Duty of Gas Consumers' Council to Monitor Effects on Consumers of Provisions of the Gas Act 1995

Orders of the Day — Gas Bill – in the House of Commons at 5:45 pm on 15th May 1995.

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'After Section 41 of the 1986 Act there shall be inserted the following section— (41A). The Council shall be under a duty to monitor and report in accordance with section 41 above on the effects of the provisions of the Gas Act 1995 on the interests of gas consumers, with particular regard to prices charged and other terms of supply, the continuity of supply, the quality of the gas supply services provided, the exercise of rights of entry to premises and the extent of universal access to gas conveyed through pipes.".'.—[Mr. O'Neill.]

Brought up, and read the First time.

Mr. O'Neill:

I beg to move, That the clause be read a Second time.

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

With this, it will be convenient to discuss the following: New clause 8—Duty of Director to prevent discrimination by gas suppliers against certain classes of consumers—

'The Director shall be under a duty to ensure that a licensed gas supplier shall not introduce price tariffs or payment arrangements which unreasonably discriminate against consumers by virtue of the location of their home or the manner or place at which they settle their accounts.'.

New clause 9—Duty of gas supplier to publish terms of supply

'(1) A gas supplier licensed under section 7A of the 1986 Act (hereafter referred to as the supplier) shall publish the prices to be charged to consumers for the supply of gas and the associated services he will provide (hereafter referred to as "terms of supply") in such a manner as, after consultation with the Director and the Council, he considers will achieve publicity for his terms of supply among all domestic gas consumers in his licence area.

(2) The supplier shall, in the publishing of his terms of supply, not show undue preference to any person or class of person and shall not exercise any undue discrimination against any person or class of persons.

(3) The supplier shall, on being required to do so by any potential domestic gas consumer in his area, give and continue to give a supply of gas at premises of which that potential customer is an owner, occupier or leaseholder and which is connected by a service pipe to a relevant main.

(4) The supplier shall be required to provide the Director with any information relevant to his duties under section [Duty of Director to protect interests of consumers]

(5) In this section, "terms of supply" may be taken to include standards of service and such other services which the supplier is obliged to provide in accordance with standard licence conditions.'.

New clause 10—Duty of Director to protect interests of consumer—

(1) The Director shall have a duty to protect the interests of consumers of gas conveyed through pipes in respect of the prices charged and of other terms of supply as defined in subsection (1) and (5) of section [Duty of gas supplier to publish terms of supply], the continuity of supply and the exercise of rights under this part to enter their premises.

(2) The Director shall have a duty to secure effective choice for all classes of consumer.

(3) In performing his duties under subsections (1) and (2) above the Director shall not grant a licence or an extension or restriction under section 7A of the 1986 Act if he is of the opinion that the description or area has been so framed as—

  1. (a) in the case of the licence or extension to exclude from the licence or extension; or
  2. (b) in the case of a restriction, artificially to include in the restriction,
an undue proportion of consumers who are disabled or of pensionable age or who are in receipt of a state benefit or to whom he might reasonably expect to supply less than 700 therms per annum.

(4) In performing his duties under subsection (3) above the Director shall have power to require the relevant licence applicant or holder and any body or person likely to be representative of those affected to provide him with information with regard to the customer mix of the licence applicant or holder.

(5) If it appears to the Director that a supplier licensed under section 7A of the 1986 Act has contravened any provision of this section, the Director may impose upon the licence holder a requirement to pay to him a monetary penalty of such amount as may be appropriate, in all the circumstances of the case, in respect of the contravention in question.'.

Amendment No. 44, in clause 1, page 1, line 29, after 'supply', insert 'including the establishment of effective contingency plans to deal with serious breakdowns in supply.'.

Amendment No. 48, in clause 6, page 8, leave out lines 3 to 14.

Amendment No. 50, in clause 8, page 12, line 11, after 'modifications', insert 'including those persons or bodies appearing to the Director to be representative of consumers.'.

Mr. O'Neill:

This group of amendments, starting with new clause 3, seeks to impose a duty on the Gas Consumers Council which gives it responsibility for monitoring prices. When the legislation was being considered, it was assumed that the GCC would not survive the publication of the Bill. It was anticipated that the council's responsibilities would be overtaken by those of the regulator, that the council was merely a relic of the old days of public ownership and that there would be no reason for its continued existence.

There was a some surprise and relief that the GCC survived in its present form. We have yet to see what impact the cuts in the council's budget will have, but the Opposition have confidence in the council, which seeks to represent consumers on gas matters, as it has perhaps more of an arm's-length relationship with the Government than Ofgas appears to have at present. It is no secret, and it is almost inevitable, that when legislation of this character is being drafted, the regulator works closely with the Department to secure a form of words that it considers appropriate for the licensing function that it has to carry out.

We would like the Gas Consumers Council to have clear and explicit responsibilities which, in the first instance, should cover prices. An independent dispassionate body should examine the pricing system and the implications of the regulator's recommendations because, at the end of the day, the regulator is responsible for setting prices. The Government have already said this evening that they wish to interfere with—if that is the correct expression—or pass judgment on the regulator in as few ways as possible. However, we believe that there should be a body which, with status and responsibility, can command widespread respect for its role and functions. We would have thought that the Gas Consumers Council was such a body. Therefore, the purpose of new clause 3 is to impose upon the GCC a number of responsibilities. The first relates to price, while the second deals with the terms of supply and the manner in which the supply would be arranged.

It is clear that the regulator has a number of duties to fulfil, and the determination of the terms of the licence is one of the most important. It is therefore vital that the terms of supply should be considered. The terms can cover a variety of arrangements for supply.

Continuity of supply must be considered. One of the considerations that has been uppermost in the minds of those who have taken an interest in the Bill has been that the individuals seeking licences should have sufficient funds to conduct their business. That means not only that they have sufficient funds to pay their staff and to take account of safety obligations where appropriate, but that they are able to purchase the gas that is to be piped through the system to households. Continuity of supply must be subject to independent non-regulatory monitoring. We would want to ensure that the GCC has the resources and the remit to do that.

6.30 pm

We also want to look at the quality of supply services. We have discussed the problems that British Gas has encountered. A number of instances in which British Gas has been deficient in its services have gained great publicity, but aspects of the running of British Gas, such as remuneration, have focused attention on the organisation. Individuals have now realised that there are people to whom they can direct their complaints. The Government have threatened to withdraw the charter mark from British Gas, and it sees that as a worry because it was with great pride that British Gas accepted that honour. We are not saying that a company such as British Gas cannot bounce back and produce a service that is the envy of the world.

We must look at the potential of some of the newcomers that wish to enter the business. It is clear that there are a number of them operating in public utilities already. It has been suggested that regional electricity companies will come into the frame as new licensees, and a number of them have entered into contracts with gas suppliers. The new companies will doubtless bring to the supply of gas the same high standards that they maintained when they were publicly owned electricity utilities.

Many of us have had opportunities to talk to local electricity companies, and they have expressed willingness to aspire to the standards that they have reached in other fields. Some companies are limited in experience and in their scale of operation, and such companies must be policed and monitored. It is our view that the Gas Consumers Council could do that, and it could inform the regulator and the Secretary of State of any deficiencies in the system. The GCC does that at the moment, but we would like to see that duty enshrined in legislation.

I now come to one of the most sensitive areas in the supply and provision of gas—the right to enter premises. A certain number of individuals who work for the public utilities attract a great deal of affection in the eyes of the public. It is fair to say that a generation brought up on Postman Pat is less likely to question the continued public ownership of the Post Office than people who envisage a committee man or woman in a uniform delivering mail for some tinpot organisation. A degree of trust is extended to postmen. I should perhaps say postpeople, as nowadays there are as many postwomen as postmen. In America, they are called letter carriers, which seems to be a compromise that predates this age of political correctness.

Some British Gas staff have access to people's homes, and they normally wear some form of uniform and have easily legible and intelligible forms of identification. In many instances, due notice has been given that the person would be coming to check the meter or to deal with the other problems related to gas maintenance. There are occasions when there might be an emergency, when no notice can be given before the visit, and there might be cases in which individuals use faked identification.

There ought to be an independent body, which would be able to monitor the exercise of the right of entry to premises. That is in no way an implied criticism of the staff of British Gas. We have all experienced their courtesy when they come to read meters. I realise that you, Mr. Deputy Speaker, may well use coal-fired heating in your house, but I must say that the service that gas users receive is courteous, thoughtful and considerate.

A number of people operating in the gas industry do not necessarily aspire to the high standards laid down by British Gas. One of the recurrent themes in Committee was the inadequacy of some of those who were operating under the overall umbrella of the Council of Registered Gas Installers scheme. Individuals assumed for themselves rights of entry which, under the law, they would probably have been allowed to exercise, but which were not exercised with proper care and attention in a number of instances.

In a deregulated gas market, we would wish a wider range of individuals to be given the opportunity to have the right of entry into premises and people's homes. As a consequence, we should be able to secure some means whereby the public can have the confidence that, should anything go wrong, they will be able to contact the GCC to register their concerns.

As I have said, the Gas Consumers Council has carried out several of those duties in the past. In recent months, it has been extremely active in lobbying the House on several concerns that it perceives relate to consumers' rights. It has been most active in respect of universal access to gas. It has certainly been extremely concerned that one problem of the deregulated gas business is that there will be a lack of enthusiasm on the part of some suppliers to acquire customers who might be problematic—that is, people who live in awkward locations or people whom British Gas has decided are not necessarily cost-effective consumers. We want to ensure that there is someone to whom the rejected potential gas consumer can turn. It would be quite reasonable for the GCC to have the monitoring responsibility and to enshrine it in legislation.

New clause 9 is the public service clause. It is the duty of the gas supplier to publish the terms of supply. The terms of supply relate to the publication of prices. It should be clear that it is in everyone's interests that prices are published in the press and in the areas where gas companies are operating. Prices should be publicised nationally, so that individuals can compare and contrast supply across the country.

We also want to see in the public service clause a duty on the gas supplier not to show undue preference or discriminate against any individuals or groups. We recognise that there is what is known as discriminatory practice. By changing or arranging the terms of purchase or the terms of contract and the like, suppliers can deny certain individuals access to goods or services that should be available.

There is also a requirement to supply those who are at present connected to the main. It should not be the right of a gas supplier to say, "We will take that household but not that household." If someone is connected to the gas supply, he should be entitled to obtain gas from any supplier that has a licence to operate in the area. There have been occasions when such entitlements have been undermined. Bodies such as citizens advice bureaux have investigated such cases. Indeed, many have been brought to our attention as constituency Members.

Recently, the CAB in south Wales reported that British Gas refused to connect the gas supply for a client who was a single parent with three young children, including an eight-week-old baby. They had just moved into rented accommodation, and there was an existing gas supply there, but they were refused because the previous occupant had tampered with the meter. Because of such instances, it is important that a specific body has a duty to gather information and the resources to advertise. Perhaps gas bills could state that consumers could go to the Gas Consumers Council if they felt that the public service clause was not being adhered to.

We want to ensure not only that the Gas Consumers Council would be involved but that the gas supplier published the terms of supply and gave to Ofgas its information on consumer protection. That consumer protection facility would then be the subject of comparison between one company and another. In its annual reports, Ofgas would be able to draw conclusions as to the quality of services that were being provided. Indeed, the standard of service would always be an important consideration.

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New clause 3 places a duty on the Gas Consumers Council, and new clause 9 places a duty on the gas supplier. We would also like to see enshrined in the legislation a duty on the director general to protect the consumer. We want the Director General of Gas Supply to have a duty in respect of price and a duty to secure effective choice for all classes of customers. The director general would have to take account of the size and nature of an area to which licences applied—for example, to take into account the disabled, pensioners, people on state benefits or people who used fewer than 700 therms per annum. There would be a profile of each area, which would take account of that. It is essential to enshrine that in the legislation.

It is stated in the licences that such duties should be imposed. We would like to think that they will be enshrined in the primary legislation and that proper account will be taken of disadvantaged individuals such as the disabled, pensioners, people in receipt of state benefit and small consumers. Those people are the least attractive and the most expensive for suppliers to serve, and the director general should have an obligation to support and protect them.

We would also like to think that the director general would have a responsibility to ensure that those standards were upheld and that there would be punishment if they were not met. Companies could incur a financial penalty if the standards were not met over a period.

The regulator has several duties, but the protection of the consumer, the prevention of cherry-picking and the public service obligations should be clearly included in the primary legislation. It is for those reasons that we want the new clause.

Conservative Members have been very quick to protect small shopkeepers. Indeed, their numbers seemed to melt away as soon as the shopkeeper protection issue disappeared. However, the issues I have mentioned are at the very heart of the legislation. For example, there is the argument that, through competition, there will be an opportunity not only for lower prices but for better services. To those who back the Bill in its entirety, I stress that it is our view that such claims can be met only if we have a tough, effective and well-resourced Gas Consumers Council that has a clear duty to monitor the affairs of the companies involved, if there is a public service clause that imposes a duty on the gas supplier and if the overall director has a responsibility to ensure that those functions are carried out. The companies must be given proper incentives, in the form of the threat of financial punishment, to meet their obligations.

We hope that the new clause is of a character that will enjoy the support of all parties.

Photo of Ann Coffey Ann Coffey Opposition Whip (Commons)

New clause 3 is important because it would help to protect the rights of consumers. It has been said that no one knows what will happen to particular groups of consumers in a fully competitive gas market, which means that proper monitoring is essential. I am especially interested in consumers who have pre-payment meters and who already pay a higher tariff for their gas than those who pay on budget schemes, by direct debit or by cash at a post office or their local gas showroom, if they are lucky.

It is clear from the Gas Consumers Council's statistics that there has been a huge increase in the number of pre-payment meters installed. There has been no problem with that, because having a pre-payment meter is clearly better than having one's gas supply cut off. By December 1994, 192,525 new token meters had been installed. Across the country there were 896,950 consumers with pre-payment meters, and the number of disconnections has decreased.

At present, people with pre-payment meters are paying a higher tariff for their gas. British Gas has not made it clear whether what they pay reflects the cost of supply. In the past, British Gas said that the cost had been cross-subsidised. The question was raised whether, once a competitive gas market was in full swing, those consumers could expect their gas tariff to rise in line with what it cost to supply them. That is worrying, because it might mean that they will not benefit from competition in the way that other consumers will. A gas company could offer to supply them at a higher tariff, because the cost of supply was higher, than it would charge people who wished to pay by direct debit.

The problem is that people with pre-payment meters are low-income customers: often, they are families on benefit or low wages and with young children; they might live on housing estates, have other debts and struggle to make ends meet. The situation merits careful monitoring because there will be pressure on people to accept pre-payment meters from the gas companies. Indeed, condition 10 of the licence says that a licensee can request a deposit by way of security for the payment of charges as a condition of making a supply of gas available to the customer". The company itself will set the level of that deposit.

The Minister is no doubt aware, however, that it is almost impossible for people on income support to pay a deposit. The Department of Social Security will have to pay it for them and then deduct it from their weekly benefit. If they already have deductions made from their benefits—for example, social fund payments—it will be impossible to pay a gas deposit. If they cannot pay such a deposit, the gas company will agree to supply gas, but through a pre-payment meter. The low-income family will therefore have to pay a higher tariff for their gas on a week-by-week basis.

It is not fair that people who have little money should pay more. The problem is that they have too little money to pay a deposit and take advantage of being a direct debit customer or one who pays every three months at a post office. Careful monitoring is essential, because I do not believe that this group of customers will benefit from competition.

I think that gas competitors will fix the tariff for pre-payment customers at the level already charged by British Gas, so there will be no benefit in moving from British Gas to new gas suppliers. At the same time, competitors will offer lower tariffs to better-off customers as the cost of supplying them will be less; they know that they will not have the same problems as British Gas in supplying low-income customers or those in urban areas. There will be little incentive for new gas suppliers to offer lower terms than British Gas on pre-payment meters.

Once the gas market has opened up, I have little doubt that some people will benefit. People like me and the Minister and those who have a bank account will benefit enormously, but I doubt that the same is true of the 896,950 customers with pre-payment meters. Their number will increase as more find that they cannot afford a deposit. That is why it is so important that the duty to monitor set out in the new clause is included in the Bill. It is unfair that poorer people will not benefit from competition relating to an essential service. I think that in two or three years it will be shown—the figures must be produced—that that is the case.

I have no doubt that it will be said that the Government must fulfil their social responsibility by making provision through social security legislation to compensate for the fact that some people have not benefited from the competitive gas market. Any Government who are asked to do that will want to know what has happened and why. The Bill will not remove from the Government—any Government—the responsibility to ensure that people on low incomes or on benefit or young families have essential services such as gas at a price that they can afford.

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Photo of Hilary Armstrong Hilary Armstrong Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

I support new clause 8. The terms of the gas and electricity privatisations made it exceptionally difficult for some people who live in rural areas to gain access to basic utilities. I had hoped that the Government would have recognised the case that has been put in the years since privatisation by Members of Parliament and the rural communities' councils for studying that issue. The new clause provides the Government with the opportunity to recognise the problems that were inherent in the means of privatisation and that have made it difficult for remote villages to gain access to utilities such as gas.

In my constituency, three or four villages and some smaller hamlets, mainly in the north Pennines, still have no gas; indeed, those hamlets have neither gas nor electricity. As we approach the millennium, surely that is something that we ought not to tolerate. Some of my constituents simply do not have access to things that we take for granted.

The Bill deals purely with gas and I have met British Gas officials on numerous occasions since being elected and on two or three occasions in the past year to discuss the problem. The village of Whitton-le-Wear does not have gas, but its neighbouring village, Howden-le-Wear, had it put in two years ago—I lit the initial flame. Whitton-le-Wear is only a mile away, but it happens to be over a hill and much smaller.

Gas was accessible to residents of Howden-le-Wear for less than £50 per household, but the price was to be about £2,000 per household for residents of Whitton-le-Wear. British Gas felt that supplying the village was so out of order that it did not even circulate the proposals to every resident, as it knew that there would be uproar and people would be offended to find out that, if they had lived a mile down the road, they would have had access to gas for about £50. British Gas has, in effect, said that it believes that that village will never have gas.

The way in which British Gas was initially privatised means that it is impossible to offset such costs or to bring together villages to offer the service at an affordable price across them all. As that has not been possible, they do not have access to gas and in future the rules will be even more difficult.

Photo of Hilary Armstrong Hilary Armstrong Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson

The Minister denies that, but that is what British Gas officials feel. The supplement that they were able to offer will disappear under the Bill and the rules will become even more difficult, so it is even less likely that such villages will get gas.

Burnhope is another village in my constituency that is without gas, although the next village, which is less than a mile away, has had it for some time. There is a post-war housing estate in Burnhope where the council and the local housing association have been refurbishing houses under a special Government scheme. The council and the housing association agreed to put gas into the houses being refurbished. The cost to anyone whose house was not being refurbished, or who did not live on the council estate, was to be about £1,600.

Burnhope is one of the poorest villages in the county of Durham. I have given the House the figures before. The county now has the lowest incomes in the country, apart from an area of South Glamorgan, but incomes in Burnhope are lower than the average in Durham. If residents wanted gas but did not come under the scheme, they would have had to pay £1,500, so of course the scheme has not gone ahead in the rest of the village.

The irony is that, once gas has been in a street for five years, other people in the street can have access to it without paying that initial cost. People on such streets in Burnhope, who have purchased their houses, will be able to have access to gas in five years' time. The company has not extended the gas supply to the rest of the village, so any extension to other streets would be inordinately expensive. That is unjust, unfair and inequitable.

At a time when we are looking to the more efficient and effective use of gas and electricity, the House should be able to support that case and to say confidently that anyone, anywhere in this country will have a fair deal and be treated equally over access to utility services—in this case, gas.

Photo of Peter Hain Peter Hain , Neath

I must follow on from the excellent contribution of my hon. Friend the Member for Durham, North-West (Ms Armstrong), who drew the attention of the House to the Bill's consequences and its failure to protect outlying and often poor villages, such as the villages in her constituency—former mining villages, I imagine, which exist in my constituency also.

New clause 8 specifies: The Director shall be under a duty to ensure that a licensed gas supplier shall not introduce price tariffs or payment arrangements which unreasonably discriminate against consumers by virtue of the location of their home", and so forth. Under new clause 10(2), The Director shall have a duty to secure effective choice for all classes of consumer. The great benefit of nationalisation and of the gas structure that was built up over generations was that every consumer had the right to access to gas at the same price. Universal access and uniform price were important principles, but they are both being undermined by the Bill and have been successively undermined by privatisation.

The Minister will be relieved to hear that I will not again detain the House by quoting cases of villages up the valleys in my constituency which have been denied access to gas in the way described by my hon. Friend the Member for Durham, North-West, as I have been over that ground quite a few times.

The Bill will institutionalise cherry-picking and social dumping, the other side of it, not by some accident but as the inevitable result of competition. Why? In this context, which is that of a vital utility service—I am talking not about competition in the ordinary exchange of consumer goods and so forth in the marketplace but about a vital service, which is what gas is to many millions of people—the competition focuses on the area in which suppliers and shippers can make money. Competitors are not going to waste their energies trying to invade markets that are not lucrative. They have a duty to their shareholders and they have to concentrate on where they can make money. Those are the areas in which prices will fall, and that will be at the expense of less lucrative markets, which will be socially dumped and where prices will rise.

For example, British Gas is already telling customers who pay by direct debit that they will pay 5 per cent. less, which will penalise and discriminate against customers who cannot pay by direct debit. Their prices will be 5 per cent. more in real terms. That is significant because, although the proportion of households with a bank or building society account has risen steadily, 19 per cent.—nearly a fifth—of households still have no current account through which they regularly handle their money. Some 40 per cent. of that group are pensioners and a further 40 per cent. are low-income householders with an income of less than £150 a week. It is those people who will be socially dumped.

Those statistics show that a significant proportion of the population will lose out. The regime has already discriminated against those people by denying them direct debit arrangements. A feature of that group is that it tends to be geographically concentrated. That criticism goes to the heart of the Bill, which does not afford protection to groups of householders in low-income areas such as exist in my constituency and those of many of my hon. Friends. Low-income households will be totally ignored by the competitors, which will not want to know about competition moving into such low-income areas. That has already happened in the case of direct debit arrangements, on which British Gas penalises up to a fifth of potential or actual gas consumers.

Another interesting geographical impact is that in Wales, for example, the proportion of gas customers with direct debit arrangements is half the number in the rest of the United Kingdom. Just 15 per cent. of gas customers in Wales pay by direct debit, compared with 28 per cent. in the United Kingdom as a whole because Wales has a much higher proportion of low-income households. It has the lowest gross domestic product per capita in the United Kingdom and, as a result, the cherry-picking and social dumping that will result from the Bill will significantly discriminate against gas customers in Wales. The direct debit arrangements have provided a dress rehearsal for that.

This issue should be set against a much wider background. For example, citizens advice bureaux have already said that low-income users of gas are required to put down higher deposits or rely on pre-payment systems. As my hon. Friend the Member for Stockport (Ms Coffey) pointed out, those are more expensive than ordinary payment arrangements. They tend to be confined exclusively to low-income households and result in the phenomenon of "voluntary disconnection", as it is euphemistically described.

British Gas—and, once the Bill is enacted, the new suppliers—no longer breaks down people's doors to disconnect their supply. Instead, low-income householders will disconnect themselves through the pre-payment arrangement, thereby hiding a great deal of hardship. That phenomenon will increase because, under this regulatory system, increased competition is designed to lead to cost-related pricing, so those who cannot meet the terms of the competitive regime—in this case, low-income households—will be socially dumped.

The Government have disputed British Gas's assertion that 6 million would gain from cost-related pricing and 10 million would lose. I need only rely on the Monopolies and Mergers Commission report on the gas industry, which found: Supply to low-volume users (whose use of gas may be confined to cookers and water heaters and who probably include a high proportion of elderly and poor customers) is currently unprofitable, and may require significant price rises. The MMC also said: We recognise that, while the introduction of competition may well result in a fall in the overall level of prices, some groups may be worse off than at present". We thus have corroborative evidence from the MMC that cherry-picking will take place and social dumping will be the consequence.

Large users, many of whom are affluent families in large homes, will gain because they are cheaper to serve than the average householder. Some 4 million small users—often, poor households—are more expensive to serve, so their prices could rise significantly. The side effect is that, as many low-income users are on income support, the cost may be passed on to the state.

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Against that background, it is important to bear it in mind that the family expenditure survey showed that the poorest 20 per cent. in Britain spend 10 per cent. of their weekly budget on gas and electricity bills, whereas the richest 20 per cent. spend just 3 per cent. That is before the imposition of VAT on fuel and heating, which will make the position worse. Low-income families, who spend much more of their income on gas, will be hit even harder as a result of the competitive regime.

We should take note of evidence given by the citizens advice bureaux. For example, a CAB in Yorkshire reported that a client on income support with two dependent children, who had been paying £15 a week off arrears of £565 through the fuel direct scheme, came off income support having found a part-time job and could no longer pay through the scheme. Although the family income was roughly the same as when the family was on income support once work-related expenses were taken into account, British Gas demanded a lump sum of £320 before coming to an arrangement to pay off arrears. That is a good example of how competition increasingly bears down on our most vulnerable citizens. Without the protection offered by the new clause, there is no guarantee that the phenomenon will not get worse.

It is essential that every gas customer has universal choice, and that is protected under the legislation. I am concerned about the failure to protect ordinary customers, and I refer to one aspect of the licensing arrangements. Although the director general is required to secure effective competition, she has no corresponding duty to secure universal choice. That duty should be statutorily imposed on the regulator, as the new clause seeks to do, otherwise suppliers will have greater freedom to select the more profitable customers and neglect the least profitable customers.

Standard licensing conditions 13 and 7(3) of the draft suppliers' licence could be dubbed a "cherry-pickers charter". Condition 13, which covers undue preference and undue discrimination, applies only to the dominant supplier. In this case, that is British Gas, and it will probably remain so for some time. The condition does not appear to prevent suppliers from supplying only the consumers they want to supply.

For example, condition 7(3) could allow a supplier to refuse to supply a less attractive consumer if he "claims" that to do so would jeopardise his existing customer base, which he may have attained through highly selective marketing techniques. Although there is a duty on every householder to request supply from any supplying company, there is no duty on those companies to canvass for support and to offer genuine choice to every householder. The failure to provide a statutory right to universal choice is a severe handicap, which will increase cherry-picking. That practice will be institutionalised by the regime that will be created as a result of it.

My suspicions were also aroused when the Minister failed to respond to an amendment tabled in Committee by my hon. Friend the Member for Edinburgh, South (Mr. Griffiths) to extend the protection offered in proposed section 7B(4)(b) to the disabled and those of pensionable age to low-paid and low-income users. It would be easy to identify such low-income users, because they are likely to be in receipt of income support or family credit. I do not want to go into the detail of the proposed section, but it illustrates my argument about cherry-picking and social dumping. Why has protection been offered to disabled people and pensioners and not to low-income users? The answer is: one may be disabled but still be relatively affluent; one may be a pensioner but still be relatively affluent. There are rich pensioners.

Clause 7 could have easily offered similar support to low-income families and householders. That is why the new clauses are even more necessary; they require the regulator to pay particular attention to the needs of low-income householders and to ensure that they do not suffer discrimination through social dumping, while the cherry-picking of lucrative customers goes on as a result of competition.

I strongly believe that the thrust of the regulatory system needs radical reform. It needs to be rejigged to protect low-income users and to give them equal access to gas supplies, to protect the principle of universality and to ensure that those do not suffer from discriminatory pricing regimes. We must have a regulatory system that is geared to the benefit of the common good, not a selected few.

Photo of Michael Clapham Michael Clapham , Barnsley West and Penistone

Enough has been said about new clause 8, so I should like to refer in particular to new clauses 3, 9 and 10 and to amendment No. 44. Without the new clauses and amendments, it is clear the consumer will be unprotected. The Government should focus on ensuring that consumers are protected in the deregulated industry, so the Minister should accept new clauses 8 and 3 in particular.

As my hon. Friend the Member for Stockport (Ms Coffey) has said, no one knows where competition in gas will take us. There is a danger that the Bill, unless it is amended, may create competition that focuses on supplying the most attractive customers, who tend to be those who consume a great deal of gas and pay by direct debit. Those people may well gain an advantage unless the new clauses, which ensure that all consumers benefit from the proposed changes, are accepted.

The Minister may recall that in Committee I mentioned that I had had negotiations in my constituency, which is a rural one, with the cable companies and British Gas to see whether gas pipes could be laid at the same-time as cables. Apparently, that is not possible in certain areas of my constituency, but it may be possible in other constituencies. Has the Minister explored that possibility? Is he prepared to get cable companies with franchises together with British Gas to explore that possibility so that the gas supply can be connected to other villages? Perhaps the Minister can tell us today whether he has explored that idea.

New clause 3 is designed to give the Gas Consumers Council a duty to monitor the impact of deregulated gas supply. Without that scrutiny, it will be difficult for the council to do its job of protecting consumers' interests. I hope that the Minister is prepared to accept the new clause. Should he feel that its current terms are not quite suitable, perhaps he would be prepared to introduce his own new clause. It is important that the Gas Consumers Council is given that duty.

New clause 9 would ensure that all gas prices and associated services, for example, the terms for supply, are published. It would ensure that all customers have the right to a supply from any supplier and those suppliers do not unduly discriminate against any group of customers. The new clause is vital if we are to prevent cherry-picking. It also imposes a duty on suppliers to specify their standards of service as well as the price of their supply. Customers need that information if they are to make an informed choice between suppliers. I am sure that the Minister would agree that if we are to make this Bill work, customers will need to have information about the costs and prices of varying suppliers. It is important that such information, particularly about prices, is published.

As my hon. Friends have already said, low-income customers with pre-payment meters, who consume large amounts of gas, pay far more for their gas than other customers. Some customers with arrears have requested pre-payment meters in the belief that that will save them money. They must be told that such meters tend to cost the consumer more. Without the publication, in a standard form, of all the varying prices, including the price per therm and the standing charge, customers will be unable to make the informed choice that is necessary for the market to function effectively. I am sure that the Minister agrees, so he will obviously accept the new clauses.

Photo of Mr Timothy Eggar Mr Timothy Eggar , Enfield North

What makes me smile is how well the hon. Gentleman has learnt the language since leaving the National Union of Mineworkers. The idea that the hon. Gentleman should argue for the market to operate effectively is amusing to say the least.

Photo of Michael Clapham Michael Clapham , Barnsley West and Penistone

The Minister is aware that I am a pragmatist. Although I would like the supply of gas to remain the responsibility of British Gas, I am prepared to accept that there is little the Opposition can do to prevent the Government from enacting the Bill. I am therefore trying to do my best to help my constituents to get betterment from the Bill.

New clause 10 aims to outlaw price discrimination against elderly people, disabled people, people who depend on state benefits and small consumers, and to create a duty on the regulator to give all customers an effective choice of supplier. It is important that all customers are given the opportunity to choose their supplier. Without legal protection, as set out in the new clauses, those groups of vulnerable people may end up paying more for their gas to fund price cuts for wealthy people. We must avoid that at all costs.

7.30 pm

As it stands, the Bill, as has been said by my hon. Friend the Member for Neath (Mr. Hain), is a cherry-pickers charter, as it places an obligation to supply customers without discrimination on British Gas only. As the Minister will be aware from some of the submissions that we received from other gas companies, many of those gas companies were content that the obligation that British Gas already accepts should be placed on them. It is important that we ensure that those standards are maintained.

New clause 10 also provides the regulator with the power to refuse to grant or extend a licence or to fine an existing licence holder if the supplier evades supplying those less attractive customers. The National Association of Citizens Advice Bureaux believes that, without those safeguards, competition in gas supply will fail to benefit all customers.

As my hon. Friend the Member for Neath said, when British Gas gave evidence to the Monopolies and Mergers Commission it said that there might be as many as 12 million losers. I know that, since that time, it has amended its assessment, and its assessment of losers is nowhere near the first figure that it gave the MMC. However, other independent organisations have carried out studies, which suggest that there might be as many as 4 million losers. The people who will lose are those who are the most vulnerable—people on low incomes, people on benefits and so on.

It is important, therefore, that those new clauses are accepted, or, if they are not accepted in their entirety, that the Minister is prepared to have his constitutional draftsmen reword the clauses so that the protection that those clauses seek to provide is incorporated in the Bill.

Those amendments are important, not only to gas consumers, but to utility customers, as they set out a framework against which the utilities may be judged. Only if the utilities are credible and seen to be credible, will the market be made to work.

Photo of Mr Timothy Eggar Mr Timothy Eggar , Enfield North

This is a large group of amendments, covering a disparate number of issues. I shall start by replying to some of the arguments that Opposition Members have made.

First, it has been a theme of the Opposition that the Bill is a cherry-pickers charter. Ultimately, the evidence will emerge of the way in which prices feed through for different groups of consumers. In fairness to the hon. Member for Stockport (Ms Coffey), she recognised that. The entire structure of the Bill is designed to ensure that there is no benefit to supplying companies in targeting consumers who are either of high or low volume in terms of the domestic spread. That has been done largely by the Director General of Gas Supply choosing the relatively low figure of the standing charge of about £15.

The best evidence we have of what happens in a competitive gas market is the evidence of the opening up of the industrial market in excess of 25,000 therms. When we started on the exercise of opening up the market from 25,000 therms upwards, as long ago as 1988, there was much criticism. It was said that some industrial companies would gain far more than others and that the average industrial customer would lose, as against the central pricing mechanism previously put in place by British Gas.

What has actually happened in the industrial market is that, in real terms, there has been a 35 per cent. reduction for the average industrial consumer. I have not heard of a single industrial consumer that has not benefited significantly from the introduction of competition in that market. I am the first to accept that it is not directly replicable in terms of the domestic market, but it is the best available evidence that we have.

The hon. Member for Stockport mentioned the issue of pre-payment meters. She quoted very precisely the number of customers on pre-payment meters at present—a figure of well in excess of 850,000 customers.

From my constituency experience, I know that quite a few consumers opt for a pre-payment meter, although they know that it will cost them slightly more, because they want the reliability of what I would call day by day, week by week budgeting instead of not knowing what the bill will be at the end of the quarter. However, we have that large number of pre-payment customers, the pre-payment meters are there, and I fail to understand why competitor companies should not be as keen to supply in a competitive way—and therefore reduce prices to—those 850,000 customers as they would other groups. They are a known credit risk because they use pre-payment meters.

As technology develops, competitor gas companies may be able to reduce the cost of the administrative side of pre-payment meters, and the gap may therefore close between costs to pre-payment customers and to what are called traditional payment customers.

Further, of course, there are adequate provisions in the standard conditions to ensure that each supplier offers several payment methods and cannot discriminate unduly between people who use those.

Photo of Ann Coffey Ann Coffey Opposition Whip (Commons)

The Minister must accept that his statement that pre-payment customers should benefit and my saying that they possibly will not are, for both of us, a matter of conjecture. In that case, is it not all the more important to create a specific duty to monitor?

Photo of Mr Timothy Eggar Mr Timothy Eggar , Enfield North

I concede the hon. Lady's first argument. It is in the nature of a competitive market that no one can be absolutely confident about what will happen in that market. The evidence of competition in other sectors is that it has done exactly what we claimed that it would in the case of pre-payment customers—reduced prices and improved the quality of service.

However, one of the reasons why we are slowly extending the pilot area into which competition will be introduced from 500,000 customers to 2 million, then countrywide, is so that, as we go along, practical experience is gained, and everyone can evaluate the lessons as the operation proceeds in an orderly way.

Opposition Members referred to new clause 3. As far as I can check, everything that is in new clause 3 is already covered by section 40 of the Gas Act 1986, and the new clause is therefore unnecessary.

Regarding new clause 8, anxieties have been expressed about the possibility that competitive suppliers might discriminate in some way or other—several individual hon. Members made different arguments about that—against people, having regard to where they lived or the way in which they paid. We have given that much thought and we have explored the subject fully in Committee.

We also explored in Committee the issue of what I would call gas access to remoter communities. In fact we had an exchange about that today with the hon. Member for Neath (Mr. Hain). As the hon. Member for Durham, North-West (Ms Armstrong) raised the issue, it might be worth putting on record exactly how the Bill will help. The hon. Lady gave the impression that the Bill would work against such access. The Bill will probably favour villages such as the one she mentioned, but we will not know for certain until we see how the system evolves.

The first way in which the new licensing provisions in the Bill will help is that long-term supply and connection contracts are permitted. There has been a hiatus during the Bill's passage, but that will disappear once the Bill is enacted. The public gas transporters—British TransCo and other suppliers—will be able to offer different approaches to payment. At present, because of the way in which the 1986 Act works, British Gas has to demand an up-front, lump-sum payment. Now, neither British Gas nor other suppliers will have to do that and will effectively be able to ask for payment for connection charges over a long period—spread over five or more years. That will help a number of people who want to convert to gas, but who cannot afford the lump sum.

There is another provision—I do not think that it will help the constituents of the hon. Member for Durham, North-West, as she mentioned a village that was a mile away. Subject to the necessary safety provisions, it will be possible for individuals or groups of individuals to connect their properties to the mains. It is sometimes alleged that the capital costs for connection charged by TransCo are high and that connections could be achieved more cheaply. It will now be possible to make arrangements on a communal basis and so lower costs. Consumers will not have to rely solely on TransCo; other competitors will offer the service. Agas is already doing just that and winning business from TransCo because it is able to make cheaper connections.

New clause 9 deals with the obligation to publish prices on the face of the Bill. We accept that, at least initially, the prices should be published. We want to include that provision in the licence because we think that, at some stage in the future, by common consent, it may be appropriate for the prices not to be publicly available. It is interesting that some of the competitor suppliers to British Gas that are trying to supply the market for above 2,500 therms are already encouraging people to whom they are offering their services to negotiate prices with them as opposed to accepting a postalised price. I feel strongly that, initially at least, there should be published prices, but I want to retain the flexibility to move away from that position were it felt to be in the consumers' interests to do so.

The hon. Member for Clackmannan (Mr. O'Neill) raised the subject of rights of entry. It is adequately dealt with by schedule 2, the Rights of Entry (Gas and Electricity Boards) Act 1954 and the terms of the licences. Those exercising rights of entry will have to be fit and proper people and there will have to be arrangements so that customers can confirm the identity of individual meter readers.

I hope that I have covered the points that have been raised by Opposition Members in what has been a wide-ranging debate. I regret that I cannot accept the new clauses or the amendments because, in the main, those issues are appropriately dealt with in the provisions in the licence conditions.

Photo of Nigel Griffiths Nigel Griffiths , Edinburgh South

The Minister has attempted to answer some of the points that have been made, but not very forcefully. He talked about how prices had fallen in the industrial sector after the Gas Act 1986, but there is a widely held view that the industrial sector was partially subsidising the domestic sector. That is reinforced if we consider the average consumption of between 600 and 800 therms for domestic property and the original 25,000-therm threshold.

It is clear that, under the terms of the original 1986 Act, with the minimum threshold of gas consumption of 25,000 therms, for every 35 houses that had to be visited, every 35 meters that had to be installed and every 35 checks that had to be made every two months on those meters—for every group of 35—the gas supplier had to make just one visit to an industrial unit. It is patently obvious that it is far cheaper to deal with 35 factories all using 25,000 therms or more in one visit than it is to visit 35 houses.

There were obvious savings to be made, and they went to the industries and the commercial ventures, with an adequate profit made by the independent gas suppliers. I am not convinced that the same sort of savings will be realised by opening up the market to individuals, when the individual meters will still have to be read.

7.45 pm

The Minister dwelt on pre-payment meters and their value. As a former member of a local electricity consultative committee in the 1980s, I am aware of the tremendous technological developments of pre-payment meters. They have become an alternative to the court order and disconnection. The big problem is that there is now so much fuel poverty that self-disconnection is a risk. People are forced to take pre-payment meters or sacrifice their supplies. Once they have the pre-payment meter, they have to rationalise their spending.

Often, modern income support benefits do not allow them enough money to keep the house warm and to do the cooking for seven days. On the sixth or seventh day, they do not boil the kettle or have hot meals. That is not an uncommon phenomenon in Britain today. The benefits of pre-payment meters should not be exaggerated. Nor should it be said that there are so many pre-payment meters because residents ask for them. Most people with pre-payment meters have no choice.

New clause 3 places the duty on the Gas Consumers Council to monitor the effects on consumers of the Gas Act. The Gas Consumers Council has been widely praised on both sides of the House and outside the House as an independent body, despite the fact that 99 per cent. of its funding comes from British Gas and only 1 per cent. from the Government. The council has achieved the remarkable feat of establishing itself and its independence so that no one can question it.

It is important when accepting the rationale behind new clause 3 that the list of aspects—the prices to be charged by the new companies, any other terms of supply, the continuity of supply, the quality of services and, as has been stressed by my hon. Friends, the rights of entry into premises—should be monitored, not just by the regulator, but by the Gas Consumers Council. The council is often in the front line of complaints and receives 10 times the number of complaints as the regulator, who is seen as having a firm position on regulation.

New clause 9 involves the publication of the terms of supply. The Minister did not convince the House that placing the terms in the licences rather than in the Gas Bill was a satisfactory solution. At the end of the day, the licences will not be subject to parliamentary scrutiny. We have in six fairly concise lines the terms that require the prices to be charged to consumers for gas supply and any other services to be published and that publication should be consumer friendly. It should be done in consultation with the Director General of Gas Supply and with the Gas Consumers Council with a view to making sure that there is local publicity—if a local area is being served—outlining the terms of supply to all the gas consumers in the area.

We fear that, without new clause 9, there will be a tendency to opt for discriminatory marketing. Although the licensee will hold the franchise for a certain area, the licensee may choose not to market in particular areas, but rather to use what we are familiar with in terms of our own campaigning—profiling techniques to make sure that the right message is getting to the right people. When we deal with our constituents, our approach is discriminatory according to political parties and those who are doubtful.

The problem with new clause 9 is that the companies marketing gas will decide to market only to those houses that look as though they have more bedrooms than others in the geographical area and are likely to use more gas. One meter reading will ensure that the gas supplier will make a larger profit. Therefore, although it will not breach the licence, as the supply will be available to anyone in the licence area, it will not go out of its way to make sure that people know about it.

New clause 10 places a firm duty on the regulator to protect the interests of the consumer and especially to monitor where there may be discrimination against consumers who are disabled, senior citizens or in receipt of state benefit. The Government and the Opposition are wholly in agreement in those aims. New clause 10 is necessary to ensure that measures outlawing discrimination are given proper effect, and we are not convinced by what the Minister told us were the safeguards in the licences.

It is also important that the director general can impose a definite financial penalty on any new independent gas supplier who contravenes the terms that are widely shared in the House and outside.

Amendment No. 44 outlines the need for effective contingency plans to deal with serious breakdowns in supply. Again, the Gas Consumers Council, which is the major recipient of complaints about breakdowns in supplies, if it did not write to the Minister, has taken up with the Health and Safety Executive and Director of Gas Supply the explosions that occurred during the Christmas period—fortunately without loss of life, but none the less very serious—which may have resulted from the breakdown in supply.

It is important that the Gas Consumers Council, which has knowledge and expertise, is seen as user friendly, has its phone number on every gas bill—we proposed amendments to make sure that it is on every gas bill from any independent supplier—and can vet the contingency plans. The Gas Consumers Council should be assured from its vast database that any contingency plans do not fail due to inexperience or inadvertent omission if it can look back at other examples in its own experience where such contingency plans would not have worked. That is the value of the role of the Gas Consumers Council which can use its body of knowledge and say, "These contingency plans will not work. You may think they are good, but there is a one-in-10,000 chance that they will go wrong, as we saw in 1989 or whenever."

For all those reasons, we have sought to press our arguments so that the Minister is aware of our concerns.

Mr. O'Neill:

My hon. Friends and I felt that it was important to give due airing to this group of amendments, which we consider lie at the heart of the Bill.

The Bill will be severely diminished unless the consumers are afforded protection and certain clear rights, unless their mouthpiece is given clear duties and the suppliers have clear responsibilities. We introduced the amendments on the basis that we wanted to give the House an opportunity to discuss them. We have had a full and wide-ranging discussion, so with the leave of the House I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.