Orders of the Day — Electricity (Financial Provisions) (Scotland) Bill

– in the House of Commons at 9:41 pm on 4th July 1988.

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Postponed proceeding on Question, That the clause be read a Second time, resumed.

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale 10:24 pm, 4th July 1988

When the debate was adjourned, I had been answering points raised by hon. Members on the treatment of debt. I had explained that the boards' debts were being fully serviced on a commercial basis.

Looking ahead to privatisation, I was about to say that the treatment of debt, like all other aspects of the capital structure of the industry, will be determined nearer the time of flotation in the light of a range of factors. Those might include market conditions, recent results and the trading prospects of the companies and the market's perception of them. It will be carefully designed to ensure a viable and robust industry while optimising the proceeds to the taxpayer.

The hon. Member for Edinburgh, Central (Mr. Darling) suggested that interest charges on existing debt might raise prices. I must disagree because the capital investment giving rise to interest charges will help to keep the industry modern and efficient and will secure a stable price base. The hon. Gentleman said that he had yet to see electricity prices reduce in real terms, but over the past six years electricity prices in Scotland have reduced in real terms by no less than 9 per cent.

The hon. Member for Glasgow, Garscadden (Mr. Dewar) and the hon. Member for Edinburgh, Central asked about decommissioning costs. Provision is already being made for such costs, which must vary from time to time to take account of changing circumstances—for example, the change by British Nuclear Fuels Ltd. in the way in which it estimates decommissioning costs to bring them in line with the rest of the industry, or the SSEB's decision to end the Chapelcross contract, which led to the need for provision for costs to be made several years ahead.

The amount provided for long-term decommissioning of the SSEB's nuclear power stations in 1986–87 was £27 million, bringing total provision until the end of March of that year to £182·6 million. The industry will continue to make provision to meet those future costs. I assure the Committee that the borrowing anticipated under the increased limits proposed in the Bill will be mainly for capital investment.

The hon. Member for Glasgow, Maryhill (Mrs. Fyfe), who unfortunately is not present, referred to various consumer concerns about deteriorating service and rising prices.

Photo of Donald Dewar Donald Dewar , Glasgow Garscadden

I almost blush as I rise, but it just occurred to me that I am remarkably ignorant about this matter. The Minister said that £27 million had been set aside for decommissioning costs and that this process has been going on for a number of years. Does he mean that a separate fund has been built up for that purpose or is this a notional figure to be set against future borrowing expenditure? I am not clear, put in those simple and almost prime ministerial terms, whether there is a separate bank account in which money has been put for this purpose.

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale

These are liabilities provided for by assets in the companies' balance sheets.

Following privatisation, the industry will comprise two dynamic businesses that will be responsive to the requirements of their customers. They will be under commercial and competitive pressure from other fuels and electricity suppliers to deliver what the customer wants.

Photo of Donald Dewar Donald Dewar , Glasgow Garscadden

I have no accountancy background and am struggling on the ABC of this matter. I take it from the Minister's remarks that there is no separate fund for decommissioning costs and that there is a notional provision on the balance sheet. Will he say what will happen under privatization? Is it a liability that will be inherited in that form by the successor company?

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale

The structure of the company's balance sheet will be reconsidered at the time of privatisation. It will be the Government's purpose to ensure that the electricity boards are left with adequate cover to protect them against all foreseeable liabilities. If they were not protected, the companies could not be privatised.

Photo of John Home Robertson John Home Robertson , East Lothian

The Minister has explained to my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) that the money does not exist and is only an idea on a balance sheet. He said that the Government will provide for all foreseeable liabilities, but will he say what is their view of what the foreseeable liability will be of decommissioning any nuclear installation? Have they worked out how they will do it and how much it will cost?

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale

Most of the anticipated liabilities are covered by existing contracts, so a forward estimate is not required. When the SSEB decided to terminate the Chapelcross contract it had to make provision for decommissioning costs arising from that contract and provide for them in the year of termination of the contract.

Photo of Mr Tam Dalyell Mr Tam Dalyell , Linlithgow

On a point of order, Miss Boothroyd. Is it in order for hon. Members to carry on conversations at the Bar of the House when we are trying to listen to the debate? It is very distracting.

The Second Deputy Chairman:

Hon. Members often carry on conversations at the Bar of the House. it has happened every day of my 15 years here. However, it would help if they did so in quieter voices which do not carry through the Chamber.

Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Govan

The Minister mentioned decommissioning contracts. I do not know what he means by that. As far as I am aware, there are no decommissioning contracts for Hunterston, for example. Perhaps there are. Is that what the Minister is saying? If so, it is news to the rest of the House.

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale

I was referring to the contract between the SSEB and BNFL over the supply of electricity from Chapelcross. It is necessary for the industry to anticipate future decommissioning costs and to make provision for them. It will be necessary for the privatised companies to have that provision, too. Otherwise investors will wonder how to place a price upon the companies.

The hon. Members for Garscadden and for Linlithgow (Mr. Dalyell) referred to ownership of the grid and to the possible structure of the grid company. I draw their attention to the fact that the two companies in Scotland will be vertically integrated companies. In other words, they will each own and operate their own generating systems, their own transmission systems and their own distribution systems. Each company will have wheeling rights across the other's transmission system.

In advancing his arguments about the English electricity industry, the hon. Member for Linlithgow seemed to forget that the problems that he foresees—which he may wish to pursue with my right hon. Friend the Secretary of State for Energy—are not problems that can be foreseen in the Scottish context. The hon. Gentleman referred to his visit to Southwark, and said that the grid was controlled from there. I have not been to Southwark, incidentally; the hon. Gentleman has the advantage in that respect. I urge him to visit Perth, which I have visited. It is from Perth that the North of Scotland Hydro-Electric Board controls the different sources of supplies of electricity for its area. I would also urge him to visit Kirkintilloch, where the sources of energy from the two boards are co-ordinated under the joint generating agreement. That is done under a merit order system, capitalising on the advantage of a wide range of diverse supply which allows the generation and supply of electricity at the most economic cost to the boards at any given time.

The hon. Member for Linlithgow referred to the danger of fragmentation and the possibility of blackouts. That is not a problem that we foresee in the Scottish context. The boards will continue to be responsible for the stability of the system in Scotland and there is no reason for any diminution of standards. The boards will be under an obligation to supply and the system will be overseen by the regulator, so the technical case that the hon. Member for Linlithgow made is taken fully into account in developing the structural details. In a vertically integrated system, which is what we contemplate, the companies will have full control of transmission and generation and hence will be able to ensure system stability. As the hon. Member for East Lothian (Mr. Home Robertson) said, the substantial surplus and diversity of capacity in Scotland makes the scenario painted by the hon. Member for Linlithgow highly improbable, to say the least.

The hon. Member for Garscadden referred to the remarks made this afternoon by my right hon. Friend the Secretary of State for Energy to the effect that no individual or group will have a controlling interest in the privatised companies. I am happy to reassure him that the same considerations will apply to the Scottish industry. No individual or group will have a controlling interest, and we are at present considering the most appropriate of the options open to us to achieve that.

Photo of Donald Dewar Donald Dewar , Glasgow Garscadden

I await further developments with interest. The Minister said that no group or individual would have a controlling interest, but there is also the question of foreign ownership. The Minister has said that foreign shareholdings are not necessarily a bad thing, but even he conceded that foreign control—not only by one interest—might be dangerous, given that electricity is such a basic utility. Are we to have a limitation such as the 15 per cent. limit provided in the articles of association of Rolls-Royce? Will such a provision be introduced in this case?

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale

As I said, the precise mechanism has not yet been decided upon, but the reference that I made to no individual or group having a controlling interest would apply equally in the foreign context.

Photo of Donald Dewar Donald Dewar , Glasgow Garscadden

I am sorry to press the Minister, but there is a big distinction. There might be a mechanism whereby one group, one concert party or perhaps one individual, was limited as to the percentage of the equity that it or he could own. That would not necessarily prevent foreign ownership in a broader sense. In other words, a large percentage of the equity could pass abroad—perhaps to a number of different holdings. We seek protection against that, too.

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale

It is certainly part of our purpose to ensure that foreign ownership could not develop, in the same way as we do not want any individual group or individual to secure a substantial proportion of the company. We shall seek to achieve that by using the appropriate mechanism, on which we have not yet decided.

Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Govan

Will the Minister clarify the question of foreign ownership? For example, in the case of Rolls-Royce it was possible to write those inhibitions into the articles of association as a national security interest was involved because of its importance to defence. In those circumstances, those inhibitions did not fall foul of the usual European Community rules. What is the position of the electricity industry in relation to the European Community? Is it permissible to interpret "foreign" for this purpose to include countries in the European Community?

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale

Nearer the time when we come to prepare the legislation, we will certainly wish to ensure that nothing we do infringes any requirements of the European Community.

The hon. Member for Cunninghame, North (Mr. Wilson) raised the question of Hunterston, and argued that our manifesto did not contain a commitment to privatise the nuclear electricity industry. However, it did contain a commitment to privatise the electriciy industry, of which the nuclear component forms a large part. I cannot help wondering whether the hon. Gentleman told his constituents through the Largs and Millport Weekly News, when seeking election, that his party was committed to phasing out the nuclear generation industry in Scotland. The number of jobs that would have been lost in his constituency as a result of that commitment—to say nothing of the 30 per cent. rise in electricity prices, with their damaging consequences for manufacturing industry in Scotland—would have been considerable.

Privatisation will in no way reduce our concern for safety in the nuclear industry, because safety will continue to be governed by the Nuclear Installations Inspectorate, and any electricity company that failed to maintain the highest safety standard would not be allowed to retain its licence. That is a far stronger discipline on a private sector company than the profit motive.

The hon. Member for Midlothian (Mr. Eadie) mentioned the negotiations between the South of Scotland Electricity Board and British Coal. That point was also raised by the hon. Members for Garscadden, for East Lothian and for Edinburgh, East (Mr. Strang). The deadline for the conclusion of those negotiations is not 4 July, but 9 July.

The hon. Member for Midlothian referred to the remarks made by my right hon. Friend the Secretary of State for Energy this afternoon. I would only add that the parties are very close on price and on quantity, and there is no reason why a settlement satisfactory to both cannot be reached in the timescale they have set. Agreement can be struck only when the parties have reached agreement on all matters in dispute. I hope that they will soon be able to announce that agreement, but it is for them to announce it and not for me, my right hon. Friend the Secretary of State for Energy or my right hon. and learned Friend the Secretary of State for Scotland.

Photo of Mr Alexander Eadie Mr Alexander Eadie , Midlothian

Is the Minister telling us that the report that the Secretary of State is dissatisfied with the pace of the negotiations and that he will intervene is untrue?

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale

The report that my right hon. Friend the Secretary of State will intervene is untrue. With regard to the pace of the negotiations, my right hon. and learned Friend is as anxious as anybody for a settlement, but it has to be settled by the parties involved. I want a successful Scottish coal industry, but that success must be earned by its being competitive. It cannot expect to ride on the back of a captive customer in the form of the electricity industry to which it would pass higher costs, which would in turn be passed on to the rest of manufacturing industry.

Photo of Donald Dewar Donald Dewar , Glasgow Garscadden

It may not be a matter of enormous importance, but it is of some interest that The Scotsman today has a prominent story stating: Mr. Rifkind is understood to have asked for a meeting in the early part of this week of senior British Coal executives. That is either true or it is not true. As I understand it, the Minister is saying that that meeting will not take place and there has been no such request from the Secretary of State. Is that really so, because that does look like an authoritative leak?

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale

My right hon. and learned Friend has asked the chairman of British Coal to meet him. I was about to come to that point. What they intend to talk about is not the negotiations between British Coal and the SSEB but the long-term future of the coal industry in Scotland. [Laughter.] I do not know why Opposition Members think that the long-term future of the coal industry in Scotland is such a joke. I regard it as something of considerable importance.

Photo of John Home Robertson John Home Robertson , East Lothian

The House is having some difficulty understanding what the Minister is trying to say. How can there possibly be a long-term future for the Scottish coal industry unless a successful agreement is concluded by the agreed deadline?

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale

It is for my right hon. and learned Friend and the chairman of British Coal to decide what the issues are that affect the long-term future of the coal industry. My right hon. and learned Friend did not ask the chairman of British Coal to come and talk to him about these negotiations. He has made it clear, as I have done this evening, that they are a matter for the parties to the negotiations.

It is no coincidence that the output of the Scottish industry is at a record level now and that unemployment is falling dramatically. At the same time, Scotland has moved from the bottom to the top of the productivity league. Efficiency does not destroy jobs—it protects and creates them. The Government are confident that, if it is competitive, coal will remain an important source of electricity generation.

The Scottish electricity industry has invested heavily in coal-fired capacity, and will undoubtedly wish to make the most of that investment to meet demand in Scotland and to take full advantage of the opportunity for the export of electricity to England and Wales.

I am sure that hon. Members are not in any doubt about the need for the increased borrowing facility provided for in the clause. I believe that the new limit is set at a reasonable level. It is most unlikely that borrowing will need to exceed it, but if for any reason the board's borrowings looked set to rise above the new limit, fresh legislation would be required and the House would have an opportunity at that time to review the position. I commend the clause to the Committee.

Photo of Mr William McKelvey Mr William McKelvey , Kilmarnock and Loudoun

I would not normally intervene in a debate at this stage, but the Minister, who has become a master of evasion, simply will not answer the question, so it will have to be asked again. That will give him the opportunity to have a rethink, so perhaps he will make a second winding-up speech in which he will answer what he has not answered so far.

I read, I think in the Sunday Mail, this weekend, with great interest, that the Minister is one of the few who are growing in stature. He is certainly growing in the art of evasion. As a master of ducking, dodging and weaving, he has been surpassed only once as far as I am aware—when Dick McTaggart won the gold medal for Scotland in the boxing ring. The Minister ought to think about going to the Olympics. He would win gold, silver and bronze when it came to the ducking, dodging, weaving and evading the question contest.

In the Scottish Grand Committee the Minister said that the most important reason why this should be the last time that the boards' borrowing limits will need to be increased is the Government's proposal to privatise the electricity supply industry. There is growing concern about the fact that, although we are aware of the Government's intention to privatise the Scottish industry, it is being done without a Green Paper or consultation because, we suspect, any consultative moves met a response that cast doubt on about proceeding along those lines. The Government therefore went straight into a White Paper without any consultations. The Minister has confessed that the only consultations that have taken place have been with the chairpersons of the boards. We have not heard whether they are in favour of privatisation.

The privatisation of the electricity supply industry is looming and that industry, together with its associate industries, will be the victims of Tory dogma. Yet again that dogma will be rammed down the throats of the Scottish people, but at no time have they voted for the privatisation and it is clear that they are opposed to it.

10.45 pm

There are enormous doubts about the practicability of privatisation. Nothing that the Minister has said will remove Scottish people's doubts, nor the doubts of those who are unlucky enough to be still working in that industry. My constituency was once famous for the mining industry, but it makes me sad to have to report that, as far as I am aware, there is not one working miner left in Kilmarnock and Loudoun. There may be some employed in surface mining, but there is no working underground miner or working member of the National Union of Mineworkers left in my area. The last time that I spoke to former miners was on the sad occasion of the Barlow Clowes collapse—again something for which the Government should take some responsibility. Twenty former miners in my constituency have fallen foul of that collapse and have lost all their redundancy payments in that ill-fated venture.

The Minister has not attempted to say how the two units of the electricity industry that are to be set up on privatisation will operate. He has never described exactly how we will properly and safely monitor the nuclear industry. He should demonstrate to the Scottish people the interest that he is supposed to show in such matters. The Ministers have been obvious by their lack of talent in the negotiations that are presently under way between the SSEB and British Coal. They have stood aside and not attempted to intervene in a positive and helpful way.

It is a disgrace that the Ministers have given up any front of properly representing Scottish affairs. They have told the House that there is no possibility of setting up a Select Committee on Scottish Affairs to oversee the Department's activities. The Ministers have sunk into a morass and will not allow any investigation of their activities, no doubt because they are aware that they would not stand up to proper scrutiny. Evidence is growing that the businesses involved in the electricity supply industry and its possible privatisation have never been consulted. They are worried about that.

The Minister has said practically nothing about the cost of electricity, which is of importance to the punter—the domestic consumer. The Minister has said that the cost of electricity has gone down by 9 per cent. in real terms. However, he has not said whether that price reduction relates to domestic consumption, or whether it includes industrial consumers. I would be interested to know whether the price of electricity to the domestic consumer has gone down at all in real terms. When the Government flog off the electricity supply industry, what are the Minister's plans to write into the articles of association a guarantee that prices will be kept at their present level and will not rise above the rate of inflation on an annual basis?

What really worries the people of Scotland and their representatives is our experience since the privatisation of British Gas. The number of disconnections has increased by about 100 per cent. since privatisation. The new company applies a code of practice, but it should apply a code of acceptable conduct. It is not acceptable for privatised industries to disconnect the supplies of many people who have been pushed into poverty by the activities of the Government.

Photo of Mr Norman Buchan Mr Norman Buchan , Paisley South

Is it not infinitely more serious when such draconian powers are given to private companies, which can then act almost as medieval bounty hunters? It was bad enough that public corporations had such powers, but to give them to private companies is disgraceful.

Photo of Mr William McKelvey Mr William McKelvey , Kilmarnock and Loudoun

I agree that it is disgraceful to give such powers to a private company, and it is unforgivable to do so without establishing a proper code of conduct. The Minister waves that away and says that the private industry will look after consumers' rights to fuel.

Since it is said that the private companies will run the electricity industry more efficiently, I presume that that will mean cheaper electricity for consumers. The Minister still has not explained how a monopoly can be competitive.

We must protect those who most need fuel. After the privatisation of British Gas—I hope that the figures for electricity will be in no way comparable—disconections increased from 36,000 in 1985 to 62,000 in 1987. The number of pre-payment meters installed dropped from 53,000 to 19,000. If the Scottish electricity boards adopt a similar posture after privatisation and argue that it is not profitable to supply pre-payment meters, more debts will be incurred and there will be a greater likelihood of disconnections. We in Scotland will not tolerate the sort of case that was outlined so dramatically by Jack Jones of an elderly lady found frozen to death over the stump of a candle which she had to use for heat since her electricity and gas had been cut off. That is not the sort of Scotland to which we look forward in the 21st century, and as representatives of the people of Scotland we will not accept it.

I am not a great believer in signs from a higher place, but it is extraordinary that when the Minister stood up to reply to the debate just before 7 o'clock, my watch stopped. The battery was drained of its last vestige of power. If ever a sign boded ill for the people of Scotland, that was it.

Photo of Mr Ian Lang Mr Ian Lang , Galloway and Upper Nithsdale

I am happy to reply briefly to the hon. Member for Kilmarnock and Loudoun (Mr. McKelvey). I hope he will forgive me if I do not repeat the points that I have already covered in earlier parts of the debate.

The hon. Gentleman raised one or two interesting points, and it might be helpful if I clarified what has happened about reductions in electricity prices in real terms over the past six years. On average, tariffs have fallen by 9 per cent., as I said. The hon. Gentleman asked about domestic tariffs. There has been a fall in domestic tariffs of 7·5 per cent. in real terms, which is still a worthwhile reduction for domestic customers.

The hon. Gentleman asked about the competitive position of privatised electricity. There would be competition by comparison. I make no apology for repeating that phrase, because it is justified. There will be comparisons by customers and their watchdog organisations, by industrial consumers, by shareholders and by the regulator. There would be competition in fuel sources, competition for major industrial customers and competition in exports to England. We are on the way, with our privatisation proposals, to creating two viable, robust, competitive, free-standing companies.

On consultation, the hon. Member for Kilmarnock and Loudoun said that there had been no Green Paper. That is true, but there was a White Paper and there were extensive consultations. In the preparation of our proposals we had consultations with the chairmen of the boards, and I have met the full boards of the north and south more than once. I have had a number of meetings with trade union representatives, and I shall have further meetings with them. The CBI Scotland, the Scottish Council (Development and Industry) and the Chemical Industries Association have been invited to offer their views on the regulatory aspects of our proposals. I hope that that will serve to confirm and clarify to the hon. Gentleman that we are consulting widely. In due course we shall bring our proposals on privatisation before the House, and that will be the appropriate time to consider them further.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

Bill reported, without amendment.

Order for Third Reading read.

Motion made, and Question proposed, That the Bill be now read the Third time.—[Mr. Maclean.]

Photo of Donald Dewar Donald Dewar , Glasgow Garscadden 10:57 pm, 4th July 1988

My hon. Friend the Member for Kilmarnock and Loudoun (Mr. McKelvey) told the Minister that he was a master of evasion. That was generous. I prefer the theory that the Minister is master of nothing. His was an unsatisfactory performance. It was incomplete. He sounded fluent only when he was promoting party pamphlets on the alleged advantages of privatisation.

Many issues were raised—the costs of decommissioning, the capital reconstruction of the industry in privatisation, the allocation of plant, the problem of foreign control. In almost every instance the Minister accepted that there was a problem, nodded in that direction and then passed on, giving us almost no information, except a bland assurance that something would be said at the appropriate time. The only time when I admired him was when he showed a certain disingenuous skill—on a grand scale—in dealing with the meeting that was to take place between the Secretary of State and British Coal officials. On that he was close to being misleading.

This is a woeful business, and the Minister's performance was dim and depressing. No one objects to the Bill. The Minister is right that no one would want to deny the boards this modest increase in their total borrowing requirement. I do not intend to do so, or to invite my hon. Friends to do so. However, I give the Minister notice that we shall worry and harass him and his colleagues on the many substantial points that were raised in tonight's debate. We shall not be satisfied with this endless prevarication, dodging of the issues and sorry pretence that at some stage the Minister will start to think out properly the answers to the problems that he should have considered long ago.

Question put and agreed to.

Bill accordingly read the Third time, and passed.