HL Deb 29 March 1994 vol 553 cc1052-68

7.45 p.m.

Lord Dean of Beswick rose to ask Her Majesty's Government whether they will ensure that customers and employees within the gas industry are properly protected as competition is introduced into the domestic gas market.

The noble Lord said: My Lords, I see from the Chamber that my powers of eloquence on the subject are not sufficient to hold a near record crowd. Nevertheless, I believe that the Question that I have asked is a very important one. It refers to customers and employees within the gas industry being properly protected in the light of the introduction of competition. Rather than speak of those people who are employed directly by British Gas, in this debate I should like to make a special feature of a consideration of those employed in the other sectors of the industry—those who supply the components and are and have been for years totally dependent on British Gas for their survival. I want to make the case for employees in two particular factories. One is in Stretford, Manchester, at Schlumberger; and the other is Smith's of south London. I feel that they have been unfortunately treated by British Gas.

I know that there are other issues in relation to British Gas, and my comrades and noble friends Lady Dean and Lord Stoddart and Lord Prys-Davies will cover a wider remit in their remarks than I shall perhaps touch on. I also start from the premise that British Gas has been placed in a difficult situation by the Government's unwise decision to widen the scope of further privatisation, hiving off services in which British Gas is already doing well. There are signs that if the consumer alone is considered, it may not be such a successful exercise. The cherries that are ripe could be picked off, and all that would be left for British Gas would be to continue to support those areas which are not so lucrative. It would have to sustain those services by putting up prices. Other people may deal with that situation.

I live in Manchester, and the two factories were brought to my notice through the press. I was able to get in touch with people in south London with regard to Smith's. Over a number of years, those two factories have manufactured meters of a particular type for the Gas Board. They knew that the time would come when those meters would be phased out. The workforce accepted that situation. They were given a date in the middle of 1995, by which time the use of the meter would cease and the workers would be made redundant. As I said, they are not employees of British Gas; they are employed solely in the making of gas meters.

Suddenly after Christmas, without any prior negotiation or discussion, British Gas brought the programme forward by 12 months. That meant that people who were preparing themselves for bad news in 1995, were suddenly confronted with it immediately. Taking the two factories in total, this means the loss of 1,000 jobs. Some noble Lords may have been present when I quoted the fact that in January this year we lost 13,000 jobs in the manufacturing sector of industry. The British Gas decision will mean that, in June or July, whenever the decision is finalised, there will be another increase in the loss of manufacturing jobs. It is not the best image and certainly not the type of industrial behaviour that we have come to expect in this country.

I realise that the days of the might of the trade unions are past. But surely, in terms of the social consequences and for the sake of humanity, a company like British Gas, with all its resources, could afford on this occasion to present a more human face rather than, as Mr. Heath once said, "the unacceptable face of capitalism". All I am seeking to do is to ask the Minister to use his best endeavours with British Gas to persuade them to stick to the original plan—that is, to keep the promise it made. I do not think that at this point in time, that is asking too much.

I said that the matter was brought to my attention through articles in the local press. I sought advice from the Member of Parliament for the area, Mr. Tony Lloyd, and I must compliment Mr. Lloyd upon the way he dealt with the situation. I do not believe that I would have been as well briefed tonight were it not for the fact that he provided me with some of my material. Some weeks ago we discussed the matter and paid a visit to Ofgas to try to redeem the situation. The discussions ended by my saying to the new director general and her staff, "What you are telling me is that in fact British Gas pulled a fast one". They nodded their heads and said that that was the case. All I ask is that the Minister uses his best endeavours to persuade the British Gas board to keep to its original programme and to the promise it made.

During the discussions that we had on the subject it came across quite clearly that it was questionable whether British Gas were right in opting for the new type of meter. From my information, the current decision by British Gas to extend its meter replacement programme by one year and to accelerate the introduction of the new solid state meter is a high-risk strategy. First, the new solid state meter technology has been given very limited field testing in gas customers' homes. For British Gas to decide to move over to buying only the new type meters in quantities of several hundred thousands on the basis of a few hundred meters on trial and laboratory tests seems to me to be a high-risk decision.

I am told that the meters that were tested were tested only in the homes of British Gas employees. To say the least, that is rather less selective than it ought to be. We must ask ourselves: what if the new technology fails? What is British Gas's fallback position? All the manufacturers of traditional meters who supplied British Gas for many years, as I said earlier, have had their contracts abruptly ended and are in the process of making nearly 1,000 people redundant as a result of that sudden decision by British Gas to turn off the supply of conventional gas meters and switch completely to the new technology meters.

The second uncertainty is the ability of the suppliers of the new solid state meters to meet the high volumes demanded by British Gas this year, but more especially in 1995 and 1996. To my knowledge neither of the two suppliers—Siemens and Eurometer, who have some form of collaboration with British Gas—has previously supplied British Gas, and the speed with which they are being asked to "ramp up" production could, again, lead to problems. Without doubt there is some risk of the new gas meter manufacturers not being able to meet the programme set down by Ofgas on behalf of the customers in agreement with British Gas.

What of the consumer? Already subjected to the iniquities of additional costs as a result of the introduction of VAT on fuel bills, including gas, it is the gas consumers who will have to bear the additional costs of the decision to extend the replacement programme; it is the gas consumers and customers who will be faced with the potential additional costs if British Gas's risk strategy goes wrong.

It seems to me only sensible that British Gas should take a more careful and structured approach to the introduction of the new meters. It would be better for all concerned for the company to revert to its original plan steadily to phase out the traditional meters and, once proven in the field, to introduce the new meters in a slow and planned manner. I seriously urge the management of British Gas to reconsider its hasty decision and to reintroduce a plan with more thought and sense, and less risk.

When one talks in terms of introducing a meter which is vital to the customer receiving an adequate and accurate service, even if the new meter is successful the difference in the cost between the two is only around 1 per cent. either way. However, I made a specific case and I have had a fair crack at your Lordships' House time tonight in speaking for 12 minutes. In closing, therefore, I ask the Minister to use his best endeavours —not simply to give me an answer to what I have said, but to use his best endeavours —to try to soften the blow for those 1,000 people who have been badly let down by British Gas. I ask him to see whether or not British Gas can be persuaded, in the interests of its public image, to go back to the original schedule it promised in the first place.

7.58 p.m.

Lord Stoddart of Swindon

My Lords, I thank my noble friend Lord Dean of Beswick for putting this item on the Order Paper, and for asking his Question regarding competition within the domestic gas market. We thank him also for bringing to the attention of the House the problems which will be faced by the 1,000 people he mentioned. My sympathy goes out to them, and I hope that the reply of the Minister will be a good and adequate one which will help them.

I want to range rather wide over the question of competition within the domestic gas area. Before I do so, I should perhaps declare an interest in that I am an adviser to UNISON, which has members in the gas industry. When the Government decided to privatise the gas industry they were clearly influenced by the then chairman, Sir Denis Rooke, who believed that British Gas would best serve the interests of the consumer as a single entity under proper public regulation. And so it was. That is what happened when the Bill came forward. That was how the Government decided to denationalise the gas industry. At that time, I was in charge of energy from the Opposition Front Bench; and I am quite sure that during the passage of the Gas Bill the Government resisted all attempts, even by their own supporters, to introduce competition into the Bill. Now, apparently, they have done a U-turn and intend to open the gas market to competition within two years. That is against the recommendation of the Monopolies and Mergers Commission, which believes that competition should not be introduced until about the turn of the century.

This unedifying dash risks destabilising a well-managed industry. It will cause uncertainty, fear, frustration and hardship among staff of all grades who have served the industry well, many of them over a very long time. Furthermore, it will also affect people in many other industries; and my noble friend mentioned one of them. British Gas has already announced more than 25,000 redundancies; but employment in associated industries will also be adversely affected. Indeed, British Gas, as part of its reaction to competition, has stopped all United Kingdom investment. The Society of British Gas Industries has calculated that this cutback has cost its industry some 25,000 jobs. So we are talking now not about 25,000 jobs in the gas industry but an extra 25,000 jobs, making 50,000 in all. That is an enormous and alarming consequence of the introduction of competition into the domestic gas market.

Furthermore, British Gas has decided to abolish regions, which will not only have an adverse effect on staff but customers as well, since the Gas Consumers Council will have no region to liaise and work with. I am connected with UNISON, but the adverse effect will be felt by all types of staff operating in other unions as well. Operating, maintenance, service and administrative staff will all feel the cold wind of redundancy, and seemingly for no good purpose since the regulator, Ofgas, has agreed to a price increase by allowing prices to be adjusted by RPI-4 instead of RPI-5. So apparently all this competition will do is put up prices—or at least that is what it seems like on the face of it. The noble Viscount who is to reply may very well tell me a different story, but it seems odd that competition which is supposed to reduce prices will actually, on the face of it, increase prices from RPI-5 to RPI-4.

When competition is introduced, it is likely that teams of expert people will be broken up, showrooms will close and the public will get a worse service rather than a better one. We must remember that British Gas provides rigorous training for its staff, particularly those concerned with safety. Are the Government concerned that safety standards may not be maintained if British Gas and its competitors become engaged in cut-throat competition? Are they confident that British Gas itself will be able to maintain its high level of safety and training in the face of competition from new entrants? After all, these new entrants will be cherry picking high-density markets and feeling under no obligation to maintain such high standards as have been maintained hitherto by British Gas. Indeed, British Gas has already intimated that it can maintain its high standards of service and safety only if all the new entrants to the gas market have to meet the same standards and work to the same rules. So we must take that threat as a real one.

Finally, I should like to know how matters relating to bad debts, cut-offs and social responsibilities to the old, to children, to the sick and to the disabled are to be reconciled with this new era of competition. How are these new firms to meet these obligations? How will they be made to meet their obligations? Will they be under the same restrictions as British Gas? What will happen? We must have an assurance from the Government tonight that these people will in no way be disadvantaged by the gadarene gallop to premature competition. I hope that we can get some answers to those questions.

8.6 p.m.

Baroness Dean of Thornton-le-Fylde

My Lords, I join my noble friend Lord Stoddart in thanking my noble friend Lord Dean of Beswick for introducing this short debate. The Question refers to customers and employees within the gas industry. Of course, the only benchmark we have at the moment is British Gas and it is on that aspect that I should like to concentrate. Having said that, and in talking about employees, I received this morning some unsought advice from a public relations company acting for one of the competitors in the industry. It provided a full brief. Not one word of it referred to the position of the employees in the industry.

As my noble friend said, British Gas has announced the loss of 25,000 jobs. That is just under 40 per cent. of its present workforce. In making the announcement it carried out no consultation with the unions. Indeed, the actual details were revealed only after pressure from the GMB and other unions whose members work in the industry. There was another worrying factor in that information. British Gas said that the average redundancy payment would be about £30,000 plus £10,000 for pension. The amount in the accounts is £1.3 billion. Taking the average, and looking at the total figure, it amounts to a total of 32,500 lost jobs, not 25,000. Clearly, some answers and assurances need to be given in that area. Those will not be voluntary redundancies. British Gas is seeking people as young as 35 to go as a result of the introduction of changes and competition.

We talk about employees and consumers as if they were two different entities. They are not. Employees are also consumers. It is in the consumer area that we must be concerned as well. On OECD figures the average of domestic gas utilisation in Europe is between 25 per cent. and 30 per cent. of the energy used. Here in the United Kingdom just under 50 per cent. of domestic users of energy use gas. Therefore, the supply of energy to such a large part of our community makes it very important that we have proper consumer protection. That is of concern when one bears in mind that the Monopolies and Mergers Commission report came out not for a break-up of British Gas but for a divestment of its trading arm.

It is quite clear that one of the ways British Gas has been able to run its operations has been by a cross-subsidisation between its trading arm and other sectors of the industry. The decision of the Monopolies and Mergers Commission in regard to the consumer will mean—this is accepted not only by the commission but by the Minister, Tim Eggar, as well as by the trade unions and consumer organisations—that in the short term there will be a price increase for gas. The Investors Chronicle went further and projected last year that if this happened not only would we see a domestic price increase but we would probably also see different tariffs in different parts of the country. Against that matrix it suggests that gas in Wales could be something like 9 per cent. more expensive than gas in East Anglia, and that is before the new VAT proposals are applied.

My noble friend Lord Stoddart referred to the social responsibilities of British Gas. That is an area of major concern. As a monopoly supplier it is required to ensure that vulnerable groups in our society are not disconnected and that they have a supply of gas. But where is the consumer protection in the new proposals and the social responsibility? It is a matter of extreme concern. It does not satisfy me to be told by competitors who are poised to come into the industry that they will ensure that their social obligations are met. I am not interested in words but requirements to have that social responsibility.

The proposed changes have already been mentioned in this short debate as regards the cutback in investment. British Gas had a programme of rapid meter exchange. However, in the South-East that was stopped without any consultation at all. One of the detrimental social spin-offs is that when replacing those meters British Gas was finding that, on average, about 250 households a week had faults within their gas supply and were potentially unsafe. Having the meters changed was a free safety check. I doubt very much whether vulnerable members of the community will be able to afford a safety check on their gas provision in future.

All the points that I have made tell me that the consumer needs a strong consumer body. So what happened? The Gas Consumers Council had about £200,000 cut from its budget; hence the cutback in staff in the regions. Where do consumers go if they have complaints? Where do consumers look, in the fragmented situation which we shall have in future, for the protection of their position? Those are all areas of genuine concern which I address to the Minister. I hope that he can give us some assurances and answers to those very real problems, not only in the employment field but the consumer field as well.

8.12 p.m.

Lord Prys-Davies

My Lords, I too should like to thank my noble friend Lord Dean of Berwick for introducing this Question which enables us to have a short discussion of the recently announced reorganisation plan of British Gas. I agree very strongly with the thrust of the speeches of my noble friends Lord Dean and Lord Stoddart and of my noble friend Lady Dean of Thornton-le-Fylde.

However, I wish to offer a few brief comments and ask a few questions about the adverse effects of this major piece of reorganisation on Wales. As part of the reorganisation of British Gas I understand that Gas Wales will be dismantled and will cease to exist. Do the Government have any view on this matter or is the Minister without instructions? Perhaps I may say a few words about the significance of this institution, Wales Gas. I believe that the noble Lord, Lord Hooson, will agree with me that we in Wales are aware of the importance of getting the Welsh decision-making machinery right and hence the importance which we attach to concentrating decision-making which affects Wales in Welsh institutions on Welsh soil whenever possible.

During the past 50 years or so, new Welsh financial and administrative institutions have been set up in both the public and private sectors. Indeed, Wales Gas, which was set up in 1947, was one of the first such institutions to be established by the Attlee government. I believe that it is fair to say that the reputation of Wales Gas as a defender of Welsh interests reached well beyond Wales and indeed reached the highest circles of government.

Moreover, experience has shown that, apart from one exception, decision-making machinery in and for Wales is clear proof of a commitment by the department or body corporate to Wales. Experience shows that, once such machinery is in place, then, apart from the one exception I have mentioned, it is there to stay. The dismantling of Wales Gas by British Gas is therefore a departure from or a breach of the principle which we have been establishing slowly over the past 50 years. The setting up of a British Gas sales office in Cardiff to sell gas to customers in Wales and the West of England from Reading to Cornwall does not compensate in any way for the loss of Wales Gas providing a comprehensive range of services to Welsh customers and also strengthening, as it did, the concept of Welsh identity. We do not accept for one minute that technological change for the benefit of the industry as a whole requires the dismantling of this institution.

I am entitled to ask, as my noble friends have asked, how much more this measure will cost Wales when it comes to be worked out in detail? It will be quite a lot. According to those who have a firm understanding of the industry, and as my noble friends have illustrated, it will cost the whole country a lot in terms of employment. Sadly, we have been alerted by British Gas, but without any consultation with the employees, that in Wales there will be a loss of between 1,000 and 1,200 jobs, many of them highly skilled, by 1998. That is our part of the burden of the 25,000 to 30,000 unemployed people referred to by my noble friends. We have always appreciated and said that privatisation was never designed to provide work for redundant miners and steelworkers or for any other group.

But can the Minister tell us what steps, if any, will the Government take to soften this blow to Wales or is he without instructions? Are we to be told that the jobs lost are an irremediable fact? Of course, we shall not accept that. If we are told that this is not a matter for the Government, I would mention to the Minister that Welsh Office Ministers repeatedly proclaim up and down Wales the success in job creation of the "rainbow alliance" as they call it, between the Welsh Office, its quangos, the WDA and the private sector.

I agree with my noble friends that another price may have to be paid for this initiative of British Gas. I understand—I believe that I am quoting from the same sources as my noble friend Lady Dean—that it is estimated that, as a result of the reorganisation and against the background of deregulation, the price of gas for the Welsh domestic consumer will rise by about 9 per cent. That means an increase of about £25 for the average gas consumer. I am baffled by that figure, as we have been led by the Government and their supporters to believe that competition should lead to increased efficiency and the reduction of charges to the customer, whereas the very reverse will happen.

It is my understanding that the 9 per cent. increase to which I have referred—or at least a very substantial part of it—will reflect the higher charges which British Gas will almost certainly propose to charge for transportation of the gas upstream from the North Sea wells to the shore to compensate for its loss of current share of the industrial and commercial market. Can the Minister tell us whether there is anything to that? Can he tell us further, if the charge for upstream transportation is £x in 1994, how can British Gas in 1995 or 1998 charge the average Welsh domestic customer £x plus a sum equivalent to 9 per cent? In other words, on what basis can British Gas revalue the transportation charge? I should be grateful if the Minister could throw some light on the formula.

Taking up a point that was made by my noble friend Lady Dean, will the Minister please tell the House whether it is anticipated that the increase will be applied uniformly throughout England and Wales or is it to be discriminatory against areas at a distance from the North Sea coast? If it is to be discriminatory, I advise the Minister that the principle is totally unacceptable in the context of the supply of gas, as it would be in the context of the supply of Scottish oil.

My last question is related to the point that I have just made. Will the reorganisation in any way serve the needs of the remoter areas or are they to be inevitably priced out of the market? Will they find it more difficult to obtain a supply of gas? I must advise the Minister that there is considerable unease about whether British Gas or an independent supplier (whenever such suppliers enter the private consumer market) will be unwilling to connect the smaller and more remote areas to the supply of gas. Is that unease well founded? In the circumstances, I very much hope that the director general of Ofgas will initiate an inquiry into the question of the supply of gas in Wales, as she has been requested to do by my colleague in another place, Ron Davies, the Shadow Welsh Secretary of State.

To conclude, I agree very strongly with the powerful case that has been deployed by my noble friends. Although we are but spectators on a distant shore, unable to influence events, we have the right to register our strong objection to this market-driven policy.

8.23 p.m.

Lord Hooson

My Lords, as the noble Lord, Lord Prys-Davies, has just mentioned the particular problems of Wales, I should like to say how very much I agree with him. I shall not follow his line of argument, however, save to say that I think that it is an enormous shame that British Gas did not follow the recommendations of the Monopolies and Mergers Commission and organise its new structure on a regional basis. Wales Gas could have been very much a part of that, and I must emphasise its importance as a national institution in Wales.

In a debate on a subject such as this, one would normally have the benefit on these Benches of the wisdom and experience of my noble friend Lord Ezra who has a lifetime of experience in the fuel industry and with nationalised industries that have been privatised. My noble friend is unable to be here this evening and I have no qualification for speaking in this debate, save as a consumer. However, it seems to me that, although the die is now cast, the Government's obsession with privatisation has been matched in my lifetime only by the Opposition's obsession with nationalisation at a very much earlier period. I should have thought that the seeds of self-destruction are equally as present in the current obsession as they were in the previous one.

The first question that I should like to ask with regard to the programme relates to its timescale. Would it not have been very much better if the Government had accepted the timescale that was set out and recommended in the report of the Monopolies and Mergers Commission? The timescale is very important because one of the insidious problems of British industry during the past decade, and of the Government, has been short-termism. Everybody is scared of the short-term implications of what the Government are doing.

I should like to refer particularly to two matters that concern people: the standard of the services and the security of supply. In my experience, the services rendered by British Gas have improved immeasurably over the years. Only last week I had to call the gas man to my flat in London because of a potential gas leak. He was there within an hour and I had been given instructions on the telephone about exactly what to do before he arrived. During the past week or so, we have heard of the sad death of Donald Swann. One always remembers his marvellous song, The Gas Man Cometh. From my experience, however, I must advise your Lordships that the gas service that I have received both in relation to my flat in London and at my home in Mid Wales has been tremendously good in recent years. We should never forget that there has been that improvement.

When something is being privatised and people are looking for a quick profit and when competitor firms are anxious to prove that they will be more cost-effective than, say, the old-established gas board, there is always the tendency to achieve the desired end by reducing the level of services. That would be totally unacceptable. Therefore, the question is: how will the Government ensure that the standard of service is not reduced?—because if it is reduced, that reduction is irremediable.

Returning to the position in Wales at the moment —that is the area that I know best—I know that the people employed by the gas board there are very skilled indeed. Many of them are not willing to move to other areas—and I do not blame them. However, we must accept that there is a danger of destroying such pools of skill. We have seen that happen in British industry time and time again. We have allowed our inherent pools of skill to be dissipated and we have suffered from our competitors as a result.

My second point relates to the security of supply over the longer term. Whenever competition is introduced, there is always a tendency for people who have just entered the industry to go cherry picking. The conveniently placed customers are the obvious target. I refer to those who can be supplied cheaply and to large consumers, whether domestic or industrial. Such customers are picked off. But how does that affect the supply of gas in distant rural areas, to which the noble Lord, Lord Prys-Davies, referred? And what will the pricing policy be?

The noble Lord, Lord Dean of Beswick, has raised a very important issue in his Unstarred Question. He dwelt largely on the question of the future of the industry's employees. I sympathise and entirely agree with the points that he made. He also raised the question of consumers' long-term interests. Those long-term interests seem to be threatened, and we should be aware of that. Everyone wants competitive pricing, but not at the cost of unreliability resulting from poor services and eventually threatening the security of supply itself.

Those are the two great concerns which affect us, and which will continue to affect us for years to come. Better services have been promised, and they have not come about. As some noble Lords will be aware, I am involved in business as well as in other occupations. I have seen marvellous plans drawn up by experts which are supposed to improve supply and reduce prices. They often do not work out in practice, although a marvellous theoretical case can be made out. We are in great danger of moving too fast towards complete competition in this industry. The timescale needs to be looked at again.

I shall mention a note given to me by my noble friend Lord Ezra. In his view, a fair and stable regulatory system is needed to ensure the orderly development of competition. Do the Government intend to propose such a scheme? If so, when, and how will they ensure that it will be effective?

8.31 p.m.

Lord Peston

My Lords, I make a brief intervention into this debate. It is brief because my noble friends and the noble Lord, Lord Hooson, have covered all the main points, and after the earlier excitements I do not believe that your Lordships will wish to be delayed too long. On the other hand, reflecting on the earlier part of the day, and wearing my economist's hat, I wonder whether, in terms of the welfare and interests of ordinary households, the efficient and equitable supply of gas is probably more important to them than the question of Sunday trading. Clearly that is not a view shared by most noble Lords who show their interest in this topic by not being present, although clearly one or two noble Lords are here.

An arguable case can be made out for how important: fuel is in terms of household welfare. On the general questions before us, I start from the MMC report. I hasten to say that it is about the most difficult MMC report that I have ever tried to read. I have had great difficulty in trying to work out the logic of what it says. It did say, and this is a body which one would assume would be in favour of competition, that it felt that the introduction of competition into the domestic market was complicated and that there were special difficulties about the safety and security of gas supplies. That is why the MMC thought that the start date for the Government's change of policy with respect to competition should be at the beginning of the next century. I wonder whether the noble Viscount will tell us about the likely publication of the Government's document on competition and the obligations of companies entering the market, and spell out in more detail why the Government feel that they can act much more quickly on those matters, given the MMC's view of the matter.

In that connection, I would underline the point trade by my noble friends. I am not against competition. I regard competition as an important part of the way in which the economy is run, but to use the expression "cherry-picking" that has been mentioned, I believe that if we are to have competition it should be—to use our favourite cliché—on a level playing field. In other words, the new competitive entrants should not be allowed to pick and choose the most remunerative and easiest customers, leaving British Gas, as it were, to pick up the pieces of the remainder, and to have the burden of ensuring the security of supply and of looking after the interests of the poorer households in our community. I should like to hear what the noble Viscount has to say on that point.

Perhaps I may also ask the noble Viscount about the extraordinary story that we heard about in The Times on Saturday, 26th March. It was about a number of rather obscure companies that have managed to find a loophole in the gas release programme which was meant to encourage new competitors into the market for industrial gas. If the story is true, and I normally assume that such things in a newspaper of that quality are true, then, to say the least, some rather dubious activities have taken place with respect to entry into that market. That is not the domestic market, it is the industrial market. I am not just concerned about the article in The Times, but also about the response of the current Director General of Ofgas which, to say the least, is a bit lily-livered when it comes to looking at this matter. I hold the new director general in the highest of esteem, but a director general has to be tough, especially when it comes to the misuse of ways of entering into the market. I should not like to see similar misuse when we come to entry into the domestic market.

Another point which I underline, and to which I hope the noble Viscount will respond, is the point made by my noble friend Lady Dean of Thornton-le-Fylde. She referred to the Gas Consumers Council. I have been bombarded by a certain amount of material for this evening's debate, but I have not heard a whisper from the Gas Consumers Council, which I should have thought would have taken an interest in this topic and take a vigorous view about what would benefit consumers. Again, I reiterate the point that that is consumers as a whole and not merely better off consumers.

On the straight economics of the issue, if some of the new entrants can pick and choose their customers, possibly choosing the best and giving them a certain amount of reduction in price, British Gas being left with the remainder will almost certainly have to put up its prices even more. Thus, the suggestion that all consumers would gain cannot easily be argued.

Perhaps I may say a word about redundancies which follow from the Government's economic policy. We are not debating economic policy tonight, but in so far as competition leads to redundancies that can in a way be accepted in the world of full employment in which we lived until we got this Government. Then, when people lost their jobs—apart from an interim period—they would have new jobs to go to. The point about redundancies now, especially in an industry like this, is that some of the workers who lose their jobs have lost them forever. Circumstances are different.

In conclusion, I am bound to repeat what my noble friend Lord Stoddart said. I would not have privatised gas. If I had privatised it, I would not have done it this way. If the Government now believe that, having done it this way it is wrong, I am not certain that their way of putting it right will work. The Government have got themselves into somewhat of a mess. I look forward to hearing the noble Viscount tell us how they will get themselves out of this mess.

There is one last point, and I must apologise for leaving it out. I have said nothing about Wales because it is not a subject upon which I usually speak from this Front Bench and I knew nothing about what was happening there. I have to endorse the remarks of my noble friend Lord Prys-Davies. I accept that what he says must be right. To say the least, I am horrified that such developments can be occurring. For the most part, none of us has been given any notice of what is happening. We are greatly indebted to my noble friend for raising that topic.

8.38 p.m.

Viscount Goschen

My Lords, I must thank the noble Lord, Lord Dean of Beswick, for introducing this important Question, and all noble Lords who have contributed. The gas industry has undergone a great deal of change under this Government. In 1986 British Gas was privatised enabling it to compete effectively abroad, where it has had great success, and to supply a better service to its customers at home. We have also encouraged competition in the gas supply market which has benefited many users.

However, most customers are at present denied the benefits of competition. Allowing them access to those benefits is the essence of the proposals announced last December by my right honourable friend the President of the Board of Trade. The main proposal is to open up British Gas' tariff monopoly to competition from April 1996. From that date all non-domestic customers would be free to switch to a competitor. The domestic market will also be open to competitors but to a limited extent. However, in the first year there will be a 5 per cent. limit on how much of the domestic market competitors can capture. They will be allowed to take a further 5 per cent. the next year with the volume limit being removed after that, subject to the regulator being satisfied that the network operator has the necessary systems in place to handle unlimited switching.

The noble Lords, Lord Hooson and Lord Peston, asked about forward planning. As has been said, the DTI and Ofgas are currently finalising a joint consultation paper which will cover in more detail the proposals for opening up the domestic market to competition and other issues relevant to the important future of the gas market. The report will shortly be published.

In opening up the market we are fulfilling a manifesto commitment which stated that we would: progressively reduce British Gas' monopoly of the retail gas market to give small users the same rights as big firms". We firmly believe that competition is the best way of ensuring that domestic consumers get the best possible deal. In a monopoly market, if you are not happy with the service you get you have little recourse. In a competitive market, you simply change your supplier. In this way gas consumers can get the best balance of service and prices that meets their own individual circumstances.

However, I should like to take this opportunity to join the noble Lord, Lord Hooson, in paying tribute to the technical expertise and standards of service that British Gas has achieved since privatisation in 1986. The challenge is to maintain these high standards for the gas consumer while at the same time providing him with real choice.

There are three aspects of these standards where consumers are looking for reassurances. They were stressed tonight by noble Lords. These are safety, social obligations and, of course, prices. First and foremost, people expect their gas supply to be safe and reliable. I assure the noble Lord, Lord Stoddart, that as the new Director General of Gas Supply has already indicated, the safety of gas consumers is of paramount importance and will continue to be so in a competitive market. Responsibility for safety is a matter for the Health and Safety Commission which will, as always, be looking at the arrangements with an independent eye to ensure that the present high standards are maintained.

The noble Lord, Lord Stoddart, and others raised the question of the social obligations of suppliers. It is a key issue. The President of the Board of Trade announced before Christmas that new suppliers would have to: adhere to a code, for example, governing disconnections and protecting the elderly and disabled". Adherence to this code will be one of the conditions of a licence without which companies will not be allowed to supply gas to the domestic market.

All noble Lords raised the issue of prices. The MMC recognised that the introduction of competition may lead to winners and losers. However, some competitors to British Gas have claimed that they would be able to offer cheaper prices to all domestic consumers. Certainly, in the commercial and industrial sectors many customers have seen savings in the region of 10 per cent. as a result of competition being introduced. We firmly believe that competition will lead to the best balance of price and service which best meets consumers' needs.

The noble Lord, Lord Hooson, spoke of the threat of cherry picking services. I reassure him that my right honourable friend announced before Christmas: it will be a condition of their licences that suppliers to the domestic market would have to supply gas to any domestic consumer in the licence area who requests it, on the basis of a published tariff … Applicants for licences will need to demonstrate that they meet certain minimum conditions, in particular adequate financial resources and access to sufficient gas to supply customers or a continuing basis". I now turn to the question of employment in the gas industry. We appreciate the anxiety that has been expressed about the loss of jobs in the industry. British Gas is in the process of restructuring from its present regional structure into five business units, each dealing with a different aspect of its business. For example, one unit will deal with domestic gas supply, another with appliance retailing and so on. It is doing that to cut costs and increase its efficiency. Much of the pressure to cut costs is coming from the requirement—to which British Gas voluntarily agreed—to limit the growth in tariff income to RPI minus four over the period to 1997. Some of the job losses reflect new technology—new information technology systems and the prospect of remote metering. In other words, the job losses would have happened anyway, even if the monopoly continued—

Lord Dean of Beswick

My Lords, is the Minister going to respond to my specific request about the 1,000 redundancies that were made out of the blue after a promise had been given of employment into next year? The work of those people was suddenly terminated by British Gas without consultation and 12 months early. If the Minister is not going to respond to that in a sympathetic manner, is he saying that the Government are prepared to see such activity and practices become the order of the day? The workers will always receive: the rough end of the stick.

Viscount Goschen

My Lords, I intend fully to cover the important point raised by the noble Lord, Lord Dean. I was about to come to that matter. As I said, the job losses would have occurred even if the monopoly had continued. Indeed, 20,000 of the job losses were announced before the President's decision on the MMC reports.

The noble Lord, Lord Dean, concentrated on the issue of job cuts by meter manufacturers. That is an important issue and perhaps I may look at the background. In the early 1980s it emerged that natural gas was having an adverse effect on meters fitted with leather diaphragms, which dated back to before 1980. The result was that some of the meters were over-registering. Ofgas considered enforcement—

Lord Dean of Beswick

My Lords, perhaps I may save the Minister some time. I am perfectly aware of the technicalities, because I have gone through them. 'The Minister is correct in saying that the redundancies would have occurred next year in any event. I am not disputing that point. The argument in principle is that British Gas, without consultation, brought the redundancies forward by 12 months. That was to the utter dismay of the 1,000 people involved. There is no argument about the quality of the meters; the issue is that 1,000 people have been badly let down by British Gas.

Viscount Goschen

My Lords, it is important accurately to set the scene to these redundancies. The technical background is important in explaining why the situation came about. I shall briefly explain the situation and the Government's reaction to it.

Some of the meters were over-registering and in 1987 Ofgas considered enforcement action on the grounds that British Gas was failing in its duty to ensure that all its meters were in proper working order. Ofgas was able to withhold such action since British Gas agreed to double the rate of meter replacement in its existing 20-year replacement programme. That was to the manufacturing limit of the two principal meter suppliers, as mentioned by the noble Lord, Lord Dean. They were Schlumberger UK and United Gas Industries. Last year British Gas decided to stop using synthetic diaphragm meters and transfer to installing new electronic ultrasonic metres. In its opinion, the latter are better meters. As the noble Lord, Lord Dean, stressed, the result of the decision was that jobs were lost both at Schlumberger UK and at United Gas Industries.

While we appreciate and understand the noble Lord's sincere concern about the job losses, the question of which meters British Gas uses is entirely a commercial matter for it as a commercial company. The role of Ofgas is solely to ensure that the replacement programme is completed as quickly as possible because gas consumers must be supplied with accurate meters. It is very important to ensure that the consumer is protected.

Lord Dean of Beswick

My Lords, before the noble Viscount leaves that point, I wish to be clear about it. I do not question the change to another meter. I made the point that it had not yet been proven. But I do not for one moment want the Government to interfere with the policy of the industry. I do not believe that the Minister has yet dealt adequately with the point I raised. By his silence is he saying that he fully approves the action of British Gas in bringing forward redundancies by 12 months, without any discussion, when people have been given a guarantee that their jobs will be there until next year, with the result that 1,000 people have been put out of work one year earlier? He must have listened to the point that I made. When I visited Ofgas with Mr. Lloyd, the Member of Parliament for that area of Manchester, I stated to the new director-general and her staff that it looked as though they were totally surprised that British Gas had not consulted Schlumberger and Smith's before the announcement of the more rapid redundancies than those for which they had given a guarantee. My response was to ask whether I was being told that British Gas had pulled a fast one on them. The answer that I got was "Yes". If that is the order of the day which the Government will support in a debate like this, I believe that they are supporting very poor standards indeed. Will the Government use their best endeavours to persuade British Gas that it ought not to do this and that it should stick to its original promise?

Viscount Goschen

My Lords, the point that I sought to make was that, as the noble Lord himself agreed, it was not for the Government to intervene in what was a commercial matter for British Gas.

Lord Dean of Beswick

My Lords, I did not say that. I believe that we have a Government that can intervene if they wish to.

Viscount Goschen

My Lords, I do not believe that I can add to the position as I have stated it very clearly. We do not feel that it would be appropriate for the Government to intervene in what is a commercial matter; that is, British Gas's choice of which meters it considers to be appropriate for use in their system.

The noble Lord, Lord Prys-Davies, raised the question of the reorganisation of the British Gas Wales system. I have to say again that it would not be appropriate for the Government to intervene in that decision. It is part of the restructuring programme that is being undertaken by British Gas. However, British Gas has said that the new structure will retain the identity of British Gas Wales. There will be a major gas supply centre at Helmont House in Cardiff serving not only Wales but also the South West of England. Two gas transportation centres located in Wales will be responsible for the pipeline and storage network throughout Wales. Their precise locations are yet to be decided. The Welsh management scheme will continue to represent the very best interests of Wales in any companywide decision. The reduction in manpower in the Welsh operation will be in rough proportion to losses throughout England and Scotland as well.

Many jobs will be lost through natural wastage and voluntary redundancies in the overall British Gas redundancy situation, not in Wales specifically. British Gas hopes that there will be few compulsory redundancies. We must also realise that as British Gas loses customers other suppliers gain them. With the opening up of the domestic market no doubt competitors will need to take on more employees to deal with the large increase in their customers.

The important point is that we should not be considering the gas industry in isolation. Lower industrial gas prices improve the competitiveness of other industries and employment prospects in other sectors. Since privatisation, industrial gas prices have fallen in real terms by 30 per cent. It is by improving the competitiveness of all industry and commerce in this way that we shall create jobs which are genuinely secure, not by perpetuating monopolies and encouraging inefficiencies. What we are looking for is the same safety and reliability in our gas supply that we have enjoyed so far, but with the general lowering of price and better tailoring of service to individual needs that consumer choice and competition provide. I outlined our achievements to date in the gas industry at the beginning of my remarks this evening. We now need to carry these achievements forward, and I believe that the decisions which the Government made in response to the MMC reports will do this.

British Gas has made it clear that its job cuts will not impact on the standards of service it provides and will not lead to a reduction in the vitally important issue of safety. I have made it clear that the Government will ensure that the rights of domestic consumers are fully protected. The publication of the consultative paper will be the first step in the consultation process, the purpose of which is to ensure that the present very high standards in the gas industry are maintained.

House adjourned at four minutes before nine o'clock.