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Lord Beaumont of Whitley: The Minister said that the objectives we are trying to achieve are included in Clauses 10 and 14. In looking at those clauses, I see that guidance on social and environmental matters may, indeed, be issued from time to time. However, nowhere in the Bill is there a definition of what the objectives might be. Perhaps I may say in passing that, although I remember perfectly well, with the noble Lord, Lord Jenkin, the debates that we had in the special Committee of this House, I still do not see much difference between the definitions of Mrs Brundtland and of John Gummer. It seems to me that they have almost exactly the same basis.
The case for saying that sustainable development is difficult to define is grossly over-stated. However, as what we are trying to achieve is not imposed or mentioned in Clauses 10 to 14, I rather suspect that it is a matter to which we shall return. However, I defer to the noble Lord, Lord Ezra, whose name is first on the list, as to what should happen to this particular amendment.
Lord McIntosh of Haringey: Before the noble Lord, Lord Ezra, responds, perhaps I may say two things. First, I did not complain that sustainable development is difficult to define. I believe that it is a well understood concept and that it could be defined. If, for other reasons, it had been right to accept this amendment, I should not have been worried about it. Secondly, the noble Lord, Lord Beaumont, says rightly that our social and environmental policies are not defined. It is not intended that they should be defined here. They are as they will be set out in guidance from time to time.
Lord Ezra: I thank the Minister and noble Lords who have taken part in this discussion. In a sense, I suppose that this matter involves a play on words. As the noble Lord, Lord Currie, rightly pointed out, if one reads on in Clause 9 one finds that consumers are defined as "both existing and future consumers". Therefore, that may be another way of talking about sustainable development.
However, what surprised me about the Government's response to the amendments is that they are so firm on this subject in the guidance. Their stance seemed to me to go beyond guidance. It was a firm statement of government policy. I believe that firm statements of government policy should be in the relevant Bill, but it appears in the guidance. There is a definition of "consumers", both present and future.
I should like to reflect on these matters. I shall certainly come forward with an amendment at a later stage, perhaps putting "consumers present and future" in an earlier part of the Bill so that one does not have to read on in order to find out what is meant by "consumers". That may be a way round what has turned out to be, surprisingly to me at any rate, a difficult issue. I should have thought that as the Government feel so strongly about sustainable development they would have welcomed the opportunity to put it in the Bill. That is not so. Therefore, we must consider another way of getting across that point. With that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Kingsland moved Amendment No. 32:
- Page 6, line 11, leave out ("appropriate") and insert ("possible").
The noble Lord said: In moving Amendment No. 32, I shall speak also to Amendment No. 33. In doing so, I shall discuss all the issues that I want to cover in the group.
The Bill provides for the abolition of Ofgas and Offer and their replacement by a single regulatory authority for gas and electricity whose primary objective will be to protect the interests of consumers. The effect of that commitment is to reorder the priorities of the regulators. For example, Clause 9 states:
- "For section 4 of the 1986 Act (general duties of Secretary of State and Director) there shall be substituted--
- 4AA.--(1) The principal objective of the Secretary of State and the Gas and Electricity Markets Authority (in this Act referred to as 'the Authority') in carrying out their respective functions under this Part is to protect the interests of consumers in relation to gas conveyed through pipes, wherever appropriate by promoting effective competition between persons engaged in, or in commercial activities connected with, the shipping, transportation or supply of gas so conveyed".
In a recent paper for the Institute of Economic Affairs, Mr Stephen Littlechild, the former electricity regulator, described as "positively unhelpful" proposals by the Trade and Industry Secretary, the right honourable Stephen Byers, to make protection of consumer interests the "principal objective" of regulators. Mr Littlechild said:
- "The duty to promote competition will no longer be unqualified; this will have to be demonstrated to be the most appropriate way to protect consumers".
I am anxious to hear the Minister say to the Committee today that Mr Littlechild's analysis is incorrect. I am fortified in my expectation that that will be the Minister's answer by his final remarks to the noble Lord, Lord Ezra, about the noble Lord's amendment. In response to the noble Lord's request to include the expression "sustainable development" in Clause 9, he said that it would both remove the priority of consumer interest and leave the authority uncertain as to how to respond.
Moreover, earlier today, in responding to my Amendments Nos. 16 and 18, the Minister was clear beyond peradventure that the only circumstances in which competition between persons engaged in commercial activities would be inappropriate in promoting consumer interest would be those involving what the noble Lord, Lord Borrie--in a magnificent colloquialism--described as "wires and pipes".
If the only exception to the fierce competition between parties to promoting the interests of consumers is wires and pipes, I suggest to the Minister that my Amendment No. 32 is entirely appropriate. It seeks to replace the word "appropriate" with the word "possible". From what the Minister said today to the noble Lord, Lord Ezra, from what he said to me and from what he said at Second Reading, the clear inference is that the only circumstances in which the consumer interest would not be completely served by,
- "competition between persons engaged in, or in commercial activities connected with",
As regards Amendment No. 33, the existing legislation requires the gas regulator, for example, to protect the interests of consumers. He must ensure that licensed companies can finance their activities. Under the Bill, the financing duty becomes subordinate to the new primary duty to,
- "protect the interests of consumers . . . wherever appropriate by promoting effective competition".
Substitution of Amendment No. 33 for the existing words in the clause would resolve that uncertainty. I beg to move.
6.15 p.m.
Lord McIntosh of Haringey: I am not responsible for Stephen Littlechild. I do not believe he is right in saying that we are abandoning competition by the way in which we formulated the principal objective of the authority. Although I said so at Second Reading and during debates on previous amendments, I had better say it again in order to see whether I can convince the noble Lord, Lord Kingsland.
Under the Bill, the authority is given the principal objective of protecting the interests of consumers. It is to do so wherever appropriate by promoting effective competition. This requirement is built into the principal objective, and so it is the authority's primary duty. Together, they establish a presumption in favour of competition as the means through which the interests of consumers are to be protected.
The authority must ask itself whether it can best protect the interests of consumers through competition or in any other way, such as price controls. It is clear that competition is the preferred mechanism in the absence of any good reason to the contrary. The re-emphasis on competition will ensure the maximum penetration of competition consistent with the practical, economic and other constraints prevailing in the gas and electricity sectors. If the noble Lord, Lord Kingsland, likes that to be defined as "wires and pipes", so be it. It is just the way things are.
Whether competition is the best means of protecting consumers in any particular case is a matter of judgment for the authority. That decision will depend on the practicalities of introducing or increasing competition, the costs of establishing the competitive arrangements and the benefits--some of which may be long-term or uncertain--of competition over other forms of regulatory control.
It seems to me clear, and someone said it in the House of Commons, that something which is not possible cannot be appropriate. That seems self-evident. But just because something is possible, it is not
necessarily appropriate. For example, it would be possible to establish competition by duplicating the grid and the network in electricity. Perhaps that is what the noble Lord, Lord Kingsland, means by "wires and pipes". However, that would promote competition only at a cost wholly disproportionate to the benefits that it would bring to consumers. So if we change the word "appropriate" to "possible", the duplication of the electricity grid and network would have to be taken seriously because, of course, it is possible, even though for other, perfectly overwhelming reasons, it is not actually appropriate.So it is right that the authority should have some discretion as to whether to promote competition in a particular case. That is why the authority should promote competition wherever appropriate and not simply where it is physically possible to do so. None of that plays down the importance that we ascribe to the role of competition as a means of protecting consumers. I would expect the authority to draw on competition as the means of protecting consumers in the absence of a sound justification for not doing so.
I now turn to Amendment No. 33 which makes changes that go to the heart of the general duties. I shall set out those general duties as the noble Lord, Lord Kingsland, has spoken about them. The Bill puts consumers at the heart of the authority's general duties. We are giving the authority a principal objective to protect the interests of consumers. It will be the authority's sole primary duty to carry out its functions in the manner best calculated to further the principal objective. That is the effect of subsection (2) of Clauses 9 and 13.
That provision is intended to result in a fair deal for consumers. Putting consumers at the heart of the general duties will make a real difference to regulatory perspective. There can be no doubt where to draw the regulatory line; it must be drawn with the interests of consumers in mind. It ensures that the right balance is struck between the interests of consumers and those of shareholders.
Apart from the duty in respect of competition, the directors-general of gas and electricity supply have two primary duties. The first is the duty concerned with securing that all reasonable demands for gas and electricity are met--the demand duty. The second is the duty concerned with securing that utility companies are able to finance their licensed activities--the finance duty.
Under existing legislation, both the demand duty and the finance duty are stand-alone duties; they are ends in their own right. Under this Bill, those duties are positioned where they more naturally belong, as aspects of the duty to consumers. That helps to explain what we mean by the "interests of consumers" as that phrase is used for the principal objective. It incorporates not simply the narrow consumer interest in a high quality service at low cost, but also the broader requirements of a sustainable industry.
Of course, consumers have an interest in ensuring that all reasonable demands for gas and electricity are met. Ensuring that they receive a supply is the gas and
electricity consumers most fundamental interest. That is why the demand duty is restated as an aspect of the primary consumer duty.Who could doubt that consumers have an interest in ensuring that utility companies operate in a viable market with a long-term outlook? It is no good to them if the return to shareholders is so low that utility companies are unable to attract the capital needed to maintain their infrastructure.
On the other hand, it is certainly not in the interests of consumers that utility companies are able to make excessive profits, or pay excessive remuneration to certain people. The right balance must be struck between the interests of consumers and the interests of shareholders. That is why the finance duty has been incorporated as an aspect of ensuring the interests of consumers.
The words "have regard to the need" to secure that reasonable demands are satisfied, and that licence holders are able to finance their activities, reflect the weight that should be given to those aspects of the interests of consumers. They represent confirmation in statute--these are the words that the noble Lord, Lord Kingsland, would take out--that the consumer interest expects reasonable demands to be satisfied and licence holders to be able to finance their activities. It is difficult to see how the authority could comply with its primary duty (to further the protection of the interests of consumers) without carrying out its functions in a manner best calculated to secure those ends.
The amendments proposed would reinstate the demand duty and the finance duty as ends in their own right and make them independent of, and subject to, the duty to further the principal objective. They deny that the interests of consumers necessarily incorporate those matters that form the demand and finance duties. We resist them because they would render the general duties as a whole incoherent and leave the authority in doubt as to how it should interpret the "interests of consumers" for the purpose of the principal objective.
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