HL Deb 18 October 1995 vol 566 cc765-72

(" .—(1) The Secretary of State shall from time to time issue guidance to the Director as to the matters he is to take into account in exercising any powers specified in the conditions of a licence granted under section 7 or 7A of the 1986 Act to limit, vary or otherwise control the charges set by a licence holder for the supply, transportation or shipping of gas.

(2) Guidance under subsection (1) above shall include as one of the matters to be taken into account by the Director a reference to the extent to which the remuneration of the executive and non-executive directors of a company which holds such a licence reflects the performance of that company during the year preceding the year to which the remuneration in question relates.

(3) In subsection (2) above— remuneration" includes any salaries, fees, benefits in kind or share options; and "performance" includes increased efficiency in the carrying on of the activities to which the licence relates and improvements in the standard of service to consumers.").

The noble Lord said: My Lords, in moving this amendment it may be for the convenience of the House if we also consider Amendment No. 30. The two are very strongly interrelated.

The purpose of Amendment No. 12 is to enable the Secretary of State to issue guidance to the director in taking into account certain matters affecting his powers in controlling gas prices, including the question of remuneration of executive and non-executive directors of companies holding licences in so far as that reflects the performance of the company, notably in relation to questions of efficiency and improvements in standards of service to the consumer. Amendment No. 30 is designed to introduce transparency in relation to the remuneration of such directors, including fees, benefits in kind and share options as well as salaries.

The amendments were raised by me in principle during Second Reading, and there can be no doubt that they continue to have resonance. Unfortunately, Sir Cedric Brown and his colleagues in the gas industry hardly covered themselves with glory. His recognition of that is implicit from the fact that—if reports are accurate—he is waiving his rights to a bonus scheme which could have enriched him by a further £2 million or thereabouts.

Over and over again in the public utilities senior executives have become millionaires because of over-generous salary and share option packages. That has given rise to considerable resentment, not simply on these Benches and Labour Benches elsewhere, but throughout the country. Many Conservatives have expressed grave reservations about what has happened. The Prime Minister has hardly been enthusiastic in regard to the conduct of those individuals. Not only has it brought discredit on them, but it is also a dreadful example of bad management and management practice.

I found it strange that when the noble Earl, Lord Ferrers, was dealing with the matter at Second Reading, he seemed to feel that the genuine anxieties broached at the annual general meeting by individual shareholders could be brushed aside. The number of members attending that meeting and the ferocity of their attack was almost unprecedented, yet those attacks were brusquely, insensitively and unreasonably brushed aside by Mr. Giordano and Mr Brown.

They were individual shareholders. Most—I concede not all—had no political axe to grind. They were questioning the propriety of what happened and why it had happened so furtively. That is the reason for Amendment No. 30, which seeks to introduce transparency into the whole situation. Those shareholders felt that they were entitled to make those criticisms.

When we came to discuss these matters it was as though the expressions of anxiety uttered by the Prime Minister had never been said at all. We heard a defence of Mr. Brown and his colleagues which was almost unqualified. I do not believe that that was the correct way to respond to the situation which had arisen.

It is not a question of it being the politics of envy, which is the usual assertion made when one raises issues of this kind; it is the politics of resentment felt by millions of people. It is incomprehensible that the British Gas directors—and others, though we are discussing British Gas today—can award themselves vast share options amounting to millions of pounds (wholly disproportionate awards, in my view) in relation to the provision of an industry which is giving an essential service.

Therefore it is not a question of it being the politics of envy and I know that the Minister will not resort to that argument. We are hoping that the Minister will have some comment to make on the situation. I am not proposing to divide the House. We said at Second Reading that we would return to this issue. The amendments are designed to give the Government the opportunity to express their grave reservations about what has happened.

In fairness to Mr. Brown, he said that he will waive the rights to which he is entitled, and I believe that too is something of an admission. One can only hope that the regulator will have something to say about these matters in the future. I look forward with interest to hearing the Government's view. I can assure the Minister that it is not just the concern of the Opposition; it is a widespread anxiety and one of which the Government should take full note. I beg to move.

4.45 p.m.

Lord Fraser of Carmyllie

My Lords, I am grateful to the noble Lord for advancing his argument in that measured fashion. However, the amendments on the question of remuneration of directors in the gas industry are inappropriate for specific reasons, which I shall try to set out, and also for the more general reason that I do not believe that this Bill is the place in which to consider matters relating to executive pay. As the noble Lord clearly knows, executive pay is being considered more widely in relation to the Greenbury Committee's report and it is proper that it is addressed in such a fashion rather than in the context of a single industry in isolation.

Amendment No. 12 is contrary to one of the key principles of the regulatory system. The independence of the regulator has removed political interference from the management of utility businesses. The amendment would reintroduce political control over the management of the gas industry and take us back to the running of an industry on the basis of political rather than economic factors.

There is no valid reason to relate price caps to board pay. The system of regulation works on the basis that, in a monopoly industry, the regulator protects consumers by regulating the price charged rather than costs. That way the industry is given the greatest possible incentive to improve its efficiency. When periodically setting the price control, the regulator looks at all the company's costs and potential efficiency improvements. Executive salaries, as a cost, are a factor in that assessment, but only a small one in relation to the company's total costs. Like any other cost considered in the review, if the regulator believed that the costs were in excess of those which an efficient company would incur, she would be able to take that into account.

As with other companies, the actual salaries paid to executives are a matter for the shareholders to take an interest in. I do not wish to indicate in any way that those shareholders' interests should be brushed aside. As we have seen, the shareholders of British Gas have taken an interest and the board responded. If the regulator were to involve herself in the justification of pay awards to individual executives, it would require her—I hope on reflection the noble Lord will agree—to participate too closely in the management of the company. That could risk prejudicing her independence.

In relation to Amendment No. 30 and its valid purpose of requiring a greater degree of transparency, the noble Lord's anxieties have already been largely met by the Stock Exchange's response to the recommendations of the Greenbury Committee report, to which I referred. The Stock Exchange recently amended its rules to require full and comprehensive disclosure of the remuneration packages, including salary, share options, fees and so forth, of directors of publicly listed companies. I hope that that change will meet the anxieties expressed by the noble Lord in tabling Amendment No. 30. I hope also that I have explained why the Government do not feel that the amendments should be made to the Bill.

Lord Clinton-Davis

My Lords, I thank the Minister for that measured reply, which I think was a better reply than the one I received last time. I am always suspicious about the "not the right vehicle" argument. The vehicular argument is always over-used. I have done it myself. It is very convenient. The Minister will appreciate that I thought it appropriate that we should express some concern about what has happened. I understood that the Minister would not accept the amendment and that is why I did not intend to call a Division on the matter. However, when he says that the Government want to achieve the independence of the regulator, I hope that that will be exemplified rather more overtly than seems to have been understood by the Home Secretary in relation to prisons.

It is also not satisfactory simply to say that this is only a very small element in relation to costs. The cost was expressed to be about 1p. by the Minister dealing with the matter in another place. That does not address the issue at all. It is not a question of how large a benefit consumers would have received if they had had some compensation for what had happened. It is a question of addressing the whole issue of outrage which has occurred. The Minister has still not done that but he has expressed his views in very modulated terms.

On the question of transparency, I accept that the Minister is right about that and that the Stock Exchange has suggested that there should be strong guidelines to deal with the matter. We shall have to look with care in the future as to what the experience is. However, having regard to what has been said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 [Licensing of public gas transporters]:

Lord Fraser of Carmyllie moved Amendment No. 13: Page 5, line 49, after ("effect") insert— ("(a)")

The noble and learned Lord said: My Lords, in moving Amendment No. 13 perhaps I may speak also to Amendments No. 14 and 15. This is the first group of a rather large number of technical government amendments which I need to move today. If I describe them from time to time as technical or drafting amendments I hope that that view will be accepted. However, if any noble Lord wishes me to elaborate on any of them, now or at a later date, I threaten that I shall do so. But I believe that they are essentially technical amendments. That is certainly the case with Amendments Nos. 13, 14 and 15. I beg to move.

On Question, amendment agreed to.

Lord Peston

My Lords, perhaps I may reassure not only the Minister but your Lordships generally that I tried to plough through some of the amendments and I entirely accept that they are technical. I beg him not to go through each one of them in great detail. If he insists, and writes to me, I give him my word that I shall read everything. However, I do not think that any of your Lordships would regard it as remotely discourteous on the part of the Minister if he were simply to say on these technical amendments, "I beg to move".

Lord Fraser of Carmyllie moved Amendments Nos. 14 and 15: Page 5, line 50, after ("licence;") insert—

Page 6, line 12, leave out from ("months") to ("within") in line 14 and insert ("or, in the case of an extension, such shorter time as may be prescribed)").

On Question, amendments agreed to.

Lord Fraser of Carmyllie. moved Amendments Nos.

16 to 18: Page 6, line 48, after ("10(2)") insert ("or (3)"). Page 7, leave out lines 15 to 18 and insert (" 'relevant main' has the same meaning as in section 10 below and"). Page 7, leave out lines 26 to 30 and insert— ("(11) Any reference in this Part (however expressed) to activities authorised by a licence under this section shall be construed without regard to any exception contained in Schedule 2A to this Act.").

The noble and learned Lord said: My Lords, these amendments are similarly technical. I beg to move.

On Question, amendments agreed to.

Clause 6 [Licensing of gas suppliers and gas shippers]:

Lord Fraser of Carmyllie moved Amendment No. 19: Page 8, line 17, at end insert— ("(4A) Subsection (4) above shall not apply in relation to a licence under subsection (1) above which authorises only the supply to premises of gas which has been conveyed to the premises otherwise than by a public gas transporter.").

The noble and learned Lord said: My Lords, in moving Amendment No. 19 perhaps I may speak also to Amendments Nos. 28 and 29. These are technical amendments to disapply the requirement to include the standard conditions in a supply licence. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 20: Page 8, line 37, leave out ("an undue proportion of").

The noble and learned Lord said: My Lords, this amendment is in response to a point which was raised by the noble Lord, Lord Peston, at the Committee stage. Although we gave no formal commitment to look at the point, we wanted to reflect on it.

The provision in question is in Clause 6 of the Bill. It currently says that the director shall not grant licences if he thinks that the description or area of the licence has been so framed as artificially to exclude an undue proportion of premises likely to be owned or occupied by persons who are disabled or pensioners or likely to default on bills. The noble Lord objected to the words "an undue proportion". He argued that suppliers should never be allowed deliberately to choose licence areas which excluded these vulnerable groups, whether or not "an undue proportion" were excluded. We accept the validity of what he said and I invite your Lordships to delete the words.

Lord Peston

My Lords, I wish to thank the noble and learned Lord. This is another example—it is not the only one—of the constructive spirit in which all noble Lords have approached the Bill. I thank the noble and learned Lord for what I take to be a sensible amendment to the Bill and I warmly support it.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 21: Page 8, line 38, after ("are") insert ("chronically sick,").

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 22: Page 9, line 7, at end insert— ("and in that subsection 'contract' does not include any contract which, by virtue of paragraph 8 of Schedule 2B to this Act, is deemed to have been made").

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 23: Page 9, line 14, leave out ("subsection (10) above to the carrying on of') and insert ("this Part (however expressed) to").

The noble and learned Lord said: My Lords, in moving Amendment No. 18 I intended to speak to Amendment No. 23. I think that I may not have been heard. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendments Nos. 24 to 26:

Page 9, line 37, after first ("Act") insert ("— (a)").

Page 9, line 37, at end insert— ("(b) treated as so granted by virtue of a scheme made under paragraph 15 of Schedule 5 to this Act, or (c) treated as so granted by virtue of paragraph 16 of that Schedule.").

Page 10, line 11, at end insert—

("( ) An order under this section may—
  1. (a) provide for anything falling to be determined under the order to be determined by the Director; and
  2. (b) make such supplementary or incidental provision as the Secretary of State considers necessary or expedient.").

On Question, amendments agreed to.

Clause 7 [Licences: general]:

Lord Fraser of Carmyllie moved Amendment No. 27:

Page 10, line 46, after ("are") insert ("chronically sick,").

On Question, amendment agreed to.

Clause 8 [Standard conditions of licences]:

Lord Fraser of Carmyllie moved Amendments Nos. 28 and 29:

Page 12, line 31, leave out ("subsection (2)") and insert ("subsections (1A) and (2)").

Page 12, line 41, at end insert— ("(1A) Subsection (1) above shall not apply in relation to a licence under section 7A(1) above which authorises only the supply to premises of gas which has been conveyed to the premises otherwise than by a public gas transporter.").

The noble and learned Lord said: My Lords, in moving Amendment No. 19 I spoke also to Amendments Nos. 28 and 29. I beg to move.

On Question, amendments agreed to.

[Amendment No. 30 not moved.]

Clause 11 [Amendments of Part III of 1986 Act]:

Lord Fraser of Carmyllie moved Amendment No. 31:

Page 15, line 25, leave out ("'public gas transporter' and 'public gas supplier"') and insert ("and 'public gas transporter"').

The noble and learned Lord said: My Lords, in moving Amendment No. 31 perhaps I may speak also to Amendments Nos. 32, 43 to 45, 179 and 181. These are technical amendments to ensure that the network code, which will set out the rates for the use by other gas companies of British Gas's pipeline system, is not caught by the Restrictive Trade Practices Act if it comes into force before the appointed day. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 32:

Page 15, line 27, leave out subsection (5) and insert— ("(5) Subsection (7) of that section shall cease to have effect.").

On Question, amendment agreed to.

5 p.m.

Baroness Nicol moved Amendment No. 33: After Clause 11, insert the following new clause—

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