Electricity Privatisation

Part of the debate – in the House of Commons at 8:57 pm on 16th January 1991.

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Photo of Dr Michael Clark Dr Michael Clark , Rochford 8:57 pm, 16th January 1991

You will have noticed during this debate, Mr. Deputy Speaker, that there have been references to doubts about the continuity of electricity supplies when the generators are privatised. Are you aware that, while clockwork clocks are working in the Chamber, we do not have a continuity of supply to our electric clocks even before the electricity generators are privatised?

Some people wonder why we should want privatisation of the electricity industry. I have heard people in the street ask, "Why should we have privatisation when so many nationalised assets belong to the people already? They are our assets and they belong to us. Why should they be privatised and transferred to us in other ways?" I heard that said also about the privatisation of the water industry in particular and, to some extent, about the privatisation of the electricity industry. Even sceptics would agree that road transport performs far better when privatised, that British Telecom offers more choice, has better technology and is giving a far better service to the public in private ownership than it did in public ownership, and that the steel industry has changed from a loss maker to a profit maker as it has gone into private hands.

If proof is wanted of a new attitude that is brought about by privatisation, let us consider the privatisation of council houses—one of the greatest reforms of the Thatcher years, second only, probably, to handing the unions back to union members. Nobody believed that we, the people, owned council houses. Certainly the occupiers of council houses did not believe that they owned them, and those who did not live in council houses did not believe that they owned them, any more than Russian peasants believed that they owned the collective land that they were reluctant to farm. When council houses were owned by councils and occupied by tenants, no one bothered to paint their front doors bright colours, build extensions, or tidy their gardens as they do when they own their own property. When one really owns something, one invests in it, cares about it and has control over it, and that applies whether that is individual or collective ownership, or whether ownership is through using one's own money and savings or through a mortgage or borrowed money. So it is with nationalised industries. It is only when nationalised industries are privatised and are truly owned by individuals that people begin to care about them.

British Telecom shareholders are now quite rightly in uproar about the proposal to spend £50 million—some even say £100 million—on changing BT's logo and repainting all its vans and assets. I share their concern, particularly as the proposed logo seems to be nothing more than Mercury blowing his own trumpet.

As my right hon. Friend the Secretary of State has said, there is no doubt that the electricity privatisation is an outstanding success. The Jeremiahs said that the shares would not be sold, that there would be no demand for them and that privatisation would not work. In particular, the employees said that privatisation would not work. I attended meetings in Essex and elsewhere in this country, and hundreds of employees said that privatisation would not work, that the electricity industry would crumble, that we would not have continuity of supply, and that we would press light switches and nothing would happen. The directors of the Central Electricity Generating Board said that it would not work, and that we could not have proper control of a grid system if generators were outside public ownership.

However, when the electricity industry was offered to the public it was a record privatisation. There were 13 million applications, and 98 per cent. of eligible employees applied. They were not all Tories—many of them must have been Labour voters. I wonder who the 2 per cent. who did not buy shares were. Could it be that the 2 per cent. of employees who did not buy shares were the managers and directors who doubted whether the privatisation would work? I do not think so, for two reasons. First, under nationalisation, the number of managers and directors in the electricity industry was far greater than 2 per cent. of the employees. Secondly, those same managers and directors are now busy organising consortia to build new power stations, coming up with schemes and projects to put up new plants, and arranging management buy-outs if they possibly can.

There has been a total reversal of the pessimistic views of the managers and directors. There is now realism. They are wholeheartedly entering into the privatisation process and bringing in more plant, capacity and equipment to help to create the competition that privatisation is all about.

Also, 97 per cent. of valid customers applied for shares, and 70 per cent. of all those who applied were able to get share allocations, all except the greedy who applied for far too many and were rightly ruled out perhaps because of their greed.

The hon. Member for Holborn and St. Pancras (Mr. Dobson) said that far too little money was raised on privatisation, that another £8 billion could have been raised and that it would have paid for repairing all schools in the country and taken £100 off everyone's community charge. That may be so—£8 billion may do that; the hon. Gentleman did the calculation; I did not. However, I suspect that, if the price of electricity shares had been doubled to attempt to raise that extra £8 billion, no extra money would have been raised. On the contrary, far less would have been raised because I for one would not have bought my shares at twice the present price, and most people would think exactly the same.

I now refer to electricity prices. Relative to the recent past, electricity prices in this country are quite good. The Government have an excellent record. Over the past four years electricity prices fell by 4 per cent. in real terms. That is equivalent to about I per cent. in real terms each year. Under the Labour Government electricity prices rose, not by 1 per cent. per year but by 2 per cent. every six weeks. Therefore, our record is excellent in keeping price increases down. In the last year alone the price rise for electricity was 4 per cent. below inflation. The safeguards that have been brought in for the early years of privatisation mean that there should not be an increase above inflation until at least March 1993.

Although United Kingdom electricity prices are satisfactory relative to the recent past, we have to consider how they compare with prices outside the country. I do not think that they compare well with prices abroad. Yesterday I had a meeting with two main board directors of ICI who were talking to me about the chlorine industry which is a heavy user of electricity. They pointed out to me that the price of electricity to industry here is 2·9p per kWh, in Germany 2·4p per kWh, in the Netherlands 1·9p per kWh and in Italy, France and the United States 1·5p per kWh—almost half what British industry pays. Granted, the chlorine industry in this country is a beneficiary of the so-called large industrial consumer scheme which brings the price of electricity down to 2·4p per kWh; that enables the industry to compete with Germany at least if not with France and the United States.

The chlorine industry, which also produces alkali as a by-product, is a cornerstone of British industry. It is a globally competitive business. It is an important element of the United Kingdom economy, contributing £800 million a year to exports. It employs 18,000 directly and 54,000 indirectly. Yet the large industrial user scheme will be withdrawn as a result of privatisation and ICI will find that its chlorine industry can no longer compete with France and the United States. If the Secretary of State were here, he would know that the transitional arrangements for electricity privatisation last for eight years for the nuclear industry, eight years for renewables, five years for private generators, three years for British Coal, but only one year for large industrial consumers.

What are large companies like ICI to do? They are very worried about the loss of cheap electricity; they will have to pay many millions extra for electricity. They may stop investment in chlorine and alkali plant. Even worse, they may take their investment abroad. That would be much worse because it would never come back to this country, whereas, if they stop investment here, there is always an opportunity later for them to renew the investment and build here.

Ironically, the solution comes from the same source as the problem itself, namely, privatisation. If privatisation, by removing subsidies, puts up electricity prices to large users, privatisation would also enable them to build their own power stations and bring prices down again. It is the ICIs of the world that will build their own gas-fired generators and bring prices down by entering into consortia with the oil companies, the generators or the regional electricity companies.

There is another solution to high electricity prices. The high prices are to a large extent based on the fact that our coal prices are high. I give credit to the British coal industry. It has increased productivity, introduced high technology and brought prices down 40 per cent. in the last five years. But the fact remains that British coal is considerably more expensive than coal brought in from abroad.

So if we are to continue to use British coal we must bring prices down even further. British Coal said recently in response to threats from National Power that it will bring in at least half of its coal for electricity generation from abroad: We are confident that when talks with National Power start we can put forward a competitive package. We think we can offer them a deal. That was reported in the Financial Times on 15 January. I hope that British Coal can offer National Power a good deal because it is important that our coal industry should survive. It must survive not only for the sake of employment in Britain which is important, or social reasons, which are significant, but because British coal is a form of indigenous energy which we cannot afford to ignore.

A case could possibly be made for abandoning coal for electricity generation in favour of home-produced gas or oil from United Kingdom continental shale. But we cannot make the case for abandoning our coal in favour of foreign coal. There seems to be a scheme to abandon our coal in favour of either 100 per cent. foreign coal—which does not make much sense—or 50 per cent. foreign coal which does not make much more sense.

The case for maintaining a British coal industry is particularly relevant at times such as this when the world may go into conflict. The Gulf crisis and other crises like it could affect international shipping as well as oil supplies. Yet to continue to maintain the high price of electricity for domestic or industrial use, particularly in export-led industries, makes no sense either. We must have internationally competitive electricity prices. That means that we must have internationally competitive prices for domestically produced coal.

The privatisation of the electricity industry is forcing down the cost of generating and distributing electricity. I am convinced that privatisation of the mining industry will bring down the price of coal, to the benefit of both the coal mining industry and the electricity industry and, indeed, our whole economy. Electricity privatisation has been a great success. I am sure that in due course privatisation of the coal industry will also be a great success, not least for those who work in it.