| Previous Section | Index | Home Page |
8.53 pm
Mr. Christopher Chope (Christchurch): It is a pleasure to follow the authentic voice of traditional Labour. I disagree with almost everything that the hon. Member for Nottingham, South (Mr. Simpson) said, and I shall quote a topical example that I hope will bring home to him the difference between privatisation in practice and leaving utilities in the public sector.
I very much support the amendment in the name of my right hon. Friend the Leader of the Opposition and other right hon. and hon. Friends. The second part of it epitomises the concerns that I and many others have about the Bill. It will effectively nationalise the former independent regulation; it will bring in new controls over private enterprise; it will introduce new stealth subsidies that will distort competition; and it will give new powers and duties to regulators to impose extra-parliamentary taxation to pay for those stealth subsidies and the extra regulation.
The topical example that I shall quote is a story of what has happened in Scotland during the past week. The hon. Member for Nottingham, South will know about it if only because the hon. Member for Hamilton, South (Mr. Tynan) referred to it following my intervention.
We have just been told that as a result of the water industry remaining in the public sector, water charges in the north of Scotland will increase by no less than 51 per cent. over the next two years, so the average water bill will go up from £175 to £264.60 in 2001-02. There are three Scottish regions for the purposes of the water companies, and the water authorities in the west and east of Scotland will also increase water bills, by 15 per cent. next year and 12 per cent. the following year.
It is clear from another story that appeared in The Herald last week that the Government have one law for the public sector and another for the private sector. We know that the Government, and the Government of Scotland, are saying that water charges should increase to that extent because that is a reasonable price to pay for continuing to have Scotland's water industry under public control.
At the same time, the Minister of State, Scotland Office argued in a letter to The Herald last Thursday--the same day on which those large increases in water charges were
announced--that it would be perfectly reasonable to impose a burden on private oil companies by requiring them to cross-subsidise the cost of fuel in the highlands and islands, where the average pump price is 7.2p per litre higher than in the Scottish conurbations. However, he saw no problem with those living in the highlands and islands paying some 50 per cent. more for their water because that industry is in the public sector.
That vivid, recent example from Scotland epitomises what is at the heart of the Government's thinking, which is to have one policy for the public sector and another for the private sector.
Mr. Stunell:
Was the hon. Gentleman in the Chamber when his hon. Friend the Member for Mid-Worcestershire (Mr. Luff) appeared to be saying that the same logic should apply to the supply of electricity to rural areas? He suggested that it would be proper for the utilities to charge rural areas a higher rate, and that the Government should provide a subsidy from state funds to equalise expenditure. Is he familiar with that argument, and does he support it?
Mr. Chope:
I did not hear my hon. Friend's argument, but I shall certainly read the Official Report so that I can acquaint myself with it.
It is absolutely essential that regulators are independent. The Bill establishes a regime of what I might call super-regulators, and one of the key differences between them and their predecessors is that they will not be independent. The Government may have reluctantly decided, for pragmatic reasons, to go along with the surrender of state ownership of the nationalised industries, but in this Bill they are effectively taking back centralised control. The authors of clause IV would be justifiably proud of that. It is an act of socialism by stealth.
The regulator's independence will be compromised because he will be wholly beholden to the Secretary of State. I tabled some parliamentary questions, two of which were answered today by the Minister for Energy and Competitiveness in Europe. One question was whether there would be any limit on the level of remuneration or allowances payable to the regulator at the behest of the Secretary of State. The answer is that there will be no limit.
Perhaps even more sinister is the fact that there will be no limit on the compensation that the Secretary of State can agree to pay if he decides to dispense with the services of the regulator if he has crossed the Secretary of State in some way. The Bill uses the term "misbehaviour". That means that the Secretary of State will have supreme power, and if the regulator fails to do his bidding, he can dismiss him without notice and has sole discretion as to whether he gives him a substantial golden handshake from taxpayers' money. If ever there were an example of where a Secretary of State has all the cards and where the independence of the regulator is capable of being compromised, I suggest that it is in the Bill. I hope that we will have the chance to explore the matter more fully in Committee.
I am concerned that the Bill seems to provide double standards on price controls. An increasing amount is being written about the unbridled power of self-financing regulatory authorities and their power to impose costs on those whom they regulate. The appetite of the regulators to regulate others knows no limits, but they are not so
keen to submit their own costs to regulation. That was epitomised by an exchange I had with Callum McCarthy, the Director General of the Office of Gas and Electricity Markets, when he gave evidence to the Select Committee on Trade and Industry on 25 January. Responding to concerns that price controls imposed by the regulator were forcing companies to cut back on staff, he said that he believed price controls to be
At present, Mr. McCarthy's running costs are about £36 million, although he said that in the current year his total costs will be nearer £70 million. That is an extremely large sum. It might have been thought that to amalgamate two regulatory bodies would save on costs, but the irony is that in this instance it seems that costs will increase. The regulator has decided that the two regulatory bodies should be consolidated in expensive office accommodation in the centre of London, in Victoria, and that the Birmingham office should be closed. About 100 people working in that office will be made redundant or will have to be redeployed. The centralising is taking place in a part of central London where the costs of office space and general employment are the highest in the country and among the highest in the western world.
That is indicative of the power and luxury in which some of our super-regulators think that they will be able to bask at the expense of those whom they regulate. It is monstrous that there is no provision in the Bill to enable Parliament or anybody else to have any control over the costs of regulators.
It is significant that the European Union licensing directive restricts the range of activities that can be funded from a telecom operator's licence fees. It is said in the financial memorandum that the new telecommunications consumer council may have to be funded from public funds, to an extent, because of the EU licensing directive. However, that directive does not apply to the other regulators that are the subject of the Bill. There will be no protection against costs increasing substantially and then becoming a burden on those who are being regulated.
Paragraph 173 of the explanatory notes refers to the financial effects of the Bill. The Government say that although there will be substantial increases in public expenditure as a result of the Bill, there will not generally be an increase in
Effectively, the Government are imposing on a non-independent regulator burdens that will lead to substantial costs. He will be obliged to pass on those costs
to the companies that he regulates, and the costs will eventually be passed on to the consumer. That is back-door taxation in anyone's language. It is a clever and subtle way of proceeding, but we should expose it to public scrutiny to a greater extent than it has been exposed up to now.
Ofgem has running costs of no less than £36 million a year, and they are increasing significantly above the rate of inflation. That was implicit in what the director general told the Select Committee the other day. By comparison, the costs of Ofwat are still only £11 million a year. One might think that the latter body had been much more prudently operated during its 10-year history. The costs of Ofwat represent only about 40p for every connected property.
Another aspect of the Bill that I find offensive is the way in which it introduces the concept of stealth subsidies. The Government say that subsidies distort competition. That is what the Secretary of State has said, and I am sure that most hon. Members would agree, though perhaps not the hon. Member for Nottingham, South. The Bill introduces cross-subsidies, which will be imposed by Ministers through the regulator but will be disguised from the consumer.
Such stealth subsidies will distort competition even more than transparent subsidies. The Bill effectively introduces social engineering without the scope for democratic consultation, and extra forms of non- parliamentary taxation.
We need regulation only when competition is not working. David Edmonds, the Director General of Oftel, must be right in his strategy of allowing regulation gradually to be removed as competition advances. The strategic statement from Oftel concludes:
"an incentive for efficiency, particularly for less efficient companies."
However, he refused to accept my suggestion that his own costs might be capped, that increases in his running costs should be limited to an inflation-level increase, and that he should be subject to the same price controls that he is seeking to impose on those whom he regulates. Of course, he is in a supreme monopoly position.
"public borrowing because, in most cases, the costs will be recovered in full from licence fees. These fees are treated as negative public expenditure for control purposes. There will, therefore, be no increase in the Government's preferred measure of public expenditure".
This is referred to as "Total Managed Expenditure". The notes go on to state:
"Full cost recovery may not be possible in respect of the telecommunications consumer council"
because of the EC telecoms licensing directive.
"Over-regulation distorts markets and disadvantages consumers . . . Oftel will no longer promote competition in competitive markets but will continue to act to prevent anti-competitive practices."
I was disappointed to hear from the Secretary of State in his opening remarks today that he did not think that there were areas subject to regulation by Oftel that should be subject to competition in the marketplace. I hope that he will reconsider that opinion, in the light of the remarks of the Director General of Oftel.
| Next Section
| Index | Home Page |