Orders of the Day — Electricity Bill

– in the House of Commons at 12:00 am on 10th February 1972.

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Again considered in Committee.

Photo of Mr Arthur Palmer Mr Arthur Palmer , Bristol Central

Clause 2 empowers the Government to give extra financial assistance to the electricity boards out of public funds if the boards are put to expenses to which they would not have been put normally in bringing forward projects beyond the due economic time in their own judgment.

I was saying that the purpose of the Amendment is to give a longer period in which projects can be brought forward. We must balance the need to give an inducement to the boards to act quickly against the risk that the boards will not have much scope to advance large projects because the planning, design and execution of large and extensive projects can hardly be carried through in a matter of weeks, months and sometimes years.

I quite see that if the date is deferred too far, projects will not be advanced. However, if the period is made impossibly short, not many projects will be advanced as the Clause intends.

This is a somewhat exploratory Amendment. I am anxious to test the mind of the Minister for Industry and to discover what reasoning was used to determine the period. On Second Reading, I made the point that in the constant search by the electricity supply industry for improved productivity and efficiency, staffs have been run down to a great extent. Many of us hold the view that they have been run down too far. It is easy to do that when an industry is a little in the doldrums in relation to demand. Then, if there is an expansion, staffs have to be built up again, and it cannot be done overnight.

I think that the Amendment is a reasonable one, and I hope that the Government will accept it. If they feel that they cannot accept it, I hope that at least they will say why they have determined on this period. In a capital intensive industry which has large, technically complex projects, it is essential to plan ahead. Such an industry cannot contract and then expand quickly in a way that might be possible in a different type of industry. I hope, therefore, that the Amendment will give us some insight into the Government's thinking, and perhaps the Minister will tell us what consultations there were with the industry in determining the period.

[Miss QUENNELL in the Chair]

Photo of Mr John Eden Mr John Eden , Bournemouth West

I have a great deal of sympathy for the points which the hon. Member for Bristol, Central (Mr. Palmer) has raised. However, I must tell him at the outset that I cannot accept the Amendment, and I will tell him why.

The hon. Gentleman is right when he says that we are dealing with an industry which is habitually concerned with very large projects involving substantial sums of money and taking a considerable time —years—to complete. This job-creating exercise was the subject of very careful consultation with the industry, identifying particular projects which could be brought forward and would in the process be likely to assist in the creation of jobs early on. The effect of the Amendment would be to extend by a further year the period into which the projects and the purchases may be advanced to be eligible for contributions to be provided under the Bill.

I think that I am right in saying that the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) on Second Reading rather suggested that by the time capital projects are brought forward and in full swing the economy might conceivably be suffering from excessive demand. That is not a very strong argument. I do not think that we shall be concerned with a stop period at that time; I believe that we shall have a period of sustained growth which will not be followed by a period of stop.

None the less, the arrangements which are being made are expected to result in substantial extra expenditure in 1972–73 and 1973–74. However, other things being equal, nearly all of them will result in lower expenditure thereafter. This is the effect of bringing the matter forward. So, to extend the period into 1974–75 and still to keep the figures as they are and to expect that these projects would be making a realistic contribution to employment in the latter years, is not a correct assessment of the nature of the scheme which we are considering. The scheme is designed to pay for the extra costs incurred by bringing these projects forward. Any projects which are advanced have already been the subject of close discussion. Each project is subject to approval by my right hon. Friend having regard to its employment-creating aspects. There are other Amendments on this point about the location of jobs and the way that they might or might not assist in development areas. But the fact remains that the purpose is to concentrate this in the earlier years, and in that case we should keep this to the time table spelt out in the Bill, because almost certainly the projects we have in mind will themselves be incurring much less expenditure by 1975.

Photo of Mr Arthur Palmer Mr Arthur Palmer , Bristol Central

I am obliged to the Minister for his very rational explanation. He has taken my point. In the circumstances, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Photo of Mr Arthur Palmer Mr Arthur Palmer , Bristol Central

I beg to move Amendment No. 8, in page 2, line 37, at end insert: (c) to expenses incurred by any of those bodies in or by reason of the granting before that date of research contracts for any project, being a research contract which, pursuant to any such agreement, was granted earlier than it would have been but for the agreement. The Amendment would be helpful to the electricity supply industry in these special circumstances when it is asked to bring forward projects, when in order to bring forward a project it is necessary to spend money on specialist research. "Research" is a convenient expression, and I use it broadly to mean preparatory work in some circumstances which is not necessarily part of the project as such. This was a point dealt with by the Select Committee on Science and Technology when reporting on Generating Plant Breakdowns, Winter 1969–70, with which I am very familiar because at that time I had the privilege of being Chairman of that Select Committee. It was the Committee's view that with many of these projects in the electricity supply industry there is a very strong case for having special contracts for research and development and preparatory work which are separate from the contract for the project itself. The Committee felt that if this were done more often, some of the difficulties which have arisen later with the use of plant and equipment in electricity supply would have been avoided.

The Minister may say that the time span is too short anyhow and that the projects which are to be brought forward are those on which presumably the research has been done already. But it is possible theoretically and hypothetically reasonable to assume that such circumstances may arise, and this should be provided for in the Bill.

I also noted what the Minister said just now, that perhaps by the time this period runs out, for the industry and the country generally the economy will be booming and, therefore, electricity supply will have more than enough work to do anyway. But there is no certainty that this will be so; that is simply the Minister's optimism. It may well be that he or, perhaps, his successor will be coming to the House and asking for an extension of this power. In those circumstances, it would be as well if there were projects ready to be extended once again over a further period.

Therefore, although I accept that the circumstances which I visualise in providing for preparatory research to be covered by the Clause may be somewhat hypothetical, they are not impossible. I should have thought that if the principle of the Amendment were accepted, the expenditure involved should include research work which is generally known as "outhouse"—that is an American expression, but it is creeping into British industry—that is to say, research work which would be done in connection with projects outside the bounds of the electricity supply industry, in universities, research associations and manufacturers' laboratories. It would include research and development of that kind, and would extend it to research work, done on a contract basis in the industry itself, in the industry's own laboratories such as the Berkely Research Laboratory of the C.E.G.B., and the laboratory which the Electricity Council administers in Cheshire.

10.15 p.m.

Photo of Mr John Eden Mr John Eden , Bournemouth West

I am grateful for the interesting way in which the hon. Member moved the Amendment, but it is not necessary to achieve his purpose. That can be done, and has been done already, under the Clause. It applies to any project commenced before 1st April, 1974. but there is no definition of "project". That is defined in general terms or by specific identification in the agreement made with the Secretary of State.

The projects which have already been agreed with the industry and which are to be advanced include some expenditure on research contracts. There is, for example, the support for research relevant to the design of most major items of power station plants, including boilers, turbo generators and e switchaear. In this connection it is expected that the sum projected into 1972–73 is about £250,000. That is not a very substantial figure, but this point of principle is covered.

Photo of Mr Arthur Palmer Mr Arthur Palmer , Bristol Central

In view of that assurance—that will be of interest to those who follow the fortunes of the industry outside as much as it has been to me—that "project" covers research, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Alan Williams Alan Williams , Swansea West

I beg to move Amendment No. 9, in page 2, line 37, at end insert: (3) Contributions under this section shall be at a substantially higher rate for employment promoted in the Development, Special Development and Intermediate Areas. This is an exploratory Amendment, to try to establish precisely what the Minister has in mind, and it is intended as an opportunity for us to stress to him that, in making his decisions about where a contribution should be made, he should pay particular attention to the severe difficulties of different parts of the country. I have two sets of figures from the Minister's own publication Trade and Industry, dated 27th January, 1972, giving the annual figures of industrial development certificates approved. I have chosen the figures in 1969, the last full year of a Labour Government, when we operated under the investment grant system.

In 1971 we had the full first year of Conservative Government and the first full year of an investment allowance system. It emerges strikingly and depressingly from the Government's figures that in that year new factory space approved was a mere 60 per cent., or less than two-thirds, of the total approved in 1969. The development area position has, therefore, worsened considerably. In the intermediate areas in 1971 the figure was a mere 66 per cent. of the 1969 position

Looking more closely at individual sectors, we see that in the north of England new factory space was running last year at one-half the level of 1969, and in Wales we had the incredibly low figure of only 40 per cent. of the 1969 position.

Here, therefore, are the basic facts of need. These figures in themselves do not even reveal the full magnitude of that need because concurrently with the rundown in the rate of introduction of new industries to those areas—the areas referred to in the Amendment—we had a rundown in the old industries, for there was a marked increase in the rate of redundancies and factory closures.

The problem facing these areas is not just that these industries contracted and will be able to re-expand when or if growth takes place. While one retains a factory as a going entity, the capacity for growth exists, but when it is closed—I could give numerous examples of factories closing in Newport, Llanelli, Swansea and elsewhere—there is no base for future expansion.

The basic industrial structure of these areas is now in danger and the diversification which was built up carefully, expensively and meticulously in the postwar years is being severely undermined. It is against this background that I move the Amendment and urge the Minister, in the exercise of his discretion under the Bill, to ensure that adequate priority and preference is given to projects in the development areas.

Perhaps certain options will exist. Perhaps the boards will be faced with the posibility of bringing forward one or other of two equally desirable projects. It might not make sense to bring them both forward at the same time, but it could happen that one is in a development area and one is outside it. There is nothing built into the Bill—I appreciate the difficulty of drafting a suitable Amendment to cover this point—to indicate any intention on the part of the Government to exercise a meaningful priority on behalf of the development, intermediate and special development areas.

Rather than deal with the adequacies or inadequacies of the precise terminology of the Amendment, I urge the Minister to give the Committee an assurance about the way in which the Government intend to exercise regional preference.

Photo of Mr John Eden Mr John Eden , Bournemouth West

The hon. Member for Swansea, West (Mr. Alan Williams) used the opportunity of moving this Amendment to introduce a mini debate on regional policy, a subject which we have frequently debated in the House.

The hon. Gentleman wishes to ensure that so far as possible the jobs created as a result of this Clause go to those areas where they are most needed. I naturally sympathise with that objective, and so obviously do the boards. They are well aware of the purpose of the Clause and they know that it is in order to create jobs. I am sure that in the normal process of placing contracts in an effective and commercial way, they have regard to this.

They are almost certainly doing so in the case of Ince. I hope that as a result new jobs will be assisted in the North-East. This is something which the boards have in mind, but it is not possible to use this Clause as though it were an instrument for regional policy purposes. We have other legislation for that. I do not think it appropriate to tackle our regional problems by this means. In any case, I think it would be rather difficult absolutely accurately to identify the effect of projects in promoting employment in particular areas because of the indirect effects of sub-contracting capital works, new plant, and so on. I have not the detailed estimates of the employment effects of every project, but I have been given rough estimates which show that the projects will result in 1972–73 in jobs for at least 5,000.

I know hon. Members recognise that it is not only the direct effects which are important, because in many respects this is acting as a kind of pump-priming operation, and the indirect contracts which I have described should lead, together with the direct stimulus, to a general boosting of the economy. I am not exaggerating this. I am not talking about vast sums of money when one considers the requirements of the economy as a whole, but we are guaranteeing by this means a degree of help which would otherwise be missing and also that the expenditure of this £25 million will be measured in real value terms as a result of the jobs which will be promoted.

The agreements to which these projects are tied have to be agreements with a view to promoting employment. It does not matter whether that employment is in the electricity supply industry or outside it. It does not matter whether that employment is within the area of the area board which is actually doing the promoting. It does matter that there are jobs and will tend to be orders for plant and machinery likely to promote employment in the heavy electrical industry. These companies and their plant tend to be located in areas where there is already exceptionally high unemployment.

Generally speaking, I can assure the hon. Member and the Committee that the point is fairly taken already by the industry and by the area boards. They are aware that in bringing forward expenditure of this kind and having it paid for in this way the object of the exercise is to promote employment. So far as this can be done while ensuring that the investments themselves meet all the normal criteria used by the nationalised industries to prevent wasteful expenditure, they will help in creating jobs in the areas concerned. I hope that, having made the point, the hon. Member will feel it unnecessary to press the Amendment.

10.30 p.m.

Photo of Alan Williams Alan Williams , Swansea West

I am grateful to the hon. Gentleman for the detail he has given. But may I press him a little further? I know that we are getting rather late in our proceedings but what I am concerned about is to know how, having worked in the precursor, as it were, to his present Department, he can ensure, mechanistically, that there is this due regard for the regional requirement in proposals the boards will put forward. Will he or his officials be asking the boards whether there are alternatives which would give equal results but which would be job-creating in the development, intermediate or special development areas as opposed to being job-creating elsewhere?

With all the good will in the world, the tendency will surely be for the boards to put forward proposals with little regard for regional impact, and it will need officials with considerable diligence and will to interrogate representatives of the boards in order to establish whether their proposals will create the maximum value in social return on the money the Government are paying to the boards.

If it is the intent, as I gather it is, to give full compensation wherever jobs are created, this is a means of ensuring that automatically there is no financial preference for the regions. Would it not therefore be possible as an incentive to do what was done with investment grants and say, "For jobs created in development, intermediate or special development areas, because of the structural, industrial and social problems there, the contribution will be not just full compensation but full compensation plus 20 per cent."? I emphasise that this is a hypothetical percentage. It may well be that for a relatively small outlay we could get in social accounting terms a far better return for an inducement of this sort.

Photo of Mr John Eden Mr John Eden , Bournemouth West

I do not think I can go the whole way with the hon. Gentleman's case. This is mainly because I am aware of the practical difficulties involved in quantifying in job terms the value of any particular project. One can only go so far. He is inviting me to go right the way through the whole process, not only in relation to direct employment but also in relation to the consequential effects. It may be possible to do that. but so far I have not found it so.

We also have to have regard to the need for the managers of the industry to be able to place contracts commercially for the work they are bringing forward just as they would do for the work had it been introduced at the normal time and not advanced. I do not think it would be right for us to exercise influence over them in such a way as to limit their ability to place contracts in a way which was correct in their commercial judgment. But I can say that they are well aware of the purpose of the Clause. They know it is for the purpose of creating jobs. They are well aware of the need to secure jobs in areas of high unemployment.

A fairly detailed scrutiny will be taking place in many of these projects. It is intended, for example, that the agreements with a view to promoting employment which are to be entered into by the Secretary of State should cover the means of identifying projects, the costs eligible for reimbursement, the measuring of a period of acceleration, and arrangements for verifying claims—for example by investigation and certification by auditors appointed by the Secretary of State. In trying to do that we shall obviously assess so far as possible the job value of the project introduced. But I am reluctant to tie myself any further and to go along with the hon. Gentleman in agreeing that the actual placing of contracts should be limited in such a way as they will only bring jobs in areas specified as designated for employment purposes.

Photo of Alan Williams Alan Williams , Swansea West

I cannot pretend to be absolutely happy with the Minister's response.

I should like briefly to ask two questions to which I do not ask the hon. Gentleman to reply now. First, will he bear in mind my point that in the discussions about any particular project his officials should ensure that there is no possible alternative that would give an equal result to the industry but which would perhaps give jobs within the de- velopment areas as opposed to areas outside? That was not one of the points the hon. Gentleman covered, and I am sure it would be simple to do that. I see the hon. Gentleman shake his head, and I assume he will therefore ensure that such a check takes place.

Second, far from limiting the ability of the boards in placing contracts, my proposition would widen their freedom, because it would bring within the sphere of commercial viability contracts with suppliers within a development area from whom they would not previously have contracted but who now become competitive because of the 20 per cent. margin I was giving over and above full compensation. Therefore, it would widen the range of contract-placing available to them.

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

Photo of Mr Arthur Palmer Mr Arthur Palmer , Bristol Central

Even though the hour is late, we should not let the Clause go by without asking one or two general questions about it. We are all by now familiar with its purpose, which is to bring forward projects to create employment. As my hon. Friend the Member for Swansea, West (Mr. Alan Williams) has just said, it is a question of whether the employment is created.

I do not suppose it is expected that a vast amount of extra employment will be created in the electricity supply industry itself. It is not a labour-intensive industry these days. So the employment must be created on the contracting side, and the effect in general engineering in particular should run right the way through the economy.

What struck me when I looked at the Bill was that £25 million seemed a rather small amount. It was for this reason that in Amendments my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) and my hon. Friend the Member for Swansea, West, suggested that the sum be increased by £10 million and I, much bolder, suggested that it should be doubled, to £50 million. I suppose that the Financial Resolution prevented our Amendments being called.

The argument for increasing the sum would have been that £25 million was small in relation to the vast sums of capital which the industry handles. The effect of inflation should surely be taken into account. There is an interesting passage in the Electricity Council's last annual report dealing with this, talking of the effects of cost inflation on the suppliers of the plant and equipment purchased by boards. It says: The outcome has been that tender prices per kilowatt capacity for nuclear stations have risen by nearly two-thirds in the period 1967–70, whilst those for conventional stations have gone up by about one-third. For Area Boards, the prices they pay for equipment such as cables, transformers and switchgears have gone up by between 30 and 60 per cent. There was a time in the industry when in spite of rising prices the actual cost per kilowatt installed for power stations was reduced in absolute terms. Now, because of inflation, the cost is rising rapidly. In the circumstances £25 million is surprisingly small.

Other conclusions can be drawn about that. The first is that the sum had not been fully or frankly estimated and there is more to come. If I wished to he politically unkind I could hint that the whole proposal was so much window-dressing and there was not much in it. I will not pursue this argument as we are in good fellowship in Committee.

I know that certain projects have been selected but a great deal more could be done in the industry and this is a good time to do it. It was the sort of thing that was done in a halfhearted way in the 1930s when we were not so expert in the management of the economy. In the 1930s it was possible to counteract unemployment by special works of this kind relatively inexpensively because interest rates were low. With this Government we have high interest rates and high unemployment which presents a difficulty in a labour-intensive industry. There is work which could be done, not so much on the generation and transmission side but in the replacement of out-of-date equipment on distribution networks. We hear about industries which are dangerous, but somehow the electricity industry never gets into the news. Every year several men lose their lives because of mal-operation of equipment. As the industry grows in size the dangers, particularly in the networks, also increase. There is much switchgear on the networks which is quite lethal, some of which barely comes within the terms of the Factories Regulations.

This would be an excellent opportunity to create employment in smaller works in the development areas. The amount is too small to do what needs to be done in this mark-time period to catch up on replacement, apart from the more spectacular projects of large power stations.

10.45 p.m.

Photo of Mr John Eden Mr John Eden , Bournemouth West

The hon. Member for Bristol, Central (Mr. Palmer) is asking me why £25 million was chosen and not a higher figure. This figure is concerned with readily identifiable projects, sound, sensible, viable matters which could he advanced and which would create employment. These all derive from the statement made by my right hon. Friend the Chancellor of the Exchequer on 23rd November, 1971, when he announced that nationalised industries intended to bring forward capital expenditure of £100 million into 1972–73 and 1973–74. The contribution by the electricity supply industry to the £100 million is £60 million, of which two-thirds is attributable to Ince.

Additional proposals have since been made by electricity boards which total about £8 million, and the projects which they have decided to advance include the reinforcement of the transmission and distribution systems and voltage standardisation.

The C.E.G.B. and the distribution boards have all been concerned in relation to the projects and purchases with what it is feasible to bring forward up to the end of March, 1974. The reason for the limitation is that we are concerned with a limited period and with those projects and purchases which it is feasible for the industry to bring forward.

Payments are made towards the additional expenses incurred as a result of this advancement. In subsection (2)(a) expenses are referred to as being— in or in connection with the carrying out of any project and (2)(b) refers to expenses— in or by reason of the purchase of … of materials The first is intended to allow contributions to be made towards additional interest charges incurred as a result of the bringing forward of the project and also to cover a wide range of other expenses. The second is intended to cover interest charges, storage and handling costs and other expenses involved. These two phrases together enable all the additional costs to be identified and compensated for, and the process of identifying when the agreement is being made leads to considerable and detailed discussion on the nature of the project.

I ernphasise that the reason for the limitation is that it is related to extra expenses incurred in relation to what the boards regard as feasible.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.

Clauses 3 and 4 ordered to stand part of the Bill.

Schedule agreed to.