My Lords, it is not for my noble friend to say thank you, it is for us to thank him for all the years of service that he has given to this House: roughly 60 years in all, about half in the House of Commons and half in the House of Lords. He mentioned a number of positions that he has held in that time. A glance at Who’s Who will show that that was just a sample of the many jobs he has done in service to our country in Parliament over those years.
I have known the noble Lord for the bulk of those 60 years. I knew him long before I became a Member of Parliament, as a matter of fact. By coincidence, I was invited to speak at a dinner in his constituency in
Bournemouth in 1983. During that day, the end of the Parliament, which was to be the end of my noble friend’s time in the Commons, was announced. Therefore, the dinner that I attended was on his last day as a Member of Parliament. I mention that because I discovered that evening how much his constituents appreciated all the service he had given them over 30 years. He has given great service to our nation, and he has done it with the charm, wit and friendship that I, and I am sure many others, have appreciated. It is our very great desire to pay this tribute to him for all his service, not only to Parliament but to the whole nation. I hope that he will watch our proceedings for many years to come.
I do not want to be nostalgic for more than a second or two, but I remember the 1992 general election when I was put in charge of Conservative Central Office during the election campaign. We were behind in the polls for pretty well the whole of the campaign. We did not know whether it was wise to do so or not but we stuck to our guns and we won that election with a majority of 21. One of the young men helping me at that time was a young fellow called David Cameron. I learned a great deal from him during the election campaign and I hope that he learned a little from me.
As soon as the election was over, I was shunted into your Lordships’ House as the Leader. The first big debate I had to do anything about was the debate on the Queen’s Speech. In those days, the Leader of the House always wound up the debate on the last day; that was the tradition. I went to Willie Whitelaw, who had been the Leader some time before, to ask his advice as to what I should say and do. He said, “It’s all pretty straightforward. It doesn’t matter very much what you say during the debate as long as you mention by name everybody who has taken part”. I do not know whether you got away with that in those days, but he got away with it and I like to think that I got away with it as well. But I think that those days have gone.
More seriously, energy is right at the heart of our economic policy, and the purpose of my remarks is to ask the Government to look at the position that we seem to have got ourselves into. It is more than 25 years ago since I privatised the electricity industry. When we privatised it, our objective for the industry and for the millions of private customers was to create a successful and competitive industry. We converted one great state corporation into 16 or 17 independent distribution companies with five or six generating companies and into a market that others from within the United Kingdom and from abroad could and were encouraged to enter. It was a great success. Professor Littlechild, the first regulator, has estimated that privatisation produced net benefits over the first three years of some £23 billion. In the first 10 years, from 1994 to 2004, productivity in the industry doubled. Since then, all those benefits have been lost. Dieter Helm, the leading energy economist from Oxford University, says that it is quite hard to make a case as bad as what the industry is now. It is so bad that Helm said recently that even the old state Central Electricity Generating Board would actually be better than what we currently have. What we did 25 years ago seems in effect to have been completely destroyed.
What has gone wrong? I have to say that I am not sufficiently up to date in these things to be able to give all the answers. This is the first time that I have spoken on energy in the 25 years since I was a Secretary of State. There are a number of things that cause me concern. First, the vertical and horizontal consolidation of the industry into the six big energy companies massively reduced the opportunities for competition. If I had been the Secretary of State I would not easily have agreed to these changes, but I do not suppose that they are the whole reason. Secondly, the way in which the Government have intervened to support renewable energy has been a mistake and has killed off any attempt at a competitive market. It is simply not possible to have a competitive market if the Government subsidise near zero marginal cost of output.
My plea to the Government is therefore to review the whole system and make it more competitive and transparent than it is now. I agree with the noble Lord, Lord Layard, who is not in his place at the moment, that one of the things that is vital is more research into how we can produce renewable energy that can compete. I am not against renewable energy. Indeed, I was the Secretary of State who brought in the original support for renewable energy. When we set it up, the first test we made was: could this form of energy ever be profitable? If the view was that it could, then there was a case for a level of subsidy to bring that forward quicker. However, if it could never be profitable it was doubtful whether it was ever right to subsidise it. Any project can be made profitable if sufficient subsidy is given to it, but that is not the way forward.
The Secretary of State needs to look at these projects afresh. She could well do that now: the considerable fall in the price of oil and fossil fuels, together with the emergence of fracking, makes the economics of what may have seemed reasonable some years ago not at all acceptable today. It has been argued that the cost of the generating capacity to replace the old nuclear and coal stations with a combination of renewable generators and the necessary back-up of conventional generators is more than double what would be necessary if we did not have to deal with the intermittent output from renewables. This is a massive extra cost.
There is also the substantial extra cost to the grid of the transmissions to connect remote onshore wind farms and even more costly offshore capacity. That in itself has been estimated to cost an extra £6 billion a year, even allowing for the fuel saved. I am sure that the Government have to look at these things again. There are further problems, because renewables can increase output at virtually no marginal cost when the sun shines and the wind blows. This must make it very difficult for conventional generators to operate sensibly. All this has to be dealt with in the context of a very understandable controversy in a country where many power stations are in areas of outstanding natural beauty. Whatever view we take on the need for renewables —and I agree very much that more research needs to be done—it must be properly costed in a system that is competitive and transparent. That is the only way forward.
Lastly, I am delighted that, in any review of energy policy, proper consideration will be given to the role of nuclear power. I am sure that there should be a much bigger role for nuclear power, which is potentially the best renewable project of all. I wish the new Secretary of State well in her responsibilities, but she has to tackle some very formidable problems.