Privatised Industries: Role of Regulators (Hansard, 22 March 1995)

§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
My Lords, no. The Government believe that the regulatory system for the privatised utilities has provided significant benefits to the economy and the consumer and do not intend to establish such a commission.

§ Lord Taylor of Gryfe
My Lords, has the Minister's attention been drawn to a statement made last week by Miss Clare Spottiswoode, the gas regulator, in which she admitted that she was not accountable to anyone and called for a public debate on the subject of regulators? She added: The annual report supplied to Parliament is not worth the paper it is written on". Does that suggest that there is any accountability on the part of regulators? Will the Minister comment on the fact that the regulator in the electricity industry published price-sensitive information after a £4 billion sale of shares in National Grid and PowerGen, with serious consequences for the City of London?

§ Lord Mackay of Ardbrecknish
My Lords, the noble Lord has asked me two questions. My attention has not been drawn to the remarks of Clare Spottiswoode and I am grateful to the noble Lord for doing so. However, I cannot agree with her assertion because the regulator is subject to the possibility of judicial review. He, or in this case she, is accountable through the scrutiny of Select Committees, which can and should require the regulators to give an account of their performance. The regulatory offices are also subject to periodic National Audit Office review into the conduct of their business. Finally, the regulator cannot change a firm's licence in the face of opposition, and disputes are referred to the MMC.
1220 The noble Lord asked about the electricity regulator. On 3rd March the Treasury took independent financial and legal advice on the share sale prospectus and its accuracy. It received legal and financial advice that even if the issue of price controls for the regional electricity companies was reopened, that was not material to the share sale of the generating companies. They are subject to a wholly different basis of regulation. In the light of that advice, the decision was taken to go ahead.

§ Lord Dean of Beswick
My Lords, the Minister referred to the benefits that have accrued to the consumers as a result of the actions of the regulators. Is he aware that North West Water has recently inflicted an increase on its consumers of three times the increase in the cost of living? Does he believe that in those circumstances domestic consumers in the area such as myself have been protected by the regulator? It would appear that the regulator has done nothing whatever in that respect.

§ Lord Mackay of Ardbrecknish
My Lords, the Question relates to the gas and electricity industries. However, as regards the water industry, no one can deny that water prices have increased. They were increased for a good reason; that a huge amount of investment was required to improve the quality not only of our drinking water but of the disposal of our waste water. In the five years since privatisation, water companies have invested £15 billion in various capital projects. That is a 75 per cent. real increase over the five years prior to privatisation.

§ Lord Ezra
My Lords, does the Minister agree that the issue goes even deeper than that raised by the noble Lord, Lord Taylor of Gryfe? The privatised utilities are no longer in the public sector but are they really in the private sector? They provide basic services and in many cases they exert monopolistic characteristics. Is it not time that this important sector of British industry was looked at again?

§ Lord Mackay of Ardbrecknish
My Lords, I am not entirely sure whether the noble Lord is pinning the Liberal Democrat Party's colours to renationalisation, but never mind. Looking again at the question of privatisation seems to invite that kind of conclusion.
The regulatory system has been set up to provide a two-pronged approach: first, to promote competition where that is possible; and secondly, to ensure that consumers are protected by a strong economic regulator. If one looks at the industries involved, the results in terms of lower prices, improved services and performance speak for themselves.

§ Lord Barnett
My Lords, I am sorry that the noble Lord has not read the speech of Clare Spottiswoode, and I urge him to do so. The noble Lord referred to the fact that she has appeared before Select Committees. In fact, she said in that speech that she had appeared before four and they all had diametrically opposed views. That means, as she indicated, that there is not a proper accountability of regulators. Of course, the Government are not responsible because, quite rightly, the regulators 1221 are independent of government; but will the Minister consider looking at the operation of regulators, which is precisely what that senior regulator suggests?

§ Lord Mackay of Ardbrecknish
My Lords, obviously I should not like to trespass on the affairs of another place by commenting on whether or not the regulator should appear before one Select Committee rather than before four Select Committees which, if the noble Lord is to be believed—and I am sure he is, as he always is—have all reached diametrically opposed conclusions. I suppose that that is north, south, east and west. I shall certainly look at that point and draw it to the attention of my right honourable and honourable friends in the Treasury.

§ Lord Marlesford
My Lords, I declare an interest as a director of Eastern Electricity. Does my noble friend agree that the fact that in the five years since privatisation in 1990 the price of electricity to the domestic consumer from Eastern Electricity, at any rate, has actually fallen by 7 per cent. in real terms is itself a measure of the success of privatisation?
Does my noble friend further agree that as the non-domestic customers, the commercial customers, have done even better it would be desirable for the regulator to focus his attention on achieving a still better deal for the domestic consumer? The way to do that is not, as has been suggested in some places, to try to claw back large sums of money because that was tried some years ago by the Government on Ferranti after Bloodhound and was catastrophic for everyone concerned.

§ Lord Mackay of Ardbrecknish
My Lords, the second part of my noble friend's question is directed more at the regulator and I am sure that he will read it.
My noble friend is absolutely right that the greater efficiency of the electricity industry since privatisation has already produced enormous benefits for the consumer, in total contradiction to the words of a certain Mr. Tony Blair who said before privatisation that: It is barely an issue that prices will rise because of privatisation". How wrong can you be? Those prices have fallen and there is every indication that they will continue to fall in real terms.

The Lord Privy Seal (Viscount Cranborne)
My Lords, I hesitate to intervene between two such prominent Members of different parties but perhaps it would be appropriate to hear from the Opposition Front Bench, and I am sure that the noble Lord, Lord Mackie, will have an opportunity to ask his question after that.

§ Lord Eatwell
My Lords, is the noble Lord aware that the 7 per cent. fall in electricity prices referred to by the noble Lord, Lord Marlesford, is considerably lower than the fall in the real cost of fuel, which has been about 12 per cent. over that period? Therefore, Eastern Electricity's performance looks rather poor. Surely the key question concerning those industries is why the Government have created a structure of cosy, 1222 bloated, imperfectly regulated private monopolies instead of creating a framework of effective competition, which is the real way in which to empower the consumer?

§ Lord Mackay of Ardbrecknish
My Lords, as I mentioned in my second reply to the noble Lord, Lord Taylor of Gryfe, there is a two-pronged approach by the regulators and one of the prongs is to encourage competition where that is possible. It ill behoves the noble Lord from the Benches opposite to talk about increasing prices when, during the time of the last Labour Government, electricity prices rose by 2 per cent. every six weeks.

§ Lord Mackie of Benshie
My Lords, I was merely asking why the Minister was being so modest in detailing the benefits to consumers, and everyone else, but missing out the benefits to those at the top of the industry.

§ Lord Mackay of Ardbrecknish
My Lords, the Government have made their position clear on excessive and unjustified salary increases at whatever level they take place, including boardrooms. My right honourable friend the Prime Minister made clear in another place that he looks forward to Sir Richard Greenbury's report and that the Government are prepared to consider whether legislative changes are required.

§ Baroness O'Cathain
My Lords, discussions on this Question have emphasised certain aspects of the privatised monopolies, so to speak. From the point of view of the consumer, things have never been better. Ask working women.

§ Baroness O'Cathain
My Lords, I am afraid that the groans coming from your Lordships' House all come from the males. In the past, working women lost days of work because they had to stay at home to deal with the electrician or the gas man. Now they can make an appointment. Is that not an improvement and should that not be acknowledged?

§ Lord Mackay of Ardbrecknish
My Lords, my noble friend is absolutely right. A number of improvements have taken place since privatisation. As far as I understand it, that improvement is now accepted by the party opposite, whose leader is at this very moment going round the country advocating the abolition of the policy of nationalisation.

Viscount Cranborne
My Lords, I know that this is a matter which attracts enormous interest but there are two important Questions yet to be answered.

Viscount Cranborne
My Lords, in that case, I shall withdraw as elegantly as I am able to.

§ Lord Taylor of Gryfe
My Lords, is the Minister aware that the Question on the Order Paper is concerned simply with the effectiveness of regulation? Is he aware 1223 that 20 per cent. of the economy of this country—the commanding heights of the economy—are now regulated? We have had 10 years of regulation. I am merely asking that the Government or a commission should examine the operation of the regulators.

§ Lord Mackay of Ardbrecknish
My Lords, as I explained, we believe that the regulatory system in those important industries—and I noticed the throwback from yesteryear with the mention of "commanding heights"—are doing a good job. They are working within the rules laid down by Parliament. Those were improved in a recent Act which updated the powers of the regulators to the level of the most powerful of the regulators. What the consumer is now receiving shows not only the success of the regulator but, in my view much more important, the success of privatisation.