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Mr. Butterfill: The hon. Gentleman neglected to mention the Central Electricity Generating Board, which was subject to very heavy Government subvention, as of course he will remember.
Mr. O'Neill: I remember the CEGB and the South of Scotland electricity board, too. One of the problems in the structure of our electricity generation was that, whenever one of our national flag carriers did not have enough orders for power stations abroad, it went to the CEGB, which went to the DTI or the Department of Energy and asked, "Can we build a power station, because there is a generating equipment company that needs orders?" There was a circular movement, and the private and public sectors were virtually indistinguishable because of their interdependence and their desire for Government support whenever they could get it.
Cynics could say--I include myself among them--that if shares are sold off at too low a value, their valuation is bound to increase if large sections of business debt are cut away. Performance is sure to improve if management then introduces efficiencies, and in this context these were efficiencies that the treasurer of a bowling club could have identified and carried through. In the circumstances that I have outlined, costs fall and profits rise. If the businesses concerned operated monopolies, or at least oligopolist markets, there would have been the need for price regulation of a toughness far greater than that which we saw in the early stages of the post-privatisation period.
We saw prices fall after regulatory reviews. Probably we all remember the 1993 electricity price review. The cuts were so ridiculously low that the greatest impact was on the company's shares, which rocketed. The regulator had to return to the matter the following year and take a second bite at the cherry. If anything discredited regulation, it was the ineffectiveness of the then regulator.
Mr. Gibb:
Will the hon. Gentleman admit that none of these discussions or future price cuts would have occurred had the companies not been moved into the private sector? We would have had year-on-year increases, as we had until privatisation took place. Can he not just admit that point?
Mr. O'Neill:
No, I cannot just admit that point. I am not prepared to accept that argument when we remember comparable companies elsewhere in Europe, which charge lower electricity and gas prices than those charged in the United Kingdom, and which are still in the public sector.
There is nothing intrinsically good or, in many respects, bad about privatisation in this context. However, if privatisation takes place and we allow monopolies to
shamble on as they did until the late 1990s, it is possible that there will be gross distortions in the market and gross abuse of power. That was evidenced by the introduction of a windfall profits tax by the Labour Government, about which there was precious little complaint. I have always wondered whether that tax was a bit too low. It has not dramatically affected the performance of the companies concerned or their capability to continue to reduce prices.
We must recognise that utility businesses, by their very nature, are long term: they are safe. We heard the special pleading of the hon. Member for Tiverton and Honiton in the context of the PowerGen press release. Any regulation and toughness that applies to PowerGen will have an element of novelty. The returns of its shareholders and of the shareholders of other utilities have been far in excess of the performance of the FT index over the years.
In other countries where utilities are quoted and traded and where markets are operating, their performance in stock market terms is far more modest than that of utilities in the United Kingdom. It is not the intrinsic efficiency of the UK that leads to the figures for our utilities being so much higher than their counterparts elsewhere. The reason is the weakness of the regulatory system, in its varying forms. Another factor is the personality of the regulators, on occasion. Sometimes they were scared to go in too hard because they interpreted too weakly the powers that had been determined by legislation. On other occasions, they were naive and had the wool pulled over their eyes.
There was the Littlechild experience, which could be described as naivety. On the other hand, there was the experience of James McKinnon in the gas industry. He was faced with the arrogance and obstructionism of a privatised company which refused to provide him with any information and treated him with contempt. However, he stuck to his last. He did not do so from any left-wing populist standpoint. James McKinnon was a regulator who was prepared to take on one of the great energy companies of the world and beat it in a number of areas. He did so with little or no support from the Government of the day. Sadly, that approach was not sustained by his successor.
We must get away from the personalisation of the regulatory system. That is why I recommend that, within the regulatory structure that the Government are putting forward, there should be a more collegiate approach. In addition, there should be a requirement on the director general, who is responsible to his college or board, to produce a clear programme of work. That is what Don Cruickshank did when he was at the Office of Telecommunications, but no one else did. Others merely had vague ideas of what they wanted to do.
The shambles that for a considerable time surrounded the liberalisation of the electricity market was due to the fact that the Conservative authors of the idea did not make it clear whether the Secretary of State or the director general was responsible for the liberalisation of domestic electricity prices. As a result, none of the companies moved in that direction for years, and it took my hon. Friend the Member for Leeds, West (Mr. Battle) to come
to office, knock heads together and finally get things moving. The liberalisation took place, with all the attendant problems.
Mr. Butterfill:
The hon. Gentleman has been extremely generous in giving way again. He will remember that the evidence given by consumer groups to the Select Committee on Trade and Industry, on which he and I serve and of which he is a distinguished Chairman, was against the idea of a board of regulators--a committee form of regulation--and that most of them took the view that it was better to have as a regulator a single personality, particularly a strong personality, because more would be achieved that way.
Mr. O'Neill:
I think that the consumer organisations were wrong there, and I believe that my right hon. Friends on the Front Bench are of the same mind as I am. Over-personalisation is a draw-back.
The Bill is complex, and we could all make long speeches about it. I welcome the recognition of the fact that the gas and electricity sectors should be combined. I welcome the clarification of the social and environmental aspects of regulation. I have been extremely frustrated by the opportunities taken by obtuse regulators to reject the notion that there is a social dimension to their responsibilities.
Those who believe that regulation will wither away like Lenin's state will probably have to wait as long as people in the former Soviet Union had to wait for the withering away of at least part of the state. When environmental targets are adopted, as they were at Kyoto and subsequent conferences, and when the screw is turned, it will be important for the Secretary of State to be able to oblige the regulator to take that into account.
If excesses, profiteering and price fixing occur, as will happen in any business if people can get away with it, it is up to the regulator to exercise a degree of social discretion. However, it is not the responsibility of the regulator to run a social security system. That is the responsibility of Government, but it is the responsibility of a regulator to take account of the fact that, when price structures work against vulnerable sections of the community--not just the sick or the elderly, but the poor--we must allow some blurring of costs and some creative bookkeeping, to make sure that the poor are protected.
The services in question are not services that people can decide to have or not to have. It is not a matter of digital, colour or black and white television. There is no such choice when it comes to water, gas or electricity, and in most cases a telephone is required in a household. It is therefore not good enough to suggest that it will impose a massive burden on the regulatory system if it acquires social responsibilities which the Conservatives were never capable of imagining.
We must recognise that there is a broad sweep of regulatory concern and of concern on the part of consumers. Apart from the people who pay for fuel through meters or charge cards, there is an even spread of switching across social and economic groupings. People are interested in trying to get a better deal. It is important to consider the consumer properly. Even now, people are backsliding, for want of a better expression.
The director general of telecommunications told the Select Committee on Trade and Industry, which I chair, that there was a great scheme whereby people who were
on-line could key in details of their bills and requirements and be told which company was the cheapest service provider. No company puts on its bills guidance about access to that information. Poor people in my constituency are not currently on-line, but providing the telephone number of the call centre, which will be on-line soon, would be helpful. Nobody is interested in providing that number at the moment. I hope that the regulator and the consumer council will identify such issues.
I am worried about the exchange between those on the two Front Benches about providing information. I can envisage companies hiding behind commercial confidentiality--that most elastic concept--thus leading to difficulties in providing proper information to the consumer councils and in getting it into the public domain. As the Chairman of a Select Committee, nothing galls me more than receiving information that I cannot put in the public domain, when I believe that it should be there. In most instances, the competitors know about it; if they did not, they would not last long in business.
The Bill gives grounds for hope and a constructive approach to the future. It is encouraging to get a better trading system to end the abuse of the market, which has been the hallmark of the pool system. Between 70 and 85 per cent. of all price spikes are created by two or three companies. Seventy-three per cent. of price spikes used to be the responsibility of two companies. A wee bit of oligopoly was introduced to the market, the figure increased to 83 per cent., and the abuse about which the Secretary of State spoke took place.
New electricity trading arrangements will produce an improvement to 20 per cent., or 10 per cent. The latter would mean only 5 per cent. of a domestic bill, because generating costs constitute only half a domestic bill. We do not want to get carried away about what will happen, but I hope that the Bill will improve transparency and fairness. I appreciate that the matter is controversial. When two economists and a computer consultant are in the same room, and four people who have not been invited in are outside, there will be 12 different arguments. We are perhaps suffering from that.
Discussions of the Bill will be long and complicated, and I am pleased that I have failed to convince anyone that I was prepared to serve on the Committee that considers it. I have previously served on Committees that considered similar measures, one of which was only a quarter as complicated as the Bill, and I recognise the difficulties. Several issues will emerge only as consideration progresses. Some of the comments by the hon. Member for Tiverton and Honiton were correct, but the fact that we do not have all the information is a feeble reason for opposing the Bill.
The social action plan, produced by the director general for energy, will be central to dealing with fuel poverty. The first draft is not very good, and few people are happy with it. It requires much work. The director general for energy is examining the matter, and proposes to produce an amended version before long. My colleagues on the Select Committee and I want to spend time interviewing him and discussing it. I hope that we shall be able to do that in time to assist Report and Third Reading, if not the Standing Committee.
We are considering complicated and difficult issues, and we have a duty to ensure that we take the right steps. We have a liberalised system for selling electricity and
gas. We also have a complicated series of markets in telecoms, where we are still bedevilled by the presence of the 16-tonne gorilla in the front garden in the shape of BT, and the water system is not yet in any way competitive. Work will have to be done there, but 15 years after making the first stumbling attempts at raising revenue through privatisation we are getting to a stage at which we can have utility services that are not publicly owned, but are at least publicly accountable and required to satisfy consumers.
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