Previous Section Back to Table of Contents Lords Hansard Home Page


Lord Skelmersdale: On that point, there is the consideration that there is a cost to move gas around the country. I have no idea what TransCo's charging policy is or may be in the future, and I do not expect the noble Lord knows either. But it would be perfectly logical—the noble Lord, Lord Peston, will see it if he puts on his economist's hat—for it to be charged by, for example, the mile of transport. It is perfectly obvious therefore that one is bound to have different charges for domestic gas in various parts of the country, depending on how far from the landing terminal the customer is.

I am sure that the point raised by my noble friend Lady Gardner about the corporate costs in specific areas of the country will also come into play. Gas company A may sell gas at one price in Scotland and exactly the same company may sell exactly the same gas from exactly the same source at a different price in North Yorkshire or the East End of London.

Lord Boyd-Carpenter: I hope that my noble friend the Minister will resist this amendment. It would be pernicious in its effect in two ways. First, it would discourage the producer of gas from producing it for supply to an area where the cost of supplying it—because of distance or other physical factors—is too high; the producer will simply not move in to that area. Secondly, where the sale of gas is highly profitable, it prevents a reduction being made in order to maintain and develop a good market. Therefore, restricting either increase or decrease of the standard rate would be extremely harmful to the whole operation of the system.

Lord Cochrane of Cults: There is another complication to be taken into account. There are shades of the old railway clearing house, which I am sure the noble Lord, Lord Peston, as an economist, will remember, where there were published rates for every class of goods on the railways. All anybody had to do who wanted to compete with the railways was to go below that rate. Were prices to be uniform for any one supplier across the United Kingdom, they would be subject to that sort of selective competition.

The situation is further complicated by the fact that the actual cost in any locality by any one supplier across the United Kingdom will not, as my noble friend observed, be uniform. Therefore, were the amendment to be adopted, it would produce less competition rather than more, and would be detrimental to the interests of consumers. For that reason it should not be adopted.

22 Jun 1995 : Column 453

6.15 p.m.

Lord Inglewood: I am grateful to Members of the Committee for the debate on this important point. In reply to the basic proposition of the noble Lord, Lord Peston, as to whether he is right, I am afraid that, like my noble friend Lord Boyd-Carpenter, we do not think he is. However, I will endeavour, in this probing amendment, to indicate what we think will happen and what is desirable.

I am afraid that what has been proposed simply will not work. Its effect would be to deter national suppliers from entering the market. A national supplier bound to a uniform price structure would not be able to compete against a regional supplier operating in a less expensive region, unless he cut his national prices so he was losing money in the more expensive regions. The most likely outcome would be for him to split his business in two. That way his position would be preserved and he would defeat the purpose of the amendment.

The point made about consumers is important. If the system described by the noble Lord were in operation, in areas where it was possible for people to supply gas at a lower price than elsewhere in the network of any specific supplier, the consumers in that locality would be paying more than they need. That does not seem to me to be in the interests of consumers; nor does it seem to be a proper operation of the principles of competition, about which we heard earlier in the debate this afternoon.

We must always remember that, while price variations may emerge, this is set against a strong general downward pressure on prices. Independent suppliers are saying that they can beat British Gas's prices by 10 per cent. To hang on to the old-fashioned approach risks sacrificing the benefits of competition in the name of equality. That is not in the interests of the public. If one looks around, there are plenty of commodities of an identical nature which cost different amounts in different parts of the country. For example, beer is a commodity that a number of us buy from time to time. It is differently priced in different areas. Another example is housing. Two physically identical houses can cost considerably different sums of money in different parts of the country.

The amendment implies that customers in the south west, and other outlying regions, will be disadvantaged by the introduction of competition. Judging by the response to the recent consultation on where competition should initially be introduced, it would seem that customers in the south west do not agree. We had many requests from local authorities and MPs from the south west—no doubt friends and neighbours of my noble friend Lord Skelmersdale—urging for the area to be the first to benefit from competition in gas supply.

The truth is that there has never been a requirement for a uniform pricing structure for gas throughout the country. When such proposals were made in 1986, they were explicitly rejected by Parliament, which preferred to back the Minister's view that suppliers should be able to charge prices that reflect overall costs. Ofgas has said that the present variation in long-distance pipeline tariffs is likely, if passed on by suppliers, to involve a differential of plus or minus 2 per cent. of final prices.

22 Jun 1995 : Column 454

I hope that that gives an indication of our view of the current background to this proposal.

Lord Peston: I thank the Minister. He may be surprised to know that I agree with most of what has been said, which was the whole point of tabling the amendment. On the question of the difference in cost of supply across the country, that is always a subject that has intrigued me as an economist. The noble Baroness named Marks & Spencer, and Sainsbury's also seems to charge the same. I did not know, and would have guessed the opposite, that Boots did not. I am amazed to discover that Boots has differential pricing according to the cost of transport. However, I gather that a senior Boots' person will soon be joining the House and we can ask him about his company's pricing policy. I have always been surprised at the uniformity of prices in some of our major companies.

My point relates precisely to what noble Lords have said; that there are differences in the costs of supply; the working of a competitive market will reflect those costs. But British Gas, whether or not it has a legal obligation to do so, did not set its prices in that way, which is why the Monopolies and Mergers Commission said that some consumers' prices may be increased. That was the point of the amendment.

The Minister has committed himself, unless he changes his mind—supported by his noble friends—to the argument that if somewhere, in some marginal constituency at some critical moment in the near future, the effect of competition is for British Gas to say, "We are not interested any more; we have been supplying the gas to this area and losing money on it; we are out", the new supplier will come in competitively and say, "I can make a living here, at a higher price". The Government will say, "Excellent". They will say to one of their right honourable friends, "I am sorry; you have just lost your seat on this, but that is the effect of the market and we believe in the market".

That is what underlines my arguments. I do not disagree with the noble Lord's analysis of how the market will work. However, I cannot see how the Government can accept that analysis and also say that prices for some people will not go up. There must at least be a danger for some people that they will go up because, to use my own expression, the new suppliers must be more finely tuned to the cost of supply. That is the point. I tabled the amendment not because I felt that one could do this, but precisely because, as the noble Lord, Lord Inglewood, said, one cannot do this in the new market. The consequences will be serious for a few, perhaps a minority, but a few.

Lord Skelmersdale: Before the noble Lord decides what to do with the amendment, he should bear in mind the natural economic activity of the customer and potential customer. He postulated a case where British Gas has been supplying at a loss for years and a competitor comes along and offers gas at a higher price. The consumer will not accept that.

Lord Peston: The noble Lord misses the point. I am not privy to the detail of British Gas's costings, and presumably nor is the noble Lord. But, to use an

22 Jun 1995 : Column 455

expression which I hate, it is common knowledge that there is some degree of cross-subsidisation in the private monopoly, as there was in the public monopoly.

I take it that British Gas, whose duty it must be to make a living, to make a profit and to behave economically, will look at some of its activities and say, "We no longer have a duty to supply at below cost". Therefore, it will get out of the market. That is the point I am making. Someone else will come in and say, "I can supply in this market but it will be at a higher price". That is my only argument. I am not suggesting that it will happen all over the place. On the contrary, British Gas will operate competitively very effectively where it can. But if I am right—I have not seen the figures—that there is some cross-subsidy, the market will remove it and that will affect those consumers.

The noble Lord, Lord Inglewood, has said, "So be it", and in a sense he is right. That is what markets do. Those of us in London cannot suddenly have a row with Boots because the noble Baroness, Lady Gardner of Parkes, has told us that somewhere in the country we can get our razor blades more cheaply. Again, so be it. Having said that, I moved the amendment in order to hear the Government's view. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 22 not moved.]


Next Section Back to Table of Contents Lords Hansard Home Page