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 15 May 1995.

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Photo of Michael Clapham Michael Clapham , Barnsley West and Penistone 3:45, 15 May 1995

New clause 2 and amendment No. 54 are enormously important.

New clause 2 seeks to impose price penalties on companies where there is excessive executive pay. My hon. Friends have given many examples to show how needful that is.

Clause 54 requires companies to publish details of executive remuneration as a standard of the licence condition. It seems perfectly fair that people should have access to information about remunerative packages paid to executives of utilities.

In some of the press reports about what is likely to happen in the nuclear industry, it has been suggested that a provision similar to new clause 2 would be part of any new legislation for privatisation of the nuclear industry. Perhaps the Minister will enlighten us as to whether that is correct.

New clause 2 gives the Secretary of State responsibility for directing the regulator as to the way in which executives' salaries should be taken into account when setting maximum charges for gas supply, transportation and shipping. That gives the Government indirect power to solve the problem of excessive executive pay packages—the most prominent example being, I suppose, the doubling of Cedric Brown's basic salary at the same time as British Gas showroom staff were asked to take pay cuts.

Subsection (1) of new clause 2, makes it plain that The Secretary of State shall from time to time issue guidance to the Director as to the matters he is to take into account in exercising any powers specified in the conditions of a licence granted under section 7 or 7A of the 1986 Act to limit, vary or otherwise control the charges set by a licence holder for the supply, transportation or shipping of gas. 5.15 pm

The Minister will be aware, from the Select Committee on Trade and Industry report on the domestic gas market, that the evidence given to the Committee showed that the cost per therm of gas left little room for competition. The report showed that the cost of gas is likely to be about 21.5p—43 per cent. of the total cost per therm. Those were the figures given by British Gas. Transportation and storage was given as 22.5p—45 per cent. of the cost per therm. The supply and trading costs were given as 6p—12 per cent. of the cost per therm, which is reckoned at 50p. That leaves very little room for any changes to be brought about as a result of competition.

I think it is generally accepted that the cost of gas to all the companies likely to be involved in the domestic market will be very similar. Transportation and storage costs will also be very similar. That leaves only trading costs, in which there is likely to be a great deal of competition.

Therefore, not only is it important that consumers are given the opportunity to evaluate the performance of the companies, which may be reflected in some of the price changes that come about, but it is important that they have access to the information regarding the remuneration packages paid to the directors. That is all the more important when it is obvious that the focus of competition will be on that very small part of the cost of a therm of gas.

The powers set out in new clause 2 would allow the regulator to ensure that directors' pay not justified by performance was funded from shareholders' pockets rather than higher prices.

Relying on the future recommendations of the Greenbury committee—to which the Minister referred during discussion in Committee—is not on, because one might liken the Greenbury committee to putting the mice in charge of the cheese. The committee is made up of millionaires, many of whom draw large salaries from their business activities. If they are to make judgments about the remunerative packages to be paid in the utilities, many Labour Members will not expect the Greenbury committee to come up with dramatic or radical changes to the remunerative packages proposed for executives in the utilities.

The Government's response to new clause 2 will show the general public how serious they are about wishing to tackle the problem of directors who award themselves increases unjustified by performance. If the Government oppose the clause, they will demonstrate that the Prime Minister is unwilling or unable to give any substance to his claims of concern about excesses, and that the Tories remain the party of those who would turn a blind eye to the privatisation rip-off and corporate sleaze.

I would expect the Minister to take new clause 2 and amendment No. 54 on board. As well as being necessary for the regulator to control corporate access, amendment No. 54 is justified on its own merits. Consumers should be able to discover easily how much the directors of public utilities are paid and to assess whether it is a fair amount. Opposition to the new clause is a vote to continue to prevent the utilities from being held accountable to the public.