Privatised Utilities: Consumer Interests (Hansard, 12 June 1991)

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Reay)
My Lords, the newly privatised utilities are all subject to regulation by independent bodies with statutory responsibilities to safeguard the interests of consumers. Where the regulators have reason to believe that excessive profits have been made at the expense of consumers they have powers to act. Price caps on British Gas and British Telecom have been progressively tightened. Gas tariff customers are protected by a formula limiting increases to 2 per cent. below the rate of inflation and this will be further constrained to RPI minus 5 per cent. from 1st April 1992. British Telecom price increases will be capped at RPI minus 6.25 per cent. for 1991–92 and 1992–93.

§ Lord Dean of Beswick
My Lords, is the Minister aware that I find that Answer overburdened with complacency? Bearing in mind the substantial increase; in profits, the enormous increases in some salaries at the top of the scale and the substantial increase; to the customers, does the Minister believe that the consumer is getting a fair deal, and, if so, will he tell us why?

§ Lord Reay
My Lords, indeed I do. I consider that the position of the consumer has been transformed for the better since British Telecom and the other utilities were privatised. To take British Telecom as an example, the regulatory Oftel has been instrumental in motivating it to increase the quality of its services. The figures are getting better each year.

§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that it is reassuring to those who supported privatisation to find that the only complaint about the privatised industries is that they have made too much profit? If they had made a loss, we should have heard all about it.

§ Lord Reay
My Lords, I entirely agree with my noble friend. If the efficiencies brought about by the private sector enable high growth in profits, that is good for the many shareholders and for the taxpayers.

§ Lord Stoddart of Swindon
My Lords, if the Minister believes that the consumer is better off under privatisation, is he not living in fairyland? Is he aware that last year British Gas increased prices no fewer than three times? I have just received my electricity bill. The price has increased by 11.25 per cent. when inflation is running at 6.2 per cent. What is more, I have also received my water bill, which has increased by 15 per cent. How on earth are those inordinate and enormous increases benefiting the consumer?

§ Lord Reay
My Lords, the noble Lord mentioned gas in the first place. As well as, as I mentioned, introducing a challenging new price cap for British Gas which will run from 1st April 1992, Ofgas has negotiated guaranteed standards of service as part of the package. A compensation scheme for consumers in the event of failure to provide adequate standards of service is now an integral part of the new authorisation scheme. British Gas also now offers a free, independent energy efficiency advice service, free safety checks and free adaptation of appliances for the elderly and the disabled. That is improvement.

§ Lord Ezra
My Lords, does the Minister agree that if the public utilities in question had been more effectively restructured before privatisation, there would now be greater competition in those sectors and the interests of the consumer would have been better safeguarded?

§ Lord Reay
No, my Lords, I do not agree. In the case of some former state industries an element of monopoly remains, which is in the nature of things. However, in those cases the Government can and will ensure that an independent regulatory system is in operation to protect the interests of the consumer where that role cannot wholly be left to the forces of competition. I should like to add that even then privatisation is valuable because it enables the ownership of an industry to be separated from its regulation and frees businesses to operate in the market without government interference or the constraints of public expenditure requirements.

§ The Earl of Lauderdale
My Lords, while I accept and support all that the Minister said about the benefits of privatisation, will he give solace to a telephone consumer—whose face I could easily identify in the House—who has been invited to pay charges on a line that was not used for calls that were not made?

§ Lord Reay
My Lords, I am not sure whether my noble friend refers to a matter that has occurred recently or on an earlier occasion. Any complaints should be taken up in the first place with the utilities; and failing that with the regulator.

§ Lord Stallard
My Lords, what effect will the various capping procedures that the Minister outlined have on the grossly inflated standing charges? Those 1081 charges cause great hardship to the people who can least afford them and often bear no relation to the use of those instruments, in particular for telephone and gas. What will he do about the standing charges?

§ Lord Reay
My Lords, those are matters for which the regulators have the power and duty to investigate because they are under an obligation to promote the interests of the consumers.

§ Lord Molloy
My Lords, the Government always say that the most grievous issue they have to fight is inflation. They are, of course, right. The higher prices of the services provided by those privatised industries mean considerable increases in the bills of ordinary working people. When trade unions ask for increased wages in order to meet those increases they are told that they should hold their demands so that inflation does not rise. Will the Minister ensure that those privatised industries play their part and show the same restraint that British trade unions have done?

§ Lord Reay
My Lords, the noble Lord is not right. Prices have fallen by about 11 per cent. in the case of gas, and standing charges by about 29 per cent., in real terms, since privatisation. In the case of telephones, the prices of principal services have fallen by more than 22 per cent. in real terms since privatisation in 1984.

§ Earl Russell
My Lords, does the Minister agree that the words "the interests of consumers" in the Question include conservation, especially of water in time of drought? What has privatisation contributed to that aim?

§ Lord Reay
My Lords, I do not have details of the terms of reference for the regulators. However, the regulators have an obligation to take into account the interests of the consumer. That is why they are in place.

§ Lord Williams of Elvel
My Lords, does the noble Lord accept that the privatised monopolies that the Government have set up suffer from an inadequate regulatory machine which needs to be strengthened? Does he further agree that on privatisation the first change is that the salaries of chairmen and boards of directors rise by a spectacular amount? What help is that to the consumer?

§ Lord Reay
My Lords, pay is a matter for the company. I do not agree with the noble Lord's charge that regulation is inadequate. I should have thought that my answers indicated the importance of the action that the regulators took.

§ Lord Dean of Beswick
My Lords, in his Answer to my Question, the Minister stated that the regulatory bodies were functioning. He must be aware that some weeks ago I raised the matter of water increases. Some people had to meet increases on their bills of approximately 27 per cent. Bearing in mind that the area concerned already has a hosepipe ban, how can those people be charged an increase of 26 per cent. to 1082 27 per cent. if the regulatory body is doing its job? Does that not indicate that the point made by my noble friend Lord Williams is absolutely correct?

§ Lord Reay
My Lords, I do not believe so. The regulators will no doubt examine the figures. They will be expected to act if there is evidence, for example, that the level of profits is excessive.

§ Lord Gisborough
My Lords, is it true that one of the main advantages of high profits is that it has enabled privatised industries to borrow on the market and to put right all the under-investment that occurred during the years of nationalisation, in particular with regard to water?

§ Lord Reay
My Lords, yes, my noble friend is absolutely and completely right.