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Mr. John Cryer: I never said that.
Mr. Fabricant: If the hon. Gentleman did not say that, he may have implied it.
What are the other benefits of privatisation? In real terms, there has been a 29 per cent. fall in domestic electricity prices, a 29 per cent. fall in domestic gas prices and a 50 per cent. fall in domestic telecoms prices. That is an achievement to be proud of.
Mr. Cryer:
Why do people who use meters pay a higher rate for electricity than those who pay by direct debit?
Mr. Fabricant:
It costs more to maintain meters than to get payment by electronic transfer. If people have a bank account and are able to pay by direct debit, they are not subsidising those on meters. Is the hon. Gentleman saying that there should be a social policy? Does he intend to table an amendment to say that the Government should instruct utilities companies to implement a social policy?
The Government are responsible for not only a nanny state that intervenes and misunderstands how business operates, but a state that tries to create envy. That is the state that talked about "fat cats" in the general election campaign. What is the real level of directors' pay? It rose by an average of 4.5 per cent. in the past 12 months, according to the latest survey of Institute of Directors members carried out by the Reward group. That compares with an increase of 5.1 per cent. in the overall economy. The survey also showed that directors' pay is forecast to rise by an average of only 4 per cent. in the coming year. Far from being fat cats, directors' pay lags behind the growth of the rest of the economy. More than half the executive directors surveyed had a pay increase of 4 per cent. or less; only 18 per cent. had an increase of more than 6 per cent; and nearly 40 per cent. took an increase below 3 per cent.
It does not matter what industry we are talking about: if you pay peanuts, you get monkeys. Even the John Lewis Partnership, an organisation that the Prime Minister himself called the stakeholder business personified, recognises that it has to pay market rates to get people of the right calibre.
Mr. Chaytor:
Do the figures that the hon. Gentleman cited apply to privatised utilities or to all companies? If they apply to privatised utilities, do they apply to the chairmen?
Mr. Fabricant:
It depends on which utilities the hon. Gentleman is talking about. The figures are taken from the Institute of Directors and are produced by the Reward group for all directors. I hope that that answers the question.
If people of calibre are to be attracted to an organisation, it has to pay the going rate. Does the hon. Gentleman argue with that? The John Lewis Partnership, which is owned by the 40,000 partners who work for it, recognises that fact. Frankly, there is nothing wrong with that. I would rather that the utilities industries were run properly and efficiently than by people who mean well but are not of the calibre to do the job.
Mr. Chaytor:
How is it, then, that the people who were not attracted to the utilities but were in post when they were first privatised also got astronomical pay rises? If the hon. Gentleman accepts that there should be a link
Mr. Fabricant:
I agree with some of what the hon. Gentleman says, but performance is not the only factor. Greater risk is involved in employment in a privatised industry. For example, when Severn Trent was privatised, the chairman left after a couple of years. Risk increases how much one is paid. That is why Ministers are paid more than ordinary Back Benchers. Deputy Chief Whips are also paid more than Back Benchers, for reasons of risk and job insecurity.
One newspaper said of the Bill:
The hon. Member for Plymouth, Sutton (Mrs. Gilroy) mentioned the Consumers Association, but I wish to mention the Consumer Council that will be introduced by the Bill. The Conservative party welcomes that, as does British Telecom, but the latter is concerned that there is a potential overlap between the responsibilities of the Telecommunications Authority and the council. BT claims that that overlap will be inefficient and could lead to conflict--for example, the duty of the council to investigate any complaint and the power of investigation on any matter of consumer interest.
British Telecom is also concerned about fines. It has stated:
British Telecom is also concerned about the cost of regulation. I remind hon. Members that when we talk about costs to companies, we are also talking about costs to consumers. We are not talking about the tiny
percentage of companies' costs that directors' pay constitutes: we are talking about costs that will be passed on to consumers in their utility bills. BT has said:
New Labour has failed to move away from its old interventionist policies. Yet again, the Secretary of State has demonstrated that dogma has prevailed over economics. I had to laugh when he said that the Conservatives were driven by dogma in privatising the utilities, when he is building on that privatisation in the Bill. I am delighted that the right hon. Gentleman, at least in that respect, acknowledges the value of privatised industries and accepts the economic reality.
I congratulate the right hon. Gentleman--it is a shame he is not in his place--on his view of the minimum working wage. He now recognises the damage that it has done in certain areas and certain industries and has said that he will fix it so that its value decreases in real terms over the next year. He has taken on board the economic facts about which we have been warning him for the past year.
Mr. Alan Simpson (Nottingham, South):
I became somewhat excited earlier in the debate when the hon. Member for West Worcestershire (Sir M. Spicer) suggested that the Bill was an attempt to introduce socialism by the back door. What an exciting prospect. I became even more excited when he suggested that intervention by the Government in a pure market was a damaging and distorting factor, and that all consumers, wherever they lived, should bear the real cost--including the fixed cost and the marginal costs--of energy supply.
I hope that the hon. Gentleman has the courage to mention that to the rural communities where his party will canvass for votes. What he suggests would mean a devastating increase in the costs of access to energy and water, and it would be pretty much the kiss of death for many of those communities. However, he suggested mechanisms for balancing out the way that open and unregulated market systems create their own gross
inequalities. He said that that task was best left for the Government. This was the first time that I had heard a Conservative party member so openly make the case for substantial tax increases. I was very interested, and would welcome any indications from Conservative Members about the scale of tax increases they would entertain in going down that ideological route.
A more appropriate starting point, however, may be found in the comments of the hon. Member for Mid-Worcestershire (Mr. Luff). He described the meteorological conditions that affect Worcestershire, and noted that the county is disproportionately affected by disruptions to the energy supply caused by lightning and electrical storms. I suggest that the Bill is a modest way of supplementing God's imperfect attempts to strike back at Tory Members who saddled us with the dog's breakfast that was the privatisation of utilities. Before privatisation, the public--rightly, and proudly--believed that they owned those utilities.
I welcome the Bill and what it proposes. It is timely for us to take stock of the legacy of privatisation. In my view, the privatised utilities have pillaged the country in four ways. They have consistently put the shareholder before the citizen. They have put the continuous supply of dividends before the continuous supply of gas and electricity to the public. They have put short-term job cutting before the long-term reduction of pollution and investment in sustainable technologies, and they have put the private right to profiteer before the public right to know.
The Bill will start to tackle the deficiencies in the Government's inheritance, and I welcome it. The records of the Conservative Government, and of the privatisations that we are discussing tonight, fail two fundamental tests--the tests of poverty reduction and of consumer accountability.
Comparative figures for poverty reduction are instructive, as they help us realise that the fuel poor are not merely those who are disconnected. The equation is complete only when the substantial number of people who self-disconnect are taken into account. In other words, invisible disconnections make up the total picture.
Figures from the Consumers Association show that there were 29,500 gas disconnections in 1998, and that 24,250 warrants were issued that allowed electricity industry personnel to force entry into people's properties and replace conventional meters with pre-payment meters. In the same year, a national MORI poll found that there were also some 428,000 gas self-disconnections, and 926,000 electricity self-disconnections.
That is the extent of the backlog of fuel poverty that privatised energy industries have barely begun to recognise, let alone touch. People are revolted at the fact that fuel poverty remains a scar on the United Kingdom's social landscape at the start of the 21st century. Each winter, fuel poverty causes between 30,000 and 60,000 deaths. That is just a sliver of the number of households and individuals whose lives are blighted by fuel poverty. I make no apology for praising the Government for putting the eradication of fuel poverty at the centre of their agenda for dealing with the regulation of energy supply and utilities management in the United Kingdom.
I also said that the record fails the test of consumer accountability. I had extensive correspondence with Severn Trent Water after the regulator came up with his
provisional price determination, leading up to the time of the actual price determination and the industry's response to it. I went through the regulator's comments with great care. The most important was that he was clear that there was no logic in the industry responding to his recommended price cut by saying that it could not meet increased standards of performance, or the environmental aspirations that the Government rightly set out, or expand the public services to which it would otherwise have been committed.
The regulator looked at the claims and dismissed each one in turn. Water is a de facto monopoly industry. It is low risk in the sense that no one is going to wake up tomorrow morning so furious with the service that the industry provides and the prices that it charges that they would boycott drinking water and stick to drinking sump oil. We are all captive consumers of water. In that sense, it is an extremely safe industry in which to operate. The regulator pointed out that, since privatisation, the level of internal self-reward in the industry had been far higher than he or anyone else in their right mind could justify. He pointed out that the internal cost of capital, financed by borrowing or from receipts, would be half the amount that the company was paying in rewards to its shareholders and directors. That was the stark message. The regulator required current and planned investment programmes to be funded internally.
The industry's response was derisory. It virtually ignored all the regulator's exhortations to look for internal methods of financing its programmes. It launched a programme of short-term job cuts that will probably result in 10,000 job losses across the country. Just a couple of weeks ago, all hon. Members representing east midlands constituencies received a letter from Severn Trent in which it gave us notice of the loss of 1,100 jobs and the closure of eight offices across the midlands. The industry had decided to take those measures so as not to make intrusive inroads on the levels of self-reward to which their shareholders had become accustomed. Against that backcloth--the weaknesses that the Government inherited--we have to push for stronger regulatory powers and for more extensive duties to be placed on the industry.
I was fascinated to hear Conservative Members talk about the nanny state. In truth, the arrangements proposed in the Bill are already in place throughout the United States of America and Canada. The Conservatives usually like to heap praise on those parts of the global economic system. But the American and Canadian approach to private utilities says that we cannot trust private hands to hold them without extensive directions on duties and obligations and without massively strengthened social and consumer rights. People must know what is happening, and be able to scrutinise the claims and accounts of companies and hold them accountable. We should carefully examine the regulatory regimes that give rights to citizens in north America and which we do not yet begin to approach within the framework proposed in the Utilities Bill.
At the end of the last Session, I tabled an early-day motion praising the initiatives taken by one electricity company in the United Kingdom. I praised it for making a radical change in its approach to energy policy. Let me spell out what Scottish Power proposed to do, although, to be fair, I should add that other companies might have suggested the same.
Scottish Power offered a written guarantee that it would introduce a lifeline rate of charges for the poor. It offered a three-year energy conservation programme, funded entirely by shareholders. It proposed to reduce standing charges to 55p per month. It proposed that there would be no winter disconnections. Finally, it offered to reduce unit charges to 4p per kilowatt hour. As if that cake were not big enough, the company added a cherry: a commitment to a price rebate of £25 million shared by all consumers.
The point of my praise for Scottish Power was simple. If the company was prepared to put that written deal on the table as part of an offer to buy Pacificorp and as a commitment to the citizens of Utah, why could it not make the same commitment to consumers in the United Kingdom? I do not want to put Scottish Power unfairly on the spot; any UK energy company that had made a bid for a United States energy company would have had to make exactly the same open commitments to meet a series of environmental, social and employment obligations that go hand in hand with the free-market regime there.
The Americans and Canadians know full well that the free market will, if left to its own devices, simply result in oligopolies that run away with profits at the expense of the consumer, society and the environment. They therefore build in regulatory constraints that limit the power to exploit people and the planet in the way that the Conservatives were so keen to do.
There are similar regulatory arrangements for water that give consumers the right to hold open hearings at which companies are required to spell out not only their price proposals, but their commitments on investment, employment, the rate of return on capital, and the environment. I ask the Secretary of State to consider carefully that framework of civic rights, with a view to including it in the Bill in Committee, thus strengthening its commitments.
One of the great strengths for the utilities under the proposed framework is that, if they are required to work to open-book scrutiny, we shall make them genuinely more efficient and accountable. One of the myths that we have been saddled with, as a legacy of the Conservative years, is the con of competition. So much of the framework set up by the Conservatives is cloaked in the mists of commercial confidentiality. If one asks which bids have gone in, one is told, "We can't tell you, because it is commercially confidential." If one asks about environmental impact, one is told the same thing. To give the information would expose the company to the risk of being outbid by one of its competitors.
We have been saddled with a process of collusion. By and large, the role of the regulator, in coming to a view on price determination, has been to announce the recommended price, after a long process of private consultation with the companies concerned. I asked the regulator why he went about it in that way. His response was that, in private, he could hold hard-nosed discussions and negotiations and get utility companies to admit points that they would never concede in public; that gave the UK a better deal than if all the discussions were held in public.
Recently, some Labour Members were fortunate enough to hear a presentation by Greg Palast. In this country, he is possibly best known as a business journalist, who writes for The Observer, but he has an international reputation as an extremely experienced utilities regulator in the United States. He pointed out that no similar private discussions took place in the USA.
Some states had paddled in those waters, but had come to a different conclusion. Their conclusion was stark; it might shock some hon. Members, but not, I suspect, people outside this place. They discovered that, in private, the companies lied through their teeth. The process resembled the "Arabian Nights" tales. Like Scheherazade, representatives of large corporations would talk through the night to ensure that their super-normal profits were not executed in the morning. They would come up with whatever magical tale was needed to stop the intrusion of public interest into private profits.
The Americans discovered that if their citizens--not merely citizens' organisations--had the right to hold open hearings, someone would nail the lies that companies were trying to wing past the regulator, either because people had a commercial interest in being the successful bidder, or because they had an environmental or social interest and went through the company accounts with a fine-toothed comb. If we want open markets, we have to have open books. Markets must be prepared to pay that price. Public rights of scrutiny, not private rights of discussion, will best protect the rights of UK citizens.
Greg Palast also made the interesting point that, in many states, Americans go further than that and ask, "If regulators are to be accountable, what is the best way to achieve it?" Those of us who are Members of Parliament would say that it would be periodically to present ourselves to the electorate and to accept their judgment on our record. At least eight US states do exactly that. Their regulators are elected. They have to stand for election and are judged on their records. If the public think that they have been sold down the river, the regulator will go the way of all electoral false promises and someone else who is better is put in their place. It is about public rights, not private and corporate deals.
When we give the Bill, as I hope we will, its Second Reading, we should ask how it can be genuinely strengthened to give consumers in this country many of the rights that their counterparts enjoy, but which we have never been offered. When we create the consumer councils, it is important that they have the right to know, the right to advocate and the right to appeal. Some parts of the Bill are confusing in that they suggest that consumer councils may have a right to know, but that they may not have a right to tell anyone. It is a strange basis for advocacy if those who are charged with the responsibility of representing the public cannot tell the public of the campaigns being mounted on their behalf. We should be unafraid of extending those rights.
We should also extend the right to appeal. I see no valid reason why a Labour Government should be afraid of enshrining in the Bill a public right of appeal to the information commissioner. That would be our best protection against the charges that we are colluding with the corrupting practices that were set in place by the Conservative Government.
The Bill should also contain defined anti-poverty targets. In the Scottish parliamentary elections, the Labour party was proud to set forth a commitment that it would eliminate fuel poverty within two terms. The whole House should be willing to sign up to that commitment and we should want to enshrine it in our commitments for an inclusive energy policy.
"It is almost as if this Government has forgotten that the utilities have been privatised. They are none of them perfect, but the standards of service and efficiency in gas and electricity have been transformed since they were sold. Competition in both industries is growing, and prices are coming down as a result.
The hon. Gentleman also mentioned transparency, and I agree that pay should be transparent. It is, to the extent that all utilities are public limited companies and the Companies Acts require directors' pay to be specified in the annual report. Perhaps the hon. Gentleman thinks that details of directors' pay should be contained in a newsletter that goes out with the bills. If he is suggesting that, I would not necessarily argue with him because the information is already in the public domain. However, that should be done only if the company already intended to send out a leaflet, because I would not want to see extra paperwork being sent out and thus the costs of the basic utilities being driven up.
Despite the evidence from health and education, there remains a widespread belief that government controls can improve things, which is what encourages this sort of useless legislation. If Mr. Byers must interfere, it should be to ensure more competition, not more rules on irrelevances such as directors' pay."
"The appeal grounds for fines are very limited and do not align for example with the recent Statutory Instrument. In contrast with the Competition Act 1998 there is no limit on what might be an 'appropriate' fine".
Someone earlier said that if the level of bills was predictable, the privatised industries could budget accordingly. My point is that if there is no limit on fines or penalties, they will not be able to do so. A useful amendment to the Bill would be to set maximum fine levels, or for the types of offence to be graded.
"The Bill proposes further regulation for telecommunications when the need is diminishing in a highly competitive market. The overlap in responsibilities between the Authority and the Council will lead to inefficiencies and cost. The cost of the Council is to be raised via supplementary licence fees (which need bear no relation to cost causation)".
I dislike that jargon, but it means that the charges made for the Consumer Council may not be linked to the actual cost of running it. How will that licence fee be set? BT continued:
"and there is no ceiling, this is critical when the Council is able to investigate any matter of consumer interest. Several of the proposals in the Bill amount to micro-management which will mean further costs for regulated companies."
Micro-management is yet another example of how the Government cannot resist interfering in the running of companies, through Government agencies.
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