Public Utility Transfers and Water Charges Bill

HL Deb 17 March 1988 vol 494 cc1277-308

4.51 p.m.

House again in Committee on Clause 1.

Lord Williams of Elvel moved Amendment No. 4: Page 1, line 7, after ("transferred") insert ("at fair value").

The noble Lord said: I rise to move Amendment No. 4 standing in my name and that of my noble friend Lady Nicol.

At Second Reading I made a few comments about the principles which will underly the valuation of both the water companies, as they will become, and the electricity companies, as they will undoubtedly become. I ventured to put down a marker for the noble Earl when he came to Committee that I should be asking some fairly detailed questions about the nature of the accounting principles and the principles of valuation that the Government propose for both the water and the electricity industries.

The amendment seeks to make operative a restriction on the proposal (which is still undefined) to be brought forward to transfer property or functions of one of the public utilities. If the amendment were adopted the Secretary of State would be obliged to make a proposal for a transfer at fair value. In doing so he would no doubt have to stipulate and make known what fair value meant. At one level this is a wholly uncontentious amendment because no one would suggest that the Secretary of State would transfer at unfair value. Nevertheless, underlying it there is a large slice of the iceberg which is extremely contentious.

Water authorities have had in the past, and continue to have, serious difficulties in deciding the method of accounting to be used in valuing their assets and setting their depreciation charges. That is not surprising because many of their assets are extremely old, particularly underground, sewerage assets, dating back to the 19th century, and to adopt replacement accounting in many instances would be absurd. However, historic cost accounting does not reflect a sensible value of the assets, given that when the transfer to the water authorities was made subsequent to the Water Act 1973 the historic cost was somewhat glossed over. At that time the transfer was within the public sector so that it did not matter very much and no attempt was made to determine a proper historic cost for the assets being transferred.

Although that is understandable in terms of the transfer of assets between one part of the public sector and another, it is less understandable when it comes to transferring assets from the public sector to what will be the private sector. It is at the point of transfer as described by the Bill that I believe the essential criteria for valuation will be set up. Once one transfers into a particular vehicle with the purpose of privatisation and flotation, it is at that point that the balance sheet and the profit and loss is set up and the accounting principles thereby determined.

In replying to the previous amendment the noble Earl referred to long form reports that would have to be made. He is right that long form reports would have to be made on all the companies that the Government would propose to sell in the market. That would be so in order to comply with the Companies Act and with the Financial Services Act. In the case of many water plcs—if I can use that expression—it will be an extremely difficult exercise. The difficulty will not only reside in the fact that the underground assets of the present water authorities are difficult to identify and in many instances have not been identified. It will not only reside in the creation of the National Rivers Authority, which will split off some of the functions of the present water authorities and hence lead to a restatement of the water authorities' own accounts over the past five years, which will be required by the Stock Exchange when we come to flotation.

It will be difficult to decide on the method of accounting for the depreciation of assets and whether that is renewal, replacement, historic or current cost. All these matters will have an impact on the profit and loss account of the companies to be privatised since, as the noble Lord the Lord Privy Seal said at Second Reading, it will be by the profit and loss account that the market will make its valuation of these companies.

The noble Lord the Lord Privy Seal argued at Second Reading that the assets did not matter very much because it is the market which will place a value on the earnings. I do not think that argument will stand up because the depreciation of the assets forms a deduction from the earnings of the company.

All those matters seem to me to be of such importance that in the case of the water industry they have to be established before much further progress is made. Indeed, it is quite possible to conceive of a situation in which the asset register of a water authority is so incomplete—in other words, it does not know where its underground assets are—that it is impossible to get an unqualified audit on that authority should it be transferred to a plc and should it require an audit report for flotation.

The same is generally true of the electricity industry. There are underground assets that the Central Electricity Generating Board still has difficulty in identifying. The problem is exacerbated by the proposed reconstruction of the industry in England and Wales and the scheme proposed in Scotland where parts of various integrated organisations are to be split up. When that is done, serious problems of accounting are introduced which have to be faced now.

Let me take the Central Electricity Generating Board as an example. It is a very complex accounting entity. If it is split into two parts—whether in halves or otherwise makes no difference—one has to determine where the earnings lie, where the assets lie and where the costs lie. And this is on the basis of accounting principles that are at best somewhat sketchy. It does not matter if it is all in the public sector; but it will matter when it reaches the private sector. As I reminded the noble Lord the Lord Privy Seal on Second Reading, Section 47(1) of the Financial Services Act makes it a criminal offence to make any misleading statement knowingly or otherwise to induce an investment. I have said enough, I think, to impress the noble Earl with the seriousness of the problem.

The potential value of these utilities, both electricity and water, will have to be determined at the point of transfer. It is not enough for the Government to say that it can be determined between transfer and flotation. The accounts—the balance sheet—passed across at transfer will determine the balance sheet on flotation. I want to make that as clear as I can in words of one syllable. That is why the fair value concept has to play a part in this Bill and not in the main privatisation Bill.

5 p.m.

Lord Diamond

Perhaps I may expand on what the noble Lord, Lord Williams of Elvel, has referred to. I do so without detracting from what he said; I support his sentiments completely.

It is evident that the market will have regard not merely to the value placed upon the assets and to past profit and loss accounts but also to the anticipated return on any investment made by the market. In that connection the market will want to know the extent to which these companies will be allowed to make profits. That in turn will depend on the rules made by the Government at the time of privatisation with regard to the control of prices and other matters that have an effect on profits. I speak here of the profits after privatisation, to which the market will have some regard.

When the Minister is good enough to answer the questions posed by the noble Lord, Lord Williams of Elvel, on balance sheets at the time of transfer to the bodies corporate, which in the main are to be plcs, perhaps he would tell the Committee what is in the Government's mind with regard to the profit potentials of the companies.

The Earl of Caithness

The noble Lord. Lord Williams of Elvel, in introducing the amendment mentioned that it was in his name and in that of his noble friend Lady Nicol. We are sad that the noble Baroness is not in her usual place. I ask the noble Lord to take our good wishes to his noble friend. We look forward to seeing her back in her place fit and well again to participate in other debates.

The amendment seeks to influence our proposals for the restructuring and privatisation of the water authorities. Of course, noble Lords should, and will, have the opportunity to debate those proposals, and to seek to change them, when they come before us in the context of the main legislation. This Bill, however, does not give effect to our proposals. It simply gives an express power to the water authorities, and to the electricity supply industry, to take such steps as they consider appropriate to prepare for our proposals.

Nonetheless, if we look for a moment at the implications of this amendment for our proposals, we can see that the attempt to import the notion of fair value into the proposed transfer of property and functions is misplaced. Let us consider the water industry. There would be considerable difficulties in attempting to establish the value, let alone the fair value, of each of the functions whose transfer we propose. How does one put a value, for example, on maintaining the environmental quality of our rivers?

On the other hand, it is both inappropriate and unnecessary to apply the notion of fair value to transfers of property. It is inappropriate in so far as transfers will take place from one public sector body to another—from a water authority to the National Rivers Authority—since, in accordance with normal practice, there will be no consideration given by the receiving public sector body. The noble Lord referred to this point in regard to the 1973 transfers. It is unnecessary in regard to transfers to successor bodies which will be privatised since the interests of the public purse will rightly be protected by the payment of flotation proceeds into the Exchequer for the benefit of the country as a whole.

The noble Lord, Lord Williams of Elvel, spoke of the difficulty that he foresaw for the preparation of the accounting information that would be required for the prospectuses for the sale of water services plcs. We are, of course, well seized of the importance of the providing of accurate financial information in the flotation prospectuses, and the accountant advisers to be retained for these privatisations will have this as their objective. We are not less committed to ensuring that we obtain value in transferring utility businesses to the private sector. That value will relate to the business as a whole and will be established by reference to market conditions at the appropriate time, which I understand to be flotation.

I am sure the noble Lord will agree that it would be wrong to seek to settle the value in advance of that moment, but I assure him that we are fully cognisant of the requirements under the Financial Services Act in order to prepare a legal prospectus.

Lord Williams of Elvel

Perhaps I may pursue the argument a little. I think that the noble Earl has not fully grasped what I said. There is of course no intention to set a flotation price at the time of transfers. That would be absurd. I hope that I did not appear to suggest that. Transfers between the public sector bodies— for no consideration, of course as the noble Earl rightly says, are matters that do not require a particular accounting expertise, although a certain expertise is involved.

The point I am endeavouring to get across is that there are two kinds of value. Let us consider a private company—leaving aside flotation—which we want to sell. There are various methods of valuing it: this is not something to sell on the market, but a company that is to be sold from a willing seller to a willing buyer. There are various methods of valuing it. In general, and in normal practice, there is a valuation of the assets—a valuation of the property. There is an audit. As the noble Lord mentioned earlier, there is a long form report, a projection of earnings, and a number of matters which are all wrapped up together. In the end some kind of value is arrived at.

The basis for any valuation that may be arrived at as a result of negotiation between parties is a balance sheet and a profit and loss account. The long form report sets up a balance sheet for the last period—a photograph of the operation as at a certain date—and the setting up of a series of profit and loss accounts over the previous five years. That creates the basis on which the sale can take place. In this instance that will create the basis on which the flotation can take place, and the value, decided by the market, as the noble Earl quite rightly points out. In order to get the latter process right one has to get the former process right. In other words, one has to have a proper balance sheet, with a proper profit and loss account set up according to accounting principles which are clearly understood.

The point that I was making and that I did not get across was that that procedure will be set up under the terms of this Bill inevitably at the point of transfer. It is at the point of transfer that one will have the water authority—less that portion which goes to the National River Authority—going into a plc ready for flotation, with a balance sheet and a profit and loss account which have been set up according to certain accounting principles. That will form the basis of the valuation which will subsequently take place on flotation.

The noble Earl argues that one cannot put values on environmental liabilities. But that is what auditors do. There are certain costs associated with this which have to be taken into account. They have been taken into account in the past because water authorities have spent money on these functions. No doubt when they come to make some earnings projections along the lines that the noble Lord, Lord Diamond, has outlined, as they surely will, analysts will seek to include in their earnings projection a cost for the environmental duties that these water authority pies may well have.

The point remains, however, that the initial balance sheet at the point of transfer, and the initial series of profit and loss accounts at the point of transfer, have to be set up according to accounting principles which are understood, and with a register of assets and a register of earnings which are clearly and easily identifiable. It is all very well for the Government to say. "We shall appoint accountants who are fully familiar with these problems". I have talked to a number of accountants who are familiar with these problems. Everyone knows that it is nearly impossible to produce a water authority's balance sheet, even in its present form, before you detach part of the activities to the NRA, because one does not know where a lot of the underground assets are, and the method of accounting, of calculating the depreciation of the assets, is a matter of great controversy in the accounting profession at the moment.

Accepting that these matters have to be resolved at the point of transfer—which is what we are dealing with here—what accounting principles are going to be used? How will all this be established? At the end of the day that is what will affect the fair value at the time of flotation. I hope that the second time around I have made myself clear.

5.15 p.m.

Lord Stoddart of Swindon

My noble friend must surely be right on this point, for two very good reasons. The noble Earl said that these matters can be dealt with when we have the Bill. We passed a Gas Bill and we tried to set out these matters correctly in the Gas Act. We failed miserably in spite of seven long-drawn-out days and nights when we tried to persuade the Government that they should ensure that the taxpayer received a fair and proper price for the assets transferred by the Gas Act. In spite of all our efforts, we made no impression. That is why my noble friend is trying to have an instruction put into this Bill in order that the draftsmen of the next Bill will know exactly what they have to do. That is why my noble friend, with great foresight, is trying to write this provision into this Bill.

He is right to do so (is he not?) because today I believe that the price of a British Gas share stands at 142p for a payment by the shareholder of 95p. Therefore the assets of the gas industry were undervalued to the tune of 50 per cent. I feel sure that the Government do not want that to happen. That is why they should take heed of what my noble friend has said this afternoon.

Another reason that we should have these industries correctly valued is that— unlike any other industry which has been nationalised so far—they are both virtually life support industries. There is no way in which people can do without water; and in a modern society there is no way in which they can do without electricity. Civilisation without either would virtually collapse. Those businesses create for private individuals a situation that is virtually unheard of. Whatever happens they are bound to be able to sell their commodity. It is therefore right that the taxpayer should receive a proper and reasonable price for those assets, and for the considerable benefit that will be bestowed on the new owners.

I hope that those comments have been helpful to the Minister in reconsidering his reply to my noble friend. I hope that he will be convinced that there is great merit in this amendment. I should have thought that the least he should do is agree to take it away and reconsider the position.

Lord Diamond

Perhaps I may make one further point before the Minister replies, lest he should be tempted to give us the same reply as last time—that all this can be dealt with in the main legislation.

I am not considering that point, and I am sure that the noble Lord, Lord Williams, is not either. We are asking this. At what stage is it right to trigger off the mechanisms by which utility companies can start preparing for privatisation in the way in which the Government want it done? We are saying that it is no good leaving major questions at large until one is considering the main Bill. One has to know at this stage whether the proposed terms are such as would be considered fair by a vast body of opinion, in particular by parliamentary opinion, before the Government can state with any reliability that they have a scheme which will receive public and parliamentary aproval and that it is therefore appropriate that the utility companies should start preparing for that privatisation scheme.

The noble Lord, Lord Williams, has made it absolutely clear—I am bound to confirm what he said from my minimal professional knowledge—that there are great differences of opinion as to how the assets in balance sheets should be valued in cases such as this. There is enormous difficulty about it. The difference between one extreme of value and the other is enormous. It is one of the major issues—I would not say that it is the whole issue—which has to be taken into account in fixing the price and therefore enabling people to determine whether it is a fair value in terms of the amendment.

The Government should therefore have given great consideration to this and should have decided what kind of basis to use. With the greatest possible respect, in this case as on the previous amendment, if the Government are not ready to do that they are not ready to bring in a Bill inviting public utility companies to go to great expense and upheaval to prepare for a scheme which is not a fair scheme and which therefore might not receive approval.

It is the Government's duty to know—not to the last dot on the "i" and cross on the "t"—in fair detail the important parts of the scheme that they are proposing. What the noble Lord has put forward in the amendment is a very important part. I should be grateful if the noble Earl will say whether the Government have given this full consideration and have reached a fairly precise conclusion.

The Earl of Caithness

I agree with the noble Lord, Lord Diamond, that it is important for the Government to know. That is precisely why we seek the powers in the Bill to enable us to know, so that when we bring forward the main Bill—I return to that because that is when the proposals will be laid before Parliament—following the powers under this legislation, we shall be able to bring before noble Lords how the reconstruction is to take place and how the values will be arrived at. However I accept that at vesting the physical separation of assets will be determined as the noble Lord, Lord Williams, suggested.

Accounting for the transfer will be complex but will have as its starting point the accounting procedures which already exist in the water authorities' balance sheet for these assets. When the main Bill comes before Parliament noble Lords will be able to consider it fully, because the proposals in the main Bill will affect the value for the transfer. As a valuer myself, I should tell the noble Lord that to put the word "fair" here is totally inappropriate, if I may humbly say so—

Lord Williams of Elvel

Surely the noble Lord has heard of a true and fair view, which is the normal audit report?

The Earl of Caithness

But that is a combination of valuations of different types. As I have said to the noble Lord, how does one put a value, for example, on maintaining the environmental quality of rivers, let alone a fair value. He carefully listed all the points on which I agreed with him about buying and selling a company where the balance sheets and the profit and loss account are important. The projected earnings are important too because they determine the final value. But we are well aware of our duty to bring the right amount of value by means of money into the Exchequer for the public benefit and for the country as a whole, as we shall seek to do. Much of it cannot be done until we get the main Bill.

Lord Diamond

I am sorry to return to this. We are beginning to realise that the Government put a totally different interpretation on the word "proposal" from our understanding. In fact I would go so far as to say that the noble Earl has misdirected himself in relation to the meaning of the word "proposal".

The noble Earl has said that the Government need these powers to find out all sorts of information so that they can then make a proposal. Not at all. The Government have to make proposals before those powers become effective. The Bill says, Where the Secretary of State is at any time proposing". The Secretary of State is making proposals at this time. It is now that he is asking for those powers under the Bill. It is no use the Secretary of State saying that he would like to go on a voyage of discovery to find out what proposals he can bring back to Parliament in a year's time affecting these two public utility industries. He has to make them now and I should be glad if the Minister will direct his mind to that point.

Lord Williams of Elvel

I do not know where we are going in this discussion. The noble Lord, Lord Diamond, has put his finger on the difficult point that we do not quite know what the proposals are. The noble Earl is saying that he cannot make proposals until the Bill is passed. Yet the Bill specifies that the Secretary of State shall make proposals. In these circumstances I do not know what we mean by the word "proposals".

I make a modest suggestion to the noble Earl. Will he tell us, either now or at Report Stage, what principle of accounting— whether renewal accounting, historic cost accounting or current cost accounting—will be used by the water authorities when they are transferred into water authority public limited companies? I start with that simple and basic question.

The Earl of Caithness

As I said, the starting point for the accounting procedure will be that which already exists in the water authorities.

Lord Williams of Elvel

In other words, historic accounting with an addition of current cost accounting. Is that what the noble Earl is saying?

The Earl of Caithness

On that precise point perhaps at Report Stage I shall be able to let the noble Lord know, or even before that time.

Lord Williams of Elvel

Will the noble Earl take my word for it that that is what the water authorities do now? Will he recognise that in historic cost accounting the historic costs which water authorities use in their balance sheets are the historic costs at the time of transfer under the Water Act 1973? Will he also take my word for it that the accounting profession as a whole believes that those historic costs—I will not say that they were mythological or invented—had very litttle to do with the historic costs of the assets being transferred? Will he further take my word for it that the Financial Services Act, no less, will require that if historic cost accounting is to be used, a proper historic cost has to be set up for the assets of the business; otherwise, it will be a misleading document?

Will the noble Earl comment on those few questions?

The Earl of Caithness

This is very interesting, but it brings me back to the comment I made that we are well seized of the importance of providing accurate financial information for the flotation procedures. We are aware of these difficulties.

Lord Williams of Elvel

We shall have to return to this at a later stage. I hope that in the meantime the noble Earl will have given a great deal of thought to what we have said this afternoon. As I interpret the mind of the noble Lord, Lord Diamond, and as I know my own mind, I am determined to return to this at a later stage because I am entirely dissatisfied with what the noble Earl has said, however elegantly and courteously he replies. I do not think the content very serious, if I may say so. I believe that before he goes much further the noble Earl and the Government will have to think very hard about the matter. Perhaps the noble Earl will refer to his noble friend sitting on the Conservative Privy Council Bench who probably knows more about water authorities than anybody else and also what historic costs mean in the context of the water industry. I am sure that he will receive benefit and very useful advice. I beg leave to withdraw the amendment.

Amendment, by leave withdrawn.

5.30 p.m.

Lord Diamond moved Amendment No. 5: Page 1, line 8, after ("corporate") insert ("in such a way that the value of the nation's net assets is maintained in one form or another").

The noble Lord said: I was very interested and most grateful to the noble Earl for suggesting—in fact, he said it twice in very similar terms—that the proceeds (we were referring on a previous amendment to a fair value) will be paid into the Exchequer for the benefit of the country as a whole. I tried to get the words down as precisely as I could. The proceeds should be paid in for the benefit of the nation as a whole, and we believe that to be the duty of the Government. The amendment suggests that the procedure laid down in the Bill should not be triggered off except where proposals recognise that the proceeds, to which the noble Earl has referred, are dealt with: in such a way that the value of the nation's net assets is maintained in one form or another".

We are interested to know what will happen to the proceeds which will have been paid into the Exchequer for the benefit of the country as a whole. They will be the proceeds of the sale of two of the nation's most valuable assets. They can be sold once but they cannot be sold twice. If a future government wish to assist their budget position by selling assets, it will not be possible for them to sell assets which have already been sold.

The Government are in the fiduciary position of any other trustee in maintaining the value of the country's assets. If the Government are selling an asset and paying the proceeds into the Exchequer for the benefit of the country as a whole, they will justify their action only if those proceeds are invested in another asset; for example, if they are invested in public housing or in any of the numerous capital outlays which are crying out for action. They will not be satisfying their duty as a trustee if those proceeds are used, for example, for the benefit of tax refunds or allowances in the Budget.

We are seeking to make absolutely clear the fact that the Government shall undertake that the assets of the country should be maintained in one form or another. There is nothing wrong with selling the family silver and reinvesting it in pictures, new property or any other capital asset. No one has ever criticised the Government for selling the family silver; the criticism has always been for selling it and using the proceeds to pay the bills for the groceries. It has been done for realising capital expenditure and using the proceeds for current expenditure. That has been the burden of the criticism which I have voiced on many occasions and which has been taken up by more important speakers in the Committee.

In my amendment I am not referring merely to assets but I am trying to help the Government as much as possible by referring to net assets, which are the difference between assets and liabilities. It is just as proper for the Government to pay off liabilities as it is to transfer from one asset to another. If the Government state that they will not use the proceeds of the sale of these assets to buy other assets but will use them to pay off liabilities, it comes to the same point: net assets are maintained. We believe that point to be of immense importance not only for the economic policies of the Government but for the honour of the Government. Once they have sold assets belonging to the nation they must recognise their responsibility in maintaining them in one form or another. I beg to move.

Lord Renton

Although I believe that most Members of the Committee will understand the intention of the noble Lord, Lord Diamond, in moving the amendment, with which most of us would agree, I am afraid that he has used a terribly wide phrase. The net assets of the nation are a very large concept and include the gold reserves, the buildings in Whitehall and every pair of boots worn by every private soldier in the armed forces. It is a vast concept and I do not think that such a wide phrase is suitable for use in the context of this subsection. I cannot contemplate my noble friend's acceptance of the amendment.

It is not for me to suggest an alternative, but one was raised in the previous amendment by the noble Lord, Lord Williams of Elvel, to which I thought my noble friend gave a satisfactory reply. I hope that the Committee will not take up too much time in considering Amendment No. 5.

Lord Ezra

The disposal of assets in this way is a subject which we have discussed on previous occasions. I agree that it is difficult to define the nation's assets. However, in the case of the proposed privatisation of the electricity industry in particular, a vastly greater amount of money will be realised than on any previous occasion. Therefore it is not unreasonable to have an indication of how the matter will be dealt with, whether it be the form of words represented by my noble friend or in some other way.

It is not unreasonable for the Committee to state that this transaction is quite exceptional, and therefore the shareholders in the enterprise should be given more of an indication of what will be done with the vast amount of money which will flow as a result of the operation.

The Earl of Caithness

In his amendment the noble Lord, Lord Diamond, has challenged the use to which privatisation proceeds may be put by the Exchequer. I am surprised that he did so. He will know far better than I that this matter is not within my departmental responsibility but that it is for my right honourable friend the Chancellor of the Exchequer. I am sure that the noble Lord will be the first to congratulate my right honourable friend on the use to which he has put the proceeds of privatisation for the benefit of this country. As my noble friend Lord Renton has said, the amendment includes a wide-ranging phrase which covers everything which is owned by the country. It is for those reasons that the country is now so much more prosperous than it was nine years ago.

Lord Diamond

I should like to ask the indulgence of the Committee while I wipe the dust from my eyes so that I can see the position more clearly. I have rarely had more dust thrown in my eyes than by the speech made by the noble Earl. Of course I realise the position. It is that ever since this Government came to power they have underprovided by way of capital expenditure for the maintenance of the nation's assets in their variety of forms. That can be seen by anyone using his eyes and common sense when walking through any city and seeing the ways in which it and its infrastructure are run down wherever he looks.

I do not know what the noble Earl was referring to when he spoke of his right honourable friend the Chancellor of the Exchequer. The figures have been published in the Green Book, where every month in the abstract of statistics one can see what the Government have spent. Year after year the Government have spent less than sufficient in order to maintain the nation's assets in the public sector. The excuse sometimes has been that we should look at how well the private sector is doing. That has nothing to do with it. Through the Government, the public own these assets.

If I may say to the noble Lord, Lord Renton, there is no difficulty about definition. There are accounting procedures and accepted definitions for all the matters he mentioned. I can perhaps say by way of illustration that boots are revenue expenditure and not capital expenditure; that is accepted. When you want to compare one country with another, you must have the same definitions. It is for those purposes that these accounting formulae have been agreed.

It is a new proposal that the Government should be introducing a Bill which is not the responsibility of one Minister in particular. That is an entirely novel idea. The Bill only bears the responsibility of the Chancellor of the Exchequer and not the Government as a whole. That is a new idea to me. I am sure that the noble Earl—when he comes to think about this matter again—will decide that he should not insist on that point. It is no use saying that it is simply a matter for the Chancellor of the Exchequer. It is a simple matter for the honour of the Government. Before the Government trigger off the mechanism in the Bill and before the powers are granted to public utility companies to undertake activities and expenditure of that kind, are the Government going to make it quite clear that they are proposing that the assets will be used to maintain the net asset position of the Government? As my noble friend Lord Ezra said, the assets of these two public utility industries are of such magnitude that these issues merit reconsideration. Otherwise, the Government must stand committed of wasting the nation's assets.

The Earl of Caithness

I am staggered by the noble Lord, Lord Diamond. He talked about the Government not maintaining the public estate, if I understood him correctly. While at the Home Office, I learnt with great dismay of the reductions in real terms that the Labour Government had made in spending on prisons and with delight how much that spending had increased in real terms under the Conservative Government.

Let us turn to the present and to the water authorities. Perhaps the noble Lord is not aware that between 1980–81 and 1987–88 investment by the water authorities increased in volume terms by over 40 per cent. whereas it declined under the Labour Government. I am sure that I do not need to remind the noble Lord that under the Labour Government it declined by a third.

5.45 p.m.

Lord Mulley

I am surprised that the noble Earl makes the point about the water industry. Indeed, to a greater extent it is true of electricity. The capital value of these industries has been built up by the industries concerned using their monopoly position, usually at the behest of government. With regard to electricity, one now pays an annual tax contribution as well. The capital is paid by the consumers. No other industry expects its consumers to finance capital development. That usually takes place as a result of loans which are paid off over the years.

As regards the electricity industry uniquely, all its capital has been financed by the consumer. If the industry is not to remain a public utility, then the least the Government could do is to give the shares to the consumer and not put them up for sale.

Lord Renton

Does the noble Lord not agree that a very large part of the magnificent development which the electricity industry, on both the generation and the distribution sides, has carried out over the last 20 years has resulted from successive governments giving consent to their public borrowing powers?

Lord Mulley

My recollection is that those industries borrowed very little and that they have been obliged by governments to finance themselves out of charges. I believe this is a very unnecessary Bill in every respect.

Lord Stoddart of Swindon

My noble friend is absolutely right in relation to the electricity supply industry. By the year 1990 or before it will be completely free of debt charges. It has paid a lot of money into the Exchequer.

I am surprised that the noble Earl should go back and criticise the Labour Government's record regarding prison building. That is irrelevant to the amendment proposed by the noble Lord, Lord Diamond. We differ slightly perhaps from the noble Lord in our approach. As my noble friend Lord Williams of Elvel rightly pointed out at Second Reading, the Labour Party is diametrically opposed to government policy in relation to selling off the electricity supply and water industries. We believe that these great industries, which are life support and monopoly industries, should remain in the public sector. That is the best place for them; the consumer will receive the best service from the public sector.

Having said that and having reiterated Labour Party policy, perhaps I could go further. The noble Lord, Lord Diamond, makes a very important point. He asks the Government: when you sell these assets—and the electricity supply industry alone is worth £27 billion—what will be done with the assets? Are the Government going to build up new assets which will bring in at least as much from trading activities to the Government? Or are the Government going to spend the money, perhaps over a period of five years, in reductions in taxation with the population using the proceeds to buy imports from abroad which we can only afford at present because of high oil revenue? The noble Lord, Lord Diamond, is saying, if I understand him correctly, that if the Government sell these industries they ought to build up our industry to meet the day when we shall no longer be able to buy abroad the goods which we can now buy through having great assets in North Sea oil. That revenue will begin to slide away after 1995.

The noble Lord, Lord Diamond, is absolutely correct. I believe that at this stage the Government should give some indication of what they are going to do with these huge sums of money. Used wrongly, they could have a catastrophic effect on our whole economy. We already see that the economy is overheating. The Chancellor has had to take certain measures today. Let us think of the overheating which would occur if the Government pushed those vast amounts from those particular industries into day-to-day expenditure. I believe we are entitled to a serious answer from the noble Earl.

The Earl of Caithness

This is where we have a complete difference of opinion between the two sides of the Committee. We believe these industries will do better for the consumer in the private sector. However, how the proceeds of the disposal to the private sector are dealt with is rightly a matter for my right honourable friend the Chancellor of the Exchequer.

When the water privatisation Bill comes before this Chamber it will be a matter for my department but the proceeds are rightly a matter for my right honourable friend the Chancellor of the Exchequer. The noble Lord, Lord Stoddart of Swindon, was absolutely right to say that there is a complete difference in philosophy as to where the benefit lies. We believe that the benefit for the consumer lies in privatisation of both electricity and water.

Lord Diamond

We have got absolutely nowhere. The Minister has not understood the arguments at all. We are not arguing for or against privatisation. On these Benches we are prepared to consider every privatisation issue on its merits. We are not impressed by the argument from the particular to the general, which is what the noble Earl contented himself with on his last intervention when he said "look at this" and "look at that". He gave two examples and said that perhaps I was not aware of the amount spent by the water industry on leaking pipes, or something to that effect.

That does not prove what is the totality of the figures, and the noble Earl knows that full well. We are concerned with the totality. There is no dispute about the figures and the noble Earl should get himself informed about this. We are concerned about how this huge sum of money will be used by his right honourable friend the Chancellor of the Exchequer. Will it be used in current expenditure via tax cuts or in maintaining the nation's assets? It is a simple issue and we shall certainly have to come back to it when we come to the main Bill. We shall try to raise the matter again at a later stage in the hope that the arguments we have put forward will have been considered with a little more care and understanding than they have been given at present.

I have tried to alert the noble Earl to the fact that we consider this a matter of the honour of the Government in their actions regarding assets of which the Government are trustees on behalf of the nation as a whole. That is the issue. How do the Government intend to deal with those assets? Will they deal with them by fully maintaining the body of assets or by dissipating assets and using the money for current expenditure?

I know that at this time of the night the Government will not welcome a Division so I shall not press the matter at this stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Diamond moved Amendment No. 6: Page 1, line 8, after ("corporate") insert ("in such a way that the environment and wildlife are permanently protected").

The noble Lord said: We believe that this is a very important issue—so important that it ought to be included in this enabling Bill to make clear the Government's long-term intentions and not wait for the main Bill. We believe it is of enormous importance because, as everyone knows, instead of looking after the public interest the motivation on privatisation is the maximisation of profits and the first victims are the environment and wildlife. Therefore, I have used those terms to cover what we are all familiar with.

There is no dispute that it is in the best interests of this nation that we should maintain our environment. Indeed, there is a Government department charged with the responsibility of maintaining the environment and the wildlife of the country. We all know that there is great anxiety in the country and in those bodies which are mainly concerned with protection. There is great anxiety about what will happen once the responsible attitude of public bodies is replaced by the commercial attitudes of private companies to which it is the intention of the Government to transfer these assets.

My amendment has been worded: in such a way that the environment and wildlife are permanently protected". The reason I say "permanently" is that once a utility is in the hands of a private company it is completely out of the Government's control. It may be that the Government will obtain an undertaking from the first purchaser—the first transferee of these assets—that of course they will respect the environment and wildlife to the same extent as the utilities to which they are succeeding have done so. However, that will have no effect on subsequent owners.

There is nothing to prevent a company to which these assets have been transferred in the course of time transferring them to other companies, with continual changes in ownership taking place in private industry and with takeovers of one kind or another. Those eventually in charge may have a totally different view about protection of the environment from those in the private sector who first became entitled to the assets. Therefore, it is essential that the Government should make absolutely clear that the powers in the Bill will become exercisable only when there has been a clear statement of the determination to protect the environment and wildlife in such a way that it is permanent, irrespective of how many bodies are the ultimate owners of the assets which the Government propose to transfer. I beg to move.

Lord Nugent of Guildford

I make one comment which might give some comfort to the noble Lord, Lord Diamond. The concept of a National Rivers Authority will be to safeguard the future. We hope that will be the case but it remains to be seen just how that body will be constituted. However, if it is constituted in the way that we expect, it will have statutory obligations under the Prevention of Pollution Act 1974, which are considerable.

Additionally, there is a range of EC directives for the protection of the environment which we have a legal obligation to observe. Therefore, for the water industry it seems that the safeguards will be substantial and that the new water plcs which will operate the supply and disposal industries will have obligations on standards, and on river quality objectives in particular, which the NRA will be monitoring and will have the power to enforce. The prospects for the conservation of what we already have and its continuing improvement will therefore be greatly strenghtened by this structure when it comes into being.

Lord Diamond

Perhaps the noble Lord will permit me to intervene. The noble Lord knows that I always listen with the greatest care to what he says, and with the greatest respect, especially in this area where his knowledge is deep and wide. I agree that the NRA will be a very helpful body. However, the trouble is that nowhere in this Bill is there a single mention of the NRA.

Lord Nugent of Guildford

I sympathise with the noble Lord, Lord Diamond, on that point. I, too, should like to see the NRA mentioned in the Bill. However, I believe and trust my noble friends that we shall see it enacted in due course and that the NRA will perform the functions that we expect of it. Therefore, the points that the noble Lord rightly emphasises will be adequately catered for.

I just add one footnote, going back to the previous amendment when the noble Lord, Lord Williams, with his great and expert knowledge pointed to the difficulties of valuation. When future purchasers of the water industry try to assess what the cost of the environmental obligations may be in the future—there are always fresh problems arising with regard to pollution—it will be another considerable question as to what the private shareholder is prepared to pay. That situation does not arise here. So far as concerns the noble Lord, Lord Diamond, and the amendment he has tabled, it is really copper-bottomed and far better than in the past. I believe that my noble friend Lord Caithness has a good answer to this.

6 p.m.

Lord Williams of Elvel

I am sure the whole Committee will sympathise with the thrust of the amendment moved by the noble Lord, Lord Diamond. We certainly do. I recognise what the noble Lord, Lord Nugent, has said about the future arrangements for controlling the environment in respect of the water industry and related matters such as sewage. Nevertheless, the Bill covers not only the water industry but the electricity industry as well. Lord Diamond's amendment will embrace both. The electricity industry gives rise to a whole host of environmental problems, and only recently we have had very direct experience with one example. Perhaps I may speak parochially for a moment and mention the subject of Welsh sheep. The explosion of Chernobyl affected us particularly badly in that respect.

It is in this area where I believe the noble Lord has his most serious point. The Government have to take quite a clear stand. The environment and wildlife—perhaps I may also bring Welsh sheep into the amendment—must be properly protected by any measure that the Government make to change the ownership of these particular industries. That is why I support the amendment tabled by the noble Lord, Lord Diamond.

The Earl of Caithness

This Chamber is noted for the concern which it has always shown for the protection of the natural environment in this country, and in particular for wildlife and other conservation. Those members of the Committee who recall the passage of the Wildlife and Countryside Bill in 1981 will recognise the truth of that point. From what the noble Lord, Lord Diamond, said it seemed that he had forgotten some of the powers that the Government have under that Act. It is therefore with some reluctance that I cannot accept this amendment on behalf of the Government. As a Minister for the environment I am very concerned about this area. I fully recognise that the noble Lord has the best of intentions in moving it. But my simple point is that this is not the place to debate this issue. The time to do that will be when the main legislation privatising and restructuring these two major industries comes before the Committee. The functions of the water industry are of considerable environmental importance. It is already subject to tough statutory duties in respect of protecting the environment.

My noble friend Lord Nugent of Guildford mentioned the Control of Pollution Act of 1974. I also draw the attention of the Committee to Section 22 of the Water Act 1973, as amended by Section 48 of the Wildlife and Countryside Act 1981, to which I have already referred. Ministers, water authorities and internal drainage hoards are under a duty to exercise their functions, when they formulate or consider any proposals, as to further the conservation of flora, fauna and geological or physiological features of special interest". There are related duties about protecting buildings and so on, taking into account the effect of proposals on natural beauty or amenity and protecting areas of special scientific interest.

I can tell the Committee that it is our intention to retain these duties, and to impose them on the successor plcs and indeed on the National Rivers Authority. We have indicated, in a paper produced in 1986 entitled The Water Environment: The Next Steps, various ways in which we intend to improve protection of the water environment. In particular, we intend to produce a code of practice dealing with conservation as well as recreation matters which will provide more specific obligations on the plcs and the NRA. We are in continuing discussion with the Nature Conservancy Council, the Countryside Commission and others about the preparation of this code. I am pleased to tell the noble Lord, Lord Williams of Elvel, that the Government also recognise the responsibility of the electricity supply industry towards the environment.

I am sure he will have noted with satisfaction that the White Paper Privatising Electricity stated that standards of safety and environmental protection are vigorously enforced now and will be no less vigorously enforced in the future.

Lord Sefton of Garston

I do not believe that anyone in this Committee would wish to detract from the statement which the Minister has given. He said that he was concerned about the environment. That has nicely wrapped up the question of water. I have no doubt that the noble Earl is satisfied that the National Rivers Authority will look after that problem which may arise from privatisation. I am not satisfied. Does that lead us to the conclusion that when the main Bill comes before this Chamber that the Minister will support the idea of a body similar to the river authority and responsible for the protection of the environment in regard to the electricity industry?

If the Minister can give us that assurance, I am sure that all noble Lords in this Chamber would be very happy. I know such an assurance would not be included in any brief which he receives from his advisers. If the Minister is genuine about his desire to improve the environment (in view of the problems of fly ash and pylons and other factors which arise from the electricity industry) will he give his personal support to the establishment in the Bill of a body responsible for protecting the environment arising from the privatisation of the electricity industry?

The Earl of Caithness

There is a major difference between the water industry and the electricity industry. I am one of many people in this Committee who is keen to improve the environment. On Monday I go to Brussels to discuss the large plants' directive. It is the emission from power stations that is of concern throughout the whole of Europe. I believe that the water industry is very different. The reason why we have set up the NRA is because not only is the water used by consumers extracted from rivers or reservoirs, but the water is then put back into the rivers or the sea. That is very different from the electricity industry.

Lord Sefton of Garston

I know all about water and of course it is very different from electricity. We are trying to impress on the Minister what our views are. He should not come back and tell us what we have already told him. In view of some of the rumours circulating about the attempt to demolish the shire counties following on the abolition of the metropolitan counties, that means this country will be faced with a situation where there will be no locally elected bodies responsible for the environment over wider areas. With that situation it is important that there should be a body which is given the responsibility of overlooking any damage to the environment arising from the privatisation of the electricity supply.

I make no apologies for putting the question directly to the Minister. Will he give his personal support to the contention that there should be that kind of body responsible for looking after the environment following the privatisation of electricity? I ask the Minister not to come back and talk about water because we are talking about electricity. There is a body responsible for the environment in the water proposals. Will the Minister lend his support to a body similar to that but applicable to the electricity industry?

The Earl of Caithness

I support the proposals that my right honourable friend the Secretary of State has put forward and the commitment that is in the White Paper. Those will be to the benefit of the environment.

Lord Diamond

I thank the noble Earl for what he has said about the environment. There is only one difference between us now. The question is whether the appropriate time and place for dealing with it is on this occasion and in respect of this Bill or during the passage of the later Bill. That distinction is not of such great importance provided we have the same government. We shall take that as one of the unfortunate probabilities; namely, that the same government will be in power in the next few months while it introduces the new Bill. That being so, it is of considerable satisfaction to hear from his own mouth how anxious he is about protecting the environment and wildlife and all the powers that already exist.

There are one or two small points that I would ask him to bear in mind before I seek permission to withdraw the amendment. First, the noble Earl said that the Government were going to be good enough to insist on these responsibilities being taken over by the successor companies. I am grateful for that most important statement.

I was also seeking to impress upon the Minister that we are concerned not only about the successor companies but about the successors to those successor companies. I recognise that the Government can impose terms which affect the immediate successor companies, but once they are in the private sector they will have freedom to move around (if I may put it that way) to change their ownership, to amalgamate, to sub-divide, and so on. Therefore it is essential that those responsibilities, which the Minister himself has said the successor companies should undertake, should be of such a form as to be permanent or as near permanent as the law can provide. I am asking him to be good enough to take that point on hoard in considering all these matters.

The Minister heard what the noble Lord, Lord Nugent of Guildford, said about the shareholders perhaps having to consider all the costs of protecting the environment. That is why it is appropriate that it should have been brought in at this stage when it is intended that commercial incentives and the attitudes that go with them shall replace public holdings. It is this drive for maximisation of profits, which is a perfectly proper activity in the commercial sector, that militates against incurring expenditure on maintaining wildlife and the environment. That is why it is so important that at this juncture special attention should be given to that point.

I conclude by repeating my thanks to the noble Earl. He has taken on hoard the main thrust of this amendment and made it clear that he is very interested in seeing that the environment is fully protected. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Ezra moved Amendment No. 7: Page 1, line 9, after ("Wales") insert ("which takes full account of the long-term interests of the British coal industry").

The noble Lord said: I realise that this issue could be raised on many future occasions during the course through Parliament of the proposed legislation on the privatisation of electricity. Nevertheless, this is a paving Bill. It sets the scene, and it is appropriate therefore to raise what we feel are likely to be the major issues. As the noble Lord, Lord Peyton, made clear in a Question he asked in the Chamber the other day, when one talks about changing the structure and ownership of the electricity industry, inevitably it brings in the question of the future of the coal industry.

I have had certain experience in that sector and there is no doubt that over the years coal and electricity have been closely bound together. Even now 70 per cent. or more of coal production goes into the generation of electricity. It is not unreasonable that attention should be drawn to the link between these two great industries.

I have all the more reason for making this proposal because from time to time when the coal industry is referred to in this Chamber the Government say that they fully support it. That is exemplified by the substantial investment made available and by the hopes expressed by the Government, which I fully share, that sooner or later that great industry will become viable and revert to being a profitable enterprise. It is in the spirit of wishing to ensure that its present efforts, which have been very successful in improving productivity, should in no way be impaired by these measures that I seek leave to move the amendment. I beg to move.

6.15 p.m.

Lord Williams of Elvel

We support the thrust of the noble Lord's amendment. In my Second Reading speech I made certain comments about the South of Scotland Electricity Board and its apparent desire to ask for tenders for supplies from foreign coal producers. If those tenders were accepted by the South of Scotland Electricity Board the remaining part of the Scottish coal industry could be put out of business, with a consequential serious loss of jobs.

If it turned out that foreign coal was cheaper for a time and then became more expensive, as the noble Lord, Lord Ezra, will know far better than I, one cannot recreate a coal industry once it has shut down and the mines have tilled in. If an industry such as the electricity generating industry—be it in Scotland or England and Wales—is privatised there may be a temptation to try to reduce the short-term input costs in the hope of making a short-term profit, and in that way damage could be caused to the long-term interests of another great industry in the United Kingdom.

I argued in my Second Reading speech that the proper way for coal-consuming utilities such as the electricity generating industry to behave is to base their input costs on long-term marginal costs rather than short-run marginal costs. My worry and the worry of the noble Lord, Lord Ezra, is that on privatisation there would be a concentration on short-run marginal costs at the expense of long-run marginal costs to the detriment of the British coal industry. That would be a complete disaster. I hope very much that the Government accept that it would be a complete disaster. In either accepting the amendment or by taking some equivalent action I hope that the Government will accept the case made by the noble Lord, Lord Ezra.

Lord Diamond

I should like to add one or two words in support of what my noble friend, with his deep knowledge of the coal industry, has already said. We are concerned with the transfer of assets from the public sector to the private sector. In the public sector it is proper to take account of a variety of costs. For example, it is proper to set down the cost of a public corporation buying coal at a greater price than need otherwise have been the case. It is proper to take into account in that same assessment what would have to be paid in unemployment relief to miners who were thrown out of work if mines were closed down as a result of going, as the noble Lord, Lord Williams of Elvel, said, for the cheapest temporary price.

It is proper for those considerations to be taken into account when they are all in the public sector. A country can sensibly carry on a coal industry which at the time is not producing coal quite as cheaply as it is being produced abroad because it can set off against that what would otherwise be the cost to the public purse of paying unemployment relief to miners, quite apart from the human misery of unemployment itself.

Under the Government's proposals the cost of paying unemployed miners would fall on the public purse but the benefit of paying cheaper prices for coal would enure to the shareholder in the private sector. Where you now have that distinction you can no longer set one saving against another additional cost; in other words, it will all be additional cost and the saving would be to the public sector and to the Government. The plc—the privatised electricity industry—would say, "Why should I take account of the cost of paying unemployed miners the wherewithal to live? It is no part of my responsibility. I owe a duty to my shareholders to provide them with a maximum profit and therefore to provide my customers with the cheapest possible coal. I have no interest whatsoever in the cost falling on the public purse—it is nothing to do with my shareholders." So one will get into that difficulty.

Therefore it is right that at this point in time the Government should make it absolutely clear that they take account of the long-term interests of the coal industry, in just the same way as if it were still the case that both industries—the coal industry and the electricity industry—were in the public sector and the same accounting rules applied. Therefore it is for the Government to say, as it has broadly indicated, although it has not come absolutely clean—this. They propose to wash their hands of any responsibility in regard to the future price of coal; that they will leave it for the future privatised owner of the electricity industry to buy coal at the cheapest price and, if the coal industry cannot meet that price, then it is just too bad: "We will buy it elsewhere, without taking account of what is a cost falling on the nation, because we have a public and a private sector which cannot be offset one against the other." I asked questions about this when a recent Statement was made from the Government Front Bench. This is a very serious point and I hope that the Government will make it absolutely clear that they support the amendment.

Lord Stoddart of Swindon

I should like to make one short point. The long-term interests of the coal industry are of course very much bound up with the security of supply in the electricity industry. One has to have an assured supply of fuel in the electricity industry and that, as the Government recognise, is going to be coal in the foreseeable future. As I have understood it throughout my lifetime, an assured supply of electricity in this country is dependent upon an equally assured supply of coal.

If one starts closing coal mines and thereby reduces the capacity of the coal mines to below, say, 75 million tonnes of coal a year, then one no longer has security of supply; security of supply depends not on activities in this country but on activities abroad, and perhaps the activities of shipping companies. Therefore security of supply is of the utmost importance and in my view it can only be assured providing we have a secure supply of coal.

The question I should like to ask the noble Earl is this: at what point would the Government intervene if the privately-owned generating companies decided to buy their coal abroad? When would the Government say, "Well, now it is our duty, as a Government, to ensure the supply of a life-support service which is electricity."? I have already mentioned that civilisation would be gone without electricity. Furthermore, how many million tonnes would the British coal industry have to decline to before the Government would intervene? Those are important questions which I hope the noble Earl will be able to answer.

Lord Rees

I hope I may briefly intervene on this particular amendment in the light of the insidiously attractive arguments advanced by the noble Lords, Lord Ezra and Lord Diamond. There may be a case for supporting the coal industry as a whole and even a case for supporting an individual pit on social grounds, but I shall not detain the House by debating the merits of that particular proposition. However, what I do suggest to the Committee is that it would be quite wrong that a major subsidy such as has been suggested—either in the coal industry as a whole or to an individual pit—should be borne by the electricity industry by means of an uneconomic pricing policy.

I disregard for the moment the argument put forward by the noble Lord, Lord Stoddart of Swindon, because I can see that there may well be a case for paying a slightly enhanced price for British coal if it is going to secure a long-term supply. Whether it is true in this particular case is of course a different argument and one which I shall not pursue, although I recognise the merits of it. But so far as saddling the electricity supply industry with the cost of subsidising either the coal industry as a whole, or a particular part, I believe that that is quite wrong. However, if the government of the day—whatever particular complexion—feels on social, economic or on any other ground that a particular form of social or economic activity should be supported, then it should be by a clearly identified public subsidy. We can then debate the merits of it.

Over the years, the public sector's performance has been bedevilled by the fact that too many of those concealed social and political costs have been built in. I believe that that has damaged the performance of the public, and to a degree the private sector. For example, the private sector may have had to purchase coal at a price which has been determined by other than economic factors. Therefore I hope that my noble friend, when he replies, will in fact reject those arguments—insidiously attractive though they may be—and perhaps on another occasion we can debate the merits of supporting the coal industry in a more direct and open way, when social factors can be taken into account and the economical performance of the coal industry can be judged with greater clarity.

Lord Ezra

Before the noble Earl replies, I should like to comment on the remarks made by the noble Lord, Lord Rees, whose views I greatly respect. However, having said that, in the case of the electricity industry, as the noble Lord, Lord Stoddart of Swindon, has mentioned, it is indissolubly linked with the feedstock; you cannot generate electricity unless you have something to generate it with. The Government have already decided that in respect of one of our national feedstock elements—namely, nuclear—there should be some degree of safeguard. I find it somewhat illogical that in the case of another source of that nature there should not also be written in some safeguard.

The amendment I have moved does not refer in any shape or form to subsidy. The words used are: takes full account of the long-term interests". At present, as the noble Lord, Lord Williams of Elvel, has rightly pointed out, coal can be imported much more cheaply, not only because the world demand for energy is debased but because the rate of the dollar (in which this product is quoted) is very low and the rate of sterling—due to some apparent disagreement in government circles—is very high. That situation is an accident. Should we allow ourselves to lose the long-term benefit of a great national asset on the basis of such a temporary accident? That is the principle behind the amendment proposed. It is not talking about subsidy, or about building a ring fence around coal as the Government propose to do around nuclear; it is merely pointing out that coal and electricity are very closely interwoven. It is implying that the present situation of world coal is of a nature which is probably very temporary and that we need also to have regard for the longer term. That is what underlies the amendment.

6.30 p.m.

The Earl of Caithness

The literal implication of this amendment, as a result of where it would be placed in Clause 1, would be to limit the granting of the express powers under Clause 1 to the Electricity Council to circumstances in which a transfer from an electricity board in England and Wales took full account of the long-term interests of British Coal. It is clear however that in moving his amendment the noble Lord, Lord Ezra, was in fact seeking to give it a somewhat broader application. I believe that it would be quite wrong to restrict the express powers given to the electricity supply industry under Clause 1 by requiring a proposal for transfer of property or functions to take full account of the long-term interests of the British coal industry.

First, the proposed qualification is much too imprecise. It would be impossible to demonstrate what the long-term interests of the industry might be in different circumstances in the future. Even if it were possible to do so, it would then be impossible to demonstrate that those interests had then been taken fully into account.

Secondly, the amendment is seeking to secure for the British coal industry something which British Coal, like any other business, needs to secure for itself and by its own means. The industry is a commercial enterprise, and it must take its own view of its long-term interests and seek to secure them by commercial means in its own markets.

In the light of the nature of the amendment I hope your Lordships will forgive me if I respond with some brief general comments about the coal industry. Electricity privatisation will present the industry with a challenge, but it is clear that coal will continue to be the main source of fuel for power generation in the foreseeable future. The need for domestic coal production is clear, and the industry needs to respond in securing its interests by providing coal reliably and competitively.

As the noble Lord, Lord Ezra, said, we are investing very large sums in the coal industry, some £2 million a day. This shows that the Government have considerable confidence in the industry's future and that it will be able to compete effectively. We certainly agree that security of supply is vital; that is why we say it is important for British Coal to supply coal reliably. My right honourable friend the Secretary of State for Energy has made it clear that it would not be right to limit coal imports, but in the foreseeable future there will be a substantial market for British coal. The price of coal paid by the electricity supply industry will be a matter for commercial negotiation. I have no doubt that British Coal will be negotiating effectively on that grant.

However, I would agree with my noble friend Lord Rees that it would not be right in the context of this narrow enabling Bill to pre-empt either the debate which I understand your Lordships are likely to have in due course on electricity privatisation or the debates during the passage of the main electricity privatisation legislation. The substance of the amendment is clearly more suited to those occasions, and I do not believe that it is appropriate to this Bill.

Lord Sefton of Garston

On the one hand we have the Minister replying that the amendment is imprecise and then on the other hand he is refusing to reply to a request for some precise information from the noble Lord, Lord Stoddart. The fundamental problem with coal, contrary to what the noble Earl has just said, is that it cannot compete successfully because there are two things which the British coal industry does not have; namely, vast surface mining of coal and the availability of cheap child labour in the exploitation of coal resources. So it is impossible.

However, I have no doubt that the advisers on this Bill and the Government have the figures to hand because they say that British Coal can compete successfully. Perhaps they will give us the real figures for the cost of production and shipping of coal from Colombia or Australia. Perhaps they will compare that with the cost of mining coal in Great Britain. They should have those figures, so perhaps the Minister can be precise instead of criticising the amendment for being imprecise.

Perhaps I may now address myself to the remarks of the noble Lord, Lord Rees. The fundamental nature of the amendment is not a question of the electricity industry subsidising the coal industry; it is a question of this community handling its energy resources in a commonsense fashion. If the Government are saying, as they will—and there is no doubt about what the Minister is saying—that quite clearly it will be left to market forces to determine the future of the British coal industry, then there will be a very poor outlook, once all control has gone, for the British coal industry. There is no doubt, if my assessment is right, that there is no way in which the British coal industry can compete with foreign coal mined in the way in which I have described. That is hard luck for the British coal industry.

The real issue is that we are not handling our scarce—and I say "scarce" advisedly—energy resources by going through this exercise at all. The more we go on with this paving Bill the more it proves the stupidity of the main Bill. The real truth is that the whole community must make its mind up as to whether, on the one hand, we shall have an electricity industry which will ultimately be dependent upon the cheapest source of fuel or whether, on the other hand, we are going to plan the proper use of all our resources which include coal. That is the fundamental issue.

Perhaps I may request the noble Earl to reply to the question raised by my noble friend Lord Stoddart on the stage at which the Government will intervene. It concerns whether it is in the form of a subsidy measured in cash or in the form of a limited amount of coal. We are entitled to an answer. The question is: at what stage will the Government intervene to ensure the long-term prospects of the British coal industry, if that is what they have in mind, either by the establishment of a subsidy or by the extent of production insisted upon the Government which should be bought by the electricity industry? We are entitled to that reply and furthermore the Government's own friends in the private sector are entitled to that reply before they start putting the money forward.

The Earl of Caithness

Detailed figures can be provided. Unfortunately I have to say to the noble Lord, Lord Stoddart of Swindon, that I cannot produce them just at the moment. However I shall be glad to do so at the earliest opportunity. I emphasise again to the Committee that these matters are perhaps more appropriate for discussion in another context. As I said earlier, it will be for British Coal to compete in its markets and secure its own future.

Lord Ezra

I think it is right that we should raise this important issue at this stage. Noble Lords have expressed their opinions on the subject and I was glad to note that among his remarks the noble Earl has reiterated the Government's strong support for the coal industry and the strong investment which they intend to continue to put into it. I believe that we should come back to this at a later stage. On this occasion we on these Benches have made known our views on the subject. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No. 8: Page 1, line 13, after ("of") insert ("or securing the modification of").

The noble Lord said: I beg to move Amendment No. 8 standing in the names of my noble friend Baroness Nicol and myself. This is a relatively simple amendment which does not contain great complexities of public policy. It is designed to ensure that the utilities or electricity boards which receive proposals from the Secretary of State about transfers can use whatever means they deem appropriate to secure a modification of those proposals. The wording tracks the wording in subsection (1)(a) and (b) where the utilities or boards can use resources to secure modification of related proposals. We shall come soon to the point of what the difference is between proposals and related proposals. But it seems to me to be logical that if they can secure or try to secure modification of related proposals they should be able to secure a modification of the proposals themselves.

I imagine that the schemes that may be put forward by the Secretary of State either in relation to the electricity industry or in relation to the water industry could be the object of serious representations by those who are actually operating the businesses concerned. It would seem perfectly sensible to give them power to use their best efforts to secure modifications they might feel to be appropriate. I beg to move.

The Earl of Caithness

I recognise that this amendment would make the Bill in some respects more flexible, but I do not believe that such flexibility is acceptable in the present case.

What we have in subsection (1) is a distinction between two types of proposal. In subsection (1)(a) we find that the water authorities and the electricity supply industry are empowered to facilitate the implementation of government proposals to transfer property or assets. This means that the Government must first trigger the operation of the clause by making proposals. The proposals in question are what I may term basic proposals—in the case of water that there should be utility plcs and the National Rivers Authority, for example, and in the case of electricity that the CEGB's operation should be divided and that there should be a separate company to look after the national grid and separate distribution companies.

Subsection (1) also empowers the industries to facilitate or to secure a modification of related proposals. These are defined in subsection (2). They are in essence more detailed proposals. For example, under paragraph (a) of that subsection, we may envisage the preparations which will have to be made for transfer of undertakings to successor bodies and for their management after transfer. Under paragraphs (b) and (c) we find references to the regulatory regime, finances and staffing, and flotation issues. The list is not exhaustive. The essence of related proposals, I repeat, is that they are more detailed than basic proposals.

In our view it is quite appropriate for the industries to comment in any way they wish on related proposals. If they wish to change them, or rather to persuade us to change them, I have no difficulty with that. We do not pretend that all the proposals we make will be right in every particular.

But it is essential that all endeavours, both of the industries and of the Government, should be bent towards achieving our central objectives which are represented in the basic proposals for privatisation and restructuring. It is for the Government to establish and make clear what those proposals are to be. In due course it will be for Parliament to consider them. The time for major debates with the industries in the shape which, when privatised, they must take is now past. It would not be appropriate for the Government to sanction the exercise of the powers in the way that the Opposition propose, and I may say therefore that the amendment, in the Government's view, is not acceptable and is at variance with the main purpose of the Bill.

6.45 p.m.

Lord Williams of Elvel

I am grateful to the noble Earl. Do I now understand that there are three things: basic proposals, proposals and related proposals? That is what the noble Earl seemed to imply. The basic proposals have already been made. The industries have been consulted and therefore they are not allowed to do anything more about that. The Bill also mentions the Secretary of State making proposals and then there are other things called "related proposals" which are more detailed in the words of the noble Earl. I hope that my understanding is correct. I am bound to say that I am slightly confused about the various natures of the different types of proposals that we now have on offer.

It is perfectly clear that up to the publication of the various White Papers to which the noble Earl has referred representations were made, not least by certain Members in this Chamber, to the Government about, for instance, the structure of the electricity generating industry. Other people, for instance, the chairmen of water authorities, have made representations about the structure of the water industry post-privatisation. As I understand it, the noble Earl is now saying that that chapter is finished and that the basic proposals have now been made in the White Paper.

Nevertheless, I am sure that the noble Earl will concede that in the White Paper on the privatisation of the Scottish electricity industry, which we shall come to in due course, there is a certain amount of vagueness and a number of decisions remain to be reached about the structure of the industry post-privatisation. It seems there that the basic proposal has not fully been made. Part of the basic proposal remains to be made. Under those circumstances, according to the logic of the noble Earl, it seems that it would be proper for the chairman of the South of Scotland Electricity Board or the chairman of the North of Scotland Hydro-Electric Board to make representations.

It is only when we come to a proposal under the Bill in front of us, which is not a basic proposal nor a related proposal, that the same people—it is all the same players in the game—are not allowed to try to secure a modification. Given the vague status of the proposal—we do not quite know what it contains—I find this somewhat unfair and somewhat illogical.

I should be grateful if the noble Earl could confirm that my understanding of these three types of proposal: basic proposal, proposal and related proposal is right before I decide what I shall do with the amendment.

Lord Ezra

I, too, feel a certain degree of confusion in trying to understand what the words "proposal" or "proposals" mean. There is an apparent distinction between "proposals" in subsection (1)(b) and "proposal" in subsection (1)(a). I fear that this adds to our sense of difficulty in following the drift of what should be a very simple piece of legislation.

Lord Diamond

The beginning of subsection (1) states: Where the Secretary of State is at any time proposing". The noble Earl has referred to the proposals which the Government have already made. He has referred to the form in which electricity is proposed to be privatised. He has referred to the form in which part of the water industry is proposed to be privatised excluding those elements which go under the NRA. Is the status of those proposals that they are already made so that these powers, once the Bill is passed, are triggered off?

The Earl of Caithness

I am saddened that the noble Lord, Lord Williams of Elvel, is not clear. I hope to clarify things for him and to reduce his problems by a third by saying that there are two proposals and not three. The proposals which I mentioned and enlarged upon I have described as the basic proposals. Those are the basic framework on which we would take forward and hope, in due course, to bring forward legislation. Then there are the related proposals on which further comment is still to be made. Much of that will arise as a result of passing this legislation. A lot of discussion is then triggered. I hope that that clarifies the point for the noble Lords, Lord Diamond and Lord Williams of Elvel.

Lord Williams of Elvel

At this point I must intervene. Do I understand the noble Earl to say that the basic proposals—that is, the proposals that the Government have already made in the White Paper—constitute proposals under this Bill?

The Earl of Caithness

There will be proposals for the restructuring of the industry. But there are indeed additional proposals which we will need to put forward to the authorities and to the supply industry. It is those proposals, as I understand it, that they will obviously be allowed to comment on.

Lord Williams of Elvel

I understand the latter point. I am referring to Clause 1(1)(a) where there is a proposal for the transfer. Can the noble Earl confirm my understanding of this matter? He is trying to eliminate one set of proposals, and I am very grateful because we have enough sets of proposals. Can he confirm my understanding that the suggestions that have been made by the Government in the various White Papers that have been published constitute a proposal under Clause 1(1)(a) of this Bill?

The Earl of Caithness

I understand that they do.

Lord Williams of Elvel

I am grateful to the noble Earl. We are now getting somewhere in understanding what this is all about. In other words, we are saying that the period of consultation is over, that the deed has been done and that the proposal—since there is one proposal in Clause 1(1)(a)—has been made in respect of the electricity industry in England and Wales, the electricity industry in Scotland and the water industry in England and Wales. Those proposals are unalterable in the Government's mind because the Bill as drafted does not allow utilities to argue against them. Those proposals having been made, there will be other related proposals which will come and which will be of a rather more detailed nature.

As I read the White Papers, they do not constitute, in plain English, a proposal for a transfer because there is no clear indication in the White Papers of exactly to what entity a transfer will be made and where the transfer is. I may be wrong about that. There may be a general statement of policy. However, it does not seem to me to be a proposal for a transfer.

We shall have to read what the noble Earl has said on the matter, and perhaps the noble Earl will read what we have said about it. We shall make sure that we are absolutely clear and come back to the matter at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No. 9: Page 1, line 17, after ("proposals") insert ("of the Secretary of State").

The noble Lord said: I hope with this amendment to clarify the status of related proposals. Under Clause 1(1)(b), related proposals can be modified by representations from the utilities or the electricity board. I assume those are proposals emanating from the Secretary of State and not from anyone else. However, the Bill as drafted seems to allow proposals emanating from someone else which could be related to a proposal from the Secretary of State but not necessarily coming from the Secretary of State. I should have thought that all related proposals should come from the Secretary of State and I think that the Bill should say that. I beg to move.

Lord Ezra

Following on the elucidation for which the noble Lord, Lord Williams, has asked, perhaps I may ask whether the proposals in Clause 1(2) are the related proposals referred to in Clause 1(1)(b).

The Earl of Caithness

As I understand it, the noble Lord, Lord Ezra, is absolutely right. That is why there is no need for the clarificatory amendment of the noble Lord, Lord Williams, in which he wants to insert the words "of the Secretary of State". Clause 1(1)(b) makes it quite clear that related proposals are indeed proposals made by the Secretary of State.

Lord Williams of Elvel

I am grateful to the noble Earl. That was the clarification which I was seeking. This is a confused clause. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No. 10: Page 1, line 20, leave out ("or to any matter connected with").

The noble Lord said: Again, this is a probing amendment. Perhaps the noble Earl will expatiate on what the Government mean by "any matter connected with". That is a wide expression, and I should be grateful if we could have some explanation of what the Government mean by it.

The Earl of Caithness

Subsection (2) of Clause 1 deals with the concept of a related proposal which first appears in subsection (1)(b). Paragraphs (a), (b) and (c) of subsection (2) set out examples of a range of matters which it will fall to the relevant public utilities to deal with in the preparations that they will need to make as a consequence of our proposals for the restructuring and privatisation of their industries. An obvious example is the matter of future arrangements for the utilities' employees, which need to be addressed now and on a continuing basis, and not left until the utilities have been replaced by the successor bodies which we propose.

As we make clear in the Notes on Clauses for this Bill, the list of related matters in subsection (2) is not exhaustive. There will no doubt be other matters not listed out here which will also need timely attention from the relevant utilities. The words "or to any matter connected with" indicate that related proposals may be concerned with matters not explicitly itemised in the subsection but which are associated with those matters. To omit these words would create uncertainty as to the extent of the powers of the water and electricity supply industries to prepare for their future.

Lord Williams of Elvel

I am grateful for that response. It does not get us much further. However, I understand that the Minister has difficulty in explaining exactly what "matters connected with" means other than saying that they are "matters connected with". The explanations become slightly tautological.

Perhaps I may return to our earlier discussion and draw the attention of the noble Earl to the fact that we are dealing with very wide powers. They are powers which have no time-limit and which do not come back to Parliament. We are therefore anxious to make sure that every phrase which widens those powers should be explained and that the Government should understand that the Opposition are concerned that we are giving to the Secretary of State powers which are wider than usual. Having said that, I understand that the noble Earl has difficulty in doing any more than he has done in explaining the matter and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hesketh

I beg to move that the House do now resume. We shall not resume the Committee stage of the Bill before eight o'clock.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.