HC Deb 19 April 2000 vol 348 cc1036-46
Mr. Gibb

I beg to move amendment No. 24, in page 8, line 2, after "Parliament", insert— 'together with an impact assessment of the extent to which any additional costs incurred by the Authority, Council or licence holders consequent on implementing the guidance will be passed on to consumers.'.

Mr. Deputy Speaker

With this it will be convenient to discuss amendment No. 25, in clause 14, page 11, line 11, after "Parliament", insert— 'together with an impact assessment of the extent to which any additional costs incurred by the Authority, Council or licence holders consequent on implementing the guidance will be passed on to consumers.'.

Mr. Gibb

Clause 10, on gas, and clause 14, on electricity, give the Secretary of State the power to issue guidance to the regulator, to impose on utilities a range of new social and environmental objectives. As hon. Members will be aware, the regulatory framework, which was introduced by the previous Government, already contains a requirement that the regulator should have regard to the interests of vulnerable consumers such as the chronically sick and disabled, people in rural communities and the elderly.

It is quite right that there should be such a requirement, as a monopolistic supplier may well decide not to supply those groups, who sometimes may be less profitable than other groups. However, in a fiercely competitive environment, those groups become important customers whom all the companies in that environment want to target and win over. The regulator essentially mimics the force of competition in monopoly or near-monopoly environments, in which protecting those groups becomes an important objective.

Clauses 10 and 14 go beyond that position and are more about using the regulatory framework and machinery to deliver the Government's social objectives—which, more properly, should be delivered in other Government programmes and by Departments such as the Department of Social Security and the Department of Health.

The guidance issued by the Secretary of State could add significantly to utilities companies' costs. Subsequently—according to the Government's own regulatory impact assessment—those costs will be passed on to consumers. That is why the Opposition are concerned both about the specific provisions and about the Bill. We are concerned that legislation trumpeted by the Government as being beneficial for consumers will add to the electricity and gas prices that consumers pay.

The guidance to be issued by the Secretary of State is not a minor matter or small beer. In Committee, it was made all too clear thanks to the diligent probing of my hon. Friend the Member for South Dorset (Mr. Bruce) that Ofgem is incurring escalating property costs. It is moving its offices from Birmingham to London, where it will occupy nice offices in Millbank designed to house 450 staff, when having combined Ofgas and Offer staffs, it employs only 400 staff. That number could increase to 430 once the offices are fully merged, but only 350 staff will move into the plush and expensively refurbished new offices in Millbank, leaving room for another 100 staff. Another 80 staff members will occupy offices in Leicester and Glasgow.

In a Select Committee investigation, my hon. Friend the Member for Christchurch (Mr. Chope) discovered that Ofgem's forecast expenditure is set to rise from £29.8 million annually three years ago, to £64.5 million in 2000–01. In Committee, the Minister said that the colossal increase was a consequence of meeting the redundancy costs associated with the move from Birmingham to London and of making the one-off expenditure of £13.2 million on the new electricity trading arrangements project. However, even taking those factors into account, the increase in regulatory costs is significant. All those costs will be recouped from utilities companies. Ultimately, according to the Government's regulatory impact assessment, the costs will be passed on to consumers.

The direct regulatory costs are only part of the story. Utilities companies will also incur significant costs in responding to the plethora of new information requests that will arise from the Bill's provisions. Those costs, too, will be passed on to consumers.

Utilities will incur costs in implementing the Secretary of State's guidance to the regulator, and those costs will be passed on to consumers. Those costs—which will be the largest extra costs faced by consumers—will be a direct result of the guidance. Although the word "guidance" is used, the guidance will in fact be orders, and the regulator will have to obey them—both because the Bill states that the authority should have regard to them, and because the regulator will probably wish eventually to be reappointed by the Secretary of State. Therefore, the guidances issued by the Secretary of State will almost certainly be directives.

Draft guidances have already been published by the Secretary of State. One draft guidance states that the authority should have regard to the Government's objective of improving the "health of everyone". Such guidance is incredibly broad and potentially extremely burdensome. It also generally reflects the Government's social and political agenda. The Government clearly envisage that policy objectives will be delivered by the regulatory framework and mechanism, and implemented by private sector electricity and gas companies. Nevertheless, such an objective—on improving the "health of everyone"—is far too wide for the regulator to deliver.

Other guidances provide Ofgem with the objectives of tackling poverty and social exclusion and reducing the proportion of unfit housing stock. It surprises me that the Secretary of State has not issued guidances on ending world hunger and creating world peace. The guidances are drafted incredibly widely, leaving the regulator with enormous discretion as to how to interpret them, in new licence conditions for the utilities or new performance standards.

Mr. Michael Fabricant (Lichfield)

I apologise to the House for not being in the Chamber earlier, although I have been following the debate. Does my hon. Friend agree that the fact that the provisions are drafted so broadly will be a disincentive to companies to invest in the industry for fear that there will be Government regulation on such a scale that they will be unable to make future projections of income?

Mr. Gibb

My hon. Friend makes an extremely good point. The wide drafting of the guidance will increase regulatory risk, and that will have two severe consequences for the consumer. First, it will raise the cost of capital, as investors will require compensation for the extra risk. That will mean higher interest charges and expenses. The companies involved are capital intensive and have large borrowings, so the cost will be passed on to the consumer in higher prices or prices that would otherwise have been lower.

Secondly, as my hon. Friend said, the guidances will deter some companies from entering the industry and will therefore reduce competition. As we all know, competition drives down prices and forces companies to be more efficient. There will be a tad less pressure from increased competition.

It may surprise some hon. Members to hear that, despite the fact that the Utilities Bill is still going through Parliament, Ofgem has widely consulted consumer groups, industry and Government on how it intends to implement the Government's draft guidance, although that guidance has still to be approved by an affirmative resolution of the House. Not only has the Bill not yet received Royal Assent—although Ofgem is busy consulting on it—but the draft guidance issued by the Secretary of State has not yet been considered by the House. That cannot happen until the Bill has received Royal Assent. The guidance will then be subject to the affirmative resolution procedure. If it gets through both Houses of Parliament, it will then become law. Despite all that, Ofgem is already consulting.

Mr. Ian Bruce

I am sure that my hon. Friend will have noticed during our discussion of the Bill that the civil servants seem to be running the Ministers. Has he noticed that organisations such as the authority and the council have been putting their own spin on the provisions, rather than waiting for Parliament? Did he see the letter from the Gas and Electricity Consumer Council of 31 March, saying that it plans to table amendments to the Bill when it reaches another place as it does not like what the Government have done so far? Who is running this? It is certainly not the Government.

Mr. Gibb

Yes, I read that comment. I am concerned that unelected bodies such as Ofgem take it upon themselves to decide policy and to consult on it. It is a general concern about the political situation in Britain that people are beginning to hold politicians in less esteem, and that decisions are being made by those who are not elected. That gives rise to concern in the longer run about the future of our democratic institutions.

Despite everything, Ofgem has undertaken wide consultation with the Government, industry and consumer groups and has produced a social action plan. I note that it is not a draft social action plan, although it is based on various drafts, but a final version. It sets out in more detail how it intends to implement the guidances issued by the Secretary of State. In addition, an Ofgem press release said in early March: Ofgem has also appointed a 10 member review panel bringing together consumer groups, Government and representatives of the energy and banking industries. Regular reports on progress against the plan will also be published. Callum McCarthy, the chairman of the new authority, stated: There are many customers who either because of low income or poor housing find it difficult to afford heat and light for their homes. This is a big and complex problem which requires many parts of Government and the industry to contribute to solutions. Through the social action plan Ofgem will concentrate on taking effective action to tackle this problem to make a difference for low income and disadvantaged customers. 7.15 pm

It is abundantly clear that Ofgem will impose on the gas and electricity industries considerable financial costs in respect of implementing the Government's social agenda. Few can object to the elected Government of the day implementing a social agenda. It is almost par for the course that a Labour Government will want to spend public money on such imperatives and to raise the funds for the projects through taxation. However, we find it objectionable that the Government are implementing such programmes by imposing significant extra costs on the electricity and gas companies. As the Government have acknowledged, those costs will be passed on to consumers in their gas and electricity bills. Instead of paying for their programmes through the tax system, which has been designed to raise money according to people's ability to pay, the Government are funding them through electricity and gas bills that depend on how much electricity and gas people use—so large families and pensioners will pay more because they use more fuel energy than other groups in society.

Mr. Robert Syms (Poole)

Would it not be more honest if companies were allowed to state on the bills that they send to consumers what effect the Government's measures were having?

Mr. Gibb

My hon. Friend makes a valid point. Of course the customers would all be up in arms, so I do not expect that the Government will do that, although it would increase honesty in politics, which is important, and enable people to know how much extra they were having to spend as a result of the Government's programmes.

Mr. Fabricant

I am grateful to my hon. Friend for giving way to me a second time. Does he agree that the on-costs to which he is referring will suffer a time delay? I rather suspect that the Government are being cynical. While hon. Members on both sides of the House would welcome anything that will help poorer families, the Government are ensuring that increases in gas and electricity prices probably will not take effect for one or two years hence—after the next general election. Is that not a cynical move?

Mr. Gibb

The Bill will receive Royal Assent later this year and the measures will be implemented in the next few years, so my hon. Friend is right. What he says backs up the point that, if the Government were honest, they would raise the funds through taxation and spend it through Government spending programmes. Where is the logic or the equity in what they propose? It is no honest way to run a Government programme or to develop a social agenda. How does it help the consumer to be saddled with potentially huge extra costs?

The Green Paper that heralded the Bill recognised the risk inherent in such reforms to the regulatory regime when it said: If the Government concludes that its social and environmental policy objectives require action which would have significant financial implications for consumers or for the regulated companies, such action should be taken forward by means of new specific provisions in primary or secondary legislation rather than through guidance to the regulators. The indication so far is that the Government's promise in that Green Paper is not being adhered to by Ofgem or, indeed, by the Secretary of State. The guidances clearly impose burdensome costs on industry. Those costs will be passed on to the consumer so, in the words of the Green Paper, there will be significant financial implications for consumers.

Amendments Nos. 24 and 25 would add to clauses 10 and 14 a requirement that the Secretary of State prepares an impact assessment of the extent to which any additional costs incurred by the authority, the consumer council or licence holders as a result of implementing the guidance will be passed on to consumers. It is important that the Government fully understand the financial implications of their proposed measures and, in particular, how those costs will be met and by whom. If the Minister really is on the side of the consumer, he should have no problem with accepting the amendments.

Dr. Howells

I am sure that the hon. Member for Bognor Regis (Mr. Gibb) will not be surprised to learn that I have problems with the amendments. [Interruption.] I forgot that his constituency includes Littlehampton, which will probably be the site of the next nuclear reactor.

As the hon. Gentleman told us, amendments Nos. 24 and 25 seek to oblige the Secretary of State to provide Parliament with an assessment of how actions taken by the authority, the council and licence-holders in pursuit of policies and objectives in the guidance are likely to impact on consumers in terms of costs. That assessment is to be laid before Parliament together with the draft guidance. However, amendments of this type, which attempt to define or limit the potential costs resulting from the guidance, are misguided and unnecessary.

Such amendments are unnecessary because the Government will not use the guidance as a means of giving effect to measures that would have significant financial implications for consumers or companies. We have made that clear throughout the utilities review. The amendments are misguided because the Opposition fail to grasp the fact that this clause provides for the Secretary of State to issue guidance, not direction, to the authority. As can be seen from the draft guidance to the Gas and Electricity Markets Authority published in February, the guidance will not be highly detailed or prescriptive. It will simply set out the social and environmental policies and objectives to which the authority should make an appropriate contribution.

Mr. Fabricant

Will the Minister give way?

Dr. Howells

No, I wish to make some progress. Moreover, the hon. Gentleman has hardly been in the Chamber this evening.

Such guidance will give the authority a necessary degree of latitude to act as it deems appropriate in the context of its framework of statutory duties and the regulatory circumstances at the time.

As it is the authority that must decide how to act on the policies and objectives in the guidance, it will not be possible for the Secretary of State to provide Parliament with any kind of realistic assessment as to the costs that might result. The only way that the Secretary of State could provide such an assessment would be to issue directions to the authority on the contribution that it should make towards the Government's social and environmental objectives. The Government have rejected that option, as it would contravene the principle of arm's length economic regulation. For all those reasons, we shall resist amendments Nos. 24 and 25.

Mr. Ian Bruce

I am surprised that the Minister treated the amendments so peremptorily. The Government will impose on consumers a whole raft of new stealth taxes—[HON. MEMBERS: "Oh!"] It is interesting that Labour Members groan, because they freely admitted in Committee, where perhaps people do not listen so carefully, how much will be added to consumers' bills. Although they gave some assurances in Committee about how much money would be added, they admitted that there would be no restraints on the amount that could be added to people's bills on the wide basis of social and environmental interference in the electricity and gas markets. Ministers will be able to fiddle about with all sorts of regulations. The Bill will also give enormous power and influence to Ofgem and to the Gas and Electricity Consumer Council.

Mr. Fabricant

I thank my hon. Friend for being kind enough to give way to me, unlike the Minister who churlishly chose not to do so.

Does my hon. Friend agree that the Government will achieve the worst of both worlds? On the one hand, they say that they will not give clear direction, and on the other, they say that they will give guidance that will be so broad that the regulator will not know how to act. Would it not be better either to remain at arm's length and give no guidance or to give clear direction? At the moment, nobody knows what will happen and investors will be deterred from investing in the industry, which will put prices up.

Mr. Bruce

My hon. Friend makes some valuable points. The problem is that the Government are tinkering at the margins. Government thinking is, "Well, the Conservative Government put £1 on people's bills doing good environmental things, and we will put six times as much—or perhaps 12 or 14 times as much—on bills to start with." The amendments are necessary because no limit has been put on the amount. We are relying on the Government's reasonableness. We saw that so-called reasonableness when they decided to put additional taxes on motorists. Those taxes became so unreasonable that even this Government had to U-turn, because the escalator increased fuel duty way beyond the point of achieving anything good. The Conservative Government achieved what they set out to achieve by putting the escalator on fuel, which was to ensure that cars were more efficient than before.

The amendments would require the Government to include an assessment of the costs involved in the advice that they give. I hope also that the Government will include an assessment of the benefits that are intended to flow from that expenditure. People constantly claim that this or that regulation is good news without assessing the cost or the advantages. However, whenever the Government are questioned on such issues, they treat the House as we have just been treated by the Minister. He can be eloquent and he knows his subject, but when he has something to hide he can be brief. He thinks that he has answered the debate, but he has not. He has made an opening statement on behalf of the Government and I hope that you will allow him to catch your eye again, Mr. Deputy Speaker.

Mr. Fabricant

I wonder whether my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) overheard the Minister say that he planned to put a nuclear power station in Littlehampton. That announcement, which was made before—

Mr. Deputy Speaker

Order. That is not a sensible intervention.

Mr. Bruce

My hon. Friend was simply repeating what the Minister said earlier, when he threatened my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) with having the next nuclear power station—

Mr. Deputy Speaker

Order. I think that the hon. Gentleman should now get back to the amendments before the House.

Mr. Bruce

I am grateful for your guidance, Mr. Deputy Speaker.

It is important to consider the effect of clause 10. What additional costs will be incurred by the authority, the council and licence-holders consequent on implementing the guidance, and how will that be passed on to consumers? The Government have introduced a clever mechanism that will not show up in public expenditure or taxation. The authority will be given authorisation by the Government to undertake certain measures and can tax the electricity and gas companies to pay for those measures, the cost of which will have to be passed on to consumers as a stealth tax. The consumer will get a bill without knowing that it has been increased by the same amount as every other gas bill, from whichever company supplies the gas or electricity. That is why it is a stealth tax. With the amendment, my hon. Friend the Member for Bognor Regis and Littlehampton has offered the Government a helpful way to be honest.

7.30 pm
Mr. Fabricant

Does my hon. Friend think that the idea put forward by my hon. Friend the Member for Poole (Mr. Syms) is a good one? He proposed that a statement should be included in electricity and gas bills to show what proportion of the total results from Government policies. Was he present for the presentation of an excellent ten-minute rule Bill by my hon. Friend the Member for Banbury (Mr. Baldry), which proposed disclosure, in petrol prices, of the amount of tax levied in those prices?

Mr. Bruce

I am sorry that I was not present for that because I was busy preparing this long and detailed speech, but I am sure that it is precisely analogous to what we are looking for.

In Standing Committee, we discovered that the Gas and Electricity Markets Authority had bought a big City office block, with lots of glass and marble. Such costs are passed on to consumers, effectively by means of a stealth tax on the electricity and gas companies. A letter from the Gas and Electricity Consumer Council talks about the amendments that it will table in the House of Lords. I suppose that cronies will be appointed for that purpose, or else someone in the system will do it. One imagines that that council will be the consumer's friend, but that is not the case. It has costs and, under the Bill, they will be passed on in the same way.

Will the new council tell consumers about the cost of the new authority? I suspect that it will not, and that the authority will claim to be really good value for money compared with the Gas and Electricity Consumer Council.

I hope that I have encouraged the Minister to give a good response on those points to the House and to the country.

Mr. Syms

This is the first time that I have contributed to the debate on this important Bill. I support amendments Nos. 24 and 25, which have been tabled in an honest and straightforward manner by my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb).

My hon. Friend has done Parliament a great service. Clause 10 provides that any guidance has to be laid before Parliament, but the House always has a problem with measurement. To do our job properly, we must assess the effect of any measure introduced by the Government.

Amendment No. 24 centres around the impact assessment. It is not always possible for hon. Members to weigh up a cost. In Standing Committee, we have to debate topics very quickly. The impact assessment would enable us to reach better decisions with full information. As my hon. Friend the Member for Bognor Regis and Littlehampton pointed out, a measure's consequences on bills are not always clear in the short term, but they can be substantial over a period of time.

In my earlier intervention, I said that it would be more honest if bills contained information about the economic impact of Government policies. That would be more honest and transparent, but I can understand why the Government oppose that proposal, as it would show their intentions for the authority.

My hon. Friend the Member for South Dorset (Mr. Bruce) said that costs imposed on a private business amount to a stealth tax that will be passed on to consumers. Many people, such as pensioners, have difficulty paying their gas and electricity bills, and hon. Members hear many complaints about the cost of those services. The Bill will have an indirect and hidden impact on heating costs.

The House often debates ways to help elderly and vulnerable people in the winter. Governments of all complexions like to make much of the sums that they make available to help people pay their heating bills. However, the costs incurred under clause 10 will have an impact on real people in real homes in real winters.

I support amendment No. 24, which I think would make the Bill more honest and would lead to better measurement.

Mr. Fabricant

Does my hon. Friend agree that the Government would accept the amendment if they had nothing to hide? By resisting the amendment, they are implicitly admitting that there will be significant on-charges to gas and electricity bills in the years to come.

Mr. Syms

All hon. Members—including Conservative Members—are always tempted to interfere. It is our natural instinct. It is easy to sign up to international agreements, such as the Rio accord, that impact on domestic policy, and to frame a policy for next week or next month, without thinking through the implications.

Amendment No. 24 would mean that the Government would have to justify the impact assessment findings in Standing Committee. That would be good for the Government, as they too would have to reconsider the measure, with the result that they might realise that the cost was greater than predicted and that they should rethink the proposal. That would concentrate the Government's mind and lead to more transparent and better government.

These days, we believe in inclusive government, modernisation and freedom of information. I think that an impact assessment would be as helpful to the Government as it would be to the Opposition, whose role is to question the Government and ensure that they have thought their policies through.

Mr. Gibb

I am disappointed that the Minister does not want to respond. He jumped up immediately at the start of the debate, without waiting to hear the comments of other hon. Members. However, we can continue the debate without his involvement, if that is how it has to be.

The Minister is wrong not to accept the amendments. As my hon. Friend the Member for Lichfield (Mr. Fabricant) said, if the Government have nothing to hide they should accept the amendments and prepare the impact assessment. The Government seem convinced that the consumer will not suffer from extra costs being imposed on them as a result of the Bill. I am convinced otherwise, as are other Conservative Members.

The guidance that has been issued is broadly drafted. Even in the more narrowly drafted interpretation of that guidance prepared in the Ofgem consultation document from which I quoted, it is clear that the social action plan will cause significant costs to be incurred by the utility companies. Those costs will have to be passed on to the consumer. That is the point that Labour Members fail to understand. They view business as a bottomless pit full of vast amounts of cash for Rolls-Royce cars and luxury yachts for the directors of companies and shareholders. They think it best to grab that money and use it for social programmes, but that is not how business works. In fact, businesses must maximise profits to satisfy investors and shareholders. If they do not do that, business people will find themselves out of a job.

As a result, even if the regulator regulates the price mechanism on the basis of the retail prices index minus x, all the costs will be passed on to the consumer. In addition, consumers will face a tripling of the energy efficiency levy as a result of the Bill. Conservatives fully support energy efficiency. It clearly will not yield the result for which the Minister for Energy and Competitiveness in Europe hopes—the replacement of nuclear power—but we can seek to reduce CO, emissions by ensuring that we do not waste electricity in homes and businesses.

Mr. Ian Bruce

My hon. Friend has moved on rather quickly from the fat cats. Does he appreciate—as would most people who can do simple mathematics—that when a gas or electricity company is forced to raise its prices by 10 or 20 per cent. because of the Government's measures, the regulator will increase the profit that it is allowed to make? The regulator calculates profit according to total costs, and if the costs rise by 10 or 20 per cent., so do the profits. The Minister for Competition and Consumer Affairs is trying to improve the situation for the fat cats, who will doubtless turn up as Labour party supporters and donors before they end up in the House of Lords where they can approve the Government's amendments.

Mr. Gibb

My hon. Friend makes a valid point. The costs legitimately incurred by companies can be used as a basis for future price increases. If the regulator regards the costs as legitimate, those costs will form the basis of future price reviews. The costs will simply be passed on to the consumer.

The Bill is particularly irritating in that the general increase in competition that is occurring in the industry thanks to privatisation and the opening up of markets by the Conservative Government is continually bringing down prices, even under the meddlesome stewardship of the Labour Government. Many extra costs will be lost, because prices will not necessarily rise. Neither, however, will they fall by as much as they otherwise would have.

Consumers are losing out. They are not benefiting by as much as they should from falling prices, and are suffering from hidden measures, such as the tripling of the energy efficiency levy from £1.20 to £3.60 on the average bill. That increase applies to each utility, as my hon. Friend the Member for South Dorset (Mr. Bruce) often points out. In fact, it will mean an average £7.20 levy on bills, which is a form of stealth taxation. It is not an honest way in which to govern in a mature democracy.

The use of stealth taxes has arisen as a direct consequence of Lady Thatcher's having made it impossible for any Government to increase the rate of income tax since the time when she was Prime Minister. It is now politically unacceptable to raise the basic rate or the upper rate. Governments have therefore found other methods of raising taxes, and the Government are past masters at doing so by stealth. It is time that we exposed stealth taxes so that our mature democracy can assess how much tax we are paying and how much public expenditure we are prepared to pay for.

I pay tribute to my hon. Friend the Member for Poole (Mr. Syms) for his point about indirect and hidden ways in which the Government are raising funds to implement their social programmes. I am disappointed—[Interruption.] I am sorry to repeat that phrase, and sorry that the Minister for Energy and Competitiveness in Europe objects to it, but I am disappointed by the hurried response of the Minister for Competition and Consumer Affairs to a serious debate during the Report stage of what is supposed to be a flagship Bill. Despite my disappointment, and in view of the fact that we have had a debate, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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