HL Deb 11 April 2002 vol 633 cc607-9

8.24 p.m.

Lord McIntosh of Haringey

rose to move, That the draft order laid before the House on 28th February be approved [22nd Report from the Joint Committee].

The noble Lord said: My Lords, I beg to move that the order laid before the House on 28th February be approved.

The effect of the order is to introduce measures to determine turnover for gas and electricity licensees for the purpose of calculating the maximum financial penalty that may be applied by the Gas and Electricity Markets Authority in any particular case.

The order will complete the arrangements to provide for financial penalties to be imposed on gas and electricity licensees who breach licence conditions or certain requirements imposed by the Gas Act 1986, or the Electricity Act 1989, as amended by the Utilities Act 2000, or who fail to achieve prescribed standards of performance. The powers for the regulatory authority to impose financial penalties are intended to have a strong deterrent effect on breaches of conditions and requirements and failure to meet standards of performance. That is important to secure fair treatment for customers and fair competition in the market.

Licensees who take care to meet their obligations have nothing to fear. Those who are less careful will need to take note and mend their ways. The main outcome we seek is not lots of fines but good standards of compliance. The House will recognise the importance of achieving better standards for customers through better compliance by gas and electricity companies.

The Utilities Act 2000 made provision for financial penalties to be imposed by the authority, subject to certain safeguards. The Act provides that the maximum penalty is 10 per cent of turnover and that turnover is to be determined by order. The amount of the penalty must be reasonable in all the circumstances of the case. In deciding whether to impose a penalty and on its amount, the Gas and Electricity Markets Authority must have regard to its published statement of policy. Those principles are set out in the primary legislation. Together, they provide significant comfort that any penalties imposed will be fair and reasonable.

There are two aspects to defining turnover: the scope and the period. The Act states that the turnover to be taken into account is that of the licensee. That defines the scope. Turnover for the purposes of the Act is to be determined in accordance with the provisions of the order from the entire turnover of the licensee derived from provision of goods and services falling within all the ordinary activities of the licensee—not merely those activities taking place in Great Britain.

The order defines the period for which the turnover is to be computed as the business year preceding the issue of a notice by the authority that it intends to impose a penalty. Where there is no preceding business year, the order provides that the turnover should be the turnover of the licensee for the preceding 12 months. Where there is turnover for less than 12 months, the order provides that the turnover should be grossed up accordingly.

Those measures represent a fair implementation of the provisions of the Act, with appropriate safeguards in place. I also draw the attention of the House to the statement of policy on financial penalties by the authority published by Ofgem. Implementation of the order will provide a sound and fair basis for calculating the turnover. I can confirm that, in my view, the provisions of the draft order are compatible with the convention rights and I commend the order to the House.

Moved, That the draft order laid before the House on 28th February be approved [22nd Report from the Joint committee].—(Lord McIntosh of Haringey.)

Baroness Seccombe

My Lords, I thank the Minister for his usual clear explanation of the order, which was received by the committee on delegated legislation in the other place with unanimity, as I am sure that it will be here.

I should like to make only one minor point. Not only do I thank the Minister for his explanation, I congratulate the energy policy directorate of the Department of Trade and Industry on its excellent background briefing note, which saved me a great deal of research time, as I am sure that it did for the Members of the House of Commons committee. That is in marked contrast to the Explanatory Notes printed with the order, which were rightly criticised as "wholly inadequate" by the honourable Member for Thurrock.

In theory, as public documents, such orders and notes may be read by ordinary members of the public, as distinct from specialists in the field. As the Explanatory Note is not part of the order, as it states in its heading, perhaps the Secretary of State would care to consider substituting his department's parliamentary brief for that of the draft order. I also hope that in the case of future orders on any of the complex subjects with which the DTI deals, it will consider writing Explanatory Notes as if they are to read by a layman, as distinct from a specialist.

The Minister in another place was asked by the honourable Member for Hazel Grove what would happen to penalties, which, in the case of the gas and electricity industries, could be substantial sums. The honourable gentleman pointed out that in the case of the penalties payable in respect of the renewables obligations, they were to be recycled to the industry. The Minister did not reply. Can the Minister tell us about that today?

Although, as I said, I do not like the Explanatory Notes, I am pleased to concur with the draft order, on behalf of the Conservative Benches.

Lord Addington

My Lords, I congratulate the Minister on finally convincing me that I had understood the order. I have read it several times today. The Explanatory Notes have already received sufficient—shall we say—damning praise; it was not the clearest document that any of us have ever read.

I read the proceedings in the House of Commons, and most of the interesting stuff consisted of stories and anecdotes about dreadful mis-selling fiascos. However, as was made clear then, the order has nothing to do with those; it is merely concerned with the calculation of penalties. Anyone who has been on the receiving end of one or two of those penalties might feel that 10 per cent was rather a low figure, but I cannot make any criticism of the document in front of us.

Lord McIntosh of Haringey

My Lords, I am grateful for the reception given to the order by both noble Lords. The only substantial point that I must answer relates to what happens to the money raised in financial penalties. It goes into the Consolidated Fund. I am sure that taxpayers will be glad to hear that.

This order is not like the renewables order, which is designed to achieve a particular environmental effect, such as the climate change levy, in a revenue-neutral way. The renewables order is not an attempt to raise money from the industry, and it is not a penalty. Those who lose out under the renewables order have not done anything wrong; they must simply defer to the higher interest of the environment. Anyone who breaches the rules of the gas and electricity markets authority will have done something wrong. It is right that they should be penalised and that the taxpayer should benefit.

On Question, Motion agreed to.