Gas Bill

HL Deb 05 June 1986 vol 475 cc1148-91

House again in Committee.

Lord Stoddart of Swindon moved Amendment No. 106D:

After Schedule 5, insert the following new Schedule:

("DEFINITION OF THE GAS SUPPLY BUSINESS

1. The Gas Supply Business means the procurement, treatment, storage, transmission and distribution by the supplier of gas for sale and safe delivery through pipes to customers in Great Britain and the conveyance of gas for third-party suppliers and in this paragraph—

"procurement" means the acquisition of gas by the supplier from other persons and the taking into the Transmission System of gas produced or manufactured by the supplier;

"treatment" means the cleansing, odorisation, heating, cooling, compression, decompression, liquefaction and conversion to gaseous state of gas and any other operation necessary to transmit gas safely through pipes to customers or to render it suitable for consumption;

"storage" means all storage of gas after its procurement by the supplier including, after procurement, its storage by the supplier in offshore installations;

"transmission and distribution" means the conveyance, including the provision and installation of meters and associated controls, of gas belonging either to the supplier or to other persons;

"Transmission System" means the facilities used by the supplier for the conveyance of gas in a gaseous state, including the storage of gas in the course of its conveyance, either within Great Britain or between any of the supplier's offshore gas storage installations and its first place of receipt onshore Great Britain, including facilities for the conveyance of gas in a liquid state or for its conversion into a gaseous state.

2. For the avoidance of doubt there shall be included in the Gas Supply Business if, and to the extent that, they are undertaken by the supplier for the purpose of such business, the following activities namely—

1. (i) the design, procurement, installation, testing, commissioning, maintenance, repair, replacement and operation of any plant and machinery, including pipework and transport;
2. (ii) research and development;
3. (iii) commercial and administrative functions including—
   • planning;
   • purchasing and stores;
   • marketing and promotion of gas;
   • selling;
   • accounting and finance;
   • personnel management;
   any other general management and administrative activities to the extent that they are undertaken by the supplier for the purpose of the Gas Supply Business.
4. (iv) installation of gas appliances or supplies (from the outlet of the meter on the customer's premises) or work undertaken under the terms of a repair, maintenance or installation contract with gas customers, including safety checks and emergency and all other work related to the supplier's safety obligations and in pursuance of its statutory safety duties;
5. (v) exploration for and production or manufacture of gas;
6. (vi) consultancy exclusively related to the requirements of gas supply in Great Britain.").

The noble Lord said: I beg to move Amendment No. 106D standing in my name and that of my noble friend Lord Williams of Elvel. It is to insert the new schedule. I shall not read through the schedule. That would take rather a long time and we have to make great progress between now and 11 o'clock if we are to reach a stage of the Bill which will enable us to complete it next Wednesday.

Nevertheless, the amendment is of some importance and if the Committee will look briefly at the schedule they will see that it comprises Annexe A of the authorisation plus those matters in the authorisation in Condition 3 of Annexe A to the authorisation which are excluded from what is termed to be the "Gas Supply Business", and I had better read those out. Condition 3 of Annexe A says this:

"For the avoidance of doubt there shall not be included in the Gas Supply Business the following activities, namely—

1. (i) installation of gas appliances or supplies (from the outlet of the meter on the customer's premises) or work undertaken under the terms of a repair, maintenance or installation contract with gas customers, except for safety checks and emergency and all other work related to the Supplier's safety obligations and in pursuance of its statutory safety duties;
2. (ii) trading in gas appliances;
3. (iii) exploration for and production or manufacture of gas;
4. (iv) consultancy unless solely related to the requirements of gas supplied in Great Britain."

What we have sought to do is to put the whole definition of "Gas Supply Business" into the Bill and to add in those matters which are excluded in Annexe A. I find it strange, and no doubt the Minister will give the reasons when he replies, that some important parts of what is recognised to be the integrated gas business should be specifically excluded. These are installations of appliances, exploration for gas, together with everything else that goes into the transmission and distribution of gas.

Restricting the gas industry in the way suggested by the Government only restricts the gas industry to a purchasing and transmission agency, and thereby gives the lie to their protestations that the industry will continue on an integrated basis. The provision in the authorisation implies that the gas industry may well be broken up. That seems to be the implication.

The case for including installations itself comes from the Government in that they have always said that it made commercial sense for the privatised British Gas Corporation to be safety conscious, yet if the corporation are to have no control over safety then that boast is rather hollow. Using CORGI, or whatever replaces it, is not an adequate substitute. In addition, as was pointed out when we discussed Amendment No. 36B, the installation and contracting work is used to make the safety work less costly as the same staff is used. Separating them out from the gas business therefore simply puts even more pressure on the X factor without any compensatory income from elsewhere.

Including the exploration and production of gas is again a logical part of the gas business. It enables BGC to bargain with producers, for the benefit of consumers, through their knowledge of the field. It also ensures that the public gas supplier can extend the supplies of gas available so that consumers will be able to continue to use gas. I simply do not understand why those exclusions are there, but rather than take up the time of the Committee in further elaboration I shall sit down and listen to what the noble Lord, Lord Belstead, has to say when he replies.

Lord Belstead

The noble Lord, Lord Stoddart, hazarded certain guesses at the beginning of his remarks about why the draft authorisation in Annex A contains the definition that it does of "Gas Supply Business". We attach considerable importance to ensuring that gas supply is properly accounted for, and that those accounts are audited and published; and to prepare proper accounts there needs to be complete clarity over the details of exactly what should be included in the accounts and what should not. It is for this reason that there is a definition for accounting purposes at Annex A of the authorisation.

May I turn to one particular point that the noble Lord made, and about which he expressed concern, that in an integrated business certain things were left out which the amendment has put in. Although British Gas operates as an integrated business and is being privatised as a whole, that does not rule out having separate accounts for the separate business areas. The gas supply business should surely include those areas closely connected with the sale of gas through pipes, and we have therefore included safety work.

In the area of installation and contracting British Gas is competing with other gas retailers and fitters. The separate nature of these areas is already recognised by British Gas in its current report and accounts which separate it out from gas supply. Indeed the noble Lord will remember that separate accounting was one of the points covered in an MMC report and that British Gas changed its accounting procedures in response.

The amendment seeks to include these areas by changing paragraph 3 of Annex A of the authorisation. The amendment would also include exploration and production in the gas supply business; therefore, I would suggest, further obscuring the financial results of that business. There is nothing sinister in the way that we have drawn Annex A. It is simply that for accounting purposes we believe that the annex correctly defines the business of supplying gas. It is for that reason that I would hope that we can leave Annex A as it is.

Lord Stoddart of Swindon

I thank the noble Lord for that explanation. If of course Annex A is used merely to define how the accounts can, or may, be prepared and what is shown in the accounts and how those accounts may be divided, then that is one thing. But is there not a danger that Annex A could be used for the breakup of British Gas? Would it not be possible to say that it was implicit in the authorisation that British Gas should split itself up into various component parts and therefore into separate businesses? That is what we are afraid of; and is it not implicit in this annex?

Lord Belstead

I shall just respond to that point put by the noble Lord. On many occasions noble Lords opposite have suggested that the authorisation is a draft authorisation and is not directly part of the legislation, although there are mechanisms for changing the authorisation which are in the legislation. I say that because as I am talking about something that is not in the legislation what I say on the Floor of the Committee on behalf of the Government on this occasion perhaps is of some weight. The Government say that the definition of Annex A is only for the purpose of separate accounting. I give the noble Lord that assurance, and I give the assurance that there is no intention behind Annex A to break up the company. Indeed, in preparing and presenting the legislation, the Government have always said that we believe that the break-up of the British Gas Corporation would not be in the interests of consumers.

Lord Stoddart of Swindon

It is difficult to know quite what to make of that; but there was a categorical assurance. I shall want to read very carefuly what the noble Lord has said. It may be that this is something to which we shall want to return if we are still not satisfied with the very positive statement that he has made. Therefore in the interests of making progress I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 16 agreed to.

Clause 17 agreed to.

Clause 18 [Safety regulations]:

[Amendments Nos. 107 and 108 not moved.]

Lord Bruce of Donington moved Amendment No. 109:

Page 19, line 34, at end insert— ("( ) Nothing in the foregoing shall allow any authorised officer to enter premises without a warrant from the appropriate court unless it is for the purposes of this section.").

The noble Lord said: In relation to subsection (4) the amendment reads: Nothing in the foregoing shall allow any authorised officer to enter premises without a warrant from the appropriate court unless it is for the purposes of this section.". The purport of that subsection should be obvious enough to the Government, and I sincerely trust that they will accept it.

Lord Belstead

The noble Lord has identified a very important aspect of the rights of entry powers. I can almost come to accept it. I am glad to be able to say that I believe the noble Lord's point is fully covered in the legislation. The fact is that the protection that the noble Lord is seeking in this amendment is already provided in the Rights of Entry (Gas and Electricity Boards) Act 1954, and Section 1 of that Act provides that no right of entry to which that Act applies shall be exercisable in respect of any premises except with the consent given by or on behalf of the occupier of those premises under the authority by a warrant granted by a justice of the peace under Section 2 of the Act or in an emergency. Clause 18(8) specifically applies that 1954 Act to any right of entry regulations to be made under this Bill. I am sorry it is a little complicated, but I think I can honestly say that the noble Lord's point is fully covered.

Lord Bruce of Donington

I am obliged to the noble Lord for his explanation, and I have pleasure in asking the Committee to withdraw the amendment.

Amendment, by leave, withdrawn.

8.15 p.m.

Lord Stoddart of Swindon moved Amendment No. 110:

Page 20, line 7, at end insert— ("( ) The Director shall ensure that officers operating under this section shall be trained to standards in accordance with Schedule (Standards of Training of Officers and Gas Installers) to this Act.").

The noble Lord said: This amendment stands in my name and in the name of my noble friend Lord Williams of Elvel. It may be for the convenience of the Committee if, with this amendment, we take Amendment No. 144X. We are back to safety. The Committee are concerned with and have shown their concern for safety. Clause 18 gives the Secretary of State the right to make regulations of a sweeping nature empowering any officer authorised by a relevant authority to enter premises to inspect, test and deal with gas pipes and fittings where there is likely to be a danger to life or property. Clearly this is a necessary and vital power that should be available to him.

We are concerned, however, to ensure that where such powers are exercised, the person (or persons) given access to property is not only properly authorised but properly trained as well. I have no doubt that the gas corporation at present ensures that all its employees engaged on this sort of work are properly trained, perhaps to the standards set out in the schedule. It will also no doubt, as far as it is able, try to ensure that the private contractors it employs engage employees who are properly trained. However, the position may change when British Gas is privatised. Certainly there will be pressure to reduce costs in the interests of profit, and the temptation will always be there to cut corners on safety and safety training, and to employ the cheapest private contractors who may not invariably insist on the highest safety qualifications from those they employ.

Our amendment, if accepted, would go a long way to ensure the maintenance of high safety standards and would provide the assurances to which the public are entitled where their property is entered for the purpose of dealing with potentially dangerous gaspipes and fittings. In these days gas installations do not simply involve attaching a gas cooker to a gas pipe. There are all sorts of sophisticated mechanisms for the control of many appliances. All of them have implications for safety. Gas fitters these days need to have knowledge not only of screwing pipes together but of electricity, electrical fittings, electronics, the chemistry and physical properties of gas, the construction of buildings and even aspects of the law.

That is why we are proposing in the schedule comprehensive standards of training. These standards have the support of a host of organisations, incidentally, including the CBI the TUC, local authorities, the Health and Safety Executive, CORGI, the Institution of Gas Engineers, the gas corportion and many more. These organisations, as the Minister will know, produced a draft code of practice in September 1985 and the proposed schedule would write into statute the standards aimed at by the code.

I feel sure that the whole Committee has read the proposed schedule closely and I shall not therefore take up time by going through it in detail. But briefly it seeks to define gas installers; to provide that gas installations should be installed only by properly trained installers who can demonstrate their competence, and to ensure that training is of a high standard.

The schedule lays down the range of matters in which installers should be trained and be competent and it provides that they should have proper knowledge in, and recognition of, dangerous situations and also the law and codes of practice. An important provision concerns updating and refresher courses—every five years, we propose—and this kind of provision really is essential in these days of fast-changing technology. The Committee will realise that there has been much concern over gas safety and there is certainly no room in the industry for the cowboy installer or the untrained or the not-properly-trained installer.

Gas is a substance too dangerous to be left to amateurs or the get-rich-quick cowboy, and there are too many people at risk to allow slick operators to con the gullible into allowing incompetent people to interfere with gas installations and appliances. Therefore, I hope that this amendment will receive a sympathetic response from the noble Lord and that the Committee will give it their support. I beg to move.

Lord Belstead

Amendment No. 110, which the noble Lord is moving, has attached to it Amendment No. 144X. As the noble Lord, Lord Stoddart, has explained, that really incorporates entirely the new draft of the approved code of practice on standards of training in safe gas installation which the Health and Safety Commission have formulated. I am very ready to give a sympathetic response because the code has been produced in response to a request from employment Ministers to the Health and Safety Commission. The noble Lord has explained the main aspects of the code I would only add that failure by any installer to comply with the code's provisions may be used in criminal proceedings as evidence that the installer has failed to discharge his duties under the Health and Safety at Work Act unless he can prove that he has complied with those duties in some other way.

Should this schedule become part of the Bill by an acceptance of Amendment No. 144X? There are three things that I should like to say. First, I think that it really is not appropriate for the terms of this code to be amendable only by statute or for it to apply only to persons exercisng powers given by Clause 18 rather than to all gas installers. Secondly, I hope that the Committee would agree that the code should hay e the legal force conferred by being approved under the Health and Safety at Work Act.

Thirdly—and I think this is a very serious point—the code is out for consultation at the present time. We would be expecting some 70 interested parties who are being directly consulted on the code to give views at any time up to 15th August. I really do not think that one could write into the Bill a code which is out for consultation in that way. The Government are sympathetic to this amendment even though, for the three reasons that I have given, I feel that I cannot accept the amendment.

Lord Stoddart of Swindon

I appreciate very much what the noble Lord has said. I even appreciate the difficulty of writing it into statute because it may, be difficult to amend when it is out of date. There is certainly the difficulty that it has not yet been agreed. I had not realised that it was still out for consultation and that the consultation procedure would not be complete until August. That is an added difficulty. Therefore, I say now that I shall withdraw this amendment but I wonder whether the noble Lord can help a little more.

I wonder whether he can say that consideration will be given to including the code (or some reference to the necessity for authorised suppliers 'to work within that code) to be put within the authorisation document itself at an appropriate time; as that document is amendable and is amendable very easily by agreement. It would be useful if he could give me some indication, perhaps even at this stage, that that is something which could be done.

Lord Belstead

I should like to look at that point. As the noble Lord is aware, and as I recorded, the code of practice will give guidance required under the Health and Safety at Work Act for gas installers, and that of course is going to give it legal force. Really, one could almost be saying that to put it in the authorisation is of lesser effect. But may I look at the point that the noble Lord has put to me?

Lord Stoddart of Swindon

I thank the noble Lord for that assurance, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 111 not moved.]

Clause 18 agreed to.

Clause 19 [Acquisition of rights to use pipe-lines]:

Lord Diamond moved Amendment No. 111A: Page 21, line 18, after ("Director") insert ("shall give, whenever he considers that competition in the supply of gas through pipes will hereby be facilitated, and in all other cases").

The noble Lord said: I rise, somewhat breathless at the speed with which we are rushing through this Part of the Bill, to move Amendment No. 111A. We are now dealing with Clause 19 which is headed, "Use by other persons of pipe-lines belonging to public gas suppliers". At this point in the clause, it states that directions may be given where the director is satisfied, that the giving of directions … would not prejudice the conveyance by the pipe-line of the quantities of gas which the public gas supplier requires". The relevant line which we are seeking to amend is the last line of subsection (3), where it says: the Director may give such directions to the supplier".

The amendment is a small one but it is an important one in emphasis. As the words of the amendment show, this is an attempt to increase, however slightly, the possibility of competition in the supply of gas through this Part of the Bill. It is going to be very difficult, as we all know, to bring reality to what is claimed to be one of the purposes of this whole legislation; namely, facilitating competition.

It is going to be very difficult, if not impossible, to do that; but here, at all events, is a slight attempt to improve it. The amendment proposes that where the director, considers that competition in the supply of gas through pipes will thereby be facilitated", he shall give directions; and in all other cases", he may (as the clause is at present drafted) give such directions.

We think that there may be a slight benefit to competition and if the director is satisfied that that might be the case, we think his position should be strengthened so that, instead of saying that he may give such directions, we put upon him the compulsion of giving such directions. We have several times made the point that the director is in far too weak a position by virtue of the way the Bill is drafted to achieve what should be achieved. In this case, we do not wish to limit his flexibility and his independence but wish to give him the strength to enable him to say, "Yes, I am satisfied in this case that competition in the supply of gas will be facilitated and therefore I am compelled to give such directions". I beg to move.

Lord Whaddon

This surely is an amendment that noble Lords on the Government side must support. Noble Lords on this side of the Committee have expressed concern many times regarding the extreme monopoly being handed to a private company. We remain very worried about this and its effects on the public. The attempt here to introduce even a small amount of real competition must surely appeal to noble Lords on the Government Benches. After all, they have accused my noble friends on this side of being dogmatic in opposing privatisation. They cannot use that argument now. We are going along with noble Lords on that side in what they have frequently declared to be their beliefs in the benefits of competition. This amendment will, in a tiny way, increase the pressure of competition. I beg the noble Lord to accept this very sensible but small amendment.

8.30 p.m.

Lord Harris of High Cross

I do not think there can be any possible objection to inserting these words, which simply spell out that the function of the director is to maintain and enforce competition. The only objection would be that it adds two lines to an already over-long Bill. But since I have coming up an amendment which would remove a couple of subsections, I shall gladly support the addition of these two lines, to which I cannot see any objection on the Government's side, in the hope that I might get some support later in respect of a rather longer passage when the time comes.

Lord Belstead

The noble Lord, Lord Diamond, has certainly got a point here and when the noble Lord, Lord Whaddon, said from the same Benches that he felt it moved in the direction the Government wish to move in, in respect of Clause 19, the noble Lord, too, had a point. It is the case that this amendment would require the director to give such directions if he considers that competition in gas supplied through pipes would be facilitated thereby; and this is what we are trying to do in these common carriage provisions.

However, there is a difficulty, which is this. If I may say so, it is arguable that the point is already covered because of the duty contained in Clause 4(2)(d), which is laid on the director and the Secretary of State to enable persons to compete effectively in the supply of gas through pipes—except of course that the director has to bear in mind his other duties when he is operating Clause 19 and those other duties under Clause 4 might be of a conflicting nature. I am therefore saying that the difficulty I see with this amendment is that it seeks to require the director to give directions under Clause 19, regardless of his other duties. We believe that in conforming with all his duties under Clause 19 the director has to be left with some discretion; and if this amendment were to be made, that discretion would be removed.

Lord Diamond

I am grateful for the sympathetic and understanding response of the Minister. Did I gather him to say that if it were made quite specific and clear in the wording of the amendment that this was not to be deemed to be in any way in conflict with the director's other duties, the Government would look upon it with more sympathy? Of course, it is the purpose of the Committee stage to discover to what extent the Government are sympathetic towards what one is proposing. If that were the case, we could produce at Report stage an amendment which omitted the less desirable parts of the present amendment, or indeed the Minister himself might prefer to take the course of using his own words, which I am sure would be more appropriate than my own humble effort.

Lord Belstead

The solution which the noble Lord, Lord Diamond, has put to me would overcome the criticism I have ventured to make, which is that this amendment would remove discretion which the Government believe is not only desirable but indeed necessary if the director is to conform to his Clause 4 duties.

However, it would not overcome the difficulty that the amendment would then still be left as being possibly unnecessary because of the Clause 4 duties. Nonetheless, I do not want to dampen the noble Lord's enthusiasm, and if he cared to bring forward an amendment, of course we would look at it. On the other hand, perhaps the noble Lord would care to have a discussion between now and the Report stage, in which case I would gladly meet him for that purpose.

Lord Diamond

Who could do other than welcome the co-operative way in which the Minister is behaving in respect of this very modest amendment? I am grateful to him and will certainly avail myself of the opportunity to discuss with him any possible difficulties. In the circumstances, I beg the Committee's leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Diamond moved Amendment No. 111 B:

Page 21. line 37, at end insert— ("(vi) for securing to the applicant the right to sell to the public gas supplier, for so long as the applicant has the right to have the specified quantities of gas conveyed in the manner referred to in subsection (a) (i) hereof, gas up to an amount not exceeding 20 per cent. of such quantities").

The noble Lord said: I beg to move Amendment No. 111B, which seeks to insert at the end of line 37 on page 21 the following words which, for my own convenience, I had better read out: ("(vi) for securing to the applicant the right to sell to the public gas supplier, for so long as the applicant has the right to have the specified quantities of gas conveyed in the manner referred to in subsection (a) (i) hereof, gas up to an amount not exceeding 20 per cent. of such quantities").

We are now dealing with a rather special situation—a situation in which there would be a possibility of a gas supplier getting hold of a rather inexpensive source of gas and being able to compete as a result of his low cost price. The only circumstances in which one could imagine that happening would be those in which he would acquire a complete field and would have to contract to dispose of the whole of the gas coming from that field.

It is not always possible to match demand and supply in such a precise way where you are dealing with a field of gas the volume of which may be approximately known but not precisely known. Therefore, you need what is already provided in the Bill at line 35: for securing to the applicant the right to have a pipe-line of his connected to the pipe-line by the supplier".

The purpose of the amendment, again, is to facilitate competition. I have tried to indicate very briefly indeed the circumstances in which competition might arise. In order for that to be a practical proposition it would be necessary for the applicant to have the right to sell to the public gas supplier a quantity of gas up to a certain amount; in other words, any surplus gas is left within the field if he cannot use it up precisely. Where else can he sell it, except to the public gas supplier? Here is a method of matching what is otherwise very difficult to match—demand and supply—by a competitive supplier. If we make these conditions possible, we are making possible a measure—a small measure, admittedly—of competition in an area where it is extremely difficult to find some sort of competition. We cannot lay down two lots of pipes side by side; we all understand that. Therefore, the possibility of real competition in the new privatised gas industry is going to be very limited indeed.

So far I have talked about making it possible for the applicant, by matching demand and supply, to have a chance to compete. He can do that only by selling his surplus left-over gas to the only customer he can find; namely, the public gas supplier. I now talk about balancing that with regard to the public gas supplier himself. Therefore, the amendment goes on to say, gas up to an amount not exceeding 20 per cent. of such quantities.

There is no magic about 20 per cent. It could easily have been a different figure; but that is my suggestion for providing a figure which might be a protection to the public gas supplier. I suggest that this formula is the correct one; namely, that if there is to be a protection in this way it must be based on a proportion of the gas carried in the way that this clause contemplates. There is no need to discuss prices or other terms because they are provided for in later subsections of this clause.

Here is a chance to make a small amount of competition possible by enabling a potential competitor who has found a cheap source of supply to compete in the supply of gas. All it requires us to do is to carry out what is provided for in the terms of the amendment; namely, the right to sell specified quantities of gas up to an amount not exceeding 20 per cent. of the quantities that I have mentioned. I hope I have made clear the purpose of the amendment and the method of achieving this small addition to competition. I beg to move.

Lord Belstead

For the reasons given by the noble Lord, Lord Diamond, in the first half of his introductory remarks, the Government have sought an assurance from British Gas that they will not discriminate against producers on the United Kingdom continental shelf offering gas in the circumstances which the noble Lord has outlined. I am able to say to the Committee that British Gas have confirmed that they will not disciminate but will consider any offers of such gas on their merits; namely, the price and all other terms and conditions of the proposed supply and the context of its total requirement for new gas supply from time to time. I am therefore saying that an assurance has been given by British Gas about non-discrimination in this very important area which the noble Lord, Lord Diamond, has raised.

There is more to it than that, however. The second part of the noble Lord's introductory remarks concerned achieving a balance, and what the amendment does is to go beyond the assurance which has been given by British Gas in that the amendment permits the director to issue directions to British Gas requiring them to buy up to 20 per cent. of the gas which it is conveying for others. We are resistant in the Government, as I think the noble Lord knows, to having the director involved by right in the purchase of gas, and indeed representatives of the oil companies made clear to the Select Committee in another place that they would not welcome the involvement of the director in gas purchasing. I do not believe, therefore, that it would be helpful to the oil industry or to potential purchasers of gas in direct deals to introduce this kind of provision.

Experience in the United States has shown just how counter-productive regulatory interference in gas production can be, with the sorry tale of low prices throughout the 1970s leading to massive shortfalls in supplies. I think we could be going some way down the road to following that example if we accept the amendment.

If I may come back to the beginning of the matter, I entirely agree with the first half of the noble Lord's remarks about the needs of the supplier who has sold a bulk of gas and wants to make sure he can get rid of the residue. I should like to think that the assurance that has been given by British Gas in this matter adequately covers that aspect of the case.

8.45 p.m.

Baroness Seear

Some of us on these Benches are rather concerned at the frequency with which the Minister says, to reassure us, that the gas corporation has given assurances. However, the board in five years' time may be made up of totally different people. An assurance is not binding and has no standing in the future. We find it difficult to feel that this answers issues of the kind for which we feel some legal protection is required. What strength can one attach to an assurance? I am not questioning the good faith of the people giving it at the moment; but, in the nature of things, those people will not be there in the future. The assurance then may be worth no more than the paper it is written upon.

Lord Belstead

This is a question, as it so often is, of balance. Here there is the danger, as the Government see it, that if one agrees to the principle of British Gas being able to issue directions to British Gas to require them to buy quantities of gas up to 20 per cent. of the gas which it is conveying for others, of agreeing to the director becoming involved in the purchase of gas. So far as concerns the Government, that is a matter of principle which we really do not like, and we have reason to believe from the deliberations and the evidence collected by the Select Committee that other people do not like it, either. However, the noble Baroness reasonably says to me that the word "assurance" passes my lips rather too often. I am advised that in this case the assurance given by British Gas can be backed up by competition law. If the corporation was not to fulfil the position which it has promised to take up, then the Office of Fair Trading could step in to take take remedial action.

Baroness Seear

That is some reassurance, which we are glad to have on the record.

Lord Diamond

Again one is bound to be grateful to the Minister for having considered the matter so carefully and being, if I may say so, sympathetic to the approach taken in this amendment. I should like to deal with the difficult part first, and I expected that the Government would find it difficult. It is the principle which has become a matter of religious belief so far as the Government are concerned, which is that you must not allow the director to go beyond a certain point. I know that this has been continually referred to in debates in another place. The view is that you somehow contaminate his proper duties if you allow him to go into what would be, in the Government's view, the improper duties of having some controlling interest in the supply of gas. I repeat that I am not an expert in this matter. I doubt if there is anyone in this Committee who is more ignorant of what a gas field looks like than I am. Nevertheless, we have to deal with these principles as best we can, and I have found it very difficult, in reading carefully everything that has been said in another place on this issue, to understand why the Government seem to be so totally wedded to this concept. I can well understand that those who are engaged in producing and selling gas should say to the Government, "We do not like interference". They would, would they not? I would be surprised if they gave any other answer. Of course they would not like to have the director concerned in their commercial freedom. But I do not regard that as a conclusive argument. Therefore, I hope that the Minister will think a little more about that side of it.

I know that I cannot make any progress against that tonight. I realise that that would be a breach of a principle which the Government have treated as a hallowed principle up to this point. Nevertheless, it is very difficult for me to be persuaded by it. If my noble friend Lord Ezra, who knows a million times more than I do about this, will tell me he is persuaded, then I shall realise that, as usual, I am wrong. But at the moment I am not persuaded and may have to come back to that part.

As to the other part, the noble Lord the Minister has been good enough to say that we are really pursuing the same objective and that it may be the case that the Bill already provides for this, but that, in any event, he looks upon it with sympathy. In those circumstances, what I must do is to repeat my gratitude to the Minister, say that I shall be very precise in reading in Hansard what the noble Lord has said, and come back again at Report stage with something which I hope will then be completely acceptable. In those circumstances, I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Lord Harris of High Cross moved Amendment No. 112: Page 22, line 1, leave out subsections (5) and (6).

The noble Lord said: I beg to move the omission of subsections (5) and (6) of Clause 19 as unduly fettering the discretion of the regulator. I especially invite a sympathetic response from the Minister, because I have been somewhat inhibited in moving some earlier amendments by a constitutional disinclination to talk in my sleep. I commend this amendment also as something of a novelty, because where many of the proposed amendments might at least be thought to hamstring the proposed British Gas, or even to obstruct its commercial operation, this amendment simply seeks to check possible abuses of power in the sovereign interests of the consumer.

The problem here arises because the Government, it is thought in deference to that formidable axis of Sir Denis Rooke and the Secretary of State, have failed to separate the gas trunk pipelines as a common carrier of bulk supplies, which could have been done technically feasibly by vesting them in a public company or, for that matter, in a private regulated company. Instead there are elaborate provisions for competing suppliers to be given the right to use Sir Denis's pipeline and the whole question is: on what terms will this access be forthcoming?

It is quite clear that this proposed integrated monopoly could set its charges too high, thereby seriously impeding or distorting competition from independent suppliers. The regulator therefore has the indispensable task of seeing that British Gas does not so abuse its enormous power. The objection to subsections (5) and (6) is that they improperly restrict the judgment of the Director of Ofgas in deciding the fair terms of access to the trunk pipelines. The effect of this amendment would simply be to permit the director to assess the terms on which gas is carried and to do so on the single-minded criterion of his general duty to promote competition.

If British Gas is to be regulated by an independent watchdog of the stature of Professor Carsberg of Oftel, he does not need all this gobbledygook in subsections (5) and (6). He will know the facts, he will know the costs, he can obtain information and he can work out for himself whether Sir Denis's terms are consistent with fair competition.

I am encouraged because the Minister has just said, in resisting Amendment No. 111A, that the director must have some important discretion. We can surmise that these subsections were inserted, like, I am afraid, so much else in this Bill, to suit the convenience of the present chairman of British Gas. That may be an important object for the Secretary of State to uphold, but it need not bother this Committee too much and its seems to me that we should have no hesitation in removing these unnecessary trimmings to serve the best interests of the consumer. I beg to move.

Lord Belstead

I appreciate that the noble lord, Lord Harris of High Cross, is seeking to remove the new principle which we have included in the Bill to guide the director in setting common carriage charges to put into practice, in effect, the recommendation of the Select Committee on Energy in paragraph 47 of their report, that charges may in some circumstances be related only to short-run marginal costs.

The noble Lord gave his views as to why these two subsections were put into Clause 19 and perhaps I ought to give the Government's views as to why Clause 19 looks as it does. In giving to the director the task of settling charges for such use by third parties of British Gas and any other public gas supplier's systems. the Government believed it would be right to set out some firm guidance, which was not necessary when the provisions were administered by my right honourable friend. The guidance which we have included is to the effect that third parties should pay enough to cover an appropriate proportion of the costs incurred by British Gas in administering, maintaining and operating its pipeline system, and an appropriate proportion of the return achieved by British Gas on the capital value of that system (including the return which it will use ultimately to replace the system; that is, to cover depreciation). The appropriate proportion should, as the clause makes clear, be set so as to take proper account of the use by the third party of the British Gas system and any capital payments made under Clauses 20 and 21 for specific alteration to the system.

I hope that that does not sound like gobbledygook. It is, I think, based on a very simple principle, that third parties should have access to British Gas's pipeline system on the same terms as British Gas itself. This will provide a fundamental equality between British Gas and the third party which will allow them to compete on equal terms—and it is this equality, of treatment for which we are aiming and which the noble Lord, Lord Harris, with whom I so often agree, is in this case trying to do away with. I hope that I have explained the reasons why I do not like the amendment; indeed, fundamentally, the Government do not like it.

Lord Diamond

I wonder whether I may trouble the Minister for a little more information. I follow the reasons which the noble Lord has given for seeking to remove these two subsections and I follow the Minister's explanation of what is involved in them. The Minister said this means that the third party would be on equal terms with a public gas supplier in supplying gas as to the cost of carriage. What I want to ask him, if he can answer, is this. By the time you have included all these costs, charges, proportion of depreciation and all the rest of it, are you making it commercially impossible for the would-be competitor to compete?

I do not know what is involved. The difference between what the noble Lord, Lord Harris of High Cross, has in mind and what would result from a strict application of these two subsections might be small or might be large. It might be small or might be of such a size as to affect the transaction contemplated in such a way as to make it not only commercially unattractive but impossible. I am asking the Minister to say whether, if you have included all these costs, you have really made the possible competition impossible.

9 p.m.

Lord Belstead

I must confess that I thought the noble Lord was going to say, "Is it really unfair on British Gas?", which would be offering the facility for, as it were, no profit; but that is not the question the noble Lord asked me. The noble Lord has asked me about the equality of terms so far as the other supplier is concerned. I am advised that it will not be commercially impossible under our proposals for the other supplier to be able to operate on a profitable basis after the figures are worked out. Our provision will ensure a basic fairness of treatment between British Gas and the third party and we feel very strongly that we have to adhere to that principle.

Lord Diamond

Before the noble Lord, Lord Harris of High Cross, decides what he is going to do about his amendment, perhaps I may say that I am most grateful for that explanation. Of course I am anxious that there should be fairness of treatment, and if possible parity of treatment, but there are times when you have to have regard possibly to marginal costing as opposed to full costing in making a commercial activity possible and getting it off the ground. What the noble Lord has said is that he sees no real difficulty in an alternative supplier being able to supply on these terms. We shall be very interested therefore to hear what the noble Lord, Lord Harris, has to say in relation to the Minister's reply.

Lord Harris of High Cross

I do not believe it is very persuasive to say that the Director General of Gas Supply would be unable, in the absence of these piffling subsections, to enunciate, to establish and to justify some form of charging that would meet the normal requirements of parity of access between the corporation, which happens to be left with these installations, and an outside supplier. Of course the director would have to examine all aspects of the cost and the maintenance, and the depreciation and the extension of the trunk pipelines. But to suppose that he needs lecturing about appropriate proportions and how that will be decided seems to be implausible. If we had someone like Mr. Carsberg I would have complete confidence that after due inquiry, after calling for information and discussion, he would be able to produce something where this particular—I shall not say straitjacket—restriction on his discretion might give this monopoly, of which I share the apprehensions expressed throughout our long debates, an opportunity to justify a setting of charges that would on the whole, as the noble Lord, Lord Diamond, said, discourage rather than open the way to competition. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 agreed to.

Clause 20 [Construction of pipe-lines]:

Lord Stoddart of Swindon moved Amendment No. 113: Page 23, line 10, leave out ("1,500,000") and insert ("10,000")

The noble Lord said: I can do this very briefly—in less than a minute I hope. I do so in the almost sure knowledge that the noble Lord must accept the amendment.

As noble Lords will realise, this amendment refers to the scale of the map which under Clause 20 has to be provided to, specify the points between which the proposed pipe-line is to run and be accompanied by a map (drawn to a scale not less than 1:1,500,000)". A scale of that size would mean that you would need a magnifying glass to read any place names or anything at all on it. It is not in accordance with town planning maps which are 1:10,000—roughly one inch to the mile. People are entitled to know where these pipelines are to run. I cannot believe, as I said earlier, that the Minister will not accept this as being reasonable to the ordinary public. I beg to move.

Lord Belstead

The noble Lord, Lord Stoddart, appreciates that we were concerned in drafting to achieve a balance between a requirement which resulted in adequate information being provided with a requirement which would not be unduly or unreasonably burdensome on British Gas. We decided on the scale which is in the Bill. However, in the space of only a very short period of time the noble Lord has been so persuasive that I feel I can do no more than move fairly rapidly towards the position which he has taken up.

I therefore should like to give an undertaking that I will look into the matter further and will do my best to come to the conclusion that a larger scale map will be appropriate. I cannot say that it will be exactly the scale which the noble Lord has put in his amendment, but I give an undertaking that I shall contact the noble Lord before the next stage of the Bill, hoping to bring forward an appropriate amendment for Report stage.

Lord Stoddart of Swindon

I can only thank the noble Lord for his generous response to the amendment. I look forward to hearing from him. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Diamond moved Amendment No. 1 13A: Page 24, line 35, after ("so") insert ("to consult the local planning authority and").

The noble Lord said: Clause 20 deals with the construction of pipelines. Subsection (7) says: Where the Director proposes to give directions … it shall be his duty before doing so to give to any person whom he proposes to specify in the directions", certain particulars and an opportunity of making an application.

It does not say that he should consult the local planning authority. That seems a quite obvious action that he would naturally want to take; indeed, it would be almost the first thought that would come into his mind. I have therefore drafted this amendment in order to give the Government an opportunity of explaining why on earth the director will not be required to do the obvious. I beg to move.

Lord Belstead

It is of course the case that British Gas as a public gas supplier will have statutory supply and other obligations. In order for it to be able to fulfil those obligations, it is necessary for British Gas to have corresponding rights and privileges.

One is its special position in relation to the laying of pipes under the general development order. I am not sure from his words whether the noble Lord is aware that it is a condition set out in the general development order that eight weeks before the commencement of operations for the laying of a high-pressure pipeline, British Gas must give notice in writing to the local planning authority of its intention to carry out that development, identifying the land under which the pipeline is to be laid.

In deciding whether or not to give a direction under Clause 20, the director must be satisfied that a demand exists and that the route will be substantially the same as that proposed by the public gas supplier. Those are similar to the requirements of the Pipe-lines Act 1962 and are simply designed to avoid the unnecessary proliferation of pipelines. For those reasons, with respect, I believe that we have enough under the general development order to achieve the objective for which the noble Lord, Lord Diamond, is aiming. I hope that he may feel the same.

Lord Diamond

I am grateful for the consideration that the Minister has given to this matter. Will he help me further by saying where the general development order is to be found in the Bill?

Lord Belstead

It is the Town and Country Planning General Development Order 1977. It is part of that.

Lord Diamond

Then it is all part of the Bill, or does not need to be part of the Bill because it is in a statute that has continuing relevance?

Lord Belstead

Yes. The noble Lord, characteristically, has got the better of me on this. I normally brief myself as to what it is that carries on the statutory relevance. I have to admit to the noble Lord that in this particular case I cannot put my finger on the provision that does carry on the statutory relevance. I believe it is simply that the GDO continues—no, I must not say that. I do not know what it is that carries on the statutory relevance. If the noble Lord will forgive me, I shall find that out and will give him the information later.

Baroness Seear

Would the Minister accept that it is most reassuring to be told by a Minister that he does not know?

Lord Brabazon of Tara

But now he does know.

Lord Belstead

By one of the marvellous ways by which Ministers suddenly do know something, I can tell the noble Lord, Lord Diamond, that the GDO is an order under the Town and Country Planning Act 1971, and that of course remains in force.

Lord Diamond

My understanding then is that it is an order, and so it may be treated as all orders may be treated, and it may be revoked—

Lord Belstead

Yes.

Lord Diamond

—without any further reference to this Bill. As I feared, therefore, one is in a less strong position than one would be if the provision were incorporated into the Bill itself. We are back in a situation that the noble Lord was good enough to recollect. We are all right as matters stand, but circumstances change.

In this particular case, the circumstances can change without the director having any control over the situation. It is a separate statute and an order under a separate statute, and the relevant Minister who has the power to revoke such an order can presumably do so, perhaps for reasons not connected with the particular cause in question. I do not really think we can say that we are very happy about the situation. Does the Minister have any further reassuring recollections to give the Committee?

Lord Belstead

Strangely enough, I have. The order is subject to parliamentary procedure under the Town and Country Planning Act 1971. Therefore, I must say that the noble Lord is right that the GDO, as it is known, is liable to change. However, where I hope the noble Lord can take encouragement is that there is a parliamentary procedure necessary in order to change it.

Lord Whaddon

I must admit that I find it less than satisfactory that on a necessary protection for the public suggested in this amendment we are told that protection is provided by another Act. That Act can be changed without the director knowing anything about it. It is distinctly unsatisfactory and I hope that the noble Lord will admit that the amendment provides a necessary protection in the public interest.

Lord Belstead

I will gladly look at the point to see whether it is necessary on the Government's side to meet the points made by the noble Lords, Lord Diamond and Lord Whaddon, but that will be without commitment.

Lord Diamond

I am grateful to the noble Lord the Minister. He has made it clear that Parliament has to be involved. If we are sure about that I agree it is a measure of protection. I hope the Minister will nevertheless agree that this exchange of views has been worthwhile. I am grateful to him for his undertaking and in those circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9.15 p.m.

On Question, Whether Clause 20 shall stand part of the Bill.

Lord Diamond

At this point, when we are considering clause stand part, the Committee has an opportunity of asking questions concerning several issues arising in the clause where the meaning may not be clear and where, so far as we on these Benches are concerned, we should like greater clarification in order to be quite sure as to whether we need to take further steps on Report.

I am bound to say that it will be quite impossible for us, within the time limits imposed, to raise these questions on clause stand part, both now and in subsequent cases where I have given notice that clause stand part will be opposed. I can speak only for myself and my colleagues on these Benches but I felt that I must make it absolutely clear that the reason why I am not going to pursue any questions on this clause or, indeed, on Clause 22 stand part is because of the pressure of time in keeping to an agreed time limit.

Clause 20 agreed to.

Clause 21 [Increase of capacity etc. of pipelines]:

Viscount Hanworth moved Amendment No. 113B: Page 25, line 33, leave out ("may").

The noble Viscount said: This is an amendment on which we will certainly not divide. It is simple and all contained in Clause 21. The amendment covers modifications to public gas mains at the request of persons other than the supplier. The director has certain obligations in those circumstances.

As it stands the Bill states "may" and we maintain that it would be more appropriate to have the word "shall"; but by simply deleting the word "may" that objective is achieved. I am interested in finding out why the Government do not think that in the circumstances the director should exercise his authority as given under the Bill. I beg to move.

Lord Belstead

I should first like to get a technical point out of the way. The amendment would require the director to give a direction that a modification be made if competition is facilitated, whatever good reasons the public gas supplier may give when he is consulted on the application for that modification not being made. I do not think that can be right.

The clause deals with several matters and it may be that the public gas supplier will have views which he will want to put to the director. While competition is important there are other factors which the director might have to weigh against it, such as safety. Therefore surely he must be allowed some discretion to take into account what the public gas supplier has to say.

However, if I may briefly return to the substance of the amendment which the noble Viscount moved, in the same way as in Amendment No. 111B, the director already has his competition duties under Clause 4, which requires him (under Clause 4(2)(d)) to carry out his functions, which again include those under Clause 22, in a way which is best calculated to promote effective competition in supplies to non-tariff customers.

Therefore, I suggest that the point is essentially already covered by the Bill. However, my main reason for being concerned about the amendment is the one that I gave previously. I think that it is inevitable that in encouraging competition the director will be in a position in which he will have to weigh the desirability of competition against other factors in this particular clause.

Lord Swinfen

I do not think that when he moved the amendment the noble Viscount said that he was going to speak to any other amendment. If this amendment is carried it makes absolute nonsense of the English in the clause. He has not referred to any other amendment, and I think quite honestly that he is wasting the Committee's time.

Lord Diamond

If I may say so on behalf of my noble friend it is a very great help to those of us on this side of the Committee who carry great responsibility that my noble friend was willing to step into the breach and move the amendment. He may not have had time to see that it is proposed in the grouping of amendments that this amendment (No. 113B) should be taken with Amendment No. 113C. If he did not say so in introducing the amendment it was merely a slip of the tongue. I am sure that anybody who is as generous-hearted as the noble Lord who has just spoken—and I have good reason for saying that and I recollect it well—will not wish to pursue such a slip of the tongue.

Viscount Hanworth

I am not entirely satisfied with what the noble Lord, the Minister, has said because if "may" is deleted from that part of the amendment, one is still left with another "may" in subsection (1) above it, so one is not really tying it down. Nevertheless, I do not think it is a point that I wish to pursue, certainly not at this time of night, and therefore I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 113C not moved.]

Lord Diamond moved Amendment No. 113D. Page 25, line 43, after first ("the") insert ("marginal")

The noble Lord said: I beg to move this amendment. Page 25, line 43 is part of the section dealing with an increase of capacity of pipelines and directions under subsection (2) may be given which may: specify the sums or the method of determining the sums which the Director considers should be paid to the public gas supplier by the applicant for the purpose of defraying the cost of the modifications". I quite agree that there should be fairness in dealing with both the applicant and the public gas supplier. But, as in a previous discussion that we had, the Government have thought it right to include in the Bill detailed requirements that full costs should be charged to the applicant—that is, depreciation, a share of capital costs and everything that might be included and which under any possible calculation should be so included. Nevertheless, in this case, where there is a small additional piece of work to be done, I think that it would not be inappropriate that the only cost to be charged should be the marginal cost of the modifications.

I know that that is perhaps an unusual thought, but it would leave the public gas supplier in no worse position than he was in before the modifications were made and it would achieve what we are all trying to do, which is to assist to a very marginal extent the service to the consumer and the possibility of competition. Therefore, I shall be interested to hear the view that the Government take of restricting the defraying of these costs to the marginal cost of the modifications. It is for that rather probing reason that I beg to move.

Lord Belstead

The provision for payment that is in Clause 21, which this amendment is probing, in fact is almost identical with the one in the Petroleum and Submarines Pipe-lines Act 1975 where an applicant makes a similar application in relation to an offshore pipe-line. I would have thought that where modifications are to be made solely for the benefit of a third party, it is really only fair that the third party should pay the full costs. In fact, in most if not in all cases the full costs and the marginal costs will be the same. Where the pipeline system is already in existence, which is the circumstance catered for in this clause, and the additions are for the benefit of the third party, marginal and full costs of modification are the same, or, if not the same, much the same. I hope that that answers the point that the noble Lord is probing.

Lord Diamond

Yes, I am grateful to the Minister; indeed it does. I had feared that the marginal and the full cost would be so different as to inhibit that activity completely. The noble Lord assures us that they will be quite similar. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 21 agreed to.

Clause 22 [Effect of directions]:

Lord Diamond had given notice of his intention to move Amendment No. 113E: Page 26, line 31, after ("19") insert ("(4)").

The noble Lord said: This is a less important amendment, and in view of the time pressure I do not propose to move it.

[Amendment No. 113E not moved.]

Clause 22 agreed to.

Clause 23 [Modification by agreement]:

Lord Stoddart of Swindon had given notice of his intention to move Amendment No. 114: Page 27, line 16, at end insert ("and any such representations or objections shall be the subject of a public hearing").

The noble Lord said: Again, in view of the pressure on time, the amendment is not moved.

[Amendment No. 114 not moved.]

[Amendment No. 115 not moved.]

9.30 p.m.

Lord Diamond moved Amendment No. 115ZA: Page 27, line 33, leave out ("section") and insert ("sections (Creation of area of alternative supply to tariff and non-tariff customers) and")

The noble Lord said: This is a most important amendment and requires some time to explain it. If I may deal first with the philosophical background from which the amendment stems, there are two views in your Lordships' Committee. There is the view that there should not be privatisation at all because it does not produce competition, and there is the view that there should be privatisation because it is a useful method to encourage an existing nationalised industry and a whiff of competition will be a benefit. I do not believe that we need take one view or the other view absolutely.

We on these Benches believe that it may be possible to find perhaps not a complete halfway house, but to find a method whereby an alternative supplier can supply gas to tariff customers, not in a way to destroy the integrity of the industry that the British Gas Corporation covers, but in a way to make it possible for there to be a means to compare what is being achieved by the public supplier and what could be achieved by another supplier to tariff customers as well as to non-tariff customers; but the point really concerns tariff customers.

At the moment, there is no contemplation in the Bill of any alternative supply to tariff customers. The only way that we ensure that, in my view, is to select an area and to say that for the time being the successor company, British Gas plc, whether it likes it or not, will be under compulsion to license the supply of a suitable smallish area to a licensee who will have a go at making a better job of it than British Gas plc would hitherto have done. When I say, "would hitherto have done" I am contemplating that the successor company shall have five years to settle down, not be disturbed and be able to carry on its business as an integrated whole. Only after that, as the first words say: Five years after the transfer date", there would be designated an area which would be subject to this compulsory licence.

I think that I can best explain the rest of the details by referring to the different subsections of the proposed new clause. As I have already said, the clause refers to: Five years after the transfer date". Of course that is subject to subsections (2) and (3), to which I shall refer. The clause continues, that we shall: designate an area … of gas supplied through pipes to tariff and non-tariff customers. The next subsection states: Prior to such designation the Director shall consult the existing public gas suppliers in the area, the Council"— that is to say, the consumers council— and the Local Authorities covering the area. The director should consult all the relevant authorities prior to such designation and not after it. and after listening to complaints. The subsection also states: The designation shall be subject to the approval of the Secretary of State". So we have the great protection that no one can deal with this irresponsibly; the Secretary of State would have to be satisfied. But I have had the temerity to add the words: which approval shall not be unreasonably withheld. Of course we could not contemplate it with the present Administration, but a future Administration may have such a dogmatic approach to privatisation that they would not consider allowing any competition of this kind, and therefore one has to say: which approval shall not be unreasonably withheld. There is no difficulty about the courts translating, defining or dealing with "unreasonable" in any particular context.

The next subsection refers to the area of the chosen gas supply. It states: The area shall in all respects be fairly typical and "fairly typical" means typical in all fairness, so there we have an area which is capable of serving as a measuring rod for the efficiency of the rest of the United Kingdom. The area should be fairly small so as not to interfere unduly with the gas supplier's business. Indeed, it suggests that the area should contain no more than 2 million tariff customers out of a total of 16 million.

So the probability is that, at the end of the day, you would have an area of about 10 per cent. of the total tariff business of the public gas supplier. You would have therefore a fairly typical area, large enough to be viable and small enough so as not to interfere with the intergrated business of the successor company. Because it would he viable, judgments could be made as to comparative efficiency, comparative cost, comparative service and so on. That is the reason it has to be fairly typical. If it were not typical. so many adjustments would have to be made in the measurements and in the arguments that no conclusion could ever be reached as to the reasons why, in this particular area, costs were less and service was better, or whatever the case may be. It has therefore to be fairly typical and not too large, according to the circumstances I have described.

The next subsection says that the director, after fully consulting the bodies referred to earlier, is to, determine the terms of a licence or licences under which a licensee or licensees shall have the exclusive right to supply gas through pipes in place of the existing supplier or suppliers". It is saying to the successor company, "Fine, you have had five years to settle down and to show your best paces. We are now going to insist that one small area shall have the right to compete in the sense of having your exclusive rights, but in that area only, and being able to show whether it can do better than you have done or better than you are going to do in the future in other comparable areas".

The words of the next subsection—without prejudice to the generality of the terms referred to in subsection (4)—mean that you have to have other things as well, but the important things are the starting date, the period of the licence, the method of arranging extensions of the period and the conditions under which such a licence could be revoked.

The amendment goes on to say that such a licence should be incorporated into a written agreement to be entered into between the old and the new suppliers; that is to say, the successor company, British Gas plc, would then be required to enter into an agreement setting out all these terms with the new licensee, and both would be bound by these terms and have rights and obligations to one another.

Subsection (7) says that the licensee or licensees shall be such persons who have, satisfied the Director of their suitability in all respects to carry out the terms of the licence". That is very important. The subsection makes absolutely sure that the director himself is satisfied that the proposed new licensees are likely to be able to carry out responsibly everything that they should carry out in terms of financial responsibility, financial probity, technical capacity. managerial ability and all other requirements. If he is so satisfied, the licensee or licensees would be, such persons or bodies as … offer the highest bid in open tender in respect of an annual licence fee payable to the licensor, such fee being not less than 4 per cent. of the value as determined by the Director, of the capital investment by the licensor in the area". In other words. the licensor, British Gas plc, would not lose out at all under this compulsory but maybe temporary licence which it is required to grant to a licensee. Of those people who are totally fitted to do this, the licensee would be the person or body who offers the highest licence fee in open tender or competition. Noble Lords can therefore imagine that British Gas plc would be receiving 6 per cent. or more for the capital invested in this area. In carrying out their functions under this section the Secretary of State and the Director shall at all times have regard to the need for there to be a viable area of gas supply which can serve as a comparison with the services supplied and the charges made by public gas suppliers in the rest of the United Kingdom". That is the philosophy incorporated in that one subsection.

Subsection (9) says: For the sake of removal of doubt it is hereby declared that any provision of this Act affecting public gas suppliers shall have effect with regard to suppliers licensed under this section as to any other supplier". Although, without saying so. I had assumed that would he the case, I have included the usual wording to remove doubt and to make it clear therefore that the public will be protected in every possible way under this licence as it would be under the authorisation granted in the first place by the Secretary of State to British Gas plc.

I know that is perhaps an unusual amendment. It is to deal with a very well accepted point, namely, that we would all like to see a measure of competition if we could only think of one. It is very difficult to do so when a government insist on privatising—in the way that they have done—and turning a public monopoly into a private monopoly. Nevertheless, it seems to us that along this road we might find a measure of competition—a way of having a viable area of gas supply which can serve as a comparison for the services supplied and the charges made by public gas suppliers in the rest of the United Kingdom.

That would not he direct competition, in the sense that there would be two suppliers in the same area. We know it is not common sense to say that one should have two lots of pipes running down the same street. That cannot be a viable proposition. But one can do the next best thing. One can create a licensed area in which a new licensee can behave in such a way as to show that the rest of the kingdom is or is not being well served. This is an amendment which is worth careful consideration. I beg to move.

9.45 p.m.

Lord Belstead

The amendment of the noble Lord, Lord Diamond, deals with the franchising of areas for gas supply for a five-year period of franchisement. It is an interesting concept but I feel that it suffers from two drawbacks. The first derives from the fact that the supply of gas is an inherently long-term business. The main physical asset of any gas utility is its network of pipes sunk into the ground, some of which have lives of 50 years or more. The main commercial assets of a utility are its gas supply contracts with gas producers which are also very long term, sometimes 20 years or more. It is difficult to see how a five-year franchise to supply could fit in with the realities of such a business. That is one difficulty. One would have to do more than tinker with the five years to overcome it.

The other difficulty that the Government see is that we do not agree that franchising gas supply to the highest bidder is likely to be the way to achieve the best and safest supply of gas to the consumer. The duties we have set out in Clause 4 to guide my right honourable friend and the director in their functions, including authorising supplies, run a great deal wider than simply obtaining the highest price, and cover the interests of consumers, safety, and a number of other important questions that we have discussed for many hours on this Bill and about which noble Lords feel deeply.

Those important questions provide the right framework for gas supply and not the short-term economic gain of the highest bidder to the seller. I do not want to make it sound as though the Government are not interested in the concept here. My mind goes back to an interesting local heating scheme that I saw, which was one of many, in Denmark some time back. But it would not be comparing like with like to say that what I saw on that occasion is the concept here. I here are great difficulties with this particular concept of franchising. I am sorry that there are because the idea is interesting. I have put forward the two main drawbacks as the Government see them.

Lord Ezra

If the noble Lord feels that the scheme as explained so clearly by my noble friend Lord Diamond contains certain difficulties, would he however be prepared to consider the principle of franchising at some later date? The whole object of this discussion is to see whether, over a period of time, some greater measure of competition can be introduced. We have already dealt with the question of the pipelines being made available to other suppliers. We are here talking about the possibility of introducing the concept of franchising the gas supply in a given area. Would the noble Lord be prepared to give some consideration to that broad concept as opposed to this detailed proposal before we come to Report?

Lord Belstead

If I may say so without appearing unfriendly, the ball is in the court of the noble Lords whose concept it is. I have tried honestly and openly to say what I think are the two drawbacks to the concept, and they are considerable drawbacks. It would be up to the noble Lords opposite to decide whether they could overcome those drawbacks in devising some alternative amendments.

Lord Diamond

I am delighted with the answer that the Minister has given, because he could not have picked on two difficulties easier to explain away. They are the easiest ones in all the subsections in the Bill. His first difficulty is that the franchise would be for a period of five years, I think he said, Why he said that I do not know, because the only reference to five years is in subsection (1), which says: Five years after the transfer date referred to in section 40 the Director shall, subject to … designate an area,". I put in a protective period of five years because it is only reasonable, after all the upheaval caused by the Government and nobody else of changing from a public monopoly to a private monopoly, that the new public gas supplier needs time to settle down.

If the Minister thinks that it needs more than five years to settle down, so be it. Let it be 10 years, or whatever period he likes. That is not a major difficulty. All we are considering is that at some time, as my noble friend Lord Ezra said, there should be the possibility of franchising so as to measure service to the consumer and efficiency in production. I see no other reference to five years. Indeed, subsection (5) says: such licence"— the franchise we are talking about, among other things— shall define the starting date, the period of the licence". If the noble Lord says that this idea is worth considering if one has a licence for 25 years or a licence for 50 years, so be it. There is nothing in the proposed amendment which limits that freedom of thought at all. The subsection of the amendment continues: the method of arranging extensions of such period". The Government think that this would be a tenable proposition worth trying out if, after X years, after the new supplier had settled down, one had a franchise for, say, 25 years (as the present one is and as the present one intended in the authorisation is) renewable for further periods of 25 years. That would surely cover any long-term aspect which very properly the Government would want to contemplate. I hope the Minister will agree that if he reads the amendment a little more closely—I admit he has not had all that much opportunity to read it because inevitably in these circumstances we have to table amendments at fairly short notice—he will come to the conclusion that there is no difficulty whatever in his first barrier to acceptance; namely, that he thinks the franchise should be for a period of longer than five years.

Secondly, he says, "We do not think that the licensee to be chosen should be chosen on the basis only that he is the highest bidder". No, he is quite right; neither do we and neither does the wording of the proposed amendment. Subsection (7) says that, The licensee or licensees"— if such be a group of people— shall be such persons … as, having satisfied the Director at their suitability in all respects to carry out the terms of the licence". So the body of people who are possible competitors for this licence can only be persons who have satisfied the director in whatever way—however awkward he wants to be, however specific he wants to be, however careful of being satisfied he wants to be— of their suitability in all respects". Good heavens, that is a high enough criterion! In any respects that the Government can think of the applicants will have had to satisfy the director—be it in terms of financial stability, integrity, capacity, experience, proposed members of the board, or the articles and memorandum of the franchisee. They will have had to satisfy the director on anything that the Government care to think about and the director wants to be satisfied about. That elite body of persons who have satisfied the director in all respects will then compete with one another to offer the highest bid in open tender in respect of an annual licence fee.

If the Government think that this should not be open to public tender and they prefer to have the Secretary of State choose, I do not suppose there is anything particularly wrong with that. But we thought that the Government would prefer to adopt the more regular commercial method of going out to open tender with the highest bidder, provided that he was perfectly satisfactory in all other respects.

Those are the only two points which the Minister raised as creating great difficulties in contemplating what we believe is a major step forward in having a measure, not of competition exactly but of comparison in this field. If I may say one further word to the Government, we do not want to be starting now on a situation in which the Government privatise the supply of gas, are followed by another government which nationalise the supply of gas and are followed by another government which privatise the supply of gas. We have had all that with steel. We want now to enter into a situation in which a Government which starts legislation moving from one system to another system contemplate permanency in the new system that they are evolving.

The noble Lord himself has said that you must contemplate very long-term investment in the supply of gas. I agree. Therefore, the gas supplier has to know that he is likely to have a fairly long run if he runs his business sensibly and well. Here is a method under which we can demonstrate that the public gas supplier is carrying out his activities so well under the new arrangements, under the privatised arrangements, that there is no need to disturb those arrangements.

If you set up a franchise which acted as a fair comparison, a fair measuring rod, and you found after 10 years or 20 years that that measuring rod was showing that the public gas supplier, namely the private monopolist, was doing a good job in supplying a fair service at a fair cost and having regard to the other things in the interest of the nation, there would be no need to alter that situation. Anybody proposing an alteration of that situation would have the onus of demonstrating that he was proposing something which could be done better than was being done at the moment.

There is therefore a very solid reason why the Government should look sympathetically at anything which is likely to demonstrate that the private monopoly is being successful. I very much doubt that they will, but that does not matter. Here is an opportunity for doing that. There are many good reasons incorporated in it and there are two difficulties which I hope that I can say fairly do not any longer exist. I hope that the Minister will give it a fair wind.

Lord Whaddon

I think that the noble Lord the Minister has been rather less than his usual generous self in his attitude to this amendment. It is ironic to sit on this side of the Committee and hear Conservative Ministers defending so keenly the very margins of a private monopoly. One would have thought that their promotion of competition and the virtues of competition over the years would have encouraged them to accept this quite modest extension of competition into the field of the new private gas world.

I should like to remind the noble Lord that in other areas where monopoly has been modified in the last decade or two we have seen some dramatic changes in the service to the public. In broadcasting, the introduction of ITV had a most beneficial effect on the service enjoyed by the public. In radio, as well, great imagination has been brought to bear by the private companies in the format of the programmes available to the public. It has really gingered up the old BBC to the advantage of everybody. In airlines, we have seen that the introduction of feeder airlines, of small, private companies on the verges of the big monopolies, has gingered up the service and tended to push down prices to the benefit of the public.

I feel that in this amendment we have a suggestion which could have a similar effect on this new giant private monopoly which the Government appear to be defending so keenly from competition. The only defence of private enterprise surely is competition, if it can be achieved. Those of us on this side are sincerely worried about the possible damage to the public of handing it over as a monopoly to a public limited company. I beg the Minister to be a little more generous towards this amendment and to see the virtues that lie in it.

The company that has been suggested as taking over a small area would have a great incentive to show innovative measures and to give a greater measure of service to the public than British Gas plc. The incentive would be there because at the end of its franchise it would certainly hope to see an extension of its area so that it would cover a larger area of Britain. It would deserve such an extension if it had shown that its service was greatly superior to that of British Gas plc.

Therefore experiments such as the noble Lord himself has referred to—area heating, novel methods of conservation, an extension of the total energy concept that we see in the United States—all these new imaginative margins of technology would be exploited by the new company, in the hope of taking over larger areas at the end of their period. I do beg the noble Lord to consider that there are great possible advantages to the public in such a system. I hope he will reconsider this rather mean-minded approach towards the amendment up to now.

Lord Belstead

Very briefly, there is a problem with this which I have not mentioned but which I would have thought must be obvious to all Members of the Committee; that is, the funding of such a franchise. With many financial experts here I shall not launch off into the rapids of that matter, except to say that when the noble Lord, Lord Whaddon, talks about the benefits of franchises in radio and television, of course we are there dealing with assets which are comparatively short lived and comparatively easy to dispose of, compared with the gas industry, where one would be left at the end of a franchise of whatever length with questions unanswered about what to do with the gas which has been contracted for ahead and what to do with the pipes which have already been put into the ground. Because of these difficulties we are seeking to encourage competition in the Bill through improving the common carriage provisions.

This has been an interesting exchange, but I confess that I honestly do not think the concept will work in the gas supply industry.

Lord Diamond

We are under very severe time constraint. Obviously it is not possible to expect a Minister to take on board a new idea immediately. The Government will need time to consider this. The further diffculties he mentioned I could deal with just as readily as I dealt with the earlier two. There are no problems whatever about finance where you have a franchise; no problem at all about providing the necessary finance when you have a franchise. The difficulty of knowing what to do with contracted gas at the end of the day is really of such minimal proportions that I am sorry the Minister thought lit to raise it. It is just like saying: what do you do when you transfer a business and you have a few outstanding debts? Or, what do you do when you transfer the ownership of a house and there are rates unpaid? Of course you make provision for that.

We attach considerable importance to this amendment. In privatising British Telecom, the Government provided for a measure of competition in Mercury. In this one they have provided for no measure of competition whatever. We feel very strongly about it and we feel the Government have not given themselves time to consider it with the usual care they would otherwise bring to bear.

We do not want to press this to a Division at the present time. I seems obvious to us that the lack of numbers on the other side might embarrass the Government considerably if a Division were called, and we certainly do not propose to do that. Nor do we propose to leave the matter. We shall come back to it on Report stage. I shall take advantage of what the Government have said in order to improve the situation and with that in mind I hope the Committee will give me permission to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 23 agreed to.

[Amendment No. 115ZB not moved.]

Clause 24 [Modification References to Monopolies Commission]:

Lord Williams of Elvel moved Amendment No. 1 15A: Page 27, line 34, leave out ("may") and insert ("shall, at least every five years,")

The noble Lord said: I rise to move Amendment 115A. I shall do so briefly in light of the fact that we are running out of time. This brings us back, I am afraid, to the question of overall control of the privatised monopoly with which we are dealing. Our view is that we have taken a lot of trouble to argue with the Government about the proper method of control. We have spent a lot of time discussing the role of the director and the role of Ofgas, and the Government have—I think regrettably—rejected our amendments, and indeed the amendments moved by the noble Lords on the Alliance Benches particularly in respect of a commission to supervise the whole industry.

Therefore, it is slightly in the nature of a last ditch attempt, if I may put it like that, that I move this amendment asking that the director should be required every five years to refer the authorisation to the Monopolies and Mergers Commission. The Monopolies and Mergers Commission themselves are directed to refer back to Clause 4 in deciding whether there should be any modifications.

The object of this exercise is to make sure that every five years an independent statutory commission, such as the Monopolies and Mergers Commission, should have the opportunity of reviewing the status of the industry, where it is going, whether it is satisfactorily handled, whether the monopoly is behaving itself, whether there is any form of even tacit collusion between the privatised British Gas and the director, so that the public can see once every five years an independent assessment of what is happening.

It is a simple amendment and does not seem to me to create any particular problems for the Government; but it is one on which we feel particularly strongly because we are not happy with the relationship between the director of Ofgas and privatised British Gas. We should like to see a review every five years, and I think that although in our view the Monopolies and Mergers Commission is not the ideal body, at least it is the body specified in the Bill and it should have a chance to undertake the task. I beg to move.

Lord Belstead

The noble Lord, Lord Williams, has explained that this amendment would require a reference at least every five years to the Monopolies and Mergers Commission. It does not, in fact, make clear what particular aspect of supply to tariff customers would be the subject to the reference. But as I understand the noble Lord, it would be of a general nature to take stock of the way the monopoly, as the noble Lord said, is working—

Lord Williams of Elvel

I am grateful to the noble Lord and perhaps I can help him. It is, of course—but it is not grouped with—part and parcel of Amendment No.118 and successor amendments, and it was in that spirit that I spoke.

Lord Belstead

I follow the noble Lord and I apprehend we shall be at those amendments soonish. Looking at this amendment, my reaction is this. When all is said and done, the provisions of the Bill as a whole will mean that the director will need to keep under review the activities of a public gas supplier and to consider whether, in the interests of achieving the goals set out in Clause 4—incidentally, a matter to which we can come back again under Amendment No. 118A, including the interests of consumers and promoting gas safety—the authorisation's conditions ought to be modified. If the director comes to the conclusion that these Clause 4 goals would be better achieved by some revised provision in the authorisation, then he will, if he cannot agree a change with the supplier, make a reference to the Monopolies and Mergers Commission under Clause 24.

I know that the noble Lord, Lord Williams, feels very strongly about this. He certainly touched on this in his Second Reading speech and touched on it again earlier on, but now that we come to the correct part of the Bill the noble Lord is moving the first of the amendments which are in this area, and the one which has this particular effect of a five-year review period is the one we are debating now.

I just have to say that we feel that the right of the director to keep under review and to go to the Monopolies and Mergers Commission if at the end of the day he is not satisfied is a better way to ensure that consumers are fully protected than imposing a rigid requirement for some kind of review every five years.

May I just add one other point? I do not think that politics ought to enter into this and, certainly, the noble Lord, Lord Williams, has moved the amendment entirely objectively. The noble Lord will understand me when I say that, with the political philosophy that I hold, I really feel that this would come rather close towards piling regulation upon regulation, when what we are trying to do in this Bill is to give British Gas as much freedom as is possible within, of course, the constraints of the Clause 4 duties. It is for those reasons that I feel I cannot accept the amendment.

Lord Williams of Elvel

I fully accept the noble Lord's reply when he says that there is a political difference between us. He thinks I am piling regulation upon regulation. I am simply trying to regulate a private monopoly in the most sensible possible way. He is trying to offer freedom to a private monopoly in the least obtrusive way. I understand that there is a political difference between us.

I am afraid that I cannot accept the noble Lord's arguments. I think there is a very clear political divide. We on this side of the Committee, and certainly on these Benches, believe that every possible means should be employed to ensure that a private monopoly acts in a responsible and sensible manner if it is to be privatised. However, having said all that, and with the promise that I will come back on this matter on Report, at this stage I will not pursue this amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Lord Renton)

Before calling Amendment No. 116, I have to point out that if it is agreed to I cannot call Amendment No. 117.

10.15 p.m.

Lord Harris of High Cross moved Amendment No. 116: Page 27, line 39, leave out ("to tariff customers")

The noble Lord said: I beg to move the amendment, which seeks to remedy what appears to be unfair discrimination against contract customers. This part of Clause 24 gives the director power to refer to the Monopolies and Mergers Commission a practice which may operate against the public interest, and it is a practice relating to "the supply of gas by a public gas supplier to tariff customers". I wish to remove the words "to tariff customers" and thereby to extend this protection of the consumer to all the customers of this large-scale monopoly.

As it stands at the moment the regulator can make a reference to the Monopolies and Mergers Commission only if it relates to tariff customers. He may well wish to strengthen the regulatory regime for contract customers where the scope for monopoly abuse or abitrary conduct is no less likely and no less damaging and distortionary. If he does, he would be required to go through the cumbersome, long drawn-out procedures of the Fair Trading Act. Amendment No. 116 would remove what I think is an unjustified distinction between tariff customers and contract customers so that the regulator can propose changes to the licence or a direct reference to the Monopolies and Mergers Commission on the contract market.

I understand that with regard to British Telecom, Oftel can appeal directly to the Monopolies and Mergers Commission. I see no reason why Ofgas should not have a similar power to discipline possible monopoly, abuses. If this amendment were to find favour there are consequential amendments. Amendments Nos. 127. 128 and 130, which sink or swim with it because they are necessary to give the Gas Consumers Council the power to refer relevant matters to both the Director General of Gas Supply and the Office of Fair Trading if the discretion of the director is to be extended in the way I have suggested.

It is not sufficient defence of the Bill as it stands to say that unforeseen abuses of monopoly power can in due course be dealt with by the Office of Fair Trading. We have to acknowledge that the Fair Trading Act is a slow process which may lead on in due course to a Monopolies and Mergers Commssion judgment after two or three years. If the Government accept this amendment, the prospect will be, as with the modification of the British Telecom licence, that an abuse in the contract market as well as in the tariff market could be ended within a shorter, predetermined time limit. Should such abuses be suspected it seems to me helpful that uncertainty should be removed and a judgment should be forthcoming as swiftly as possible.

I would only say—and I echo a refrain which has been heard throughout these long discussions—that this Bill already smacks too much of monopoly power. It must raise the spectre of the natural abuse of that power by those in charge of the monopoly. This amendment would usefully widen one small aperture of competition. It would be welcome to all except for those elevated monopoly-mongers who, I fear, have had too much of their own way in shaping this measure. I beg to move.

Viscount Hanworth

This amendment and my own amendment, Amendment No. 177, have precisely the same object in view but I must start by declaring an interest in so far as I have a connection with the EMA trade union, which is very closely connected with the electrical power industry.

The purpose of the amendment to Clause 24 is to widen the powers of the director general, in relation to references to the Monopolies and Mergers Commission, to allow him to investigate matters relating to contract gas. In the Telecommunications Act 1984, as has already been pointed out. the Director-General of Telecommunications has jurisdiction over the whole field, and it is not apparent why, at least in parallel with the Secretary of State, the Director General of Gas Supply should not be treated in the same way. That change would also mean that the director general could put forward modifications to authorisations dealing with contract gas. On present drafting, he could only do that for a modification by agreement.

There is already proposed Condition 5 dealing with contract gas. It is considered very weak as it refers only to the maximum price of gas, and the main concern of other energy providers and of other public gas suppliers is that the successor company to the British Gas Corporation might indulge in predatory pricing policies in the area of contract gas.

It is important to take into account the view of the Select Committee on Energy in another place. I quote paragraph 90 of its summary and conclusion: The recommendations we have made in this Report stem form an acceptance, widely shared, that where there is a monopoly, or the threat of monopoly power, there should be regulation sufficient to provide a proxy for the normal disciplines of competition We recognise that this means principally the tariff market. However, we do not believe that this market can be effectively controlled unless the regulator has powers of scrutiny and review over the whole range of British Gas's operations. As a result, in part, of the decision to privatise BGC intact, we have therefore made recommendations which extend his remit and strengthen his powers beyond the directly controlled tariff market. The same logic which led to the control of the tariff market leads, we believe, to the necesssity to offer some protection to those intermediate sized contract consumers which are in fact locked into gas consumption to almost the same extent as the domestic consumer". What could be clearer than that? That is the recommendation of a Select Committee on which the there is a majority of Conservative Members. At no time was there any distention; all the recommendations were a unanimous decision of the Select Committee. How can the Government ignore its recommendations—in particular, that one?

The Minister in another place argued that there was sufficient competition between the different fuels to keep non-tariff gas suppliers at a competitive level. Probably large consumers could follow the market, except where a process can only use gas—but that does not apply to the smaller firms. We rely to a great extent on such smaller firms for our future industrial success and we all know from history that small acorns make large trees.

The other argument that the Government have put forward is that action could be brought through the Monopolies and Mergers Committee. What a hope for small companies, who might receive justice long after they have gone bankrupt! It is like appealing to the European Court. I hope that the Government will consider this point. I have put forward very few amendments and this amendment, in my view, and also in the view of those who have given me a brief, is terribly important; not only for them but also for the future of this country. I beg to move.

Lord Belstead

I have listened carefully to the case put by the noble Lord, Lord Harris of High Cross, and that put by the noble Viscount, Lord Hanworth, but what troubles me is that both cases seem to be based on the assumption that there is simply a monopoly power for gas to do what it likes and that there is no competition in the energy market.

We must remember that it has today been announced that there is to be a 3½ per cent. cut in electricity prices for private consumers and a 5 per cent. cut for industrial consumers. Moreover, we are in a position, as everyone knows, where the price of oil is falling and having considerable effects on plans being made by coal and also on arrangments for pricing which need to be made by gas, and certainly the assumptions which need to be made by gas. Therefore with the greatest respect, because I always listen with great care to both noble Lords, I simply do not see how the original premise of the case can stand up. That is my first worry.

The second worry is that the noble Viscount says that he has been advised that the case for the amendment is very strong. We do not have to look very far to find that there are many people who are directly affected by the amendment and who do not agree with the case put forward. Those are people in the organisations involved as purchasers in the contract market. It is a fact that British Gas has a good relationship with its contract customers and I know that the management is determined that it should continue. That is a view which is shared by the CBI and representatives of other specialist industrial users of gas who were consulted extensively when this Bill was being prepared by my right honourable friend.

Competition is the customers' best safeguard in the industrial market. We have therefore sought to strengthen the common carriage provisions so as to provide for better opportunites for competition within gas supply, supplementing competition between fuels. In addition, the authorisation will require British Gas to publish a schedule of maximum prices for the contract sector. But at the basis of it is the fact that those with whom British Gas is contracting do not want regulation in the contract market. Those are the people whom the noble Lord and the noble Viscount are saying this amendment will protect. That is my second point.

The third and, I believe, vital point is that, to be honest, the position between what I am saying on behalf of the Government and the case put forward by the noble Lord and the noble Viscount is not as wide a gap as one might think. In the unlikely event that industrial customers need further protection—if competition is not working out properly or if abuse of the market position of British Gas takes place—the Office of Fair Trading will be able to take action through the Monopolies and Mergers Commission. That action will be initiated under the Competition Act 1980 or the Fair Trading Act 1973, and Clause 27 of this Bill provides that modifications can be made to the authorisation as part of an order under those Acts. Detailed regulations to prevent abuse can be extended to contract gas sales if necessary. Intermediate stages, falling short of full regulation, will of course be open to recommendation by the Monopolies and Mergers Commission.

The difference, as I understand it, between the amendment and the position I put forward in reply is that the Government believe that the Office of Fair Trading is the right body to trigger this; not Ofgas as the amendment suggests. Ofgas's experience and responsibilities will be related only to gas. In the industrial energy market behaviour by British Gas surely must be seen in the context of the operation of the wider market and here the Office of Fair Trading has, we believe, the right and wider remit.

I am sorry not to have accepted this amendment. The noble Lord, Lord Harris, has not been able to take part frequently in our proceedings and it is always valuable when he does. The noble Viscount, Lord Hanworth, has been with us all the time and has not put forward many amendments, and to my regret we have not been able to be very forthcoming except on an earlier amendment on the first day of our Committee proceedings, when we accepted the spirit of what the noble Viscount put forward. However, I have to say that, on this particular amendment, though the gap is narrow, I think it is unbridgeable.

10.30 p.m.

Viscount Hanworth

I do not believe in wasting time and so I shall simply say a few words to the noble Lord the Minister. He has of course repeated what was said in another place and he has not really addressed himself to the problem that I mentioned of the smaller firms. The larger firms can probably take care of themselves, unless of course for some technical reason they are committed to using, let us say, gas. It would be a waste of time to repeat what I said earlier. But I very much hope that the noble Lord the Minister will read what I have said and will seriously consider the problem of the smaller firms. I may come back to this question on Report.

Lord Harris of High Cross

I must just add that unlike the noble Viscount I am rather tempted to indulge in a little time-wasting because I think that the Minister's answer, though winningly delivered, is not finally persuasive. Of course there is competition between all the ways by which one might obtain heating. The point is that competition is a good deal imperfect and there are costs involved in shifting supplies from one source to another.

Secondly, the Minister said that the spokesmen for the great interests are not on our side. I am rather glad that they are not. I am not comfortable with spokesmen of large interests. I take entirely the point of the noble Viscount, Lord Hanworth, because those for whom the trumpets of the CBI and others sound are not those who stand most in need of this protection.

Finally, the noble Lord says that the gap is not wide because there is a procedure whereby an abuse can eventually be tracked down; but of course that is a time-consuming and long drawn out affair. We are anxious to put in the Bill some power which would really subdue or countervail the enormous authority that will be wielded by the controllers of this monopoly.

The noble Lord, Lord Taylor, asked me particularly to press this amendment and to express his regrets that he is unable to be present in the Chamber and to join us in the Lobby. For the moment I shall beg leave to withdraw the amendment.

Amendment, be leave, withdrawn.

[Amendments Nos. 117 and 118 not moved.]

Lord Williams of Elvel moved Amendment No. 118A: Page 29 line 4, leave out from ("to") to end of line 6 and insert ("the criteria contained in section 84 of the Fair Trading Act 1973.")

The noble Lord said: It may be for the convenience of the Committee if I also apeak to Amendments Nos. 118B. 118C. 118D, 118E, 118F and 118G.

In the exchange on the previous amendment, the noble Lord, Lord Belstead, pointed out that under Clause 27, to which we shall come, the Secretary of State was entitled to make references to the Monopolies and Mergers Commission under subsection (2)(a): order on report on monopoly reference". He also pointed out that there was a potential reference to the Monopolies and Mergers Commission on the basis of a merger (if there was a merger between the public gas supplier and others), and that an order resulting from a Monopolies and Mergers Commission investigation might result in the modification of the condition of a public gas supplier's authorisation. I think that I am not misrepresenting the noble Lord when I say that he made that point on a previous amendment.

I think that the noble Lord has a logical problem here. The director, when referring to the Monopolies and Mergers Commission under the clause that we are dealing with for a modification of the authorisation, specifies, or it is specified in the Bill as drafted, that the Monopolies and Mergers Commission has to have reference to Clause 4 of the Bill in order to determine what is in the public interest; yet if the Secretary of State makes a reference to the Monopolies and Mergers Commission under Clause 27 (that is, under the Fair Trading Act 1973) the Monopolies and Mergers Commission has to have regard to the criteria under Section 84 of the Fair Trading Act.

Therefore the Monopolies and Mergers Commission finds itself in that wholly schizophrenic position, where, if there is a reference by the director, it has to have regard to public interest as defined in Clause 4 of the Bill, and if there is a reference by the Secretary of State under the Competition Act 1980, it has to have regard to public interest as defined by Section 84 of the Fair Trading Act. The two definitions of public interest are of course totally different.

Our first point is that we believe that that logical nonsense should be resolved simply by applying the criteria of Section 84 of the Fair Trading Act throughout. If I may detain the Committee for just one minute, I should like to read through the main paragraphs in Section 84(1). I do not want to read through the subsidiary ones, but some are extremely important, and the Committee might wish to hear them verbatim:

1. "(a) of maintaining and promoting effective competition between persons supplying goods and services in the United Kingdom;
2. (b) of promoting the interest of consumers, purchasers and other users of goods and services in the United Kingdom in respect of the prices charged for them and in respect of their quality and the variety of goods and services supplied;
3. (c) of promoting, through competition, the reduction of costs and the development and use of new techniques and new products and of facilitating the entry of new competitors into existing markets".

These are exactly the subjects that we have been debating for the past hour or so. If those criteria were employed by the Monopolies and Mergers Commission in determining the public interest, under all references, whether under this Bill or under Clause 27 of this Bill as is provided under the Competition Act 1980 or the Fair Trading Act 1973, then I think we should go a very long way to having some assurance that there will be an objective view on whether those interests are in the public interest and will be promoted in the proper manner.

The noble Lord quite rightly said of a previous amendment that I moved—Amendment No. 115A—that it was perhaps half of an amendment. I think he readily perceived that what I was getting at in Amendment No. 115A and the amendments to which I am now speaking was that we should like to see a regular review of the gas industry on the basis of the Competition Act 1980, which refers in turn to the criteria in Section 84 of the Fair Trading Act. I said that seems to me to be the last ditch; but it seems to me to provide the sort of assurance that we on these Benches are looking for that this industry is going to be properly regulated and properly conducted.

I shall not go on longer. There is in my view a logical problem which the Government have between Clause 4 of the Bill and Section 84 of the Fair Trading Act and which has been demonstrated by the noble Lord in the answer that he made to the noble Lord, Lord Harris of High Cross, and the noble Viscount, Lord Hanworth, on the last amendment. There is an opportunity for the Government to provide us with a very clear adherence to what their own legislation in 1973 actually said about monopolies and fair trading.

I believe that this is an amendment which should commend itself to the Government. If it does not, I promise the noble Lord that we shall come back to this matter on Report. I beg to move.

Lord Belstead

I shall be brief in replying to this amendment. It is perhaps the most important of the group of amendments that the noble Lord, Lord Williams has moved. The Bill refers the Monopolies and Mergers Commission to the duties set out in Clause 4 to guide it in considering where the public interest lies when the director makes a reference, and these amendments would replace that with different powers and duties drawn from the competition legislation. For example, Amendment No. 118A would mean that instead of considering the Clause 4 duties, designed specifically for the regulation of gas suppliers, including in particular the duties as regards safety as set out in Clause 4(2) (c), the Monopolies and Mergers Commission would have regard to the duties set out in Section 84 of the Fair Trading Act 1973 which are designed for industry at large, and which the noble Lord, Lord Williams, persuasively tells me is the right way to go about things, but which, of course, is silent about safety—

Lord Williams of Elvel

May I repeat Section 84(1) (b)? It states: Promoting the interests of consumers, purchasers and other users of goods and services in the United Kingdom". That is the quality, price and the safety of the product.

Lord Belstead

Not specifically—and that is one of the reasons why I do not like the amendment. I do not believe that it would truly be to the advantage of gas consumers whom we are seeking to protect in this case.

I shall allude to only three points covered by this large group of amendments. The first point is that if a problem lies outside the area of gas supply, surely the proper route to deal with it is via the normal OFT channels with the possibility of reference to the Monopolies and Mergers Commission under general competition law. I know that this is ground that we have been over already this evening, but if a problem concerns gas supply, the provisions that we have included in the Bill ensure that it can be investigated and any remedial action taken. However, I think that to mix the two kinds of reference is to confuse matters.

The second point is that in Amendment No. 118D the noble Lord proposes that the Monopolies and Mergers Commission should look into questions of the registerability of agreements under the restrictive trade practices legislation. I realise that behind the noble Lord's proposal is a belief that there will be a strengthening of the regime, but I think it would confuse matters. The Bill seeks to exclude such questions from the remit of the Monopolies and Mergers Commission because those matters are properly for the restrictive practices court to decide under the provisions of the restrictive trade practices legislation. The Bill's provisions follow exactly those of the Fair Trading Act and the Competition Act in drawing a clear line between the responsibilities of the Monopolies and Mergers Commission and those of the court.

The last point is that I am deeply concerned by Amendment No. 118E which, as I read it, would mean no protection for any commercially sensitive information supplied by a public gas supplier during a Monopolies and Mergers Commission investigation. Such information could be published at will. I find it hard to credit that that is the effect of the amendment. I may be mistaken, but if I am not, I think that it is an amendment that the Government would not be able to have anything to do with.

Lord Williams of Elvel

I shall respond to the point that the noble Lord, Lord Belstead, made on Amendment No. 118E. The Monopolies and Mergers Commission is of course under its own restraint in publishing commercially sensitive material, and the Secretary of State has the right under the Monopolies and Mergers Commission report to determine what is commercially sensitive. Indeed, Clause 42 sets out restrictions on the disclosure of information. I cannot believe that that is a serious point. If it is a serious point, I am sure that the Government draftsman can get round it by reasonable drafting.

I agree that the Monopolies and Mergers Commission should not publish commercially sensitive information. However, the noble Lord has not answered my major points which are—I am sorry to repeat myself—twofold. First, there is a logical problem that the Government have as between public interest as defined by Clause 4 and the public interest as defined by Section 84 of the Fair Trading Act, under which Clause 27 of this Bill will operate, if it does operate.

10.45 p.m.

Secondly, the Government have not responded to my thought that Section 84 of the Fair Trading Act was designed by a Conservative Government to provide a whole framework of control of precisely the type of private monopoly that we are talking about. I am not going to press the amendments, but I shall come back to these matters on Report. I hope that the noble Lord will read carefully what we have been saying. This may be a way out of the difficult debates earlier concerning the director, the public utilities commission and the regulation of the industry. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 24 agreed to.

Clause 25 [Report on modification references]:

[Amendment No. 118C not moved.]

Lord Diamond moved Amendment No. 118CA: Page 30, line 2, after ("shall") insert ("not")

The noble Lord said: There is, I believe, a printer's error in this part of the Bill: but we shall see. We were discussing on the previous clause modification references to the Monopolies Commission. Under this clause we are discussing the reports on those references. The clause makes clear that the Monopolies Commisssion shall include a variety of things in its reports. Subsection (2) states: Where, on a reference under section 24 above, the Monopolies Commission conclude that the public gas supplier is a party to an agreement to which the Restrictive Trade Practices Act 1976 applies"— that is to say, the law of the land— the Commission, in making their report on that reference, shall exclude from their consideration the question whether the provisions of that agreement … operate, or may be expected to operate, against the public interest".

It is inconceivable to me that the Monopolies Commission is being asked to have no regard to the law of the land. It is obvious that there is an omission in the second line on page 30. The wording should be that the commission, as normally, in making its report on the reference, shall not exclude from its consideration the law of the land. This is especially so in an area where we are concerned with protecting the consumer when the consumer needs special protection. That is the reason for my amendment. It would be for the convenience of the Committee, I believe, if Amendment No. 118DA were to be discussed at the same time, as it is merely consequential. I beg to move.

Lord Belstead

With respect to the noble Lord, there is not a printer's error. The amendment would require the Monopolies and Mergers Commission, where it becomes aware that a public gas supplier is a party to an agreement that may be registerable under the Restrictive Trade Practices Act 1976, to consider whether the agreement is in the public interest or not. We believe that this would be misguided because the Restrictive Trade Practices Act gives the task of determining whether such agreements are in the public interest to the Restrictive Trade Practices Court. We feel that it would only serve to create confusion if the Monopolies and Mergers Commission was to investigate such a question when the task is properly for another body.

Lord Diamond

That is a very interesting answer and one which I had not appreciated. In those circumstances I shall consider very carefully what the Minister has said. In the meantime, I thank him for the explanation and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 118D and 118DA not moved.]

Lord Diamond moved Amendment No. 118DB: Page 30, line 11, at end insert (" (3A) The draft of a proposed report of the Monopolies Commission on a reference under section 24 above shall be sent to the Director 14 days prior to the making of a report under the following sub-section").

The noble Lord said: This is a simple administrative arrangement under which the director will have an opportunity of considering, and if necessary commenting on, a report before it is published. It is a normal situation with which we are all familiar in bodies of this kind. It was certainly well within my experience when I was chairman of the Royal Commission on the distribution of income and wealth. There is nothing political about this. I am sure the director would wish to be included and to have a presence in this, if the Government agree that that is so. I beg to move.

Lord Brabazon of Tara

Before I start may I ask the noble Lord whether he was also speaking during that amendment to Amendments Nos. 118DC, and 118DD, which were grouped with this amendment and I think probably should go with it? In the grouping we had also agreed that Amendments Nos. 119A, 119B, 119C and 122A would go together. However, I am happy to answer them one by one if the noble Lord would prefer me to.

Lord Diamond

Yes; I am very happy that that should be so. I have not spoken to them, but I do not think that matters. I had not noticed at the time that this grouping was proposed. I am very willing to accept it. I am sure I shall get the same reply whether I make a long or a short speech.

Lord Brabazon of Tara

I shall certainly try to clarify the situation in so far as we see it, and I hope to the satisfaction of noble Lords. We appreciate the concern that the director should be given time to consider a report and the need for advice to be given to the Secretary of State. But, as I say, I hope to persuade the noble Lord that the regime established in the Bill already caters for these matters.

The proposed new subsection would require the director to be sent a copy of the draft MMC report. The noble Lord also seeks to allow the director 14 days to consider the MMC's report before sending a copy to the public gas supplier and to the Secretary of State. The director will have been responsible for initiating the MMC's report and will have given evidence to them as to the need for a proposed modification. He will therefore be familiar with the subject matter. His concern will be with its conclusion and recommendations. It is not necessary for him to act immediately on receiving a report even if it contains conclusions and recommendations leading to modification action, although he will no doubt wish to act promptly to remedy any deficiency in the authorisation. But in any event the director is required under Clause 26 to give notice of proposed modifications and to allow a period of 28 days for representations or objections to be made.

The amendments also seek to require the director to advise the Secretary of State of those parts of the report on which he proposes to offer detailed advice. The director has a general duty under Clause 34 to advise the Secretary of State that in any event, since the director is required to make modifications in the circumstances outlined in Clause 26, and identified in a MMC report, he will need to publish his intention, as we have already discussed. There is no reason for him to go further than this since the Secretary of State has no role in deciding whether a modification should be made following the MMC report. I hope that with that explanation of how matters would operate the noble Lord will be happy.

Lord Diamond

I am grateful to the Minister. What he seems to be saying in general terms is that there is no need for these amendments because broadly the situation is satisfactory as it is. That may be so, and I shall read carefully what the noble Minister has said. Did the noble Lord in his reply say that there was no need for the director to be sent a report 14 days prior to the making of it in the official sense because, in the ordinary course of events, he would have an opportunity of seeing the report before it is published? That is of some importance, and I should be grateful if he would make that position clear now.

Lord Brabazon of Tara

What I said was that the director will have been responsible for initiating the report, and will have given evidence to the MMC as to the need for the proposed modification. He will therefore be familiar with the subject matter.

Lord Diamond

It is because the director is familiar with the subject matter that I thought it would be of advantage to the Monopolies Commission to let the director see the draft report before they sent it out officially and committed a howler—something which can be committed by people who have no intention of doing so at all—because they have not referred to the authority on the matter.

I thought it would be for the benefit of everybody concerned that there should be in addition to what the Minister has said this normal, courteous practice of letting the persons most interested in the report see the report before it is published; letting them have a private preview, as it were. It is a regular practice and is generally held to be beneficial. However, in the circumstances I shall consider carefully what the Minister has said, and we shall have to come back to it at Report stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 118DC, 118DD and 118E not moved.]

Clause 25 agreed to.

[Amendments Nos. 118F, 118G and 119 not moved.]

Clause 26 agreed to.

[Amendments Nos. 119A, 119B, 119C, 120 to 122 and 122A not moved.]

Clause 27 agreed to.

[Amendments Nos. 123 to 125 not moved.]

Clause 28 agreed to.

Clause 29 agreed to.

Clause 30 [Validity and effect of orders.]:

Lord Diamond

The next amendment, Amendment No. I 25ZA, is of some importance. If the Committee and, in particular, the Leader of the House think that there is any advantage in moving it I shall do so, but there is no possibility of covering it in the time available. It will make not the slightest difference, I can assure the noble Viscount the Leader of the House to the point of time at which the Committee stage is completed, so far as we on these Benches are concerned. Therefore I am not certain whether the Committee wishes me to proceed with Clause 30.

Lord Brabazon of Tara

On that basis I am most grateful to the noble Lord, Lord Diamond, and I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

House adjourned at one minute past eleven o'clock.