Matters to Be Taken to Be Taken into Account by Director in Exercising Powers to Control Gas Prices

Part of Orders of the Day — Gas Bill – in the House of Commons at 3:45 pm on 15th May 1995.

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Photo of Nigel Griffiths Nigel Griffiths , Edinburgh South 3:45 pm, 15th May 1995

The new clause and the amendment deal with some of the key issues that concern the public about gas and the other privatised utilities—corporate greed, boardroom bonanzas and lack of restraint, in spite of the preaching of restraint from somewhat unusual Conservative circles.

New clause 2 would give the President of the Board of Trade powers to issue guidance to the Director General of Gas Supply. The Secretary of State shall and must take some responsibility for ensuring that payments in the boardroom are not completely disproportionate to the performance of the company or the service to consumers. The present director general must be given powers to take certain actions with regard to the remuneration of executive and non-executive directors and the company's performance during the year.

The definition of remuneration in the new clause includes all those things about which we have been reading—not merely at the weekend and in all the editorials today, but in months and years past—but nothing has been done. The definition includes salaries, fees, benefits in kind and share options—the raid on the bank by far too many of those executives. Just as important, performance must include the efficiency of the organisation in carrying out its duties to the public, as well as improvements in the standard of service to consumers.

The new clause also gives the Government the power to tell the director general to take into account the level of executive pay in British Gas when fixing prices for consumers. I hope that the new clause will send a warning to the bosses of all the other utilities that Parliament will not sit back and watch them indulge themselves in the sort of boardroom greed that has brought the utilities to a level of disrepute that they have never suffered before.

4.45 pm

The new clause will ensure that those who complain, such as the hon. Member for Southport (Mr. Banks), who is not in his seat but who has written letters to the chairman of the company, are not powerless in the face of unsatisfactory replies. There must be a crisis of confidence in gas when it takes not a member of the public or even a Member of Parliament to get a suitable response from the chairman but the Minister responsible for key powers over British Gas. That in itself is an indictment.

In the past four years, the performance of British Gas has not presented a glowing picture. Pre-tax profits have declined, earnings per share have been reduced from 21.7p to 13.9p, and the return on capital has reduced from 7.3 per cent. to 5.4 per cent. Indeed, as the company states in its briefings, it has lost 60 per cent. of its industrial customers; so it is not a glowing success story, but one that should be sending shivers down the spines of all shareholders.

When I attend the annual general meeting of British Gas a fortnight on Wednesday and act as a proxy voter, I will certainly raise the sort of questions about performance that are voiced not merely by consumers but that we have heard from the now empty Conservative Benches.

What has been the response of the British Gas board to the falling level of profits and of earnings per share—the indicators that show whether a company is in a healthy state? The chief executive, Cedric Brown, had a 75 per cent. pay rise last September and, on top of that, has been awarded 437,000 executive share options, worth more than £3 a share, and now stands to pick up a bonus of 125 per cent. of his salary, which is nearly £600,000—he is a millionaire in a year.

Other board members who are responsible for scrutinising the workings of British Gas and perhaps for drawing to the chairman's attention any lapse in the company's performance have been noticeably silent. Norman Blacker, who holds 165,000 share options worth £500,000, has been silent. Howard Dalton, who holds 236,000 share options worth £700,000, has been silent. Russell Herbett, who holds 163,000 share options worth about £500,000, has been silent. Philip Rogerson, who holds 237,000 share options worth about £700,000, is another silent voice in the boardroom. Finally, Roy Gardener, the finance director who joined the company last autumn, has been silent—a silence bought at a price of £1.1 million in share options and a salary of £285,000.

In addition, all those people stand to pick up bonuses: Mr. Blacker stands to pick up £984,000; Mr. Dalton, £355,000; Mr. Herbett, £210,000; Mr. Rogerson, £310,000; and Mr. Gardener, £355,000, on top of his £1.1 million in share options and his £285,000 salary. Those bonuses, payments and share options have all been earned on the back of the company's declining performance for its shareholders. However, I am more concerned about the company's performance and duties to the consumers whom it is supposed to serve.

British Gas has made drastic cuts. If we are to believe Mr. Giordano, British Gas is the only business that can make such cuts without an impact on services. The Minister was trapped in Committee, despite, I presume, a previous briefing by Mr. Giordano that those cuts were having no impact. Given that the number of British Gas showrooms has been axed from 426 to 266 and that showrooms have been closing in high streets throughout the country, depriving people of a service that they have enjoyed for many years, it is hardly surprising that consumer dissatisfaction is on the increase. Given that showroom staff levels will have fallen from 4,000 to 1,400 by the end of this year, it is hardly surprising that the public are not getting the personal service about which British Gas was reprimanded by the Minister responsible for the charter marks.

Home service advisers are the subject of a new clause, which we shall discuss today or tomorrow, so I shall not dwell on the matter. The number of home service advisers, who help elderly and disabled people in their homes and ensure that the arthritic and the blind receive practical assistance, cannot be cut from 136 to 78 without impacting on that service in every region that British Gas serves.

This year, the emergency services budget of £9 million to trace gas leaks was cut to £1 million. Spare parts have been removed from the vans of engineers conducting emergency call-outs so that they are left with no choice but to cut off defective appliances at the risk of some unscrupulous landlord or criminal proprietor reconnecting a faulty gas heater or cooker and putting at risk not just themselves and their families but their neighbours. Such a policy contrasts markedly with the lavish handouts in the boardrooms.

If British Gas is so proud of the remuneration package that it offers its key directors, and if it thinks that their performance is at the forefront of British business and an example to everyone, why has it hidden its share options schemes from its shareholders? Amendment No. 54 makes the holder of a licence under the Gas Act 1986 liable to publish annually details of the remuneration of the executive and non-executive directors of that company, including any salaries, fees, benefits in kind and share options. On Friday, I visited one of the biggest investors in British Gas, Standard Life, and this morning I called on the Prudential, the biggest single institution that invests in British Gas. They both confirmed their surprise—I detected a shade of annoyance—at Mr. Giordano's decision to review in secret the remuneration of directors in January 1994. The fact that that was not mentioned in the annual report in February obviously came as a surprise to them, as it would to most shareholders. The fact that it was not mentioned when the quarterly returns were signed off slightly later that spring also came as a surprise. The remuneration packages were not mentioned at the annual general meeting in April, or even in September when the company signed off the second quarter's results. Nor was it mentioned when it was employing Mr. Gardener with £1.1 million of share options and a high salary.

It was not until the Financial Times published the information on 21 November 1994 that shareholders, even institutional shareholders, realised that they had been excluded from those critical decisions. We are talking not about a few employees who hold a few hundred thousand pounds' worth of shares but about those whom I met this morning, who hold more than £300 millions' worth of shares, and those to whom I talked on Friday, who hold some £290 millions' worth of shares. So it is no wonder that the matter is out of control, and a new clause and amendment are needed to ensure that such boardroom excesses are publicised.

All that cosy little arrangement was presided over by a key board member, Lord Peter Walker. He was the Secretary of State for Energy who left the Cabinet on 4 May 1990 and by June—within a month—had joined the board of British Gas. The "revolving door" did not apply to Peter Walker; for him, it was an open door to the boardroom of the very company that he voted to privatise. There was no "decent interval", as Nolan has now recommended, but just an indecent haste to join the fattest cats of them all. There are no checks on them, only cheques to them.

This may have been what the Prime Minister meant when, in response to a question in the House on 9 February, he spoke with unusual insight about peer pressure in the private sector. Perhaps he meant the peers who have left the Government and joined the boardrooms, such as the noble Lord Young, who joined Cable and Wireless having been Secretary of State for Trade and Industry responsible for privatising telecommunications, or Lord Tebbit, who was responsible for privatising British Aerospace and then joined its board. That shows the pressure of peers on the boardrooms—no restraint whatever—and why it is necessary to support the new clause.

We need regulatory pressure on British Gas, the six bosses of which have received nearly £7 million in share options, to ensure that its performance to consumers and shareholders is improved. We need similar regulatory pressure on the water and sewerage companies, the 42 bosses of which have awarded themselves £22 million in share options, and on the regional electricity companies, the 63 bosses of which have given themselves £46 million in share options.

The new clause is a model for exercising the minimum modest restraint on the directors of those utilities. It is no secret to the House that the Opposition have had their differences with the present regulators, but even those regulators should be allowed some discretion to ensure that, where boardroom salaries and share options hit jackpot and national lottery levels, the regulator can at least take a step back and ask what service is being provided to consumers and whether it merits such high boardroom salaries.

It seems obvious that, even if share values rise or remain as high, we must question the soaring number of consumer complaints, which rose by 94 per cent. in the three months from November to January compared with the same period the previous year and by 19 per cent. compared with the previous three months.

All those figures would give any other private company pause for thought. If, for instance, Marks and Spencer or Littlewoods saw the number of consumer complaints soar, even if their share prices were rising into the stratosphere someone on the board would sit back and say, "Wait a minute, we shall lose all our customers if those consumer complaints continue." So the proposals make sound economic, shareholder and consumer sense.

It is important also to look outside this place and beyond the Labour party's opinion. The concerns that the shadow Chancellor, my hon. Friend the Member for Dunfermline, East (Mr. Brown), voiced at the weekend are now echoed in all the newspapers that strongly support the Conservatives. Today's Daily Mail talks about the profits made by David Jefferies, chairman of the National Grid, who—