Previous Section Back to Table of Contents Lords Hansard Home Page

Baroness Seear: My Lords, surely we have not got into the foolish situation that because the noble Lord knows a great deal about the gas industry, having declared his interest, he is not allowed to talk about it. That would be nonsense writ large. He is surely allowed to talk about it having told us that he has this interest. Is that not the position?

Lord Skelmersdale: My Lords, I am afraid not. I consulted the Clerks on this matter. I begin my speech as a result of the advice that I received from them.

As I was saying, since British Gas is the only large company regulated by Ofgas, and since it is a debate about regulators, it would seem by extension that the

13 Dec 1995 : Column 1293

word or semi-acronym Ofgas should not pass my lips. However, come April, Parliament has agreed to a major trial of competition in the supply of domestic gas and there are already advertisements on show in the West Country encouraging prospective customers to get in touch with soon to be licensed competitive firms. Licensed by guess whom, my Lords?--Ofgas, and operating under exactly the same licence, which incidentally still has not been agreed to, as British Gas will.

Having got that off my chest, I shall try to abide by the very strict rules--the noble Baroness is quite right; they are extremely strict--that we have saddled ourselves with because there are today general points which apply to all regulators. I am delighted that my noble friend Lady Platt, who has had recent experience of the gas industry, will speak later.

My second problem is with the Motion itself. It encourages us to think about reviewing the role of the regulator rather than reviewing the way that role is actually performed--which I believe is the problem that the noble Lord, Lord Ezra, was addressing.

Lord Ezra: My Lords, perhaps I may enlighten the noble Lord. The use of the word "regulation" was meant to cover both the regime and the way in which it was operated.

Lord Skelmersdale: My Lords, I am grateful to the noble Lord.

Were I to be a right reverend Prelate--chance would be a fine thing--I would take my text from the Book of Common Prayer. At one point in the marriage service it says,

    "[Consider] the causes for which Matrimony was ordained".

Regulation of the soon to be privatised industries was sold to Parliament as a surrogate for competition. The regulator was to use the pricing formula to reduce prices except in the water industry where he was to limit the increases needed to pay for a century of under-capitalization. The regulators' role was quite clear. Section 3 of the Electricity Act 1989, provides that the regulator of that industry has,

    "to secure that all reasonable demands for electricity are satisfied; to secure that licence holders are able to finance the carrying on of the promote competition in the generation and protect the interests of consumers of electricity",

and to check into,

    "the prices charged and the other terms of supply; the continuity of supply, and the quality of the electricity supply services provided; to promote efficiency and economy on the part of persons authorised by promote research into, and the development and use of, new protect the public from dangers arising from the generation, transmission or secure the establishment and maintenance of machinery for promoting the health and safety of persons employed in the generation, transmission or supply",

and at the same time to take account in particular of the protection of the interests of consumers of electricity in rural areas and the interests of those who are disabled or of pensionable age. At the end of the section, the director has slight relief. The Act states that any functions so assigned,

    "do not include references to functions...relating to the determination of disputes".

13 Dec 1995 : Column 1294

As we have seen, such determination is the province of the Office of Fair Trading and the Monopolies and Mergers Commission.

The key to this disparate collection of requirements is, as the noble Lord, Lord Ezra, said, the pricing formula which we know as the RPI plus or minus x formula. Of course, "x" is fundamental to its whole operation and to decide upon x the regulator has to be a pretty invasive fellow, which has a cost to the regulated industries. They have to install whole bureaucracies to answer questions from the regulators who have completely to understand what is going on in each industry and in the process become experts in their respective industries.

The companies naturally complained of the number and detail of the questions they were asked in the early days, and presumably will again with the advent of gas competition and the multiproduct energy firms, and the railways regulator. I believe that the Government were right to resist those complaints and recognise that it is unrealistic to expect the regulators to operate without that expertise.

Equally, it is unrealistic to expect the regulatees not to understand both where the regulator is coming from and where he or she expects the firms to get to. I agree with the noble Lord, Lord Ezra, on that point. Secrecy in regulation is of no advantage to anyone. It will annoy the industries and cause bad blood between them and the regulators. That has happened in the past, and I am told, in some areas it is still happening, but it must not be allowed to continue. At the same time, regulators should not become too personal in their relationships. Either there will be complaints of unreasonable behaviour, or, on the other hand, of favouritism. I believe that a clear framework of regulatory principles and objectives is overdue. I would expect it to lead to a greater consistency of decision making and avoid sudden changes of direction which I have heard described as the "whim of the regulator".

Capital investment only occurs when a firm can see where it is heading. If there is doubt as to the consistency of regulatory decisions, either new investment is not made, or, worse, it is, and is then under-utilised or aborted part-way through, with all the waste and therefore the cost to the consumer that that entails.

This debate would not be taking place, I believe, if the tales of woe to which I and other noble Lords will allude are not real. How are we to advise the Government to deal with them? One suggestion has been to amalgamate all the regulators into a single body. Given the need that I have described for them completely to understand their individual industries, I do not believe that that would be the right thing to do. Having studied the gas, electricity and water industries in some depth over the past 20 years, to say nothing of taking more than a passing interest in telecommunications and the rail industry, I do not see enough common factors to make that a going proposition. I accept that in the energy sector there are interests in common. There might therefore come a time when Offer and Ofgas can be amalgamated, but not in

13 Dec 1995 : Column 1295

the next three years while competition is being introduced into both the electricity and gas industries. Nonetheless it would be a nonsense if the decisions of one regulator were to be completely at variance with those of another. Discussions between regulators will, and I am sure do, help to prevent that. However, that does not stop the regulatees from complaining.

Regulators remain very powerful executive bodies in their field--one might almost say autonomous. In the event of a major row such as we have seen in the gas and water industries, the only appeal is to the Monopolies and Mergers Commission. It is, as I understand it, only then that the Government get involved, with their ability to accept, reject or accept in part the reports of the MMC. Surely that is really what is wrong with the regulatory framework as we have it at the moment. It is conducted by experts with no involvement from the man in the street. There is no political direction other than that in the various privatisation Acts. There is no one to suggest, however humbly, that if you want to achieve A, why not do it by method F, or even G; method E is bound to annoy the consumer, small shareholders or whoever; or even, why are we seeking to do A at all if B has worked perfectly well for the past three years?

That leads me to believe that small regulatory panels operating in single industries, as opposed to individual regulators, would obviate the need for expensive and time-wasting appeals to the MMC in most cases, and would have the advantage of depersonalising the regulatory process and making sure that the discretion that regulators undoubtedly have is used with more forethought. It need not, as is often suggested, be bureaucratic, or slow the decision making process. I have not, for example, noticed any non-executive directors slowing down the plans of their companies. If they did, it would be for very good reasons, one may be sure, or they would not last very long. I would also second a senior employee of one regulator to the board of another regulator, and vice versa, for a year or 18 months--no longer, or the secondees would become embedded--to ensure a measure of consistency between decisions. That would deal with the most commonly voiced complaints about today's regulatory framework, and preserve the first reason for privatisation; namely, getting government off the backs of the utilities.

4.21 p.m.

Baroness Hamwee: My Lords, I, too, considered whether I had any interest to declare, in that perhaps the pension funds to which I contribute held shares in the utilities. I dare say that is likely, although like most pension fund contributors I do not know. I hold no shares in any of the utilities in my own name. I have to admit to being somewhat "unreconstructed" in that connection. I did not buy any shares because I had something of a distaste for seeing essential services pass into private hands. We all carry some sort of political baggage. I have to admit that that is mine. But I also admit that there is no turning back the clock, save

13 Dec 1995 : Column 1296

perhaps for Railtrack and for possibly even not starting the clock in the case of HMSO. However, neither of those fall within today's debate.

I believe that the outcries against the levels of profits made in the utilities and the levels of executive salaries and remuneration packages are because the consumer resents funding both of those. The utilities were privatised at much the same time as so much of the private sector was being transferred to quangos. Although the regimes are of course not the same, it is no wonder the public feel that both are tarred with, if not the same then at any rate similar, brushes in their lack of democratic accountability and the difficulties of regulation. If we add to that the levels of profit, and in some cases the levels of pay--in referring to pay I think it is a little rough on those in middle management that they are regarded as being on the same gravy trains as some of the more senior management--it is not surprising that there is such a level of resentment at private profit from what is essentially still part of the nation's infrastructure; indeed, what are recognised in many cases as consisting of very precious commodities.

Because these services are essential, indeed fundamental, the public regard them as qualitatively different from other products. They look for protection from the state in areas of standards, availability and price, as well as the application of social obligations which a beneficent state must have at the heart of its policy. It is, I believe, the general view that the state has not done all it could to protect its citizens, and that it has failed to assist them to play their proper role as consumers.

At the time of the privatisations I do not believe we often heard comments such as, "I shall be buying shares so that I can go to annual general meetings and question the directors". The comment that I heard most was, "I shall be buying shares for myself and my family so that"--not necessarily expressed in these words--"I can make a turn". I wonder in fact how successful the privatisations were in turning us into a nation accustomed to owning shares, as I believe was one of the aims. It has not so far been so successful. More particularly, it has not been successful in boosting our powers as consumers.

The current situation is regarded as one of (as was put to me recently) embarrassingly soaring profits going hand in hand with poor services and unsatisfactory prices. If market forces cannot be brought to bear, then political pressure must.

I understand of course the need to retain profits for big schemes, investment in repairs and improvements, and so on. Long-term planning is essential. But the public, especially in Yorkshire, must have little confidence that that is the reason. The explanation that we have become accustomed to hearing--namely, that the problems are the results of the predecessor bodies--does not hold much water (and I hope noble Lords will forgive the pun) since by and large the same people are in post.

The profits should be shared with the customers or consumers. Profit is, after all, a means to an end. In the area of the utilities it should not be an end in itself.

13 Dec 1995 : Column 1297

Indeed, if the water, gas and electricity consumers do not profit from improved performance, that end is not reached. Profits going solely or largely to shareholders is a short-term policy. Shareholders have individual short-term interests. I concede that those shareholders include institutions. I also concede that my pension in 15 years time may therefore be the bigger. I do not allege that Thames Water fails to provide it, but what I want is a clean, reliable water supply now. As stakeholders we all have mutual long-term interests. The development of a culture that places more emphasis on the stakeholder model would be very welcome.

The greatest benefits may be from competition, but there are some services where competition is not practicable. I support opening the networks to rival service operators in those areas in order to encourage such competition as there can be. But, in the telecommunications business, where there is the longest experience, I understand that BT still has some 90 per cent. of the market. The July issue of Consumer Policy Review contained a report commenting on the publication of an advert by Mercury which,

    "claimed that it had been responsible for putting pressure on BT to cut prices over the previous ten years".

That led to a complaint from BT to the Independent Television Commission on the grounds that,

    "the cuts were largely due to regulation not competition",

and that,

    "it was misleading to claim that 'everyone' had benefited from price reductions since the most significant reductions principally affected business customers".

That is not necessarily the record that one wants to look back on.

A Consumers' Association survey quoted in the same article showed that there was a very large gap in the information that consumers have about the choices available to them. Half of those surveyed said that they did not have enough information about other suppliers. They did not have accurate, up-to-date information. They said that they,

    "stay with BT because otherwise they would have to change their telephone equipment".

A large number said quite simply that it would be "too much hassle to change". That is still not the climate that was hoped for and aimed at.

If competition is to develop, consumers must have clear and accessible information in order to make real comparisons. They must also have the confidence that they will not be disadvantaged. I come from south-west London, which over the past two or three years has been very extensively cabled. Many telephone users have switched to cable services. But try to find their telephone numbers! I understand that Directory Inquiries is supposed to give out those numbers--I did not know that; again illustrating the lack of information--but it is hardly obvious, since apparently there is considerable reluctance to divulge the numbers.

The regulators should ensure the availability of information. For instance, they could ensure the development of performance indicators of standards; not just of price, but environmental standards. The effectiveness of supply in a relatively small country

13 Dec 1995 : Column 1298

means that people can quite rightly expect consistency of supply--and not just consistency of service, but also consistency of the approach to regulation. The noble Lord talked of this at greater length and I found his comments interesting. There should be a consistency of approach through a regulatory body to oversee all the utilities, with the interests of the consumers at heart rather than those of the industry insiders.

Performance indicators measuring customer satisfaction across the utilities will tell us quite a lot. As the noble Lord, Lord Skelmersdale, said, they are very different industries but there are many areas in which they can be compared. That of itself would lead to pressures to improve. The regulators should also be required to publish more fully the reasons for their decisions.

I still remember vividly the comments about selling the family silver. It is sad that today that silver is somewhat tarnished; and it will not become brighter without an energetic application of consumer-friendly polish.

4.31 p.m.

Lord Harmar-Nicholls: My Lords, the debate introduced by the noble Lord, Lord Ezra, shows Parliament at its most responsible and its most effective. It is three years since we debated this matter seriously and in depth, and the noble Lord, Lord Ezra, raises it again. The reason it is responsible is that the three-year period has given everybody a chance to see how the new direction is working. I deplore many of the day-to-day inventions which come from the propaganda sheets and do the opposite of what the noble Lord is trying to achieve today. I therefore welcome Parliament looking at this issue, under the terms of the debate, seriously and responsibly.

I am a little puzzled when I compare my reaction to the new direction with that of the noble Lord, Lord Ezra. His speech, which was fair, detailed and informative, showed that by and large he felt that the three years had been something of a failure; that it was not the success that it should have been. As a small businessman and a consumer in my own right, I believe that the three years' experience we have all had showed it to be a great success at almost every level.

Next Section Back to Table of Contents Lords Hansard Home Page