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Baroness Farrington of Ribbleton: My Lords, with the greatest respect to my noble friend, I have to remind noble Lords that when "three" comes up on the clock it is actually the end of the three-minute time allotted to speakers.
Lord Hardy of Wath: My Lords, as privatisation of water approached, I well remember a conversation I had with one of the leaders in the Yorkshire water industry. He assured me that when it was privatised it would become owned by the people of Yorkshire. I demurred. A little later, when there was an attempt to secure the election to the board of a responsible Yorkshire lady--not of our political persuasion--Yorkshire shareholders voted for that lady but she was wiped out by the votes of the institutions.
That they were not locally based was quite evident when Yorkshire Water refused to allow in three cases, in my then constituency, work to be carried out to relieve the problem of people who were having to live with sewage contamination. When I went to do a broadcast on this matter the spokesman for Yorkshire Water said that the regulator was at fault because the regulator would not let them spend any money on it. The fact remains--Yorkshire Water did not apologise for the misdirection of the Yorkshire people--that the regulator had said, "You cannot increase your prices. Your profits are so high that you can meet needs of that urgent kind from your existing profits".
As far as concerns electricity, the Government took the view that the regulator would protect the consumer. The regulator was principally responsible for the achievement of an incomprehensible pricing system. I recall asking him a question about the disregard of the fact that coal for electricity generated at coal-fired stations was a good deal cheaper than that from the new gas-powered stations and not getting an answer.
The worst situation was in the gas industry. Sir Denis Rooke, one of the most successful people in the utilities during the post-war period, could live with a very fine structure--a complex structure--of gas consumer protection and with a large number of showrooms, to which the noble Baroness, Lady Sharp, properly referred. When the previous Conservative administration came in and said that they would privatise gas they proposed to dismantle the structure. I was on the committee dealing with the Bill. The Government were proposing to call it the Gas Users' Council. I said that it would become known as GUC, which was an ugly term, and proposed instead that it should become the Gas Users' National Organisation. The Minister appeared very keen to accept my suggestion until I pointed out that it would become known as "Guano" instead.
The industry should be robust enough, as gas had been robust, to live with a proper structure of consumer protection and to live with a care for the poorest in the land and with a care for the disabled. Noble Lords will have seen the documents and briefings which we have received. I hope that they will receive adequate attention.
Lord Desai: My Lords, I congratulate my long time friend, the noble Baroness, Lady Sharp. She has lived up to all our expectations by delivering on behalf of consumers a powerful and carefully researched speech on competition policy.
Because time is short this evening I shall make but three quick points. As the noble Baroness and my noble friend Lord Borrie indicated, price may fall in competition but price is not everything. When we buy any product of a utility we buy a whole what I call vector of characteristics. One of the things that the noble Baroness pointed out was that consumers pay a price over and above the price charged for the gas. For example, if I pay in advance or if I pay by standing order I am giving a loan to the utility. Indeed, I have given incredible amounts of money to British Telecom. I do not know why I do so. However, there is an implicit price which is larger than the price paid.
We ought to look at all the implicit and explicit prices paid by consumers. This is where most particularly the price paid by the vulnerable consumers, especially the blind, comes into the equation. What are the utilities doing to lower the extra price paid by the blind? Are the latter getting the sort of information which will help them so that they will not end up paying a higher price than ordinary well sighted consumers pay?
My noble friend Lord Borrie is entirely correct to point out that if the utilities give business accounts a discount they should not, as it were, charge domestic consumers much more. But just as there is a principle of cross-subsidy among business consumers--because that is how the discount for large volumes works-- I believe that they ought to cross-subsidise among consumers, especially the more vulnerable ones; indeed, I think that they should forgo some part of the profit. I believe that that would help.
I have one final point to make. I believe that eventually we will have to have a much more co-ordinated regulatory system across the different utilities. However, tonight is not the time to talk about it.
Lord Islwyn: My Lords, I congratulate my noble friend on initiating this debate on a most worthwhile subject, though it is a pity that it is such a short debate. Nevertheless, my thoughts turn to the so-called "fat cats"--and what a horrible expression that is. I have in mind Sir Peter Bonham who is British Telecom's chief executive. His pay rocketed by 46 per cent. to more than £1 million last year and--wait for it!--he also had £1.5 million in bonuses.
Moreover, at Centrica the chief executive, Roy Gardener, earned a package of £493,000. His counterpart at British Gas, David Varney, got over £427,000, which was a 74 per cent. increase. At Southern Electric, Jim Forbes, the chief executive, earned £399,000 last year, which represented an increase of 45 per cent. Then there is that prime success story of privatisation, Yorkshire Water, where we find its chief executive, Mr. Keith Bond, a former police constable, received a 69 per cent. increase that took his salary to £298,000. Indeed, I could go on through a whole list of bosses who have simply abused the system. What an example that is to lower paid workers. We should also remember that all this is taking place as a result of what the late Lord Stockton (Mr. Harold Macmillan) described as the sale of the family silver.
Overall, in this issue which my noble friend Lord Borrie has described as a fair deal for consumers, I think particularly of less well-off pensioners and the way that they were treated by the last government. In the early days of that administration a decision was taken to alter the method of calculating the state pension. The dual assessment based upon inflation and average earnings was terminated and annual increases were subsequently based on the inflation rate alone. That change brought about a considerable loss of income for pensioners, especially those who tended to rely on state provision. I shall give your Lordships details as supplied to me by the Library of the House. The single state pension of £64.70 in April 1988 would have been £87.79 if it had risen in line with average earnings since 1979. That is a difference today of £23.9p per week. That figure clearly illustrates that pensioners have a genuine cause for grievance.
That leads me to another aspect which is highly relevant to our debate; namely, the fact that pensioners have to pay the standing charges to the former public utilities. I tabled a Question last Wednesday about this issue but I received a negative reply from the Government. I was most disappointed about it. The people, and pensioners in particular, expect a better deal from a Labour Government.
Lord Currie of Marylebone: My Lords, I should, first, declare an interest as a consultant recently for Thames Water and as an unpaid adviser to the recent Offer/DTI review of the wholesale trading arrangements for electricity. I welcome this brief debate and I also welcome government policy towards regulation as it is evolving. I think it is right, wherever possible, to promote competition, not simply because of the price benefits that competition brings but also because competition is a major spur to innovation. We have seen that in telecoms and I believe that we will be surprised at the degree of innovation that we see in gas and electricity as competition spreads. I believe that that will be a major benefit to consumers.
However, we also have to recognise that there are limitations on competition. In particular, if we have the wrong industrial structure the competition will not necessarily deliver the right outcomes. If we look at the market in power generation we see that particular problem. It is one of the reasons why coal has been disadvantaged in the trading arrangements for electricity in the recent past. I therefore welcome the Government's commitment in principle to carrying out the reform and dismantling of the electricity pool and to the divestment of coal-fire generation capacity by some of the large generators.
The other area where competition may not bring the right outcome is for disadvantaged consumers, as my noble friend Lord Borrie highlighted. Competition involves the unwinding of cross subsidies and that, in an industry where fixed costs are high, can mean that the poor--the low volume consumers--miss out. There are answers to that and they are ones which have been flagged by the Government. In particular, it is possible to use the regulated monopoly pipe or wires business--
In conclusion, in looking forward I think that we may be entering an era where the "fat cat" problem--the excessive profits that we have been concerned with and the need for the windfall tax--is something of the past. Regulators have got better at their job and they are regulating in a much tougher way. I fear that some of the regulatory assumptions that have fed into regulatory decisions on the cost of capital may be over tough on the regulated companies, especially in view of the disturbances in the financial markets that we have recently seen. Indeed, this is a matter to which we shall have to return.
Viscount Chandos: My Lords, I begin by declaring an interest as a director of an interactive television company which currently provides pilot services in Hull and London on the networks, respectively, of Kingston Communications and British Telecom, which are both regulated by Oftel. I, too, welcome the Green Paper and the White Paper issued by the DTI which recognise the need for a comprehensive review of utility regulation and the consultation document Regulating Communications issued in July.
The privatisation programme of the 1980s and the early 1990s conducted by the last government gave rise to a first generation of regulation and regulators which has increasingly been showing both its age and its mixed origins. While it is now broadly recognised on all sides of the House that the privatisation of at least some of the utilities has produced significant benefits, we equally can see that the priorities of the last government were not exclusively--or even primarily--the protection of the consumer: it is clear that the regulatory regimes in some cases were set to assist in the successful privatisation of the utilities concerned and in the satisfaction of objectives ranging from the management of the PSBR to the attempted stimulus of wider share ownership.
I shall use the short time that remains to me briefly to address the complex area of telecommunications regulations. I hope that there might be another occasion when rather more time will be available for a debate on this subject, perhaps when the Government have been
While I do not pretend that communications are quite the lifeblood of consumers that water or power are, the burgeoning role of telecommunications networks in providing information, education and entertainment, in addition to voice communications, makes a dynamic and competitive telecommunications industry vital.
The decision to license cable operators for both television and telephony services has, at great financial and environmental cost, provided competition in local network provision, in parallel with that in trunk and business networks. I hope that in future there will be increased emphasis on the promotion of competition in service provision, and that the sunk cost of competing physical networks will not be allowed ironically to keep prices higher for consumers.
Lord Kingsland: My Lords, in the debate on the Competition Bill the noble Lord, Lord Simon of Highbury, said that he wanted to leave open the question of whether the sectoral regulators or the Director General of Fair Trading should enforce the competition prohibitions. In a recent publication by the Office of Fair Trading in paragraph 4.4 we find the director general saying,
There are two additional reasons why I think the Minister should be extremely wary of following the proposal of the Office of Fair Trading. The first is that competition in each of the regulators' sectors means something quite different from competition in the Bill. Competition in the Bill is about looking ex post at a particular anti-competitive situation. Competition to a regulator is about confronting an initial monopoly or oligopoly and out of that situation, in a dynamic way, creating a competitive situation. It is not the same thing at all as competition under the Bill. There is a real danger, if the regulator exercises as a matter of practice competition powers under the Bill, that he will confuse that notion of competition with a notion of competition contained in his own regulatory Act.
The second reason why, in my submission, it would be inappropriate for the regulator to have these powers is that he has many other considerations to look at as well. He must consider the interest of the consumer, the environmental picture and the social dimension. All
Lord Newby: My Lords, I join other noble Lords in congratulating the noble Lord, Lord Borrie, on introducing this debate. It is a particular pleasure for me to be able to congratulate my noble friend Lady Sharp of Guildford on her maiden speech. We on these Benches are particularly pleased to have the benefit of her expertise and experience. I am sure noble Lords will agree that these abilities and qualities will be of tremendous benefit to the House as a whole in the months and years ahead.
For many vulnerable people in this country, particularly pensioners, the utilities play a peculiarly large part in their lives. A large proportion of the post they receive is from the utilities and a large proportion of the regular payments they have to make is to utilities. Therefore this is a particularly important area to be discussing. A number of noble Lords have discussed problems which currently apply, not least high costs of standing charges and the problems of the high cost of prepayment meters.
I wish to refer to the problems which arise when faults occur in the utilities provided in the home. I know of a case of an elderly, partially sighted lady who discovered when she was having her water meter read that a large volume of water was flowing through even though all the taps were closed. This meant that there was a leak somewhere. The meter reader said, "I do not recommend that we fix this for you as it will cost you far too much. You ought to find your own plumber". That statement was deeply disturbing to the lady. She wanted someone from the utility to solve the problem rather than have to find someone from outside. The situation was already stressful for her in that she had discovered a water leak and she then had the additional problem of having to find someone to put it right.
I believe that similar cases occur in the gas industry as regards the restricted role of Transco in tackling gas leaks. One then has to get another specialist to deal with a leak. This area needs to be given further consideration. We therefore welcome the Government's commitment to issue statutory guidance on social objectives and environmental objectives. We on these Benches would prefer the environmental objectives to be given rather more significance, but we believe that this is a great step forward. We welcome anything the Minister can say this evening either on the timetable for the issuing of such guidance or on consultation which may take place between now and the guidance being issued.
As regards consumer councils, I am not sure that I agree with the noble Lord, Lord Borrie, about separating individual complaints and general policy issues. One finds that people in the legal field deal with individual miscarriages of justice and reform of the criminal law more generally. Experience in one area informs experience in the other area and gives great
Earl Attlee: My Lords, I, too, am grateful to the noble Lord, Lord Borrie, for posing this Unstarred Question tonight. The House is indeed fortunate to have his services. I have only three minutes so I will have to be to the point. I wish I had longer to respond to the various points that noble Lords have made.
I am not supposed to do this but I would like to note the quality of the maiden speech from the noble Baroness, Lady Sharp. She made the interesting point that better-off consumers are well informed, more sophisticated and can take advantage of direct debit schemes. She also talked of the problems of pre-payment meters. I hope that eventually technology will help vulnerable consumers as well as those who are better off. I also welcome the Minister's first substantial speech from the Government's Dispatch Box. I am sure that in the future we shall have many interesting discussions on the Government's energy policy.
The role of utility regulation is to promote fair competition while at the same time protecting the interests of consumers in both the long and short term. Since privatisation we have seen greatly improved efficiency in the utilities which has been achieved through the rp-x formula. However, there is also a need for regulatory efficiency. That means that the Minister will have to strike the balance between short-term consumer benefit on the one hand and an over-demanding regulatory regime on the other, the latter being detrimental to future investment plans in the utilities.
The noble Lord, Lord Borrie, effectively drew attention to vulnerable consumers. I am sure that the Minister would agree with Ian Byatt that any measure that results in lower bills for some consumers will have to be funded by higher bills for others.
Perhaps I can tempt the Minister a little further. Does he agree that the provision of an adequate income for vulnerable consumers is a responsibility of the welfare system, and that of energy efficiency a part of taxation and housing policy? Therefore, although I accept that the utilities may have an input in these matters, is it really the role of a commercial concern to act as a welfare organisation? On the other hand, good business practice would suggest compassion in cases of genuine hardship.
We shall have to study today's Statement to see whether it can help. The noble Lord, Lord Borrie, referred to social justice, and I agree with his sentiments. Put simply, we need to move towards eliminating vulnerable consumers as much as we can.
The noble Lord, Lord Borrie, also spoke about the increased power of consumer councils. Will the Minister say how that will work? Will it not interfere with the duties of the regulator, who should regard the long-term interests of the consumer as paramount?
In the longer term, we on these Benches hope to see fully developed competition in all the utilities. We are practically there with telecommunications. When effective competition is fully developed, we hope to see industry-specific regulation become unnecessary and reliance being placed solely on general competition law.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, I should like to thank my noble friend Lord Borrie for raising this important topic and for his thoughtful contribution to the debate. All those who have had contact with him when he was Director-General of Fair Trading, or in this House, know that he is not only a great expert on regulation, but also a fierce and effective champion of the consumer.
I also congratulate the noble Baroness, Lady Sharp, on an outstanding maiden speech. I know she has great knowledge of the economics of science, technology and innovation and, as Minister for Science, I look forward to listening to many more illuminating speeches from her.
I should also like to say to my noble friend Lord Haskel that we will, of course, consider the debate as part of the consultations on the Government's proposals for setting up independent consumer councils for the different utilities.
Water, energy and telecommunications are among the essentials of everyday life, and the public have a right to an efficient supply of these services, on fair terms. That is why the Government published a Green Paper on utilities regulation earlier this year. The Government's subsequent response to consultation set out three overall objectives for reform. We want to secure a fair deal for all consumers, including the disadvantaged. We want to create a regulatory framework which looks ahead to the next decade, in a world where competition is growing, convergence issues are arising, and multi-utility companies are emerging. And we want to create a climate in which the utility companies can innovate and improve efficiency wherever possible by ensuring that regulation is transparent, predictable and accountable.
The Government have set out a large number of proposals for reform to help achieve the overriding objectives that we have set. I want, however, in the time available, to focus on government plans which are aimed most directly at our objective of securing a better deal for consumers, and the disadvantaged in particular.
I should like to deal with three key changes which are aimed at giving all consumers a fairer deal. First, the Government propose that there should be a new primary duty on the regulators to protect and promote the interests of consumers wherever possible through promoting competition. The regulators' existing consumer duties are secondary duties. The Government believe that, when making decisions, the regulators must put the needs of consumers first.
Secondly, the Government intend to establish consumer councils for each of the utilities on a fully independent and statutory basis. That is a key consideration which will deal with many of the concerns
The noble Lord, Lord Borrie, mentioned the incompatibility, as he saw it, of the advocacy role with the role of handling complaints. I wish to make clear that our proposals do not involve consumer councils taking on a formal educational role in these matters. Licence enforcement action will remain a matter for the regulator. However, there are examples in the water sector where companies have entered into voluntary agreements with customer service committees whereby the companies will accept a committee's adjudication. We want to encourage those developments.
However, I have taken note of the suggestion made by the noble Lord, Lord Borrie, of providing a formal ombudsman scheme in the legislation. My department is currently consulting on the detailed arrangements for establishing the new councils. We plan to announce the outcome of that consultation as soon as possible following the 16th November closing date for responses.
A third measure for strengthening the position of consumers is our plans to ensure that all the regulators have powers of the type already held by the gas regulator to impose financial penalties on companies for breach of overall and individual customer service standards.
The noble Lord, Lord Islwyn, raised the question of high pay for executives in the utilities. It is not for the Government to set executives' pay. However, we plan to encourage stronger links between customer service standards, price gaps and directors' pay. We shall, for example, be urging regulators to take account of levels of consumer service and satisfaction when setting new price caps. Moreover, we intend to legislate to require price-regulated utility companies to disclose the nature of any links between the pay of the directors of the regulated business and the service standards attained by that business, and if there is no link, to make that fact known.
In addition to these and other measures to help all consumers get a fair deal, the Government are particularly concerned about the position of the disadvantaged. Fuel poverty is a major issue. The liberalisation of energy markets has delivered real benefits to all consumers in lower prices, but there have been concerns that the disadvantaged may have benefited less than other consumers. The Gas Consumers Council and other organisations have been vocal in articulating the needs and concerns of disadvantaged consumers in competitive markets. There are concerns, for example, that the gap between prepayment meter tariffs and direct debit tariffs could become unacceptably large. We are alert to these problems, and have announced plans to ensure that the regulatory system is equipped to deal with them.
I want to refer to three specific proposals announced by the Government for addressing the particular needs of the disadvantaged. First, the Government propose to modify the regulators' statutory duties as they affect the disadvantaged. The regulators' existing social duties vary somewhat between the utility sectors, but typically require the regulators to take into account the interests of the disabled, pensioners and rural consumers. These existing duties will be retained, but they will be extended to cover low-income consumers and, where this is not already the case, the chronically sick.
Secondly, we propose to introduce legislation to give Ministers powers, following full consultation, with Parliament and others, to issue statutory guidance to the regulators on social and indeed environmental objectives. I believe that that deals with the question raised by the noble Lords, Lord Desai and Lord Newby. However, I should make it clear that this would require primary legislation and in that way would keep the distinction clear when a situation arises which changes the framework within which regulation takes place.
The proposal has been widely welcomed. It will ensure that the utilities, as sectors, will make an appropriate contribution to wider social goals. It will make clear that the responsibility for setting objectives in those areas rests with the Government, not the regulators. It will improve the transparency and the predictability of regulation because the guidance will be strict and for a set duration for a number of years--perhaps the duration of a parliament.
The plans for powers to issue guidance recognise that economic regulation does not take place in a vacuum. The powers will also provide a mechanism allowing Ministers to guide regulators on how to interpret their social and environmental duties. That also addresses a point which has been raised. If liberalisation leads to an unwinding of some of the cross-subsidies that can be seen to have a beneficial effect--and the noble Lord, Lord Currie, raised the point--it is something as regards which the Government could take action through the mechanism to correct the situation.
The powers to issue guidance and the extension of the regulators' duties towards the disadvantaged are longer-term propositions requiring legislation to give them effect. The needs of the disadvantaged require more immediate consideration. That is why, in publishing the Green Paper A Fair Deal for Consumers, the Government asked the regulators to draw up a social action plan to ensure that disadvantaged consumers benefit from improved efficiency, more choice and greater fairness. This is the third element in our strategy for ensuring that the needs of the disadvantaged are reflected in the system of regulation.
We are not complacent. The position of the disadvantaged in competitive energy markets, and the other utility sectors, is a key government concern, and one that the Government intend to keep closely under review.
In the water sector, which is not the responsibility of my department, the recent consultation document on water charging recognised that for some low users standing charges for those with water meters can represent a high proportion of water bills. The consultation invited views on whether we should move to a position where there are no standing charges. It is not, of course, a free option and any re-balancing of charges will produce winners and losers. My colleagues are currently considering responses to the water charging consultation.
There is, of course, a distinction between this situation which is a monopoly and those where competition is now beginning to take place. I mention it because it shows that we are very much alive to the issue and will take action if necessary.
The noble Baroness, Lady Sharp, raised the issue of pre-payment meters and direct debit tariffs. Again, it is an issue where much work has come through the social plan and I hope we will begin to see changes taking place on it. I very much take on board the point made by my noble friend Lord Haskel that in business customers who pay in advance usually pay the lowest price. I hope that the utilities will gradually begin to deal with the problem.
My noble friend Lord Borrie raised the question of individual regulators versus boards. We wish to see a degree of depersonalisation of regulation and ensure that there are stronger checks and balances on individual regulators. That is why we have moved to a position of three people rather than one individual.
In closing, I wish to take this opportunity once again to thank all noble Lords for their contributions to the debate. I am afraid that I have not had time to deal with all the issues, in particular the one raised by the noble Lord, Lord Kingsland, on the relationship between the Competition Bill and the role of the regulators. This is an issue where we feel that the concurrent powers are right and as the markets become more competitive, it is right that the individual regulators should have the powers contained in the Competition Bill. I take the point that the position needs to be clear. Co-ordination is already being developed so that the regulators and the Director of Fair Trading will act in concert.
Noble Lords have made a number of excellent contributions to the debate and I trust that they will understand if I cannot deal with all the other points which arise. I assure the House that the Government will continue to press forward with the important work that they have initiated in the area. It is an important
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