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Gas Prices To Industrial Consumers

Volume 413: debated on Thursday 9 October 1980

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3.26 p.m.

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government what steps are being taken to monitor industrial gas prices.

(The Earl ]]]]HS_COL-552]]]] of Gowrie)

My Lords, in order to ascertain average fuel prices paid by industry, the Department of Energy conducts a quarterly survey of some 900 large industrial consumers. The results of this survey are published in the department's statistical bulletin Energy Trends. The department obtains from the British Gas Corporation the average unit price realised in new and renewed contracts, and, on a quarterly basis, the volume of gas sales to industry. These also are published in Energy Trends, together with a gas price index.

My Lords, I am grateful to the noble Earl for his Answer. Will he recall that he gave an undertaking to me that there would be a proper monitoring process? May I ask him whether it is being undertaken, and whether it has not been handed over to the CBI?—because that would perhaps be unwise, and even unfair, since it would still leave him in a position to question the facts, as he has been doing in the past. Is the noble Earl aware that not just the paper industry, but 10 or 12 major manufacturing industries are now convinced that the high prices charged in this country for gas, as against those charged in other countries, are a serious impediment to the competitive position and in many cases represent the difference between profitability and non-profitability? In view of the urgency of this matter, can the noble Earl tell me when this exercise will be complete?

My Lords, with regard to the first part of the noble Lord's supplementary question, it is because the CBI has been anxious along the grounds expressed in the second part of the noble Lord's supplementary question, that at the NEDC meeting on 6th August it volu-teered to collect more reliable price data in its view, so that the discussion could begin from common assumptions. My right honourable friend the Secretary of State welcomed that. Nevertheless, as I said in my initial Answer, the department has of course its own monitoring service, and we shall now be able to compare the two.

My Lords, is it not a fact that the gas industry is making an enormous surplus every year?

My Lords, the Government have been criticised for adding to inflation by putting up energy prices—

but despite the chorus of "Hear, hear", I am afraid I must say that that is an entirely false assumption, for the following reasons. Unless energy prices are related to world market clearing levels, effectively a subsidy is being provided for them. If a subsidy is being provided for them, it will have to be paid for by the taxpayer in one form or another, and that will add to inflation.

My Lords, will the noble Earl please answer my question? It was as follows: Is it not a fact that the gas industry is making an enormous surplus year by year?

My Lords, the gas industry is certainly not making an enormous surplus on gas. Nevertheless, gas is an expensive form of energy, and naturally the nation as a whole benefits from that price.

My Lords, is it not a fact that the gas industry is making a profit of about £450 million a year?

My Lords, I would hope that the gas industry would soon make more profits than that.

My Lords, is it not true that today the cost of gas is not based on any economic standards at all, but is based entirely upon the decision of the Government to raise the price of gas? Would not the noble Earl also agree that there are in the country many industries that suffer very gravely from this rise in the cost of gas? These are the energy-intensive industries. Would the noble Earl not agree that this has nothing to do with the question of equating the cost of energy throughout the whole sector?—because it is impossible to equate the cost of energy.

My Lords, there is a sharp difference of view between the Government and the noble Lord, Lord Wynne-Jones, and indeed between his view and that of the Governments of most of our competitor countries. In the view of nearly all Western Governments you cannot dissociate the clearing prices of gas from the clearing prices of oil. Both are highly valuable national assets, and to sell either asset at below its market clearing level is denying the country, which in the long run owns these assets, the benefit of them.

But, my Lords, would not the noble Earl concede that current energy pricing policies account, at least partly, for so many of our best exporting companies finding it increasingly difficult to compete against countries in which energy is much less costly?

My Lords, the evidence available to my right honourable friend's department is that the averages of cost between this country and competitor countries are about the same. I concede to the noble Lord, Lord Rochester, that some of our competitor countries had negotiated contracts before the recent high increases in the price of oil, but the moment those contracts come to an end, as the Dutch are now finding, for example, the prices of gas have been rising fairly considerably. So I do not think that this country will find itself, overall, in an adverse competitive position.

My Lords, in case the noble Earl did not hear me before, may I ask him whether it is a fact that the gas industry is making a profit of about £450 million a year?

My Lords, if I am to give a precise figure as to the profits of the gas industry, the noble Lord, Lord Leatherland, will have to put down another Question; but I can say to him that the distinction between the profits of the gas industry and the national assets of this country really is a false distinction.

My Lords, may I ask the noble Earl whether he and the Secretary of State for Energy are familiar with the law of comparative advantage in international trade, according to which, if a country is fortunate enough to be able to produce gas much more cheaply than other countries, then it should be able to take advantage of that fact, either directly or indirectly, by selling more cheaply those things for which gas is an important element of production?

My Lords, I think the noble Lord, Lord Kaldor, has put the matter, as I would expect, very clearly. What he is saying, effectively, is that it would be good and desirable for British industry to have a subsidy on energy costs.

My Lords, if I may make it clear, in economics the common term "subsidy"—and I am sure the noble Lord, Lord Robbins, will confirm this—means selling things below their cost of production. It is not a subsidy if you sell gas at a price which is very much greater than the cost, as has just been shown, and involves the gas industry having quite an inordinate profit.

My Lords, I would have thought that, to most people, if you sell an article in your possession at below what it will fetch an element of subsidy is involved.

My Lords, how can that be when there is a profit of £425 million a year? This cannot be logically correct.

My Lords, there is, of course, a profit, but the profit devolves to the nation.

My Lords, would not the noble Earl agree that the profit might be more usefully employed by manufacturing industry than by the nation?

My Lords, I think that would be true if my right honourable friend were convinced that British industry is in an adverse competitive position, but in fact that is not the view of my right honourable friend. I have to relay that: that is not his view. But I do have to say, as I have said in this House in the past—and I am well aware of the strong feelings in British industry as well as in Parliament about this issue—that industry all over the Western world is having to adjust most painfully to high energy costs, and it will not in any way help the competitive position of this country if we, too, do not make that adjustment.

My Lords, will the noble Earl bear in mind that while this argument is going on a number of our industries are being very severely damaged, and will he make sure that he comes to a policy decision very early in this matter?

My Lords, the Government have come to a policy decision, as the noble Lord knows; but, as I said, I am aware of the strong feelings about this issue, and I understand that the noble Lord, Lord Irving, has an Unstarred Question down for debate. To my great sorrow, I cannot be here myself, but my noble friend Lord Strathcona may be able to give the House rather more satisfaction on that occasion than I have been able to do on this.

My Lords, is the Government's proposition that a monopolist who fails to extract the maximum price from his monopoly position is subsidising the public?

No, my Lords. The Government are maintaining two propositions, which I can put very simply—and I have put them before, so I will try not to detain the House on them. Fundamentally, the national gas assets, as the noble Lord, Lord Balogh, sitting beside the noble Lord, is well aware, accrue to this nation. If they are sold at below their market clearing levels, whatever other advantages there may be, or the rights or wrongs of that policy, an element of subsidy will be given ultimately by the nation towards those assets.