Mrs. Margaret Thatcher (Finchley)
I beg to move, to leave out from “That” to the end of the Question and to add instead thereof:
“this House, while recognising the need for a considerable increase in the borrowing powers [column 552]of the Gas Council to use North Sea gas, declines to give a Second Reading to a Bill which, by permitting a further increase in public expenditure of up to £1,200 million, doubles the existing powers at a time when the White Paper on Fuel Policy, Command Paper No. 3438, from which it stems has not been debated, and when the most rigorous Parliamentary scrutiny of all public expenditure is especially necessary.”
I greatly enjoyed R. Gunterthe Minister's speech, as we almost always enjoy his speeches. In a way, he is one of the most difficult of right hon. Gentlemen to battle with, because he is so nice about everything. It would make one's job a lot easier if he were not so nice. I hope that he will listen carefully to what I have to say, because we have tabled this Amendment in a very serious manner.
There are very good reasons for not doing what he said, namely, allowing the whole amount, and then saying that it will be all right because we have control and that there will be opportunity for another Order. I can well imagine what would happen if we let the whole amount go through. The right hon. Gentleman would be back to the House with an Order and he would make the same sort of speech and say, “There cannot be much doubt that industry should have this amount as well” .
May I now develop the argument which we wish to deploy over the Bill? First, we must look at it—the Bill requires enormous extra sums to be provided—against the general economic background. It is one in which we require, in the coming years, stringent control of public expenditure. We have had many debates on this, and the Government have had to go through some careful and close examinations and come up with decisions which have been very unpalatable to hon. Members opposite. There is no question but that we have to have stringent control of public expenditure.
We also have to have stringent control of public sector expenditure. For example, Roy Jenkinsthe Chancellor said on Budget day:
“Looking further ahead” —
that is, after mid-1969—
“… we shall ensure that the claims of the public sector are compatible with the total resources available as compared with other calls upon them. This will be the central task of this year's review of public expenditure.” —[Official Report, 19th March, 1968; Vol. 761, c. 259.]
We are to consider a very large new claim from the public sector. We must consider it in relation to other claims and see whether the full amount of this claim is justified under the very criteria which the Chancellor set out. There is also in the economic background the undertaking given by the Chancellor to the International Monetary Fund, that the central Government's operating requirements should not exceed £1,000 million next year. I note, in passing, that it would have exceeded that this year but for vastly increased taxation.
The Minister is putting forward to us for approval an enormously increased amount of extra borrowing for this particular industry—up to £1,200 million. It is pertinent to see how this borrowing can be financed. There are not many ways in which borrowing for the public sector can be financed. The first possibility is by taxation. The Minister is suggesting that one way of financing £1,200 million extra would be from taxation; that would put no extra charge at all on the Government's borrowing requirement. So we have to consider it against that background. Money does not just come from nowhere. Someone has to provide it.
The second means would be by genuine Government borrowing. Anyone who has read the debates on the National Loans Fund will know that there has been very little genuine Government borrowing over the last six to 10 years; and I know that part of that occurred during the lifetime of the Government of my party. The third method of financing this enormous sum is by inflation, or by printing the money. That, too, has serious consequences for individuals or for the economy. It is against that background that one must look at this particular demand for new expenditure, bearing in mind that the likely ways of financing it are by taxation or by inflation, with a little borrowing in between.
So much for the general economic background, which is extremely important. Let us look for a moment at the general fuel background to which the Minister has referred. First, there is the White Paper which he mentioned. This purported to plan the change from a two-fuel to a four-fuel economy and its objective was to re-assess the balance [column 554]between the fuels. We all know that one cannot have a policy for one fuel which does not have very extensive effects on others; and one of the Ministry's most difficult jobs is to co-ordinate the programmes of the nationalised industries and assess their investment programmes. I am quite sure we have not yet learned in politics how to deal with the nationalised industries. I know full well there is a Select Committee sitting on this subject which has not yet reported but in the meantime we have to try to co-ordinate the several programmes and to produce some coherent results.
That fuel policy said that one of its purposes was to lay down long-term policy guide lines which could be modified and adjusted in response to new developments. Broadly speaking, going through that White Paper, one sees that it was really done in two slices—planning up to about 1971 and then projections forward from that period. I note, again, that the Bill goes beyond the immediate planning period up to 1971 and goes very far indeed into the realm of conjecture. The period to 1971 was particularly significant in regard to the effect of this policy on coal, because the provision we made for coal terminated in 1971, before the provisions of this Bill have come to an end, so that it is important to consider the two together.
We must also consider the White Paper on Fuel Policy in relation to the future for gas, because there were extensive sections on this and all had certain characteristics. One of those characteristics, which was scarcely touched on in the Minister's speech, one of the outstanding things about natural gas, is the uncertainty of the amount, the uncertainty of the rate of depletion and the uncertainty about sales. Indeed, whenever we look in the White Paper at comments on natural gas there are conclusions about the uncertain strategy, the uncertain amount, the uncertain field. On the face of it, this does not seem at all a recipe for approving £1,200 million.
Let me give specific examples. Paragraph 14 of the White Paper said:
“For the longer term, much more needs to be known before it will be possible to establish precisely the role to be played by natural gas in our energy supplies.”
It went on to deal with the uncertainties [column 555]and in paragraph 24 it returned to the same theme:
“The uncertainties are too great for it to be possible to settle the long-term strategy on gas absorption.”
The White Paper returned to this again in Appendix II, when it talked about the uncertainty of the total amount and went on to speak of another uncertainty which we are always up against in fuel policy—uncertainty as to whether this fuel will be displaced by another which may be cheaper. So we have to keep in the back of our minds the thought that the expenditure which we may or may not approve today may prove abortive in 20 years' time because another fuel or another system has been discovered.
The whole of the White Paper is really shrouded in uncertainty so far as its passages about natural gas are concerned and in looking at the Gas Council's case and the Memorandum accompanying the Bill I had the feeling that they had taken the tentative conclusions without the qualifications which the fuel White Paper made at every stage.
Mr. Ted Leadbitter (The Hartlepools)
In an interesting debate of this kind, to dwell so much, in the manner the hon. Lady has, on uncertainties, is not quite a fair presentation of what is in the White Paper. Would she agree, so as to amplify the point she has made, that the words following those she has used are:
“But we know already that the reserves are very substantial and this is the reason for the Government's decision to authorise construction” —
of pipe lines, and so forth? The hon. Lady has stressed only the uncertainties.
I do not dispute what the hon. Gentleman says about the sentence which follows in the White Paper. We already know that the reserves are very substantial. What we do not yet know is the ease with which those can be got to the consumer. We have only one small field which is delivering, and that has come up against far more difficulties than were expected because of the uncertainties in any new operation of this kind.
Turning to the point to which I was coming, past investment policies in relation to the fuel industry; again we are looking at an enormous sum to be spent [column 556]to produce more energy, to get more sales. We have not been very successful, as a House, in our judgment of past investment policies in relation to other fuel industries.
We have, for example, poured capital into coal to produce coal at any price and the result has been that an enormous quantity of coal, about 28 million tons, is now on the ground and cannot readily be sold. There we have an enormous investment a large part of which has proved abortive because we have already had to write off a lot; and one of the things we shall want to know is how much more has to be written off if the gas policy goes through.
Then we went into electricity and poured enormous sums into that industry. Its borrowing limits are in excess of £4,000 million. This was a great new technology and we invested enormous sums in it; and according to last year's report, the industry is short of sales. It has more investment than sales would have warranted and the result has been an increase in the price to consumers because the cost of investment had to be spread over smaller sales. That is the record against which we are looking at this new investment. There have been these failures properly to assess the investment in particular fuel industries, failures which have led to surplus stocks or surplus electricity. The Minister cannot blame us if we are very wary when we look at this new Measure to ensure that we are not doing exactly the same again, particularly against the background of a totally new industry and the uncertainties which I have outlined.
Would not the hon. Lady agree that there is this very substantial difference between the two examples which she quoted, that the market for coal is declining and perhaps vanishing, whereas the market for electricity is ever increasing? If one made some small errors in one's capital investment in the past, one would catch up with them later with the growth of demand.
I do not disagree that the market for electricity is expanding. But it does not alter the fact that we could have avoided some of the price increases now had our assessment of the amount of investment been better. The load forecasts were badly wrong.[column 557]
Sir G. Nabarro
May I reinforce my hon. Friends argument? I am grateful to her for giving a lesson to the right hon. Gentleman in Parliamentary courtesies. My hon. Friend quoted the undistributed stocks of coal at 28 million tons. She might have added that in terms of the nation's resources another 14 million tons of distributed stocks are lying on the ground, making a total of 42 million tons, worth about £220 million of the nation's finances sterilised and wrapped up. Why does not the Minister apply himself to that factor?
I am sure that my hon. Friend has the figures absolutely right. I do not usually quote the distributed stocks, for one reason, which my hon. Friend will be the first to appreciate. The distributed stocks have usually been paid for, so that the Coal Board has received an amount of money for them. They do not enter into the deficit.
There is one other background factor regarding the attitude of the public to the great development of North Sea gas. Most ordinary members of the public would have taken the view that there appeared to be a large supply. Therefore, because the raw material costs are negligible, they would have it in their homes at very much cheaper prices than any other fuel. It is slowly emerging that this is an absolute myth, and that the cost of getting the gas to their homes and of converting the equipment in their homes is so great that it will negative the advantages of the cheaper raw material.
We shall be very wise to make it clear to the public that there are not substantial price reductions coming in gas. Indeed, they would not believe us if we said that there were. They have just suffered an enormous increase in the price of gas. It does not help very much if we say, “We shall increase the price a lot now, but take it down a ½d. a therm when you get the natural gas” .
We must look at the matter from the consumers' viewpoint. The costs of conversion are very great. In theory, they are not borne by the consumer; in practice, they are. Equally, in practice, what happens is that somebody comes to one's house, shakes his head sadly over one's gas cooker and says that it is unconvertible because it is too old, although it is working perfectly well, and shakes his head sadly over the gas fire, which gives [column 558]perfectly good service, and says “You should have a new one” . This is happening on quite a large scale, because people carry on using equipment for a very long time.
The Parliamentary Secretary to the Ministry of Power (Mr. Reginald Freeson)
Perhaps the hon. Gentleman never reads the women's pages in magazines and newspapers. He should. He might then know more about gas and electricity and the public than he does. People carry on using their equipment for far longer than manufacturers or gas boards would approve.
Mr. Frank Tomney (Hammersmith, North)
There is another side to the story. The gas boards do not install central heating systems; they have not the gas fitters to do the job. These jobs are let out to contractors. That is all right if the contractors are efficient. Usually they are, because they are qualified. But what happens afterwards when it comes to making repairs? The gas board sends along a sub-contractor. I have had this experience. The sub-contractor charges 100 per cent. more than the gas board.
May I give one of the examples to which I was referring when I told R. Freesonthe Parliamentary Secretary that he should read the women's pages. There was a very amusing article in the Sunday Express on 21st April by Veronica Papworth entitled,
“I am going to be converted—and there's nothing I can do about it.”
She gives an account of how the gas man called. The article states:
“… we looked at the gas fires in the bedrooms and his face grew graver and graver. ‘I'm afraid’, he advised me, rather in the manner of a doctor diagnosing smallpox, ‘that we shall have to take them away’ … . How much … was a new one? ‘Roughly £20’.”
He looked at something else in the dining room.
“‘Out of date’, said the young man firmly, ‘there's nothing to be done with that’. ‘But it goes like a bomb’, I protested.”
I had some gas fires in my old house before I went into the one where I am now in which gas is not laid on, so I have not a vested interest in the Bill. The [column 559]public should be told, and told plainly, that reductions in gas prices are a myth and totally unlikely to come about.
I turn to the case which the Minister quotes for the increased powers which has been put to us by the Gas Council in the brochure to which the Memorandum refers. I will take it point by point, because there is a very convenient summary at the beginning. This is the case for which the gas industry is asking for extra borrowing powers. The first point I take was:
“The Government state in the White Paper on Fuel Policy that they expect natural gas to meet about 15 per cent. of the total demand for energy in Britain by 1975” .
That is a direct, authoritative statement. It gives no hint of the background uncertainties to which I have referred.
Point No. 2 is very important:
“… this policy involves ‘the wholesale displacement of existing gas-making plant and methods, a nation-wide conversion programme, and an expansion of sales by nearly fourfold between now and the mid-1970s’.”
What we shall be doing if the programme goes through is writing off not obsolete equipment, but brand-new technologically up-to-date equipment which is now being installed to meet demands and will continue to be installed for the next 10 years. Certainly, the coal carbonisation plant is being written off, but so is the oil feed stock plant, which has already caused a revolution in technology. This is one of the costs of introducing natural gas and one of the reasons why it will not be cheap.
We are entitled to ask the Minister whether it is wise for the economy that new, up-to-date equipment should be written off much faster than it should be when it would give many years' service and is itself a tremendous technological advance for the gas industry. But the right hon. Gentleman has accepted that it should be written off over a period of 15 years, which is far less than its normal life, and he appears—
Mr. J. T. Price (Westhoughton)
May I finish my sentence? It will be an unusual experience for me in this debate. [column 560]
I understood from the evidence given to the Select Committee on Nationalised Industries, of which the hon. Member for Westhoughton (Mr. J. T. Price) is, I note, a member, that the period was 15 years or the rest of the natural depreciation life, whichever was the less. There seems to be some discrepancy. Some documents say 15 years and some say 10 years. In any event, it is being written off whilst it is still comparatively new and would give many years of service. The Minister seems to have accepted, even in our present economic conditions, that that is good for the economy of the country. I question it.
We then come to “a nationwide conversion programme” , on which I have already commented.
“an expansion of sales by nearly fourfold between now and the mid-1970s” ,
the Memorandum submitted by the Gas Council to the Select Committee on Nationalised Industries said that that fourfold expansion to the mid-1970s could not take place on existing proven reserves; more would have to be discovered before that expansion could take place. We are here in the realm of supreme uncertainty. I will give the exact quotation from the Select Committee on Nationalised Industries, Sub-Committee B, Wednesday, 10th April, 1968, paragraph 5, on page 19:
“The Government's White Paper on Fuel Policy, Command 3438, accepted that it would be a reasonable assumption for planning purposes to set the 4,000 m.c.f.d. target as early as 1975, although for this quantity to be produced the discovery of additional reserves to those already found will be necessary.”
Here is a policy based on the finding of additional reserves and assuming that they will be found. We are being asked to approve £1,200 million depending on the finding of additional reserves.
I turn to the third point:
“The changes in production technology have kept gas a competitive fuel and sales have grown at an average rate of 9 per cent. per annum in the last four years.”
They have. On the oil technology, gas has done very well. I have been impressed by the rate at which the new technology has been accepted and the efficiency with which it was produced. If the Minister accepts the rate of obsolescence which has been mentioned, he will have a tremendous problem of redundancy in the [column 561]gas industry as well as in the coal industry. There will not be jobs of the same calibre in the gas industry under the new natural gas as there have been under the technology which depended on oil feedstock.
The fourth point is:
“Natural gas is likely to make the largest contribution to import saving when supplied as a premium fuel.”
This is one of the great conclusions of the White Paper. It is really saying that we are embarking on probably £1,000 million of expenditure to get a different sort of gas to cookers and central heating systems on the assumption that the sales will go up fourfold.
I am not prepared to accept that assumption. I think that when a number of these fires have to be changed, at considerable cost and people realise that the price will not come down, the demand will not be there to the same extent as in the past. The demand will not rise at the same rate. I question whether we are wise in spending this enormous sum on getting a different gas to fires, central heating systems and cookers which are working well and being supplied with town gas at the moment.
The fifth point is:
“Bulk sales to industry and possibly some power stations will help to build up quickly the total flow of gas from the North Sea fields.”
There is probably some point in saying that to get the benefit of natural gas to the economy we have to get it cheaply into industry. If that is the economic benefit, we do not need to get it to every cooker and central heating apparatus in the country. If we want to benefit the economy we go to the industry; we do not need this enormous conversion and distribution network.
I suspect that we are getting the costs all ways up. We are getting the expenditure on the domestic conversion network and we are having to write off modern plant. This will have its effect on coal, in which we have already invested a lot, and will produce further redundancies. Does the Minister now see where some of our doubts arise? Whatever happens, we are pouring investment into every aspect. I doubt whether the economy will ultimately benefit to the extent indicated by the Minister. [column 562]
Just a word about, “and possibly some power stations” , because it is said that gas will go into power stations. I am not a member of the Select Committee and, as right hon. and hon. Members know, one cannot get the transcripts of evidence until long after the evidence is given. However, from what I can make out, the question of the supply of gas to power stations is in a bit of a muddle. It could only be with the Minister's consent and it could not be before 1971. After 1973, according to the Government's White Paper, the power stations will be entitled to choose the most economic fuel, but they could not choose gas, because gas has first to be offered to the area boards, and they could get it after that only with the Minister's consent.
The hon. Lady can take it from me that natural gas is being used at Hams Hall power station, near Birmingham, and being used successfully.
I take that from the White Paper as well. I think that there is also one other which is being converted. Presumably, that has been done as an experimental project with the consent of the Minister.
I want to inquire about the other implications of putting gas into power stations. Lord Robens gave evidence to the Select Committee the other day. I have not got the transcript, but I thought that he asked a cogent question, which we should also ask. The provision that we made for redundant miners to help the coal industry expires in 1971. If we put gas into power stations—which may be very advisable, but I leave that to the judgment of others—what will be the effect on the coal mining industry? Are there to be other redundancies in addition to those we already expect, and shall we have to make further provision for them because we burn natural gas to the boilers? Are we to make further provision for the write off of more pits and further provision for social benefits for miners? These are questions the Minister should ask.
I also understand, dealing with the period 1971 to 1975, that this policy was not discussed with Lord Robensthe Chairman of the National Coal Board. I understand that upstairs he said that the White Paper's figures up to 1975 were done without any [column 563]consultation of any kind at his level in the Board. It does not seem to be carrying out the Minister's duty of co-ordination between the fuel industries and the duty of the most effective investment of people's money if there was not that consultation and not the requisite amount of co-ordination.
The sixth point concerned the amount spent on fixed assets and other things. It transpires that the gas industry wants £1,600 million to carry out this uncertain programme. As more evidence comes before the Select Committee more doubts seem to arise about how far the programme could have been thought through because of the uncertainty. We have seen only a comparatively small part of the evidence. The part in Point 6 which takes my breath away, although it seems to have no effect on the Minister, is that, when it has said how much extra it wants, over an extra £1,000 million, it goes on with this immortal sentence:
“The industry is aware that the next five years will be a period of rapid change and that its planning must remain flexible. In view of all the circumstances, the Council considers it would be sensible to have a reserve borrowing power of £237 million.”
Just £237 million extra between friends! It is quite incredible, at a time when we need stringent control in the public sector, to say, “Please, we want £1,000 million. There are so many doubts and uncertainties. We must be flexible, but we must not be flexible in reducing the amount. You must give us flexibility in case we have made any great errors of judgment so can we have another £237 million?” But that £237 million would have to be found in taxation, savings or inflation; on top of everything else, £237 million for the mistakes that have been made or the calculations which they could not do.
Please let me get on. I am taking up far too much time, although it is not really my fault. It is other hon. Members who are taking it up.
That is the case which the gas industry makes for requiring the extra £1,200 million. The Memorandum before the House then points out, as did the Minister, that this could be done in two slices. It could be done with a first slice of an extra £400 million. If this extra £400 million [column 564]were added to the borrowing powers which have not yet been used, there would be over £500 million available in borrowing powers to the Gas Council.
In view of the uncertainties which I had described at length and the possible effect on other fuel industries, that is, I suggest, absolutely as much as we should let them have at present. Then the Minister should have come back to the House, not with an Order late at night but with another fuel Bill. By that time we should know the result of the investigation of the Select Committee on Nationalised Industries into the Gas Council's case, which is being conducted by my hon. and gallant Friend the Member for South Fylde (Colonel Lancaster); we should know the effect upon coal; we should know the other possible uses of natural gas. I think that it would be unwise to go beyond that extra £400 million, which is, in fact, an extra £500 million above what they have used at present.
The Memorandum also refers to other new borrowing powers, which the Minister, I thought, skated over rather quickly. It is, of course, very unsual for a utility undertaking to have power to raise money in foreign currency. The right hon. Gentleman mentioned one other case of a nationalised industry having such power, but that industry is a substantial earner of foreign currency; therefore, it can repay in the coin in which it borrows. This industry is not a substantial earner of foreign currency; therefore, someone else will have to find the foreign currency with which to repay.
By permitting foreign borrowing the Minister is defeating part of his own argument. Part of his argument for natural gas is the great saving in foreign currency that its injection into the system will produce. That is already partly modified by the fact that a lot of the capital which has gone into developing North Sea gas has been foreign, and that foreign capital has to be serviced, which means a lot of money going out annually. The right hon. Gentleman is now further defeating his own argument by saying that the industry can borrow foreign money, which means that that loan will have to be serviced annually in foreign currency. So if his argument is foreign exchange saving he is partially defeating it by the provisions in his own Bill. If he wants to save foreign exchange he ought not to replace coal with gas. [column 565]
I should like to tackle the Minister on another point. It is said in the Memorandum and in the Bill itself that any foreign borrowing would go against the total borrowing limit. Two points arise out of this. First, the foreign borrowing would not be done through the National Loans Fund. Therefore, it would not affect in any way the Government's central borrowing requirement. I suspect that this is a way of getting round the central borrowing requirement, of spending more money but not having it enter into the calculations of that requirement.
Second, the amount borrowed would go against the total, but there is a provision in Clause 2 with regard to the Electricity Council, and it is reflected in other Clauses with regard to the other councils, that the borrowing limit can be exceeded to redeem the loan. So the £1,200 million is not the full extent of the borrowing which, if the Bill goes through, we shall be asked to consider. It would be greater than that by whatever amount the Treasury said the loan could be.
I hope that I have said more than enough to express the great uncertainty which surrounds the development of North Sea gas. I am the first to admit that we must get some of it into the system, but, in view of the uncertainties—the fact that the Select Committee is now investigating it, that new problems arise every day—we should be unwise to give the total amount which the Minister is asking. No harm would be done by giving the lesser amount. Indeed, I think that it would be greatly to the advantage of the nation in the present economic circumstances, if we stopped at a further £400 million. I hope that the Minister will consider what I have said, as I have considered what he has said.