boards not to increase prices further, because that will put pressure on gas prices, and that is the last thing that they want in advance of the flotation of that industry in the autumn?

Lord Brabazon of Tara

My Lords, I do not accept that. Electricity prices must be a matter of negotiation for the electricity board. It has done the best deal that it can with British Coal. With regard to increases of electricity prices over the years, I invite any noble Lord to compare what has happened to electricity prices during the past few years with what happened in the period of the last Labour Government.

Lord Stoddart of Swindon

My Lords, if the noble Lord will not accept what I said, will he explain to the House why British Gas is holding its price at 34p per therm when the price of oil has fallen to 26p? Could we not expect that the gas price would follow the oil price since it is related?

Lord Brabazon of Tara

My Lords, that is another question. But the contracts of British Gas do not necessarily all fall in at once as regards those tied to the oil price. I am sure that over a period of time, as contracts come up for renewal, we shall see falls in price.

The Earl of Lauderdale

My Lords, does my noble friend agree that it is a popular fallacy that the gas price relates to the oil price? It has nothing to do with it.

Lord Brabazon of Tara

My Lords, as I said just now, certain gas purchase prices are linked to the price of oil, but that is a difficult question to answer because there are a lot of different types of contract involved.

Lord Molloy

My Lords, is there not another aspect that the Minister might be prepared to look at? The tariff rates announced on 1st April and 1st July seem to be at total variance with statements made by the Electricity Council. Is not the brutal truth that electricity prices are going up and will probably continue to go up? I am reminded of an ancient quotation: one part of the statistics reminds me of one part and the remainder of the statement reminds me of the other part. This is a serious situation for both the council and for the Minister who is ultimately responsible, and it should be investigated.

Lord Parry

What is the quotation, my Lords?

Lord Brabazon of Tara

My Lords, just to get the facts on the record, for most domestic customers there will be a net increase in 1986-87 of about 1½ per cent., which is well below the rate of inflation. Those on Economy 7 tariffs will enjoy a net reduction. For industry and commerce there is likely to be an even greater reduction.

Lord Tordoff

My Lords, is it not still the case that there has been an increase in the price of electricity, while raw material costs have come down significantly indeed, and in particular the price of oil came down by almost 50 per cent. before the first increase in the tariff? I put it to the Minister that it simply does not make sense to the consumer.

Lord Brabazon of Tara

My Lords, I think that effectively I have explained the answers to every question that the noble Lord has asked. The coal burn of the electricity board is still around 65 per cent. Whether the price of oil has come down or not, the CEGB still has to buy coal from British Coal and it has negotiated the best deal that it could.

Baroness Seear

My Lords, will the Minister agree that although he says he has answered every question, he has not explained the increase at all?

Baroness Gardner of Parkes

My Lords, does not the electricity industry have to buy its oil considerably in advance of usage? For that reason the price change comes through at a later time.

Lord Graham of Edmonton

That is another question, my Lords.

Baroness Gardner of Parkes

No, my Lords, that is the question that has been asked.

Lord Brabazon of Tara

My Lords, I am not entirely informed on the answer to that question. All I can say is that the oil burn involved is only about 15.7 per cent., so it is not a particularly high proportion of the overall generation of electricity.

Lord Parry

My Lords, does the Minister agree that the noble Baroness was, however obliquely, then engaged in the robust defence of a public enterprise?

Lord Brabazon of Tara

My Lords, that is a matter between the noble Lord and my noble friend. I shall not comment on it.