Duty of Director to Consult on Exercise of His Functions

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 39 of the 1986 Act there shall be inserted the following section—"(39A) In performing his duties under this Part, the Director shall—

  1. (a) take all reasonable steps to consult persons or bodies appearing to the Director to be representative of persons or bodies likely to be affected by the performance of those duties; and
  2. (b) take all reasonable steps to explain and publicise his reasons for any decision made under this Part.".'.—[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 also the following: New clause 5—Grounds for removing Director from office'Section 1 of the 1986 Act shall be amended as follows:(a) In subsection (2) by omitting from the word "years" to the end of the subsection and inserting the words "unless re-appointment can be agreed upon in conjunction with the Gas Consumers Council"; and(b) In subsection 3 by inserting after the word "misbehaviour" the words "or a demonstrable record of failing to exercise his responsibilities in a manner which protects the interests of consumers; and in considering whether any of these grounds have been established, the Secretary of State shall take account of an annual submission about the performance of the Director which shall be made to the Secretary of State by the Gas Consumers Council.".'. Amendment No. 46, in clause 1, page 2, line 27, at end insert— '(3A) In performing their duties under subsections (1) and (2) above the Secretary of State and the Director shall consult with persons or bodies appearing to the Director to be representative of persons likely to be affected.'.

Mr. O'Neill:

We have been talking about the role of the regulator and the accountability of the director general. Earlier in our debate, I mentioned that one important aspect of the legislation is that it provides us with the opportunity to consider the effectiveness of the regulatory regime which now applies to the gas market.

Although we do not consider that anything produced by the House is inherently imperfect, we nevertheless believe that from time to time opportunities arise for us perhaps to improve on the work of the House.

It is fair to say that the British political system came to regulation fairly late in life, especially when we consider the role of the utilities in other countries—particularly the United States, where the regulatory tradition has grown up certainly over the decades of this century. When we consider the regulation of the railways in the early days, it is clear that the movement for regulation came from both the right and the left of the political spectrum. On the left, there were objections to what were seen as the robber barons of the railways and the cartels that were established. On the right, there were objections to what was seen as an offence to competition and various forms of sharp practice introduced at the expense of the passengers. As a consequence, there was a somewhat uneasy consensus, as from different premises the same logic led to the view that regulation had to play a part in American commercial and business life.

The United Kingdom stumbled on regulation almost as an afterthought, when monopolies were created following the privatisation of the former state monopolies. In a number of instances, those monopolies have existed virtually without question over the past 10 years or so. This is perhaps the first opportunity to assess the effectiveness of the regulatory regime in respect of gas. Because of the changes in prospect for other aspects of energy provision in Britain, the other energy regulator is also coming under scrutiny.

While I do not wish to stray beyond the bounds of order, there are occasions when analogies can be drawn or links can legitimately be made. I say that by way of prefacing my remarks; I do not wish to stray out of order. Madam Deputy Speaker, I shall try if not to catch your eye then to catch your grimace and return to the main thrust of my argument.

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New clause 4 seeks to impose upon the regulator a duty to consult, explain and publicise his or her activities. That duty involves accountability, openness and transparency. We believe that it is important to require the regulator to justify any modifications that he or she makes to any previous decisions. At present, the regulator is required to justify any licence modifications. We would like to think that that requirement will be extended to other activities and that a range of organisations will play a consultative role.

In discussing the previous new clause, we referred to the significance of the Gas Consumers Council. It is clear that there is a network involving groups such as the National Consumer Council, the Consumers Association and the Gas Consumers Council. We have seen some co-ordination between those bodies in the lobbying in relation to this legislation. They all seek to represent consumer interests in a different way and we believe that they should be consulted when decisions are taken.

At present the regulator is called to account largely by way of the annual report. We do not think that that is the most satisfactory accountability measure. Indeed, the regulator, Mrs. Spottiswoode, has said that the annual report is a most inadequate means of conveying the full burden of her interests and concerns. Perhaps we should examine the way in which other regulators operate. The chief executives of some electricity companies reported that they submit a sizeable number of papers and reports to the appropriate regulator. Presumably he digests them, meets the companies concerned and, without any real comment, subsequently distributes letters which begin "I am minded that" and contain a series of unjustified conclusions.

I do not believe that that is a satisfactory way for a regulatory regime to operate. I think that it is important that the companies which are being regulated, the consumers whose interests are being protected by the regulator and the investors whose interests often differ from the staff of the regulated companies should be involved—not necessarily individually—in the decision-making process. They should be provided with information sufficient to inform them as to what the regulator is thinking.

Recent changes to the system have not evoked a fulsome response from the regulator. The announcement of the direct debit discount scheme caused considerable controversy. Under the scheme, those customers of British Gas who opted to pay their gas bills by direct debit received an immediate £20 discount. That caused considerable concern among those individuals, many of whom were elderly, who paid their gas bills on time and in full and who never missed any of their instalments. I am sure that you have come across them, Madam Deputy Speaker, as I have when performing my constituency duties. They are the kind of people who like to have things in order, who do not have a lot of money and who have developed very good book-keeping habits over many years. They like to be very precise about their calculations and they never fall behind in their payments or in meeting their financial responsibilities.

Many of those individuals do not have bank accounts—they may have money in the Post Office, but they certainly do not have cheque accounts or the facility to make direct debit arrangements. The whole business of getting a cheque book and a cheque card, trying to remember a personal identification number and so on would have been far too much bother because their system worked very well.

Many people bitterly resented what they considered to be the discrimination that the £20 direct debit discount represented, and the Gas Consumers Council was inundated with 3,293 complaints between 17 November and 8 December. That information was transmitted to the director general and to the regulator, whose reply we are still awaiting. We believe that a controversial issue of that nature requires a more immediate response.

The present tariff formula was arrived at in 1992. It was the subject of some consultation and in the end the RPI minus X formula was established alongside the energy efficiency factor element in the Bill. It was never put out for consideration or discussion; it was a foregone conclusion. It was felt at that time that there could have been more consultation about the matter.

In recent months we have examined the question of the E factor involving that part of the Gas Bill which is to fund the energy efficiency schemes for which the Energy Savings Trust has been given responsibility and which we shall discuss in the context of subsequent amendments. The present regulator inherited the duty from her predecessor and she seems rather reluctant to carry it on. As a former Treasury civil servant, I think that she assumes that she is not responsible for collecting money from companies; she considers that to be a tax-collecting role.

We are very conscious that there has been some difficulty because the regulator was not instructed properly and therefore was reluctant to carry out her duties as she perceived them. She did not consider them to be legitimate duties. We do not believe that there was a clear chain of regulator responsibility or accountability. There have been similar instances recently involving changes in the price formula.

As I said earlier, the price formula is calculated on the basis of the rise in the cost of living less a certain figure. For a number of years, the X in the RPI minus X formula represented five. However, when British Gas had to change its organisation as a consequence of the Monopolies and Mergers Commission report and the new arrangements came into play, the X factor fell from five to four. It was assumed that that was to compensate British Gas for the expense of changing its internal organisation, but that was never made specific or clear.

No means exist, at least at present, whereby the regulator can be called to account and asked in an open way, "Why have you done this?" That lack of transparency and accountability diminishes the regulator's authority. It is fair to say that openness leads to better decision-making. Accountability means that a range of views are seen to be taken seriously by the regulator.

There is some debate about whether the passage of the legislation will result in the continuance of regulation. It is assumed among some of the more exotic plants in the free market garden that, once perfect competition has been established, we will no longer need regulation. That is reminiscent of the arguments that Lenin put forward about the role of the state when he said that, once communism had been achieved in its pure and perfect form, no need would exist for the dictatorship of the proletariat or for the state. Experience has shown that that idealism was misplaced.

The same sort of thinking in relation to perfect competition is probably equally misplaced. That is one of the problems with affording to academics the opportunity of putting their academic ambitions on to the blackboard. Allowing them to put their ideas into practice lends scope for massive errors of judgment. We shall have a regulatory system and regulators for some considerable time and it is important that regulators are accountable and are seen to be open and transparent in the way in which they carry out their duties.

It is equally important that other ways exist of calling regulators to account. There are three standard means of dealing with a regulator, if I may put it that way. The first is to seek a judicial review. That is expensive and often time-consuming. The Minister looks dubious. I suspect that he was a solicitor in his previous incarnation and that he is therefore not so aware as many of us are of the public's anxieties about paying his profession any more money. On the grounds of expense or delay, judicial review is a dubious method of calling regulators to account. It is effective, but it can be dear.

Photo of Peter Hain Peter Hain , Neath

My hon. Friend might note that, as the Minister is likely to lose his Brecon and Radnor seat to a Labour candidate at the next general election, he will be looking for work as a solicitor, so judicial reviews may come in handy.

Mr. O'Neill:

I should like to think that, when the Minister leaves the House, he will be able to earn a crust, but we do not want him to earn a cake on the scale that some lawyers seem to earn at present.

A judicial review is one option. The second is a reference to the Monopolies and Mergers Commission. The third is a regulator's failure to be reappointed to the job. Those sanctions are not sufficient. A clearer indication should be given of the grounds on which an individual who is not fulfilling his responsibilities could be removed. The Gas Consumers Council, which we have already spoken about as the most effective monitor and recipient of information about the working of the gas market, should be consulted. That is the burden of new clause 5.

If a demonstrable record exists that an individual has failed to exercise his responsibilities to consumers, that should be grounds for his removal. We should like to think that the Gas Consumers Council report would be given due weight by the Secretary of State for Trade and Industry if the possibility of removal were to arise. I do not consider those remarks to be a reflection on the activities of the present regulator, who has not blotted her copy book in ways that would be grounds for removal under new clause 5.

8.15 pm

On the other aspect of the accountability of the regulator to which we want to draw attention, amendment No. 46 states that the Secretary of State and the director should consult with persons or bodies appearing to the Director to be representative of persons likely to be affected. The emphasis there is slightly different from the emphasis that I placed on the bodies which are deemed to be the natural representatives of consumers—the Gas Consumers Council and the Consumers Association. On occasions, local authorities may be the most appropriate organisation to consult. Where we were dealing with fairly small groups of residents, tenants and housing, residents associations may be the appropriate body. One can envisage local authorities providing gas heating arrangements, which might have to be taken into account.

We are concerned about providing a means whereby the regulator should be more answerable to Ministers and to the community. As I said earlier, regulators will have a role in the British political and economic framework for many years to come. The provision of basic services such as water, electricity and gas have of necessity to be regulated because they are of such significance in the lives of ordinary citizens. As a consequence, we want to ensure that the gas regulation system, which is as far as our remit extends, has within it a degree of accountability, both to the Secretary of State and to consumers, individuals and the bodies that represent them. This group of amendments would extend and lend credibility to the functions of the regulatory process in Britain, and would contribute to the proper working of the gas energy market. For those reasons, we are happy to commend the amendment and new clauses.

Photo of Ann Coffey Ann Coffey Opposition Whip (Commons)

I suppose that the central issue is who regulates the regulator. At present, under the Gas Act 1986 and the proposed Bill, the regulator has a duty to pay special interest to the disabled and pensioners. I understand that it would be difficult for a group of people—perhaps a pensioners group or the Gas Consumers Council—to hold the regulator to account if they felt that she had not paid them special interest, as laid down in her duties to customers. I understand that a pensioners group could not refer the regulator's action to the Monopolies and Mergers Commission.

The only course of action open to it would be to take the regulator to a judicial review, which is an expensive process. Although there is an existing legislative duty on the regulator to consider the needs of those two groups, if he or she failed in that respect, how would those groups challenge the regulator except by the expensive process of judicial review? The market has no conscience, and the gas market will be no different. Conscience is provided by the regulator and the interests of consumers being part of his or her duties.

In Committee, the Minister refused to accept an amendment which would have instructed the director general to take into account not only the disabled and people of pensionable age but consumers on low incomes. That group, to which everyone has referred during the Bill's progress as of particular concern, appears to be missing from the regulator's social conscience role. The regulator has no duty to protect that group.

Because there is no duty on the regulator to protect low-income customers, pressure to do something about British Gas standing charges has not been exerted. I understand that those charges have decreased, but it would be perfectly possible for British Gas not to impose them at all but to incorporate them into the cost of supply, then produce a tariff that was the same for each customer. Standing charges act to the detriment of low-income customers because they account for a disproportionately large part of their bills. If the regulator had a duty to protect low-income customers, there might have been more pressure to abolish standing charges. As that duty does not exist, the regulator cannot be held to account for the problems that have arisen with standing charges. They will continue to pose a problem to low-income customers, who will not benefit from gas competition in the way that other customers will benefit.

The Minister will say that the regulator's role is to be independent, but no regulator is that. The individual regulator has beliefs and experience, and his or her actions have political implications. The intent may not be political, but sometimes the consequences are political. There is no independence from political beliefs—with a small "p"—in the regulatory system, even though there may be independence from party political beliefs.

Accountability therefore becomes crucial. The only way to ensure real accountability is to specify precisely what is expected of the regulator, then hold the regulator to account as to whether he or she has satisfactorily discharged their duties. No such mechanism currently exists. Parliament cannot do that. The regulator is not accountable to Parliament. She may appear before a Select Committee and account for her actions, but she is not accountable to the Committee, to Parliament or to the Minister. Neither is she accountable to consumer groups. If they believe that the regulator has failed in her regulatory duties to protect particular groups, they cannot call her to account, except through expensive judicial review.

Everyone should be accountable. Being accountable to a is another. The new clauses seek to ensure such accountability.

Photo of Peter Hain Peter Hain , Neath

New clauses 4 and 5 propose increased accountability for the gas regulator. I shall put the arguments in a broader philosophical framework because it is necessary to understand how the Government's approach to regulation differs from that of Labour.

The Government endorse the free market as the agency by which equilibrium will be created and everyone will broadly benefit. Regulation is an afterthought grafted on to that system—from the point of view of the free marketeers, something that started as a monopoly needed regulation. The Governmen0000 believe, as my hon. Friend the Member for Clackmannan (Mr. O'Neill) said, that, as competition gradually grows more dominant and universal, regulation should wither on the vine. That is one model of regulation—not a principle dynamo of Government policy but a necessary adjunct to the competitive market.

The second approach to regulation—the one that socialists adopt—is quite different. Instead of favouring a free market economy, it favours a democratic economy in which market forces play an important role. An interventionist regulatory mechanism would seek, clearly and deliberately, to promote social good, common good, economic efficiency and strategic interests rather than competition and expecting those social and common goods to spill out as a consequence.

The growing debate on regulation is informed by both perspectives. The existing regulatory system enjoys little support, except from Ministers and their cohorts. Labour spokespersons, the Select Committee on Trade and Industry, National Power's chairman, John Baker, and the gas regulator, Clare Spottiswoode, have all argued for reform of the regulatory system. It has grown like Topsy in the past 10 years. It is now ad hoc, complex, over-technical and deeply flawed. There is no consistency in the decision of regulators as between one industry and another. The regulators within any one industry—and gas is a good example—are not necessarily consistent. Decisions made by Clare Spottiswoode do not necessarily stand in line with those made by her predecessor, Sir James McKinnon. I will return to Sir James, because he is a good example of why the system needs reforming.

It is also important to note—this is why the two new clauses are very important—that the regulatory system in the gas privatisation programme in particular was largely an afterthought. It was the bait to catch the privatisation fish. When the Government realised that they could not privatise monopolies without placing some check on them, they hastily thought up a regulatory system, which was rushed in and ill-thought-out, and which developed under its own momentum rather than being strategically planned from the outset.

In the process of that development, competition has been obsessively elevated above all other possible objectives of the regulator. For example, at a meeting in the Palace of Westminster some months ago, the gas regulator, Clare Spottiswoode, said: Regulators can never do as well as competition. That is very interesting because it informs us about how she sees her role: to promote competition, virtually at all costs, and over and above other strategic or social objectives that a regulator should have responsibility for promoting. If the regulator were subjected to proper accountability under the two new clauses, she would have to have more regard for other matters.

In short, competition drives the regulatory system. The gas regulator sees it as her job to make changes to the pricing formula, to conditions for new market entrants or to the regime under which they operate so as continuously to promote competition and thereby—she believes and the Government obviously accept—create a situation from which gas customers will benefit. Such benefits have clearly not followed. Certainly there is no logical reason in principle why they should, as we heard in the previous debate on cherry-picking and social dumping.

Although competition has been put above all other objectives, it was not the primary objective in the privatisation legislation, such as the Gas Act 1986. Competition was one of a series of other objectives, above which it has been elevated, with the Government's blessing and under the regulator's ideological remit. To that extent, the idea, as the Minister said and as the gas regulator has been heard to argue, that regulators are non-political is total nonsense. They make decisions that advantage certain groups and disadvantage others. That is politics. They are just as political as any Back Bencher—and a lot more powerful to boot. They are political animals. Their decisions are highly political. The idea that, by hiving off regulation to an independent appointee, decisions and policy consequences become non-political is nonsense and a contradiction in terms. I repeat: their decisions are highly political in their impact on energy policy, because they benefit certain social groups and disadvantage others.

In that context, a particular feature of this regulatory system, which the new clauses would at least go some way to address, is a compartmentalised type of decision making, in which the gas regulator, for example, makes decisions about gas competition while being quite oblivious—at least apparently oblivious—to the consequences for energy policy. I say energy policy, but there is no energy policy. Competition is energy policy, which means we do not have one. All sorts of anomalous consequences result. Within five years, we will have gone from nil to 25 per cent. gas-generated electricity. That will be achieved only by closing pits, at an estimated cost of £1 billion to the taxpayer in unemployment benefit and other costs. That is a consequence of the promotion of competition in gas and of allowing competition in the electricity industry to use gas, for which it is not really suitable.

British Gas has consistently—I do not think that it bothers any more—made clear its opposition to using gas for power station baseload, for which gas is not suitable. Such use will diminish the life of gas reserves in the North sea by 15 years and divert those reserves away from their much more efficient use as an on-the-spot domestic and industrial fuel. Gas should be used like that, yet we are blowing it away.

8.30 pm

When I asked the gas regulator to address that issue, she said that it was nothing to do with her. She has an interest only in promoting competition in gas. Indeed, her decisions have virtually forced British Gas to sell more gas to power stations, which is against the long-term interests of Britain, the gas industry, energy policy and gas customers. It is against our long-term national interest because UK dependence on energy from overseas suppliers raises important strategic issues, about which the regulators do not believe they must be bothered. We already have a big balance of payments burden as a result of importing coal and other energy sources. That will be increased by imports of gas in future, including from very unstable regions in Asia and the middle east.

If the gas regulator were more accountable to public, to Parliament and perhaps to the Select Committee on Trade and Industry, and if she were required to give reasons for her decisions, the use of gas for power stations might have been included in the debate. We could have questioned whether burning it away in power stations was a sensible use of gas or whether we should conserve it and thereby make us less dependent on foreign suppliers.

The gas regulator has—apparently—neither the power, the will nor the interest in intervening to protect the common good as opposed to the private good of the competing gas companies. The promotion of competition in the gas sector has been oblivious to the knock-on consequences for other energy sectors and for the wider industrial structure and economic interest of Britain. It is also interesting to note—I shall not develop the point, because we shall cover it later—that promoting competition in such a way has relegated conservation and the entire environmental agenda to second place at best. There is a crying need to reform the regulatory system to ensure that wider social and strategic interests are met.

It is also important to recognise that the gas regulator, in common with other regulators, has enormous personal discretion.

Photo of Peter Hain Peter Hain , Neath

One of the Government Whips mutters from a sedentary position, "That is right." The gas regulator has considerable discretion, which the Government have encouraged. Indeed, they praise it because they say that it removes decisions from the political arena, from Parliament. What are we here for, if it is not to have some influence, as Members of Parliament, over crucial public policy areas such as gas supply and the wider energy context in which that operates?

In considering the degree of discretion, I need quote no more relevant a figure than the previous gas regulator, Sir James McKinnon, who developed a personality cult in the industry, using his discretion to an enormously egotistical degree. In successive press releases, he even described himself as the Santa Claus of the gas industry. Industry commentators started to refer to regulation by press release, counting how many times his name and picture appeared in Ofgas publications. During his tenure, Ofgas performed a series of U-turns on successive issues. He changed his mind three times on the structure of the industry. He veered from supporting the integrated nature of British Gas one year to its complete destruction the next and he finally opposed the limited break-up suggested by the Monopolies and Mergers Commission.

Such policy gymnastics were very destabilising. Perhaps that is why Sir James McKinnon went—perhaps the Minister will reveal all. Clare Spottiswoode has been a much more admirable gas regulator, which is welcome, but there is enormous scope for discretion, which was abused by Sir James McKinnon and could be abused by any other gas regulator.

In that regard, I need seek no greater confirmation than the behaviour of the electricity regulator and the recent intervention of Professor Stephen Littlechild on prices in the power share sales. That discretion challenged the heart of democratic politics. Decisions are being hived off to independent appointees that should properly be brought within the system of political accountability. That should not be confused with operational responsibilities.

I am not arguing that the regulator should be held accountable or forced to consult in respect of every detail of regulatory policy, but I am concerned that the broad political and public policy trajectory of regulation should be much more accountable.

There is no real transparency, as my hon. Friend the Member for Clackmannan so eloquently said. Effectively, the regulators are the high priests of public policy. They make significant decisions and they are more powerful than almost all Back Benchers. They are even more powerful than collective groups, such as Select Committees, with regard to the impact of their decisions.

There is a need for greater accountability. The objectives of the regulators should be changed so that they are given much more responsibility for the social consequences of their decisions and for the strategic implications of regulatory decisions, especially with regard to energy policy and the need for international competition.

At the moment, the regulator's decisions favour domestic competition. They pay very little regard, if any, to the need for international competition. At the moment, just about every foreign-owned or controlled gas supplier is being invited to clean up the British market, but British Gas—the national champion—cannot enter foreign markets on a reciprocal basis. Indeed, under its current structure, the European Union specifically prevents British Gas from getting into Europe in the way that European companies can enter our markets.

Why is the gas regulator not addressing that problem? Why is she not banging on the Minister's door saying, "I want to change the regulatory system in order to make international competition a much greater priority than it is under the present regime"?

8.45 pm

We have become the laughing stock of the international gas community. Our competitors, NOVA in Canada, Gaz de France, American-owned Enron, Italgas, Ruhrgas, Tractebel, Gas Natural, the Russian company Gazprom and BHP in Austria, many of which are state-owned, are gaining a massive world lead at the expense of British Gas. We are not concerned with international competition as the regulator is so obsessed with promoting pygmy competition in the domestic market. There is no regard for the industrial and strategic interests of the British economy, which would be advanced by the promotion of international competition and in respect of which British Gas would be able much more effectively to conquer the world markets and become a world leader and one of the top four or five global gas players, which I believe will happen when the market shakes out.

For those reasons, the regulatory system is fundamentally flawed. My hon. Friend the Member for Stockport (Ms Coffey) asked a question that is becoming increasingly important: who regulates the regulators? No one other than the Government and the existing regulators—and not even all of them—defends the existing system. There should be radical reform, and the new clauses would go some way towards achieving that.

Photo of Mr Timothy Eggar Mr Timothy Eggar , Enfield North

We have had another wide-ranging debate. The first issue to be raised was that of the direct debit discount. As is now fairly well known, British Gas, I am told, is planning to introduce a new scheme later this year which will give direct discounts to prompt payers who choose not to pay by direct debit. It justifies the current direct debit discount by arguing that the discount reflects the lower average cost of serving direct debit customers as against other customers.

The hon. Member for Clackmannan (Mr. O'Neill) said that the regulator had not responded to several letters on that issue. It is my understanding that it is her provisional view that the discount does not involve undue discrimination. That is obviously what she has to consider—[Interruption.]The hon. Member for Stockport (Ms Coffey) has a marvellous mouth, but to look at it in a totally uninterrupted way is slightly taxing on the eyes.

According to the regulator, the discount does not involve undue discrimination. However, the director general is considering representations, including several letters to the contrary, and at the moment she is not satisfied that there has been any contravention.

We did not spend much time on new clause 5. The implication of the remarks made by the hon. Member for Clackmannan is that even the hon. Member for Edinburgh, South (Mr. Griffiths) recognises that that new clause goes a little too far. The evidence for that is that not even the Gas Consumers Council, which would be given the powers, actually wants them. It does not believe that it is equipped for that or that that is its role. I enjoyed the elegant way in which the hon. Member for Clackmannan trotted around new clause 5.

It is fair to say that most of the debate has revolved around new clause 4, and in particular the accountability issue alluded to in it. There is perhaps a fundamental difference between the Government and the hon. Member for Neath (Mr. Hain) because, as I listened to him, I could not make up my mind whether he was saying that the regulator should have more powers to take into account issues like international competition, or whether she should have fewer powers because she was not democratically accountable. I was not clear what he meant by democratic accountability.

There is clearly a difficult balancing act. If we are to have a proper system of regulation, it must not be at the beck and call of political intervention by whoever happens to be the Minister of the day. Whether that applies from the Opposition Benches—for example, to ensure that the hon. Member for Neath's valley gets gas, which was the argument he made in Committee—or from the Government Benches to achieve an objective which we felt was particularly attractive from our constituency point of view, any system of regulation must be properly independent from the political process in terms of direct intervention.

Obviously Ministers will be accountable to this place for certain policy issues. An example of that which relates to the structure of the Bill is the standard conditions. We regard the standard conditions as absolutely essential to the structure of the licence because a veto is vested in the Secretary of State. I believe very strongly in the principle of the independence of the regulator, but that independence must lie in a framework, which ultimately must be decided by Ministers.

The judicial review cannot be dismissed lightly. From a Minister's point of view and the exercise of discretion that he may have—not in this respect, but in others—and from a regulator's point of view, judicial review is a very important aspect of accountability. That is not always recognised, because it is not often that there are judicial reviews of Executive decisions. The regulators and I both find that power to be a significant form of accountability. Reference was also made to the Monopolies and Mergers Commission, and the issue of how individual decisions are reached was also raised. I referred to that in terms of the standard conditions. We exercise a veto in that area.

Further scrutiny is afforded by Select Committees, and that is an issue for the House to consider carefully. We must look at the way in which the Select Committees on Trade and Industry, the Environment and Employment have called the gas regulator to account. I am a believer in Select Committees, and I think that the House should use them more effectively. The House should reflect on the relationship between Select Committees and the regulators, although there is no obvious prescription as to how that can be done. Select Committees, like the National Audit Office, provide an important form of accountability.

Photo of Ann Coffey Ann Coffey Opposition Whip (Commons)

The Minister is suggesting that the Select Committees have not held the regulators to be sufficiently accountable. However, the gas regulator said that although the Select Committee can hold her to account—as the Committee can hold to account a Minister—the regulator is not accountable to the Select Committees. She is accountable in the sense that she has to give an account of her actions, but she is not accountable in the sense that the Select Committee has any direct influence or control over her actions. That is the key point.

Photo of Mr Timothy Eggar Mr Timothy Eggar , Enfield North

The hon. Lady and I part company there. She is arguing for politicians—in this case an all-party Select Committee—to have the power to instruct or direct the regulator, whereas I believe strongly in the independence of the regulator. I was not being critical of Select Committees. I was simply saying that that is an issue for the House, because the regulators could be made more accountable to the Select Committee system if a little more thought was given to doing so. I do not see that essentially as a matter for the Government.

I hope that my answer has been useful. I am afraid that, for the reasons I have given, I certainly cannot recommend that new clause 5 be agreed to. I do not think that the Opposition want to press it to a Division. On the other points in the debate, they got the balance right.

Mr. O'Neill:

The discussion has contained the germ of a good debate. Most of the speeches of my hon. Friends, while emphasising slightly different elements, dealt with the general approach to regulation, which has produced a whole that is greater than the sum of its parts. The Minister has, for once, avoided bluster and has endeavoured to engage in a genuine debate. It is regrettable, therefore, that no other Conservative Member has sought to contribute. A couple of individuals have come into the Chamber as our debate has come to a close, but no one from the Opposition Back Benches has been prepared—

Photo of Nigel Griffiths Nigel Griffiths , Edinburgh South

The Government Back Benches.

Mr. O'Neill:

I am getting into a habit, but that description will be appropriate before too long.

The point is that no one from the Government is not so much prepared to defend the regulatory system but to discuss it. To that extent, the Minister's remarks are evidence of a lack of thought and discussion. He went through the standard means of accountability of the regulator, including a judicial review. I know that that is a hobby-horse of the Minister's, and we have debated that matter in Committee. His experience is greater than ours, and he believes that the threat of a judicial review is of no small significance in concentrating the minds of individuals.

We have seen references to the Monopolies and Mergers Commission used in much the same manner of megaphone diplomacy in the past. Where we part company with the Minister is on his touching faith in Select Committees. If there is a fundamental flaw in the Select Committee system, it is that it has been grafted on to the House of Commons without a proper separation of powers. Those countries in which the committee system operates most effectively use committees as a check on bodies in which those involved have no direct interest.

Our Select Committees contain individuals who wish to join the Executive at some stage, or those who have been on it and are embittered or indifferent. I do not think that there is a correct relationship between our Select Committees and the Executive. I am not sure if it would be within the bounds of the proceedings of the House—although given the flexibility of our Standing Orders, pretty well anything is possible—if we were to have a mechanism whereby individuals who were nominated to become regulators could be subject to an interview before their appointment. They would then have to be confirmed in the post by the House. That is not the way in which the House operates at the moment.

During our debates on the Coal Industry Act, we suggested that the chief executive of the Coal Authority would have to be confirmed or interviewed by the Select Committee. In some respects, that was the kind of thing that one does in a Standing Committee—flying a kite. Our Select Committee system is useful for collecting information, but it is never very good at drawing conclusions, because the conclusions tend to be the ultimate compromise.

Some Select Committee conclusions and recommendations are eventually taken on board. Sometimes, in the longer term they have a role in establishing a consensus, but, as a means of dealing with the serious political problems to which my colleagues and I have alluded—for example, the direct debit issue, the establishment of the price formula and so on—if there is to be immediate action, Select Committees are not good at getting the message across. They can inform debate, but ultimately they do not play a conclusive role.

I take the Minister's point about the National Audit Office. Indeed, the Public Accounts Committee can look retrospectively at matters, but it cannot be proactive. In the regulatory sector there might be occasions when proaction is appropriate.

We have had the beginnings of a good debate. I do not suggest that we go on any longer, because we have other business to attend to. It is unfortunate that no Conservative Back Bencher was prepared to take part in the debate. However, the matter has been ventilated. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.