Previous Section Back to Table of Contents Lords Hansard Home Page


Baroness Sharp of Guildford: I rise to speak to Amendments Nos. 207 and 222, which are part of the group of amendments currently before the Committee.

As the noble Lord, Lord Borrie, pointed out, our amendments are very similar to those that he and the noble Lord, Lord Currie of Marylebone, have put forward; they are twin amendments on the same issue. The main difference is that their amendments specify not only that there shall be a penalty cap of 10 per cent of an undertaking's turnover, but also that the turnover shall be that not only of the undertaking itself, but also of its affiliated and related undertakings. In this respect, the amendments of the

21 Jun 2000 : Column 329

noble Lords are probably preferable to ours, because they are more specific and make it clear that it should be the broader, rather than the narrower undertaking.

I should like to say a few words about the amendment and very much support the noble Lord's line of thinking, because, as he made clear, the purpose is to provide a cap on fines. The current terminology in Clause 58 is very open ended. It talks of,


    "a penalty of such amount as is reasonable in all the circumstances of the case".

That was the point that the noble Lord, Lord Kingsland, made when explaining the purpose of the Opposition's amendments.

When discussing the issue in Committee in the other place, the Minister of State for Energy and Competitiveness in Europe argued that the term "reasonable" was well recognised in English law and gave the authority more flexibility. I accept that, but it totally misses the point of the amendment, the purpose of which is not to suggest that all penalties should be set at 10 per cent of turnover, but that that should be the maximum penalty imposed.

I take on board the fact that the authority has published its policy for assessing and imposing penalties and will review it and, in the process of review, consult very widely. As the noble Lord, Lord Borrie, pointed out, at present it is minded to have the 10 per cent limit, but in the measure as it stands no limit is imposed. That seems to me to be unreasonable in the circumstances of the case.

The issue is one about which gas and electricity undertakings are extremely concerned. The CBI, the Electricity Association and Powergen have all expressed a wish to see a cap of some sort imposed. Powergen, indeed, has raised the possibility of being exposed to a multiple risk of penalties simultaneously from different sources--from the Office of Fair Trading and the regulator at the same time. That is probably over the top. Nevertheless, it argues that such regulatory risk translates itself into higher borrowing rates which, given the capital-intensive nature of the industry, have a knock-on effect on capital expenditure.

As the noble Lord, Lord Borrie, made clear, the regulator has concurrent powers with the Director-General of Fair Trading. We on these Benches believe that the Competition Act 1998 provides a good precedent. That considered penalty, which is imposed on a company that has abused its position of power in relation to customers and suppliers, was debated at length in the context of that legislation. It seems to us to provide a very good precedent for this Bill.

7.30 p.m.

Lord Currie of Marylebone: I rise briefly to speak to the amendments in my name and that of my noble friend Lord Borrie. In practice, this ceiling on fines will not make any difference to the penalty actually levied, but it will make a difference to perceptions, as my noble friend so clearly indicated. I just flag up one important area in addition to those mentioned by my

21 Jun 2000 : Column 330

noble friend: overseas investment. The British utilities sector, in particular electricity and gas, has benefited from inward investment. Such decisions are often made on the basis of relatively simple checklists, and the warning sign of no limit on penal fines can easily deter inward investors. I believe that that would be detrimental to the sector and the economy. Therefore, I support the amendment.

Lord McIntosh of Haringey: All these amendments are concerned with financial penalties and enforcement but they cover a number of different topics within that broad heading. I should like to speak first to the government amendments and then respond to the other amendments which have been moved or spoken to.

I turn first to government Amendments Nos. 208, 209, 216, 221, 222, 229, 230 and 231. Amendments Nos. 209, 216, 222 and 229, which form a group, are tabled in response to a concern raised during Second Reading by my noble friends Lord Borrie and Lord Currie. The concern was that the limit of 12 months for the imposition of a financial penalty from the date of contravention, where no enforcement action had been taken, would leave too little time for investigation of alleged malpractice and could provide a company being investigated with a view to the imposition of a financial penalty with an incentive to drag its feet in supplying information so as to avoid a penalty altogether.

The Government have listened to that concern and take it very seriously. It is crucial that the financial penalties powers operate effectively. It is equally important that companies can operate in the knowledge that there will be some kind of statute of limitation on the authority's ability to probe past events. It is a matter of striking the right balance. That is why the Government have tabled amendments to Clauses 58 and 94. The amendments apply to situations where no enforcement order has been issued; that is, where the authority becomes aware of an alleged contravention in the past and wishes to investigate it with a view to imposing a financial penalty. The amendments make no change where an enforcement order has been issued in relation to the contravention. Clearly, in that case the authority will already have carried out its investigation and will have enough information to decide whether a penalty is justified.

The effect of Amendments Nos. 209 and 222 is, therefore, to provide two separate triggers for the power to impose a financial penalty. First, as at present, the authority will be able to impose a financial penalty if within 12 months of the contravention it has issued a notice stating its intention to do so. Alternatively--this is the new point--it will also be able to impose a penalty so long as, within 12 months of the alleged contravention, it has issued a notice under Section 28(2) of the Electricity Act, or Section 38(1) of the Gas Act, requiring information from the licence holder for the purpose of exercising its enforcement functions (including the power to impose financial penalties) where it appears to the regulator

21 Jun 2000 : Column 331

that a licence holder may be contravening, or has contravened, a licence condition or other relevant obligation.

The amendment removes any incentive for companies to drag their feet in providing information to the authority. It does not alter the financial penalties provisions in any other way. In particular, it does not widen the scope of the powers, but is simply intended to ensure that the authority has long enough to investigate any alleged contravention and, where appropriate, impose a reasonable financial penalty in cases where 12 months is insufficient to gather enough information about the contravention.

Amendments Nos. 216 and 229 are effectively consequential on Amendments Nos. 209 and 222. They extend the scope of the powers to require information. Therefore, they apply to the financial penalties provisions and to information requested in relation to alleged contraventions of individual standards of performance, as well as contraventions of relevant conditions and requirements. This is to ensure that the scope of the relevant information provisions matches that of the financial penalties provisions.

The other government amendments to which I should like to speak are technical and consequential. Amendments Nos. 208 and 221 replace a reference to commencement of a subsection with a more accurate reference to commencement of a section of the Utilities Act 2000. Amendments Nos. 230 and 231 flow from amendments made to the Gas and Electricity Acts by Clauses 59 and 95, which relate to licence enforcement rather than financial penalties. Those amendments are designed to ensure consistency with the existing enforcement provisions. They have the effect that, where the authority decides to use its new discretion not to make an enforcement order, it will be required to give notice to the licence holder and publish a notice setting out its decision, in the same way as it would where it was precluded by its duties from taking enforcement action.

I turn to the various other amendments that have been moved or spoken to. Amendments Nos. 204 and 217 seek to insert into the financial penalties provisions a requirement that the imposition of a penalty must be essential to secure compliance. This would seem to rule out the imposition of penalties for contravention of licence conditions, standards of performance and other statutory requirements where the licensee had--possibly under pressure--desisted before the proposed penalty was imposed. I remind the Committee what we are trying to achieve by introducing the powers to impose financial penalties. The crucial point to note is that under the current enforcement system the regulator is always one step behind the company. There is little to prevent a company breaching its obligations, provided it is not caught, and as a result the level of protection afforded to consumers is very poor. These amendments would reintroduce those weaknesses just as we have sought to eliminate them. They would reproduce some of the weaknesses in the financial penalties provisions inserted into the Gas Act by the party opposite.

21 Jun 2000 : Column 332

At present, the regulator is under a duty to "make orders" to secure compliance with licence conditions and specified statutory obligations. The regulator must issue an order, subject to certain exceptions, if it appears to him that a supplier is contravening, or is likely to contravene, a licence condition or a specified statutory requirement. The key point about the existing enforcement regime is that it applies only to current and likely future breaches of obligations. This means that a company which is breaching its obligations but which ceases to do so when challenged cannot face further action, regardless of how long the contravention has been continuing or the harm it has done to consumers or competitors.

If subsequently the company contravenes the same licence condition, the regulator is compelled to start enforcement action again. Every time a company is challenged, it has only to desist from the act or omission to avoid the consequences of non-compliance. The regulator is left chasing shadows. Under the Gas Act 1986, as amended, the regulator may impose a financial penalty on a licence holder of such amount as is reasonable in all the circumstances (which is the standard phrase) for contravention of licence conditions and other statutory obligations. However, the penalty can be imposed only as part of a final order aimed at securing compliance (as in the words of the opposition amendments). It therefore relates only to current and likely future breaches and suffers from the same flaw as the enforcement order process within which it is couched; and it provides little or no real deterrent. That is why it is necessary to introduce powers to impose penalties for past as well as current breaches of obligations. That means that the authority is able to ensure compliance on an ongoing basis and to deter future breaches rather than being left one step behind.

Of course, everybody is worried about financial penalties. However, if companies do not contravene their licence conditions, no financial penalty will ever be imposed. I hope that that will always be the case. However, if the authority is to have these powers it must have the necessary tools to enforce them in all the conditions to which I have referred. To do anything else would be unfair to consumers.

Amendments Nos. 205 and 218 provide a defence for the licence holder against the imposition of financial penalties where the licence holder can prove that the contravention did not occur as a result of intentional or reckless behaviour, or where the licence holder took all reasonable steps to avoid the contravention or failure.

It has a similar effect to Section 36(3) of the Competition Act 1998 which provides that a penalty can be imposed only for breaching the prohibitions where the breach has occurred intentionally or negligently. Frankly, it is of no interest at all to the consumers, those who are on the receiving end of contraventions of licence conditions and statutory obligations, and failures to meet standards of performance, whether those contraventions occurred intentionally or recklessly, or whether they were down to other factors--particularly when the consumers

21 Jun 2000 : Column 333

concerned cannot move to another service provider, as is the case where the electricity transmission and distribution companies, and gas transporters, are concerned. The fact is that utility companies provide vital services to industry and the public. The onus should be on the utility companies to strive to fulfil their obligations, and to overcome whatever difficulties they face in doing so. They should be making strenuous efforts to play by the rules they accepted when they entered the sector and to adhere to their obligations.

Restricting financial penalties to cases of reckless or intentional contraventions, or cases where insufficient effort has been made to remedy the contravention, would send the wrong signals about the importance of these services and would risk omitting some serious contraventions from the scope of financial penalties. The amendments also ignore the nature of the powers we are providing. I stress that the authority will have a power, not a duty, to impose financial penalties. It will not be compelled to do so.

When speaking about reasonableness, the noble Lord, Lord Kingsland, said that in Committee in another place Mrs Liddell appeared to suggest that there was no penalty if the contravention were inadvertent. She was explaining the point that the penalty has to be reasonable in all the circumstances. The fact of culpability--that is, where on the scale the inadvertence or negligence of the operator lies--is relevant to the amount of the penalty. The court is able to review whether the penalty is reasonable.

On the noble Lord's point about multiple jeopardy, the Government do not accept that the powers to impose financial penalties will cause multiple jeopardy. It is important to remember that the financial penalty has to be reasonable in all the circumstances of the case. Any financial penalty would have to take into account compensation paid to customers or penalties imposed under the Competition Act in respect of the same conduct. Any penalty which did not take proper account of those issues would in itself be unreasonable.

I turn to Amendments Nos. 206, 207, 219 and 220 to which the noble Lord, Lord Borrie, the noble Baroness, Lady Sharp, and the noble Lord, Lord Currie, spoke. There are minor variations in the formulation used in the two sets of amendments, as the noble Baroness pointed out, but they seek the same thing. The Government still take the view that what matters is the explicit requirement that the penalty must be reasonable. I think that the noble Lord, Lord Currie, veered in that direction. We have taken the view that a specific limit of this kind is not necessary.

A penalty could indeed be very large, but only if the breach in question had been sufficiently serious, and had done enough harm, to warrant a large penalty. On the other hand, a minor contravention could not attract a penalty of anything like 10 per cent of turnover.

There will be transparency in the arrangements. The authority will have to consult on and publish a statement of policy with regard to the imposition of

21 Jun 2000 : Column 334

penalties; and to have regard to that statement when it imposes a penalty. And, of course, companies will be able to challenge both the imposition and the amount of any penalty in the courts. The Government believe that those factors represent genuine constraints on the level of any penalty and a genuine protection for licence holders.

We take the view that a specific upper limit on financial penalties is not strictly necessary. Penalties are limited to that which is reasonable, and that is a genuine constraint. However, I have listened to the concerns expressed by those who have spoken in the debate. I recognise that some points have been made in favour of a limit. I recognise that there is persistent pressure for such a limit from the industry; and that even consumer bodies are not unanimous about our current proposals. I can see that there are issues here which merit serious consideration. I certainly agree that I shall consider the matter before the next stage.

Finally, I turn to the group of amendments starting with Amendment No. 210 relating to the statutory right of review which is available under the Utilities Bill in relation to the imposition of financial penalties. These would have the effect, as did the group of amendments starting with Amendment No. 180, of replacing that right of review with a right of appeal to the High Court on grounds set out in proposed new Section 49B of the Electricity Act and Section 38B of the Gas Act as proposed by Amendments Nos. 183 and 188 respectively. It would provide for appeal to the High Court, or in Scotland the Court of Session, on the imposition and amount of a financial penalty and the payment scheduled for that penalty. The grounds for appeal would be material error as to the facts, material procedural error, an error of law or some other material illegality including unreasonableness or lack of proportionality. But the Government believe that the provision in the Bill for companies to challenge the imposition and amount of a financial penalty and the payment schedule for that penalty in the courts are entirely appropriate to the financial penalties provisions. I set out my arguments to that in response to Amendment No. 180.

The Bill allows companies to apply to the High Court to challenge the decisions of the authority in relation to the imposition of a penalty. The High Court is clearly an independent tribunal for the purpose of Article 6 of the European Convention on Human Rights. Clauses 58 and 94 therefore comply with the European Convention on Human Rights in accordance with a number of decisions of the European Court of Human Rights, most notably the Bryan case. These cases take a composite approach looking to a combination of initial regulatory procedures and subsequent rights of appeal in order to ascertain Article 6 compliance.

I shall try to avoid repeating the other arguments which I used in a lengthy speech in response to Amendment No. 180. I hope that these arguments will persuade noble Lords not to press the amendments.

21 Jun 2000 : Column 335

7.45 p.m.

Lord Kingsland: I listened with interest to the introduction of his amendment by the noble Lord, Lord Borrie, and to the Minister's response. Superficially, a cap on penalties would be an improvement to the Bill. However, from the way the noble Lord, Lord Borrie, formulated his amendment, it is clear that he intends to include not only the company but also an aggregated turnover measure of any affiliate or related undertaking.

If one considers the financial scale today of some of these utility companies, and the international complexity of their ownership, 10 per cent of the total turnover of some groups could involve a massive figure. I do not say that, on behalf of the Opposition, I would not be prepared to entertain a limit. However, with respect to the noble Lord, Lord Borrie, the provision needs more careful shaping.

If the Bill includes a limit, there will be a tendency for the penalising authority to aim at that target. If the target is 10 per cent on a large utility company which is owned, perhaps, by an American corporate entity, the turnover could be in billions of pounds of which 10 per cent would be a vast figure. I say that in order to encourage debate on the matter rather than to agree or disagree on the issue. I believe that it is a good idea to consider the matter further and to return to it at Report stage.

The Minister has encouraged me to reflect on two other matters. The first is the question of intention. It is a subject over which he ranged widely in the Financial Services and Markets Act. We contend that, if an act by a licensee is done neither intentionally nor recklessly nor negligently, that act should not attract a penalty; the act has been done innocently. The Minister said that that may be unfair to the consumer. One the other hand, to penalise a licensee in those circumstances may be very unfair to the licensee.

In my submission, in those circumstances, the proper approach of the Government is to be as fair as possible to both parties. The Opposition can see no rational reason in such circumstances for being unfair to a licensee. If the penalty-attracting offence is inadvertent, imposing a penalty will never be a deterrent, so why impose it? Who are the Government intending to impress by imposing it? I ask the Minister to reflect on that between now and the Report stage.

The final point to which I want to refer is the question of reasonableness. I was interested to hear the remarks made by the noble Baroness, Lady Sharp. "Reasonable in all the circumstances" is the test in the Bill. But the test in law, the test for an authority acting outside or beyond its authority, requires an action to be so unreasonable that no reasonable person would ever entertain it. So we have the difficulty of two contrasting tests of reasonableness: first, the test of reasonableness in the Bill, which is reasonable in all the circumstances; and, secondly, the test that a court will apply in order to intervene, which is so unreasonable that no reasonable person would entertain it.

21 Jun 2000 : Column 336

What is so lacking in the Bill is some mechanism whereby a common definition of reasonableness can be achieved so that the court will inevitably intervene if the authority has not acted reasonably in all the circumstances. That is the legislative challenge which the noble Lord faces. He is so good at meeting challenges, I am sure that by the Report stage he will have met that challenge on the face of the Bill. I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

[Amendment No. 205 not moved.]


Next Section Back to Table of Contents Lords Hansard Home Page