House of Commons Hansard Debates for 18 Nov 1991

Mr. Speaker : No, I shall not explain my decision. By raising such a matter, the hon. Member is being impertinent. He must not raise such points of order just because he was not called. That will not do him any good.

Mr. Sayeed : The point of order is this. Is it normal to call hon. Members who have not heard the statement on which they are asking questions?

Mr. Speaker : No, it is not normal, and if I did so today it was in error. However, I still resent what the hon. Gentleman said.

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Orders of the Day

Competition and Service (Utilities) Bill

Order for Second Reading read.

Mr. Speaker : I have selected the reasoned amendment in the name of the Leader of the Opposition.

4.34 pm

The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. Peter Lilley) : I take this opportunity to express my gratitude to hon. Members on both sides of the House who have expressed their sympathy for, and solidarity with, my constituents after the events of the weekend. I make it clear that this was a success for the police security operation and a failure for the IRA. I am sure that the House will agree that, had it achieved its objectives, that would simply have hardened the determination of my constituents and those of other hon. Members across the House to resist the demands of those who pursue their political objectives by the bomb instead of the ballot box. I beg to move, That the Bill be now read a Second time. The Bill fulfils the commitments we made in the citizens charter to strengthen the position of customers of the formerly state-owned utilities. It puts the customer first by extending competition, by strengthening the powers of the regulators where monopoly remains, and by providing for compensation where standards are not met. It will give a better deal to 25 million customers. In future, customers can be confident that all the regulators will have the toughest powers to set standards, customers will have the right to be told what these standards are, customers will be told clearly what recourse they have if standards are not met, and customers will be able to ask regulators to resolve disputes with the utility. The Bill has been welcomed by almost everybody except the Opposition. It has been welcomed by the regulators, who are pleased by their new powers. It has been welcomed by consumers, who are delighted by their new rights. It has been welcomed by the press, regardless of the party leanings of the papers.

Their headlines were unequivocal. "Customers First" said the Daily Express. "Better Deal for Consumers" said The Independent. "Consumer Champions Will Pursue Poor Service Claims"

said The Guardian. "Bill of Rights" said The Observer, and it was echoed by the Evening Standard today. The Financial Times put the general view pretty comprehensively when it said :

"The Government's aim of making utilities such as gas, water and telecommunications deal better with customers' complaints is commendable. So too are simple systems of redress which offer cash compensation when things go wrong. And independent and binding arbitration when the customer and utility fall out is clearly desirable in the absence of effective competition".

Mr. Malcolm Bruce (Gordon) : If that is the case, and I believe that it is, and that the Bill should be welcomed, why were these measures not introduced before privatisation rather than after consumers had suffered several years of exploitation by the private monopolies?

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Mr. Lilley : That shows a misunderstanding of what has been done. The fact that we have been able to introduce the Bill is one of the successes of privatisation, and I shall explain that.

Despite the general welcome, Labour's opposition to the Bill is no surprise. The Opposition have never been a friend of the customer. They always back the producer interest against the consumer interest. They loathe competition. They were the midwives of monopoly, and they are nostalgic for nationalisation. Nationalisation always has meant, and always will mean, that the politicians, the bureaucrats and the unions come first, while the customer comes a poor fourth.

Dr. Kim Howells (Pontypridd) : The Minister described himself as the friend of the customer. In that case, why did the Government privatise, for example, British Gas as a monopoly, and leave it in such a position that it could act as a monopoly despite the fact that it had become a private company?

Mr. Lilley : When we privatised British Gas, we took steps to introduce competition. We gave the regulator the duty to extend competition and, through the Bill, we shall extend it further. The Bill is the fruit of privatisation.

Mr. Gordon Brown (Dunfermline, East) : Will the right hon. Gentleman give way?

Mr. Lilley : I shall come to the hon. Gentleman later.

Mr. Brown : Will the right hon. Gentleman give way now?

Mr. Lilley : If the hon. Gentleman wishes to follow up the point made by the hon. Member for Pontypridd (Dr. Howells), I shall give way.

Mr. Brown : As for the support of the National Consumer Council, does the right hon. Gentleman agree that the council has described the Bill as narrowly drawn, that it is concerned with certain areas of utility regulation only and that it fails to cover other areas that concern it, such as price regulation, regulatory accountability and consumer representation?

I ask the right hon. Gentleman a direct question that is central to the conduct of the utilities. Does he believe that, in the past year, the profits of British Telecom and those of the gas, water and electricity utilities have been excessive?

Mr. Lilley : If the hon. Gentleman had read the comments of the National Consumer Council, he would know that it described this measure as an "elegantly drafted Bill". The Bill, of course, covers some things and not others. That is normal. I shall deal clearly and unequivocally with pricing powers and profitability later in my speech.

Mr. Gordon Brown : On that point--

Mr. Lilley : I have answered the hon. Gentleman's question, and I shall respond to it further in my own time when I come to it. The Bill is the fruit of privatisation, which has made competition and regulation possible. When the industries were publicly owned, neither competition nor independent regulators existed, so the consumer was given a rotten deal. State ownership led to poor services and high prices. Ten years ago, when British Telecom was still nationalised,

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more than 250,000 customers were waiting over two months--many for much longer--for a new phone to be installed. Waiting lists are now non-existent. Customers are entitled to compensation if BT is late by even one day.

Before privatisation of BT we could have any type of phone installed as long as it was bakelite, basic and black. Now, the choice is huge. Over 13,000 pieces of equipment have been approved since 1981.

In the five years before privatisation, domestic gas prices increased by 2 per cent. a year in real terms. In the five years since British Gas was privatised, prices have fallen by 2 per cent. a year in real terms.

Electricity disconnections have declined rapidly since privatisation and have fallen by nearly a quarter over the past year. Regional electricity companies are now being required to produce codes of practice protecting consumers against disconnection. The Labour party wants to return to nationalisation and we intend to build on the successes of privatisation.

Mr. Paul Flynn (Newport, West) : Who told the right hon. Gentleman that?

Mr. Lilley : The hon. Gentleman wants to know who told us what the Labour party intends to do. This document, "Meet the Challenge, Make the Change", sets out the Labour party's commitment to

nationalisation, which is one that was reaffirmed and repeated by the leader of the Labour party in September.

Mr. John Butterfill (Bournemouth, West) : Is my right hon. Friend not being a little too modest about prices? Is it not true that gas prices have fallen substantially, by 14 per cent., and that they are due to reduce by the retail prices index minus 5 per cent. each year from now on?

Mr. Lilley : My hon. Friend is right. There is so much good news that there is not room for it all in my speech.

Mr. Gordon Brown : Will the Secretary of State give way?

Mr. Lilley : As I told the hon. Gentleman earlier, I shall deal with prices later in my speech.

Part I of the Bill strengthens the powers of the regulators. The Opposition profess concern about the adequacy of those powers, and I shall consider their detailed quibbles later. The stark fact is that under Labour's nationalisation there were no independent regulators. No one was specifically charged to protect the consumer. Still less was any independent body equipped with statutory powers to uphold the consumer's interest. So there was no one to cap prices, to set standards, to ensure compensation and to resolve disputes. Yet Labour wants to return to unregulated state ownership.

It is the sheerest bare-faced cheek for the Labour party to criticise alleged motes in our eye when it still has the beam of nationalisation in its eye. The reason that there were no independent regulators under nationalisation is clear. When a Government are both the owner and the putative regulator, they face an acute conflict of interest. As owners, a Government will be tempted to milk an industry for the Exchequer by allowing unjustified price rises or by deferring investment spending. In practice, a Government's responsibility towards the consumer always plays second fiddle.

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Mr. Andrew Rowe (Mid-Kent) : I wonder whether my right hon. Friend is being wholly fair. He seems to be slightly exaggerating his case. I am sure that I have received several communications from the National Union of Pulic Employees and other such

organisations--perhaps my colleagues have also received them--in which the claim is made quite passionately that they represent the consumer. Is my right hon. Friend being entirely just?

Mr. Lilley : That is probably how the Labour Government interpreted consumer interests when the industries concerned were nationalised. They put the unions, rather than the consumer, very much in charge. Mr. Gordon Brown rose --

Mr. Lilley : We shall hear the hon. Gentleman first and then we shall hear something from some of his hon. Friends. We can then see how their remarks compare and contrast.

Mr. Brown : I am grateful to the right hon. Gentleman for finally giving way to me to answer the question that I put to him towards the beginning of his speech. The question is central to the conduct of the utilities. Does he agree with many of the regulators, and even with stockbrokers in the City, that the profits of British Telecom, British Gas and those of the water and electricity utilities in the past year have been excessive : yes or no?

Mr. Lilley : I have told the hon. Gentleman that I am coming to that matter in my own time and in my own order within my speech. Mr. Brown rose --

Mr. Lilley : No. I am not giving way. If the hon. Gentleman is not prepared for me to make my speech in my own way, he had better resort to his normal practice of talking to his hon. Friends.

The Fabian Society, which is part of the Labour movement, acknowledged recently in a pamphlet that nationalisation in practice meant

"self-regulation with the help of Treasury targets."

That is why we believe that the roles of owners and regulators should be separated. Ownership should be for the private investor and regulation should be by independent bodies free from political interference. That is why we set up an independent regulator for each of the utilities that we privatised. Each is charged with promoting competition and protecting the consumer where monopoly power remains.

Mr. Terry Lewis (Worsley) : Is the Secretary of State satisfied with the progress that has been made so far by the regulators? He tells us that the Bill will extend their powers, but is he satisfied with what has been achieved after six years' regulation of British Telecom?

Mr. Lilley : I believe that regulation and regulators have produced a great success story and that the Bill builds on that. The system is infinitely preferable to the regime that it succeeded, when there were no regulators and no protection for the consumer.

As we have set up the regulatory system, each regulator has been given some different powers to reflect the specific circumstances of the industry concerned and experience gained from the regulators established previously. In the citizens charter we therefore promised to

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"introduce legislation to bring the formal powers of each regulator in this area up to the levels of the strongest, including making sure that the regulators have adequate powers to require the award of compensation in response to legitimate customer complaints". In most respects the electricity regulator, as the latest to be established, has the best powers. So part I brings the powers of the telecom, gas and water regulators up to the level of that of the electricity regulator. In addition, all the regulators are to be given some new powers to implement our other citizens charter pledges, notably on complaints handling procedures and dispute resolution. In upgrading and formalising the powers we are building on success. The regulators have all made considerable advances with their existing powers in setting standards, ensuring compensation and resolving disputes. They have all sought to ensure that the quality of service offered by the utilities matches what would be provided in a competitive market. As a result, all the utilities operate consumer service guarantee schemes. Domestic consumers are now entitled to compensation of one month's line rental charge for each day that BT falls short of its targets for the installation and repair of telephones.

Mr. Michael Grylls (Surrey, North-West) : My right hon. Friend has referred to the dramatic improvements in British Telecom and many of the other utilities with which the Bill is concerned. Everyone is aware of those improvements. Does he agree that the key to the future is increasing competition for all of the utilities? As competition is increased--probably over a longish period--regulation can be eased off to seek to maximise profitability.

Mr. Lilley : My hon. Friend is absolutely right. That is why we have given the regulators a duty to promote and encourage competition. I shall list the areas in which, as a result of that, we are able to increase competition when I deal with part II of the Bill. Our success in that regard will be welcome to everyone in the country except those in the Labour movement.

Ofgas has recently agreed with British Gas a comprehensive new package of key standards which will come into force in April 1992. It includes compensation for individual customers if, for example British Gas fails to keep an appointment. British Gas has halved the number of disconnections since privatisation, and the electricity regulator has made it clear that reducing the number is a priority. As a result, disconnections are at their lowest level for 15 years. New service standards for the electricity companies came into force on 1 July this year. Failure to comply with those standards will result in compensation of between £10 and £50 for individual customers. In the water industry, a scheme has been agreed setting out customers' rights on appointments, account queries, complaints and interruptions to water supply. It is coupled with a swift, no-nonsense compensation scheme. The regulators have achieved their progress through a combination of their powers under primary legislation, licence conditions and informal arm-twisting. It is significant that a recent survey on behalf of the National Consumer Council found that consumer satisfaction with

telecommunications, gas, electricity and water was notably greater than satisfaction with utilities that were still in the public sector.

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Mr. William O'Brien (Normanton) : Why will the water regulator not allow consumers to choose between being charged for the water they use and being charged on the basis of rateable values ?

Mr. Lilley : That is not entirely a matter for the regulator. Support for our regulatory system has come from across the political spectrum. In another pamphlet, entitled "Telecommunications in the United Kingdom", the Fabian Society described the Government's policies as "bold and radical", adding :

"Most would agree that the creation of Oftel has been good for the consumer and few would wish to go back to the days when British Telecom operated without an independent regulator."

Mr. Tim Smith (Beaconsfield) : The introduction of part I--which, as my right hon. Friend has said, strengthens the powers of regulators, including Oftel--coincides with the Treasury's sale of a large tranche of British Telecom shares. What attitude will the Government take to any amendments that might be tabled whose effect would be a change in the balance between the regulator and the company?

Mr. Lilley : That is an important point, with which I dealt in a press release at the time of First Reading. I am happy to reaffirm what I said then.

I have made clear our position in relation to the forthcoming BT sale. It is clearly right for potential investors to be fully informed, and clarification amendments to the Bill cannot be ruled out. The Government do not, however, intend to make any amendments that would have a direct financial impact on BT's profitability. They will also resist any amendments tabled by others that would have that effect.

As a result of the Bill, all the regulators will have statutory powers to take five major steps. They will have powers to set overall performance standards ; to set guaranteed service standards for individuals ; to establish compensation where service for individuals falls below those standards ; to ensure that utilities establish and publicise complaints procedures ; and to resolve disputes over standards. In addition, the Government are taking powers to enable the regulators to resolve disputes over bills.

In a plethora of press statements over the past day or so, the hon. Member for Dunfermline, East (Mr. Brown) has suggested the appointment of an ombudsman to deal with complaints and standards. That is a typically misconceived idea : in fact, it would markedly reduce the level of consumer protection.

The regulators already have far greater power than those possessed by any ombudsman. As a result of the Bill, they will have even greater powers. In particular, they can take into account the success or failure of utilities in meeting standards when they fix the price cap. A separate ombudsman could not do that, as, by definition, he would not set prices. He would have less power than the regulators to achieve results.

I am afraid that most of the hon. Gentleman's other suggestions are of a like nature. Either they are ineffective, or they have been looted from our own proposals. At the end of the war, when the Red Army occupied parts of western Europe, some of the soldiers removed almost everything from the houses that they occupied--including the taps--and took them back to the steppes in the hope

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that, by installing them in their homes, they would ensure a supply of fresh water. Similarly, Labour believes that, by removing some of the fixtures and fittings from our regulators and attaching them to nationalisation, they can protect the consumer. Nothing could be further from the truth.

Mr. Peter Hain (Neath) : In his reply to the hon. Member for Beaconsfield (Mr. Smith), the Secretary of State made it clear that he was putting the shareholder first, rather than the consumer, in the sale of the extra tranche of BT shares.

The deferment of shareholders' interim dividend until 28 February will mean that those who have acquired shares through the additional sale will receive a dividend on shares that they did not hold at the time when the dividend should have been paid. Moreover, a City stockbroker has told me that the Government will lose £77 million as a result of the deferment of the dividend. That money could have been used to build a hospital, or invested in schools, housing and a number of projects. Is not the Secretary of State simply giving it away to sweeten the additional privatisation?

Mr. Lilley : My right hon. Friend the Chancellor of the Exchequer is handling the sale efficiently and in the best interests of the taxpayer. We have already installed a regime that effectively protects the interests of BT's consumers. Earlier this year we announced a full-scale duopoly review, which led, and will continue to lead, to an extension of competition in the market, and which will give us the most competitive telecommunications market in the world. We have done all that ahead of the sale, and the shareholders are well aware of what we have done. By and large, all in the industry welcome our actions, because competition enlarges the very market in which all participants take part.

Clause 15 empowers Ofgas to set standards of performance for gas suppliers on the promotion of efficient use of gas by consumers. The electricity regulator already has powers relating to energy efficiency. We recognise that improving energy efficiency is the quickest and most cost-effective way of reducing carbon dioxide emissions : that is why we are giving the Director General of Gas Supply stronger powers in that regard.

The Bill gives statutory backing to the code of practice agreed by British Gas and Ofgas on energy efficiency. The code covers, for example, the labelling of appliances in British Gas showrooms, and comprehensive advice for British Gas customers on the efficient use of energy. I know that the House will welcome that.

Our whole approach to regulation is aimed at achieving a balance between two objectives : first, the protection of the customer from the abuse of monopoly power, and, secondly, the minimising of the burden of regulation and the avoidance of political interference in the affairs of the industries involved. We believe that those objectives are best achieved by the focusing of regulatory powers on the end results that matter most to consumers--competitive prices, and standards of service. That is what customers are really concerned about.

Labour wants to extend controls beyond those end results to intermediate objectives such as boardroom pay

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and profits. We believe that that would be damaging to the utilities and counter-productive for consumers, and that it would politicise the whole regulatory process.

Our system of capping the annual price increase of each utility has been widely acclaimed. In the case of gas and telecommunications, the caps have been set well below the level of inflation. As the Financial Times has said :

"The UK model of control over prices has been a largely successful spin-off from the privatisation programme. A steady stream of visitors from North America have found much to commend it in comparison with their own bloated bureaucracies."

Under our system, the regulators set the cap in the light of productivity gains that they believe the utility should be able to achieve and the need to protect customers against unjustified price increases. Utilities can then increase their profits only by increasing their efficiency even more rapidly than the target set for them. Moreover, the regulators have progressively set more demanding productivity targets each time the cap is renewed. For example, British Gas has been required to cut prices in real terms by 2 per cent. a year. That was a marked improvement on price increases averaging more than 2 per cent. above inflation in the five years before privatisation. As has been said, from April British Gas will be required to do better still and cut its prices by 5 per cent. in real terms each year.

Likewise, British Telecom has seen its price cap tightened successively from 3 per cent. below inflation to 4.5 per cent. below and now 6.25 per cent. less than inflation each year. Given inflation running at under 4 per cent., that means that prices will have to be cut in money terms. I doubt whether the hon. Member for Dunfermline, East can name any other country requiring such large real price cuts by its utilities. However, he is not interested in prices. He is interested only in profits and boardroom pay.

Mr. Alan Williams (Swansea, West) : Will the Secretary of State give way?

Mr. Lilley : No. The right hon. Gentleman's Front Bench colleagues urged me to reach this subject, and I have done so.

Mr. Gordon Brown rose--

Mr. Lilley : The hon. Member for Dunfermline, East interrupts when I am making my speech and also when I am answering questions. I suggest that he listens, and he will then learn a lot.

The only alternative approaches to our system of capping prices are to follow the rate-of-return approach adopted in America, which simply encourages over-investment because the more that is invested, the more prices can be raised to provide the guaranteed returns, which by common consent is wasteful ; or prices can be set by arbitrary political intervention as they have been in eastern Europe. That seems to be the approach prescribed by the Opposition and it is indefensible in theory and discredited in practice.

It would give me and the House exquisite pleasure to hear from the hon. Member for Dunfermline, East how he could justify moving either to the American's wasteful, bloated and bureaucratic system of rate-of-return control or the east European arbitrary approach to regulating prices in preference to our own. Sadly, we know from experience that the hon. Gentleman never deigns to elaborate on his policies--for reasons that we fully understand.

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Mr. Gordon Brown : Is the Secretary of State aware that Sir Bryan Carsberg, the regulator for Oftel, has proposed that prices should be cut where profits are too high? He wants to share the benefit of excess profits with the consumer. Will the Secretary of State answer the direct question that I put to him? Does he believe that the profits for BT, gas, water and electricity have been excessive?

Mr. Lilley : I am glad that the hon. Gentleman welcomes our regulatory system and the attitudes of the regulators who we have put in place. I join him in paying tribute to them.

So long as we retain our system of capping prices, the proposal of the hon. Member for Dunfermline, East to control directors' salaries makes little sense. Those salaries are a matter for the private shareholders. If they choose to pay over the odds, that will come out of shareholders' funds. The excess cannot be passed on to the customer in higher prices, because prices are firmly capped by the regulator. The Government most certainly do not endorse some of the pay increases that shareholders have agreed to finance ; but equally certainly, we do not wish, and nor do the regulators, to get drawn into the business of setting managerial pay.

Suppose the regulators were forced to set a pay rate for the chairmen and directors of each utility and the board of a utility then wished to recruit someone from another company where he already earned more than that level. Is it really the job of the regulator to stand in the board's way? Only a party such as the Labour party, obsessed with envy, malice and greed, could seriously make that a major plank of its policy, let alone the major plank.

Important though regulation is, the best way to improve standards of service is to increase competition.

Mr. Peter Rost (Erewash) : Is my right hon. Friend aware that clause 32 will be particularly welcome with respect to increasing competition in gas because it allows the threshold of 25,000 therms to be removed or lowered? Is he aware that half a million industrial and commercial customers have been trapped in that domestic tariff, have not been allowed to shop around for contracts and cannot aggregate their multiple sites? Will he ensure that clause 32 is implemented as soon as possible? Mr. Lilley : My hon. Friend has hit the nail on the head. He is absolutely right. Many small and medium-sized businesses are looking forward to the contents of the Bill eagerly and they will be interested to hear the reactions of the Opposition in respect of clause 32.

Competition is now firmly established in electricity, telecommunications and for large industrial users of gas. Part II of the Bill includes new measures, as my hon. Friend the Member for Erewash (Mr. Rost) said, to increase competition in the supply of gas and of water services. At present, only British Gas has the right to supply householders and small firms who use less than 25,000 therms a year. As my hon. Friend said, clause 32 takes powers to end that monopoly. I challenge the hon. Member for Dunfermline, East to say whether he supports the abolition of that monopoly or whether he wishes to retain it like his union friends and paymasters. The hon. Gentleman is often keen to intervene and I would happily give way to him on this issue. As he does not want to intervene, it seems that he does not know. He has not received his orders yet. No doubt they will be in the post.

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Mr. Flynn : Will the Secretary of State give way?

Mr. Lilley : Yes, I will give way to the hon. Gentleman, who may be more daring.

Mr. Flynn : With regard to hon. Members' paymasters, is the Secretary of State aware that a book entitled "MPs for Hire" proved that less than 14 per cent. of Labour Members received remunerations from trade unions while 85 per cent. of Conservative Members who are eligible to receive money, receive money from consultancies outside this place? The Conservative party is the party with paymasters outside this House.

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