HL Deb 25 June 1996 vol 573 cc757-60

Lord Taylor of Gryfe asked Her Majesty's Government:

Whether they will appoint an independent review committee to examine the power of regulators, particularly in the gas and electricity industries, and the effect of their decisions in terms of investment, profitability and employment.

The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie)

My Lords, the Government see no need for a committee to examine the power of the regulators. The Government believe that the regulatory regimes introduced at privatisation have served the public well, and will continue to do so. They have been very successful in delivering lower prices and higher standards of service for consumers and in stimulating regulated companies to boost their efficiency, which is their shareholders' best guarantee of future profitability. The regimes are flexible and will meet the new demands of regulating the transition of utility markets towards effective competition.

Lord Taylor of Gryfe

My Lords, I thank the Minister for that reply. As he will recall, regulators were first set up 12 years ago. Does he agree that it might be reasonable to examine their impact on major sectors of British industry? Is the Minister aware that British Gas has complained that it cannot possibly engage in the long-term strategic planning necessary in the industry because of the intervention of the regulator at various stages?

Does the Minister further recall the request of Clare Spottiswoode—who admitted that she was not accountable to anyone—for a public debate on the subject of regulators? She added that her annual report to Parliament is not worth the paper that it is written on. In the light of those suggestions, is it not reasonable to examine the power of regulators?

Lord Fraser of Carmyllie

My Lords, it is the Government's view that, as we move towards the evolution of proper markets, the powers of the regulators should diminish. That would seem a desirable objective. There are some areas in which it is difficult to see that they will entirely disappear.

The noble Lord will be aware that the National Audit Office has been examining current arrangements for the economic regulation of the utilities. Its report will be published in due course. So far as concerns the issue of accountability, as the noble Lord indicated in his quotation the regulators are aware of the criticism. I am pleased that they have been encouraging public debate and are consulting more before they take major decisions. That is resulting in greater transparency. They are also subject to the scrutiny of Select Committees and the NAO. The critical decisions that they sometimes take on licence changes may be referred to the MMC, which gives the opportunity for further independent scrutiny.

Lord Skelmersdale

My Lords, my noble and learned friend can hardly have failed to realise that over the years there has been much consternation, both in Parliament and in the City, with regard to the power of the regulator. He will also, I am sure, know that the Hansard Society is currently conducting an investigation into that power. Will the Government look very carefully at the Hansard Society report, whether or not they decide to take any action upon it?

Lord Fraser of Carmyllie

My Lords, as I indicated, the regulators themselves have sought to stimulate public debate. If the Hansard Society and others wish further to stimulate that debate, that is to be encouraged. In their difficult task, regulators need to attempt to strike a proper balance. Anyone who wishes to examine the duties of the regulator should examine that balance which is to see that, on the one hand, the best interests of consumers are maintained and that, at the same time, sufficient reward is given to licensed companies so that they are in a position to finance their licensed activities.

Lord Ezra

My Lords, despite the remarks that he made, does not the noble and learned Lord agree that the present regulatory system as devised under legislation has led to a degree of uncertainty and volatility in the utilities sector? That is evidenced, for example, by the change made by the present gas regulator in the approach to energy efficiency as compared with that previously followed by her predecessor, or by the electricity regulator introducing a review of prices at a market-sensitive period. In those circumstances, and after the long period that the regulatory system has been in force, as pointed out by the noble Lord, Lord Taylor of Gryfe, would it not be desirable to have a thorough-going inquiry?

Lord Fraser of Carmyllie

My Lords, with respect to the noble Lord, I must say that he does not entirely understand the Government's position. Our view is that there should not be in place a system of regulators that would persist for all time. In future, we want to see regulators playing an ever-decreasing role in regulation as markets mature and evolve. It is important to stress that.

There have been significant changes. One example is the set of proposals that Oftel is making with regard to BT. At present, something like 65 per cent. of BT's revenue is covered by its price cap. Under the proposals presently before BT, that figure would be reduced to something like 22 per cent. That is the right direction to take, rather than looking to see whether particular systems of regulation should be kept in their present form for all time, albeit with some change.

Baroness Gardner of Parkes

My Lords, can my noble and learned friend comment on any correlation there may be between the extreme degree of regulation which has brought down the gas price for consumers—which is good—and the very great increase in complaints to the Gas Consumers Council? Can he further say whether or not service is suffering because of an over-restriction on price in some of those industries?

Lord Fraser of Carmyllie

My Lords, certainly so far as concerns all the utilities, prices have generally come down, with great advantage to the consumer. I am not sure whether the number of complaints to the Gas Consumers Council has been the result of the attitude of British Gas. It seems to me that it might be partially because we have allowed the British consumer to appreciate for the first time that he has a right to make complaints about the delivery of services. Indeed, in a number of circumstances, the British consumer has begun to appreciate that, if the service delivered is inadequate, he has not only a right to complain but also a right to compensation.

Lord Haskel

My Lords, is the Minister aware that the telecommunications and broadcasting industries are converging and that there are some 10 regulatory and other organisations involved in those two industries? Does he agree that some kind of investigation is necessary in order to reduce the number of organisations involved?

Lord Fraser of Carmyllie

My Lords, as I indicated, the Government's view is that the eventual prospect should be of significantly fewer regulators and less regulation. Particularly in the area to which the noble Lord adverted, it would seem to me premature to speculate upon the point at which it would be possible to remove a significant degree of that regulation, however desirable it might ultimately be.

Lord Dubs

My Lords, is the Minister aware that many people will be surprised at the suggestion he made a moment ago that British people have only learned to complain about the work of the utilities since those utilities were privatised? Given that the regulators are there to provide fairness for consumers and stability to the utilities, is it not surprising that in a fairly new set-up the Minister feels that there is no scope at all for improvement? At the very least, is it not a fact that the different regulators in the different industries follow different patterns of operation and that that in itself may cause a sense of unease in some industries?

Lord Fraser of Carmyllie

My Lords, I have no doubt that the noble Lord and others could, day in, day out, suggest minor improvements to the regulatory regimes. But even that has to be set against the desirability of having stability within the regulatory framework. If there were no stability, the complaints now being made about the performance of the regulators would, in my view, increase significantly. I remember when I was a Member of Parliament—I am sure that the noble Lord will also recall the situation from his time in another place—that I received endless numbers of complaints from people who could not obtain a telephone. There were something like 250,000 people waiting for a telephone before we privatised BT. One can now obtain a telephone immediately upon making such a request. I have no doubt that the service to consumers generally has been significantly improved as a result.

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