§ 3.34 p.m.
§ The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead)
My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
§ Moved, That the House do now resolve itself into Committee.—(Lord Belstead.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The LORD ABERDARE in the Chair.]
Lord Ezra moved Amendment No. 1:
Before Clause 1, insert the following new clause:
§ ("Commissioners of Gas Supply.
§ .—(1) The Secretary of State shall appoint three officers to be known as the Commissioners of Gas Supply, with one of the three officers appointed as Chairman of Gas Supply (in this Act referred to as "the Chairman") for the purpose of performing the functions assigned to the commissioners by this part. These Commissioners shall be responsible respectively for: tariff consumers; contract consumers; and gas purchases and energy efficiency. The appointments of officers as commissioners shall be approved by the appropriate committees of each House of Parliament.
§ (2) The appointment of persons to hold office as commissioners shall initially be for terms of three, four and five years. Subsequent appointment of persons to hold office as commissioners shall not be for a term exceeding five years; but previous appointment to that office shall not affect eligibility for reappointment.
§ (3) Subject to subsection (2) above, the commissioners shall hold and vacate office as such in accordance with the terms of their appointment.").
§ The noble Lord said: This amendment raises a fundamental issue in connection with this important Bill. As we know, the Bill concerns the transfer of a public monopoly to the private sector. It raises issues of policy which we have considered only once before, in relation to British Telecom. The gas industry, however, is more of a monopoly than British Telecom, so the issue is even more serious.
On this side of the Committee we should have been happier had this important matter been subjected to greater debate on the major issue involved. Indeed, in the newspapers this debate continues. This very morning in the Financial Times there is an article entitled "Why ownership is not everything". The
author of the article, Mr. Michael Prowse, said that it would have made more sense to
reform competition policy first and then embark on a controversial phase of privatisation".
He went on to say:
The other main worry concerns the weight of the existing and proposed independent regulators. Organisations like BT, British Gas and Thames Water are both powerful and skilled political lobbyists. Is it really plausible to expect tiny regulators like Oftel, the telecommunications watchdog, and the planned Ofgas and Ofwater, to keep tabs on their charges for more than a short initial period?".
That view as expressed in this morning's Financial Times underlines the amendment now before the Committee. The concern is that if we have to proceed with this massive transfer of a monopoly—and everyone admits that for gas it operates very successfully, but nevertheless, it is a monopoly—from the public to the private sector this must be done with the very greatest care.
§ There has been much experience gleaned in the United States and there are many public utility commissions operating there with powers which go far beyond those which are proposed for the Director-General of Ofgas. Therefore, it seems relevant at the beginning of this Committee stage that this fundamental issue should be put. If we are to have this transfer undertaken without, as we feel, full public debate on all the issues having first been completed, at the very least we must be assured that there is an effective regulatory body.
What Clause 1 of the Bill proposes is that a Director General of Gas Supply should be appointed. Later in the Bill certain broad functions are assigned to him, particularly in Clause 4. If we try to find out what sort of organisation he is going to have to support him we need to refer to page 64, Schedule 1 paragraph 4, which states:
The Director may, with the approval of the Treasury as to numbers and terms and conditions of service, appoint such staff as he may determine".
We know what the Treasury's instinct is in all these matters. What indication are we likely to have that the director will have at his disposal a sufficiently substantial staff to do the massive job that he has to undertake?
§ So it is the contention of these Benches that if we are to proceed with this important measure of legislation, we ought to spell out in the Bill more effectively how the regulatory body is to be organised. After all, we are putting at risk a very large section of the public who for several years have become used to the operation of the gas supply industry under its public organisation.
§ There will now be a transformation of this body into one with much wider powers and much greater freedom of operation while still retaining its monopolistic stature. This is the nub of the issue. I should like to recommend to the Committee that in going through the Committee stage of this important Bill we should bear in mind that it is the interests of the public above all else that we should try to safeguard. We must see that in order to safeguard the consumers' interests there are sufficient arrangements in the regulatory system, in the consumer representation (which will be dealt with later), in the safety standards, in the obligations to supply and in pricing policy.1285
§ But at this stage and in this amendment we are concerned with the regulatory body. When we were debating a similar body in regard to the Telecommunications Bill a number of noble Lords from these Benches expressed concern that the body was too small to do its job. In the event there has been much concern about the way in which the pricing aspects of the telecommunications legislation have been operated. Surely we must learn from experience. There is widespread concern that Oftel is not a strong enough body to do its job. Let us not repeat the mistake in connection with Ofgas.
§ We feel that in the light of the very important issues involved in the transference of a monopoly from the public to the private sector the proposals made in this amendment are indeed fairly modest. We are trying to obtain some assurance that there will be a regulatory body which will address itself specifically to the problems which are involved in this new Bill. We think that instead of the appointment of a single director general, there should be three commissioners of gas supply, one of whom should be the chairman, and that these commissioners should be endowed by Parliament with specific responsibilities. One commissioner should have a specific responsibility for tariff consumers. That involves all the domestic consumers of gas in this country. It is surely right that there should be a high-powered member of the regulatory body with suitable supporting staff who will concern himself with the 16 million private consumers of gas.
§ Then there are the contract consumers, who are the people taking large quantities of gas in business and in industry. Time and again in this Chamber we have debated the need for energy prices to industry to be kept as low as possible. There is a need for a commissioner who will concern himself with the supply of gas to the commercial and industrial sectors.
§ The gas industry has now and will continue to have considerable freedom of action in negotiating terms, conditions of supply and prices in this market, but under its new guise this freedom will be very much greater. I think we can say that we all have confidence in the existing members of British Gas; but this is legislation which is intended to last for at least 25 years, and when we are legislating for a quarter of a century we need to be assured that each segment of the market will be fully safeguarded by the constitution of the regulatory body. Therefore we recommend that one of the commissioners should be concerned with matters affecting contract consumers.
§ The third commissioner should have the responsibility for gas purchases. British Gas in its present guise—and it will continue to be so in its future guise—is a dominant factor in the purchase of gas from the North Sea. This situation needs to be watched with great care. Hitherto it has been the Government themselves who have intervened when the gas industry, rightly or wrongly, wished to augment its supplies by buying in from certain Norwegian sources. But in future how will this be watched over in the interests of the consumer? So we feel that one of the commissioners should be concerned with this matter as well as with the related subject of energy efficiency.1286
We add to this recommendation the proposal that:
The appointments of officers as commissioners shall be approved by the appropriate committees of each House of Parliament".
We put this in because we think that these appointments are of prime and crucial importance. My noble friend Lord Diamond will speak on this aspect later on.
§ In the subsequent subsections of this amendment we indicate that the commissioners should hold office for different periods of time so that there can be some degree of overlap when they change over.
§ In this Committee we are raising one of the most fundamental issues concerning this Bill; namely, that in transferring a most important public monopoly into the private sector we are entering uncharted seas. The very least that we can do is to make sure that the regulatory body is strong enough to cope with that situation. It is not our opinion that the proposals contained in this Bill concerning the regulatory body go far enough and therefore we make this proposal to strengthen that body. I beg to move.
§ 3.45 p.m.
§ Lord Stoddart of Swindon
The Labour Opposition have thought very long about this amendment. We have studied it very closely indeed and we have rolled it around in our minds because it introduces a new concept and one which I think the Committee should treat very seriously indeed.
For ourselves, after we considered it, we decided that it was an amendment which deserved our support. Indeed, we believe that it deserves the support of all the Members of the Committee. I hope that we shall see later how much support it has received. The noble Lord, Lord Ezra, is quite right. At Second Reading we explored just exactly how weak the regulatory system would be under the Bill. In this Bill we are setting up a regulatory authority which will have a single director. We do not know what he will be paid and therefore we do not know what status he will have vis-à-vis the chairman of the gas board. We do not know how many staff he will have to carry out what are, it is quite true, the meagre duties that he will have under the authorisation.
We are under the Bill buying something of a pig in a poke. We do not know exactly what sort of fellow we are going to appoint. What we do know is that this man is going to have to deal with a privatised gas industry that will have perhaps one of the most powerful and able chairmen of an industry, whether nationalised or privatised. That will be a job in itself. Apart from that, the gas board itself is split into various disciplines. There are members of the board who are responsible for each item of the gas business. Here we have a proposal that a single director should be able to challenge, to oversee and to regulate every single part of a gas business that will, in fact, be controlled within British Gas plc by several people. I contend that we are immediately putting such a man at a grave disadvantage. What is more, he will be the single individual under fire from every quarter—from the public, from Parliament and from the gas board itself. He will have no one to support him.
1287 I believe, therefore, that the amendment attempts to address and to redress the problem, and that, in large measure, it succeeds. We shall have commissioners who will be responsible for the various important parts of the gas business. As experts in their own right, working and meeting together, they will be able to a much greater extent to look after the public interest, not only the interest of the domestic consumer but, also, as the noble Lord, Lord Ezra, said, that of all consumers of gas. We believe this to be a sound idea.
The Secretary of State has already made plain that he does not think much of regulation by commissioners. He said, when appearing, I believe, before the Select Committee on Energy, that he had considered the American system, that he had looked at the regulatory bodies within that system and that he had come to the conclusion that they did not suit us. They were, he said, bureaucratic. Frankly, this Bill is bureaucratic enough. In any event, the Secretary of State, who has said that he wants the least possible regulation, would say that anyway, would he not? If he wants weak regulation, he has ensured that there will be weak regulation through Clause 1 of the Bill. The amendment seeks to improve that regulation. We shall certainly support it.
My noble friend Lord Williams of Elvel, who has some expertise in this matter—indeed, he was the chairman of the Price Commission—will have something to say at a later stage based on the experience that he has gathered. But, certainly, so far as I am concerned, the amendment has attractions not only for the reasons that I have already mentioned but also because it contains the safeguard that the appointment of officers as commissioners shall be approved by the appropriate committees of each House of Parliament. That really does appeal to me and, indeed, to the Opposition. I am afraid that all too often there is an overweening arrogance in government that often leads to the appointment of people who, were they required to go before a committee of each House of Parliament, might not be appointed.
The noble Lord, Lord Ezra, who moved the amendment is of course a man of experience. He has been chairman of a nationalised industry. The noble Lord has proposed that appointments of this sort should now be subject to some control by each House of Parliament. That is a new and radical step. The fact that the noble Lord, who has been chairman of a nationalised industry, has proposed it adds significance. What the noble Lord is saying is that if he were now being appointed, he would not mind going before a committee of each House of Parliament. That is something of which we should take note. If the noble Lord, Lord Ezra, a man who has been a successful leader of a nationalised industry, does not mind going before a committee of each House of Parliament, why should anyone else mind? That is a particularly attractive part of the amendment.
I do not wish to delay the Committee any longer. Obviously, we wish the Bill to make progress, though it will make progress, let me assure the Committee, only in so far as we have the opportunity to improve it. For, by heaven, it is a Bill that needs a lot of improvement! Nevertheless, I shall not seek to delay the Committee any further at this stage, because my 1288 noble friend Lord Williams will also have something to say about the amendment. I conclude merely by saying that it is a good amendment that deserves the utmost support.
§ Lord Diamond
I should like to pursue what has already been started and follow exactly the theme established by the noble Lord, Lord Stoddart, in his concluding comments. This is indeed a most important Bill. It is a most difficult task on which we are now embarked. I hope that your Lordships realise that we are charged with the responsibility of doing something that I find immensely difficult. We know what the Government want. They want to increase the efficiency of gas production. They want to increase the protection of the consumer. They propose to accomplish this by withdrawing all the accountability within the present set-up—the accountability to Parliament, to Government and to Members of Parliament, who can put questions to Ministers—as well as the encouragement that exists in the present arrangements for producing gas at the minimum cost to the consumer.
We are charged with the responsibility—the Bill and the principles embodied in it having already had a Second Reading—of trying to make some sense out of the Bill and trying to give effect to the Government's wishes. Your Lordships may say that this is an impossible task. How can one make more efficient a public monopoly simply by transferring it to a private monopoly? How can one increase protection for the consumer by withdrawing all the arrangements for his protection, with the exception of one central committee, that already exist? Nevertheless, that is our duty.
§ 4 p.m.
§ Why do we find ourselves in this plight? I am perhaps in a special position to answer the question. It is because I take the view very strongly that it is proper for us to follow completely the convention that once a government Bill has received the support of another place, no matter the circumstances in which that other place is able to produce a majority, it is not for this Chamber to attempt to override the general principles of such a Bill and the wishes of the electorate as spoken by their representatives in another place. They are the elected Chamber; we are not. Because of that, we could not vote against the Second Reading of a Bill which has within it this immense internal inconsistency. We had to sit silent, and we have now the duty, as it is Committee stage, with a Bill which has passed Second Reading in this Chamber of trying to make sense of it. That is why I say this is a most difficult task.
§ We are dealing with an industry of such size and importance that I find it difficult to grasp the immensity of it. If one talks about business on a very large scale what comes to mind immediately is ICI. It simply does not compare. As we all know, gas heating is an important element in the industrial cost of a vast number of our products and exports. It enters into the cost of living of 16.5 million people in this country. It directly affects their standard of living, comfort and health. I was a Treasury Minister for a very long time but I cannot visualise 16.5 million as an objective total. One has to relate it to something or other. I know that when I was a Treasury Minister I took off half a 1289 day a week to play golf in order to keep myself fit to do my duties. I used to play for half a crown. I knew what that was; I could visualise half a crown. But who can visualise 16.5 million people? Just think of the whole of London, and all the towns and cities throughout Great Britain that are involved. This is the problem which we are now charged to deal with in this Bill.
§ The figures are quite overwhelming in their size and importance. British Gas, as we know from the figures they have given us, at March 1985 employed approximately 93,000 people directly. British Gas had net assets employed of over £16.5 billion. Gas sold was valued at £6.25 billion. Those are such enormous figures that I do not think I would be wrong in suggesting to Members of the Committee that it is beyond our mental capacity to visualise them. We can only say that this is of enormous size and importance. In terms of the industry of our country and the livelihood of our people very few things could be of greater importance.
§ We now have this enormous task of trying to make gas cheaper to the consumer and produced more efficiently. The Government propose to do it by appointing one chap, with a grand-sounding title, to stand up to the chairman and board, these powerful and experienced people who have been carrying out their responsibilities for many years, supported by enormous numbers of executive staff and others—those directors, that chairman, with their power with all those customers behind them—and say, "Really, you ought not to have done that, ought you?" It is quite ridiculous to think that one person can stand up to all that.
§ Perhaps I may give Members of the Committee evidence with regard to that. Perhaps I may be forgiven for giving a recollection of what happened during the course of the Industrial Relations Bill argument which, as noble Lords know, went on for a considerable time in 1972 and 1973 and in which I was closely involved. At one period there was a legal point at issue. I had counsel's opinion which did not agree with the view of the noble and learned Lord the Lord Chancellor. He was good enough and courteous enough to invite me to a meeting with him where it could be discussed. I duly attended that meeting. When the door was opened, who was there to be courteous enough to receive this one single representative of the Opposition? It was of course the Lord Chancellor. He was accompanied by Sir Geoffrey Howe—who I think at that time was Attorney-General—and on each side of the table there were at least six other people. My recollection is that there were at least 20 people there to receive and listen to my point of law just in case it happened that the weight of opinion would affect the issue. That was a simple case of dealing with a point of law. It was felt appropriate that in case there had to be an argument with the noble Lord who had the responsibility of leading for the Opposition at that time, it would be no bad thing if the numbers were somewhat disproportionate.
§ If Members of the Committee will cast their minds back to their ministerial experience they will find that the question of numbers attending any such meeting were always taken into account. I can only regard it as a compliment that on that occasion they thought it 1290 appropriate to produce perhaps 20 people to deal with one simple soul who was not even a lawyer.
§ I return to the reason that I am bothering Members of the Committee with that recollection. It is to make this point. Will one chap, with the grand title of Director General of Gas Supply, be able to stand up to the chairman, the board, the executives, the middle management, the lower management and all the huge strength that they gather from being suppliers of 16.5 million customers, with all the huge strength that they get from having these massive numbers of employees? Will he be able to stand up to that amount of pressure? If Members of the Committee convert this into the circumstances of the present time they may feel disposed to agree with me that the present chairman, an able, powerful and efficient man, could eat such an individual for breakfast and not notice the difference—and still require his toast and marmalade in the ordinary way!
§ So what can we do but strengthen, and strengthen considerably, the protection that is being envisaged in the Bill, and try to do it in a way the Government would have done if they had thought about it a little more, if they had been concerned a little more with the principles they had expressed, and if they had given themselves time to think about matters other than cash at the end of the line. As my noble friend Lord Ezra has explained, based on the depth of his great experience, which is not exceeded by that of anybody in the Committee, we are proposing something very much stronger. In fact, we are proposing a commission with, to be on the modest side, only three members to begin with.
§ As the amendment makes clear, the commissioners will have separate responsibilities, as they are described. My noble friend has referred to the reason for that division. That they are good categories I accept completely, because he has the experience of this, but just let us pause for a moment and think of the size of the responsibilities of each individual commissioner. Each individual commissioner is going to have a job which is not only man-sized but giant-sized. One commissioner is to be responsible for tariff consumers. The number of tariff consumers is nearly 16 million. The tariff consumers are the ordinary men and women who pay their meter charges for their gas, and, as I understand it, the non-tariff consumers are the people who make special arrangements because they consume much larger quantities of gas. We are going to have just one commissioner charged with the responsibility of looking after some 16 million customers. That is a man-sized job in itself.
§ We are going to have one commissioner responsible for contract consumers, the customers who come and argue about each individual arrangement they are making for the supply of gas—quantities, prices, peak loads and all the rest of it. They argue because gas enters so importantly into the price of what they are making and trying to sell either here or abroad. It does not matter which, because if you sell it abroad it is an export and if you sell it here it is the avoidance of an export. The important thing is to sell it to someone who is going to use it, and in order to sell these products as cheaply as possible they want their fuel content, their gas content, to be as cheap as possible. They have gone to the expense of establishing 1291 enormous installations—enormous in size and enormous in cost—to use the gas to make whatever their final product is, and each individual one is going to enter into a contract with the gas company in order to get the cheapest and most efficient supply of gas that he can.
§ We are told that the number of contract customers is something like 580,000; that is, 83,000 customers who are industrial and half a million who are commercial, who together make the total number of contract customers. Each one is an individual wanting an individual supply and wanting special arrangements and special terms. I am suggesting to the Committee that that too is very much a man-sized job.
§ 4.15 p.m.
§ The third category is gas purchases and energy efficiency. We know what happens about the cost of gas supplied. Whatever the gas company finds it has to spend on its purchases is regarded as a proper element in its cost, and it will add that on to its overheads before charging a customer, be it a tariff customer or not. Whatever enters into its cost is a proper element in arriving at the final price, even under the complicated arrangements in this Bill. So what has the regulator, the person who is protecting the nation's interest, to do to satisfy himself that the cost incurred was the proper cost? Nobody is charging anybody with dishonesty, but it concerns not only the proper cost but the minimum cost. Could the cost have been reduced by having some totally different way of getting supplies? I am not a gas man; I do not know. All I do know is that it is common to every single business that the cost of what they buy depends on how they go about their buying and how they go about conceiving what are their necessary supplies in order to arrive at their final product.
§ The expenditure they incur in research in order to answer that question is often enormous. It is a very difficult task indeed to monitor gas purchases and energy efficiency. We know already that an enormous amount of expenditure is incurred in trying to make a gas light burn to a maximum heat at the minimum volume of gas. It makes a tremendous difference if you can get 10 per cent. extra heat, or 10 per cent. lower volume consumed to produce the same amount of heat. Every one of those engaged in this important task of research is looking at that oversimplified example of the importance of what the amendment describes as energy efficiency. So to have one person only to monitor gas purchases and energy efficiency is surely loading that man with the maximum that he can reasonably achieve.
§ We have, therefore, three commissioners each of whom, as I have demonstrated—and if I have been too casual or too short in order to save time I shall be glad to explain more fully why I am totally convinced of this—has a fully man-sized job. As a minimum, there should be three top-grade experienced men charged with the responsibilities of together constituting a commission. Of course, as we all know, three members of a commission are a much stronger team than the sum of three individuals. They will act as a team and will stand as a team when doing their job.
§ Is this very reasonable, very modest and very cost-conscious proposal an original one? Indeed, it is not. 1292 There is nothing very original in the world these days and there is certainly nothing very original in this proposal. As noble Lords who are familiar with this area will know only too well, every single state in the United States has a commission of this kind to look after its public utility companies. Every state grants a private monopoly, as we would call it. The United States, as the supreme private enterprise country, does what it would regard as appropriate: it ensures that for every monopoly there is a commission monitoring and regulating the work, the prices, the quality and the services of the utility. In not one single state is one man appointed with this grand title. We are talking about gas suppliers whose volume of business is much smaller, who have fewer customers and whose effect on the standard of living, supplies and exports, is much smaller. This private enterprise country is an example to all noble Lords who are sitting on the Tory Benches of how private enterprise should be run. This is a country which is accepted by noble Lords and Baronesses opposite as being the ideal of private enterprise, but every single state has a commission very similar to the kind that we are proposing.
§ Therefore, there is nothing original about this idea; it is a proven idea. I am particularly glad to be able to refer to the United States because, as we know, each state can do what it likes; each state can do the job differently from, say, a neighbouring state if it wishes. One state could decide to have a commission, whereas another could say that it will have one chap who will have a grand title and who will do the job on that basis; that state may decide to give that person an office in a central town or city of the state so that everyone is kept happy, no matter how far away they are from him; and therefore in those circumstances he will be able to do the job. However, they do nothing of the kind. Each state is apparently satisfied that if a utility is organised as a private monopoly, it must have the protection of a commission.
§ Therefore, there is nothing original here; we are putting forward a proven system for protecting the trader, the consumer and the householder where, as this Bill creates, we have a private monopoly.
§ Baroness Macleod of Borve
I hate to interrupt the noble Lord's Second Reading speech, but I wonder whether he is aware that British Gas sent an inspection team to America to see exactly what the Americans were doing, and that team returned with a completely opposite view from the one put forward by the noble Lord to the Committee this afternoon.
§ Lord Diamond
I am aware that the present chairman of the gas board, who is not wholly hostile to this Bill, has taken the view that what the noble Baroness, Lady Macleod, says is quite right. If I may say so, I am not aware that, in speaking to the first amendment in a Bill, I am making a Second Reading speech. I was not aware of that at all. I am not concerned with the principles, except to explain them, as I have explained them, and to explain why we are committed to them and why it is necessary for us to give effect to them. I take the view that, once the other place has passed a Government Bill, we must accept the principles of that Bill as embodied in the Second Reading. At the time of the Second Reading we made 1293 no objection, although noble Lords must not imagine that there was not a great temptation to make an objection. I stuck firmly to my guns that that is the convention; that it is in the best interests of your Lordships' House; and that is why the Second Reading was agreed without any vote of any kind.
I am dealing purely with this very important amendment and trying to explain why I take the view that it is a minimum variation of the scheme proposed in the Bill and that all of us ought to support it. It goes a long way towards helping the Government to achieve their stated principles. They are not our principles: they are the Government's principles. The Government want more efficiency and protection for the consumer. I suggest that this can be done only by adding to and strengthening many of the proposals contained in this Bill, which is our function, our duty and our responsibility at the Committee stage.
I was about to explain why the amendment states:The appointments of officers as commissioners shall be approved by the appropriate committees of each House of Parliament".In the interests of avoiding duplication my noble friend Lord Ezra said nothing about this aspect at all and asked me to deal with it. I was invited by my noble friend to explain to the Committee why the amendment contains the words:shall be approved by the appropriate committees of each House of Parliament.First, let me deal with the principle of that proposal, which again is nothing new.
§ Lord Sandys
Can the noble Lord tell the Committee whether he is now addressing the second amendment or the first one?
§ Lord Diamond
I am addressing the first amendment, Amendment No. 1. I hope that the noble Lord has the same Marshalled List as I have. I am addressing myself to Amendment No. 1 which, as the noble Lord knows, has three subsections, and I am dealing with the last sentence of the first subsection. I have not yet reached the second subsection. Therefore, I do not know quite how the confusion arose in the noble Lord's mind; but I am sure that it was my fault for not having made clear at the start that I was dealing only with subsection (1).
In subsection (1) it says:The appointments of officers as commissioners shall be approved by the appropriate committees of each House of Parliament.I hope that the noble Lord has found that in his Marshalled List and is following it. Again, although this is not a very original suggestion, it is somewhat original in your Lordships' Committee. So we are faced with a very original proposal; we are faced with a proposal to improve the efficiency of supply of gas and the protection of consumers by creating a private monopoly. That is a very unusual proposal indeed.
In order to try to bring some sense to this matter, we have to think as hard as we can (as we did on this occasion) of some way in which the commissioners themselves will know that they have the support of Parliament behind them. This is a question which I 1294 know will appeal to all your Lordships because it deals specifically with the issue of the extent to which our Houses of Parliament, including your Lordships' House, should exercise their responsibility.
As the Committee knows, where officers of this kind are being appointed in the States to do the parallel job to the one to which I have referred it is usual for them to be examined and cross-examined by the appropriate Senate Committee. That is their normal practice. That is their right before such a person is appointed. If he does not satisfy the requirements that they feel he should have in order to be appointed to the job. he is not appointed.
§ 4.30 p.m.
§ That is point No. 1. We need to be sure that we are appointing a person of adequate ability and experience to each of the commissioner's jobs. Therefore we must make sure that he is interviewed and examined by those who have the feel for this kind of thing, and not rely wholly and exclusively on one man, the Secretary of State. We have to be sure that these individuals have a relationship with Parliament and that if they feel they are being unduly pressurised by the Secretary of State, they have reason to believe that they have the support of Parliament behind them. Thus they will not feel as lonely as they otherwise would.
§ If, notwithstanding that this is a regular procedure and that it has logic wholly behind it, your Lordships still feel doubtful about it, I invite you to consider the history of what has happened. We are not on new territory, we are on existing territory. We are talking about appointing individuals similar to the regulator of Oftel; we are talking about appointing a similar individual as the regulator of Ofgas.
§ Is it not the case that there has been expressed considerable criticism of the way in which the first office holder of this kind has carried out his duties? If that is the case, ought we not to be even more careful before we repeat the previous error of leaving the Bill unaltered and therefore allowing the customer, the consumer, to be treated in a way in which he would not have been treated had British Telecom not been privatised?
§ This is a serious point that we have to consider. In my view it is necessary for the commissioners to go through what is perfectly normal procedure in private enterprise utilities; namely, the procedure of ensuring that officers who have this kind of enormous, overriding, country-wide responsibility shall be approved by a committee of each House of Parliament.
§ Why do we refer to the "appropriate committees"? I can explain that a little more easily to your Lordships' Committee if I may have a glass of water. As the Committee knows, because it has already been discussed in another place, there is there a committee called the Select Committee on Energy, which is precisely geared to do, and is capable of doing, this very job. Select Committees come and go. While they are there they are ideally suited for this purpose, being all-party committees, with the major part of the membership representative of the Governments side. There is no question, therefore, of the Opposition getting any benefit out of all this. It is purely for the 1295 protection of Parliament, and is by no means for the advantage of the Opposition.
§ I am making the purely non-party point that a Select Committee of the other House, known as the Select Committee on Energy, should have the responsibility of interviewing a proposed nominee for one of these commissionerships. But of course it is the case that that Select Committee might be changed in the future as it has been changed in the past. Therefore, it has been thought wiser to cover this possible change and any possible eventuality by referring to the "appropriate committees" instead of a particular committee. Of course if the Government say that the term "appropriate committees" is a little loose and that they would accept the amendment if it were more closely defined, we should be only too happy to listen to their closer definition, or to introduce ourselves at a later stage amendments which would meet that quite reasonable objection.
The amendment refers to,
appropriate committees of each House of Parliament".
So far I have referred only to the other place. In this House we have several committees which might do the job. We have the sub-committee of the Select Committee which deals with European legislation. It might do the job; your Lordships' Committee might consider it as being the appropriate committee for these purposes. Alternatively, we have the services committee and the house committee, which are familiar with appointments and interviewing people and considering their fitness for jobs. But I think your Lordships' Committee will agree that rather than tie it down to one particular named committee it would be better to leave it to the good sense of the House to refer the proposed appointment to the appropriate committee.
§ Therefore, this amendment proposes that the commissioners shall be approved in what is an absolutely normal manner in the United States by the appropriate committees of each House, those committees having on them a majority supporting the Government of the day, and therefore enabling the Government to get their way at the end of the day. That concludes, rather briefly, my remarks on subsection (1) of the amendment.
§ I now come to subsection (2) about which I have not said one word so far. I would remind your Lordships' Committee that this refers to the period for which the commissioners shall, in the first place, be appointed. The proposal is, as a variation from what is proposed in the Bill, that they shall be appointed initially for terms of three, four and five years. The logic of that needs little explanation. My noble friend Lord Ezra has already referred to it.
§ The subsequent appointments would be for a term not exceeding five years. Therefore, we would have the great advantage, which the Government have totally overlooked and completely neglected, of seeing that there was continuity of experience and wisdom with no gap in the responsibilities and the way in which those responsibilities were carried out by the commissioners. We have repeated what the Government have provided; that previous appointment to the office shall not affect eligibility for reappointment.1296
§ I hope that the Committee will have been good enough to bear with me while I have endeavoured to explain the usefulness and helpfulness in the Government's terms of this short amendment against the background of the enormous task which rests on the Committee's shoulders and which cannot be ignored of carrying through our responsibilities as the Upper Chamber to try to do what the Lower Chamber was prevented from doing; that is, enabling the Government's policies in terms of greater efficiency and more protection for the consumer to be effective. I hope that I have helped the Committee to understand the purpose of the amendment.
§ Lord Elliott of Morpeth
It seems a very long time ago that the noble Lord, Lord Ezra, in moving this amendment said that the intention of the Bill was to give the gas industry greater freedom. That is what privatisation means, as I understand it.
Before my noble friend responds to this amendment I should like briefly to express what I am sure is the concern of many besides myself. If the idea of the Bill is to give the gas industry greater freedom, what is this greater freedom intended to do? As I am sure many of us see it, it is greater freedom for the gas industry to compete with other fuel industries; it is greater freedom for the gas industry to consider the needs of its consumers. I am sure that it seems to many others, as well as to me, a contradiction if we are to have this heavy commission (which has been somewhat heavily illustrated to us today) added as an extra bureaucratic body over the head of the gas industry and possibly another bureaucratic layer which other fuel industries do not know. I find myself very unhappy indeed about this amendment and I shall seek to oppose it.
§ Lord Bruce-Gardyne
I sometimes had the feeling listening to the noble Lord, Lord Diamond, that he thought what he said three times was true, or perhaps one should say 33 times. I share the concern that he expressed about the possible gastronomic activities of Sir Denis Rooke, but I must admit that I have always doubted whether a regulatory body, however contrived, was likely to prove an effective substitute for genuine competition. That is why I made it quite clear on Second Reading that I regretted we had not taken the opportunity on this occasion to achieve genuine competition within gas distribution and supply.
Looking at this amendment one feels rather like the great Duke of Wellington. One does not know what effect it will have on Sir Denis Rooke but, my goodness, it certainly terrifies me! What we are asked to do under this amendment, as I understand it, is to establish three commissions, three watchdogs: one to look after the tariff consumers, one to look after the contract consumers and one to look after supply and what is described as energy efficiency. From that one can deduce that each watchdog will spend most of its time biting the other watchdogs. Furthermore, it appears that one of them is to be appointed a chairman watchdog, and so presumably he would have to devote his entire attention to biting the other two watchdogs to keep them in their place. The one who had to look after gas supplies as well as energy efficiency would presumably have to do a fair amount 1297 of biting, as the two concepts obviously and demonstrably will frequently be in conflict.
§ 4.45 p.m.
§ Lord Bruce-Gardyne
I hope that the noble Lord will allow me to continue because I do not want to detain the Committee for more than a moment or two. We have had quite a long time on this amendment, as I am sure he will agree.
Perhaps the aspect of the proposition advanced by noble Lords opposite that I find most scaring of all is the suggestion that these appointments should be vetted and cleared by the appropriate committees of Parliament. I can see clearly what would flow from that. With whom would these bodies be staffed? They would be staffed with former Members of another place and present Members of your Lordships' House. They would no doubt be eminently qualified for the job but they would be there to convince these Select Committees that there would be a role for them one day in this great new quango organisation.
The noble Lord, Lord Ezra, was deeply concerned about the reference in Schedule 1 to the Treasury. I am relieved to see the Treasury there. I do not want to have some enormous body—which I suspect, let us face it, will not be much of a substitute for competition anyway—spending money on a grandiose scale, appointing one commissioner after another, each to see what the other is up to and stopping him from so doing. I am only too delighted to see that the Treasury is there to ensure that this body is maintained on a modest scale. It will have a modest role, and so it might as well be maintained on a modest scale.
Finally, the noble Lord, Lord Ezra, referred, quite properly and in particular, to the need to ensure that the Gas Corporation did not abuse its monopsony position in the purchase of gas supplies. I agree with him entirely, but the best way to make sure that that monopsony position is not abused (apart from dismantling it, which would be my preference) is to ensure that there is genuine freedom to export so that the suppliers of gas from the North Sea can have an alternative choice of markets and we can tell that the Gas Corporation is purchasing its supplies at a genuine market price. That is infinitely better than any commissioner or any system of regulation. Therefore I hope that when we reach my amendment to Clause 62 in due course I shall enjoy the fullhearted support of the noble Lord, Lord Ezra, and his friends.
§ Lord Sandys
I oppose this amendment, as do my noble friends on this side of the House, for a number of reasons; most particularly this is a major philosophical divide between both sides of your Lordships' Committee on the role of this Bill. The answer to both the noble Lords, Lord Ezra and Lord Diamond, is contained in the Government's White Paper which we have before us, Cmnd. 9759, on page 9, paragraph 17. This refers to the contract market. It says:The contract market will be subject in the normal way to competition law and the legislation provides for complaints to be taken up by the Gas Consumers Council".1298 One of the three wise men that the noble Lord, Lord Ezra, proposes is to be concerned with the contract market. In the White Paper it is felt strongly on this side of the House that the normal processes of law will operate. My noble friend has just referred to the situation which so frequently occurs when three wise men are appointed with special responsibilities; the responsibilities overlap. This may well happen because in a complicated market this often overlaps and gives rise to a clash of responsibility. I feel that the Government are absolutely right in concentrating on a single role.
Both the noble Lord, Lord Ezra, and the noble Lord, Lord Diamond, waved the numbers at us, the 16 million private consumers whom we on this side are naturally delighted to support and to consider very carefully indeed. Both efficiency and safety go hand in hand in British Gas, hand in hand in the awards which British Gas have won since 1975. Their track record is excellent, their scale of operations is excellent, and it may be valuable to recollect that among these 16 million private consumers there were, in the year 1984–85, no less than 14,800,000 service jobs undertaken; so it is almost covering the entire market. That is a very considerable undertaking and, I should have thought, a source of confidence for the consumers and confidence for the Government in proceeding with the situation as they outline it.
§ Lord Whaddon
I appreciate what has been said about the noble Lord worrying too much about bureaucracy. My view of the prospect facing our consumers is somewhat different. I had the great pleasure of accompanying the noble Lord, Lord Bruce-Gardyne, to Romania a few months ago—Romania the country where roamed in legend the great blood-sucking monster, Dracula. When this gigantic monopoly, which up till now has operated, very efficiently as a public servant, is handed over to a public limited company whose main duty will be to work for its shareholders, I have this vision, this nightmare, of the company turning into a Dracula, getting its teeth into the 16 million consumers and sucking the blood out of them.
It is against this nightmare that I think that we are quite right to consider very carefully the need to provide some protection for these 16 million potential victims. The Committee will remember a brilliant speech by the noble Earl, Lord Stockton, a few weeks ago during which he made that unforgettable remark about the danger of selling off the family silver. Not every family has family silver, but every family has a stove and I plead sincerely with the Government to watch their own position here. It is one thing to sell off the silver of a few people, but if they damage the family stove—which applies to every family—their own prestige will be gravely in danger.
One aspect of the gas industry which I have not yet heard mentioned but which is certain to arise more and more in the public mind is the increasing complexity of the technology. The noble Lord, Lord Diamond, in his intervention referred to the efficiency of gas consumption and the need for correct pricing; but all our industries, including gas, are in a period of new technology. Increasingly gas stoves, which only a few years ago were very simple indeed, now have 1299 electronic devices which control the time at which the clock goes on and off and automatic timing. If one of these goes wrong, the whole system goes wrong. Yet the new company will be responsible for marketing vast numbers of such devices and that will have a great impact on the standard of living and the comfort and convenience of the consumers. How those new devices operate will be of vital interest to every family in the country.
I should like to outline a little difficulty which occurred over the last 12 months with regard to a case of which I am personally aware. A family bought a new gas stove, having been tempted by an advertisement in the gas showrooms. It was a wonderful price for a wonderful new model which could do so many things which the old ones could not do. The stove was fitted rapidly and the money taken immediately, of course. But the following Sunday when the housewife needed to use the stove for several hours instead of for a five-minute test the temperature kept on rising and rising until, on reaching for the controls, she burned her hands.
Naturally she got in touch with the gas board who sent round a fitter. He rapidly diagnosed that one of the controls needed extra grease on it and he saw to this. But within three days the trouble recurred. The fitter came back three times, after which it became necessary to call in an inspector. In the next three weeks the family had four visits by a total of three or four people. Alas, that was not sufficient. The gas board concluded that there were queries concerning the design of the stove and, after several more weeks, called in the manufacturers. The manufacturers immediately produced documents which showed that they had constructed the new stove according to the rules aid down not by a commission of the House of Commons but by the European Commission—very much more distant, very much more unapproachable and very much more complex. Because they were able to demonstrate that their new device had been approved by the European Commission they disclaimed all responsibility.
Weeks and months of delay followed. The burners on the stove were replaced. Still the problem persisted. It was so simple; and yet the family had to go without meals because of a basic fault in the design. After 12 months it was agreed that the whole stove must be replaced and that representations would have to be made to the European Commission as to the efficiency of their supervision. Eventually that was done.
What followed a month later?—a bill for a replacement stove. Three months later it turned out that the computer system run by the gas council was not proof against human error. After threats to cut off the supply for non-payment it was eventually proved that the bill had been paid 18 months before; and, after 18 months of agony and stress the fault was finally put right and the family at last had an efficient stove. A very small fault had taken up 18 months of stress and oceans of time—and this against the background of a gas board which was set up as a public service.
Are we really going to hand over this giant monopoly to a public limited company without being absolutely certain that the consumer will be given instant attention where necessary? I am very sad to say I 1300 that experience with British Telecom is not encouraging. Following the privatisation of British Telecom my own experience has been that it has a very strange idea of private industry and how it should operate.
I have been in private industry all my life. I am used to cultivating the goodwill of customers, but I am afraid I do not have that impression in relation to British Telecom. On being privatised it seems to have been converted to having a very strange idea of the duties of a public company. It runs like lightning when it has a new model of telephone to sell—cash on the nail—and it sends oceans of literature on new telex machines. But when it comes to service which is at its own expense, oh boy, that is when one waits weeks and weeks, I am afraid. I know that a telephone line in my own village was out of action four times in the last year for a week at a time, waiting for British Telecom to send round engineers to fix it at its expense. But it will run like lightning if it is a question of the sale of new equipment.
So British Telecom's concept of public service in connection with the new company has in my experience left a little to be desired. The Government would deeply regret making a similar error with regard to British Gas. I sincerely advise the Government, in their own interests, to avoid the "aggro" which will result over the next year or two for the 16 million consumers, as pointed out by the noble Lord, Lord Diamond. Those consumers will experience such trouble and inconvenience if we do not do everything we possibly can at this stage to provide a safeguard for them in relation to this giant new corporation, this potential Dracula which I fear.
In view of the experience we have seen with the privatisation of British Telecom and because of what we know are the technical difficulties in connection with gas I wholeheartedly recommend that we strengthen by every means at our disposal the protection machinery for the consumer. I most strongly urge this Committee to express its complete support for the amendment of the noble Lord, Lord Ezra.
§ 5 p.m.
§ Baroness Burton of Coventry
I wish to say just a very few words on this matter. The Committee need not be alarmed; I shall be very brief and my remarks will be neither learned nor technical. In the debate which we had on 10th April I said I thought that any future regulatory body should be tough, should be strong and should contain within it tough and consumer-minded members. I was very glad when this amendment was proposed today by my noble friends Lord Diamond and Lord Ezra, because I think we must all realise that at the moment the position of consumers, which this amendment would hope to modify or improve, is really quite serious.
The Committee will recall that at the moment under the present proposals the gas industry will not be compelled to disclose the profits it makes from the domestic consumers when it shows its accounts. There will be no way of showing how much those profits from the domestic consumers have contributed to some cross-subsidisation, whereas if we had the commissioners which my noble friends have been 1301 talking about, we should at least have one who would deal with tariff consumers. I think that should be borne in mind and perhaps when the noble Lord, Lord Gray of Contin, comes to reply he will deal with that particular point, with the transparency of the accounts that will be shown, and say whether or not the profits received from the domestic consumers of gas will be disclosed.
I want to make one other point. I remember that in that same debate—and my noble friend Lord Diamond referred to the same point—while saying that there had been many criticisms of the way Professor Carsberg had conducted affairs in so far as consumers were concerned (and I myself share that criticism) I made the point, and I maintain it again today, that I do not think it is so much Professor Carsberg as the legislation which is at fault. I am sure the noble Lord, Lord Gray of Contin, will recall that in another place right through the Committee stage Members—and not only Opposition Members—tried very hard to get this legislation tightened so that the same thing would not apply when it came to this Chamber.
This legislation has come from another place. It has not been fully discussed because it was guillotined, and it is our job to try to improve it. As my noble friend Lord Diamond said, it is not our job to throw out the Bill, because the other place has passed it, but we wish to improve it. I ask the noble Lord, Lord Gray of Contin, to believe that this is not a party point; I would make it whichever government were in power. I think it is quite essential that the legislation is tightened up, and tightened up adequately, so that what has happened at British Telecom through Professor Carsberg having to act on the legislation which is already in being is considerably improved in this case. Therefore I hope that the Committee accepts this amendment.
§ Viscount Torrington
I am well aware that I am somewhere near the back of the field in what is a rerun of the London Marathon and so I shall be brief. I also share the fear expressed by my noble friend Lord Bruce-Gardyne of "canine cannibalism"; so I have very little compunction in being against the amendment. I might have been tempted to be in favour if the breakdown between the duties had been slightly different from the way they were phrased, with tariff consumers for one commissioner, contract consumers for another, and gas purchases and energy efficiency for another. I would have thought that the industry breaks down into consumers, the purveyor and reticulator of gas (namely, the British Gas Corporation) and the suppliers.
My noble friend Lord Gray of Contin when in another place got to know the independent sector of the oil industry very well indeed as Minister of State for Energy. I am sure he and most other noble Lords here will know that the independent sector of the oil industry is somewhat frightened of this Bill. We in it are not frightened of British Gas per se: in fact we welcome it coming into the private sector very much indeed. But the independent sector is very worried about the monopoly buying powers of the British Gas Corporation, and while the right to export is certainly 1302 of great assistance in keeping this monopolistic power at bay, one can envisage—though I will not bore your Lordships' Committee on this—a lot of situations where the right to export would not protect smaller members of the producing consortia, especially, for instance, if British Gas was a member of those same consortia. So if there had been a commissioner drawn from the independent sector of the industry, I would possibly have been very tempted to support this amendment but as there is not I am afraid it cannot have my support.
§ Lord Williams of Elvel
I speak, as my noble friend Lord Stoddart of Swindon said, as the only person in your Lordships' Chamber who has actually sat across the table from the chairman of the Gas Corporation in an investigatory capacity. As I mentioned in my speech on Second reading, when I was chairman of the Price Commission we produced a major report on British Gas Corporation gas prices and allied charges. This involved a great deal of hard work and study. I say this in order to illustrate not only that I have some experience in this field of regulation but also to make the point that at that time our relations in the Price Commission with Sir Dennis Rooke and the Gas Board were extremely cordial. They were extremely tough but very cordial negotiations and I have absolutely no complaint to make about the way Sir Dennis Rooke and his colleagues comported themselves. I found them very expert but very tough and very concerned to press their point of view.
I want to make one very clear assertion. I do not believe that as the Bill is drafted the director who will be appointed can possibly perform all the tasks with which he is burdened. The US experience has been quoted by Members in various parts of the Committee. There is one thing that comes quite clearly out of US regulatory experience. The regulators need to be wholly familiar with the industry if they are not to be out-manoeuvred. This is a very fundamental point, because, whether it is a commission or a director, whoever is in charge of the regulation must be absolutely conversant with the day-to-day operations of the industry being regulated.
I take issue with certain noble Lords who have said that the director may have a rather minor role because, as the Notes on Clauses tell us,Once an authorisation has been issued to a public gas supplier, the day-to-day regulation of the supplier will be a matter for the Director, who is obliged to ensure that authorisation conditions and certain statutory requirements set out in the Bill are adhered to.I do not regard this as a minor role. I regard this as a very major role. Therefore, I believe it is very fundamental that we should be quite certain that we have the right construction for this very major role. What does "day-to-day regulation" mean? What does "understanding of the industry" mean? They mean whoever is in charge of this day-to-day regulation must have a full understanding not only of the size of the industry, to which the noble Lord, Lord Diamond, referred, but of the complex nature of the industry.
Just to give some examples of the complexity of British Gas's operations, there is the question of the supply of gas, to which I think the noble Viscount, Lord Torrington, referred; the cost of gas, the southern basin of the North Sea versus the northern basin of the 1303 North Sea; the question whether the cost of gas is properly revealed in the Gas Corporation's, or the successor company's, accounts; whether they are basing their pricing on the long-run marginal cost of gas or the short-run marginal cost of gas; the allocation of different production costs between various sources of gas and between different types of consumer; the relationship between gas prices and oil prices—all these points, and the question of the supply of gas, must be wholly familiar to the director, or his office, and if they are not wholly familiar to him he will not do his job properly.
I go on from there to transmission and storage, load factor balancing and peak load pricing. These are points to which the director, or the commission if this amendment is passed, will have to pay particular attention. There are questions of marketing and servicing, accounting, cost allocation, accounting principles and overhead allocation. How do you tell whether there is cross-subsidisation, to which the noble Baroness, Lady Burton, referred, unless you are quite confident that you understand the accounting principles involved in the accounts which are set out?
There is also the safety consideration, the industrial relations consideration and all sorts of other activities on which the successor company may embark—I come back to something which I think the noble Lord, Lord Ezra, said in the Second Reading debate—which may themselves have an effect on the pricing to their captive consumers on the tariff. I think that the director, whoever it is, will have to be conversant with all these points.
§ 5.15 p.m.
In the Notes on Clauses, we are advised again
That the drafting of Clause 1 is modelled on Section 1 of the Fair Trading Act 1973 (… and the establishment of the Office of Fair Trading) and Section 1 and Schedule 1 of the Telecommunications Act 1984.
In other words, it is the Office of Fair Trading and Oftel which provide the model for Ofgas.
§ There are two major problems with this; and I am not going to talk about Oftel, because a number of noble Lords have referred to it and many valid points have been made. I should like to refer to the Office of Fair Trading. That was set up not to supervise and regulate an established monopoly industry; it was set up under the Fair Trading Act for a certain number of functions, to refer certain things to the Secretary of State and to prosecute certain things in front of the competition court. It was not set up to perform—and could not possibly perform—the role of regulating a clear monopoly.
§ The reason why it could not serve such a function and the reason why the director in this Bill that we have in front of us cannot himself serve such a function is, in my view, two-fold. First, there is the practical problem of one director being conversant with all the questions that I have outlined—and there are hundreds of other questions that one could mention—and being able to answer questions on television, on radio and to the newspapers. He will be the man up-front. He will have to stand up there and argue that long run marginal cost pricing has been observed or has not been observed. The problems of 1304 one man being able to undertake that particular job seem to me to be quite excessive.
§ Secondly, it is my experience in the Price Commission—and I think it has been Sir Gordon Borrie's experience at the Office of Fair Trading—that when you have one person standing up in front of the nation, a strong company, whatever it is, he is much more powerful when he has colleagues to support him. The decisions of a commission are much more respected than the decisions of one person—and they will be seen as decisions of one person.
§ The third reason why I should like to support this amendment from our Benches—because we will support it—is that I believe that in addition to the tasks of the different commissioners, to which the noble Lord, Lord Diamond, has referred, there is a very fundamental problem relating to the regions. This is not the Gas Consumers Council; we will come to the question of regional representation on that later in Committee. I am concerned with the management structure of British Gas and the successor company.
§ I have been impressed by the representations that have been made to us by Scottish interests on which I cannot speak from direct knowledge; but on Welsh interests I can do so. I believe that one of the commissioners, if the amendment were adopted, would have the task, as well as being responsible for whatever is in the amendment, of making sure that the regional management structure of the successor company was the same as the regional management structure that is at present adopted by British Gas and that has been extremely successful. That is an extra reason why we should consider favourably this amendment.
§ The Committee may feel that one commissioner should be responsible for Scottish interests and one commissioner should be responsible for Welsh interests. I have no strong feelings on that point. But I feel it would be appropriate, if such a commission were established, that at least one commissioner should be there to ensure that the regional interests, particularly the Scottish and Welsh interests, should be properly protected from the management side, as they will be, I hope, properly protected from the consumer side.
§ As my noble friend Lord Stoddart of Swindon said, we have thought long and hard about this amendment. For the reasons I have outlined, and for the reasons he gave, we believe that this amendment should be supported and we commend it to the Committee. As I think the noble Lord, Lord Sandys, remarked, we have a clear difference of political opinion on this amendment. We on our side of the Committee believe that this amendment goes straight to the fundamental heart of this Bill. This is what it will be about. If we are going to privatise a monopoly, we must have a proper system of regulation.
§ If we do not have that, we shall not be fulfilling our duty as a revising Chamber in putting in a proper protection both for the consumer and for the reasons to which I referred. It is for others to say whether they think that there should be three commissioners, four commissioners or five commissioners. It is for the Government, however, to make the case that we are wrong and they are right. I believe that this amendment should commend itself to the Committee.1305
§ The Minister of State, Scottish Office (Lord Gray of Contin)
We have had a very interesting and lengthy discussion on this amendment—and I make no complaint about that. It is a custom of this Chamber to explore the territory fairly fully in the first amendment of a major Bill of this kind; and although at times we have perhaps wandered rather wide of the terms of the amendment, I think it has been useful to set before each other our views generally on this Bill.
There are a number of issues on which we have no disagreement at all. For example, we all believe that the interests of the public must be paramount in our deliberations. We all believe that we are a revising Chamber, and that it is our duty to examine very carefully the legislation which comes from another place. I cannot accept, however, the suggestion that there has been any lack of debate on this subject. This Bill was guillotined in another place—that is true—but, my goodness, we were well into the Bill before the guillotine became effective. Indeed, the area of the Bill that we shall be discussing after this amendment has already been very carefully tested elsewhere.
The noble Lord, Lord Ezra, is seeking to introduce a new clause which mirrors largely an amendment which was tabled during the Commons Committee stage by a member of his party. I know the noble Lord believes that there are valuable lessons to be learned from experience overseas, and particularly in the United States. I agree with him very much in that view. Where I disagree with him is that I think he has selected one of the areas from the United States with which we certainly should have nothing to do so far as this Bill is concerned. I am firmly of the view that the solution in the Bill with regard to regulation, which has been debated at great length and which we shall have an opportunity to explain and examine at even greater length shortly, is much preferable to that which the noble Lord seeks to have the Committee accept.
We have concluded that the right approach is for the regulatory body to be an independent office, along the lines of the Office of Fair Trading, and ultimately responsible, through a Minister, to Parliament. We are anxious to avoid replacing the present arrangements with the kind of bureaucracy which is apparent in the United States, where hundreds of staff in each state are involved in the regulation of utilities. In a few minutes I shall try to deal with many of the points that were raised by Members opposite. I am grateful to my noble friends Lord Elliott, Lord Bruce-Gardyne, Lord Sandys and Lord Torrington for expressing so succinctly precisely why they have little regard for the amendment.
I was greatly relieved when I read the amendment, inasmuch as it differs from that which was proposed in another place. It recommends only three commissioners. As the noble Lord, Lord Diamond, took us through the activities of these commissioners, I was relieved that they had been reduced from seven to three. Nevertheless, I realise that the noble Lord, Lord Diamond, feels deeply on these matters and I shall certainly try to do him the courtesy of dealing a little later with some of the important points that he made in his speech.
The noble Lord, Lord Ezra, is no stranger to me. We knew each other for a number of years while he was at 1306 the Coal Board and I was a Minister at the Department of Energy. In his speech this afternoon, in which he characteristically set out his views with great clarity, he mentioned the public utility position in the United States. I am surprised, really, that he sees these large unwieldy and bureaucratic organisations as a good model. In the case of the Public Utility Commission for a single state (California, for example) the number of staff involved runs into many hundreds—almost as large as the whole of the Department of Energy in this country.
The noble Lord seeks to follow the example of the United States of America in the care of this country and to replace the office we have proposed under a director general, following the successful example of the Office of Fair Trading. The noble Lord seeks to replace all of that with a commission. This is surely a recipe for bureaucratic bumble. The more I listened to various Members of the Committee opposite telling us what those different commissioners would do and what their responsibilities would be, the more I envisaged in my own mind the creation of the type of empire-building to which we became accustomed between 1945 and 1951 and then, again, at the return of any Labour Government. This is something which I think we should try to avoid.
The noble Lord, Lord Diamond, in his persuasive speech, failed to convince any of us on this side of the Committee that, although he may nowadays sit on those Benches, the spots of the leopard have not changed. His heart is still with his friends sitting on the adjacent Benches, because he was a very distinguished member of Labour Governments who revelled in the creation of those great bureaucracies with individuals who were more like commissars than commissioners. However, we are arguing our case on its merit, and we shall continue to do that when we come to discuss our own points.
We had a certain amount of scaremongering this afternoon. We had vague references to safety; we had references to Ofgas. My goodness—if I may refer to the speech of the noble Lord, Lord Diamond, again, I can quite see why, when he went to visit that particular Government department, it had 20 officials there to look after him. I am quite sure that, if what we got this afternoon was any example of his prowess, he was well able to take care of the 20 officials without much difficulty.
The noble Lord, Lord Stoddart, said that the Official Opposition had thought long and hard about this amendment and that they had decided that it was worth supporting. Well, they would, wouldn't they? It is hardly likely that an Opposition would not give support to an amendment of this kind, particularly when it flavours so much of their own political philosophy. But the Secretary of State for Energy has rightly pointed to the poor experience of regulation in the United States under the very kind of structure proposed by the amendment. During the 1970s the price of gas was kept down by over-control and by the lengthy procedures involved with the review of prices in that industry, sometimes lasting literally for years, to the extent that exploration for gas virtually ceased and the quantities of gas produced inevitably declined. That led to gas companies having to make cuts in their deliveries to consumers. The consumer was therefore 1307 disadvantaged, and both consumers and the gas industry itself suffered as a result.
The noble Lord, Lord Diamond, criticised the arrangements under the Bill to protect the consumer. He sought to portray a picture of an industry without any control. He felt that the industry would be released and that control would be removed, or that constraint on its activities would be completely lifted, compared with the present structure. I draw the noble Lord's attention—
§ 5.30 p.m.
§ Lord Gray of Contin
We have had a very long debate. The noble Lord will have several days in which to give us his views. There is an important Statement to follow and I believe that the Committee would want me to bring this debate to a conclusion. I mean no discourtesy to the noble Lord.
I draw the attention of the noble Lord, Lord Diamond, to the fact that for the first time there will be a new office set up solely with the task of ensuring that the industry operates in a way that protects customers and protects their interests. Clause 4, which we shall reach quite soon, will lay a statutory duty on the director of the new office to protect the interests of customers. For the first time there will be an explicit price control formula to ensure that no longer can governments of any political complexion manipulate gas prices to their own financial ends. Noble Lords may laugh, but as they well know I can cite examples of both Labour and Conservative governments acting in that way. The situation in 1976, when the International Monetary Fund had to be called in to sort out the mess into which the Labour Government had got themselves, is one case in point. Under the new structure, that will all be in the past.
The noble Lord, Lord Diamond, suggested also that the powers of the director were too weak. Perhaps I may point out that the director has extensive powers under the enforcement provisions at Clauses 28 to 30 of the Bill. If the public gas supply fails to meet the supply obligations that are set out in key clauses of the Bill, or to meet the conditions of its authorisation, then the director may issue an order requiring the supplier to comply with that obligation. Moreover, failure to comply with such an order entitles any person who has sustained loss or damage as a result to take civil proceedings.
The noble Lord spoke also about research and development. I am sure that he recognises the great efforts made by British Gas in the area of research and development, including that in the area of improved efficiency of gas use. Indeed, in 1984–85 British Gas spent more than £50 million on research and development. British Gas, as a forward-looking business, knows that such expenditure is absolutely vital. Its own long-term commercial future depends on ensuring that gas can be burnt with the highest possible efficiency.
I now turn to the remarks of my noble friend Lord Torrington, who mentioned, quite rightly, that there is a certain amount of apprehension within the oil industry about the Bill. I believe that that has been 1308 because, in some areas, the Bill has not been fully understood, Hopefully, that situation has now been put right. However, the exclusive gas purchasing rights of British Gas were ended by the Oil and Gas (Enterprise) Act 1982. We are satisfied that any abuse of the corporation's powerful purchasing position could if necessary be curbed under existing competition law.
I should like now to answer the question posed by the noble Baroness, Lady Burton of Coventry. I am delighted that she will be taking an active part in this Bill because she is renowned for her defence of the consumer. It will be interesting to hear her views on various issues. The noble Baroness asked me about separate accounts. We shall be debating that subject at some length on later amendments; for example, there is Amendment No. 68 in the name of the noble Lord, Lord Diamond. However, it is already the case that under Condition 2 of the draft authorisation British Gas will be obliged to publish full information about the profits of the gas supply business.
In addition, the director will have full ability under Condition 7 to call for any further information that he might consider appropriate. Under Clause 35 of the Bill, the director has the ability to publish as much information as he considers expedient to give to tariff customers. That will ensure that if the director wishes to publish further information about the finances of the industry in the interests of consumers, he will be able fully to do so.
The noble Lord, Lord Williams of Elvel, who we all acknowledge has very great experience of the whole question of regulation, made a speech that I am sure the Committee found interesting. I noted one or two points from it. The noble Lord mentioned details of information. The Government recognise the importance of ensuring that the director can obtain full information from British Gas about its activities. It is for that reason that Condition 7 of the draft authorisation gives the director very wide-ranging powers to call for any information that he may need for his functions.
In view of the fact that we have had a lengthy discussion on this amendment, and given that we have a lot of business to get through, I shall not attempt to deal with other points that were raised. Let me say in conclusion that there is no difference between us so far as concerns that which we seek to do. We seek to achieve the best form of regulation. There is a basic, political, philosophical difference between each side of the Committee as to how it seeks to achieve that. We believe that the system we have spelt out in the Bill is the most satisfactory way to proceed. We believe that that which the noble Lord, Lord Ezra, and his noble friends seek to do would be merely to create a bureaucracy that we could well do without.
Lord Bruce of Donington
I sympathise with the noble Lord the Minister in his evident inability to reply to the case put forward very cogently by the noble Lord, Lord Ezra, supported by the noble Lord, Lord Diamond, and indeed supported by my noble friends Lord Stoddart of Swindon and Lord Williams of Elvel. Clearly, the noble Lord has no answer to the arguments that have been put forward.
1309 The Minister himself said—and I noted down his words—that we have a common interest in this Bill: the interest of the consumer. The noble Lord knows perfectly well that the purpose of the Bill is nothing of the kind. He knows perfectly well that the purpose of the Bill is, first, to produce an increased cash flow or negative expenditure for the Government for tax relief purposes and for electoral purposes; and, secondly, while so doing, to buttress the finances of their friends in the City. Everybody knows that quite well and there is no point in concealing it.
The noble Lord, Lord Elliott of Morpeth, put his finger on the point very well because he was quite disingenuous about the matter. He said that he thought the purpose of the Bill was to free the gas industry. Of course that is its purpose: to free the gas industry in the interests of the new shareholders, many of whom have already made a substantial capital profit out of it.
The noble Lord, Lord Diamond, because he is a generous man, put the best possible construction on the Bill, as is his wont. He said that we are united in a common purpose in that we desire to promote more efficiency within the industry, more cost-effectiveness, and so on. He put it mildly. But, once again, the noble Lord the Minister knows quite well that the machinery he proposes in the Bill for the protection of the consumer—particularly when it is read in conjunction with the code and with the schedule, upon which he will be cross-examined later in great mathematical detail—gives no more protection for the consumer than the regulations governing Oftel have, in the event, been proved to give.
The noble Lord, Lord Diamond, was therefore quite right in coming to the nub of the matter. Who is to protect the interests of the consumer against those of a body which, as the noble Lord, Lord Elliott, said, seeks its freedom and whose primary objective and purpose in straight commercial terms, understandable by a Conservative Government dedicated to it, is profitability for its shareholders. That is its purpose and the purpose of every public limited company. It would be failing in its duty if it were to be otherwise.
The noble Lord brushed off the experience of the United States as being bureaucratic. He need only look at the Bill to realise what the product of bumbling bureaucracy in his own department can produce. No wonder there is a certain sympathy for the noble Lord, Lord Elliott, in trying to free the industry from this miserable ministry. The public utility commissions in the United States, as the noble Lord knows quite well, have a very good reputation indeed. True enough, they employ people. But what they also do in regard to the utilities in their area, including the gas utilities, is, before there can be any price increase for whatever purpose, to review investment, working capital needs, research and development needs, and so on. Evidence has to be given before them, state by state.
In the final event, it is the commission, as an independent public body, that gives its assent as to what prices ought to be. In that way the interests of the public are protected. That is what the noble Lords, Lord Diamond and Lord Ezra, and, I suspect, many of your Lordships in this Committee who have any pretence of trying to protect the public interest, want. 1310 They do not want a miserable formula on which, I warn the noble Lord, he will be cross-examined in much detail, together with the mumbo-jumbo with which the Government have sought to conceal their intentions.
The only person who is capable of protecting the public interests in this area is someone who is not nominated by the Minister or who can be dismissed instantly by the Minister because Conservative Central Office probably has something against his record. An independent commission is necessary which is capable of studying what the Government are quite incapable of studying—the national or the public interest. The Minister may be able to avoid defeat in Committee because he has his cohorts not only here but in the other rooms in the building; but the public will demand proper safeguards. We on this side of the Committee have not the slightest hesitation in supporting the amendment put forward by the noble Lord, Lord Diamond.
§ 5.45 p.m.
§ Lord Diamond
it would be discourteous of me not to respond to and thank the noble Lord the Minister for his short attempt, as he himself put it, to deal with many of the arguments put forward from this side of the Committee. He seemed to indicate that there will be other occasions when he will reply more fully, but he certainly dealt with some of the arguments, and for that I am grateful. I am also grateful to the noble Lords on the Government side who intervened, because they have helped us enormously, and I shall shortly come to that.
I apologise for seeking to intervene when the noble Lord, Lord Bruce-Gardyne, was speaking. I momentarily forgot that we were in Committee and that I should have ample opportunity later to deal with the point he was making. It would have been quicker if the noble Lord had given way and allowed me to make the point, but he is no doubt in no hurry to see this Bill through its Committee stage.
I am also grateful to the Minister—and I must not forget this—for making the important point that on this major amendment, our first amendment, it is inevitable that we spend a great deal more time than we shall be spending on much smaller and less important amendments later in the Bill. However, this is an amendment which enables us to stake out our ground and explain why we are wholly determined to examine this Bill in every way we can and provide for greater protection of the industry and of the consumer.
The noble Lord, Lord Bruce-Gardyne, takes an irresponsible view of his duties here. He takes the view that, having said on Second Reading that the only way of dealing with this problem is to introduce competition and that there is no way of introducing competition if you create a private monopoly, he has nothing more to say and nothing more to do. I do not share that view. I take the view that, as your Lordships' House accepted by giving the Bill a Second Reading the principles that I have outlined, the Committee has a responsibility to try to improve the efficiency of the industry and the protection afforded to the consumer.
We have made one modest suggestion. I call it a modest suggestion and not a bureaucratic suggestion 1311 with every justification. It is modest because, as the noble Lord the Minister himself made clear, an amendment discussed in another place proposed not a medium strong commission of three commissioners but a much stronger commission of seven or more commissioners. We hope that by being modest in what we seek and, as ever, compromising, we can get the Government to see that one man on his own cannot, as the noble Lord, Lord Williams, made clear, have either the information or the experience to cover this vast area and cannot stand up to the pressure that would face him if he sought to carry out his proper duties as outlined under the various clauses in the Bill. One man is not big enough and strong enough to do that. Therefore, we have to go further and suggest ways in which that should be done.
The Minister made only one criticism. He said that our proposals are bureaucratic. Our criticism is much stronger. We feel that in the present structure of the Bill the Government are avoiding giving administrative arrangements under which their purposes in the Bill can be carried out. It is not a question of arguing whether this is helpful.
Let me read to your Lordships what has been written about the experience to which I have previously referred. I shall read from a letter from Mr. Andrew Warren printed in The Times of 19th April. He is talking about the commissions which are established for every utility in every state of the United States and the machinery which is established wherever there is such a utility. He says:Each US state has a public utility regulatory commission charged with safeguarding the customer's interests"—which is exactly what the Government want.The commissions exist to ensure that the utilities make the most cost-effective investments, leading in the long run to the lowest electricity and gas costs and prices to the customer"—which is exactly what the Government want.It is these commissions which have ensured that public utilities keep their costs as low as possible and vigorously promote the most efficient use of energy".There has been no attempt on the part of the Minister to say other than that these commissions are bureaucratic and to say how they will fail to do their duty in the way we have described.
The noble Viscount, Lord Torrington, helped us considerably. He thought that the amendment proposed by my noble friend was on the whole a good amendment which perhaps he would have supported if the breakdown of duties had been somewhat different. It is perfectly open to him to make that suggestion. It is clearly open to anybody to suggest how these enormous responsibilities should be divided. They are not divided into three in the gas corporation itself; indeed, it has far more than three divisions to carry out its responsibilities, does it not? It would not attempt to do so in so small a division as is now proposed. It is perfectly open to the noble Viscount to suggest a different breakdown which he wishes us to follow. He could put down an amendment.
Better still, if we could discuss the matter, we could put down an amendment at a later stage of the Bill which would satisfy his requirements, and thus do what we always try to do, which is so far as possible to meet the wishes of all the members of this assembly. In 1312 the meantime, I am bound to say that nothing has been said from the Front Bench opposite which denies what we are alleging; namely, that the one-man business is totally inadequate for the huge job that has been suggested. There are very many functions that have to be provided, for which enormous experience and knowledge are needed, and more than one man is required to attempt to do the job. I am very grateful to all the Members of the Committee who have supported the amendment and I remain convinced that it is the right approach.
§ Lord Ezra
The time has come when we must decide what we are to do about this amendment. I should merely like to say that this question arises from the decision to transfer a monopoly from the public to the private sector. I think that we are all at one in believing that this creates a situation which has to be handled with great care in order to safeguard the public interest. Indeed, the noble Lord the Minister said so.
Where we appear to differ is that whereas the Government feel that the Bill provides for a totally adequate regulatory body, we feel that this body needs some strengthening. We certainly do not propose the setting up of a mammoth bureaucratic organisation. In fact, we have not suggested that anywhere in the amendment. However, we feel that in the public interest and for the image which is created by the transfer of this monopoly into the private sector, there should be a stronger regulatory body than is at present proposed. It is on that basis that we should like to test the opinion of the Committee.
§ 5.54 p.m.
§ On Question, Whether the said Amendment (No. 1) shall be agreed to?
§ Their Lordships divided: Contents, 82; Not-Contents, 114.1313
|DIVISION NO. 1|
|Airedale, L.||Grey, E.|
|Amherst, E.||Hanworth, V.|
|Ardwick, L.||Harris of Greenwich, L.|
|Attlee, E.||Howie of Troon, L.|
|Aylestone, L.||Irving of Dartford, L.|
|Barnett, L.||Jacques, L.|
|Birk, B.||Jenkins of Putney, L.|
|Bottomley, L.||John-Mackie, L.|
|Briginshaw, L.||Kilmarnock, L.|
|Bruce of Donington, L.||Listowel, E.|
|Burton of Coventry, B.||Llewelyn-Davies of Hastoe, B.|
|Campbell of Eskan, L.||Lloyd of Kilgerran, L. [Teller.]|
|Carmichael of Kelvingrove, L.||Lovell-Davis, L.|
|Cledwyn of Penrhos, L.||McGregor of Durris, L.|
|David, B.||McIntosh of Haringey, L.|
|Dean of Beswick, L.||Mackie of Benshie, L.|
|Denning, L.||McNair, L.|
|Diamond, L.||Milner of Leeds, L.|
|Donaldson of Kingsbridge, L.||Mishcon, L.|
|Elwyn-Jones, L.||Molloy, L.|
|Ennals, L.||Mountevans, L.|
|Ezra, L.||Mulley, L.|
|Falkender, B.||Murray of Epping Forest, L.|
|Fisher of Rednal, B.||Nicol, B.|
|Fitt, L.||Oram, L.|
|Foot, L.||Phillips, B.|
|Gallacher, L.||Pitt of Hampstead, L.|
|Graham of Edmonton, L.||Ponsonby of Shulbrede, L.|
|Gregson, L.||Prys-Davies, L.|
|Rathcreedan, L.||Underhill, L.|
|Rochester, L.||Vernon, L.|
|Seear, B.||Wallace of Coslany, L.|
|Seebohm, L.||Whaddon, L.|
|Sefton of Garston, L.||White, B.|
|Shaughnessy, L.||Wigoder, L.|
|Stallard, L.||Williams of Elvel, L.|
|Stedman, B. [Teller.]||Willis, L.|
|Stewart of Fulham, L.||Wilson of Rievaulx, L.|
|Stoddart of Swindon, L.||Winterbottom, L.|
|Strabolgi, L.||Ypres, E.|
|Abinger, L.||Layton, L.|
|Airey of Abingdon, B.||Lindsey and Abingdon, E.|
|Alexander of Tunis, E.||Long, V.|
|Allenby of Megiddo, V.||Lucas of Chilworth, L.|
|Belhaven and Stenton, L.||Luke, L.|
|Beloff, L.||Lyell, L.|
|Belstead, L.||McAlpine of West Green, L.|
|Bessborough, E.||Macleod of Borve, B.|
|Boyd-Carpenter, L.||Mancroft, L.|
|Brabazon of Tara, L.||Margadale, L.|
|Brougham and Vaux, L.||Marley, L.|
|Bruce-Gadyne, L.||Marshall of Leeds, L.|
|Buckinghamshire, E.||Maude of Stratford-upon-Avon, L.|
|Cameron of Lochbroom, L.||Merrivale, L.|
|Campbell of Alloway, L.||Mersey, V.|
|Carnegy of Lour, B.||Milverton, L.|
|Cathcart, E.||Montgomery of Alamein, V.|
|Coleraine, L.||Mottistone, L.|
|Colwyn, L.||Mowbray and Stourton, L.|
|Cottesloe, L.||Munster, E.|
|Craigavon, V.||Murton of Lindisfarne, L.|
|Craigmyle, L.||Newall, L.|
|Cullen of Ashbourne, L.||Nugent of Guildford, L.|
|Davidson, V.||Onslow, E.|
|De La Warr, E.||Orkney, E.|
|Denham, L. [Teller.]||Orr-Ewing, L.|
|Drumalbyn, L.||Rankeillour, L.|
|Dudley, E.||Reay, L.|
|Dundee, E.||Romney, E.|
|Ellenborough, L.||Rugby, L.|
|Elliot of Harwood, B.||St. Davids, V.|
|Elliott of Morpeth, L.||Saltoun of Abernethy, Ly.|
|Elton, L.||Sanderson of Bowden, L.|
|Faithfull, B.||Sandford, L.|
|Ferrers, E.||Sandys, L.|
|Forte, L.||Selkirk, E.|
|Fraser of Kilmorack, L.||Shannon, E.|
|Gainford, L.||Skelmersdale, L.|
|Gardner of Parkes, B.||Strathclyde, L.|
|Gisborough, L.||Strathcona and Mount Royal, L.|
|Glenarthur, L.||Strathspey, L.|
|Grantchester, L.||Swansea, L.|
|Gray of Contin, L.||Swinfen, L.|
|Grimston of Westbury, L.||Swinton, E. [Teller.]|
|Hailsham of Saint Marylebone, L.||Thorneycroft, L.|
|Hardinge of Penshurst, L.||Tranmire, L.|
|Harris of High Cross, L.||Trumpington, B.|
|Harvington, L.||Vaux of Harrowden, L.|
|Henley, L.||Vickers, B.|
|Hives, L.||Vivian, L.|
|Hood, V.||Ward of Witley, V.|
|Hooper, B.||Whitelaw, V.|
|Hylton-Foster, B.||Wise, L.|
|Kimball, L.||Wolfson, L.|
|Kinnoull, E.||Young of Graffham, L.|
§ Resolved in the negative, and amendment disagreed to accordingly.
§ 6.2 p.m.
§ Lord Brabazon of Tara
We have reached a suitable moment, I believe, to take the Statement. I beg to move that the House do now resume.
§ Moved accordingly, and, on Question, Motion agreed to.
§ House resumed.