§ 'Having determined the standards of overall performance under 27B(a) above, the director will give due regard to the price régime which he approves to assess whether that price régime is appropriate in relation to the provison of the standards of overall performance and the level of remuneration received by the directors and senior managers; and the Director will require the operator to change that price régime to one which is commensurate with the standards of overall performance which are met and the cost structure of the operator in meeting those targets.'—[Mr. Henderson.]
§ Brought up, and read the First time.
§ Mr. Doug Henderson (Newcastle upon Tyne, North)
I beg to move, That the clause be read a Second time.
§ Mr. Deputy Speaker
With this we shall take the following: New clause 7—Energy efficiency objectives—'.—The Director shall give due regard in the price regime which he approves to the achievement of standards of overall efficiency in the performance of the electricity companies in their duties to meet consumers' needs, and in particular the contribution made in achieving energy efficiency objectives laid down in section 3 of the Electricity Act 1989.'.New clause 54—Prohibition of late payment penalty charges by electricity companies—'.—The following subsection shall be inserted after subsection (3) of section 18 of the Electricity Act 1989—1139(3A) A domestic tariff fixed by a public electric supplier shall not include provision for any additional charge upon any person solely because of delay by that person in paying monies due in respect of supply".'.
§ Mr. Henderson
It might be helpful if I were to explain the contents of the new clause. New clause 1 provides that, where a regulator is empowered to set standards within an industry, he must take some account of the prices charged. I hope that the House accepts that there is a clear relationship between the provision of standards and the price that a consumer or customer might have to pay. Most of my remarks will deal with new clause 1. I had hoped that my hon. Friend the Member for Cardiff, West (Mr. Morgan) might be able to comment on new clause 7 and I hope that my hon. Friend the Member for Sheffield, Heeley (Mr. Michie) will comment on new clause 54.
In many ways, new clause 1 is important because it relates in principle to a number of organisations and industries covered by the Bill and which the Bill attempts to regulate. Many hon. Members and some members of the public might wonder whether the Bill as originally drafted and the Acts on which privatisations were based—for example, those dealing with telecommunications and gas—do not already give a regulator considerable powers to do several things, including set the prices. That is the case, but the Government, recognising the weakness in the current legislation, have identified the fact that it is necessary to go further and to place an obligation on a regulator to establish standards of performance for individual customers and for the industries in general. We support the objective but having gone that far, we believe that it is also necessary to give additional powers to the regulator, which will emphasise the responsibilities involved in setting those standards, to take into account the resulting price regime.
We have not tabled the new clause merely to extend the debate on the Bill. There is considerable evidence that Oftel—in the case of telecommunications—has not been as effective as most of us want it to be. It has not been able to regulate the industry effectively in the ways that we believed essential for the future of the industry and for the protection of the customer.
Very few people would dispute the fact that British Telecom has high—some would say excessive—profit levels. In the various discussions between British Telecom and Oftel, Oftel has not been able to get to grips with the way in which British Telecom can interpret price agreements one year and follow through with largely inflated profits in the following year.
Similarly, Oftel has not been able to have meaningful discussions with British Telecom about the way in which British Telecom's cost structures relate to the provision of the service. It has not been able to get to grips with the level of salaries paid to senior executives of that company. I hope that the House accepts that that is a legitimate issue about which the regulator should be concerned. If not, there is an open invitation to any private monopoly to pay its bosses salaries which are in no way commensurate with the level of responsibility. Some obligations should be extended to the regulator to take care of those shortcomings.
1140 I shall not prolong the argument in supporting new clause 1, but it is necessary to give a little more evidence covering some of the issues which were debated in another context in Committee. Whatever the Government say about the improvements in British Telecom's control over its prices increases since 1984—I accept that controls have been tighter since then—the evidence still shows that during the Government's period in office from 1979 until now, British Telecom's prices have moved ahead of the retail price index by 3.1 per cent. That has happened at a time when everyone in the industry internationally recognises that there have been huge improvements in productivity.
The Government cannot dispute that, whatever else has happened in the telecommunications industry in this country over the past 10 or 12 years, there would have been major improvements in productivity which arise—thankfully—out of major changes and improvements in scientific knowledge and its application. That, above all, has enabled British Telecom to be slightly less aggressive in its price increases since 1984, but there is still a long way to go.
I do not believe that the Financial Times is objective in all issues but it has taken a special interest in the changes in telecommunications. Indeed, on many occasions it has complimented the Government on the changes that have taken place. At the time of the announcement of the last set of results for British Telecom the Financial Times said that its profits were £1 billion more than would be expected from a reasonable profit return on capital in a company that was reasonably well managed and achieving slightly better than average performance. Spread among the 20 million residential customers of BT in this country, that money represents about £50 per family.
That £1 billion could be spent in a number of different ways. I do not intend to judge how the money should be spent; I merely make the point to emphasise that, should the Government or any telecommunications company choose to start taking action on this matter, the resources to do so exist.
I do not want to overplay the salary increases of the bosses of private utilities, but it would be wrong not to take note of the recent salary increases enjoyed by the chairman of British Telecom. Between 1988–89 and 1989–90, he received a 90 per cent. increase in addition to other fringe benefits, taking his salary from £282,000 to £374,000. If that was not enough, in the following year, the latest for which we have figures, he received an additional 43 per cent. pay increase—between 1989–90 and 1990–91—taking. his pay to £536,000. That tells us something about the cost structures of British Telecom.
Of course I recognise the need to pay attractive salaries to senior management in private utilities so as to attract the best people to them. I make no judgment on these levels of salary. It is however, legitimate for the regulator to be able to assess how appropriate the bosses' salaries are as one factor in a general assessment of whether the cost structures are appropriate to the standards of performance and to the price regime.
British Telecom is apparently not satisfied with present levels of profitability, as we were told in press accounts yesterday. It is not happy with the present price regime agreed with the regulator. In the talks to begin in a few weeks time, it proposes to lay down a new agenda for the regulator, to the effect that the obligations into which it has already entered to reduce prices have been so onerous 1141 that it cannot continue with them, and that it wants to slow down the process of improving prices. So British Telecom is not prepared to agree to the same price cuts next year as those to which, to some extent at least, it agreed this year.
British Telecom also says that line rental charges—they are excessive and there is great scope for reducing them in real terms so as to extend phone ownership—are not high enough and that it wants to increase them relative to its other charges. I repeat, therefore, that it is important when assessing standards of service to scrutinise prices and cost structures.
The Government have consistently argued that competition can help to bring prices down and improve the industry's performance. I do not dispute that competition has an important role in attempting to achieve those valid objectives, but there is not much competition among providers of telecommunications services. Mercury has a small percentage of the business market, although that is concentrated in the City of London and in other major cities. It is a fairly lucrative market, but Mercury has not attempted to take on the residential market. In effect there is no competition in the provision of residential telephone services—British Telecom has an effective monopoly.
The only difference now is that this is no longer a public monopoly with some accountability: it is a private monopoly, and instead of a direct relationship between the state and the monopoly provider, there is now an indirect link through the regulator.
I do not dispute that this is the shape of the future, but if it is, we must ensure that the conditions are right to govern the way in which the regulator operates. Regulation will be the key to making providers of utility services accountable to the public.
The Government should accept that this principle is valid, and that there is serious public concern about British Telecom prices and about the amount of its directors' remuneration. They must also accept that prices must be related to standards of service. We discussed this in Committee, although not as explicitly as the new clause does. I hope that the Government will show more flexibility than they showed in Committee and that they will show themselves willing to listen to the arguments, to understand public anxiety and to accept the new clause, which I believe will bring about more public confidence in the way in which these important private utilities are run.
§ Mr. Ian Bruce (Dorset, South)
Is the hon. Gentleman suggesting that a Labour Government would set the prices of British Telecom or any other large telecommunications provider? Would a Minister decide how much to charge the consumer?
§ Mr. Henderson
The hon. Gentleman must be telepathic, because he has moved on to the last point that I wanted to make. Before doing so, I can assure him that a Labour Government would not set prices for the utilities. It would set out general objectives for the utilities, and the regulators would be charged with implementing that agenda in negotiations and consultations with the utilities.
If the Government this evening fail to accept the new clause—it is an utterly reasonable new clause—I give notice that a future Labour Government will seek to modify the context in which utilities provide a service. We want to toughen up regulation, not to weaken standards of 1142 service. We want good standards of service in telecommunications and other utilities, but we also want the regulator to get a grip on the price regimes adopted by the various utilities.
§ Mr. Bill Michie (Sheffield, Heeley)
As my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) said, I shall be concentrating on new clause 54, which stands in my name. The idea behind it is to safeguard the position of low-income electricity consumers by stopping electricity companies charging for late payment.
When this matter was first brought to my attention, only Yorkshire Electricity was carrying out this practice of imposing penalty charges on customers who paid late—it was something of a novelty. But it was said that we needed regulation to stop the practice for fear that other companies would follow suit. Just today I have heard that other companies are to take up the practice, and that gives added strength to my argument in favour of the new clause.
The amount of penalty paid is determined by the length of the delay in payment and can amount to between £9 and £16. Many people cannot pay their electricity bill on time because they have low income, and to add £9 or £16 to the next quarter's bill makes matters worse. It does not solve any problems but creates more. No one argues that people should not pay if they can afford to pay or that the companies should not try to obtain their rightful dues. However, the practice that I have described discriminates against low-income families with budgeting problems.
It is argued that slow payment or non-payment can have an enormous effect upon profits and is unfair to those who pay on time because they will be charged more to offset people who are not paying on time or do not pay at all. There is some strength in the argument that good payers may be affected by non-payers but that will be the case only if companies are struggling to make a decent profit. Of course, that is not the case at all.
The recently released interim results for the first six months of 1991–92 show that Yorkshire Electricity's profits are up by a fifth. In the six months to 30 September 1991 its pre-tax profits were £33.1 million, an increase of 17 per cent. on the £28.3 million profit for the first six months of 1991. Over the same period, its operating profit fell slightly from £34.8 million to £34.3 million. That was largely due to the point that I am making—the provision against bad debt. Despite that, the operating profit represents the equivalent of £18.79 per domestic customer. That is a considerable profit, bearing in the mind the number of customers. A profit of £34.3 million shows that Yorkshire Electricity is not short of money and does not need to take such drastic action.
The problem with low penalty payment schemes such as the one adopted by Yorkshire Electricity, is that they do not fully discriminate between people who can afford to pay their bills and those who are struggling. Those who are struggling, consumers on low incomes with difficulty in budgeting, are supposed to be helped by the companies. That was the whole point of some of the regulations discussed in Committee and elsewhere. The companies should not penalise them.
It is well known that the franchise licences under which the electricity companies operate require them to 1143 formulate and abide by codes of practice on debt recovery and discrimination. They require companies to give every assistance to people to pay their bills if they have difficulty in budgeting. Regrettably, the electricity regulator has not so far been able to persuade those companies, and certainly not Yorkshire Electricity, to withdraw the penalty scheme.
I was glad to hear from my hon. Friends that they support the new clause, which I shall not press to a vote. I have been assured that the points that I have raised will be carefully considered. I am sure that we shall have a Labour Government after the next election and that they will give effect to the new clause in a code of practice, or something of that nature. I have doubts about codes of practice, because I understand that they are self-regulating and I should like something stronger. I hope that my hon. Friend who will be responsible for future legislation will bear that in mind.
Many people are affected by the penalty practice. The late payment scheme that operates in Yorkshire is thought to penalise at least 20,000 to 30,000 low-income consumers per year. I estimate that the figure is more likely to be 40,000 per year. For that reason alone, it is time that the House made sure that the companies do not impose such fines on people who face financial difficulties. That is the point of the new clause, and I hope that it will be taken on board.
§ Mr. Peter Hain (Neath)
I support the new clause. The problem with the Bill and the Government's attitude to and policy on telecommunications in particular, although it also applies to water, gas and electricity, is that, under privatisation, prices are geared to the interests of big business and not to the interests of the ordinary citizen. That is the essential problem we face when seeking to introduce consumer protection legislation.
Old-age pensioners, the disabled, the poor and the unemployed get a very bad deal from the large private monopoly utilities. They get a particularly bad deal from British Telecom in terms of standing charges and the pricing regime. They also get a bad deal because of high deposits, and are cut off when they are unable to pay the high charges. The whole pricing regime seems to close in on such people and denies them their elementary human rights. Therefore, they suffer a double penalty, first by being poor and secondly by having imposed upon them charges which they cannot possibly bear.
I spoke about elementary human rights. Conservatives may snigger and dispute that, but in a modern age it is a human right to have the essential lifeline of a telephone. As the family is broken up and extended, many citizens are deprived of links with their families. People are huddled in city centres, often frightened to go out of their homes because of rising crime, and they lack the income to enjoy a decent quality of life. For them the telephone is a vital lifeline and therefore an essential citizen's right.
The present pricing regime, which the Government are happy to allow to continue and which they encourage, denies such people access to a telephone. That is a deliberate policy by the Government, as one can see from the rebalancing of tariffs to which my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) referred. That rebalancing, carried out in negotiations between British Telecom and Oftel, deliberately increased rental charges by much more than 1144 ordinary charges. That bears most heavily on the poorest sections of the population. Rental charges have shot up over the past year.
In the first half of 1991–92, revenue from rentals increased by 14.8 per cent. That is more than double the average RPI increase over that time. As my hon. Friend the Member for Newcastle upon Tyne, North has said, not content with that, British Telecom now seeks an increase in rental charges. As I have said, that will bear most heavily on those who are least able to carry the charges.
Many old-age pensioners who come to my surgeries are paying more for rental than for telephone calls. In some cases, they pay 10 times more. That problem bears most heavily on pensioners who are just above benefit level—the income support level—perhaps because the husband has been a miner and has a miner's pension, which is often trivial, and is therefore not entitled to the range of benefits to which he might be entitled if he were paid the basic retirement pension. He is faced with telephone charges that seem to him to be sky high.
The Minister may say that British Telecom has introduced the support-line scheme and has operated the low-user rebate scheme for a while, but rental charges are still far too high under the support-line scheme. They are £9.23 a quarter. That may not be much money to the Minister and his colleagues who enjoy high salaries but it is a great deal of money to ordinary pensioners who are on low incomes. Conservative Members may scoff, snigger or laugh, but they do not understand and they do not care about the conditions in which ordinary people are living.
The installation charge for a telephone is £163.05, which is about three times the sum to which a single retirement pensioner is entitled. Many of the people to whom I have referred do not have a very good credit rating and so they have to put down a heavy deposit. What prospect is there of such people acquiring a telephone in those circumstances?
At the same time, BT is generating huge profits. It makes a profit of £105 every second. The Minister may say that most of BT's profit has been channelled into investment. I understand that argument, but the ordinary consumer, including the ordinary pensioner, who cannot afford to have a telephone installed, will take the view that exorbitant profits are being generated. He or she will want to know why BT is not finding the cash to reduce rental charges or, in some circumstances, to abolish them, and why it is not funding the provision of telephones for some of the most vulnerable and deprived citizens.
Ordinary consumers do not understand how the chairman of BT can get £10,000 a week while they receive perhaps less than £100 a week and are denied access to a telephone. The Government should ensure that there is a pricing policy that makes it possible for every householder to afford to have a telephone installed. If installation charges were either free or purely nominal, I believe that BT and the Government, through corporation tax and so forth, would get their money back in no time at all. The increase in tariffs that would come from the increased use of lines would produce extra revenue for BT. It could be that it would be able to introduce a new pricing structure that abolished standing charges for pensioners and those on income support, for example, while having a higher initial tariff to fund that abolition.
In many instances a telephone is an essential lifeline for a pensioner who lives alone, and it is interesting that a third of single pensioners do not have telephones. That is 1145 deplorable in a civilised or so-called civilised society. It is interesting to compare our household penetration rate with the rates of other countries. I understand that 80 per cent. of residences here have telephones. In the United States, the rate is 95 per cent. It is even more significant that it is 98 per cent. in France. The French have a publicly owned telephone system that is regarded as the best in the world. The "great" privatised telecommunications system that the Government praise to the rooftops cannot get anywhere near what the French have achieved. As I have said, a third of our single pensioners do not have access to a telephone. That is deplorable, especially when the competitive regime has been rigged in such a way that businesses receive much more favourable treatment than ordinary consumers.
I urge the Government to change the regulatory regime. If they do not use the Bill to do that, they should do so after it has been enacted. They should ensure that there is a level playing field between BT and its major competitor, Mercury, and any other competitor that comes into the market. That would enable BT to concentrate on providing an equal service for everyone instead of giving a better service to the business customer. It is the business sector that provides the profitable market and that is where competition is fiercest. Accordingly, BT is forced to drive down its prices if it is to compete, but every citizen requires low prices, or at least prices that are fair. We shall not see such prices until the regulatory regime is changed.
I believe that the Minister will have to acknowledge that the introduction of an allegedly consumer protectionist Bill will have no effect because of the pricing and regulatory policies that have been introduced. Market forces are not sufficient to protect consumers. Consumers need rights to be enforced and pricing policies that are designed to protect them. The Government may claim to be the champion of the shareholder in the context of telecommunications, but they are not the champion of the consumer. When we look back with the benefit of historic hindsight on the 1980s and early 1990s and reflect on telecommunications policy, I believe that it will be seen to be geared to the short term. Investment in BT is falling while profits rise. Consumers take second place while the number of complaints shoots up.
It is time that the Government changed their entire policy. They should act to protect the consumer. They should allow BT to stop looking over its shoulder towards domestic competition and enable it to become a leading player in the global market. At the same time, BT should ensure that old-age pensioners, the disabled and those who are on low incomes have the benefit of a telephone and have a decent quality of life.
§ Mr. Redwood
I am grateful to all those who have contributed to the debate. On many occasions it seemed that the Opposition's policy, on analysis, was similar to that which the Government are recommending. I am grateful to my hon. Friend the Member for Dorset, South (Mr. Bruce) for his intervention, which teased out the fact that, when it comes to how the system works, the Labour party is endorsing much of what we have been doing.
I think that the right approach is the promotion and development of competition wherever possible and the existence of firm and clear regulations for monopoly areas, where customer interests are very important and are a duty 1146 upon the regulator. That is exactly what our legislation and regulatory framework provide. The Bill and other regulations and legislation that are already in being require the establishment of standards of performance and standards of service. It is against the background of those standards that the price regime is agreed.
I cannot see how the kernel of the Labour party's proposal in new clause 1 would do anything or why it is necessary, given the requirements that are already upon the industry, as are set out in the Bill and in preceding legislation, licences and regulation.
The Bill provides measures to prevent a reduction in standards to achieve a hidden price rise. I think that the Labour party agrees with that proposal. The regulator has, of course, to bear in mind the total costs of the industry when considering price caps. Labour's policy towards BT was described at greater length in Committee, and it seems that the Labour party would cut profits and at the same time demand increased investment. As we said in Committee, that is an implausible policy for the Labour party to recommend. Profits have an important function in paying for investment and providing the necessary signals to make the investment worth while.
I am glad that the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) accepted that prices have been much better controlled since 1984. Indeed, only since 1984 has there been a sensible system of price control. There was never one under nationalisation. There was no effective system through Ministers or directors in the 1970s when Labour and Labour-Liberal Administrations were in being. The hon. Member for Newcastle upon Tyne, North has not yet seen a full year's trading with the new retail prices index minus 6.25 per cent. formula. He must be aware, however, that it is the most stringent system of control to be operated anywhere in the world. I think that it is one of which BT, the industry and the country can be proud. Prices will fall by 6.25 per cent. in real terms during the period of that price control.
The hon. Member for Newcastle upon Tyne, North, asked about the future. He asked whether there would be a review of line rental charges and the price cap. He put forward the views of BT. He well knows that in due course there will be a review of these matters. The evidence of BT and of other interests, including customers and the Opposition, if they care to submit evidence, will be carefully considered by the director general.
The hon. Member for Newcastle upon Tyne, North, expressed scepticism about the power of competition. He did so not because he doubts the theory that competition can do the job but because he wonders whether the practice will build up, especially in the local loop. He should look carefully at what is happening with the development of local loop competition from cable television operators entering telephony. He might like to know that there are 20 licence applications at the Department of Trade and Industry for new services under the duopoly review that we announced last year. I hope that we shall be able to make speedy progress in processing and granting the licences where the applications are of the right form. Some of these services will strengthen competition in the local loop. I hope that the hon. Gentleman will welcome that when we can make the announcement.
The hon. Member for Sheffield, Heeley (Mr. Michie) spoke to new clause 54. I have a great deal of sympathy with what he said about those who are under considerable 1147 financial pressure when faced with the possibility of additional charges from their electricity utility. I am glad that the hon. Gentleman raised that matter, because he will find that action has already been taken that goes a long way to meeting his requirements.
The hon. Member understood in his speech that, if people deliberately delay payment until they are finally threatened with disconnection, they increase the costs for other electricity consumers. They increase the cost of capital for the business as the business has to borrow for the money that it has forgone and it is incurring the additional cost of reminder letters and chasing up before the final threat of disconnection and the levying of the additional charge. He said clearly that, if people can pay but will not do so, it is not unreasonable for them to pay more when the utility catches up with them because they have imposed those additional costs upon other electricity consumers, many of whom are less well off but who have met their bills on time because they do not want to experience that hassle.
I accept that there could be cases such as those described by the hon. Gentleman where people are in genuine hardship. Therefore, the Director General of Electricity Supply has requested that electricity companies waive the charges in such cases. I am told that Yorkshire Electricity has agreed to do so and has included that in its code of practice.
The hon. Gentleman said that he wanted codes of practice, but that he was sceptical about how strong they would be. I hope that he will accept the good faith of the codes of practice and see how they work out. If he becomes aware of cases of hardship following the introduction of that measure, I hope that he will refer them to the director general, because he is just as concerned about genuine hardship cases. The hon. Gentleman may care to note that the penalty charges for late payment pre-date privatisation by a long way. Therefore, it is not fair to say that they are the result of a privatised management seeking to increase its profitability. They are a perfectly sensible response to a genuine business problem. If too many customers delay payment, it is disruptive and costly for the business.
The hon. Gentleman may care to note that there is good news on disconnections, which are even more worrying and threatening to the type of consumer about whom he and I are concerned. In 1976, there were 114,330 disconnections, and by 1990, that had dropped to 55,196, well below any figure achieved in the 1970s under the Labour Administration. I hope that he will welcome that and see that some things are getting better.
The hon. Member for Neath (Mr. Hain) repeated his point about the human right to have a telephone and the need for more people on low incomes to have access to the system. We debated that extensively in Committee. He is trying to under-sell British achievement. The penetration figure was 88 per cent. in 1990, but it has risen since then. I welcome, as he does, the great progress made in improving and increasing access to telephone use, ownership and rental over recent years.
In 1972, which was not long ago, only 42 per cent. of households had a telephone. It is well over double that level now, because we have introduced a system that enables the industry to have the resources and profits to invest in growth, and because the industry has introduced 1148 the support line and low user rental rebate schemes which are imaginative and good schemes and much better than anything that was in existence before.
I think that the hon. Member for Neath finds himself at variance with this Front Bench spokesman. He got a little carried away in his peroration and said that he thought that our entire policy should be changed, yet the Front Bench spokesman said that he agreed with the idea of introducing competition and with many of our regulatory measures. In fact, much of new clause 1 supplements, in looser language, what we are already doing in existing legislation and in this Bill. I hope that the House will rest content with the Bill as tabled and as amended by the Government.
§ Mr. Rhodri Morgan (Cardiff, West)
I want to deal particularly with new clause 7, which has not been dealt with so far. As we have found throughout the passage of the Bill, some of the matters are common to the different public utilities and, as a result, it is right to group them. However, that means some jumping about from electricity and gas in the energy sector to British Telecom in the trade and industry sector and to water and sewerage in the environment sector.
In many ways, new clause 7 is similar to new clause 1, but it deals specifically with electricity. It could be applied easily to gas, because it deals with the place of energy efficiency in any pricing or regulatory regime for any of the four great public utilities—particularly gas and electricity—in a monopoly position.
We are interested in the way in which energy efficiency should be encouraged in a monopoly public utility. Gas was privatised three years before electricity and has undergone a five-year review. I believe that the review will take effect in April 1992. In the negotiations between the regulator and the gas industry, the industry has accepted the proposal by Ofgas that there should be an E factor, or efficiency factor, in the way in which gas prices are changed year on year. In other words, an allowance will be made for an additional price rise per unit if the gas industry makes suitable efforts to reduce the number of units consumed.
The industry will split the difference with its consumers. If a utility introduces measures to help its customers to use less of its product, the customer will gain most of the benefit, but the industry will gain some benefit through the application of the E factor—a small increase on top of the retail prices index plus X minus Y, or whatever it may be. Also, there will be a contribution towards the reduction in the number of units used while raising the unit charge. That is admirable, except that it has taken five years to arrive.
In the new clause, we have asked for something that most people in the industry realise is inevitable—there will be an E factor for electricity. This is a rattling good idea for the gas industry, so why do we have to wait five years for it to be applied to the electricity industry? I hope that the Minister will revise the Government's rigid idea that it is fair dinkum for the City that, when a company is privatised, it must be left alone for about five years with a level playing field that keeps the investment institutions happy. That is nonsense.
The Government are about to agree all sorts of proposals with the European Community to encourage energy efficiency. They half agreed to the idea of carbon taxes during meetings in December with their EC 1149 counterparts at Environment, Energy and Finance level. They are adopting all sorts of proposals for stabilising CO2 emissions, but they will not accept this good idea in case it offends their friends in the City. That is idiotic. They will have to revise their views shortly. It could be introduced in this Bill very simply, but they will not do it because of the "not invented here" problem and because they do not want to offend the investment institutions.
When this Bill had its Second Reading and went to Committee, the remaining shares in British Telecom had not been sold. I am sure that the Government were worried about offending the investment institutions that they needed to keep sweet in order to sell the remaining shares. Now that British Telecom has been sold, I hope that we will see a last-minute conversion, either here or in another place. I hope that they will accept the energy efficiency incentive for the electricity industry so that it can assist its consumers to reduce their consumption while being able to increase the unit charge and, thereby, reducing overall the bills for their consumers.
That is what we hope will happen, and that is what we promise will inevitably happen when we assume the powers of government. There is no time to lose on the environment front, and energy efficiency can make such a contribution to the environment that we hope the Government will have a deathbed conversion and, before the Bill receives the Royal Assent, will announce that they too will equalise the priority given to energy efficiency in the gas and electricity companies.
What effect might that have on the electricity distribution companies' profits? It has been calculated that they now make a return of about 8 per cent., after allowing for inflation. That is a very high rate of return for monopoly public utilities. Most people seem to assume that a monopoly public utility ought to make a rate of return of about 5 per cent. after allowing for inflation, but our regional distribution companies make 8 per cent.—about 60 per cent. more than one would have expected. The Government have allowed profits to let rip, so there is a big margin which the companies should undoubtedly be asked to spend on improvements in energy efficiency. In the end, that would bring their profits down to what could be called normal profits for public utility companies.
The companies should not be making more than 5 per cent., taking the good years with the bad. We are in the middle of a recession, and this would not normally have been expected to be a good year. But the profits have been allowed to run freely, because we are still in the initial stages after privatisation. The Government have allowed the companies to do nothing more than mug the consumer. The Government have not created privatised companies in the conventional commercial sense; they have created pound note machines, which are beneficial for the shareholders and earn profits 60 per cent. higher than they should be, considering the nature of the companies and the protection from competition that their monopoly position gives them. People cannot have two sets of wires leading to the three-pin plugs in their homes.
Profits are far too high, and the surplus should be creamed off to assist with energy efficiency. That would be good for the environment and for consumers; the shareholders themselves, especially the large institutions, expect that to happen in the long run. But of course it cannot be allowed to happen yet, because that might upset 1150 the merchant banks which advised the Government so ill on the privatisation of the distribution companies. It might even upset the regulator, because he, in effect, wrote the preparatory documents for electricity privatisation, and perhaps he would not yet like to admit how wrong he was.
I have some examples of what the Government have done in setting up what I call pound note machines rather than conventional commercial enterprises. I was interested to read the analysis of the top 500 European and British companies in Monday's Financial Times. The list was interesting, because it contained recently privatised companies. There was a special analysis of which 25 of the United Kingdom's top 500 companies had had the biggest profit increases in the past financial year.
Seven of those top 25 companies were recently privatised water or electricity companies. The third was Northumbrian Water, the fifth was Welsh Water, the seventh North West Water, the 10th Wessex Water Services, the 15th South Wales Electricity, the 23rd Yorkshire Water Services, and the 24th South West Water Services. Thus, of the 500 biggest British companies in terms of market capitalisation, seven of the 25 with the biggest percentage increases in profits were privatised utilities.
We can look at the figures another way. Seven of the 12 companies with the biggest increases in profits among the biggest 300 companies in Britain are recently privatised water or electricity companies. Top of the list for profit increases is Northumbrian Water; second is Welsh Water; third is North West Water; fifth is Wessex Water Services; seventh is South Wales Electricity; 11 th is Yorkshire Water Services; 12th is South West Water Services. More than half of the top profit rockets among the biggest 300 companies in Britain are recently privatised companies.
That is a staggering figure, and it shows, if we needed to be shown, the degree to which privatisation has been carried out so as to mug the consumer and benefit the shareholder—to stuff money into the pockets of City advisers and shareholders. The consumer has been left with nothing to gain and everything to lose from privatisation.
We have asked about standards of service. Why has the process of privatisation made it so easy for the companies to make profits 60 per cent. higher than what we could call the norm for monopolies? It has happened because the regulators cannot really know as much about the industry as the companies do. One can ask about the standards of service—for instance, why do such an unbelievably high number of consumers in south Wales have their electricity cut off?
I wrote recently to OFFER asking what it could do about the fact that we had paid an increase of 46 per cent. in the four years since the electricity privatisation White Paper was published in February 1988. It was the second highest price increase in the country—the increase in the south-west was the highest—yet Wales and the south-west also had the highest number of cut-offs. Standards of service were appalling, yet the price rises were the highest.
When I asked OFFER what it could do about that, the letter that I received in reply gave the companies' explanation—not OFFER's explanation but the companies' explanation, because the director-general of OFFER cannot know as much as the companies. The companies can always flannel; they can always find an Enid Blyton excuse, a little story to tell OFFER, and 1151 OFFER passes that on to the Member of Parliament who is trying to do his job and look after the consumers in his area.
We need regulators with teeth, regulators with powers. We have not got them at the moment.
§ Mr. Redwood
The hon. Gentleman was discussing the desirability of an E factor. Will he clarify the size of E factor that would be necessary to achieve the kind of energy-saving programme that he wants?
§ Mr. Morgan
I thought I had given an explanation of the kind of E factor that we would seek. We would keep the price of electricity stable in cash terms but would order, by way of a code of practice, that the difference between a 5 per cent. rate of return, after allowing for inflation, and the 8 per cent. return now being earned by the 12 regional electricity companies in England and Wales should be spent on improvements in energy efficiency on their customers' premises—for instance, by providing low-energy light bulbs, loft insulation or draught-proofing. That is not uncommon in the United States, and it would be sensible here. Either electricity prices could be reduced so that the companies earned a real rate of return of roughly 5 per cent., or prices could be left at today's levels, whereby the companies earn 8 per cent., and the companies could be told to spend the extra money on energy efficiency.
That would achieve some of the Government's objectives over the next three or four years—catching up for the benefit of consumers, but catching down, as it were, in terms of the roaring rates of return now being earned.
Let us return to the subject of how strong we want to make the regulators. We did not contest the Bill on Second Reading because we approve of the regulators' powers being roughly the same in the four big public utilities, but we are anxious to ensure that the regulators have a strong commitment to regulating the industries and use the statutory powers that they are given.
Considering the history of the four public utilities, one could say that we are looking for regulators who have the statutory powers that Stephen Littlechild has in the electricity industry, combined with Ian Byatt's brains and James McKinnon's teeth. Some such composite regulator is needed providing the best of the three worlds—I always leave out telecoms because I am no expert on that industry.
We all take an interest in seeking some sort of regulator who will do something for the consumers rather than take the company's view 90 per cent., of the time. We have seen in the gas industry the regulator doing something for the consumer. Perhaps that is because James McKinnon was not involved in the process of privatisation but was found subsequently. Ian Byatt and Stephen Littlechild are severely inhibited by the fact that they virtually wrote their own job descriptions by being so involved in the process of privatisation as political advisers or, in the case of Ian Byatt, civil servants at the Treasury. They do not seem to know quite how to use their powers to compel the industry to do what is necessary to defend the consumers' interest.
I have outlined how we see the need to strengthen the regulators and make them far more independent of the industry and far less tied up with the wish not to create antipathy in the City or the investment community for the next round of privatisation. We want someone who regards is as his one plain and simple job to look after the consumers of the four major utilities. Whether the 1152 Secretaries of State for Energy, the Environment or Wales like it, that will be the job to which he is 100 per cent. committed. That is the type of person whom we shall appoint. The four utilities need stronger powers to protect the consumer.
§ Mr. Redwood
With the leave of the House, I shall respond to the points that the hon. Member for Cardiff, West (Mr. Morgan) has made.
One of the main ways in which energy usage can be made more efficient is to improve and change the system of generation. Of course, that is exactly what competition and the changes in the industry are doing. The substitution of combined cycle gas projects for the old coal-steam projects that dominated the industry prior to privatisation will make a large difference. As the hon. Gentleman is aware, the thermal efficiency of those new stations is greatly superior to that of the old type of station that was constructed by the nationalised industry.
The hon. Gentleman may be well aware that the Office of Electricity Regulation has issued codes of practice on the matter about which he is worried. Of course, section 3 of the Electricity Act 1989 requires the promotion of efficiency and economy in the use of electricity. The Bill before the House tonight gives new powers to the Director General of Electricity Supply to require electricity suppliers to inform customers of standards set and achieved for energy efficiency.
I am not surprised that the hon. Gentleman has discovered that the privatised companies have done well. They have done well and increased their profitability against the background of firm price regulation and control. The reason why they have done well is that they now have the incentive to do so. They are raising their productivity in a way that they never did under Labour Governments and nationalisation. So my hon. Friends would have been surprised if the electricity companies had not figured prominently in the list of companies showing considerable improvements and better profitability. The hon. Gentleman's attack on both Mr. Littlechild and Mr. Byatt was unfair. They are extremely good regulators, and their contribution to the development of regulatory styles and techniques in Britain and throughout the world is extremely important.
Professor Littlechild's development of the formula of simple price control based on the retail prices index and an adjustment to take account of fuel costs and efficiency in the industry is being monitored and adopted elsewhere in the world because it is an extremely good way of regulating an industry and offering a pledge and a promise to the customer. That pledge matters to the customers because it is a pledge on the price of the goods or service that they will receive.
I urge the House to reject the new clause. It is unnecessary. The Director General of Electricity Supply has the powers that he needs. His consultative document has set out several ideas, including an E factor. We are happy to trust his judgment, and he does not want the powers in the Labour party's new clause.
§ Question put, That the clause be read a Second time:—
§ The House divided: Ayes 124, Noes 204.1155
|Division No. 39]||[6.13 pm|
|Adams, Mrs Irene (Paisley, N.)||Anderson, Donald|
|Allen, Graham||Archer, Rt Hon Peter|
|Alton, David||Armstrong, Hilary|
|Ashton, Joe||Illsley, Eric|
|Barnes, Harry (Derbyshire NE)||Ingram, Adam|
|Barron, Kevin||Johnston, Sir Russell|
|Battle, John||Kilfoyle, Peter|
|Beckett, Margaret||Kinnock, Rt Hon Neil|
|Beggs, Roy||Leadbitter, Ted|
|Bellotti, David||Leighton, Ron|
|Benn, Rt Hon Tony||Lewis, Terry|
|Bennett, A. F. (D'nt'n & R'dish)||Livsey, Richard|
|Blunkett, David||McAllion, John|
|Bray, Dr Jeremy||McAvoy, Thomas|
|Brown, Gordon (D'mline E)||Macdonald, Calum A.|
|Brown, Nicholas (Newcastle E)||McFall, John|
|Brown, Ron (Edinburgh Leith)||McKay, Allen (Barnsley West)|
|Caborn, Richard||McKelvey, William|
|Callaghan, Jim||Madden, Max|
|Campbell, Menzies (Fife NE)||Maginnis, Ken|
|Campbell, Ron (Blyth Valley)||Mahon, Mrs Alice|
|Carlile, Alex (Mont'g)||Marshall, Jim (Leicester S)|
|Carr, Michael||Maxton, John|
|Clarke, Tom (Monklands W)||Meacher, Michael|
|Clwyd, Mrs Ann||Meale, Alan|
|Cook, Frank (Stockton N)||Michie, Bill (Sheffield Heeley)|
|Cook, Robin (Livingston)||Michie, Mrs Ray (Arg'l & Bute)|
|Corbett, Robin||Molyneaux, Rt Hon James|
|Cox, Tom||Morgan, Rhodri|
|Crowther, Stan||Morley, Elliot|
|Cryer, Bob||Morris, Rt Hon A. (W'shawe)|
|Dalyell, Tam||Mowlam, Marjorie|
|Davis, Terry (B'ham Hodge H'l)||Mullin, Chris|
|Dixon, Don||Nellist, Dave|
|Dobson, Frank||Orme, Rt Hon Stanley|
|Dunwoody, Hon Mrs Gwyneth||Powell, Ray (Ogmore)|
|Eadie, Alexander||Primarolo, Dawn|
|Edwards, Huw||Rees, Rt Hon Merlyn|
|Enright, Derek||Rogers, Allan|
|Ewing, Mrs Margaret (Moray)||Rooker, Jeff|
|Faulds, Andrew||Ruddock, Joan|
|Field, Frank (Birkenhead)||Sheerman, Barry|
|Fields, Terry (L'pool B G'n)||Sheldon, Rt Hon Robert|
|Flannery, Martin||Short, Clare|
|Flynn, Paul||Skinner, Dennis|
|Foster, Derek||Smith, Andrew (Oxford E)|
|Garrett, Ted (Wallsend)||Smith, C. (Isl'ton & F'bury)|
|George, Bruce||Snape, Peter|
|Gordon, Mildred||Spearing, Nigel|
|Gould, Bryan||Stephen, Nicol|
|Graham, Thomas||Strang, Gavin|
|Grant, Bernie (Tottenham)||Thompson, Jack (Wansbeck)|
|Griffiths, Nigel (Edinburgh S)||Turner, Dennis|
|Griffiths, Win (Bridgend)||Wareing, Robert N.|
|Grocott, Bruce||Watson, Mike (Glasgow, C)|
|Hain, Peter||Welsh, Michael (Doncaster N)|
|Hattersley, Rt Hon Roy||Williams, Rt Hon Alan|
|Haynes, Frank||Williams, Alan W. (Carm'then)|
|Henderson, Doug||Wise, Mrs Audrey|
|Hinchliffe, David||Worthington, Tony|
|Howarth, George (Knowsley N)||Tellers for the Ayes:|
|Howells, Dr. Kim (Pontypridd)||Mrs. Llin Golding, and Mr. Ken Eastham.|
|Hughes, Simon (Southwark)|
|Arbuthnot, James||Buck, Sir Antony|
|Arnold, Jacques (Gravesham)||Budgen, Nicholas|
|Baker, Nicholas (Dorset N)||Burns, Simon|
|Baldry, Tony||Burt, Alistair|
|Bellingham, Henry||Butterfill, John|
|Benyon, W.||Carlisle, John, (Luton N)|
|Bevan, David Gilroy||Carrington, Matthew|
|Blaker, Rt Hon Sir Peter||Carttiss, Michael|
|Body, Sir Richard||Channon, Rt Hon Paul|
|Boswell, Tim||Chapman, Sydney|
|Bottomley, Peter||Chope, Christopher|
|Bowis, John||Clark, Rt Hon Alan (Plymouth)|
|Braine, Rt Hon Sir Bernard||Clark, Dr Michael (Rochford)|
|Brandon-Bravo, Martin||Clark, Rt Hon Sir William|
|Brown, Michael (Brigg & Cl't's)||Colvin, Michael|
|Browne, John (Winchester)||Conway, Derek|
|Bruce, Ian (Dorset South)||Coombs, Anthony (Wyre F'rest)|
|Coombs, Simon (Swindon)||Lightbown, David|
|Cormack, Patrick||Lloyd, Peter (Fareham)|
|Currie, Mrs Edwina||Lord, Michael|
|Davies, Q. (Stamf'd & Spald'g)||Luce, Rt Hon Sir Richard|
|Davis, David (Boothferry)||MacGregor, Rt Hon John|
|Day, Stephen||MacKay, Andrew (E Berkshire)|
|Devlin, Tim||Maclean, David|
|Dickens, Geoffrey||McLoughlin, Patrick|
|Douglas-Hamilton, Lord James||McNair-Wilson, Sir Michael|
|Dover, Den||McNair-Wilson, Sir Patrick|
|Dunn, Bob||Malins, Humfrey|
|Durant, Sir Anthony||Mans, Keith|
|Dykes, Hugh||Marlow, Tony|
|Eggar, Tim||Marshall, Sir Michael (Arundel)|
|Evans, David (Welwyn Hatf'd)||Martin, David (Portsmouth S)|
|Evans, John (St Helens N)||Mates, Michael|
|Evennett, David||Maude, Hon Francis|
|Fallon, Michael||Maxwell-Hyslop, Sir Robin|
|Farr, Sir John||Mellor, Rt Hon David|
|Favell, Tony||Meyer, Sir Anthony|
|Fenner, Dame Peggy||Miller, Sir Hal|
|Fishburn, John Dudley||Mills, Iain|
|Fookes, Dame Janet||Mitchell, Andrew (Gedling)|
|Fornnan, Nigel||Moate, Roger|
|Forsyth, Michael (Stirling)||Morris, M (N'hampton S)|
|Forth, Eric||Morrison, Rt Hon Sir Peter|
|Fox, Sir Marcus||Moss, Malcolm|
|Franks, Cecil||Moynihan, Hon Colin|
|Freeman, Roger||Nelson, Anthony|
|French, Douglas||Neubert, Sir Michael|
|Gale, Roger||Nicholls, Patrick|
|Gardiner, Sir George||Nicholson, David (Taunton)|
|Garel-Jones, Rt Hon Tristan||Nicholson, Emma (Devon West)|
|Glyn, Dr Sir Alan||Norris, Steve|
|Goodhart, Sir Philip||Onslow, Rt Hon Cranley|
|Goodlad, Rt Hon Alastair||Oppenheim, Phillip|
|Gorman, Mrs Teresa||Owen, Rt Hon Dr David|
|Grant, Sir Anthony (CambsSW)||Page, Richard|
|Greenway, John (Ryedale)||Paice, James|
|Gregory, Conal||Pattie, Rt Hon Sir Geoffrey|
|Griffiths, Peter (Portsmouth N)||Pawsey, James|
|Grist, Ian||Peacock, Mrs Elizabeth|
|Ground, Patrick||Porter, Barry (Wirral S)|
|Hague, William||Porter, David (Waveney)|
|Hamilton, Rt Hon Archie||Portillo, Michael|
|Hamilton, Neil (Tatton)||Powell, William (Corby)|
|Hampson, Dr Keith||Raison, Rt Hon Sir Timothy|
|Hannam, Sir John||Rathbone, Tim|
|Harris, David||Redwood, John|
|Haselhurst, Alan||Rhodes James, Sir Robert|
|Hayes, Jerry||Rowe, Andrew|
|Hayhoe, Rt Hon Sir Barney||Ryder, Rt Hon Richard|
|Hayward, Robert||Sackville, Hon Tom|
|Heathcoat-Amory, David||Shaw, David (Dover)|
|Higgins, Rt Hon Terence L.||Shaw, Sir Giles (Pudsey)|
|Hind, Kenneth||Shaw, Sir Michael (Scarb')|
|Hordern, Sir Peter||Shepherd, Colin (Hereford)|
|Howarth, G. (Cannock & B'wd)||Sims, Roger|
|Howe, Rt Hon Sir Geoffrey||Skeet, Sir Trevor|
|Hughes, Robert G. (Harrow W)||Smith, Tim (Beaconsfield)|
|Hunt, Rt Hon David||Speller, Tony|
|Hunt, Sir John (Ravensbourne)||Spicer, Sir Jim (Dorset W)|
|Hunter, Andrew||Squire, Robin|
|Irvine, Michael||Stanley, Rt Hon Sir John|
|Jack, Michael||Steen, Anthony|
|Jackson, Robert||Stern, Michael|
|Janman, Tim||Stevens, Lewis|
|Johnson Smith, Sir Geoffrey||Stewart, Andy (Sherwood)|
|Jones, Gwilym (Cardiff N)||Sumberg, David|
|Kellett-Bowman, Dame Elaine||Taylor, Ian (Esher)|
|Key, Robert||Taylor, Sir Teddy|
|Kilfedder, James||Tebbit, Rt Hon Norman|
|King, Roger (B'ham N'thfield)||Thompson, Sir D. (Calder|
|Knapman, Roger||Thompson, Patrick (Norwich N)|
|Knight, Greg (Derby North)||Thorne, Neil|
|Knight, Dame Jill (Edgbaston)||Tracey, Richard|
|Lawrence, Ivan||Twinn, Dr Ian|
|Lee, John (Pendle)||Waldegrave, Rt Hon William|
|Lester, Jim (Broxtowe)||Waller, Gary|
|Ward, John||Wood, Timothy|
|Warren, Kenneth||Woodcock, Dr. Mike|
|Watts, John||Yeo, Tim|
|Wells, Bowen||Young, Sir George (Acton)|
|Wheeler, Sir John|
|Whitney, Ray||Tellers for the Noes:|
|Widdecombe, Ann||Mr. John M. Taylor and Mr. Irvine Patrick.|
§ Question accordingly negatived.