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Mr. Butterfill: Does my hon. Friend agree that the Bill will create the need for a whole new almoning system in parallel with the social security system?
Sir Michael Spicer: I do agree with my hon. Friend. It is wasteful and untransparent to help people in need by regulation and through industry. It raises the question why one set of electricity consumers will have to pay more--I presume that they will--to subsidise other sections of the community. Would it not be much better to do that through the taxation system or through a more transparent use of benefits?
The same points apply to clause 13, which in the proposed new section 3(B)(1) introduces the objective of
"the attainment of any social or environmental policies . . . referred to in the guidance."
Mr. Stunell:
I appreciate the hon. Gentleman's argument for completely open competition, but may I take him a little further? Does he think that it is right for urban consumers to subsidise rural consumers? Does he not concede that there are some areas in which the market needs to be regulated?
Sir Michael Spicer: If we want genuine competition and transparency in electricity provision, full costs and marginal costs should be made properly transparent. If the requirement is to subsidise rural communities, that should be done through direct Government subventions in a way that does not distort the market. The Government's approach is wrong. When the previous Government privatised the bus industry, we made a clear distinction between economic costings and social subventions, which were made through financial means, and proper pricing, which should reflect costs and the marketplace. That is a manifestly sensible way to support the people whom one wants to support without distorting the market system.
Mr. Alan Simpson (Nottingham, South): I am grateful for the honesty with which the hon. Gentleman makes the case for competition and for his point about the importance of covering full and marginal costs in the charging process. I understand his point that it is the Government's role to make compensatory payments. Given the additional costs that central Government would inevitably occur on a huge scale, how would he suggest paying for that if he were a member of a Government who were saddled with such bills?
Sir Michael Spicer: The way in which social benefits and payments are made is a matter for the Government of the day to determine. However, in the electricity industry, one set of consumers, some of whom may be poor or deprived but not specifically listed in the Bill, should not subsidise another. That will have distortive effects if the aim is genuinely to have a fair and transparent marketplace. Subsidies, however, are a matter for the Government of the day to determine.
Clause 56 also moves specifically against competition in the electricity industry. It relates to the pool and the new trading arrangements that the Government are belatedly proposing. There has been much to-ing and fro-ing, and everyone knows that they have had their difficulties in introducing the new arrangements. The pool is an open market that is priced on a half-hourly basis and in which--contrary to what the Secretary of State suggested--the price is the marginal price that comes on. Therefore, it is absurd to suggest that the pool is in some way less open and less supportive of competition than a system comprised of bilateral contracts made and agreed--by the regulator, by Government or who knows?--in many cases behind closed doors.
My hon. Friend the Member for Bournemouth, West made an important point about the difficulty, in those circumstances, of ensuring security of supply. That is certainly true. The pool system may have its deficiencies, but they could have been put right if the Government had not taken the doctrinal view that it should be
abolished altogether. However, those deficiencies at least accommodated the concept of the marginal supplier coming on board at a price. There was always going to be a marginal supplier, which ensured security of supply.
In a system in which bilateral agreements are to be struck behind closed doors, nobody knows how the contracts will be assured and there is no way of guaranteeing security of supply. I totally agree with my hon. Friend. My point, however, is that the system is fundamentally anti-competitive.
Let us consider a plausible example in which a contract with a large supplier of coal-based electricity receives the Government's blessing. It is more than likely that such a contract already exists. That electricity could be extremely expensive but it fits in with the Government's intention to continue to protect the coal industry. Who knows how that contract came about? Who knows what factors lay behind it? Who knows whether there are political objectives behind it which are completely contrary to the marketplace objectives of a free flow of information and proper pricing according to competitive cost structures? Nobody knows because a new system of secret pricing is emerging.
The Government portray the Bill as legislation that will bring down prices, but nobody knows what will be the basis of those contracts. Indeed, in my example of a secret contract involving a supplier of coal-based electricity, or in the case of a contract with a supplier of nuclear-based electricity, it is likely that prices would rise.
The Secretary of State said at the beginning of his speech that electricity prices will come down by 10 per cent. That claim seems bizarre, given the way in which the new system has been explained to us. The truth is that the Government do not like the market-based system that we provided; they like intervening and interfering, particularly to protect certain sectors of the industry with which they have connections.
The best way to do that is to set up a system of secret pricing and of bilateral contracts being struck behind closed doors which are not transparent and do not meet the needs of the marketplace. I am not surprised that a Labour Government are doing that. My objection is that they are pretending that the system is more competitive than the previous one, not to mention my hon. Friend's point about the dangers of having no security of supply.
The Government's approach to regulation applies to the four industries in the Bill. The excuse for that approach is the consumer. The word "consumer" appears often. However, if one believes that the consumer's best protection is proper competition, most of the policies and regulations are contrary to the consumer's interests.
The Government's new form of regulation is radical and in its objectives it is completely different from the regulation adopted by the previous Government. It applies across the board and is part of a pattern. It applies to rail regulation and integrated transport. It applies to the Financial Services and Markets Bill, which we debated last Thursday and which will introduce social, universal and compulsory banking. It applies to the Post Office regulator--who has been given the job of working out how to privatise the industry--and the concept of total coverage. It applies to the way in which the water industry is to be regulated according to environmental interests rather than those of the consumer. It applies to Oftel, which is given the objective of providing total coverage in the Bill.
All those regulators are being given social and political objectives, which are antithetical to competition. We are witnessing a parallel system of government emerging. I shall use the idiom "joined up" because, in their consultation paper "A Fair Deal for Consumers", the Government suggest having a cabinet of regulators who would work out together each industry's capacity to achieve the various political objectives, which have no bearing on competition. The political imperatives will be provided by the Government, and the regulator will implement them with all-pervasive powers of intervention.
Mr. Gareth R. Thomas (Harrow, West):
At the beginning of the speech by the hon. Member for West Worcestershire (Sir M. Spicer), I would have been happy to accept his view of his unsuitability for the Standing Committee. Having disagreed with much of the thrust of his speech, I hope that Opposition Whips believe that he was being too modest and that they will regard him as a suitable case for the corrective discipline that the Standing Committee should offer. I should have loved to have helped the hon. Gentleman through the experience of that Committee, but I hope that the Government Whips will take note of my service on another one.
I warmly welcome the Bill. It modernises the regulation of our utilities and locks in train the twin principles of fairness and concern for the environment. It will help further to stimulate efficiency, innovation and higher standards in the utilities. The Bill continues the process, within one key part of our economy, of integrating economic, social and environmental needs, and of ensuring joined-up decision making, which is crucial to moving us towards a sustainable economy.
Crucially, and to the relief of my constituents, the Bill puts consumers truly at the heart of utility regulation. Many of my constituents remember well how, in the summer of 1996, our local water company suffered an outbreak of crytosporidia in the water supply, causing concern and inconvenience to constituents and local businesses. I remember in particular the concern about the company's attitude and the deep frustration felt by the president of my local chamber of commerce about a utility company that was insufficiently accountable to its consumers.
More, recently, I shared with constituents living in Holmwood close--a small, low-lying cul-de-sac--the frustration about another utility company's failure to take the necessary remedial action to protect their homes from the many incidents of flooding that they had experienced. It should not require pressure from a Member of Parliament and senior councillors to force a utility company to listen. The company in question has finally taken action, and my constituents and I welcome that.
I am pleased that the Bill introduces new, enhanced consumer councils, which will be able to act as public advocates for all utility consumers. They will be able to mediate between complainants and the utility companies
and to act as champions of the consumer. I am sure that my constituents will welcome the likely price reductions and the publication of links between directors' pay and levels of service.
There are examples of good practice among utility companies which the Bill will build on. Eastern Electricity, which serves the interests of my constituents, has committed itself to achieving 10 per cent. of its energy from renewables, and has been at the forefront of efforts to promote consumer usage of renewable energy. My hon. Friend the Member for Hove (Mr. Caplin) highlighted the positive decision by Seeboard to abolish the standing charge. That is a positive move for those of us who are concerned with social justice.
A crucial part of the backdrop for the Bill is the environmental imperative to reduce our emissions of carbon dioxide and other greenhouse gases. The promotion of a new drive for energy efficiency, which will be stimulated by the Bill, will be a welcome adjunct to the climate change programme that the Government are due to publish soon. That is one example of the reductions in emissions that the Bill will further stimulate.
It is worth restating Lord Marshall's view, which was published in his report on economic instruments and the business use of energy:
I welcome the focus on fuel poverty, the alleviation of which the Bill will help to stimulate, specifically by highlighting the interests of low-income and disadvantaged consumers. It will allow further attention to be given to tackling the problems of those in fuel poverty. Research shows that cold homes are associated with increased winter mortality, ill health and impaired quality of life. I understand that research shows that about 30,000 more people, mainly over 60, die during the winter in the United Kingdom than would be expected given the average death rate over the year. This so-called excess winter mortality is caused by exposure to outdoor conditions as well as cold homes. However, it is much higher in the United Kingdom than in other countries, including those in Scandinavia, where winter outdoor conditions are more severe but where homes are more energy efficient.
The 1996 English house condition survey estimated that there were at least 4.3 million households spending more than 10 per cent. of their income to maintain a satisfactory level of heating. In other words, those households were living in fuel poverty. Given these figures, it is entirely right that we take further action to require the utilities companies to promote action on fuel poverty. I say that even though the Government have already taken several
measures to confront the problem. For example, there have been the reduction in value added tax, the introduction of the £100 winter fuel allowance and the new home energy efficiency scheme--all welcome initiatives.
The general duty on the regulator to have regard to ministerial guidance on social and environmental objectives, for example, and the fact that the guidance will be published and laid before Parliament are also welcome moves. I share the view of my hon. Friend the Member for Lewisham, East (Ms Prentice), which she expressed in an intervention on my right hon. Friend the Secretary of State. Utility companies should report on their progress towards achieving environmental objectives.
I shall now concentrate my remarks on clauses 50 to 56, which deal with electricity produced from renewable sources and the establishment of the new electricity trading arrangements. Economic opportunities flow from renewable energy because of environmental pressures. The renewable energy industry is one of the hinges between the needs of business and the need to protect the environment. My hon. Friend the Member for Hamilton, South (Mr. Tynan) referred to employees within the utility industry. Having read the statistics in a House research paper on employment in the utilities, and the figures produced by my union, the excellent Amalgamated Engineering and Electrical Union, on jobs in the electricity industry work force, the significant feature I note is the huge loss of jobs over the past 10 years in the utility sector. It makes depressing reading.
The renewable energy industry now employs about 3,500 people. It is one part of the electricity industry that holds out the prospect of considerable employment growth over the next 10 to 15 years. Achieving our target of 10 per cent. of energy from renewable sources would create between 10,000 to 45,000 new jobs, according to the Department of Trade and Industry, and up to double those figures according to estimates made by Friends of the Earth and Greenpeace.
There is considerable export potential for a dynamic British renewable energy industry. For each of the past six years, global sales of wind turbines--one small part of the renewable industry--have increased by about 40 per cent. The estimates and projections of the World Energy Council indicate cumulative investment in renewables for the next 10 years ranging from £150 billion to about £400 billion. An analysis produced by Shell suggests that renewables will meet about 40 per cent. of world energy needs by 2050. That represents a huge opportunity for renewables in Britain.
Clauses 50 to 55 place obligations on suppliers, which I welcome particularly. They offer a key policy tool to stimulate an expansion of our domestic renewables industry. Such an expansion is crucial if we are to take advantage of both current and future growth in renewables. We have arguably the best offshore and onshore wind resource in Europe, but with 330 MW of installed capacity by last year, we lagged behind Germany, which has 2,900 MW of installed capacity. Denmark is in a much better position than the UK, with 1,450 MW.
An estimate of the realistic potential of renewable energy sources was carried out by Energy for Sustainable Development for the European Commission in 1997, and was considered by the Select Committee on the European
Communities in another place during its inquiry into renewables last year. The report suggested that, by 2020, a realistic aspiration for primary energy from renewables in Britain was 27 per cent. The Committee also highlighted the estimate made by the Department of the Environment, Transport and the Regions--that achieving our 10 per cent. target for renewables would provide about 25 per cent. of the carbon savings needed to meet the 20 per cent. carbon dioxide emission reduction target that we set out in our manifesto.
Clauses 50 to 55 will help to ensure that the obligation on electricity suppliers continues to promote competition and that renewable energy is delivered at the lowest possible cost. Clause 51 allows specific types of renewable generation to be targeted by the government. I hope that the clause will be used to enable less mature and currently less cost-effective renewables to be brought on over time. I hope too that my right hon. and hon. Friends on the Government Front Bench will not promote the use of payments, even though they are rightly allowed by clause 53, instead of meeting the obligation--except as a method of enforcing the obligation. I hope also that they will set high payment levels.
The replacement of the non-fossil fuel obligation by the obligation to be placed on suppliers is especially important given the problems that many renewables providers have had in the planning process with NFFO contracts. The NFFO contracts are linked to specific sites, and it is usually only after a contract has been granted that planning permission is sought. Considerable delay can result. Indeed, in December 1998, the energy technology support unit published research for the DTI that showed that, since 1994, of 63 applications for planning permission by renewable providers with an offer of contract, 15 had already been refused.
The brutal truth is that while the NFFO has succeeded in promoting considerable reductions in the cost of renewable energy, it has not promoted a significant expansion of renewables capacity in the UK. The obligation is therefore extremely welcome to promote that expansion. However, an obligation on its own will not be enough. I await with considerable interest a further statement on support for renewables. I hope that the statement will contain targets for beyond 2010, which would enable the energy industry and the City to plan their capital investment programmes and to forecast good returns on their investments in renewables, with confidence.
The commitments agreed at Kyoto are only the beginning if we are really going to tackle the threat of climate change."
He added:
This is not least a competitiveness point . . . There is a risk that firms investing now may get locked into capital stock which does not meet the requirements of the future.
As well as the environmental imperative, there is a need for utilities to invest appropriately. Climate change offers new economic opportunities for business, which many of our utilities will be well placed for, thanks to the Bill: it will drive down business energy costs. It is yet another example of the Government's success in creating the conditions for business to thrive.
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