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Orders of the Day — Electricity Bill

Part of the debate – in the House of Commons at 9:36 pm on 13th December 1988.

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Photo of Michael Spicer Michael Spicer Parliamentary Under-Secretary (Department of Energy) 9:36 pm, 13th December 1988

Let me begin by asking the hon. Member for Rother Valley (Mr. Barron) a question. In answer to an intervention by my hon. Friend the Member for Rochford (Dr. Clark), who asked why electricity prices had gone up by 180 per cent. under the last Labour Government, I believe that he said, "Fuel costs." Does that explain why postal charges went up by 147 per cent., rail charges by 171 per cent., bus fares by 150 per cent. and water charges by 150 per cent? He need not answer now; a letter will do.

The gist, as I have understood it, of what the hon. Member for Rother Valley was saying when he was not talking about coal—the gist, indeed, of much of what Opposition Members have said over the past two days —is that the British electricity supply industry operates in a state close to perfection. In the imagination of Opposition Members, electricity consumers, distributors and the one producer apparently pull together in almost perfect harmony. Investment decisions planned and executed by that one producer flow through with such precision as to ensure that costs are at a minimum, power stations work with total efficiency, electricity is priced as low as it can be and service can only be described as pastoral.

That imagery has only one flaw: it is not true, and many of my right hon. and hon. Friends have spoken eloquently to that effect over the past two days. Yesterday, particularly good speeches were made by my right hon. Friends for Selby (Mr. Alison) and for Guildford (Mr. Howell) and by my hon. Friend, the Member for Birmingham, Northfield (Mr. King). Today we heard from my hon. Friends the Members for Cambridgeshire, North-East (Mr. Moss), for Eastwood (Mr. Stewart), for Ipswich (Mr. Irvine), for Wyre (Mr. Mans), for Dorset, South (Mr. Bruce), for Thurrock (Mr. Janman), for Stamford and Spalding (Mr. Davies), for Romsey and Waterside (Mr. Colvin), for Fylde (Mr. Jack) and for Birmingham, Hall Green (Mr. Hargreaves). The first part of what my hon. Friend the Member for St. Ives (Mr. Harris) had to say was also eloquent and excellent. All those speeches were in favour of radical change in the industry.

Yardsticks in a monopolistic state-controlled industry are, of course, hard to find. But if efficiency is to be measured, for instance, by the rate of return on capital, it must be realised that this is so low in the electricity supply industry that it falls short even of the rate of return rules for new investment in the public sector laid down by the last Labour Government.

When the Government have insisted that rates of return are raised to a realistic level to prepare the industry for the massive new investment in plant and machinery that will be required over the next 10 years, the industry's main response has been not to cut costs but to raise prices. Nor should we be surprised that that should be so, because 80 per cent. of the costs of producing electricity in England and Wales are at present associated with a single producer which is allowed to pass its costs, whatever they are and however they are set, straight through to the customer. We have no real way of judging whether those costs are defensible. It is intrinsic to the system that there are few benchmarks by which we can judge efficiency within the

Contrary to what has been said by the Opposition, the British electricity supply industry has been operating for several years with expensive excess capacity, with power stations which have not been built to time and cost, and several of which in England and Wales still do not produce electricity efficiently. The Opposition do not appreciate it, but we know that all that is paid for by the customer. The repeated bleat has gone up throughout the debate from the Opposition Benches asking us why we wish to restructure the industry and why we wish to privatise it. It is because, by a process of introducing competition where it most directly affects costs, of regulating the monopoly sectors in support of the consumer, of encouraging employees to own their own shares and of launching great new regional centres of power, we mean radically to improve the system. That is the answer to the question: "Why privatise?".

In a moment I shall answer some of the other questions raised on both sides of the House about how much competition and how much regulation. Let me deal first with some of the specific points which have been touched on in the debate. [Interruption.]

The hon. Member for Glasgow, Garscadden (Mr. Dewar) asked about special shares. Arrangements will be put in place to safeguard the independence of the area boards, National Power, Power Gen, the national grid and the two Scottish companies. The articles of the companies will restrict individuals and companies from building up a shareholding of more than 15 per cent. That will be reinforced by a special share to be held by the Government.

Questions have been asked, in particular by my hon. Friend the Member for Romsey and Waterside, about the effect of the Bill on the conservation of electricity and the environment. A number of hon. Members have raised that issue. The answer is that the Bill is likely to have a highly beneficial effect on conservation and the environment. That is partly because the Director General of Electricity Supply will have a specific statutory duty to promote energy efficiency, partly because access to the system will encourage on to it generators with smaller, less polluting, highly modernised stations—CHP has been mentioned several times in the debate, and of course that will be one source of energy that will be encouraged—and partly because a special arrangement for non-fossil fuel sources will benefit renewable energy such as the Mersey barrage which has been mentioned by the right hon. Member for Plymouth, Devonport (Dr. Owen), the other barrages, and wind power which has been mentioned on several occasions. I am informed that clause 30 is the first time that wind power has been mentioned specifically in any statute.

The effect of privatisation on prices was also raised. The Opposition quite falsely have suggested that the privatisation process will raise prices. Our judgment is the reverse. The presence of competition is bound to create greater efficiency in that part of the industry which currently comprises three quarters of its costs—in other words, generation.