§ 4.38 p.m.
§ Second Reading debate resumed.
§ Lord Ezra
My Lords, the debate in which we are involved at present raises a number of very important issues. We are concerned with the biggest privatisation measure so far contemplated by the Government. We are concerned with the transfer of a major monopoly from the public to the private sector and with a measure which is intended to last for at least 25 years. On those three counts, I believe that in this debate we shall be considering many issues crucial not only to this country's future energy success but to its economic organisation in general.
The problems that we face are made all the more acute by the fact that at present we are living in a rapidly changing energy scene. As the noble Lord, Lord Stoddart, indicated in his forceful speech, the Government's original intention to privatise the gas industry was made at a time when the world energy situation was very different and when the price of oil was at a much higher level than it is now and when, therefore, the value of the gas industry stood at a much higher level.
The sale of the assets of the gas industry at the present time would clearly have to reflect the substantial reduction in the market value of oil. But it is the generally accepted view that in due course the oil situation could well be reversed. I believe that this is quite right. I was myself involved in all sorts of views being expressed in the mid-'sixties about cheap oil being available indefinitely. The situation did indeed change in the early 'seventies and it could change again in the late 'eighties or the early 'nineties. So there is a very major issue of public policy raised by the period when this massive sale is to take place.
I believe that there are two major issues of policy which need to be considered in connection with this Bill, and there are a number of detailed points relating to the proposed legislation. The first major issue of policy is the question of the transference of monopoly from the public sector to the private sector. I should like to ask the noble Lord, Lord Belstead, to indicate to us when he replies the extent to which the Government have considered alternative possibilities.
Many have, in fact, been suggested in the public debate which has taken place on this measure. For example, it might easily have been possible for the gas pipeline itself to remain in public ownership, but for the various gas authorities, including of course the British Gas Corporation and other suppliers, to have been authorised under a franchising agreement to use 330 it. This would have introduced a greater degree of competition, but at the same time would have preserved in the ownership of the nation those assets which cannot, as the noble Lord, Lord Gray, properly said, be replicated or duplicated without an enormous waste of resource. Have alternatives of this sort been seriously considered?
If they have been so considered, then have the Government seriously considered whether the regulatory machinery which they are proposing is really adequate? Obviously their answer to that would be, yes, but how seriously have they looked at the experience in other countries, particularly in the United States? I should like to draw your Lordships' attention to a very important document entitled Lessons from America, issued by the Association for the Conservation of Energy, which has analysed very closely the regulatory system operated in the United States. All I can say is that it goes very much further than the regulatory system now proposed. Not only are the regulatory bodies larger and more substantially financed, but their powers of intervention are more considerable.
The Government have admitted that, as this is not a case in which competition automatically arises because there is a simple transfer of monopoly, this has to be put right by interposing a regulatory body. It must follow from that reasoning that the regulatory body should have adequate powers and I must say that I join the noble Lord, Lord Stoddart, in raising this question. I hope that we shall be going into that very fully at subsequent stages of this debate.
But there is another question of public policy which this raises, and that relates to the energy scene. The Secretary of State for Energy in another place, during the course of the debates there, made it clear that in his opinion one of the main reasons for transferring the gas corporation from public to private ownership would be to remove it from the thralldom of government intervention. He graphically described his experiences of the sorts of intervention which he himself and the Treasury continually had to bring to bear on these bodies and said, "What we are trying to do is to free them from this situation". Any one of us could think of many ways in which this could be achieved without selling off the whole enterprise.
But be that as it may, the fact is that this is now being done in relation to one of the three nationalised energy industries. So we are going to have the gas industry which will benefit, according to the Secretary of State for Energy, from the fact that it will no longer have government breathing down its neck, but we shall still be left with the electricity industry and the coal industry in that sorry situation. I think that the electricity industry was entirely justified in raising major fears arising from this situation in the evidence which it gave to the Select Committee on Energy in another place. So I think we are entitled to know how it is that the Government reconcile this new and freer status for gas, but retaining the present thralldom involving continued government intervention for electricity and for coal.
The problem in energy goes wider than that, because all sorts of other issues can arise. For example, under the new regime would the gas industry as a private concern be free to reopen negotiations for the purchase 331 of the Sleipner gas on which the Government intervened—possibly rightly, in the light of subsequent events—to frustrate? If the newly privatised gas corporation wished to renew this endeavour, what would the Government's position then be?
Furthermore, the Government have deprived the industry of its activities so far as oil exploration and production in the North Sea are concerned, and a separate company was formed and privatised. Would it be possible for the new privately owned gas industry to go back into the market, bearing in mind that it has behind it one of the strongest cash generating operations in the whole country and that it could obviously outbid and defeat anybody in that endeavour? Would it be free to move heavily into gas operations in other parts of the world? Would it be free to move downstream into the manufacture of appliances and equipment, which so far it has not done?
We need to know the answers to these questions, because this step could fundamentally change the nature of this operation. I am not saying whether for good or ill, but it could change it and we need to know before this fundamental step is taken whether this degree of commercial freedom would be available to the new private gas enterprise.
On more specific matters, the question of pricing was raised by the noble Lord, Lord Stoddart. I must say that while the principles of the tariff price formula are easy enough to appreciate, the way in which it is set out in the authorisation is not of such a nature as to make it comprehensible to the average domestic purchaser of gas. The trouble is that nobody really knows how the operation of this formula will work out in practice. What will happen, clearly, is that the formula will be applied year after year, that the gas tariff user who is very largely a captive customer—people do not change their installation because they do not like the price of the gas or the electricity that they are using—will have to put up with the vagaries of this new system.
Perhaps I may refer back to the document on the United States. The matter of price changes is a subject for major public debate. The regulatory body acts in a way as a sort of adjudicator. Every time the operators wish to increase their prices they have to put their case publicly. It is then debated by all interested parties who wish to do so and the decision is reached as to what might be done. What I am concerned about is that no provision appears to be made for consultation before price changes are made in accordance with this formula. Under existing arrangements, as I understand it, the British Gas Corporation notifies the National Gas Consumers Council of proposals to change the tariff but under the new arrangements this will be entirely automatic.
I am a little unclear as to what will happen in 1992. Is that the year in which this whole system is intended to be reviewed, or is it merely a year in which it could be stopped? My opinion is that if the Government still wish to go ahead with this tariff structure there ought to be provision at a fairly early date after it is brought into operation—after, say, two or three years—for it to be thoroughly reviewed in order to see how this entirely novel approach to pricing tariff gas operates in 332 practice. I hope that in replying the noble Lord the Minister will take account of this proposal.
The next point, which caused a good deal of debate in another place and I am sure will cause debate here, concerns energy conservation and efficiency. I must say that in reading the reports of the debates in another place I was extremely surprised at the Government's rejection of the reasonable amendment put forward by the chairman of the Select Committee on Energy. The Government, after all, are keenly committed to energy efficiency. The Secretary of State for Energy has done a remarkable job and has often been praised in this House and in the other place for the work that he is doing to promote energy efficiency. As the noble Lord, Lord Gray, said, there is indeed a reference to this in the Bill as drafted, but the additional and more pointed reference that was proposed in the amendment in another place surely would have reinforced the whole endeavour.
It was stated in that debate by the Government that they could not accept this because it would put a liability on gas which did not fall on either electricity or coal. But by the Government's own admission they keep breathing down the necks of the electricity and coal industries and so, presumably, they could impose on them exactly the same condition if that was the problem—not indeed, I hasten to say, that there is any need to impose such conditions on these industries. They are all vigorously pursuing this endeavour. What is puzzling is the Government's reluctance to agree that this should be included in the way already proposed—and I hope that we shall propose again in this House—in the Bill.
Another point which is bound to be raised during our further deliberations on this Bill is the question of safety. As the noble Baroness, Lady Macleod, will be dealing with this later on, I shall be limited in my comments except to say that concern has already been expressed about the extent to which the Health and Safety Executive will be in a position to carry out a proper monitoring of the increased safety regulations that are being introduced. It is the executive which will have to carry out this monitoring.
Finally, I should like to touch on the National Gas Consumers Council which has existed very effectively over many years. There has been a national organisation, and there have been regional organisations which have enabled people in localities to go to their own consumer representatives. This is no longer to be the case. Is that right? Should we not be continuing this grass roots connection with the consumer body? It would be interesting to hear the Government's views on why this is being changed.
Those are some of the points in this important proposed legislation to which I feel we shall be coming back at later stages in our deliberations. What we have to try to achieve is a system for the future running of the gas industry which would give reasonable freedom and encouragement to the management and those working in it to perform their task efficiently, as indeed they have done in the past, and, at the same time, give adequate assurances to the consumers and to the public in general that their interests will be safeguarded. There are, I am afraid, many of us who feel that the balance between those two objectives in the Bill is not adequate.
§ 4.56 p. m.
§ Lord Boyd-Carpenter
My Lords, my noble friend Lord Gray of Contin and the noble Lord, Lord Ezra, both said (and rightly) that this is a Bill of very great importance. I would add also that it is an historic measure for it is the first proposal—and it may be far from the last—to reverse the drive into public ownership which marked the policy of the Labour Government in 1945 and the years following the war.
Gas is one of the three major industries that were nationalised during that Parliament as a matter of deliberate general policy with a view of shifting the structure of our economy very substantially from the private sector into the public sector. I follow this Bill with a certain personal nostalgia because I am one of the few Members of your Lordships' House (though I shall refer in a moment to another) who not only served in the House of Commons at the time of the gas nationalisation measure was going through but had the quite traumatic experience of serving on the standing committee which had to deal with the Bill. It did so against the background of a possibly incipient general election, with the Opposition therefore obviously concerned (shall I say?) to have full discussion of the measure and the Government equally naturally concerned to get it through as quickly as possible.
Some of your Lordships may recall that as a result of that clash of effort the standing committee dealing with a large part of the Bill sat continuously for two days and two nights with the exception only of the hours between 1 p.m. and 4 p.m. when under the rules it was forbidden. The fact that the Bill went through and became an Act is a direct result of what was done by one of your Lordships. The noble Lord, Lord Diamond, was chairman of that standing committee, and under the rules at that time there was no provision whatever for the relief of the chairman of a standing committee. If he left the chair, proceedings would stop. It was a most remarkable performance of stamina and also of good manners and care which enabled the noble Lord, Lord Diamond, to endure that ordeal, with the unhappy result, from our point of view, that the Bill went through. I am delighted to see the noble Lord in his place. I have always greatly admired him since that day, and I know only too well from that experience what a formidable figure he can be, whether in the impartiality of the Chair or in the more partial exercises of debate.
I hope that your Lordships will forgive me for that personal reminiscence, but it is rather an experience for me to see that the wheel has now come around and that the measure then to nationalise the gas industry is now to be repealed, and to see the industry—and I take the point of the noble Lord, Lord Stoddart, that it was not at that time wholly private—in large measure returned to the private sector.
The noble Lord, Lord Stoddart of Swindon, enjoyed himself, as did the House, with his speech. If he will allow me to say so, it was rather a period speech. It was of the period of the nationalisation Act, when it was assumed so happily that with public ownership all would be well. Indeed, the noble Lord himself used the expression that nationalising an industry meant that it was held in trust for the public.
334 Experience has shown that, on the contrary, what belongs to all belongs to no one. Indeed, the great Morrisonian dream of nationalisation has turned out to be—to use the language of moderation to which I am always addicted—a disappointment. It is therefore always gratifying for some of us to see that the wheel has come around and that we are to reverse that mistake.
The noble Lord, Lord Stoddart, seemed to think that those of us who favour the change were arguing that the industry is at present inefficient. I make no such argument. I must confess that at the lowest levels—at the level of the fitter who comes, or does not come, when one's gas apparatus goes out of action—the gas industry's efficiency can be criticised. At that level, there is not perhaps quite the same approach to the customer as that which one would expect to find in the private sector. I would not go beyond that, and certainly I would not seek to argue that, at the higher levels at any rate, the industry is in general other than reasonably efficient.
However, that does not, as the noble Lord seemed to think, conclude the matter. However good one is, and I am sure your Lordships will agree with this, one can always be better. In particular, one can be better if the conditions are made easier to do one's work.
It seems that if one takes an industry out of the public sector and out of the inhibitions that government control imposes upon it, one makes it easier for those in charge of that industry to operate even more efficiently. It has been said on several occasions, from both sides of the House, that government interference has forced the gas boards to put up their prices when they did not want to do so. It is certainly the case that when they required more capital they have had to get in the queue for the public investment programme. Neither of those will be the case when the industry has been privatised.
Therefore, those responsible for the industry—and no one knows this better than the noble Lord, Lord Ezra—will realise how much that greater freedom will help them in taking the decisions that are right for the industry at the time when it is right to take them.
§ Lord Stoddart of Swindon
My Lords, I was interested to hear the noble Lord say that the industry has had to queue to get money from the public investment programme. He will be aware that not only is the gas industry self-financing in respect of capital expenditure but also that it has been lending money to the Government.
§ Lord Boyd-Carpenter
My Lords, I am perfectly well aware of the financial position at the moment, particularly resulting from exactly what I was saying a moment or two ago about the governments of the day insisting upon increases in gas prices for the very purpose of making the industry self-financing, and thereby relieving demands on the public investment programme. I am greatly indebted to the noble Lord, Lord Stoddart, for giving me the opportunity to explain that point. It is freedom from being forced to put up one's prices because one is not allowed to go to the market for new capital. That is one of the great advantages that I see in the privatisation of the industry; the freeing of the industry from the trammels of government control.
335 There is also the important question of morale. Those of us who have served, as I have, in both the public and private sector can inevitably sense a difference in atmosphere. It is a difference not deriving from the higher moral or intellectual qualities of the people concerned but from the system. If one works in a publicly-owned industry—whether as the chairman or managing director, at the coal face, in the gas works or wherever else it may be—one knows that whatever happens the industry is not going to close down and leave one without a job. If one works in the private sector, one has no such assurance.
In the private sector, one knows that if one's conduct—whether as chairman or managing director, as a striker in an important works or as an individual who is going slow—undermines the working of that company, when such action goes beyond a certain point that company will go bust and one will be out of a job. It is a great stimulus to people at all levels to know that their living, their pay and their pension, maybe, are dependent upon the success of the enterprise for which they work.
§ Lord Boyd-Carpenter
My Lords, if the noble Lord will allow me to continue for a moment, I may add that in the private sector such is only too apparent. I give way to the noble Lord.
§ Lord Boyd-Carpenter
My Lords, I believe that it must apply throughout the private sector, whether or not it be a monopoly. I was going to come to the matter of the monopoly in a moment, but the straight answer to the noble Lord's question is that my observation applies to both. The knowledge, even if one has a monopoly, that one can bust the show by being inefficient, by striking or by taking wrong decisions at the board table is a stimulus in both cases. It may be a somewhat smaller stimulus where one has something of a monopoly; I give the noble Lord that point.
As the noble Lord, Lord Ezra, has led me to the subject of the monopoly, I shall now deal with it. It is something of a mistake—and this is relevant to the noble Lord's intervention—to describe the gas industry as a monopoly. It is not. If it is too bad in its performance then there is the electricity industry competing. And if gas prices rise and the industry's service to the consumer is too bad, more and more customers will shift from one to the other. The gas industry is at the disadvantage that, whereas the electricity industry is present throughout the country, the gas industry does not serve a great many rural areas, as the noble Lord knows. So in this particular case, the stimulus is there.
I am not asking your Lordships to take that argument from me; I ask your Lordships to judge from experience. We have seen privatisation going ahead vigorously over the past year or two. We have seen some results of it. Jaguar was privatised, and since 336 privatisation its profits have risen 80 per cent. Your Lordships will also recall Amersham International, whose profits have increased tenfold since privatisation. In the case of Associated British Ports, the company chairman made a very pertinent comment. He said that privatisation has meant quicker decision-making and freedom to use the company's assets in a more efficient and imaginative way. If your Lordships would like one final example, there is the National Freight Consortium which was denationalised in 1982 and by the end of 1984 its profits had risen by no less than 293 per cent.
Therefore, in taking the gas industry in the same direction and over the same route we are not going into untried and unknown country. We are taking a course which has already been taken in the case of some very substantial enterprises. We can see how British Telecom is rising to the challenge. It is a course which has been successful. Noble Lords may explain it as they like, but it is a fact. If one is advocating a change which has worked in the case of other people and worked well, surely that at least creates a presumption that there is something to be said for it in the present case. I believe that the change which this Bill will bring about—and I do not underrate its magnitude—is a very considerable one.
I quite appreciate that the quasi-monopoly or the semi-monopoly aspects to which the noble Lord, Lord Ezra, referred a minute or two ago complicate the matter in some way, and in the interests of the consumer and of the public it is necessary to have some measure of control. No doubt your Lordships in Committee will wish to discuss the details of the control and its effectiveness but at the moment, during the Second Reading of this Bill, we are concerned only with the principle. I think there is no difference between us as to the value of having some system of control and regulation in the public interest, and whether the Bill has it exactly right is a matter for debate in Committee.
At this point I should like to take up the observation of the noble Lord, Lord Stoddart of Swindon, about foreign investment. I find intensely depressing the attitude of the Labour Party generally to foreign investment in British industry. I welcome the maximum possible foreign investment in British industry. The Labour Party is inconsistent. At one time it puts forward a programme to stop British investors from investing abroad, and indeed orders them under penalty to withdraw from investments, in order to invest at home for the perfectly respectable purpose of producing investment which would create employment. It is surely inconsistent to do that in respect of British investment and then indulge in the xenophobic attitudes which we have heard this afternoon from the noble Lord, Lord Stoddart of Swindon, and seen elsewhere, such as in the British Leyland connection and many others. Surely one should welcome the idea that foreign investors think that it is well worth investing in British industry. This should be an encouragement to us.
The supply of a large amount of foreign capital to British industry should appeal to all those—and I hope that includes all of us here—who are desperately anxious to see employment increase in this country. I hope that the noble Lord, Lord Stoddart, will allow me 337 to say that I find his attitude toward foreign investment in this case immensely depressing, because I know that it is not only his personal view but it appears to be that of his associates in the Labour Party.
I think that we all want to wish the great gas industry and all those who work in it good fortune in its new shape when this Bill is law. I believe that the members of this industry will receive an uplift in their morale, that those who guide it will appreciate the gain from the greater freedom of operation and that those who work in it will grasp happily the opportunity to become shareholders in the company.
There is all the difference in the world psychologically in being a theoretical shareholder as a British citizen in a publicly-owned affair and being an actual shareholder in a specific company that pays one dividends out of its profits. We have seen in other directions how employee share ownership has done so much good. Until recently I was chairman of a company where over 90 per cent. of the workers became employee shareholders, and the good effect upon the morale of that company was impressive and encouraging to see. We want to see this same approach brought into what is now a part of the public sector. This is a good step.
Finally, taking up one remark of the noble Lord, Lord Ezra, when he said that it would be odd to have gas in private ownership and electricity in public ownership, I say to the noble Lord that there is another solution to that problem. I am sure he will not mind my saying that it is unlikely that anybody would wish to invest money in a denationalised coal industry, but an electricity company might be a very attractive measure to take at some future time. If that step is taken, it disposes of the noble Lord's difficulty. I am always anxious to relieve the noble Lord of any of his difficulties. I have seen him cope with so many difficulties that if one can relieve him of even an iota of this one, one sits down happily satisfied.
§ 5.16 p.m.
§ Lord Kirkhill
My Lords, I rise this afternoon, following debate in the other place, to make my contribution to this Second Reading discussion on a Gas Bill which I believe we must regard as imperfect. Whether or not one applauds the view of the other place that the industry should indeed be privatised—and it goes without saying as I speak from this side of the House that I do not, and indeed I associate myself entirely with the formidable remarks made in the earlier stages of the debate by my noble friend Lord Stodart of Leaston—by my noble friend Lord Stoddart of Swindon (I made the mistake because Lord Stodart of Leaston is a fellow-Scot)—nevertheless we must take a realistic view of the fact that industry is about to be privatised.
It is clear that following upon privatisation the British Gas Corporation will remain a major utility whose functioning will be a legitimate subject of public interest both in relation to private domestic customers and to business and industrial customers. I hope that your Lordships as usual will be far-sighted in ensuring that the legislation will be carefully examined when we come to the Committee stage.
338 I believe that we must take trouble to foresee possible problems which may arise. For example, there are the views of the Scottish Council, Development and Industry which have been drawn to my attention, and such concern as it expresses is the more compelling in that it emanates from a national Scottish organisation which is clearly non-political and, if not wholly, at least partially, bi-partisan in approach. Of course, this Bill is applicable to the United Kingdom as a whole but it has a Scottish dimension to which in due course I wish to draw attention.
There are three aspects of this Bill to which your Lordships might give a few minutes of your time this afternoon. There are, first, the centralisation tendencies which might be inherent in the reorganisation of the corporation after privatisation; second, the position of small businesses and the protection against potential monopoly power of the reformed gas corporation; and, thirdly, the subject of the supply infrastructure, the network pipelines and distribution facilities. Clearly, there is a danger in the Bill as it stands that remoter areas may be marginalised in respect of new developments.
As to centralisation, the gas industry in Scotland is a not inconsiderable industry in its own right. It accounts, including contractors, for approximately 8,000 jobs. It has 1 million domestic customers, 6,000 industrial customers and 36,000 commercial customers. It invested in its last accounting year £20 million and paid out £57 million in wages and salaries. It is on a rising trend in its share of fuels used in Scotland. It is a measure of my absolute honesty in making that last remark that I was at one time, as some of your Lordships may recall, chairman of the North of Scotland Hydro-Electric Board.
This not inconsiderable industry has to have regard for the management of resources in Scotland. It is already the case that personnel management, investment in the distribution system and marketing to customers are devolved to management in Scotland. Not only does this make sense from a regional development point of view—having, that is, as many decision-making powers as possible in Scotland—but it also makes sense from a commercial point of view. While it is desirable to have these functions in Scotland, it is also desirable to have these functions as close as possible to present and future customers. It is therefore in the best interests of the development of the industry that it should continue to have a devolved management style—at least that which exists, and preferably more.
Although, in his introduction, the Minister of State, the noble Lord, Lord Gray of Contin, seemed satisfied that it may be the intention of the present Secretary of State for Energy and of the current management of the British Gas Corporation to continue, or even to develop, management autonomy in the regions of the United Kingdom, the Bill is curiously quiet on the subject. To ensure that this view is perpetuated through additional years, future governments, future owners and new generations of managers, an additional clause is required in the Bill.
This should have the effect that the successor company to the present British Gas Corporation has 339 functions of management dispersed to its existing operating regions and that these independent functions should be further developed. To this end, I commend the idea that for each of the regions of England and Wales, and for Scotland, there should be a least one non-executive director to the board of directors of the successor company written into the memorandum of association of the new company.
The second area of concern to which I draw your Lordships' attention is the position of non-tariff customers. An arbitrary line is drawn in the legislation to the effect that those organisations consuming more than 25,000 therms per annum of gas should be placed in a different category to those under that figure. Customers of the British Gas Corporation under 25,000 therms per annum are predominantly in the domestic sector. There are also some very small businesses. But the 25,000-therm threshold above which this Bill presently offers no protection from abuse of monopoly power is a very low level in relation to many gas users.
As a guide to the order of magnitude involved, a building employing about 100 people solely for space heating purposes is liable to use 25,000 therms per annum or more. This is a point to which the Minister, I believe, must give serious attention. Clearly, relatively small businesses are being placed outwith legislative protection against monopoly power. Of course, below the threshold of 25,000 therms per annum, the Bill gives regulation. That gives price control. Above that limit, it does not.
Very large gas customers may have the muscle in fuel markets to protect themselves by threatening to switch to other fuels. But this is unlikely to be the case for many, if not most, of those above the 25,000 therms per annum level. It is the exception rather than the rule that companies will have invested in their heating process or even their production processes in such a way that they can switch between fuel at no cost. Deciding not to use gas will in almost all cases involve a cost. It will involve investment costs in new equipment. This places the smallest companies open to abuse of the monopoly power of the new privatised company.
In the other place, the Select Committee on Energy has already considered this point. In my view, the Bill has failed adequately to respond to its arguments. Much play has been made of the so-called Portillo amendment. This was an amendment to Clause 4 of the Bill which ensures that the Director General of Gas Supply should have a supervisory role in respect of third party use of the gas corporation's pipeline system. However, this access to the pipeline system has already existed for some time. The Oil and Gas (Enterprise) Act has given access to independent gas producers for supply of large industrial users using the transmission system of the existing British Gas Corporation, To date, the facility has not been used. Therefore, it must surely remain an academic and open question whether such access is in effect a real restraint on monopoly supply conditions. Even if it is, it is likely to apply only at the highest level of fuel consumption.
When we come to the Committee stage of the Bill, I hope that your Lordships will make amendments to 340 the Bill in two areas affecting contract customers. I refer first to the right of supply. Contract users—those above the 25,000 therms per annum limit—should retain the right of supply. For those who are existing gas users, an obligation should be placed on the British Gas Corporation to continue to supply them under their existing contracts or for a further 12 months after vesting day, whichever is the longer. Without such an amendment, the right of supply enshrined in the Bill for domestic and very small industrial users will be excluded from the broad mass of business customers. To give an indication of the importance of this, average industrial consumption in Scotland in 1984–85 was only 50,000 therms. The average commercial consumption was only 5,000 therms. It is clear from these figures, and the figures that I mentioned earlier about the spread and the numbers of customers, that, assuming any reasonable distribution of usage, thousands of companies must be involved. We must certainly try to ensure that at least for a period of 12 months these people should have access to gas supply.
The third area of concern that I would commend to your Lordships' attention is that of the supply infrastructure; that is, the further development of the pipeline network. Like the other major utilities—electricity, telephones and water—the gas industry should have obligation of supply. To be realistic, this should not be a supply up every ben and down every glen but a supply that may reasonably be expected to be economic. As it stands the Bill is very careful to ensure that the existing pipeline network remains. But it is decidedly unclear about new pipeline development.
The words in the Bill,wherever it is economical to do so",are clearly inadequate. New distribution of population and new distribution of industry from time to time will have an important bearing on the development of the infrastructure generally. Gas is a part of that. There is a fear in outlying areas that the obligation to expand the network to new customers will not be strong enough. Even in more populated areas developers of residential or industrial property need a clear indication of whether gas supplies will be available. To prevent currently less populated areas being marginalised by this legislation, assurances are needed on the pipeline development.
I commend to your Lordships that the Director General of Gas Supply should have powers to supervise a stated formula. This formula should be the basis of judging whether it is economic to provide a new pipeline. I believe that this is something to which we must give most serious consideration at Committee stage.
In conclusion, some of these views might be interpreted—I am sure that they are—as special pleading for the Scottish interest. I do not pretend that this is not the case, but the only point that is peculiar to Scotland in the Bill is that Scotland may represent one of the fastest growing areas in the United Kingdom for further expansion of the gas industry. I should like to see that happen. However, in seeking the Scottish interest on centralisation, on protection of its non-tariff customers and on a further development of the supplies infrastructure, I am also talking about the 341 regional development interest which must be true for most parts of the United Kingdom.
Throughout the private sector and the public sector we have seen the development of the centripetal forces this century which tend to draw power, decision-making, employment opportunity and further development, as some of the best brains in the country get sucked into this, the South East of England. We should have regard to this phenomenon in framing legislation for the gas industry as it passes from the state to the private sector.
It cannot be taken for granted that the private sector is less centralised than the public sector. Examples abound of conglomerate companies headquartered in the South East of England, whose decision-making functions are at the periphery and where at the periphery, they are constricted to a most limited range of production decisions.
It cannot be healthy for the development of Scotland and other regions of the United Kingdom that this process continues. We cannot take it for granted that in the private sector the gas corporation will become less, rather than more, centralised. For this reason, in the interest of its present and future customers and because I oppose the main thrust of the Bill, I strongly commend to the House that we make amendment at Committee stage on these three important points to which I have just drawn attention.
§ 5.34 p.m.
My Lords, I am sure that your Lordships will have listened with great interest to what the noble Lord, Lord Kirkhill, had to say about anxieties on over-centralisation and management under the Bill. I should like to have seen a rather more radical solution than that proposed in the Bill, with the British Gas Corporation broken up into its constituent regional parts. However, that is something on which I should like to speak in a moment.
I so much agree with what my noble friend Lord Boyd-Carpenter had to say about the intrinsic advantages of privatisation and the intrinsic burdens carried by businesses retained in the public sector. For my part I must say that the greatest advantage to stem from privatisation must be, or should be, the expansion of consumer choice. I listened with interest and agreement to what my noble friend Lord Boyd-Carpenter said about the reality of competition which the British Gas Corporation would face in the private sector—as indeed it does in the public sector—from competing sources of energy. That I entirely accept.
I must say that we seem to have undergone something of a sea change on the Government Benches in the scope which seems to have been contemplated in the past for competition within this industry. The noble Lord, Lord Stoddart, was unkind enough to quote from the Conservative Party's manifesto at the last election. As I recall, the noble Lord quoted what one might call a general undertaking. There was a more specific undertaking to the effect that the Government were committed to increasing competition specifically in the gas industry.
It must be said that that has not happened. I find it interesting to note that more recently we had a 342 comment from one of my right honourable friends, the Financial Secretary to the Treasury, who said:Although it is clear that privatisation can bring substantial benefits to both employees and the companies concerned, the main prize, if competition can be increased, is for the consumer … The key here is to ensure that greater competition goes hand in hand with returning industries to the private sector".In this case I think it has to be said that that key has largely been thrown away. I would be the last to suggest that manifesto commitments are some form of holy writ. That has always seemed to me to be an absurd doctrine. But I am bound to say that I think we are entitled to some explanation or at any rate a clearer explanation than we have had hitherto of precisely what happened to our intentions as regards the introduction of greater competition into this industry.
I have studied with great interest the comments of my right honourable friend the Secretary of State for Energy, who has alleged on various occasions that there was never competition in pipelines to the front door. I believe that he is wrong about that but admittedly one would have to go back a very long way before one found it. However, that is not what we were talking about. I imagine that we were talking about the possibility of a flotation of the British Gas Corporation in its component regional parts on the lines of the flotation which is being carried through to law in the case of the National Bus Company. That is not the only pattern. Other patterns have been suggested. The noble Lord, Lord Ezra, suggested a pattern. What we are confronted with, beyond a peradventure of doubt, is the straightforward transfer of a fully fledged monopoly into the private sector.
I must recall another comment of my right honourable friend the Financial Secretary to the Treasury, when he said:It is a great mistake to believe that all the nationalised monopolies are in any sense natural monopolies.".Activities such as electricity generation, the production and marketing of gas, etc., are in no sense natural monopolies. I suppose that, as Malvolio might have said, some have natural monopoly thrust upon them.
How are we to explain this transformation? I must admit that I cannot help feeling it might have something to do with the attitude of the present management of the British Gas Corporation. We have heard a lot about the possible behaviour of the British Gas Corporation once it moves into the private sector. Listening to this carefully I found it a little difficult to recognise the British Gas Corporation as we know and love it.
The attitude of Sir Denis Rooke has always seemed to me to be one of magisterial disapproval for the whole concept of competition and consumer choice. I am bound to say that there have been times during the transition of this legislation through another place—and even before it reached another place—when Sir Denis Rooke's attitude towards it has seemed to some of us a little too proprietorial by half. I noted that he told the Select Committee in another place that:The Government had so far satisfied the conditions set by the corporation",for its privatisation. I must say that that was big of him.
343 I confess that what worries me is perhaps to some extent the mirror image of some of the anxieties which have been expressed in other parts of your Lordships' House this afternoon. I do not think that the major hazard is that Sir Denis Rooke will be engaged in the maximisation of profits regardless of all other considerations. I should have thought that he had made it absolutely clear time and time again that, on the contrary, profit is about the last thing he is interested in or the last thing with which he will be remotely concerned once he has moved into the private sector. I believe that the anxieties are of a different nature. I think that Sir Denis Rooke's purpose will be to maximise market share for the corporation of which he is the ultimate master and grandee.
The noble Lord, Lord Ezra, asked a number of questions about what the British Gas Corporation would be allowed to do: whether it would be allowed to go back into the North Sea after oil, and into product manufacture in the UK market. As I understand it, the answer to these questions has already been given by Sir Denis Rooke: not only does he intend to do this but he will brook no interference in being able to do precisely that. Therefore, I share some of the anxieties to which the noble Lord, Lord Ezra, referred about the position, for example, of the electricity industry. We need to know what the position will be.
I hope that the noble Lord, Lord Ezra, will forgive me for saying so, but at present the electricity industry is bound hand and foot to the National Coal Board. It is obliged to take supplies from the National Coal Board and, let us face it, it is pretty well obliged to take them at the price which the National Coal Board dictates. These are conditions which the Government lay down and which they require.
Once Sir Denis Rooke and his corporation have gone back into the private sector, what will stop him marching into and taking a market share from the electricity industry precisely because the electricity industry is hamstrung by its commitments to its major supplier of resources, the Coal Board? This is not a matter which Ofgas can be expected to handle. We cannot expect Ofgas to say to Sir Denis Rooke "Oi, you are cheating, you are taking market share from the poor old CEGB, not because you are indulging in what in any genuine sense could be regarded as predatory pricing but because the CEGB is obliged to take its supplies of raw material at a vastly inflated price from the National Coal Board and the Government say it must". We cannot expect Ofgas to deal with the rights and wrongs of that sort of competition.
I share some of the anxieties that have been expressed about the nature of the regulatory authority which, under this legislation, is being given to Ofgas. However, I must tell your Lordships that sometimes it seems that in any case the regulator of a monopoly industry which is moved into the private sector is faced with an impossible conflict of interests. I submit that we have already seen this in the case of British Telecom.
As we all know, British Telecom wished to switch a substantial proportion of its supplies of System X machinery from its UK suppliers to a Swedish 344 supplier, and the UK suppliers were up in arms about it. Eventually Oftel said that they could take a bit from Sweden but not too much. By definition, in the private sector British Telecom has a proper obligation to its shareholders to acquire its equipment in the best market and at the best price it can obtain, but as the lone customer for producers of System X machinery in this country if it was to take its custom eleswhere, they would be left without a customer.
Therefore, there is an impossible conflict of interests there. That stems from the nature of the monopoly, and I believe that we are kidding ourselves if we really think that regulation will be a satisfactory substitute for the forces of genuine competition and competition in relation to consumer choice. Sadly, I believe, that that is the opportunity that we have thrown away in this legislation.
There is one area where at least the degree of choice could be enhanced, and that is over the matter of exports and imports. To my mind it has always been absolutely crucial that producers of North Sea gas should have given to them for the first time freedom to export their product, because otherwise it is impossible to judge whether Sir Denis Rooke is exploiting his monopsony position to the detriment of future North Sea supplies.
Therefore, I listened with great care to what my noble friend said on this subject in introducing the Bill this afternoon. My noble friend who will reply to the debate will correct me if I misheard him, but my understanding was that he said that British Gas will be able to import gas, and that gas producers wishing to export will be able to apply for waivers. Well, well, that is rather a different proposition.
What is to be the role of Sir Denis Rooke in the adjudication on whether or not waivers are to be allowed? From Sir Denis Rooke's attitude hitherto one has a suspicion that, to put it mildly, he would regard any such waivers as a diabolical liberty. Therefore, once again we are not seeing anything approaching the concept or the possibility of genuine consumer choice at either end of the scale.
Finally, I want to refer briefly to the prospect, which hopefully this Bill holds out, of a vast enhancement of small shareholders. Like other noble friends, I believe passionately in the virtues of a shareholding democracy, and I totally reject the narrow-minded attitude of the noble Lord, Lord Stoddart, and his strictures on the success of the British Telecom flotation in this respect. I think that we have good reason to hope that at least the flip side of the disadvantages of transferring British Gas into the private sector as an effective monopoly would be to enhance its appeal to private individual shareholders on a very large scale.
However, it has to be said that the climate has changed, and one is bound to wonder, what sort of demand there could be, or indeed should be, come this autumn, from the widows and orphans for such a flotation as this in the present environment of the energy market. Above all, we should bear in mind the point, to which I have already referred, that time and time again the chairman of the corporation, Sir Denis Rooke, has made it clear that profitability is the very last thing to which he will be minded to have an eye when he inherits his kingdom. Against that 345 background I think that the widows and orphans are bound to take a second look before they plunge into this particular venture.
Therefore, I welcome the prospect of the departure of another great institution from the dead hand of the public sector, but I am bound to say that the way in which it is being carried out on this occasion has thrown away an opportunity which we may have cause to regret.
§ 5.50 p.m.
§ Baroness Burton of Coventry
My Lords, on my files at home I have a most excellent article by the noble Lord, Lord Bruce-Gardyne, written relatively recently for the Sunday Telegraph. Having listened to the noble Lord today, I am quite sure that the House will accept my word that the article was witty, very humourous and well-informed, and it also gave me some comfort. It gave me comfort because in the past my knowledge of the noble Lord was as a financial pundit; I thought that he knew everything about financial affairs, an area in which I am very deficient. Having read what the noble Lord had to say on various financial aspects of this Bill, I took comfort, because I thought that, after all, perhaps there was a place for the layman's opinions on these erudite matters.
If I could come to my noble friend Lord Ezra and his most excellent speech, I only want, if I may, to take three points out of it. I was glad that he referred to the position of the regulatory authorities in the United States of America, because a great deal was made of this in another place in Committee stages and in the report of the Select Committee on Energy. I hope, after all, that—as indeed my noble friend Lord Ezra did—we shall look more at the achievements in that direction, because they are even more highly regulated than we would hope to be and it seems to have brought great benefits without stifling the expansion of the industry.
Secondly, my noble friend spoke of the electricity industry and its fears if suggested privatisation of its industry should be along the lines of what we are discussing today for the gas industry. I have had considerable contact with the consumers of the electricity industry who are indeed most fearful of what may arise in the future. Lastly, in his speech my noble friend referred to captive customers and gas charges, and said that they had no idea how these would work out. I want to come to those points later in what I have to say.
I share the indignation of the noble Lord, Lord Stoddart, on this matter. I tried, as I am sure have other Members of the House, to read all I could about this Bill, about what took place in another House at the Committee and Report stages and all the press and media had to say, and there was a great deal. Out of all that I have not been able to discover one single good reason for privatisation of the gas industry. I say that not as one necessarily opposed to privatisation as such, but as one wholly opposed to the transition of a public monopoly into a private one.
A Second Reading debate in our House gives one the opportunity to state fundamental worries and objections, and details can be left to Committee.
346 Today I would hope, in partnership with my noble friend Lord Ezra, to try to reflect what these Benches feel on this matter. But I want to say something now which is purely from me and which does not reflect, creditably or otherwise, on my noble friends. I am not in favour of setting up two bodies. I believe that the establishment of a gas consumers council was a mistake. My fear is that it will have no real power and that it tends to emphasise the old contention that consumers only want to complain. In other words, I believe that to separate the Director General of Gas Supply (Ofgas) from consumers was an error of judgment.
Perhaps I had better say here that I have much respect and admiration for the National Gas Consumers Council, for the work it has done and for the enthusiasm of all its members, local, regional and national, under the leadership of Sheila Black and John Hosker. I have known Miss Sheila Black for more than 20 years, and I was delighted to see that she has been named as chairman designate of the gas consumers council. I am quite sure that she will do all in her power to see that that council is effective, and I should like to say that I shall do all in my power to help her.
I hope that nobody will doubt my pedigree on consumer affairs, so am I the only one in feeling like this? Speaking generally, I think the answer is, no. Speaking specifically, such a plan or proposition would not have been acceptable to the Secretary of State, to Sir Denis Rooke or to the City. Why not, my Lords?—because it would have meant a stronger regulatory body, and a strong regulator was not relished by Sir Denis, and therefore not by the Secretary of State, who saw problems enough ahead without that further obstacle. Certainly it was felt that strong regulation would not encourage financial participation from the City.
The House has a perfect right to ask "What would you have done instead?" In our debate on 27th November I said that, concerning the privatisation of British Gas, it seemed to me that some regulatory body must be set up and that, furthermore, this must be independent both of the gas industry and of the Government. It should be accountable both to the public and to Parliament. Obviously it must have the power to monitor what is going on in the industry, to make such information public and, above all, to be seen to take action on behalf of the consumer.
On the 27th November we were discussing a Motion dealing with nationalised industries which became private monopolies. The Motion did not refer solely to the gas industry, and indeed did not refer to any particular industry. But having spoken of the necessity for establishing a regulatory body to deal with the privatisation of British Gas, I wondered whether we should have one such body for the gas industry only or one general body to regulate public utilities in the United Kingdom. My mind moved towards that procedure but, at the same time, the privatisation of British Gas could not be proceeded with without (and I would repeat the word "without") a regulatory body, whatever subsequently might grow from it.
Personally I should like to see the establishment of a strong, tough regulatory body that would adequately protect the consumer as regards prices and the terms 347 and conditions of supply. That, in my opinion, would have been much better than the establishment of two bodies under the Bill; namely, Ofgas and a gas consumer council. As I want to make clear, this is a personal point of view only, but perhaps it may be worthy of consideration in future privatisation policy.
I would not expect the noble Lord, Lord Belstead, even if he were so inclined, to comment on this in his winding-up speech, but I should be grateful if he could see whether it is possible for further thought to be given to this when future privatisation policies are under discussion, because I think that the field should be widened as much as possible and it might well be that this has some possible effect on future plans.
On 2nd July 1985, at col. 1044 of the Official Report, the noble Lord, Lord Gray of Contin, assured us, referring to gas, that,It is the Government's firm intention that the regulatory arrangements to be established will adequately protect the consumer as regards prices and the terms and conditions of supply".It may be that I want the impossible. As I said a moment ago, I want a strong, tough regulatory body, but I want it composed of, or at least containing, strong, tough consumer-minded members, which is not at all the same thing as consumer representatives. However, I believe that such a solution could be a considerable factor leading to the adequate and proper consideration for all we ordinary customers in the world of monopoly and big business.
The regulator, or regulatory body, must have a wide enough brief to protect consumers from monopoly pricing, but at the same time this brief would have to be tightly drawn. There are many complaints that Professor Carsberg at Oftel is not doing all he could to protect the consumer. As the House knows, I feel strongly on how British Telecom has treated the ordinary domestic consumer, but, in all honesty, I suggest that it is the legislation that is at fault and not Professor Carsberg. We in Parliament have been warned. Time and time again in Standing Committee attention has been drawn to this point. That responsibility has now passed to our House. It must be seen by everyone that public accountability was removed from British Telecom, and the same is now happening to British Gas.
The truth is, I believe, as I said at the beginning, that there is no justification at all for privatising British Gas. As with British Telecom, privatisation is being used to strengthen a monopoly. I suggest that surely we have cause to worry when we see a government getting rid of a healthy industry (one which has paid dividends in the past and would certainly do so in the future) for the sake of a capital gain. After all, this industry is modern, efficient and profitable. Indeed, it is so profitable that it found its pricing policies distorted by Ministers' decisions to conceal tax increases in gas prices, as with water and electricity. We all remember the chiefs of the gas, water and electricity industries complaining that the Treasury was forcing them to raise their prices higher than was necessary, which had the same effect as raising taxes but with less political embarrassment.
At the beginning of my remarks I said that I was not necessarily opposed to privatisation as such. Why? It is always satisfactory to answer one's own questions, 348 because I receive much better answers than I do from the Government, if the noble Lord, Lord Belstead, does not mind my saying so. Why did I say that? I did so because I thought that the original and primary purpose of privatisation was surely to bring greater efficiency to state enterprises so that all concerned—managers, workers and consumers—would feel they were getting a better deal. Indeed, Mr. Kenneth Baker said in another place on 5th February, when presenting government plans for selling the water industry to the private sector, that this privatisation would bring benefits to the customers, to the industry and to the nation in improved quality, more efficient service, greater commitment of the staff and more awareness of customer preference. Well, we shall see. But on gas the Government are now bringing privatisation as such into disrepute.
The noble Lord, Lord Belstead, must be aware that criticism from the Government's own supporters underlines this fear. During debates in another place those who in principle supported the transfer of British Gas to the private sector considered that the Bill panders unduly to the corporate interests of British Gas. As the House is aware, British Gas will not be required to disclose the monopoly profits which it makes from domestic consumers after privatisation. The licence also makes it clear that Ofgas will have no direct power to prevent British Gas from making a cross-subsidy between its domestic and industrial consumers.
The captive consumers for domestic gas will not yet have had the opportunity of studying the restraint, or otherwise, imposed upon charges to be decided by British Gas. Members of Parliament are completely confused. I think it may be more correct to say that they are completely foxed as to the exact meaning of the words used, which I suspect is what they are supposed to be. Without wishing to inflict algebraic formulae upon the House or upon the captive consumers of British Gas (that must include most of us) perhaps I had better say quite simply, quoting from the Daily Telegraph of 12th December:British Gas is to be required to keep its prices below the level of inflation by a percentage yet to be revealed, plus a percentage—yet to be revealed—for rising costs of raw materials".Really, one can hardly believe it!
The Times leader on the same date, 12th December, said:The formula for controlling prices to tariff customers (residential consumers and the smallest business users) is therefore hopelessly complex and by that token less effective".It is obvious to us all that the proposals we are discussing today provide British Gas with maximum monopoly power combined with minimum restraints on the use of that power.
Someone, the other day, asked me if I remembered that the Conservative election manifesto pledged that it would not,merely replace state monopolies by private ones as they would waste a historic opportunity to ensure they do not exploit their positions to the detriment of customers".No, my Lords, I had not so remembered, but doubtless the Minister will correct me if my informant was wrong, and if I do not hear him say so I shall assume that my informant was correct.
349 Aggrieved customers will not be able to appeal directly to the regulators, but will have to make complaints to the Consumer Council or to the Office of Fair Trading. Indeed, the fear expressed is that the proposed regulatory body will have rather too little to do. I consider, as I think is obvious from what I have tried to say, that the Government have their gas privatisation scheme wrong every step of the way. The House of Commons Select Committee on Energy, to mention one of its mildest criticisms, fears the creation of a powerful and ineffectually restrained monopoly. The Economist described Ofgas as a "regulatory dwarf". The Financial Times said:With British Gas ministers show every sign of getting the balance badly wrong, putting short-term political gain above the long-term interests of consumers. It is not too late for the proposals to be rethought".That was on 2nd December. We are now at 10th April and I have not seen much evidence of rethinking.
Nobody could say that Opposition Members in the Commons Standing Committee have not tried to do just that. In fact, they tried so hard that discussion had to be guillotined with the result that we in your Lordships' House have received a Bill with many of the important issues not even considered by committee members. It was not only Opposition Members who tried. As we may quote directly only from a Minister in another place, may I remark in general terms on what was said by the chairman of the Commons Select Committee on Energy at Report stage? He doubted whether under a newly privatised British Gas the motive would be other than pure and simple profit.
In conclusion, I make three points: first, having said that I think the setting up of two bodies under this legislation is a mistake, I shall do all I can to make the gas consumers council effective. Secondly, I liked a comment made to me that it is not clear what customers gain from the sale of an asset they have already paid for; to which I would add that it is an efficiently-run asset at that. Lastly, my underlying fear is that the Bill transfers enormous powers from a public monopoly to a private monopoly with no real accountability. I believe that fear is shared by many, irrespective of party, and I hope that our House will endeavour to make the industry more accountable.
§ 6.9 p.m.
§ Baroness Carnegy of Lour
My Lords, the noble Baroness is clearly not an enthusiast of the Bill, but she was not as virulent in her attack as the noble Lord, Lord Stoddart. I imagine one of the reasons for the noble Lord's virulence is perhaps the subject on which I want to touch—the social implications of the Bill.
The noble Lord, Lord Ezra, and my noble friend Lord Boyd-Carpenter have emphasised that this is an important measure on its own account and also that it is a major step in the Government's privatisation programme. It is in that context and the context of the whole privatisation programme that I want briefly to refer to the social effects that seem likely to emanate from this Bill—effects not just for millions of people who use gas or for many thousands who work in the industry but for all of us, every man and woman in this country, and how we see the way forward in our lives, how we see the way we are going to be living in years to come, the way we earn, the way we see our methods 350 of saving. Although I am not sure from my own experience whether every customer considers that there is as little room for improvement in customer service by the gas industry as the noble Lord, Lord Stoddart, has indicated, the people who work in the industry certainly deserve the opportunities that this Bill affords.
A number of noble Lords who have spoken have copious personal experience of what it is like to try to run, or to be a politician with responsibilities in a department concerned with running, a cost-effective, high-quality enterprise within the public sector. Those who have this experience know well the effect of political pressures on management in general and on man management in particular; and that applies whether it is in a nationalised industry or in the health service, in the education service or wherever. If anyone has any doubts about the effect of such pressures. they have only to glance at the recent history of the coal industry or the education service.
In a sense, given the system, the problems, it seems to me, are not always the fault of politicians or of the people who work in a particular enterprise. They are simply built into the system itself. When a person works in the state sector, even if it is in an enterprise the public position of which is that it is as nearly as possible autonomous, he or she is constantly reminded that pay, conditions of service, the nature of the job and the continued existence of the job at all are not. as in private industry, a matter for workers, management and customers, but a matter for politicians. The worker in the state sector hears constant political discussion about how much he should be paid, whether his workplace is overmanned, whether the demand for his product is rising or falling, whether its price is right and so on.
It seems to me very understandable that the worker may feel pretty helpless about his own chance of influencing his own employer and his own business. He feels pretty helpless about influencing his job and living standards and freedom of manoeuvre. In fact, he feels very largely at the mercy of the whims of policiticians. That feeling among the workforce is one major difficulty for managers who are trying to manage well, and, added to that, there is the constant unpredictability of the context set for the business as a whole by politicians. This often makes such managers appear defensive when they appear before the public: and all this gives the general public the impression that not only those working in the public sector but all of us are far more at the mercy of events that we cannot control than is the case. I believe that that contributes more than anything else to the continuing sense of "them" and "us" and the blaming of "them" for what we cannot change, which still dogs our society.
This Bill does many things, and one of the most important things of all is that it will give those who work in the industry a chance to develop that industry free of Government interference, to compete with oil and with electricity, to buy and sell and to move into pastures new. It will also give those who work in the industry a chance to invest in it. Further, it will give to many hundreds and thousands of people—and they are not all, I believe, the widows and orphans who will be so easily put off as my noble friend Lord BruceGardyne suggests—a chance, if they so desire, to buy 351 a few shares in gas as they have done in British Telecom and Britoil, to follow the fortunes of their shares, to read the reports and generally to take an interest in the success of that part of the economy.
I believe that the dislike of the noble Lord, Lord Stoddart, of this Bill is linked to the fact that he dislikes the new opportunities that are arising for people to become share-owners, to become popular capitalists. I would refer him to the remarks of his noble friend Lord Bruce of Donington yesterday, who said that the Government cannot stand aside from their duty to promote generally in the country policies that mean the greatest good for the greatest number; they have to take into account the interests of the nation as a whole. The noble Lord is nodding his head; he agrees that he said those things. He certainly did not then go on to suggest that the people as a whole will benefit most from privatisation. He and his noble friend do not believe that.
I believe that the vast majority of these people are coming to the conclusion that they like being involved in the system, being involved in owning some shares and having a say in the management, not only of their own firm but of the other firms which play such a great part in the economy. I believe it is a growing movement and is something that people increasingly are going to understand. I believe that it is very important for the future of this country, and for that reason, as well as for many other reasons, I support the principle of this Bill.
§ 6.18 p.m.
§ Lord Sandys
My Lords, it is indeed an historic occasion this afternoon, as my noble friend Lord Boyd-Carpenter has said, to see once again a Gas Bill before your Lordships' House. As an amateur in this field, it has given me the opportunity to look back on your Lordships' discussions and indeed on discussions in Parliament over the past 150 years on Gas Bills; I understand that there have been nearly 2,000 of them altogether. That incorporates a very large number of Private Bills and Private Acts, quite apart from the major legislation before us this afternoon. Perhaps I may be allowed to congratulate my noble friend Lord Gray of Contin on his lucid and comprehensive introduction to this Bill—a shorter speech by far in 20 minutes than the speech which came from the lips of that great advocate Lord Jowitt on 22nd June 1948 when he took 46 minutes to introduce the nationalisation of gas on that occasion.
What interested me was the reason advanced by Lord Jowitt for that nationalisation. It was quite different from the reasons which I believe were in the background. Perhaps I may be allowed to quote a portion of the report of Sir Geoffrey Heyworth's committee of 1945 on the gas industry. The brief quotation is as follows:The existing structure is restrictive of future progress. In other words, the existing forms of organisation no longer suit the present-day conditions and are even less likely to meet the problems of the future".That is an innocuous statement, if ever there was one. But what was the real reason for nationalisation? We are left in doubt by certain speeches, but it comes into your Lordships' debate later. It is suggested that 352 the real reason behind nationalisation was the pressure being brought to bear on the then government by the National Union of Mineworkers that it was highly important that the gas industry and the coal industry should be seen in the same context. It is interesting, therefore, that Lord Jowitt shows that, because, no less than 20 years earlier, in 1928, the National Fuel and Power Committee recommended,a substantially greater measure of freedom".There you have two directly opposed views: the nationalisation view of 1948 and the earlier one, with which I am sure many of your Lordships would agree today.
I turn from 1948 and the Bill to 10th December 1985 when my right honourable friend the Secretary of State for Energy introduced the Second Reading of this Bill in another place. He has set about this task of returning the gas industry to the private sector after a very careful study. It is most interesting to see in his opening remarks that he refers to a committee which he set up as long ago as 1983 to examine how gas industries operate on a world basis and consider and come to conclusions as to what solution is the right one. Far from the situation suggested by noble Lords opposite, that the Government have set about it in a totally doctrinaire manner, here is the Secretary of State considering on a very wide basis how gas is operated throughout the world and reaching his own conclusions before drafting the Bill and presenting it in another place.
I should like to take up one point mentioned by the noble Lord, Lord Stoddart, when he said, "There is nothing which will prevent showroom closures." This may be a relatively small issue but I believe that in the situation as a whole—and I am quite sure that the noble Baroness, Lady Burton, would agree with this—the gas showroom is a very important place. It has been suggested that the showrooms would close. We have no information on the precise intentions at the present time, but it was stated as long ago as 1980 by the Monopolies and Mergers Commission that the present situation as regards showrooms was against the public interest. I am quite certain that my noble friends and the Government as a whole have considered most carefully the position of showrooms, but it is clear from the Monopolies and Mergers Commission that the position at the present time is far from satisfactory.
My noble friend Lord Gray of Contin referred in his opening remarks to new oportunity for innovation and growth to put a new structure in place for many years to come. I also agree entirely with my noble friend Lord Boyd-Carpenter that this legislation will take decisions at a time which is right for industry. This is the core of so much of our thinking.
In closing my brief remarks perhaps I may quote the chairman of Cable and Wireless, because his report in 1983–84 put so much of the thrust of this particular aspect—that is, the timing of the decisions—on the necessity to get timings rapidly, at the right moment, before the industry. This is what he said:The outstanding results achieved by the group reflect to a large degree the increased vigour with which business objectives have been pursued since the company was privatised in November 1981.353 More recently, he also stressed the value of new management freedoms when he said:A striking example of this was our completion—in four days—of arrangements to acquire control of the Hong Kong Telephone Company … Reference back to the Treasury and other Government Departments would have made this impossible.My Lords, need one say more on that issue?
§ 6.25 p.m.
§ Lord Williams of Elvel
My Lords, perhaps I may start by declaring a small conflict of interest. I am chairman of a company called Barclay Exploration and Production plc, which is a small company exploring in the North Sea. It is a very minor company in the context of the company we are discussing, but I feel I have to put it before your Lordships as a possible conflict, partly because this company would hope to become a supplier in the future to whatever authority is set up under this new legislation and partly because, in view of the remarks of the noble Lord, Lord Ezra, I feel this company might easily be gobbled up by the British Gas Corporation once it is in a position to do so.
Having declared that conflict of interest—and I hope your Lordships will allow me to proceed—I still come back to the basic question of why the Government have introduced this legislation in the first place. A number of noble Lords have asked that particular question this afternoon. The noble Lord, Lord Boyd-Carpenter, took us back in history to 1948–1949, when he served under the strenuous chairmanship of the noble Lord, Lord Diamond, and said that at the time he was concerned about the legislation that was passing so quickly before an election. He then jumped forward 35 years and came up in 1986, saying he was glad to see that in some ways the frontiers of socialism were being rolled back. The noble Lord, Lord Boyd-Carpenter, might like to reflect that in those 35 years there were a number of Conservative Governments of which the noble Lord, Lord Boyd-Carpenter, was himself a very distinguished member, and that the policy of maintaining these monopolies in the public sector had the support of successive governments, both Labour and Conservative, for all those years.
Why is it suddenly at this point that we have a major programme of privatisation of what by any standards is a monopoly? There seem to be two reasons advanced. One, advanced by the noble Lord, Lord Boyd-Carpenter, the noble Baroness, Lady Carnegy, and the noble Lord, Lord Sandys, is that in some sense companies become more efficient or more active or more dynamic immediately after privatisation. I see the noble Lord, Lord Brabazon of Tara, nodding on the Government Front Bench because he will remember that we had this particular discussion last night in our debate.
I am sorry the noble Lord, Lord Boyd-Carpenter, was not in his place at that time because I did go to some lengths—and I hate quoting myself—to try to demonstrate that I had done considerable research into the performance of pre-privatised industries and post-privatised industries. If I may say so, I had no solid evidence that privatisation by itself brought any increased efficiency at all. This was the result of many days of research. I quoted the examples of Jaguar and 354 Britoil. I also quoted the examples of British Telecom and British Airways. All these had increased their profit prior to privatisation and had increased their efficiency prior to privatisation.
I do not see that the position is different in the case of British Gas because I had the honour when I was chairman of the Price Commission of studying British Gas at very close quarters. I am bound to say that we started off with the idea that a nationalised industry such as this should be subject to the most vigorous procedures of investigation. We felt it was incumbent on us to apply the most specific methods, and I put in charge of that investigation no less than the deputy chairman of Unilever, who was a deputy chairman of the Price Commission at the time. His report was that the British Gas Corporation was an extremely efficient organisation, working well. Obviously there were some disadvantages and some defects—no organisation is perfect—but by comparison with private sector companies it stood up very well. The further efficiency argument does not seem to me to stand up.
Then there is the financial argument. The noble Lord, Lord Bruce-Gardyne, believes that the widows and orphans of Wigan may well walk away from this issue when it is made. This is a point that again came up in our discussion yesterday. This is an enormous operation and it is a question of whether the market at any future date will actually stand the weight of this issue without—and I come back to this—a massive sale to foreign investors. We on this side of the House are not opposed to foreign investors. If I may say so, it was the noble Lord's right honourable friend the Chancellor of the Exchequer, who imposed a 5 per cent. tax on American depository receipts, who appears to be opposed to foreign investors. We are not opposed to foreign investors. We are opposed to foreign control of these monopolies; and therein lies a very great difference. I think that was the point the noble Lord, Lord Stoddart of Swindon, was making.
May I come to three very specific points in the Bill, about which I must admit I am somewhat confused? A number of noble Lords have raised the question of regulation, and this is a proper issue on which your Lordships will be concentrating during the Committee stage. I listened carefully to what the noble Lord, Lord Gray of Contin, said on the question of regulation and how he took us through the Bill in a very elegant and, if I may say so, clear manner. But as a result of that I came out with an extremely confused view of what the system of regulation was going to amount to.
We appear to be having three, if not four, possible bodies or gentlemen who can intervene: the director, the Director General of Fair Trading, the gas consumers council and the Monopolies and Mergers Commission. All of them appear to be able to intervene at a different stage, in different circumstances and at different parts of the operations of the new privatised organisation. Not only that. but the Monopolies and Mergers Commission is specifically instructed under Clause 24, as I understand it—and no doubt the noble Lord, Lord Belstead, when he replies for the Government, will correct me if I am wrong—to disregard the criteria that the Monopolies and Mergers Commission is itself set under the Fair Trading Act 1973.
355 Perhaps I may read out the first two of these for the benefit of the House:To have regard to the desirability of maintaining and promoting effective competition between persons supplying goods and services in the United Kingdom, and of promoting the interests of consumers, purchasers and other users of goods and services in the United Kingdom in respect of the prices charged for them in respect of their quality and the variety of the goods and services supplied".Instead, as I understand it, the Monopolies and Mergers Commission is directed to Clause 4 of the Bill, which specifies the requirements on the director himself as follows:The Secretary of State and the Director shall each have a duty to exercise the functions assigned to him by this Part in the manner which he considers is best calculated—
The criteria of public interest between the Fair Trading Act and this new Bill are wholly different. I ask your Lordships to put yourselves in the position of the chairman of the Monopolies and Mergers Commission, asked by the director to study a particular problem and asked by the Director General of Fair Trading, on the other hand, to study another problem referred to him by the director general perhaps in the same industry. He is required to reply, so far as I can see, to two entirely different sets of criteria on what is in the public interest. I believe the noble Lord will wish to respond to that point when he replies for the Government.
- (a) to secure that persons authorised by or under this Part to supply gas through pipes satisfy, so far as it is economical to do so, all reasonable demands for gas in Great Britain; and
- (b) without prejudice to the generality of paragraph (a) above, to secure that such persons are able to finance the provision of gas supply services.".
The second problem I have relates to the question of wider share ownership, employee share ownership and employee control. I see that the Government appear to be in something of a dilemma. I think this is the origin of the British Telecom problem. If the Government wish to see employee ownership they will have a lot of support from this side of the House. We have no particular problem over employee ownership. But if the Government wish to see a proper return to the taxpayer for the asset the Government are selling then there may be a conflict between the two, because the proper way to secure the highest possible price for the Government for the sale of this asset may be in total contradiction to the price that is required to ensure that the employees can participate and indeed that wider share ownership criteria are met. I think myself that, technically, the right way to achieve the sale of British Gas, if it has to be done, is by way of tender. In that way you will get the price that the market at the appropriate time thinks is the maximum price it is prepared to offer.
The problem with tender is that naturally you can never be quite certain that you are going to get the issue away. Therefore you have to have an underwriting, and therein lies the problem. If you have an underwriting you have to fix the price well before the event and, as we have seen in the case of many privatised industries, the price in the market can run away with you during the period of the underwriting. You will get the problem that you had with British Telecom, which may or may not have been deliberate (I take no view on that) where people could come in 356 and make substantial profits on the first day—nay, in the first hour—of trading. That is something which I am sure the Government and your Lordships will not wish to see repeated.
Lastly, I think we have to pay attention to the workforce. A great deal has been said about management in industries under public ownership or in industries under private ownership. Not enough, I believe, has been said about the workforce. The British Gas Corporation has a highly skilled workforce: it is 50 per cent. composed of skilled workers. Those skills do not come cheaply and they must be respected. There is a tendency, if the British Gas Corporation is privatised—and there must be a tendency—for the corporation to look towards short-term earnings rather than long-term investment. If it looks towards short-term earnings there will be a tendency to disregard the proper interests of its workforce.
The trade unions in the industry claim, I think rightly, that the British Gas Corporation does not carry an excessive workforce. The number of therms sold per employee has risen by 30 per cent. In the past 10 years labour costs, as a percentage of total costs, have fallen by 20 per cent. This is a proud record for the trade unionists in the industry, and their legitimate concerns should be regarded. They warn that privatisation will not serve their interests, the interests of the employees or the interests of the consumers. They believe the standards of service will diminish and become more costly as the change in ethic takes place towards the short-term nature of profits that the company will have to generate. And the trade unions should know, because it is their members, working in harmony with management, who have turned the industry into one which is justifiably proud of its record, not only to the individual customer but to the nation as a whole. It is their work which has made the corporation the successful enterprise that it is.
I think I have said enough. I should like the noble Lord, Lord Belstead, if he will, to reply to the questions that I have raised. However, I must make one fundamental point. I join with my noble friends on these Benches and with the noble Baroness, Lady Burton, and the noble Lord, Lord Ezra, in being fundamentally opposed to this legislation. I believe this is a bad policy. I believe it is a policy which was never correctly put before the electorate and that it is a policy designed to get the Government out of a financial hole. In so far as we can amend it at every stage, I believe on this side we should do so.
§ 6.38 p.m.
§ Baroness Macleod of Borve
My Lords, the hour is getting late and there is some further business after we have finished this Second Reading; so I intend to be as brief as possible, bearing in mind that this is a very lengthy and particularly complicated Bill, certainly from my reading of it. Other noble Lords will perhaps feel the same. But I certainly welcome the Bill, as do others on this side of the House. Before I start my few remarks on the Bill, I too should like to pay my tribute to the noble Lord, Lord Gray, for the way in which he introduced the Bill so succinctly and so helpfully to the House.
357 The nationalisation of gas, as we know, took place in 1948. I had the privilege—and I say that having chosen my words—of being appointed as the first chairman of the National Gas Consumers Council. If I may say so, that perhaps taught me more than anybody in this Chamber could know about the running of British Gas from the inside as well as from the consumers' angle. One must be part of a vast organisation like that to appreciate all that it does.
In passing, I should like to pay tribute to the present chairman, Sir Denis Rooke, who was the vice-chairman when I first joined the consumers council. He became chairman of the Gas Board nearly 10 years ago. Without his imagination, his organisation and his will to get through and to bring the gas industry in this country up to date—all that he has done and is still doing—the gas industry might not be in the efficient state in which it is now.
I saw North Sea gas come in under the Norfolk and Suffolk borders. Gas became non-toxic so that, as I understand it, people could no longer put their heads in gas ovens and hope to be found dead in the morning. I am not quite certain whether that is a good thing or not, but at least people cannot do that. I had the most extraordinary experiences, when North Sea gas was being taken on, of the dedication of the workers of British Gas. There were elderly cookers in the south-eastern region. By "elderly" I mean cookers that were at least 50 years old with which certain old ladies had grown up. They were not going to part with them under any circumstances. The cookers had to be brought up to date and made completely different. That was done by the willing hands of those who were trained to do it. They made those cookers safe and capable of use with North-Sea gas. That was a very great achievement in those days up and down the country.
In my view, and I think in the view of most Members on this side of the House, the present efficiency of British Gas has earned privatisation, because if the industry is privatised those in the industry who have worked so hard will be able to have a stake in it. From 1948 onwards British Gas has had to endure almost a nanny state. It has had the problem of having the mandarins of Whitehall and government departments looking at it over its shoulder. It has not had a really free hand to go forward as it could have done. However, it has managed to go forward in very difficult circumstances. It took a great deal of hard work to have 16.5 million customers and a turnover of £6,913 million in March 1985 and to be the largest energy consumer in the country.
The other place put in some very long hours and very hard work to try to make the Gas Bill the efficient Bill that we now have before us. One clause to do with the gas consumers council was recommended and taken on board by the House of Commons at Report stage. At that time it was Clause 6. It will not be Clause 6 when we next see the Bill. I should like to say a word about it. The knowledge of consumer affairs that the noble Baroness, Lady Burton of Coventry, has is second to none in this Chamber. Her enthusiasm for consumer affairs is also very great. I am sorry that she felt that it was wrong that there should be a different body for gas consumers to have a say, as there will be in the future.
358 It seems to me that the number of staff and members of the consumers council must be very flexible, because as a result of Clause 6 the remit of its work will be very much greater than it was in my day, when we had a large number of people working for us. I am very glad to see that the consumers council's work is to be put in statutory form. The clause provides that the new council will have powers to investigate complaints from gas customers about sales, installations and the maintenance of gas appliances and fittings whether they are in people's homes or for sale in shops and intended for use. The consumers council will also have the power to investigate safety matters. That is all in addition to a statutory duty to investigate complaints about gas supplies. I could not find it anywhere in the Bill, but I am sure that the Minister will know whether that also covers industrial users. Perhaps he could tell me when he winds up this debate.
Two noble Lords very kindly said that I would speak about safety, and I shall endeavour to do so. The first thing that come to mind is gas showrooms. I hope that they will be kept on as a prelude to safety, not only through selling of appliances but through the knowledge that the assistants have of installation of gas appliances. That is terribly important. There are problems because there are now many thousands of sales outlets other than gas corporation showrooms. That is where the "cowboys" do or can come in. That is why it is vitally important that the training of the installers of gas appliances should be made as mandatory as possible. It is very difficult to ensure training when we have so many do-it-yourself shops and there are no mandatory requirements for the installation of gas appliances.
There should be a register of qualified installers which, in my view, should be kept everywhere that appliances are sold. We are all well aware that if the installation is wrong it could lead to ignition and then possibly to an explosion. There will need to be a great deal of public awareness about the problems of installation.
I was interested to see that the Government will continue independent meter reading. I should like to urge that the fact that meters should be read quarterly should be part of the Bill. They are read quarterly in all the areas about which I know. That is important when elderly people, and perhaps young people as well, are saving their money to pay certain bills. If the gas man does not come to read the meter they may perhaps get into debt. I should like the meter to be read on application, such as in the case of a death or a move, which would have to be paid for by the consumer.
I look on this as a very great, a very important and a very caring industry, and beginning today we are legislating for the next 25 and possibly even 50 years. So it is very important—and I am afraid that I give my noble friend the Minister due warning—that we dot the i's and cross the t's, because in the future there will be not the people who are now working for British Gas; there will be the inheritors of those people and we do not know what their standards may be. Their standards will probably be as good as they are now, but unless we do our best with this Bill we cannot be certain about safety for consumers in the future.
I should like to finish by paying tribute, as other noble Lords have done, to all those from Sir Denis 359 Rooke downwards—to all the fitters and the people we meet in the streets, to the 93,000 who are employed by British Gas—for all that they do to keep safe the consumers of gas, who are, on the whole, a happy lot. Those people who are employed by British Gas are dedicated and have earned the right to have a financial say in the industry to which, in many cases, they have given all their working lives. In view of that, I hope that this Bill will go through without much hesitation.
§ 6.52 p.m.
§ Lord Sanderson of Bowden
My Lords, at this hour of the evening I shall try not to detain your Lordships long. First, perhaps I also may applaud the way in which my noble friend Lord Gray of Contin introduced the Bill to us today. For the last 40 years, British Gas has been a nationalised industry. I do not have the advantage of my noble friends Lord Boyd-Carpenter and Lady Macleod of Borve, who were on the scene at the time of the nationalisation of that great industry. But it seems to have become the accepted wisdom of those 40 years that monopolies are so important, and have so much potential power to harm customers, that they must be controlled directly by government.
Has ownership by the state been a guarantee of good service or value for money? That is one of the principal points that we in this House have to consider during the passage of this Bill. My feelings on the subject are that customers' interests are best protected not by state ownership of monopolies, but through a combination of genuine public ownership and effective regulation. That is particularly so on the subject of safety, so far as the gas industry is concerned.
I believe that what matters to the customers who are dependent on those organisations is what kind of deal they get in terms of competitiveness, prices—and we have heard a great deal about gas prices over the last few years—sensitivity to complaints and, above all, safety regulations. They are more interested as customers in those things, than in who actually owns the business.
But what are those who work in the industry—and the noble Lord, Lord Williams of Elvel, mentioned the workforce in the industry as being very important people whom we must consider very carefully in dealing with this Bill—really looking for? What kind of situation are they looking for at their workplaces? I believe that they are looking for good sensitive management, good labour relations and good wages and there will be a great asset for that workforce if they have a stake in their own business.
It is not insignificant to note that when British Telecom was privatised 96 per cent. of the workforce took an interest in that business. I hear what is said from the Opposition Benches about the Government's attempts to promote real public ownership, direct ownership by members of the public and by employees. I have heard the siren voices that say, "Ah, but the small shareholders in BT have fallen by the wayside and they now hold a very low percentage of the total equity of that company".
If I have a criticism of the Government's policy, it is that we have not moved fast enough to make it possible for the number of small shareholders in 360 Britain to grow. We are miles behind our competitors abroad. We are miles behind France and the United States in this regard. Perhaps the personal equity plan, as proposed in the Finance Bill in the other place, will give a reasonable start to much wider share ownership becoming a possibility. And of course we have the greatly improved share option schemes which have been encouraged by the Government.
In connection with the privatisation of British Gas—and some noble Lords have mentioned this point—we are entitled to know what are the plans for flotation for small shareholders. If there is one criticism of the British Telecom issue, it is that we must look much more closely at the interests of small shareholders, particularly those in Britain, when we come to deal with this important bit of legislation. We are duty bound to look closely at British Telecom, warts and all, and at what has happened.
Leaving aside the fact that 96 per cent. of British Telecom employees took up shares in the company, we have to consider whether that business is flourishing or floundering. That matter has to be considered while we are dealing with this Bill. I believe that the business is flourishing. I believe that the position described by the Financial Secretary to the Treasury, John Moore, in July 1985, where the commercial development of British Telecom was, was,centred on engineering concepts rather than on market and commercial needs",has now changed. I believe that that is for the good.
I should like to turn for a moment to the question of industry. This was debated at length yesterday and there was a great deal of talk about the decline in manufacturing industry. I have a particular point which I wish to raise in connection with industrial gas pricing policy. Only this week, I was in Aberdeen at a factory where we were trying to decide what form of energy we should use in the future. All I would say to your Lordships on that subject is that we were looking favourably upon gas as a means of energy for that factory. One of the biggest considerations was the thought that industrial gas pricing policy would be not in the hands of the Government, but in the hands of private industry in the future.
I say that advisedly, because many of your Lordships will remember the difficulties we had in industry in the 1970s when, in the period 1974–79, industrial gas prices went up in real terms by no less than 112 per cent. I find it very difficult when I listen to members of the Labour Party opposite speaking about the decline in manufacturing industry. If only they were trying to run, as we in those years were trying to run, industry they would realise the difficulty we were facing with energy prices. Where indeed could you find help from a government when the inflation rate in 1979 was running at well nigh 20 per cent.? It is not the best moment to be running an industry in this country when energy prices are going through the roof and when inflation is doing the same.
I believe—and perhaps there is a glimmer of light on the Benches opposite—that home ownership is something that the people of this country really genuinely desire. I also happen to believe that wider share ownership is something that the people of this 361 country will come to appreciate as years go by. We must encourage it in every way possible. But as we consider this Bill I come back to what was said in this House at the Second Reading of the Telecommunications Bill, when the noble Lord, Lord Glenamara, said:What the Government are proposing to do with a great company is a sheer disgrace. The Bill is irresponsible and ill informed. It will create chaos in what is the most sensitive of public utilities. It will weaken our national economic effort, for good communications are the lifeblood of the economy. It will result in higher charges for residential and rural subscribers. What a foolish inept measure it is".I believe that we have to look at the record of British Telecom as we go into detailed discussions on the proposals before us. I for one believe that British Telecom is safer in its present hands and I trust that, when we come to vote on the question of British Gas, that great industry will go down the same road.
§ 7.2 p.m.
§ Lord Monkswell
My Lords, as a gas consumer, when I receive my quarterly gas bill it is one sheet of paper. It usually gives me a little tremble of the heart before I open the envelope and read it, because there is always a little doubt as to whether I can afford to pay that bill. But in general terms I can budget for that expense and within a reasonable margin I can anticipate what the bill will be. When one has a Bill of 116 pages one almost has a heart attack because one knows that we are all going to pay very heavily for that Bill.
I have a number of detailed criticisms about the Bill before us. I have also two rather broader and major criticisms. Perhaps I may start by saying a few words on the details and then go on to the broader aspects. Clause 4 refers to enabling competition in the supply of gas to non-domestic premises—that is the guts of it—which effectively says that there will be no competition allowed for domestic consumers. At this stage, I must pay tribute to noble Lords on the other side of the House who have so ably supported the arguments that we have made and will make on this side of the House. That last remark refers particularly to the noble Lord, Lord Bruce-Gardyne.
My next criticism is that the Bill specifically enables what one might describe as the "big boys" supplying more than 2 million therms to have virtually a free hand. Another criticism is that the Bill requires consumers to pay for the laying of new pipelines. Another criticism is in regard to the fact that the Bill ensures a reasonable return of capital to the gas supplier to provide standby supplies. It does not specify over what period that reasonable return of capital is to be calculated. One of the disadvantages of privatisation is that almost by definition it will require the managers of that industry to take a very short-term perspective in terms of profit and loss, whereas the current gas industry can take a rather longer-term perspective.
The next problem is that capital payments may have to be made prior to supply. If a new consumer comes along and says, "I want a gas supply to be laid to my door", not only does he have to pay for it but he has to pay for it before the gas supply is laid. Another little problem is that the Bill enables variation in the price of gas from area to area. One has only to look at what 362 happens at the moment with the price of petrol. In the urban areas, where competition is intense, the price of petrol may be described in some respects as quite reasonable. But if one goes to the rural areas, or if one goes to the North of England or Scotland where competition is not so intense, the price of petrol is crippling to the ordinary consumer. In rural areas, people are forced to use private car transport because the Government have destroyed the bus services.
Within the Bill there is a clause that actually enshrines standing charges. Something that pensioners' groups in particular but also other groups which have at heart the interests of deprived, poor and impoverished people have been arguing and pressing for is the abolition of standing charges. Yet this Bill enshrines them. It lays the responsibility for safety on the Health and Safety Executive. Yet even now the Health and Safety Executive is overstretched in fulfilling the requirements laid upon it in other areas. In industry, in commerce and on building sites the Health and Safety Executive is hard-pressed to enforce even minimal standards.
My final minor criticism—this is not really a minor criticism—is that within this Bill there is an insurance (or an assurance) that persons overcharging for the resale of gas—that really means landlords who make a charge for the supply of gas to people who pay rent—are absolved of any criminal liability for overcharging for that gas. All that is required is that such persons pay back to the poor consumer the amount that they have overcharged. When young people are being forced by government decree to move their place of lodging every two weeks in some cases, there is a very slim chance that those consumers will challenge the supplier of resale gas to pay them back the odd penny or the odd quid that they have been overcharged. That is a scandal.
I now turn to the broad effects of the Bill: the essential effects, the privatisation effects. At the moment, under nationalisation the gas consumer—the member of the public at large—if he feels abused by the gas corporation or affected in any way by the operations of the gas corporation, has two options. He can either go to the National Gas Consumers Council or he can go to his Member of Parliament to pursue a resolution of that grievance through the channels of democracy and parliamentary procedure. That costs him nothing, but what will be the situation after privatisation?
Effectively, we shall have a national gas consumer council with, I suspect, much less power and offering much less access to the ordinary member of the public. The other avenue for the alleviation of abuse will be the courts; that is the way that people must seek the alleviation of abuse by any private undertaking or firm. That will be a paradise for the lawyers, and it will deny the ability to achieve justice to all but the rich in this country.
My final criticism of this Bill is its cost. Her Majesty's Government will effectively be selling off assets that are owned by us all. We must recognise here that we are in some respects the non-preferred shareholders of the undertaking in that we do not have a vote. If one thinks in terms of every member of the electorate having an equal share in the British Gas Corporation, then one is approaching a shareholding 363 of 40 million. As a result of selling off the shares of British Gas, if the flotation of British Telecom is anything to judge by, the number of shareholders will reduce from 40 million to 2 million. It could only be a Conservative Government who could sell that as being a wider ownership of shares.
The other factor is that not only will the sale reduce the number of shareholders, but also the very mechanism by which that is done will ensure that the corporation's assets are sold cheaply expensively. I shall explain that remark. The shares will be sold at less than their market value to ensure that they are sold, as has been described before. But in the process of selling those shares, the Government will shell out millions and millions of pounds to persuade people that that is a good idea.
Another point is that, if one looks at public pronouncements by the Government over the past six months or year, one can see that they have been underselling the assets of the corporation. When speaking about the British gas industry, they have not been saying "This is a marvellous and profitable industry, and the only reason why we are getting rid of it is that it does not fit into our portfolio". There have been numerous stories in the newpapers and on television about the possible doubtful future of British Gas and of the whole gas industry. If one bears in mind the reduction in the price of oil over the past few months, and realises that the price of gas is tenously but significantly related to the price of oil, then the value of British Gas in the eyes of the market is being played down.
What will be the result after the shares have been sold? As I have said, they will be sold below their market value, and so immediately there will be an increase in the market value of those shares. The managers of that industry will then be compelled, because of market forces, and because of the ability of the shareholders to get rid of them if they do not like them, to maximise their profits. To do that, they must either increase prices or reduce the services that they are providing. One of the areas of service which is defined and which I worry about is that of safety.
For a number of reasons that I have mentioned, I hope that this Bill will not see a full passage through Parliament. However, I am also a realist. I realise that however much we speak, and however many Divisions we may have in this Chamber, it will not change the end result for British Gas one iota. We may make one or two minor variations to the clauses and to this, that and the other in the Bill, but at the end of the day, British Gas will be privatised. No matter how much hot air we may expel in this Chamber, it will be as effective as a fart in a thunderstorm.
§ 7.15 p.m.
§ Viscount Hanworth
My Lords, this has been a good debate and many speakers have made clear their doubts about the Bill. The Minister has done little to reassure the House, because we genuinely doubt whether privatisation and the provisions of the Bill can possibly achieve the Government's avowed objectives. Having said that, I shall now give my own views which, in the main, express what has already been said in rather different words.
364 The Government are again selling off assets without justification for doing so. With gas, it cannot lead to useful competition, and if the consumer is to be adequately protected, any flexibility of working under private ownership is illusory. Moreover, it disturbs an existing system that will take a very long time to settle down under new management control.
The Government's record so far of getting a good price for shares on privatisation is, to say the least, not reassuring, with an estimated loss of more than £1 billion for British Telecom if compared with the later market price of the shares. In all, there has been a loss of about £1½ billion on their privatisation programme. The money that the Government gain has not been used in helping the competitiveness of our industries, which are vital to the future prosperity of this country. Moreover, although they get some immediate capital, they lose the money that British Gas pay them; for the last four years, it has been £1 billion a year.
Some of the arguments made by the Government in favour of privatisation are just eye-wash. They really seem to believe that greater share ownership by small investors has some relevance. It has no relevance unless it is done in the way that is proposed by Vickers Shipbuilding, and that approach is not applicable to the gas industry. To give an example, employee shareholding in British Telecom is about 1.8 per cent.
An interesting argument—but one that is spurious if one analyses it—put forward on television by the Minister for the privatisation of the water industry was that it freed capital funding from Treasury control. Such Treasury funding was, he said, in competition with other interests such as roads, national health, and education. If, however, the country can afford what it would like to spend in capital investment, then allocation should be made on a balanced assessment of priorities, which is exactly what the Treasury tried to do.
It must be remembered that the market place will provide capital only if it is profitable to do so, and almost inevitably that will mean raising water rates at the consumer's expense. The argument is also flawed because it would be possible to retain full government ownership, as is the case with British Nuclear Fuels, but to leave them to find the capital without it being included in the public sector borrowing requirement. I am afraid that one of the Government's less obvious and more devious motives is that charges, as with British Telecom, can be raised with much less direct criticism and political cost to the Government.
As I have said before, the sensible course for privatisation would be to move slowly and learn from the experience of those industries which are already privatised. The Government are doing nothing of the sort, and do not even leave time for bringing to Parliament a well thought out and well drafted Bill. Surely this unseemly rush is in order to sell more of the family silver to finance their pre-election benefits and, I suggest, to privatise enough industries to make certain that no responsible future government could reverse the process except in a few cases.
The Government are now going far beyond their declared policy at the last election, when there was no mention of privatising gas or water. It is obvious that the Government will not now withdraw this Bill, but it 365 could be converted into enabling legislation to be brought into effect if the present Government were to be re-elected, either amended in the light of experience or left unamended. This is not a novel idea: it is exactly what the Government did with British Shipbuilders before and after the last election.
There is another important angle to this. There is and always must be a very close connection between our three energy providers—coal, gas and electricity. It would upset the balance of the present healthy, competitive relationship between the gas and electricity industries if the gas industry is transferred to the private sector while the electricity supply industry remains in the public sector for an unspecified and perhaps unlimited period. This is inevitable as the objectives, financial parameters and institutional constraints on a private company are, by definition, different from those on a public utility. It cannot be in the national interest deliberately to disadvantage the competitive position of such a strategically vital industry as electricity.
In this connection, let us remember that the CEGB is obliged to take most of its coal from the Coal Board at a cost of about three times that at which it could import coal of a similar quality. I wonder, if the Government think of privatising that industry, what precisely they will do about the coal. It would be far wiser, if this Government were returned at the next election, to consider both these industries together for denationalisation, if at all. That is another reason why I recommend only enabling legislation.
Let us try and get a perspective on this issue by looking back to the past. The Labour Government, largely for doctrinal reasons, favoured and promoted nationalisation. In many cases it did not work out as they had hoped, so they took a more commonsense approach and talked about a mixed economy. Now, when nothing has changed, this Government have become dogmatic on privatisation. This swing of the pendulum from one extreme to another is not the way to run a country.
My party does not in principle have strong views on this issue, but it ought to be judged pragmatically and not on party dogma. It is very worrying that a major reorganisation, even if desirable, takes years before any benefit results. In this case there is a possibility that if the Labour Opposition were elected, there would be renationalisation. This situation produces intolerable uncertainty and the sort of problems which were experienced by the steel industry. I think nearly everybody would agree that a great deal of their trouble was due to this uncertainty and the nationalisation - denationalisation - renationalisation situation.
My party is also concerned that this Bill fails to introduce competition and produces a private monopoly without effective regulatory machinery. It also provides inadequate protection for the consumer in every area of concern. This point has been powerfully made by many speakers and I am sure it will be brought up in many amendments when we come to the next stage of the Bill.
§ 7.25 p.m.
Lord Bruce of Donington
My Lords, the House is always grateful to the noble Lord, Lord Gray of Contin, when he introduces a Bill, as he always tackles the task with an urbane cheerfulness which sometimes almost becomes infectious. I thought that today, considering the task that he had, he performed very skilfully indeed. He was faced with an impossible task, which was to provide one good reason why the gas industry in the United Kingdom should be privatised. He could not provide one reason that stood up in any way to the arguments that were produced by my noble friend Lord Stoddart of Swindon, who had not had the advantage of seeing the speech of the noble Lord before he answered it, but who accurately anticipated it. Not one of the contributions from the Conservative Benches this afternoon has in any way touched any of the basic arguments that were put forward by my noble friend Lord Stoddart of Swindon. There have been some endeavours.
Let us attune ourselves to the genial mood in which the noble Lord introduced the Bill in order to recapture some of the magic he was conjuring up. The first advantage mentioned was that the industry would be free from government interference. I thought of that somewhat nostalgically when I listened to the speech of the noble Lord, Lord Sanderson, who was complaining about the high prices of energy and the burden that they imposed upon British industry. I well recall the noble Earl, Lord Gowrie, who was in the same position as the noble Lord, coming to the House and announcing a Government-imposed increase in the price of gas to be fixed at a rate 10 per cent. above the rate of inflation. Of course governments have interfered.
From the commonsense point of view—and we are talking now about an experienced Government in power with all the trappings of office and great resources at their disposal—if the Government say to themselves, "There is something wrong with the gas industry; it is being interfered with", all they have to do is to send a memorandum down to their officials (and if it were done in Churchillian form it would have at the top, as the noble Lord, Lord Boyd-Carpenter, well knows, "Action this day") or down to the Permanent Secretary demanding, "Pray stop interfering with the gas industry". There is no neeed to privatise the industry in order to ensure that it is free from interference. The noble Lord knows that perfectly well. I am bound to say that even the degree of interference that has come from the Government of the noble Lord, measured in quantitative terms, is likely to be rather less than the interference that they themselves are legislating for by the establishment of Ofgas.
The fact of the matter is that the reason why the gas industry has functioned, by and large, in the public interest has been because those who manage it know perfectly well that in the final analysis it is subject to the rule of Parliament. They know that in the final analysis the Minister for Energy, whoever he may be, has to answer to the public. This imposes a discipline. Where that discipline is not already there by reasons of managerial loyalty and dedication to the task. it is imposed by the consciousness that in the ultimate they are responsible to the public. So let us get away from 367 this silly argument which no doubt the noble Lord, -Lord Belstead, may enlarge upon when he replies, that the real reason for privatisation is to get rid of government interference. Let the Government tell themselves not to interfere. That eliminates that one.
The next argument was that it would be more efficient in the private sector. I listened with some interest to the noble Lord, Lord Boyd-Carpenter, with whom I shared a presence in the other place for a period of time. I am bound to say that I found his arguments just as unconvincing as did the noble Baroness, Lady Macleod. There was the noble Baroness, saying what a wonderful person Sir Denis Rooke was, how he had managed to reinvigorate the whole gas industry, how he had managed to command loyalty, and all the rest of it. All that the noble Lord, Lord Boyd-Carpenter, could do was to hazard a possibility that responsibility to shareholders somehow imposed a greater sense of urgency and efficiency than the dedication to which the noble Baroness paid ample tribute and that has been reinforced. Really, that will not ride. Indeed, the accounts themselves—
§ Lord Boyd-Carpenter
My Lords, if the noble Lord is suggesting that that was my only argument, he did not do me the courtesy of listening to my speech. The noble Lord may care to remember that I made the important point that after privatisation the industry will be free itself to go to the market for capital as and when it wants, and not forced into the queue of the government investment programme with all the problems that those of us who have been in that position know is involved.
Lord Bruce of Donington
My Lords, I was coming to the noble Lord. The noble Lord must not be too impatient.
Lord Bruce of Donington
My Lords, I shall certainly deal with the very point that the noble Lord makes.
Lord Bruce of Donington
My Lords, if the noble Lord will allow me to continue, we know perfectly well this nonsense, purely for the convenience of the Treasury, of the incorporation of the nationalised industries' borrowing requirements within the public sector borrowing requirement. The noble Lord knows that it is a lot of nonsense. So do all those in the Treasury know that it is a lot of nonsense that they should be subject to that particular constraint. In any case, so far as the British Gas Corporation is concerned, it has financed itself. It has been self-financing precisely owing to the efficiency upon which the noble Lord, Lord Boyd-Carpenter, sought to cast some only modest—I shall not put it any higher—misgiving.
The third argument was that it would lead to a wider shareholding and that it would contribute towards a people's democracy. I must say that some of the references to the sentiments of shareholders that noble 368 Lords have uttered this afternoon are a little strange to me. To imagine for one moment that the holder of, say, 100 or 500 shares imagines himself in any way to own part of the business, shows that noble Lords must be living in fantasy. The noble Lord, Lord Bruce-Gardyne, knows better than that.
When they buy a small number of shares, what are they looking for? They are looking for a rise in price to make a quick profit. That is all they are looking for. They buy, usually in a bull market, and sell out, hopefully, before the top, but often not. Often, they hang on and the shares come down again. They are bought in by the institutions, who sell them again near the top of a bull market. So we have it. But the main motive in acquiring a small number of shares is to make a capital profit upon them. And undoubtedly, as the noble Lord will confirm—he may have read The Times on the subject—the employee who buys shares in the company in which he is employed, as evidenced by experience, buys them mainly for the quick profit. This is precisely what happens.
§ Lord Bruce-Gardyne
My Lords, the noble Lord has referred to me more than once. I assure him that I know none of the things that he has attributed to me. What I do know is that there are more than 1.6 million shareholders in British Telecom today, which suggests that the overwhelming majority have stayed with the company and show every intention of continuing to do so.
Lord Bruce of Donington
My Lords, in that case, I must draw the noble Lord's attention, although I shall not read it to him, first to page 31 of The Economist for 22nd to 28th February. But, more particularly, since it is shorter, I must acquaint him with what The Times had to say on the subject on 15th February in an article headed "One Telecom does not make a revolution". It says:The CSO's Bible, Financial Statistics, reveals that the personal sector was a net seller of company securities to the tune of some £900 million".This is in the year 1984.In the third quarter of 1985, the personal sector was a net disinvestor from company securities, disposing of some £750 million. This is depressing confirmation of the continued existence of the ICI syndrome, when workers dispose of their share issues on the day they receive them".The article goes on:Putting it another way, the great British public got shot of its shares very quickly as soon as it discovered there were further calls to pay on them".Indeed, the number of individual shareholders has remained fairly consistent over the last three years at 6 per cent. of the total adult population. If the noble Lord wants confirmation, I refer him to the Written Answer of the Financial Secretary to the Treasury published only three weeks ago in which he put the figure of individual shareholders at 2.7 million. That is 6 per cent. of the adult population.
I am not decrying personal or individual shareholdings. I wish that the policies of the Government would enable people to have sufficient money to be able to acquire them. As it is, some 50 per cent. of the population own about 4 per cent. of the national disposable wealth. The real wealth lies at the top where 1 per cent. own some 20 per cent. of the 369 national wealth, according to figures published by the Central Statistical Office. Thereby hangs the tale. This gives the lie to the propaganda that the party opposite puts out concerning the extension of people's capitalism. The number amounts to 2.7 million out of an adult population of 42 million. And those shareholdings are mainly concentrated in the top 10 per cent. who own some 54 per cent. of the disposable assets in the United Kingdom.
The Financial Times puts it very much better and answers both arguments at once. I refer noble Lords to the Financial Times of 17th March which states:Indeed, to the extent that privatisation issues have been on more favourable terms than a pure competitive tender, in order to attract the small investor, the effect has been regressive: a redistribution from the general body of taxpayers to the 10 or 20 per cent. minority who are potential purchasers of shares".So let us dispose of all this nonsense that one of the main purposes was to further people's capitalism—at a miserable 6 per cent. The argument does not stand up. We know the real reason. My noble friend Lord Stoddart of Swindon stated it, and I shall be interested to hear the answer. His statement—which I shall repeat—is the public perception of what is happening. Noble Lords will know tomorrow the public perception of what is happening.
We know quite well the real reason for this, apart from the ideological reasons which may have inspired the noble Lord to do a double somersault over the years. The main reason is to raise money in order to be able to have a tax relief bonanza immediately prior to the election. Let the noble Lord answer that point. Better still, let him answer the other three, and see how he can wriggle out of what the people's perception is.
Moreover, it is also quite clear on the basis of what happened in British Telecom that the number of individual shareholders and the effective power organised by them or apprehended by them will be minuscule. It will go to the institutions when it does not go abroad. There will be no real power in the hands of the fragmented shareholdings of any of these companies.
Noble Lords who have attended annual general meetings, as I have, know perfectly well that shareholders in companies may be interested in their dividend cheque but are never moved to attend annual general meetings. Only companies which get involved in some terrific controversy or whose performance is very poor are favoured with the attendance of more than 20 shareholders at an annual general meeting, even though it may be arranged at the Connaught Rooms.
What will happen in this case is exactly what happened in British Telecom. We hope that one thing will not happen, and this goes to the roots of the matter. When the shares were allocated in British Telecom there were block allocations to stockbrokers and others on the understanding that individual share allocations were to be made. We know perfectly well that that was not done. As my noble friend Lord Stoddard of Swindon pointed out, there was fraud in the City. Many people got away, and the Director of Public Prosecutions found it difficult to enforce the Theft Act provisions that were reproduced in the prospectus. What guarantee will the Government give that that will not happen again?
370 This Bill, and the will behind it, will result in the transfer of a highly successful public corporation which has given good service to the public, which has been responsive to its needs and which has good prospects, to a tiny fraction of the country's population, consisting mainly of the rich and powerful. They are already sufficiently sustained by the Government, who are by no means concerned with the general will, and at a price, as in the case of British Telecom, that will undoubtedly involve the taxpayer in a loss.
We are back to this point. Only the dire political necessity of putting on a good face at the next general election is responsible for the Bill and its introduction and the whole phoney concept of the deduction from the public expenditure figures of what the Government now call, in terms that are not familiar to the accounting profession, negative expenditure; in other words, revenue. That is a completely phoney concept.
I hope that the Government will have second thoughts, even at this stage, and withdraw the Bill. The Bill in itself, and the proposals behind it are, in my considered opinion, a public scandal and a fraud on the taxpayer.
§ 7.45 p.m.
§ Lord Belstead
My Lords, this has been an interesting debate. Many of your Lordships have spoken, I know, either from a close knowledge of, or a close interest in, the energy industry. The noble Lord, Lord Bruce, who has just spoken, and the noble Lord, Lord Boyd-Carpenter, were members of another place when the gas nationalisation measure went through both Houses of Parliament and became law in 1948.
Indeed, as he told us, my noble friend was on the standing committee on the 1948 Bill. I am encouraged that in his speech he so obviously supported my right honourable friend the Secretary of State, who has consistently stressed that privatisation of the gas industry will be good for the consumer and for the employee and for the nation as a whole.
As my noble friend Lord Gray of Contin made clear at the beginning of this afternoon's debate, the proposals put forward in this Bill represent the culmination of a very substantial amount of work which has been done by my right honourable friend and his department over the last three years. The noble Lord, Lord Ezra, asked to what extent we had considered alternative possibilities. The Bill was drafted only after the most careful scrutiny of the regulatory systems in a number of other countries and a full review of the existing and past arrangements for the control of the gas industry and other utilities here in Great Britain. In particular, every effort has been made to ensure that on the two vital questions of safety and consumer protection this Bill should represent a real advance on the situation which we find at present.
I do not dissent at all from noble Lords who have said that the gas industry has chalked up an impressive record since the conversion to natural gas in the early 1970s. We are confident that in the private sector British Gas will continue to grow and to develop its business. I believe that my noble friend Lord Boyd- 371 Carpenter showed very clearly in his speech that opening up the industry to the normal disciplines and the advantages of the market are bound to lead to increased efficiency.
In attacking the principle of privatisation as it is found in this Bill from the Opposition Front Bench, noble Lords opposite are disgregarding that there will be increased incentives for both management and employees because there will be strengthening of links between performance and reward through direct shareholdings. Over 300,000 employees have now bought shares in privatised companies. I know that the noble Lord, Lord Bruce, has been critical of this in the last part of the speech which the noble Lord delivered in winding up from the Opposition Front Bench
However, I am also mindful that both my noble friend Lady Macleod (who has unrivalled knowledge of this industry) and my noble friend Lady Carnegy said that employees of British Gas most certainly deserve the advantages which this Bill will afford. I should like to give an assurance to my noble friend Lord Sanderson of Bowden that the terms under which British Gas shares will be offered to employees will be publicised widely among staff nearer the time of sale so that they can have a direct stake in British Gas's future success and prosperity.
However, as my noble friend Lord Sanderson also said, more than this we want to see the widest possible ownership of shares among the public. I was grateful to my noble friend Lord Bruce-Gardyne for reminding us that of the 2.1 million shareholders at the time of the British Telecommunications offer, around 1.7 million still hold their original purchases. I believe that this is a clear indication that the benefits of a stake in the country's industrial base are now recognised by a large cross-section of the British public who, I have to tell the noble Lord, Lord Stoddart, will hear with incredulity what he said about the Labour Party working for renationalisation if it was to be returned to office.
I can only imagine that the general public will simply think that they have to take on the chin this additional expenditure on top of the £24 billion additional expenditure in a full year, to which Labour in its programme is now apparently pledged. In the interests of pension funds, the old and the young, private and institutional investors, I think that when we come to the Committee stage of this Bill we shall want to know a little more about what that undertaking means, if the Opposition Front Bench is re-elected.
For our part, we are confident of the widespread welcome from the public that the opportunity to share in the future of the gas industry will bring, and that it will be a move—which I know the noble Lord, Lord Bruce, wishes to see—to increase the number of people who hold shares in this country.
We are also clear that the proposals which are set out in the Bill represent the best deal that can possibly be laid before consumers. Clause 4 of the Bill lays a duty on my right honourable friend and the director to protect the interests of consumers. For the first time a formula will be set out to establish a maximum price that can be charged. This will ensure that the price of 372 gas to tariff customers is strictly and fairly controlled under the oversight of the director. The noble Lord, Lord Stoddart, and the noble Viscount, Lord Hanworth, both expressed some suspicion about all this.
It means that no longer will any government be able, as in the past, to intervene to push up prices to the detriment of the consumer. Despite the fact that the noble Lord, Lord Bruce, said that this was something at which we should all aim, as he and I both know, if one looks back over past records, the itch to interfere has been something which governments of all political parties have not been able to resist.
§ Lord Stoddart of Swindon
My Lords, I apologise for intervening, but in the light of what the noble Lord said about government interference, tonight will he give the assurance that has been sought about the gas levy? Will the Government make further depredations in relation to the gas industry by indirect means, by unnecessarily increasing the gas levy?
§ Lord Belstead
My Lords, I shall not give any such assurance this evening. I am saying that an absolutely cast-iron guarantee is being given for the first time in the gas industry that there will be a formula for domestic tariff consumers and all who are on the tariff; that there will be absolutely fair play as regards their price formula. It is a formula which I admit is complicated, but its principle is straightforward. It sets a limit on changes in the price of gas by reference to changes in gas costs—the y factor—and the reference to the rate of inflation which must be reduced by an efficiency or x factor. This will put a discipline on the company to achieve real reductions in the costs under its control and will ensure that customers share in the benefits. The formula will therefore provide protection for customers and will be fair to investors.
The noble Lord, Lord Ezra, said that he was not sure what would happen after a period, and he asked whether it was five years in relation to the formula. There is built in to the authorisation condition that describes the formula the opportunity for a break after five years when the director can make a reference to the Monopolies and Mergers Commission for a new or revised formula. However, the Bill also gives the director the opportunity to initiate changes to the authorisation at any stage, and if circumstances were to change and make an earlier review appropriate, there would be full and proper provision for this.
§ Lord Stoddart of Swindon
My Lords, I am sorry to interrupt the noble Lord again, but it is quite important that we get this question on prices absolutely straight. During the debate on the Telecommunications Bill we had the self-same assurance that domestic consumers would be protected by the RPI minus X formula. The noble Lord is giving us the same assurance tonight, but so far as domestic consumers were concerned, and our understanding in this House, it was broken because the domestic consumers of the telecommunication services were handed out a swingeing increase far above the rate of inflation. What were the assurances worth in the case of British Telecom, and can the noble Lord say whether the assurances that he is giving today are better than those which is noble friend Lord 373 Cockfield gave during the passage of the Telecommunications Bill?
§ Lord Belstead
My Lords, with respect to the noble Lord, I do not accept what he has said about the effect of the price formula under the Telecommunications Act. Nonetheless, in essence, the noble Lord is saying: what about cross-subsidisation? I am telling him and the House that the formula will prevent cross-subsidisation because when we come to debate the formula in Committee, as we undoubtedly shall, we shall see that the formula with the price element, deducted from which is the X factor from the RPI, gives the customer a formula which will be fair to him or her as well as being fair to the investor.
I should now like to turn to consumer matters in the Bill. The Gas Consumers Council has always been a priority in preparing this legislation. I believe that the new Gas Consumers Council, which is to be found in this measure, will be able to operate widely in the same way as the existing councils which have carried on such sterling work ever since the days when my noble friend Lady Macleod was the first chairman of the National Gas Consumers Council.
I was glad that my noble friend welcomed the fact that the new statutory powers are in the Bill to deal with all Gas Consumers Council complaints, including industrial complaints, about which my noble friend particularly asked, and those relating to appliance sales, installation, servicing and safety, on which my noble friend laid such emphasis. We have listened to a wide range of views on this important issue, and Clauses 32 and 33 of the Bill will enable the council to investigate a full range of complaints and to take the necessary follow-up action.
In opening, my noble friend Lord Gray has already said that the staffs of the new council dealing with complaints will continue to be located in the regions near to consumers. In essence, the noble Lord, Lord Ezra, asked what this would mean in practice and whether there will continue to be offices in the regions. I am pleased to be able to tell the House that it is the Government's intention that the present regional structure, with a separate staff and office to serve each British Gas region, should continue in the future.
Some noble Lords have spoken of the importance which consumers attach to the ability to be able to turn to an office in the locality which is used to dealing with local problems and with the British Gas management in the area. The Government propose to keep the present gas offices serving each of British Gas's regions located in the regions of Britain, but with one exception. We believe that in London it will be more efficient to house the staffs dedicated to dealing with the North Thames Region and the South Eastern Region together with the headquarters organisation for the council. This will have the considerable extra benefit of giving those managing the staff from the centre valuable direct involvement with complaint handling.
The noble Baroness, Lady Burton, suggested in her speech that there could be some contradiction between the work of the consumers council and the director of Ofgas. Clause 31 of the Bill makes clear that consumers who have complaints concerning matters 374 relating to the obligations of British Gas should go directly to Ofgas, who will then have the duty to investigate, and who can, if it is appropriate, take enforcement action. There is no question, therefore, of the consumers council in some way having crossed lines with the director of Ofgas, I believe that Clause 31 makes that as clear as it necessary to make it.
§ Baroness Burton of Coventry
My Lords, the Minister must have misunderstood me, or I was not clear. I was referring to the new Clause 8 and the new Clause 6. My understanding is that any decisions which the Gas Consumers Council reaches after investigation cannot be dealt with by the council but will then have to be referred either to the director of Ofgas or to the OFT. I thought that separation was a mistake.
§ Lord Belstead
My Lords, may I look at that point? If I may, I am not going to reply to the noble Baroness on that, and I do not agree with the noble Baroness about the undesirability of it. It is something to which we must return when we get into Committee.
Perhaps I may finally add on the consumers council that under the general enabling provisions of the Bill the council will be free to set up its own arrangements to ensure that it maintains proper contact with local consumer opinion. I understand that the organising committee are proposing to consult widely with the existing councils on the best way to achieve this. These proposals will ensure that customers are going to get an even better service in the future than they have done before.
I should like to assure the noble Lord, Lord Stoddart, that both the Gas Consumers Council and Ofgas will be given full financial resources, which they need, through finance which will be provided from the annual authorisation fee which the Ofgas director will levy on British Gas and other suppliers.
May I turn for a moment to the important question of safety? Clause 4 lays a duty on both my right honourable friend and the director to protect the public from dangers arising from the supply of gas through pipes. The Government are fully committed to improving the safety of gas, building on the excellent record of the industry to date.
The noble Lord, Lord Stoddart, indicated that he thought that there were areas where safety would need to be tightened up. Of course the Bill makes a number of important improvements which greatly contribute to safety. For instance, Clause 18 is going to give the Health and Safety Executive powers to make codes of practice on safety matters, and those codes will be enforceable. Under the Bill there will be important improvements to the requirements for dealing with escapes of gas by halving the statutory response time and extending the obligation to deal with escapes to the customer's side of the meter.
There will be the continuation of British Gas's 24-hour emergency service, with free safety checks for the elderly and disabled. There is going to be an increase in the number of health and safety inspectors, and in the amounts of time which the executive devotes to gas safety. A new emphasis on the importance of training for gas installers through the Health and Safety Executive's enforceable code of 375 practice will be backed up by a new independent CORGI organisation, about which my noble friend Lady Macleod spoke. New regulations on safety standards for appliances, including imported gas appliances, are being prepared now, as this Bill is going through both Houses, by my right honourable friend the Secretary of State for Trade and Industry. I think I can claim that safety provisions for the new privatised industry are going to be stronger than ever before, but doubtless this is something we shall discuss later in the Bill.
Many of your Lordships have expressed concern that the Bill, as your Lordships see it, does not do enough to promote competition. We have consistently maintained that it would be a nonsense to provide for a regime which would allow suppliers to run two sets of pipes up the same street, so the Bill preserves the present monopoly. But the director has the duty, under Clause 4, to promote competition in the contract market.
I have such a regard for the experience of the noble Lord, Lord Ezra, in this whole field of energy that I must confess to him that I was a little surprised at the cautious view I understood him to express about the lack of opportunities that there were to get movement from one form of heating usage, in either the domestic or the industrial market, to another. I make the point that the British Gas Corporation at the moment has only about 35 per cent. of the energy market. There is fierce competition with coal, electricity and oil, about which the noble Lord must know enormously more than I ever can.
For many years BGC has negotiated individual contracts with its largest customers, and this is going to continue, and has been welcomed, may I make it clear, by the CBI, particularly as the Bill requires publication of maximum prices and pricing policy. The Bill therefore gives British Gas the ability to respond flexibly to the circumstances of individual customers, and to take proper account of competitive forces.
§ Lord Ezra
My Lords, as the noble Lord referred to my intervention on this point, I wonder whether I may explain what I meant. Of course there is competition now, and there will continue to be, in new business. What I was saying was that where, in the domestic sector or in a large part of the commercial and industrial sectors, there are existing installations, variations in price are unlikely to move people to indulge in the capital cost of changing. The vast bulk of the market is fixed for some time because of the capital involvement. Of course there is new business all the time, but that is a smaller proportion.
§ Lord Belstead
My Lords, of course I understand that, and I accept what the noble Lord has said as being sound common sense. But the noble Lord does not mention any figures in that intervention. My advice is that about a million decisions are made each year on central heating boilers, and over a million households typically buy either an electric or a gas fire. Therefore, as the years go by an enormous amount of decisions are being made domestically as to whether a family is going to go down the road of coal, oil or gas. Therefore I stick to the point that there are 376 opportunities to be had, but perhaps we can return to this again in Committee.
Perhaps at this moment I may simply assure the noble Lord, Lord Kirkhill, and the noble Lord, Lord Williams of Elvel, that the Bill ensures that any abuse of the flexibility which exists for the contract market under the Bill can be properly dealt with. The Office of Fair Trading, acting if necessary on a complaint from an individual, will have the necessary powers under competition law to oversee the contract sector and refer any problems to the MMC. The Bill enables the authorisation given to British Gas to be changed to introduce formal regulation of the contract sector if the MMC were so to recommend.
The noble Lord, Lord Williams, specifically asked me in his speech about, as the noble Lord saw it, a contradication between the powers there are under the Fair Trading Act for the Director General of Fair Trading and what is going to happen when referrals are made to the Monopolies and Mergers Commission through the OFT under this Bill. I do not think that there is a problem here. I do not accept the difficulty to which the noble Lord referred in relation to the criteria which the MMC should consider in carrying out its tasks.
There are, of course, special factors in the gas industry—for example and most notably, safety—which the MMC will need, and will be able properly to take into account in considering any reference made to them by the director of Ofgas, and for that reason the Bill refers the MMC and the director to Clause 4 under the Bill.
Perhaps I may also add in passing on the subject of competition, on a subject which practically none of your Lordships mentioned, that the provisions in Clauses 19 to 22 of the Bill, which carry forward the arrangements for the carriage of third party gas in BGC's pipeline network—the common carriage regime—introduced under the 1982 Act, have been strengthened. In particular the Bill will now permit the director to set terms for supplies of back-up gas if a third party's supply of gas is temporarily interrupted. We believe that these changes will provide a greater inducement for other suppliers to use BGC's network.
May I, in time which remains to me, try to do two things? First, I feel I must reply to a point which has been put to me by many of your Lordships about, as some of your Lordships see it, the Bill setting up a private instead of a public monopoly. As my right honourable friend the Secretary of State has made clear, where competition is not possible in the supply of gas to smaller consumers the Government have set up what we believe is an effective regulatory system to protect consumers who will in future have an independent regulatory body, Ofgas, to appeal to, operating within an open and publicly-stated regulatory system. However, where competition is possible action has been taken to reinforce that.
Many of your Lordships have spoken about the competitive position of gas against other fuels. As I have already suggested, this competition is in some sectors intense, as is evidenced by the price cuts which British Gas has had to make in the industrial sector to respond to lower oil prices. But this competition is perhaps too strong for many of your Lordships, who 377 fear for the health of the other energy industries; namely, coal and electricity. I think that many noble Lords opposite would really prefer the present system, where the Government can interfere in the affairs of all the industries to the detriment of consumers and the industries alike. This is perhaps the reason why many noble Lords say that they will seek greater regulation in the industrial market under this Bill, contrary to the views of the CBI and other industrial energy users.
The other matter I must try to fit in before I finish is a brief answer to one or two of the questions I have not dealt with. I thank my noble friends Lord Sandys and Lady Macleod for raising the question of gas showrooms because it gives me the opportunity to say a word in reply to the noble Lord, Lord Stoddart; namely, that the current account of British Gas shows that it makes a profit on appliance trading and there is therefore a considerable incentive to retain showrooms. It is true there is a closure programme for uneconomic showrooms, but opportunitites have been taken to open profitable new outlets. The point I should like to get over is that it will be in the commercial interests of British Gas to offer an efficient and attractive service to customers. Under the draft authorisation British Gas will be required to produce a code of practice describing the nature of the service available to its tariff customers, and they will have to consult the director about the presentation of that code. So the eyes of many consumers will be on British Gas to see that it is doing what consumers want concerning the showrooms.
I should reply to the noble Lord, Lord Kirkhill, who put several points about gas supply. If I may I shall write to him on some of these matters, but I shall pick up just one. The Bill already provides in Clause 9 an obligation on British Gas to supply industrial customers where it is the public gas supplier's duty to comply in so far as it is economical to do so with any reasonable request for a supply of gas to any premises. This duty will be enforced by the director of Ofgas. As regards existing contracts with BGC, paragraph 28 of Schedule 7 to the Bill ensures that any agreements with BGC to supply gas are automatically carried over to the new company, which will be privatised.
§ Lord Kirkhill
My Lords, I apologise for interrupting the Minister at this very late stage. I want to emphasise to him that my concern was exactly as he said, but with an emphasis on the possible marginalisation which can occur in the remoter areas. He will see that on the record tomorrow, and I hope he will write to me.
§ Lord Belstead
My Lords, I agree with the noble Lord. If I may I shall read the record tomorrow and write to the noble Lord, as I said I would, if I feel it is necessary to do so.
Finally, although I know the noble Lord, Lord Williams, put interesting points to the House about the desirability of tendering for flotation and other thoughts as well, all of that will have to wait until our discussions in Committee and probably until the Government announce exactly how the flotation will be carried out. Nevertheless, I shall pick up a point or two made to me by the noble Lord, Lord Stoddart, at 378 the end of his speech. The noble Lord asked me a number of questions about the flotation. The draft articles of association of the company which were made public during the proceedings in Standing Committee in another place made clear that there would be a golden share to provide a restriction on shareholding so that no single shareholder, or any group acting together, can own more than 15 per cent. of the shares—a figure with which I know the noble Lord is familiar. But there can therefore be no question of foreign investors acting together to build up a sufficient shareholding to take over the new company.
The noble Lord also asked a number of questions about the details of the flotation. If the noble Lord will forgive me at this late hour, I think perhaps we should wait until the Committee stage of the Bill.
§ Lord Ezra
My Lords, before the noble Lord concludes, will he briefly answer the point I raised. which was also raised by the noble Lord, Lord Bruce-Gardyne? Will the privatised gas industry be able to re-engage in those activities which in its nationalised form it was prevented by the Government from doing, and particularly will it be able to go back into oil in the North Sea?
§ Lord Belstead
My Lords, again we must debate this when we come to Committee stage. I am surprised that the noble Lord asked me this question. My reading of the proceedings in Committee in another place is that the Government were asked again and again why British Gas was to be allowed to go back into other operations apart from the supply of gas. It seems to me that the noble Lord is suspicious of that. I should have thought that this was something that we should want to encourage; but, as I say, perhaps we can discuss the nuts and bolts of this when we reach Committee stage.
When my noble friend Lord Boyd-Carpenter spoke earlier he reminded us of the hard-fought measure which brought the nationalisation of gas into being some 40 years ago. This Bill has been the subject of detailed consideration in another place, and we shall wish to subject it to close scrutiny in the coming weeks. If it is for the convenience of your Lordships, we shall place Notes on Clauses for the benefit of us all in the Printed Paper Office as soon as my noble friend Lord Gray and I can possibly do so.
My Lords, we believe that this is a Bill which offers the right regulatory framework for the future of the private sector gas industry. I therefore commend it to the House.
§ On Question, Bill read a second time, and committed to a Committee of the Whole House.