§ 3.9 p.m.
The Minister of State, Department of Trade and Industry (Earl Ferrers)
My Lords, I beg to move that the Bill be now read a second time.
I remember, after the war, thinking that gas—with those awful grey kitchen stoves and funny flickering railway lights and remembering, even as a child, the lamplighter going round the streets with his stick switching on individual street lights—was a relic of the Victorian era. It certainly was to me. But my goodness, how wrong could one be!
Gas over the years has transformed itself into being a clean, highly efficient, highly competitive form of energy. In my book, that is a staggering achievement and one which, in the 1950s, would have been quite unthinkable.
It is not, therefore, surprising that there has been a long history in this country—and elsewhere, for that matter—of the gas industry being organised on the basis of a monopoly. It seemed the logical and sensible thing to do. That dates back as far as the Gasworks Clauses Act 1847, which I doubt if many of your Lordships will be able to recall! Like much Victorian infrastructure, those provisions were built to last. Many of the ideas behind that legislation continue to be reflected in the current Gas Act.
But what our predecessors, nearly 150 years ago, did not foresee—and, indeed, what has only become clear in recent years—is that having a monopoly in the ownership and maintenance of the pipelines is not incompatible with having competition with the gas which is actually transported through the pipelines and which eventually ends up in the homes or businesses of the consumers.
The idea that one could separate the function of supplying gas from the operation of providing and looking after the distribution system—in other words, the pipes—has emerged progressively over the past few years as a successful and competitive market has been developed in the supplying of gas to industrial and commercial customers. That happened in 1988, and has continued since. It has happened to those premises which consume more than 2,500 therms a year. They have been able since then to choose their suppliers. In fact, independent suppliers have taken over half of the business in that particular market, and real prices to those industrial consumers have fallen by about a third.
This Bill is really a continuation of that experience by providing the necessary legislation to extend the benefits of competition to the 18 million or so domestic gas consumers in Great Britain. The proposal is that competition will be introduced progressively from next year, 1996, and it should be able to cover all of Great Britain from 1998. It will start with a pilot phase in the South West consisting of some 500,000 domestic consumers. A second phase involving 2 million customers will follow in 1997 and there will be competition nationwide in 1998.
By doing this in stages, it will be possible to ensure that the necessary technical, administrative and licensing arrangements will be operating properly before the competition is extended to all the 18 million or so consumers throughout Great Britain.
1267 The purpose of the Bill is to give consumers choice. It will enable them to choose the service which they want. It will provide a powerful incentive on the suppliers to become increasingly more efficient, for nothing concentrates the mind in business better than the thought that there may be somebody who can do the job which you are doing better or cheaper than you are doing it. It will provide a strong pressure for prices to be lowered. Independent suppliers have already said that they believe that they will be able to offer average savings of around 10 per cent. on British Gas's current prices.
The first supplier to confirm its intention to enter the market in the South West next year has said that it will cut existing bills by at least as much as 10 per cent., giving savings of £30 or so a year on the average domestic gas bill of £300. The provisions of the Bill will be supplemented—as was the case in the 1986 legislation—by licences. Drafts of the standard conditions of those licences have already been made available for public consultation, and they were considered when the Bill had its Committee stage in another place.
We are now considering all the comments which we have received and, while technical changes will certainly be required, we have not heard anything at this stage which would make us want at present to make substantial changes to the principles of the licences. Once we have finished that consideration, we will be able to publish the revised drafts. I hope that we will be able to do this, particularly for the supply licence standard conditions, while the Bill is still before your Lordships.
I think that it might help your Lordships if I were to outline the three important principles which have guided us in formulating the legislative and licensing proposals. First, there is safety. That is an issue, quite obviously, of the greatest importance. That is why the Government asked the Health and Safety Commission for a thorough report on our competition proposals. It made that report; we have published that report; and we have accepted that report. Its recommendations will be implemented by the Bill, by the licences or by separate regulations under the Health and Safety at Work etc. Act 1974.
British Gas will continue to provide a first-class safety service to customers through its pipeline business which is called TransCo. Members of the public will have a single, national emergency telephone number which they can contact if they suspect that there may be a gas leak, whether that is in the home or in the street.
Secondly, I would like to give some assurance about that horrible expression which is sometimes used. I have heard the noble Lord, Lord Clinton-Davis, use it. I expect he will use it again today, but I hope that he will not because I shall mention it for him. It is that horrible expression "cherry picking". That is the idea that new suppliers will just pick and choose the best customers—those assumed to be living in the largest houses and who therefore use a lot of gas—and will just ignore the rest who would then have to face higher prices from British Gas as a result.
But both theory and experience suggest that fear is wholly misplaced, and that any relative difference in prices which may emerge must be seen against the likely reductions in overall prices. Competition itself limits the 1268 ability of suppliers to pick and choose because it gives that right to customers. If all suppliers were to aim only at a small part of the market, there would be insufficient business to go round and the margins would be minuscule. Suppliers are much more likely to seek a broad base of customers in order that they can build up a strong market share.
Experience in the industrial gas market supports that. When we opened that market in 1988, people expressed those very doubts and thought that suppliers would just pick the best customers. But that has not happened. Instead of prices rising, industrial customers of all sizes throughout Britain have seen substantial price cuts—averaging about a third in real terms—since competition started. But in order to ensure that there is no chance of that happening, we are taking some measures which are designed to add to the market forces in bringing the benefits of competition to all customers. Not only are we proposing to impose on suppliers an obligation to supply on request any customer who resides within their licence area, but we are making that choice a real one by requiring suppliers to offer a variety of different payment methods. And there will be a requirement for the supplier to publish the terms on which he will supply the gas.
The third important point is to provide effective protection to older or disabled customers or to those who have difficulty in paying their gas bills. All suppliers to the domestic market will be required to provide a number of special services for older and disabled customers which, in the future, will all have to be free of charge. These services will include such things as a gas safety check of the customer's fittings and appliances; special controls and adaptors for prepayment meters and gas appliances; repositioning of meters; special means of confirming the identity of callers; and many others. Where customers get into genuine difficulties, they will be able to have recourse to the debt and disconnection procedures which all suppliers will have to follow. Those procedures will include offering payment plans and prepayment meters in order to help the customer to be able to discharge his liabilities and to pay for his gas.
I am afraid that the Bill itself contains some pretty technical stuff. This particular subject is not what one might call light tea-time material. I think that it is only fair to warn your Lordships that I am afraid that it will be necessary for me to put forward a number of amendments during the course of the passage of the Bill. I will endeavour, though, to ensure that, wherever possible, your Lordships receive good notice of those amendments, which will be mainly technical, together with a written explanation of why they are being made.
The Bill's main task is to divide the old "public gas supplier", which was at the centre of the Gas Act 1986, into the three separate types of gas company which will be appropriate for competition. The first type of company will be the public gas transporter. It will operate the pipelines. That function will remain a monopoly at the local level. The second type of company will be the gas supplier. It will offer consumers contracts for the supply of gas, and it will have the responsibility of actually providing services to the customer. It will be possible for several suppliers to be licensed for the same area so that they can compete with one another for the business of 1269 supplying the gas to individual households. The third type of company is the gas shipper. It will have the specialist function of arranging with the public gas transporter for, as it were, shoving the gas into the pipe and then ensuring that it gets out at the other end into the consumers' premises. The Bill allows an organisation to act either as supplier or as shipper or both. However, public gas transporters must be separate legal persons.
The Bill amends Part I of the Gas Act 1986 in order to reflect this new industry structure and the consequences of competition. Clauses 1 and 2 adapt the duties of the Director General of Gas Supply and the Secretary of State to the new framework and they put in place additional safety considerations. The Bill introduces a new licensing framework, which is appropriate to the three new types of gas companies, together with certain exceptions and exemptions.
Licences will be granted by the Director General of Gas Supply. These will normally be on standard conditions and they will be set initially by the Secretary of State. That will ensure that the conditions are the same, unless special arrangements are justified. Ministers will have a reserve power of veto over subsequent changes to the standard licence conditions or, where changes may be made to those conditions as a result of a reference to the Monopolies and Mergers Commission, a power of veto over the reference itself.
The Bill provides for exclusive areas for distribution of gas by public gas transporters. We expect that British Gas TransCo will continue to undertake the great majority of gas transportation throughout Great Britain. But there will be scope for other companies to compete for licences to convey gas to new areas. That will help to encourage the extension of the gas network. There are also arrangements to ensure that supply licences do not unfairly exclude pensioners or the disabled or those who are likely to default on payments. And there are provisions governing the coming into effect of the supply licences during the pilot phases and how applications for licences may be made. The Bill sets out the scope of conditions which may apply to licences, including the arrangements which may enable certain costs to be shared among all suppliers. All those matters, together with the arrangements for the standard conditions of licences, are set out in Clauses 3 to 8 of the Bill.
The new "gas code" is proposed in Schedule 2. That replaces the one in the 1986 Act. It sets out provisions on metering; on the supply of gas to consumers; on the handling of gas escapes; and on rights of entry. It also provides for deemed contracts where consumers are taking a supply of gas but where they do not have a contract with a supplier.
The Bill provides new powers for the Secretary of State to direct the operators of certain gas processing facilities in order to make them available to other people. These powers fill a gap in the present regulatory arrangements and they complement the existing powers which relate to offshore pipelines. The Bill also contains a number of detailed modifications to the existing Gas Act, reflecting the introduction of competition, and it contains transitional arrangements in order to facilitate the reorganisation of the industry. These are set out in Schedules 3 and 5.
1270 The whole purpose of this Bill is to bring the benefits of competition to gas consumers all over the country—and in many different ways. Perhaps I may highlight just three of them. The first is that competition will give a new commercial impetus to energy efficiency as suppliers compete, as it were, to the warming of houses rather than just to selling therms of gas. In the past, when there was a monopoly, trying to get energy efficiency programmes to work has been rather like pushing water uphill. If you run a monopoly you do not increase your business by actually selling less gas. Life just does not work that way. In the same way you do not set out to trim a tree if you are sitting on the branch which you are proposing to cut off.
But competition changes all that. In a competitive market a supplier can win business by being more competitive than his opponents. A competitive supplier is interested in the size of his particular slice of the market and not the total size of the market. It will, therefore, be in the supplier's interest to promote energy efficiency as a means of getting more custom, even though the total consumption may fall. By harnessing the power of the market to the cause of energy efficiency, we believe that substantial gains are possible. The new funding for the Energy Savings Trust that the Government have announced will get these initiatives off to a good start.
The second benefit which the Bill will provide is that consumers will welcome the opportunities of having cheaper gas. New organisations are already talking about charging 10 per cent. below the present British Gas prices when the pilot starts next April in the South West.
The third benefit which the Bill will produce is that it will bring service to the forefront. After 150 years of monopoly, there is now a tremendous opportunity for the consumer to turn the tables on the gas supplier and for the consumer to say what he or she wants as opposed to just sitting back and getting whatever is provided, and having to pay the bill without any alternative.
The Bill has been widely welcomed not only by the gas industry—including British Gas, which may surprise your Lordships—but by consumer bodies, including the Gas Consumers' Council which will play an important part in the new market. Each of those interests has qualified its welcome with its own particular points, but welcomed it they have.
I hope that your Lordships too will welcome the Bill. I have great hope, now that noble Lords opposite have done away with Clause 4 and all that jazz and have turned their backs on nationalisation that they will agree that privatisation of the gas supply is a good thing. I commend the Bill to the House.
§ Moved, That the Bill be now read a second time.—(Earl Ferrers.)
§ 3.27 p.m.
§ Lord Peston
My Lords, I thank the Minister for introducing this most interesting Bill. He is right about it being technical. I glanced through it during his speech and 1271 wish to refer your Lordships to Schedule 2, paragraph 25, which is headed, "Gas meters and fittings not to be subject to distress". Sub-paragraph (2) states:In the application of sub-paragraph (1) (a) above to Scotland, for the word 'distress' and the words 'in bankruptcy against' there shall be substituted respectively the word 'poinding' and the words 'for the sequestration of the estate of'".I hope that in due course your Lordships will not be distressed by having to discuss such detail.
Perhaps I may make four general points at the outset and reassure the Minister by saying that I welcome the Bill, mainly on the ground that it enlarges the scope for competition, which must be to the advantage of most consumers. I use the word "most" advisedly because there is a question to which I must return; namely, whether "most" can be replaced by "all".
When the 1986 Act was debated, the central focus was for or against privatisation. The Government argued for a regulated private monopoly. The Opposition took the view that if the industry was to be a monopoly it should remain in public hands. However, some believed in the classical view that whether or not privatisation was good, it was vital that the newly privatised industry structure should be one of competition. The Government resisted that. The most that they were willing to allow was that competitors of British Gas could use its pipelines to supply large industrial users. Subsequently that was extended to smaller industrial users.
In essence, the Bill recognises the original error of setting up a private monopoly and seeks to rectify that. It is worth recalling that the previous director of Ofgas accused British Gas of anti-competitive practices and the Monopolies and Mergers Commission ruled that some of British Gas's practices operated against the public interest.
My second general point is to repeat that I recognise how technical the Bill is. Therefore, much of what I wish to say about it is best dealt with in Committee. This afternoon I shall indicate those areas of the Bill which are most in need of clarification and change.
Thirdly, it is difficult and probably futile to debate a subject like this without referring to general energy policy. But that is what we are obliged to do. Despite requests from all sides of your Lordships' House, no time has been found to debate the White Paper on nuclear power. That would have been the ideal context within which to place the future of the gas industry. Whether we are looking at the demand for coal, the scale of nuclear production, the use of gas for electricity generation, who will be the new entrants to the gas industry or for how long gas reserves will last, all those matters need to be considered if we are to take a rational view of this measure. But we shall not be able to do that.
Fourthly, the Bill raises important questions about the regulatory framework. Is it working well? Can it be made to work better? The questions which arise in that regard are to do with what is called regulatory capture and disclosure of information which should be in the public domain but which firms claim is commercially confidential. Of course, we must look also at the balance of the interests of shareholders and consumers.
1272 Now perhaps I may indicate some parts of the Bill which I consider to be the most important. On that, there is one further general point to be made. Much of the Bill amends the 1986 Act. One reason for that is the need to provide for the extension of competition. But it may be that the Bill has amended that Act for other reasons too and we shall need to pursue that.
I start with competition itself. The Bill refers to "effective competition". As an economist, I am not at all sure what the Government have in mind. I understand what competition is but I do not understand the expression "effective competition". I shall table an amendment to clarify the meaning of the word "effective".
In that connection, perhaps the Minister will be able to tell us whether he has had any indication of the number of potential new entrants in the long and short term and who they may be. There is an image that the competitors will be small relative to British Gas. Nothing could be more mistaken. I presume that some of the new entrants will be massive organisations; for example, the oil companies.
In another place the Minister was asked about the probity, financial and otherwise, of possible new entrants. He said that that would be dealt with by the director general. That may well be right, except for the lack of accountability of the director general. Since it is not obvious that the maintenance of supply can be guaranteed and the supplier of last resort function remains problematic, to say the least, we need further clarification of that. Again, in due course I shall table a probing amendment which will enable the Minister to say more about that.
I note in the Bill the repetition of the phrase that is in the 1986 Act:to secure that, so far as it is economical to meet them, all reasonable demands in Great Britain for gas conveyed through pipes are met".Again, apart from the question of interpreting what is meant by "economical" and "reasonable" together in the same sentence, we need to ask whether that condition has always been met in practice since privatisation and whether the wording is correct for the new competitive circumstances.
That relates to the problem of whether all consumers will gain. It is alleged that in existing circumstances some high cost consumers are helped by cross-subsidisation, which is feasible given British Gas's monopoly power. I think that the Monopolies and Mergers Commission said that there would be some consumers who would lose as a result of this new measure. It states:We recognise that, while introduction of competition may well result in a reduction in the overall level of prices, some groups may be worse off".As noble Lords know, I have a rather low opinion of the Monopolies and Mergers Commission's activities in recent years, and some of its reports have been bizarre, to put the matter at its mildest. The Consumers' Association, which, like the other consumer organisations, supports the Bill, has written to a number of your Lordships saying that it will benefit all consumers. The National Consumer Council is a little more cautious. What is the Government's opinion? Is the Monopolies and Mergers Commission mistaken? Can we be assured that, without a shadow of doubt, all consumers will benefit?
1273 Furthermore, on consumer protection, noble Lords will have heard from the Gas Consumers Council. It says:We believe strongly that the move to a competitive market should not require the relinquishing of major statutory principles inherent to consumer protection, particularly since the Gas Bill does not give the Director General an overt duty to secure effective choice for gas consumers".That is an important matter to which I shall return in Committee.
A most important part of the 1986 Act was Section 17 on meter testing and stamping. I am sure that all noble Lords will have acquainted themselves with that section of the 1986 Act. That is replaced by paragraph 13 of Schedule 3 to the Bill. However, there appear to be important changes which involve the director general. Meter examiners are now to be members of his staff, whereas before they were appointed by the Secretary of State. Again, without prejudging whether that is in the interests of consumers, we need to examine carefully the new words.
That takes me on to:the interests of those who are disabled or of pensionable age".I am aware that that repeats what is in the 1986 Act and nothing that I say should be interpreted as being unsympathetic to those groups, as I approach both categories myself. However, I must ask why it applies only to them and not the poor in general.
En passant the noble Earl referred to those who have difficulty in paying their gas bills as being a responsibility, but I see nothing at all in the Bill which refers to that. Therefore, I should like clarification.
In that connection, we should note that all that the relevant powers that be—the Secretary of State and the director general—have to do is to "take into account". Why should they not be obliged to take into account any action by gas suppliers which are to the detriment of very poor people, especially in the light of my question of whether all consumers will gain? That is the view of the National Association of Citizens Advice Bureaux and I agree with it. Noble Lords will be aware of the existing code of practice which provides a number of important services free to the old and disabled. Will that code of practice continue? What is its statutory basis? Will it apply to all new entrants to the industry?
On pensionable age, we have the twin difficulties that at the moment the pension ages for men and women differ but in future, as the method of equalising, the age for women will be raised. When we are discussing couples and the question of pensionable ages arises, can we assume that the lower age will be relevant? When we equalise pensionable ages, which I favour—and in this case they are being raised—for that purpose, why should not the pensionable age for couples be deemed to be 60?
There is considerable interest in the environmental reference in the Act and the Bill. Again, we shall need to explore whether extra safeguards will be needed in the new commercially competitive environment. The Country Landowners' Association has written to many noble Lords on the environmental impact of the laying of new high pressure distribution pipes. Those fears are serious and we must address them.
1274 A similar point applies to safety. Gas is one of the most dangerous substances to be found in peoples' homes. I have been asking people what they think is the most dangerous substance in their homes. The list is enormous but gas is certainly on it. Therefore, there is certainly a public interest in ensuring safety. If appliances are installed poorly or are not well serviced, or if problems such as leakages are not dealt with promptly and efficiently, the danger is to neighbours as well as to the household immediately affected.
Although it is important not to discourage entry into this market, it is vital that all suppliers have the same obligations in regard to safety. In Committee we shall raise questions about so-called Corgi standards. The Gas Consumers Council has reported an increase in the number of complaints that have been made against registered installers. After the enactment of the Bill there is a danger that those problems will increase. We shall therefore need to look at a statutory foundation for standards of service in installation and repair.
The question of licences is largely a matter of detailed scrutiny but I should like to make some general points. The noble Earl has given us useful information about the progress that he has made. When will we have the details of the licences that will be offered? He stated that he hoped that we would have them during the passage of the Bill. Is it too much to hope that we could have the detailed forms so that we can debate them by means of amendments in Committee? We all agree that we cannot accept these licences sight unseen; they must be subject to parliamentary scrutiny.
In raising the following aspect of an obligation to supply, I declare an interest, which is that I live in a block of flats. Will an obligation to supply apply to households or to premises? Will there be an obligation to supply each individual flat owner, or is the obligation to supply the whole block? That is not a trivial matter.
All those matters relate to amendments to Section 10 of the 1968 Act which is contained in Schedule 3 to the Bill. I shall reflect on what the noble Earl has said, but it appears that there is no statutory obligation to supply individual customers. We shall look at that more carefully at a later stage.
The subject of licences leads on to the role of the regulator. Regulating a private monopoly involves different considerations from regulating a competitive industry, albeit one in which competition will be less than straightforward. I cannot believe that the new job will be any easier. I add in parenthesis that I have no intention today of discussing the pay of the regulator, although in my view all regulators need careful scrutiny, especially the one or two who perform their jobs in a less than satisfactory manner.
I shall take the opportunity at the next stage of the Bill of putting down amendments to clarify the role of the regulator, especially in regard to answerability to consumers, shareholders and the public. There is an element of arbitrariness in the scope of the regulator which should be examined. Can the Minister confirm that in the Bill the Secretary of State appears to be giving himself new powers akin to those of the regulator? That matter should also be examined in detail.
1275 I move now to the area of transparency. Competition must be based on full information if it is to work properly: that is one of the oldest propositions of economics. As Adam Smith emphasised, firms intrinsically hate competition and find every reason under the sun not to compete and to justify secrecy. The Government have fallen for that nonsense on more than one occasion. Consumer protection requires that full information is available to everyone as to the prices charged by all firms and the terms and conditions on which supply is made available.
The current example of Which? magazine offers a useful comparison of best buys in telephone services. I am sure that the Consumers' Association and Which? will do the same good job in relation to gas. But we cannot rely on such an organisation, excellent though it is, to perform a job which is essentially one for the public sector and for government. There must be no secret contract and no small print. That is a matter of law and something which should not be left to market forces. The National Consumer Council suggests that the responsibility for providing consumer information enabling national choice to be made should lie either with Ofgas or the Gas Consumer Council. That is worth pursuing further. As the Gas Consumers' Council asserted, nothing in the Bill should lower the degree of consumer protection that is already enshrined in statute.
As the noble Earl stated, before the changes envisaged in the Bill come into force there should be some pilot exercises. Can the Minister tell us later this evening the details of those studies? What is their purpose? Will they be published? If problems are discovered, how will that effect the legislation, the licences or the regulation? Parliament in general and your Lordships in particular, I am sure, would wish to be informed of those studies in order to be able to comment on them.
I have tried throughout my speech to be constructive. If there is to be a widening of competition it must serve the intended purpose of lowering prices and improving services to consumers. For firms to make money out of those circumstances is incidental to the main aim and is not the primary objective. The Bill does not go far enough to help the consumer but we can improve upon that situation. Having said that, I should like to reassure the Minister that, subject to those remarks, the Bill is welcome.
§ 3.45 p.m.
§ Lord Ezra
My Lords, I wish at the outset to declare an interest. I have been in competition with the gas industry in one way or another since 1947. While I was in the coal industry I fought hard to build up coal's share in the markets in which gas had penetrated. More recently, I have been involved in competition within the gas market as chairman of an independent gas supply company. Over the decades, therefore, I have gained considerable knowledge of the gas industry from the outside, and I agree with the tribute that was made by the noble Earl to the enormous technological progress that has been achieved by the gas industry in the long period in which I have been involved in competing with it.
1276 When I started, coal was exclusively used as their feed stock; then they moved to oil; then they moved to liquefied natural gas that was imported from Algeria, and finally to natural gas that was obtained from the North Sea. The most outstanding achievement was the way in which all the gas appliances were changed throughout the country. We should pay tribute to that great industrial achievement in this country.
Creating competition within the markets for gas has taken many years. That is the object of the Bill and something that from these Benches we fully support. It was intended to be introduced by the Oil and Gas (Enterprise) Act in 1982. That Act gave free access to gas pipelines. However, there was one snag. No one could get hold of any gas because British Gas bought it all. The situation continued after the Gas Act 1986 which confirmed the monopolistic position of British Gas. The only change was to a private monopoly. I recall the debates during the passing of that legislation. I was one of those who raised the question of competition. I received the answer that there was competition with other fuels. When I argued that many consumers, particularly the smaller ones, were locked into gas I was told that nonetheless there was freedom of choice.
It was due to the intervention of Sir James Mackinnon, the first director general of Ofgas that competition was introduced into the industrial and commercial gas markets. It took a reference to the Monopolies and Mergers Commission in 1988 and to the Office of Fair Trading in 1991 for that situation to be brought about. Approximately 52 per cent. of the total gas market is now open to competition and over half of that percentage is supplied by independent operators.
The Bill is concerned with the opening up of the remaining 48 per cent. of the market which is represented by domestic consumers, If, as is proposed, the market is fully opened up by 1998, it will have taken 16 years to achieve full scale competition in the gas market, involving three separate pieces of legislation, two references to the Monopolies and Mergers Commission and one to the Office of Fair trading. At last we are getting there.
In spite of the present criticisms, British Gas provides a good service to domestic consumers. I happen to be one myself. Since December 1986 domestic gas prices, excluding the effect of VAT, have fallen by 22½ per cent. in real terms. The supply is reliable, there is a good back-up service, and safety is given absolute priority. Further, elderly and infirm customers are specially cared for and provision is made for those who have difficulty in meeting their bills. So it is fair to ask whether the new arrangements proposed in the Bill will improve on that or, at the very least, not in any way weaken this already good service provided to customers.
There is at present a common price for domestic gas throughout the country. Price freedom is henceforth to be allowed. The noble Lord, Lord Peston, referred to that point. But I believe that we should ask what the impact of that will be on those consumers furthest placed from the points of supply and taking only small quantities. The Minister gave us an assurance about preventing "cherry picking", but can he give an indication of the range of prices likely to be anticipated under the new regime?
1277 Service is a vital ingredient and is of relatively much more importance to domestic than to industrial consumers. Can the present high level of service clearly given by British Gas be assured when the market opens up? Above all, as mentioned by the noble Lord, Lord Peston, will the elderly, the infirm and those having difficulty meeting their bills be treated at least as well as they are at present?
British Gas has a good record of dealing with safety problems, to which the Minister and the noble Lord referred. TransCo, the transportation arm of British Gas as now reorganised, will retain responsibility for dealing with gas leaks and other risks. But the consequent repairs, after the risk has been dealt with, will be a matter for the consumer to sort out with private sector operators. How will that compare with the present situation when British Gas can deal with the whole matter at one go, thus avoiding consumers being deprived of gas supplies for a period, which could be serious if it occurs in winter? Prices, service and safety represent essential issues. Domestic consumers who have been used to high standards under the regime of British Gas will need to be reassured under the new regime.
In that connection, I must say that I was disturbed to note that, in Clause 1 of the Bill, protecting the interests of consumers of gas is given a secondary priority. That is surely a matter of prime importance. I would welcome the views of the Minister as to why it has been given such a secondary priority. A further duty which has also been accorded a lower priority is the promotion of efficiency in the use of gas. I find that extraordinary in the Government's oft-repeated commitment to improve the environment and diminish harmful emissions. Indeed, the Minister referred to the importance that the Government attach to energy efficiency which he thought could be promoted by competition, but why has that been made a secondary duty in the Bill?
A welcome feature of the Bill is the retention of the Gas Consumers Council. It has proved itself to be a worthy champion of the domestic gas consumer. It is regrettable that the Government have refused similar arrangements for other privatised fuel industries.
I turn now to the licensing arrangements. The draft transportation, supply and shipper licences have been issued, although they may be changed. We are told that the revised version of the supply licence, for example, will be available to us in sufficient time for us to debate it at later stages. Those licences fill many of the gaps left open in the Bill. However, it could be argued that too much has been put into the licences and too little into the Bill. That continues a recent trend in legislation to minimise what is in Acts of Parliament and to maximise what is left to discretion. It means that changes on quite major issues can be made without parliamentary scrutiny. That is an issue which will undoubtedly be raised as the Bill goes through its other stages in the House.
As a result of the Bill, and in particular the granting of licences, Ofgas will have its powers substantially enlarged. Therefore, it is of increasing importance that it should operate in an open and accountable manner. Indeed, I believe that consideration should be given to an appeals procedure.
1278 In an operation as complex as the opening up of the domestic market for gas, it is right that there should be pilot exercises. We are very pleased that the Government have decided on that procedure. We have been told that such exercises will take place in 1996 and 1997. However, it is a matter of concern that neither the DTI nor Ofgas propose to issue reports on the conclusions to be drawn from the pilot operations. That was particularly requested by the Trade and Industry Committee of another place in its report of 23rd November 1994. The committee recommended that,the DTI and Ofgas should set out how they propose to monitor the impact of the limited competition during the transitional period, what arrangements there will be for consultation and parliamentary scrutiny, and what criteria they will use to assess the success of competition in the pilot areas. Provision should be made for reports to the House on experience in the pilot areas before further steps are taken".That seems to me to be an eminently sensible proposition which, however, the Government appear to have rejected in debates in another place and in their answer to the Select Committee's report. It would be helpful if the noble Earl could comment on the situation. Further, can the Minister also indicate whether there could be a delay in introducing the first pilot scheme due to disagreements over the Network Code—a very complex arrangement— which was referred to in this morning's edition of the Financial Times?
There is one further aspect that I should like to touch upon briefly; namely, that of the assignation of rights and liabilities which is contained within Schedule 5 to the Bill. Paragraph 2 of the schedule, as currently drafted, would permit British Gas to assign contracts, without counter-party assent, to an affiliate. That has raised concerns with some of the gas producers who are parties to those contracts. I can see merits on both sides of the argument. On the one hand, companies which have invested significant sums of money against the security of their gas contracts are troubled if the contracts are assigned to a subsidiary without the financial strength of the parent; on the other hand, conditions in the market have radically changed and some discussion and flexibility may be needed.
The assignment of those contracts to a subsidiary does not seem to me to give British Gas an easy option to repudiate them. It would be a very serious step for a company like British Gas to walk away from a subsidiary. I am sure that that is not in the company's mind. It is clearly an important issue and I shall be interested to hear the noble Earl's views on the subject.
The Bill represents the conclusion of the long process of opening up the gas market to competition with which, as I indicated, we on this side of the House agree. British Gas generally provides a good service to its domestic consumers and has kept prices under control. It is essential that the standards set by British Gas, particularly in its treatment of its consumers who are elderly, infirm or on low incomes, are maintained at least: at the present level, if not improved upon. More emphasis needs to be given in the Bill to the duty to protect the interests of consumers and to promote energy efficiency. In my opinion, a better balance needs to be struck between what 1279 is contained in the proposed licences and the Bill itself. I am sure that these issues will be covered at subsequent stages of our debate.
§ 4 p.m.
The Earl of Caithness
My Lords, first I should like to declare none of my interests. I have no shares in British Gas or gas companies, nor do my children. I am not paid by gas companies, although I admit that I have asked for briefing from some and received unsolicited briefing from others. I have even received unsolicited briefing from a company that appears to have changed its name following some pretty bad publicity. I sometimes wish that we could do the same!
The unease that I feel over this Bill is concerned with its principle. It affects a company that is already in the private sector. Therefore, the share price will be affected. I do not like any government to do that, and that is why I declare an interest in having no shares. It is the principle that I dislike. It is detrimental to the share price, and that is bad. I fully approve of the objectives of the Bill. As my noble friend the Minister has said, it will give consumers choice. I am all for consumers having choice. I may benefit from it in London, but I certainly will not benefit in the country. The greater competition that the Bill will offer is undoubtedly good for the industry and for us.
I believe that we must bear in mind two forms of competition. So far my noble friend the Minister and the noble Lords, Lord Peston and Lord Ezra, have concentrated on competition within the United Kingdom. I wish to touch on that matter and also competition worldwide. So far as competition within the United Kingdom is concerned, there must be a level playing field. (I know that my noble friend the Minister loves expressions like that.) At the moment, there is not the transparency that the noble Lord, Lord Ezra, mentioned. We need that transparency so that consumers can make a rational choice. The noble Lord, Lord Peston, mentioned the Which? report on telephones. We need to have that information, not in a magazine, but clearly presented. It means that each company needs to have information about the others so that there are no hidden costs, and one company is not forced to disclose its prices and others do not. That is wrong, and we must not allow that to happen in the competitive domestic market.
It is also important that the companies which stand to make a good reward within the gas business also suffer the same risk. One cannot have one lot of companies subject to a different risk from another lot of companies. The playing field must be level for consumers and the companies. We in this country are extremely good at opening up our market to competition. As a result of this Bill, state-owned companies will come into our market when there is not the remotest chance of our getting into their home markets. That point needs to be borne in mind.
That takes me logically to the next step: worldwide competition. I do not believe that we realise just how lucky we are in this country to have a company of the stature of British Gas. Whatever has been said recently— I make no judgment upon whether it is true or false—we have a world-class company with world-class people. It is 1280 a world leader and is a huge asset to UK Limited. Here, I put on my old Foreign Office hat. When travelling in the Far East, in particular, I was struck by how immensely important it was for any British company that wished to do business overseas, particularly in that market, to have a strong home base and to be able to provide exactly the same services in the countries in which it wished to do business as it proved it could offer at home. I believe that we must always have that in the back of our minds when we look to divest the monopoly situation from British Gas. We need to leave the company with the right amount of infrastructure in this country so that it can legitimately go abroad and say that what it has done in the United Kingdom can work in that particular market, too. Without that added strength the marketing opportunities for British Gas will be reduced; this in itself will be detrimental to UK Limited. I am sure that none of your Lordships wish that to happen.
I turn to the pipeline situation and TransCo. This is a unique operation. One is considering something like 160,000 miles of pipeline, which is about six-and-a-half times around the world. That is a fundamental base on which British Gas can sell its expertise worldwide. I believe that the Bill has it about right, and I do not wish to see any change.
So far as I am concerned, one other point in the Bill deserves brief mention at this stage I refer to the existing gas contracts which have been mentioned by the noble Lord, Lord Ezra. He is right to say that there are arguments both for and against a change. However, some of the briefing that I have received tends to put the companies that wish to seek a change in the Bill in the position of having their cake and eating it. Any of us would like to be in a position where our risk was severely limited by a guarantee but we would be open to take whatever rewards were available. I return to my original point about a level playing field. All of the companies must face the same risks and rewards. So far as existing gas contracts are concerned, I support what is in the Bill, in Schedule 5, Part II.
Having expressed my unease, I reassure my noble friend the Minister that I support the Bill. I hope that this House gives it a fair and speedy wind on to the statute book, and that we as consumers will benefit from it but that we as UK Limited do not deprive ourselves of any benefit either.
§ 4.7 p.m.
§ Lord Wade of Chorlton
My Lords, like other noble Lords, I approve of the Bill. I support anything that improves the opportunity for new businesses to develop and offer wider services. Both my noble friend Lord Caithness and the noble Lord, Lord Ezra, said that British Gas had proved itself to be a most successful company and had brought great wealth and opportunity to Britain. It is the fifteenth largest company in Europe. It is the leading gas company in the world. Britain is looked upon more and more as the leader in the development of new technology in all aspects of energy.
I declare an interest. I am president of the Combined Heat and Power Association. We have a considerable interest in seeing a reduction in gas prices. There has been 1281 a reduction in industrial gas prices by over a third during the time that British Gas has been in operation. That has brought enormous opportunities as well as technology improvements. I believe that that same improvement and reduction in prices will continue as the Bill comes into operation and many more companies come into the business.
The noble Lord, Lord Peston, said that what should first be considered was an energy policy. I would have thought that, as the Government's energy sectors had improved, and new Bills introduced and approaches developed over the past few years, that was exactly what we had. What we will have as a result of this Bill is a further step towards the development of energy service industries. At one time, one dealt with large monopoly companies which sold one energy source. Slowly, we have companies that are involved in a whole range of energy activities. Following this Bill, the next stage is the development of companies that will not provide actual energy sources but heating or hot water as a general commodity to meet a requirement for the wellbeing of one's home or business. In a sense, we are evolving an energy policy that will create a whole range of forceful, independent, high-tech companies that can provide to the customer a whole range of services that he wants. I believe that that is the right approach. Those companies will be competitive and will be encouraged to come into the industry with new ideas and opportunities. As a result, all consumers will benefit.
The noble Lord, Lord Peston, also said that the purpose of the Bill would be to reduce prices and not produce profits. I believe that that is what he said. If he did not do so, I apologise.
§ Lord Peston
My Lords, the purpose of the Bill is to reduce prices. If as a consequence profits were made, that is all right. My point was that the purpose of the Bill was not to produce profits per se.
§ Lord Wade of Chorlton
My Lords, I would argue that it will be difficult for the consumers to achieve their aims unless it is clear to everyone that profits can be produced. One of the advantages of the Bill is that many more companies will be encouraged to come into the business, to invest in it, and to be aware of the consequences of their actions. To ensure that companies do that, they will have to make a profit. It is clear that we must not set up a series of regulators and regulations which discourage people from taking the opportunity that the Bill offers. The purpose of opening up markets is to encourage more people to invest in them. That is where the benefit to the consumer lies.
The noble Lord, Lord Peston, also referred to the question of pipelines over land. I cannot help but support him on that. The greatest rows that I have ever had in my life have been with people who wished to put pipelines over my land and did not pay me the compensation that I thought was my due. I envisage more rows of that ilk. If the noble Lord wishes to raise those issues during Committee stage, he will find a supporter on this side of the House. I hope that we can make clearer provisions regarding compensation so that we can seek to avoid the rows and difficulties in which landowners and those who wish to put pipelines over their land are now involved.
1282 I welcome the Bill. It will open many more interesting opportunities. I hope that with a further reduction in gas prices we shall see combined heat and power used on a greater scale. Within that context, the Government have to be aware that as the opportunities for investment widen we shall see further developments resulting from the reduction in gas prices. Over the next few years attitudes to energy and energy use will change quite dramatically.
With regard to other aspects—again I must declare an interest in energy from waste organisations—we must ensure that Government do not put unnecessary regulations in the way of allowing the market to evolve to the benefit of all. I hope that the Bill is another step forward in allowing the market place and the demands of the consumer to set the pace at which change occurs.
§ 4.13 p.m.
§ Lord Skelmersdale
My Lords, when I started to prepare for this Bill, in which I should declare an interest as an adviser to British Gas, my eye lit on one of the many booklets I have accumulated about the utilities, which have become one of my abiding interests over the past few years. It is called, Gas: The Final Act and is subtitled Securing benefits for all consumers. It was part of the lobbying of the Government at a time when it was doubtful that legislative time would be found for the Bill in this Session of Parliament.
It occurred to me that it was a very apt title and my mind went back to the usually unsung but amazingly successful progress of the gas industry in this country over almost two centuries—rather longer than the noble Lord, Lord Ezra, has been involved in the energy field. The discovery that town gas could not only be liberated from coal but piped quite long distances and used both for heat and light, even in your Lordships' Chamber, was followed by the creation of a multitude of small gasworks up and down the country.
An element of regulation started to creep in. Was it, I wonder, for the first time that that word was used in relation to the utilities? I was not around to know! And this plethora of small companies and municipal undertakings was, as we all know, nationalised in 1949. The next 40 years of progress was truly amazing, as the noble Lord, Lord Ezra, said. Somehow this country—which really means the gas consumers of the 1950s, 1960s and 1970s—managed to finance the development of gas from the North Sea, and, more importantly, to lay thousands of miles of steel pipeline crisscrossing the country, and to convert every single appliance to natural gas so that 19 million domestic and business customers had access to gas in factories, workshops and houses the length and breadth of Great Britain. That network is now valued at a massive £17 billion. I would describe the process as a second industrial revolution.
It is, I believe, no accident that this Bill keeps that staggering undertaking, as my noble friend Lord Ferrers called it, as a near-monopoly pipeline system under the control of British Gas, albeit hedged about with Chinese walls so that the trading arms of the company should be treated in the same way as any other customer and not have a better deal. In another place, there was a question of turning the enterprise into a fully fledged 1283 subsidiary—a "separate legal entity" as it was called. For my money, that means that British Gas becomes a holding company with at least two subsidiaries— TransCo, and everything else. There would be immediate calls for all five business streams—I shall refer to them in a moment—to be independent, and eventually bids would come in for parts of the company. I firmly believe that separating out TransCo in such a way would lead to the break-up of British Gas. Even though it is currently turning itself from a home-based gas production and delivery company to one of our major export winners, it is not in the interest of government, the company or its shareholders for your Lordships to encourage that situation. To put it bluntly, it is not in the national interest.
But I am getting ahead of myself. For 10 years I was inveigled away from the energy field, but I was able to watch from the sidelines the rapid changes that were occurring and the arguments, both pro and con, that were developing. Regarding "the selling of the family silver", how wrong that phrase turned out to be, with net revenue to the taxpayer increasing by leaps and bounds. In retrospect, putting revenue on deposit and earning interest might have been a better expression. Then there was the phrase which was peculiarly inappropriate for gas. "Privatising a monopoly", was the sneer from the Benches opposite, and from some on this side too. They conveniently forgot to mention that although, yes, British Gas was a monopoly supplier of a product, it was not a monopoly energy source—the noble Lord, Lord Ezra, made that point—nor did it have a monopoly of production.
No one has to use gas. In modem times the industry has always competed with electricity, oil and coal for heating. Firms and people use it because it is clean, convenient, as safe as possible, with a very good back-up service, and above all cheap; and it is becoming cheaper almost, it seems, by the minute—a reduction of over 20 per cent. after inflation in untaxed terms since 1986. Even in taxed terms that means a reduction of about 16 per cent.
Can we say the same of electricity? No. The only utility with which we can compare the industry is the telephone industry, which, although quite different, gives us some pointers as to what will occur when the Bill fully takes effect. So, too, does the competition introduced in 1990 for the industrial and commercial sector, and the few domestic customers using more than 2,500 therms a year. They have seen their gas bills fall by between 10 per cent. and 20 per cent., and, incidentally, the market share of British Gas fall to well below the 55 per cent. level suggested as appropriate by the Monopolies and Mergers Commission.
The industrial gas market is now completely open to competition, and competitors, mainly linked to oil and electricity companies, now supply more than half the total gas used in this country. That is quite a change since 1986. That is not why British Gas is going through a difficult stage at present. It is because it has been persuaded, by a mixture of Ofgas, the MMC and Government, all of which jointly hold the whip hand—and currently rightly so—to disaggregate the company.
1284 The original suggestion was just to separate gas trading from the transport of gas, which will, one can safely assume, remain a monopoly activity for many years to come. However, the board decided to go a great deal further and separate into not two but five business streams. TransCo, which operates the gas pipeline and storage business, would, as I have said, have been forced upon the board even if it had not gone along with the proposal willingly, as I believe it would. TransCo is now accompanied by Public Gas Supply, which deals with the 18 million customers using under 2,500 therms a year around whom the Bill revolves; Business Gas for those using more than that figure; Retail, selling a wide range of domestic cooking and heating appliances not necessarily powered by gas and thus directly competitive in the high street as that sector has always been; and finally Service, providing installation and servicing, mainly to domestic customers and small businesses, and again not a monopoly. So there are five business streams, each with its own managing director. I consider this restructuring as the business equivalent of the distribution network feat I mentioned earlier. Added to this, the customer base has fallen and obviously will continue to fall; so, if for no other reason, cost cutting is essential.
It is a truly massive upheaval, and it cannot be achieved without pain both to British Gas and to its customers, who, like all of us in these islands, are basically conservative with a small "c". (As my mother's family motto puts it, "Plutôt mourir que changer"—"better die than change": singularly inappropriate for this day and age, at least in this context, but there we are.) No wonder standards of service have slipped a bit and customer complaints have risen, but we should keep our perspective. The complaints may number thousands, but the customers number millions.
While talking about standards of service, it has been suggested by the Consumers Association that some standards are not appropriate for the new competitors that this Bill promotes but that they will remain appropriate for British Gas. In my book, this idea, which tilts the playing field that my noble friend Lord Ferrers is so keen to get away from in a totally unknown direction at the whim of the regulator, who already has far too much freedom, should be resisted. We all approve of competition but it must be fair and public—transparent, as my noble friend Lord Caithness called it.
We have already seen unfair competition in the gas industry, or at least competition which is less than even-handed, in the liberalisation of the contract market in order to encourage competitors. Only British Gas has had to publish its contract prices, thus giving the competitors a benchmark, while British Gas has had no knowledge of the prices it was competing against. I am very pleased that the regulator intends to correct this anomaly at last, but only for a trial period. It must not be allowed to happen at all with any gas sales, and I was glad to hear my noble friend on the Front Bench say that it could not happen under this Bill. Where would telephone competition be without the publication of the various firms' tariffs? How else can consumers make the fundamental choice that my noble friend talked about?
1285 I believe that this is a good Bill, even a very good Bill and that, despite the strictures of my noble friend Lord Caithness, it deserves support on all sides of the House. However, there are very real worries. British Gas, with the Government behind it, has over the years built up an enviable reputation for protection for those customers who find it difficult to pay their bills on time— incidentally, not necessarily those on income support and family credit. The citizens advice bureaux are quite right about this. It is vital that those schemes continue in the new competitive era.
It would also be damaging to the Government's reputation if the new entrants to the market were allowed licences for very small areas; for example, the Grosvenor Estate in London, without, say, Westminster City Council's flats in Page Street. This is why I am delighted that a sensibly-sized trial is to be made in the West Country, with its mixture of conurbations and rural areas.
I know that in some quarters the transferability of long-term contracts is a worry. They are to be moved as a block to new trading subsidiaries. How anyone can argue that British Gas should so damage its reputation as to allow the subsidiaries to fail is totally beyond me, and clearly also beyond the noble Lord, Lord Ezra. Sunoil are so insistent on this point that they sent me, through their lobbyists, not one but two briefing papers showing their concern. One wonders why, if it is a real point, other potential suppliers have not sparked on this.
I agree with the noble Lord, Lord Peston, about probity. Much more worrying to me are the financial standing and gas supply proposals of the new entrants. Both are of paramount importance but, so far as I can see, only the former is covered by Clause 1. If the new entrants' businesses were to fail, it would indeed be a section of the 18 million who would suffer. I should like to be told that the regulator will control this firmly and refuse licence applications if there is any doubt on either of these two scores: otherwise it will be a blow to the Bill, and perhaps an irredeemable one.
To sum up, fair competition with common rules which cannot be changed at the regulator's whim is good competition. It is good for the consumers and good for the suppliers, both new and old, as we have seen in the telecommunications industry. That is what I hope we all want to see in the gas industry. I think this Bill goes a long way to achieving it and, with a few tweaks here and there, will make a very successful Act of Parliament. For today it behoves all of us, wherever we sit, to wish Gas: The Final Act a safe passage through your Lordships' House.
§ 4.26 p.m.
§ Baroness Macleod of Borve
My Lords, I should like to start by thanking my noble friend the Minister for the excellent way in which he has drawn our attention to what I believe is an excellent Bill. I must also declare not only an interest in, but an affection for, this Bill and all that is in it, because I had the privilege of being the first National Gas Consumer Council chairman. I think that was in 1971; and in those days I was able to work, not in conjunction with, but with "Mr. Gas" himself, Sir Dennis Rooke, who was responsible for making British Gas what it is today. I should also like to thank the noble Lord, Lord 1286 Ezra, for all that he said about British Gas. Of course I cannot speak on behalf of British Gas, but I know that he is right and I thank him very sincerely for all that he said.
We are today discussing one of the most important service industries in the country, and indeed in the world. By 1998 the competition in British Gas will have been introduced to 18 million domestic customers. It will include many more people in the country: those who for many years have wanted to have British Gas and to be on the pipeline. They may now have more opportunity for that than they have had in the past. But overriding everything, as we all agree, is safety. That problem has been overcome in most areas. There are very few problems now with safety, but because gas is a substance that can be easily ignited, it must be underlined that safety is paramount and is still the most important criterion for all suppliers and users of gas.
That leads me to say that domestic appliances and equipment must be installed by trained operators. I hope that that requirement will be in the Bill. British Gas has always trained its own installers in the past and I know that today many of the installers have been there, man and boy, from leaving school right through until retirement, such is their devotion to British Gas. I think perhaps I might be allowed to say that. They have been ably assisted, of course, as we know, by the members of Corgi, but it is vital that all new suppliers are required to use equally well-trained operators when they install appliances in domestic and other premises.
I can speak from knowledge of the problems of the Country Landowners' Association, which have been brought to our notice by the noble Lords, Lord Peston and Lord Wade. If they went to Bacton and saw how North Sea gas has been brought under the cliffs and through pipelines in Norfolk, they would be amazed at how British Gas has managed to restore the countryside of that county. It is difficult to find the pipelines. I believe that I am right in saying that the little yellow caps on the tops of stakes which we occasionally see in the countryside are the only means of denoting where the pipes lie beneath the surface. I hope that the Country Landowners' Association will be reassured that British Gas is one of the best organisations when it comes to restoring the countryside after installing gas pipes.
As I said, I was at the Gas Consumers Council when gas was first brought in from the North Sea and we all changed to North Sea gas. I say "we", but unfortunately I do not have gas. But everyone who is lucky enough to have it changed to North Sea gas. I well remember that at first North Sea gas was disgustingly smelly. It smelt so disgusting that British Gas removed the smell from the gas. It devised another smell which was not quite so bad, but at least the gas had some smell, so that one could not put one's head in a gas oven, as people occasionally did, without smelling the gas.
As the noble Lord, Lord Peston, said, the Gas Consumers Council received 25,500 complaints during 1994. Few problems arose from the service; most of them related to the method of payment and ability to pay. The present systems of payment, which will presumably be universal, are by direct debit, credit, or prepayment meters. They all seem to be unpopular, but then of course paying bills is always unpopular. That is more so now that 1287 there are only just over 300 showrooms where one can pay one's bills, have a grouse about services, or talk about whatever it is one needs to talk to people from British Gas about. However, there are 19,000 post offices. A great many of these are now far too small and it is sometimes difficult to get in to a post office. Nevertheless, one can pay one's bills at a post office.
The subject of paying bills takes me on to a point which I want to raise with the Minister; namely, the standing charge. The Minister was kind enough to draw our attention to the problems of the elderly, the disabled and people who cannot take enough exercise to keep themselves warm. They often use more fuel in their houses than the younger or the able-bodied among us. Bearing in mind that elderly and disabled users frequently feel the cold more, I want to ask the Minister today whether consideration can be given to reducing the standing charge for disabled and elderly people in our society. That would be enormously encouraging to them. I know that they would be very grateful.
Shareholders and consumers are important people and are the end users of all the work of British Gas. I urge those who are now running this vast and important industry to recognise that, although the customer is not always right, without them life in this country would be much the poorer. I wish the Bill a safe, short and quick passage.
§ 4.34 p.m.
§ Lord Gisborough
My Lords, like so many of your Lordships, I welcome the introduction of the Gas Bill. Consumers in the industrial and commercial gas supply market have already benefited by savings of as much as 20 per cent. as a result of competitive marketing, and in April 1996, as we have heard, domestic consumers in the South West pilot area will benefit from similar price reductions through the process of liberalisation.
British Gas will inevitably lose some of its share of the domestic market, which will in turn mean that it will require a smaller quantity of gas supplied from fields in the North Sea operated either by itself or by other investors in North Sea oil or gas production. While British Gas may lose a share of the market, the size of the market will still remain constant or will possibly even expand, so British Gas should not find it more difficult to reassign to the new independent gas marketeers, at market rates, some of the supply of gas it will no longer require.
It is against that background that I am concerned about the precedent being set in Schedule 5, where we are effectively allowing the renegotiation of gas supply contracts freely entered into in the past by two willing parties just because the supplier at the consumer end may possibly change some time between 1996 and 1998 or beyond. I believe that that provision will have profoundly damaging effects both in relation to the future development of Britain's offshore gas and oil resources— and, hence, longer-term gas supply security—and internationally in relation to the sanctity of contracts, a principle that is fundamental to the interests of a country whose offshore sector enjoys such extensive offshore investment. For example, investment banks may be 1288 reluctant to supply investment capital to explore and then produce from North Sea fields if they believe that contracts to supply the oil and gas produced can be renegotiated at more favourable terms to the buyer some time afterwards, thus reducing the revenue and increasing the risk of the investment.
I am reminded of other legislation in an entirely different area which also threatened the sanctity of contractual law—namely, the Leasehold Reform Act, which also raised considerable concerns, particularly on this side of the House, back in 1992. In fact, that Bill led to something of a breakdown in party discipline for some time afterwards. The Leasehold Reform Act followed a precedent created by the previous leasehold reform legislation of some 20 years earlier under Labour. Every time this happens it becomes easier to legislate against existing contracts, until retrospective legislation will become fully acceptable. That will be a sad and highly damaging state of affairs. I am, as I was then, a strong supporter of liberalised markets, but not if it means sacrificing the United Kingdom's reputation internationally for respecting the sanctity of contract law.
Paragraph 2 of Schedule 5 as currently drafted would allow British Gas without counterparty assent to assign contracts to an affiliate which may not have the financial means and structure necessary, or even possibly the inclination, to meet the commitments that British Gas made on freely entering those contracts. As it has been expressed by one Member in another place, if the going got really tough British Gas could allow those smaller operations to founder as companies and its obligations would then disappear. The gas suppliers would then be left to pick up the tab.
I believe that there is merit in British Gas being able to renegotiate gas supply contracts in the event that its share of the domestic market reduces with the introduction of competition, but only in circumstances where the North Sea producer is aware of that option when he enters into an agreement with British Gas initially. In other words, the retrospective aspect of the provision should be withdrawn so that the assignment of rights and liabilities applies only to gas contracts negotiated and agreed after the Bill has received Royal Assent. Any future gas supply contracts negotiated after Royal Assent would be subject to liabilities being reassigned, but then at least both parties negotiating would be aware of that extra dimension at the time of negotiation.
§ 4.39 p.m.
§ Baroness Gardner of Parkes
My Lords, I have no more interest to declare than anyone who has a gas supply in the house. However, listening to the statement that there were few service complaints made me realise that I must pursue mine. For four months I have been writing to British Gas and making numerous telephone calls which have resulted in no action at all.
This is a most interesting Bill, which will have a far greater impact on the 18 million gas consuming households than the privatisation of British Gas as an integrated, though strongly regulated, monopoly. As we have all heard, from April 1996 in the pilot area domestic 1289 gas consumers will be able to choose who supplies the gas on which they depend for warmth and comfort in their homes.
I welcome the new Gas Bill as a landmark in the progress towards choice for the consumer. In drafting the Bill, the Government have no doubt taken account of the importance of making sure that entry into the market by new gas suppliers will not be hindered. But in examining the Gas Bill, particularly from the standpoint of consumers—and I speak now on behalf of the Gas Consumers Council, which has asked me to raise the point—I see that the balance of parliamentary protection may be moving away from the domestic consumer towards the gas supplier.
My concern is that the Bill on its own will not provide as much statutory protection for consumers as the present Gas Act, which had already been improved through the Competition and Services (Utilities) Act 1992 to incorporate principles of public service embodied in the Citizen's Charter. The supply of gas, electricity, water and telephone services into people's homes is widely recognised as a public service. The Citizen's Charter has clarified what the consumer is entitled to expect from the utilities that provide those services: accessibility, choice, information, non-discrimination, openness and standards, including redress.
It is the Government's intention to transfer key obligations to the standard supply licence conditions. Those obligations will then cease to be matters for parliamentary control. They will instead be under the discretionary control of the Secretary of State for Trade and Industry and/or the regulator.
The move to a competitive gas market should not require the relinquishing of major statutory principles of consumer protection which serve to promote the public service ethic. The rationale of the Citizen's Charter has clarified what a consumer is entitled to expect from a public utility. Why, if an industry is about to become competitive, should those carry any less weight?
An example of that in the new Gas Bill is the decision to remove "public gas supplier" from the 1986 Act and replace it merely with "gas supplier" or "licensed supplier". I hope that in reality it does not reflect a new attitude towards treating the supply of gas like any other commodity, rather than as a public service.
What are the most important structural changes? First, the removal of the statutory obligation to supply: Section 10(1) of the Gas Act 1986 places an obligation on the gas supplier,to give and continue to give a supply of gas".That obligation has been replaced by an obligation on the public gas transporter (TransCo) merely to connect the premises to the network. That is in paragraph 4 of Schedule 3. The omission of that fundamental obligation seriously diminishes consumer protection. The Gas Consumers Council believes that most suppliers to domestic consumers would find such obligations acceptable and that there should be a statutory obligation to supply any consumer who requests it. As has been mentioned by many speakers, that is vital to prevent cherry-picking and ensure that all gas consumers have the opportunity to benefit from competition.
1290 The obligation to supply has been transferred to the gas supply licence (Condition 2). Many speakers have already voiced their concerns about the extent to which consumer issues have been transferred to something that is not subject to parliamentary scrutiny. My particular anxiety with the obligation to supply in the gas supply licence is exacerbated by the obscure wording that is used.To make available a supply of gas",means little in comparison with the wording contained in the Gas Act 1986, which has been in use in other pieces of legislation since the last century. I should certainly welcome clarification of what that means. I had hoped that there would be a revised version of the Draft Standard Conditions of Gas Suppliers Licences available for Second Reading which would have clarified the issue. I trust that it will be available at the Committee stage.
Then there is the removal of the statutory obligation to publish prices. Again, the subject has been mentioned by many others, including my noble friend Lord Skelmersdale, who made it clear that British Gas would like to see that obligation. Section 14(1) of the Gas Act 1986 requires the public gas supplier to fix tariffs from time to time and to publish them,in such manner as in the opinion of the supplier will secure adequate publicity for them".The Gas Bill seeks to delete that requirement in paragraph 8 of Schedule 3.
The requirement to publish price information so that all gas consumers in the supplier's licence area have access to it is fundamental to the creation of a market that serves all consumers and not just those who are "economically active". The point made by my noble friend Lady Macleod is relevant there. People who have disabilities or are unwell certainly do not have the time to be "economically active" enough to seek out the best thing for them. General publication of prices will be to the advantage of consumers and will be one of the key means of discouraging cherry-picking.
Like the obligation to supply, it will be a feature of the supply licence under Condition 3. I believe that availability of that price information is too important to leave to regulation, which again can be changed at any time by the Secretary of State and the regulator without the consent of Parliament.
I have been told that this obligation may have been moved to the licence to allow for flexibility in the market since consumers themselves, as has happened in the industrial and commercial market, may find that they do not want the rigidity of a statutory obligation to publish prices. The industrial and commercial market is the home of the professional energy buyer for whom negotiation of energy contracts is a means by which to steal a march over his competitors. I find it difficult to imagine that 18 million domestic consumers would each want to negotiate his or her own individual contract. It is remarkable how many widows have never even signed a cheque. We are seeing a gradual change, but many women have never made any arrangements for themselves. As time goes by, the same state will apply to men or women; they have always left it to their partner to make arrangements and suddenly they will have to make choices for themselves.
1291 My final point is that there is a duty to secure effective choice. I draw noble Lords' attention to Clause 1 of the Gas Bill, which will give the director general a primary duty to,secure effective competition in the carrying on of activities the carrying on of which is required to be licensed under section 7A below".That is delightfully woolly. It is primarily a duty for the director general to secure competition between competing elements of the gas industry, but it will not necessarily afford effective choice to all gas consumers.
The aim of the Gas Bill should not merely be the introduction of competition into a monopoly market for the industry, it should be the means by which all gas consumers achieve the benefits of choice. Competition and choice are not necessarily synonymous; it is important to appreciate that within the context of the Bill. Competition should not be an end in itself, it should be the means by which all consumers are able to benefit from lower prices and better service through a real choice between gas suppliers.
Clause 7 of the Bill gives the director general a duty not to grant licences to certain applicants, as has already been mentioned together with the point about the disabled. I welcome that duty. It seems to me that it would be better, as the noble Lord, Lord Peston, pointed out, to refer to "low income households" or, "households in receipt of income support", rather than using the phrase,likely to default in the payment of charges".That could refer to people who are well able to pay for their gas supply but do not wish to do so.
Returning to the point about Clause 7, I see that the duty is only the first hurdle in deterring cherry-picking. A licence area may have been framed so as not to exclude artificially any of the groups mentioned in the clause, but there is no provision requiring the supplier to show that in actuality he is supplying a fair proportion of those consumers. Nor is there a corresponding duty on the director general requiring her to monitor the consumer mix or the portfolio of consumers to show that suppliers she has licensed are committed to the public service ethic that is integral to the gas supply.
There should be a clear, unequivocal duty on the Director General of Gas Supply to work towards establishing choice for 18 million gas consuming households. Competition will mean little if consumers do not have choice. This Gas Bill should mean that choice will be available. I support the Bill.
§ 4.50 p.m.
§ Lord Cochrane of Cults
My Lords, I welcome this Bill very much. It is a good Bill. First, I must declare an interest. I am chairman of a family company which is an exempt gas supplier. This company, for which gas supply is an incidental service to customers, is a member of two trade associations in the holiday parks industry. I advise both associations on an informal basis, without remuneration or expenses. The members of those associations could benefit in certain circumstances were 1292 the Bill to be amended or were the Secretary of State to use other powers contained in Clause 4 of the Bill that is now before your Lordships.
As I said earlier, this is a valuable Bill, intended to promote competition in the gas supply industry, and I am sure that it will achieve much of that. However, complicated arrangements are needed to achieve the extreme fragmentation among consumers that is envisaged.
There is a price to be paid for promoting competition in the gas industry. The more the competition, the higher that price could be; the greater the fragmentation, the greater will be the price that will be exacted in administrative, legal and operational complexity. So far, with gas, that has not bitten very hard at the consumer level. But as the number of deregulated consumers increases towards the intended 18 million, so it will become plainer and plainer, unless simple in concept and lightly applied.
Experience since 1986 indicates that that has not always been the case. The Gas Act imposes a far greater potential for control and regulation through Ofgas and the pipeline executive on small-scale gas systems than occurs with comparable electricity systems. Put simply, that is because the Electricity Act controls only supply at high voltage, whereas the Gas Act (and this Bill) controls gas supply at any pressure. Consequently, a number of persons who in a small way could distribute gas usefully are faced with an elaborate licensing system imposed by the Act and administered by Ofgas. This anomaly has been partly recognised in a previous Act which exempted piped supply within a building—for example, flats or bedsits; perhaps I may reassure the noble Lord, Lord Peston, that I think he is safe, but one cannot count on it— by a landlord, or if the supply to any premises is mainly propane or butane.
Noble Lords will note the contrast between "buildings" on the one hand and "premises" on the other. It should be remembered that for these purposes a supply through pipes can involve a pipe almost as short as 18 inches—or so Ofgas, in one of its more excited moments, told me. An unauthorised supply is a criminal offence. Perhaps my noble friend can tell me how many prosecutions, successful and unsuccessful, have been authorised since 1986. If the answer is that there have been very few, it must surely be a spent provision and should therefore be removed from the Bill, perhaps to be replaced by a civil offence.
One way to reduce the economic price of fragmenting supplies is to reduce the number of controlled suppliers by exemption. In another place my honourable friend the Member for Melton and Rutland introduced amendments that would do just that. And better still, they would promote the supply of natural gas, which always comes through pipes, to small communities and groups which larger suppliers might find unattractive for some reason. That point has been made earlier.
My right honourable friend the Member for Enfield North, Mr. Eggar, said of the amendments of the Member for Melton and Rutland that he was "on to a good point". That, I might say, was high praise indeed. He added that when the Bill was passed it would be possible, by powers contained in Clause 6A, to deal with the point. However, it will be more reassuring to those concerned—who are 1293 not necessarily all in caravan parks, as was implied in the reply to my honourable friend—if my noble friend could state that he plans to deal in one way or another with the anomaly revealed.
Today, on a caravan park, there is a choice of four main fuels for customers. Traditionally, and still by far the greatest fuel supply used for cooking, and space and water heating is bottled butane, the supply of which is exempt from control under the existing Gas Acts and remains so under this Bill. Next, there is electricity, which similarly is not controlled, although there is a price cap on it. Finally, there is piped propane, exempted by the 1993 Act. This means that the Bill's effect is to oppose the adoption of piped natural gas and favour, as less regulated although not always cheapest, the other fuels. It also has to be remembered that bottled gas is generally more expensive, less convenient and in certain limited circumstances more dangerous than any of the alternatives. I repeat that at the moment in this industry bottled gas is the dominant fuel. It should now be recognised that its continuing use should be regarded as obsolescent and its abandonment should be hastened.
I am confident that my noble friend the Minister responsible for small businesses recognises the immense burden that well-intentioned, though inappropriate and unnecessary, legislation can impose on business, and particularly on the smaller or newly established trader, or indeed on a trader seeking to make large capital expenditure to improve the facilities that he offers. He, too, can be over-burdened.
In the past few days it has been publicly declared that the Director General of Gas Supply—that is, the head of Ofgas—has asked for a substantial pay rise because the workload of Ofgas is now far greater than that contracted for at the time when she first took post. I believe that claim to be well-founded, on the facts that I have just given. The 1994 annual report of Ofgas states that in that year staff numbers increased from 45 to 65; that is, by more than 40 per cent. An extra Treasury grant had to be sought and funding agreed for the increase and for extra office space. That is a direct result of the scattergun approach to increased competition, perhaps rather hastily adopted.
To avoid more escalating charges and red tape, it is now inevitable that regulating natural gas supply down to the smallest level cannot be sustained either usefully or sensibly. The answer is to adopt a policy of low-level deregulation that mimics that applied to the three competing fuels. By that means, the greatest good will accrue to the customers and the least amount of red tape will be deployed.
For those reasons, which I have put as briefly as I can, my noble friend should use the enhanced powers that he will possess after Royal Assent to deregulate the lower levels of natural gas supply so that there can be a uniformity of competitive control. An assurance to that effect will naturally be widely welcomed.
I now turn to a wholly unexpected power contained in the Gas Act 1986 which will continue unless this Bill is suitably amended or the point is dealt with in some other way. That power concerns the rights of sovereign states in terms of the Visiting Forces Act which, as a noble and gallant Lord said to me the other day, is seen as allowing visiting forces to do much as they choose, with the general 1294 framework of the common and criminal law providing the long-stops. But they may not distribute gas, except propane or butane, through pipes without authorisation from Ofgas and a cash deposit to ensure continuity of supply. In a Written Answer to me in yesterday's Hansard, I gather—I think from the American Government—that the sum of £1,330.74p has been deposited over a number of years. Should I have added up the figures wrongly, I apologise to your Lordships. I do not have Hansard beside me. That seems to be a nonsense. I hope that my noble friend will feel that that extraordinary arrangement can be dealt with by way of amendment. As it concerns a sovereign state, I feel that it would be better in every sense for it to be written into the Bill rather than dealt with by powers which he undoubtedly possesses under Section 6A of the 1986 Act, as amended.
Despite those strictures, which for me are quite mild, I am sure that the Bill takes a valuable step towards freedom of choice. For that reason I shall support it with even more enthusiasm when my noble friend agrees that the improvements that I have suggested also have his support.
§ 5.1 p.m.
§ Lord Sefton of Garston
My Lords, I gave notice to the noble Earl that I intended to speak in the gap. Quite deliberately, I did not put my name on the List of Speakers because I expected that this would be a Second Reading debate. Normally, during a Second Reading debate the principle of the Bill is discussed. The Bill is given a Second Reading and it goes into Committee, when we start to talk about the detail. It seems that we have done the reverse of that today. Everyone seems to be talking about the detail.
But that is not the reason why I have risen to speak. I do so because everybody seems to welcome the Bill. It is likely that I shall not oppose the Bill. Indeed, it would not be sensible to do that. But certainly I do not welcome it. I believe that in the few short minutes available to me, I have a duty to tell the House why I do not welcome it.
I do not welcome the Bill because it drives the energy systems and production in this country further into the hands of private concerns, whose main aim will be to increase the number of customers to make the maximum use of the product that they are selling. Nobody, not even the noble Lord, Lord Wade, would disagree with that. I do not think that anybody in the House would disagree with that definition of what is being done.
But this is not just a matter of gas consumers being affected by the Bill; it concerns the whole of our energy system. I was glad to hear that the noble Lord, Lord Wade of Chorlton, brought in the issue of combined heat and power. That is a system which, if it is to be successful at all, will call for massive government encouragement and investment. It is a sensible thing to do. I am worried that the Bill does not contain a clause which in any way relates to the question of our energy resources.
When we discussed the Coal Industry Bill, I said that what would happen would be that the coal industry would go out of existence. It is not far off going out of existence. I just heard someone say, "That's ridiculous". 1295 But is it? I believe that the coal industry will decline further. I must be careful what I say because if I talk about the past the noble Earl, Lord Ferrers, will describe me as being bizarre.
My Lords, I would not say that talking about the past is being bizarre. I said only that the noble Lord's expressions are bizarre.
§ Lord Sefton of Garston
My Lords, that is not what the noble Earl said and that is not what is recorded in Hansard. The noble Earl said that the noble Lord, Lord Sefton, made a speech that was bizarre. We are talking of some things that have not changed over 50 years. Of course some things have not changed over 50 years! Many people believe in Jesus Christ. That has not changed in 2,000 years. I believe that what I was saying 50 years ago is still correct. I still believe that.
§ Baroness Gardner of Parkes
My Lords, I thought that the noble Lord imagined that he had lip-read what I had said to myself about the coal industry. My comment was not, "That's ridiculous" but "It's recovering".
§ Lord Sefton of Garston
My Lords, I am sure that all the miners who are being made unemployed today will welcome that statement. It was made in such an authoritative way. But I do not believe that the coal industry is recovering. Because of its very nature, the coal industry will not be able to compete with the new forms of energy and will go out of existence. But that is not the important point. What is truly important is that coal is the last remaining large reserve of our energy resources. We must look at this matter from the viewpoint of the nation's needs.
I have asked several questions lately, in the form of Questions for Written Answer as to the energy resources that we have left in terms of oil and gas. I cannot obtain a satisfactory answer. I am worried that we encourage more people to burn gas and yet do not bother to ask whether electricity would be a better fuel. There is no co-operation between the two; there is competition between them. People are encouraged to use gas regardless of the fact that already in the North Sea oil rigs are being pulled down. God knows where the rest of our energy resources will come from.
I do not welcome the Bill. I believe that it is still right that the energy resources of the nation should be under the control of the nation. The nation should decide how gas should be used, when it should be used and at what price it should be sold to the customers. That is what I believe. Therefore it would be wrong of me—earlier I was the only Member to speak from these Benches—to allow statements to be made that could conceivably suggest that I, or any Socialist like myself, could possibly welcome this Bill. It is a Bill which places all our energy resources one way or another in the hands of a greedy set of people, whose only interest is the amalgamation of power and profit.
§ 5.7 p.m.
§ Lord Clinton-Davis
My Lords, it is always refreshing to speak after my noble friend Lord Sefton. He speaks as he feels; and he feels very strongly about this matter and 1296 indeed many other topics. He is absolutely right, and I agree with him, in that, as my noble friend Lord Peston, said at the beginning of the debate, it is extraordinary that we should be debating this issue without in fact examining energy policy as a whole. That is a serious deficiency.
I believe that it is unlikely in the extreme that this Government will, in their own time, enable any debate on energy policy to take place in this House, in particular on the issues which were the subject of a Statement only a couple of weeks ago affecting atomic energy. One has to ask why they adopt that point of view. Why should they expect us, with our very limited time, to provide time to debate issues, such as the Statement, which are introduced by the Government in the first place? So perhaps the Minister, when he replies, will give an indication of whether we are likely to debate these issues. I suspect that the answer will be in the negative or that it will be a matter for the usual channels or that kind of drivel. I was very sorry to hear of the difficulties confronting the noble Lord, Lord Cochrane of Cults. I sympathise with him. Just before he spoke I was combating a fit of coughing and I said to myself, "My goodness, disease stalks this Chamber".
This has been an interesting debate. I do not agree with my noble friend Lord Sefton when he complained that your Lordships have directed attention to matters of some detail and to areas which will engage our attention at Committee stage. I believe that it is appropriate to gain from a debate of this kind some indication of the anxieties that beset individual Members of the House.
At the beginning of the debate I was given a firm injunction by the noble Earl, Lord Ferrers, that I was not to use the term "cherry picking". I will obey that injunction to the full, though I note that it fell on deaf ears elsewhere. I suspect that he would like to be able to dictate my speech to me, but it would be much worse if he did so. I am not suggesting that my speech will be any good, but his would be worse.
It is clear from this debate that deep anxieties are felt. They were encapsulated by the noble Baroness, Lady Gardner of Parkes, when she said that protection was moving away from the consumer and shifting to the supplier. That incorporates some of the anxieties—not all of them—expressed by numerous non-governmental organisations which have made representations to your Lordships in preparation for this debate. I refer to Age Concern, the National Association of Citizens Advice Bureaux, the Gas Consumers Council, the National Consumer Council, the Royal National Institute for the Blind, the Country Landowners' Association and others. They feel, as we on this side of the House feel, that serious deficiencies exist in the Bill. They are matters which will come before us in detail in Committee—we shall ensure that they do—and I simply want to give some idea of the main issues that we feel need to be ventilated. I can only hope that the Government will be more responsive to these criticisms—after all, they are designed to improve the Bill rather than to rend it asunder—than they were in another place.
There is no doubt that the Bill requires amendment so as to enshrine in the law some basic ingredients rather than leaving them to be dealt with in the licensing system, which is capable of substantial variation from time to time 1297 without any, or any adequate, parliamentary debate or scrutiny. That is a wholly unsatisfactory state of affairs. My noble friend Lord Peston dealt with a number of those issues and I propose to enlarge on them and to mention some with which he did not have time to deal.
First, I want to refer to questions affecting consumer interest. There is no direct provision in the Bill for consumer protection. We were reminded by the noble Baroness, Lady Gardner, that there are 18 million consumers of gas. At present there are regulatory safeguards in being, including service safeguards and price controls, which affect British Gas. It will be some considerable time before the Bill comes fully into effect and in the meantime it would be inequitable that consumers should or might be obliged to pay the price for competition years before they can realistically expect to obtain benefits which may ultimately accrue to them. That is a matter that needs to be dealt with.
We know that low-income consumers on prepayment meters are paying far more proportionately than other gas consumers. Does the Minister regard that as just and fair? No safeguards are provided for rural consumers and that is unsatisfactory because of the specific circumstances which affect them.
The duty to supply should be enshrined in legislation. That concept was dismissed in another place by the Government. But it is noteworthy to point out that in the United States, where gas monopolies are required by law to do precisely that, it has been found to be perfectly satisfactory. Why therefore should not a provision apply here, thereby putting the issue beyond any legal doubt?
My noble friend Lord Peston made a point which was reiterated by the noble Earl, Lord Caithness, and the noble Baroness, Lady Gardner, concerning the imperative of transparency to enable the consumer to obtain maximum information, within reasonable bounds, and to enable the consumer to make informed decisions concerning the choice of gas supplier. That is a vital matter because it is only in that way that a full and proper comparison can be made of what is offered by possible suppliers.
We feel also that the Gas Consumers Council—the noble Baroness, Lady Macleod, was involved in that many years ago—should continue to play an important role in protecting consumers' interests, as the noble Baroness self-evidently believes. In order to do that one must ask—we shall put this by way of a probing amendment—whether it should have a formal role, with its responsibilities being clearly defined in law.
Consumers should have wider access to the courts to enforce rights and pursue remedies by way of representative actions than is envisaged by the Government. The Government have chosen to construe very narrowly the right of consumer organisations to undertake representative actions. They confine that right in relation to consumers' contracts under the Unfair Terms in Consumer Contract Regulations 1994, which purport to implement the European directive, to the Office of Fair Trading exclusively. That is in marked contrast to the attitude of most member states of the European Union, which have chosen to give a wide range of organisations powers of that kind. One must ask therefore why the Government have chosen to do this.
1298 That single fact illustrates all the cant in which the Government engaged over subsidiarity. Here we have a right which is designed to empower citizens to obtain remedies through representative organisations. The Government limit that right. When this issue was raised in another place in Committee on 27th April, all that the Minister could say was, "We have decided against the amendments proposed". He went on to say:We believe that the present remedies available via the DGFT are appropriate. We do not think that other bodies should be able to exercise those remedies".—[Official Report, Commons, Standing Committee A, 27/4/95; col. 322.]That was a sort of "Giordano" response and it is not acceptable. The Minister must explain why, if other member states can go down that route empowering their citizens in a much more meaningful way, the Government are against that position. We believe that the situation is wrong; we oppose the current position and we shall introduce amendments to broaden it.
The Minister may ask what other bodies there are. We believe that Ofgas and the Gas Consumers Council—which will be the recipients of large numbers of complaints from consumers and are therefore in a peculiarly advantageous position to adopt this role—should be able to pursue those remedies in the courts. The OFT is not the right instrument to protect consumers because it is not designed to adopt a position of defending the interests of consumers; it is designed to maintain a careful, independent, objective balance between industry and the consumer. I ask the Minister to let us have a response to that point. It is certainly not what Mr. Eggar said in another place.
In this general context we share the anxieties of the Consumers' Association concerning the powers of the Secretary of State to veto a reference to the Monopolies and Mergers Commission without being properly accountable. We believe that it is questionable whether he should be able to exercise such a veto, but in any event, if he does, he should be required to justify to Parliament that intervention in each case. One also has to ask whether the Secretary of State's power does not impair the powers and independence of the regulator, about which the Government frequently wax so enthusiastic.
I turn from that to the question of guaranteeing security of supply, which has been mentioned by a number of your Lordships in this debate. In that regard I turn to what the Gas Consumers Council says. It says:Our anxieties have been exacerbated by the obscure wording used in the licence. 'To make available a supply of gas' means nothing in comparison to the wording of the Gas Act that has been in use since the last century".It is deeply concerned as a matter of principle about that.
How can we be assured that new suppliers and other companies will have the duty to undertake this and have the necessary financial resources to guarantee security of supply to customers and to implement the conditions in the draft suppliers licences? Ministers in another place say that the regulator is in a position to fine licence holders if they fail to comply. In my judgment that is hopelessly insufficient if for financial reasons the supplier has failed to undertake his obligations.
There is a clear need to define the term "fit and proper persons" in the context of the Bill much more specifically regarding financial status. Ministers in another place 1299 argued that there is provision elsewhere in the Bill to respond to a situation where companies fail to perform this role adequately, due to perhaps insufficient technology or failure to provide sufficient managerial or financial resources. If that is the case, where does it appear in the Bill? I may be wrong but I have not detected it.
The next point I wish to refer to is a representation made by the National Association of Citizens Advice Bureaux. It says,The CAB Service would be extremely concerned if competition meant that a public gas supplier was able to supply cheap gas at the price of a worse service, as this would inevitably lead to greater hardship as low income households are attracted to the cheapest supply. Competition should not be about low income households having to sacrifice standards of service to secure lower prices".That is a powerful observation and I hope that the Minister will respond to it, if not now, then certainly during the course of the Committee stage.
I turn next to safety, which is another matter referred to by my noble friend Lord Peston. We are talking here about safety not simply for those employed in the gas industry, although that is important enough, but also for customers at home. In that regard it is essential that new suppliers should have well trained people undertaking these safety processes. Problems were raised by my noble friend regarding the existing Corgi standards. We shall return to that in the further stages of these debates.
The environment was referred to by my noble friend Lord Peston and in a rather oblique way by the noble Lord, Lord Wade. It is essential that we should have full regard for environmental considerations in the Bill. The Minister said that it is perfectly all right when it comes to energy efficiency because these new companies will be able to diversify their functions to deal with that. Is that to be made an obligation in the licence? Will they have any choice in the matter? There may be certain temptations not to go down that route. The Minister must respond to that point.
We also say that transporters should be obliged to take account of the concept of sustainable development and to inform the director general how they are undertaking this duty. Equally, suppliers should be under an obligation to provide customers with details of how they can obtain free advice in relation to energy efficiency, perhaps by giving details on all invoices, as the Gas Consumers Council has suggested.
I want to end on the matter of executive salaries. It is relevant to refer to this because of the anxieties that were expressed by large numbers of people only the other day. When Mr. Giordano, Cedric Brown and government Ministers say that it is all about the politics of envy, they have got hold of the wrong end of the stick. It is to miss the point about the concerns which have been expressed by individual shareholders. They have questioned not only the propriety of the announcements concerning huge benefits afforded to the executives, but also the managerial skills which enable them to do that, coinciding with the announcement of huge job cuts and cuts in employees' remuneration and benefits, as well as the closure of gas showrooms. In the view of thousands of investors—and we agree with them—that demonstrated poor management and poor judgment. They should not be grotesquely rewarded as they have been. The board 1300 treated these criticisms with lofty disdain and with an arrogance, armed as it was with the block votes of the large, unaccountable institutions.
So much for the Government's oft proclaimed powers of individual shareholders to influence events. Incidentally, so much for their complaints about block votes at Labour Party Conferences, which are at least out in the open. There has been unreasonable profiteering in this industry. Profits are derived from consumers, and they have been excessive. Shareholders have been unable to control these abuses and when they try they are dealt with dismissively and defensively by those in power. We shall seek to deal with these abuses when we have won the next election. Meanwhile, we shall seek to mitigate the position vis-à-vis this Bill since clearly the Government have no interest in so doing.
We shall be proposing amendments to require that all licence holders shall publish on an annual basis details of all salaries, benefits and share options receivable by directors. We shall seek to regulate and take account of the level of pay and share options and the extent to which they reflect performance in setting prices. We believe that the interests of those shareholders, which have been spoken of airily by the other side for so long, should be respected. They should mean something. With those criticisms we propose to improve this Bill in the stages that remain.
§ 5.28 p.m.
My Lords, I am grateful for the way in which your Lordships have discussed this Bill. As one would expect, it has been a very informed debate. The interesting fact is that there has been very little dissent from the basic approach, which is the extension of choice to those 18 million customers currently enjoyed by consumers in the commercial and industrial market. There was one dissenting voice; namely, that of the noble Lord, Lord Sefton of Garston. He is entitled to his point of view. He said that I called him "bizarre". On the last occasion in which he took part in a debate I said that he made a bizarre speech. Indeed, when he made a similar speech today I thought that that was just as bizarre, because part of it was about the coal industry which has nothing to do with the gas industry which we are talking about. On the previous occasion when I happened to say that the noble Lord made a bizarre speech, without being at all controversial—
My Lords, I shall give way in half a moment. The noble Lord really must let me finish what I was saying. On the previous occasion I said that there are some people in the Labour Party who have not moved one inch during the past 50 years and that the noble Lord, Lord Sefton of Garston, is one of them. I believe that his speech today confirms that view—
§ Lord Sefton of Garston
My Lords, does that mean that you disagree with what I said? If so, that means that the question of "bizarreness" was directed to me personally. Perhaps I could remind you of the "Companion of Honour", so called, in this House.
My Lords, I can remind the noble Lord of one of the rules of procedure, which is that one talks in the third person and not in the second person. I was not being offensive to the noble Lord. Indeed, I was not being offensive but saying merely what I thought of his speech—
My Lords, I do not wish to be distracted by the noble Lord, Lord Sefton, any more than is necessary.
The noble Lord, Lord Peston, was most constructive in his opening remarks. He said that a number of the points that he wished to make were Committee points and he then gave indications of them. These are technical matters and we must deal with them.
I was grateful to the noble Lord, Lord Ezra, for paying tribute to the great industrial achievement of British Gas during the past 40 years. It is astonishing and we must never forget it. My noble friend Lady Macleod was right to pay tribute to Sir Dennis Rooke and the work done by British Gas at Bacton in Norfolk. It deservedly has earned a reputation for showing great sensitivity in the work that it has undertaken there.
I am sorry that the noble Lord, Lord Clinton-Davis, thought that I was telling him how to make his speech. I should never dream of doing such a thing. I did not actually tell him not to refer to cherry picking; I merely said that I thought that he would because he did so last time. The noble Lord avoided doing so today and I regret the fact that I referred to the matter because it enabled a number of my noble friends to use that horrible expression. My noble friend Lord Caithness made the matter worse by talking about level playing fields, which I believe is an equally objectionable expression.
The noble Lord, Lord Clinton-Davis, has spurred me into saying something that I had not intended to say about British Gas. I do not wish to enter into discussions about the showrooms which British Gas has closed or the salaries paid to chief executives. However, perhaps I may make it clear that when British Gas was privatised there were 4 million individual shareholders, who were commonly known as "Sids". There are now 1.7 million shareholders and they hold 22 per cent. of the shares of the company. Of those people, 4,500 attended the annual general meeting and nearly 12 per cent. of the 1.7 million returned proxy cards. It is interesting to note that 88.5 per cent. of those individuals, whom we call "Sids", decided not to vote. That is similar to what has happened in previous years when 90 per cent. of those individuals have not voted. Therefore, what happened last week is a reflection of what happened in the past. I am bound to say to the noble Lord, Lord Clinton-Davis, that it is not an argument to say that the block votes of the institutions stop proposals being carried. There is no comparison between the block voting of the institutions and the block voting in the Labour Party. The fact is that all institutions—all shareholders—have the right to vote, but if they do not wish to vote they need not do so. The fact is that 50 per cent. of the capital voted, which is interesting to note.
1302 Your Lordships asked a number of questions and I shall answer them as best and as expeditiously as I can. The noble Lord, Lord Clinton-Davis, referred to consumers. There is an important protection for consumers in the Bill. It is the duty of the Secretary of State and the director to protect the interests of consumers. The noble Lord said that in the Bill there is a balance between consumers and industry. That is not so; the Bill is about consumers. The balance comes when the industry can compete within itself and one against another for the interests of consumers—
§ Lord Clinton-Davis
My Lords, I am grateful to the Minister for giving way. He has taken my remarks out of context. I said in a totally different context that the balance lay in the duties of the Office of Fair Trading.
My Lords, I apologise to the noble Lord for having noted his words incorrectly. It is a hazard in trying to take notes but I shall study what he said in Hansard. The noble Lord referred also to the Secretary of State's veto. The provisions follow the Electricity Act. Let us assume that an amendment tabled on Report narrowed the power of the veto for the standard conditions only. We believe that the veto is appropriate to ensure that there is proper parliamentary oversight as regards the changes to the standard conditions. The obligations placed on companies by the licences are just as effective and as effectively enforceable as those imposed by the Bill.
The noble Lord, Lord Peston, said that the Monopolies and Mergers Commission stated that there would be losers. That assessment was based on a table submitted to the commission by British Gas. However, the table was withdrawn in October 1994 in evidence to the Trade and Industry Select Committee of another place. There is no reason to believe that competition will lead to higher prices for any consumers. However, the nature of a competitive market is that one can never guarantee that. There may be some price variations on the general downward trend and we must see what the result is.
The noble Lord was also anxious about the drafts of the licences being available in Committee. It is our intention to publish a new text of the supply licence for the Committee stage, if that is at all possible. We plan to leave the technical revision of the other licences—and they are more technical—for later consultation.
The noble Lord, Lord Peston, was also concerned about disabled people and pensioners being dealt with separately, but not the people who have difficulty in paying. He asked why that was. Pensioners and disabled people have special needs in relation to gas. If their supply fails they may be more susceptible to cold, they may need their meters moving to more accessible locations or they may need adaptors for appliances. Low income users do not have such special interests. Their real interest is in cheaper gas, which is similar to the interest of every other consumer. However, the director has a duty to protect the interests of gas consumers in respect of the continuity of supply. That includes possible disconnection and provisions to avoid unnecessary disconnection.
That point is not dissimilar to an anxiety expressed by my noble friend Lady Macleod. She asked whether we can reduce the standing charges for disabled people. The 1303 role of the standing charge is to recover the fixed costs of supply. However, one benefit of a competitive market is that different suppliers can adopt different practices and marketing strategies in order to win customers. One supplier has said that he is considering offering a zero standing charge, which would meet not only my noble friend's anxieties but those of many other people.
The noble Lord, Lord Peston, asked whether there would be a single pensionable age and why not leave it at 60. The Bill defines the pensionable age as the female pensionable age, so it is quite discriminatory! That is the lower of the two pension ages. However, when the age is equalized at 65 it will be inappropriate for us to define people below that age as pensioners.
The noble Lord was anxious to know whether there is a statutory obligation to supply and whether the obligation is to supply a household or a premise. That is an important point. The obligation to supply is set out in standard conditions of the gas supplier's licence. It applies to prospective customers and that means persons at a particular premises. But each flat in a block of flats would normally be regarded as separate premises for that purpose.
The noble Lord was concerned also about whether British Gas's debt and disconnection code would continue. The answer is that it will. British Gas will continue to operate to its current code. The only difference is that in future, it will operate that code as a requirement under its new licence as a gas supplier rather than under its old authorisation as a public gas supplier.
The noble Lord was anxious about why the Secretary of State is taking new powers to regulate. The Secretary of State has been given further reserve powers so that Parliament can be assured that the regulator cannot change major policy issues without political consent for which the Secretary of State will be accountable to Parliament.
He asked also about how many new entrants there might be. It will be for new entrants to make their own decisions on how and whether to make an entry into the market. But so far, some 20 suppliers have taken a close interest in the formulation of the licence conditions for domestic supply.
The noble Lord asked whether the code of practice on disconnections would apply. All suppliers will be required to follow debt and disconnection procedures which will apply to any customer who has genuine difficulties in relation to paying his bills. They are set out in the supply licence standard conditions and I gave your Lordships an idea of what they would be when I made my opening remarks.
The noble Lords, Lord Peston and Lord Ezra, asked whether the public should not be notified of the evaluation of the pilot phase. We have made it clear that the purpose of the phased transition to national competition is to provide an opportunity to test the necessary technical and administrative systems. It will allow British Gas, TransCo and competing gas suppliers to iron out any problems with their systems while they are operating on a relatively small scale. The pilot is not intended to test the principle of whether competition will go ahead. It is intended to test how it will work in practice. The director will obviously 1304 wish to monitor the progress of competition and we expect to seek the feelings of consumers and suppliers as to their experiences during the transitional phase. If the monitoring by the director showed that the licence conditions were not operating in the intended way, the director could make proposals to change them. That monitoring process will enable Ministers and the director to report appropriately to Parliament about progress, and it is our intention to do that.
The noble Lord, Lord Ezra, was concerned about the promotion of energy efficiency and the protection of consumers being a secondary duty upon the Secretary of State and the director. In a perfect world, we should like all duties to be primary, but the Bill imposes both primary and secondary duties on the Secretary of State and the director. The primary duties are concerned with providing that there is an effective framework for the competitive supply of gas; for example, to ensure that licence holders can finance their activities and that there is proper competition. The interests of consumers in relation to energy efficiency, important though they are, must obviously be subject to those primary duties. It is no good trying to secure the interest of consumers if no companies are competing in the market.
The noble Lord referred to the assignment of contract. The Government made a detailed statement on that in another place. Schedule 5 follows closely similar provisions in several other statutes, and a major feature of the arrangements that we propose is the separation of the functions of gas transportation and supply. That is to ensure that competing suppliers, including the supply arm of British Gas, use the pipeline network on the same basis. It follows from that that provision must be made for a scheme under which British Gas will allocate its various rights and obligations between the different legal entities which it will need to create in order to carry on its business. The ending of the monopoly of British Gas and the consequent loss of its market share will inevitably mean that a certain amount of adjustment to contractual arrangements will have to be made. The Government believe that that will be achieved best by discretion on a commercial basis among the parties involved.
My noble friend Lord Caithness was worried about the terms of British Gas privatisation. He said that he did not particularly like the Bill. I thought that was rather disparaging because I believe that it is a very good Bill. He said that he thinks that the measure will affect the price of what is a public company. The prospectus for the sale of the shares in British Gas, which described the policy at the time when British Gas was privatised, said that it was to retain the monopoly. But of course it is quite appropriate and legitimate for policy to change at a later stage in the light of experience. British Gas says that it supports those proposals.
I understand my noble friend's anxiety about other countries being able to supply into our pipelines even though they do not allow us to supply into theirs. It may be that in time, people will realise that total competition such as that which we are having in the UK works best for our consumers in a way which would seem, in the end, to work better for consumers in those other countries. They may then decide that we are adopting the right policy.
1305 My noble friend Lord Wade referred to combined heat and power. I agree with him about the available opportunities in that regard. The endless strengthening of competition which is taking place in the industrial market for gas provides a substantial boost for combined heat and power. That will continue.
I referred earlier to the fact that I did not like the reference made by my noble friend Lord Caithness to a level playing field but, as he used that expression, I shall use it back to him. I assure my noble friend that the guiding principle in the drafting of the legislation and the licences has been to ensure a level playing field among all the suppliers and the transporters, including British Gas. New companies will be able to compete on a fair basis and that is one reason why we rejected the idea proposed in some quarters that there should be some kind of target for the market share of British Gas.
The noble Lord, Lord Ezra, said that there is too little in the Bill and that too much is left to the licences. I understand why he says that. That is a criticism which is often made. He will know that there is a very good reason for that; namely, that the Bill provides the basic structure and the licences have to deal with the details of the matters. It is far more flexible to do that in the licences rather than by including it irrevocably in statute.
My noble friend Lady Gardner of Parkes was concerned about the obligations in the legislation. We believe that it is necessary for suppliers to publish their prices for domestic consumers, at least initially. The reason for placing that obligation in the licences rather than on the face of the Bill is that we do not know exactly how the market will develop. It will be necessary to have a degree of flexibility to allow the regime to adapt to what happens in the market. We wish to be able to change those requirements if experience shows that that will be in the interests of consumers.
Perhaps I may give one example of that. The requirement on British Gas to have published a price schedule in the industrial market was considered to be good a few years ago. Ofgas is now proposing to remove that requirement after representations were made by customers who said it prevented them negotiating. If that requirement were placed on the face of the Bill that flexibility would not exist.
My noble friend Lord Wade was concerned about pipelines over the land. Schedule 3 to the 1986 Act, which we are not amending materially, provides proper compensation for landowners where pipelines are built across their land.
The noble Lord, Lord Ezra, and my noble friend Lord Skelmersdale expressed the desire that the high levels of service provided by British Gas at present should continue. All suppliers will be required to provide special services to the elderly and disabled customers and to those who have genuine difficulties in paying their Bills.
In relation to service standards generally—reading meters, answering questions and so on—competitors will be able to win business only by offering customers what they want and by offering them a better service than that offered by other suppliers. That is why the Consumers' Association does not think that British Gas's 39 service standards, which state, for example, how quickly they 1306 should answer the telephone, should be imposed on all suppliers once the monopoly ends, because competition must set that free.
My noble friend Lord Gisborough was concerned about the vesting of the gas contracts to the new contracts. It is not practical within the structure of the legislation to alter that aspect in the way that my noble friend would like. If the consent of counter parties was required, they could prevent the Bill from taking effect by refusing to sanction an assignment. Therefore, it is necessary that those assignments should be continued. British Gas would not legally be able to continue in operation if its trading activities could not be moved to another body and the Bill would not come into effect if that were the situation.
My noble friend Lady Gardner of Parkes referred to the Citizen's Charter. That relates to provisions of public services to consumers where the consumers have no choice as to where they go for services. They are not relative to a competitive market where consumers can seek the service which meets the required needs and are not stuck with a monopoly supplier.
My noble friend wondered why the words "made available a supply" were used as opposed to "give a supply". I had not realised that that wording would cause the difficulties that it obviously does to my noble friend. I shall consider what she has said and see whether further clarification or elaboration is required.
My noble friend Lord Cochrane referred to caravan parks and visiting forces. My noble friend has great knowledge of that subject which was rewarded with the passing, as a very rare Private Member's Bill from your Lordships' House, of the Gas Exempt Supplies Act 1993. That legislation successfully deregulated holiday parks that supplied liquid petroleum gas. My noble friend asked whether it was possible to extend the exemption to those caravan holiday parks which distribute natural gas. Clause 4 of the Bill provides adequate powers to the Secretary of State to grant exemptions in those cases. Officials in my department are in touch with my noble friend and with the various trade associations to establish the scope of the exemption that would be appropriate and any conditions for safety and consumer protection that should be applied.
The scope of the exemption is not straightforward; there is a balance between deregulation and ensuring in appropriate cases that customers are able to choose their gas supplier. The technical discussions that are under way with my department will, I hope, achieve the best result.
The noble Lord, Lord Clinton-Davis, expressed concern about prepayment meter costs. Ofgas examined the differential in price and decided that that differentia] was appropriate.
I am grateful for the way in which noble Lords have considered the Bill at Second Reading. It is an important Bill. There should be safeguards for consumers in certain important respects, for example safety and provision of special services for vulnerable customers. Those matters are being addressed in the Bill and the licence. We are concerned to allow consumers the choice of not one supplier but a number of suppliers. That, in the long run, will lower prices and bring efficiency. I know that the noble Lord, Lord Sefton of Garston, finds that point difficult to absorb, but I expect that as time goes on he 1307 might be able to absorb a little of it. There are a number of points that noble Lords will wish to discuss at Committee, but I am grateful for the way in which your Lordships have addressed the Bill.
§ On Question, Bill read a second time, and committed to a Committee of the Whole House.