UTILITIES

HC Deb 19 April 2000 vol 348 cc1067-71

Amendments made: No. 20, in title, line 2, leave out from " Authority" to "to" in line 4 and insert— 'and the Gas and Electricity Consumer Council'. No. 21, in title, line 5, leave out "telecommunications,".—[Mr. Pope.]

Order for Third Reading read.

9.4 pm

The Secretary of State for Trade and Industry (Mr. Stephen Byers)

I beg to move, That the Bill be now read the Third time.

I am sure that all Members would like to thank those who served so ably on the Standing Committee of the Bill, giving detailed scrutiny to the various measures—providing the House with the opportunity on Report to consider a Bill to which the Standing Committee had given due consideration. Special thanks must go to the hon. Member for Broxbourne (Mrs. Roe) and my hon. Friend the Member for Clydesdale (Mr. Hood), who chaired the proceedings of the Standing Committee. On behalf of all Members, we would like to thank them for doing so.

The Utilities Bill forms part of the Government's agenda of modernisation and reform. It makes important reforms to the regulation of the gas and electricity industries.

Mr. Bob Blizzard (Waveney)

There is no doubt that this is a good Bill. It does, however, for the first time, extend some of the regulator's powers to the offshore sector of the oil and gas industry. There is some concern in the industry that there should be a requirement on the regulator to consult the industry, particularly on proposals that may affect competitiveness and, ultimately, consumers. Clause 4(4) imposes a general requirement on the regulator to consult. Will my right hon. Friend confirm that that provision includes consultation on matters relating to the offshore oil and gas industry?

Mr. Byers

My hon. Friend has been a doughty campaigner for the interests of the offshore oil and gas industry, and I understand his concerns that the Bill's consultation provision does not refer explicitly to the offshore oil and gas industry. However, I reassure him that the consultation that will have to occur extends to the offshore oil and gas industry. I hope that that goes some way towards meeting his concerns.

The Utilities Bill puts consumers at the heart of regulation. The Bill's aim is to deliver a modern, efficient and fair framework, reflecting the growing convergence of the two sectors. It provides a consistent, accountable and transparent regime that will help to reduce costs for both gas and electricity. Consequently, it will deliver real lower prices for both domestic or business consumers.

The Bill will provide more effective competition in the gas and electricity market. Conservative Members' approach to utilities was to privatise them quickly, selling national assets—as has been found in various reports by the National Audit Office—at a knock-down price and without any real concern for the structure of the industry that was left behind. No real consideration was given to the needs of consumers or to whether they received a good and fair deal because of the changes. A regulation system was introduced that created a climate of uncertainty and failed to deliver effective competition. The system was inherently unstable. The Government felt that it was important to introduce a Utilities Bill to remedy all the wrongs caused by the Conservatives' approach to the utilities sector.

The Bill introduces new electricity trading arrangements, which we are confident will produce reductions in wholesale electricity prices of at least 10 per cent. and form an important part of the energy statement that I made earlier this week. It will merge the gas and electricity regulators, to reflect the rapid convergence of those two markets. It will establish a single and stronger consumer council, which is better able to advocate consumers' interests, and it will put consumers first. For the first time, the regulator will have a principal objective of protecting the consumer interest.

We want the regulator to examine particularly the needs of those who are on a low income, of pensioners and of consumers in rural areas. I hope that that approach will be supported by hon. Members on both sides of the House.

The Bill introduces a power for the authority to impose financial penalties for past and continuing breaches of licence conditions and other obligations. It contains reserve powers to protect and assist disadvantaged consumers. It sets targets for energy efficiency.

The Utilities Bill provides many changes that will be of real and lasting benefit to consumers, both domestic and business. It reflects a new approach to the utilities sector. Real improvements will be delivered. It is a Bill that meets our objectives of modernisation and reform, and I commend it to the House.

9.9 pm

Mrs. Browning

The Utilities Bill has been a shambles. It is rare indeed for the debate on a Bill's remaining stages to begin with a motion to recommit it to Committee, but it is unprecedented for half the major provisions of a Government Bill to be removed, nine sittings into its Committee stage, because of issues that were quite clearly foreseeable before the Bill was published.

Telecoms were removed because of the communication White Paper to be published in the autumn. DTI Ministers must have known about that—or perhaps they did not. One begins to wonder what is going on at the DTI and whether Ministers are focused on policy development.

Water was also removed—in this case because later this year DETR is to publish its own water Bill. We still have not discovered whether DTI Ministers knew about that when they included water in the Utilities Bill.

On Second Reading it was clear that the Bill required several hundred drafting amendments. One reason given for that was that the parliamentary draftsman responsible had been ill in the weeks before Second Reading. The Utilities Bill was supposed to be one of the Government's flagship Bills, but they introduced it regardless of whether or not the preparation had been completed. If that was the case, why is it that, even as late as mid-April, the Government are still tabling amendments and new clauses, some of which came to the Committee directly from the draftsman's pen? The Bill has been unprecedented in its incompetence in respect of policy, drafting and delivery, but it is hugely important in what it will ultimately achieve.

Mr. Ian Bruce

I am sure that my hon. Friend will have heard the Secretary of State say that the Bill cures the utilities of all the problems that were left by the Conservative Government—when he has already taken two of the utilities out of the Bill. Clearly, he has produced a dog's dinner rather than a cure.

Mrs. Browning

My hon. Friend, who served on the Committee, is absolutely right. Perhaps this is the appropriate moment for me to pay tribute to the work that my hon. Friends did in Committee, particularly my hon. Friends the Members for Bognor Regis and Littlehampton (Mr. Gibb) and for South Dorset (Mr. Bruce).

On the plus side, in clause 66 the Bill paves the way for new electricity trading arrangements, which we and industry welcome. Nearly £750 million is being spent on developing the new electricity market that the Government expect and that we all hope will deliver lower electricity prices.

The Bill merges the electricity and gas regulators into a new combined Ofgem. That is also welcome as it makes sense for those industries to be jointly regulated since they have started to supply each others' products. However, large bureaucracies tend to grow even larger, so it is a pity that the Government failed in Committee to accept our amendments that would have restricted the spending of Ofgem to rises of no more than the rate of inflation.

We welcome the new combined Gas and Electricity Consumer Council. The Bill also separates the licensing of the distribution and supply of electricity. We welcome that too, as it further defines and confines the area that remains a natural monopoly. That should mean that there is scope to reduce regulatory involvement in due course in those areas that are fully open to competition, but it is clear from the Bill that regulation is to have new and expanded objectives that will make it increasingly difficult for regulation to recede as competition increases.

I now turn to the minuses in the Bill. It creates a new range of objectives for the Secretary of State and for the new regulatory authority to impose on the gas and electricity utilities. No longer is the regulator's role simply to mimic competition where natural monopoly prevails. Now its role is to deliver the Government's social and environmental objectives. However worth while those objectives may be, it is for the Government to implement them through Government programmes and not to burden business with their delivery. As a result of the imposition of new and ever more costly demands on gas and electricity suppliers, the costs will inevitably be passed on to the consumer in their gas and electricity bills—something that the Secretary of State should bear in mind when he so readily proclaims this to be a Bill for consumers. The Government's social program, rather than being financed through taxation, which is levied according to income, will now be funded through household bills, which are paid according to usage. So large families and the elderly will pay for the Government's social and environmental programmes.

Also on the minus side are the limitless fines that the Bill will enable the regulatory authority to impose on the utilities, as we discussed again this evening. Not even the Competition Act 1998, with its draconian fines of up to 10 per cent. of turnover, can match the Utilities Bill in its scope for high fines. The Secretary of State should remember that corporate fines often find their way back into the pricing mechanism for consumers. The consequence will be a huge increase in the level of regulatory risk being faced by the industry. Higher regulatory risk means higher rewards for the provider of capital to the industry to compensate for the increased risk. That in turn translates into higher interest costs, which inevitably end up being passed on to the consumer.

The Bill has been trumpeted as shifting the balance in the utilities away from the shareholder to the consumer. The reality is that the consumer will pick up the tab. Privatisation of electricity and gas, opposed by Labour and predicted by the Prime Minister as leading to higher prices, has delivered huge cuts in the cost of electricity and gas to the consumer: they are now 30 per cent. cheaper in real terms. Competition has delivered the savings and the Bill demotes the promotion of competition to a second order objective.

The Bill will replace the promotion of competition with the promotion of yet more regulation. It reflects the Government's attitude that business is generally up to no good and that only the benign hand of increased intervention and regulation can remedy that. Reference has been made again tonight to fat cats, which reminds us that it was the Secretary of State who ran the so-called fat cat unit at Millbank towers.

We are seeing a new form of government intervention. It is quintessentially the third way—it invites a more powerful, more expensive and more interventionist regulator to second-guess management decisions and impose on industry new burdens to deliver the Government's social programme, while distancing Ministers from any controversy over the issues concerned. How familiar we are with this Secretary of State seeking to distance himself from any controversy emanating from his Department! The Bill will hamper competition, add to costs and, most deplorably of all, damage, not protect, the interests of consumers.

9.18 pm

Mr. Stunell

First, I wish to thank the ministerial team for the work that they have put into the Bill. It has had the most remarkably chequered history and I am well aware that—as well as causing us stress—it has caused the ministerial team some stress. Occasionally, that has been visible, despite their smiling attempts to deny it. When I saw the list of amendments for Report, I derived some wry amusement from realising that, despite the 50-odd clauses we had successfully deleted in Committee, a few had escaped Ministers' eagle eyes and had to be deleted today. I recognise what a difficult and hard job they have had.

The overall shape of the Bill is now right and it should proceed, but it still has significant faults. We have tried to demonstrate those faults, in Committee and on Report, and to indicate how they might have been rectified. I hope that there will be opportunities to do that in the other place.

I would highlight the fact that, despite the many good intentions and smooth words and the emollient approach of the Minister for Competition and Consumer Affairs in Committee, there are no firm targets for delivery on renewables. That is a worry, and it raises fears in the industry that one of the fundamental tasks of the Department of Trade and Industry will not be achieved. That task is to make sure that the potential for employment, export and growth in the renewables sector is fully developed.

We believe that an opportunity that could have allowed the renewables sector to blossom and grow, as has happened in some neighbouring countries has been missed. As a result, the United Kingdom will miss out on some growth and export opportunities, as well as on the opportunity to reach the Kyoto targets that the Government have pledged to achieve.

We are worried about some of the matters relating to the consumer council in its new combined form. The council is the way to go, but we think that it may turn out to be too centralised and bureaucratic, and we are worried about the availability of information to it. It would be only too easy for the regulator and the industry to shut up shop and keep information away from the council.

Ministers have given reassurances on the record that I hope can be prayed in aid when information is denied. However, we would have preferred the requirements to protect the consumer and to make information available to be specified on the face of the Bill.

Our underlying belief is that, although it is right and proper for the Bill to do all that it can to open up competition in the gas and electricity industries, at every level from generator to supplier, making the market the determining force for the introduction of renewables and the achievement of environmental targets will not work. We also doubt that the market will be the right force to achieve the Government's social objectives. The Bill has some weak links that the Government will have to address, either in Parliament or in some other way, in the very near future.

The Bill has some very positive features, however. We have welcomed the new electricity trading arrangements and the increased competition that will be introduced to the gas and electricity markets. We also welcome the integrated regulatory framework that will be provided in the future. In the past, there has been inconsistency between regulators and, on some occasions, the regulatory framework has fostered a jobsworth attitude. I hope that the Bill will put an end to that.

We are happy with the environmental obligations in the Bill. They are a positive step forward and we are pleased to support them.

Overall, the Bill takes a number of significant steps forward, but it falters in some key areas. We regret that, and hope that opportunities for further improvements will be taken.

We shall support the Bill tonight.

Question put and agreed to.

Bill accordingly read the Third time, and passed.