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Gas Prices And Manufacturing Industry

Volume 413: debated on Wednesday 22 October 1980

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6.19 p.m.

rose to ask Her Majesty's Government whether they are aware of the effect of gas prices on manufacturing industry and what steps they propose to take to deal with this matter.

The noble Lord said: My Lords, I beg leave to ask the Unstarred Question standing on the Order Paper in my name. When I intervened in the Gas Bill debate in July I was talking about the paper and board industry, with which I happen to be associated, about the chemical industry, whose association had been an outspoken critic of the British Gas Corporation, and the National Federation of Clay Using Industries, whose director had been in touch with me; but since then there has taken place what has been described as "an energy revolt", in which nearly 20 industries have joined in supporting the case that British gas prices are higher than those of their competitors and constitute a serious threat to their ability to compete in foreign markets.

Among these are: British Steel, the independent iron and steel producers, Staffordshire potteries, the cement manufacturers, the manmade fibre companies, the brewers, the food manufacturers, the lead producers, the glass manufacturers, the aluminium companies, the non-ferrous metal concerns, pet food manufacturers, the drop forge and stampers, the plastic manufacturers, the motor manufacturers, the textile industry and the radio manufacturers. This is indeed a formidable list and a very large chunk of the whole of British manufacturing industry.

There is, I think, a feeling of what I can only describe as anger among lndustrialists that in a world recession, in addition to the burden of very high interest rates and an overvalued pound, they should have their competitive position further weakended by over-priced gas. This is especially hard to hear in view of the enormous resources we have in the North Sea and the fact that the British Gas Corporation is the most profitable of all the publicly owned corporations and will have a surplus this year of something like £680 million.

Industrialists are not asking to receive special treatment but that they should not be put under a penalty by being charged higher prices for gas than their competitors. Representatives of the Chemical Industries Association, the paper and board industry, the British ceramics industry and the clay user's industry, writing to the Financial Times not very long ago, said this:

"Specific United Kingdom and Continental prices in the hands of the Minister, and much of which has been discussed with his officials, confirm that without any question the United Kingdom contract prices established in 1980 for comparable supplies are at considerably higher levels than apply on the Continent."

The Minister—and I am speaking of Mr. Lamont, one of the Energy Ministers—claimed that such differences as do exist are not of great significance to industrial costs or competition, that they are transient, and that the average price per therm is 22p. However, industry believes that to talk of averages is thoroughly misleading. Before such comparisons can be made we must be sure we are comparing like with like and an average is influenced by whether we are referring to short or long term contracts. In this connection the ICI contract for 900 million therms which will continue for some 15 years beyond 1984 and which is nearly half of the total industrial gas used by industry, the sum of which is 2,200 million therms, has been described by the noble Lord, Lord Kearton, as being used to pull down the average so as to make it seem not too bad. The price can be affected by whether the supply is firm or interruptible—in other words, whether it can be cut off at short notice. The Minister also mixes those industries which do not use more than about 1 per cent. with those which use gas intensively, and there are a large number of those: the paper and board industry, with an energy percentage of about 15 per cent. of total costs; chemicals, 25 per cent.; steel in converting raw materials into liquid steel as much as 20 to 25 per cent.; and there are others.

The National Federation of Clay Using Industries has said that the only fair basis is to compare contracts on a basis of firm supplies. The chemical industry has made a survey of its members and the detailed information confirms the case that British Gas for firm supply is more expensive than in Europe. In the Netherlands and France it was 17·8p per therm, in Italy it was 19·5p, but in Britain it was 26·33p per therm. For interrupted supplies it was 24p, still higher than the Minister's average of 22p.

The food manufacturers say that the average price for new and renewed firm contracts this year is 27p per therm, 5p more than that stated by the Minister. They also found that the most recent increase for the vast majority of the respondents to its survey was well over 30 per cent., with some companies suffering increases of between 60 and 70 per cent. The food manufacturers use about 7 to 8 per cent. of the total industrial gas used in this country and their gas costs in certain parts of industry, in dehydration, were about 15 per cent. of total costs. They say that interruptible supply contracts form a high proportion of the

British Gas Corporation contracts. That survey found the price for new and renewed contracts for the first half of the year again to be more than the Minister's 22p, and in a letter to the Financial Times dated 16th August the Printing Industries Federation warned that printers who had recently suffered 80 to 90 per cent. rises in gas contract prices were now faced with

"further significant and in some areas unquantified increases".

Even without the latest price increases, British printers were paying more for gas than domestic consumers or their European competitors, and twice as much as American printers. Then they made a statement which I think many will have sympathy with:

"The folly of imposing the penalty of a strong currency on manufacturing industry, competing at home and overseas against foreign suppliers, while denying it the benefit of economic costs from a bounteous supply of energy, is clear for all to see in unemployment figures".

The managing director of JLK Industries, writing in the Financial Times, said that his contract price up to April 1979 was 17·70p per therm. However he moved some three miles away to new premises and the price charged in April 1980 was 37·76p per therm, an increase of 113 per cent. He was assured that this was entirely in line with the corporation's policy of equating gas prices to those of oil.

According to the Daily Telegraph of 12th August this year, the National Association of Drop Forgers and Stampers have warned the Government that:

"jobs were at risk unless there was a clamp down on increases in contract prices to companies whose future was threatened by high energy prices".

Higher gas prices would further reduce competitiveness in home and export markets.

The noble Lord, Lord Kearton, said after the European Petrochemical Association Conference in Monte Carlo:

"The monopolistic British Gas Corporation is crucifying some of its North Sea suppliers by forcing them to sell at absurd prices. The price of gas to industry was higher in the United Kingdom than in the rest of Europe".

The National Utility Service, a group which analyses and advises on industries' costs, monitoring contracts on 550,000 sites in

eight countries, has shown that on contracts signed since 1st September this year British industry paid an average price which was 18 per cent. more than in Germany, 47 per cent. more than in France and twice the level in the United States of America. The average price of industrial gas in the United Kingdom was 23·90p per therm, while the United States average was only 13·1 pence per therm, and The Times commented:

"The Survey adds to the claims made by industry that British gas prices are giving competitors abroad an unfair advantage in the cost of producing the product".

There is another study, a comprehensive study, by the EEC in Brussels on the prices of natural gas to all categories of consumers, which, although hitherto unpublished, is available to Government departments. It is of very recent date, and it makes a respectable intellectual attempt to compare like with like, breaking down industrial users into seven main categories and even ironing out currency disparities by use of an index of standard purchasing power. The study supports industry's case. It shows energy-intensive industrial users worse off in terms of current gas contracts than any of our main competitors.

Turning away from the surveys, another problem facing British industrialists is that in general the longest-term contract that can be secured from the British Gas Corporation is for one year. It is not long ago since the period was five years. As a result, there are no discounts for particular processes, nor for volume. In other countries these discounts can be as high as 20 per cent. A further problem is that, despite efforts to find out, it is still unclear what formula, or what considerations, the British Gas Corporation uses to determine the contract price, and one paper company that I know has three separate contract prices, the dearest being three times that of the lowest.

The price of gas is to rise between 21 per cent, and 54 per cent. in the coming year, whereas it was already 67 per cent. to 112 per cent. more than in West Germany three months ago. Perhaps the Minister will now understand why in the light of all this evidence—and there is a great deal more—industry feels so strongly that the burden is intolerable. If the Minister remains unconvinced, it is important that the monitoring process that the noble Earl, Lord Gowrie, promised me that he would undertake should be carried out speedily and effectively. It is important that the facts be ascertained in such a way as to end the argument.

I should like to ask the Minister to tell us what arrangements have been made to ensure that both the CBI and the departmental monitoring processes are properly related, that the objectives are the same, and that the conclusions are capable of being compared. I would ask him to tell us how long it is to be continued before a conclusion can be reached. However, in view of the critical nature of what we are doing, and the view expressed by Mr. Lamont that if differentials do exist, they are nevertheless transient, I hope that the Minister will accept that there should be some kind of moratorium until the monitoring process is concluded, and that if the case the industrialists make is substantiated, some further moratorium will be conceded until our competitors' energy prices catch up with ours.

No one can believe that if the differences are as great as industrialists say, the catching-up process is a short-term matter. In the United States—and I think that this is beyond argument—gas prices are only half those in Britain, and it is inconceivable that this difference could disappear in under five years. If no moratorium is accepted, then British industrialists are consigned to living and working with a penalty which is the difference between being competitive or not competitive and between being profitable or disappearing and causing many workers to lose their jobs. I hope that the Government will be able to take early action.

6.33 p.m.

My Lords, I have, so to speak, been promoted in the batting order only because my noble friend Lady Seear has at short notice been unavoidably prevented from being present, and through me she offers her apologies to your Lordships. I am sure that the whole House will be most grateful to the noble Lord, Lord Irving of Dartford, for having raised this Question of such great concern to British manufacturing industry, and grateful to him, too, for the very cogent case that he has put before us.

I should like to widen the scope of the Question a little by referring in particular to the tax on fuel oil in this country. That tax is relevant to this discussion because fuel oil sets the standard against British Gas Corporation prices. In the United Kingdom this tax is the highest of its kind in Europe, and because gas is priced with reference to oil, our continental gas users also have an advantage. I am advised that the rate of fuel oil tax in this country now is £6.84 per tonne, and that at equivalent sterling rates, in Germany it is £3.82, in Belgium £1.57, and in France nothing at all.

This tax was introduced into the United Kingdom to help the coal industries in 1961 when the ex-refinery price of fuel oil was £6.60 a tonne, and coal at the pithead was £4.30, each the equivalent of exactly £1.63 per therm. At the same cost, therefore, oil was the more attractive fuel. Since then oil has been priced very much higher than coal, so the tax is no longer needed for its original purpose. I understand that today oil ex-refinery is priced at 20p per therm, as against coal at the pithead at 10.2p, but the tax on oil is 1.7p per therm.

As the noble Lord, Lord Irving of Dartford, has said, a number of our most vital industries are dependent on oil. They are now subject to intense competition from Europe, and more particularly, from the United States of America. After the progressive rise in the sterling/dollar exchange rate over the last two or three years, these industries are short of cash and as recent events have shown all too clearly—and this point was well brought out by the noble Lord, Lord Irving—they are having to contract, and in some cases they are having to close altogether, with disastrous effects on employment. If the present relative exchange rate remains as it is, or rises even further, more of these firms will go under.

The strength of sterling derives largely from the United Kingdom's favourable fuel situation, but the damage being caused by the high value of the pound is not compensated for by any advantage on fuel price. On the contrary, compared with our American and European competitors, we are at a disadvantage both on coal, which is heavily subsidised in Western Germany, France and Belgium, and on oil. I feel a little like Alice in Wonderland when I see the one great benefit that we enjoy over our international competitors in relatively cheap energy resources being withheld from British manufacturing industry.

When two weeks ago the noble Lord, Lord Irving of Dartford, asked the Starred Question which in a sense provided the prelude to this debate, I in turn asked the noble Earl, Lord Gowrie, whether he would concede that the Government's current energy pricing policies accounted at least partly for so many of our best companies finding it increasingly difficult to compete against countries in which energy was less costly. The noble Earl replied that the evidence available was that the averages of cost between this country and our competitors were about the same. The noble Lord, Lord Irving, has made reference to the same point.

However, the noble Earl later acknowledged that the British gas industry was making a large profit which devolved to the nation. My noble friend Lord Mackie of Benshie then asked whether that profit might not more usefully be employed by manufacturing industry than by the nation at large. The reply was that that would be so if the Secretary of State for Energy were convinced that British industry was in an adverse competitive position, but that was not his view. Now I know of one of the most basic industries in the United Kingdom which is dependent on oil. Competitiveness in that industry in relation to the United States has changed from a position in which seven years ago the industry was highly profitable to one in which today it is unprofitable, yet over that period there has been no significant relative change between the two countries in either technology or productivity.

One step that the Government could take to mitigate the adverse effect of energy prices on that industry would be altogether to do away with the tax on fuel oil. Unlike, for example, a general reduction in interest rates, or the imposition of import controls, such a move need in no way prejudice the Government's present overall economic policies, nor invite retaliation from abroad. But, if that were done, it would give encouragement that is desperately needed by two crucial factors of British industry. I asked the Minister to say when he comes to reply whether the Government will give this suggestion urgent consideration.

6.40 p.m.

My Lords, there appears to be a significant shortfall in gas supplies which is already apparent from the number of new supplies sought for and refused. It is likely to become apparent in the event of a very severe winter, when priority gas to domestic consumers will be likely to mean cuts in supplies to industrial users. The present recession clearly limits growth in demand, but when it ends it is reasonable to assume that there will be a more serious shortfall in gas supply as demand increases. Availability of adequate supplies to industry over the period 1980 to 1984 poses further doubt, and it will be particularly unfortunate if these are restricted at the time when the domestic economy and industrial activity recover. But short supply brings high prices; so, above all, there is a necessity to bring forward more North Sea supplies.

Maintenance of long-term supplies of gas will depend on supplies from outside the United Kingdom North Sea to the extent of some 20 per cent., but, essentially, on new discoveries in the North Sea. Regarding imports, it would be interesting to know whether a cross-Channel pipeline is being seriously considered to export gas to or to import gas from as far as Algeria, as has been suggested. For the preponderance of our gas unexploited reserves exist in the southern North Sea, but these additional supplies are not likely to become available without a more favourable and more flexible contractual and statutory position than at present. Smaller offshore fields of around 100 million therms are there, but uneconomical to exploit unless close to existing facilities and focal points of onshore demand. There are also fields of gas of unacceptable quality which, given the incentive to do so, might be exploited as industrial gas. This present and future shortfall is, of course, a factor in the artificial increases in the price of gas, and while in the long term and during industrial prosperity fuel should be highly priced to prolong the days of our independent supply, right now and on top of the other problems the high price of gas is creating a lot of concern to industry.

The price of gas relative to other fuels, and taking into account supply, demand and the interests of suppliers and consumers, has become seriously distorted. The price paid for industrial fuel gas in the United Kingdom has further worsened during the years in comparison with prices paid for gas in Europe by competing industry. This has been compounded for British industry by some of the other economic disadvantages, such as interest rates and the value of sterling, which, at least, are curing the economy even if they are hard to live with. In no way does one want to see any compromise on interest rates until that cure is complete. But it is surely within the capability of the Government, without interfering with their economic policy, to remedy promptly or remove these distortions of prices and to ease the burden of gas prices at least until other economic factors become easier. After all, in recession it is unlikely that gas demand and shortfall will become pronounced and prolonged; and the price can be raised when the upturn is eventually upon us. The price of gas is linked to fuel oil on the Continent, as opposed to distillate in the United Kingdom; and, because of the greater price of the latter, so our gas prices are greater in this country. Further, even fuel oil is more expensive in the United Kingdom, possibly due to the availability of the Rotterdam spot market—though this can work two ways. In addition to that extra cost to our industry, the Continentals pay VAT (which can be recovered) on their fuel while we pay excise that has to be absorbed.

I should like to consider as an example the paper and board industry which has been mentioned and which is trying to compete with imports. After yesterday's Question we all know how the Fort William mill is closing and timber is being sent abroad to be returned here as paper. With energy representing some 15 per cent. of manufacturing costs—I heard somebody mention 50 per cent., but I have the figure of 15 per cent.—the price of fuel is vital and critical. Yet, in the United Kingdom the price of non-interruptible gas is more than half as much again as in France and more than one-third higher than in Germany (the highest-priced after the United Kingdom) but we shall no doubt he hearing that the frequency and timing of price rises make pure comparisons less easy and exact than they might appear.

We price ourselves on trading freely without barriers; yet other countries effectively subsidise their industries to compete with us by underpricing their energy. This is particularly the case across the Atlantic, where little success has yet been achieved in pricing energy to world prices. In addition, and in the particular case of board and paper, there is also the almost-free supply of timber. It is difficult for our industry to compete with foreign industry when that industry is effectively subsidised on its energy costs. That is not to say that our industry should be spoonfed to keep ailing plants going by cheap gas, but it is another thing, surely, for their gas to be more expensive than for their competitors and for them to be penalised thereby. It is difficult for our manufacturers to understand why some of the benefits of the North Sea cannot be passed to them, particularly in these difficult times, to help keep some of them in business and to reduce the resultant unemployment costs. That is not to say that those benefits should be large enough to allow manufacturers to sit back and to award large pay rises and destroy the economic efforts of the Government.

Industry now wants to end the price distortion between fuels caused by fiscal measures. Secondly, further price increases should be strictly limited so long as wage awards continue to be under control and until the end of the recession, when industry is no longer weighed down by the high interest rates and can leap forward, lean and keen, and able to pay high energy prices.

6.47 p.m.

My Lords, my noble friend Lord Irving and the other two noble Lords who have spoken have both given clear examples of the problems raised in industry as a result of the high price of gas and of oil. We have discussed this problem before in this House with various Ministers, not one of whom unfortunately has been attached to the Department of Energy. Consequently, we keep on being faced with noble Lords who make excellent speeches from their briefs but who, unfortunately, are unable to give us the really first-hand information that we should like to have. This has been mentioned before in this House and it is serious that we do not have someone from the Department of Energy in this House.

With regard to this particular issue, the matter becomes especially important because I think that either the Department of Energy is failing to understand the difference between fuel and energy or is failing to put it across to the Treasury and to Ministers in general. There was a time when we had a Department of Fuel. I think it became a Department of Fuel and Energy; now it is a Department of Energy. It is clear—and I have little doubt that this is well understood in the Department of Energy—that fuel and energy are not interchangeable terms and that to talk about pricing fuels and energy on one basis is absolutely ridiculous. It makes no sense at all, technically or scientifically, to have such a uniform pricing policy.

May I give an illustration which is perhaps a reductio ad absurdum, but it illustrates the point if one takes the elementary substance, carbon. Carbon exists in nature in the form of diamonds and of graphite. It exists as coal, which is very largely carbon. To a lesser extent petroleum is carbon, and to a still lesser extent is gas carbon. If we take the material coke, prepared from coal or from oil, it is very largely carbon. The importance and significance of these different substances cannot be judged by their thermal equivalent; their thermal equivalent is virtually the same per unit mass; there is not much difference.

Is anyone going to say that one should price coal as though it were diamonds, merely because they are both the elementary material, carbon? It is obviously the particular use and the scarcity that matters and not whether they have the same thermal equivalent. Yet we have been told repeatedly that it is now policy to price fuels according to their thermal equivalent—in fact, further: price energy according to its thermal equivalent. That becomes even more ludicrous because energy is in different forms.

What we think of as energy is the most valuable form of energy; that is, energy capable of producing work. Electricity is therefore the most valuable form of energy. One can have low grade energy. One can have that with a fire made of wood. But it was not until the time of James Watt that it was realised that a certain amount of valuable energy could be obtained from that heat by putting a kettle or a boiler over the fire and producing a steam engine. But even the steam engine is only a few per cent. efficient under those conditions. It requires highly relined technology before one can make it really valuable from the point of view of producing useful energy.

However, we are told that it is the thermal equivalent that matters, This is absurd. It means that we are dealing in a non-technical pre-industrial revolution age if we talk about it in that way. We ought to realise that there are various forms of energy—some of them extremely valuable and others not so valuable—which can be useful in a number of ways.

It is in particular when we come to materials, fuels—not yet energy—like oil and gas that we are faced with one of the most valuable uses from an industrial point of view, and that is the chemical feedstock. This has been referred to by my noble friend Lord Irving of Dartford. The chemical feedstock is not something that can be supplied from nuclear energy; it is not something that can be supplied from electricity. The chemical feedstock is uniquely something that contains carbon and hydrogen. We have chemical feedstocks in petroleum, gas and coal. There are also certain other forms where we get chemical feedstock.

If we treat this as energy in the sense that the term is unfortunately used in Government policy, then we are misunderstanding the whole nature of the problem. We should not dream of treating the matter in this frivolous and senseless way. We should understand what we are trying to do. Industry is being run on this energy. I have mentioned the chemical industry because I am a chemist. I must also point out that there are other industries where heat becomes important, not just in the way of running a few engines in the place; the total amount of energy taken up in many a factory is relatively small. Energy in the sense that I am talking about is that doing useful work. Quite a lot is wasted in the form of heat, I admit. When talking about useful work, I may add that even an engineering works does not use up such an enormous amount of energy. But there are certain industries where the heat is really a raw material.

If one takes, for example, the cement or pottery industry, or any of the industries concerned with drying materials, the heat which has to be supplied may amount to 20 per cent., 30 per cent., 40 per cent. or 50 per cent. of the total cost of the product. In other words, it is really a raw material and it should not be regarded as lighting or heating or something like that, something which costs perhaps 2 per cent. or 3 per cent. of the total value of the product. It is an important element in it. If an average is taken over the whole of industry a nonsensical result is reached, as usually happens when taking an average.

It is important to appreciate that we are dealing in this matter of the pricing of gas and oil with something which is an essential ingredient of certain industries to such an extent that a rise of 10 per cent. in the cost of that particular material may put the business virtually out of operation. That is why my noble friend has raised an extremely important Question. We ought to ask the Government to take this matter very seriously and try to answer the points that have been raised, because the future of a lot of our industries is at stake.

6.57 p.m.

My Lords, I am very pleased to follow the noble Lord, Lord Wynne-Jones. He is a distinguished chemist who has devoted his life to the study of fuels. Following his theme, and with great deference, I should like to present to Her Majesty's Government the suggestion that, without being supercritical, they should get into their minds clear modules of what the noble Lord has just been trying to describe: the difference between fuel and energy. Energy is taken out of fuels but first we must understand the fuels with which we are dealing.

Therefore I do not apologise for suggesting to your Lordships that I might give a brief picture, as accurately as I possibly can in a few words, why we have natural gas in and below the sea. Some of it does escape into the sea. I do so because—and I am not standing in their defence—the gas board must be haunted by the geological uncertainties of the future of their subterranean gasometers.

First of all, I should like to make it clear to your Lordships that when we are talking about a natural gasometer we are not talking about vast, empty spaces or spaces full of gas; we are talking about rocks which have been pressurised and have cracked. These cracks are intercommunicating and into them oil and gas have seeped.

If we look at the pattern of the gas in relation to the various grades of light, medium and heavy oils in the North Sea, they follow a pattern northwards. The further North one goes, the heavier the oil becomes. Your Lordships may have noticed the dramatic eruption of a volcano in Iceland. They get them often and this is no accident. Iceland is close unto the "hot-rod" that runs down through the Atlantic—the mid-Atlantic ridge—which 200 million years ago separated two vast areas of the crust and let in the sea to form the Atlantic. The eruption of this volcano tells you vividly that the molten interior is not far below the surface of the sea around Iceland. The heat from this has distilled the disseminated organic matter in the sediments southwards into this couvette that we call the North Sea. So therefore it is not surprising that the lighter fraction of distillation has travelled further south, and it is also not surprising that we find the first major sources of gas in the neighbourhood of Holland.

In saying that, I should like to emphasise that these deposits which have been rendered there geo-thermally are held there until you pierce them and make a hole. The moment you pierce them you are developing a rapidly wasting asset. Any failure in the inter-communicating system of cracks and that hole ceases to supply; and it is beyond the wit of man to forecast how long a hole will survive. Therefore, you find that it is advantageous, perhaps politically, at some stage to say, "We have 20 years of gas supplies". But, frankly, I forecast that the certainty of getting the quantity of gas that we are achieving at the moment will scarcely last for more than 10 years, and the experts of the Gas Board know this. Therefore, they are trying to budget forward as best they can. That is no defence, but it is a fact.

Then, leaving the origin behind, you come to the quality of this gas. This gas, as the noble Lord, Lord Wynne-Jones, pointed out with clarity, is a gas which is better used as a chemical feedstock than as a source of heat. That is his great point: you want to keep clear in your mind what you are going to use this fuel for—is it to produce energy or to produce chemicals? I would suggest, listening to the noble Lord, Lord Rochester, that if the chemical industry had a monopoly over the use of natural gas, they could produce petrochemicals that would stand any competition in the world.

So we turn now to the utilisation of gas. It is a well-known fact that if you mix oil and water you can improve the calorific value of the oil when it is used as a source of thermal energy. Your Lordships should, I think, also be reminded of the brilliant concept of Frank Whittle, when he visualised the jet engine. I was fortunate enough to meet him, many years ago, when he and Houbrecht were working out the thermodynamics of the jet engine, and his original picture was like an artist looking at a steam turbine and saying: "If you put that steam turbine in the air you've got a super aeroplane, which is far better than one driven by a propeller".

We have lost sight of this fundamental point, but in 1939 a gas turbine generator was erected in Switzerland with great success, and there are gas turbine generators generating electricity in America. It is perhaps just an accident of economics—I do not know—but if you take the time-scale and cost-scale of generators (that is, now we are producing energy from something) and if you produce that energy by using gas, then you can build a turbine generator in four to six months, whereas it takes you something between four and five years to build a solid or liquid fuel power station, and something like 10 years for a nuclear power station, for the same quantity of electricial output.

That brings me to a very interesting reflection upon the validity of nationalisation, because here we have in this country an experiment which was at the beginning a very logical one—to nationalise things like electricity, the railways, the coal and the gas. But in doing so we endowed them with commercial incentives, and we kept them autonomous; and so we do not find any discussions going on on major decisions between the National Coal Board, the Gas Board and the Central Electricity Generating Board. I find on investigation, for instance, that no such discussions took place when the Gas Board decided to supply Britain with natural gas and to abolish town gas. We have to go back to this, because our gas supplies in the North Sea could be cut off quite dramatically and we shall be back again dependent upon coal.

However, that has happened and what it illustrates is this. At no point, at a very important juncture in our commercial history, did any discussion take place, so far as I can find out, between the chairman of the Gas Board and the chairman of the National Coal Board—because what the chairman of the Gas Board was doing was cutting the ground from underneath the coal industry.

From that, I should like to go on to suggest to your Lordships, and particularly to Her Majesty's Government!I have made this suggestion before but the previous Government were not prepared to listen—a practical proposition. It is now, as the noble Lord, Lord Wynne-Jones, has pointed out, absolutely essential to get clear in your minds what materials you are going to use to produce energy. Do not get them mixed up, as he says. In order to do so, you must have complete discussions and communications between our major producers of materials, the producers of energy and the consumers of energy.

I have before suggested that we should have an energy board, the members of which would be the chairmen of our nationalised industries, and that the board should be chaired by the Minister. In this board they could between them decide on the cost of units of energy. The opponents of this will be the trade unions because at the moment they can deal independently with these autonomous units of nationalised productivity. On the other side, the opponents will be the civil servants, who are carrying out the duplicating activities of trying to link together these major nationalised organisations.

However, if the Government would look at this quite seriously they would see immediately the profitability of putting together a board composed of people who have to carry out the functions of their particular industry, with the managing director, as it were, being the Minister. Then all kinds of problems will be smoothed out. Although today it may be cheaper to produce units of energy from gas, tomorrow it may be cheaper to produce them from coal, water or emulsions.

By the way, I have not mentioned emulsions. There is a big revolution going on in the mixing of coal and water to simulate diesel oil. Here we have a big problem. Do we simply say: take that liquid fuel and pump it into what are now oil-fired power stations? I ask your Lordships to remember that all that these power stations are doing is boiling water, and you cannot turn them off at any time you like. That is why appeals are made to us to use current at off-peak periods. But if you had a turbine generator using these liquid fuels, you could switch it on and off as you required it. That is the great boon that you have with hydro-electric power.

We should seriously look at making this integration possible, because we have our backs to the industrial wall. If we can reduce the cost of units of energy and become competitive at the same time, then we can utilise to the full the valuable raw materials which we have at our disposal. Therefore, I again suggest to the Minister that a board should be formed with the chairmen of our nationalised industries and, most important, that that board should be chaired by the Minister. Then decisions on a national basis could come from that board, without the wrangling and the political bias that may be existent at any one period of time.

7.12 p.m.

My Lords, I am sure that the whole House is very grateful to the noble Lord, Lord Irving of Dartford, and I must congratulate him on his speech. I have never heard the facts so well assembled and so well presented, and it occurred to me that the Minister would do well to give in right away. That was followed by excellent speeches all round, and I am afraid that I shall now lower the tone of the debate considerably because I must declare an interest. I am chairman and a substantial shareholder in a small glass-making firm and I am being hit in my pocket extremely badly by the Government's policy.

The Government built us a factory which we rent from them, and we were pushing on and expanding exports. They told us that it would be a splendid thing to use gas, so we used gas, and they put up the price by 50 per cent. every year. I know that we shall overcome this. Energy is a large percentage of the cost of glass manufacture, but we shall overcome the problem. But I have friends in the textile industry who are fighting very hard. They are very efficient and have put in a lot of capital investment, but they are being "knocked hell out of" by Americans who get their raw materials at half-price. So they are suffering and losing markets, and their people are placed on short-time.

I do not think the Government need worry about the money sloshing about and upsetting the pockets of industry. If they read a few company reports, they will surely find that industry is not flush with money and, in fact, is in a jolly bad way and needs no artificial Government obstacle put in its way, which is exactly what this is. I should like the Minister to tell us what the devil they are going to do with this money.

The Gas Board is making several hundred million pounds and it will be a thousand million pounds or so next year, and the Government say that they want the Gas Board to provide capital for their expansion out of their profits. My goodness!, if there was a private monopoly trying to charge the public enough to fund all expansion out of profits, there would be an outcry that you would hear from here to Glasgow. This Government must surely believe that a nationalised industry can go to the market and raise money. It certainly can raise money if it is showing that kind of profit and there is no need to penalise the rest of industry.

Perhaps the Government feel that if they get hold of this money they will stop the money supply from rising, which is the kind of thing that they are manic about. I suggest to them—with enormous respect, of course—that they concentrate more on keeping public sector pay rises down to a reasonable level. That might do more for the eventual economy of the country. If they want another method of raising money, why do they not put more tax on whisky—I adore the stuff—cigarettes and so on? They had not the courage to do it in the Budget, but they should be thinking hard about it now, and it would do far less harm to the Government's reputation than taxing the gas which heats the homes of pensioners.

So I say to the Government and to the Minister—who I hope is a sensible man—that, far from waiting, as the noble Lord, Lord Gisborough, suggested, till other countries catch up in price, it would be sensible and good for our industry if they started lowering the prices now.

7.16 p.m.

My Lords, the noble Lord, Lord Mackie of Benshie, and I have repeatedly lowered the tone in debates with one another over the years, but I hope now to do a little better. First, one must thank the noble Lord, Lord Irving, for raising the matter and putting the industrial consumers' point of view so cogently. I want to raise a few general points from the supply angle.

First, a relatively low gas price discourages the coal industry and discourages its development along the lines for which the noble Lord, Lord Energlyn, was asking. Secondly, a relatively low gas price encourages flaring and waste—something which I thought the Liberals were particularly anxious about in their general approach to environmental problems.

Next, while it is absolutely right, as the noble Lord, Lord Wynne-Jones, pointed out, to decry and deplore the pretended principle of pricing energy by thermal equivalents—and I am so glad that he emphasised that; I would have done it myself—it raises a further point, which is that, broadly speaking, the capital cost of bringing gas to the consumer is a good deal more than the capital cost of bringing oil. What surprises me is that there is now a general attack on the Government's industrial policy, which is under pressure from industries feeling themselves savagely mistreated, when there had been, it seemed, something like an emergent consensus policy on gas pricing.

The White Paper of 1967 (Cmnd. 3437), published under the auspices of the Government of the other side, and that of 1978 (Cmnd. 7131), both said that nationalised industry prices should reflect long-range marginal costs. In simple language, that is the replacement cost. Moreover, on 18th July last year the Price Commission, so dear to the other side, so gravely and so sentimentally lamented when it was disposed of, endorsed this principle with specific reference to gas. The Price Commission also felt that the cost of Norwegian imports reasonably reflected the long-range marginal costs. When one refers to Norwegian imports one is referring to imports from the Frigg gas field.

My Lords, the noble Earl referred to the long-range marginal cost, but surely that cost is infinite. The gas supply runs out; there will not be any gas. What is the range about which the noble Earl is talking?

My Lords, the noble Lord is quite right. As Nye Bevan once said, "In the long run we are all dead". But the long-range marginal cost was a term used by these two commissions, and I take it to mean within the foreseeable future. Whether that means 50 years or 30 years I do not know and I do not think that this is the time to argue it.

I have an interest to declare regarding Norwegian imports. I am a director of the Elf Aquitaine company holding a 51 per cent. interest in the Frigg gas field, which in turn provides about 30 per cent. of the gas now consumed in the United Kingdom. I must also reassure your Lordships that I do not know, for it is a very special trade secret and I have not asked my office to brief me on this, exactly what is the price that is paid. It is a very secret formula. I have not been let into the secret and I have not asked. However, the general belief in the industry at large is that the price paid for that gas is related to crude oil prices and that it might well be somewhere between 15p and 20p per therm. Whether or not that is so I do not know, but that is the common belief in the industry.

What is also commonly believed in the industry is that the British Gas Corpora- tion have needed to offer to the Norwegian company Statoil, with a view to getting them to put their gas from the Statfjord field into the proposed gas gathering pipeline, a price at least as much as, indeed rather more than, has already been negotiated for the Frigg gas. So if the common report of 15p to 20p per therm is somewhere near right for Frigg gas, then the British Gas Corporation have had to offer more than that to the Norwegians to get them to consider putting the Statfjord gas on the Norwegian side of the median line into the proposed gas gathering pipeline when it is built.

Not only is that the case but the British Gas Corporation have only now been able to encourage further development of the North Sea's southern gas fields by offering very greatly increased prices—perhaps not less than five times as much—between five and 10 times as much, it is believed—as they originally negotiated at 2p per therm. My point is that we simply shall not get the gas unless we are ready to pay for it. Furthermore, whatever our coal reserves are, and however well they could be developed if this and the present Government's successor put their backs into it—something which I know is dear to noble Lords on both sides of the House—we cannot be certain that these things will happen. We are fairly confident that there is a lot of gas about and it is in our national interest to get it. But there is great competition for it from the Europeans. There is a French-German consortium which is offering the Norwegians considerably more, it is suspected, than the British Gas Corporation have been able to offer for the Statfjord gas.

Last year the British Gas Corporation supplied something like 1.6 trillion cubic feet to consumers in this country. This was in a year of acknowledged depression, when production went down. It was nothing like enough, for a queue of potential consumers was waiting to be connected if enough gas had been available. On the most optimistic assessments now current, it seems that the Norwegian reserves, apart from the new 31/2 field, may be of the order of 25 trillion cubic feet. It may well be that the total British reserves are about the same again, about 26 trillion cubic feet. If they amount, in the latter case, to a British supply of about 20 years and to a supply of rather more than 30 years in Norway, that will be fine. But, as the noble Lord, Lord Energlyn, pointed out so cogently from his vast knowledge as a geologist, these kinds of reserves predictions have very little practical meaning. There may be all sorts of accidents underground which will falsify the forecasts. Therefore there is absolutely no reason to be complacent because so much gas has been found in place. There is no reason to be complacent that, it having been found in place, it will necessarily be delivered. It is also clear that the British Gas Corporation can hardly be expected to offer a really competitive purchasing price for these resources, competitive with Europe, unless a proper replacement cost price is paid for it at home. Now I shall be lowering the tone of the debate between myself and the noble Lord, Lord Mackie of Benshie, who referred to the huge profits of the British Gas Corporation. Last year, that operating profit was just over 5 per cent. on net assets, at current replacement cost. In the coming year BGC will be paying corporation tax because, at last, after many years of loss, they will be making a profit. Not only will they have to pay corporation tax but from now on they will have to pay a price which meets a levy on the gas which they buy; a levy which will be equivalent to PRT. That, too, will enter into their calculations. One may say, why raise a levy on the gas? Surely noble Lords on this side of the House who have defended for long enough the interests of the oil companies should stick up for them now and oppose the levy? The effect of the levy on gas is to shift North Sea benefits from the consumer to the taxpayer.

These are general observations. All I should like to do in conclusion is to add my word of support to the proposal of the noble Lord, Lord Energlyn, that the Government should be invited to consider some sort of energy board, including the chairmen of all the energy producing corporations—the noble Lord did not mention nuclear power but no doubt it was in his mind—chaired by the Minister.

Another point worth making is this. It was asked by the other side whether or not it is the case that the Secretary of State for Energy is bullied by the Treasury. We all know that in every Government all spending departments are bullied by the Treasury. It is in our interests to support the Secretary of State for Energy in standing up to the Treasury but may I add, with the greatest respect to my noble friend—he has heard this from me before—that it would be much easier if he were himself in the Department of Energy and not merely an erudite, accomplished, and plausible spokesman for a department to which he does not have the access that some of us would wish.

7.29 p.m.

My Lords, as so often happens—I have seen it happen on many occasions during the last 30 years in Parliament—the way this debate has been handled has been excellent and the record will be valuable to people who want to know the fundamentals behind the problem of energy production and distribution. However, because of the way the debate has developed we may be spoiling what I imagine the noble Lord, Lord Irving of Dartford, had in mind. The one thing which a Minister at the Dispatch Box welcomes is a wide-ranging debate—technically based, if possible—for it gives him an excuse to fob off the Question which has been asked. If ever there were an occasion when the material was there for my noble friend to fob off the real Question, this is it. But I know the Minister does not want to do that. Nevertheless, I should like to draw your Lordships' attention to the Question which the noble Lord, Lord Irving of Dartford, has asked. There is nothing erudite or very complicated about it. It is very clear, and it is this:

"To ask Her Majesty's Government whether they are aware of the effect of gas prices on manufacturing industry…"
Are they aware of it? I want a clear answer to that. I have a feeling that they must be, but with some of the things that have happened they may not be. So quite apart from the great research that the noble Lord, Lord Energlyn, and the noble Lord, Lord Wynne-Jones, did for us I should like to keep to that very practical point. Perhaps later on we can have a debate, not on an Unstarred Question but a full-scale debate on this vital question of energy production, and then we could have the recommendations made by the two noble Lords examined and eventually, I hope, acted upon.

The only reason that I intervened was to say that whether or not Her Majesty's Government are aware of the disastrous effects that gas prices and energy prices in general are having on our industrial competitiveness, Europe is very well aware of it. I am a Member of the European Parliament and I wanted to bring the voice of Europe back to your Lordships' House. I was sitting on one of the European Committees only this week where the point was raised of the unfair competition we are having to face in textiles (as the noble Lord, Lord Mackie, said), in steel and in the motor-car industry because of the alleged subsidising of energy costs in America.

Our colleagues in Europe are perhaps in a worse position than we are to withstand these subsidised oppositions—if indeed they are subsidised and there are good grounds for thinking that they are. We are perhaps in a stronger position than they are, but they cannot understand why we, who have an opportunity within our own fiscal powers to do something about it without in any way infringing any of the international agreements on tariffs and trade, do not in fact do it.

If America is subsidising energy it is doing so because its industry is in trouble (as are so many others) and it wants to help it to get out of the trouble by subsidising the energy costs. In subsidising it is really in breach of international laws and that is very sad, and in strict purist terms we ought to oppose it. We can achieve the same thing here without being in infringement of any of the international obligations into which we have entered in the past. Our partners in Europe—and indeed our competitors—cannot understand why, it being in our power to give this help to our industries at a time when it is wanted more than at any other time, we do not do so.

I agree with my noble friend Lord Gisborough, that one can see a reason for maintaining the interest rates because it is part of a battle against the whole inflationary problems which are besetting every industry. One sees that, but there is no such explanation for artifically keeping up the price of gas more than it need be. If the suggestion is that if we gave the advantage that gas has over the other forms of energy at the moment it would cause a rush from one source of raw materials to another and thus upset the actual investment wastefully, I would say that if ever there was a time when we ought to make a short-term decision to meet a short-term problem which is really great and which can strangle us, now is the time to do it.

I would urge my noble friend. I am sorry, it is a presumption to tell the Minister how he ought to prepare his speech, but I hope he will give a short-term answer to the Question put by the noble Lord, Lord Irving; namely, are the Government aware of the damage being done and what are they going to do about it? Let us have the answer to that, and having done that he could perhaps give the reaction of the Government to the very wise recommendations for the medium and long term that have come from the noble Lord, Lord Energlyn, and the noble Lord, Lord Wynne-Jones.

7.35 p.m.

My Lords, I think we must be grateful to the noble Lord, Lord Harmar-Nicholls, for bringing your Lordships' House back to the subject of this debate and reminding us of the clear question which my noble friend Lord Irving of Dartford has raised. It has been a most interesting debate which has ranged far and wide, but this is a particular Question which needs answering and I hope that the noble Lord, Lord Strathcona and Mount Royal, whose presence here we welcome, will be able to answer it as fully as possible. I am sure we are grateful to my noble friend for raising this matter. It is a most important one, as the noble Lord, Lord Rochester, has said. As my noble friend Lord Wynne-Jones said, the future of much of our industry depends on it and is at stake.

I understand, as has been said, that the British Gas Corporation plan to raise contract gas prices for industrial customers by up to 54 per cent. in the coming year. This will mean that British industry's annual gas bill will rise by at least £490 million. I understand also that the corporation do not need the money. In fact, I am advised that they were against such steep price increases. The corporation is expected to make a profit of about £600 million in the current financial year, and indeed that could be doubled next year to an eventual profit of £1 billion.

Like the noble Lord, Lord Mackie of Benshie, I must ask the Government what they are intending to do with this money. This steep rise in gas prices is particularly hard on industry. Perhaps the decision to raise gas prices was taken on conservation grounds, but there are other ways of preserving our gas than by price alone and while the Government are preserving our gas they are allowing much of British industry to be destroyed.

Yesterday The Times reported that British businessmen are feeling squeezed beyond endurance and it is reported that the chairman of the London Chamber of Commerce and Industry has written to the Prime Minister to say that industry was not just squealing because it was in superficial pain but because it was in mortal peril. It is not surprising that the Government have now got almost the whole of British industry, both individual companies and their organisations, such as the CBI, ranged against them. The Chemical Industries Association, for example, recently described the Government's gas pricing policy as—and here I quote,
"Paradoxical and totally unacceptable in the light of this country's exceptionally favourable energy situation".
According to the figures released recently, United Kingdom chemical companies are paying between 67 per cent. and 112 per cent. more for gas than their competitors in West Germany. That is about £300 million a year more, and they are paying more, too, for gas than their competitors in France, Italy and the Netherlands. One reason for this, as the noble Lord, Lord Rochester, said, is that in Europe gas prices to industrial consumers are linked to those of fuel oil, which is cheaper, while British contract gas prices are linked to heating gas oil, which is more expensive. The result of all this, coupled with the Government's disastrous financial and pricing policy, is that there are increasing redundancies and ever-rising unemployment. This is particularly bad in the energy intensive industries, such as the chemical and steel industries and, as my noble friend and other noble Lords have said, among manufacturers of clay, paper and board and ceramics, which are all big gas users.

Strong complaints have also been made by the National Association of Drop Forgers and Stampers, the Food Manufacturers' Federation, the British Printing Federation and, above all, by the CBI. A further example of an industry which has been particularly hard hit because it is energy intensive is the glass industry, and here, like the noble Lord, Lord Mackie, I must declare an interest. The glass industry is a heavy industrial user of oil and gas. The energy costs make it increasingly difficult for the industry to compete with European manufacturers and have led to the situation where imports of glass containers alone in 1979 totalled £36 million.

The Glass Manufacturers' Federation estimates that energy costs now amount to 21.· per cent. of total manufacturing costs, an unacceptably high ratio, which is a contributory factor in the redundancies in the glass industry, which so far this year have amounted to 3,500. It is, therefore, hardly surprising that the Glass Manufacturers' Federation is now joining other heavy industrial users represented by the CBI in an attempt to persuade the Government to review the whole of their energy pricing policy.

I should like to endorse everything the noble Lord, Lord Mackie of Benshie, said from the Liberal Front Bench. It is surely a tragic paradox that the energy intensive industrial user in Britain is far worse off than his EEC competitor, as the noble Lord, Lord Harmar-Nicholls, implied, although in Britain we have greater indigenous resources than in any other EEC country. As my noble friend Lord Kaldor pointed out recently, this country should be able to take advantage of this happy circumstance by selling more cheaply those things for which gas is an important element of production. The Government, for some strange reason, call this a subsidy. But, my Lords, how can it be a subsidy when the gas industry is selling gas at a price which is greater than the cost and making an enormous profit as a result? Perhaps the noble Lord, Lord Strathcona, will tell us something of the Government philosophy.

The Government's decision must be seen in the whole context of their muddled and disastrous economic and social policy, which is resulting in ever-increasing bankruptcies and ever-rising unemployment. The figures for unemployment released yesterday show the biggest increase since the war at around two million, or 7·8 per cent. of the workforce, and the upward trend seems to be accelerating. The monthly increase has now risen from about 35,000 in the early part of this year to 90,000 during the summer and to 108,000 now. At this rate we can expect three million unemployed by next summer. The increase has been so steep that the capacity of the Government computers used for paying social security benefits may not be able to cope with it much longer; as these computers cannot deal with more than 2¾ million claims consideration is being given to the installation of a new computer. My Lords, what a fearful commentary on the accelerating unemployment figures! What an indictment of this Government's record after only 18 months in office!

The whole country is seething with discontent. We could face a very serious situation if the Government continue down the present road and if they refuse to swallow their stubborn pride and to admit that they are wrong. This, at least, they owe to those who elected them with such high hopes only 18 months ago. The disillusionment is now almost universal. A change of policy will be necessary if there is not to be serious social unrest and what Mr. Healey called yesterday an overpowering revolt from all sections of the people.

7.46 p.m.

My Lords, I have to express a slight regret that the noble Lord who has just sat down chose to go off into a general attack on Government policy, when up until then I thought we had had rather a restrained and well-informed debate on the subject which the noble Lord, Lord Irving of Dartford, introduced so efficiently. May I just begin by dealing with some of the general matters. I, too, regret that I am not speaking as a Minister in the Department; regret that we do not have a Minister in the Department in this House. This is something I have expressed before when I was in Opposition, and for a brief time we did have a Minister, in the last Government.

I will indeed follow the advice of the noble Lord, Lord Harmar-Nicholls, and I shall have to resist the temptation, in the course of this debate, to make it a general energy debate, as almost any debate on an energy subject in this House tends to become. The noble Lord, Lord Energlyn, was urging us to introduce another Quango, which is not one of our favourite things in this Government; but I hear what he says, and I do indeed know that there is some considerable support for those who believe that some kind of an energy council would have a valuable part to play. The noble Lord also told me something I did not know. I had always regarded it as a chemical axiom that oil and water do not mix, but apparently I am out of date to that extent, and I am grateful to him for the information.

What I shall try to do this evening, without, I hope, going to inordinate length, is to explain the Government's philosophy and at least explain their attitude to some of the facts produced. A great many figures have been bandied around and it is difficult to deal with them specifically as they crop up. It almost embarrasses me to say this because it is so blindingly obvious, but it is a fact that over the past decade the world has moved from an era of cheap energy to one of expensive energy and it is continuing to get more expensive. It is important that we should recognise this and that we cannot escape the consequences of it. Oil prices first surged ahead in 1973/4, and this process was repeated last year. As has been said several times, natural gas prices and oil prices are inevitably closely linked. In the vast majority of uses the two fuels are interchangeable. So in any freely operating market the gas prices are bound to move upwards in the wake of rising oil prices, though the lag between the movement of one and the other tends to vary from country to country.

It is against that background that I should like to deal with some of the specific points that have been raised. The noble Lord, Lord Irving, asked whether Her Majesty's Government were aware of the effects of the gas prices on manufacturing industry, and the noble Lord, Lord Harmar-Nicholls, very properly said, "Don't you dare go off into any other avenues without addressing that particular problem". I have no difficulty at all, as anybody who has read the newspapers this morning would have no difficulty at all, in confirming that the Government have had many representations on this subject. There is no doubt that we are aware.

There is slightly more doubt as to whether we are in agreement with some of the figures and some of the deductions that are made from them, but certainly it is undeniable that gas costs have risen sharply over the last 18 months or so, and, not unnaturally, industry has protested. I do not know whether what I take to be something of an orchestrated campaign in the newspapers today had any relation to the imminence of this debate this evening, but I do not have that kind of nasty mind in any case. I think we ought to have a look and see what is happening. This is very important. The British Gas Corporation has a longstanding policy of selling gas to industry at a price broadly related to that of the competing oil products.

The noble Lord, Lord Wynne-Jones, got into what I thought was possibly something of a tautological argument as regards this. The Government have repeatedly denied that economic pricing means thermal parity pricing. In the case of gas, the British Gas Council is aiming to charge a market clearing price, and in time of shortage that is bound to be determined by the price of alternative products. To charge less would stimulate demand which could not be met. That point was also raised by my noble friend Lord Gisborough. In passing I should like to say to him—and I think that it was he who asked about this—that I am not aware of intentions to examine a cross-Channel pipeline, but I shall write to him if I am wrong in saying that that is not happening.

I was also most particularly grateful to my noble friend Lord Lauderdale for the support that he gave to the Government's policy of supporting the Gas Corporation in its policy as I have just stated it. That point arose again and again in the debate, and I must say to the noble Lord, Lord Strabolgi, that this Government have done no more than endorse the BGC's policy and, indeed, that is what the previous Government did. I do not think that we should be carried away by some of the figures. To say that there is a 54 per cent. increase is misleading and possibly an exaggeration. I am not trying to question figures but the problem here is what we deduce from them.

As I have said, the industrial pricing policy is the BGC's policy. The Government endorsed it, but they did not force that policy upon it. I may add—and I shall probably return to this—that there has been increasing evidence recently from Germany that renewal prices there (and I stress "renewal" prices) are higher than BGC prices here. So again let me say that the Government have endorsed the BCG's policy as the best means of matching supply and demand. Indeed, it was the noble Lord, Lord Gisborough, who pointed out that there is a mis-match and that this is a delicate operation.

I suppose that I ought to declare a small interest in that my house is heated by domestic gas. However, if we consider the number of domestic consumers we will find that there was a very long waiting list, something of the order of 70,000 people a year ago, but that waiting list has been reduced to something like 30,000 in the last 12 months. However, there is still a waiting list of something of the order of 4,000 industrial consumers who are waiting for connection. So let us be quite clear that there is the danger, if we underprice, that we shall stimulate demand which cannot be met.

My Lords, surely in the case of a monopoly such as the Gas Board we can control demand at will? The noble Lord has just said that there is a waiting list but we can fulfil the waiting list or leave them waiting.

My Lords, I think that the noble Lord is getting very dangerously near the position of finding that someone will say to him, "The gentlemen from Whitehall"—or wherever the BGC has its headquarters—"know best". Does he really want a rationing system?—because that is what we shall get if we get away from a pricing regulating system, or at least that is what we believe.

My Lords, the point which I was trying to make had nothing to do with actual interference with pricing. I think that the Government have interfered, but that is not the point that I was making. I was making a rather wider point and if the noble Lord will forgive me for saying so, I first made it in your Lordships' House in 1967 in a debate in which I said, before natural gas was being widely used, that natural gas was such an important product that it ought to be used primarily in the chemical industry and in those places where there was no alternative. I am not blaming the present Government any more than I am blaming previous Governments. I am saying that it is the national policy which is wrong as regards this matter.

My Lords, I am grateful to the noble Lord. I can certainly agree with him to the extent that the BGC believes—and we support it—that gas should be used for premium purposes. The noble Lord would perhaps go a little further than the Government would go down that particular road. I was saying that we believe that the price mechanism is the best way in the longer-term—and do not let us get into the question of how long we are talking about here—to keep supply and demand reasonably in balance, and, of course, we must prevent the profligate squandering of what all noble Lords have mentioned tonight is a finite resource, the production of which from the North Sea will peak in the middle 1980s, on the best advice that I can find.

I have already said that crude oil prices have more than doubled over the last 18 months and that oil products have followed. Therefore, gas prices have had to follow. But the British Gas Corporation has recognised the difficulties experienced by its customers in coping with substantially higher prices and has therefore tempered the gas price increases, particularly to those users who are tied into gas and who cannot readily switch between fuels. As a result, the present renewal rate for firm contracts is very significantly below the price of the alternative oil product; that is, gas/oil. One would hardly expect that such an eventuality could be popular with the industry and, for that matter, oil price increases are not welcome, but that goes for any manufacturing cost. However, I believe that we need to keep a sense of proportion and here again I refer to something that the noble Lord said when introducing the debate. For most sectors of industry not more than 5 per cent. of the total cost are energy costs, and gas costs are less than 1 per cent. That is not to deny that there are certain intensive industries where the gas costs can amount to appreciably and indeed very significantly more, and that depends on whether they are dependent on particular processes and the choice of gas which is used as the main fuel. The noble Lord referred to the paper and board industry and the Government are well aware of the situation in that regard. If they were not aware, then from here on the Government will be aware that it also applies to at least one part of the glass industry—a matter referred to by the noble Lord, Lord Mackie of Benshie.

Of course, any energy intensive industry will experience difficulty in a time of rapidly increasing energy prices, whatever fuel they use. We should remember that firms using gas will be doing slightly better in the United Kingdom than their competitors for whom oil is the main fuel. Therefore, any suggestion that gas prices should be held down would have to take account of the potentially unfair consequences for the very many firms who are largely reliant upon oil at the present time.

There have been suggestions in recent months that gas prices in Britain are substantially higher than those overseas, and those suggestions—they are a good deal more than suggestions—have been put forward this evening. We must be exceedingly careful about how we make comparisons of this sort. It cannot be denied that European gas prices generally are higher than those in the United States of America.

Over very many years the Americans chose to regulate their oil and gas markets tightly. It is interesting to note that they are now engaged on the process of deregulation, and they are making slow progress. That part of their energy industry that is energy intensive indeed enjoys for the present a real competitive advantage. Those noble Lords who say, "Let us look at the American example and follow it", I would advise to ask the Americans themselves what view they have of their present energy policy and what changes they would wish to make to it now. I assure noble Lords that, if anything—and I say this to the noble Lord, Lord Harmar-Nicholls, and I do not wish to give offence to our American friends here—we should regard the American experience as a salutary warning of what can happen. I believe that my noble friend Lord Lauderdale explained very well the basic philosophy of the market forces.

My Lords, I can see the noble Lord's point, but I was trying to say that it looks as though the Americans are prepared in the short-term to put their energy industry at risk in order to help their general industry during a period of acute recession. I believe that the recession is so acute and so real and the consequences can be so disastrous that we ought to think of doing the same, not forgetting the long-term, but putting it on one side in order to get over the short-term; otherwise we might not have a chance to develop later. That was my point.

My Lords, I should like to follow the noble Lord, Lord Harmar-Nicholls, on that point. If I may say so, I resented the Minister's correlation of my energy board with a quango. As he knows, I am very anti-quango, so I should like to clear that point for the record. After all, the people whom I am suggesting as members of the board are paid-up officials, the chairmen of our nationalised industries. We do not have to pay them to attend the board. The point I really want to make is that it is only such a board that can achieve what the noble Lord, Lord Harmar-Nicholls, is suggesting; that within Britain we have a price structure—I agree that the only way to control it is by a price structure—so if you can produce thermal energy by using this, that or the other across-the-board—and only these chairmen can do it—you will come out with a figure which is sensible and equable.

My Lords, I am grateful to the noble Lord and I am sorry that he felt insulted when I accused him of possibly postulating a quango. But we must be very careful—I shall leave it like that—in following the American example on close regulation of energy prices. I hear what my noble friend Lord Harmar-Nicholls says, and I am sure that the Government are highly sympathetic to what he is suggesting. However, I must say to him that certainly looking at the long-term we must regard America as a frightening example of a situation into which we can get and from which they are finding great difficulty in extracting themselves. Therefore, I am saying that generally we should not wish to follow the American example.

Matching the prices to our competitors in the European Community is different. It is widely alleged that our prices are higher than those on the Continent and that this is putting our industry at a competitive disadvantage. We believe that valid international comparisons of gas prices are very difficult for a number of perfectly respectable reasons. Although oil and gas prices are linked, the link is inevitably an elastic one. Indeed, the gas market is one of the least transparent markets, and it is subject to one of the longest lags of all the energy markets. These lags vary from country to country. They depend upon the constraints, the institutions and the commercial practices of the country. I am not saying this to obscure the issues, but I am saying that if you take a photograph of the situation at any one time you can get a highly misleading picture of what is, in fact, happening if you look at it over a slightly longer term. For that reason, and that reason alone, I totally agree with the noble Lord, Lord Irving of Dartford, that one of the things that are necessary is for the Government and industry to try to establish some means of agreeing the facts. We can argue like mad about what they prove, but it is silly to argue about facts which ought to be ascertainable.

This, I think, leads us back into the argument (and again the noble Lord was very fair about this): do not let us get seduced into muddling up the new or renewed contracts against the average prices which are being paid. This is particularly true in this country where the Gas Corporation has the practice of negotiating one-year fixed contracts. Of course, there are some long-term, old, long-standing low-priced fixed contracts. One noble Lord referred to the alarming increase that had taken place, and I suspect that that may have been one of the cases where a long contract was running out.

The most recent data are those compiled for January this year by the Statistical Office of the European Communities. My noble friend Lord Gowrie has provided this in answer to a Question from the noble Lord, Lord Jacques, on 8th August; and in a slightly more extensive form by means of an Answer in another place on 31st July. I believe that these replies, including the detailed qualifying footnotes will repay careful reading. I believe that the picture is clear. In January, which is the most recent date for which comparative figures are available, the average price paid by British industry for gas—even omitting old, cheap contracts, to which I have already referred—was not out of line with the prices paid in the generality of other European Community countries. I have already said that there are indications that in Germany new gas prices are higher. I freely admit that it is hard to square that statement with some of the statements that have been made this evening. I shall simply say that that is what the Government believe the situation to be, and they look forward to exploring why other people may disagree with them.

There are some other points that should be made. The recently-published comparisons have spoken about renewal prices as compared with average prices. These variations can be greater in Britain because of the annual fixed-price contract system that we have operated. I am well aware that in practice the range of prices paid around an average price can be quite wide, and it is not much comfort to the owner of a firm to be told that the average price was that much if he is paying more, particularly if his competitor on the Continent is, lie is convinced, paying less. I realise that. I think it is also worth making the point that prices in Britain have risen since last January, when the comparison of average prices that I mentioned was made. But there is evidence that the rises on the Continent have been even more substantial and that the position is currently changing quite quickly.

Noble Lords may have seen that there have been announcements in the press that both the Dutch and the Algerians have succeeded in negotiating markedly higher prices for their exports of gas, and of course these will be working their way through the system and getting to the final consumers in coming months. I think it was the noble Earl, Lord Lauderdale, who made the point—it refers to the question of gas profits—that the new prices to be paid for new gas from places like Statfjord will be markedly higher than the prices we have been enjoying in the past. I hope noble Lords will not think that I am trying to go in for a sort of statistical gobbledegook. I am not, but I am saying that it is quite difficult to make these comparisons. I have no doubt that the industry has been very skilful in picking out what it considers to be glaring examples. I have an idea that we could quote other examples back to it, but that would be a fairly unproductive dialogue. What we have to try to do is see what the comparative prices look like.

Noble Lords referred to the profits being made by the Gas Corporation—£425 million last year. These are used to finance the very substantial British Gas capital programme which is around £4,000 million over the next four years. That is aimed at strengthening the gas transmission, distribution and storage system and bringing ashore some of the expensive additional supplies to which reference was made. It is worth pointing out that some of these profits arise from the historically cheap gas which has been available from the southern North Sea, supplies of which are now beginning to decline.

Having said that I was going to take not more than 15 minutes, I have run for nearly half an hour, and I apologise to the House. We are committed to restoring the health of the wealth-creating private sector, in spite of everything the noble Lord, Lord Strabolgi, says. But as part of this process we believe we must recognise the economic realities. One of those realities, regrettably, is that energy prices are rising faster than prices generally. We believe this is bound to continue, given the underlying imbalance between the world's demands for energy at current price levels and the limited supply. So industry has got to make its dispositions in the light of the certain prospect of a rising trend in real energy prices.

I can repeat again to the noble Lord, Lord Harmar-Nicholls, that the Government are well aware of all the problems being experienced by the industry. The noble Lord asked me whether the Government would introduce a moratorium on prices. I have to say to him that, living in the Ministry of Defence, the word "moratorium" is a somewhat emotive word to me at this particular juncture. I have explained to him that it is the Gas Corporation who fix the prices. However, I think I should say to him that I hear what he says and certainly it is something that I will pass on to my right honourable friend the Secretary of State in another place. We are continuing to analyse and monitor the situation with great care. We look forward to hearing from the CBI and we genuinely wish to enter into a dialogue with them to explore the difficulties and what might he done about them. But it would be wrong of me to say that there is any prospect of ushering in an era of cheap energy, much as I regret it.

My Lords, before the noble Lord sits down, while I appreciate the difficulty he is in, I wonder if he would be kind enough to address himself to the specific question I asked him, which he will recall related to the incidence of the fuel oil tax. I realise that it is a somewhat limited point in relation to the wide area the debate has covered. It may be that he will not be able to say very much now, and that he might write to me. I would, however, appreciate some response.

My Lords, I am glad the noble Lord reminded me. In my wish to try to curtail these remarks I am afraid I omitted it. The fact is that the tax on fuel oil is a matter for the Chancellor of the Exchequer. Certainly I will write to him and find out what the position is, but I think I am right in saying that at the moment the tax represents less than 10 per cent, of the cost and it is declining in real terms.