British Gas (Hansard, 6 February 1996)

§ Mrs. Margaret Beckett (Derby, South)
(by private notice): To ask the President of the Board of Trade if he will make a statement on the proposals for the restructuring of British Gas, and his Department's response to them.

§ The Minister for Industry and Energy (Mr. Tim Eggar)
The separation of British Gas's supply and transportation businesses is a requirement of schedule 5 to the Gas Act 1995. This provision was debated at length during the passage of the Bill. The Act received broad support. It has been widely agreed that separation is a necessary step in opening up competition in the domestic gas market and in ensuring that British Gas operates on the same basis as its competitors.
The British Gas schedule 5 transfer scheme, which effects that separation, has now been approved by my right hon. Friend the President of the Board of Trade. Today's announcement by British Gas of a demerger is a commercial decision by the company, and is not imposed by the provisions of the Act. However, it has been welcomed by, among others, the Gas Consumers Council and the GMB union.

§ Mrs. Beckett
Many people will wonder why Ministers did not volunteer to make a statement on the matter today, since it is of great concern to the 19 million customers of British Gas, and especially since, despite what the Minister has said, what he is telling the House today is the right structure for British Gas seems so closely to resemble the structure that the Government and the Minister himself specifically rejected as "unnecessary" less than nine months ago, when the Gas Act 1995 was being debated in the House. Why have the Government changed their mind? Is it because they have failed to find any other solution to the problems of the potential £1.5 billion losses British Gas faces as a result of take-or-pay contracts?
Is it not the case that what the Minister has just announced means that, while one company retains a natural monopoly over gas transmission, the second, which is the company responsible for gas supply to those 19 million customers, is the one saddled with all the liabilities and all the attendant risks? What assurances can the Minister give that that company will be viable in the long term? Will he give an absolute assurance that the interests of consumers will be protected, especially as consumers are already suffering from a deteriorating service, as evidenced by the loss of British Gas's charter mark and the doubling of complaints since privatisation?
Finally, who loses? British Gas has large liabilities which seem to have led directly to the decision. Those liabilities are still there, so who is going to carry the can? Is it the customer? Is it Sid, who is not getting the deal he was promised by this Government? Plainly, it seems to be neither the board nor Mr. Cedric Brown.

§ Mr. Eggar
The right hon. Lady asked me who loses. The answer is the Labour party and the right hon. Lady. The right hon. Lady voted against the Bill and in favour of a reasoned amendment that made it quite clear that the Bill would result in harm to the south-west. As she knows 138 very well, the south-west will be the first to benefit from the effect of competition, with most south-west consumers being offered reductions in their bills of between 15 and 20 per cent., and some as much as 25.2 per cent. The right hon. Lady was scaremongering when she voted for the reasoned amendment. She should withdraw it and apologise to consumers in the south-west and elsewhere who will benefit from the results of competition.
The decision on the demerger was a commercial decision for British Gas. The right hon. Lady should know that, under schedule 5 to the Gas Act 1995, it was always envisaged that there would be a transfer scheme that effectively separated the supply side of British Gas from the transportation side.
Finally, the right hon. Lady should be aware that the Gas Consumers Council has welcomed today's announcement, as has the GMB union, and that the chairman of British Gas has recognised that the introduction of competition will lead to a reduction in prices to consumers. Rather than deploring what has been announced today, she should welcome it, because it is good news for consumers.

§ Mr. John Whittingdale (Colchester, South and Maldon)
Does not my right hon. Friend agree that the fact that the right hon. Lady felt it necessary to table a private notice question shows that the Labour party still wishes to intervene in industry, and dictate to private sector companies? Will he confirm that it remains Government policy to leave such decisions to those best qualified to make them?

§ Mr. Eggar
My hon. Friend is absolutely right. I am amazed that the Labour party should regard the matter as worthy of a private notice question. It is a commercial decision by a commercial company.

§ Mr. Nick Harvey (North Devon)
Having pressed almost single-handedly during the passage of the Bill for such a division, I welcome the fact that, albeit belatedly, it has been made. What discussions have the Government had with British Gas or the regulator about the possibility of business failure because of the debts that British Gas has accumulated? Is the Minister absolutely confident that the division that has been announced today will protect the consumer against having to pick up the tab for those debts?

§ Mr. Eggar
The British Gas board, in recommending the demerger, has addressed the issue under its Companies Act obligations. The Government are satisfied that the transfer scheme meets the necessary requirements under schedule 5 to the Gas Act 1995.

§ Mr. Richard Tracey (Surbiton)
Does my right hon. Friend agree that the demerger makes total sense? It makes sense for the companies that will be competing in supplies against British Gas and obviously want the transmission company to be separated, and for consumers, who will benefit.

§ Mr. Eggar
The decision to demerge is a matter for British Gas; none the less, I absolutely agree with my hon. Friend that the effect of increased competition, which is a direct result of Government policy, will be sharply to reduce prices to consumers and improve the quality of service.

§ Mr. Ken Purchase (Wolverhampton, North-East)
Are not such corporate gymnastics, which were foreshadowed in the Bill, simply a ruse to ensure that the take-or-pay contracts are paid for by consumers and taxpayers rather than by British Gas shareholders, who have already benefited disproportionately?

§ Mr. Eggar
The hon. Gentleman completely misunderstands the position. He particularly fails to understand that everyone who observes the sector or who is involved in it, including the chairman of British Gas and the Gas Consumers Council, recognises that the introduction of competition will result in lower prices to consumers. The old and new Labour parties do not believe in competition. They do not believe in the private sector; they still believe in state control.

§ Mr. Bernard Jenkin (Colchester, North)
I agree with my right hon. Friend that the demerger clearly vindicates the Government's policy of competition in the private sector, as opposed to nationalised industries. I also agree with him that it is clearly a commercial matter. Therefore, can he clarify exactly which of his responsibilities we are holding him to account for in the House today?

§ Mr. Eggar
I have some difficulty in answering my hon. Friend's question. The Government's responsibility relates to the transfer scheme under schedule 5 to the 1995 Act. The responsibility regarding the demerger of British Gas has nothing to do with the Government, because that is a matter for the board of British Gas.

§ Mr. Peter L. Pike (Burnley)
Does not the Minister recognise that he cannot guarantee that British Gas Energy—with the contracts that it will inherit on the demerger, and in a competitive market with its reduced market share—will not fail?

§ Mr. Eggar
That is certainly not the view of the British Gas board. The Government have been satisfied about that, and have had regard to the requirements of schedule 5 to the 1995 Act. Of course, the hon. Gentleman may not be aware that the new entity, which is, at least temporarily, being called British Gas Energy, contains the significant assets of the Morecambe Bay north and the Morecambe Bay south fields.

§ Mr. Graham Riddick (Colne Valley)
Is it not the case that the privatisation of the gas industry, which was fiercely opposed by the Labour party, has led to prices falling substantially—by about 25 per cent. since privatization—to far fewer disconnections, and, of course, to greater competition in the industry? Is it not clear that this private notice question, tabled by the right hon. Member for Derby, South (Mrs. Beckett), is simply her attempt to cause mischief? However, does not the question prove that the Labour party still believes in interfering in British industry as much as ever?

§ Mr. Eggar
My hon. Friend is absolutely right. There has not only been a 23 per cent. reduction, in real terms, in prices to domestic consumers, but there are significant further price reductions in the pipeline in the south-west of the United Kingdom. Most people anticipate that, as competition is extended beyond the south-west, there will be further price reductions in the rest of the 140 United Kingdom. As for the position taken by the right hon. Member for Derby, South (Mrs. Beckett), her instincts now—as they were when she was in government during the previous Labour Government—are to intervene on every possible occasion. She believes that she can run British industry better than British managers can.

§ Mr. Michael Clapham (Barnsley, West and Penistone)
The Minister must be aware that the new company could increase gas prices unless the take-or-pay contracts are sorted out. What action will he take, therefore, to ensure that British Gas's 19 million customers are protected against those likely price increases?

§ Mr. Eggar
The hon. Gentleman simply does not understand the nature of competition. There is no way in which British Gas will be able to raise its prices when its competitors are lowering prices. The future for consumers is bright because competition will produce significant price reductions and because of improvements in the quality of service. The hon. Gentleman should recognise that.

§ Mr. Anthony Coombs (Wyre Forest)
Given that the demerger is supported by the Gas Consumers Council, in particular, and by the GMB union, will my right hon. Friend remind the House that British Gas is a private company—whatever the Labour party might say—that it is operating in a very competitive sector, and that it is giving an increasingly good service to the public as a result of privatisation? Is it significant that the Labour party is raising this issue on the Floor of the House and showing how much it wants to over-regulate industry and establish a stranglehold on the private utility companies, and so much other British industry, which would take us right back to the 1970s, when this country was the sick man of Europe?

§ Mr. Eggar
I absolutely agree with my hon. Friend. The fact is that, when faced with a choice between regulation or state ownership on the one hand and competition on the other, the Labour party always chooses regulation and nationalisation.

§ Mr. Dennis Skinner (Bolsover)
I wonder if the Minister understands that the demerger will give an opportunity to some of the Tory Ministers who are leaving Parliament to get jobs on those companies' boards. Can he give us an assurance that he is not among them? Will he condemn the action of any Tory Ministers who leave Parliament and take jobs on those boards? Will he give us a guarantee that no Tory Back Benchers will get moonlighting jobs on those boards?

§ Mr. Eggar
I have not yet received a job application form from British Gas, and, if I did, I would not fill it in.

§ Dr. Robert Spink (Castle Point)
Will my right hon. Friend confirm that, in future, following the demerger, gas prices will fall? Will he also confirm that those reductions will be in addition to the price reductions that have occurred since privatization—the Prime Minister today said that the fall was more than 20 per cent.? Can he give an estimate of the total reduction in prices in, say, three years' time?

§ Mr. Eggar
My hon. Friend is absolutely right. We can look forward to significant further reductions. In the 141 south-west trial area, some consumers are being offered reductions of as much as 25.2 per cent., and average reductions of between 15 and 20 per cent. In future, I would expect to see similar reductions available in other parts of the United Kingdom.
Action taken by the regulator in the price review on transportation may lead to additional nationwide reductions. Of course, I cannot anticipate the outcome of whatever proposal she may make or any right that British Gas may have to appeal to the Monopolies and Mergers Commission. I am confident that increased competition in the gas market will lead to lower prices and better-quality service for consumers.

§ Mr. Michael Connarty (Falkirk, East)
I am sure that the Minister will recall that I did my Industry and Parliament Trust fellowship with British Gas. Is he not concerned that BG Energy—which has only £2.6 billion assets and the possible loss of £1.5 billion owing to its contracts for gas—is a vulnerable British company? There is a possibility of retail closures, with more job losses. Is the Minister not concerned that the other company, which now has most of the overseas assets and transco monopoly, is ripe for overseas takeover? We shall lose a British company because of the predatory actions of foreign investors.

§ Mr. Eggar
Before the hon. Gentleman stood up, I should have thought that he was one of the last Opposition Members whom I would have to accuse of scaremongering. Why does he have to talk down a successful British company in that way? Only today I was told that the proposals being put forward would ensure British Gas was able to compete in the 21st century.

§ Mr. John Battle (Leeds, West)
What about the share price?

§ Mr. Eggar
My opposite number intervenes from a sedentary position, but he does not know that I was quoting from Mr. MacGregor of the GMB union. The view I gave was not mine, but that of Mr. MacGregor, the union leader on the side of the gas workers in the GMB.

§ Mr. Ian Pearson (Dudley, West)
In the light of today's revelations about Cedric Brown's pension settlement, how can the Government claim to have 142 implemented the Greenbury report in full, when the Department of Trade and Industry's Companies Acts consultation paper exempts companies such as regional electricity companies from the requirements of full disclosure?

§ Mr. Eggar
Mr. Brown is widely respected by the work force of British Gas for his years of experience and commitment to the company. That is not my view, but the view of the GMB union spokesman.
With the greatest respect to the hon. Gentleman, it is a pity that he should ask such a question on the day when Mr. Cedric Brown has announced his retirement—a man who has made a major contribution to the gas industry over 40 years. Of course, the hon. Gentleman is entitled to his views on Mr. Brown's pension entitlements and salary. As my right hon. Friend the Prime Minister said, those are matters best dealt with by the company and its shareholders. If the hon. Gentleman or other customers object to the level of pension paid to someone like Mr. Brown or other executives, under the changes that we have introduced, they will shortly have the right to take their custom elsewhere and to buy their gas from other competitors.

§ Mrs. Beckett
Does the Minister realise that people will have noticed that we have heard nothing from him this afternoon except bluster and abuse, and not a single answer to a single question? I ask him again: as he is not claiming that the liabilities of British Gas have disappeared, who will pick up the tab)—the customer or the shareholder? Who is it? It must be somebody.

§ Mr. Eggar
British Gas itself is confident that it will be able to improve service to customers and lower prices to customers. That is not my view; it is the view of Dick Giordano, the chairman of British Gas.
The issue of take-or-pay contracts is, of course, a matter for commercial negotiation between the producers and British Gas. I have no doubt that those negotiations will start shortly, and I am as hopeful as the right hon. Lady that they will be resolved satisfactorily. I am absolutely clear that, at the end of the process, as a result of the Government's policies—first of privatising British Gas and secondly, of introducing competition—we will see lower prices and better quality of service for consumers. The right hon. Lady should support that.