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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Amendment, by leave, withdrawn.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.

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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.

Earl Ferrers: 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.

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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—

Earl Ferrers: 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.

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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

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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

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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 be 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.


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