§ 3.33 p.m.
My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
§ Moved, That the House do now resolve itself into Committee.—(Earl Ferrers.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The CHAIRMAN OF COMMITTEES in the chair.]
§ Clause 1 [General duties under 1986 Act]:
§ Lord Ezra moved Amendment No. 1:
Page 1, line 11, at end insert:
("() to protect the interests of consumers of gas conveyed through pipes in respect of the prices charged and the other terms of supply, the continuity of supply, the quality of the gas supply services provided and the exercise of rights under this Part to enter their premises;").
§ The noble Lord said: Amendment No. 1 is grouped with Amendments Nos. 6, 7 and 8. This amendment is of considerable importance because it relates to the duties under the Bill of the Secretary of State and the director.
§ The purpose of the amendments is to ensure that the protection of the interests of consumers of gas should be given priority. As the Bill is drafted, the protection of the consumers' interests is given second priority. That does not seem to be in keeping with what ought to be the objectives of the measure. When one reflects that in this country gas is the preferred user fuel for the vast majority of people who use it for domestic purposes, it is of considerable importance that any legislation aimed at changing the arrangements for the supply of that fuel should be seen to be conducted in the interests of the consumer. There can be no other justification for those changes.
§ When the point was raised in another place, the Minister, Mr. Eggar, contended that the prior duties as stated in the Act were themselves supportive of the interests of the consumer and that therefore there was no need to put the interests of the consumer as a primary obligation. In fact he said that the secondary obligation was to look after the consumers; just because it is secondary does not mean that it is less important.
§ I find that argument difficult to follow. If the Minister was saying that primary and secondary obligations rank equally, what is the point of making the distinction? I seriously commend to the Committee the contention that the protection of the consumer should rank as the overriding obligation and should figure at the top of the list indicated in Clause 1 of the Bill. I beg to move.
§ Lord Peston
In speaking to this group of amendments, I shall concentrate on Amendment No. 1, but I shall also have a few words to say on Amendment No. 8. Amendment No. 6 is simply consequential upon Amendment No. 1.
We start from the proposition, with which I am sure the noble Earl will agree, as I hope do all Members of the Committee, that,Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer".That is a quotation, of course, from the greatest of all economists; it is from the Wealth of Nations. I am sure that the noble Earl will agree with that concept.
It looks as though the amendment is merely a drafting measure. Essentially it moves certain words from a few lines into the Bill to the-beginning of the Bill. However, as the noble Lord, Lord Ezra, said, it is not a matter of drafting. It is a matter of absolutely fundamental philosophy, both about how all economic activity should be judged—that is why I cited to the Committee the quotation of Adam Smith—and, overwhelmingly, as regards the Bill. The legislation was originally drafted in error by creating a private monopoly. As I pointed out at Second Reading, the purpose of the Bill is to rectify that error—that had been accomplished by some earlier amendments to the law—in order to introduce competition and alternative sources of supply. That is 'a subject to which I shall return on a later amendment.
412 I also echo the comments of the noble Lord, Lord Ezra, in relation to the Minister's right honourable friend in another place. I felt that the Minister's right honourable friend simply misunderstood the points that were being made, and that in particular he did not understand the distinction between means and ends. That, too, is fundamental to the economic analysis of any industry. Essentially what one does—correctly—is to state the ends, in this case the interests of the consumer, and then state the means to achieve them. But the means are justifiable only in so far as they will achieve the ends that one has in mind. To start this Bill, as indeed the 1986 Act was started, with means, with describing methods and not ends, is again simply a logical error. These amendments seek to rectify those earlier mistakes.
A point that is also of interest, and one which I believe noble Lords on the other side will have found puzzling, is that after all the years of privatisation, as the Economist newspaper has pointed out on more than one occasion, the privatised industries are extraordinarily unpopular. People are puzzled as to why they are. We know why they are. It has nothing to do with meeting consumer demands; it has to do with certain other activities that they have been getting up to and which, for the moment at least, we shall not be debating. However, it is a pity, once industries are in the private sector, that they are portrayed as unpopular when, in the case of this Bill, the new private sector has the potential to do something that is very much in the interests of consumers. Therefore, I hope very much that when I sit down the noble Earl will leap to his feet and say, "Let's waste no more time on this particular amendment because naturally enough the Government will accept it". This amendment is extremely important. It is one that we cannot allow just to drift by.
Perhaps I might briefly say a word on Amendment No. 8. One problem with the overall drafting of the Bill—and I have other amendments which endeavour to clarify it—is that it raises a question as to what the draftsman has in mind. Again, the tradition of classical economics is the individualist tradition in which, after all, noble Lords opposite claim to be firm believers. The tradition is not particularly to do with groups. It is not to do merely with the consumer as we have defined him, but with the individual consumer. That is what matters.
Therefore, Amendment No. 8, which adds the words "to the individual", simply emphasises how important the individual is. In particular, it is to ensure that, should an individual consumer have grounds for complaint—which, not surprisingly in a competitive enterprise economy, will happen—the consumer can say, "You have failed to meet my individual interests". It is not a good enough argument for the industry to say, "Well, we've met the interests of consumers in general. You just happen to be the unlucky one". The reason for including "the individual" is very much to clarify what I assume Ministers had in mind when they asked the draftsman to draft the Bill. In other words, the lines on protecting the interests of consumers are essentially to emphasise, not just consumers in the large, but consumers viewed as individuals. I very much hope that the arguments put forward by the noble Lord, Lord Ezra, and myself commend themselves to the Committee; and I hope very 413 much that the Minister will take the responsibility for agreeing with them and also for saying that we really must get this part of the Bill right.
§ Lord Skelmersdale
I am a simple man. I declared my interest in this Bill at Second Reading. I hope that that will suffice for Committee as well. As a simple man, I like to know from the very beginning, from the earliest possible point of a Bill, what that Bill is actually about. This amendment advances words which to all intents and purposes are already in the Bill, in subsection (2) (a) of the proposed new Section 4 to the 1986 Act. But there would be absolutely no purport to the Bill, no force in it whatsoever, unless we started at the very beginning. The very beginning, after all, is to secure that—in so far as it is economical to meet them—all reasonable demands (we can perhaps argue about the word "reasonable" in a moment) in Great Britain for gas conveyed through pipes are met. That is the whole rationale of the Bill. It was the rationale of the 1986 Act, and I should like to see the stipulation remain exactly where it is in the Bill.
§ Lord Peston
Perhaps I may interrupt for a moment as I believe it will help us with our procedures. I do not have any interests to declare, but, so far as I personally am concerned, a declaration of interest once throughout our proceedings will be enough. Otherwise they will become even more tedious. I accept that several noble Lords may have interests. Once they have mentioned them, that is good enough for me at least.
§ Lord Haskel
Perhaps I may speak to Amendment No. 7, which adds a few words to the Bill. On these Benches we are concerned about the interests of the consumer. But we are also concerned that the interests of people who are potential consumers should also be looked after. We are anxious that the consumer should have sufficient information, in an easily comparable and comprehensible form, from the gas suppliers about prices and services. That should enable consumers to make an informed choice, and should therefore secure the most effective competition possible. We are concerned that we should cover the interests of consumers before they enter into contracts with the gas suppliers as well as after.
§ Lord Cochrane of Cults
I, too, declared an interest at Second Reading, and I am grateful to the noble Lord, Lord Peston, for his indulgence. It seems to me that noble Lords opposite suspect that potential gas suppliers will behave like foot-in-the-door vacuum cleaner salesmen, or other unscrupulous salesmen, of which there seems to be plenty about. Perhaps they ought to give a measure of credit and accord some common sense to potential suppliers. I do not see that that is the case.
§ 3.45 p.m.
I do not think that there is very much between us on this matter. The noble Lord, Lord Ezra, said that he was concerned about the interests of consumers. Of course, we all are. My noble friend Lord Skelmersdale mentioned his "simple mind". All that the noble Lord opposite is doing, as my noble friend correctly said, is advancing subsection (2) (a) higher in the Bill. 414 Therefore, the noble Lord, Lord Ezra, is concerned about the fact that consumers appear to be a secondary consideration, and he wishes to make them a primary consideration. I can understand his reason for wanting to do that.
The noble Lord, Lord Peston, said that people do not like privatised industries. Perhaps they do not. But I remind the noble Lord that they did not like nationalised industries. This is the political point. The fact is, they are utilities; nobody likes them; people thought that they ought to be doing better by them, and so on. I hate to remind noble Lords opposite of one of the advantages of privatised industries, but the fact is that British Telecom's prices have gone down by 35 per cent. and British Gas prices have gone down by 20 per cent. That is of real interest and benefit to the consumer.
The real problem is that it is difficult to put the requirements of the consumer on the same basis as the requirement to supply gas in the first place. The priority for the regulator must be to create a framework in which it is possible for companies to compete, so that they can satisfy the demands for gas. The secondary duties relate to the manner in which that competitive framework operates. It would obviously not make sense if we were to place duties relating to the quality of service on the same level as securing that there are actually companies there to provide the service in the first place.
To give an example, the effect of this amendment could be to require the regulator so to enforce the cutting of prices that it would prejudice the ability of the regulated company to finance its activities. Of course, it would not be of much use to consumers if they were to get a price cut which resulted in the supplier being unable to provide the finance for his business. It would not make economic sense. Therefore, while I understand the concerns of the noble Lord, Lord Ezra, it is right that first of all the main duty of the regulator should be to ensure that gas is supplied. Having ensured that, then the regulator can say that he or she has the interests of the consumer at heart.
The noble Lord, Lord Peston, referred to Amendment No. 8, which would add to the existing duty in respect of the prices charged, and the other terms of the supply, the words "to the individual". It is an accepted drafting convention in Acts of Parliament that the singular includes the plural, and vice versa. I remember once pointing out that in Civil Service terms the male embraces the female. It occurred to me that we did not have to join the Civil Service to do that. But the principle applies: when the singular is used it covers the plural and vice versa. On some occasions, the interests of consumers will conflict and the director will need to balance those interests as a whole. At other times, individual consumers will have particular difficulties and interpretation as the singular will be apt. I do not feel that it is necessary to include the words which the noble Lord, Lord Peston, has in mind, simply because they are covered.
The noble Lord, Lord Haskel, referred to Amendment No. 7. I appreciate that he feels that the Bill ought in some ways to provide for the interests of those who would like to become gas consumers as well as those who already are consumers. That is why the Bill includes a duty on the Secretary of State and the director in relation to meeting reasonable demands for gas.
415 The Bill and the licences contain a number of other provisions which are designed to stimulate competition in building extensions to the pipeline network so that new areas can receive a gas supply. The duty to protect the interests of consumers is carefully framed in terms of matters which are specifically of interest to those who in fact consume the gas. It is difficult to see how the director, when he considers prices and other terms of supply, should take into account the interests of people who are not consumers of gas at the moment and might never be consumers. Obviously the principle of allowing freedom and competition is that more people will be brought in. But it is difficult to take account of what such people may be doing or what their interests may be until they become consumers. When they becomes consumers, those interests are taken into account.
§ Baroness Oppenheim-Barnes
Before my noble friend sits down perhaps I could ask him a question. I fear that I am at risk of being considered a dithering wimp because at the outset of this debate I had the greatest sympathy with the amendment as it was moved, but as I listened to my noble friend's argument I understood precisely what he was trying to say.
I accept that if this competition is to be provided and it is in the interests of consumers—just as privatisation, incidentally, has been in the interests of consumers—why could not that, instead of pre-empting the duty, be put alongside the duty to ensure that competition existed as well as the supply?
I realise that it would mean an amendment at another stage of the Bill. But would my noble friend consider that as a possible solution?
My noble friend Lady Oppenheim-Barnes is too modest. She need not consider herself a wimp simply because she has been persuaded by what I said. It shows that she is very intelligent and entirely correct. I should like to go along with her thoughts in some respects. But the question to ask is this: what is the regulator doing? His first job is to ensure that there is gas available. I do not think one can equate that with saying that at the same time he has to consider the interests of the consumer. If there is no gas, there is no consumer. So the first duty must be that there shall be gas provided correctly and the immediate secondary interest is that the consumer shall be protected. I feel that it would be right to keep the Bill as it is.
§ Lord Peston
I come back on that point. I am sure that the noble Lord, Lord Ezra, would also wish to do so. But, first, I should like to thank the Minister. I wanted him to go on record as confirming that the singular includes the plural and the plural includes the singular. That is very important. I was surprised that he did not go on to say that the present includes the future and the future includes the present and the amendment of my noble friend Lord Haskel would be covered in that way.
Let me give the Minister an example of why potential consumers are fundamental. In a few moments we shall have a debate on topics such as sustainable growth, energy policy and so on. What underlies our interest in those matters is precisely our interest in succeeding 416 generations and potential consumers. So, logically and practically, there are very good grounds why potential consumers need to be taken into account. Those are my comments on the two rather minor amendments, if I may so call them.
It would never occur to me to use the word "wimp" in reference to the noble Baroness, Lady Oppenheim-Barnes. She has told me off enough times for me to know that that is not her usual outlook. She said that she started by agreeing with me and then agreed with the noble Earl, Lord Ferrers; now she has what I believe is sometimes called a balanced view. My view is slightly less balanced. Indeed, the noble Earl said exactly what I hoped that he would not say. He made exactly the mistake that 200 years ago Adam Smith would have wished him not to have made; namely, that the product comes ahead of the consumer. That is just wrong. The consumer comes first. Satisfying consumer demand is what matters. The only value in the gas is if the consumer wants it. That is the whole point. The production comes later.
I was taken aback when the noble Earl insisted that he did not even want to think about that. It seems to me to be an actual error. The argument does not apply specifically to gas. It would apply if we were drafting a Bill about anything else. The whole point is: what does the consumer want? Does the system give the consumers what they want? Then we judge the system.
I do not resile at all from my remarks. I hope that the noble Lord, Lord Ezra, will not resile from his. It is an important distinction and I still hope to persuade the noble Earl to accept it. It would represent a very considerable contribution, as it were, to what the consumer wants; namely, the consumer receives what the consumer wants, and that is all that matters.
I do not wish to prolong this discussion for too long. I ask the noble Lord to read again what the clause says:The Secretary of State and the Director shall each have a duty to exercise the functions assigned to him by or under this Part in the manner which he considers is best calculated … to secure",first, that gas is conveyed through pipes; and then:that licence holders are able to finance the carrying on of the activities".Those are absolutely basic things. Then subsection (2) says that:Subject to [the] above … to protect the interests of consumers".
If the licence holders cannot finance their activities, there is no gas. The whole thing is done, in fact, with the consumer in mind. But there must be new Section 4(1) before one comes to new Section 4(2).
§ Lord Ezra
I listened with great care to all noble Lords, and particularly to what the noble Earl had to say. I am rather puzzled by his last argument. He implied that, as a result of this piece of legislation, an entirely new product in a new market is being created. He said that if there is no gas, there is no need to support the consumer.
Let me remind him that there are 18 million consumers presently receiving gas. They want to be assured that under the new arrangement they will continue to receive gas and that their interests will be seriously considered. I must say it is unthinkable that 417 the Secretary of State and the regulator could do nothing to safeguard the consumer should they not be able to persuade the suppliers to supply gas or could not find any suppliers with the financial resources to carry out the business. Does the noble Earl indeed mean that the situation could arise in which, if not enough suppliers were found or their financial resources were inadequate, the whole supply of gas to the domestic market would be jeopardised? Of course he does not mean that. If he does not mean that, surely the interests of the consumers—there are 18 million of them—at least to continue to be supplied on the basis on which they are supplied at the moment should be safeguarded.
I hope that the noble Earl will think again. I repeat the words used by his right honourable friend; namely, the fact that just because it is secondary to safeguard the consumer does not mean that it is less important. The logical action is to promote it.
I feel that the noble Baroness, Lady Oppenheim-Barnes, opened up the possibility of a compromise. We on this side of the Committee have suggested that the protection of the consumer should come first. I personally would be content if the noble Earl were prepared to take back that suggestion, consider it and promote the protection of the consumer into the first category. That would be sufficient. Therefore, I ask him whether he is prepared to accept the proposition made by his noble friend.
The noble Lord, Lord Ezra, is always deeply enticing when he suggests that we should think about the matter again. We have thought about this a great deal. He said that we did not seem to realise that there are 18 million consumers. Of course there are. That is what the whole of new Section 4(1) relates to. It is about securing that reasonable demands are met; that licence holders can finance their business so as to allow consumers to obtain gas; and about allowing effective competition. What is effective competition if it is not in the consumers' interests? That is its prime purpose.
Immediately following on from that comes the part about looking after the consumer. The second part is dependent upon the existence of the first, but the first also concerns consumers. If I may say so, we are splitting hairs and the consumers are considered in both parts.
§ Lord Ezra
I am sorry that the noble Earl is not prepared to consider the matter again in the light of what his noble friend suggested. It is wrong to make the interests of consumers -subject to the obligation under the first part. It qualifies that too much. I do not see why it should be difficult for the Government to introduce into the first part the protection of consumers. If the noble Earl is not prepared to think again, even in the light of the moderate proposal made by his noble friend, I feel that the opinion of the Committee should be tested.
I do not want to be confrontational. I believe that the Government are right and the noble Lord believes they are wrong. I shall certainly consider what was said by the noble Lords, Lord Ezra and Lord 418 Peston. There is no monopoly of wisdom in these things. However, if I consider this, the chances are that I shall come back with the same conclusion.
I am trying to be honest with the noble Lord, Lord Ezra, as I always am. I shall certainly consider what he and the noble Lord, Lord Peston, say. However, I believe we have got it right. I am prepared to consider what was said, but in saying that I do not hold out any great hope that I shall change my mind.
I did not actually say that. The noble Lord, Lord Ezra, asks if I will seriously reconsider and come back with alterations. I did not say that. What I said was that in courtesy to the noble Lords who have spoken I shall certainly consider what they said.
§ Lord Peston
I am now lost. We have all sorts of codes in relation to gradations of listening to other arguments. This one sounded as though it was really no. Beyond the normal courtesies which we always exchange in your Lordships' Chamber, it sounded to me like no. It would help me in taking a view if the noble Earl would indicate whether he is saying no. If he is, we do not want to waste Report stage going over this again. If he is genuinely—I do not say this with any disrespect—intending to go over the arguments again and is capable of being persuaded, that is one thing. If what he is really saying is, "We are friends. I will look at it but I shall not be persuaded", then we may as well get it over and done with now.
The noble Lord seems to have got the taste of power in his mouth and I wish it were in his belly. I would not wish to deflect him. I was trying to be as reasonable as possible by saying that I believe we have got it right. If the noble Lord, Lord Ezra, considers that we have got it wrong, I am prepared to consider it but I do not hold out much hope of changing my mind. If the noble Lord, Lord Peston, wishes to get the matter over and done with, let us get it over with. Perhaps that will meet with the satisfaction of both noble Lords.
§ 4.4 p.m.
§ On Question, Whether the said amendment (No. 1) shall be agreed to?
§ Their Lordships divided: Contents, 75; Not-Contents, 128.420
|Division No. 1|
|Archer of Sandwell, L.||Jeger, B.|
|Avebury, L.||Jenkins of Hillhead, L.|
|Barnett, L.||Jenkins of Putney, L.|
|Blackstone, B.||Judd, L.|
|Bridges, L.||Lester of Herne Hill, L.|
|Bruce of Donington, L.||Listowel, E.|
|Carmichael of Kelvingrove, L.||Lovell-Davis, L.|
|Cledwyn of Penrhos, L.||Mclntosh of Haringey, L.|
|Darcy (de Knayth), B.||McNair, L.|
|David, B.||Milner of Leeds, L.|
|Desai, L.||Molloy, L.|
|Dormand of Easington, L.||Monkswell, L.|
|Elis-Thomas, L.||Nicol, B.|
|Ewing of Kirkford, L.||Peston, L.|
|Ezra, L. [Teller.]||Ponsonby of Shulbrede, L.|
|Fitt, L.||Redesdale, L.|
|Foot, L.||Richard, L.|
|Gallacher, L.||Robson of Kiddington, B.|
|Gladwin of Clee.L.||Rochester, L.|
|Glasgow, E.||Rodgers of Quarry Bank, L.|
|Gould of Potternewton, B.[Teller.]||Russell, E.|
|Graham of Edmonton, L.||Seear, B.|
|Hamwee, B.||Serota, B.|
|Harris of Greenwich, L.||Shepherd, L.|
|Haskel, L.||Stallard, L.|
|Hilton of Eggardon, B.||Stoddart of Swindon, L.|
|Hollis of Heigham, B.||Strabolgi, L.|
|Holme of Cheltenham, L.||Thomson of Monifieth, L.|
|Hooson, L.||Tombs, L.|
|Houghton of Sowerby, L.||Tope, L.|
|Howie of Troon, L.||Tordoff, L.|
|Hughes, L.||Turner of Camden, B.|
|Hylton, L.||Wallace of Coslany, L.|
|Hylton-Foster, B.||Wedderburn of Charlton, L.|
|Iddesleigh, E.||White, B.|
|Jay of Paddington, B.||Winchilsea and Nottingham, E.|
|Aberdare, L.||Carnock, L.|
|Ailsa, M.||Carr of Hadley, L.|
|Alexander of Tunis, E.||Chalker of Wallasey, B.|
|Allenby of Megiddo, V.||Chelmer, L.|
|Ampthill, L.||Chelmsford, V.|
|Ashbourne, L.||Clanwilliam, E.|
|Astor of Hever, L.||Clark of Kempston, L.|
|Balfour, E.||Cochrane of Cults, L.|
|B anbury of Southam, L.||Coleraine, L.|
|Blaker, L.||Courtown, E.|
|Blatch, B.||Cox, B.|
|Boyd-Carpenter, L.||Cranborne, V. [Lord Privy Seal]|
|Brabazon of Tara, L.|
|Bradford, E.||Cranbrook, E.|
|Braine of Wheatley, L.||Cross, V.|
|Bridgeman, V.||Cullen of Ashbourne, L.|
|Brigstocke, B.||Davidson, V.|
|Brougham and Vaux, L.||De Freyne, L.|
|Cadman, L.||Denham, L.|
|Caithness, E.||Denton of Wakefield, B.|
|Caldecote, V.||Digby, L.|
|Campbell of Alloway, L.||Dilhorne, V.|
|Campbell of Croy, L.||Dixon-Smith, L.|
|Downshire, M.||Mottistone, L.|
|Elibank, L.||Mountgarret, V.|
|Elles,B.||Mowbray and Stourton, L.|
|Elliott of Morpeth,L.||Munster, E.|
|Elton, L.||Noel-Buxton, L.|
|Ferrers, E.||Northesk, E.|
|Flather, B.||O'Cathain, B.|
|Foley, L.||Orkney, E.|
|Fraser of Carmyllie, L.||Orr-Ewing, L.|
|Fraser of Kilmorack, L.||Oxfuird, V.|
|Gisborough, L.||Park of Monmouth, B.|
|Hailsham of Saint Marylebone, L.||Quinton, L.|
|Hamilton of Dalzell, L.||Rees, L.|
|Hanworth, V.||Renton, L.|
|Harlech, L.||Rodger of Earlsferry, L.|
|Hayhoe, L.||St. John of Fawsley, L.|
|Henley, L.||Saint Oswald, L.|
|HolmPatrick, L.||Sandys, L.|
|Howe, E.||Sharpies, B.|
|Huntly, M.||Shaw of Northstead, L.|
|Inglewood, L.||Shrewsbury, E.|
|Johnston of Rockport, L.||Skelmersdale, L.|
|Killearn, L.||Slim, V.|
|Kinnoull, E.||Soulsby of Swaffham Prior, L.|
|Lauderdale, E.||Stockton, E.|
|Lindsay, E.||Strange, B.|
|Long, V. [Teller.]||Strathcarron, L.|
|Lucas, L.||Strathclyde, L. [Teller]|
|McConnell, L.||Sudeley, L.|
|Mackay of Ardbrecknish, L.||Terrington, L.|
|Mackay of Clashfern, L. [Lord Chancellor]||Thomas of Gwydir, L.|
|Mariesford, L.||Ullswater, V.|
|Merrivale, L.||Vivian, L.|
|Mersey, V.||Wade of Chorlton.L.|
|Miller of Hendon, B.||Westbury, L.|
|Milverton, L.||Wharton, B.|
|Monk Bretton, L.||Wilson of Tillyorn, L.|
|Montgomery of Alamein, V.||Wise, L.|
|Morris, L.||Young, B.|
§ Resolved in the negative, and amendment disagreed to accordingly.
§ 4.12 p.m.
§ Lord Peston moved Amendment No. 2:
§ Page 1, line 13, leave out ("reasonable").
The noble Lord said: This, too, is an amendment to do with consumers. It is partly an attempt to try to understand what the Bill is up to. I thought that the easiest way to find out was to ask the noble Earl to explain why the word "reasonable" is included. My amendment essentially takes out the word "reasonable" so that the relevant paragraph would read:
to secure that, so far as it is economical to meet them, all demands … through pipes are met".
I say to myself, and I said to myself when I first read the Bill, what does "reasonable" add, given that the word "economical" is there? The whole point of industry is that it is meant to be competitive, leading to outcomes which are economical and which can meet demand. What does "reasonable" add? What would be a demand that was economical but was unreasonable?
§ My judgment is that this is just wrong. From my reading of the Bill, it is a mistake. But I am ever fearful of the lawyers and the parliamentary draftsmen and I therefore expect any minute to be told that it is part of the 421 tradition of English law that the word "reasonable" is always put before the word "demands", or something equally preposterous. Echoing the noble Lord, Lord Skelmersdale, and wearing my commonsensical hat, I simply ask the Minister to tell me why the word "reasonable" is there. Can he give me an example of a demand that is economical to meet but is not reasonable? That would solve the problem. I think it is impossible, but I would be interested to have an example.
§ That is what the amendment is about. Essentially it underlines where I failed earlier—the point that the consumer is paramount. The consumer expresses his or her paramountcy by making demands. Those demands should be met if they are economical to meet—end of story. I beg to move.
§ 4.15 p.m.
§ Lord Boyd-Carpenter
It seems quite extraordinary to have put down this amendment because it appears to imply that there will be an obligation to meet unreasonable demands. Although a demand to meet unreasonable demands comes quite commonly from the Front Bench opposite, I hope that the Committee will not accept it.
§ Lord Peston
Perhaps I may clarify the point. The amendment precisely does not do that because the paragraph retains the word "economical". An economist would argue—I hope that this does not turn the noble Lord against me—if asked what was a reasonable demand, that it was one that was economical to meet. That is why the word "reasonable" is irrelevant. It should not be there. I do not think that there is anything between the noble Lord, Lord Boyd-Carpenter, and myself about unreasonable demands—that is another subject which we may come to in due course. However, if he were to say to me, "What should happen?", I would say that all demands should be met as long as it is economical to meet them. That is the point.
§ Lord Boyd-Carpenter
That is just the point I was seeking to make. A demand might be economical but it might be unreasonable. If Members of the Committee go to the point of taking out the word "reasonable", the implication is that we are prepared to accept the authorisation of unreasonable demands. I do not accept for a moment what the noble Lord says, that an unreasonable demand may not necessarily be economical.
My noble and learned friend Lord Hailsham is deeply anxious that we should get on. I shall do my best to satisfy my noble and learned friend and the rest of the Committee. The noble Lord, Lord Peston, said that he wants to understand what the Bill is up to and that he is fearful of lawyers. He must not be too fearful. I am terrified of them, but I am terrified of economists, too, so that puts us on an equal footing.
The words,satisfy, so far as it is economical to meet them, all reasonable demands",422 have stood the test of time. That was one of the principal duties of the British Gas Corporation under the 1972 legislation; it was made a primary duty of the director in 1986; and we think that those words should be used now. They are sensible and they have stood the test of time. I agree with my noble friend Lord Boyd-Carpenter that to go beyond that and remove the word "reasonable" implies that the director would have a duty to secure that unreasonable demands for gas would be satisfied.
The noble Lord, Lord Peston, asked for an example. I can tell him that there could be cases where practical considerations could mean that extending the gas supply to certain individual premises or groups of premises was not realistic even where it would be theoretically economical to do so. For example, one might have a large consumer who would offer a generous price for a greatly increased supply of gas on condition that the supply should be provided within a few days; or he might request amounts of gas that would be unsafe to convey through the existing pipework even though it might be economical for the gas company to do so; or convey gas which would otherwise have gone to another consumer, thereby diverting that gas from that consumer to the person requesting it.
I do not think that there is anything sinister in this. The wording in the Bill reflects what was in the 1986 Act. I suggest that we ought to keep those words.
§ Lord Peston
The fact that something is of long standing does not mean that I am convinced that it is other than long-standing rubbish. The fact remains that if someone demands something and it is economical to meet it—namely, that he is willing to pay the costs of meeting it, including a due return to the supplier—that is what one means by a reasonable demand. There can be no other meaning to it. I simply do not understand the noble Earl's example. If someone wants to buy a lot of gas and is willing to pay for that lot of gas, why should that person not be supplied with that gas? If someone wants a lot of gas which might involve risk, essentially what one has to say is, "The risks arising here involve the following costs. Are you willing to meet all those costs?" The answer would, in practice, be no, and then it would be the "economical" test that would be met.
What I am trying to do—and it may be that I am being foolhardy—is to scrutinise the Bill and clean it up. It never occurred to me that there is anything sinister here. It has nothing to do with trying to undermine the Bill. I am trying to remove the tendency, which I have experienced during all my years in your Lordships' House, of the draftsman to put in a lot of extra words and clauses for things which they see but which I cannot. It is my duty as an economist to say, "I know what industry is about and what competition means. It is supposed to be about meeting demand".
Perhaps I may take a typical example. Marks and Spencer meet the demand of people who visit their shops and buy their stuff. It is not said at any time, "Are any of these demands unreasonable?". The stuff is there and you buy it; that is what industry is all about. What is there about this industry so that one adds the word "reasonable?"
423 There is another factor which, curiously, even my noble friends forget. I am surprised to discover that noble Lords on the Government side also forget it—that is to say, we are now dealing with a privatised industry and private enterprise. It is no longer a public utility we are dealing with, but a private business. There will be many such private businesses around. Why should legislation include words that would not be applied to any other private business? What is here that is so special?
What is here—I admit it from my side of the Chamber, but I did not expect to face it coming from the other side—is that we are still not quite at one with what is happening in this industry. It is now going to be a competitive private industry. I know that some of my noble friends cannot face that. What staggers me is that noble Lords on the other side of the House cannot face it either. My view is that they still believe they are dealing with the old public corporation when they should not be.
§ Lord Hailsham of Saint Marylebone
I am not being purely frivolous when I say that if the noble Lord, Lord Peston, who has just spoken for the second or third time this afternoon, had taken as his model the draftsman of the first chapter of Genesis instead of Adam Smith, he might have got on a little better. The Lord said, "Let there be light". The first section of this Bill says, "Let there be gas". The second point is that the Lord,saw the light, that it was good".Genesis does not say that the Lord saw the light and that it was economical but "that it was good". That is exactly what the Bill says. If the noble Lord would only learn from Genesis instead of from Adam Smith he would get on better.
§ Lord Howie of Troon
That is a very interesting intervention, as one might expect, from a very senior and experienced war-hardened practitioner in party politics. But the Lord did not say that the light was "reasonably good". Perhaps I may add one further point before we dispose of this important matter. In the course of his earlier comments the noble Earl introduced yet another word. It was not only economical; not only reasonable, but, "realistic". That is what he said. Is he suggesting that instead of taking out the word "reasonable" he would put in the word "realistic"?
The noble Lord, Lord Howie of Troon, is being even more unreasonable to suggest that I remove "reasonable" and put in "realistic".
I shall not add it either because I would then get into trouble with the noble Lord, Lord Peston, and have to spend half the night explaining why I put it in. I return to the simple fact. I know that the noble Lord wants to be as economical as possible, but people know what these words mean because they have been used in the past. If one removes "reasonable" those who look at these things will say, "This director or Secretary of State does not have to meet reasonable demands; they can meet unreasonable ones if the only reason it is put in is that the demand should be economical." There may well be occasions when someone might say, "I am prepared to pay for a larger amount of gas and give tremendously 424 increased powers." But that would be to the detriment of other people and it would be unreasonable. Everyone knows what the words mean, including the noble Lord. We had better keep them there.
§ Lord Peston
I despair. I do not want to get into a discussion about Genesis. I believe that Adam Smith made a contribution to our understanding of the way in which economies work. However, for the life of me I cannot recall seeing that in Genesis or in the tablets of the law. That is by the way.
It now seems to boil down to the fact that we all know what the word means except me. It has been there a long time and it will disturb people if it is taken away. Perhaps I may return to my example of Marks and Spencer. No one ever raises the point that if someone buys a particular item someone else may be unable to take it from the shelf. Markets are about buying things and meeting a price. All the arguments being put forward about gas seem to be part and parcel of a reluctance on the Government's side, which surprises me, to accept what they themselves are doing, which is producing a competitive private sector.
I am not going to press the point because there are other matters on which I wish to divide the Committee. I believe that the Government's side have not understood what is being done.
Perhaps I may help the noble Lord. If I had the pleasure of a house next to the noble Lord and he was being supplied, not with gas but with water and we were paying the same amount, let us suppose we had a very hot summer and his garden had dried up. He goes to the water authority and says, "I shall pay you twice as much because I want to water my garden, but poor old Ferrers next door can go without water". That would be unreasonable and the noble Lord would be far better off not being allowed to do that.
§ Lord Peston
I am grateful to the noble Earl. He has described free enterprise capitalism and how, according to Adam Smith, it is supposed to work. If the water is worth more to me than it is to my very good friend Lord Ferrers, I should have it according to free market theories. It is not for me to teach noble Lords opposite the theory of the free market. However, I would not do that because there are other things in life such as behaving decently. But one does not write that kind of thing into Acts of Parliament. One assumes that the world we live in includes decent behaviour and therefore that will not happen.
I am aware that I have managed to make my points but I have not persuaded the noble Earl. I am still tempted to divide the Committee and so have noble Lords opposite voting for a load of nonsense, but we want to get a move on. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lord Peston moved Amendment No. 3:
§ Page 1, line 19. leave out ("effective").
§ The noble Lord said: I shall introduce the amendment and my noble friend Lord Haskel will elaborate on many aspects of it. The difficulty as regards pages 1 and 2 of the Bill is that the matters concerned are all economics and therefore one must use one's own limited expertise at this stage in order to get all that over and done with.425
§ I am very interested in what "effective competition" means. I have looked through all the economic text books on my shelves at home and at college. The words "competition", "pure competition", "perfect competition" and "imperfect competition" appear, but I cannot find "effective competition". My main question is this: what do the Government have in mind here? How will they tell what this is about?
§ This is all preliminary to the amendments of the noble Baroness, Lady Gardner of Parkes, which are the important ones. What really matters is not effective competition, but effective choice, as we shall discuss later. The noble Baroness puts her finger on what is the central issue here.
§ If it will help the noble Earl, my judgment is that "competition" means that there should be alternative sources of supply; that each should be acting independently of the other; that there should be no collusion; and that the demander should have the ability to discriminate between suppliers. There should also be available full information as regards price, quality and all other related matters. That is what "competition" means—at least, that is what it means in first-year economics lectures.
§ I now have to ask whether the noble Earl will tell me what the word "effective" adds. I cannot think of anything that it adds, so I do not want the word in the Bill. I have tabled other amendments for a similar reason. I should like the Bill to read as if it was written by someone who understood what they were talking about. In my judgment, that means that the word "effective" has no effect. I beg to move.
§ 4.30 p.m.
§ Lord Haskel
I cannot add very much to what my noble friend Lord Peston said. It seems to me that either you have competition or you do not. The word "effective" could imply that suppliers might have an opportunity to sidestep some of their obligations. I am sure that we shall be given assurances that there is nothing sinister in this, but if you need to have effective choice for all classes of customer, there should be no discrimination between large and small, rich and poor, awkward or amenable. The use of the word "effective" seems to give gas suppliers an opportunity to sidestep their obligations.
The noble Lord, Lord Peston, is being a nitpicker, is he not? He does not like several individual words. I think that "effective" does mean something here. The word is intended to require the director and the Secretary of State to work to ensure not only that competition is established but that it actually works. The whole point of competition is to provide incentives for the providers of a product or service which will result in improvements in their standards for the benefit of consumers. It is also intended to introduce new ideas to meet consumers' needs. That produces a powerful downward pressure on prices. It would not be "effective" competition if the competition was merely nominal. There needs to be a genuine contest for consumers' business so that competition pushes down prices and succeeds in increasing quality.
426 I know that the noble Lord, Lord Peston, finds the concept of "effectiveness" difficult. If he were to be put in the ring with Mike Tyson, that would be competition, but perhaps I may suggest that it would not be effective competition because the noble Lord would be out on his knees in a minute. What we want to see is proper competition.
§ Lord Peston
I thank the noble Earl. If I got in the ring with Mike Tyson, he would, of course, win because he is better than I am. That is what one means by competition. Competition is about different people competing—in the case of gas, for a market. The noble Earl is right to emphasise that companies compete in terms of price, quality and new ideas. That is what competition is. I insist that the word "effective" adds nothing. We shall come to what "effective" adds when we discuss the amendment in the name of the noble Baroness, Lady Gardner of Parkes, which relates to choice.
It seems to me that in relation to competition the role of the Secretary of State and of the director should be to ensure that there is competition. I agree that it should be genuine competition in the sense that there should be no collusion. We should not have something else which Adam Smith worried about; that is, implicit collusion between people who were allegedly competing with each other.
This is another example of something that one sees throughout legislation. I refer to draftsmen having no courage when it comes to the English language. They are frightened of using the straightforward word "competition" and think, "We have to add a word to it. It will not work if we just use the language of ordinary people". They should try to be like Adam Smith or those who translated the Authorised Version. They should use straightforward language. Draftsmen want to add little words, and I do not like it. I would be much happier if people used the language as we know it. But having said that—
I do not want to prolong this debate, except to say that I have a great deal of sympathy with what the noble Lord says. I do not like nasty words which do not mean anything, but I believe that the word "effective" means something in this connection. We have to provide competition which works. The noble Lord said that he thought that it would be a very good idea if he was put in the ring with Mike Tyson because that would be competition. Actually, he did not quite say that; that is my flowery interpretation. The fact is that people pay a lot to see Mike Tyson because of the big competition. With respect to the noble Lord, they would not pay very much to see him fight it out with Mike Tyson because he would be flat on his back within 10 seconds. That is not good competition. We want to ensure that the competition is effective.
§ Lord Peston
People might come to see me because they like a good laugh. Anyway, I might talk Mike Tyson out of it. That is another possibility, but I am not having much success in talking the noble Earl out of anything. We shall have to agree to disagree on this matter. Our remarks are on the record and that is what matters. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Baroness Gardner of Parkes moved Amendment No. 4:
§ Page 1, line 21, at end insert ("and to secure effective choice for all classes of consumers supplied with gas by those required to be licensed under section 7A(1) below.").
§ The noble Baroness said: In moving Amendment No. 4, I should like to speak also to Amendments Nos. 5, 9 and 10. The Gas Consumers Council asked me to table these amendments because it is concerned about the lessening of statutory consumer protection within an otherwise well structured Bill. Any one of the amendments which I have tabled to Clause 1 would, if accepted, do much to restore the balance between the interests of suppliers and consumers. At this point, I must draw my noble friend's attention to the fact that I have tabled four amendments. That gives him such a wide choice that it must be difficult to rule out all of them. Each of the amendments is slightly different, but each would impact on the Bill.
§ My intention is to extend choice. There are many ways to achieve that objective. On Second Reading I drew attention to the new duties in Clause 1. They require the Secretary of State and the director to "secure effective competition". Perhaps my noble friend will shed some light on his interpretation of that duty. My interpretation is that the Secretary of State and the director must encourage as many new suppliers as possible to enter the market. That is a right and proper duty, but I do not believe that it will necessarily afford choice to all domestic gas consumers.
§ The objective of my amendments is to redress the imbalance by introducing a new duty in Clause 1 to secure, or alternatively to promote, effective choice for all gas consumers. The success of this legislation for each of the 18 million gas-consuming households will not be judged by the number of suppliers licensed by Ofgas. In reality, consumers will not care whether there are five, 10 or 100 suppliers. Each household will judge the success of the legislation only by whether they have a realistic alternative. British Gas will be the one supplier which is already known to everyone. Will others offer low gas prices and/or equivalent or better standards of service? I look forward to the time when all domestic gas consumers are able to debate with confidence the pros and cons of one supplier in relation to another.
In her 1994 annual report the director general of Ofgas said:
By 1998 all gas consumers will be able to choose where to buy their gas".
§ How can she realistically believe that choice will develop to the extent that all gas consumers will have choice available to them by 1998?
§ My belief would appear to be backed by the Government's standard conditions for the supply licence. Condition 13 gives freedom to all but the dominant supplier to discriminate between classes of consumer. I expect ample competition between many gas suppliers. I think that we shall have the effective competition to which my noble friend referred on the last amendment. However, choice—I emphasise the word "choice"—will 428 exist for only a relatively limited number of gas consumers. In that likely event, what action can we expect the director to take if she has a duty only with regard to competition, not choice? I believe that any one of my amendments would resolve that situation.
§ The new duty would require the director to encourage suppliers, by all means possible, to enter those areas of the country where choice is sparse or non-existent. It would require the director to encourage suppliers to generate choice for all consumers within their licensed area. The director has a duty under Clause 6 not to grant a licence or extension of a licence which has been framed so as to exclude pensioners, the disabled or those likely to default on paying for their gas supply. That is only the first step to prevent cherry picking and to ensure that the competitive market provides universal choice. It is on the negative side. No sensible supplier will go to the director and say that he wants to supply Westminster, Chelsea and Mayfair but not Camden or Lambeth. The duty contained in Clause 6 prevents him from doing so.
§ However, once the supplier has received a licence for his area, which may include Camden, Lambeth or whichever other areas he may not wish to supply, there is nothing to prevent him from not supplying customers whom he perceives to be difficult or expensive to serve. He will be able to do that quite easily by not targeting, informing or selling to such customers.
§ An amendment to promote or secure choice will mean that the director will have to monitor the development of a competitive gas market to establish what choice is available to consumers. I see this taking the form of a requirement on gas suppliers to provide to the director information on the customer mix in their supply portfolios. They may be required to provide the director with the proportion of their customers who are of pensionable age, who are disabled, who are in receipt of state benefit or who are taking supplies by prepayment meters. One of the recommendations of the Select Committee on Trade and Industry was that the DTI and Ofgas should set out how the distribution of the less profitable categories of customer should be monitored. That is one means by which this could be achieved.
§ I am sure that my noble friend will argue that all suppliers will have an obligation under licence condition 2 of the standard conditions to make available a supply of gas to every potential customer who applies for a supply. This assumes that every consumer is aware that a competitive gas market exists. My amendment would charge the director with the duty to promote choice and to make sure, through the licences and otherwise, that consumers are aware that choice is available, which companies supply their areas and what they have to do to change supplier.
§ The Gas Bill allows for a levy or, as condition 6A of the standard conditions of the gas supplier's licence calls it, a special customer payment. My noble friend Lord Caithness has tabled an amendment which is concerned with the issue of a levy. The levy may be raised if a supplier has been supplying gas or ancillary services to an undue proportion of premises owned or occupied by those who are disabled, of pensionable age or have defaulted or 429 fallen into arrears in the payment of charges for gas that they have consumed. In effect, it is an acknowledgment of potential market failure.
§ I believe that my amendment to promote choice will allow the director to define in a wider sense what is meant by special customer payment. Clear definition will encourage gas suppliers to supply less attractive consumers, because they will be more confident that they will receive payment from the levy for costs that they may incur but cannot otherwise recoup.
§ Each of my four amendments would give the director a duty with regard to choice. Amendments Nos. 4 and 5 create a primary duty, and Amendments Nos. 9 and 10 a secondary duty, to secure or promote effective choice.
§ I should like to end with a simple statement. The Gas Bill should be about bringing choice to consumers. The director general should have a clear and unequivocal duty to do so. I believe that so far the Bill has favoured the gas supply industry over the consumer. My amendments to promote competition and choice, either as a primary or secondary duty—I am happy for it to he either—will redress the balance. I beg to move.
§ 4.45 p.m.
§ Lord Ezra
I have much pleasure in supporting the amendment so ably moved by the noble Baroness, Lady Gardner of Parkes. I believe that to champion the cause of the consumer, as I have done at an earlier stage in this debate and now—and will continue to do—reveals a degree of objectivity on my part. I declared on Second Reading that I was chairman of a gas distribution company. Even so, I happen to believe that the interests of all in a market are best served by having satisfied and well safeguarded consumers.
Choice is a matter of great importance. We should not delude ourselves that the creation of effective competition will itself create choice. As the noble Baroness has pointed out, there may be areas where there is no effective choice. Those may be distant areas or areas in which, for other reasons, the new supplying companies have no interest and in which there may possibly be no choice. I believe that in those circumstances it is not unreasonable, given that this will remain a regulated business, that the director should comprehend within her duties the obligation to make sure that there is effective choice where there may not be such choice. That can be done by talking to the appropriate suppliers and pointing out to them that under the terms of their licences they are expected to provide choice, which they may not otherwise do. The steps by which that may be done have been described by the noble Baroness, and I need not go through them again. I very much hope that the noble Earl will regard this amendment as a constructive one. He is provided with a choice as to the preferred form of words, but if he agrees with any one of these amendments, he will be rendering consumers a considerable service under the new regime.
§ Lord Skelmersdale
I live in the south west of England. It may surprise noble Lords to know that even before the ink is dry on this Bill I have received offers to supply me with gas. Regretfully, they have gone straight into the wastepaper basket because I am not connected to 430 gas, and I cannot see any immediate likelihood of being so connected. Nonetheless, the opportunity of choice has already been presented to me. I have no doubt that it will continue to be presented not only to me but to others, first in the trial areas and then more widely when the whole country is opened up to competition in 1998.
As far as the individual amendments are concerned, I am slightly worried by the idea of asking either the Secretary of State or the director of Ofgas to promote effective choice. One can promote until the cows come home, but one may not necessarily get a result. I have been trying to promote myself into well-paying jobs for the past four or five years since I left the position beside my noble friend Earl Ferrers. I have failed, but not for lack of trying. If there is any benefit in this set of amendments, I am sure that what is needed is a duty to secure choice rather than promote it.
I believe that the noble Lord, Lord Peston, wishes me to speak first. It is very odd that we all wish to speak on this simple matter. My noble friend has moved a series of amendments. I have a great deal of sympathy with what she intends. She wishes to provide all consumers with choice. That is exactly what lies behind the whole purpose of the Bill. The intention of the Government's proposals is to introduce competition in the gas market.
What the amendments say is covered by the Bill's existing provisions. Under Clause 1, the director will have a duty to secure effective competition between suppliers. That will be a primary duty which will guide her in the exercise of her functions. It seems to me that if a case should ever arise where there was an area or a class of customer for whom suppliers were not competing effectively, it would be the director's duty to seek to exercise her functions in such a way as to resolve the lack of competition.
It is not practicable to go further. Although the director is required to seek to create the most favourable circumstances for competition, she cannot make people compete, as my noble friend Lord Skelmersdale said. It is like saying that you can take a horse to water, but you cannot make it drink.
To cast the duty in terms of promoting rather than securing choice would of course help deal with the question of whether the duty went too far, but it would leave very little that is not already provided for. Once the director has secured effective competition in respect of a class of consumers, it is difficult to see what more she could do to promote choice for them. The provisions in the Bill cover the point that my noble friend Lady Gardner is trying to make. I thought we had had this, but she referred to that horrible expression "cherry picking". I would respond to her only in this way, that we believe a competitive market is the best method of ensuring consumer choice.
To begin with suppliers will be keen to establish their market share, and that will provide a strong incentive for them to take on customers rather than to turn them away. That will militate against a selective approach to attracting customers. I do not believe that there should be a legislative obligation on all suppliers to develop an 431 identical portfolio of consumers. It would be absurd to set supply companies any form of quota for a certain number of different customers.
We intend to discourage suppliers from "cherry picking". The director general will have a duty to refuse applicants for licences which artificially exclude an undue proportion of pensioners and the disabled or those likely to default on payments. That is found in Clause 6 on page 8. That is an important provision which will ensure that licence areas do not, for example, exclude areas or estates within a town or city which might be considered to contain an undue proportion of such customers.
All suppliers will have an obligation to supply to all customers in their licence area, irrespective of the customer's income, how much gas they use, or whether they are elderly or disabled. Suppliers will also be obliged to process all applications for supply without undue preference and offer a range of payment methods, including cash, cheque or postal order, so that customers who wish or are able to pay only by those methods can, in practice, go to any supplier.
While I understand what my noble friend is saying, it is difficult to expect the director general to promote competition in that way. Her job is to ensure that competition exists. The results will promote themselves.
§ Lord Peston
I am sorry to say that the Minister has somewhat lost me on this. The Bill as drafted uses the word "secure" in line 19. It states, "to secure effective competition". So there can be no worry about the word "secure". The Bill uses the word "secure". When I was complaining and moaning to the Minister about what that meant, he told me that it meant essentially what the noble Baroness, Lady Gardner of Parkes, said: it will secure choice. That is the point of it. Now when she asks why we do not write into the Bill "to secure choice", the Minister seems to argue that that cannot be done because the director general cannot do that. I feel that there is a contradiction here.
The point of the Bill is precisely what the noble Baroness says. I say it is the essence of the Bill. It is not all that was involved. I would fully accept that the regulated monopoly that constitutes British Gas led to a fall in the real price of gas—a point that the Minister has made several times; in other words, a regulated monopoly did lead to an outcome, but it was not an outcome that allowed choice to the ordinary household.
The Bill now introduces competition. Why does it do it? It presumably does it because the Government believe that this structural outcome will be better than a regulated monopoly; otherwise we would leave well alone. We are not going through all this just to occupy the Committee's time; we are doing it because we now believe that the structure of the industry, subject to competition, will be better. What do we mean by "better"? We mean offering choice to consumers, exactly as the noble Baroness says. What are our means? Our means of getting there is competition.
The noble Lord, Lord Ezra, and I wanted the matter set out in that order, with the means coming after the end, but we have lost that battle, at least for this afternoon. Therefore I am at a loss as to why the Minister—other 432 than that he is obviously in no mood to accept any amendment or even to go away and think again—will not say not merely that he welcomes the amendment but that it is his duty to accept it because it is the point of the Bill. That is what I would press him on. Why would he not want to include it, given the arguments that he has put to us this afternoon? May I at least ask him to think again?
§ Lord Boyd-Carpenter
Will the noble Lord explain why, having spent a good deal of time on the previous amendment to try to take out the word "effective" before the word "competition", he supports an amendment which inserts the adjective "effective" in front of "choice"?
§ Lord Peston
That is easily done. That in fact is to cede the argument to me. The point is to have competition. If you ask me why I want competition, it is to produce effective choice. It is not effective competition that interests me; it is effective choice. I said that at the time, I might add. I want competition—meaning firms competing with one another. But if you ask me whether I want it for its own sake, the answer is no. I want it because it leads to consumer choice. I regard that as absolutely fundamental to the working of the kind of economic system in which we live. I do not use the word "fundamental" lightly. I have spent my life lecturing on this stuff. I regard competition—I can find some counter examples where it will not work—broadly speaking, as of the essence. And the reason it is of the essence is that it meets consumer demands. Why does it meet consumer demands? Because it offers them choice.
§ Lord Boyd-Carpenter
The noble Lord cannot get away with that. If there is not effective competition, there will not be effective choice. What is apparent is that he is prepared to swallow the word "effective" in an amendment against the Government, but not to accept the word "effective" in the Bill.
I believe that the noble Lord, Lord Peston, answered the very problem that he put. He said that competition leads to consumer choice. That is so. We agree with him over that. The very first clause says that the purpose is "to secure effective competition". What you cannot do is to secure choice. You cannot "promote choice" which are the words in my noble friend's amendment. What you can do is to secure competition, and competition will lead to choice.
§ Baroness Gardner of Parkes
I have listened with great interest to what has been said. I do not accept the arguments that my noble friend came back with. My noble friend Lord Skelmersdale said that he had already been offered gas supplies. That is interesting, because it must mean that he is a cherry, and that his area is one that may attract people in the future, even though he does not have a supply now.
§ Lord Skelmersdale
As I said earlier, the firms in question clearly had not done their homework. I cannot be described as a cherry if I am not connected to the public gas main.
§ Baroness Gardner of Parkes
I live in a village which did not have gas but does now. We went through great trauma to get it. We had to prove how many people there 433 were. I went through the survey to see how many people in the village had to have it to make it economical to connect it. It has made a tremendous difference to our village life. It is a great advantage. I am grateful to British Gas for doing that.
My noble friend says that the whole purpose of the Bill is to provide choice, but then, as we read it, we find that it is not; it is to provide competition, which he says will lead to choice. But there is no guarantee that it will lead to choice. I would emphasise again that there is a vast difference between "effective"—to use the word that my noble friend Lord Boyd-Carpenter used—competition and effective choice. Surely competition is effective if my business is making more money than your business. I will achieve that by using my gas supply to the greatest profit for my company and not for the people to whom I am supplying the gas. They are an important part of my business and of course I am out to get whatever customers come along who will be profitable for me. However, if it is likely that they will present me with a great loss I shall not go out looking for them.
My noble friend said that we do not want every firm to have an identical group of consumers. No, we do not, and the levy for those who are carrying consumers to their disadvantage will help to offset the problem. The Bill provides for a disadvantaged firm to be helped, and my amendment will clarify that.
The noble Lord said that every successful firm will process applications for supply. That brings me to my point. One cannot apply for a supply if one does not know that it exists. Everyone knows that British Gas exists. Whether or not one has gas in one's village, everyone knows that British Gas exists and supplies gas. It is a household name and has been for as long as I can remember. However, if one does not know that there is an alternative supplier one does not know that one has a choice. That is why the director should have the responsibility of promoting the awareness of choice.
My noble friend Lord Skelmersdale said that you could promote until the cows come home but without result. That is right but if people are not provided with information how will they discover that a choice exists? There must be a process for that and the person with the responsibility should be the director of Ofgas. It is important to differentiate between competition and choice. I hope that my noble friend will read carefully in Hansard what I have said. I believe that later amendments will bring home more clearly the importance of the availability of choice and the fact that that should be written into the Bill. In the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 5 to 10 not moved.]
§ 5 p.m.
§ Lord Haskel moved Amendment No. 11:
§ Page 2, line 4, leave out ("promote") and insert ("secure").
§ The noble Lord said: We can deal with the amendment quickly because the noble Lord, Lord Skelmersdale, spoke to it most effectively. He told the Committee that you can promote until the cows come home but that you cannot necessarily be sure of the results.434
§ The amendment is tabled in order to inquire why the word "promote" is used in paragraph (b) "to promote efficiency" and why the word "secure" is used in paragraph (c) "to secure effective competition". I believe that the word "promote" should be removed and that the word "secure" should be inserted because it is a much stronger word for the reasons which the noble Lord, Lord Skelmersdale, explained so eloquently. I beg to move.
§ Lord Skelmersdale
I cannot resist saying that it is for my noble friend Lord Ferrers to defend the wording of the Bill.
§ Lord Cochrane of Cults
If the word "secure" is put before the word "efficiency" what will he done if efficiency is not secure? That is the dilemma. Efficiency is capable of being promoted but it is incapable of being secured.
§ Lord Peston
The noble Lord has put his finger on the drafting problem. If the word "secure" is inserted and that does not happen, what will follow? On the other hand, if the word "promote" is used one is under no obligation for anything to happen, which is what the noble Lord, Lord Skelmersdale, argued. So why are we wasting our time? We want a wording which leads to something happening or we may as well leave the whole thing out. I have sat through many Bills in this Chamber when we have put in all kinds of vague words which make everyone happy but nothing very much follows. I agree that that is the problem.
What we really want is the efficient use of energy. We have a director general, and we would like him or her to do something to achieve that. If we use the word "secure" we run into the logical problem of what will happen if that does not come about. I suppose that the answer is that the person gets fired or has 10 per cent. taken off his salary. I suppose that we could have performance-related pay. If we use the word "promote" all that will happen is that when we ask what is going on the director general will say, "I recently published pamphlets on promoting energy efficiency", and one thinks, "So what?". That is the problem. We have tabled the amendment in order that we can air it.
The noble Earl earlier mentioned Mike Tyson. Perhaps I may tell him that he has ground me into the dust and, therefore, as regards my Amendment No. 12, which removes the words "and economy" because "efficiency" already covers the point, I am getting fed up with saying, "Let's clean up the Bill and convert it into ordinary English". If I were not ground down I would say that that was the point of Amendment No. 12. The words "and economy" add nothing because "efficiency" covers "and economy". I have accepted defeat and realise that today I shall win no battles on the correct use of language.
§ Lord Ezra
As someone totally committed to securing energy efficiency, I wish to ask the Minister what is the significance of using different words in paragraphs (b) and (c)? Is securing competition more important in the Government's mind than promoting efficiency and economy? If the two objectives rank similarly why not use the same word in both cases?
It grieves me to think that the noble Lord, Lord Peston, has been ground into the dust but it 435 does not seem to have stopped him talking. Neither the director general nor the Secretary of State are in a position to secure the efficiency of a commercial organisation. One cannot do that. They can act in a way such as will promote efficiency but they cannot secure it. Perhaps they can do that by setting a challenging price control but achieving efficiency is a matter for the board of the company concerned. One can secure only what is in one's control; one cannot secure that which is outside it. However, one can promote it.
The Bill is similar to the 1986 Act and uses the word "promote". It provides the basis for a system of regulation which gives companies an incentive to be more efficient. It also requires the director general taking regulatory decisions to take account of those decisions on the company's efficiency. But the director general cannot secure that customers are efficient. She cannot send her staff to turn down people's thermostats and to close their windows. However, she can promote energy efficiency and that is why the new draft supply licence contains provisions designed to promote energy-efficient packages.
As regards "and economy", perhaps I may point out to the noble Lord, Lord Peston, that one cannot be efficient without being economical but one can be economical without being efficient. That is the reason why we believe that it is best to leave the words as they stand.
§ Lord Haskel
The way in which we measure the effectiveness of the director general is to see how effective he or she is in securing efficiency. I realise that one cannot be sure that the director general will or will not secure it but certainly one can measure how effective he or she is in doing that. However, I do not wish to prolong the discussion and therefore I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 12 and 13 not moved.]
§ The Earl of Cranbrook moved Amendment No. 14:
Page 2, line 18, after ("functions") insert ("—
§ The noble Earl said: Amendment No. 14 is one of those parliamentary absurdities: it is apparently devoid of sense, but it is in fact pregnant with implications. It is linked with a set of amendments all of which I should like to speak to; that is to say, Amendments Nos. 15, 17 and 18. It is also linked with Amendment No. 20 which is tabled in the name of my noble friend on the Front Bench and also with Amendment No. 22. I shall want to return to one or two of those amendments because I believe that what I say could become too convoluted and complicated if I try to deal with all of them at once as they pick up different threads.
§ The way in which energy is produced and supplied—and, in the case of gas, the way in which it is used—can have major impacts on the environment. The Bill seems to seek parity between electricity and gas as there are many similarities in the wording. However, there is a fundamental difference. The burning of fuel by electricity generators is subject to environmental regulation and there is a mechanism to raise the related costs. But, with gas, it is the end user, the consumer, who burns it. So we have to consider that there is also an appropriate place for 436 environmental regulation and associated costs on its end use. That is one of the points that I make in Amendment No. 17.
§ As regards Amendment No. 15, I am glad to see that I am at one with my noble friend in that we leave out the word "physical". I am informed that the term has no actual definition in law and that we would be much better off without it.
§ Amendment No. 17 deals with two points. First, it deals with the fact that we need to consider the environmental impacts of the use of gas by the consumer which I mentioned just now. Gas is a hydrocarbon and, being burnt, it produces water and carbon dioxide. As Members of the Committee will know, the rising concentration of carbon dioxide in the atmosphere is of major international environmental concern.
Amendment No. 17 also introduces—because of the way that the words fall—the duty on the regulator and on the Minister to have in mind,
the objective of achieving sustainable development".
We have had some complicated debates on sustainable development in the Environment Bill. But I believe that the concept, although it may be difficult to define, is broadly understood, widely supported in the country and supported by all political parties.
§ The basis of sustainable development is to reconcile the dual objective of achieving economic development and, at the same time, providing for effective protection and enhancement of the environment. There is no paramountcy of interests in sustainable development, but there must be real and equivalent consideration of all interests, especially the environment. I believe that this fact was fully recognised in the recent Energy Report, particularly in Chapter 5 which is titled, "Energy and the Environment". Therefore, I believe that the concept needs to be brought into the Bill. I also believe that it is entirely consistent with the Government's intention in seeking the goal of sustainable development to ensure that it is there.
§ My attention in that respect has very sharply been focused by the role that I personally have been invited to play in the programme related to the Government's sustainable development goals; that is to say, in the UK Round Table on Sustainable Development. Those things have all happened rather recently, which is why I did not have the opportunity to raise them on Second Reading and why I apologise for introducing such topics now without having, as it were, waved my flag at a previous stage.
§ As part of my participation in the UK Round Table on Sustainable Development, I was invited to chair a working group on energy policy. In order to shorten what I need to say, I have obtained the permission of the two co-chairmen of the Round Table on Sustainable Development—namely, the Secretary of State for the Environment and Professor Sir Richard Southwood—to place in the Library the report of the energy policy working group which I chaired. I believe it has also been circulated to a number of noble Lords. Very briefly, its conclusions (and such conclusions were reinforced by the consensus of the whole Round Table which met on 15th June) were that market forces and sustainability were not mutually reinforcing because they were not intentionally 437 aligned. I hope that this phraseology will appeal to the economist on the Benches opposite, because it seems to me to be a very sensible statement.
§ In essence, what the Round Table concluded was that an unfettered energy market would not necessarily produce sustainable results because it would not take into account the full range of externalised, environmental costs. Therefore, in the long term—and I believe that this is entirely consistent with everything that I read in the Energy Report—mechanisms will be needed to establish the environmental boundaries within which a free market can operate. The aim of my series of amendments is to do just that.
§ I should like to point out that there is a very subtle difference between Amendment No. 22, which is tabled in my name, and my noble friend's amendment, Amendment No. 20. With my noble friend's permission, I should like to return later to Amendment No. 20 in particular. However, I hope that I have made clear the intentions of my amendments. It is of fundamental importance because I believe that the issue was overlooked first of all in the original Gas Bill of 1986. Indeed, we must remember that events have moved on very markedly since that time. Many of the ideas that we now have on environmental protection and sustainable development simply had not properly evolved, or did not exist in 1986.
§ The way that the Bill is constructed means that we are amending a 1986 Bill. However, as we are in 1995, I believe that we ought to do so with the determination and the understanding of environmental issues which now exist almost a decade later. I beg to move.
§ 5 15 p.m.
§ Lord Ezra
I should like to support the remarks just made by the noble Earl and especially what he said in relation to Amendment No. 17. I am glad to note from Amendment No. 15 that the noble Earl, Lord Ferrers, is likely to agree that the qualification of environment by the word "physical" will be removed. That was a puzzle to everyone who read the Bill as to precisely what was meant by "physical environment"; indeed, what happened to the rest of the environment? However, I take it that that puzzle has now been removed.
I believe that the noble Earl, Lord Cranbrook, was absolutely right in the two points that he made as regards Amendment No. 17. The first point is that, as now drafted, there is a duty to take into account the effect on the environment—that is, if one leaves out the word "physical"—of,activities connected with the conveyance of gas through pipes".However, I am puzzled as to why that should be limited to the conveyance of gas. Obviously the use of gas is as important, if not more important, than its conveyance. Generally speaking, the conveyance of gas is conducted in ways which are environmentally quite satisfactory. After all, it goes in pipes underground. While we must ensure that it remains environmentally acceptable, what is really important is the use of gas conveyed through the pipes. Therefore, I hope that that will be a non-controversial amendment.
438 Secondly, I believe that the reference to,the objective of achieving sustainable development",is important because we must bear in mind that the satisfaction of consumers is important; that the stimulation of competition is important; but that making that consistent with environmental development is equally important.
I do not believe that any energy industry can now thrive which does not take sufficient account of environmental pressures. We had vivid proof of that the other day in what happened to the Shell oil rig, the company not having taken sufficient account of environmental pressures. Let it be stated in the Bill that that has to be done. I am sure that any self-respecting supplier—I certainly include myself in that—would take environmental considerations seriously. This is not something that any supplier would regard as limiting his freedom of action; on the contrary, it supports the proper supplier in the discharge of his responsibilities. I very much support the noble Earl, Lord Cranbrook, in Amendment No. 17.
§ Lord Wade of Chorlton
The noble Lord, Lord Ezra, referred to the importance of taking account of environmental matters, and he referred to the Shell platform. Yet surely here was an instance when all the facts concerning the scientific nature and the environmental benefits of the disposal of the platform were taken into account, but there was an emotional response to those matters. It is important to understand that when we include these phrases in legislation we are dealing with what is scientifically sustainable and with courses of action that are sensible in environmental terms and are based on scientific evidence, and not with emotional evidence that often holds sway. History tells us that an emotional response works against the interests of society as a whole.
§ Lord Peston
This is an interesting set of amendments and it is the nearest we get to placing the Bill in the context of energy policy and long-term development. I would say immediately to the noble Lord, Lord Wade, that I take a hard-headed view as to how we approach the environment. We must consider environmental damage, but we must also consider the cost side. I believe there is nothing between us on that. As regards the oil rig that was mentioned, one could argue whether that matter was examined correctly at any stage. However, I take it that there is no suggestion from the noble Earl, Lord Cranbrook—there is certainly no suggestion from the rest of us—that one can achieve what one wants with the environment without cost. That is not what we are arguing. I do not think that there is a free ride as regards the environment other than if we approach the environment correctly, that will be enormously beneficial, in particular to our successors. The environmental damage that we suffer was inflicted by our predecessors who did not consider these issues carefully. That is certainly the meaning I give to what the noble Earl refers to as sustainable development. I believe that that involves taking a view into the future and asking ourselves whether we take properly into account, in considering the needs of the future, the costs placed on future generations.
439 I agree with the noble Earl that it has long been recognised that one of the weaknesses of the uncontrolled free market is that it does not lead to an optimal outcome. That does not mean that one destroys the free market; it merely means that one modifies its workings in certain circumstances to improve the outcome. I hope that we are all in agreement on that. I believe that my noble friend Lady Hilton of Eggardon will deal with our Amendment No. 16, which falls within this context, but I want it to be dealt with separately.
I wish to refer to two matters. The main one concerns whether the noble Earl has anything to add—we always use government figures anyway—on recoverable gas reserves in all their different forms: that is, the proven reserves, the probable reserves and the possible reserves. Is it still the department's view that, on perhaps the most pessimistic assumptions, we have, at present rates of use, some 35 years of reserves, or, more optimistically, that we might get as much as 45 years of gas reserves? I am not a great believer in these long-term forecasts anyway. I can still remember, as can other Members of the Committee, the first time I heard that North Sea gas had been discovered. I remember that the reaction was, "Hoorah, there is gas in the North Sea, but we are going to use it up before you can look round". As far as I know, although we have been using it up at a tremendous rate we still seem to have lots of it. I am never as pessimistic as others in this regard. This reminds me of the estimates that economists made of coal reserves in the 19th century. The economists proved to everyone's satisfaction that we would run out of coal in about the first quarter of the 20th century. As it is, quite the reverse has happened and we ended up with far more coal than anyone was ever able to find a use for.
I am not pessimistic as regards gas, but that does not mean that I do not take the question of reserves seriously. I hope that when the noble Earl replies he will say whether there is any more up-to-date information he can give us on that. I also hope that he will say whether he regards it as being within the remit of the director, as already stated, to consider matters of this kind. Perhaps the noble Earl could say whether he thinks Amendment No. 18 standing in my name and that of my noble friend Lord Haskel is not needed from that point of view because the director would make this provision anyway. I hope the noble Earl will be able to say that. Essentially I am trying to be as supportive as I can. I am enormously looking forward to hearing the subtleties of the difference between Amendments Nos. 20 and 22, because I do not think I could write an exam answer on the difference in meaning between those two amendments. Subject to that, my desire has been to be as helpful as I can on this.
§ Lord Wade of Chorlton
I wish to make one further comment on the point that the noble Lord, Lord Peston, has just made. Past progress shows us that sustainable development is not just a matter of trying to conserve the resources we already have; it is also a matter of allowing society to find solutions to the changing needs for resources and the changing costs of resources. I should strike a note of caution as regards these kinds of amendments. Although, on the one hand, they appear to be helpful in terms of protecting what we have, at the same time we must be careful that they do not limit the 440 development of technology and new business methods to find solutions which deal with people's needs in a different way. It is interesting to note that throughout history we have always satisfied people's needs to a greater rather than to a lesser extent, and we have provided the free market to do that.
§ Lord Peston
I agree with the noble Lord, Lord Wade. I am certain that in perhaps 50 years from now when we are all long gone—perhaps not all of us; the younger Peers present will still be with us, assuming they are still Members of this Chamber or its successor body—people in this Chamber will wonder why we wasted time discussing whether gas would run out when they know that the only fuel one uses is something I cannot even think of. The noble Lord is quite right in that regard. However, that does not mean that one neglects a valuable asset while one has it. There are two sides to this matter. The world is always surprising us but this is a valuable asset and we do not wish to see it wasted. I do not think there is any difference between us on that.
The noble Lord, Lord Ezra, said that he was not quite certain what the physical environment was. I am bound to tell him that I knew the additional word would upset the noble Lord, Lord Peston. We considered it all and we thought that we had better satisfy the noble Lord. Had he been more on the ball and put down the amendment himself, I would have been able to accept it. However, he did not do that, and he accuses me of not accepting amendments.
§ Lord Peston
I would never doubt the noble Earl's word. I take it he is telling me that if I had tabled the amendment, that would not have been regarded as automatically to be rejected.
My admiration for the noble Lord, Lord Peston, would have increased even more had he put it down. However, as he did not, my admiration drops a rung or two down the ladder, but it is still high. It is, I am bound to say, an unrivalled pleasure to share the sponsorship of an amendment with my noble friend Lord Cranbrook. I share his view that it is necessary to include a definition of the environment. The change was also suggested by the Energy Saving Trust which has held a number of helpful meetings with my department. This provision does meet its concern that the use of the term "physical environment" might be taken not to include the atmosphere.
The noble Lord, Lord Peston, said that he was entranced by the subtleties of the difference between the two amendments. I am bound to say that I am a little fascinated by that but only marginally, because I am not quite certain what the difference is. However, I have no doubt that my noble friend will tell me, as he will tell the rest of the Committee later.
The use of the definition of the word "environment" from the Environmental Protection Act, which was also used in the Railways Act 1993, will make it clear that the effects which the director and the Secretary of State must take into account include damage to the atmosphere resulting from the leakage of methane. Therefore, I am glad that my noble friend and I share a common view on that.
441 I fear, however, that I cannot be so encouraging about my noble friend's suggestion that the director should have a statutory duty to take account of the objective of achieving sustainable development. The Government attach great importance to that principle. We believe that the Bill will promote sustainable development by harnessing the forces of the profit motive to provide incentives for the efficient use of gas and not the wasteful use of it, which is anti-social to the environment. There is also a specific duty in relation to the efficient use of gas which covers energy efficiency matters. Condition 16 of the draft licence requires energy efficiency advice to be provided. Those measures, together with others in the Bill, will help promote a sustainable development, although the words may not appear on the face of the Bill.
I am afraid that one particular difficulty with my noble friend's proposal is the lack of a satisfactory definition of "sustainable development". The 1995 Act, referred to in the amendment, leaves the matter to guidance from the Secretary of State. While that may be entirely appropriate for an environmental regulator such as the new environment agency, it would cause difficulties in the case of an economic regulator. That is because it could cut across the principle of an independent regulator and, having regard to the breadth of the regulator's powers, that could cause unacceptable uncertainty.
The noble Lord, Lord Peston, wants me to say that his Amendment No. 18 is unnecessary. I did not do that because I feared that the noble Lord might be upset but I believe that I can satisfy him about that. It is unnecessary. He mentioned in his amendment three specific matters to which the director should have regard in performing her duties. In broad terms, those were oil reserves, the Rio Summit of 1992 and funding the Energy Saving Trust.
I should remind the Committee that the introduction of competition will in itself provide a spur to energy efficiency. While a monopoly supplier has no financial incentive to reduce the overall size of the market, competing suppliers are interested only in increasing their slice of the market, not in the overall size. The Bill, which also allows for suppliers to compete to sell energy packages—warm houses, as it were, rather than therms of gas—therefore removes a major disincentive to energy efficiency.
Amendment No. 18 suggests that the director should have regard to official estimates of the amount of discovered and recoverable reserves of gas. That proposition rather reminds one of the 1970s arguments over depletion policy which the party opposite talked about. We believe that such issues are for the market to resolve. In any event, if the director were to consider the question of gas reserves she might well think there was no need to worry about energy efficiency, as the amount of new gas found on the United Kingdom continental shelf has been greater than production in recent years, despite the fact that production has been rising more quickly each year.
The question of whether the director should have regard to the "Rio commitments" was discussed in another place, when it was noted that the Government expect to achieve those targets, with some considerable margin, by the year 2000. That will be done through a variety of measures which are already in place. Placing a 442 duty on the director to consider that might therefore also have the perverse effect of encouraging a relaxation of effort on energy efficiency.
The question of the funding of projects through the Energy Saving Trust has now been resolved by the announcement by the Secretary of State for the Environment on 11th May that he was making £25 million available annually to the EST between 1996 and when the gas and electricity markets are fully liberalised. That will enable the EST to promote innovative pump-priming schemes which are designed to take advantage of and enhance the effectiveness of the developing competitive markets for energy and energy services. Those measures will be able to operate without raising gas prices, which would have been the only way the regulator could have funded the trust.
I hope that I have been able to persuade the noble Lord, Lord Peston, that Amendment No. 18 is not necessary.
§ 5.30 p.m.
§ Lord Ezra
With regard to Amendment No. 17, the noble Earl told us that he is not disposed to accept the objective of achieving sustainable development. I have no doubt that the noble Earl, Lord Cranbrook, will deal with that. But the Minister did not indicate whether he would accept the first part of the amendment which adds the words:and the use of gas conveyed through pipes".
I meant to make it clear that I am not keen on that and therefore I do not advise the Committee to accept it.
The Earl of Cranbrook
I have indicated to the Committee that I should like to return to Amendments Nos. 20 and 22 because they deal with separate issues.
Amendment No. 14 is linked to Amendment No. 15, which I assume the Committee will accept, and in particular to Amendment No. 17. Amendment No. 14 is a necessary precursor of Amendment No. 17 because it creates paragraph (i).
I apologise for the fact that I raise this matter rather precipitously. That is because my attention was focused so sharply by my experiences of the UK Round Table on Sustainable Development. It is extremely important that full consideration should be given to the Round Table's deliberations, but I recognise that I have given the Committee very short notice and very little time for the matters to be assimilated at official level. Nevertheless, as Members of the Committee who care to consult the documents, copies of which are placed in the Library, will see, it brought together an extremely powerful group of people who gave their time to put their heads together for that one day.
My amendments were prompted by my appreciation of how important it is that we should consider the use of gas because it contributes directly to the carbon dioxide load; and how important it is that ultimately there should be reference to sustainable development in the Bill. Therefore, for the time being I wish to withdraw the 443 amendments but I believe that it is appropriate that they should be considered in due course and I shall return to this matter on Report.
§ Lord Peston
Before that happens, will the noble Earl make clear which amendments he is withdrawing?
The Earl of Cranbrook
I shall withdraw Amendment No. 14 and I shall not move Amendment No. 17 because they are inextricably linked. Therefore, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Earl Ferrers moved Amendment No. 15:
§ Page 2, line 18, leave out ("physical").
§ The noble Earl said: I am extremely grateful to the noble Lord, Lord Peston, for asking that question because I had a horrible feeling that my amendment might have gone down the plughole. That is not the intention and I beg to move Amendment No. 15.
§ On Question, amendment agreed to.
§ Lord Peston moved Amendment No. 16:
§ Page 2, line 19, after ("with") insert ("the construction of any pipeline and").
§ The noble Lord said: I am now totally at a loss as to what is going on. I was looking forward to hearing an explanation of Amendments Nos. 20 and 22 which are grouped with the amendments that we have just debated. Shall we be returning to those amendments in a few moments?
The Earl of Cranbrook
I am working on the assumption that my noble friend will move Amendment No. 20, because that amendment stands in his name, and I shall then have the opportunity to speak again to Amendment No. 22 and explain the differences and some of the background.
That seems to be reasonable. I intend to move Amendment No. 20. I am not certain about the nice nuances in relation to those two amendments and I look forward to hearing about those with a certain amount of trepidation.
§ Lord Peston
I am fairly sure that that is not within our rules but I am always extremely reasonable. I shall not object to that procedure when we reach those amendments.
The Earl of Cranbrook
It is perfectly clear that the list of groupings is advisory and not obligatory. I am absolutely sure that it is the correct behaviour.
§ Lord Peston
I am not suggesting for one moment that it is incorrect behaviour. I am pleased to know that we shall have an explanation in relation to Amendment No. 20 in a few moments. Therefore, I should now like to speak to the amendment standing in my name and that of my noble friend Lady Hilton of Eggardon. It might have been useful if the amendment had been grouped with the others.
I simply raise briefly—I am sure that my noble friend would have been able to deal with the issue in a more sophisticated way—the question as to why the Bill is written as it is. It refers to the effect on the environment of 444 activities connected with the conveyance of gas through pipes. The amendment in the name of the noble Lord, Lord Ezra, refers to, "the use of gas conveyed through pipes." Common sense tells me that what might damage the environment—it is where the issue arises in practice—is the building of pipelines. Once the pipelines have been built underground, with the area made good again, all is well. In the meantime, the environment has taken a terrible beating. I am puzzled as to why the construction of any pipeline was not included.
It may be that that concept is subsumed logically under the conveyance of gas: that one cannot convey it unless one builds some pipes and that therefore if one is taking into account the conveyance of gas, one is taking into account the construction. If that is what the noble Earl is about to tell me, it will satisfy me. If he is not, I emphasise to him that for those who are worried about the world in which we live, digging up the ground and making a terrible mess which seems to go on endlessly is about as bad a destruction of the environment as anything I can think of.
That is the purpose of the amendment. To go back to my earlier remark, I should like to be assured that the amendment is not needed and that the matter is subsumed in the Bill as drafted. It is an important consideration.
§ 5.45 p.m.
§ Lord Inglewood
In this case my noble friend Lord Ferrers will not be able to give the noble Lord, Lord Peston, any satisfaction. I hope that I may be able to do so. Of course, we agree that the construction of gas pipelines that are likely to have significant effects on the environment should only be allowed to go ahead if those effects are properly assessed first and taken into account. That is why it is our intention to bring forward later this year an order under the European Communities Act 1972 to provide that procedure. We believe that those arrangements will meet the concerns underlying the amendment and that in this country we shall continue to have high pressure pipelines installed to our current high standards.
If one thinks about it, it would not be practicable for the director to consider the construction of every single pipeline. Those which are likely to have an environmental impact will be dealt with by environmental assessment. As to those which are not, British Gas has enough short low pressure pipelines to go several times around the world. For the director to consider each addition to this vast spider's web, cat's cradle, call it what you will, would create an enormous bureaucracy to little effect.
It is interesting that earlier the noble Lord, Lord Ezra, commented that this aspect of gas was not environmentally intrusive in general. Any general matters which arise from the pipes which are not subject to environmental assessment will fall within the more general requirement to consider activities connected with the conveyance of gas. I hope that that gives the noble Lord, Lord Peston, some comfort.
§ Lord Peston
I thank the noble Lord, and I apologise to him. Perhaps he will accept that when I refer to the noble Earl, Lord Ferrers, it subsumes the noble Earl, Lord 445 Ferrers, the noble Lord, Lord Inglewood, and anyone else sitting on the Government Front Bench who fancies speaking.
The noble Lord's answer was extremely reassuring, if I understood it. I gather that such a consideration will be taken into account but that we do not need to provide for it in the Bill because we shall make provision under a European directive that we shall all be extremely pleased to support. Therefore the answer is doubly good.
I accept the fact that we cannot become involved in all the detail. However, such pipelines can be an environmental mess and we wish to have high standards as regards taking into account the environment. I am pleased with the answer. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 17 and 18 not moved.]
§ Baroness David moved Amendment No. 19:
§ Page 2, line 28, at end insert ("or in receipt of one or more of the means-tested benefits").
§ The noble Baroness said: We are glad that the requirement that the interests of those who are disabled or of pensionable age are taken into account by the Secretary of State and the director general in the exercise of their duties. As one of pensionable age, I am particularly glad that that is so. I noted with amusement that my noble friend has put my name to all those amendments which are attached to those of pensionable age—so here I go!
§ We are concerned that the special circumstances of other equally vulnerable consumers are not afforded similar considerations, particularly those on the lowest incomes. For example, the provision of free gas safety checks is one of the tangible benefits currently available to elderly and disabled customers. Yet the risks of using poorly maintained or rarely serviced gas appliances are not confined to those consumers.
§ It is a fact that those on the lowest incomes may be at much greater risk because they are less able to afford the costs of servicing equipment than many pensioners or disabled people. Similarly, the commitment not to disconnect pensioner households in the winter months recognises that elderly people are particularly vulnerable to the dangers of hypothermia and cold-related illnesses. However, the same is true of young children, as the Government recognise through their scheme for making extra payments to meet fuel costs for income support claimants in periods of severe weather.
We wish therefore to see some additional degree of protection afforded to customers who are financially disadvantaged. That means that we wish to add the words in the amendment,
or in receipt of one or more of the means-tested benefits".
beg to move.
§ Lord Inglewood
I am grateful to the noble Baroness for explaining her amendment. We recognise that pensioners and disabled people have special needs in relation to gas. As she pointed out, they may be more susceptible to cold if the supply fails. They may need prepayment meters moved to more accessible locations. They may need adaptors for appliances or help with safety checks.
446 However, the real interest of low income consumers is in cheaper gas. That is very similar to the interests of all other customers. Low income customers do not have special requirements as to the quality of gas supply services provided.
Nor is it accurate to equate low income customers with those likely to default on gas charges. Many poor people make a point of saving up in advance and paying their gas bills as soon as they arrive. Indeed, if one considers across society it is by no means always the case that those who are the least well off are the most reluctant to pay their bills.
It is right that it should be the director's duty to consider those who might be at risk of disconnection. That is covered by the duty to protect the interests of consumers as respects continuity of supply. Adequate provision already exists in the Bill. All suppliers, as a condition of their licences, will have to follow debt and disconnection procedures, which will protect any customer who has genuine difficulties in paying promptly due to misfortune or inability to deal with gas supplied on credit terms. I hope that that helps to explain the current position as set out in the Bill.
§ Lord Peston
Perhaps I may intervene for a moment. There is nothing between us. It has been the theme throughout that we all benefit from cheap gas in real terms. However, we are also interested in the quality of service.
The noble Lord has put the Government's position as clearly as he can. The logic of it is that while pensioners and disabled people have an interest in the real price of gas, as we all do, they have some additional interests. Does the Minister ask us to accept that very poor people do not have additional interests? One can single out the old or disabled; they have special interests. We do not disagree. But, as my noble friend argues, separate from the real price of gas, low income earners have other interests as regards service, the availability of supplies, and so on. That is for one good reason. Those people often have difficulty coping with life. I do not seek to denigrate that group. In emphasising the interests of old people, the noble Lord does not suggest that they all have problems. He simply states that some within the group have problems.
I believe that we on these Benches maintain a valid position in emphasising this factor. We refer to "means-tested benefits" as the criteria because one has to find simple language rather than use the general word "poor", or the phrase "unable to cope". Logically, the Government should think more about the matter, especially since—I emphasise this, as it goes with points we made earlier on energy efficiency—we are not asking a great deal in the amendment. All that is asked is that the director "shall take into account." There is no duty. We do not use the word "promote"; we do not even have the word "secure". The amendment simply relates to the very limited idea, "take into account". A sensitive, caring Government—I know that we are in the presence of leading Ministers—would take this idea very seriously as an additional criterion. I am not clear whether we shall press this amendment to a Division. I shall leave that decision to my noble friend. However, the Government 447 may wish to reflect upon providing a form of words, broadening what the director shall take account of in this broad area. That is my point.
§ Lord Boyd-Carpenter
There is a serious point here which I hope that my noble friend the Minister will consider. The definition,those who are disabled or of pensionable age",seems to exclude quite a number of people who suffer physical disabilities or weaknesses of one sort or another. After all, you are not disabled or of pensionable age if you happen to have suffered very severe and prolonged illness which does not actually constitute disability, and you may still be below pensionable age. It appears that the very proper provision made in the Bill for these two categories should be examined to see whether it goes far enough. My view is that it should be extended. Whether the precise terms of the amendment, referring to those in receipt of means tested benefits generally, are right, I am not certain. But some expansion of the categories should be considered.
§ Lord Swinfen
Can my noble friend tell me what is meant by "disabled" in the Bill? Does the word not need a definition?
§ Lord Skelmersdale
Before my noble friend answers that question, in the debates on social security legislation I have often made the point that it is my standard belief that disabled people are people first, and disabled second. There is a certain logic in that. I see the noble Lord, Lord Peston, nodding.
To carry that thought through to this Bill and this amendment, I certainly go along with my noble friend Lord Inglewood. He suggests that just because people are on means tested benefit it does not mean that they need special protection vis-a-vis the Bill. What it does mean is that they need special protection from the point of view of the value of means tested benefits, and all the back-up and passported benefits to which that leads.
I conclude that domestic gas customers on means tested benefits have virtually the same needs, with the exception of paying for the gas, as do domestic gas customers who are not on means tested benefits.
§ Baroness Gardner of Parkes
As to what "disabled" means, the Disability Discrimination Bill now before the House includes a very adequate description of what constitutes a disabled person. Surely it would be logical for the Government to use the same definition.
§ Lord Inglewood
I am extremely grateful to the Members of the Committee who have participated in this helpful debate on an important subject. Perhaps I may try to elaborate the position. Obviously, we shall consider carefully the points made; they are of importance to all kinds of people.
So far as any definition of "disability" is concerned, as my noble friend Lady Gardner of Parkes pointed out we discussed the matter at great length in relation to the Disability Discrimination Bill—as I know to my cost! To take the word "disabled" in this context, Condition 17 of the draft standard conditions of the gas suppliers' 448 licence, spells out what is meant. The definition given is a registered disabled person or someone in receipt of social security benefit by reason of disability.
The fundamental point that we have discussed was introduced by—
§ Baroness Gardner of Parkes
Perhaps my noble friend will give way. I understood that the term "registered disabled" would be discontinued after the Bill comes into force.
§ Lord Inglewood
I am grateful to the noble Baroness for making that point which we shall no doubt have to consider carefully in the context of the draft conditions.
The crux of the debate relates to whether or not the requirements of people who are less well off are in some way qualitatively different from those of people who are disabled or old. Our approach has been that those people's requirements are essentially subsumed into the wider definition of "consumer" which is found in new Section 4(3) which we are discussing.
It seems to us that the kind of problems in which consumers on low incomes are interested are exactly the same type as those problems in which all consumers are interested. Since they are part of the larger group, it follows that their interests are inherently at the heart of the concerns of the director in considering this matter in the general terms set out.
I accept entirely the point made by my noble friend Lord Boyd-Carpenter. We shall seriously reflect upon it. We do not want to find that we have created a hole through which some people may fall. It is our view, however, that the position of the people described will be properly covered by the definition in this part of the Bill.
§ Lord Boyd-Carpenter
I am obliged to my noble friend for saying that he will look into the question. It seems to me that you cannot run the two arguments together; namely, that the Bill generally takes care of all cases of hardship and need but that there should be special provisions for those who are disabled or of pensionable age. If disabled people or those of pensionable age are given a special status, it is very important that the line of demarcation separating them from others should be drawn at the right place. All I did was express a doubt as to whether that was so.
§ Baroness David
I am extremely grateful for the remarks of the noble Lord, Lord Boyd-Carpenter. It seems to me that there is not much logic in the remarks of the noble Lord on the Front Bench. If all consumers are to be considered, certainly the disabled and the elderly are part of that group. I do not see any reason why the very poor should not be considered in the same way as the disabled and the elderly. I understand that the noble Lord intends to take this amendment back and look at it again, as the noble Lord, Lord Boyd-Carpenter, asked. If he is prepared to do that, I am prepared to withdraw the amendment.
§ Amendment, by leave, withdrawn.449
§ 6 p.m.
§ Earl Ferrers moved Amendment No. 20:
§ The noble Earl said: We discussed this amendment earlier. I beg to move.
The Earl of Cranbrook
I wish to make two points in relation to Amendment No. 22 which is grouped with Amendment No. 20. First, I received a comment from a friend of mine who is a professor of law that the duty to "take into account" which the noble Lord, Lord Peston, just mentioned and which is the subject of the subsection is perhaps the weakest possible duty that is worth specifying in law. This point is very important. I certainly intend, by withdrawing my amendment, to give my noble friend the opportunity to take this matter back and consider it in the context of the debate on sustainability that is fundamental to all government policy at the moment. In this Committee, we have been cross-referring to other Bills and other debates in this Chamber. I should like to import into the discussion the debate on the difference between "further" and "taking into account" that we had during the passage of the Environment Bill. If the environment is to be given parity, as it has to be within the context of sustainability, the duty to "take into account" is phenomenally weak. That is one point that I wanted to make.
I said that I would disclose the difference between my noble friend's amendment and my amendment, Amendment No. 22. It is that he has restricted the definition of "the environment" to Section 1(2) of the Environmental Protection Act, whereas I refer to the entire section. Section 1(2) of the Environmental Protection Act defines the "environment" as consisting of "the air, water and land" and so on, and "the air within other natural or man-made structures". Subsection (3) goes on to define pollution in terms of harm to the environment. Then, subsection (4) states:'Harm' means harm to the health of living organisms or other interference with the ecological systems of which they form part",and so on. I want to be absolutely sure that if we accept a definition of the environment that is only based on Section 1(2), it is big enough to include not merely the inanimate things that are mentioned. That would leave us, in my view, back where we were with the "physical environment". If we are talking about the physical environment we are talking about air, water and land. But it seems to me absolutely essential that we should make it quite clear that, by removing "physical"—as we have done by Amendment No. 15—we include in the environment the health of living organisms, the protection of ecological systems, and so on. That is the proper definition of the environment.
I hope that my noble friend will give himself the opportunity to consider that, from the point of view of sustainability, we must consider not merely the physical environment. We have taken out "physical" and must make sure that the definition of environment includes living organisms. That is why my amendment differs from my noble friend's amendment. I refer to the whole of Section 1 and he refers to only one subsection.
450 Let me make a third point. My noble friend has already commented on the inadequacy of my definition of sustainable development. I agree that it is very difficult to define. Nonetheless, it is said to be a fundamental plank of government policy. In order to find some sort of peg on which to hang this matter, I referred to what will he a clause of what is still a Bill—I suppose that it is a passage in a Bill and therefore capable of refinement in theory, but I needed some sort of peg. I agree with my noble friend's criticism that it is not a particularly good peg to hang sustainable development on. But if sustainable development is a key plank of all government policy, somewhere there must be some definition of it.
A definition is beginning to emerge. Perhaps I may quote from the draft management statement of the Environment Agency which has been released. It says:The basis of the strategy is a commitment to the goal of sustainable development. This seeks to reconcile the dual objectives of achieving economic development and of providing effective protection and enhancement of the environment".That is perhaps an acceptable definition of sustainable development. Those are the Government's own words.
If my noble friend can assure me that reference to Section 1(2) of the Environmental Protection Act brings in the living environment as well as the physical environment, I shall believe that my peg was not that bad. Reference to Section 4 of what will be the Environment Act would by inference bring in the draft management statement of the Environment Agency. I give notice that I shall withdraw Amendment No. 22 in order that proper consideration may be given to this issue, and I can come back at Report stage.
If the Committee is good enough to accept Amendment No. 20, I shall certainly look into the point to see whether or not the matters referred to by the noble Earl in Amendment No. 22 are covered. The draftsman suggested putting in Section 1(2), as in my amendment. I shall certainly consider the matter further in the light of what my noble friend said. If he is content with that, and I hope that he will be, I suggest that Amendment No. 20 be agreed to.
§ On Question, amendment agreed to.
§ Lord Peston moved Amendment No. 21:
Page 2, line 28, at end insert:
("() In performing his duty under subsection (2) above the Director shall ensure that any one gas supplier charges at a uniform rate across Great Britain.").
§ The noble Lord said: I have searched for some way to introduce into these deliberations the whole question of pricing, charging and so on. I found it very difficult. There is not much about that in the Bill and what there is will probably be in the standard licences and such matters. Some of that material I have only had sight of in the past day or so.
§ Harkening back to the Second Reading of the Bill, I asked what was the Government's view of the report of the Monopolies and Mergers Commission to the effect that a consequence of this Bill introducing competition would be that some consumers would suffer higher prices. I assume that the argument would have been that as the British Gas monopoly, regulated in private hands, is engaged in a degree of cross-subsidisation or 451 something of that kind, or else for goodwill, it was felt desirable that everybody should pay the same price for gas. But there is no obligation to do so once there is much more of a free market. On the one hand, people will charge what the market can bear and, on the other hand, their prices will be more finely tuned to the cost of supply. That, I think, was the nature of the argument.
The noble Earl, Lord Ferrers, first replied:
There is no reason to believe that competition will lead to higher prices for any consumers".
That was his answer. I had already argued—as I have just repeated—that I could think of quite good reasons why that might lead to increases in prices for some consumers, and so did the Monopolies and Mergers Commission. But then the noble Earl added, quite rightly:
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".—[Official Report, 6/6/95; col. 1302.]
§ I do not know what that means.
§ I tabled this amendment to obtain some clarification of the Government's view, first, on what they believe more precisely is likely to happen; and, secondly, on what they consider is desirable. If one were wearing a very harsh, hard economist's hat, one would say—to return to the example given by the noble Lord, Lord Skelmersdale, who was, I believe, referring to the south west—that if it is more expensive to deliver gas to consumers in the south-west, that is too bad and they will have to pay more. That would he what one would say wearing the classic economist's hat.
§ I am interested in whether that is what the Government believe and say, "Well, that is all right. That is the way markets work and we have to accept that". I myself make no value judgment. At the moment, I am still in an exploratory mood on this matter, wanting to know what would happen. We may have to come back to this matter when I have explored the licences rather more carefully and know what would be involved.
Let me put the matter as simply as I can. With my noble friend Lord Clinton-Davis I state in this amendment that:
the Director shall ensure that any one gas supplier charges at a uniform rate across Great Britain".
§ Am I right in believing that that is not remotely the intention of the Bill and that the Government would not accept that point? Would they say, "That is now a complete irrelevance so far as the working of the free market is concerned"?
§ The amendment has been tabled in order to find a view and a clarification of what the Government believe is likely to happen and equally what the Government believe ought to happen. I beg to move.
§ Baroness Gardner of Parkes
I find the amendment rather dangerous. I have checked on what various suppliers do. For example, Marks and Spencer tell me that one pays the same in central London as in the north of Scotland. But I went on an official parliamentary visit to Boots. I was interested to see that in Watford I was able to buy items more cheaply than I could buy them in central London—the same shop and the same stock. It was explained to me that that was because the overheads were very much less in Watford. I thought that if I had been 452 buying a large quantity of articles, it would have almost paid me to drive out there. Retailers and, I imagine, suppliers, would think the same way.
But what worries me most of all is that if there were an obligation to charge the same price everywhere, surely that would encourage the competition only to offer to supply in the area that was the most profitable. That is what worries me. Rather than consider offering to supply somewhere non-profitable, people would say, "Yes, I shall offer it all at the same price but I shall restrict the places where I am prepared to do it". I believe that this is a dangerous amendment.
§ Lord Skelmersdale
On that point, there is the consideration that there is a cost to move gas around the country. I have no idea what TransCo's charging policy is or may be in the future, and I do not expect the noble Lord knows either. But it would be perfectly logical—the noble Lord, Lord Peston, will see it if he puts on his economist's hat—for it to be charged by, for example, the mile of transport. It is perfectly obvious therefore that one is bound to have different charges for domestic gas in various parts of the country, depending on how far from the landing terminal the customer is.
I am sure that the point raised by my noble friend Lady Gardner about the corporate costs in specific areas of the country will also come into play. Gas company A may sell gas at one price in Scotland and exactly the same company may sell exactly the same gas from exactly the same source at a different price in North Yorkshire or the East End of London.
§ Lord Boyd-Carpenter
I hope that my noble friend the Minister will resist this amendment. It would be pernicious in its effect in two ways. First, it would discourage the producer of gas from producing it for supply to an area where the cost of supplying it—because of distance or other physical factors—is too high; the producer will simply not move in to that area. Secondly, where the sale of gas is highly profitable, it prevents a reduction being made in order to maintain and develop a good market. Therefore, restricting either increase or decrease of the standard rate would be extremely harmful to the whole operation of the system.
§ Lord Cochrane of Cults
There is another complication to be taken into account. There are shades of the old railway clearing house, which I am sure the noble Lord, Lord Peston, as an economist, will remember, where there were published rates for every class of goods on the railways. All anybody had to do who wanted to compete with the railways was to go below that rate. Were prices to be uniform for any one supplier across the United Kingdom, they would be subject to that sort of selective competition.
The situation is further complicated by the fact that the actual cost in any locality by any one supplier across the United Kingdom will not, as my noble friend observed, be uniform. Therefore, were the amendment to be adopted, it would produce less competition rather than more, and would be detrimental to the interests of consumers. For that reason it should not be adopted.
§ 6.15 p.m.
§ Lord Inglewood
I am grateful to Members of the Committee for the debate on this important point. In reply to the basic proposition of the noble Lord, Lord Peston, as to whether he is right, I am afraid that, like my noble friend Lord Boyd-Carpenter, we do not think he is. However, I will endeavour, in this probing amendment, to indicate what we think will happen and what is desirable.
I am afraid that what has been proposed simply will not work. Its effect would be to deter national suppliers from entering the market. A national supplier bound to a uniform price structure would not be able to compete against a regional supplier operating in a less expensive region, unless he cut his national prices so he was losing money in the more expensive regions. The most likely outcome would be for him to split his business in two. That way his position would be preserved and he would defeat the purpose of the amendment.
The point made about consumers is important. If the system described by the noble Lord were in operation, in areas where it was possible for people to supply gas at a lower price than elsewhere in the network of any specific supplier, the consumers in that locality would be paying more than they need. That does not seem to me to be in the interests of consumers; nor does it seem to be a proper operation of the principles of competition, about which we heard earlier in the debate this afternoon.
We must always remember that, while price variations may emerge, this is set against a strong general downward pressure on prices. Independent suppliers are saying that they can beat British Gas's prices by 10 per cent. To hang on to the old-fashioned approach risks sacrificing the benefits of competition in the name of equality. That is not in the interests of the public. If one looks around, there are plenty of commodities of an identical nature which cost different amounts in different parts of the country. For example, beer is a commodity that a number of us buy from time to time. It is differently priced in different areas. Another example is housing. Two physically identical houses can cost considerably different sums of money in different parts of the country.
The amendment implies that customers in the south west, and other outlying regions, will be disadvantaged by the introduction of competition. Judging by the response to the recent consultation on where competition should initially be introduced, it would seem that customers in the south west do not agree. We had many requests from local authorities and MPs from the south west—no doubt friends and neighbours of my noble friend Lord Skelmersdale—urging for the area to be the first to benefit from competition in gas supply.
The truth is that there has never been a requirement for a uniform pricing structure for gas throughout the country. When such proposals were made in 1986, they were explicitly rejected by Parliament, which preferred to back the Minister's view that suppliers should be able to charge prices that reflect overall costs. Ofgas has said that the present variation in long-distance pipeline tariffs is likely, if passed on by suppliers, to involve a differential of plus or minus 2 per cent. of final prices.
454 I hope that that gives an indication of our view of the current background to this proposal.
§ Lord Peston
I thank the Minister. He may be surprised to know that I agree with most of what has been said, which was the whole point of tabling the amendment. On the question of the difference in cost of supply across the country, that is always a subject that has intrigued me as an economist. The noble Baroness named Marks & Spencer, and Sainsbury's also seems to charge the same. I did not know, and would have guessed the opposite, that Boots did not. I am amazed to discover that Boots has differential pricing according to the cost of transport. However, I gather that a senior Boots' person will soon be joining the House and we can ask him about his company's pricing policy. I have always been surprised at the uniformity of prices in some of our major companies.
My point relates precisely to what noble Lords have said; that there are differences in the costs of supply; the working of a competitive market will reflect those costs. But British Gas, whether or not it has a legal obligation to do so, did not set its prices in that way, which is why the Monopolies and Mergers Commission said that some consumers' prices may be increased. That was the point of the amendment.
The Minister has committed himself, unless he changes his mind—supported by his noble friends—to the argument that if somewhere, in some marginal constituency at some critical moment in the near future, the effect of competition is for British Gas to say, "We are not interested any more; we have been supplying the gas to this area and losing money on it; we are out", the new supplier will come in competitively and say, "I can make a living here, at a higher price". The Government will say, "Excellent". They will say to one of their right honourable friends, "I am sorry; you have just lost your seat on this, but that is the effect of the market and we believe in the market".
That is what underlines my arguments. I do not disagree with the noble Lord's analysis of how the market will work. However, I cannot see how the Government can accept that analysis and also say that prices for some people will not go up. There must at least be a danger for some people that they will go up because, to use my own expression, the new suppliers must be more finely tuned to the cost of supply. That is the point. I tabled the amendment not because I felt that one could do this, but precisely because, as the noble Lord, Lord Inglewood, said, one cannot do this in the new market. The consequences will be serious for a few, perhaps a minority, but a few.
§ Lord Skelmersdale
Before the noble Lord decides what to do with the amendment, he should bear in mind the natural economic activity of the customer and potential customer. He postulated a case where British Gas has been supplying at a loss for years and a competitor comes along and offers gas at a higher price. The consumer will not accept that.
§ Lord Peston
The noble Lord misses the point. I am not privy to the detail of British Gas's costings, and presumably nor is the noble Lord. But, to use an 455 expression which I hate, it is common knowledge that there is some degree of cross-subsidisation in the private monopoly, as there was in the public monopoly.
I take it that British Gas, whose duty it must be to make a living, to make a profit and to behave economically, will look at some of its activities and say, "We no longer have a duty to supply at below cost". Therefore, it will get out of the market. That is the point I am making. Someone else will come in and say, "I can supply in this market but it will he at a higher price". That is my only argument. I am not suggesting that it will happen all over the place. On the contrary, British Gas will operate competitively very effectively where it can. But if I am right—I have not seen the figures—that there is some cross-subsidy, the market will remove it and that will affect those consumers.
The noble Lord, Lord Inglewood, has said, "So be it", and in a sense he is right. That is what markets do. Those of us in London cannot suddenly have a row with Boots because the noble Baroness, Lady Gardner of Parkes, has told us that somewhere in the country we can get our razor blades more cheaply. Again, so be it. Having said that, I moved the amendment in order to hear the Government's view. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 22 not moved.]
§ Lord Peston moved Amendment No. 23:
Page 2, line 31, at end insert:
("() In performing his duties under this Part, the Director shall—
§ The noble Lord said: This is another amendment concerning consumers. Various consumer bodies have been in touch with many of your Lordships. They believe that the Bill is deficient in that it does not oblige the director general to consult them, to take their views into account, and so on. They do not understand—I am certain that I am not the only noble Lord whom they have approached on the matter—why the duty to consult people who represent consumer views is not put explicitly on the face of the Bill.
§ The director has to take into account the interests of consumers but in practice the way to do that is to consult these bodies. They are extremely effective, they are extremely well-informed and they are extremely intelligent. The point of the amendment is to press the Government to take the matter seriously and at least to begin to answer why the consumer bodies have been left out. Were they left out on purpose, or were they left out because they were forgotten? I am seeking some arguments and reasons.
§ My own judgment is that at this stage this would be a useful amendment to include. I am not saying that in many years to come, if the industry settles down and is seen to be working well, problems of this kind will arise on any great scale. But at this stage I should have thought that the Government would want to say that the director should 456 carry out such consultation and that they would want that consultation process as a duty on the face of the Bill. I beg to move.
§ Lord Inglewood
I hope I shall be able to explain the background to our position in answering some of the noble Lord's points. The Government are strongly in favour of the regulation of the gas industry being as transparent as possible. In practice, the director general consults widely on all significant decisions. That is good administrative practice and we applaud it.
The Bill nevertheless provides for specific consultation obligations in respect of the more significant functions of the director. She is required to consult before making any substantive licence modification under Section 23 or before making any modification to the standard conditions of licences at the time when a licence is granted—that is, new Section 8 of the Bill, provided for in Clause 8. These are among the most important procedures by which the director will be able to give effect to the duties set out in Clauses 1 and 2.
These sections contain obligations on the director to give notice stating that she proposes to make the modifications and setting out their effect and stating the reasons why she proposes to make the modifications. Notice is to be given so as to bring it to the attention of persons likely to be affected by the modifications and the director is also specifically required to send a copy to relevant licence holders, to the Secretary of State, to the Health and Safety Executive and to the Gas Consumers' Council. All representations must then he considered.
There are also requirements to consult, tailored to meet the appropriate requirements of the case, contained where necessary within other parts of the Bill which confer specific functions on the Secretary of State or on the director.
I believe that this approach is more appropriate than the blanket requirement proposed by Amendment No. 23. It allows for as much consultation as is necessary in each case, without imposing an unreasonable burden on the Secretary of State or the director.
A requirement to consult on all decisions and give reasons in each case would lead to the whole regulatory process becoming gummed up. It would also lead to a much more legalistic approach to regulation, with the spectre of judicial review in the background, which might well act to the advantage of large companies rather than consumers as they could afford better to pay for elaborate legal advice. It is better, as we have done, to look at the requirements for consultation very much on a case-by-case basis.
§ Lord Peston
I thank the noble Lord for that reply. He has made one or two good points which I had not thought about. I shall certainly reflect on what he said. It had not occurred to me—but then I am not an expert draftsman—that one had in mind businesses being able to intervene on the same basis as I was assuming consumers and their representatives would be consulted. I shall certainly have to reflect on whether the amendment fails simply because it does not point to what I wanted it to point to.
It was also not my desire to get in the way of efficient administration. The Gas Consumers' Council is an excellent body and I have been very impressed with what 457 it has done. That is also true of the National Consumers' Council and the Consumers' Association and various of the other bodies which have been in touch with me, including those representing special interests, such as the elderly and so on. I was not trying to argue that I believed that the director would not look at these people. I assumed that the director would be a sensible person who would be in touch with such bodies—she would be foolhardy not to—saying, "This is what I am proposing to do. What do you think?" I am sure the Minister would agree with me that once these bodies knew what was going on they would get in touch with the director anyway and say, "We hear you are thinking of doing this, which we do not like. We would like to submit the following comments to you". I do not think I am over-egging the pudding. I am simply saying that I would like it done in a formal way so that consumer consultation is taken for granted and is not ad hoc.
Having said that, I was impressed by the one or two difficulties which the noble Lord raised. I certainly do not want companies using great batteries of lawyers to hold up important decisions simply because, in the American style, they know that that is the way of avoiding the unpleasant day to come. I would not like my amendment to lead to that under any circumstances. I shall rethink that part. But I believe that I have made my point. The noble Lord has uttered one or two sympathetic remarks, which pleased me. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lord Haskel moved Amendment No. 24:
Page 2, line 31, at end insert:
("() The Secretary of State and the Director shall each have a duty to consult with the Health and Safety Executive with the objective of securing that any public gas transporter, retailer, shipper or supplier who may have cause to undertake work on any gas supply meter, gas fitting or appliance shall ensure that—
§ The noble Lord said: In moving this amendment I shall speak also to Amendments Nos. 48 and 58. These amendments are about health and safety. The 1986 regulations say that people handling gas and gas appliances should be "competent". We have moved on a long way since then and there are a lot of new suppliers and new firms coming into the business. It appears to me that we ought to define the qualifications rather more precisely. It is a way of raising the standards both for the consumer and also for those who are installing gas equipment and maintaining it. It will also prevent suppliers putting out safety work to non-qualified staff. British Gas has a very high standard of training. Under the existing regulations it maintains that all its people are trained to City and Guilds level or NVQ Level No. 3.
§ The purpose of these amendments is to see whether there should be some standard of training defined so that the quality of service is maintained. Gas is a dangerous thing to handle. There is no fail-safe as there is with electricity. One does not have a fuse-box with gas, so it is 458 difficult to switch it off. Therefore, it is important to make sure that only properly qualified people handle the appliances and installations. I beg to move.
§ 6.30 p.m.
§ Lord Cochrane of Cults
These three amendments are totally redundant as the matter is entirely covered by the Gas Safety (Installation and Use) Regulations 1994, and the Health and Safety Executive, including the corresponding provisions of the Confederation for the Registration of Gas Installers. The various points made by the noble Lord are entirely covered by the existing arrangements and therefore these amendments are superfluous.
Perhaps I may first say to the noble Lord, Lord Haskel, that the Government are determined to maintain high levels of safety in the gas industry. That is absolutely vital. I agree with my noble friend Lord Cochrane of Cults that these amendments are redundant because the points raised in them are covered elsewhere. We asked the Health and Safety Commission to undertake a thorough study into all these issues. It did that and we accepted its report.
The matters which the amendments seek to regulate are substantially, and more appropriately, dealt with elsewhere. The principal instrument is the Gas Safety (Installation and Use) Regulations 1994. These require that only competent people may do work on any gas fitting. This includes all gas appliances, pipework in the house beyond the meter and the meter itself. The regulations also require that all companies and self-employed persons doing work on gas fittings must be members of an approved class of persons. At present, that means that they must be registered with CORGI.
Up to the point of the meter, the responsibility for safety lies with the public gas transporter. At present that arises under the general provisions of the Health and Safety at Work etc. Act 1974, but I understand that the Health and Safety Executive is preparing new regulations to set down more explicit rules in relation to gas pipelines and the management of public gas transporter systems. These will impose specific duties on public gas transporters for the safe construction, maintenance and abandonment of gas pipelines.
The arrangements which the Government are proposing will meet the necessary requirements of safety. The safety issues which are contained in the noble Lord's amendment are therefore already provided for, either in statute or in regulations. The changes which he is proposing would in fact not only be unnecessary, but cut across those arrangements. I hope that the noble Lord will be satisfied that the concerns which he has drawn to our attention are already met.
§ Lord Haskel
I am glad that these concerns are already met. I wish to make two comments. As regards registration with CORGI, I understand that it is the company which is registered and not the individual operatives of the company. The company can register itself as a CORGI fitter, but it is not the staff of the company who are registered. That is a point which the noble Earl may like to look into.
459 I believe that there should be a closer definition of "competent" if we want to move on and ensure that standards are higher. The word "competent" is not a sufficient definition. However, as I have the noble Earl's assurance that these matters are being taken care of, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 1, as amended, agreed to.
Lord Peston moved Amendment No. 25:
After Clause 1, insert the following new clause:
§ ("Report on competition and efficiency of gas supply industry
§ .—(1) The Director shall prepare annually a report showing—
- (a) the state of competition in the carrying on of activities required to be licensed under section 7A of the 1986 Act;
- (b) the efficiency on the part of persons authorised by or under Part I of the 1986 Act to carry on any activities and the efficient use of gas conveyed through the pipes.
§ (2) The Director shall send a copy of the report mentioned in subsection (1) to the Secretary of State, and the Secretary of State shall lay a copy before each House of Parliament.
§ (3) The Director shall from time to time undertake a cost-benefit analysis of the effect of competition in gas supply, shall prepare a document setting out his research and conclusions, shall send a copy of the report to the Secretary of State, and the Secretary of State shall lay the report before each House of Parliament.").
§ The noble Lord said: This is a long amendment, but pretty straightforward. I believe that we all agree that we are now entering new territory. We moved from a public monopoly to a regulated private monopoly, which introduced some degree of competition in the supply to business premises on a large scale. Now we move to essentially regulated competition. We do not have a great deal of experience of that kind of activity. There is a degree of decentralisation as regards water, but no competition to speak of. I am not certain that anyone will claim that there is competition in electricity supply.
§ But here I believe that there will be some competition and the question is how it will work. The noble Earl, Lord Ferrers, said that we shall have to see and I entirely agree with him. As regards consumer protection, one wonders—to use the words we used earlier—whether it will be effective. We have talked about taking account of the effect on the environment and of promoting energy efficiency. Is any of that going to happen?
§ Whatever one's political differences, once we have a Bill of this kind we want it to work. I want it to work and I also want to learn from what is going on. As a parliamentarian, I want to be able to participate in the learning process with a view to seeing what follows.
§ In the Bill as drafted, I cannot see where I can get any leverage on that point. By that I mean Members of the Committee and how we get involved in assessing what is going on in considering whether competition is working and whether consumers are being satisfied. We also want to know whether all the other good events as a result of this Bill will actually take place.
§ It seems to me that the easiest way of achieving that is to say that the director prepares a report along the lines I have suggested and that the report goes to the Secretary of State and then it comes before us. That gives us the very first toehold in being able to see what has been going on. That is the main point of the amendment, but it includes a 460 harder final part. I do not believe that it is unfair of me to suggest that this is a worthwhile activity. I agree that it is typically the kind of thing which economists like.
§ I would like to see the director examine what the benefits of competition have been and whether there have been costs. Do we have any way of assessing whether the benefits exceed whatever costs have been incurred and whether there has been a net advantage? That does not seem to me to be something that the director would be expected to do every year and that is why I merely say, "from time to time". It is a function rather more for the director than for the Secretary of State and the department. I also do not believe that it is something that can be done satisfactorily by academic outsiders because I do not believe that they can get anywhere near the kind of information that they would need.
§ As the noble Earl is aware, I am not a supporter of the Government, but, viewed as an experiment as to how we might do things, it is enormously interesting. As I say, the regulation of a private, competitive industry where there are energy efficiency and environmental concerns involved should be scrutinised very carefully and we should try to learn from it, particularly as we might then want to carry over those lessons to other sections of the economy.
§ I press this amendment with very great seriousness. Members of the Committee have a contribution to make in asking the Government to be sensitive to this kind of issue and say, "Yes, we believe that it will work out, but it is an experiment and we shall survey it in a way in which we can learn from it". I beg to move.
§ Lord Boyd-Carpenter
The amendment that has just been moved obviously has certain merits. The report for which it calls would be of considerable interest. My only hesitation is whether it would impose excessive further burdens on those who have to operate the gas industry. When such changes take place, it is always a temptation for those of us in either House to impose conditions that there shall be full and detailed reports on various aspects of the activity of the organisation concerned. One has to be careful that, in our zest for knowledge of what is going on, we do not impose too heavy a burden on those who already carry responsibility for conducting the industry.
For that reason, I should like to ask my noble friend the Minister whether there exist, in respect of other industries, comparable provisions of any sort. If they do, that means that we have some experience of the burden that they impose and of their value. I am far from dismissing the idea that this is a useful proposal. However, if we are to impose such conditions, we should hesitate to do so if they would be unique and, if they are not unique, it would be interesting to know what other industries have to carry that burden.
§ Lord Ezra
Like the noble Lord, Lord Boyd-Carpenter, I find this a constructive and positive amendment which would be most helpful to the Committee in further consideration of this vital issue. After all, we shall spend a great deal of time on this Bill and it is not unreasonable to have the opportunity to return to some of the issues at annual intervals to see how things have gone. I entirely agree with the caveat of the noble Lord, Lord Boyd-Carpenter, and should like to know from 461 the noble Earl whether he agrees in principle with the proposition. If he thinks that the procedures proposed by the noble Lord, Lord Peston, would be too onerous, does he have any other suggestions? I think that we are entitled to ask to be kept informed at suitable intervals about how this new development is going.
§ Lord Skelmersdale
As has been said by noble Lords on all sides, we are certainly entitled—indeed, we expect and want—to be kept informed of the progress of competition policy from the director's viewpoint. On the other hand, I do not think that we want to be snowed under with reports on this, that or the other; nor do I think that they should he so comprehensive that they risk revealing pieces of information which are normally regarded as matters of commercial confidentiality. It therefore occurs to me to wonder whether it would not be much more practical from everybody's point of view for the annual report from the director general of Ofgas to be slightly enlarged to take account of this request which, as has been said on all sides, is perfectly reasonable.
I never cease to admire the capacity of the noble Lord, Lord Peston, to ferret and to delve—and that is a very good thing. Having said that, however, I do not encourage him to do an undue amount of it. In tabling the amendment, he has just probed another point.
It is sometimes difficult in considering a Bill which amends parts of an existing statute, but leaves others in place, to spot when matters are already dealt with in unamended parts of the existing statute.
Section 39 of the Gas Act 1986 already requires the director to prepare an annual report on her activities during the year. That report must be laid before Parliament and it must also include a general survey of developments.
One of the director's proposed statutory duties is to exercise her functions to secure effective competition. Another is to promote efficiency and economy on the part of licensed companies and the efficient use of gas. These matters, which are specifically referred to in Amendment No. 25, must already be dealt with in the director's annual report under Section 39, which is required to cover matters falling within the scope of her functions.
That is, in fact, exactly what happens in practice. The director's latest report for 1994 includes sections on competition and on energy efficiency. It also refers to separate, more detailed Ofgas publications, on both those subjects.
Where I think that the noble Lord may well be on to a good point is that under Section 39, the director's report is to relate to what the director has actually done, but not necessarily to the progress that has been made in securing effective competition. That is the point about which the noble Lord is concerned. I am grateful to him for spotting that the existing provisions may not be sufficient to require a report on the progress of competition, which we are all agreed is necessary.
My noble friend Lord Boyd-Carpenter said that he was concerned about imposing other new burdens and wondered what happens in other organisations. I can advise him that, like other regulators, the rail regulator has to produce an annual report.
462 If the noble Lord, Lord Peston, would be good enough not to press his amendment, I shall certainly look into the matter in more detail. I propose to bring forward an appropriate government amendment to Schedule 3 to address the point. It would also provide an appropriate basis on which the progress of the pilot phases could be reported on by the director. With that undertaking, I hope that the noble Lord will not press his amendment.
§ 6.45 p.m.
§ Lord Peston
I warmly thank the noble Earl. As he knows, I have been feeling very rejected all afternoon and at last there has been a slight change.
I entirely accept the point about burdens which was raised by the noble Lord, Lord Boyd-Carpenter. One of the reasons why I am delighted to be retiring in the next year as a professor is that when I started as an academic, you simply went and did your job, which was teaching young people and carrying out research. Now, academics mostly fill out forms and respond to the equivalent of regulators and people who want to write reports. I am glad to be getting away from that, although I have enjoyed my career. Therefore, I am not one who would seek to impose burdens unduly either on the firms or on the regulator. I am totally with the noble Lord on that point. He will find that I shall also be with him on other matters. I was not seeking to press the point for its own sake or because I want to see a few more trees chopped down to produce reports.
In conclusion, I must say "Thank you very much" to the noble Earl. I look forward to seeing the form of his amendment and will undoubtedly welcome it when the time comes. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clauses 2 and 3 agreed to.
§ Clause 4 [Exemptions from prohibition]:
§ [Amendment No. 26 not moved.]
§ On Question, Whether Clause 4 shall stand part of the Bill?
§ Lord Peston
I am not sure that I like the word "ferret", but my reason for seeking to oppose the Question is to convince the Committee that I have worked very hard on this Bill. I have been working hard to try to understand it. Clause 4, however, is completely beyond me and what we call the "Notes on Clauses" shed no light at all. They seem merely to repeat the obscure and opaque wording of Clause 4.
I confess to the Committee that I have a further difficulty. I hope that it does not lower me in noble Lords' esteem. Clause 4 begins by stating:For section 6A of the 1986 Act",but I cannot find Section 6A in the 1986 Act. Perhaps the officials in the Box can come over to the noble Earl in due course and tell us where—
§ Lord Cochrane of Cults
Perhaps I may assist the noble Lord. Section 6A was imported into the 1986 Act by the Gas (Exempt Supplies) Act 1993.
§ Lord Peston
I congratulate the noble Lord. I did not understand a word that he just said because I did not even know of the existence of the 1993 Act. Is the noble Lord saying that what I call the 1986 Act is defective?
§ Lord Cochrane of Cults
The noble Lord raises an interesting point. No, I do not believe it to be defective. Due to the curious procedures of legislation, when an Act is amended it often assumes a form as if it had been written in that form to begin with. Perhaps I may explain a little further without wearying the Committee. There was a defect in the 1986 Act. It fell to me to introduce a Private Member's Bill in this House which subsequently amended the 1986 Act. That Act inserted into the 1986 Act Section 6A.
§ Lord Peston
I am indebted to the noble Lord. I understand that there is a Section 6A somewhere that one can find if one looks. However, that does not deal with my main point, which is that I do not understand a word of Clause 4. The clause is said to deal with exemptions from prohibition. First, as a practical matter, what does the clause deal with? What kinds of activities and what people may be exempt? Secondly, why is Clause 4 required to replace what I have not seen before? What is presently in the Act which requires this replacement? Have there been any exemptions in practice? The easiest way to understand what the clause is about is to have a practical example of how it has been used under the 1986 Act and how it may be used in this legislation. I raise the point because I have a duty as Opposition spokesman to scrutinise the Bill closely. I was tempted to let it go because I did not understand it. However, when one sees words like "Exemptions from prohibition" one needs a statement so that the ordinary ones among us can understand what the clause means. I beg to move.
§ Lord Boyd-Carpenter
I support the noble Lord, Lord Peston, in his remarks about the duties that he performs. As Opposition spokesman in this House, he performs them very well. I believe that what he has said applies to all of your Lordships who have duties as legislators.
I wish to comment on a rather odd procedure in Clause 4. As I understand it, Section 6A was inserted into the 1986 Act by another Act. This provision is now to be substituted for what was then inserted into the 1986 Act. No doubt it is an ingenious and convenient procedure, but it appears rather odd. Perhaps the Minister will comment on why it is done in this way.
I confirm what my noble friend Lord Boyd-Carpenter has just said about the noble Lord, Lord Peston. The noble Lord is carrying out the correct functions of the Opposition, which is to query, ferret and ask questions. I agree with my noble friend that the noble Lord, Lord Peston, does so in an exemplary fashion.
I was particularly grateful to my noble friend Lord Cochrane of Cults for interrupting the noble Lord, Lord Peston and telling us what the problem was. He knows 464 all about this matter, because it was his Private Member's Bill that amended the Act and caused the noble Lord, Lord Peston, such confusion. I agree with my noble friend Lord Boyd-Carpenter that in some respects it is not worded as clearly as the layman might wish. However, that is the way the parliamentary draftsman works.
I believe that the Committee has a useful opportunity to discuss exemption orders provided for in the clause. The purpose of the exemption provisions is to deal with what may loosely be called special cases where the licensing regime set out in other parts of the Bill is not appropriate or effective. Of the specific exemptions under scrutiny at the moment, one is a temporary exemption from the requirement for a supplier to have a shipper's licence where the shipper goes out of business pending the appointment of a new shipper. Gas supply to the customer has to be continued if that person goes out of business.
Another example is the operation of caravan parks. I hesitate to mention that for fear that my noble friend Lord Cochrane of Cults will interrupt me in the same way that he interrupted the noble Lord, Lord Peston. This clause affects the operation of caravan parks and similar premises where natural gas is distributed.
Another example is the operation of gas terminals. This was dealt with originally in Schedule 1. It will now be dealt with by exemption orders because of the complexity of the arrangements. A further example is the continued operation of dedicated pipelines where supply is undertaken pursuant to a licence under Section 8 of the existing legislation. A dedicated pipeline is one that goes from one place to another to supply a particular person.
It seems likely that a number of other special cases will arise where the exemption powers will have to be used. It is necessary for the clause to stand part of the Bill. Without it a number of firms would be unable to carry out their operations after the Bill is brought into force. In a number of cases it would not be possible to grant licences to regularise the business. I know that the purpose of the noble Lord, Lord Peston, was to find out the object of the clause.
I mentioned in replying to the debate on Second Reading that my department was considering the appropriate scope for exemption in respect of caravan parks. The matter is a technical one. Discussions continue to find the best balance between deregulation and ensuring that in appropriate cases customers are able to choose their gas suppliers. Final exemption will be subject to annulment in pursuance of a resolution of this House and another place. There will be an opportunity to review what finally emerges.
My noble friend Lord Boyd-Carpenter asked what exemptions had been made under the 1986 Act. I do not believe that as yet any have been made. The procedure provided for in that Act is the one that we have adopted in the Bill as it stands.
§ Lord Peston
The noble Earl said that the power had not been used at all. Therefore, the examples that have been given are hypothetical ones in order to elucidate the position. I am indebted to the noble Earl for giving those 465 examples. At least I now understand what the clause is about. My intention was simply to seek elucidation. I hasten to say to the noble Lord, Lord Cochrane of Cults, that I have no intention of discussing caravan parks at this time or, if I have a free choice, at any other time. We shall come to that matter in due course.
§ Clause 4 agreed to.
§ Clause 5 [Licensing of public gas transporters]
§ [Amendment No. 27 not moved.]
§ Lord Brabazon of Tara moved Amendment No. 27A:
Page 5, line 42, at end insert:
("() No licence shall be granted under this section to a public gas transporter where, in the opinion of the Director, any director of that public gas transporter has a conflict of interest in the safe, efficient and economic operation of the regulated pipeline system.").
§ The noble Lord said: On behalf of my noble friend Lord Wade of Chorlton, I beg to move the amendment standing in his name on the Marshalled List. I should also like to speak to Amendment No. 55A. My noble friend apologises to the Committee for not being able to move the amendment himself.
§ In its report in 1993 the MMC recognised the problems that arose from the various activities of British Gas being wrapped up in one company. Accordingly, it recommended that BG's trading division be divested. My right honourable friend the President of the Board of Trade rejected that advice. I understand that his decision was probably based more on a desire to expedite the introduction of competition than outright rejection of the concept of divestment. Indeed, my right honourable friend and the regulator both confirmed that commercial separation must be implemented.
§ Under the new market conditions established by this 13d1, British Gas will operate in three principal areas. First, it will be the operator of the pipeline system—which is a natural monopoly business—to be called British Gas TransCo. It will then be one of the suppliers competing for the 18 million domestic customers to whom it is at present the only supplier. I understand that that will bear the name British Gas PGS (Public Gas Supplier). Finally, it will continue to operate in the highly competitive international market place and in the worldwide exploration business where it is already a major player.
§ While British Gas proposes to place its PGS business—the one that supplies our homes—into a separate company, there is no such proposal for TransCo. In that case, rather than place it in a separate company BG has erected a system of Chinese walls. I suggest that that system of Chinese walls—a device usually employed as a temporary measure—is not a satisfactory way of proceeding for a number of reasons. First, they do not constitute a sufficient guarantee of a level playing field between BG and other PGS companies; secondly, they will provide insufficient transparency between BG business units; thirdly, they increase the risk of dispute on the fair allocation of costs, confidentiality of data and, ultimately, the terms under which other gas companies compete with BG trading units; fourthly, the opaque corporate structure 466 will provide Ofgas with much greater problems in its policing role; fifthly, they fail to address the political problems arising from the fact that within BG there will remain a substantial monopoly operation which will ensure that the row over executive remuneration could continue indefinitely; and, lastly, they fail to recognise that British Gas is effectively steward of the national asset, the pipeline system, and that the protection of the asset must be—and be seen to be—an absolute priority.
§ The most sensible solution to those problems would be that offered by my honourable friend Mr. Alan Duncan in another place. His amendment, which is in the same terms as Amendment No. 55A would have provided for TransCo to be a separate wholly owned subsidiary of British Gas, dedicated to the monopoly transportation business alone. Most unfortunately, that amendment did not find favour in another place.
§ These amendments, which I now commend to the Committee, would go a long way towards reassuring the nation that a key national asset was properly protected, and it would confer some valuable benefits in improving the competitive gas supply regime.
§ First, they would give the monopoly company and its directors unambiguous objectives, free from any conflict of interest. The pipeline operation is a natural monopoly. It is a massive UK infrastructure system, worth an estimated £18 billion upon which the supply of gas to homes and factories throughout the land is dependent. Clearly, it requires directors who have a focused and clear fiduciary duty to protect, maintain and improve the regulated assets, and whose commitment to the safe maintenance and renewal of the system is not compromised in any way by conflicting loyalties to one of the supply companies.
§ The assets of TransCo need to be safeguarded. The public need to be reassured that the funds set aside for renewing the system, parts of which date back to Victorian times, will be there when required and not siphoned off to meet some more urgent cash demand in some other part of British Gas's business.
§ Secondly, these amendments would assist in the ring-fencing of the TransCo operation for the benefit of the regulator, Ofgas. The more clearly that TransCo is delineated as a separate operating company, the easier it will be to define the area of responsibility for Ofgas. I believe that in limiting the role of the regulator to that part of the business which is by nature a monopoly we would help the regulator to be clearly focused on the area of gas supply which is not subject to the disciplines of competition and where regulation has a clear role to play.
§ Thirdly, these amendments, particularly Amendment No. 55A, would allow clear external judgment to be made on the company's performance. Indeed, in the present climate it would deliver one very important benefit. The row about the pay of utility directors arises in part because there is a public perception that they are just running the same gas boards and electricity boards of old, but paying themselves 10 times as much. If the monopoly part of the business (where risks are inevitably less than in the competitive area) were ring-fenced there could be legitimate public scrutiny of the directors' pay leaving the level of executive pay of the risk-taking businesses entirely, and properly, a 467 matter for the shareholders alone. Finally, they would provide a safeguard to ensure the permanent UK ownership and control of TransCo's monopoly assets.
§ In conclusion, I wish to make it plain that there is no ulterior motive in these amendments to force British Gas against its will to divest itself of its key asset. I suspect that the company raises the spectre of divestment largely to frighten those who believe in the concept of national champions and do not want British Gas's status as one such damaged. Surely, though, there can be no danger to British Gas in applying to TransCo the same arrangements as it is applying to PGS. I believe these amendments do make a great deal of sense, and would not damage British Gas's prospects. I hope that they will find favour with my noble friend. I beg to move.
§ 7 p.m.
§ Baroness Gardner of Parkes
I oppose the amendments. Having listened to my noble friend, I understand that he is suggesting that TransCo be made a separate entity. I attended the all-party meeting we had with the chairman and chief executive of British Gas. I went to that meeting under the impression that it would be a good thing to have TransCo as an entirely separate company. I put that point at the meeting, and I was completely satisfied by the answer I received that it would not be a good thing. At the time I thought that it was parallel to the electricity national grid. I have followed the matter up since and found that it is not a parallel. Therefore I oppose the amendments.
§ Lord Inglewood
I am grateful to my noble friend Lord Brabazon of Tara for speaking to the amendments on behalf of my noble friend Lord Wade. We too believe that the amendments are not necessary to ensure that TransCo is operated on a completely separate basis from British Gas's supply and shipping businesses. That is already provided for.
Rigorous procedural requirements are in place to ensure that completely separate and transparent accounts are produced for British Gas TransCo, its component businesses, and those parts of British Gas which provide services to both TransCo and to trading businesses. Those requirements are stricter than those applicable to a subsidiary company's statutory accounts.
There are very stringent safeguards in place within British Gas to ensure that there is no improper contact between the arms of British Gas's operations. There are also licence restrictions on cross-subsidy between TransCo and the BG trading businesses.
Those arrangements are intended to ensure that there is a level playing field—I hope my noble friend Lord Ferrers will forgive me for using those words—for shippers, including those connected to British Gas, supervised by Ofgas.
The arrangements have only recently been put in place (in February this year) and should be given a chance to work before being written off as insufficient. If they prove in practice not to be effective, there is a mechanism in place in the Bill to remedy that.
468 The proposed new Section 36A of the Gas Act 1986 will give the director powers to make references to the Monopolies and Mergers Commission under the Fair Trading Act 1973. If, following a proper investigation of the matter, the Monopolies and Mergers Commission found that the rules had been put in place and were operating, or might be expected to operate, against the public interest, the commission could recommend divestment, a separate subsidiary, or whatever other remedy it thought appropriate.
We believe that it is right for a private company to be given a choice as to how to respond to the Bill's requirement for separate supply/shipping and transportation licence holders. I hope that explains the Government's position and give reassurance to my noble friend.
The Earl of Caithness
I listened with care to what my noble friend Lord Brabazon of Tara said, because, like my noble friend Lady Gardner, I was attracted originally to the idea of a separate company within British Gas or TransCo. I am sure that the Committee is agreed that British Gas should remain as owners and controllers of TransCo, not least because of the importance it gives to British Gas in its exploration and marketing overseas. That was something I mentioned on Second Reading, and believe to be of immense importance to UK Limited.
I listened to what my noble friend Lord Inglewood said in reply. I believe that he made out a convincing case for letting the situation evolve as it has been arranged at the moment. We are, after all, interfering with a private company, something of which I do not approve in principle, but having made that interference, it is right to let it decide which way matters should evolve.
A great deal of restructuring within British Gas has been done to make for the best possible separation, and, as my noble friend Lord Inglewood said, that has led to strict rules that will be heavily policed. Of course there is the fall back, and I hope that, given what was said, my noble friend Lord Brabazon will think that the Government and British Gas have it about right at the moment.
§ Lord Brabazon of Tara
I listened carefully to the debate which my noble friend's amendment engendered, and I am grateful to those who spoke in it. Obviously, my noble friend Lord Wade will wish to read what has been said. The amendment was intended only as a probing amendment to ascertain the views of Members of the Committee. I am sorry that Members opposite had nothing to say about it, but no doubt they have been thinking about it nevertheless. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 5 agreed to.
This may be a convenient moment on which to conclude this part of the Bill. I beg to move that the House do now resume.
§ Moved according, and, on Question, Motion agreed to.
§ House resumed.