Home Page

Column 887

Regulators of Privatised Utilities

3.33 pm

Mr. Peter Hain (Neath) : A big thank you, Madam Speaker. I beg to move,

That leave be given to bring in a Bill to reform the accountability and other objectives of the privatised utility regulators.

Without any serious debate, the regulation of the privatised utilities has been hived off to autocratic unaccountable directors general. The invisible hand of Ofman the regulator now guides policy for every light switched on, every bath run and every telephone call made. Regulators are independent and all-powerful, and they have extensive discretion, which has often been exercised in a highly personalised fashion.

Oftel, Ofgas, Ofwat and OFFER cover vital services.

Telecommunications, gas, water and electricity affect major areas of public policy and every citizen in the land.

However, the regulators were largely afterthoughts. Regulation has evolved in an ad hoc fashion, becoming complex, over-technical, rambling and fundamentally flawed. The main beneficiaries are shareholders, whose dividends have soared--dividends had increased by 85 per cent. for water by 1992, and by a massive 63 per cent. in the first year of electricity privatisation. Industry chiefs have also enjoyed a pay and shares bonanza.

By contrast, job losses in the privatised utilities will soon total a staggering 200,000. The National Consumer Council reports at best a mixed record on prices, with anomalies such as a £9,000 charge for a 4 ft water connection to a residential home in my constituency of Neath.

The right-wing assumption that individual shareholder interest necessarily equates with the public interest is nonsense. Individual shareholder or consumer interests, compartmentalised from each other, do not inevitably aggregate into the general public interest. Indeed, selfishly pursued with the support of the regulator, they often thwart achievement of the general interest in such matters as the ability of strategic national companies to compete in world markets, environmental protection and the preservation of precious natural resources.

In 1993 the electricity regulator--a public servant, not an elected representative--insisted that forcing the electricity generators to maintain existing coal volumes would infringe competition rules. He thereby vetoed an alternative energy policy, which led to the closing of dozens of pits. That public servant's encouragement of the dash for gas for electricity power station base load is depleting North sea oil reserves by more than 15 years' usage, and causing a most inefficient use of a critical fuel. Coal is sentenced to death, while coal imports soar and nuclear power has a £1 billion-plus subsidy. The driving objective of the regulators to promote competition almost at all costs invites foreign companies to enter the United Kingdom market on advantageous terms, while British companies are barred from reciprocal rights abroad. That is most striking in gas and telecommunications, where American-owned television companies are capturing important local markets. British Telecom cannot enter the United States market on equivalent terms, and is further penalised by being barred from offering broadcast services, such as cable television, over its lines.

Column 888

Britain's industrial interests in that vital area of information technology are being undermined, as BT is forced to concentrate on pigmy competition in its backyard at the expense of international competition, where we are now threatened with an American takeover. Competition dogma is also tending to force the privatised utilities to concentrate on the most lucrative, fastest growing markets, where competition from new entrants is fiercest, at the expense of low- income communities. That so-called "cherry picking" means that the most profitable users get the cheapest and most sophisticated services. Telecommunications in the City of London is a good example. By contrast, there is social dumping of rural areas and poor inner city areas, where competition is limited or non-existent. Installation charges for telephones are high, well beyond the reach of many people on low incomes.

Water disconnections trebled after privatisation, and charges soared almost as high as executive salaries and perks in the water industry. Low-income households face discrimination, with higher deposits and pre-payment systems.

Privatised British Gas is refusing to extend the main supply an extra few miles to supply villagers--in Neath's Dulais and Swansea valleys, for example. The new competition regime will also increase gas charges for the poor and reduce charges, relatively, for the rich, while gas showrooms are closed.

Competition is not value free, nor is regulation a value-free, non- political exercise carried out in an objective, technical fashion. Each regulator has enormous discretion to determine public policy as he sees fit for his own industry without regard to the knock-on effect. We need to put democratic politics back in charge. The Government should take a small stake in each industry and should appoint a Government director, thus securing considerable influence at minimal cost.

New regulators should be appointed with different objectives to ensure that policies to advance strategic national and social interests always take precedence over promoting domestic competition or shareholders' profits. The regulators should have new performance targets, such as universal tariffs, protection of supplies to the elderly and the disabled, research and development, levels of investment and international competition. Those, rather than competition for its own sake, should be the driving objectives of the regulators.

Democratic accountability could also be improved by establishing a parliamentary Select Committee to scrutinise the utilities, with annual debates on the Floor of the House. A utilities commission should be established to bring the regulators under one roof. That would promote policy consistency between the different regulators housed within it. We do not see that at the moment, especially in gas and electricity.

The commission would be a quasi-judicial body, akin to the Monopolies and Mergers Commission, but with powers of scrutiny and subpoena similar to those of a Select Committee. It could be governed by a board of representatives from all sectors--from consumers, senior managers, trade unions, shareholders and academics appointed by the Secretary of State.

Enabling the different regulators to share common resources would also bring economies. Each regulator would still be proactive and would still have considerable operational autonomy, but each would be supervised by the

Column 889

commission's board. It would have an advisory role for Government on policy and strategy, and it would help to resolve disputes between the regulators in industries. Such disputes have sometimes dragged on for months.

There must be transparency in the regulators' decisions and the regulators' right to silence should be abolished. They should be required to explain the reasons for their decisions, either publicly or at least privately to the industries concerned. It would also make sense for the regulators to be merged and reorganised so that we had one regulator covering communications ; telecommunications and broadcasting are increasingly converging. There should be one regulator for energy, including coal, one regulator for transport and one regulator for water.

The customer is crying out for change and the companies themselves want consistency. Opinion-formers and utilities experts, and even some of the regulators themselves, are casting around for alternatives. The Bill would introduce regulation for the common good.

Question put and agreed to.

Bill ordered to be brought in by Mr. Peter Hain, Mr. Nick Ainger, Mr. Roger Berry, Mrs. Anne Campbell, Mr. Michael Connarty, Ms Jean Corston, Mr. John Denham, Mr. Neil Gerrard, Ms Kate Hoey, Mr. Jon Owen Jones, Mr. Rhodri Morgan and Mr. Ken Purchase.

Regulators of Privatised Utilities

Mr. Peter Hain accordingly presented a Bill to reform the accountability and other objectives of the privatised utility regulators : And the same was read the First time ; and ordered to be read a Second time upon Friday 17 June, and to be printed. [Bill 95.]

Column 890

Orders of the Day

Finance Bill

[2nd Allotted Day]

Not amended (in the Committee) and as amended (in the Standing Committee), further considered.

Schedule 4 --

Penalties for statutory contraventions

3.43 pm

The Paymaster General (Sir John Cope) : I beg to move amendment No. 27, in page 236, line 22, leave out (1)'.

Madam Speaker : With this it will be convenient also to discuss Government amendment No. 26.

Sir John Cope : Of the two amendments, amendment No. 26 is the important one. It takes up a point that arose in Committee which is to do with reasonable excuse. The amendment does not go quite as far as amendment No. 58 sought to do in Committee, but it takes up the main point in that it allows a second or subsequent reasonable excuse to count for the purposes of clause 10 and the schedule. Amendment No. 27 is a consequential amendment.

Mr. Andrew Smith (Oxford, East) : We welcome the Government's acceptance, in the words of the Paymaster General--at least, almost total acceptance--of the arguments by myself and my hon. Friends in Committee. In Committee, my hon. Friend the Member for Cambridge (Mrs. Campbell) ably moved the amendment, which the Government have partly accepted after a tied vote in Committee.

The Bill as it stands would have eliminated the opportunity for appellants to plead after one reasonable excuse had expired with a new, second reasonable excuse for the conduct on which they were appealing to commissioners. It seems fully in accordance with natural justice that appellants should have the opportunity to plead a further reasonable excuse in cases of illness and other examples, which were explored in Committee. It makes good sense for appellants and we therefore welcome the Government amendment--if only they took as much notice of all the arguments that we put in Committee. Amendment agreed to.

Clause 10 --

Exceptions to liability under section 9

Amendment made : No. 26, in page 7, line 30, leave out from continuation' to end of line 33.-- [Sir John Cope.]

Clause 22 --

Records and rules of evidence

Amendments made : No. 31, in page 18, line 26, leave out from sections' to end of line 27 and insert

5 and 6 of the Civil Evidence (Scotland) Act 1988 ;'.

No. 32, in page 18, line 28, leave out from with' to end of line 31 and insert

Column 891

Schedule 3 to the Prisoners and Criminal Proceedings (Scotland) Act 1993 ;'.

No. 33, in page 18, line 39, leave out subsection (3).-- [Sir John Cope.]

Clause 30 --

The rate of duty

Sir John Cope : I beg to move amendment No. 28, in page 23, line 44, leave out 61 degrees' and insert 81 degrees'.

In Committee, we had a discussion about the application of the lower rate of air passenger duty, which applies, if I may express it in shorthand, to the European Community. The House will be aware that the hope is that the European Community will have more members at the end of year. The amendment alters the lines of latitude in the Bill and hence, automatically, when the expected new members join the Community, flights to those countries will at that point, though not before, become entitled to the lower rate applicable to the Community.

The capitals of the three countries concerned, Norway, Sweden and Finland-- Austria is not affected by the amendment as it is already within the lines of latitude and longitude laid down--are all within the existing area. However, some northerly latitudes of areas in those countries do not fall within the lines but will be automatically included as a result of the amendment.

Mr. Andrew Smith : Will the right hon. Gentleman describe to the House the area which will be delineated by the new line of 81 deg north ?

Sir John Cope : To all intents and purposes, the new line goes right up to the Arctic. If the hon. Gentleman looks at a map, he will see that it goes very far north and therefore takes in all the northerly parts of the three countries that I mentioned.

We had some discussion as result of an intervention in Committee by the right hon. Member for Berwick-upon-Tweed (Mr. Beith) about the Faeroe Islands. It would also come into the definition because it falls within the new lines of latitude, as it would have done if we had accepted the right hon. Gentleman's amendment in Committee.

Mr. James Wallace (Orkney and Shetland) : The amendment is welcome, and its significance should not be lost. In Committee, my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) tabled an amendment, which in retrospect seems modest, to increase the latitude from 61 deg to 63 deg. Instead of an increase of 2 deg, we have had a tenfold improvement. It is a concession that I do not think that the Government have ever given the Liberal Democrats before. I hope that it is a harbinger of good for the future.

Looking at a limited map, the new line takes us into the realms of Franz Josef Land. It would be interesting if the Paymaster General would tell us how many flights there are from the United Kingdom to Franz Josef Land, to which the new concession will apply.

Mr. Geoffrey Hoon (Ashfield) : Would it not be more sensible to confine these areas in terms of the status of the countries concerned rather than the rather difficult geographical approach that the Government have adopted ? One of the four applicants to the European Union may well decide not to join. If that happens, we shall be left with this

Column 892

curious geographical description instead of referring to countries according to whether they are members of the European Union, or perhaps the European economic area. The provision would be clearer and far more sensible if it were defined in those terms.

Mr. Nigel Forman (Carshalton and Wallington) : I shall make a brief intervention in the form of a question. Does the definition include the whole of Norwegian territory up to and beyond the Arctic circle ? We very much hope that Norway and the other countries that my right hon. Friend mentioned will come into the European Union. Does the definition include such exotic places as Spitzbergen and Svalbard ?

Mr. Andrew Smith : I echo what was said by my hon. Friend the Member for Ashfield (Mr. Hoon). It would be more sensible if the Government had defined these areas in terms of the status of the states rather than by lines of longitude and latitude. Apart from anything else, such a definition would have given us great scope for successive amendments in Committee had the circumstances been such that we felt that we needed to engage in prolonged discussion. Serious points were made, however, about the status of parts of the European Community. As the hon. Member for Carshalton and Wallington (Mr. Forman) said, it is pertinent to ask whether the whole of Spitzbergen falls within the defined area.

The Paymaster General claims that all becomes clear when we study an atlas. I made several forays to the Library to find an atlas that was not distorted--it must be remembered that the area in question is at the top of most projections--to find exactly where the line fell. The definition appears to include Spitzbergen. It would be helpful to have the right hon. Gentleman's confirmation that that is so. I cannot help feeling that it would have been more sensible, as my hon. Friend the Member for Ashfield said, to define in terms of the status of the relevant states, not least because in due course, as the European Union expands, it will be necessary for the Government at some stage further to amend the provision. When that happens, they may wish that they had adopted a more sensible course at this stage. As has been said, however, the extension is in itself welcome.

Sir John Cope : The hon. Member for Ashfield (Mr. Hoon) said that we should have defined by status. In fact, the primary distinction is by status. Latitude and longitude is a subsidiary or secondary delineation. I am sure that the hon. Gentleman recalls our discussions in Committee. It was explained at that stage that some of the French overseas territories, without the definition that we have adopted, would be included in the status decision. They are a long way away from the area we are discussing and in anyone's book long-haul flights are needed to reach them. We thought it right, therefore, that they should not fall within the reduced rate. I think I am right in saying that all the places mentioned during the debate fall between the latitude and longitude described in the amendment.

Mr. Hoon : The right hon. Gentleman referred to French overseas territories. As I understand French constitutional law, France regards such territories as integral parts of what they define as France. In effect, are not the Government seeking to determine for the French what will

Column 893

be within the European Union and what will be without it ? If the same argument were advanced by a French Government in respect of what the United Kingdom was defined as constitutionally, would not the Paymaster General and his colleagues object to such an approach ?

Sir John Cope : To a degree, we had this discussion in Committee. My answer has not changed. I cannot speculate about what a French Government's attitude would be in such a highly hypothetical situation. There are not any such departments, if that is the right word. We have been told that constitutionally we are entirely in order in bringing in the definition. The definition seems to be wise from the point of view of this particular duty.

Amendment agreed to.

Clause 38 --

Accounting for and payment of duty

Sir John Cope : I beg to move amendment No. 29, in page 28, line 28, leave out from beginning to at' in line 29 and insert

to make returns in respect of duty

(i) by reference to such periods as may be prescribed or as may be allowed by the Commissioners, in relation to a particular operator, in accordance with regulations, and

(ii) .

Madam Speaker : With this, it will be convenient also to discuss Government amendment No. 30.

Sir John Cope : The amendment relates to returns under the air passenger duty, and has two purposes. It removes doubt about the original wording of the Bill, and allows the Commissioners of Customs and Excise to make regulations to require aircraft operators to make returns for accounting periods where no duty is due. There is only a doubt but, nevertheless, it is wise to remove it.

The point about a nil return is that it can be less trouble both to the airline operator--if it happens to have a period in which there is no duty- -and to Customs and Excise because it will be saved the trouble of wondering where a return has got to, which it was otherwise expecting. It will save Customs and Excise from having to chase the airline operator, and the airline operator having then to confirm back again. It will be more convenient if nil returns are provided for. There was always the intention to do that but, as I said, there has been some doubt about the original wording of the Bill which the amendment clears up.

The second aim of the amendment is to allow Customs and Excise to have flexibility over the accounting periods for returns in order to help the airline industry. The standard accounting period ends on the last day of each month, and that will be prescribed in the regulations. Undoubtedly, there will be some aircraft operators who run an accounting system that ends on a different day of the month. It would be convenient to allow Customs and Excise to accept a different accounting period of that sort and, indeed, that is what the second part of the amendment does.

Mr. Wallace : We certainly have no intention of opposing the amendment, but we shall make some observations about it. The amendment has been presented

Column 894

to the House on the justification that it will be convenient for aircraft operators, and especially Her Majesty's Customs and Excise. It is a matter for comment that, while the Government are going out of their way to provide for the convenience of Customs and Excise and airline operators, no concession has been given at any stage for the convenience of those who live in remote island communities and who will be penalised by the measure. I shall not rehearse all the arguments that were made in Committee--they were made in Committee on the Floor of the House and upstairs--and to the Minister.

With regard to the convenience of airline operators, the Minister introduced a new clause to facilitate, as it were, not a guess but a detailed passenger-by-passenger calculation as a means of calculating the rough sum which would be allowed. I know that the hon. Member for Western Isles (Mr. Macdonald) asked whether that might take account of journeys that either begin or end in our island communities. The Minister is well aware of the importance of the issue to many communities where an airline is an essential service, rather than a form of convenience or a luxury. I therefore hope, even at this late stage, that the Minister is prepared to say something which might give reassurance. He suggested in Committee that the matter might be better dealt with by a subsidy through the Scottish Office than by making further exemptions to the tax which we are now debating. As that subsidy, under the Highlands and Islands Air Services (Scotland) Act 1980, requires the consent of the Treasury, perhaps the right hon. Gentleman will state what level of consent the Treasury is prepared to make in this case.

4 pm

Sir Peter Fry (Wellingborough) : The amendment, and the clause to which it relates, is concerned with the accounting for and payment of the air passenger duty. I find the amendment insufficient and inadequate because it expects the aircraft operators--in other words, the airlines--to enter into the expense of keeping accounts and making returns which most other companies do not have to do.

This part of the Bill imposes upon airlines a duty which they cannot avoid, yet it takes no account whatsoever of the special position of airlines. I understand that the duty is intended entirely to be extra revenue for the Treasury, yet it does not in any way take into account the peculiar position of airlines, particularly with regard to the additional expenses for security which they have at the moment.

I will not go into great detail, you will be delighted to know, Madam Speaker. It is estimated that the six main airports in this country will have to pay about £134 million to improve the searching of hold baggage. If we add to that the necessary research and development, the figure comes to about £200 million a year. It may be of interest to my right hon. Friend that in 1989, when the Transport Select Committee looked at whether there should be a special duty on airlines, the airline operators asked for a special security tax so that they would be assisted in the essential job of protecting people who fly within and from this country. The Select Committee agreed entirely with the airline operators. The

Column 895

Committee pointed out that previously there had been a tax similar to the one which the Government are now proposing, but it was related purely to security purposes.

At that time, the Department of Transport disagreed. It said, first, that there was no shortage of money to cover the problem of airport security and, secondly, that it would be far too expensive to collect such a charge. That view seems hollow today. We now appear to be expecting airlines to pay for security without any assistance from the new duty at a time when most airlines have been losing money throughout the world. Yet we are expecting them to invest more and more in the means of protecting the travelling public. The objection that it would be impossible or too expensive to collect such a tax has now been totally blown away by the Government's proposals in the Bill.

The Government have lost a great opportunity. They could have brought about a situation whereby part of the tax or duty, or a slight addition to it, could have covered the enormous cost of protecting our citizens and those of other countries who fly to and from the United Kingdom. It is estimated that only £2 would cover that.

I believe that the duty would have been better accepted by the travelling public if they felt that some of the money was going to protect them as they fly around the world. It is a lost opportunity, but I hope that the Government will not close their minds totally to looking at the increased cost of security in airports and on aircraft which fly from here. They should not just regard the duty as another way of squeezing more taxation out of the British public. If they did consider the costs, they would find that the measure would be far more acceptable than it has been until now.

Mr. Andrew Smith : The hon. Member for Wellingborough (Mr. Fry) made some forceful and relevant points, but I fear that he will be disappointed if he expects the Government to do other than simply squeeze every penny that they can out of this measure to make up the massive fiscal deficit-- albeit a deficit of £46 billion now, rather than the £50 billion that they forecast--that has resulted directly from their own economic incompetence.

We, too, will pay close attention to what the Government say and do in the future about airline and airport security. We remain very concerned about the impact of the duty on ordinary

travellers--especially those travelling to the islands, to whom the hon. Member for Orkney and Shetland (Mr. Wallace) referred. As he acknowledged, my hon. Friends--notably the hon. Member for Western Isles (Mr. Macdonald)- -have fought long and hard alongside him for the interests of islanders in this context. The Government's response, however, has been wholly inadequate and insensitive to the needs of, in particular, communities that depend on air services and the lifeline that they provide.

I understand that it is convenient for Customs and Excise for operators to be required to submit nil returns, perhaps year after year ; but it is stretching the truth to suggest that it would be convenient for operators as well. The Government keep on about deregulation and the action that they are taking to remove burdens from business, but requiring firms to submit a succession of nil returns does not strike me as winning the battle against unnecessary bureaucracy.

There is some benefit in making accounting periods flexible. It clearly makes sense to ensure the closest possible correspondence between the periods used for firms' own accounting purposes and those that are

Column 896

acceptable for the purposes of Customs and Excise. None the less, this is still a bad tax that has been badly introduced, and we fear that it will have damaging effects, especially in the islands.

Sir John Cope : It is not a question of nil returns year after year, as the hon. Member for Oxford, East (Mr. Smith) suggested. Our amendment is intended to deal only with cases in which there are occasional nil returns from an airline which would normally provide ordinary returns and, indeed, pay the duty.

Mr. Andrew Smith : Is the Paymaster General saying that, after a certain number of nil returns, an operator would no longer be obliged to make returns ?

Sir John Cope : If the operator is not liable for the duty, he will fall out of the registration requirements altogether, under clause 33.

Some airlines operate for only part of the year. The amendment would enable Customs and Excise to make a regulation allowing operators which did not expect to pay duty for a number of successive months, on request, to submit a single return covering the period concerned.

The hon. Member for Orkney and Shetland (Mr. Wallace) ingeniously used the amendment to refer to discussions that we have had before about the highlands and islands, and in particular to the question of subsidies, which we have also mentioned before. As he is doubtless aware, my right hon. Friend the Secretary of State for Scotland has announced increased funds for Western Isles council, so that it can increase the subsidy to the airline that operates on the inter-island route within the Western Isles. He would not have been able to do that without Treasury approval. It will mean that prices can be reduced, so that the passenger will pay no more as a result of the air passenger duty. As for the future, I can only say that we shall consider any suggestions that are made.

My hon. Friend the Member for Wellingborough (Mr. Fry) referred to the expenses involved in airport and airline security. I understand his views, but, as my right hon. and learned Friend the Chancellor of the Exchequer made clear in his Budget speech, we are engaged in what is essentially a revenue-raising operation. As he knows, we have always done our best to avoid hypothecation of revenue to particular items of expenditure. While I have some sympathy for what he said, I cannot go along with his suggestion. As has been made clear from the start, it is a revenue-raising duty and that is the basis on which we recommend it.

Mr. Wallace : What the Minister says about the Western Isles covers only internal flights and brings them into line with Orkney and Shetland, where internal flights are already covered by the exemption related to aircraft size. In Committee, the Minister raised the issue of subsidy and returned with that as a possible solution, but that was in the context of flights from the Scottish mainland to the islands. Is the Treasury willing to grant consent to the Secretary of State for Scotland to allow subsidy under the Act to which I have referred for mainland-island flights ?

Sir John Cope : I am happy to repeat that we will look at suggestions. However, I will not commit myself or the Government in advance to suggestions that have not, as far as I am aware, yet been put to us--or not to me at any rate.

Amendment agreed to.

Column 897

Clause 43


Amendment made : No. 30, in page 30, line 42, after prescribed', insert or allowed'.

Clause 54 --

Accounting for tax and time for payment

Sir John Cope : I beg to move amendment No. 36, in page 35, line 14, leave out

account for tax by making'

and insert make'.

We now move to the insurance premium tax and to a point that is similar to what was covered in one of the amendments in the previous group. It covers the point about nil returns. As I said about the previous amendment, we believe that nil returns for a month or occasional periods could result in time being wasted not only by Customs and Excise in checking whether a return should have been submitted, but by the insurers involved who might receive requests from Customs and Excise and control visits to verify the reason for the absence of a return even though it would have been a nil return. It makes it clear that Customs and Excise regulations can require a nil return from an insurance company which in a particular period has nothing to return.

Mr. Alistair Darling (Edinburgh, Central) : I understand the Paymaster General's point. It is ironic that, although the Government claim that they want to reduce red tape imposed on industry, the requirement for a nil return will be expensive if only because companies have to check whether such a return is appropriate. Obviously, we do not oppose the amendment, but, as we said in Committee, the cost of collecting and implementing the tax will be substantial and the tax will have to be met by the people who pay the premiums--members of the public. The Government should not try to give the impression that the cost of implementing the tax will be minimal because it will be substantial. In time, it may bear quite heavily on the industry itself.

Sir John Cope : As I think the hon. Gentleman is aware, we have done our best to design the mechanics of the tax and its operation in such a way as to minimise the burdens as far as possible. There is another aspect to the amendment which I should have mentioned earlier. Some insurers are likely to have accounting periods in which no tax is due, but some are likely to have occasional accounting periods in which their tax credit claimed in respect of refunded premiums exceeds their tax liabilities in that period. Without an amendment of this kind, they would be unable to claim the balance of the money due to them. That is a further recommendation for the amendment.

Amendment agreed to.

Clause 59 --

Review of Commissioners' decisions

Sir John Cope : I beg to move amendment No. 37, in page 41, line 23, at end insert

(da) any refusal of an application under section 63 below ;'. In Committee we tabled an amendment to permit the group registration of insurance companies that were in

Next Section

  Home Page