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The assumption that the supply of gas to the public can best be undertaken on a monopoly basis dates from 1847, when a committee of inquiry led to the passing of the first Gasworks Clauses Act. The conclusion that monopoly was the necessary form of organisation was based on the poor economics of laying competing pipelines and the associated disruption in terms of street works that that was found to entail.
The idea of separating the trading functions from the operation of the distribution pipes has emerged progressively over the past few years. We have an active competitive market in the supply of gas to industrial and commercial customers. These customers have already seen savings of 10 per cent. to 15 per cent. or more as a result of that competition.
The Bill provides a sound foundation for the phased introduction of the benefits of competition to the 18 million domestic gas customers in Great Britain. The Bill will empower customers to demand the levels of service that they want. It will provide a powerful incentive to innovation and efficiency, and it will provide a strong downward pressure on average prices. Already since privatisation, we have seen a fall in the price of gas before VAT of more than 20 per cent. in real terms and an even larger fall in the standing charge. Alongside that, British Gas has invested £9 billion in the United Kingdom since 1986, including a £2 billion programme of mains replacement to improve safety.
Mr. D. N. Campbell-Savours (Workington): The President of the Board of Trade used the word "average". Can he illuminate that-- [Interruption.] I do not think that the Minister for Energy and Industry needs to tell the right hon. Gentleman the answer. He does not need help in that way. Will the right hon. Gentleman tell us what will happen to low-use consumers of gas? Will their bills go up substantially, as is being argued?
Mr. Heseltine: I can try to help the hon. Gentleman. "Average" is a complicated idea. One has to take the lowest prices and the highest prices, put them all together and divide them by the number of consumers. Out of that
Column 577calculation comes what we customarily called, when I was at school, an average. I hope that the hon. Gentleman has noticed that I did not need to refer to my right hon. Friend the Minister for Energy and Industry for that remarkable piece of memory of my childhood years.
Mr. Dafydd Wigley (Caernarfon): I do not want to challenge the right hon. Gentleman on the definition of "average". He will be aware of the danger that a person walking through a river with an average depth of 4 ft 6 in may drown in the middle. Is he not aware of the danger, within the average charges, to rural areas? If charges are required to reflect the costs of the supply of gas, the charges in rural areas may increase disproportionately, albeit within the average, which will hit some people hard.
Mr. Heseltine: As the hon. Gentleman will know, it has been suggested that because of the transportation charge, there may be a differential of between plus and minus 2 per cent., depending on the area. That has to be set against the forecasts of the companies anxious to enter the market. They can see economies of up to 10 per cent. in overall prices. Those matters will be dealt with considerably in the licences that the regulator will issue. The details of the licences will appropriately be explored in Committee, if the Bill receives a Second Reading.
Mr. Peter Bottomley (Eltham): Is not the key point that over the past 20 or 30 years, gas has expanded from covering 7 per cent. of households to about 50 per cent.? Many people in rural areas wish that gas could reach them. If the transportation variation is so small compared with the rest--except when oil prices are very low--most people will be glad that gas has been extended to more people.
Mr. Heseltine: That is absolutely right. That is why my hon. Friend will have welcomed the figure that I gave for investment by British Gas in widening and modernising its facilities; that investment amounts to £9 billion since 1986. That money has been obtained without recourse to the public purse because it has been raised in the private market.
Mr. Richard Caborn (Sheffield, Central): Can the right hon. Gentleman enlighten the House on how he believes that the Bill will proceed in terms of the transportation charge? First, there is the geographical point, which he explained to the House. Secondly, there is the variable and the fixed part of the gas charge which, as he probably realises, the Select Committee on Trade and Industry brought to the attention of the House. Can the right hon. Gentleman give the House any assurances that the average price for TransCo was at the lower end? Both the right hon. Gentleman and the regulator accept the figure of £15. Can he give assurances that the cross-subsidy, which is now built into the price, will continue and that it will not be removed in the near future?
Mr. Heseltine: The hon. Gentleman puts the case very fairly, in asking about the £15 standard charge that is built into the proposals. That matter is subject in the end to the regulatory regime, but obviously there would be no point in changing the regime shortly after it had been introduced. I am sure that the hon. Gentleman will be reassured by the answer that I have given.
Column 578In formulating our proposals, we have been careful to ensure that safety will remain a top priority. We asked the Health and Safety Commission for a detailed report on our proposals. That report was published last week and we have accepted it.
It is central to our proposals that every supplier will have an obligation to supply on request any domestic customer covered by its licence. It will charge for gas against publicly available price schedules. There will be a number of measures to discourage cherry picking of the more attractive customers and rules to deal with price discrimination by nationally or locally dominant suppliers. At the same time, market entrants will be allowed to choose pricing structures that meet consumers' needs. If some new suppliers wish to enter the market on the basis of a standing charge set at zero, as one has suggested that it may, we would not wish to stand in its way.
We shall ensure that the requirement for special services to pensioners, the disabled or the blind and to those who have genuine difficulties paying for their gas should continue. That includes important services such as the free gas safety check for pensioners or disabled people who live alone and the provision of a range of special controls and adaptors to help with the use of gas appliances. The current requirements for service in those areas will be maintained and, in some cases, enhanced. All suppliers will have to bear their share of the social obligations to those customers, but there will be arrangements in the licences for a levy to share the costs of those services in certain circumstances if they fall disproportionately on a particular supplier.
Mr. Peter Hardy (Wentworth): The Minister referred to social obligations. Does he feel that the Government have any social obligation to the many Sids and Mrs. Sids who were beguiled by Government legislation, persuaded to buy shares in British Gas and who had not expected that, in the short time to which he referred a moment ago, such a dramatic change in their circumstances would be effected?
Mr. Heseltine: The hon. Gentleman has made an important contribution, but is he quite sure that he has the right industry? We are talking about the gas industry this afternoon, not the electricity industry.
Mr. Heseltine: I understand that. The complaints of his right hon. Friend the Member for Copeland (Dr. Cunningham) are about the electricity industry, not the gas industry. If I may say so, it is a quite bizarre reversal of fortune for Labour Members to know that there are even things called shareholders, let alone to rise to their feet to defend them.
Dr. John Cunningham (Copeland) rose --
Dr. Cunningham: I am talking about this Bill. The Minister mentioned a levy on all providers. That is not in the Bill and the House has not yet had the advantage of seeing the licences, because they have not been published.
Column 579Is he telling the House, and is he giving a guarantee, that that matter is agreed between himself and the Director General of Gas Supply?
Mr. Heseltine: From the licences around, the regulator would decide whether that was a necessary development. The power to levy a charge to ensure that those services are protected is in the legislation.
Dr. Cunningham: Yes, we understand that, but that was not really the point of question. The power is there, but is the right hon. Gentleman guaranteeing that it will be implemented, and is he guaranteeing that the director general will ensure that that power is used in the way that he suggests?
Mr. Heseltine: The right hon. Gentleman can be absolutely sure that the Government's intention is to ensure that the services that we are talking about are protected for the benefit of those who depend on them. The power in the Bill therefore ensures that the opportunity to do that exists. If the regulator could find other ways of doing that through the licensing system, that would achieve the same ends. However, that is not in any way a substitute for our determination that those services should be maintained.
Mr. Heseltine: Not in a way that would act adversely against the Government's intentions in introducing this legislation. That is the point. The Government are determined to preserve the social implications of the legislation, and the powers to do that are there in the ability to levy in the way that I outlined. I do not in any way criticise the right hon. Member for Copeland for pressing me on the point, because it is important and it is one that the Standing Committee will want to consider when we get to the details. I wholly accept and welcome that as the point is very important.
Dr. Keith Hampson (Leeds, North-West): My right hon. Friend has just said that what we are seeing, or about to see, is a total revolution in the energy industry. Does he believe that one way to stop the scare stories that are being put about by Opposition Members to the effect that those on low income and the disabled will lose out, may be to guarantee to people-- particularly during the transitional period--that the present British Gas standards are an absolute minimum and that that will be enshrined in a code of practice, which the regulator will have to follow in the legislation? Would not that shut up Opposition Members?
Mr. Heseltine: My hon. Friend makes an interesting point. However, without committing ourselves to a code of practice, the Government's intention is to ensure the outcome that my hon. Friend has drawn to the attention of the House: in other words, the standards of British Gas today are the minimum standards. How we ensure that that happens is an issue that we shall have to resolve in
Column 580detail. However, it is irresponsible and unforgivable for the Opposition to suggest that somehow or other those minimum standards will not be maintained. They will be maintained.
Sir Michael Grylls (Surrey, North-West): Does my right hon. Friend agree that the scares being raised by the Labour party are very familiar to Conservative Members, because they were raised when we privatised British Telecom? At that time, Labour Members said in the House that all the telephone boxes would be closed after privatisation, but the outcome has been that there are 50 per cent. more telephone boxes and 96 per cent. of them are working.
Mr. Heseltine: My hon. Friend reminds us, if we needed reminding, that every piece of competition-enhancing or privatising legislation put through the House by this Government has been subjected to total misrepresentation, deliberately and cynically, by the Opposition parties in order to try to persuade us not to proceed. When we have proceeded, their forecasts have turned out to be misleading and worrying for the particular groups of people on behalf of whom Opposition Members claim to speak.
Dr. John Reid (Motherwell, North): What the Minister is saying about the maintenance of minimum standards and social responsibility is utter balderdash. Can he answer my question without reference to all the President's men beside him? If what he says is the case, why are there 60 fewer home service advisers to visit old people and disabled people, to advise them on the adaption of gas equipment? Without reference to all the President's men, can he tell me why those minimum standards are being reduced day by day?
I have never been ashamed to turn to my right hon. Friend the Minister for Energy and Industry, to seek his guidance on a matter in respect of which he is a well-known authority. Usually we manage to reach an agreed view, which I then present at the Dispatch Box. That is very different from what we see happening in the Labour party, where leading spokesmen fight each other to get to the Dispatch Box to give the different views of the Labour party's current policy. We have a bizarre situation in which the Labour party is largely absent from the debate this afternoon because it is now trying to agree its new policy on privatisation. We know perfectly well that when Labour Members have agreed, 53 per cent. will believe that they have won and 47 per cent. will believe that they have lost. If the Labour party ever came to power--which heaven forfend--half its members would sit on the Back Benches opposing the government in which they had been elected to serve. They would then talk to us about divisions in the Conservative party.
Column 581interest in blind people. Can he confirm that blind people will still be provided with Braille controls by all gas suppliers?
Mr. Heseltine: I have given way enough. We must maintain the high standard of the debate and keep to the intellectually coherent case that I wish to deploy without that case being knocked about by the roughnecks on the Opposition Benches.
Mr. Spearing rose --
The Bill retains the duty to promote energy efficiency. It creates a new environmental duty, which would, for example, require the director general to take into account the environmental impact of losses in the gas transmission system. The licences will extend to all domestic supplies the current requirement on British Gas to produce energy efficiency services and advice.
Perhaps most important, we are sweeping away the requirement that gas can only be sold as a fuel. The Bill will allow gas to be sold as part of an energy package, including a more efficient boiler as well as the gas itself. Suppliers will be able to compete in selling warm houses and not simply in selling gas, and they will have every incentive to compete by offering such added-value services as well as competing on price.
I believe that competition will provide a powerful dynamic for energy efficiency. I know that Labour Members have always taken a cynical view about that. They believe that the only way to promote energy efficiency is through public expenditure or levies on other consumers. But they have always scoffed at what a competitive market can achieve. They have always been proved wrong in the event. The principal concept underlying the Bill is the division of the various components of the gas industry. In particular, the public gas supplier envisaged by the Gas Act 1986 is to become three separate types of entity.
The first is the public gas transporter, who operates the pipelines through which gas is delivered to premises. The Bill recognises that, at the level of local distribution, that
Column 582remains a monopoly function. Accordingly, British Gas's prices for transportation services will remain closely regulated.
The second entity is the gas supplier, who will contract with the customer for a supply of gas and will be responsible for delivering the services that the customer requires.
The third entity is the gas shipper, who performs the specialised function of arranging with public gas transporters for the right amounts of gas to be put into pipelines--normally at the beach--and conveyed to premises. In effect, that is a wholesaling function. The Bill requires that public gas transporters are separate legal persons from suppliers or shippers. However, the Bill allows the supplier and shipper functions to be handled either by the same entity or separately so that companies can organise themselves to fit their expertise.
A memorandum giving details of the principal terms of the licences--to which Opposition Members have drawn the attention of the House--was placed in the Library last week. The legal drafts of the licences are being prepared and will be published as soon as they are ready. We will of course listen most carefully to the views of hon. Members, the industry and others with an interest as we move towards finalising those standard conditions.
The Bill's detailed provisions largely consist of amendments to the Gas Act 1986 to give effect to the new structure and to provide an appropriate system of licensing. Clauses 1 and 2 adapt the duties of the Secretary of State and the director to the new regulatory framework. Clauses 3 to 8 introduce the new licensing framework for the industry, appropriate to the introduction of full competition. Clauses 3 and 4 and schedule 1 make it a criminal offence, subject to exemptions, to act as a supplier, shipper or transporter without the appropriate licence.
Clause 5 sets out the licensing regime for public gas transporters. Clause 6 sets out the licensing regime for gas supply and gas shipping. Clause 7 provides for the scope of licence conditions and procedures for application. Clause 8 enables the Secretary of State to determine and publish standard licence conditions and provides for their incorporation in licences. The Bill includes a number of other clauses and schedules, which there will be an opportunity to consider in detail at a later stage.
This Bill brings to an end a 150-year period of monopoly in the gas industry. It provides for the change to take place carefully and with fully adequate safeguards, yet it will allow people in the pilot areas to start benefiting from competition from next April. No stronger confirmation could be seen of the popularity of our proposals than the widespread interest that has been shown by people and their elected representatives in participating in the pilot phases. The Bill sets out proposals that have been welcomed by British Gas, by independent suppliers and by the Gas Consumers Council.
Perhaps I can take the House just a little further back in history and deal with the views that the Labour party has expressed on the issue. As we listen to what the right hon. Member for Copeland says this afternoon, we ought to know the judgment, authority and quality of view that lie behind the Labour party's policies.
Column 583In 1985, the right hon. Member for Salford, East (Mr. Orme), who was then the Opposition spokesman, said:
"There is no evidence that the Bill will improve efficiency, provide a better service, produce cheaper gas or, least of all, create greater competition."
As the House knows, there have been significant reductions in the price of industrial and commercial gas. There has been a significant increase in competition. There is certainly improved efficiency and a wider service.
The next forecast that we were to hear came from the Liberal spokesman, the hon. Member for Gordon (Mr. Bruce). He told us that "the 16 million British gas consumers can expect only one result--to pay increased gas prices, higher than the rate of inflation, for years to come."--[ Official Report , 10 December 1985; Vol. 88, c. 780-93.]
The whole House knows that there has been downward pressure on prices. The forecasts are that that will be intensified as a result of the Bill. The average annual gas bill for domestic consumers fell from £392 to £315 including VAT in 1994, in real terms. That is a fall of almost £77 per average domestic consumer.
So what happens? The Opposition forecast inaccurately at every stage. The hon. Member for Clackmannan (Mr. O'Neill) said on 3 October 1994:
"The Labour party has no interest or intention in seeking to return British Gas to the public sector."
That is not altogether surprising, but it should be contrasted with a statement by the right hon. Member for Salford, East. He told us in 1985:
"We shall reacquire the assets, based on the policy of the Labour party conference."
The only conclusion is that Opposition Members got their judgments wrong and because their judgments were so wrong, they changed their policy. Now they know that they cannot possibly go back to the electorate with the policies that a few years ago they believed were absolutely essential. That is why the Labour party is in such turmoil on clause IV.
If one thinks that the Labour party's policy is some sort of muddle based on misjudgments about the gas industry, perhaps I may trespass on the House's time a little longer. When the right hon. Member for Sedgefield (Mr. Blair) led for the Opposition in opposing the Electricity Bill in 1988, he said:
"what is proposed today is not something radical, evolutionary and new, but something old-fashioned and failed."
Yet now he is flogging around the country trying to persuade his party that the things that we did in 1988 are so central to the economic fabric of society that they cannot be changed.
Just to illustrate the depth of knowledge that he brought to the subject, the right hon. Member for Sedgefield had to say:
"the idea that we will have an influx of power stations, all competing on the grid, is nonsense."
Yet I was at the Dispatch Box a year or so ago when the Labour party condemned us for the dash for gas, which produced precisely the range of power stations that the Leader of the Opposition forecast would not be produced.
The last forecast stands in line. It is from the right hon. Gentleman in the same debate in December 1988:
"In exchange for having no choice, we have the reality of higher prices."-- [ Official Report , 12 December 1988; Vol. 143, c. 680-84.]
Column 584Yet everyone knows that the downward pressure on prices has continued throughout that time.
I took the liberty of looking once again at the amendment tabled by the right hon. Member for Copeland and his right hon. and hon. Friends. This is what Opposition Members will vote for tonight, if they get the chance. It says that the Bill
"is damaging to the interests of many sections of the population, including elderly people, those with low incomes and those living in South West England, Wales and other parts of the United Kingdom distant from beaching points".
That is clear. That is their opinion. I took the liberty of asking whether any representations had been made by local authorities to be the first experimental area to have the benefits of the competition that will do so much harm to the elderly, those on low incomes and those living in the south-west. After all, if this is so obvious, so important and so devastating for the people for whom hon. Members on both sides of the House have the utmost sympathy--this is going to be a good one--no authority would want to be an experimental area. The Tories do not come out of this story as well as I would like, if the standard is the imposition of hardship on all those hard-luck cases. Only two Tory-controlled local authorities applied to be part of the first experiment. The Liberal party did rather better. It did 100 per cent. better than the Tories in trying to impose, in the language of the Labour party, hardship on all the most pressurised classes in society. Four Liberal local authorities wanted to be part of the first experiment.
I warned the right hon. Member for Copeland that there was trouble coming. What did we discover about the people who were going to damage the interests of many sections of the population, including elderly people and people on low incomes scattered all over the place? Who takes the prize for the number of local authorities that came to my Department and asked to help get the experiment in place? The right hon. Member for Copeland should stand up and be counted. Six Labour authorities, as opposed to four Liberal and two Tory authorities, applied to be part of the experiment. So which is the party that really cares? Which party is in the business of damaging the interests of elderly people and people on low incomes? It is the Labour party.
I say to the right hon. Member for Copeland and to you, Mr. Deputy Speaker, for goodness sake, if you can get away from the Chamber, go back to where clause IV is being drafted and check it against the amendment on the Order Paper today. The Labour party will have to do some pretty fast talking if all the forecasts for which it will vote tonight come right. The Labour party has campaigned most arduously. We might ask a question or two about the Liberals. The Liberal party will undoubtedly vote for the Labour amendment, abstain or something-- anything to keep out of the Government Lobby. That will be the Liberals' position, because they want to pretend that they are a distinctive party.
On 13 October 1994, the hon. Member for Gordon, who was the Liberal Treasury spokesman, sent a letter to my right hon. Friend the Minister for Energy and Industry. The hon. Gentleman has moved on. The great thing about being a Liberal spokesman is that one never stays in the job for long. One can abandon the position that the party
Column 585has adopted one month, hand the job to someone else and disown it the next, in any part of the country. In that letter, he said: "I am concerned to read that the Government may be unable to find sufficient space in the Parliamentary timetable to legislate for competition in the gas industry.
It is extremely important that the legislative framework for this is put in place as soon as possible".
So that there should be no doubt--even for people like myself who perhaps do not pay as much attention to the Liberals as we should--the letter continued:
"`i.e.' the next session in Parliament."
Even I could work out on 13 October 1994 when the next Session of Parliament would be. I have good news for the hon. Gentleman--join us in the Lobby tonight, because this is the legislation that he regarded as so critical just a few months ago.
Mr. Caborn: On a very important point of order, Mr. Deputy Speaker-- the security of Government files. I have just been handed a file on the Second Reading of the Gas Bill--a file that obviously should be in the Minister's hands. All the points that he has mentioned are there--notes on intervention, regional pricing, winners and losers, small customers, cherry picking, direct debit, jobs, safety and the role of the regulator. They are all here in this file and as you will see, Mr. Deputy Speaker, they are marked, "Priority", "Immediate", and "Priority" again. I am sure--
Mr. Deputy Speaker (Mr. Michael Morris): Order. The Chair is not responsible for any sources of reference that hon. Members may have. Clearly, the speech of the President of the Board of Trade has a little way to go yet.
Mr. Heseltine: It is a huge hoot that the hon. Member for Sheffield, Central (Mr. Caborn) should be able to raise that matter today, but if he ever gets into government, he will discover that everything leaks. All that he has demonstrated is that that was a particularly proficient and professional example of the art. Had I organised it myself, I could not have done it faster, and I could not have chosen a nicer hon. Member to do it to.
Another reason why the Opposition will try to persuade the House to vote for their amendment is that the Bill
"omits any regulatory provision to enable price cuts to consumers where there are unjustified salary and share options awarded to senior employees."