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Objectives And Duties Under 1986 Act

Volume 348: debated on Wednesday 19 April 2000

The text on this page has been created from Hansard archive content, it may contain typographical errors.

I beg to move amendment No. 22, in page 6, line 15, leave out "wherever appropriate".

With this it will be convenient to discuss the following amendments: No. 29, in page 7, line 6, leave out "Subject to subsection (2)," and insert "In performing that duty".

No. 23, in clause 13, page 9, line 25, leave out "wherever appropriate".

No. 30, in page 10, line 16, leave out "Subject to subsection (2)," and insert "In performing that duty".

Amendments Nos. 22 and 23 amend clause 9 in the case of gas, and clause 13 in the case of electricity. Those clauses are fundamental to the Bill, in that they set out the objectives for the Secretary of State and the regulator.

Under the previous legislation, the primary objectives for the Secretary of State and the regulator consisted of three equal duties:
to ensure that all reasonable demands for electricity are satisfied …
to ensure that licence holders are able to finance…activities …
to promote competition in the generation and supply of electricity.
Under the Bill, the sole primary objective is to promote or protect consumer interests. The promotion of competition comes into play only when it is directly appropriate to the protection of the interests of the consumer.

In other words, the promotion of competition has been downgraded to a second priority, despite what the Minister said in an intervention on our debate on new clause 2 and the amendments grouped with it. The phrase "wherever appropriate" inserted before the word "competition" downgrades the promotion of competition, making such promotion possible only when it is appropriate in order to protect the consumer. That is despite the fact that privatisation and competition have produced cuts of 30 per cent. in real terms in electricity prices, and 30 per cent. cuts in gas prices.

Privatisation and competition have delivered the best protection for the consumer in terms of better service, lower prices and increased choice. Demoting competition to a second priority reveals the Government's complete lack of understanding of the way in which business and the industry operate. Clause 9 states:
The principal objective of the Secretary of State and the Gas and Electricity Markets Authority…is to protect the interests of consumers…wherever appropriate by promoting effective competition.
The insertion of the words "wherever appropriate" downgrades the objective.

Professor Littlechild, who developed the brilliant methodology of rpi minus x as a basis for regulating prices in the electricity industry after privatisation, wrote in a pamphlet published recently by the Institute of Economic Affairs:
The proposed wording of the change here may be positively unhelpful as it puts an additional obstacle in the way of regulators promoting competition. The duty to promote competition will no longer be unqualified. This will have to be demonstrated to be the most appropriate way to protect customers.
In other words, the regulator must face an additional hurdle before he can promote competition. He will have to show that promoting competition will help the consumer.

Such things are always difficult to demonstrate. I have no doubt that promoting competition will help the consumer, but that is sometimes difficult to demonstrate in advance. No doubt all the utility companies will go to considerable lengths to show that greater competition with them will hinder the interests of the consumer, and the regulator will have to try to surmount their arguments. The fear is that that will take place in a court of law, no thanks to the Bill. Amendment No. 22 simply removes the words "wherever appropriate", thus ensuring that the objective of the Secretary of State and the regulator is
to protect the interests of consumers by promoting effective competition.
We are convinced that the interests of the consumer are best served by the promotion of competition.

The "objective" clauses go to the heart of what the Bill purports to do. It was clear in Committee that there is considerable confusion about what those clauses do, and we hope to establish what they do through our amendments. We are told by the Government that the Bill represents an important change to the regulator's framework for the utilities sector. According to the Minister, the Bill delivers on the promise that the Government made during the general election campaign to achieve open and predictable regulation that is fair to customers and shareholders. She added that it will allow people to benefit from utilities regulation reform in a changing marketplace that will provide many opportunities for better service.

The same triumphalist language was used by the Secretary of State on Second Reading. He said:
As hon. Members will know, the Government are committed to modernisation and reform in a whole range of important areas of public life. The Utilities Bill is part of that agenda of modernisation and reform. It will deliver efficiency and fairness, bringing together social justice and fairness, two sides of the same coin…It puts consumers first and provides a basis for effective competition and a stable framework for regulation.—[Official Report, 31 January 2000; Vol. 343, c. 782.]
6.45 pm

That is high-blown language from both the Minister and the Secretary of State, and it contrasts sharply with the words of the Minister for Competition and Consumer Affairs, who says that the clauses are not revolutionary:
we do not expect that there will be a dramatic upheaval—a revolution indeed—in utility regulations…The regulatory and economic environment in which utility companies operate will not be turned upside down.—[Official Report, Standing Committee A,29 February 2000; c. 234.]
On the one hand, the Government are claiming that the "objectives" clauses and the Bill will change the whole basis of utility regulation, and will make the protection of the consumer the primary duty. On the other hand, the Minister has said that even after the Bill the promotion of competition will be as paramount as before, and that the Bill does nothing very radical.

The Government cannot have it both ways. Either the Bill is radical or it is not; either it changes the framework or it does not. If it does not change the framework, or the objectives of the regulator, what is the point of the clauses?

What matters is the actual wording. As drafted, clauses 9 and 13 introduce a whole new set of priorities for the Secretary of State and the regulator. The objectives that they identify will impose extra costs on the utilities, which will then be passed on to consumers. They will increase regulatory risks, and will therefore add to the capital costs of the utilities. Again, those extra costs will inevitably be passed on to consumers.

If the House accepts clauses 9 and 13 unamended, the promotion of competition will occur only when it can be shown to protect consumers. If the regulator and the Secretary of State have the same philosophical disposition as my hon. Friends and me, and believe that competition will nearly always benefit the consumer and that greater competition will never damage the interests of consumers, I do not doubt that the new regulatory regime will function well, and will continue to deliver greater competition and lower prices. On the other hand, we may have a regulator who shares the Prime Minister's philosophy—if, indeed, the Prime Minister has a philosophy other than that of political manoeuvring and analysis. Back in 1988, during the Committee stage of the Electricity Bill, the Prime Minister said:
outside the Conservative party…it is barely in issue that prices will rise because of privatisation.—[Official Report, 12 December 1988; Vol. 143, c. 681.]
I do not know whether the regulator will share those views, or the Prime Minister's other view of privatisation. He has said that the idea that we would have an influx of power stations all competing on the grid was nonsense.

Of course, we did have an influx of new power stations, and they are all competing on the grid. We did see, and continue to see, falling electricity and, indeed, gas prices. If the Labour party still believes that privatisation and competition will not promote lower prices and more choice, I am concerned.

Given the Government's proclivity to promote their cronies, or people with the same political outlook, to positions of power, I would be concerned if a future regulator holding views similar to those of the Prime Minister sought to fulfil the obligations in clauses 9 and 13, because he or she would never hold the view that the promotion of competition would protect the interests of consumers. The amendments would removed the words "wherever appropriate", thus removing the element of subjectivity. The amended clause would require the regulator to protect consumers by promoting competition, which is the position in the current regulatory regime. The Minister says that that is all the clause does anyway, so he should have no problem with the amendment.

I want to make a brief contribution to argue that the words "wherever appropriate" are necessary. The hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) presented a theoretical concern about the impact of the clause. I want to address a practical issue, which is the disparity in charges faced by customers in the supply of gas.

In Britain today, people who are poor pay 20 per cent. more for their supply of gas. That is the difference between the charge paid by people who pay by direct debit and that paid by those who pay by pre-payment meter.

The figures are startling. For 650 therms of gas, a customer pays £281 by direct debit, £320 by standard quarterly credit and £336 by pre-payment meter—for the same amount of gas.

Is the hon. Gentleman aware that, during the Committee stage, his Government proposed amendments that gave the gas and electricity industries the right to access property to install a pre-payment meter against the wishes of the customer? At the moment, they cannot enter to install such a meter because it is the choice of the customer: he or she decides whether to have the meter. That person can be cut off, but having such a meter is the choice of the customer. As a result of the Bill as amended, it will no longer be the choice of the customer. I agree with him. Pre-payment meters are extortionate and they are wrong. Now his Government have given the right of entry to install those things against the wishes of consumers.

I am aware that that is the case. My point is about the charge that the gas companies levy.

I realise that not all pre-payment meter users are on low incomes, but the Government themselves estimate that 24 per cent. of households receiving income support pay for their gas by pre-payment meter. A recent MORI poll clearly shows that the use of pre-payment meters increases the lower down the socio-economic groups we go. Over half the users of pre-payment meters are people in households who are not working and a quarter are one-parent families.

I wanted to make the point in relation to the gas companies; that is the object of my contribution. It is extraordinary that the highest charges are levied on those with the lowest incomes.

The issue has been the subject of debate for quite some time. The Public Accounts Committee has commented on it. The recent report of the Gas Consumers Council says:
It is time pre-payment meter consumers benefited from the liberalised gas market.
I welcome the clause and other clauses. I welcome the reference to "wherever appropriate" because it can be used to hasten the day when the practice of charging the poor more can be brought to an end and consigned to history, where it belongs.

I want to speak in support of amendments Nos. 29 and 30, and against the Conservative amendment, which the Liberal Democrats think is mistaken. It is clear that there are occasions on which the guiding force cannot be the straight issue of competition—the form that would be left if the words were deleted. The two amendments tabled by the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) relating to gas and electricity are mistaken. I associate myself with the words of the hon. Member for Leeds, Central (Mr. Benn) in that regard.

Through our amendments, we are trying to reintroduce into the debate some of the issues that were discussed in Committee, but not dealt with sufficiently. The amendments would ensure that a broader duty was placed on the regulator—a duty not confined solely to issues of competition.

We have sought to delete the words "Subject to subsection (2)" in subsection (5). Subsection (2) places on the regulator the requirement to put competition first and foremost—before all other considerations, if subsection (2) is removed, issues relating to environmental and social and welfare activities can be given the significance that they deserve.

I return to the point that I made earlier. We are talking not simply of regulating competition but of regulating to achieve the overall policy objectives of this Government and, I believe, any Government: the protection of consumers on low incomes—a matter referred to by the hon. Member for Leeds, Central—and the protection of the environment, an issue over which the Minister was disturbingly glib in winding up the previous debate. It is absolutely clear that, as the decades go forward, the implementation of sound environmental policies will be highly dependent on the regulator having the power, the ability and, in some cases, the duty to act not solely on price and competition matters.

These two simple amendments are designed to swing the balance of the Bill back towards the environmental agenda. They have wide support among nongovernmental organisations and groups outside the House that have been supplying information and support to Members and to Ministers. I will leave it at that, and simply urge the Government to have yet another look at the key issue of balancing their declared environmental policy objectives with the powers and duties that they are prepared to give those who have to implement their policies under the Bill.

There are some activities connected with the supply of gas and electricity in which competition simply cannot protect the interests of consumers. It is that practicality that Opposition Members have forgotten in tabling amendments Nos. 22 and 23.

There are natural monopolies—gas pipeline and electricity distribution networks, for example—in which it will never be cost-effective to develop competition. To facilitate competition in such activities would require the construction of duplicate networks, at colossal expense and with devastating consequences for the environment. Such action would rarely be in the interests of consumers.

Where natural monopolies exist, it is right that the interests of consumers should be protected by some means other than competition. That is why the regulator is given discretion to determine whether the promotion of competition is the most appropriate means of protecting the interests of consumers—although competition should be the regulator's first choice in the absence of a good reason to the contrary.

Where there are natural monopolies in which competition is powerless to protect consumers, what is a regulator to do? The amendments are silent on that point, so presumably the intention is that the regulator should do nothing at all. Certainly, the obligation to protect the interests of consumers would no longer apply. The amendments risk leaving the consumer exposed to exploitation by companies operating in monopoly markets, which is precisely what regulation is intended to prevent. I ask the House to reject amendments Nos. 22 and 23.

I do not fault the motives of the hon. Member for Hazel Grove (Mr. Stunell) in tabling amendments Nos. 29 and 30, but they shoot at the wrong target. The regulator's principal objective is cast in terms of protecting the interests of consumers, wherever appropriate by promoting effective competition. That objective reflects the basic rationale for the existence of gas and electricity regulation.

Although we recognise the necessity of ensuring that the environmental dimension of utility regulation is properly managed, we do not believe that environmental considerations should be part of the duty to further the principal objective. In the final analysis, the Bill is about economic rather than environmental regulation. The current status of duties ensures that, when making a choice between alternatives of equal benefit to the consumer, the regulator should lean towards the one that is most favourable from an environmental perspective. We think that that is the right outcome. I ask the House to resist amendments Nos. 29 and 30.

That was a rapid and disappointing reply. I thought that the debate required something a little more substantial than that.

The hon. Member for Leeds, Central (Mr. Benn) raised his concern about the use of pre-payment meters, which will result in significantly higher gas bills for the poorest consumers. He makes a valid point. The same point applies to customers of electricity suppliers. It has long been my view—and, indeed, the view of many Conservative Members—that pre-payment meters hark back to a bygone era when gas and electricity suppliers were monopoly industries owned by the state. Monopoly state companies were able to treat their customers in that way. Rather than trying to sort out a person's slight payment problem, as many private sector companies now try to do, monopoly companies can simply install pre-payment meters and use their monopoly power to charge customers 10 to 25 per cent. more than they charge other customers—

7 pm

Order. We come now to the Private Bill set down for this hour.

As there is no one in the Chamber to move it, we will continue with the Utilities Bill.

The hon. Member for Leeds, Central made some valid points on pre-payment meters.

I strongly believe that pre-payment meters would not be used if we had increased competition in the utilities industries. As competition has increased, companies such as PowerGen have done deals with organisations such as Age Concern to provide a package of services to various groups which have not previously been the suppliers' prime targets. The more competition that we have, the more fierce companies will be in trying to target all groups in society as valuable customers. Without competition, companies may believe that it is too expensive to provide services to those groups.

The Minister said that if the phrase "wherever appropriate" were removed from clause 9, on natural monopolies, the regulator would be forced to require increased competition in sectors in which, because of a natural monopoly, competition cannot possibly operate. The gas and electricity distribution networks, for example, are natural monopolies, as they will be the foreseeable future.

The Minister's warnings are not justified by the operation of the previous regulatory regime, under which companies were not required to create new gas or electricity distribution networks. Such requirements have not been imposed under the current regulatory regime, and they would not be imposed under the proposed regime if the words "wherever appropriate" were removed from clause 9.

The issue reveals that the Government still do not understand the efficacy of increased competition in delivering benefits for consumers. It is disappointing that they have not been able to accept this group of amendments, but, in view of the debate, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.