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Lord Ezra: My Lords, I thank the noble Lord for his kind remarks. However, I should like to enlighten him on what I said in relation to the results of that period. I said that there had been increased efficiency but that I did not consider sufficient benefits of that efficiency had been passed on to consumers.

Lord Harmar-Nicholls: My Lords, half a loaf is better than no bread, so I am grateful for that explanation. However, by and large, the fact that the noble Lord initiated the debate and the tenure of his speech, which was good, indicated some dissatisfaction with the experience of the three years. That is completely opposite to the way I feel, using the same material upon which to form a judgment.

I claim--I do not need to produce evidence; everybody can use their own experience--that the evidence of our day-to-day experience shows that the

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utilities have been a great success. They are more efficient, as the noble Lord conceded, than they have ever been; he also conceded that prices are falling year by year. I do not want to appear to be on opposite sides to the noble Lord. In general, I am with him when it comes to wanting to examine what has happened and arrive at eventual perfection; I am one of his disciples, not one of his opponents.

In my experience and that of others, the standards of service are better and the companies are profitable. It looks therefore as though everybody is benefiting. The profitability means that the companies have funds to reinvest in the industry to make it even better; it means that they can give adequate dividends, which will encourage more people to invest in industry--that is what we should all want because that is what the nation needs. We can compare that with the position of 12 years ago, when prices were rising, services were poor, and the Exchequer was subsidising the utilities in order to keep prices even lower than they are today.

One of the main reasons for the success which I am proclaiming is that the Government, having set up the framework of the new direction, kept out of it. They had enough confidence in the people who have to produce the results to let them make decisions without governmental or electoral party policy interference. It is vital that that should continue.

We have to head in new directions; we are not the same nation as we were. When I first came into politics--a good many years ago--we were the head of a great empire; we were the financial and industrial leaders of the world; we had a Navy that the world wanted and needed, and because of our great power (which now seems to be vested in America) we were able to make little mistakes and interfere without it affecting our general power and influence to do good. That is not so today. We depend upon the day-to-day success of the way we do things, whether we are part of the Government, employers, workers or whatever part we play. Pragmatism is the order of the day. We have no fat--as we used to have--where mistakes can be submerged, overlooked or forgotten about. We need that, and this new direction seems to be producing it, as opposed to government intervention with the Government, through extra taxation, having to pay into it. We are therefore entitled to feel satisfaction as to how things have been going over the past three years.

Nobody likes to be regulated. But the regulators have done their job extremely well. Whatever decisions one makes as a referee or an umpire, somebody will be upset; any decision for one person will result in a decision against somebody else or some other group. That has been the regulators' job from the beginning of time. The regulators were appointed to do a specific job and have done it extremely well, with the minimum of disturbance and interference.

There have been mistakes, such as directors raising their own salaries stupidly and prematurely on occasions. There are all kinds of things as regards which I could criticise my noble friends who have responsibility in government. However, having said that,

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it would be remiss not to stand back and see whether, despite those pimples, there have not been results which justify some commendation. This debate in enabling us to do that today. Noble Lords may accept the case put forward by the noble Lord, Lord Ezra, although he conceded a good part of it when he intervened a few minutes ago, or they may accept mine as a consumer/small businessman. I have to sign the cheques. I know the difference when we have to pay the gas bill. One of my companies runs a small group of hotels. I have to sign the cheques for the electricity bill, the gas bill and the council tax. I have some pretty good idea what I am paying for the services I am likely to get.

I ask my noble friends who have responsibility in government to carry on with the policy of minimum interference from government. Those of us who have held ministerial office, however small, know of the interference and intercommittee problems that have to be overcome. Those involved are not doing wrong. Every group is fighting its own corner. It is difficult for a committee to run anything. Those of us who have sat on committees know jolly well that of a committee of seven or eight never more than two or three produce the ideas and initiatives and get the work done. Handing it back to the people who have to produce the results was a move in the right direction. The advice I give to my noble friends is to pay heed to the criticisms; and if it is possible to amend on the way without interfering with the general direction that has been set, yes do that. Digging up the plant two days after it has been planted to see whether or not the roots are moving in the right direction is the way to nowhere. That is what we must not do and that is what, under our present parliamentary system, we are much too apt to do.

I now wish to give a little advice to our fellow countrymen. One of the problems today when we are discussing any of these matters is that, instead of having a Lord Ezra debate where one can get at the subject, hear different opinions, weigh one advantage against another disadvantage in a proper way and come to an overall conclusion--nothing will be perfect but one can get it as near right as one is likely to do--everything seems to be done by sound bite. That is a new word which I honestly do not understand. I do not know what a sound bite is. But from the way it is being used by various people, I see it as a means by which to influence the crowd to put up their hands in your favour without having to think a lot about a subject. The sound bite takes an attractive word and tries to give it a vicious meaning. It tries to make it sound nasty and dirty.

The process started back in the 1930s when I was actively involved in politics as a very young Conservative. It was admitted on all sides that the country was almost bankrupt. In the end all the parties got together in a coalition in order to get out of the difficulty. They set up the May Committee with instructions to look at the whole picture and see what could be done. The May Committee made a very good report and spelt out in minute detail where savings had to be made if we were to remain solvent. Even in those days we were moving in an awful direction. However, the coalition did not carry out the recommendations of the May Committee. The "sound bite" got to work. As

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soon as the report was there with suggestions as to how we could remain solvent someone invented the phrase the "means test"--those who need it must get it but those who do not need it must stand further back in the queue. So whenever one wanted to move in the direction in which this impartial committee had suggested, having reported in great detail and with great thoroughness, we heard the phrase the "means test". That stopped us getting our house in anything like order.

What is the next sound bite that disturbs me? It is the "community charge". The community charge was one of the soundest, safest and fairest pieces of legislation that has ever been introduced. The idea was to see to it that those who benefited from government paid their proper and fair share. But, oh no, another phrase was used to give it a vicious twist--the poll tax. Whatever you did you only had to say "poll tax" and you would work up a frenzy with the crowd outside the factory or at your meetings. The sound bite replaced the Lord Ezra way of looking at an issue properly and examining all its aspects.

What is the latest word? What is the latest sound bite? The new sound bite is "privatisation". There is nothing wrong with the word but some people are trying to inject it with a viciousness and anger which can do so much damage. We should cut out the sound bite. It is up to the people of this country to recognise a sound bite as against sound argument such as we are trying to produce today.

I congratulate the noble Lord, Lord Ezra. He presented his doubts fairly and effectively as to whether we are going in the right direction. I believe that his overall pessimism was wrong. My practical day-to-day experience of privatisation is that it is a success. I hope that that message will go out from this short debate.

4.47 p.m.

Baroness Platt of Writtle: My Lords, I am grateful to the noble Lord, Lord Ezra, for initiating today's debate calling for a general review of the regulatory system of the privatised utilities. However, I shall not refer to the general problem in depth as I had thought we would be more severely time limited in our contributions. I shall speak only about the regulation of British Gas plc of which I was a non-executive director until this time last year. I now have no financial interest in the company except a small shareholding.

British Gas was among the first privatised utilities. There was a great deal of publicity to attract "Sid" and his friends to become shareholders, perhaps for the first time. I joined the throng of several millions who bought shares. I did not become a director until two years later. British Gas still has 1.8 million shareholders, many of them with small holdings. I suppose that I am referring to the success of privatisation, just as my noble friend Lord Harmar-Nicholls did so eloquently a few moments ago.

Since privatisation British Gas has reduced prices to domestic customers by 23 per cent. in real terms, excluding VAT. It has carried out a vigorous campaign of negotiating international business, including exploration and production, and of providing gas

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distribution and services worldwide, firmly based on its longstanding successful operation in this country. That has resulted in considerable earnings for this country, achieved by British Gas itself and by allied British suppliers selling abroad under its umbrella. As a successful company it also pays billions of pounds into the British Exchequer in taxes every year.

Over a long period of years British Gas has entered into North Sea gas supply contracts for the supply of gas to its customers. With the legislation passed since privatisation British Gas is no longer the monopoly supplier it was when it entered into those contracts. At that time it had the legitimate expectation of fulfilling its statutory duty of supplying gas to its customers whatever their needs. British Gas has accepted the transformation of that monopoly to a fully competitive gas market in the interests of benefits to its customers. I am greatly in favour of privatisation in that respect, too.

The change, however, presents a major new challenge to British Gas, entailing considerable initial costs and great uncertainty in the way it works. Already the price of gas has fallen substantially, as the noble Lord, Lord Ezra, pointed out. British Gas is, however, left with fixed price contracts under what are known as "take-or-pay" terms, so it has an obligation to pay for annual quantities of gas even if today and in the future it no longer requires them.

Already, under government regulation British Gas has lost over 60 per cent. of its industrial market. Over the next two years, as already referred to, pilot schemes will be put into action. A fully competitive market is planned to be introduced in the domestic field shortly afterwards. That is bound to mean an even greater fall in the need for gas by British Gas. The legislation was brought into action several years after privatisation.

It is imperative that the Government support British Gas in the renegotiation of contracts, as noble Lord, Lord Ezra, said. The imposition of the legislation has placed British Gas in an invidious position, potentially disastrous for a very successful company.

Way back in the late 1960s and early 1970s, British Gas took a courageous decision, against some contrary public opinion, and replaced an organisation consisting of individual small coal gas companies with a system of national transmission and distribution of natural gas which has proved so popular in so many ways; for example, in power generation, community heat and power, and the vast expansion of domestic central heating.

It has also meant much cleaner fuel environmentally. The transmission system, named TransCo, was recently separated within British Gas, again at government instigation, as part of a move to a fully competitive domestic market, allowing other suppliers to use it. It is a virtually leak-proof system, unlike the leaking water pipes the public are determined must be repaired or replaced. That is imperative as gas is a hazardous substance; nevertheless, it is a tribute to British Gas and its considerable innovative engineering developments that constant maintenance and updating of pipelines can be carried out efficiently and economically and with the

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least disturbance to traffic where pipes are laid under roads. That is in the interests of consumers and the public as a whole, and it is vital.

It is essential that safety and security should be maintained into the next century. That can only be done if the selling prices and regulations set by Ofgas for other suppliers provide adequate financial return to British Gas so that it can maintain the safety and security of pipelines, miles of which go below our countryside, operating at high pressure.

I speak of a company with a highly successful business record. Competition means that European suppliers are invited to compete without the possibility of British Gas competing in the European market. There is no level playing field. In those circumstances our Government need to ensure that conditions are set for the continued commercial success of British Gas here and worldwide in the future; otherwise this country stands to lose a natural resource of great value. That, I submit with respect, we cannot afford to allow to happen. We certainly do not want to return to the 1930s, as my noble friend Lord Harmar-Nicholls has just so vividly described.

4.55 p.m.

Baroness Seear: My Lords, in launching this debate about the private utilities, we on these Benches do not wish to give the impression--and it is certainly not the impression held here--that everything before privatisation was wonderful. Some of us remember the state of the sewers and the condition of the water supply. The condition of the water supply enabled those who took to bottling water to make the most ridiculous success out of the refusal of people to drink decent tap water. Personally, in a restaurant I greatly enjoy asking for water. When I am asked which kind of water I say, "Tap water" very firmly and now with considerable confidence. All was certainly not well before the privatisation programme.

There have been very real successes in privatisation. I have found that my gas bills have come down and the service I get from British Telecom is a great deal better than it used to be before privatisation. For one thing I now know how my money that goes to British Telecom is spent. In the past how the money was distributed or how I spent so much was always a dark secret. I am now told, but it is still quite a lot! At least I know what has happened to my money and that is some compensation.

This debate is not an attack on the privatised industries as such. What we are really saying is that privatisation was launched in an attempt, presumably, first and foremost, to improve the service to the country and to improve consumer satisfaction. Competition was a means to that end. Competition is never an end in itself, but a means to that end. We need to be satisfied that in fact that end is being achieved and that the consumer's position has improved as a result of privatisation. It is because we are not satisfied that that has developed entirely in the way in which one would wish, that we launch the debate today.

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Competition, to the extent that it is working, has had some very good results. We have to keep reminding people that the protection of and benefits to the consumer come not only from a quick reduction in price or an improvement in service, great or small as it may be, but also from the long-term and continuing provision of improved services. That means devoting the profits raised to investment as well as immediately benefiting the consumer through reductions in price.

Large amounts of money that are raised are being used for real investment. In particular that was long overdue and very necessary in the water industry; in the telecommunications field, and, I suspect also in the other privatised industries, although I know very little about them. To that extent, in order to raise the standard continuously and for services to be at the same level as those which are available to our competitors elsewhere, it probably means that a very large amount of the moneys taken need to be devoted to long-term investment, if we are not merely to satisfy the consumer today but also to continue to satisfy both the private and the business consumer.

After all, energy, water and telecommunications are very important components in any business expenses. We must get them right from the point of view of the business consumer in the long term, but most assuredly there are very great disadvantages to the ordinary consumer. All those matters are of the very greatest importance.

The privatisation of industries of such importance was new and an experiment. It would have been extremely surprising if the Government had got everything right straight away. However, it would be advantageous if they would now agree that, given an experiment as new and important as that, it is high time to review the way in which it is working--not in a spirit of carping criticism, but by saying that it is very unlikely that we cannot improve on what we have done.

The competition is by no means perfect competition. The Government should be willing--indeed, they should encourage--issues of competition to be referred to the Monopolies and Mergers Commission so that we can consider whether the competition is working as it should. A great many people at present believe that it is not working properly. There is a legitimate query in the minds of the public, among both industrial and private users. Surely the Government should be on the side of ensuring that the competition is as good as it can be made in the difficult circumstances of industries where natural competition does not exist. After all, the Government are the great supporters of competition. It is true that a degree of competition has been introduced, but it is not competition in the way in which it exists in industries which have always been in the market and which are not natural monopolies in the first place. It is now high time that the issue of competition was reconsidered so that we can ascertain whether we are really getting the benefits of the competition which the Government promised.

As other noble Lords have said, the role of the regulators needs to be considered. I remember saying repeatedly from these Benches at the time of the

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privatisations that although we do not like monopolies (whether public or private), if we are getting rid of a public monopoly, we have to be extremely careful that we are not creating a private monopoly. That was the burden of a good deal of the criticism that came from these Benches during the privatisation programmes. The Government's reply was to introduce a regulator in all the industries concerned. I do not know that at the time anybody had a better idea, but it is not surprising that people are not entirely satisfied with this first attempt at finding an alternative way of bringing to this market the benefits of real competition, given that we are talking about markets in which there is no competition through normal market forces.

As has been said, the regulators have acted in varied and different ways, and we do not know how they should be acting. Indeed, they cannot all be right because they operate so differently. It is not a question of the Government admitting that they have got it wrong--it does not involve any loss of face for them; but in our view it is time that the Government said, "We have now had experience of regulators for some years; let us establish an independent committee to take a real look at how regulation is working and at whether any improvements in the system of regulation could be made". What is an appropriate type of regulation for one privatised industry is not necessarily the right type of regulation for another privatised industry. It does not follow automatically that they should all be regulated in exactly the same way. The Government should say, "We have now had enough experience of this and we know that people are not exactly satisfied. It would be surprising if they were, but let us take a real look at how the regulation can best be carried out". Nobody has thought of a better way of simulating real market forces than having a regulator. It is not the idea of regulation that is wrong, but experience of it is raising many doubts.

Finally, and following the points raised by the noble Baroness, Lady Platt, we need to reconsider the whole question of the gas industry and its contracts. Gas is an enormously important industry in this country. It is important both to industry and to ordinary, individual consumers. If as a result of the contract arrangements that were entered into the industry really is faced with the kind of threats with which the regulator says it may be faced, surely there is no time to lose in taking a look at that and at what can be done about it. We cannot accept our privatised gas industry running into a serious financial position that is not of its own making, but which would have adverse effects on all types of consumer.

We are asking the Government to look at the best possible way of developing competition. There are doubts about whether that is what we have at the moment. There should be a real review of how regulation has been working, how it can be improved and of what other systems could be introduced. There is also the special question of the position of the gas industry and the contracts that it entered into some years ago.

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5.5 p.m.

Lord Haskel: My Lords, I too wonder why so few noble Lords have put down their names to speak in this debate, which deals with a most important topic. Perhaps it is the proximity of Christmas; perhaps it is because of the flu or perhaps, as the noble Lord, Lord Skelmersdale, suggested, it is because of our various interests. At this point, I must declare an interest as a non-executive director of a cable company.

The question that we need to ask ourselves is: why do we need regulation of the utilities? It is because they are the monopoly suppliers of the essentials of life--heat, water and light. Every person and every business in the country needs them. They also form an important proportion of British industry, accounting for around 14 per cent. of our total market capitalisation and for about 10 per cent. of GDP. Therefore, I agree with many noble Lords that the objective of regulation must be to balance the different interests of all those involved: the consumers, the shareholders and the employees. There is also a national interest here, as the noble Baroness, Lady Hamwee, told us.

The Government's policy seems to be that all those interests can be balanced simply by introducing competition. The noble Lord, Lord Skelmersdale, spoke about that by referring to the marriage service--no less. I was not quite sure of the relevance of that. Competition is desirable, but it is not an end in itself, as the noble Baroness, Lady Seear, said, because there will always be an element of monopoly in the means of distribution.

It is all very well for the electricity regulator to declare that we will have full competition in electricity by 1998, but competition does not follow simply from declaring it in a press release. The fact is that domestic consumers will still receive electricity only through a single wire owned and operated by their local regional electricity company. There will also be only one water pipe, owned and operated by the local water company.

So it is necessary to strike a balance and not seek a simple absolute answer. Special care is needed in regulating an industry where there is a chance of genuine competition. Telecommunications is a good example of that. Here, there is a good prospect of real infrastructure competition between different kinds of cable and radio-based services. However, installing that new infrastructure is a very long-term endeavour. Investment in the telecommunications network is proceeding, but it is still at a sensitive stage because three-quarters of households still have no alternative to British Telecom, which still carries over 90 per cent. of all calls. Regulating telecommunications at this interim and complex phase is difficult. I think that the Minister will agree with me that it is much more difficult than regulating a monopolistic market or one where competition is firmly established.

The noble Lord, Lord Ezra, told us that the Government made a serious error in not reorganising the companies before privatisation. I think he is right. The signs of poor regulation are everywhere. I do not agree with the noble Lord, Lord Harmar-Nicholls, who seems to find everything satisfactory, and I too sign the

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cheques in a number of companies. We were told last week, for instance, that some regional electricity companies are paying industrial users to shut down their operations rather than supply electricity to them at pre-agreed prices.

The cancellation on Monday of the two new nuclear power stations means the cutting of safety measures still further in scheduling supply to meet demand. From that, we can only conclude that the short-term needs of privatisation take precedence over the long-term needs of British industry for continuous electricity supply. The noble Baroness, Lady Seear, told us about that and about the need for investment. Incidentally, does the regulator have to worry about our international carbon dioxide emission obligations?

There is another example. We heard recently Yorkshire Water asking customers dependent upon water supplies to move their production elsewhere. In the recent Budget, we saw the Government virtually doubling their cash demand from the Royal Mail, with all that implies for less investment and higher postal prices. Is that what Ministers mean when they speak of Britain becoming the enterprise centre of Europe? Those are the sort of things that go on in a Third World country.

Of course price is central to regulation. The noble Lords, Lord Ezra, and Lord Skelmersdale, told us about the RPI-x price capping formula which lies at the heart of the current system of regulation. I agree with them. I find that it has failed the people of this country as an adequate tool of regulation. That is because whatever efficiency gains have followed from privatisation for the most part have not been passed on to the consumer in lower prices.

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