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'together with an impact assessment of the extent to which any additional costs incurred by the Authority, Council or licence holders consequent on implementing the guidance will be passed on to consumers.'.
Mr. Deputy Speaker: With this it will be convenient to discuss amendment No. 25, in clause 14, page 11, line 11, after "Parliament", insert--
'together with an impact assessment of the extent to which any additional costs incurred by the Authority, Council or licence holders consequent on implementing the guidance will be passed on to consumers.'.
Mr. Gibb: Clause 10, on gas, and clause 14, on electricity, give the Secretary of State the power to issue guidance to the regulator, to impose on utilities a range of new social and environmental objectives. As hon. Members will be aware, the regulatory framework, which was introduced by the previous Government, already contains a requirement that the regulator should have
regard to the interests of vulnerable consumers such as the chronically sick and disabled, people in rural communities and the elderly.It is quite right that there should be such a requirement, as a monopolistic supplier may well decide not to supply those groups, who sometimes may be less profitable than other groups. However, in a fiercely competitive environment, those groups become important customers whom all the companies in that environment want to target and win over. The regulator essentially mimics the force of competition in monopoly or near-monopoly environments, in which protecting those groups becomes an important objective.
Clauses 10 and 14 go beyond that position and are more about using the regulatory framework and machinery to deliver the Government's social objectives--which, more properly, should be delivered in other Government programmes and by Departments such as the Department of Social Security and the Department of Health.
The guidance issued by the Secretary of State could add significantly to utilities companies' costs. Subsequently--according to the Government's own regulatory impact assessment--those costs will be passed on to consumers. That is why the Opposition are concerned both about the specific provisions and about the Bill. We are concerned that legislation trumpeted by the Government as being beneficial for consumers will add to the electricity and gas prices that consumers pay.
The guidance to be issued by the Secretary of State is not a minor matter or small beer. In Committee, it was made all too clear thanks to the diligent probing of my hon. Friend the Member for South Dorset (Mr. Bruce) that Ofgem is incurring escalating property costs. It is moving its offices from Birmingham to London, where it will occupy nice offices in Millbank designed to house 450 staff, when having combined Ofgas and Offer staffs, it employs only 400 staff. That number could increase to 430 once the offices are fully merged, but only 350 staff will move into the plush and expensively refurbished new offices in Millbank, leaving room for another 100 staff. Another 80 staff members will occupy offices in Leicester and Glasgow.
In a Select Committee investigation, my hon. Friend the Member for Christchurch (Mr. Chope) discovered that Ofgem's forecast expenditure is set to rise from £29.8 million annually three years ago, to £64.5 million in 2000-01. In Committee, the Minister said that the colossal increase was a consequence of meeting the redundancy costs associated with the move from Birmingham to London and of making the one-off expenditure of £13.2 million on the new electricity trading arrangements project. However, even taking those factors into account, the increase in regulatory costs is significant. All those costs will be recouped from utilities companies. Ultimately, according to the Government's regulatory impact assessment, the costs will be passed on to consumers.
The direct regulatory costs are only part of the story. Utilities companies will also incur significant costs in responding to the plethora of new information requests that will arise from the Bill's provisions. Those costs, too, will be passed on to consumers.
Utilities will incur costs in implementing the Secretary of State's guidance to the regulator, and those costs will be passed on to consumers. Those costs--which will be the largest extra costs faced by consumers--will be a direct result of the guidance. Although the word "guidance" is used, the guidance will in fact be orders, and the regulator will have to obey them--both because the Bill states that the authority should have regard to them, and because the regulator will probably wish eventually to be reappointed by the Secretary of State. Therefore, the guidances issued by the Secretary of State will almost certainly be directives.
Draft guidances have already been published by the Secretary of State. One draft guidance states that the authority should have regard to the Government's objective of improving the "health of everyone". Such guidance is incredibly broad and potentially extremely burdensome. It also generally reflects the Government's social and political agenda. The Government clearly envisage that policy objectives will be delivered by the regulatory framework and mechanism, and implemented by private sector electricity and gas companies. Nevertheless, such an objective--on improving the "health of everyone"--is far too wide for the regulator to deliver.
Other guidances provide Ofgem with the objectives of tackling poverty and social exclusion and reducing the proportion of unfit housing stock. It surprises me that the Secretary of State has not issued guidances on ending world hunger and creating world peace. The guidances are drafted incredibly widely, leaving the regulator with enormous discretion as to how to interpret them, in new licence conditions for the utilities or new performance standards.
Mr. Michael Fabricant (Lichfield): I apologise to the House for not being in the Chamber earlier, although I have been following the debate. Does my hon. Friend agree that the fact that the provisions are drafted so broadly will be a disincentive to companies to invest in the industry for fear that there will be Government regulation on such a scale that they will be unable to make future projections of income?
Mr. Gibb: My hon. Friend makes an extremely good point. The wide drafting of the guidance will increase regulatory risk, and that will have two severe consequences for the consumer. First, it will raise the cost of capital, as investors will require compensation for the extra risk. That will mean higher interest charges and expenses. The companies involved are capital intensive and have large borrowings, so the cost will be passed on to the consumer in higher prices or prices that would otherwise have been lower.
Secondly, as my hon. Friend said, the guidances will deter some companies from entering the industry and will therefore reduce competition. As we all know, competition drives down prices and forces companies to be more efficient. There will be a tad less pressure from increased competition.
It may surprise some hon. Members to hear that, despite the fact that the Utilities Bill is still going through Parliament, Ofgem has widely consulted consumer groups, industry and Government on how it intends to implement the Government's draft guidance, although that
guidance has still to be approved by an affirmative resolution of the House. Not only has the Bill not yet received Royal Assent--although Ofgem is busy consulting on it--but the draft guidance issued by the Secretary of State has not yet been considered by the House. That cannot happen until the Bill has received Royal Assent. The guidance will then be subject to the affirmative resolution procedure. If it gets through both Houses of Parliament, it will then become law. Despite all that, Ofgem is already consulting.
Mr. Ian Bruce: I am sure that my hon. Friend will have noticed during our discussion of the Bill that the civil servants seem to be running the Ministers. Has he noticed that organisations such as the authority and the council have been putting their own spin on the provisions, rather than waiting for Parliament? Did he see the letter from the Gas and Electricity Consumer Council of 31 March, saying that it plans to table amendments to the Bill when it reaches another place as it does not like what the Government have done so far? Who is running this? It is certainly not the Government.
Mr. Gibb: Yes, I read that comment. I am concerned that unelected bodies such as Ofgem take it upon themselves to decide policy and to consult on it. It is a general concern about the political situation in Britain that people are beginning to hold politicians in less esteem, and that decisions are being made by those who are not elected. That gives rise to concern in the longer run about the future of our democratic institutions.
Despite everything, Ofgem has undertaken wide consultation with the Government, industry and consumer groups and has produced a social action plan. I note that it is not a draft social action plan, although it is based on various drafts, but a final version. It sets out in more detail how it intends to implement the guidances issued by the Secretary of State. In addition, an Ofgem press release said in early March:
- Ofgem has also appointed a 10 member review panel bringing together consumer groups, Government and representatives of the energy and banking industries. Regular reports on progress against the plan will also be published.
- There are many customers who either because of low income or poor housing find it difficult to afford heat and light for their homes. This is a big and complex problem which requires many parts of Government and the industry to contribute to solutions. Through the social action plan Ofgem will concentrate on taking effective action to tackle this problem to make a difference for low income and disadvantaged customers.
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