§ 7.45 p.m.
§ Lord Borrie rose to ask Her Majesty's Government what plans they have to modernise the regulation of the utility industries so as to provide a fair deal for consumers in general and vulnerable consumers in particular.1987
§ The noble Lord said: My Lords, perhaps I may first express my delight at the fact that so many of my noble friends have agreed to take part in this debate. In addition to welcoming them, I welcome also the maiden speech that we are to hear shortly from the noble Baroness, Lady Sharp of Guildford. We look forward to hearing her with great interest. I should add that I must declare an interest in that I am a non-executive director of Three Valleys Water.
In my party's 1997 election manifesto we said in relation to the utility industries:
we will promote competition wherever possible. Where competition is not an effective discipline … we will pursue tough effective regulation in the interests of customers".
§ Within a year of the election the Government published a comprehensive consultation paper directed at modernising the framework of utility regulation and enhanced the ability of regulators to promote competition along with the Director-General of Fair Trading through the Competition Bill, which is about to receive Royal Assent.
§ The Green Paper on utility regulation, which was published in March, and the White Paper, which was published in July, took as a starting point the competition that has been developing in the gas and electricity industries in particular. To a large extent, customers of both industries will in future be protected by competition from any exploitation rather than by regulation, although trading standards officers and others will need to be vigilant in various parts of our country to ensure that firms compete fairly and do not engage in misleading or confusing consumers. There have been some examples of that. I expect that we can all agree that firms should give customers clear information so that they can make sensible, intelligent choices as to supplier.
§ Moreover, there are certain parts of the industries to which I refer, particularly in what perhaps I may call "pipes and transmission", that will remain natural monopolies. They will require price regulation. Regulation will also be needed to ensure adequacy and certainty of supply, matters which a whole succession of consumer surveys have shown are high priorities among consumers. Regulation is also needed to ensure adequate long-term investment for the consumers of the future and for such other objectives as energy conservation and equity between different categories of customer. Domestic customers, for example, should not have to pay the costs of discounts given to attract the custom of large industrial concerns.
§ I have mentioned "vulnerable consumers"—one might say "disadvantaged consumers"—specifically in my Unstarred Question because if we were to follow the pure model of competition, prices would simply reflect costs—and it often costs more to supply disadvantaged consumers. I welcome the proposed new duty on regulators, which is set out in the White Paper, to have regard to ministerial guidance on social and environmental objectives.
§ The utilities provide essential services to the public, so it is surely a clear requirement of social justice that the Government should redress the balance when, as 1988 they admit in paragraph 58 of the White Paper is happening, wide tariff differentials may mean that the benefits of competition may not be being enjoyed fairly by all.
§ I expect that my noble friend Lord Islwyn will refer to the way in which standing charges can impinge unfairly on small users.
§ Since the White Paper was published the proposal to merge Ofgas and the electricity regulator Offer has been taken further with the announcement of the appointment of Mr. Callum McArthy to head the new body. That is an imaginative appointment with someone of substantial and relevant experience in the public and private sectors.
§ The structural change which many of us have argued for is a change to get away from the situation in which the one man or one woman regulator faces the chairman or chief executive of a powerful company. Sometimes there has been undue personal confrontation between individuals. I am glad, therefore, that the energy and telecommunications regulators are, in each case, to comprise in future a small board of three—a chair and two others. Decision making will then be shared, the regulator will have greater authority and there will be a check on the waywardness or awkwardness of individuals.
§ I am left in the dark as to what is to happen to the water regulator Ofwat. I know that that is not the responsibility of my noble friend the Minister and his department and that he may not be able to say what is to happen to Ofwat.
§ One utility company that currently embraces both electricity and water called Hyder had the bright idea during the consultation period of asking the former Master of the Rolls, the noble and learned Lord, Lord Donaldson of Lymington, to give an independent view on the Green Paper and on the structural matters. He made the point that shared decision-making, as he had known it in the Court of Appeal and industrial tribunals, was a good deal better than having to make a decision oneself when the only people you could discuss them with were staff and not with equals.
§ Putting another hat on for a moment, as a vice-president of the Institute of Trading Standards Administration, I feel that there ought to be a positive role in the regulatory process for the local authority trading standards officers. They are professionals in detecting trading malpractice and market failures and could be very useful as the eyes and ears of the national regulatory bodies which only have centralised offices. They also have the advantage of democratic legitimacy, being responsible and accountable to local councils.
§ In the main, I welcome what is said in the White Paper about consumer councils and the special remit they are to be given in the interests of disadvantaged consumers. As the White Paper says, they should be "powerful consumer advocates" at the heart of the regulatory system but, nonetheless, to one side or independent of it.
§ I have one doubt that I must put to my noble friend the Minister. I do not think that the role of consumer councils as consumer advocates sits frightfully well with the handling of individual consumer complaints. As the 1989 DTI has just issued a further consultation paper specifically on consumer councils, may I seek to influence Government thinking and propose that provision be made in the forthcoming Bill for the possibility of introducing an ombudsman system, organised to be independent of both suppliers and consumers. It would be helpful to set up an independent ombudsman scheme to handle the more intractable consumer complaints, with power to award compensation. Ombudsman schemes in the private sector have been very successful in recent years in providing low-cost and trusted dispute settlement machinery. That view is accepted by the noble and learned Lord, Lord Woolf, in the civil justice review, and accepted by the Treasury in its recently published draft Financial Services and Markets Bill.
§ It would be unfortunate if the matter is left out from the forthcoming legislation on utilities regulation. It is very unlikely that amending legislation would ever be a high priority. Why not provide for it in the Bill, with the timing of implementation left to Ministers?
§ 7.55 p.m.
§ Baroness Sharp of Guildford
My Lords, I should like to begin by saying how I, as a newcomer to your Lordships' House, have appreciated the warmth and kindness that has been shown to me by everyone during this last week. Your Lordships and the Officers of the House have made me feel most welcome. I am most grateful to you all and honoured to be speaking for the first time in this great Chamber.
Two years ago I was a member of the commission set up by the Hansard Society to look into the regulation of public utilities. Its report was debated in this House in February 1997. I am delighted that it has been followed by a Green Paper and a White Paper. I am pleased that those two documents have followed so closely the recommendations made by the Hansard Society.
In particular, I welcome the Government's commitment to issue separate guidance on social and environmental objectives, and that they propose to introduce a new primary objective for regulators of protecting the interests of consumers.
I would also like to thank the noble Lord, Lord Borrie, for introducing the subject this evening. It is a most important subject. We ought to give greater consideration to the interests of consumers, particularly vulnerable consumers. I would make three points on that subject.
First, as the noble Lord, Lord Borrie, has suggested, in current legislation and Government thinking there is the notion that when competition is fully developed there is less need for the regulator, that the consumer will be adequately protected by general competition law. Certainly the consumer is benefiting at the moment from the lower prices that, generally speaking, competition is bringing. But competition is also bringing, by every post, a plethora of offers, claims and counter claims from the utilities. It is the well-informed consumer who benefits, but at present it is quite difficult to be well informed.
1990 It seems to me that two steps need to be taken. First, the regulator should ensure that the data provided by competing utilities can be easily compared and understood, just as, for example, car manufacturers are required to produce a common set of performance data for motor cars. Secondly, the statutory consumer bodies which are to be set up need to make sure that the data are widely available and in an understandable form.
My second point is to reiterate that to date, while competition has brought great benefit, the benefits are greater to the better off than to the less well off. As the noble Lord, Lord Borne, has already stressed, the financial disadvantages imposed on those who cannot pay by direct debit are fairly considerable. For example, with a pre-payment meter you are paying £25 a year more for your electricity and £50 a year more for your gas than others. There are 3.5 million households paying for their gas and electricity by pre-payment meter. That is approximately 20 per cent. of the households in this country.
It is not merely the extra costs that we should be concerned about but the inconvenience. I know of several elderly people who live in villages around Guildford, where I live, who have to come into Guildford by bus in order to top up their "smart card" for their pre-payment meters. Recently the in-town electricity showroom was closed down. That meant an additional bus journey to the out-of-town showroom in order to top up their cards. Fortunately, additional payment points have been opened in the middle of town, but the message is clear. If you do not have a car, the bus journey alone will cost £3 or £4. Who do the companies expect to make these journeys? Disproportionately, it is the old, the infirm and the young mums with kids. I do not think it is right and I hope that the Minister can assure us that something will be done.
Finally, I should like to say a word about the situation in relation to water, which to date has been expressly excluded from the Government's proposals. Although it has been privatised, the domestic water industry remains, and is likely to remain, a monopoly utility. As consumers, we have little choice but to accept and pay the bills we receive. The situation in this industry is very unsatisfactory. There have been relatively few meters installed and most bills are still based on the old, outdated rateable values. Most bills have increased very considerably. The average bill before privatisation was about £2 a week. It is now £5 a week on average and in the south west consumers pay more than £7 a week. There are many elderly people, living on their own, taking few baths, not running washing machines or dishwashers and not using garden hoses, who just cannot understand why their bills are so high. The notional sum allowed in income support is only £3 a week. Once again, it is those who can least afford it who have been hit hardest.
As I have said, I welcome the new emphasis to be given by the utility regulators to the interests of consumers. I believe it is a move in the right direction. But I believe that there are still many unanswered questions as to how, in the utilities sector, we can square competition with compassion.
§ 8.1 p.m.
§ Lord Haskel
My Lords, on behalf of the whole House I should like to congratulate the noble Baroness, Lady Sharp of Guildford, on her maiden speech. One of the strengths of your Lordships' House is its pool of special knowledge. The noble Baroness will considerably add to it. She is an eminent teacher and researcher in economics, specialising in science, technology and innovation policy, subjects central to our competitiveness. From her concern for the vulnerable, we can see that she obviously knows about practical matters, too, so we certainly look forward to hearing her on many other occasions.
I congratulate my noble friend Lord Borrie on his timing. He has introduced this debate during the consultation period on the Government's proposals for setting up independent consumer councils for the different utilities. I hope the Minister will consider that this debate is part of that consultation. Quite rightly, my noble friend is concerned about a fair deal for consumers. He has a distinguished record of concern for consumers. But I believe that when consumers become valued customers, the balance swings in the consumer's favour. It is then that consumers will get the fair deal that my noble friend calls for.
The answer of course lies in competition because competition changes the way companies behave. It changes consumers into customers. However, competition in energy is still at an early stage and for the small consumer competition is non-existent in water and sewerage. So while competition is developing, there must be a modern regulator to look after the consumer, to see that prices are reasonable, to see that the service is reliable and that supply is consistent.
Of course, price used to be very simple, but it is now much more complicated, as the noble Baroness, Lady Sharp, explained. I suspect that the first task of the proposed consumer councils will be to inform consumers on matters of price and to sort out the competing claims, of which the noble Baroness spoke.
My noble friend Lord Borrie is concerned about vulnerable consumers. He is right. The vast majority of vulnerable consumers are on low incomes, yet they seem to pay the highest price, as the noble Baroness, Lady Sharp, told us. It is usually because they have pre-payment meters. This has always been a mystery to me. In every other business, customers who pay in advance pay the lowest price because there is no credit risk. So instead of paying more, those with pre-payment meters should be paying less. We do not know why they pay more as the whole matter is shrouded in commercial secrecy. Contrast that with the transparency in the United States where an organisation looking after the interests of consumers would be able to see the financial data justifying the higher costs. That does not seem to have harmed competition in America. I hope that the consumer councils will have the same facilities.
§ Baroness Farrington of Ribbleton
My Lords, with the greatest respect to my noble friend, I have to remind noble Lords that when "three" comes up on the clock it is actually the end of the three-minute time allotted to speakers.
§ 8.5 p.m.
§ Lord Hardy of Wath
My Lords, as privatisation of water approached, I well remember a conversation I had with one of the leaders in the Yorkshire water industry. He assured me that when it was privatised it would become owned by the people of Yorkshire. I demurred. A little later, when there was an attempt to secure the election to the board of a responsible Yorkshire lady—not of our political persuasion—Yorkshire shareholders voted for that lady but she was wiped out by the votes of the institutions.
That they were not locally based was quite evident when Yorkshire Water refused to allow in three cases, in my then constituency, work to be carried out to relieve the problem of people who were having to live with sewage contamination. When I went to do a broadcast on this matter the spokesman for Yorkshire Water said that the regulator was at fault because the regulator would not let them spend any money on it. The fact remains—Yorkshire Water did not apologise for the misdirection of the Yorkshire people—that the regulator had said, "You cannot increase your prices. Your profits are so high that you can meet needs of that urgent kind from your existing profits".
As far as concerns electricity, the Government took the view that the regulator would protect the consumer. The regulator was principally responsible for the achievement of an incomprehensible pricing system. I recall asking him a question about the disregard of the fact that coal for electricity generated at coal-fired stations was a good deal cheaper than that from the new gas-powered stations and not getting an answer.
The worst situation was in the gas industry. Sir Denis Rooke, one of the most successful people in the utilities during the post-war period, could live with a very fine structure—a complex structure—of gas consumer protection and with a large number of showrooms, to which the noble Baroness, Lady Sharp, properly referred. When the previous Conservative administration came in and said that they would privatise gas they proposed to dismantle the structure. I was on the committee dealing with the Bill. The Government were proposing to call it the Gas Users' Council. I said that it would become known as GUC, which was an ugly term, and proposed instead that it should become the Gas Users' National Organisation. The Minister appeared very keen to accept my suggestion until I pointed out that it would become known as "Guano" instead.
The industry should be robust enough, as gas had been robust, to live with a proper structure of consumer protection and to live with a care for the poorest in the land and with a care for the disabled. Noble Lords will have seen the documents and briefings which we have received. I hope that they will receive adequate attention.
§ 8.8 p.m.
§ Lord Desai
My Lords, I congratulate my long time friend, the noble Baroness, Lady Sharp. She has lived up to all our expectations by delivering on behalf of consumers a powerful and carefully researched speech on competition policy.
1993 Because time is short this evening I shall make but three quick points. As the noble Baroness and my noble friend Lord Borne indicated, price may fall in competition but price is not everything. When we buy any product of a utility we buy a whole what I call vector of characteristics. One of the things that the noble Baroness pointed out was that consumers pay a price over and above the price charged for the gas. For example, if I pay in advance or if I pay by standing order I am giving a loan to the utility. Indeed, I have given incredible amounts of money to British Telecom. I do not know why I do so. However, there is an implicit price which is larger than the price paid.
We ought to look at all the implicit and explicit prices paid by consumers. This is where most particularly the price paid by the vulnerable consumers, especially the blind, comes into the equation. What are the utilities doing to lower the extra price paid by the blind? Are the latter getting the sort of information which will help them so that they will not end up paying a higher price than ordinary well sighted consumers pay?
My noble friend Lord Borne is entirely correct to point out that if the utilities give business accounts a discount they should not, as it were, charge domestic consumers much more. But just as there is a principle of cross-subsidy among business consumers—because that is how the discount for large volumes works—I believe that they ought to cross-subsidise among consumers, especially the more vulnerable ones; indeed, I think that they should forgo some part of the profit. I believe that that would help.
I have one final point to make. I believe that eventually we will have to have a much more co-ordinated regulatory system across the different utilities. However, tonight is not the time to talk about it.
§ 8.11 p.m.
§ Lord Islwyn
My Lords, I congratulate my noble friend on initiating this debate on a most worthwhile subject, though it is a pity that it is such a short debate. Nevertheless, my thoughts turn to the so-called "fat cats"—and what a horrible expression that is. I have in mind Sir Peter Bonham who is British Telecom's chief executive. His pay rocketed by 46 per cent. to more than £1 million last year and—wait for it!—he also had £1.5 million in bonuses.
Moreover, at Centrica the chief executive, Roy Gardener, earned a package of £493,000. His counterpart at British Gas, David Varney, got over £427,000, which was a 74 per cent. increase. At Southern Electric, Jim Forbes, the chief executive, earned £399,000 last year, which represented an increase of 45 per cent. Then there is that prime success story of privatisation, Yorkshire Water, where we find its chief executive, Mr. Keith Bond, a former police constable, received a 69 per cent. increase that took his salary to £298,000. Indeed, I could go on through a whole list of bosses who have simply abused the system. What an example that is to lower paid workers. We should also remember that all this is taking place as a result of what the late Lord Stockton (Mr. Harold Macmillan) described as the sale of the family silver.
1994 Overall, in this issue which my noble friend Lord Borne has described as a fair deal for consumers, I think particularly of less well-off pensioners and the way that they were treated by the last government. In the early days of that administration a decision was taken to alter the method of calculating the state pension. The dual assessment based upon inflation and average earnings was terminated and annual increases were subsequently based on the inflation rate alone. That change brought about a considerable loss of income for pensioners, especially those who tended to rely on state provision. I shall give your Lordships details as supplied to me by the Library of the House. The single state pension of £64.70 in April 1988 would have been £87.79 if it had risen in line with average earnings since 1979. That is a difference today of £23.9p per week. That figure clearly illustrates that pensioners have a genuine cause for grievance.
That leads me to another aspect which is highly relevant to our debate; namely, the fact that pensioners have to pay the standing charges to the former public utilities. I tabled a Question last Wednesday about this issue but I received a negative reply from the Government. I was most disappointed about it. The people, and pensioners in particular, expect a better deal from a Labour Government.
§ 8.14 p.m.
§ Lord Currie of Marylebone
My Lords, I should, first, declare an interest as a consultant recently for Thames Water and as an unpaid adviser to the recent Offer/DTI review of the wholesale trading arrangements for electricity. I welcome this brief debate and I also welcome government policy towards regulation as it is evolving. I think it is right, wherever possible, to promote competition, not simply because of the price benefits that competition brings but also because competition is a major spur to innovation. We have seen that in telecoms and I believe that we will be surprised at the degree of innovation that we see in gas and electricity as competition spreads. I believe that that will be a major benefit to consumers.
However, we also have to recognise that there are limitations on competition. In particular, if we have the wrong industrial structure the competition will not necessarily deliver the right outcomes. If we look at the market in power generation we see that particular problem. It is one of the reasons why coal has been disadvantaged in the trading arrangements for electricity in the recent past. I therefore welcome the Government's commitment in principle to carrying out the reform and dismantling of the electricity pool and to the divestment of coal-fire generation capacity by some of the large generators.
The other area where competition may not bring the right outcome is for disadvantaged consumers, as my noble friend Lord Borne highlighted. Competition involves the unwinding of cross subsidies and that, in an industry where fixed costs are high, can mean that the poor—the low volume consumers—miss out. There are answers to that and they are ones which have been flagged by the Government. In particular, it is possible to use the regulated monopoly pipe or wires business— 1995 for example, Transco or the National Grid—to effect and to have cross subsidies which help the disadvantaged relative to the more advantaged consumers. That is the direction in which we should seek the answer. We must ensure that any intervention in that area is not such as to inhibit competition, because the latter is the key.
In conclusion, in looking forward I think that we may be entering an era where the "fat cat" problem—the excessive profits that we have been concerned with and the need for the windfall tax—is something of the past. Regulators have got better at their job and they are regulating in a much tougher way. I fear that some of the regulatory assumptions that have fed into regulatory decisions on the cost of capital may be over tough on the regulated companies, especially in view of the disturbances in the financial markets that we have recently seen. Indeed, this is a matter to which we shall have to return.
§ 8.18 p.m.
§ Viscount Chandos
My Lords, I begin by declaring an interest as a director of an interactive television company which currently provides pilot services in Hull and London on the networks, respectively, of Kingston Communications and British Telecom, which are both regulated by Oftel. I, too, welcome the Green Paper and the White Paper issued by the DTI which recognise the need for a comprehensive review of utility regulation and the consultation document Regulating Communications issued in July.
The privatisation programme of the 1980s and the early 1990s conducted by the last government gave rise to a first generation of regulation and regulators which has increasingly been showing both its age and its mixed origins. While it is now broadly recognised on all sides of the House that the privatisation of at least some of the utilities has produced significant benefits, we equally can see that the priorities of the last government were not exclusively—or even primarily—the protection of the consumer: it is clear that the regulatory regimes in some cases were set to assist in the successful privatisation of the utilities concerned and in the satisfaction of objectives ranging from the management of the PSBR to the attempted stimulus of wider share ownership.
That is now history and it is time for a new generation of regulation to supersede the old, and in the words of the Green Paper,a determination to ensure that the regulatory regime serves the needs of consumers",is therefore strongly to be welcomed, as will be legislation to place a primary duty on the regulators to protect the interests of consumers. I look forward with high hopes to what my noble friend the Minister will say on this and other issues raised in a few minutes.
I shall use the short time that remains to me briefly to address the complex area of telecommunications regulations. I hope that there might be another occasion when rather more time will be available for a debate on this subject, perhaps when the Government have been 1996 able to digest the responses to the consultation paper, Regulating Communications: Approaching Convergence in the Information Age.
While I do not pretend that communications are quite the lifeblood of consumers that water or power are, the burgeoning role of telecommunications networks in providing information, education and entertainment, in addition to voice communications, makes a dynamic and competitive telecommunications industry vital.
The decision to license cable operators for both television and telephony services has, at great financial and environmental cost, provided competition in local network provision, in parallel with that in trunk and business networks. I hope that in future there will be increased emphasis on the promotion of competition in service provision, and that the sunk cost of competing physical networks will not be allowed ironically to keep prices higher for consumers.
§ 8.21 p.m.
§ Lord Kingsland
My Lords, in the debate on the Competition Bill the noble Lord, Lord Simon of Highbury, said that he wanted to leave open the question of whether the sectoral regulators or the Director General of Fair Trading should enforce the competition prohibitions. In a recent publication by the Office of Fair Trading in paragraph 4.4 we find the director general saying,Unless there are reasons for doing otherwise, the relevant regulator, rather than the Director General of Fair Trading, will apply the prohibitions in the Act when they relate to arrangements or conduct falling within his sector".I urge the Minister, who is one of those responsible for the utilities review, to reject that philosophy. His own Government have said on several occasions that the Competition Bill is about applying uniform principles across the board. Only recently in your Lordships' House the Government were at pains, when rejecting the amendment of the noble Lord, Lord McNally, on predatory pricing, to say that the Competition Bill was not intended to be sector specialist—in that case, in relation to the media.
There are two additional reasons why I think the Minister should be extremely wary of following the proposal of the Office of Fair Trading. The first is that competition in each of the regulators' sectors means something quite different from competition in the Bill. Competition in the Bill is about looking ex post at a particular anti-competitive situation. Competition to a regulator is about confronting an initial monopoly or oligopoly and out of that situation, in a dynamic way, creating a competitive situation. It is not the same thing at all as competition under the Bill. There is a real danger, if the regulator exercises as a matter of practice competition powers under the Bill, that he will confuse that notion of competition with a notion of competition contained in his own regulatory Act.
The second reason why, in my submission, it would be inappropriate for the regulator to have these powers is that he has many other considerations to look at as well. He must consider the interest of the consumer, the environmental picture and the social dimension. All 1997 these things have to be factored in to his own regulatory decisions. Competition, on top of that, would be compromised.
§ 8.24 p.m.
§ Lord Newby
My Lords, I join other noble Lords in congratulating the noble Lord, Lord Borrie, on introducing this debate. It is a particular pleasure for me to be able to congratulate my noble friend Lady Sharp of Guildford on her maiden speech. We on these Benches are particularly pleased to have the benefit of her expertise and experience. I am sure noble Lords will agree that these abilities and qualities will be of tremendous benefit to the House as a whole in the months and years ahead.
For many vulnerable people in this country, particularly pensioners, the utilities play a peculiarly large part in their lives. A large proportion of the post they receive is from the utilities and a large proportion of the regular payments they have to make is to utilities. Therefore this is a particularly important area to be discussing. A number of noble Lords have discussed problems which currently apply, not least high costs of standing charges and the problems of the high cost of prepayment meters.
I wish to refer to the problems which arise when faults occur in the utilities provided in the home. I know of a case of an elderly, partially sighted lady who discovered when she was having her water meter read that a large volume of water was flowing through even though all the taps were closed. This meant that there was a leak somewhere. The meter reader said, "I do not recommend that we fix this for you as it will cost you far too much. You ought to find your own plumber". That statement was deeply disturbing to the lady. She wanted someone from the utility to solve the problem rather than have to find someone from outside. The situation was already stressful for her in that she had discovered a water leak and she then had the additional problem of having to find someone to put it right.
I believe that similar cases occur in the gas industry as regards the restricted role of Transco in tackling gas leaks. One then has to get another specialist to deal with a leak. This area needs to be given further consideration. We therefore welcome the Government's commitment to issue statutory guidance on social objectives and environmental objectives. We on these Benches would prefer the environmental objectives to be given rather more significance, but we believe that this is a great step forward. We welcome anything the Minister can say this evening either on the timetable for the issuing of such guidance or on consultation which may take place between now and the guidance being issued.
As regards consumer councils, I am not sure that I agree with the noble Lord, Lord Borrie, about separating individual complaints and general policy issues. One finds that people in the legal field deal with individual miscarriages of justice and reform of the criminal law more generally. Experience in one area informs experience in the other area and gives great 1998 strength to what they do. We support the principle of statutory consumer councils and look forward to seeing that enacted.
§ 8.27 p.m.
My Lords, I, too, am grateful to the noble Lord, Lord Borrie, for posing this Unstarred Question tonight. The House is indeed fortunate to have his services. I have only three minutes so I will have to be to the point. I wish I had longer to respond to the various points that noble Lords have made.
I am not supposed to do this but I would like to note the quality of the maiden speech from the noble Baroness, Lady Sharp. She made the interesting point that better-off consumers are well informed, more sophisticated and can take advantage of direct debit schemes. She also talked of the problems of pre-payment meters. I hope that eventually technology will help vulnerable consumers as well as those who are better off. I also welcome the Minister's first substantial speech from the Government's Dispatch Box. I am sure that in the future we shall have many interesting discussions on the Government's energy policy.
The role of utility regulation is to promote fair competition while at the same time protecting the interests of consumers in both the long and short term. Since privatisation we have seen greatly improved efficiency in the utilities which has been achieved through the rp-x formula. However, there is also a need for regulatory efficiency. That means that the Minister will have to strike the balance between short-term consumer benefit on the one hand and an over-demanding regulatory regime on the other, the latter being detrimental to future investment plans in the utilities.
The noble Lord, Lord Borrie, effectively drew attention to vulnerable consumers. I am sure that the Minister would agree with Ian Byatt that any measure that results in lower bills for some consumers will have to be funded by higher bills for others.
Perhaps I can tempt the Minister a little further. Does he agree that the provision of an adequate income for vulnerable consumers is a responsibility of the welfare system, and that of energy efficiency a part of taxation and housing policy? Therefore, although I accept that the utilities may have an input in these matters, is it really the role of a commercial concern to act as a welfare organisation? On the other hand, good business practice would suggest compassion in cases of genuine hardship.
We shall have to study today's Statement to see whether it can help. The noble Lord, Lord Borrie, referred to social justice, and I agree with his sentiments. Put simply, we need to move towards eliminating vulnerable consumers as much as we can.
The noble Lord, Lord Borrie, also spoke about the increased power of consumer councils. Will the Minister say how that will work? Will it not interfere with the duties of the regulator, who should regard the long-term interests of the consumer as paramount?
1999 In the longer term, we on these Benches hope to see fully developed competition in all the utilities. We are practically there with telecommunications. When effective competition is fully developed, we hope to see industry-specific regulation become unnecessary and reliance being placed solely on general competition law.
§ 8.30 p.m.
§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)
My Lords, I should like to thank my noble friend Lord Borrie for raising this important topic and for his thoughtful contribution to the debate. All those who have had contact with him when he was Director-General of Fair Trading, or in this House, know that he is not only a great expert on regulation, but also a fierce and effective champion of the consumer.
I also congratulate the noble Baroness, Lady Sharp, on an outstanding maiden speech. I know she has great knowledge of the economics of science, technology and innovation and, as Minister for Science, I look forward to listening to many more illuminating speeches from her.
I should also like to say to my noble friend Lord Haskel that we will, of course, consider the debate as part of the consultations on the Government's proposals for setting up independent consumer councils for the different utilities.
Water, energy and telecommunications are among the essentials of everyday life, and the public have a right to an efficient supply of these services, on fair terms. That is why the Government published a Green Paper on utilities regulation earlier this year. The Government's subsequent response to consultation set out three overall objectives for reform. We want to secure a fair deal for all consumers, including the disadvantaged. We want to create a regulatory framework which looks ahead to the next decade, in a world where competition is growing, convergence issues are arising, and multi-utility companies are emerging. And we want to create a climate in which the utility companies can innovate and improve efficiency wherever possible by ensuring that regulation is transparent, predictable and accountable.
The Government have set out a large number of proposals for reform to help achieve the overriding objectives that we have set. I want, however, in the time available, to focus on government plans which are aimed most directly at our objective of securing a better deal for consumers, and the disadvantaged in particular.
I should like to deal with three key changes which are aimed at giving all consumers a fairer deal. First, the Government propose that there should be a new primary duty on the regulators to protect and promote the interests of consumers wherever possible through promoting competition. The regulators' existing consumer duties are secondary duties. The Government believe that, when making decisions, the regulators must put the needs of consumers first.
Secondly, the Government intend to establish consumer councils for each of the utilities on a fully independent and statutory basis. That is a key consideration which will deal with many of the concerns 2000 that have arisen in the debate. We envisage the councils playing a key role in articulating a strategic, independent view of consumer interests to the regulators, companies, Parliament and the media. They will have statutory rights to be consulted by the regulator on key decisions affecting the consumer interest, and will have responsibility for handling complaints when those are not resolved by the utility companies. They will provide a one-stop shop for consumer complaints against the utilities.
The noble Lord, Lord Borrie, mentioned the incompatibility, as he saw it, of the advocacy role with the role of handling complaints. I wish to make clear that our proposals do not involve consumer councils taking on a formal educational role in these matters. Licence enforcement action will remain a matter for the regulator. However, there are examples in the water sector where companies have entered into voluntary agreements with customer service committees whereby the companies will accept a committee's adjudication. We want to encourage those developments.
However, I have taken note of the suggestion made by the noble Lord, Lord Borrie, of providing a formal ombudsman scheme in the legislation. My department is currently consulting on the detailed arrangements for establishing the new councils. We plan to announce the outcome of that consultation as soon as possible following the 16th November closing date for responses.
A third measure for strengthening the position of consumers is our plans to ensure that all the regulators have powers of the type already held by the gas regulator to impose financial penalties on companies for breach of overall and individual customer service standards.
The noble Lord, Lord Islwyn, raised the question of high pay for executives in the utilities. It is not for the Government to set executives' pay. However, we plan to encourage stronger links between customer service standards, price gaps and directors' pay. We shall, for example, be urging regulators to take account of levels of consumer service and satisfaction when setting new price caps. Moreover, we intend to legislate to require price-regulated utility companies to disclose the nature of any links between the pay of the directors of the regulated business and the service standards attained by that business, and if there is no link, to make that fact known.
In addition to these and other measures to help all consumers get a fair deal, the Government are particularly concerned about the position of the disadvantaged. Fuel poverty is a major issue. The liberalisation of energy markets has delivered real benefits to all consumers in lower prices, but there have been concerns that the disadvantaged may have benefited less than other consumers. The Gas Consumers Council and other organisations have been vocal in articulating the needs and concerns of disadvantaged consumers in competitive markets. There are concerns, for example, that the gap between prepayment meter tariffs and direct debit tariffs could become unacceptably large. We are alert to these problems, and have announced plans to ensure that the regulatory system is equipped to deal with them.
2001 I want to refer to three specific proposals announced by the Government for addressing the particular needs of the disadvantaged. First, the Government propose to modify the regulators' statutory duties as they affect the disadvantaged. The regulators' existing social duties vary somewhat between the utility sectors, but typically require the regulators to take into account the interests of the disabled, pensioners and rural consumers. These existing duties will be retained, but they will be extended to cover low-income consumers and, where this is not already the case, the chronically sick.
Secondly, we propose to introduce legislation to give Ministers powers, following full consultation, with Parliament and others, to issue statutory guidance to the regulators on social and indeed environmental objectives. I believe that that deals with the question raised by the noble Lords, Lord Desai and Lord Newby. However, I should make it clear that this would require primary legislation and in that way would keep the distinction clear when a situation arises which changes the framework within which regulation takes place.
The proposal has been widely welcomed. It will ensure that the utilities, as sectors, will make an appropriate contribution to wider social goals. It will make clear that the responsibility for setting objectives in those areas rests with the Government, not the regulators. It will improve the transparency and the predictability of regulation because the guidance will be strict and for a set duration for a number of years—perhaps the duration of a parliament.
The plans for powers to issue guidance recognise that economic regulation does not take place in a vacuum. The powers will also provide a mechanism allowing Ministers to guide regulators on how to interpret their social and environmental duties. That also addresses a point which has been raised. If liberalisation leads to an unwinding of some of the cross-subsidies that can be seen to have a beneficial effect—and the noble Lord, Lord Currie, raised the point—it is something as regards which the Government could take action through the mechanism to correct the situation.
The powers to issue guidance and the extension of the regulators' duties towards the disadvantaged are longer-term propositions requiring legislation to give them effect. The needs of the disadvantaged require more immediate consideration. That is why, in publishing the Green Paper A Fair Deal for Consumers, the Government asked the regulators to draw up a social action plan to ensure that disadvantaged consumers benefit from improved efficiency, more choice and greater fairness. This is the third element in our strategy for ensuring that the needs of the disadvantaged are reflected in the system of regulation.
We are not complacent. The position of the disadvantaged in competitive energy markets, and the other utility sectors, is a key government concern, and one that the Government intend to keep closely under review.
I should like to deal with the question of standing charges and I hope that I can be more helpful to the noble Lord, Lord Islwyn, on this occasion. Noble Lords 2002 will be interested to note that market forces are starting to deliver results in terms of a wider range of payment options and tariff structures for consumers. Some companies are now offering tariffs with no standing charge. In the gas sector, for example, both Norweb and British Fuels offer tariffs without a standing charge. Naturally, the unit charge is higher, but that may be an alternative which is attractive to consumers who have lower than average consumption. We hope that in these markets which are becoming competitive alternatives will be produced which deal with the question of standing charges.
In the water sector, which is not the responsibility of my department, the recent consultation document on water charging recognised that for some low users standing charges for those with water meters can represent a high proportion of water bills. The consultation invited views on whether we should move to a position where there are no standing charges. It is not, of course, a free option and any re-balancing of charges will produce winners and losers. My colleagues are currently considering responses to the water charging consultation.
There is, of course, a distinction between this situation which is a monopoly and those where competition is now beginning to take place. I mention it because it shows that we are very much alive to the issue and will take action if necessary.
The noble Baroness, Lady Sharp, raised the issue of pre-payment meters and direct debit tariffs. Again, it is an issue where much work has come through the social plan and I hope we will begin to see changes taking place on it. I very much take on board the point made by my noble friend Lord Haskel that in business customers who pay in advance usually pay the lowest price. I hope that the utilities will gradually begin to deal with the problem.
My noble friend Lord Borne raised the question of individual regulators versus boards. We wish to see a degree of depersonalisation of regulation and ensure that there are stronger checks and balances on individual regulators. That is why we have moved to a position of three people rather than one individual.
In closing, I wish to take this opportunity once again to thank all noble Lords for their contributions to the debate. I am afraid that I have not had time to deal with all the issues, in particular the one raised by the noble Lord, Lord Kingsland, on the relationship between the Competition Bill and the role of the regulators. This is an issue where we feel that the concurrent powers are right and as the markets become more competitive, it is right that the individual regulators should have the powers contained in the Competition Bill. I take the point that the position needs to be clear. Co-ordination is already being developed so that the regulators and the Director of Fair Trading will act in concert.
Noble Lords have made a number of excellent contributions to the debate and I trust that they will understand if I cannot deal with all the other points which arise. I assure the House that the Government will continue to press forward with the important work that they have initiated in the area. It is an important 2003 programme of reform and the Government believe that the proposals set out in their response to consultation will modernise the system of utility regulation and at the same time provide a fair deal for consumers in general and vulnerable consumers in particular.