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Orders of the Day — Utilities Bill

– in the House of Commons at 3:30 pm on 31st January 2000.

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Order for Second Reading read.

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry 3:31 pm, 31st January 2000

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

As hon. Members will know, the Government are committed to modernisation and reform in a whole range of important areas of public life. The Utilities Bill is part of that agenda of modernisation and reform. It will modernise and reform the utilities markets and it will deliver efficiency and fairness, bringing together social justice and fairness—two sides of the same coin. It puts consumers first and provides a basis for effective competition and a stable framework of regulation for the future. It will deliver essential reform of the structure and framework that was introduced by Conservative Members at the time of privatisation.

The Conservatives' approach to the utilities owed more to dogma than to a real desire to raise standards for the consumers or to extend choice. The current ramshackle legislation does not effectively serve consumers, the business community or the utility companies themselves. It is simply not acceptable that consumers and business users should suffer from a rigged electricity market, but that is exactly what we have at present.

It is not acceptable that consumers have no way of telling whether directors' pay in companies enjoying a monopoly position is linked in any way to service standards. Indeed, the Conservatives' approach on privatisation to the directors of the former public utilities was a Conservative version of "Who Wants To Be A Millionaire?" However, the directors of the privatised utilities certainly did not need to ring a friend—or, perhaps, they had rung a friend before.

It is not acceptable that consumer bodies are so closely linked to the regulators offices that they even have to issue their press notices on headed notepaper from the regulators themselves. It is also not acceptable that decisions that shape the vital telecommunications and energy markets can be taken purely on the say so of an individual regulator.

Fair and open utility markets are essential for business and domestic users alike. If we are to be at the forefront of the digital economy, businesses and consumers need access to cheap, fast and reliable telecommunications. They do not have that at present. If we are to have a fair society, we must ensure that everyone has heat and light in their homes and access to new technology. At the start of the 21st century, it is simply not acceptable that too many people struggle to keep warm in their own homes.

The Conservative Government's approach to the utilities was to privatise them quickly, and that was driven by dogma to such an extent that precious national assets were sold at a knock-down price without real concern for the industry and the structures that were put in place.

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

Given that the price of electricity has fallen by 29 per cent. in real terms since privatisation, that the cost of gas to consumers has fallen by 29 per cent. in real terms since privatisation, and given that there has also been a fall in the price of telephone charges to the consumer of 50 per cent. since privatisation, does the right hon. Gentleman now regret the Labour party's opposition to those privatisations in the 1980s?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

The hon. Gentleman misses the important point that although those price reductions are welcome, they would have been far more substantial if the structure that the Conservatives put in place had been different. This afternoon, we shall see an example of that because the Bill contains proposals to change the way in which electricity is traded; as a result, prices will be reduced by 10 per cent. Since privatisation, people have been paying 10 per cent. more than they needed to pay because of the way in which the policy was introduced by the Conservative Government. The hon. Gentleman makes my point: it is because the policy was driven by dogma that consumers have not fully benefited from the changes.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours Labour, Workington

The point raised by the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) is interesting because it brings us into the discussion about BT and its charging structure. How is it possible for BT to charge, for long-distance calls in the United Kingdom and for overseas calls, often three times more than independent operators? How can Sky, through Skytalk, charge for local telephone calls about half of what BT charges, while BT turns over profits of about £3 billion a year? BT is grossly overcharging on all its calls and on internet access.

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

My hon. Friend, as always, makes a powerful and significant point, and I shall make sure that the regulator's attention is drawn to it. I have no doubt that the best way to reduce the costs and charges of companies such as BT is to introduce effective competition. We all know from the experience of the United States, where telephone charges are considerably lower than in the United Kingdom—particularly for the important service of internet access—that we need to ensure that the regulator takes into account the point that my hon. Friend has raised.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Is the Secretary of State aware that not all commentators who have studied the new electricity trading arrangements share his confidence that they will result in a further 10 per cent. fall in prices? As I hope to explain later, if I am fortunate enough to catch your eye, Madam Speaker, Professor Bunn of the London business school thinks that prices will rise, and his is by no means a lone view. Does the right hon. Gentleman think that we would have achieved the reductions that have occurred if we had carried on with his beloved Central Electricity Generating Board, under which prices went up every year?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

The Bill does not seek to recreate the Central Electricity Generating Board. We are trying to introduce new trading arrangements. The hon. Gentleman makes an important point: one or two commentators are critical of the new arrangements. We have consulted widely on the new structure and, broadly speaking, most commentators believe that the arrangements will achieve a minimum of a 10 per cent. reduction in the wholesale price of electricity. In 12 months, we will be able to debate the matter knowing exactly what has happened as a result of the changes. We are confident, because of the advice that we have received, that the changes will achieve that reduction.

Later, I shall explain why the operation of the present system is fundamentally flawed and that by introducing a more effective market discipline we shall achieve a reduction in the wholesale price of electricity. I accept the hon. Gentleman's point that there is a debate about the benefits that will accrue from the new trading arrangements.

Photo of David Chaytor David Chaytor Labour, Bury North

Does my right hon. Friend agree that the problem of the previous, privatised regime was not only the costs themselves but the distribution of costs? One of the worst features of privatised utilities under the Conservative Government was that the distribution of costs in the energy industry was skewed against low-income households. For example, the standing charge was one of the ways in which low-income households paid, per unit of electricity or gas consumed, far more than better-off households.

Will my right hon. Friend join me in congratulating British Gas on announcing its intention to abolish the standing charge? Will he encourage other suppliers to follow that lead, not only in abolishing the standing charge but in ensuring that there is a much fairer tariff, so that low-income users—

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Speaker of the House of Commons

Order. That is a very long intervention. The hon. Gentleman might like to save himself to make a speech during the debate.

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

My hon. Friend the Member for Bury, North (Mr. Chaytor) may not need to do so now, Madam Speaker. He raised two important points, the first of which relates to where the benefits of price reductions have gone. The price reduction that those who pay by direct debit have been able to achieve has been far greater than the reduction for those who have a pre-payment meter. There are concerns about that. My hon. Friend will know that we are introducing measures, through the Bill, that will enable us to ensure that all people can benefit from the price reductions that we are confident we shall achieve.

Secondly, my hon. Friend draws attention to the initiative from British Gas to end standing charges. I welcome that, provided that there is a real choice. Standing charges may go, but we must consider the unit cost that will be paid as a result. I would like to see a competitive market where the consumer has a genuine choice. It will be of benefit to some low-volume users to opt for a tariff that does not include a standing charge. That will not be the case for other consumers. Consumers should be able to choose the tariff that they want.

Photo of Norman Baker Norman Baker Shadow Spokesperson (Business, Enterprise and Regulatory Reform), Shadow Spokesperson (Culture, Media and Sport)

The right hon. Gentleman has talked about fuel poverty, and we all support him in his efforts to eradicate it. However, will he say something about the environmental implications of the Bill? Does he accept that it presents an opportunity to increase the amount that is spent on energy efficiency and to require, for example, generation from renewable energy? What will we be able to do through the Bill to improve the environment?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

If the hon. Gentleman will wait a few minutes, I shall specifically address those matters in dealing with the environmental consequences of the Bill. I shall deal specifically with renewables.

Photo of Jonathan R Shaw Jonathan R Shaw Labour, Chatham and Aylesford

What assurances can my right hon. Friend give to my constituents and to constituents throughout the country that the regulator will examine the way in which the utilities reduce consumers bills? Many of my constituents have received vastly overestimated Bills. When they have complained, their complaints have been ignored. Many pensioners have paid those bills in fear of being cut off.

One couple, Mr. and Mrs. Balchin of Chatham, complained time and again for two and a half years, but little was done. Eventually, and understandably, they chose to take their business elsewhere. When they telephoned the company, they were told that it would take £4,000 to pay off or clear their account. When they questioned that, they were told, "No, it will be £4,100." It has been possible to intervene and get a fair deal, but what assurance can my right hon. Friend give that that sort of thing will no longer happen?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

One of the important initiatives that will stem from the Bill will be far more powerful consumer councils. My hon. Friend has raised exactly the sort of issue that these councils will be able to address. Most importantly, they will have access to all the information in their own right, for the first time. It will not come through the regulator. They will be able directly to contact the regulator and draw the attention of the new authority to the sort of practice to which my hon. Friend has referred. It will then be for the regulator and new authority to take the appropriate steps. I am sure that my hon. Friend has raised exactly the sort of matter that the new independent consumer councils will wish to take up.

I shall try to make some progress. The previous Government's approach did not put the interests of the consumer first. There was no commitment to give the consumer a good deal.

Photo of Angela Browning Angela Browning Shadow Secretary of State, Shadow Secretary of State for Trade and Industry

Disconnection affects the poorest people. Does the Secretary of State agree that during the last years of the nationalised electricity industry, there were 80,000 disconnections a year? Last year, there were only 373. When the right hon. Gentleman makes carping comments about what he inherited when he took office, does he not recognise that there is a vast difference between the way in which the poorest people are treated now that we have a privatised industry, compared with their treatment under his much preferred state industry?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

The important point, as the hon. Lady will concede—this may be why she confuses nationalisation with privatisation—is that most companies in both the public and the private sectors now have a different approach to debt collection than they had 10 or 15 years ago. In the utilities sector, good practice is being adopted across the board. That is the truth of the matter. The situation reflects the changes in debt collection that have occurred.

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

On disconnection, is it not the case that just as many people are being disconnected as ever before, but that they are doing so themselves through their inability to pay their bills or to purchase charge cards and the like?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

My hon. Friend makes an important point. By its nature, pre-payment means that many people who cannot afford it in the first place do not get access to energy. That is reflected in the figures as well.

The previous Government failed to introduce effective competition and created a system that was unstable. The result was that prices were higher than they needed to be and consumers were regarded as second-class citizens. Directors could end up getting vast amounts of money simply from being in the right place at the right time.

Furthermore, as regards energy in particular, the system that was set up paid almost no attention to environmental or social issues. Under the previous Government, the utility companies were allowed to put profits before service. They were generally sold as monopolies, with no provision for additional competition, making it difficult for new entrants to enter the market.

We need only look at the knock-down prices for which those national assets were sold. Vickers and Yarrow calculate that British Telecom and British Gas were undersold by £2.5 billion each, and Ernst estimated that the water and electricity privatisations were underpriced by £3.4 billion each—a total of £11.8 billion lost to the taxpayer because dogma was allowed to triumph over reason.

Photo of Patrick McLoughlin Patrick McLoughlin Opposition Deputy Chief Whip (Commons)

Does the Minister accept that one of the reasons why the prices obtained for those privatisations were not as great as we might have wanted was that in the prospectus a clause had to be inserted stating that the Opposition were totally opposed to the privatisation and might well reverse it? What effect does the Secretary of State think that had on the share price?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

Absolutely none. Anyone who looked at the opinion polls in 1985–86 would have guessed the result of a 1987 general election.

Photo of Alan Duncan Alan Duncan Shadow Spokesperson (Trade and Industry)

Over the past few years, most of the privatised utilities have faced new entrants and new competition. Which utilities does the Secretary of State consider remain monopolies facing no competition?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

As a result of the measures that we are introducing, there will be none. Telecommunications is a good example. Through the auction for the third-generation mobile telephones, new entrants will enter the market because of the way in which the auction is operated. British telecommunications is one of the sectors that will be affected by the Bill.

Not only was there an underselling of the assets contained in the utilities, but the electricity trading arrangements made by the Conservative Government put in place a system that has failed to give consumers the benefits of effective competition. I shall give the House an example of the way in which the present arrangements work and why we need to change them.

Let us assume that the generators want to put in bids for up to 1,000 MW of power. Through the pool, the National Grid Company stacks up the bids, with the lowest at the bottom and the highest at the top. If it decides that only 500 MW is needed, the price in the middle that achieves 500 MW is the price paid to that generator, and to all other generators as well. Even though they may have put in lower bids, they are paid at the level of the generator that could deliver 500 MW.

As a result, we are paying over the odds for electricity because of the way in which it is traded. The regulator has calculated that the complicated pool bidding arrangements allow companies to manipulate the price. For example, he believes that last July, the generators were able to raise the price by more than £155 million over two weeks. That is the equivalent of £6 for every household in the country. The Bill will end those abuses.

Photo of Lindsay Hoyle Lindsay Hoyle Labour, Chorley

I hope that my right hon. Friend will address another problem. Companies knock on people's doors to offer the so-called cheapest electricity and gas, but there are no clear guidelines about which company is the cheapest. Can he ensure openness about the cheapest product on the market and that there will be no misleading salesmen on the doorstep?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

My hon. Friend raises two important issues. First, it is important to ensure that the domestic consumer in particular receives clear information. Our consumer legislation will introduce provisions to help consumers, and to ensure that companies are under an obligation to prevent mis-selling. We are all worried that mis-selling has occurred, and the regulator will be able to levy financial penalties for it in future.

Photo of Alan Duncan Alan Duncan Shadow Spokesperson (Trade and Industry)

The hon. Member for Chorley (Mr. Hoyle) pointed out that most utilities face competition, and that people knock on doors to offer alternative sources of supply. Apart from water, which utility does not face such competition?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

I do not believe that effective competition exists in the telecommunications market. My hon. Friend the Member for Chorley (Mr. Hoyle) made an important point about mis-selling. Many consumers do not transfer from one provider to another; there is resistance to doing that. We need to consider ways in which we can encourage people to benefit from competition. We want to introduce effective competition. The hon. Member for Rutland and Melton (Mr. Duncan) is terribly complacent if he believes that it currently exists. We can, and should, try to do better. The Bill tries to achieve that objective. Introducing effective competition is the best way of putting consumers' interests first.

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

I have given way often, and I want to make progress. I should like to give way to the hon. Gentleman later. I am sure that there will be many occasions on which he will want to intervene.

We inherited a fundamentally flawed system. Our first action was not to rush into legislating, but to consult widely on the structures that would fulfil the needs of consumers, be good for business and provide a stable framework for utility companies. Extensive and wide-ranging consultation has taken place.

In March 1998, we published the Green Paper, "A Fair Deal for Consumers—Modernising the Framework for Utility Regulation". In July 1998, we published a "Response to Consultation", which set out our conclusions about the way forward. Two further consultation documents were published in autumn 1998. One covered the detailed arrangements for establishing independent consumer councils; the other dealt with the future of gas and electricity regulation. The Government published responses for consultation on those further documents. At each stage, we have tried to explain our thinking fully and to engage the sector in a debate, a dialogue and a discussion about the way forward.

Consequently, we have built and maintained support for the Bill from a broad cross-section of interested parties. We have the support of consumer groups, the regulators and the utility companies. The Electricity Association welcomed our commitment to ensure … stability, which is in the interests of companies and customers alike". Callum McCarthy, the energy regulator, welcomed the Bill as laying down a framework for future regulation that will reinforce competition, which has led to lower prices and better services for gas and electricity customers". He welcomed provisions, which will underpin changes in the electricity market needed to bring the full benefits of competition to electricity customers". The National Consumer Council said that the Bill has the makings of a significant landmark for consumers … Giving the regulators of these industries a primary duty to protect consumers is an enormous and welcome change. I have a few words about the Bill's format. I appreciate that it is quite complex and rather technical in many areas, but it is set out sector by sector. For example, reforms to gas and electricity regulation are in part I and reforms to telecommunications regulation in part II. However, a significant number of the provisions are identical or very similar for each sector—that has been done on purpose to achieve consistency across regulation—and they include the establishment of consumer councils, the new powers for regulators to impose financial penalties on companies and the improvements to the transparency and consistency of regulatory procedures. Where it is appropriate to adopt similar measures for each of the utility sectors, that is exactly what we have done.

In addition to the measures that apply to all four sectors, part I contains significant sector-specific reforms to modernise and align gas and electricity regulation. Part III contains a more limited number of water-specific provisions and part IV deals with the Competition Commission as an effective appeals body.

Photo of John Bercow John Bercow Shadow Minister (Education)

Did an accidental oversight lead the right hon. Gentleman to fail to mention the observation of the outgoing Director General of the Office of Water Services, Mr. Ian Byatt, who has damned the Bill as over-complicated and over-prescriptive with too little left to common sense? To what figure does he expect the 2,800 regulations that have come from the Government to increase as a result of its draconian provisions?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

I read the comments of Ian Byatt, the water regulator, with interest and am disappointed that he has been so critical. I should have thought that most regulators would support our approach of an arm's length relationship between them and the Government.

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

The hon. Gentleman is right, but Mr. Byatt is the only regulator who is uncomfortable. I regret that we have not taken him with us and hope that his successor will be more supportive of the proposals. I am sure that he or she will be.

Photo of Linda Gilroy Linda Gilroy Labour/Co-operative, Plymouth, Sutton

Will my right hon. Friend also take account of the briefing from Ofwat's national customer council? It says: We consider that there are shortcomings in the Government's proposals which mean that the Consumer Council for Water will not be as independent and powerful as possible". We need effective, independent consumer champions and the customer council seems to be asking for more powers rather than fewer.

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

There may be concern about whether the Consumer Council for Water has fewer powers, but the structure of the independent consumer councils and the powers that they will have represent a significant advance. I accept that concern has been expressed, particularly about water, but hope that as we take the Bill through the House people will see exactly what the Government propose. I also hope that we can address those concerns and convince them of the steps that we are taking.

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

I shall give way once more, to the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), but then I must make progress.

Photo of Mr Archy Kirkwood Mr Archy Kirkwood Chair, Social Security Committee

The Secretary of State said that there had been extensive consultation before the Bill's publication. That is accepted on all sides, but has he reflected the degree of concern, which I have picked up, about the six-figure salaries that some utility directors have acquired? The moves to link transparency on financial packages to service delivery are welcome, but would not it be better to have separate remuneration package votes at each annual general meeting to make sure that people know exactly what is going on?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

The hon. Gentleman raises an important point. The House is considering specific proposals for greater transparency for the utilities in respect of directors' remuneration and the service standards that they provide. Given the concern expressed about the remuneration of directors in the utilities sector, we thought it appropriate to use the Bill as an opportunity to take specific powers.

Wider consultation is still taking place about directors' remuneration in all companies. When we have considered the responses that we receive, I am sure that the hon. Gentleman's proposal will be one of the issues that we shall want to examine; but we want to examine the remuneration given to all directors, not just those in the utilities.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Might it not be right to adopt the suggestions made by the National Association of Pension Funds in its response to the Government consultations, relating to corporate governance and approval of the work of the remuneration committees of the companies concerned?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

That is an important point. We have discussed with the National Association of Pension Funds and other institutional investors how we can deal with concerns about the remuneration of directors. I hope that, when we respond to the consultation document—which I trust we will within two or three weeks—our response will command broad support among such organisations.

The Bill has four main objectives: to secure a fair deal for consumers, particularly the disadvantaged; to provide more effective competition in the utilities markets; to ensure that the utility sector contributes to environmental objectives; and to modernise the regulatory framework, making it more consistent, transparent and accountable.

The Bill seeks to put the consumer at the heart of utility regulation. We believe that competition is the best way of serving consumer interests, but in some areas it is not yet an effective discipline. In those areas, we will pursue tough but fair regulation in the interests of consumers; in areas in which competition is developing, there is still work to be done in ensuring minimum standards of service and building consumer confidence in the new competitive markets.

The Bill contains a package of consumer measures. It requires regulators to put consumers first; it enables regulators to impose financial penalties on companies for non-compliance with service standards; it includes measures to encourage shareholders to link directors' pay with service standards; and it establishes independent consumer councils to act as consumer champions. It gives regulators a new primary duty to protect the interests of consumers. To build consumer confidence in the utilities, we need minimum standards of service in both the competitive and the monopoly markets.

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

I hope that I shall be able to do so later, when I have made some progress.

The Bill will fill an important gap by allowing regulators to impose financial penalties for breaches of licence conditions, other obligations and service standards. Those penalties will be used to address company failures such as the mis-selling mentioned by my hon. Friend the Member for Chorley, interruption of supply, and delays in reconnection.

Several Members raised directors' pay. I want price-regulated utility companies to make a clearer link between directors' pay and the achievement of service standards. The Bill will apply pressure on utility companies to link directors' pay with the level of service provided, by requiring price-regulated utilities to publish the links—if they exist—between directors' pay and the service level achieved. Such transparency is necessary if the regulatory system is to be seen to serve the consumer interest, and, in the long term, it is also in the interests of the companies themselves. If consumers see directors awarding themselves high salaries when service is inadequate, that will not benefit utility companies.

The Bill, however, is about more than "naming and shaming". It provides real incentives for directors to give customer service standards the priority that they deserve. We have already urged the regulators to take account of levels of consumer service and satisfaction when setting new price caps, and the new powers to impose financial penalties will focus minds yet further. Shareholders will see that it is in the interests of the company to demonstrate a clear link between directors' pay and the achievement of service standards.

Hon. Members on both sides of the House have raised the importance of a voice for consumers being effective. Consumers need powerful champions to articulate their needs and interests. Under the current regime, which was established by the Conservatives, consumer bodies are too closely related and connected to the regulator. They have few rights and no guaranteed access to information to discharge their powers fully.

The Bill will establish independent consumer councils for each sector to act as effective consumer champions. More important, they will be independent of the regulator. They will have rights of direct access to the information that they need from the regulator and the utilities to carry out their functions effectively. They will be charged with investigating and resolving complaints. They will provide a single point of contact for consumers. That will end the uncertainty about who consumers should turn to for assistance and advice.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

Where in the Bill is there any provision to deal with a situation where the consumer interest is opposed by the Secretary of State himself? He will know that Mr. Callum McCarthy has said that the Secretary of State has been acting against the interests of consumers in imposing restrictions on new gas-fired generation. How will consumers be protected from the anti-consumerism of the Secretary of State?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

The hon. Gentleman makes an important point. There is a responsibility on the holder of my office to ensure that there is diverse energy provision. We believe that, by ensuring that a stricter gas consents policy is in place, we can have that diversity of provision. As he knows, there is not a level playing field at the moment. Coal in particular is discriminated against. We have introduced as a short-term measure the stricter gas consents policy to ensure that we can achieve a level playing field. We hope to do that as soon as possible, but he is right: it has those adverse consequences.

The holder of my position has to balance the needs of the consumer with the objective of having a diverse supply of energy and take a judgment accordingly, but the hon. Gentleman is right to point out that that policy has been criticised by the regulator. There will be an arm's length relationship between the Secretary of State and the regulator, but the Secretary of State will continue to have to act in the wider national interest. Obviously, I hope that we will be able to avoid those few situations where there is a conflict between the two.

The independent consumer councils will be a powerful voice for the interests of consumers. I am pleased that their establishment has been welcomed by consumer groups themselves. Rodney Brooke, chairman of the National Electricity Consumers Council, welcomed the fact that the Bill promises better protection and lower prices for consumers … we look forward to the creation of a new independent Consumer Council to represent the interest of electricity and gas consumers and to help them with their complaints. The National Consumer Council has said that it is particularly pleased that the establishment of independent consumer councils is among the key planks of this consumer-friendly Bill". Therefore, there has been a wide welcome from consumer groups.

I am conscious that one particular concern—it has been raised by some of my hon. Friends—is the position of people who are in fuel poverty. The benefits of competition should be enjoyed by all consumers, not just a few—not just high-volume users, but all people, including those who find it difficult to pay high energy prices.

That is why we have instructed the energy regulators to draw up a social action plan that is aimed at securing efficiency, choice and fairness for the disadvantaged. The Bill backs that up by giving Ministers reserve powers in the energy sector to lay regulations to reduce price differentials between the users of particular payment methods, such as pre-payment meters and frequent cash-payment schemes, and other consumers who might use cheaper payment methods. That goes to the heart of the issue that was raised by my hon. Friend the Member for Bury, North. We need to ensure that all people benefit. As a result of the Bill, Ministers will have a reserve power to intervene if it is essential to do so.

For the first time, all the regulators will have a duty to consider the interests of low-income consumers. The Bill will place regulators under a duty to have regard to statutory guidance issued by Ministers on the social objectives relevant to their particular sector.

The Government took office with a commitment to promote competition wherever possible, and the Bill continues with that objective. We regard regulation as being second best. However, in these sectors, with their monopoly history, network industries and elements of natural monopoly, regulation will still be needed.

When we took office, competition in energy was not adequately developed. There were questions about whether competition in electricity would happen at all. However, companies got the message loud and clear and have begun to operate in a manner that allows competition to be far more effective.

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

No. I have given way on many occasions and want to make some progress, and many other hon. Members wish to contribute to the debate.

The Opposition spent years talking about reform of competition law, but did nothing. They have also resisted some of the measures that we want to introduce to ensure that competition is effective. Nevertheless, we have got on with it. In one month, the provisions of the Competition Act 1998 will come into force and ensure that effective competition is introduced into the utilities and into many other sectors. The Utilities Bill takes further action to secure more effective competition in the utilities market, particularly in energy markets.

The current electricity pool bidding arrangements allow manipulation of prices. The pool is more of a price-setting mechanism than a true market. It supports the exercise of market power by generators and is not open to consumers. The Bill will introduce powers to replace the pool with a new, market-based system that will encourage genuine competition in the wholesale electricity market.

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

Does the right hon. Gentleman believe that there is still a role for the regulator when the utility sector involved—even if it is a narrow one—is fully exposed to fierce competition?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

There may be a limited role, but it would depend on the specific circumstances. As a general rule, my personal view is that regulators are not appropriate in those circumstances, and I should much rather have the discipline of an effective market. However, there are concerns that, in some of the spheres dealt with in the Bill, the market is not effective.

We have to put in place a structure that will provide an effective market, which is what the Bill seeks to achieve. A good example of that are the new electricity trading arrangements that we are seeking to introduce, and that we believe will lead to a 10 per cent. reduction in the wholesale price of electricity. I hope that the hon. Member for Rutland and Melton will welcome that. I was looking at the figures supplied for the east midlands public electricity supply area—which covers Rutland and Melton, and in which he has a personal interest—[Interruption.] I cannot go through all the electricity supply areas in which he may have a home or two, but he stands to benefit enormously from the Bill's provisions.

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

The hon. Member for Hazel Grove (Mr. Stunell) probably also stands to benefit from the provisions.

Photo of Andrew Stunell Andrew Stunell Shadow Spokesperson (Environment, Food and Rural Affairs), Liberal Democrat Spokesperson (Environment, Food and Rural Affairs)

I was planning not on making a regional point to the Secretary of State, but on asking him whether he shares my belief that the market is a very efficient mechanism for promoting efficiency of generation, but not for promoting efficiency of consumption in the energy market? Does he believe that there is a long-term role for the regulator in those circumstances?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

The Bill's provisions to address energy efficiency and renewables are probably the better way forward. In line with the observation that I made to the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), we need to consider carefully the spheres in which regulation is appropriate and the spheres in which it is not appropriate. The hon. Member for Hazel Grove is taking me down a route that I feel is not appropriate for the regulator.

As for the electricity bill paid by the hon. Member for Rutland and Melton—which I am sure is paid not only promptly, but by direct debit—on his home in the east midlands, he would stand to gain about £25 annually. Although I realise that that sum is probably insignificant to him, it would be a very useful reduction for many people.

There would be a useful reduction for some of our major companies. Companies such as BOC are likely to save £5 million a year as a result of the Bill's proposals, and high electricity users such as ICI are likely to save between £5 million and £10 million a year. That will make business more competitive—an important consequence of the Bill.

Hon. Members have asked how the Bill will protect the environment. I accept that, at the beginning of the 21st century, we need to recognise that environmental concerns cannot and should not be ignored. The energy and water utilities have a big impact on the environment, and they have a big part to play in the achievement of our environmental objectives. The Bill contains provisions to ensure that the utilities contribute to the achievement of our environmental objectives, and to put an end to the confusion that we inherited from the previous Government about the respective responsibilities of Ministers and regulators for environmental matters.

The Bill gives Ministers powers to make regulations to set targets for energy efficiency and the generation of electricity from renewable sources. Those matters will be the responsibility of Ministers, and we will be politically accountable for the regulations. This will contribute to our target of ensuring that 10 per cent. of electricity supply comes from renewable sources.

Photo of Joan Ruddock Joan Ruddock Labour, Lewisham, Deptford

I remind my right hon. Friend of the Government's target of a 20 per cent. reduction in carbon dioxide and the renewables target of 10 per cent. Will he use the powers in the Bill to ensure that the utilities make a real contribution to those targets, because half of greenhouse gases come from the supply and use of electricity and gas? Will he consider the possibility of the gas and electricity consumer councils having not just a brief to look at energy efficiency, but a duty to report on overall environmental performance?

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

My hon. Friend raises a number of important points. I will consider her idea that there should be a duty to report, as that is well worth detailed investigation. She is right to point out the important contribution that those sectors can make to achieving our environmental objectives. It is for precisely that reason that we feel that a power should be given in the Bill to Ministers to achieve those environmental objectives. The utilities could play a damaging role in stopping us achieving those objectives. On the other hand, if we get it right, they could make a real contribution. That is a role that we will expect them to play.

That is a responsibility that will fall on Ministers. The Bill also places regulators under a duty to have regard to statutory guidance issued by Ministers on environmental objectives relevant to their sector. It clarifies the role of Ministers in relation to environmental policy. The Bill gives Ministers powers to initiate service standards in the water industry, primarily for health and environmental matters that are outside the scope of the economic regulators' remit.

The Bill is forward-looking. It sets out a new framework for utilities regulation that is fit and appropriate for the 21st century. We have consulted widely on the Bill's measures, which are seen by regulators, consumer groups, the regulated companies themselves and others as sensible, balanced and fair.

The Bill establishes a stable, modern framework in which the respective roles of Ministers and regulators are clear, precise and transparent. It gives new duties to the regulator, and it places responsibility on the regulator to put the interests of consumers at centre stage. It gives more power to the consumer councils to represent the interests of those people affected by these vital utilities.

The Bill establishes a framework that ensures a fair balance between the needs of consumers and the legitimate interests of the utility companies. I am confident that it will promote high-quality services for consumers, put downward pressure on prices and promote further and more effective competition in utility markets. The Bill puts utilities regulation on a sure footing for the 21st century, and is good for consumers, good for competition and good for the utilities.

I commend the Bill to the House.

Photo of Angela Browning Angela Browning Shadow Secretary of State, Shadow Secretary of State for Trade and Industry 4:20 pm, 31st January 2000

I beg to move, To leave out from "That" to the end of the Question, and to add instead thereof: this House declines to give a Second Reading to the Utilities Bill because, although it contains worthwhile provisions for merging the electricity and gas regulatory authorities, for separating the licensing of supply and distribution of electricity and for introducing new electricity trading arrangements, it also contains measures which increase regulation and intervention by government in the utility sector; which impair transparency and accountability in the regulatory framework; which add to industry costs which will ultimately be passed on to consumers; which introduce powers to levy unlimited fines; and which significantly undermine the independence of the regulators. Regulation under the Telecommunications Act 1984, the Gas Act 1986, the Electricity Act 1989 and the Water Industry Act 1991 was established when the industries were privatised under the previous Government. The appointment of an arm's-length regulator, independent of Government, was intended to leave management free from Government interference. We wanted to prevent a read-across from the Government to the regulator and thence to the privatised industries and the services that they provide.

The idea was to promote a competitive market and to protect consumers' interests in the areas where competition had not yet developed or where natural monopoly was likely to remain. An effective regulatory regime—necessary to secure increased efficiency, lower prices and better quality—could be promoted through competition and protecting consumers' interests in markets that were still dominated by powerful incumbents and in which there were still large elements of monopoly.

Clearly, things have moved on since that time. I thought that the Secretary of State was somewhat churlish about the genesis of privatisation in this country. We pioneered it in the face of opposition from Labour and, often, Liberal Members, not only to the benefit of this country but in a way that has now been emulated throughout the world.

It was recognised from the beginning that a regulator would be necessary as a substitute for competition, especially where monopoly elements existed—for example, in the ownership of pipeline and wires—to protect the consumer. Conservative Members have had no problem, right from the beginning, in recognising that a regulator is necessary and should remain in the industries for some time to come.

I was interested to hear what the Secretary of State said in response to the question whether in a truly competitive environment regulators would be needed for ever. I hope that Ministers will outline in more detail at what point they believe that regulators would become unnecessary. The Bill shows clearly that they regard regulation as necessary, although in need of change.

There are parts of the Bill with which we do not disagree. I shall set out in some detail those parts that we hope to be able to support, provided that we have enough information from the Government, and those about which we have real concerns, as outlined in the reasoned amendment.

Since privatisation, monopolies have broken down. It has happened more quickly in some industries than in others but, since the laws were enacted, competition has encouraged investment and benefited consumers so that industries that for many years were a drain on the Exchequer now contribute to it.

Prices have dropped. Domestic electricity prices have dropped by 29 per cent. in real terms since privatisation; the same figure applies to gas; and there has been a 50 per cent. fall in the cost of telecoms. Privatisation, which has been such as success, was not only opposed but criticised by Labour and Liberal Members.

For example, the hon. Member for Gordon (Mr. Bruce) said of gas privatisation: 16 million British Gas consumers can expect only one result—to pay increased gas prices, higher than the rate of inflation, for years to come."—[Official Report, 10 December 1985; Vol. 88, c. 793.] How wrong he and the many others like him were when they flagged up how damaging privatisation would be for the consumer, and that has been demonstrated since. The present Prime Minister also made an interesting comment on the subject of the privatisation of electricity, when he said: the idea that we will have an influx of power stations, all competing on the grid, is nonsense."—[Official Report, 12 December 1988; Vol. 143, c. 683.] How interesting that his Secretary of State today introduces a Bill that seeks not to reverse those Conservative policies but to take them forward for the next generation. He would not have been able to do so had he and his hon. Friends won the vote back in 1988.

The Bill is a classic example of new Labour in power. Yet more regulatory powers will be put on the statute book—we will have the opportunity to scrutinise the Bill in detail in Committee—but many of the powers will be introduced as secondary legislation. All too often, the House is denied the opportunity to scrutinise the real detail and the impact that Government legislation will have on the industry sectors and on consumers.

I thought that it might be helpful if I first set out those areas of the Bill on which, at first sight, we might support the Government.

Photo of John Bercow John Bercow Shadow Minister (Education)

Before my hon. Friend talks about those areas on which we might agree with the Government, does she agree that it is all very well for the Secretary of State to prate on in a self-satisfied fashion about the new powers that the utilities will be able to exercise, but that it would be wiser for him also to take account of the fact that those new powers will expose the utilities to additional regulatory risk and, therefore, to an increase in the cost of their access to capital?

Photo of Angela Browning Angela Browning Shadow Secretary of State, Shadow Secretary of State for Trade and Industry

My hon. Friend is right. When I have dealt with the issues on which there may be some common ground, I shall deal with those areas of concern, especially the issue of regulatory risk, which has been flagged up by many in the industry and could feed through into consumer prices.

We believe that we can support the merger of gas and electricity regulators, as outlined in clause 1, and the merging of the respective consumer bodies. I hope that the Secretary of State will take some comfort from that. It seems inevitable and the practical way forward. It also reflects the emergence of the two energy interests, as competition has enabled them to compete and to target the same customer base. Privatisation has helped to break down the barriers between the two sectors.

On the reform of the electricity pool and trading arrangements, we have some concerns, but—in principle—it is worth detailed scrutiny in Committee. The contracts between the suppliers, the regional electricity companies and the generators are different from what they were in 1981 when energy was privatised. The Bill's proposal for a bilateral system of contracts between regional electricity companies and generators, to be diversified over time, can be supported provided that the Government get it absolutely right. The Secretary of State will recall that my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) intervened in his speech to outline some concerns that the industry has expressed about the proposed 10 per cent. reduction in electricity prices that the Government believe will result from those changes.

The Government will also need to look carefully at the disproportionate cost that will fall on the shorter-term arrangements. I draw the Secretary of State's attention to the suggestion from Professor Richard Green of Hull university that the sale of generating capacity by PowerGen and National Power could make the electricity market more competitive. However, Professor Green does not believe that the new trading arrangements will achieve that.

It is very important when reforming or updating the arrangement—or modernising it, to use new Labour parlance—that the Secretary of State listen to the concerns that I have raised. The Opposition would like to support the proposals, but not if they give with one hand and take away with the other.

Photo of Angela Browning Angela Browning Shadow Secretary of State, Shadow Secretary of State for Trade and Industry

The Secretary of State is nodding, and I am grateful for that constructive indication that we may be able to make progress, perhaps in Committee, on this part of the Bill.

Separate licensing for distribution and supply is to be welcomed, but I hope that the Minister for Energy and Competitiveness in Europe, when she winds up the debate, will give the House more details about how renewables will be handled. We welcome in principle the proposal that a percentage of renewables will be required, but I hope that the Minister will underline that there will be fairness in that regard.

There is much interest and investment in renewables, especially among smaller companies that need to be sure of their longer-term planning. When arranging their borrowing and investing, they need to be clear about what the Government have in mind. I understand that the Government intend to remove what was known as the NFFO—the non-fossil fuel obligation—round of competitive bidding for contracting in renewables. Such bidding was especially intense for start-up capital for new firms in the sector and for those involved in research and development and in bringing forward new ideas.

The detail of the Government's proposals in that regard will be especially important. In principle, it appears that the Government have acknowledged the difficulties associated with handling renewables, but I hope that the Minister, when she winds up, will fill in the gaps that remain in respect of individual companies.

I turn now to those matters about which we are genuinely uneasy. I listened carefully to what the Secretary of State said about wanting to support consumers and to ensure fairness in the consumer market. We share that objective, but the Bill gives huge regulatory powers to the Secretary of State, as well as more powers to the regulator. It is not clear from the Bill where the line of disaggregation will be drawn between what the Secretary of State demands that the regulator do and what discretion the regulator will retain. No doubt some of that will come to light as we scrutinise the Bill, but we are worried about the principle involved in the additional powers that the Bill proposes.

As for environmental and social policy, there is some disquiet about how the regulator will assume powers and ultimately make apparent policy decisions that hitherto would have been the responsibility of Ministers. The regulator is not answerable to the House, but he will assume—or be forced to assume—responsibility for political decision making. Some of the decisions will have to do with controversial matters with which I am sure the Secretary of State is familiar.

The regulator will be the person charged with putting those decisions into the public domain. Therefore, the Bill will transfer political decision making—and thus accountability—from a Minister accountable to the House to a third party outside the House. Perhaps I might identify, using the experience of one of the Secretary of State's ministerial colleagues, how that might have had the same read-across had a regulator been involved in policy decision making about the ownership and use of the motor car. Had the Deputy Prime Minister, at the beginning of this Parliament, been able to instruct or ask a regulator to make policies on environmental grounds about the usage of the motor car and the environmental considerations attached to it, he could have sidestepped much of the controversy that surrounded that decision making.

I am particularly anxious that powers that we would normally have expected to decide, challenge and debate in the Chamber will, under the Bill, be sent elsewhere without the requirement for such accountability, and with the regulator having to take what hitherto have been seen as ministerial decisions.

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

The hon. Lady is talking about a point that occurred to us in the Select Committee on Trade and Industry when the last gas regulator came before us. Mrs. Spottiswoode quite frankly refused to have anything to do with social obligations and the financing of any undertakings that they might require, on the grounds that she did not run the Department of Social Security and that such obligations were not in legislation so she was not required to do anything. The Bill will require the regulator to take account of those obligations and to follow what seem to be instructions, subject to statutory instrument, by the Secretary of State. This is a means of addressing a shortcoming in the legislation which the previous Government put into place.

Photo of Angela Browning Angela Browning Shadow Secretary of State, Shadow Secretary of State for Trade and Industry

I can understand the hon. Gentleman having a legitimate concern, which we all share, about some of the social problems involving people who have difficulty paying for, or run into difficulties with, their supply contracts for services as essential as water and fuel. However, the present system has seen significant reductions in price and in the number of disconnections.

I am not saying that there should be no change; I am simply concerned, bearing in mind that this has been the hallmark of the Government to date, that regulation through secondary legislation—the Bill shows that many of the powers will be dealt with in that way—will mean that there is no Committee stage in which hon. Members can challenge and question the detail of where the balance is to be struck. I hope that the hon. Gentleman will agree that such a balance is required regarding the appropriate power of a regulator.

I said at the beginning of my speech that the previous Government recognised that, when it came to privatisation, a regulator was needed, and that part of the regulator's job was to take account of the consumer, particularly on pricing. It is a matter of great concern if we do not have the necessary information when the Bill is being scrutinised in the House.

I should like to quote PowerGen. Having heard the Secretary of State's remarks, I realise that he may believe that anyone who is subject to the regulator should not be quoted in the House. The tone of his comments was that their views were perhaps of less importance than anyone else's. However, this sets out quite clearly PowerGen's concerns—which we share—about the way in which the Bill is presented. PowerGen says: The Bill will, however, substantially add to the powers of the Secretary of State (through a wide range of secondary instruments) and the regulator to intervene in the electricity and gas markets and to impose new requirements on companies. These have the potential to increase significantly the costs and risks of business operating in or considering entry to these markets, notwithstanding the intent of the Bill to create more stability. There is a concern that these powers could be used in a way which will de-stabilise the regulatory regime, increasing costs to companies and working against the long-term interests of customers. It is therefore essential that these powers are used in a consistent, non-discriminatory way within a clear policy framework and that significant decisions by the regulator and the Secretary of State are subject to full consultation, with independent routes of appeal where appropriate. That takes us into the detail of how powers will be implemented and scrutinised. Such information should be available to the Standing Committee. It is not unreasonable of us to ask for an independent route of appeal. How will the Secretary of State disaggregate those areas of enforcement and legislative powers that will be devolved to the regulator from those areas in which he will retain powers to introduce statutory instruments in order to instruct the regulator? Giving the regulator an option is quite different from giving an option that allows the Secretary of State subsequently to take powers in secondary legislation or instruct the regulator.

A balance must be struck. Matters may have to be dealt with case by case, but the House must, at an early stage, receive information on the means to be used. Let us consider the case of a regulator instructed by the Secretary of State—statutorily obliged, therefore, to implement the instruction—who knows from experience of the industry involved that regional differences exist and that legislation may have different effects. As a south-west English Member, I think particularly of water. All south-west Members have made known to the regulator and Ofwat our views about what we think right for our consumers.

As a Member of Parliament, I should like to think that I can continue to do that. My constituents may suffer effects different from those in other regions. If the regulator has been instructed by the Secretary of State, he will not have the flexibility that he currently has to use his own judgment and common sense to bring fairness—the very thing that the Secretary of State says that he wants—to the means by which matters are dealt with. I fear that the Bill is both over-regulatory and too rigid. The Secretary of State should accept that we shall wish to consider those matters in much more detail in Committee.

My hon. Friends the Members for Bournemouth, West and for Buckingham (Mr. Bercow) raised the clear concern that the Secretary of State's proposals may increase regulatory risk. If what is imposed is so punitive that it increases regulatory risk, the cost to industry of increased capital borrowing will eventually filter through to consumers. A failure by the Government to do their homework on the Bill could prove counter to consumer interests. The Government must make sure that they take soundings and calculate exactly what any such filtering would mean.

The Conservatives may be forced to oppose the Government, simply on the grounds that the Government have not done their homework properly. If consumer interest lies at the forefront of the Bill's objectives—as we hope it does—the Government must try to carry out suitable investigations. Many interested bodies are sending the signal that that will be a possible consequence of over-regulation and the attendant costs.

The Secretary of State referred to the powers of the consumer councils. I have great concern about the councils, not least because of the United States experience. The councils will need to ensure that we do not end up with what is known in the US as the act of gaming, where people seek information and put it into the public domain simply to undermine those against whom they will be competing for customers or bidding for contracts. What checks and balances does the Secretary of State propose to ensure that that situation does not arise? If the consumer councils are to be the custodians, on behalf of companies, of information that could be quite market sensitive, and if they then put that information into the public domain, the measure should include provisions to ensure that the councils do not create difficulties that would not only affect the companies involved, but could damage the consumer in the longer term.

Photo of Stephen Byers Stephen Byers Secretary of State, Department of Trade and Industry

I am grateful to the hon. Lady for giving way. I support her comments. We are aware of the American experience, whereby people try to acquire confidential commercial information by using what appear to be reasonable and legitimate powers. We were intending to deal with that issue in Committee. I am delighted that the hon. Lady will be able to engage constructively with us when we discuss the means to overcome the particular problem that she has identified.

Photo of Angela Browning Angela Browning Shadow Secretary of State, Shadow Secretary of State for Trade and Industry

That is most encouraging. We look forward to hearing how the Secretary of State will resolve the problem.

There is a real danger that the regulatory over-prescription of the measure will mitigate against the interests of the consumer.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

Does my hon. Friend agree that it is a matter not merely of over-regulation but of overlap of regulations? Does she agree that there are real concerns in the telecommunications industry—especially on the part of BT—about the overlap between the consumer councils and the regulating authorities? Is she aware that that will impose extra costs on telecommunications companies and that those costs will inevitably be passed on to the consumer?

Photo of Angela Browning Angela Browning Shadow Secretary of State, Shadow Secretary of State for Trade and Industry

My hon. Friend makes a timely and accurate point, as I was about to raise that issue. The costs of the Government's proposed changes must be considered. The costs of setting up, or changing, the councils and of related aspects of the measure must be taken into account, however well intentioned such provisions may be as protection for the consumer.

My hon. Friend mentioned the overlap of regulations. I would have thought that the Government would be especially sensitive to that matter, not least because they have just set up yet another Cabinet Office Committee to try to reduce the amount of regulation for which they are responsible.

I draw the Secretary of State's attention to clauses 9, 13 and 90, for example. We need far more detail about those clauses before we consider them in Committee. They contain the potential not only for over-regulation, but for the addition of further costs that will eventually filter through to consumers.

I do not doubt that, despite his rather caustic remarks about the success of privatisation, the Secretary of State's heart is in the right place and that he wants to protect consumers. However, in order to do so, he will have to provide much more information, or the measure will damage consumers in the long term. My hon. Friends and I put him on notice that we hope that he will provide that information. We have heard that many new clauses are likely to be tabled, and we shall have an opportunity to scrutinise them only when the Bill is in Committee. If the new clauses lead to reform and take account of the points that are made in this debate, we shall welcome them. However, we are concerned that the Secretary of State will make it an even bigger Bill than the one that we have seen to date.

The House is discussing the changes to the regulators for what were the nationalised industries only because of the Conservative party's great success in the 1980s. We had the vision, the foresight and the market sense to recognise that this country needed to enter the new millennium with industries that provided a good deal for the consumer, that attracted inward investment, that allowed members of the public—including their work forces—to invest in them and that contributed to the Exchequer and were not a drain on it.

All that was opposed, and I notice that the Secretary of State criticised some of the privatisations and the price tag attached to them. He accused the Conservative party of underselling many nationalised industries, but I hope that he will recognise that his words have been carefully noted. In particular, we shall watch very carefully to see at what price National Air Traffic Services is sold. We hope that he will sell it at a realistic price if he can get the proposal through the House, but I see that he looks rather doubtful about that.

We welcome the fact that, at long last, new Labour is a convert to privatisation. It will privatise NATS and all but privatise the Post Office. In fact, if new Labour is in government long enough, which I doubt, it will take the Post Office to full privatisation and we welcome that. If ever a sinner repenteth, he will receive warm words from Conservative Members.

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee 4:52 pm, 31st January 2000

I notice that the hon. Member for Rutland and wherever else—[HON. MEMBERS: "Melton."] I knew that it had something to do with one confection or another. The hon. Member for Rutland and Melton (Mr. Duncan) will remember the passage of the Gas Act 1995, which had innumerable new clauses and umpteen late explanatory notes. It is in the nature of this type of Bill that such amendments will emerge. If the hon. Member for Tiverton and Honiton (Mrs. Browning) expects many new clauses to be tabled to this Bill, may I tell her that that is nothing new—and it is certainly nothing new from the Department of Trade and Industry?

Photo of Angela Browning Angela Browning Shadow Secretary of State, Shadow Secretary of State for Trade and Industry

I have a huge respect for the hon. Gentleman's experience of such matters, but he will acknowledge that, when the Conservative Government privatised industries, we were pioneers. There is a difference between being a pioneer and being a Government who have learned from the dozens of privatisations that have already been carried out.

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

I do not want to sustain this argument, but the Gas Act 1995 was the then Conservative Administration's second attempt to get gas privatisation correct.

I hope that the Government will establish a consensus and secure the broad support of most of the parties involved. The Bill is long awaited. The Select Committee on Trade and Industry reported in 1997 before the general election and we had a Green Paper and the consultation and responses to it. It is regrettable that the Bill was not introduced earlier, but its complexity and substance have made it well worth waiting for.

It is legitimate to go over the arguments that relate to the privatisation of utilities that began in 1985. In large measure, the Conservatives used privatisation in the attempt to raise revenues, and precious little thought was given to the more important issue of liberalisation. If there was a fault in state monopoly, there was an even greater fault in the creation of private monopolies with regulatory processes that involved, to say the least, a very light hand on the tiller.

At that time there were arguments about price cuts and share prices, and in the 1990s the issue of fat cats arose. Directors' pay crystallised several issues. The fact that the cost structures of the privatised companies needed trimming was probably not in doubt. Most redundancies were voluntary and in large measure were smoothed by generous payments.

The achievement of even minor efficiencies in many of those organisations was not difficult, and when they were realised, in what was then a monopoly market, they often had a disproportionate impact on profits. It is little wonder, therefore, that the understandable initial caution of the regulators in price setting, combined with the savings that they were able to achieve, resulted in a leap in profits and in the share price.

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

The hon. Gentleman makes a good point that goes to the heart of the privatisation policy, in that most people—the City of London, Members of the House and experts—underestimated the efficiencies that would be delivered by moving those companies into the private sector. Does that not demonstrate how inefficient industries are when they are left in the state sector, and how successful privatisation has been?

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

There are a number of arguments about the cost-cutting that took place. In the past week the National Audit Office has suggested that the cost-cutting undertaken by British Energy and the United Kingdom Atomic Energy Authority, which was done by outsourcing services, has resulted in a diminution in the quality of service and, on some occasions, in safety issues.

Photo of Linda Gilroy Linda Gilroy Labour/Co-operative, Plymouth, Sutton

Does my hon. Friend recollect, as I do, that in the early 1980s, owing to Conservative policies, domestic gas prices were put up by 10 per cent. more than the rate of inflation for three years running? The savings for which the Conservatives are claiming credit therefore simply reduced prices by the amount by which they were put up, which is, one might say, robbing Peter to pay Paul.

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

It is fair to say also that, at that time, price increases helped to reduce much of the companies' debts, and gave them the necessary degree of elbow room.

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

I want to make progress because I am conscious that many people want to speak.

Those savings and changes did not prevent fortunate managers and directors from securing remuneration packages—a combination of pay, share allocations, share options and bonuses—that were far in excess of what anyone might reasonably support.

We were told, and have been told again today, that taxpayers were no longer supporting those companies. However, British Telecom and the gas and electricity companies were not subject to great subventions from the Exchequer before privatisation, although they were during the period when their debts were being written off. By and large, however, they were pretty efficient in meeting Government standards.

One could argue that those standards were lax. It took six years for the Conservative Government to think of privatising British Telecom, so they were not that quick to recognise the apparent problem.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

The hon. Gentleman neglected to mention the Central Electricity Generating Board, which was subject to very heavy Government subvention, as of course he will remember.

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

I remember the CEGB and the South of Scotland electricity board, too. One of the problems in the structure of our electricity generation was that, whenever one of our national flag carriers did not have enough orders for power stations abroad, it went to the CEGB, which went to the DTI or the Department of Energy and asked, "Can we build a power station, because there is a generating equipment company that needs orders?" There was a circular movement, and the private and public sectors were virtually indistinguishable because of their interdependence and their desire for Government support whenever they could get it.

Cynics could say—I include myself among them—that if shares are sold off at too low a value, their valuation is bound to increase if large sections of business debt are cut away. Performance is sure to improve if management then introduces efficiencies, and in this context these were efficiencies that the treasurer of a bowling club could have identified and carried through. In the circumstances that I have outlined, costs fall and profits rise. If the businesses concerned operated monopolies, or at least oligopolist markets, there would have been the need for price regulation of a toughness far greater than that which we saw in the early stages of the post-privatisation period.

We saw prices fall after regulatory reviews. Probably we all remember the 1993 electricity price review. The cuts were so ridiculously low that the greatest impact was on the company's shares, which rocketed. The regulator had to return to the matter the following year and take a second bite at the cherry. If anything discredited regulation, it was the ineffectiveness of the then regulator.

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

Will the hon. Gentleman admit that none of these discussions or future price cuts would have occurred had the companies not been moved into the private sector? We would have had year-on-year increases, as we had until privatisation took place. Can he not just admit that point?

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

No, I cannot just admit that point. I am not prepared to accept that argument when we remember comparable companies elsewhere in Europe, which charge lower electricity and gas prices than those charged in the United Kingdom, and which are still in the public sector.

There is nothing intrinsically good or, in many respects, bad about privatisation in this context. However, if privatisation takes place and we allow monopolies to shamble on as they did until the late 1990s, it is possible that there will be gross distortions in the market and gross abuse of power. That was evidenced by the introduction of a windfall profits tax by the Labour Government, about which there was precious little complaint. I have always wondered whether that tax was a bit too low. It has not dramatically affected the performance of the companies concerned or their capability to continue to reduce prices.

We must recognise that utility businesses, by their very nature, are long term: they are safe. We heard the special pleading of the hon. Member for Tiverton and Honiton in the context of the PowerGen press release. Any regulation and toughness that applies to PowerGen will have an element of novelty. The returns of its shareholders and of the shareholders of other utilities have been far in excess of the performance of the FT index over the years.

In other countries where utilities are quoted and traded and where markets are operating, their performance in stock market terms is far more modest than that of utilities in the United Kingdom. It is not the intrinsic efficiency of the UK that leads to the figures for our utilities being so much higher than their counterparts elsewhere. The reason is the weakness of the regulatory system, in its varying forms. Another factor is the personality of the regulators, on occasion. Sometimes they were scared to go in too hard because they interpreted too weakly the powers that had been determined by legislation. On other occasions, they were naive and had the wool pulled over their eyes.

There was the Littlechild experience, which could be described as naivety. On the other hand, there was the experience of James McKinnon in the gas industry. He was faced with the arrogance and obstructionism of a privatised company which refused to provide him with any information and treated him with contempt. However, he stuck to his last. He did not do so from any left-wing populist standpoint. James McKinnon was a regulator who was prepared to take on one of the great energy companies of the world and beat it in a number of areas. He did so with little or no support from the Government of the day. Sadly, that approach was not sustained by his successor.

We must get away from the personalisation of the regulatory system. That is why I recommend that, within the regulatory structure that the Government are putting forward, there should be a more collegiate approach. In addition, there should be a requirement on the director general, who is responsible to his college or board, to produce a clear programme of work. That is what Don Cruickshank did when he was at the Office of Telecommunications, but no one else did. Others merely had vague ideas of what they wanted to do.

The shambles that for a considerable time surrounded the liberalisation of the electricity market was due to the fact that the Conservative authors of the idea did not make it clear whether the Secretary of State or the director general was responsible for the liberalisation of domestic electricity prices. As a result, none of the companies moved in that direction for years, and it took my hon. Friend the Member for Leeds, West (Mr. Battle) to come to office, knock heads together and finally get things moving. The liberalisation took place, with all the attendant problems.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

The hon. Gentleman has been extremely generous in giving way again. He will remember that the evidence given by consumer groups to the Select Committee on Trade and Industry, on which he and I serve and of which he is a distinguished Chairman, was against the idea of a board of regulators—a committee form of regulation—and that most of them took the view that it was better to have as a regulator a single personality, particularly a strong personality, because more would be achieved that way.

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

I think that the consumer organisations were wrong there, and I believe that my right hon. Friends on the Front Bench are of the same mind as I am. Over-personalisation is a draw-back.

The Bill is complex, and we could all make long speeches about it. I welcome the recognition of the fact that the gas and electricity sectors should be combined. I welcome the clarification of the social and environmental aspects of regulation. I have been extremely frustrated by the opportunities taken by obtuse regulators to reject the notion that there is a social dimension to their responsibilities.

Those who believe that regulation will wither away like Lenin's state will probably have to wait as long as people in the former Soviet Union had to wait for the withering away of at least part of the state. When environmental targets are adopted, as they were at Kyoto and subsequent conferences, and when the screw is turned, it will be important for the Secretary of State to be able to oblige the regulator to take that into account.

If excesses, profiteering and price fixing occur, as will happen in any business if people can get away with it, it is up to the regulator to exercise a degree of social discretion. However, it is not the responsibility of the regulator to run a social security system. That is the responsibility of Government, but it is the responsibility of a regulator to take account of the fact that, when price structures work against vulnerable sections of the community—not just the sick or the elderly, but the poor—we must allow some blurring of costs and some creative bookkeeping, to make sure that the poor are protected.

The services in question are not services that people can decide to have or not to have. It is not a matter of digital, colour or black and white television. There is no such choice when it comes to water, gas or electricity, and in most cases a telephone is required in a household. It is therefore not good enough to suggest that it will impose a massive burden on the regulatory system if it acquires social responsibilities which the Conservatives were never capable of imagining.

We must recognise that there is a broad sweep of regulatory concern and of concern on the part of consumers. Apart from the people who pay for fuel through meters or charge cards, there is an even spread of switching across social and economic groupings. People are interested in trying to get a better deal. It is important to consider the consumer properly. Even now, people are backsliding, for want of a better expression.

The director general of telecommunications told the Select Committee on Trade and Industry, which I chair, that there was a great scheme whereby people who were on-line could key in details of their bills and requirements and be told which company was the cheapest service provider. No company puts on its bills guidance about access to that information. Poor people in my constituency are not currently on-line, but providing the telephone number of the call centre, which will be on-line soon, would be helpful. Nobody is interested in providing that number at the moment. I hope that the regulator and the consumer council will identify such issues.

I am worried about the exchange between those on the two Front Benches about providing information. I can envisage companies hiding behind commercial confidentiality—that most elastic concept—thus leading to difficulties in providing proper information to the consumer councils and in getting it into the public domain. As the Chairman of a Select Committee, nothing galls me more than receiving information that I cannot put in the public domain, when I believe that it should be there. In most instances, the competitors know about it; if they did not, they would not last long in business.

The Bill gives grounds for hope and a constructive approach to the future. It is encouraging to get a better trading system to end the abuse of the market, which has been the hallmark of the pool system. Between 70 and 85 per cent. of all price spikes are created by two or three companies. Seventy-three per cent. of price spikes used to be the responsibility of two companies. A wee bit of oligopoly was introduced to the market, the figure increased to 83 per cent., and the abuse about which the Secretary of State spoke took place.

New electricity trading arrangements will produce an improvement to 20 per cent., or 10 per cent. The latter would mean only 5 per cent. of a domestic bill, because generating costs constitute only half a domestic bill. We do not want to get carried away about what will happen, but I hope that the Bill will improve transparency and fairness. I appreciate that the matter is controversial. When two economists and a computer consultant are in the same room, and four people who have not been invited in are outside, there will be 12 different arguments. We are perhaps suffering from that.

Discussions of the Bill will be long and complicated, and I am pleased that I have failed to convince anyone that I was prepared to serve on the Committee that considers it. I have previously served on Committees that considered similar measures, one of which was only a quarter as complicated as the Bill, and I recognise the difficulties. Several issues will emerge only as consideration progresses. Some of the comments by the hon. Member for Tiverton and Honiton were correct, but the fact that we do not have all the information is a feeble reason for opposing the Bill.

The social action plan, produced by the director general for energy, will be central to dealing with fuel poverty. The first draft is not very good, and few people are happy with it. It requires much work. The director general for energy is examining the matter, and proposes to produce an amended version before long. My colleagues on the Select Committee and I want to spend time interviewing him and discussing it. I hope that we shall be able to do that in time to assist Report and Third Reading, if not the Standing Committee.

We are considering complicated and difficult issues, and we have a duty to ensure that we take the right steps. We have a liberalised system for selling electricity and gas. We also have a complicated series of markets in telecoms, where we are still bedevilled by the presence of the 16-tonne gorilla in the front garden in the shape of BT, and the water system is not yet in any way competitive. Work will have to be done there, but 15 years after making the first stumbling attempts at raising revenue through privatisation we are getting to a stage at which we can have utility services that are not publicly owned, but are at least publicly accountable and required to satisfy consumers.

I have spoken almost exclusively about domestic consumers, but industrial consumers are as important, if not more so, because they create the employment and the wealth that our people require. We have to recognise that a great number of our constituents are either shareholders or pension scheme members who have a vested interest in the continued success of those companies. We do not want the companies to be punished, but nor do not want them to engage in the profiteering and aggrandisement that were the hallmarks of the fat cats in the mid-1990s.

I wish the Bill well. It is exciting and worth while, and I am glad that my right hon. Friend the Secretary of State will be able to count on the support of so many of us in the Lobby tonight.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry) 5:16 pm, 31st January 2000

As one of the economists in the Chamber, I hope that I shall not distress the hon. Member for Ochil (Mr. O'Neill) by complicating the arguments even further. In the broad sweep of the debate, the key fact is that after three years of Labour Government we are not considering a Bill to renationalise water and electricity. The Secretary of State is honest about his reappraisal of the arguments on public ownership, which is extremely important and to his credit. It would help the debate if there was open-mindedness on all sides because this issue is not best discussed in an atmosphere of ideological tribal warfare.

Experience of privatisation has been mixed. There have been success stories, but also a lot of blemishes. It is best to be frank about them. The Bill does not deal with the railways, but I find it difficult to believe that anybody would argue that privatisation has helped any public transport user. All kinds of questions have to be asked about some of the supposed success stories. For example, BT is regarded as a top company with world-class management and a history of reducing prices to consumers. Most people consider it to be one of the more successful privatised utilities, but why did the number of telephone disconnections rise from 330,000 to 700,000 between 1995 and 1998? Some people are disconnected because they are careless, but large numbers are low-income consumers—many of them elderly—for whom access to telecommunications is a lifeline. BT's aggressive, commercial approach to generating cash often causes considerable social distress. The company is not universally a success story. The telecommunications industry is high-tech, costs are falling everywhere, and even France Telecom, which is nationalised, is experiencing falling prices. The story is mixed.

Under privatisation, British Gas and Transco have produced a professional operation in many respects and their prices are also falling, although that is partly due to the availability of gas upstream. However, since 1995 the number of consumer complaints in the gas sector has risen from virtually nil to about 70,000 because of aggressive marketing. The complete collapse of the labour force, which is down from about 94,000 to 34,000, is another feature of the industry since privatisation. A large section of the British Gas maintenance labour force has been disbanded. Some though not all of that may be due to efficiency measures, but any hon. Member who has had a problem with a gas leak or tried to have a central heating boiler installed will know that, post-British Gas, we have rapidly found ourselves in the heartland of rip-off Britain as freelance plumbers with poor standards have replaced a somewhat slow but generally reliable system. There is a downside to the increased efficiency of British Gas.

In the case of the water utilities, the benefits are even harder to identify. Before Ian Byatt got stuck in last year, water prices had risen by an average of 55 per cent. since privatisation, with relatively little compensating advantage. It is a very mixed story.

However, let us look to the future. The hon. Member for Tiverton and Honiton (Mrs. Browning) presented her argument in a somewhat ideological spirit, but the issue that she raised—that of regulatory risk and its effects on the cost of capital—is crucial. I broadly support the Bill, and will vote for its Second Reading, but we must try to ensure that the pendulum does not swing too violently towards tougher regulation.

When utilities were under-regulated, they were often sold at undervalued prices. The pendulum has been swinging in the other direction, in many cases rightly. There has been tougher regulation: the windfall tax was introduced, and we now have tougher social and environmental regulations. The Bill will provide a tougher system of licensing and fines. It is tempting to say that the utilities deserve it—that they had it easy, and that now the authorities are getting tough with them. That is an understandable human reaction, but there is potentially a high price to be paid.

If the pendulum swings too far, equity prices may collapse, as has already happened with water and the railways. That will make it difficult to raise risk capital, and the utilities will have to borrow. They are already highly geared in many cases, so they pay a high premium on their borrowing costs. We are beginning to see that happening in the market now. It means that the utilities must either stop borrowing and underinvest—in which event we shall experience shortages in the future—or continue to borrow, with the result that future generations must pay through higher charges.

Regulatory risk is a real issue, and our attitude to the Bill will be governed partly by how the Government handle it. Some subtle but important questions will determine how well they do handle it. There is, for instance, the question of how they deal with fines. Large fines may be right in some cases, but it is important for fines to be imposed only when there has been negligence, or a deliberate intent to abuse the powers of the utility concerned. There must also be a proper system of appeals. If the balance is right, the arrangement may be acceptable, but regulators cannot be allowed to impose fines indiscriminately under an opaque system of regulation. Furthermore, we need a proper system of regulatory impact assessment to govern what will no doubt be a swathe of secondary regulations following the Bill's enactment. If we do not get the balance right, more harm than good will be done.

The key new element embraced by the Government is competition, taken in conjunction with the Competition Commission's new powers for utilities. In principle, it is right for there to be more competition—I welcome that general slogan—but the detail does not always make it clear what the commitment to competition actually means. There is, for example, an interesting disparity, which has not been explained, between the energy sector, in regard to which the Bill is committed to facilitating competition, and water, in regard to which it is committed to encouraging competition wherever possible. In the case of telecommunications, there is an odd exemption providing for the continuation of appropriate distortions. It is not clear why certain industries have been allowed to insert these words qualifying the provision for competition, although no doubt it will become clear as we work our way through the clauses.

I have a more fundamental problem with simply accepting the competition slogan as the be-all and end-all of the new approach to the utilities. Competition may well be desirable—it often is, in fact—but in some cases there is no competition, and is not likely to be; there is a natural monopoly. There can be common carriage in the water pipeline system, the ring main and the electricity grid system. Those are natural monopolies, and they will always need regulation.

More important, the way in which competition operates in relation to many of the products that we are discussing does not provide some of the advantages of a competitive market. Throughout the Secretary of State's speech the hon. Member for Rutland and Melton (Mr. Duncan) heckled, saying that electricity, water and gas were just like any other commodities. They are not. Electricity and gas contracts are very complicated: we know that, because 30 or 40 per cent. of those who change their suppliers opt for the first who telephoned them. It is rather like buying a private pension or an insurance policy. They are complicated products. Similarly, in many cases there are costs in switching those items. If people buy into a year's contract, they will not know what will happen next year. Charges may improve dramatically.

In many ways, the competitive market for gas, electricity and water, and the market for financial products, are analogous. One of the things that we recognise and which the Government have recognised in the Financial Services and Markets Bill is that, although it is important not to overregulate the wholesale bit—the City—it is important to have a tough and quite detailed regulatory system for the final products.

I think that the Government have recognised that by giving consumer councils strong status in the Bill. That is right. I take issue with Conservative Members emphasising the danger of consumer councils leaking information. There is a genuine problem, which the Secretary of State acknowledged. If consumer councils become a source of information that can be used for competitive positioning, it will be dangerous—but there is a greater danger that consumer councils will be starved of information.

The Bill contains a gagging clause on the consumer councils. What will happen if there is a conflict between a consumer council's demand for information and a regulator's willingness to release it? Who will be the final arbiter? Much detailed argument will be needed to ensure that the balance is right. There are concerns not simply about the competing company aspect, but about consumer protection.

Leading on from that, there is the issue of the social justice agenda and how the Government are using the Bill for that purpose. The hon. Member for Ochil has said that, in general, the utilities are not a branch of the Department of Social Security and that other mechanisms have to be found to deal with poverty and inequality, but I welcome the fact that clause 109 introduces the principle that the utilities have an obligation towards people on low incomes, pensioners, the rural population and others.

I am not clear why the Government have been quite far-sighted in that respect in the Utilities Bill, but the Treasury has categorically ruled out any concern with social welfare in respect of financial services. A parallel debate is taking place. The issue might arise tomorrow during consideration of the Financial Services and Markets Bill. There is a problem of joined-up government, or perhaps there are different styles.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

The hon. Gentleman is not quite right. Apparently, the Treasury will encourage something called social banking, which seems to go against what he has said.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

That may be the case, but I have tabled an amendment, which may be debated tomorrow, that suggests that the financial services regulator—the Financial Services Authority—should have an obligation towards low-income consumers. If what the hon. Gentleman says is right, I hope that the Government will concede generously. So far at least, there has been a disparity in approach.

This is an important area. Many people are hurt by fuel poverty. As the debate proceeds, we will want to know more concretely exactly what clause 109 will mean. There are a number of issues: disconnection; whether utility companies will make provision for charge cards that people have to use for pre-paid supply; how easily those can be obtained; standing charges for low users such as pensioners; and people on low incomes who have high energy bills, often within badly insulated homes. Those issues have to be dealt with. It is important that we make it clear how far the obligations of the utility regulators will take those considerations into account.

As I understand the Bill, there are some interesting and useful bits of parliamentary accountability. Clauses 9 and 13 suggest that new regulations will have to be considered by the House in a quite innovative way. That is positive, but the Government may be missing an opportunity to build in a much stronger system of parliamentary regulation.

Occasionally, utility regulators appear before the Select Committee on Trade and Industry, and they are investigated by the Public Accounts Committee. I have seen at first hand, on the Select Committee on the Treasury, the record of scrutiny of the Bank of England. In many ways, that scrutiny arrangement is an ideal model that the utilities should follow—with confirmatory hearings of the regulators or, in the water industry, the regulator, plus regular accountability at particular intervals. The Governor of the Bank of England has always acknowledged publicly that being held to account in that manner is one of the most intimidating jobs that he has to do as part of fulfilling his responsibilities. All the regulators should feel similarly intimidated.

We should take advantage of the growing interest in the parliamentary scrutiny offered by our Select Committees to build such accountability into the system of management of the utility regulators.

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

The Trade and Industry Committee tries, as best it can, to frighten the living daylights out of the regulators, and occasionally it does it reasonably well. At a Select Committee sitting, the utility will get a hearing, and everyone else will also get a chance. If a utility goes to the Competition Commission, it will cost £2.5 million; if a utility goes for judicial review—which is usually grossly unsatisfactory—it will cost a lot of money and time; but if a utility comes to a Select Committee, it will not cost very much. There is a two-way dialogue in the hearings. Quite often, the companies themselves want their case to be heard, and our informal structures facilitate such a hearing much more easily than many people appreciate.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

That was a helpful intervention. I hope that the hon. Gentleman will persuade Ministers of the need to build that safeguard more strongly into the legislation.

I should like to deal finally with the electricity trading arrangements, which are important not only for the economics of the utilities, but for environmental reasons. The hon. Member for Bournemouth, West (Mr. Butterfill) has already made the very important point that what the Minister stated as a matter of dogma—that there will be 10 per cent. savings—is being very seriously questioned by the professionals involved.

Many other regulatory issues in electricity trading have not yet been addressed. There is now a very large market in paper products, such as futures and options, in electricity and other energy trading, and those will be subject to double regulation—by both the FSA and the energy regulator. No one seems yet to have clarified how that very important and large market, which will be crucial to the new regime, will work.

The key problem is the environment. As I understand the new electricity marketing arrangements—which are very complex; I do not claim to be an expert on them—it will be much more difficult for renewable energy to make competitive bids within the new pool system. Wind and solar power generators, for example, are not able to guarantee fixed supply, as will be required under the new long-term contract structures. It is therefore important that we are clear, particularly with the fossil-fuel levy, about weighting and how renewable power will be protected and strengthened in the system.

Another implication of the electricity trading arrangements is that it will become much clearer that gas, quite apart from its significant environmental advantages, has a competitive advantage over coal. As the Bill progresses, Ministers should clarify what they intend to do about the consents regime for gas-powered generators—which, when they were allowed to be developed, brought very considerable economic and environmental benefits to the United Kingdom. It is not clear whether the restrictions on supply from the gas sector will be maintained within the electricity trading arrangements.

The Bill contains many positive provisions which we support, such as the emphasis on competition, the new emphasis on social obligations and the more flexible approach to regulation—recognising that we are now moving past a resale price index-minus X type of regime for all the utilities. There are, however, major question marks about the strength of consumer protection and the environment, which Liberal Democrat Members will highlight in a series of detailed amendments.

Photo of Mr Ivor Caplin Mr Ivor Caplin Labour, Hove 5:34 pm, 31st January 2000

It is always heart-warming to listen to a Liberal Democrat agreeing with some and disagreeing with others, and I pay tribute to the hon. Member for Twickenham (Dr. Cable), who has managed to do that for the last 20 minutes.

The most interesting part of the speech by the hon. Member for Tiverton and Honiton (Mrs. Browning) was the last few sentences, in which she gave the game away by going back to the old rhetoric of privatisation that has dogged the Tory party for so many years. It struck me that although the faces have changed in the Opposition Trade and Industry team, their policy—such as it is—is still rather Redwoodian. They must move their policy from outer space back to the real world, and I must tell the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) that opposing a Bill such as this is not the real world. I will have more to say about him shortly, and he will enjoy that.

In an article in "The House Magazine" last year, I wrote: The fact that protecting consumer interests is not even a primary duty on the part of utilities regulators is the unfortunate legacy of the Tory Government. Put simply, the case for reforming the regulatory system is overwhelming. I welcome the Bill in that regard.

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

Does the hon. Gentleman know what the primary duty was under the previous legislation? If he does not, I can tell him. The previous primary obligation was security of supply. Does he accept that that should be the primary objective of the utilities?

Photo of Mr Ivor Caplin Mr Ivor Caplin Labour, Hove

As I continue my remarks, the hon. Gentleman will realise that I have a different angle on this matter. If he had read that article, he would know that it was based on consumers, particularly vulnerable consumers.

In preparing that article, I looked at some key issues of post-privatisation Britain. Why had there been so many changes in the utility sector? It is clear that the number of customers having their service disconnected since privatisation has fallen, but, on the other hand—here I sound a bit like a Liberal Democrat—the number of complaints received by the various regulatory bodies has increased dramatically. The number of people employed by the utilities has fallen. The average bill in some utilities—such as gas, electricity and telecoms—has fallen, but the average annual bill for each of the privatised water companies has increased, and continues to do so.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

The hon. Gentleman is right to note that water prices have increased, but he will know of two major factors. The first was years of Treasury reluctance to put capital into the industries, and the second—and more important one—is the correct environmental standards that are now required, not least by the EU, which have meant that even more investment is necessary.

Photo of Mr Ivor Caplin Mr Ivor Caplin Labour, Hove

The hon. Gentleman may well be right, but I draw his attention to the comments of my hon. Friend the Member for Ochil (Mr. O'Neill) on the windfall tax, which we were told was unacceptable and would decimate the utility sector. However, it has been a great success, although it was opposed by the Conservatives and the Liberal Democrats.

My right hon. Friend the Secretary of State said that there were four key areas of the Bill. I think that there might be five, which I will take the House through. The first is to secure a fairer deal for consumers, which will be done by the establishment of the independent consumer councils so that there is an effective voice for those who pay the bills. The Bill will make sure that information can be published. There is also the principal objective of saying to the utilities that the protection and interests of consumers must be at the heart of their business.

The second area is that of disadvantaged consumers, to which reference has been made in the debate. The Bill proposes a new duty for the regulators—and the utilities, ultimately—to take into account the interests of low-income consumers. Few Labour Members will be unhappy to see that duty placed on the utilities.

Thirdly, the Bill modernises the regulatory framework. It is about 15 or 16 years since the privatisation of BT. We can argue about whether the framework used then was right or wrong, but we can all agree that the world has moved on and there is clearly a need for the system to be modernised to take account of market developments. [Interruption.] I understand that some Opposition Members may not want the world to move on. We have seen that already in the past two and a half years and we look forward to seeing it many more times.

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

We were trying to convey the fact that the official Opposition agree with the hon. Gentleman's vital point that, yes, the world has moved on.

Photo of Mr Ivor Caplin Mr Ivor Caplin Labour, Hove

I was trying to ask whether the Conservative party had moved on, but I realise that that was far too difficult a question.

As multi-utility companies are clearly emerging, we need a new, modern regulatory framework. I believe that the Bill achieves that.

Fourthly, the Bill recognises the importance of environmental objectives and brings them into the heart of the utilities and their regulation. It gives Ministers powers to make regulations to promote energy efficiency and the generation of electricity from renewable sources. I was certainly encouraged by my right hon. Friend the Secretary of State's answer to the hon. Member for Lewes (Mr. Baker) on that point. The Bill places a duty on the regulator to have regard to statutory guidance issued by Ministers on environmental objectives in the relevant sector. Even Greenpeace feels that the Bill has some positive impact on environmental considerations.

Fifthly, the Bill brings about a more stable, consistent and transparent regulatory framework. In any Bill dealing with regulation, there are technical parts. The hon. Member for Tiverton and Honiton took us through many of those, so I shall not go over that ground again. The Bill is about building confidence by making regulation open, accountable and consistent and ensuring that the regulators' decisions are widely accepted.

I am glad that concerns in those five areas have been responded to over the past few months.

The hon. Member for Bognor Regis and Littlehampton and I both have electricity and gas provision from Seeboard in our areas. I gladly declare an interest in that Seeboard has 1,000 staff based in Hove. I asked the company what it thought about the Bill. In April 1998, it was the first electricity company in the country to abolish the standing charge, partly because of local pressure on behalf of people in fuel poverty. We are pleased that it responded, and that shows the effect that local campaigns can have. The Government also reduced fuel prices in their first Budget in 1997, by reducing VAT on fuel: a point to which we shall no doubt return in the general election.

Seeboard said that it supports the legislation because it recognises the existence of weaknesses in the current regulatory framework. It said that the legislation allows the current public electricity supply licence to be replaced by separate distribution and supply licences, which it supports, establishes a single regulatory body and sets up the consumer council, which it supports especially because of the regional element, which is important from its point of view. Seeboard also believes that the Bill will reduce the regulatory uncertainty that has existed in the marketplace for some time, but still allow companies to run their operations in the best long-term interests of their customers and, of course, their shareholders. Seeboard supports the changes in the Bill that are intended to give effect to those measures, and I am sure that the hon. Member for Bognor Regis and Littlehampton is pleased that the provider of power in our area gives the Bill a thumbs up.

The question of the social action plan and low income groups is at the heart of the Bill. That is the difference between the current, Conservative-sponsored legislation, which is about the supply of a utility, and this Bill, which is about putting the consumer first in utility regulation and the provision of services by utilities. The Bill will be regarded in years to come as an important, modernising Bill. It will reduce prices for the consumer, but it will do so in a way that allows the companies to continue to invest in their local areas.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West 5:46 pm, 31st January 2000

The Secretary of State was uncharacteristically churlish when he described what he had inherited in the industries that we are discussing. I remember well the situation in which privatisation first took place, because I had the honour of serving as Parliamentary Private Secretary to my noble Friend Lord Parkinson, who was then Secretary of State for Energy. Indeed, my hon. Friend the Member for West Worcestershire (Sir M. Spicer) was the Minister of State at the same time, and no doubt he will seek to catch your eye later, Mr. Deputy Speaker.

At that time, the nationalised industries provided a poor service to the consumer. In fact, they did not care much about the consumer. They provided their services at high cost, and there was no attempt to modernise the industries in the way that they were being modernised in other parts of the world.

When we first suggested privatising energy industries, Opposition Members opposed it in principle, but they also claimed that it would not work. They said, "You can't possibly privatise a monopoly supplier and introduce competition into the process." Well, it did work, and the Organisation for Economic Co-operation and Development, as recently as 1996, held this country out as an example of how it should be done. What we did was not perfect, because we were pioneering at the time. We were doing things that people did not believe to be possible.

Photo of Mr Ivor Caplin Mr Ivor Caplin Labour, Hove

If the privatisation of British Telecom was pioneering in the mid-1980s, why did the Tories get it so wrong with the water industry in the 1990s?

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I do not think that we did get it wrong, although it was not possible to get everything perfect. Much play has been made by Labour Members of the prices at which the industries were sold, but we should remember the climate. Privatisation had not been attempted before. Many people, especially all the then Opposition Members and including some people in the City, did not think that it could be done. People were nervous about the prices that the industries would be sold at, especially because they would be subject to close regulation. Indeed, people told us that it would not be possible to privatise electricity provision unless we took the nuclear industry out. That is why nuclear was not privatised at the same time as the other generators.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

My hon. Friend makes an extremely important point about the difficulties that we faced. Does he remember that the chairman of what was the Central Electricity Generating Board said that something called megavars would blow up the whole industry if we privatised it?

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I remember that well. The CEGB chairman was ambivalent about the whole privatisation process. We were told that selling the industry would be difficult, and impossible if nuclear were included.

We took professional advice on the prices that could be achieved. It is also important to remember that the Treasury had a real interest in the price. Many civil servants at the Treasury at the time are still Treasury officials now, and they were extremely worried about how much money privatisation would produce.

It is wrong, therefore, to say that the Government of the day sold off the electricity industry cheaply. We wanted to get as much money as possible, but we wanted privatisation to succeed. We took professional advice on the price that could be obtained.

Everybody was surprised at the success of the enterprise. Labour Members were amazed that privatisation worked. It is wonderful to look back with hindsight and say that the industry was sold off cheaply, but at the time people were astonished that it was sold at all.

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

The old nationalised industry was run by technologists and, at best, technocrats, not by business people. The accounting systems were of a perfunctory character and were somewhat opaque in several respects. However, that was a reflection not of the quality of management, but of the emphasis on technology.

Technology was at the core of the business. If something could improve technological performance, it was tried, but the question of whether that was necessarily good for the consumer was not considered. That was one of the factors that made pricing difficult. However, a lot of people made a lot of money out of privatisation, and perhaps there was not quite so much naivete in the City as the hon. Gentleman suggests.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I do not think that anyone has suggested that the Government of the time were deliberately given inaccurate advice, nor that the advisers were guilty of professional negligence.

Photo of John Cryer John Cryer Labour, Hornchurch

Time and again, when they were privatising the railways, the previous Government were warned—by the unions and by independent bodies—that the price was set too low. They took no notice of that advice.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I recall that the unions opposed every privatisation. In the main, the reasons that they gave for that opposition have proved ill founded. I think that all hon. Members would agree—as would the Government, even—that privatisation has been benign, and that it has benefited both consumers and UK plc. That is evident in the falls in domestic prices: prices for both electricity and gas have fallen by 29 per cent., while telecoms prices have fallen by 50 per cent.—and by 80 per cent. when those prices take account of telecommunications with Europe.

It is proper now to look again at the privatisation process and seek to redress some of the imperfections in the original legislation. However, hindsight is a wonderful thing: it allows people to say how they would have introduced privatisation, but only after they have seen how the process turned out in real life.

I welcome several proposals in the Bill. The merger of Ofgas and Offer to form Ofgem is a good idea that the Select Committee recommended a long time ago, on the basis that one regulator for that sector offers a lot of advantages. That arrangement would not have been possible originally, as the two industries were privatised separately, but, in today's circumstances, it is a logical proposal. Similarly, the proposal for separate licensing of supply and distribution of electricity is sensible, and I support it wholeheartedly.

I am a little more worried about the proposals for the new electricity trading arrangements—NETA—which have attracted quite a lot of criticism. I have mentioned that Professor Bunn of the London business school thinks that prices will rise rather than fall. The difficulty is that the system to which we are moving is not based on real-time trading. Most of our western competitors have systems based on real-time trading, and they have achieved results in getting prices down. The new system is much more opaque and difficult to understand, and many of those being asked to participate in it have considerable doubts about whether it will work.

I hope that it does work, as all hon. Members are in favour of lower electricity prices for consumers. However, Larry Ruff of National Economic Research Associates does not think that abandoning real-time trading will work. He considers that it is not a sensible option, as it is wholly unproven. I should be interested to know how confident Ministers are that this novel idea will produce the hoped-for results.

There are concerns about certain participants in market supply. For example, I imagine that most hon. Members will agree that combined heat and power is an extremely good idea, being more efficient and economical. It is something that we should have been involved with a long time ago. However, the Combined Heat and Power Association has reservations about how it will be able to participate under the new trading arrangements. The association is at something of an impasse with Ofgem about the resources that might be given to it to allow it to participate in market supply.

In a recent submission to the Select Committee, the association stated: the CHAP is on the verge of having to withdraw from the NETA process, due to a complete lack of funding from OFGEM to resource the consultants and legal advisers needed to steer through the highly complex and opaque … process. That is worrying. If important market participants such as the Combined Heat and Power Association think that the process is not working, many other, smaller contributors—which all hon. Members will want to encourage, because we all want greater diversity of supply—may have even greater difficulties. To describe the NETA process as "highly complex and opaque" is probably an understatement, given that even those of us who take an interest in the matter have experienced some difficulty in envisaging how the process will work. That is not a new experience, admittedly. Many of us found it difficult to understand how the pool would work; some of us still do.

Another worry has to do with security of supply. I am not sure who, under the Bill, will have primary responsibility for that. I hope that the Minister will be able to clarify the matter when she replies to the debate. It is an important issue. When members of the Select Committee went to see Ofgem, I asked how the new system of calculating electricity prices would affect the balance in the market of the different types of generator. Ofgem could not give a clear answer; in fact, it said that it was not its responsibility, and that projecting how the changes would affect the balance of supply was not within its remit. However, it seems clear that coal-fired energy producers may be at a disadvantage.

I am also concerned that there is no clear idea from Ofgem or the Minister about what will happen to nuclear energy. Our nuclear capacity is likely to disappear altogether over the next 15 to 20 years unless the Government make an announcement to renew it. Within that period, it will steadily decline as a proportion of the market. That has implications for our Kyoto obligations and for what we are going to do for replacement energy.

The Secretary of State has been refusing consents for increased capacity for gas-fired generation. How will the new obligations be met, and what effect will that have on other generators and the security of supply? Those are important questions, but they are not being addressed by Ofgem, which says that they are not its responsibility or, I suspect—unless I hear otherwise—by Ministers. Who will take the strategic decisions to ensure that we always have security of supply?

Photo of Bob Laxton Bob Laxton Labour, Derby North

On security of supply, do you not agree that there are real dangers in putting all our generating eggs into one basket? May I remind you of the occasion—I think that it was 17 November 1998—when the demand for gas outstripped supply and there was an increase of about 140 per cent. in the spot price for gas? There are real dangers, which you alluded to, about the difficulty of lack of security.

Photo of Michael Martin Michael Martin Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. First, the hon. Gentleman's intervention is a bit too long. Also, I have not taken part in the debate, so he is best not to refer to me.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I agree with the hon. Gentleman that we must have diversity of supply. We cannot be wholly dependent on one type of energy generator. I hope that combined heat and power will take off. I believe that the Government should be making decisions now on new nuclear installations, because it will not be possible for us to comply with Kyoto unless they do. Because it takes an awfully long time to get planning consent for all the public inquiries and then to build the installations, such decisions must be made sooner rather than later.

I am concerned that the powers of the Secretary of State under the Bill are very wide-ranging. They impose a heavy burden of regulation—a burden we do not yet know the full extent of. Most of what is proposed in the Bill will become apparent when the regulations are made. As previous speakers have said, Members of Parliament do not like measures carried out by regulation because they avoid parliamentary scrutiny. Yet the Bill goes much further in that direction. It includes, within the Secretary of State's powers, all sorts of matters that are not immediately perceived as directly pertinent to the regulation of a utility.

Much has been said about social objectives, and we all agree with the idea of having them. But they should be dealt with by the Department of Social Security, not through the regulation of the manufacture and sale of a product.

Photo of John Bercow John Bercow Shadow Minister (Education)

In the light of what he has said, is my hon. Friend not concerned that the Bill will dramatically increase the 2,800 regulations that have spewed forth from the Government's machinery since 1 May 1997? As a business man, in contrast to Labour Members, is he not concerned that, by increasing the regulatory risk to which the utilities are exposed, it will be substantially more expensive for them to have access to capital?

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

My hon. Friend anticipates precisely what I was about to say. The increased burdens that the Bill is likely to impose on the industry may well increase the cost of electricity to consumers. That is not what the House should be doing. One day, in some utopia, we may not have social ills, but we do, and they need to be addressed elsewhere. They should not be dealt with by a method that will increase the cost to some of the most vulnerable people in our society, sometimes in ways that we do not fully understand.

For example, the hon. Member for Hove (Mr. Caplin) said that it was wonderful to have got rid of standing charges. In principle, I think that some change in standing charges is a good idea. But he knows that one of the main beneficiaries of the abolition of standing charges is that group of rather affluent people who have second homes in constituencies such as mine and his. They go down only at weekends, do not pay the standing charge, and have lower bills. The people who live there all the time foot the bill.

Photo of Andrew Stunell Andrew Stunell Shadow Spokesperson (Environment, Food and Rural Affairs), Liberal Democrat Spokesperson (Environment, Food and Rural Affairs)

Is the hon. Gentleman arguing for strong Government intervention and expenditure on social welfare provision, or for something else?

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I am saying that it will always be the responsibility of Government to help the poorest and most needy in our society, and that the Bill is not the right place in which to do that.

Photo of Lindsay Hoyle Lindsay Hoyle Labour, Chorley

Does not the hon. Gentleman recognise that if people can turn on their electricity and gas without fear because the standing charge has been removed, it benefits those in our society who are worst off, not those with second homes?

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I think that the hon. Gentleman has missed my point. It would be better to have a mechanism whereby we assisted the group that he is concerned about but did not at the same time give a massive bonus to some of the very wealthy people who have second homes in constituencies such as mine and that of the hon. Member for Brighton and Hove. They can well afford to pay their electricity bills. The fact that they are not paying that element of their bills increases the bill for the more needy in society.

Photo of Mr Ivor Caplin Mr Ivor Caplin Labour, Hove

I actually represent Hove—indeed, I was waiting for the hon. Member for Buckingham (Mr. Bercow) to come in there.

Why would the Electricity Consumers Council welcome the publication of the Bill and the duty that it gives regulators if it did not believe that it put consumers first? That is the essence of the Bill.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I do not find it surprising that the council welcomed the Bill as there is likely to be considerable improvement in the areas with which it is concerned. It would be more surprising if it did not welcome the Bill.

The Bill enormously increases the burden of regulation. It may increase the cost of electricity generation. We are returning to the nanny state beloved of the Labour party, which should have learned from what has happened here and around the world that we can best help the poorest in society by producing goods efficiently.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I am winding up and I have been generous, so I shall not.

We must produce goods more efficiently and at lower cost. That is how to increase the wealth of society and help the most needy.

Photo of Mr Bill Tynan Mr Bill Tynan Labour, Hamilton South 6:10 pm, 31st January 2000

Speaking in debates is a new experience for me, and I am glad to have the opportunity to speak in such an important one. The Bill relates to the essentials of life for my constituents. The range of issues it covers will affect utility shareholders and consumers. The Bill is the product of two years of extensive consultation, and the House should recognise the credibility that its proposals gain from that process.

The Bill's main principles deserve our support as they address some of society's problems. We must produce legislation that ensures the best delivery of service at the right price. However, we must also be committed to achieving the highest safety standards. Reducing prices at the cost of lower safety causes enormous problems. Recently, just four miles from where I live, a massive gas explosion destroyed a house, killing a family of four. The case is being investigated by the Health and Safety Executive, but pipes were known to have corroded. Concern remains that pipes on new estates in my constituency, which were recently laid, have the same problem. We must ensure that health and safety are not compromised by price reductions.

The Bill seeks to establish a fair balance between the interests of consumers and shareholders. The radical changes proposed will be welcomed by many. The establishment of an independent consumers council has prompted considerable debate, but unless we make the council powerful, we shall create a regulatory body that achieves nothing. Consumers' fears must be addressed. If consumers have problems or complaints, there must be a central point to which to take them. I welcome the introduction of a powerful council.

Regulators will have regard for the Government's social and environmental objectives. That approach is both sensible and desirable. It has not been taken in the past. I particularly welcome the Bill's provisions for increased transparency, accountability and consistency of regulation. There will be greater scope for consultation on key decisions in the various utilities, which will provide opportunities to examine what must be done and how it should be done.

It is inherent in that process that regulators should have more powers to publish information in the interests of consumers. I welcome openness. I recall that the distribution price review was based on a consultative report commissioned by Ofgem. The report assessed labour costs and possible savings, but its findings remain confidential despite their having been a key factor in the regulator's decision-making process. We never gained access to that report. Information is vital to the achievement of accountability, giving workers in industries and consumers the chance to see important facts that affect their lives. I would welcome an assurance from my hon. Friend the Minister for Competition and Consumer Affairs that reports of that nature will be accessible to the public when the Bill is enacted.

The final proposal that would benefit the consumer by creating a fairer system lies in the trading arrangements that other hon. Members have mentioned this evening. Making the market more competitive is the intention behind those arrangements. That would offer the prospect of lower electricity prices, which all of us should welcome. However, concerns remain about the Bill, arising principally from the proposal to reduce prices by 10 per cent. Consumers would welcome that, but I sound a slight note of caution. Reducing prices must not mean that utilities shed labour without regard for safety. It is easy for employers to decide that cutting labour should be the first way to reduce costs, but they must recognise the value of employees and search for greater efficiency and delivery of service.

Recent periodic price reviews in the electricity and water industries resulted in massive redundancies. Regulation should promote careful, constructive management of change rather than encouraging the short-termism shown by some electricity and water companies.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

Will the hon. Gentleman comment on last week's news that water prices in Scotland will go up by 50 per cent. over the next two years? Does he think that that is good news?

Photo of Mr Bill Tynan Mr Bill Tynan Labour, Hamilton South

The Scottish Executive has dealt with price increases in Scotland. There are variations across the country. In the north, for example, there has been a lack of investment, and the price of water will increase. The increases for all areas were a decision of the Scottish Executive and were accepted by the Scottish Parliament.

The Bill seeks to ensure that disadvantaged consumers will benefit. Regulation must take the needs of all consumers into account. Anyone who has been unable to turn on heating or lights will know how important the Bill is. We must pass it through the House as speedily as we can. The new duty of the regulator to take into account the interests of low-income consumers must be applauded. Energy efficiency standards and performance that will help the poor to reduce their energy bills must be welcome. The modernisation of the regulatory framework is essential to the delivery of keener prices and better services.

Increased competition in electricity supply and the emergence of multi-utility companies have created the need for a flexible framework, which must be able to respond to change and the modernisation of the utilities. Environmental objectives, such as energy efficiency, must form part of the planning process for those utilities.

I welcome the fact that Ministers have the power to make regulations to promote energy efficiency in the generation of renewable energy. It is clear from the consultation process that there is substantial support for the measure. Opposition Members have also expressed support for many of the Bill's provisions.

The primary duty of the new Gas and Electricity Markets AuthorityGEMA—to the consumer will be to ensure that the regulatory body accesses and monitors the safety record of utility companies. That will lead to joined-up working between GEMA and the Health and Safety Executive. That is essential in view of the high standard of safety required in the industry.

Photo of John Bercow John Bercow Shadow Minister (Education)

In view of some of his earlier remarks, will the hon. Gentleman clarify his position? Will he confirm that he believes that prices should be set at such a level as not only to allow for energy efficiency schemes and the observation of health and safety standards, but to subsidise wage rates?

Photo of Mr Bill Tynan Mr Bill Tynan Labour, Hamilton South

That is essential in relation to health and safety. However, wage rates are normally dealt with between unions and employers. It is a question not of subsidising wage rates, but of ensuring that health and safety comes first with employers. I am sure that the unions would agree with that.

Joined-up working between GEMA and the HSE is vital. In addition, we need substantial monetary penalties for breaches of licence and of standards of service. The fines must not be meaningless. We must ensure that regulation and service are protected in the way outlined in the measure. Our standards must be set high because of our commitment to safety in the industry.

We have not said much about the employees in the utilities who will deliver those essential efficiency improvements. Those employees are also stakeholders; their needs should be taken into account when we consider the measure.

The Bill offers us a way forward. In Committee, we must examine the propositions put by Members on both sides of the House so that we can produce a measure that will benefit all the people whom we represent.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire 6:23 pm, 31st January 2000

The hon. Member for Hamilton, South (Mr. Tynan) asked how prices could be reduced by 10 per cent. The answer is by competition. As the Bill is anti-competition and would prevent competition, it does not have a hope in hell of reducing prices by the amount that the hon. Gentleman wants.

Before I develop my argument, I declare an interest as the president of the Association of Electricity Producers, although I suspect that much of my speech will not win the support of members of that organisation. In view of my declaration, I hope that the Whips will acknowledge that I should be a singularly inappropriate member of the Standing Committee.

The second interest that I declare is the one referred to by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill): I was the Minister who piloted the Electricity Act 1989 through Committee. In that capacity, I was opposed by the then hon. Member for Sedgefield (Mr. Blair), now the Prime Minister, who, in his inimitable way, made the suggestion—quickly agreed to—that the Bill should go through fairly easily, as he wanted to get home to his young family as often as possible. On four occasions, he asked whether he could issue press releases before lunch. We agreed to that, much to the chagrin—indeed outrage—of the Labour Whip who was in charge of the Bill. However, that was overridden, and the hon. Member for Sedgefield got his way.

I refer to the 1989 Act because it is highly representative of the Conservative Government's approach to utilities and regulation.

Photo of John Bercow John Bercow Shadow Minister (Education)

The House is waiting, with eager anticipation and with beads of sweat on its collective brow, to discover whether my hon. Friend wisely retained his copies of the press releases issued by the Prime Minister when he was in opposition. If my hon. Friend has done so, we shall certainly be able to see that the right hon. Gentleman has changed his mind on every one of the issues.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

My hon. Friend makes an interesting point. There have already been allusions to the many unqualified statements made at that time by the now right hon. Gentleman—to the fact that such a measure would never work and that the industry would collapse. He made such pronouncements on three occasions. They are recorded in the press, because even in those days he was able to get himself into the newspapers, and they certainly bear much reading. My hon. Friend is right to draw the House's attention to that matter.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Does my hon. Friend agree that those statements might well be of interest to the Bill's Standing Committee?

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

I have already made clear my own unsuitability for membership of that Committee—[Interruption.] I am sure that my hon. Friend the Member for Buckingham (Mr. Bercow) will tell the Whips what I said. However, I would certainly advise those of my right hon. and hon. Friends who are members of the Committee to look out those statements because there is no question but that they are worth reading.

The 1989 Act is highly representative of the previous Conservative Government's whole approach to the utilities and their regulation. The changes to that legislation included in the Bill are equally representative of the Labour Government's approach to those matters.

The general idea behind the 1989 Act was to privatise electricity in such a way as to maximise competition over time and, as that increased competition occurred, so to diminish those powers of the regulator which were specifically focused on competition. Over time, regulation would give way to competition as the best means of protecting the consumer. That aspect of regulation has escaped the Government and continues to do so.

Several features of privatisation helped to meet that objective; they are now under threat. The structure that we used militated against the vertically integrated franchise—the American model. We were against that model, because we did not want vertically integrated, local monopolies. We began with a brave move, as my hon. Friend the Member for Bournemouth, West pointed out—we broke up the Central Electricity Generating Board into about five separate players.

However, most important was the fact that we built into the measure a dynamic towards near-perfect competition, in an industry to which competitive pressures were extremely difficult to apply. We did that in such a way that not only were there new entrants to generating—to which the hon. Member for Hazel Grove (Mr. Stunell) referred—but the distribution and supply companies were subject to competitive pressures. By 1998, those companies were selling in and out of each other's markets and were entirely free from competitive restrictions, as had been planned at the outset.

The regulator was chosen, not only for his personality, but as someone who had competition at the front of his mind. Professor Stephen Littlechild was the nearest thing to a competition expert who could be found at that time. He has been replaced by someone who, whatever his merits—and Callum McCarthy has great merits—is really a high-flying civil servant. He is interested in politics and in the ways of Whitehall, but he has no experience of the marketplace, nor any particular interest in it.

Another part of the process of setting up a competitive industry—I shall return to this point—was the establishment of a half-hourly pricing system that was completely transparent. The pool may have had its faults—we can discuss them—but it was a transparent system of pricing and it allowed for marginal supply to come on-stream at the price that was appropriate.

The effect of the competitive pressure that was built into the 1989 Act has been pretty dramatic. Reference has been made to the fact that we now have a much more competitive industry, but the figures are astonishing. In 1991, two companies—National Power and PowerGen—held 74 per cent. of the generating market. By 1998, National Power's share was down to 13 per cent. from 46 per cent.—it is set to fall to 8 per cent. this year—and PowerGen's share is currently at 14 per cent., down from 28 per cent. in 1991. The two biggest players now have only 22 per cent. of the highly competitive generating market between them. Today, 30 generators use the pool, as opposed to the five or so who used it regularly when it was set up.

The electricity market has been transformed into a highly competitive market. If everything is hunky-dory, why is there a need for the Bill? The answer is that competition is no longer the Government's primary objective in their regulatory approach to the utilities. The scene is set by the proposed new section 3A(1) in clause 12. It says: The principal objective of the Secretary of State and the Authority in carrying out their respective functions under this Part is to protect the interests of consumers in relation to the supply of electricity, wherever appropriate by promoting effective competition". "Wherever appropriate" is the qualification attached to that.

In the name of competition and by using consumers as a human shield, the Government will create a whole new set of regulatory objectives, many of which will act against the interests of competition. One has only to start looking through the Bill to recognise that. Clause 12 also introduces the concept of income distribution, and reference has already been made to that. That concept has nothing to do with competition or electricity. It is questionable whether giving people access to electricity on special terms is the best way to help the disabled and those of pensionable age or on low incomes.

The Government should tell us why measures that will distort competition appear throughout a Bill that is ostensibly about competition. Proposals are made for the electricity and water industries and for the Office of Telecommunications. Why should a Bill, the early clauses of which are apparently dedicated to competition, contain objectives that will undoubtedly distort the marketplace? The Government's aims are confused, and clause 13 will create more distortions.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

Does my hon. Friend agree that the Bill will create the need for a whole new almoning system in parallel with the social security system?

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

I do agree with my hon. Friend. It is wasteful and untransparent to help people in need by regulation and through industry. It raises the question why one set of electricity consumers will have to pay more—I presume that they will—to subsidise other sections of the community. Would it not be much better to do that through the taxation system or through a more transparent use of benefits?

The same points apply to clause 13, which in the proposed new section 3(B)(1) introduces the objective of the attainment of any social or environmental policies … referred to in the guidance.

Photo of Andrew Stunell Andrew Stunell Shadow Spokesperson (Environment, Food and Rural Affairs), Liberal Democrat Spokesperson (Environment, Food and Rural Affairs)

I appreciate the hon. Gentleman's argument for completely open competition, but may I take him a little further? Does he think that it is right for urban consumers to subsidise rural consumers? Does he not concede that there are some areas in which the market needs to be regulated?

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

If we want genuine competition and transparency in electricity provision, full costs and marginal costs should be made properly transparent. If the requirement is to subsidise rural communities, that should be done through direct Government subventions in a way that does not distort the market. The Government's approach is wrong. When the previous Government privatised the bus industry, we made a clear distinction between economic costings and social subventions, which were made through financial means, and proper pricing, which should reflect costs and the marketplace. That is a manifestly sensible way to support the people whom one wants to support without distorting the market system.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

I am grateful for the honesty with which the hon. Gentleman makes the case for competition and for his point about the importance of covering full and marginal costs in the charging process. I understand his point that it is the Government's role to make compensatory payments. Given the additional costs that central Government would inevitably occur on a huge scale, how would he suggest paying for that if he were a member of a Government who were saddled with such bills?

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

The way in which social benefits and payments are made is a matter for the Government of the day to determine. However, in the electricity industry, one set of consumers, some of whom may be poor or deprived but not specifically listed in the Bill, should not subsidise another. That will have distortive effects if the aim is genuinely to have a fair and transparent marketplace. Subsidies, however, are a matter for the Government of the day to determine.

Clause 56 also moves specifically against competition in the electricity industry. It relates to the pool and the new trading arrangements that the Government are belatedly proposing. There has been much to-ing and fro-ing, and everyone knows that they have had their difficulties in introducing the new arrangements. The pool is an open market that is priced on a half-hourly basis and in which—contrary to what the Secretary of State suggested—the price is the marginal price that comes on. Therefore, it is absurd to suggest that the pool is in some way less open and less supportive of competition than a system comprised of bilateral contracts made and agreed—by the regulator, by Government or who knows?—in many cases behind closed doors.

My hon. Friend the Member for Bournemouth, West made an important point about the difficulty, in those circumstances, of ensuring security of supply. That is certainly true. The pool system may have its deficiencies, but they could have been put right if the Government had not taken the doctrinal view that it should be abolished altogether. However, those deficiencies at least accommodated the concept of the marginal supplier coming on board at a price. There was always going to be a marginal supplier, which ensured security of supply.

In a system in which bilateral agreements are to be struck behind closed doors, nobody knows how the contracts will be assured and there is no way of guaranteeing security of supply. I totally agree with my hon. Friend. My point, however, is that the system is fundamentally anti-competitive.

Let us consider a plausible example in which a contract with a large supplier of coal-based electricity receives the Government's blessing. It is more than likely that such a contract already exists. That electricity could be extremely expensive but it fits in with the Government's intention to continue to protect the coal industry. Who knows how that contract came about? Who knows what factors lay behind it? Who knows whether there are political objectives behind it which are completely contrary to the marketplace objectives of a free flow of information and proper pricing according to competitive cost structures? Nobody knows because a new system of secret pricing is emerging.

The Government portray the Bill as legislation that will bring down prices, but nobody knows what will be the basis of those contracts. Indeed, in my example of a secret contract involving a supplier of coal-based electricity, or in the case of a contract with a supplier of nuclear-based electricity, it is likely that prices would rise.

The Secretary of State said at the beginning of his speech that electricity prices will come down by 10 per cent. That claim seems bizarre, given the way in which the new system has been explained to us. The truth is that the Government do not like the market-based system that we provided; they like intervening and interfering, particularly to protect certain sectors of the industry with which they have connections.

The best way to do that is to set up a system of secret pricing and of bilateral contracts being struck behind closed doors which are not transparent and do not meet the needs of the marketplace. I am not surprised that a Labour Government are doing that. My objection is that they are pretending that the system is more competitive than the previous one, not to mention my hon. Friend's point about the dangers of having no security of supply.

The Government's approach to regulation applies to the four industries in the Bill. The excuse for that approach is the consumer. The word "consumer" appears often. However, if one believes that the consumer's best protection is proper competition, most of the policies and regulations are contrary to the consumer's interests.

The Government's new form of regulation is radical and in its objectives it is completely different from the regulation adopted by the previous Government. It applies across the board and is part of a pattern. It applies to rail regulation and integrated transport. It applies to the Financial Services and Markets Bill, which we debated last Thursday and which will introduce social, universal and compulsory banking. It applies to the Post Office regulator—who has been given the job of working out how to privatise the industry—and the concept of total coverage. It applies to the way in which the water industry is to be regulated according to environmental interests rather than those of the consumer. It applies to Oftel, which is given the objective of providing total coverage in the Bill.

All those regulators are being given social and political objectives, which are antithetical to competition. We are witnessing a parallel system of government emerging. I shall use the idiom "joined up" because, in their consultation paper "A Fair Deal for Consumers", the Government suggest having a cabinet of regulators who would work out together each industry's capacity to achieve the various political objectives, which have no bearing on competition. The political imperatives will be provided by the Government, and the regulator will implement them with all-pervasive powers of intervention.

That is socialism by regulation; it is socialism on the sly and it is nationalisation by the back door. I hope that one of our first objectives when we return to government will be to dismantle all the regulatory apparatus, except for that which focuses on competition, because competition is the true friend of the consumer.

Photo of Gareth Thomas Gareth Thomas Labour, Harrow West 6:46 pm, 31st January 2000

At the beginning of the speech by the hon. Member for West Worcestershire (Sir M. Spicer), I would have been happy to accept his view of his unsuitability for the Standing Committee. Having disagreed with much of the thrust of his speech, I hope that Opposition Whips believe that he was being too modest and that they will regard him as a suitable case for the corrective discipline that the Standing Committee should offer. I should have loved to have helped the hon. Gentleman through the experience of that Committee, but I hope that the Government Whips will take note of my service on another one.

I warmly welcome the Bill. It modernises the regulation of our utilities and locks in train the twin principles of fairness and concern for the environment. It will help further to stimulate efficiency, innovation and higher standards in the utilities. The Bill continues the process, within one key part of our economy, of integrating economic, social and environmental needs, and of ensuring joined-up decision making, which is crucial to moving us towards a sustainable economy.

Crucially, and to the relief of my constituents, the Bill puts consumers truly at the heart of utility regulation. Many of my constituents remember well how, in the summer of 1996, our local water company suffered an outbreak of crytosporidia in the water supply, causing concern and inconvenience to constituents and local businesses. I remember in particular the concern about the company's attitude and the deep frustration felt by the president of my local chamber of commerce about a utility company that was insufficiently accountable to its consumers.

More, recently, I shared with constituents living in Holmwood close—a small, low-lying cul-de-sac—the frustration about another utility company's failure to take the necessary remedial action to protect their homes from the many incidents of flooding that they had experienced. It should not require pressure from a Member of Parliament and senior councillors to force a utility company to listen. The company in question has finally taken action, and my constituents and I welcome that.

I am pleased that the Bill introduces new, enhanced consumer councils, which will be able to act as public advocates for all utility consumers. They will be able to mediate between complainants and the utility companies and to act as champions of the consumer. I am sure that my constituents will welcome the likely price reductions and the publication of links between directors' pay and levels of service.

There are examples of good practice among utility companies which the Bill will build on. Eastern Electricity, which serves the interests of my constituents, has committed itself to achieving 10 per cent. of its energy from renewables, and has been at the forefront of efforts to promote consumer usage of renewable energy. My hon. Friend the Member for Hove (Mr. Caplin) highlighted the positive decision by Seeboard to abolish the standing charge. That is a positive move for those of us who are concerned with social justice.

A crucial part of the backdrop for the Bill is the environmental imperative to reduce our emissions of carbon dioxide and other greenhouse gases. The promotion of a new drive for energy efficiency, which will be stimulated by the Bill, will be a welcome adjunct to the climate change programme that the Government are due to publish soon. That is one example of the reductions in emissions that the Bill will further stimulate.

It is worth restating Lord Marshall's view, which was published in his report on economic instruments and the business use of energy: The commitments agreed at Kyoto are only the beginning if we are really going to tackle the threat of climate change. He added: This is not least a competitiveness point … There is a risk that firms investing now may get locked into capital stock which does not meet the requirements of the future. As well as the environmental imperative, there is a need for utilities to invest appropriately. Climate change offers new economic opportunities for business, which many of our utilities will be well placed for, thanks to the Bill: it will drive down business energy costs. It is yet another example of the Government's success in creating the conditions for business to thrive.

I welcome the focus on fuel poverty, the alleviation of which the Bill will help to stimulate, specifically by highlighting the interests of low-income and disadvantaged consumers. It will allow further attention to be given to tackling the problems of those in fuel poverty. Research shows that cold homes are associated with increased winter mortality, ill health and impaired quality of life. I understand that research shows that about 30,000 more people, mainly over 60, die during the winter in the United Kingdom than would be expected given the average death rate over the year. This so-called excess winter mortality is caused by exposure to outdoor conditions as well as cold homes. However, it is much higher in the United Kingdom than in other countries, including those in Scandinavia, where winter outdoor conditions are more severe but where homes are more energy efficient.

The 1996 English house condition survey estimated that there were at least 4.3 million households spending more than 10 per cent. of their income to maintain a satisfactory level of heating. In other words, those households were living in fuel poverty. Given these figures, it is entirely right that we take further action to require the utilities companies to promote action on fuel poverty. I say that even though the Government have already taken several measures to confront the problem. For example, there have been the reduction in value added tax, the introduction of the £100 winter fuel allowance and the new home energy efficiency scheme—all welcome initiatives.

The general duty on the regulator to have regard to ministerial guidance on social and environmental objectives, for example, and the fact that the guidance will be published and laid before Parliament are also welcome moves. I share the view of my hon. Friend the Member for Lewisham, East (Ms Prentice), which she expressed in an intervention on my right hon. Friend the Secretary of State. Utility companies should report on their progress towards achieving environmental objectives.

I shall now concentrate my remarks on clauses 50 to 56, which deal with electricity produced from renewable sources and the establishment of the new electricity trading arrangements. Economic opportunities flow from renewable energy because of environmental pressures. The renewable energy industry is one of the hinges between the needs of business and the need to protect the environment. My hon. Friend the Member for Hamilton, South (Mr. Tynan) referred to employees within the utility industry. Having read the statistics in a House research paper on employment in the utilities, and the figures produced by my union, the excellent Amalgamated Engineering and Electrical Union, on jobs in the electricity industry work force, the significant feature I note is the huge loss of jobs over the past 10 years in the utility sector. It makes depressing reading.

The renewable energy industry now employs about 3,500 people. It is one part of the electricity industry that holds out the prospect of considerable employment growth over the next 10 to 15 years. Achieving our target of 10 per cent. of energy from renewable sources would create between 10,000 to 45,000 new jobs, according to the Department of Trade and Industry, and up to double those figures according to estimates made by Friends of the Earth and Greenpeace.

There is considerable export potential for a dynamic British renewable energy industry. For each of the past six years, global sales of wind turbines—one small part of the renewable industry—have increased by about 40 per cent. The estimates and projections of the World Energy Council indicate cumulative investment in renewables for the next 10 years ranging from £150 billion to about £400 billion. An analysis produced by Shell suggests that renewables will meet about 40 per cent. of world energy needs by 2050. That represents a huge opportunity for renewables in Britain.

Clauses 50 to 55 place obligations on suppliers, which I welcome particularly. They offer a key policy tool to stimulate an expansion of our domestic renewables industry. Such an expansion is crucial if we are to take advantage of both current and future growth in renewables. We have arguably the best offshore and onshore wind resource in Europe, but with 330 MW of installed capacity by last year, we lagged behind Germany, which has 2,900 MW of installed capacity. Denmark is in a much better position than the UK, with 1,450 MW.

An estimate of the realistic potential of renewable energy sources was carried out by Energy for Sustainable Development for the European Commission in 1997, and was considered by the Select Committee on the European Communities in another place during its inquiry into renewables last year. The report suggested that, by 2020, a realistic aspiration for primary energy from renewables in Britain was 27 per cent. The Committee also highlighted the estimate made by the Department of the Environment, Transport and the Regions—that achieving our 10 per cent. target for renewables would provide about 25 per cent. of the carbon savings needed to meet the 20 per cent. carbon dioxide emission reduction target that we set out in our manifesto.

Clauses 50 to 55 will help to ensure that the obligation on electricity suppliers continues to promote competition and that renewable energy is delivered at the lowest possible cost. Clause 51 allows specific types of renewable generation to be targeted by the government. I hope that the clause will be used to enable less mature and currently less cost-effective renewables to be brought on over time. I hope too that my right hon. and hon. Friends on the Government Front Bench will not promote the use of payments, even though they are rightly allowed by clause 53, instead of meeting the obligation—except as a method of enforcing the obligation. I hope also that they will set high payment levels.

The replacement of the non-fossil fuel obligation by the obligation to be placed on suppliers is especially important given the problems that many renewables providers have had in the planning process with NFFO contracts. The NFFO contracts are linked to specific sites, and it is usually only after a contract has been granted that planning permission is sought. Considerable delay can result. Indeed, in December 1998, the energy technology support unit published research for the DTI that showed that, since 1994, of 63 applications for planning permission by renewable providers with an offer of contract, 15 had already been refused.

The brutal truth is that while the NFFO has succeeded in promoting considerable reductions in the cost of renewable energy, it has not promoted a significant expansion of renewables capacity in the UK. The obligation is therefore extremely welcome to promote that expansion. However, an obligation on its own will not be enough. I await with considerable interest a further statement on support for renewables. I hope that the statement will contain targets for beyond 2010, which would enable the energy industry and the City to plan their capital investment programmes and to forecast good returns on their investments in renewables, with confidence.

Clause 56 provides the broad enabling power to establish the new electricity trading arrangements—NETA. Change often causes concern. As the hon. Members for Bournemouth, West (Mr. Butterfill) and for Twickenham (Dr. Cable) said, there are concerns about the possible impact on renewables. I hope that my ministerial colleagues will be able to give an assurance that the impact of NETA on renewables will be kept under careful review. Perhaps I may suggest again that a dedicated member representing renewables should serve on the balancing and settlement panel that will monitor the delivery of the electricity trading arrangements. Clearly, the provisions of the Bill need to be considered alongside the climate change levy and the package of further support to the renewables that will shortly be published.

In essence, this is an excellent Bill. It offers an exciting future for the renewables industry in the United Kingdom. In the wider utilities sector, it holds out the prospect of significant progress in delivering reductions in greenhouse gas emissions. It puts the consumer firmly at the heart of regulatory priorities. It is a Bill whose impact will, I am sure, be welcomed by my constituents.

7 pm

Photo of Peter Luff Peter Luff Chair, Agriculture Committee

It is a pleasure to follow the hon. Member for Harrow, West (Mr. Thomas). I share his enthusiasm for renewables, if not for the Bill. Speaking as Chairman of the Select Committee on Agriculture, I see a strong future for biomass in renewables, which should give great heart to farming in the long term, if not in the short or medium term.

I must declare an interest. I was for two years at the Department of Trade and Industry, as special adviser to the right hon. Lord Young of Graffham, then Secretary of State for Trade and Industry, at a time when regulation was in its infancy. Our hopes then were simply expressed. We hoped that there would come a time when we could end regulation and replace it entirely by effective competition. It is that spirit which motivates the Opposition and which is so conspicuous by its absence among Labour Members.

We were blessed with a series of fine regulators at the time. I think particularly of people like Sir Bryan Carsberg—probably the finest regulator in the world—often frustrated, as he was, at the lack of will on the part of some of the competitors in telecommunications to use his powers to secure effective competition in that industry.

At the time—1987 to 1989—the present Prime Minister was No. 2 to the then hon. Member for Dunfermline, East (Mr. Brown) in the shadow DTI team, and he was then, as he is now, outshining him spectacularly. I looked back at the debate in 1988 on the Second Reading of the Electricity Bill, to which my hon. Friend the Member for West Worcestershire (Sir M. Spicer) alluded during his excellent speech. The words of the then hon. Member for Sedgefield (Mr. Blair) would warm the heart of the hon. Member for Liverpool, Walton (Mr. Kilfoyle), if he is concerned about the beating heart of the Labour grass roots.

The then hon. Member for Sedgefield said in the debate: The question that the country asks and that the Secretary of State— the right hon. Lord Parkinsonmust answer is why an industry, brought together in the public interest over 100 years to serve the nation, must now in the same public interest be torn apart, broken up, and sold in two years to serve the demands of private profit. He went on: It cannot be stressed too strongly that our modern industry was not built on a foundation of success created by market forces. It was created by clearing the rubble of disorganised chaos that they left behind. What is so wrong with the industry today"— hon. Members will remember exactly what was wrong with the industry then— What is so wrong with the industry today that it is incapable of alteration in public ownership? What are the clear benefits that will flow from it being split and sold? The then hon. Member for Sedgefield actually prophesied that prices would rise as a direct result of privatisation.

My hon. Friend the then Member for Lewisham, West, now the Member for Stratford-on-Avon (Mr. Maples), asked the now Prime Minister: Will a future Labour Government renationalise the whole industry, and if so, on what terms? The answer was clear. The then hon. Member for Sedgefield replied: We are proud that we took the industry into public ownership. When we come to power it will be reinstated as a public service for the people of this country, and will not be run for private profit. My hon. Friend the Member for Rayleigh (Dr. Clark), then the hon. Member for Rochford, asked the then hon. Member for Sedgefield whether he would care to indulge in some frankness and tell us how his party, when and if it returns to power, will pay for nationalising the electricity supply industry? Will it be through huge tax increases? The answer came from the then hon. Member for Sedgefield: We will reinstate it as a proper public service under public control. In a way, I see the Bill as the fulfilment of those pledges made by the Prime Minister when he was in opposition. They show where his heart lies. He said a couple of years before the election that the character of his Government would become clear only when Labour was in government. The Bill exposes the true character of the Government, who are interested, as my hon. Friend the Member for West Worcestershire rightly said, in nationalisation by the back door, if not by the front door.

The principal objective for regulators set in the Bill is to protect the interests of consumers". Amen to that. We are all in favour of protecting the interests of consumers, but how is that best done—by an army of bureaucrats and officials, or by effective competition? It is competition, not regulation, that must be our objective. I fear that the Bill seeks to enshrine in perpetuity the principle of regulation.

That is my first concern about the Bill. We should be working to end regulation by increasing competition, not giving it our blessing by the passage of the Bill. I have two particular concerns—first, the effect of the Bill on the water industry in general and on my constituency, and secondly, the effect on electricity distribution investment, specifically in Worcestershire.

Photo of Peter Luff Peter Luff Chair, Agriculture Committee

I give way to my hon. Friend and constituent.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

May I interrupt my hon. Friend's flow to ask whether he would go on to say, as I would, that regulation and competition are opposites?

Photo of Peter Luff Peter Luff Chair, Agriculture Committee

Regulation is a necessary condition, in the absence of competition. Competition and regulation are opposites. We need limited regulation in the case of natural monopolies. I freely admit that, but we should be setting as our objective the ending of regulation and the enhancement of competition. I am at one with my hon. Friend on that.

I do not say that everything in the Bill is unwelcome. If it were a small Bill with a few clauses, designed to tidy up bits and pieces here and there on the road to the abolition of regulation, I would not mind. However, it is a massive tome, with 134 clauses and heaven knows how many schedules. There are some good things tucked away in it—merging gas and electricity regulation probably makes sense in the short term, although the Government could surely have come up with a better name than Ofgem. It sounds like the regulator for de Beers, not the energy industry.

I agree with the hon. Member for Harrow, West about the powers to promote electricity from renewables. That is good, in its limited way. The separation of licensing of electricity supply from distribution probably makes sense. The Bill takes a more collegiate approach to regulation—I can go along with that, at least in the short term.

If only the objective of the Bill were the end of regulation, but it is not. It is exactly as my hon. Friend the Member for West Worcestershire said—socialism, or nationalisation, by the back door. The Bill is well meaning. I freely concede that. Much of what the Government do is well meaning, but we know what the road to hell is paved with. That is the trouble with the Bill.

I fear that the Government see the utilities as some sort of milch cow to fund all their wider objectives. Already the wretched utilities have had the windfall tax imposed on them, to pay for the window-dressing of the new deal, which has achieved absolutely nothing in the real world. Now we see the utilities being used to secure all sorts of environmental and social objectives which, as my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) said, are better fulfilled by more explicit mechanisms.

If the Government want to achieve something, they should do so by being explicit, not by tucking it away in the conditions of duty of a regulator. That is the source of my particular concern about all the secondary legislation implied in the Bill. Let us consider the water industry. To do the Government credit, it is clear in the Bill that they understand that there is a difference between energy and telecommunications on one side, and water on the other. It is right that they should set different regimes.

Do the Government understand, however, how the water industry still needs to invest to meet consumers' demands and its environmental obligations, and how difficult it will be for the industry to raise money under the regime set out in the Bill? We all know that there was a legacy of underinvestment while water was in the public sector. There always would be, while water investment was competing with schools, hospitals, law and order and so on.

I am quite clear that the just published periodic review was far too tough. It will inhibit investment and it has already cost jobs. I think particularly of a major investment scheme urgently needed in my constituency to replace old collapsing sewers in Droitwich Spa high street. The stench from those sewers is dreadful in the summer months and it deters trade in the high street. I know that Severn Trent will now find it considerably more difficult to fund the replacement of those sewers on a reasonable time scale as a direct result of the over-heavy regulation already imposed on the water industry.

The problem is that the industry is effectively powerless to complain about adverse regulatory findings. The Bill was an opportunity to put that right, but it fails to do so. I quote from a letter that I received from the director of one water company. He writes: The issue is that of being able to focus on only one, or a few, issues in any appeal to such as the Competition Commission. Currently, as I am sure you're aware, all aspects of a utilities price determination (i.e. every aspect of your operation) is likely to be examined in a referral. This makes the whole process very protracted as well as intrinsically increasing the very business uncertainty the investor community so dislikes. There is also the very real problem of large scale diversion of those key resources we need to improve services and efficiency.In the light of the foregoing, you will doubtless understand why none of the Water Services plcs, despite having huge problems with the final price limits, have gone to the Competition Commission, so underlining a lack of faith in the whole appeals process. The Bill presents an opportunity for the Government to replace the blunderbuss of the investigations that caused so much anxiety to the water companies with a provision that is more precise and effective, and less costly and disruptive. They have flunked that opportunity.

In the current review, the water industry is allowed a modest cost of capital—4.75 per cent., which is fixed for five years. It should be able to complain about that narrow issue and examine carefully whether the regulator has reached the right conclusion. However, it is denied the right to do that.

Photo of Linda Gilroy Linda Gilroy Labour/Co-operative, Plymouth, Sutton

Will the hon. Gentleman give his constituents a voice and complain about the 57 per cent. increase in prices and the 101 per cent. real increase in profits that they have experienced since privatisation?

Photo of Peter Luff Peter Luff Chair, Agriculture Committee

The hon. Lady betrays such a lack of understanding of the mechanism of the water industry that it is difficult to know where to begin without making a separate speech. I have already explained that companies inherited a massive legacy of underinvestment as a result of state control. The environmental obligations that have been imposed, probably rightly, on the industry require massive investment. Where will that money come from? I doubt whether the hon. Lady is offering to subsidise it from her purse. As for the increase in profits to which the hon. Lady alludes, the water companies invest more than their profits each year. Labour Members' understanding of profits is very poor. The hon. Lady's intervention betrayed a problem, which goes to the heart of why the Bill is wrong—

Photo of Peter Luff Peter Luff Chair, Agriculture Committee

Exactly. The intervention betrayed a hostility to private sector investment and to profits. I pay tribute to the way Severn Trent has dramatically improved the service to my constituents. Its response to a water pollution incident in Worcester a few years ago was far better than what a nationalised industry was capable of. The hon. Member for Plymouth, Sutton (Mrs. Gilroy) is completely wrong. The investment in improved water services in my constituency has been dramatic and welcome, but someone—not the taxpayer any more—had to pay for it. After many years of paying, the taxpayer was not prepared to do so any longer.

Photo of Peter Luff Peter Luff Chair, Agriculture Committee

With pleasure, if the hon. Gentleman's intervention is similar to the previous one.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

Will the hon. Gentleman confirm that, in the regulator's comments about price determination in Severn Trent, he focused on the internal costs of capital in relation to the price reductions that he recommended, because the industry charged the public twice as much in returns through dividend payments as it could charge if it financed the investment internally? The reward in dividend payments constituted a double charge on consumers for the single investment that they received.

Photo of Peter Luff Peter Luff Chair, Agriculture Committee

The hon. Gentleman makes an interesting point. The answer is a matter of judgment. The market has made a judgment about the regulation of the water industry, especially Severn Trent. The market price of Severn Trent is below its asset value. That suggests that the regulatory decision is wrong. The hon. Gentleman should consider that carefully when he makes a judgment about whether the regulator is right. I believe that the regulator is wrong, and that he has made Severn Trent vulnerable to foreign acquisition and takeover.

That is an interesting dilemma for the company. It is not eligible for domestic takeover, but a French company could snaffle it. I do not object to foreign inward investment in the United Kingdom, but the regulator's decision has made that prospect more likely. That is surprising, and I am surprised that the hon. Gentleman wants to endorse that, given his perspective on such matters.

The regulator is quoted in The Daily Telegraph of 27 January. He was speaking at a conference entitled "Life after the 1999 periodic review". The article states: Mr. Byatt said the Bill 'shows how difficult the government can find it to translate good intentions into sensible legislation' … Mr. Byatt said the Bill introduced a 'double jeopardy' for fines, empowering both the secretary of state for trade and industry and the water regulator to mete out penalties for the same offence … Mr. Byatt also criticised the Bill for failing to allow for an appeals procedure for penalised companies to go to the High Court or the Competition Commission. The regulator is right to draw attention to the absence of a right to appeal.

Water UK, the trade association for the water companies, states: Clauses 118 and 119 give powers to regulators to impose monetary penalties on companies for past and ongoing breaches of licence conditions", among other matters. It continues: There is deep concern in the industry over the power in the Bill to set unlimited fines, as well as over the proposal that the regulator can define the penalty regime without formal agreement with Government or Parliament. On both counts, the House should be deeply worried about clauses 118 and 119. The right to set unlimited fines is almost unprecedented, and the House should not grant such a power to any regulator, however talented. I hope that the Government will reconsider that urgently in Committee.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

I can say in its favour only that it is slightly better than provisions for the Financial Services Authority, which will be allowed to imprison people.

Photo of Peter Luff Peter Luff Chair, Agriculture Committee

I should have preferred it if my hon. Friend had not put that thought into the Government's mind, because they may propose an amendment to that effect. My hon. Friend has done the House a grave disservice by suggesting that draconian possibility. However, I strongly agree with his comment.

Let us consider electricity. According to the notes on clauses, the Bill is supposed to have regard to the interests of consumers in rural areas. Let us examine the current effect of regulation and the distribution price control review on consumers in rural areas of Worcestershire. It is a meteorological fact that the Almighty inflicts a disproportionate number of electrical strikes on Worcestershire. Any map of thunderstorm activity shows a heavy concentration of lightning activity in my constituency and that of my hon. Friend the Member for West Worcestershire. That means that the Midlands Electricity Board faces a specific challenge in maintaining the supply. Two of the customers in my constituency are my hon. Friend the Member for West Worcestershire and Lord Walker of Worcester, who are both former Energy Ministers. I am sure that they are anxious—as I am—to maintain the electricity supply.

There is a need for MEB to increase investment in its rural network to maintain the supply to rural Worcestershire. The Bill will work against that. It will create uncertainty and increase the cost of capital. The Government's claims that it will reduce that cost are wrong and misplaced and show a lack of understanding of the way in which markets work. The measure will give regulators more discretion; that is bound to increase uncertainty. Its imposition of ill-defined social and environmental obligations will seriously affect the cost structure of an organisation such as MEB.

The Bill has a Catch-22 predicament for MEB, because it provides for fines for interruptions but makes it more difficult to prevent interruptions because it denies the company the cash resources to do that. I hope that the Government will reconsider that.

My objections to the Bill are based on detail and principle. The measure enshrines regulation. The Secretary of State, in his typically courteous, thoughtful and well argued opening remarks, appeared to prefer competition to regulation. The record will show that he said that. However, his actions do not suggest that he believes it. I issue a challenge to the Secretary of State to prove that his heart is in his assertion.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

While my hon. Friend is discussing competition, will he explain how it increases competition to claim that coal-fired power stations are better than gas-fired power stations, despite the damage to the environment and the effect on climate change? Yet again, the Secretary of State has failed to explain why he went along with such a reactionary policy.

Photo of Peter Luff Peter Luff Chair, Agriculture Committee

My right hon. Friend answers his own point. I agree with him. I hesitate to use it, but the phrase that comes to mind is, "They say one thing and do another." That is characteristic of so much of the Government's actions. I do not understand how reducing electricity prices will help on climate change—it might increase consumption—but never mind. That is another issue that lies unresolved in the Bill.

The Secretary of State ought to show that his heart is in his professed belief in competition. After clause 134, which is the commencement provision, he should insert a clause representing a completely new but worthwhile concept in legislation—a termination clause. He should set a series of tests, rather like the Government's tests for the single European currency, that they could apply to competition in the industries. When they judged that competition had reached the required level they could remove the Bill from the statute book, which would prove that the Secretary of State is interested in competition—although I doubt it.

The Government regulate water, telecoms, electricity, gas, rail, postal services, financial services and food—through the new Food Standards Agency—as well as almost every aspect of business, through the rising tide of regulation. The man from Whitehall knows best, as far as this lot are concerned, and all the commanding heights of the economy are covered. When he was a shadow trade and industry spokesman, the Prime Minister prophesied that a Labour Government would take control of all those things and his prophecy is coming true, but by the back door, not the front. About the only matter that the Government are deregulating is personal sexual behaviour, which is the one thing they should be regulating. Never mind; that is another debate for another day.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South

That is a strange reading of this clause 28.

Photo of Peter Luff Peter Luff Chair, Agriculture Committee

I am glad that the hon. Gentleman knows what I am referring to; at least he is awake, and I am grateful for that.

On 12 December 1988, today's Prime Minister said: All those unresolved contradictions underline the stupidity, indeed the impossibility, of an energy policy determined by the interests of the private sector. The very considerations most critical to securing the long-term future electrical supply are the very ones least suited to the inevitable short-term demands of the market. That is the authentic voice of old Labour. He continued: That is why, at the crux of the right hon. Gentleman's proposals, lies a clash of interests that he cannot conceal between ideology that drags him toward market forces and reality that compels him to recognise the need for a strong public sector."—[Official Report, 12 December 1988; Vol. 143, c. 680–88.] Now the boot is on the other foot. The clash of interests is the Prime Minister's—between the reality that drags him toward market forces and the ideology that compels him to recognise the need for a strong public sector—and it is encapsulated in the Bill. He and his Government have clearly opted for the public sector, not markets, and for regulation, not competition. That is a matter of deep regret.

Photo of Linda Gilroy Linda Gilroy Labour/Co-operative, Plymouth, Sutton 7:22 pm, 31st January 2000

After that excerpt from the horror movie "Nightmare on Deregulation Street", I welcome the Bill and join an impressive chorus of support from leading organisations with long and distinguished records in representing the interests of consumers. They would not be doing their job if they did not raise for our consideration aspects of the Bill that could be improved. I intend to discuss some of those later, but it is worth reflecting on some of the overwhelmingly positive points that they have made—particularly in view of the lack of any mention of these by Conservative Members in the Chamber—to see how much the regulatory system needs to be improved to benefit the consumer.

The National Consumer Council is looking forward to a shift in the balance of regulation in favour of consumers, but we are also looking for a more accountable, open and consistent approach". It welcomes the provisions on the elevation of the regulators' duty to protect consumers;the duty of the regulators to have regard to the interests of disadvantaged groups;the establishment of independent consumer councils;the powers for consumer councils to have direct access to utility company information rather than through the regulators;the replacement of individual regulators with regulatory authorities in energy and telecommunications;the provision for the Secretary of State to give those regulators guidance on social and environmental issues". The Consumers Association welcomes the Bill to put consumers at the heart of public policy for our essential utilities … in particular the measures on financial penalties, reform of the electricity pool and the establishment of independent utility consumer councils. The national Electricity Consumers Council news release on the Bill states: The Utilities Bill promises better protection and lower prices for consumers. The Regulator will be under a new primary duty to protect consumers and we will see the reform of the wholesale electricity market, which should cut bills by 13 per cent.In addition, we look forward to the creation of a new independent Consumer Council to represent the interests of electricity and gas consumers and to help them with their complaints.We shall be looking at the small print … We believe that electricity consumers, particularly disadvantaged people, need firm protection in the competitive market. Those comments suggest that those organisations share our aim to put consumers at the heart of utility regulation, which was set out by my right hon. Friend the Leader of the House when she was President of the Board of Trade. She initiated an interdepartmental review of regulation two years ago, describing the objective as setting a long-term stable framework for utility regulation, which is seen as fair by all the interest groups involved, particularly by consumers. Without fairness, there can be no long-term stability."—[Official Report, 30 June 1997; Vol. 297, c. 20W.] Conservative Members have made much of regulatory risk, but without stability we shall be unable to achieve a reduction in regulatory risk, the low costs of capital that they so much want and the benefits of that in respect of achieving price reductions. As usual, social justice and economic efficiency go hand in hand and they are achieved by regulatory stability and certainty, not deregulation. I commend to the attention of Conservative Members the price differential between Scottish Power and its rather more heavily regulated American parent company, Pacificorp. The charge through regulation there is about half that in the United Kingdom.

The Bill represents a rare opportunity to place the interests of all consumers at the heart of public policy for those essential services. Utilities are a special case. Consumers can choose between different suppliers, but, unlike some other purchases, those services are essential. The health of consumers and the social cohesion of communities are damaged if consumer protection and regulation in those industries are not as good as they should be and the market is clearly not delivering benefits to all consumers. The November 1999 issue of "Energy Action", which is published by National Energy Action, carries a report on poor electricity consumers under the title, "Poor consumers switched off by competition". It says: Disadvantaged consumers are worse informed about electricity competition and less likely to have switched supplier. This is particularly true of low-income groups, those without a bank account and prepayment meter users. Only 2 per cent. or fewer of these groups have switched to date, compared to the national average of 5 per cent.The latest results of market research, commissioned by Ofgem and undertaken by MORI, suggest that companies could do more to inform low-income customers about the benefits of competition, in particular which payment method is the cheapest for their circumstances. Of those using prepayment meters, 26 per cent. thought they were using the cheapest payment method and a further 37 per cent. did not know. The same edition of the magazine carried a report entitled "Gas consumers harassed, ignored, confused". It says: 'The consumer experience is of being harassed on the doorstep, ignored if they're poor and fed with confusing information. If that's what it's like, who can blame consumers for staying with the devil they know rather than shopping round for gas.'Jenny Kirkpatrick, Chairman of the Gas Consumers Council, delivered this verdict on the competitive gas market following the release of new research on consumer views about switching suppliers …Further evidence of consumer dissatisfaction emerged from the GCC's analysis of complaints—up by 46 per cent. so far this year. More than half the 20,000 complaints were about services offered by new suppliers. Calortex had received nearly 3,000 complaints, Northern Electric more than 2,500, Swalec 2,163, Eastern Energy more than 2,000 and Scottish Power 1,532.

We need to protect the interests of the fuel poor. At least 4.3 million households experience some degree of fuel poverty. In other debates, it has been pointed out that some face a choice between eating and heating, and the challenge of finding between 20 and 30 per cent. of their income with which to meet fuel bills. How would Opposition Members, in particular, feel about having to find that amount?

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

Will not the 29 per cent. real-terms cut in fuel bills that has taken place since privatisation have helped those people? Had fuel remained in the state sector, it is more than likely that prices would have increased by 29 per cent.

Photo of Linda Gilroy Linda Gilroy Labour/Co-operative, Plymouth, Sutton

I am not sure whether the hon. Gentleman was present when I pointed out that, owing to the policies of a Conservative Government, the price of gas rose by 10 per cent. above the rate of inflation for each of the three years immediately preceding privatisation—which then brought prices down, but only after they had risen by a whacking 30 per cent. above the rate of inflation.

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

That was always the history of the electricity and gas industries when they were in the state sector. The Secretary of State would set prices; they would fall in the run-up to a general election, and would be hiked immediately after it. That was the pattern that governed the setting of prices, and that is what we sought to get rid of by privatising the companies involved.

Photo of Linda Gilroy Linda Gilroy Labour/Co-operative, Plymouth, Sutton

The hon. Gentleman cannot have been listening. I was talking about a period in the 1980s when his party was in power. Let me also remind him that, following the adjustment of the external financing limit, for a long time the gas industry contributed to the Treasury rather than the reverse.

Let me turn to the concern that we feel for the fuel poor. As I have said, we have discussed the issues in other debates, and many of my constituents are having to find between 20 and 30 per cent. of their income to pay fuel bills. I am pleased that the new home energy efficiency scheme focuses much more on the fuel poor. The Government have doubled its budget and redesigned it to ensure that it is targeted on those who are most at risk from ill health caused by fuel poverty—the elderly, and families on low incomes.

Good news came in October, when the energy regulator announced a £100 million two-year programme of energy efficiency targets for gas and electricity suppliers. That, too, will focus largely on the fuel poor. Early indications that the Government are serious about tackling fuel poverty were followed, in November, by confirmation that an inter-ministerial team would be set up, co-chaired by my right hon. Friend the Minister and our noble Friend Lord Whitty, Under-Secretary of State for the Environment, Transport and the Regions. It will consider the impact of current programmes to develop a more accurate picture of the extent of the problem and how quickly it can be addressed, so that a target date can be set for the elimination of fuel poverty in England.

I think that that ambition is shared by those on both sides of the House who are members of the all-party group. The hon. Member for Hazel Grove (Mr. Stunell) is a regular and active member of the group, and other Opposition Members support it; but the Government are putting their money where their mouth is by introducing measures that can underpin the general aim.

Clauses 8 and 12 give us a chance at long last to ensure that utility regulation makes a greater contribution to the achievement of our goals. They are important goals. If there is any doubt about how seriously the Government want to tackle them, I invite hon. Members to consider the inter-ministerial group's terms of reference and objectives, and the programme that has been planned to implement them.

According to a response by my right hon. Friend the Minister to a question that I tabled on 10 January 2000, the programme of work includes improving identification of the fuel poor; researching the effect of changes in income, energy prices and energy efficiency; identifying the projected impact of existing and planned policies on the fuel poor; developing an understanding of the gap between the impact of those policies and fuel poverty objectives, and the policies and resources required to meet them; and developing a comprehensive strategy setting out Government fuel poverty objectives, policies to deliver them and targets and time scales for those objectives. The group will be invaluable as a means of informing the guidance that the Secretary of State will have powers to give the regulator under the Bill.

There can be no doubt about the size of the task, or the importance of the contribution that the new powers in the Bill can make. I welcome the Bill, but I want to draw my right hon. Friend's attention to concerns felt by those in the consumer movement. Perhaps, in Committee, there can be some clarification and amendment to ensure that the Bill achieves all that can be achieved to strike the best balance for consumers, the industry and the economy.

If the aim is more regulatory certainty and all the benefits that derive from it, it is important for us to debate fully the concerns felt by experts. The main concerns—mentioned by the National Consumer Council, the Consumers Association, the Electricity Consumers Council, the Gas Consumers Council and Ofwat in their preliminary observations—relate to what is said about access to information, and the criteria that must be satisfied in order for consumer councils to publish information.

Clause 22(6), which refers to the energy sector, refers to the powers that the Secretary of State will have to make regulations setting out descriptions of information, and circumstances in which information can be refused by the companies. I hope that my right hon. Friend will confirm that she will be willing to discuss how the regulations will be drafted, to ensure that they do not—as some fear—so tie the spokespeople that they are effectively silenced. I hope that she will also consider the suggestion made by the National Consumer Council and, I think, the Consumers Association that the right of appeal could be to the information commissioner under the Freedom of Information Bill, rather than to the regulator, whose decisions will be subject to scrutiny by the councils. They fear that there could be tension and conflict if the councils have to rely on the regulator to gain access to the information. The same point has been made by Ofwat's national customer council.

These important points merit serious consideration, as does the right of disclosure. According to my reading of clause 21(6), information about energy will have to satisfy one of three criteria before the new consumer councils can publish information. The individual or body that would be subject to publication would have to have consented; the information would be available to the public from some other source; or the council would have to consider that to publish the information might not seriously and prejudicially affect the interests of that individual or body. If that reading is correct, the criteria seem to be weighted heavily in favour of the companies being able to claim that information should not be published.

My right hon. Friend may be able to offer some reassurance about what clause 21(6) means. Perhaps it is the intention that, as in the Freedom of Information Bill, there will be a public interest test, but it does not seem to be there now. I hope that the Minister agrees that it should be.

A further point has been brought to my attention by the Gas Consumers Council—a point well made in view of the comments of my hon. Friend the Member for Hamilton, South (Mr. Tynan) about the importance of safety. He said that a reduction in prices should not be at the price of health and safety. There is a clear safety remit for the council at the moment. However, under the Bill, the new consumer council does not appear to have a remit to investigate complaints regarding activities that are not licensed, including complaints about service, installation and repair of appliances, or general safety issues.

Again, in the light of clause 21, the intention may be for the duty to continue, but it is difficult to understand how it will be workable or practicable to inform the Secretary of State of each individual complaint when, in 1999, the council dealt with 5,500 such matters. Again, the Minister's clarification as to whether that is a correct reading—perhaps not this evening, but at some point in the discussions on the Bill—would be helpful.

The Consumers Association is concerned at the lack of any mention of an advocacy or policy role for the councils. As many hon. Members have said, it is essential that the councils can fulfil the roles of consumer advocate and contributor to policy debates, as well as that of complaint handler and information provider. The lack of an advocacy role in the Bill will make it difficult for the council to ensure that it resources that essential side of its work. I would welcome the Minister's observations on why the Bill is less clear than previous legislation.

I am curious to know more about why it has been thought right to depersonalise the energy and telecommunication regulatory bodies by appointing the sort of boards that are envisaged in clause 1 and schedule 1, and why an advisory panel is felt to be sufficient in clause 104 for the water industry. Arguably, we need an even stronger authority for the water industry than for the energy sector.

Those are important issues and it is an important Bill. My knowledge of the House and its procedures stemmed from my involvement in the Gas Acts 1986 and 1995, when I was regional manager of the Gas Consumers Council in the south-west. The Bill deals with many of the issues for which I and my colleagues in the council argued fruitlessly in the face of opposition from the Conservative Government, who were not concerned about whether consumers would get a good deal, let alone a fair deal.

The previous Government's approach was to privatise the utilities quickly. Consultation was negligible compared with the extensive consultation that the Minister and her colleagues have undertaken. The previous Government created a system that was inherently unstable and uncertain due to the highly personal, individual, even idiosyncratic character of some of the regulators.

Prices have been higher than they need have been and the system has been biased towards shareholders. The Bill puts consumers first. It offers the chance of lower capital costs, which will be good for businesses and for consumers. It puts the quality of service in its rightful place and enables the wider issues of public policy relating to social and environmental obligations to take their proper place. It is a good Bill that will have my support. I commend it to the House and wish all power to the Minister's elbow in securing its speedy passage.

Photo of Andrew Stunell Andrew Stunell Shadow Spokesperson (Environment, Food and Rural Affairs), Liberal Democrat Spokesperson (Environment, Food and Rural Affairs) 7:44 pm, 31st January 2000

I welcome the opportunity to contribute to the debate, which, so far, seems to have been based on the question: privatisation, good thing or bad—yes or no? With varying mixtures of embarrassment and triumphalism, it seems that the answer is that it was a good thing.

I was a little surprised, particularly by some of the things that the hon. Member for Mid-Worcestershire (Mr. Luff) said in relation to privatisation. He seems to have forgotten that one of the principal benefits of privatisation of the electricity industry as practised by the Conservatives is that it has allowed portions of it to be renationalised, but by the French. The idea that the Prime Minister was nationalising the whole country by the back door struck me, and, I think, quite a number of other hon. Members, as somewhat comical.

The hon. Member for Bournemouth, West (Mr. Butterfill) pointed out that it was easy to make calculations and to judge the correctness of policies in hindsight. I hope that the debate might turn its attention a little to foresight, and not dwell entirely on hindsight. A good foresight question is not about privatisation, but about energy policy. Should there be an energy policy and have we got an energy policy?

At the moment, it is not clear that the Government have such a policy. They have plenty of aspirations. I fully sign up to most of them, as do my colleagues. The Government set energy targets, many of which are commendable, although we are some way short of achieving them. They have commissioned many energy reviews. We must ask whether the Bill plays a constructive part in taking those three things—reviews, aspirations and targets—to a state where implementation can begin.

Having listened to Conservative Members, it seems that many of them are still in the age when oil and gas were laid down—the Jurassic age, when there was limitless oil, endless gas and plenty of fossils. Certainly, there was no threat of global warming.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

Will the hon. Gentleman concede that, in the Jurassic age, there were no fossils, but that they were formed in that age, to be found in this age?

Photo of Andrew Stunell Andrew Stunell Shadow Spokesperson (Environment, Food and Rural Affairs), Liberal Democrat Spokesperson (Environment, Food and Rural Affairs)

I assume that the hon. Gentleman was there at the time, but my O-level geology of quite a number of years ago tells me that he is 600 million years out. However, let us not worry too much about that—the typical gap in knowledge of Conservative policy makers.

It is a pity that the Conservatives have ignored the long-term issues that the country and the planet face. I find that all the stranger because they are, after all, the party of inheritance: the party that believes in taking from our parents and preserving it for our children. However, in the utilities sector, they seem to be the party of get rich quick, sell the silver and ruin the planet. The hon. Member for West Worcestershire (Sir M. Spicer) had the best of it with his commitment to unbridled compulsory competition in all things, which at one moment seemed to stretch even to ensuring that rural electricity customers had to pay more than urban electricity customers, with the difference made up by a Government subsidy.

It is a complete myth that no regulation and no regulatory system are needed in the energy industry, or in many other industries. The energy industry has always been closely regulated, and it will always need to be closely regulated. When one starts to unpick the mythology of the Conservatives, one can see almost immediately the folly and, to some extent, the hypocrisy of their argument. The Liberal Democrats' view is that what is needed to improve the Bill is almost exactly the opposite of the critique in the Conservatives' amendment. We need a strong regulatory framework to counterbalance the power of the markets.

I remind Conservative Members that those who take part in a market want to sell more of their product at a higher price. They want to concentrate on profitable sales to customers who will pay promptly. A market player wants to exploit the lowest cost short-term resource that is available. All those are entirely legitimate things for a player in the market to want to do, but they are hostile to the preservation of the environment and to the development of protection and defence of social justice. We shall therefore have to examine the Utilities Bill and decide the extent to which it will help to modify the market, to achieve some of those very necessary ends.

Liberal Democrat Members believe that we can give a qualified and provisional yes to the Bill, but we also think that some of its provisions need to be strengthened.

We have to have a regulatory system that increases efficiency in use of the product. As I said in an earlier intervention, although the market will certainly ensure that the generation side operates efficiently and at the lowest cost, the very last thing that a market maker wants to do is ensure that his product is used efficiently.

The Bill will also have to ensure that the right fuel choices are made for the future. As hon. Members have said in the debate, although the Bill contains mechanisms to ensure that renewables play a more active part in the generation market, there are still considerable concerns about how they will operate. There are certainly concerns about the impact of the mechanisms on combined heat and power.

In the past 10 years, the market has helped the Government to meet their targets—although the more cynical might say that the market has defined what those targets should be by making its CO2 savings in the switch from coal to gas. As hon. Members have already said, however, that dash for gas has its limits. Once we have dashed and all the coal is stopped, there will be no more CO2 savings to be made by letting the market rip.

Meanwhile, as has been pointed out many times, the nuclear sector of the generating market will drop out and, unless it can be replaced by renewables or some other low-carbon emission technology, the market will drive CO2 emissions in the wrong direction. The Utilities Bill will have to lay the foundations for ensuring that that does not happen.

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

Is the hon. Gentleman saying that the Liberal Democrats' energy policy is that, when nuclear power starts coming off stream as Magnox stations are decommissioned, they will regulate the system even more, and that that will address entirely the issues of what to replace nuclear power with and the huge increase in CO2 emissions expected from 2020 onwards?

Photo of Andrew Stunell Andrew Stunell Shadow Spokesperson (Environment, Food and Rural Affairs), Liberal Democrat Spokesperson (Environment, Food and Rural Affairs)

It is perhaps fortunate for Liberal Democrat Members that we do not have the one-eyed, one-lever policy-making process operated by Conservative Members, who have thrown all their weight behind competition. It is utter fantasy to think that it is even remotely feasible that, by 2020, CO2 emissions will be as low as they are now, let alone 10, 12.5 or 20 per cent. lower than now. The hon. Gentleman, who speaks for the official Opposition, cannot possibly be arguing that competition provides the means of meeting those targets.

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

What is the Liberal Democrats' policy?

Photo of Andrew Stunell Andrew Stunell Shadow Spokesperson (Environment, Food and Rural Affairs), Liberal Democrat Spokesperson (Environment, Food and Rural Affairs)

If the hon. Gentleman is interested in that, I should be very happy to sell him a copy of the book that I published last September.

We shall also have to ensure that the Bill provides the means of reaching the emissions targets that the Government have set themselves, first, in accepting the Kyoto targets, and, secondly, in establishing their own domestic target for 2010. The Bill will also have to establish a framework to give electricity generators some certainty for their investment plans beyond 2010.

The Bill will have to provide a framework to protect the weak and vulnerable in society. The hon. Members for Plymouth, Sutton (Mrs. Gilroy) and for Harrow, West (Mr. Thomas) have stated some of the necessities of achieving that goal.

How do we judge the Bill against those criteria? Although I share some of the concerns that have been expressed about the new electricity trading arrangements—NETA—I accept that they might well produce lower prices. Nevertheless, although I am not quite as sceptical as some Conservatives have been on the subject, it remains to be seen the extent to which those lower prices materialise. One consequence is clear: the new arrangements will make it significantly harder for new entrants and small players to enter the electricity generating market. It is also clear that those new entrants and smaller players will generally be the renewables and the combined heat and power players.

The Bill therefore seems to fall at the first hurdle, as it would seem both to inhibit and to promote the introduction of renewable generating capacity at the same time. I plead with Ministers to do what they can to join up their thinking, to ensure that the Bill is coherent in its policy aims and reflects fully what all Departments wish to achieve. In Committee, Liberal Democrat Members will make some detailed points and criticisms on those issues.

Liberal Democrat Members want regulatory guidelines that are tough in delivering environmental objectives and impose on the market some long-term objectives, which the market itself is very poor at adapting to voluntarily—bad money drives out good; short-termism drives out long-termism. If we want to achieve a good environmental outcome, we shall have to find a way of imposing on the market a framework that not only allows profitable operation, but achieves those environmental outcomes.

The regulatory guidelines need to be tough in securing the objective of the elimination of fuel poverty. The hon. Member for Plymouth, Sutton certainly spelt out some of the issues of fuel poverty, but there are other issues—such as how sufficient funding could be generated to tackle the national disgrace of fuel poverty. Other issues that have to be brought within the regulatory framework are warm homes, pricing and disconnections.

The regulatory system needs to be tough on greed. We must have a system that allows sufficient profit to be generated for investment, and we should allow sufficient head-room for companies and market participants to achieve the targets that are being established for them—no one could argue with either of those statements—but we have to have effective penalties for those who are greedy and those who fail.

In judging the Bill, we need to look beyond it. We have to consider the Government's long-term aims, and we have to have an idea of the firm action planned by the Government. That information is not in the Bill, and we should not expect it to be there. As the Bill is passed, however, please, may we ensure that none of the Bill's provisions will stand in the way of the longer-term objectives that the Government claim that they want to achieve?

The industry itself wants certainty, but it is not as fundamentally opposed to regulation as some Conservative Members would have us believe. The industry wants a sure and steady framework in which it will be able to take its investment decisions and develop its marketing strategies.

From that point of view, however, one regulatory framework is not a lot different from another. A regulatory framework that requires the industry to subsidise rural consumers is neither better nor worse than one that requires it to subsidise poor consumers. A regulatory framework that ensures the entry of new participants to create a competitive market with multiple participants is neither better nor worse than a regulatory system that insists on long-term investment decisions to bring new technologies to the market.

The industry is concerned not so much about regulation as about the uncertainty and the fickleness of Government policies, from whichever Department they may originate.

Liberal Democrat Members want to see evidence of joined-up thinking not only in the Bill, but beyond it. We should like to achieve an all-party consensus on the direction of the United Kingdom's energy policy for the next 20, 30 or 40 years. We should like a Bill that allows investment, but not excessive profit taking. We should like a Bill that allows the energy industry to be reshaped, but not simply on the basis of a little bit here and a little bit there.

When it comes to matching society's environmental objectives with its economic growth objectives, what we do with energy—how we control and develop it—will determine whether we are able to have one, the other, both or neither. If we do not get it right—this Bill gives us an opportunity to begin to get it right—it is highly likely that we will finish up with neither.

I want to give two cheers to the Bill, and there are many points that we will want to bring forward in Committee. I hope very much that the Minister and the Secretary of State will take our critical support in the spirit in which it is intended—to see good outcomes for Britain.

8 pm

Photo of John Cryer John Cryer Labour, Hornchurch

I did not think that Conservative Members would be able to bring the issue of personal sexuality into this debate on the Utilities Bill, but I underestimated the skills and the neurosis of the hon. Member for Mid-Worcestershire (Mr. Luff).

The Bill will be widely welcomed by the people we represent. It is widely recognised that as well as being a good Bill, it is extremely timely. I should have thought that Opposition Members would have seen the Bill as a blatant attack on privatisation, and that privatisation should be defended in every way possible. That seems to have been the response from Opposition Front Benchers and some others, but there is no fevered throng of Conservatives on the Back Benches ready to defend privatisation to the nth degree.

I suspect that the Opposition Benches are empty because privatisation is now difficult to defend politically—particularly since the Ladbroke Grove train crash. My view is that a shift in public opinion was under way a long time before that, but that the crash was the crystallisation of the public feeling that privatisation had amounted to a considerable rip-off. We see today that ownership of the utilities is concentrated in fewer and fewer hands, and that makes the Bill all the more timely.

The myth of Mrs. Thatcher's popular capitalism was that we would all end up as shareholders. That simply has not happened, and shares have moved to the bigger players in each market. When the electricity companies were privatised, they were sold to 9 million small shareholders. Three years ago, the number of shareholders had fallen to 2 million. Since then, the figure has carried on plummeting like a stone.

Many of the companies buying into British electricity and generating companies are American companies which have very poor track records on that side of the Atlantic—companies such as Southern, Pacificorp and Texas. The real motive behind privatisation—contrary to all the baroque and technocratic arguments advanced by Conservative Members—was to get taxpayers' money into the pockets of their friends in the City. A helpful spin-off was that the unions, by and large, would be broken. It is interesting that electricity companies are now insisting on dealing with smaller and smaller bargaining units to undercut and do away with the power of organised labour within the industries.

A welcome element in the Bill is the creation of the consumer councils within the utilities. That was envisaged for all nationalised industries in the 1930s and 1940s, but was never fulfilled. Nevertheless, it was a plan for the publicly owned industries, and I am glad to see it being brought in under the Bill.

The Bill does not seem to have a particular concern with protecting low-income users—the poorer customers who have suffered since privatisation. It is true that disconnections—particularly in the electricity sector—have reduced, but having said that, Eastern Electricity, which covers my area, is the third highest in the country in terms of disconnections.

Disconnections have reduced, but as my hon. Friend the Member for Ochil (Mr. O'Neill) pointed out, people are disconnecting themselves by default. The installation of meters has become much more common. If people cannot afford to put money in the meters, they get disconnected. When I was a kid, meters were seen as old-fashioned and were being done away with as we moved towards a constant supply of electricity. Now we are moving back in time, and poorer people are being given meters by electricity companies—and, for that matter, by water companies.

The Water Industry Act 1999 did a great deal of good in the water industry and it gave powers to the regulators. However, we have seen the increasing installation of water meters quickly and against people's will, because the companies know that the new powers in the Act will mean that in future people cannot have water meters installed against their will. The water companies are in a mad rush to install water meters as rapidly as possible in people's homes. That has certainly happened in the area that I represent, and I assume that it has happened in other areas as well.

Surely an advocacy role should be a statutory duty for the consumer councils—something that does not seem to be in the Bill, as my hon. Friend the Member for Plymouth, Sutton (Mrs. Gilroy) pointed out. In the economic conditions that we face today, I would have thought that an advocacy role was crucial, and I would have liked to see it in the Bill. I hope that my right hon. Friend the Minister will say something about that.

The Consumers Association has put forward the interesting notion of consumer impact assessments. The idea is that the utilities should be called upon to make assessments to see how their policies and how they run their companies will affect consumers in the future. That is a sensible idea, and I would like to hear my right hon. Friend's response to that.

I am concerned also with the deep-mined coal industry. It is crucial that we maintain a diversity of energy supply, and that means maintaining a deep-mined coal industry. It does not mean buying coal from the Rotterdam spot market or from the heavily subsidised German coal industry—it means maintaining a solid supply of deep-mined coal in this country.

My right hon. Friend the Minister, who has had representations on this issue, will know that two pits in this country are currently faced with closure—Clipstone and Ellington in the north-east. In the past year, since the generating regime was changed by the Government, four or five pits have closed. If we carry on in the current manner, within five or six years every deep mine in Britain will close. That would be welcomed by Conservative Members. The closure of the mines, and the evisceration and butchery of the mining communities, was something that they set out to do in 1979 and finally achieved in the 1990s. They took enormous pleasure in that. It was interesting that Ministers in the previous Government were busy privatising, ripping off the taxpayer and selling things off left, right and centre—and then they went and took jobs in the privatised industries.

Tim Eggar, an Energy Minister in the previous Government who happily closed down pits and ruined communities, ran off and got a job in the energy sector. That was outrageous behaviour, and entirely typical of the Conservatives. It shows what contempt for public service the Conservatives really have. What effect does my right hon. Friend the Minister think the Bill will have on the deep-mined coal industry? We must not forget that we are not far from the day when gas and oil begin to run out. We are standing on 600 years' supply of coal. If we continue to close the deep mines, that coal will become inaccessible. Once the ground is broken and the shaft has been sunk and then closed, the coal cannot be accessed in any way.

I am concerned also about the World Trade Organisation and the European Union, and their attitude towards all sectors of the economy, including the energy sector. If my reading of WTO and EU policy is right—particularly with regard to the multilateral agreement on investment—we might see, in future, the WTO intervening in the energy sector and declaring illegal actions such as the moratorium on gas-fired power stations. Its rulings in recent months show that it is already moving in that direction, which is extremely worrying.

If an American company decided to burn orimulsion, the most toxic basic fuel in the world, somewhere in Britain, and the Government intervened to stop it on environmental grounds, under the proposed rules the company could go back to the WTO and get that action declared illegal, and sanctions could be imposed on Britain. That is an academic scenario at present, but I would like to hear my right hon. Friend's views on it.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield 8:10 pm, 31st January 2000

We have just heard the authentic voice of old Labour. The hon. Member for Hornchurch (Mr. Cryer) has defended the mining industry, in which people might have a decent community but suffer from every coronary and lung dysfunction under the sun. He might welcome people going down into some 19th century hell, but I am pleased that they have managed to find other jobs in safer industries and are earning more money. Going back to the industries of the 19th and 18th centuries does nothing for Labour party ideals or for the mining communities.

The hon. Gentleman mentioned empty Benches. I did a quick calculation and worked out that, as a proportion of the number of seats that we hold, there is a greater percentage of Conservative than Labour Members present. The House is not packed because there is some consensus on the Bill.

The hon. Member for Hazel Grove (Mr. Stunell) called for two cheers. I would not go that far; I would call for one. The reasoned amendment says that the Bill contains worthwhile provisions for merging the electricity and gas regulatory authorities, for separating the licensing of supply and distribution of electricity and for introducing new electricity trading arrangements". The world turns—at least for the rest of the Labour party, if not for the hon. Member for Hornchurch. Despite what they said in the 1990s, the Government accept that privatisation is a good thing. Privatisation is here to stay. The Bill builds on Conservative party legislation to regulate the privatised industries.

We want the privatised industries to succeed, not necessarily for the shareholders but for the consumers. We feel that the Bill needs amendment on that point. The reasoned amendment says: it also contains measures which increase regulation and intervention by government in the utilities sector; which impair transparency and accountability in the regulatory framework; which add to industry costs which will ultimately be passed on to consumers". It is nonsense, and demonstrates a complete misunderstanding of how the economy works, to argue that the Bill is for consumers. The reasoned amendment goes on to say that the legislation will introduce powers to levy unlimited fines; and which significantly undermine the independence of the regulators. One or two Labour Members have spoken against the privatised industries. Let me remind the House that disconnections in the electricity industry have fallen by more than 99 per cent. since privatisation. There were 80,557 in the year before privatisation, but only 375 last year. That is something of which we can all feel proud and for which we do not have to make excuses. Privatisation has worked and nobody on the Government Benches, with the exception of the hon. Member for Hornchurch, still argues that any of the industries should be renationalised.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

If the hon. Gentleman did not say that, he may have implied it.

What are the other benefits of privatisation? In real terms, there has been a 29 per cent. fall in domestic electricity prices, a 29 per cent. fall in domestic gas prices and a 50 per cent. fall in domestic telecoms prices. That is an achievement to be proud of.

Photo of John Cryer John Cryer Labour, Hornchurch

Why do people who use meters pay a higher rate for electricity than those who pay by direct debit?

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

It costs more to maintain meters than to get payment by electronic transfer. If people have a bank account and are able to pay by direct debit, they are not subsidising those on meters. Is the hon. Gentleman saying that there should be a social policy? Does he intend to table an amendment to say that the Government should instruct utilities companies to implement a social policy?

The Government are responsible for not only a nanny state that intervenes and misunderstands how business operates, but a state that tries to create envy. That is the state that talked about "fat cats" in the general election campaign. What is the real level of directors' pay? It rose by an average of 4.5 per cent. in the past 12 months, according to the latest survey of Institute of Directors members carried out by the Reward group. That compares with an increase of 5.1 per cent. in the overall economy. The survey also showed that directors' pay is forecast to rise by an average of only 4 per cent. in the coming year. Far from being fat cats, directors' pay lags behind the growth of the rest of the economy. More than half the executive directors surveyed had a pay increase of 4 per cent. or less; only 18 per cent. had an increase of more than 6 per cent; and nearly 40 per cent. took an increase below 3 per cent.

It does not matter what industry we are talking about: if you pay peanuts, you get monkeys. Even the John Lewis Partnership, an organisation that the Prime Minister himself called the stakeholder business personified, recognises that it has to pay market rates to get people of the right calibre.

Photo of David Chaytor David Chaytor Labour, Bury North

Do the figures that the hon. Gentleman cited apply to privatised utilities or to all companies? If they apply to privatised utilities, do they apply to the chairmen?

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

It depends on which utilities the hon. Gentleman is talking about. The figures are taken from the Institute of Directors and are produced by the Reward group for all directors. I hope that that answers the question.

If people of calibre are to be attracted to an organisation, it has to pay the going rate. Does the hon. Gentleman argue with that? The John Lewis Partnership, which is owned by the 40,000 partners who work for it, recognises that fact. Frankly, there is nothing wrong with that. I would rather that the utilities industries were run properly and efficiently than by people who mean well but are not of the calibre to do the job.

Photo of David Chaytor David Chaytor Labour, Bury North

How is it, then, that the people who were not attracted to the utilities but were in post when they were first privatised also got astronomical pay rises? If the hon. Gentleman accepts that there should be a link between pay and ability, does he not support the concept in the Bill that there should be some transparency about directors' pay and that it should be linked to performance?

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

I agree with some of what the hon. Gentleman says, but performance is not the only factor. Greater risk is involved in employment in a privatised industry. For example, when Severn Trent was privatised, the chairman left after a couple of years. Risk increases how much one is paid. That is why Ministers are paid more than ordinary Back Benchers. Deputy Chief Whips are also paid more than Back Benchers, for reasons of risk and job insecurity.

One newspaper said of the Bill: It is almost as if this Government has forgotten that the utilities have been privatised. They are none of them perfect, but the standards of service and efficiency in gas and electricity have been transformed since they were sold. Competition in both industries is growing, and prices are coming down as a result.Despite the evidence from health and education, there remains a widespread belief that government controls can improve things, which is what encourages this sort of useless legislation. If Mr. Byers must interfere, it should be to ensure more competition, not more rules on irrelevances such as directors' pay. The hon. Gentleman also mentioned transparency, and I agree that pay should be transparent. It is, to the extent that all utilities are public limited companies and the Companies Acts require directors' pay to be specified in the annual report. Perhaps the hon. Gentleman thinks that details of directors' pay should be contained in a newsletter that goes out with the bills. If he is suggesting that, I would not necessarily argue with him because the information is already in the public domain. However, that should be done only if the company already intended to send out a leaflet, because I would not want to see extra paperwork being sent out and thus the costs of the basic utilities being driven up.

The hon. Member for Plymouth, Sutton (Mrs. Gilroy) mentioned the Consumers Association, but I wish to mention the Consumer Council that will be introduced by the Bill. The Conservative party welcomes that, as does British Telecom, but the latter is concerned that there is a potential overlap between the responsibilities of the Telecommunications Authority and the council. BT claims that that overlap will be inefficient and could lead to conflict—for example, the duty of the council to investigate any complaint and the power of investigation on any matter of consumer interest.

British Telecom is also concerned about fines. It has stated: The appeal grounds for fines are very limited and do not align for example with the recent Statutory Instrument. In contrast with the Competition Act 1998 there is no limit on what might be an 'appropriate' fine". Someone earlier said that if the level of bills was predictable, the privatised industries could budget accordingly. My point is that if there is no limit on fines or penalties, they will not be able to do so. A useful amendment to the Bill would be to set maximum fine levels, or for the types of offence to be graded.

British Telecom is also concerned about the cost of regulation. I remind hon. Members that when we talk about costs to companies, we are also talking about costs to consumers. We are not talking about the tiny percentage of companies' costs that directors' pay constitutes: we are talking about costs that will be passed on to consumers in their utility bills. BT has said: The Bill proposes further regulation for telecommunications when the need is diminishing in a highly competitive market. The overlap in responsibilities between the Authority and the Council will lead to inefficiencies and cost. The cost of the Council is to be raised via supplementary licence fees (which need bear no relation to cost causation)". I dislike that jargon, but it means that the charges made for the Consumer Council may not be linked to the actual cost of running it. How will that licence fee be set? BT continued: and there is no ceiling, this is critical when the Council is able to investigate any matter of consumer interest. Several of the proposals in the Bill amount to micro-management which will mean further costs for regulated companies. Micro-management is yet another example of how the Government cannot resist interfering in the running of companies, through Government agencies.

New Labour has failed to move away from its old interventionist policies. Yet again, the Secretary of State has demonstrated that dogma has prevailed over economics. I had to laugh when he said that the Conservatives were driven by dogma in privatising the utilities, when he is building on that privatisation in the Bill. I am delighted that the right hon. Gentleman, at least in that respect, acknowledges the value of privatised industries and accepts the economic reality.

I congratulate the right hon. Gentleman—it is a shame he is not in his place—on his view of the minimum working wage. He now recognises the damage that it has done in certain areas and certain industries and has said that he will fix it so that its value decreases in real terms over the next year. He has taken on board the economic facts about which we have been warning him for the past year.

The Secretary of State will also recognise, eventually, the damage that parts of the Bill will do—and I hope that it, too, will wither on the vine. At the moment, the nanny state prevails, and once again the scales have tipped heavily in favour of regulation in the balance between state intervention and the free market. That will not be for the benefit of consumers because the costs will be passed on.

Photo of Alan Simpson Alan Simpson Labour, Nottingham South 8:28 pm, 31st January 2000

I became somewhat excited earlier in the debate when the hon. Member for West Worcestershire (Sir M. Spicer) suggested that the Bill was an attempt to introduce socialism by the back door. What an exciting prospect. I became even more excited when he suggested that intervention by the Government in a pure market was a damaging and distorting factor, and that all consumers, wherever they lived, should bear the real cost—including the fixed cost and the marginal costs—of energy supply.

I hope that the hon. Gentleman has the courage to mention that to the rural communities where his party will canvass for votes. What he suggests would mean a devastating increase in the costs of access to energy and water, and it would be pretty much the kiss of death for many of those communities. However, he suggested mechanisms for balancing out the way that open and unregulated market systems create their own gross inequalities. He said that that task was best left for the Government. This was the first time that I had heard a Conservative party member so openly make the case for substantial tax increases. I was very interested, and would welcome any indications from Conservative Members about the scale of tax increases they would entertain in going down that ideological route.

A more appropriate starting point, however, may be found in the comments of the hon. Member for Mid-Worcestershire (Mr. Luff). He described the meteorological conditions that affect Worcestershire, and noted that the county is disproportionately affected by disruptions to the energy supply caused by lightning and electrical storms. I suggest that the Bill is a modest way of supplementing God's imperfect attempts to strike back at Tory Members who saddled us with the dog's breakfast that was the privatisation of utilities. Before privatisation, the public—rightly, and proudly—believed that they owned those utilities.

I welcome the Bill and what it proposes. It is timely for us to take stock of the legacy of privatisation. In my view, the privatised utilities have pillaged the country in four ways. They have consistently put the shareholder before the citizen. They have put the continuous supply of dividends before the continuous supply of gas and electricity to the public. They have put short-term job cutting before the long-term reduction of pollution and investment in sustainable technologies, and they have put the private right to profiteer before the public right to know.

The Bill will start to tackle the deficiencies in the Government's inheritance, and I welcome it. The records of the Conservative Government, and of the privatisations that we are discussing tonight, fail two fundamental tests—the tests of poverty reduction and of consumer accountability.

Comparative figures for poverty reduction are instructive, as they help us realise that the fuel poor are not merely those who are disconnected. The equation is complete only when the substantial number of people who self-disconnect are taken into account. In other words, invisible disconnections make up the total picture.

Figures from the Consumers Association show that there were 29,500 gas disconnections in 1998, and that 24,250 warrants were issued that allowed electricity industry personnel to force entry into people's properties and replace conventional meters with pre-payment meters. In the same year, a national MORI poll found that there were also some 428,000 gas self-disconnections, and 926,000 electricity self-disconnections.

That is the extent of the backlog of fuel poverty that privatised energy industries have barely begun to recognise, let alone touch. People are revolted at the fact that fuel poverty remains a scar on the United Kingdom's social landscape at the start of the 21st century. Each winter, fuel poverty causes between 30,000 and 60,000 deaths. That is just a sliver of the number of households and individuals whose lives are blighted by fuel poverty. I make no apology for praising the Government for putting the eradication of fuel poverty at the centre of their agenda for dealing with the regulation of energy supply and utilities management in the United Kingdom.

I also said that the record fails the test of consumer accountability. I had extensive correspondence with Severn Trent Water after the regulator came up with his provisional price determination, leading up to the time of the actual price determination and the industry's response to it. I went through the regulator's comments with great care. The most important was that he was clear that there was no logic in the industry responding to his recommended price cut by saying that it could not meet increased standards of performance, or the environmental aspirations that the Government rightly set out, or expand the public services to which it would otherwise have been committed.

The regulator looked at the claims and dismissed each one in turn. Water is a de facto monopoly industry. It is low risk in the sense that no one is going to wake up tomorrow morning so furious with the service that the industry provides and the prices that it charges that they would boycott drinking water and stick to drinking sump oil. We are all captive consumers of water. In that sense, it is an extremely safe industry in which to operate. The regulator pointed out that, since privatisation, the level of internal self-reward in the industry had been far higher than he or anyone else in their right mind could justify. He pointed out that the internal cost of capital, financed by borrowing or from receipts, would be half the amount that the company was paying in rewards to its shareholders and directors. That was the stark message. The regulator required current and planned investment programmes to be funded internally.

The industry's response was derisory. It virtually ignored all the regulator's exhortations to look for internal methods of financing its programmes. It launched a programme of short-term job cuts that will probably result in 10,000 job losses across the country. Just a couple of weeks ago, all hon. Members representing east midlands constituencies received a letter from Severn Trent in which it gave us notice of the loss of 1,100 jobs and the closure of eight offices across the midlands. The industry had decided to take those measures so as not to make intrusive inroads on the levels of self-reward to which their shareholders had become accustomed. Against that backcloth—the weaknesses that the Government inherited—we have to push for stronger regulatory powers and for more extensive duties to be placed on the industry.

I was fascinated to hear Conservative Members talk about the nanny state. In truth, the arrangements proposed in the Bill are already in place throughout the United States of America and Canada. The Conservatives usually like to heap praise on those parts of the global economic system. But the American and Canadian approach to private utilities says that we cannot trust private hands to hold them without extensive directions on duties and obligations and without massively strengthened social and consumer rights. People must know what is happening, and be able to scrutinise the claims and accounts of companies and hold them accountable. We should carefully examine the regulatory regimes that give rights to citizens in north America and which we do not yet begin to approach within the framework proposed in the Utilities Bill.

At the end of the last Session, I tabled an early-day motion praising the initiatives taken by one electricity company in the United Kingdom. I praised it for making a radical change in its approach to energy policy. Let me spell out what Scottish Power proposed to do, although, to be fair, I should add that other companies might have suggested the same.

Scottish Power offered a written guarantee that it would introduce a lifeline rate of charges for the poor. It offered a three-year energy conservation programme, funded entirely by shareholders. It proposed to reduce standing charges to 55p per month. It proposed that there would be no winter disconnections. Finally, it offered to reduce unit charges to 4p per kilowatt hour. As if that cake were not big enough, the company added a cherry: a commitment to a price rebate of £25 million shared by all consumers.

The point of my praise for Scottish Power was simple. If the company was prepared to put that written deal on the table as part of an offer to buy Pacificorp and as a commitment to the citizens of Utah, why could it not make the same commitment to consumers in the United Kingdom? I do not want to put Scottish Power unfairly on the spot; any UK energy company that had made a bid for a United States energy company would have had to make exactly the same open commitments to meet a series of environmental, social and employment obligations that go hand in hand with the free-market regime there.

The Americans and Canadians know full well that the free market will, if left to its own devices, simply result in oligopolies that run away with profits at the expense of the consumer, society and the environment. They therefore build in regulatory constraints that limit the power to exploit people and the planet in the way that the Conservatives were so keen to do.

There are similar regulatory arrangements for water that give consumers the right to hold open hearings at which companies are required to spell out not only their price proposals, but their commitments on investment, employment, the rate of return on capital, and the environment. I ask the Secretary of State to consider carefully that framework of civic rights, with a view to including it in the Bill in Committee, thus strengthening its commitments.

One of the great strengths for the utilities under the proposed framework is that, if they are required to work to open-book scrutiny, we shall make them genuinely more efficient and accountable. One of the myths that we have been saddled with, as a legacy of the Conservative years, is the con of competition. So much of the framework set up by the Conservatives is cloaked in the mists of commercial confidentiality. If one asks which bids have gone in, one is told, "We can't tell you, because it is commercially confidential." If one asks about environmental impact, one is told the same thing. To give the information would expose the company to the risk of being outbid by one of its competitors.

We have been saddled with a process of collusion. By and large, the role of the regulator, in coming to a view on price determination, has been to announce the recommended price, after a long process of private consultation with the companies concerned. I asked the regulator why he went about it in that way. His response was that, in private, he could hold hard-nosed discussions and negotiations and get utility companies to admit points that they would never concede in public; that gave the UK a better deal than if all the discussions were held in public.

Recently, some Labour Members were fortunate enough to hear a presentation by Greg Palast. In this country, he is possibly best known as a business journalist, who writes for The Observer, but he has an international reputation as an extremely experienced utilities regulator in the United States. He pointed out that no similar private discussions took place in the USA.

Some states had paddled in those waters, but had come to a different conclusion. Their conclusion was stark; it might shock some hon. Members, but not, I suspect, people outside this place. They discovered that, in private, the companies lied through their teeth. The process resembled the "Arabian Nights" tales. Like Scheherazade, representatives of large corporations would talk through the night to ensure that their super-normal profits were not executed in the morning. They would come up with whatever magical tale was needed to stop the intrusion of public interest into private profits.

The Americans discovered that if their citizens—not merely citizens' organisations—had the right to hold open hearings, someone would nail the lies that companies were trying to wing past the regulator, either because people had a commercial interest in being the successful bidder, or because they had an environmental or social interest and went through the company accounts with a fine-toothed comb. If we want open markets, we have to have open books. Markets must be prepared to pay that price. Public rights of scrutiny, not private rights of discussion, will best protect the rights of UK citizens.

Greg Palast also made the interesting point that, in many states, Americans go further than that and ask, "If regulators are to be accountable, what is the best way to achieve it?" Those of us who are Members of Parliament would say that it would be periodically to present ourselves to the electorate and to accept their judgment on our record. At least eight US states do exactly that. Their regulators are elected. They have to stand for election and are judged on their records. If the public think that they have been sold down the river, the regulator will go the way of all electoral false promises and someone else who is better is put in their place. It is about public rights, not private and corporate deals.

When we give the Bill, as I hope we will, its Second Reading, we should ask how it can be genuinely strengthened to give consumers in this country many of the rights that their counterparts enjoy, but which we have never been offered. When we create the consumer councils, it is important that they have the right to know, the right to advocate and the right to appeal. Some parts of the Bill are confusing in that they suggest that consumer councils may have a right to know, but that they may not have a right to tell anyone. It is a strange basis for advocacy if those who are charged with the responsibility of representing the public cannot tell the public of the campaigns being mounted on their behalf. We should be unafraid of extending those rights.

We should also extend the right to appeal. I see no valid reason why a Labour Government should be afraid of enshrining in the Bill a public right of appeal to the information commissioner. That would be our best protection against the charges that we are colluding with the corrupting practices that were set in place by the Conservative Government.

The Bill should also contain defined anti-poverty targets. In the Scottish parliamentary elections, the Labour party was proud to set forth a commitment that it would eliminate fuel poverty within two terms. The whole House should be willing to sign up to that commitment and we should want to enshrine it in our commitments for an inclusive energy policy.

We should also require a commitment that there will be no disconnections. Utility companies should know that if they disconnect the public, they should expect to disconnect their own dividends. I would be quite happy to link that issue with directors' pay or, perhaps, to limit dividends on the basis that companies can produce distributed profits only to the level at which they have invested in renewable energies. At least their boards would then know the environmental priorities that we were setting them for the coming century.

I hope that, in Committee, we shall make a commitment to give people in Britain the consumer rights that they have in north America and the environmental rights that we demanded at Kyoto. Currently, poor survival prospects blight the lives of the 15 million people who make up Britain's fuel poor. They exist throughout the country and they have not had one jot of interest from the privatised industries in finally bringing to an end the scandal of fuel poverty. I hope that we have the courage to address all those issues and to redress the omissions when the Bill is in Committee.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch 8:53 pm, 31st January 2000

It is a pleasure to follow the authentic voice of traditional Labour. I disagree with almost everything that the hon. Member for Nottingham, South (Mr. Simpson) said, and I shall quote a topical example that I hope will bring home to him the difference between privatisation in practice and leaving utilities in the public sector.

I very much support the amendment in the name of my right hon. Friend the Leader of the Opposition and other right hon. and hon. Friends. The second part of it epitomises the concerns that I and many others have about the Bill. It will effectively nationalise the former independent regulation; it will bring in new controls over private enterprise; it will introduce new stealth subsidies that will distort competition; and it will give new powers and duties to regulators to impose extra-parliamentary taxation to pay for those stealth subsidies and the extra regulation.

The topical example that I shall quote is a story of what has happened in Scotland during the past week. The hon. Member for Nottingham, South will know about it if only because the hon. Member for Hamilton, South (Mr. Tynan) referred to it following my intervention.

We have just been told that as a result of the water industry remaining in the public sector, water charges in the north of Scotland will increase by no less than 51 per cent. over the next two years, so the average water bill will go up from £175 to £264.60 in 2001–02. There are three Scottish regions for the purposes of the water companies, and the water authorities in the west and east of Scotland will also increase water bills, by 15 per cent. next year and 12 per cent. the following year.

It is clear from another story that appeared in The Herald last week that the Government have one law for the public sector and another for the private sector. We know that the Government, and the Government of Scotland, are saying that water charges should increase to that extent because that is a reasonable price to pay for continuing to have Scotland's water industry under public control.

At the same time, the Minister of State, Scotland Office argued in a letter to The Herald last Thursday—the same day on which those large increases in water charges were announced—that it would be perfectly reasonable to impose a burden on private oil companies by requiring them to cross-subsidise the cost of fuel in the highlands and islands, where the average pump price is 7.2p per litre higher than in the Scottish conurbations. However, he saw no problem with those living in the highlands and islands paying some 50 per cent. more for their water because that industry is in the public sector.

That vivid, recent example from Scotland epitomises what is at the heart of the Government's thinking, which is to have one policy for the public sector and another for the private sector.

Photo of Andrew Stunell Andrew Stunell Shadow Spokesperson (Environment, Food and Rural Affairs), Liberal Democrat Spokesperson (Environment, Food and Rural Affairs)

Was the hon. Gentleman in the Chamber when his hon. Friend the Member for Mid-Worcestershire (Mr. Luff) appeared to be saying that the same logic should apply to the supply of electricity to rural areas? He suggested that it would be proper for the utilities to charge rural areas a higher rate, and that the Government should provide a subsidy from state funds to equalise expenditure. Is he familiar with that argument, and does he support it?

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

I did not hear my hon. Friend's argument, but I shall certainly read the Official Report so that I can acquaint myself with it.

It is absolutely essential that regulators are independent. The Bill establishes a regime of what I might call super-regulators, and one of the key differences between them and their predecessors is that they will not be independent. The Government may have reluctantly decided, for pragmatic reasons, to go along with the surrender of state ownership of the nationalised industries, but in this Bill they are effectively taking back centralised control. The authors of clause IV would be justifiably proud of that. It is an act of socialism by stealth.

The regulator's independence will be compromised because he will be wholly beholden to the Secretary of State. I tabled some parliamentary questions, two of which were answered today by the Minister for Energy and Competitiveness in Europe. One question was whether there would be any limit on the level of remuneration or allowances payable to the regulator at the behest of the Secretary of State. The answer is that there will be no limit.

Perhaps even more sinister is the fact that there will be no limit on the compensation that the Secretary of State can agree to pay if he decides to dispense with the services of the regulator if he has crossed the Secretary of State in some way. The Bill uses the term "misbehaviour". That means that the Secretary of State will have supreme power, and if the regulator fails to do his bidding, he can dismiss him without notice and has sole discretion as to whether he gives him a substantial golden handshake from taxpayers' money. If ever there were an example of where a Secretary of State has all the cards and where the independence of the regulator is capable of being compromised, I suggest that it is in the Bill. I hope that we will have the chance to explore the matter more fully in Committee.

I am concerned that the Bill seems to provide double standards on price controls. An increasing amount is being written about the unbridled power of self-financing regulatory authorities and their power to impose costs on those whom they regulate. The appetite of the regulators to regulate others knows no limits, but they are not so keen to submit their own costs to regulation. That was epitomised by an exchange I had with Callum McCarthy, the Director General of the Office of Gas and Electricity Markets, when he gave evidence to the Select Committee on Trade and Industry on 25 January. Responding to concerns that price controls imposed by the regulator were forcing companies to cut back on staff, he said that he believed price controls to be an incentive for efficiency, particularly for less efficient companies. However, he refused to accept my suggestion that his own costs might be capped, that increases in his running costs should be limited to an inflation-level increase, and that he should be subject to the same price controls that he is seeking to impose on those whom he regulates. Of course, he is in a supreme monopoly position.

At present, Mr. McCarthy's running costs are about £36 million, although he said that in the current year his total costs will be nearer £70 million. That is an extremely large sum. It might have been thought that to amalgamate two regulatory bodies would save on costs, but the irony is that in this instance it seems that costs will increase. The regulator has decided that the two regulatory bodies should be consolidated in expensive office accommodation in the centre of London, in Victoria, and that the Birmingham office should be closed. About 100 people working in that office will be made redundant or will have to be redeployed. The centralising is taking place in a part of central London where the costs of office space and general employment are the highest in the country and among the highest in the western world.

That is indicative of the power and luxury in which some of our super-regulators think that they will be able to bask at the expense of those whom they regulate. It is monstrous that there is no provision in the Bill to enable Parliament or anybody else to have any control over the costs of regulators.

It is significant that the European Union licensing directive restricts the range of activities that can be funded from a telecom operator's licence fees. It is said in the financial memorandum that the new telecommunications consumer council may have to be funded from public funds, to an extent, because of the EU licensing directive. However, that directive does not apply to the other regulators that are the subject of the Bill. There will be no protection against costs increasing substantially and then becoming a burden on those who are being regulated.

Paragraph 173 of the explanatory notes refers to the financial effects of the Bill. The Government say that although there will be substantial increases in public expenditure as a result of the Bill, there will not generally be an increase in public borrowing because, in most cases, the costs will be recovered in full from licence fees. These fees are treated as negative public expenditure for control purposes. There will, therefore, be no increase in the Government's preferred measure of public expenditure". This is referred to as "Total Managed Expenditure". The notes go on to state: Full cost recovery may not be possible in respect of the telecommunications consumer council because of the EC telecoms licensing directive.

Effectively, the Government are imposing on a non-independent regulator burdens that will lead to substantial costs. He will be obliged to pass on those costs to the companies that he regulates, and the costs will eventually be passed on to the consumer. That is back-door taxation in anyone's language. It is a clever and subtle way of proceeding, but we should expose it to public scrutiny to a greater extent than it has been exposed up to now.

Ofgem has running costs of no less than £36 million a year, and they are increasing significantly above the rate of inflation. That was implicit in what the director general told the Select Committee the other day. By comparison, the costs of Ofwat are still only £11 million a year. One might think that the latter body had been much more prudently operated during its 10-year history. The costs of Ofwat represent only about 40p for every connected property.

Another aspect of the Bill that I find offensive is the way in which it introduces the concept of stealth subsidies. The Government say that subsidies distort competition. That is what the Secretary of State has said, and I am sure that most hon. Members would agree, though perhaps not the hon. Member for Nottingham, South. The Bill introduces cross-subsidies, which will be imposed by Ministers through the regulator but will be disguised from the consumer.

Such stealth subsidies will distort competition even more than transparent subsidies. The Bill effectively introduces social engineering without the scope for democratic consultation, and extra forms of non-parliamentary taxation.

We need regulation only when competition is not working. David Edmonds, the Director General of Oftel, must be right in his strategy of allowing regulation gradually to be removed as competition advances. The strategic statement from Oftel concludes: Over-regulation distorts markets and disadvantages consumers … Oftel will no longer promote competition in competitive markets but will continue to act to prevent anti-competitive practices. I was disappointed to hear from the Secretary of State in his opening remarks today that he did not think that there were areas subject to regulation by Oftel that should be subject to competition in the marketplace. I hope that he will reconsider that opinion, in the light of the remarks of the Director General of Oftel.

Photo of Mr Martin O'Neill Mr Martin O'Neill Chair, Trade & Industry Committee

The legislation will still make provision for groups apart from the poor and the disadvantaged, such as the elderly and the disabled. Those two groups surely require special protection in the telecommunications market. Their dependence on telephones does not always reflect the operation of the market. The regulator should ensure the maintenance of minimum standards and the availability of a service to such groups, whom it is the regulator's specific responsibility to look after.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

Much depends on the way in which that is done. At present, the water regulator has responsibilities to pay attention to those who suffer from disabilities or are otherwise disadvantaged, but even the Director General of Ofwat thinks that what is proposed in the Bill is over the top in imposing rigid new requirements on the regulator. I was going to refer later to the exact words that he used in a recent article. The general proposition is fine. We should ensure that responsible providers of utilities take into account the needs of special groups. However, the Bill is over the top because it imposes on the regulators substantial requirements which can be met only at tremendous expense to other consumers.

What protection exists if the Minister or the Secretary of State acts against consumers' interests? The Secretary of State admitted that there was none, and effectively said that we would have to rely on his political judgment. That is a cause of deep anxiety because the most topical example of his judgment is his imposition of restrictions on new entrants into the electricity market. He has forbidden licences to those who provide gas-fired generation. He justified such anti-competitive intervention on the specious ground of security of supply. He repeated that today. I say that the reason is specious not because of my prejudice, which knows few bounds, against the Secretary of State but because his Department's advisers have criticised it. The current energy report shows that they have rejected the reason as unsustainable. The Director General of Ofgem also told the Select Committee that it has no substance. It shows that the Secretary of State is more interested in trying to prop up the coal industry as part of a muddled energy and climate change policy. That policy has led the Government to decide to restrict the ability of new entrants to compete for electricity generation.

A headline in last week's Utility Week magazine was "DTI advisers said gas ban was unjustified". The accompanying article stated: Independent advisers to the Department of Trade and Industry told Ministers in an unpublished report"— that is the story of this Parliament— that the government's current block on new gas-fired generation was unwarranted and unjustified on either security or diversity grounds. The Secretary of State responds by telling us to trust him. He takes enormous powers to control the regulators, supposedly in consumers' interests, but if the regulators and other independent experts tell him that he is acting against consumers' interests, he claims that they are wrong and refuses to take any notice of them. That is intolerable.

My hon. Friend the Member for Rutland and Melton (Mr. Duncan) challenged the Secretary of State about Ian Byatt's comments on the reform of utility regulation. Ian Byatt has completed a successful period of 10 years as the water regulator. In a lecture entitled "Checks, Balances and Competing Pressures—Looking Forward at the Role of the Regulator" to mark the 10th anniversary of Ofwat in October last year, Ian Byatt made pertinent points about the legitimate role of the regulator and the proposed reform of utility regulation. I shall not quote extensively from the lecture, but I commend it to hon. Members who are interested in an informed view, based on 10 years' experience, from an acknowledged world expert on regulation, who has fallen out with the Government in a big way over recent months because of the changes that they propose to the regulatory regime.

The Secretary of State said, rather disingenuously, that Ian Byatt was the only regulator who had complained. Perhaps that is not unrelated to the fact that Mr. Byatt is giving up his role this summer, and is no longer beholden to the Secretary of State, whereas the other regulators depend for their future livelihoods on keeping in with the Secretary of State. That is another comment on the total lack of independence that the regulatory regime possesses.

In his lecture, Mr. Byatt said, among other things: Ministers recognise the need for proper accountability. They wish to issue statutory guidance on social and environmental matters to which regulators would pay regard. Where, however, social or environmental measures have significant financial implications for consumers or for the regulated companies they recognise that they should be implemented through new, specific legal provision rather than through guidance. Although almost exactly the same words appear on page 5 of the Green Paper "A Fair Deal for Consumers" under the heading "The Social and Environmental Framework", the Bill is totally different. Unlike the Green Paper, it does not say that the Government will implement social and environmental measures which have significant financial implications for consumers or for regulated companies other than by regulations made under it rather than through primary legislation, which is what they promised originally.

Other hon. Members want to participate in the debate, so I shall conclude. I hope it is clear to the House that the fact that I and most Conservative Members think that the Bill is good to a small extent is totally outweighed by many horrendous provisions that will do enormous damage to British industry.

Photo of David Chaytor David Chaytor Labour, Bury North 9:16 pm, 31st January 2000

I am pleased to welcome the Bill and, in particular, the lengthy consultation that took place during its formulation. That is extremely important because there is a well established consensus on these issues in which all concerned with them—consumer and environmental groups, the industry and many of the regulators—seem to share, apart, that is, from the Conservative party.

Interestingly, the Opposition defined the debate as an ideological struggle between privatisation and nationalisation and do not realise that things have moved on. It is almost as if the events of the past 10 years had not taken place and they have forgotten that the weaknesses of their regulatory regime for the privatised utilities were a reason for their dramatic loss of support and confidence over the past few years. The specific issues of directors' salaries, allegations about fat cats and people abusing the privatised utilities for their own ends lost them significant support in all parts of the country; and the idea that a completely deregulated market, which was called for by virtually every Conservative speaker, can do anything to deal with the challenges of climate change or the chronic problem of fuel poverty is absurd. The overwhelming majority of my constituents understand that, which is why the new regulatory regime will be widely welcomed by them and by the general public.

I want to be brief as time is short, but I must associate myself particularly with the concern of the hon. Member for Hazel Grove (Mr. Stunell) and my hon. Friend the Member for Harrow, West (Mr. Thomas), which was that the new powers in the Bill be used to advance Government policy on sustainable development. The Bill must be considered in the context of an energy policy and the document on Government policy on renewables, which I understand will be published shortly. I urge Ministers to use their powers to ensure that we at last eliminate fuel poverty from the United Kingdom and enable the regulator to use his powers to make sure that the challenge of climate change is not ducked.

I consider the issue at the heart of the Bill to be the definition of the interests of consumers. The problem is that there are many different kinds of consumers of public utilities; however, I shall talk specifically about the consumption of energy. I feel that the focus must be not simply on achieving a cut in wholesale prices—we are told that there will be a 10 per cent. cut—but first and foremost on ensuring that the charging regime is adjusted. What matters to those who are using gas and electricity, as well as water and telecommunications, is not the wholesale price but the bill that they must pay.

One of the most glaring weaknesses of the regulatory regime established by the last Government was the fact that poor people paid more per unit cost for their gas and electricity. That is why I welcome the initiatives that have already been announced by various energy suppliers. I understand that PowerGen has announced a new arrangement in conjunction with Age Concern, and that British Gas has announced that it will abolish its standing charges. I think that, at long last, the energy suppliers are realising that they must change their tariff structure to help people on low incomes.

I also feel that the interest of the consumer must be defined in terms of short-term and long-term interest. That brings me to the environmental point. We would automatically assume the interest of consumers to involve ever-falling energy prices. The difficulty is that, if energy prices and energy bills fall indefinitely, both individuals and companies will once again become profligate in their use of energy. The Government must get to grips with the need for energy conservation and energy efficiency.

We need a definition of the consumer interest that stresses both the environmental impact and the need for a huge increase in investment in renewables and energy efficiency. If we concentrate simply on trying to cut energy bills year on year without having regard to energy supplies—without considering the availability of fossil fuels such as gas, coal and oil, which have a limited lifespan—we shall find in the first instance that our carbon dioxide emissions will continue to rise and we shall not be able to meet our Kyoto targets; and in the longer term that the availability of the raw materials for electricity, in particular, will no longer be there. I welcome the potential that the Bill provides for an increase in our investment in renewables, and in energy efficiency.

Let me ask some specific questions. First, can my right hon. Friend assure us that the new electricity trading arrangements will not prejudice renewables? I know that there is concern about the fact that it is more difficult for smaller energy suppliers, especially those involved in renewables, to predict the long-term volume of supply. It is an essential part of the new electricity trading arrangements that such predictions be made.

Secondly, can my right hon. Friend tell us something about the Government's view on net metering? In years to come, when new energy arrangements apply, when there are more and more small-scale producers and when more and more people generate their own electricity sources, I think there will be a proliferation of small suppliers who not only wish to service their own needs— domestically or in their own companies—but wish to feed energy back into the national grid. That new form of energy supply will be possible only with a system of net metering, enabling them to be paid properly for the electricity that they feed back into the grid. Is it likely that such a system could be introduced in due course?

My first question, raised earlier by my hon. Friend the Member for Lewisham, Deptford (Joan Ruddock), concerns the argument in favour of environmental reporting. Companies, especially energy companies, are increasingly producing environmental reports, which from time to time appear in the company accounts. My hon. Friend suggested that the new consumer councils should also be required to produce such reports. I would be grateful if the Minister commented on that. It would seem a positive development.

I welcome the Bill. I think that it reflects a consensus in the country; it certainly reflects a consensus among my constituents. It deals with many of the criticisms of the previous lax regime. I am amazed that the Conservative party continues to argue against the measure in such an ideological way. I know that many amendments will be tabled in Committee and that many improvements can be made to the Bill, but its principles are sound. I am happy to support it.

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry) 9:25 pm, 31st January 2000

The Bill is the product of the contradiction and deceit that lie at the heart of new Labour. Since the election and before, the spin and presentation from new Labour have been that Labour has learned the lessons of the 1980s, that it acknowledges the success of privatisation, and that business and the free market are good for the economy. It may not be the spin and presentation that have emanated from some Labour Members in the debate, but that is the spin and presentation that emanate from Millbank towers.

The reality that is evident in the Bill and elsewhere, and that has been particularly evident in the debate, is that Labour dislikes, distrusts and does not understand the workings of business and the free market. Labour opposed every privatisation of the 1980s and 1990s. No Labour Member was more vociferous than the Prime Minister when he was shadow Secretary of State for Energy at the time of the privatisation of electricity in 1988. In the Second Reading debate on the Electricity Bill, he made three predictions about the effect that privatisation would have, which he no doubt thought were far-sighted, but which have been proved wholly wrong. His first prediction was: outside of the Conservative party … it is barely in issue that prices will rise because of privatisation. Since privatisation, electricity prices have fallen by 29 per cent. in real terms. Gas prices have fallen by 29 per cent. in real terms. Telephone charges have fallen by 50 per cent. in real terms. Therefore, let us be clear. If the Labour party had had its way, we would not have had the falls in electricity, gas and telephone charges since those companies were privatised.

The second prediction was even more wrong: I would have thought that it was … virtually impossible that anyone would build a power station and invest hundreds of millions of pounds, unless they received a guarantee covering the capital cost, the fuel cost and, probably … the operating costs, too … the idea that we will have an influx of power stations, all competing on the grid, is nonsense. He was wrong again. There has been an influx of new power stations, all competing on the grid: 27 new power stations, producing 18,500 MW of electricity. Fifty independent power producers have entered the generation market since privatisation, with a total market share of some 21 per cent. It would have been difficult for the right hon. Gentleman to get it more wrong. It would be something that we could laugh at—but for the fact that the man who got it wrong is now the Prime Minister.

It gets worse. In 1988, the Prime Minister said: We are proud that we took the"— electricity— industry into public ownership. When we come to power it will be reinstated as a public service for the people of this country, and will not be run for private profit."—[Official Report, 12 December 1988; Vol. 143, c. 681–84.] That might look like yet another broken promise by the Prime Minister, but the Bill actually goes some way to achieving some of his objectives of reintroducing state controls. It contains huge swathes of new regulatory burdens, increased powers for the Secretary of State to intervene in the minutiae of the functioning of all four major utility sectors, and huge new powers to impose limitless fines. It adds enormous compliance burdens on utility companies, the huge cost of which will ultimately be passed on to the consumer.

As my hon. Friend the Member for West Worcestershire (Sir M. Spicer) said in an excellent article in The Daily Telegraph, the Utilities Bill and the Financial Services and Markets Bill will establish an entirely new form of government, the like of which this country has not experienced before: rule by regulator. He made that point again in today's debate.

The Bill reveals the truth that new Labour has not really understood how competition works, or how it delivers better quality and lower prices. The Government have not really understood the free market. Although they have learned to use the language of business and the private sector, the reality of their policy is intervention and regulation. The Government say one thing, but they do quite another.

Today's debate has revealed how many Labour Members do not even use the language. I suspect that they will not be welcomed in Millbank towers as part of the new Labour media machine.

The Conservative approach to the utility sector is to promote competition wherever possible, which itself provides downward pressure on prices. Where competition has not yet been introduced—or where it is not possible to introduce it, because a particular element is a natural monopoly, for example—a regulator is put in place to mimic competition and to protect the consumer.

The Bill reveals the fact that the Government believe that the consumer is always better protected by regulations and that regulation is beneficial for its own sake, even when a utility is fully exposed to a fiercely competitive market. It demonstrates that, like the Prime Minister, new Labour has still not learned how powerful the marketplace is in delivering for the consumer.

The danger of the approach taken in the Bill is that all those new burdens and costs will stifle competition, and so disadvantage the consumer; that more powers for the Secretary of State will add to the regulatory risk and increase the costs of capital; and that the combination of all those increased costs and burdens will lead to higher, not lower, charges for consumers.

The Conservative approach—which has led to huge price reductions, better services and a whole range of new opportunities and choices for consumers—has also resulted, as hon. Members have mentioned today, in a massive decrease in the number of disconnections: in electricity, from 80,000 a year before privatisation to only 373 last year.

The essence of the Government's misunderstanding of the importance of competition can be discerned in the Bill, which reorders the priorities of the regulator and demotes the promotion of competition to a second order objective.

The Bill has been severely criticised by industry, and particularly by Ian Byatt, the current water regulator. Last week, in a lecture at the Royal Aeronautical Society, he said: Now we have a Bill which shows how difficult Governments can find it to translate good intentions into sensible legislation. I find the Bill over-complicated because it is over-prescriptive. Nothing is left to good sense. Mr. Byatt went on to conclude that the Regulator will be festooned with detailed requirements…All laudable, all already being carried out, all, however, because of detailed over-prescription, likely to raise the costs but not the effectiveness of regulations. The point was well summarised by Roger Barnard, of London Electricity, who said: This Bill's enlargement of the scope for discretionary intervention by regulators, politicians and advocates is likely to extract a high price from utility industries, and all consumers will pay it. This has been an interesting debate. The hon. Member for Ochil (Mr. O'Neill), the Chairman of the Select Committee on Trade and Industry, mentioned the translation of minor savings and efficiencies in the early years into significantly higher profits for the companies. However, he fails to understand that, at the time, all the experts underestimated quite how inefficient those companies were when they were in the state sector.

The hon. Gentleman went on to complain about the electricity pool and so-called rigged prices. However, whatever its faults—it will be a subject of debate in Committee—we should remember that it was put in place when there were very few operating companies in the market. It was certainly better than having prices fixed by the Secretary of State.

The hon. Member for Twickenham (Dr. Cable), speaking for the Liberal Democrats, expressed concerns that the Government have to be sure that the Bill will not move the pendulum too far in the direction of over-regulation. He quite rightly pointed out the danger that such action would increase the cost of capital. He also said, as Conservative Members have, that such action would inevitably result in higher costs being passed on to consumers.

The hon. Member for Hove (Mr. Caplin) accepted that the number of disconnections had decreased, but said that the number of complaints had increased. Does he not accept that, when those industries were in the state sector, no one would bother to complain, because one would be lucky if the telephone was even answered when one was trying to register the complaint? The whole ethos has changed since privatisation.

The hon. Member for Hove referred also to Seeboard, which supplies electricity in his area and part of mine. The company supplies Littlehampton, but not, alas, Bognor Regis—although the company has given a generous grant towards the sea front lights at Bognor, for which the community is grateful. The hon. Gentleman pointed out that Seeboard has abolished the standing charge. Does he believe that that would have occurred had the industry remained within the state sector? I am sure that it would not.

My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) was right to point out that when the utilities were in the state sector, they provided a poor service—one could wait two years to have a telephone installed. It was nonsensical. He made important points about the new electricity trading arrangements, particularly regarding the fact that it is not real-time trading. We will refer to this in Committee.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

With regard to people being attacked in the street, does my hon. Friend recall the worrying statistic that, in the last year of nationalisation, only a third of telephone boxes were working at any one time, whereas within two years of privatisation, more than 95 per cent. of public call boxes were operating?

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

My hon. Friend makes a good point, which shows the efficacy of the private sector.

My hon. Friend the Member for Bournemouth, West also pointed out the complexity of the new electricity trading arrangements, and we all look forward to tomorrow's briefing on the new arrangements which the Minister has kindly arranged. My hon. Friend pointed out that the Bill contains wide powers for the Secretary of State that will impose new regulatory burdens, the extent of which we do not know, as the regulations have yet to be published. He made the valid point that a Bill designed ostensibly to help the consumer could well result in higher electricity charges because of the huge regulatory burden.

My hon. Friend the Member for West Worcestershire—the former Minister directly responsible for falls of 29 per cent. in real terms in our electricity bills—made the important point that the regulator giving way to competition is the best way to help the consumer. Under the Bill, competition is no longer the primary objective. The Government have set up a whole raft of regulatory objectives, many of which are wholly antipathetic to the promotion of competition. My hon. Friend referred also to the important concerns regarding the NETA arrangements, and challenged the swagger with which the Secretary of State said that the arrangements will certainly result in a 10 per cent. fall in electricity prices.

My hon. Friend the Member for Mid-Worcestershire (Mr. Luff) rightly pointed out the absence of intellectual honesty by the Government in admitting the enormous lack of investment in water and sewerage infrastructure during the decades of state control.

The hon. Member for Hazel Grove said that we need a strong regulatory framework to counter the power of the market. He said that he wanted joined-up thinking and all-party consensus—well done.

My hon. Friend the Member for Lichfield (Mr. Fabricant), in an interesting speech, said that it is almost as if the Government had forgotten that the utilities had been privatised. He rightly pointed out that increased costs to companies will mean increased costs to consumers.

My hon. Friend the Member for Christchurch (Mr. Chope), in an important speech, pointed to the huge increases in Scottish water charges from the state-controlled Scottish water industry that will ensue over the next few years. He also raised the important concern that the independence of the regulators will be compromised because of the power vested in the Secretary of State to lavish enormous largesse on the regulators in terms of expenses and pay-outs.

There are one or two things in the Bill that we support. We welcome, in principle, the reform of the electricity pool. There are now far more players in the market than at the time of privatisation, so now is the time to introduce a properly functioning exchange. We will, however, be looking at the details to make sure that it is a properly functioning exchange. We agree that the supply and distribution of electricity need to be separately licensed, enabling the natural monopoly area to be confined to the smallest component. We welcome the merger of electricity and gas regulators, which reflects the fact that most suppliers provide both gas and electricity. It follows, therefore, that the consumer councils should be merged also.

It is interesting to note that the positions on the new council are to be well remunerated. We now have the slightly unedifying sight of candidates for such jobs outbidding each other in sycophantic praise for the Government's proposals. The payroll vote is being expanded beyond the confines of the House to a whole host of what were once independent third party opinion former—like the hon. Member for Plymouth, Sutton (Mrs. Gilroy) before she became a Back-Bench Government supporter.

The Bill will impose enormous regulatory burdens and costs on the companies operating in the four utilities sectors. It will add to uncertainty and increase regulatory risk. The Government will claim that it will do the opposite, but this is another example of their saying one thing and doing another.

The Bill contains some important reforms, but the Government have allowed their deeply held prejudice and lack of understanding of industry to damage not only the Bill but the very industries and their consumers that they are seeking to protect. The Bill is bureaucratic, over-regulatory and costly, and I urge the House to support the reasoned amendment to it.

Photo of Mrs Helen Liddell Mrs Helen Liddell Minister of State (Science, Energy and Industry), Department of Trade and Industry, Minister of State (Energy and Competitiveness in Europe) 9:40 pm, 31st January 2000

We have heard a lot of interesting speeches, not least the one from the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). I always get the impression that he is still in a state of shock that the electorate could have been so lacking in majesty as to elect a Labour Government. He seems to have a sense that there was a golden age when the peasants knew their place and the bosses lined their pockets.

It is bizarre that the official Opposition should oppose the Bill. They have learned nothing from experience and seem to have failed to have taken on board the public revulsion at the fat-cat payouts under the previous Administration. The hon. Member for Tiverton and Honiton (Mrs. Browning) made several points that recognised how much sense there is in the Bill. It is regrettable that dogma then took over and the official Opposition did not find it possible to support the Bill in its entirety.

The Bill is complex and technical in many respects, but its underlying thrust, as my right hon. Friend the Secretary of State made clear earlier, is to take utilities regulation into a new era of changing markets and higher consumer expectations. It is a fair and balanced Bill, which reflects the wide-ranging consultations that we held. It is about reform and modernisation.

Photo of Mrs Helen Liddell Mrs Helen Liddell Minister of State (Science, Energy and Industry), Department of Trade and Industry, Minister of State (Energy and Competitiveness in Europe)

I want to make some progress, as I want to answer many points made by hon. Members who have been here all evening.

The Bill makes it clear that we are serious about giving all consumers a better deal, taking account of the Government's wider policy agenda on social reform. It shows that we are committed to pushing ahead vigorously with further and more effective competition in the utilities sector, and that we are determined to modernise the regulatory framework to take account of the nature of modern energy markets.

There is a great need to ensure the transparency, consistency and predictability of regulation. Good and transparent regulation leads to more effective business.

Photo of Mrs Helen Liddell Mrs Helen Liddell Minister of State (Science, Energy and Industry), Department of Trade and Industry, Minister of State (Energy and Competitiveness in Europe)

No, I want to make some progress. I do not know what part of that the hon. Gentleman does not understand. If there is time later, I shall be mindful of him.

If I do not manage to cover all the points made in the debate, I shall write to hon. Members. As the Bill has some extremely technical parts, I shall ensure that officials provide a briefing to both Government and Opposition Members so that no one will be disadvantaged as we go through the text in what will no doubt be a very long Committee stage.

The Bill contains the core of our proposals for legislation, but it is not yet complete. We faced a choice between waiting until all its provisions were ready or introducing a substantial core now and completing the Bill later by way of Government amendments—[Interruption.] It is obvious that Conservative Members would prefer that consumers did not get the advantage of the Bill as quickly as possible. That should surprise no one, given the performance of certain Opposition Members during the debate.

Photo of Michael Spicer Michael Spicer Conservative, West Worcestershire

On a point of order, Madam Speaker. Is it in order for the Government to introduce only half a Bill on Second Reading, as the Minister now admits?

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Speaker of the House of Commons

The right hon. Lady is responsible for her comments and for laying out Government policy. That is not a point of order.

Photo of Mrs Helen Liddell Mrs Helen Liddell Minister of State (Science, Energy and Industry), Department of Trade and Industry, Minister of State (Energy and Competitiveness in Europe)

Thank you, Madam Speaker. Given that the hon. Gentleman spent much of the night suggesting that we were trying to renationalise the top 400 companies, it is surprising that he has caught on to the nature of the debate so far.

Several points were raised about renewable energy and I shall refer, in particular, to the issue raised by the hon. Member for Tiverton and Honiton. I am conscious that the renewables issue requires greater explanation. I hope shortly—within a few hours—to be able to publish the conclusions of the response to the public consultation on renewables. Several hon. Members raised that issue in the debate and I shall give a thumbnail sketch of the new powers. They will contribute to our broad strategy to target a 10 per cent. share of electricity supply from renewable sources.

The key elements of the strategy include the new renewables obligation on all suppliers; exemption of renewables electricity and heat from the climate change levy; and an expanded development programme for renewable technology, which takes into account the point that the hon. Lady made about emerging technologies and the importance of ensuring that the new regime for support for renewables is not an opportunity to choose winners, but a genuine opportunity to allow emerging technologies to develop.

The strategy is good news for all of us. A strong renewables industry will help us to protect our environment. The hon. Member for Hazel Grove (Mr. Stunell) made much of that point in his speech. We need to consider the use made of energy, as well as the price of energy. We must ensure greater energy efficiency, in relation to our commitments on renewables and on poverty, because we place great importance on ensuring that people have access to the most effective ways of heating their homes.

Many hon. Members have discussed the new electricity trading arrangements. The hon. Member for Bournemouth, West (Mr. Butterfill), who is a recognised expert on the issue, given his previous experience, drew attention to the fact that some academics have maintained that NETA will fail to deliver price reductions. However, there are as many academics who contend that it will deliver price reductions. We have undertaken some market testing of the balancing mechanisms, which leads us to conclude that energy prices will fall. However, another study was done with a test model that concentrated only on the balancing mechanism, and that appears to have led to the conclusion that prices will not fall.

I should point out that there is more to NETA than just the balancing mechanism. Indeed, the present operation of the market, in anticipation of NETA, is already displaying downward pressure on prices. The electricity pool has not worked. It has allowed gaming on electricity prices. Last July, in relation to the price spikes, it was obvious that the transparency necessary to operate a proper energy market did not exist.

Photo of Mrs Helen Liddell Mrs Helen Liddell Minister of State (Science, Energy and Industry), Department of Trade and Industry, Minister of State (Energy and Competitiveness in Europe)

I wish to make some progress. Many hon. Members have made points in the debate to which they are entitled to have a reply.

Hon. Members have raised the issue of the effect that NETA will have on combined heat and power and on renewables. We have had lengthy discussions with the Combined Heat and Power Association about the impact of NETA and we hope to be able to work with the association to ensure that CHP continues to make an expanding contribution to our energy market.

The hon. Member for Bournemouth, West suggested that there was a lack in the resources available to the CHPA, but it has not said that to us. The association acknowledges that NETA is complicated and that it will create difficulties, but it has not made the point that the hon. Gentleman made. We shall discuss the matter with the association.

The stricter gas consents policy was mentioned several times. The Government have always made it clear that that stricter policy is a temporary measure, aimed at getting rid of distortions in electricity trading arrangements. I can tell my hon. Friend the Member for Hornchurch (Mr. Cryer), who spoke about the coal industry, that one of the distortions in the energy market was against coal. The new electricity trading arrangements will remove that distortion. However, I do not underestimate the difficulties faced by the deep-mined coal industry. The Government are aware of the problem and are studying it.

My hon. Friends the Members for Ochil (Mr. O'Neill)—I have heard some strange pronunciations of that constituency today—for Nottingham, South (Mr. Simpson) and for Hornchurch, and the hon. Member for Hazel Grove, all highlighted the problem of fuel poverty. In the early days of the 21st century, fuel poverty is completely unacceptable. That is why the social aspects of the Bill, and the reserve power that we are taking, are very important.

However, there is another way to tackle fuel poverty. The regulator is taking forward a social action plan that we hope will make the use of cross-subsidy unnecessary. I expect the industry to co-operate fully with the plan, and I have asked those at the highest level in each company to take into account issues of fuel poverty. For example, the extent to which the Electricity Association's task force on fuel poverty comes up with realisable plans to ease fuel poverty will be an important guide to the industry's commitment to resolving the problem.

Economic regulation does not take place in a vacuum. Environmental, as well as social, responsibilities must also be taken into account. The hon. Member for Tiverton and Honiton asked for more detail on the statutory social and environmental guidance. I accept her point that more detail is required, and the Government intend to publish copies of draft statutory social and environmental guidance for energy and for telecoms. That guidance will allow consultation to be held with all the interested parties.

The drafts will be preliminary versions, so that all involved can contribute to ensuring that the guidelines meet the needs of Government and of industry. That common-sense way forward will ensure that the regulator has the opportunity to take into account the Government's overall policies.

Photo of Nick Gibb Nick Gibb Shadow Spokesperson (Trade and Industry)

Will those drafts be available before consideration of the Bill in Committee begins?

Photo of Mrs Helen Liddell Mrs Helen Liddell Minister of State (Science, Energy and Industry), Department of Trade and Industry, Minister of State (Energy and Competitiveness in Europe)

I do not know when proceedings will begin in Committee, but I assure the hon. Gentleman that the Government intend that the draft guidance will be made available as soon as possible.

The issue of standing charges is, I know, very close to the hearts of many Labour Members. Our constituents are often deeply concerned that people, especially the poor, have to pay standing charges. We have long believed that such charges are unfair and that they have a particular impact on low-use and less well-off customers. However, the answer to the problem can be found in competition in energy markets. We are already seeing some progress. Norweb and British Fuels Ltd. offer packages without a standing charge, and Centrica recently announced that it was abolishing standing charges.

The Government foresee an important role for the new consumer councils in ensuring that information on tariffs is available to every customer, including poorer customers. A number of Labour members, not least my hon. Friend the Member for Ochil, pointed out the difficulty that disadvantaged people face in accessing the cheapest tariffs for electricity. It is very important, therefore, that we concentrate on getting information across to people.

I should like briefly to refer to some of the issues on telecoms regulation. I know that British Telecom has been briefing hon. Members on their concerns about over-regulation. The Bill introduces better regulation measures such as depersonalisation. We have heard a lot tonight about one regulator by name. We do not believe that that is the way to give the regulatory certainty that is required by companies in planning ahead. It is important to have regulatory certainty, which is why the Bill makes these significant changes.

The hon. Member for Lichfield (Mr. Fabricant) asked about concurrency and related that to overlapping regulation. We believe that concurrency will help to avoid overlapping regulation. Utility regulators will have powers under the Competition Act 1998. That will help eliminate the overlap with the Office of Fair Trading. Indeed, the consumer councils will have no decision-making powers. They will investigate, report and make representations, so I do not think that the overlapping that the hon. Gentleman mentioned needs to be especially considered.

My hon. Friend the Member for Hornchurch asked about consumer councils as advocates. That is their key role—to be advocates, to be partisan on behalf of consumers. My hon. Friend the Member for Plymouth, Sutton (Mrs. Gilroy) referred to access to information. As my right hon. Friend the Secretary of State said earlier, it is very important to have a balance regarding freedom of information to ensure that the information in the public domain is not anti-competitive and does not lead to an increased burden. It is important to consider balance. That can be discussed in more detail in Committee.

The hon. Member for Twickenham (Dr. Cable), who has let me know that he cannot be present because of a family illness, asked about financial penalties. We believe that there is a place for financial penalties. They are available in the gas market and we believe that there is a place for them in the electricity market, but they must be proportionate. The hon. Gentleman also asked who would regulate the futures market on the new electricity trading arrangements. That will be regulated by the Financial Services Authority in the same way that any financial options market would be regulated.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I am most grateful to the right hon. Lady for giving way. She has not dealt with what I consider to be the most important point—the security of supply in the electricity supply industry. What is the Government's policy in that connection?

Photo of Mrs Helen Liddell Mrs Helen Liddell Minister of State (Science, Energy and Industry), Department of Trade and Industry, Minister of State (Energy and Competitiveness in Europe)

If the hon. Gentleman looks at the Bill, he will see that the regulator has responsibility to take into account the Government's commitment to, and responsibilities for, security of supply. I believe that our actions will ensure that security of supply will be preserved.

My hon. Friend the Member for Hamilton, South (Mr. Tynan) asked about the health and safety responsibilities of the energy industry. The regulator is an economic regulator; health and safety matters are the responsibility of the Health and Safety Executive. However, the regulator must ensure that the industry has sufficient finances to take health and safety matters into account.

There have also been questions about why the water industry is treated differently. I think that both sides of the House recognise that the water industry is significantly different. We have taken into account the wide range of different aspects of regulation that affect utilities.

When in opposition, we undertook to achieve open and predictable regulation that is fair to both customers and shareholders. The Bill delivers on that promise. It will improve the transparency, consistency and predictability of regulation, and will provide a stable framework. It is a good move forward for the people of this country. It is about reform, modernisation and common sense, and I commend it to the House.

Question put, That the amendment be made:—

The House divided: Ayes 136, Noes 343.

Division No. 55][10 pm
AYES
Amess, DavidFaber, David
Ancram, Rt Hon MichaelFabricant, Michael
Arbuthnot, Rt Hon JamesFallon, Michael
Atkinson, David (Bour'mth E)Flight, Howard
Atkinson, Peter (Hexham)Forth, Rt Hon Eric
Baldry, TonyFowler, Rt Hon Sir Norman
Bencow, JohnFox, Dr Liam
Beresford, Sir PaulFraser, Christopher
Blunt, CrispinGale, Roger
Boswell, TimGibb, Nick
Bottomley, Peter (Worthing W)Gill, Christopher
Bottomley, Rt Hon Mrs VirginiaGillan, Mrs Cheryl
Brady, GrahamGorman, Mrs Teresa
Brazier, JulianGray, James
Brooke, Rt Hon PeterGreen, Damian
Browning, Mrs AngelaGreenway, John
Burns, SimonGrieve, Dominic
Butterfill, JohnGummer, Rt Hon John
Cash, WilliamHague, Rt Hon William
Chapman, Sir Sydney (Chipping Barnet)Hamilton, Rt Hon Sir Archie
Hammond, Philip
Chope, ChristopherHawkins, Nick
Clappison, JamesHayes, John
Clark, Dr Michael (Rayleigh)Heathcoat—Amory, Rt Hon David
Clarke, Rt Hon Kenneth (Rushcliffe)Hogg, Rt Hon Douglas
Horam, John
Collins, TimHoward, Rt Hon Michael
Colvin, MichaelHowarth, Gerald (Aldershot)
Cran, JamesJack, Rt Hon Michael
Davies, Quentin (Grantham)Jackson, Robert (Wantage)
Davis, Rt Hon David (Haltemprice)Jenkin, Bernard
Day, StephenKirkbride, Miss Julie
Dorrell, Rt Hon StephenLaing, Mrs Eleanor
Duncan, AlanLait, Mrs Jacqui
Lansley, AndrewSayeed, Jonathan
Leigh, EdwardShephard, Rt Hon Mrs Gillian
Letwin, OliverSimpson, Keith (Mid-Norfolk)
Lewis, Dr Julian (New Forest E)Soames, Nicholas
Lidington, DavidSpelman, Mrs Caroline
Lilley, Rt Hon PeterSpicer, Sir Michael
Lloyd, Rt Hon Sir Peter (Fareham)Spring, Richard
Loughton, TimStanley, Rt Hon Sir John
Luff, PeterSteen, Anthony
Lyell, Rt Hon Sir NicholasStreeter, Gary
MacGregor, Rt Hon JohnSwayne, Desmond
McIntosh, Miss AnneSyms, Robert
MacKay, Rt Hon AndrewTapsell, Sir Peter
Maclean, Rt Hon DavidTaylor, Ian (Esher & Walton)
McLoughlin, PatrickTaylor, Sir Teddy
Madel, Sir DavidTownend, John
Major, Rt Hon JohnTredinnick, David
Malins, HumfreyTrend, Michael
Maples, JohnTyrie, Andrew
Mawhinney, Rt Hon Sir BrianViggers, Peter
May, Mrs TheresaWalter, Robert
Moss, MalcolmWardle, Charles
Norman, ArchieWaterson, Nigel
Page, RichardWells, Bowen
Paice, JamesWhitney, Sir Raymond
Paterson, OwenWhittingdale, John
Pickles, EricWilkinson, John
Portillo, Rt Hon MichaelWilletts, David
Prior, DavidWilshire, David
Randall, JohnWinterton, Mrs Ann (Congleton)
Redwood, Rt Hon JohnWinterton, Nicholas (Macclesfield)
Robathan, AndrewYeo, Tim
Robertson, LaurenceYoung, Rt Hon Sir George
Roe, Mrs Marion (Broxbourne)
Rowe, Andrew (Faversham)Tellers for the Ayes:
Ruffley, DavidMr. Oliver Heald and
St Aubyn, NickMr. Geoffrey Clifton-Brown.
NOES
Abbott, Ms DianeCaborn, Rt Hon Richard
Ainsworth, Robert (Cov'try NE)Campbell, Alan (Tynemouth)
Alexander, DouglasCampbell, Rt Hon Menzies (NE Fife)
Anderson, Donald (Swansea E)
Anderson, Janet (Rossendale)Campbell, Ronnie (Blyth V)
Armstrong, Rt Hon Ms HilaryCampbell—Savours, Dale
Ashton, JoeCann, Jamie
Atherton, Ms CandyCaplin, Ivor
Atkins, CharlotteCaton, Martin
Austin, JohnCawsey, Ian
Baker, NormanChapman, Ben (Wirral S)
Ballard, JackieChaytor, David
Barnes, HarryChisholm, Malcolm
Barron, KevinClapham, Michael
Beckett, Rt Hon Mrs MargaretClark, Rt Hon Dr David (S Shields)
Bell, Martin (Tatton)Clark, Dr Lynda (Edinburgh Pentlands)
Bell, Stuart (Middlesbrough)
Benn, Hilary (Leeds C)Clark, Paul (Gillingham)
Benn, Rt Hon Tony (Chesterfield)Clarke, Charles (Norwich S)
Bennett, Andrew FClarke, Eric (Midlothian)
Benton, JoeClarke, Rt Hon Tom (Coatbridge)
Bermingham, GeraldClarke, Tony (Northampton S)
Berry, RogerClelland, David
Best, HaroldClwyd, Ann
Betts, CliveCoaker, Vernon
Blears, Ms HazelCoffey, Ms Ann
Blizzard, BobCohen, Harry
Boateng, Rt Hon PaulColeman, Iain
Borrow, DavidColman, Tony
Bradley, Peter (The Wrekin)Connarty, Michael
Bradshaw, BenCook, Frank (Stockton N)
Brinton, Mrs HelenCorbett, Robin
Brown, Russell (Dumfries)Corbyn, Jeremy
Burden, RichardCorston, Jean
Burgon, ColinCotter, Brian
Butler, Mrs ChristineCousins, Jim
Byers, Rt Hon StephenCox, Tom
Crausby, DavidHowells, Dr Kim
Cryer, John (Hornchurch)Hoyle, Lindsay
Cummings, JohnHughes, Kevin (Doncaster N)
Cunningham, Rt Hon Dr Jack (Copeland)Humble, Mrs Joan
Hurst, Alan
Cunningham, Jim (Cov'try S)Hutton, John
Dalyell, TamIddon, Dr Brian
Darvill, KeithIllsley, Eric
Davey, Valerie (Bristol W)Jackson, Helen (Hillsborough)
Davies, Rt Hon Denzil (Llanelli)Jamieson, David
Davis, Rt Hon Terry (B'ham Hodge H)Jenkins, Brian
Johnson, Alan (Hull W & Hessle)
Dawson, HiltonJohnson, Miss Melanie (Welwyn Hatfield)
Dean, Mrs Janet
Dismore, AndrewJones, Rt Hon Barry (Alyn)
Dobbin, JimJones, Helen (Warrington N)
Donohoe, Brian HJones, Ms Jenny (Wolverh'ton SW)
Doran, Frank
Dowd, JimJones, Jon Owen (Cardiff C)
Drew, DavidJones, Dr Lynne (Selly Oak)
Dunwoody, Mrs GwynethJones, Martyn (Clwyd S)
Eagle, Angela (Wallasey)Jowell, Rt Hon Ms Tessa
Eagle, Maria (L'pool Garston)Kaufman, Rt Hon Gerald
Edwards, HuwKeeble, Ms Sally
Efford, CliveKeen, Alan (Feltham & Heston)
Ellman, Mrs LouiseKemp, Fraser
Ennis, JeffKennedy, Jane (Wavertree)
Etherington, BillKhabra, Piara S
Fearn, RonnieKidney, David
Field, Rt Hon FrankKing, Andy (Rugby & Kenilworth)
Fisher, MarkKing, Ms Oona (Bethnal Green)
Fitzsimons, LornaKirkwood, Archy
Flint, CarolineKumar, Dr Ashok
Flynn, PaulLadyman, Dr Stephen
Foster, Rt Hon DerekLaxton, Bob
Foster, Michael Jabez (Hastings)Lepper, David
Foster, Michael J (Worcester)Leslie, Christopher
Foulkes, GeorgeLevitt, Tom
Galloway, GeorgeLewis, Ivan (Bury S)
Gapes, MikeLewis, Terry (Worsley)
Gardiner, BarryLiddell, Rt Hon Mrs Helen
George, Andrew (St Ives)Linton, Martin
George, Bruce (Walsall S)Livsey, Richard
Gerrard, NeilLloyd, Tony (Manchester C)
Gibson, Dr IanLove, Andrew
Gilroy, Mrs LindaMcAvoy, Thomas
Godsiff, RogerMcCabe, Steve
Goggins, PaulMcCafferty, Ms Chris
Golding, Mrs LlinMcCartney, Rt Hon Ian (Makerfield)
Gordon, Mrs Eileen
Graham, ThomasMcDonagh, Siobhain
Griffiths, Jane (Reading E)Macdonald, Calum
Griffiths, Nigel (Edinburgh S)McFall, John
Griffiths, Win (Bridgend)McIsaac, Shona
Grocott, BruceMcKenna, Mrs Rosemary
Grogan, JohnMcNamara, Kevin
Gunnell, JohnMcNulty, Tony
Hall, Mike (Weaver Vale)MacShane, Denis
Hall, Patrick (Bedford)Mactaggart, Fiona
Hamilton, Fabian (Leeds NE)McWalter, Tony
Harman, Rt Hon Ms HarrietMahon, Mrs Alice
Healey, JohnMallaber, Judy
Heath, David (Somerton & Frome)Marsden, Gordon (Blackpool S)
Henderson, Doug (Newcastle N)Marshall, Jim (Leicester S)
Henderson, Ivan (Harwich)Marshall-Andrews, Robert
Hepburn, StephenMartlew, Eric
Heppell, JohnMaxton, John
Hesford, StephenMeacher, Rt Hon Michael
Hewitt, Ms PatriciaMeale, Alan
Hinchliffe, DavidMerron, Gillian
Hodge, Ms MargaretMichie, Bill (Shef'ld Heeley)
Hoey, KateMichie, Mrs Ray (Argyll & Bute)
Home Robertson, JohnMiller, Andrew
Hope, PhilMitchell, Austin
Hopkins, KelvinMoffatt, Laura
Howarth, Alan (Newport E)Moonie, Dr Lewis
Moran, Ms MargaretSkinner, Dennis
Morgan, Ms Julie (Cardiff N)Smith, Rt Hon Andrew (Oxford E)
Morley, ElliotSmith, Angela (Basildon)
Morris, Rt Hon Ms Estelle (B'ham Yardley)Smith, Rt Hon Chris (Islington S)
Smith, Miss Geraldine (Morecambe & Lunesdale)
Mountford, Kali
Mowlam, Rt Hon MarjorieSmith, Jacqui (Redditch)
Mullin, ChrisSmith, John (Glamorgan)
Murphy, Denis (Wansbeck)Smith, Llew (Blaenau Gwent)
Murphy, Jim (Eastwood)Soley, Clive
Murphy, Rt Hon Paul (Torfaen)Southworth, Ms Helen
Naysmith, Dr DougSquire, Ms Rachel
Norris, DanSteinberg, Gerry
O'Brien, Bill (Normanton)Stevenson, George
O'Brien, Mike (N Warks)Stewart, David (Inverness E)
O'Hara, EddieStinchcombe, Paul
Olner, BillStoate, Dr Howard
O'Neill, MartinStrang, Rt Hon Dr Gavin
Öpik, LembitStringer, Graham
Organ, Mrs DianaStunell, Andrew
Palmer, Dr NickSutcliffe, Gerry
Pearson, IanTaylor, Rt Hon Mrs Ann (Dewsbury)
Pendry, Tom
Pickthall, ColinTaylor, Ms Dari (Stockton S)
Pike, Peter LTaylor, David (NW Leics)
Plaskitt, JamesTaylor, Matthew (Truro)
Pollard, KerryTemple—Morris, Peter
Pond, ChrisThomas, Gareth R (Harrow W)
Pope, GregTimms, Stephen
Pound, StephenTipping, Paddy
Powell, Sir RaymondTodd, Mark
Prentice, Ms Bridget (Lewisham E)Touhig, Don
Prentice, Gordon (Pendle)Truswell, Paul
Prescott, Rt Hon JohnTurner, Dennis (Wolverh'ton SE)
Prosser, GwynTurner, Dr Desmond (Kemptown)
Purchase, KenTurner, Dr George (NW Norfolk)
Quin, Rt Hon Ms JoyceTurner, Neil (Wigan)
Quinn, LawrieTwigg, Derek (Halton)
Radice, Rt Hon GilesTwigg, Stephen (Enfield)
Rammell, BillTyler, Paul
Rapson, SydTynan, Bill
Raynsford, NickVis, Dr Rudi
Reed, Andrew (Loughborough)Ward, Ms Claire
Rendel, DavidWareing, Robert N
Roche, Mrs BarbaraWatts, David
Rooker, Rt Hon JeffWhite, Brian
Rooney, TerryWhitehead, Dr Alan
Ross, Ernie (Dundee W)Wicks, Malcolm
Rowlands, Ted (Swansea W)Williams, Rt Hon Alan
Roy, Frank
Ruane, ChrisWilliams, Mrs Betty (Conwy)
Ruddock, JoanWillis, Phil
Russell, Bob (Colchester)Winnick, David
Russell, Ms Christine (Chester)Winterton, Ms Rosie (Doncaster C)
Ryan, Ms JoanWise, Audrey
Salter, MartinWood, Mike
Sanders, AdrianWoolas, Phil
Savidge, MalcolmWorthington, Tony
Sawford, PhilWray, James
Sedgemore, BrianWright, Anthony D (Gt Yarmouth)
Shaw, JonathanWright, Dr Tony (Cannock)
Sheerman, BarryWyatt, Derek
Sheldon, Rt Hon Robert
Short, Rt Hon ClareTellers for the Noes:
Simpson, Alan (Nottingham S)Mrs. Anne McGuire and
Singh, MarshaMr. Graham Allen.

Question accordingly negatived.
Main Question put forthwith, pursuant to Standing Order No. 62 (Amendment on Second or Third Reading), and agreed to.
Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).

Photo of Nicholas Soames Nicholas Soames Conservative, Mid Sussex

On a point of order, Madam Speaker. In view of the very grave news emanating from Northern Ireland tonight, would you do your very best to ensure that the Secretary of State for Northern Ireland comes to the House tomorrow to make a statement on the events subsequent to the de Chastelain report?

Photo of Miss Betty Boothroyd Miss Betty Boothroyd Speaker of the House of Commons

I am sure that the Ministers on the Treasury Bench who have some responsibility for Government matters will have heard the hon. Gentleman's point of order.