Director General of Gas Supply

HC Deb 11 July 1994 vol 246 cc804-10

Motion made, and Question proposed, That this House do now adjourn—[Mr. Arbuthnot.]

12 midnight

Mr. Robert Ainsworth (Coventry, North-East)

I wish to use the opportunity of the Adjournment debate this evening to question the appointment, and the practices used in the appointment, of the Director General of Gas Supply.

Regulation and regulators are of growing importance in our lives, particularly when a state-owned utility has been turned into a private monopoly. Such is the case with the gas industry. If regulation is to work, it is essential not only that regulators operate within clear legislative guidelines in a manner that is open and understood; it is also essential that they be appointed in a fashion that establishes their integrity and their independence from political and Whitehall control, and that the persons appointed have the qualifications required to command respect within an industry.

In respect of the Director General of Gas Supply, the criteria called for a person with a reputation for fairness, discretion and independence, with good negotiating skills and the ability to understand complex legal issues. The documentation issued at the time also stated: Candidates will probably have substantial experience of dealing with competition issues in a business environment". Moreover, any connections that they had with the gas industry were to be disclosed.

I have been assured by the Minister that the integrity of the appointments process was assured by the involvement of outside executive search consultants. We are, of course, expected to be further reassured by the fact that the entire process was overseen by our reliable, safe civil service system.

What actually happened was far from any ideal. The executive agency involvement gives us no reassurance, as it has been established that it did not head-hunt the successful candidate; rather, she sought out the agency. According to Ms Spottiswoode, having heard that Saxton Bampfylde procured interesting jobs, she phoned it up one Friday night, to learn that the agency was enthusiastic about her and had the ideal job. This enthusiasm was supposed to have been based on her public sector background, combined with her entrepreneurial skills.

The telephone call must have been a happy coincidence for Saxton Bampfylde, because at the time it had already submitted a short list for the job which had been rejected by the Department of Trade and Industry, for reasons that it has yet to explain. Ms Spottiswoode's name was in any case promptly added to the list. [Interruption.]

That unusual occurrence, which the Minister will have an opportunity to deny if he wishes, would be nothing more than that if it were not combined with the fact, which came to light, that the civil servant in charge of the appointment process had known the successful candidate for some years. I am talking about Mr. John Michell, who had worked with the director general at the Treasury some years before. As far as we are aware, he declared that fact to nobody, but he participated in the appointment process.

Ms Spottiswoode's explanation has been that she hardly knew him: she recognised him, but would not have done so in a crowd. We do not know whether that is the case, but we do know that they recognised each other and did not declare that. Perhaps the Minister will tell us that they did, and that he had some reason to overrule the declaration and allow the appointment process to continue.

I shall now deal with connections to the gas industry. It seems that a gas consultancy called Economatters, which likes to be known as "the insider's consultancy", lent a hand to the job applicant. First, individual, one-to-one tuition was given, and then a place on a training course costing £2,200 was provided. The same consultancy printed in its May 1994 magazine the most astonishing tirade against members of the Select Committee on the Environment for daring to question Ms Spottiswoode's competence, and her "year zero" approach to her job.

I have had three different versions of who paid for the training. First, I was told that the Department of Trade and Industry paid for it, although I think that that has been denied. Perhaps the Minister will clear that up. When I asked whether any of the pre-appointment training had been paid for by his Department, I was told that it was not asked to contribute to the cost. Perhaps the Minister will say whether the Department made any contribution to that training.

Secondly, I was told that Ofgas paid for the training. I would find that remarkable, because no appointment had been made at the time. Thirdly, I was told that there was no charge, but that would be a little astonishing, because it would hardly enhance the standing of the new Director General of Gas Supply as independent.

Training was absolutely necessary, as the candidate did not know anything at all about the industry of which she was applying to be the regulator. I have a quote which proves that. It states: I went to university in the 1970s when people were concerned about oil and gas running out and one of the first things I did actually before I took the job was ask a lot of people about resources. I was quite surprised that actually there are a lot of resources left. That displays a Daily Mail understanding of the gas and oil industry, if ever there was one.

Secondly, the fact has come to light that the obliging "insider's consultancy" is chaired by none other than the uncle of the Director General of Gas Supply. Was all that known by the DTI at the time of the appointment? Most particularly, did it know about the lack of knowledge of the industry, and who paid for the pre-appointment training? Did the DTI have any role in that, or did Ofgas, or was it provided free? Some clear answers on those issues would be helpful.

Throughout the controversy over this appointment, we have been treated to one overriding defence, which has been repeated ad nauseam. It is that Ms Spottiswoode was appointed because of her unique combination of public sector knowledge and entrepreneurial skills. That is what was supposed to have made her attractive to the headhunter. That is what is used as a substitute for the requirement in the job application papers to have substantial experience of competition issues in a business environment.

Mr. Jim Cunningham (Coventry, South-East)

Listening to my hon. Friend, it is not strange that a question mark hangs over the appointment, its terms of reference and the qualifications necessary, because it appears that the appointee did not understand the job to which she was appointed.

Mr. Ainsworth

My hon. Friend makes his point well. It clearly relates to the training that took place—out of necessity, I believe—at somebody's expense. The Minister owes us an explanation of that tonight. The basic ability to do the job to which the director general has been appointed is under question.

The overriding excuse used for the appointment is the director general's supposed entrepreneurial skills combined with a public sector background. What exactly are her entrepreneurial skills? They appear to be, first, to have worked with a neighbour at a part-time silk importing operation, which was, we are told, sold for £30,000; and secondly, to have been a partner and director in a software company called Spottiswoode and Spottiswoode, where she gave up her directorship only months before the company went into a creditors voluntary liquidation owing £600,000 to creditors in October 1991. That appears to be the entrepreneurial experience used to justify the appointment.

What do we have? Our gas industry appears to be regulated by a failed entrepreneur who knew nothing about the industry at the time of her appointment; who has developed a close working relationship with the civil servant who helped to appoint her and did not declare that he knew her when he did; who has slandered her predecessor; who has displayed a Pol Pot-like "year zero" approach to her powers and responsibilities; and who has, with regard to the funding of the Energy Saving Trust, displayed a total inability to understand basic legal advice.

She has private advice sessions with senior Tory politicians on how to deal with the Environment Select Committee. According to its Chairman, she has driven a coach and horses through the entire energy strategy of the United Kingdom. Surely, in those circumstances, we are entitled to some explanation of the justification and reasons for the appointment, whether the appointment continues to be appropriate, and whether the individual concerned should continue in her post.

I believe that there is justification for a full and open inquiry into the appointment, and that is what I am calling for now. In conjunction with that, and with regard to the bigger issue of regulators, if the system is not to fall into total and absolute disrepute because of the way that it is being used and abused by the Government, as shown in this example, we need a proper commission to look into the appointment, the accountability and the role of regulators. That is needed if any credibility is to be brought back to the system.

12.13 am

The Minister for Energy (Mr. Tim Eggar)

It is conventional to congratulate an hon. Member on his success in the ballot and on raising an important issue in an Adjournment debate. While it is absolutely right that important matters such as the appointment of regulators are raised on the Floor of the House—I have no complaint about that—hope that the hon. Member for Coventry, South-East (Mr. Ainsworth) is thoroughly ashamed of himself for the way in which he has done so. It does no credit either to the House or to the hon. Gentleman to enter into an attempted attack on an individual using the privileges of the House in the way that he has done.

The hon. Member made a number of misleading and inaccurate accusations this evening, as he has done on previous occasions. I hope that, when he has been in the House a little longer, he will recognise that is not the way to create a reputation for himself or to enhance the reputation of the House.

I am pleased to have the opportunity this evening to put on record the background to the appointment of Ms Spottiswoode. The previous director general, Sir James McKinnon, announced in February 1993 that he intended to take early retirement at the end of October 1993, rather than in August 1994, when his second term of office expired. Sir James felt that it would be more appropriate for a new director general to implement the possibly far-reaching recommendations of the year-long Monopolies and Mergers Commission inquiry into British Gas.

In March 1993, the decision was taken to employ executive search consultants, or head hunters. Following normal departmental practice, a number of executive search consultants were invited to apply, and at the beginning of May, Saxton Bampfylde International. Ltd. was chosen on the basis of a competitive tender. Saxton Bampfylde had considerable experience in regulatory appointments. It was briefed by Department of Trade and Industry officials, by Sir James on the day-to-day requirements of his job, and by my right hon. Friend the President of the Board of Trade and myself.

As the hon. Member knows, we placed a copy of the full terms of reference in the Library. I do not intend to repeat tonight the full terms of the remit that we gave the head hunters or the contents of the public advertisement that appeared in mid-June, but it may be helpful to comment on the main features.

We were looking for someone with experience of managing a business at senior level, who understood competition in practice, in tune with the way in which markets operate, and with a feel for the ways in which the proper functioning of competitive markets can be obstructed or distorted.

We were looking for someone who could back up that practical experience with proven qualities of business and policy analysis, and a capability to deal with complex issues involving economics and accountancy. We were looking also for someone with the personal qualities to command the industry's full confidence and who could reach fair and firm decisions that would withstand detailed scrutiny. We made it clear that that called for thoroughness, discretion, independence, an ability to negotiate toughly and to take a firm stand when necessary, and good presentational skills.

The post was advertised in mid-May, and in the following days and weeks, Saxton approached nearly 200 sources and potential candidates. In mid-June, those candidates were whittled down to a long list of 20, whose qualifications were discussed with DTI officials. In the light of that, and after further research, Saxton came forward in early July with a short list of six candidates—one of whom withdrew his name shortly after. That list included the name of Ms Spottiswoode.

As a preliminary stage, and as usual, each of the five candidates was interviewed by two of my officials—Mr. John Michell, head of the Department of Trade and Industry's oil and gas division, and Mr. Mike Atkinson, head of the branch dealing with gas policy. Those interviews provided an opportunity for candidates to explore the requirements of the job and the main issues that were likely to arise.

Unusually, I decided to interview all five candidates. I say "unusually" because the normal procedure is that the Minister interviews either two or three candidates, officials having done the preliminary sifting of the short list. During those interviews, I had an opportunity to discuss with the candidates our policy for opening up the gas market to competition, and to form a view of how each candidate measured up to the criteria that I have outlined.

Having considered all that, and having interviewed each candidate most carefully, I concluded that Ms Spottiswoode was the best candidate. My right hon. Friend the President of the Board of Trade concurred with my judgment, although he was unable to interview the candidates as had originally been planned because of his illness.

Following discussion of the terms of the appointment, I announced on 24 September that Ms Spottiswoode would join Ofgas on 1 October as director general designate, and would take over from Sir James McKinnon on 1 November. That was deliberately designed to allow a short hand-over period, to enable Ms Spottiswoode to familiarise herself more fully with the industry.

Ms Spottiswoode took up her appointment in the midst of the consultation process, following the publication of the Monopolies and Mergers Commission report. The period since then has seen many decisions on a variety of aspects of the gas sector. There is no doubt that it has been a very challenging period for all concerned.

The hon. Gentleman referred to the training course on the gas industry that Ms Spottiswoode attended in September 1993, before she took up her post, and to her uncle's involvement in the company that ran the course. We were aware of that beforehand, and also of her uncle's involvement with the gas industry in New Zealand.

The course that the hon. Gentleman referred to was run by Alphatania—a company owned by Jonathan Sterne, James Ball and David Spottiswoode. The company was established in June 1986 and has been running courses for the gas industry since. Two other members of Ofgas had attended the course in previous years. Alphatania had dealings with Ofgas, therefore, long before Ms Spottiswoode applied for the post of director general. She attended the course, which is run for people with a high degree of economics understanding.

My Department was aware of her intention to attend the course, but was not asked to contribute to the cost. I understand that it was paid for by Ofgas, subsequent to Ms Spottiswoode accepting the post of director general.

The hon. Gentleman asked—not in his remarks tonight, but certainly in his remarks to the press—whether the Government's environmental policy, in particular the E factor, was mentioned during the interviews with Ms Spottiswoode. He asked that question with the benefit of hindsight.

At the time of the interviews, the key issue was the MMC report on British Gas, which was about to be published. There had been much speculation on its content. The most challenging issue, which was at the top of everyone's agenda, was the way forward for the gas industry. Another issue, which some candidates, including Ms Spottiswoode, raised, was British Gas's social obligations in a liberalised market—for example, its obligations towards the elderly and those who were unable to pay their bills. That area represents significant costs—£23 million for the elderly and disabled, and about £43 million for customers with payment difficulties.

The E factor was not raised by any of the candidates: it was simply not a live issue. The sums involved were small—

Mr. Jim Cunningham

Will the Minister give way?

Mr. Eggar

No.

Compared with the cost of the social obligations that I mentioned, E-factor spending was running at only £0.5 million a year. Against that background, it is hardly surprising that none of the candidates raised the question of environmental spending with us—and, even if our side had raised it, there is little that any candidate could have said at the time except that, if appointed, he or she would examine the matter in the light of the legal advice offered—

Mr. Robert Ainsworth

rose—

Mr. Eggar

I have no intention of giving way to the hon. Member for Coventry, North-East. He did not give way to me when I tried to intervene.

Mr. Cunningham

rose—

Madam Deputy Speaker (Dame Janet Fookes)

Order. The hon. Member for Coventry, South-East (Mr. Cunningham) must be aware that an Adjournment debate takes place essentially between the hon. Member who initiated it and the Minister who answers.

Mr. Ainsworth

The Minister has just claimed that I did not give way to him, and has used that claim as an excuse for not giving way to me. As far as I am aware, I was not asked to give way, and I therefore did not do so. The Minister is misleading the House.

Madam Deputy Speaker

Order. That is not an appropriate phrase for the hon. Gentleman to use; I hope that he will reconsider.

Mr. Ainsworth

The Minister is misleading the House. He just said—you heard him, Madam Deputy Speaker—that I had refused to give way to him, which I clearly did not do.

Mr. Eggar

I suggest that the hon. Gentleman read Hansard. I think he will find that the record shows that he said something along the lines of "The Minister will have a chance to make his own speech in due course." I took that as a clear indication that the hon. Gentleman was not going to give way to me. I am sorry if he meant what he said in any other sense, but I really do not think that I could possibly have misconstrued his words. I suggest that he read the record: I think that he will then appreciate the reasons for my previous remark.

The hon. Gentleman has made all sorts of accusations, both tonight and earlier, about the acquaintance between Ms Spottiswoode and Mr. John Michell. The position is this: Clare Spottiswoode and John Michell—who is now head of the DTI's oil and gas division—worked at the same time in different divisions of the Treasury in the late 1970s. They did not at that time work together on any issues, and were only very slightly acquainted. They had no contact whatever between the late 1970s and 1993.

I understand that, when Ms Spottiswoode's name was put forward by the head hunters engaged by the Department to advise it on the DGGS post, Mr. Michell recognised the name as that of a former Treasury colleague. He mentioned that to me during my consideration of the appointment. I also understand that some of the other names on the early lists suggested by the head hunters were known to Mr. Michell, including at least one other former Treasury colleague.

Such acquaintanceships are very likely to occur in such circumstances, and I see nothing irregular or untoward about it. The fact of the former acquaintanceship between Ms Spottiswoode and Mr. Michell made no difference whatever to my consideration of the shortlisted candidates for the DGGS post.

The hon. Gentleman's description of the way in which the candidates were chosen and put forward by Saxton Bampfylde bears absolutely no relation to what actually happened. I hope that, when he has read carefully what I have said this evening, he will write not only to me but to Mr. Michell and Ms Spottiswoode to apologise for his accusations.

I believe that Ms Spottiswoode has shown the fairness and firmness for which we looked when making the appointment. That is not to say that her judgments have always been popular with the industry, interest groups or all hon. Members, but no one should be alarmed about that. As the hon. Gentleman said at the beginning of his remarks, it is the independence of the regulator that matters above all else, and the director general has shown a readiness to take an independent line, and does so when she believes that it is required by the statutory duty under which she operates.

Having said that, I am more than a little surprised when I read that Ms Spottiswoode is accused of being too close to the industry and, at the same time, to the Government. She was appointed for her independence—a fact recognised by the hon. Gentleman.

I welcome the opportunity to put on record the process by which the director general is appointed. I am absolutely satisfied that the appointment was carefully and properly made at all stages. I am also satisfied that we chose the right person for the job.

The motion having been made after Ten o'clock and the debate having continued for half an hour, MADAM DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at half-past Twelve midnight.