§ Mr. Albert Roberts
asked the Minister of Power whether the Government have now considered the National Board for Prices and Incomes' Report No. 7 on Electricity and Gas Tariffs; what action he will take; and if he will make a statement.
§ Mr. Frederick Lee
The recommendations and suggestions made by the National Board for Prices and Incomes in its Report No. 7 on Electricity and Gas Tariffs have been carefully studied.
The Government agrees that it is important to have long-term trends in view when fixing prices, as being consistent with the Government's fuel policy announced in Cmnd. 2798 and conducive to the objective of price stability over as long a run of years as possible.
It also agrees with the importance of the two provisos set out in paragraph 23 of the report which advise that too optimistic anticipation of future lower costs may result in the expansion of demand which cannot be met, and that too easy a release of management from financial objectives in anticipation of lower costs may defeat its purpose by slackening financial discipline.
The Government accepts the specific recommendations at paragraph 83(i) and (iv) of the Report, which have already been implemented.
As regards the Scottish Gas Board, the Government accepts the National Board's finding that a 13 per cent. increase in tariffs is needed immediately. It also accepts the recommendation that the increase on the running rate should be modified, and the balance placed in the standing charge. The Scottish Gas 643W Board will announce revised proposals to this effect. The Government has also studied with close attention the National Board's proposals for segregating an estimated non-recurrent element in costs, and after re-examination of the estimates in the light of the winter's experience and the actual situation today, inclines to the view that the Scottish Board might be unwise to designate any part of the increase as temporary. The Scottish Board will naturally keep its tariffs under constant review, and any adjustments that may later appear desirable and possible will be made.
As regards the South Western Gas Board, the consequences of the abrupt transition which will occur if all coal carbonisation based on the ten-year 1.2 million ton coal contract is replaced at the end of 1969 by gas from oil are fully appreciated. Consultations are taking place between the Board and the National Coal Board to see whether the problems of investment and transfer of labour, which would in this case be concentrated into one year, could not be alleviated by running down the contract in such a way as to spread out the same total contract tonnage of coal over a rather longer period. The National Board has recommended that the South Western Gas Board should in present circumstances aim to do no more than break even in 1966–67, and has estimated that an increase in tariffs of approximately 3 per cent. would achieve this. The South Western Gas Board's tariff proposals were prepared last summer on the basis of estimates derived from experience of the winter of 1964–65. Experience of the winter of 1965–66 has made revision necessary to take account of substantial additions to costs. The Government recognises that in these altered circumstances the South Western Board will need an increase of 7 per cent. to meet the National Board's recommendation of breaking even.
My comments on the suggestions made in paragraph 84 of Report No. 7 are as follows (the numbers refer to the sub-paragraphs in the Report):—
- (i) The financial performance of the two Scottish Electricity Boards is at present under discussion between them and the Secretary of State for Scotland.
- (ii) Early in 1965 the Government introduced legislation to meet the end
644 proposed by the National Board. Last August the Gas Act, 1965 imposed on the Gas Council the duty of promoting and assisting the co-ordinated development of efficient and economical gas supplies in Great Britain, and empowered it to manufacture, buy, and supply gas in bulk to Area Boards. The Act also enables me to strengthen the membership of the Council by additional appointments, and this I shall do. The Council has already announced a re-organisation and strengthening of its internal structure.
- (iii) My Department and the Ministry of Housing and Local Government and the Scottish Development Department keep under regular review the requirements for solid smokeless fuels and the contributions of the various manufacturing interests to meeting them. They advise the respective Clean Air Councils from time to time of the supply situation. The Councils are aware that the gas industry's contribution is on the decline.
- (iv) Similar suggestions have been made in the past and have not been found easy to meet, but I am having the question re-examined.
- (v) The gas and electricity industries already apply a higher rate of return, when assessing the profitability of new investment, than the rate on total average net assets which each Board is required to earn under the terms of its financial objective.
- (vi) This suggestion, which raises some practical difficulties, will be looked at when considering the financial objectives to operate from April, 1967.