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widely as possible so that we do not at any point exclude the small supplier from the chance of entering the market and from securing a fair deal on power along with the large suppliers.The network code under consideration is relevant because it is feared in some sectors of the industry that British Gas, which will, after all, be in control of pipelining, will hold things up to the detriment of some of the smaller users. We have been assured that, by October 1995, British Gas will be in a position to deliver the systems required for the whole system to function. I should like to be further reassured that British Gas will be able to deal with pricing and with all the various balances that have to be facilitated to make the system work effectively, and that it will not militate against the smaller supplier wishing to enter the market. Rates of daily input, for instance, will be part of the system which will have to be put in place. Billing for gas is another factor to consider, especially its time scale, which could have quite an effect on the smaller supplier which relies on 28 days or less--perhaps more if it can get it--to balance its books. We must ensure that the smaller supplier is not at a disadvantage in comparison to the very large supplier which can carry the weight of being billed for the necessary gas on a day-to-day basis. There needs to be a check so that the finances of the small supplier will not over-balance.
It is reasonable to assume that competition in the gas supply market will inevitably encourage--indeed, we want to encourage--people to consume more gas, but that militates against energy efficiency. That matter was raised in the Select Committee and one of the statements that emerged from the evidence given touched on a pertinent point and has always rested in my mind. I shall quote two sentences of the evidence given by the representative of Amerada Hess, Mr. Laidlaw. In reply to a question on energy efficiency, he said: "What we are actually trying to do is secure the maximum number of customers. The way we can do that is actually to offer energy efficiency packages and we have already had, even though our plans are obviously just shaping up, a number of energy efficiency companies contact us with a view to preparing and offering a full energy efficiency package to the residential market."
That is a positive point and it is one of the exciting factors. The argument that energy efficiency will be sacrificed in the rush of people for cheaper gas has been overtaken by the fact that more people will be offered incentives to conserve their gas and to use more efficient appliances.
It is important that the published prices and tariffs are fully available from all the suppliers. In all fairness, the system must be transparent, so that people who have a grudge against it because they see the large users getting lower prices can see also the price tariffs that are open to everyone within the scope of the suppliers. Having listened to the hon. Member for Wallsend, I wonder whether I am in the right country. The way in which he referred to the elderly and the disabled as being priced out and receiving rough treatment made me wonder what kind of people we are in this country. It is almost as though we have lost our ordinary basic common sense by believing that the world out there is a nation of people who want to do down the disadvantaged.
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We do not have ruthless, heartless and unscrupulous business people in our nation. There are people out there who care about the disabled, the blind and the pensioners. They do not need to be told, or regulated, to care. They are perfectly capable of being perfectly reasonable in looking after those sectors of our society and our communities. It is an extraordinary fact of political life today that everyone believes that everything must be regulated because, if it is not, society will do down the weaker people. It is extraordinary that we cannot rely more on people's good nature and common sense to deal with those issues.Mr. Martin O'Neill (Clackmannan): Is not the hon. Gentleman aware that, last week, share prices in the regional electricity companies collapsed because the regulator discovered that he had not been told that one of the electricity companies had something like £500 million tucked away in its books, which it could use as a defence mechanism, not to protect consumers, but to protect the directors of the board of the company concerned? That is going on all the time.
The regulator did not know the information because he had not been told. When he discovered it by chance, he took the opportunity to do something about it. Those are the kind of people who are making money out of the energy business. That is why so many of us are so suspicious of the people who want to get into the industry and why we believe that those people must be regulated far more severely than they are regulated at the moment.
Mr. Banks: We have one of the greatest energy businesses in the world. Our offshore exploration and drilling is second to none. British Gas has expanded abroad since privatisation and become one of the nation's great industries. I am sick and tired of hearing people trying to do down the managements which have gone out there and done something for this country. If we had not put the prospectors into the North sea, we would not be deriving the oil revenues that we enjoy and that help us to improve our standard of living. That has been achieved only by hiring the very best people and paying proper salaries so that they can get on and do the job effectively. Having dealt with that point, I want to consider the question of consumers being able to link up to gas. I understand that there is an obligation in the legislation governing the fact that if a consumer wants to become part of the gas supply network, provided that gas can be made available, it will be possible for that consumer to do that. British Gas TransCo will be responsible for linking people into the system. In a sense, that provision seems to be unnecessary because it is in everyone's interest, obviously not least that of the gas companies, to get more users into the network.
Mr. Salmond: The hon. Gentleman says that it is in everyone's interest. The village of Rosehearty in my constituency is less than 10 miles from the St. Fergus gas terminal, one of the largest gas terminals in Europe. The people of Rosehearty are being offered a connection to the British Gas pipeline service at the cost of £1,000 per household. Under those terms, is that not a rather theoretical right? Is the hon. Gentleman aware that one of the reasons why connection costs have risen so much is that British Gas argues that it now cannot use the previous
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connection formula because someone else could take over those connections after they have been connected at a high cost?Mr. Banks: I am not aware of the specific circumstances to which the hon. Gentleman refers. However, he may be referring to the development of a housing estate where it is necessary to bring gas from quite a distance to service not just one consumer, but a clutch of consumers. I suspect that the £1,000 that the hon. Gentleman quoted may well relate to supplying a small or even medium-sized housing estate. That sum of money, spread among the different consumers, would be a perfectly reasonable price. Competition will certainly bring the price down.
Mr. Salmond: I was talking about a price per household. A few years ago, when British Gas could look over a much longer period in terms of connection prices, St. Fergus, a village similar to Rosehearty, was offered connections at £40 per household. Why, in the competitive world about which the hon. Gentleman is so enthusiastic, has the price risen from £40 to £1,000 per household?
Mr. Banks: I am always suspicious of figures like that. When we look into them, we find that they are not quite as they have been set out. The Bill introduces competition and it has been proved that competition forces prices down. The hon. Gentleman's case is the very case that we are making. We want to get prices down. The hon. Gentleman should vote for the Bill and ensure that there is a better deal for consumers and the new suppliers.
With regard to shippers, it is important that gas suppliers have equal treatment in respect of bringing gas into the system. I urge my right hon. Friend the Minister for Energy and Industry to press for United Kingdom suppliers to have access to European markets for gas supplies. That will be the start of a process which will develop in the countries of our European partners, for example, in France and Germany, and it is important for us, as a supplying nation, to have access and to put our gas into those systems.
Recommendation 12 of the Trade and Industry Select Committee states that:
"The UK Government should continue to press for unimpeded rights for UK gas suppliers in foreign (especially EU) energy markets." It is in Britain's interests to promote that.
I am grateful for the opportunity to make a speech in this debate. I most heartily welcome the measures incorporated in the Bill. I hope that it passes through Standing Committee quickly and that we get on with the job, and with the test that will take place.
6.47 pm
Mr. Nick Harvey (North Devon): Any attempt to transform a monopolistic gas market into a competitive one, in which customers can choose for themselves from whom they wish to buy their gas, is a step in the right direction. For that reason, the Bill receives the broad support of the Liberal Democrats.
The Bill is based on the sound principle that competition gives consumers greater choice and, as such, should bring them benefits that a monopoly market will not deliver. However, what is less certain is whether the legislation is capable of transforming that sound principle
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into sound practice. To that end, we must consider two broad areas of concern to see whether there is adequate provision in the Bill to bring real, tangible benefits to consumers. The acid tests in that context are: will customers receive better service and will they be required to pay less? I shall look briefly at each of those matters. First, will people receive a better service? Since privatisation, British Gas has had a fairly good record in customer services relative to other utilities. Recently, however, we have seen some worrying developments, such as leaked internal memos threatening to charge extra for services for the blind and the elderly, a sharp increase in the number of customer complaints and the beginning of preferential treatment not for prompt payers, but for prompt payers by direct debit. Some have suggested that the reason for those developments is the desire within British Gas to lower its costs to protect its interests in the run-up to competition.Those are examples of the sort of problem which could arise within a more competitive market if suppliers were given the freedom to lower standards and to cherry-pick customers. Against that backdrop, the introductory list of duties for the Secretary of State on the one hand and the Director General on the other should include the protection of the interests of consumers as a primary duty, rather than--as is currently the case in the Bill--a subsidiary duty. Consumer benefit should not be seen as a fortunate consequence of competition, but rather the driving force behind it. Competition itself is the means, not the end.
As regards the specific service standards which will be required of all suppliers, we welcome very much the proposals put forward by one of the proposing suppliers to improve and enforce the current 39 standard requirements to which British Gas works. Polling has shown that standards of service are of great importance to customers, and those must be safeguarded against becoming victims of any frantic price war.
Service standards can be divided into two groups; those which are vital and others which are desirable. Vital services, such as safety provisions and services for the disabled and the elderly should be protected in law and applied fairly to all suppliers. Services which are desirable, but not in any sense life-threatening--answering the telephone promptly, for example-- need not be enforced by law, but should be monitored by consumer groups whose findings should be published so that customers can have the information they need to make an informed choice of who they will get their gas supply from. Balanced against the need for high levels of customer service is the need not to erect barriers to entry into the market which would inevitably lessen the scope of competition. So it is reasonable that only those requirements which are essential are backed up in legislation. However, there are some areas in which the Government's approach to liberalising the market--some of the more important provisos which are intended to be only in the licence rather than in the Bill--must be questioned. For some of the more central pillars of the market, legislation would be more appropriate than regulation. The duty to supply on request-- as was mentioned by the right hon. Member for Copeland (Dr. Cunningham)--is an obligation in the Gas Act 1986 which is not to be found in the Bill.
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Under the proposals, only the regulator will be able to ensure that disabled customers enjoy exactly the same protection as they have had in the past. By putting the provisions in the licence, the already pivotal role of the regulator is extended.If people are to benefit properly from competition, good service must go hand in hand with lower prices. It has been suggested that since the savings promised by the independent suppliers are to be made at the customer end of the supply chain, it would be impossible for prices to fall if standards are to be maintained or improved. That is, by and large, a false thesis. Customer services need not in many instances be expensive, and there is no reason why service standards cannot be improved at the same time as prices are lowered. It must be said, however, that some of the claims being made about the degree of savings to be achieved are probably fanciful at the higher end.
As with service standards, the largest potential barrier to delivering financial benefits to customers is cherry-picking which, in this context, could take place on two levels--choice of area and choice of customers within an area. There must be safeguards against the possibility of competition flourishing only in areas near to gas sources, and also against competition reaching only the more cost-efficient customers within those areas.
Licences will need to cover large enough areas to be comprehensive, but--as the hon. Member for Harrogate (Mr. Banks) said--those areas must not be so large as unreasonably to restrict access for suppliers into the market. As with service agreements, if safeguards against price discrimination are only written into licences, an important check against unfair charging is open to modification in the future without parliamentary scrutiny.
On both counts--the quality of service and the level of pricing--it could be seen that customers who are the least cost-efficient from the suppliers' point of view risk missing the benefits of competition unless they are protected by the Bill as well as by the licences. If a pensioner in the west country has a significantly more restricted choice of supplier than an affluent family on the east coast, we could rightly say that the Bill had failed to establish the necessary structures to protect all consumers. Due to variations in transportation charges, benefits will vary from place to place, but we must ensure that all customers--no matter where they are from --get a gain of some sort.
Mr. Sebastian Coe (Falmouth and Camborne): The hon. Gentleman will, I presume, give unreserved support to the announcement last week that the south-west is to be the first of the pilot schemes, which will guarantee liberalisation and cost savings to that west country pensioner about whom he talks.
Mr. Harvey: The hon. Gentleman anticipates my next point. For the very reasons which he has outlined, the choice of the south-west for the pilot scheme is a good one. There will not just be an opportunity to see whether the computer systems work, but to see whether customers really will be better off under the new system. Once the Bill has undergone parliamentary scrutiny, it will be
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interesting to see whether the people of Devon, Cornwall and Somerset will enjoy the benefits for which everybody hopes.Mr. Duncan: I have not been able to discern from what the hon. Gentleman has said whether he and his party will support the Government and vote for Second Reading of the Bill. Will he confirm that that is his intention?
Mr. Harvey: I assure the hon. Gentleman that I will not sit down and leave him disappointed. I shall come to that point presently. I shall finish the point that I was making about the experiment in the south-west. If the Government are as confident as they appear to be about the proposals, will they consider offering a guarantee to consumers in the south-west who are to be used as guinea pigs in the trial? The south-west has suffered disproportionately from utility costs during the past few years, and the Government should offer a guarantee that--should the system not work as they hope--they will offer compensation.
Mr. Eggar: I am confused by what the hon. Gentleman says. When the pilot scheme goes ahead in the west country, there will be no obligation on the consumer to move from British Gas if he does not want to move. That fact underpins the whole pilot scheme.
Mr. Harvey: I understand the Minister's point. For that reason, it must be seen that it is unlikely in most circumstances that anyone will lose in absolute terms. The acid test will be whether some consumers lose out in relative terms either within a region or, more probably, between different regions of the country.
The Standing Committee will have an opportunity to look at the issues-- including many of the points which the Opposition have made in their amendment--in great detail. But the principle of the Bill of extending competition is right and, for that reason, we will support its Second Reading.
6.58 pm
Mr. Piers Merchant (Beckenham): I was brought up in a world in which the basic household services--electricity, gas, telephones and water--were all provided by public service utilities. I was born after electricity and gas were originally nationalised so I knew nothing else.
Mr. Nigel Evans: What, after electricity was invented?
Mr. Merchant: I can assure my hon. Friend that I was also born after the original gas monopoly was set up, surprising though it may seem to him.
While I have always been a believer in private enterprise and competition, I was not instinctively led in the direction of applying such an approach to the services. Certainly, any suggestion at the time that the Labour party might in some way support such an idea would have been stupendous. I suspect that some of the old Labour stalwarts of the era must be spinning rather swiftly in their graves at the idea that the Labour party should, as it appears to be doing, smile on the idea of competition in the provision of such services--in this case, gas.
I listened carefully to the hon. Member for Wallsend (Mr. Byers). He told the House that competition was necessary and that there was always a presumption in favour of competition. They are welcome words indeed,
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but not ones that would have chimed well with the old approach of the Labour party. It is good to welcome members of the Labour party into the real world and see them accept in the House the importance of competition and, indeed, the vital role that it plays in modern society.The hon. Member for Wallsend somewhat spoilt his speech by going on to advance a thesis that appeared to say that everything had to be regulated. I wonder exactly how competition can operate if regulation is so severe and all-encompassing that those who are in competition can hardly move or vary from a set pattern. The hon. Gentleman also said that, on balance, he had doubts about the Bill for practical reasons. He seemed to say that he went along with most of it but that there were practical problems in it and, for that reason, he would support the reasoned amendment. He finished by saying that he opposed the Bill because it was dogmatic in its base; yet he had accepted its basic principle. I found a considerable amount of contradiction in what he said.
The other point that I picked up from the remarks of the hon. Member for Wallsend was his reference to cross-subsidy, which he described as socialism in action. That struck me as strange because cross-subsidy is an essential part of a competitive system. Anyone who goes to supermarkets-- hardly part of the state sector--will see cross-subsidy in operation in the pricing structures of the goods within that market. It is an essential part of the system. The hon. Member for Wallsend advanced a thesis based on scare stories. That was sad because he had already conceded the importance of competition. I was sorry that he could not take himself a further step and accept the benefits of the Bill, even if he had doubts about one or two sections that could have been dealt with in Committee. I also listened with interest to the right hon. Member for Copeland (Dr. Cunningham), to whom I always listen with great pleasure. He is an eloquent espouser of his cause, but I felt that on this occasion he was more eloquent in making a case where in fact there was none. He seemed to have lost his basic fire. I suspect that he was caught in a position in which he had no principled base on which to oppose the Bill. So he scratched around trying to find justification for opposing it.
The right hon. Gentleman conceded early in his speech any basic principle of objection. He constructed a case based purely on the weaknesses that he thought existed in parts of the structure, rather than the underlying concepts of the Bill, or on scare stories similar to those that we heard, as my hon. Friend the Member for Surrey, North-West (Sir M. Grylls) pointed out, about other privatisation measures that have come before the House in recent years. I said at the beginning of my speech that I had been brought up in a world in which there was only state provision of basic services. I had always supported denationalisation. It seemed sensible to denationalise the manufacturing industries such as steel, and services such as buses and road freight. Indeed, I witnessed when I was fairly young the creation of private broadcasting companies. I have to admit that in the early days I shared the doubts that are now being expressed by the Labour party about privatisation of some of the services. For me it was a journey into unknown territory. I was influenced by popular theories that were around at the time about a mixed economy and the prevalent economic theories that
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natural monopolies had to be run by the state so that consumers were protected, which could not be provided by competition or the private sector.Indeed, I had some misgivings when British Telecom was first privatised. I wondered whether it would work. I wondered whether it was a suitable service to be privatised. I felt that, if it were privatised, it should at least be broken up. I reasoned that surely a private monopoly was even worse than a public one because it had no accountability. However, with hindsight I realised that the doubts that I had at the time were not justified. For that reason, I am utterly confident in the Bill. I base that view not on any dogmatic approach but on my belief that it represents practical reality--the same practical reality as made privatisation of BT and subsequent privatisations work.
Privatisation has turned out, perhaps to the surprise of many people, to be one of the most brilliant, radical and successful developments in public policy in this half-century. British Telecom was the forerunner, but it is entirely right that gas should follow in its footsteps. As a service, British Telecom showed the way in the complex change of ownership and organisation of a whole industry. That process had to be taken in steps.
My second original reservation about the privatisation of British Telecom was about the need to break it up. It was not broken up. I now realise that that would have been a mistake. It was correct to take the privatisation in stages because the operation was complex and it represented such a fundamental change.
Mr. Salmond: I am interested in the hon. Gentleman's personal experiences. Has he spoken to any British Gas shareholders recently? If he has, will he estimate for the House whether they are enamoured with the activities of the company?
Mr. Merchant: I expect that I have spoken to many British Gas shareholders because so many exist. As it happens, I have not discussed the matter to which I think the hon. Gentleman refers, of British Gas and its activities, but the hon. Gentleman is an intelligent enough person to realise that anyone who owns shares will change his views from one moment to the next about the efficiency and effectiveness with which the management of a company operates. I am sure that that is true of British Gas, as it is of any other company. That is an entirely good thing because it puts the company and its management under continual pressure. They have to be answerable to their shareholders. If the shareholders are unhappy with one particular aspect of the management's reign, the shareholders will take action.
The three stages of this type of privatisation process are as follows. The first step is transforming a state-owned company to a private monopoly, which of course is regulated to ensure that it operates generally in the interests of its consumers. The second step is to introduce some competition. Both those stages have taken place with British Gas. The third step is to transfer as far as possible the operations into that of a fully competitive market. That is what the Bill is about. That is why I welcome it and support it in its entirety. I have no doubt that that is the right approach. It is the logical conclusion of what has already been done with the gas industry. Its timing is right. The timing set within its clauses for the move towards full competition is also right. It is a step at
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a time, not a "leap in the dark", as the right hon. Member for Copeland called it earlier. It is a measured step at a time which will achieve its objective.If we think back to the old days of the state-run gas industry, we remember the gross inefficiency as well as the total lack of real accountability to the consumer and the "gas man cometh" stories. We remember the jokes about the gas board and its failure to respond to consumer inquiries and complaints. Indeed, speaking some weeks ago in a debate on the citizens charter, I alluded to my experience many years ago as a journalist, when the paper that I worked for had a department called Action Desk, which was designed to help members of the public with consumer problems. Within a few weeks of opening, Action Desk was completely flooded out by complaints about British Gas, to the exclusion of any other complaints.
Such stories are well known in the public domain. Everyone remembers the poor standards and everyone can see the huge improvement in efficiency that has taken place since. Of course, the system is not perfect and there are still complaints and problems. What area of activity in the retail or service trades does not occasionally have problems?
A simple look at the available statistics will demonstrate how dramatic the change has been. For example, supply restored has increased by leaps and bounds and is now up to 99.5 per cent. within 24 hours. There are special arrangements, such as Gas Care, which did not exist before, and arrangements for the elderly. People can now pay their bills at about 19,000 post offices, instead of only at the rather limited number of gas show rooms. Since privatisation in 1986, there has been a drop of about 20 per cent. in the real price. The drop has been about 35 per cent. for industry.
Equally crucially, investment increased around threefold in that period. It varies between £1.3 billion and £2.2 billion a year, which is a huge amount and benefits not merely consumers, but the economy of the country as a whole. British Gas has been enabled to become a truly international player in energy, with activities in 45 different countries, exploration in 25 countries and supply in countries as wide apart as Argentina and India. That is a remarkable achievement and it shows the sort of business that can be built up, once the shackles of state control are lifted and the company is allowed to compete and to invest.
Mr. Tim Smith (Beaconsfield): My hon. Friend has obviously been watching those rather strange television advertisements about the international achievements of British Gas. Is not the key point that, whereas it is sometimes suggested that there is a conflict between the interests of shareholders and customers, British Gas has been so successful in driving down its costs and increasing productivity in a relatively short time that both customers and shareholders have benefited from privatisation?
Mr. Merchant: Absolutely. My hon. Friend is entirely correct. People who oppose the enterprise system or privatisation try to drive wedges between what they see as various competing interest groups in the industrial structure; but those groups are not competing. It is in all their interests to go in the same direction, just as discounts
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for people who pay their bills by direct debit, which the hon. Member for North Devon (Mr. Harvey) mentioned, are in the interests of both sides. People ask why discounts are not extended to people who pay by cash and do not have bank accounts and British Gas has said that it will also extend them to those people, for a simple reason--it is in the interests of both sides for that to happen. It is in the interests of British Gas to encourage swift payment and a discount is in the interests of the payer. That is the beauty of the system; it works in the interests of all.I was discussing the benefits that have already flowed. Further benefits will flow if the argument is continued. If competition is brought fully into the provision of domestic gas, all of the price, quality and investment benefits that I have outlined will also improve and the customers will have choice--that essential weapon that enables them to change from one supplier to another if they are discontented, or to choose one supplier in preference to another if they feel that what they are offered is better. That also operates in the interests of both sides; the consumer gets a better deal, better quality and better prices and the supplier has continually to improve and review its operations to maintain its market share when in competition.
It is also important to maintain some regulation, which is essentially what the Bill is about. The licences are about ensuring that the triple operations of supply, shipping and transport are carried out in a way that will ensure the success of the whole operation. I am glad about the split, which is a natural one. It too will ensure that the consumer is protected.
Sufficient protections are built into the Bill to prevent cherry picking and to ensure safety and the provision of special services, such as those to the elderly. The detail must come in the licence, as it would not be appropriate for a Bill to include all the detail that must necessarily appear in a licence. The Bill rightly sets up the framework in which the licence is produced. The licence will contain the conditions, but the Bill clearly steers the structure of the licence in the right direction.
Someone commented on tariffs--I think it was the right hon. Member for Copeland--but they will also be sorted out by the market, as long as sufficient regulation is present. I favour light regulation, but I clearly favour regulation and do not want a complete free for all, as we would then lose some safeguards, especially as competition develops. It is unnecessary to go into the detail of tariffs in a licence, let alone in a Bill, because that will be worked out with competition. That is also true of services, such as the repair of appliances, for which there is already a healthy private market. The principle of the Bill is excellent and the practice is thorough and realistic. It is thoughtfully worked through and takes care of the detail, yet maintains a tough regulatory environment. It introduces full competition in three phases, which is sensible timing. There is not a mad rush that might result in things becoming unhinged early on, but it is not put off to such an extent that all consumers will have to wait for an eternity to benefit.
For all those reasons, the 18 million gas consumers will benefit considerably from the Bill. I support it strongly for that practical reason. I am very eager that my constituents should receive the benefits as soon as possible, so I wish it a hasty passage through the House.
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7.17 pmMs Ann Coffey (Stockport): The Gas Act 1986 created a private monopoly in the domestic sector, whose abuses were to be checked by a gas regulator. It has been a highly successful company, but the Bill is an admission by the regulator and the Government that it has not worked for customers. The new Bill is relying on competition to do what the 1986 Act failed to do, but the big question is, will it do it?
There have been problems with the regulator and one of the disappointing aspects of the Bill is that it does not take the opportunity to rectify those problems. The Bill, as well as the 1986 Act, gives the regulator a duty to protect the interests of gas consumers, but that is subject to other duties, including that of securing effective competition. I suppose that one might ask which gas consumers she is there to protect. To assume that gas consumers are an entity is to misunderstand what people out there are about. The Bill gives no clearer definition of the regulator's duties, which is a serious problem. When the actions of the first regulator are compared with those of the second, one is hard pushed to accept that they have the same job description. Therein lies the problem, because part of the definition of their duties is a self-definition. The phrase, "public interest", is, in an independent, non-political arena, totally meaningless. Such a wide definition of duties inevitably means that the regulator is seen to operate within a political arena. How can she not, given that gas is a political issue and every action that she takes has political consequences? Lack of accountability--the gas regulator is accountable to no one--does not necessarily equal independence.
Mr. Tim Smith: The hon. Lady said that the gas regulator is accountable to no one. The Gas Act 1986 provides that the Director General of Gas Supply is accountable directly to Parliament.
Ms Coffey: I am grateful to the hon. Gentleman for his intervention, but I have yet to see how that takes place. The regulator comes to the Select Committee, as the hon. Gentleman says, but is not accountable to it. The Select Committee cannot direct the regulator what to do. In a previous debate on the regional electricity companies, the Minister took great pains to point out that the regulator was independent and had independent duties. The relationship between the Secretary of State and the regulator is also murky. The regulator advises the Secretary of State, and the Secretary of State may take that advice or not. The Bill gives the Secretary of State a veto concerning referral to the Monopolies and Mergers Commission. I presume that the Government's view is that they may as well give the Secretary of State that power because it will save them rejecting the MMC's findings once it has reported. However, it does not help the idea of a credible, independent regulator and it is a great pity that the Bill did not take the opportunity to begin the process of looking again at the duties and accountability of the regulator, who is very powerful and has great responsibilities and duties to perform.
The gas, electricity and water regulators sometimes act inconsistently. Perhaps that is supposed to demonstrate some independence, but, like the MMC, which also shows such a tendency, it can lead to much confusion. Unless there is a stricter remit, we shall be faced with a myriad
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of gas companies and a great deal of confusion. Last week, the electricity regulator, for example, suddenly discovered unknown cash reserves in regional electricity companies. Coincidentally, Norweb directors made £1 million by selling their share options a few days before the electricity regulator announced his decision to review prices. Perhaps they felt able to take their reward as they had performed so brilliantly in hiding from the regulator the extent of Norweb's cash reserves; or perhaps the matter throws a new light on performance-related pay or a corporate response to selling share options.If the Minister is seriously trying to set up a level playing field, why does he not set up TransCo as a legally separate company? If TransCo remains within British Gas, it will create difficulties in terms of transparency and ensuring that extra costs are not passed on to competing gas companies through standing charges. It will also be difficult to ensure that chief executives' high salaries are not passed on to competing gas companies. In essence, making the standing charge cost-reflective will depend on the regulator. As the regulator seems to have had some difficulty in lowering British Gas prices and ensuring better management in the company, there is not much cause for optimism.
Another disappointing aspect of the Bill is its scant regard for energy conservation. At this point, I should say that I am co-chair of the British parliamentary lighting group. As the Minister is probably aware, the group is anxious to install low-energy light bulbs for obvious reasons, but those involve a capital cost. Although the Bill places a new duty on the Secretary of State and the regulator to take account of the effect on the physical environment, and licences will require all gas suppliers to provide energy efficiency advice to their domestic customers, it is not clear where the money will come from for energy conservation measures such as insulation, which is important because it allows people on low incomes to heat their houses for less money. It would have been helpful if the Bill had been clearer about how that would be managed.
Low-income customers are the most expensive to supply in relation to their demand, particularly customers on pre-payment meters. I approve of pre- payment meters as an alternative to disconnection, but those who use them currently pay 12 per cent.--I hesitate to mention the figure--more than those on direct debit. So those who can afford to pay least for their gas pay more. How will competition help them? Much of what we have heard is simply speculation, as no one knows whether the standing charge will come down. What is not speculation is the fact that cross-subsidy by British Gas helps low-income customers to some extent. In the short term, therefore, cost-reflective pricing will raise the cost of gas to those customers.
Not all customers are the same, nor are their interests, and British Gas has ably demonstrated that with its discount to direct debit customers. That discrimination can continue because it is a saving offered on an administrative cost, but pre-payment customers will not benefit from such a saving. British Gas made a pre-emptive strike at "cherry picking" because direct debit customers are attractive. Moreover, they are likely to be offered further administrative savings, so competition will without doubt benefit them. The bottom line is that they will get their gas more cheaply than those on pre-payment meters.
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Irrespective of what the independent gas suppliers say, I do not believe that low-income pre-payment customers are an attractive proposition. They are likely to continue to pay higher prices while better-off customers benefit. The gas companies cannot refuse to supply them, but I doubt whether that group of customers will leaf through the "Yellow Pages" to find another gas supplier. People in that group probably have no telephone as they cannot afford the connection charge or have had their telephone disconnected. The independent companies probably know that those people will not ask them to supply them, and that they can afford to target better-off customers. So who will ensure that pre-payment customers benefit? The regulator obviously has some remit in the matter, but the interpretation of her duties is wide. The DTI said in its response to the report of the Select Committee on Trade and Industry:"We accept that by the very nature of competition there must be some uncertainty as to the scale and distribution of benefits". That is true. It is at present a matter of speculation. It is worth remembering that the supply of energy to the poor and needy is a social responsibility. It is ultimately a Government responsibility. It is not the responsibility of the market and delivery cannot be made by the market. In those terms, the Bill will not deliver. If the Bill will not deliver, what will? I have not heard what or who will deliver. Have we reached a state where gas has become just another commodity, a situation in which if someone has the money he will be supplied with gas, and if he has not, he will not? If that is the state to which we have come, it is not good enough.
7.30 pm
Mr. Sebastian Coe (Falmouth and Camborne): I approach the debate with a feeling of deja vu, and I am interested in the division of attitude that has already been established across the Chamber towards the Bill. I am interested also in the revisionist historians who are packing the Opposition Benches. I accept that I must be careful because the Liberal Democrat spokesman this evening has shown some enlightened approaches to the Bill.
As Opposition Members are busily rewriting the history of privatised industry in the 1980s, it is worth reminding the House that in 1979 publicly owned companies were costing the taxpayer about £50 million a week. The newly privatised companies, which were lauded as public sector operations by Opposition Members, are now contributing about £50 million a week in taxes. I suggest to Opposition Members that we should not be manning the barricades over the new-found profits of recently turned private companies. Instead, we should be saying that these companies are not contributing enough and that it is necessary to push for more. We should be seeking higher levels of profit, with which will go a considerable tax take. Last year, British Gas made a tax contribution of about £500 million. When the Government came to power, British Leyland and other clapped-out public sector industries were not making massive contributions to the welfare state through the tax take.
I sense that Opposition Members are merely going through the motions. They no longer believe in the nostrums that they were brought up to espouse. It is
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interesting that weekend after weekend we witness one policy U-turn after another. A few weeks ago there was the acceptance of education league tables. Apparently the Labour party suddenly came to the conclusion that opted-out schools were not a disaster for the British people, or even for key members of the party. I read with great interest today that we are about to be confronted by a Labour U-turn on private health.I rather fancy that before the next general election, when the Labour party has sorted out the words that it hopes will get it through on clause IV, privatisation will be well and truly enshrined in its policy.
I welcome the Bill for all the reasons that have been identified by my right hon. and hon. Friends. They go beyond the mechanistic reasons that centre on the opening up of the market, the sensible opening of North sea supplies and the availability of pipelines to companies other than British Gas. We know that as a result clear benefits will accrue to about 18 million consumers.
The Bill is to be welcomed because it represents an extension of the Conservative party's belief that at the centre of policy must lie consumer choice and sovereignty. If we ever walk away from that as a concept or philosophy--I am sure that it is one in which Opposition Members believe, although they would implement it differently from us--we shall be selling consumers short. The Bill offers the freeing of a market. It continues the downward pressure on utility costs. The consumer does not regard price as the only touchstone of a service. He or she will have regard to a range of other factors. I am pleased that enshrined in the Bill are sensible provisions for disabled people. My right hon. Friend the President of the Board of Trade has given a commitment to take account of the interests of blind people. The Bill contains provisions for the elderly, for those about whom the hon. Member for North Devon (Mr. Harvey) talked. We know that there are pensioners who might find life difficult. The provisions to which I am referring are sensible, central and integral to the proposed legislation, as are those that relate to safety. Perhaps it is a liberty to speak on behalf of Opposition Members, but I think that there is broad agreement that such provisions are key tenets of the Bill.
I have spoken in the House on many occasions about the importance of inward investment into Great Britain plc and into our peripheral regions. Inward investment is the lifeline of the economics of peripherality. If it is important as a general concept, it is a supply of oxygen in an area such a Cornwall.
For some in my constituency, life is a hard-pressed existence. Average incomes are significantly lower in Cornwall than in other parts of the country for a myriad of reasons, including structural changes within the economy. If inward investment is to mean anything tangible in my constituency, we must have regard to the decision-making processes in boardrooms the length and breadth of the country, in Europe and even wider afield. Areas will be selected where there is seen to be a sensible business return.
Cornwall has been successful in attracting inward investment. I can think of two or three notable examples over the past year or so. At Redruth, Contico plastics, an American-owned multinational company, decided to set up its European manufacturing base. It had trawled Europe before coming to that decision. It was not a happy accident. The company decided to establish its base at
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Redruth because of a flexible, well- educated, committed and loyal work force. It did so also because of our belief that businesses should not be saddled with overly burdensome regulations. Central to any future investment decisions are the costs that are likely to be faced through utility charges. That is why I welcome unreservedly, as I did last week, the decision to use the south-west of England for the first pilot scheme. It will produce dramatic downward pressure on the cost of gas supplies to consumers. That is nothing new in commerce. There were reductions of between 10 and 15 per cent. in the cost of gas supplies to businesses. I am pleased that there are potential advantages for household consumers of anything between 10 and 15 per cent. I hope that the assessments are right. I would settle for even less than those percentages. It must be a move in the right direction. For the heart, the vibrancy and the economic base of Cornwall and the rest of the south- west of England it is vital that we maintain downward pressure on utility costs and charges, which, in my constituency, take up an inordinate amount of disposable income.The proposed legislation is sensible. I am sure that it will be treated sensibly in Committee. I have great pleasure in supporting it this evening and I will support it on Third Reading. I commend it to my constituents, whom I know will be looking to many of the pieces of the Bill tonight to produce real advantages for them in their businesses and their domestic households.
7.39 pm
Ms Judith Church (Dagenham): I am grateful for the opportunity to speak in this important debate. I addressed many of our prime concerns about the proposed legislation in November when I spoke during a debate on the Gracious Speech. Since then, few people in the country can be unaware of the bad smell surrounding British Gas: the stench of corporate greed with orbiting fat cat salaries for those at the top; share options showering like Smarties; and bonuses that beggar belief. The Government might like to pretend that it is nothing to do with them--the "It's not me, guv" simpleton expression that they assume when their chickens come home to roost. But the people of this country are not stupid. They know who was responsible for privatising British Gas. They know that their money is paying for these outrages. They know that the Bill will not lead to lower prices for most of them, just reductions for those who are most able to afford to pay and relatively more expensive gas for the least well off. It is called "cherry picking". It happened in health-- [Interruption.] Conservative Members should listen, because they might learn something tonight. It happened in health, where general practitioners do not want the most expensive patients on their fundholding lists. It happened in education, where schools are selecting pupils who will be the least troublesome, and it has happened in gas supply already, where British Gas now has an extra 1 million customers paying by direct debit since it announced that there would be a 5 per cent. discount for "good" payers last November.
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The Bill is seriously flawed--Mr. Eggar: Will the hon. Lady give way?
Ms Church: I shall certainly give way to the Minister.
Mr. Eggar: I am grateful to the hon. Lady. Will she tell us whether she opposes her constituents who are paying less for their gas, because they have voluntarily opted to pay by direct debit, thereby saving money, or is she in favour of them paying 5 per cent. more for their gas than they do at present.
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