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The Earl of Cranbrook: My Lords, I am grateful for that explanation. My immediate reaction is that the amendment I proposed would clarify the driving force behind efficiency in an extremely valuable way, and would focus public attention and gain merit by remaining there. However, again I shall read my noble and learned friend's remarks very carefully. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 7 and 8 not moved.]

Lord Fraser of Carmyllie moved Amendment No. 9:

Page 2, line 26, at end insert ("chronically sick,").

The noble and learned Lord said: My Lords, in speaking to this amendment I shall speak also to Amendments Nos. 21 and 27.

This group of amendments is in response to a point made by my noble friend Lord Boyd-Carpenter in Committee in a debate on an amendment moved by the noble Baroness, Lady David. The noble Lord suggested that we needed to look again at whether the Bill's definition of those who are "disabled or of pensionable age" as requiring special consideration and special services needed to be expanded to encompass those who had suffered very severe and prolonged illness.

Having looked at this point, we accept that the term "disabled" will not cover all the chronically sick, but that there may be cases in which the chronically sick require special services from gas suppliers in a similar manner to disabled persons or those of pensionable age. We will review the social conditions of the licence to see where these cases may be and take into account the views of the Gas Consumers Council. Amendments Nos. 9, 21 and 27 would therefore add references throughout the Bill to the "chronically sick", in addition to disabled people and pensioners. I hope that my noble friend will approve of that set of amendments.

Lord Peston: My Lords, I congratulate the Minister. In responding to the wishes of his noble friend, and to my noble friend Lady David, I believe that he will have pleased all noble Lords. This is as good an example of the meeting of minds in relation to this Bill as we have had. I thank him very much for that.

Lord Boyd-Carpenter: My Lords, I am much obliged to my noble and learned friend for what he said. I shall be interested to know the outcome of the review that he was good enough to promise. I say at once that I feel some gratitude to the Government for their

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response and for the flexibility that they have shown. I hope that before long it may be indicated to this House what the Government propose to do.

On Question, amendment agreed to.

[Amendment No. 10 not moved.]

The Earl of Cranbrook moved Amendment No. 11:

Page 2, line 29, leave out ("1(2)") and insert ("1").

The noble Earl said: My Lords, perhaps I need briefly to explain this amendment. It concerns the definition of "the environment" for which I argued in Committee (col. 449 of Hansard). In Committee, on a proposal from the Government, we removed the word "physical" from the definition of "environment".

My previous argument is reinforced by the fact that if we now confine the definition of the environment simply to this sub-paragraph of Clause 1(2), we in fact restrict it to a definition of the physical environment. So we end up where we were before we removed "physical". I sincerely hope that there was a genuine meeting of minds between my noble friend Lord Ferrers and myself previously on the removal of the word "physical" from the definition of the environment, since we need to have concern for the whole environment, including its living elements. On 2nd June (col. 450), my noble friend Lord Ferrers said that he would take the matter away and consider it. I hope that my noble and learned friend has been able to give it that consideration. Perhaps I may be congratulated on shortening the Bill by the removal of a couple of parentheses and the figure 2! I beg to move.

Lord Fraser of Carmyllie: My Lords, an apology is due to my noble friend in that we have overlooked this point. While we were considering his concerns on sustainable development, there was an incorrect assumption that he no longer wished to pursue this point.

However, I accept that the director's environmental duty should extend appropriately to the impact on wildlife. Although in practice that impact is likely to be limited, I agree that there is no reason to exclude it.

Not for the first time will my noble friend have heard a Minister at this Dispatch Box say that there is some indication that his drafting is incorrect. I wonder whether he will be kind enough to withdraw his amendment. I shall then ask officials to consider urgently with parliamentary counsel whether the matter is sufficiently covered. If it is not, we will ensure that an appropriate amendment is ready at Third Reading.

The Earl of Cranbrook: My Lords, I am grateful to my noble and learned friend. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Clinton-Davis moved Amendment No. 12:

After Clause 2, insert the following new clause—

Matters to be taken into account by Director in exercising powers to control gas prices

(" .—(1) The Secretary of State shall from time to time issue guidance to the Director as to the matters he is to take into account in exercising any powers specified in the conditions of a licence

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granted under section 7 or 7A of the 1986 Act to limit, vary or otherwise control the charges set by a licence holder for the supply, transportation or shipping of gas.
(2) Guidance under subsection (1) above shall include as one of the matters to be taken into account by the Director a reference to the extent to which the remuneration of the executive and non-executive directors of a company which holds such a licence reflects the performance of that company during the year preceding the year to which the remuneration in question relates.
(3) In subsection (2) above—
"remuneration" includes any salaries, fees, benefits in kind or share options; and "performance" includes increased efficiency in the carrying on of the activities to which the licence relates and improvements in the standard of service to consumers.").

The noble Lord said: My Lords, in moving this amendment it may be for the convenience of the House if we also consider Amendment No. 30. The two are very strongly interrelated.

The purpose of Amendment No. 12 is to enable the Secretary of State to issue guidance to the director in taking into account certain matters affecting his powers in controlling gas prices, including the question of remuneration of executive and non-executive directors of companies holding licences in so far as that reflects the performance of the company, notably in relation to questions of efficiency and improvements in standards of service to the consumer. Amendment No. 30 is designed to introduce transparency in relation to the remuneration of such directors, including fees, benefits in kind and share options as well as salaries.

The amendments were raised by me in principle during Second Reading, and there can be no doubt that they continue to have resonance. Unfortunately, Sir Cedric Brown and his colleagues in the gas industry hardly covered themselves with glory. His recognition of that is implicit from the fact that—if reports are accurate—he is waiving his rights to a bonus scheme which could have enriched him by a further £2 million or thereabouts.

Over and over again in the public utilities senior executives have become millionaires because of over-generous salary and share option packages. That has given rise to considerable resentment, not simply on these Benches and Labour Benches elsewhere, but throughout the country. Many Conservatives have expressed grave reservations about what has happened. The Prime Minister has hardly been enthusiastic in regard to the conduct of those individuals. Not only has it brought discredit on them, but it is also a dreadful example of bad management and management practice.

I found it strange that when the noble Earl, Lord Ferrers, was dealing with the matter at Second Reading, he seemed to feel that the genuine anxieties broached at the annual general meeting by individual shareholders could be brushed aside. The number of members attending that meeting and the ferocity of their attack was almost unprecedented, yet those attacks were brusquely, insensitively and unreasonably brushed aside by Mr. Giordano and Mr Brown.

They were individual shareholders. Most—I concede not all—had no political axe to grind. They were questioning the propriety of what happened and why it had happened so furtively. That is the reason for Amendment No. 30, which seeks to introduce

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transparency into the whole situation. Those shareholders felt that they were entitled to make those criticisms.

When we came to discuss these matters it was as though the expressions of anxiety uttered by the Prime Minister had never been said at all. We heard a defence of Mr. Brown and his colleagues which was almost unqualified. I do not believe that that was the correct way to respond to the situation which had arisen.

It is not a question of it being the politics of envy, which is the usual assertion made when one raises issues of this kind; it is the politics of resentment felt by millions of people. It is incomprehensible that the British Gas directors—and others, though we are discussing British Gas today—can award themselves vast share options amounting to millions of pounds (wholly disproportionate awards, in my view) in relation to the provision of an industry which is giving an essential service.

Therefore it is not a question of it being the politics of envy and I know that the Minister will not resort to that argument. We are hoping that the Minister will have some comment to make on the situation. I am not proposing to divide the House. We said at Second Reading that we would return to this issue. The amendments are designed to give the Government the opportunity to express their grave reservations about what has happened.

In fairness to Mr. Brown, he said that he will waive the rights to which he is entitled, and I believe that too is something of an admission. One can only hope that the regulator will have something to say about these matters in the future. I look forward with interest to hearing the Government's view. I can assure the Minister that it is not just the concern of the Opposition; it is a widespread anxiety and one of which the Government should take full note. I beg to move.

4.45 p.m.

Lord Fraser of Carmyllie: My Lords, I am grateful to the noble Lord for advancing his argument in that measured fashion. However, the amendments on the question of remuneration of directors in the gas industry are inappropriate for specific reasons, which I shall try to set out, and also for the more general reason that I do not believe that this Bill is the place in which to consider matters relating to executive pay. As the noble Lord clearly knows, executive pay is being considered more widely in relation to the Greenbury Committee's report and it is proper that it is addressed in such a fashion rather than in the context of a single industry in isolation.

Amendment No. 12 is contrary to one of the key principles of the regulatory system. The independence of the regulator has removed political interference from the management of utility businesses. The amendment would reintroduce political control over the management of the gas industry and take us back to the running of an industry on the basis of political rather than economic factors.

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There is no valid reason to relate price caps to board pay. The system of regulation works on the basis that, in a monopoly industry, the regulator protects consumers by regulating the price charged rather than costs. That way the industry is given the greatest possible incentive to improve its efficiency. When periodically setting the price control, the regulator looks at all the company's costs and potential efficiency improvements. Executive salaries, as a cost, are a factor in that assessment, but only a small one in relation to the company's total costs. Like any other cost considered in the review, if the regulator believed that the costs were in excess of those which an efficient company would incur, she would be able to take that into account.

As with other companies, the actual salaries paid to executives are a matter for the shareholders to take an interest in. I do not wish to indicate in any way that those shareholders' interests should be brushed aside. As we have seen, the shareholders of British Gas have taken an interest and the board responded. If the regulator were to involve herself in the justification of pay awards to individual executives, it would require her—I hope on reflection the noble Lord will agree—to participate too closely in the management of the company. That could risk prejudicing her independence.

In relation to Amendment No. 30 and its valid purpose of requiring a greater degree of transparency, the noble Lord's anxieties have already been largely met by the Stock Exchange's response to the recommendations of the Greenbury Committee report, to which I referred. The Stock Exchange recently amended its rules to require full and comprehensive disclosure of the remuneration packages, including salary, share options, fees and so forth, of directors of publicly listed companies. I hope that that change will meet the anxieties expressed by the noble Lord in tabling Amendment No. 30. I hope also that I have explained why the Government do not feel that the amendments should be made to the Bill.

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