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Mr. Peter Luff (Mid-Worcestershire): 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:
My hon. Friend the then Member for Lewisham, West, now the Member for Stratford-on-Avon (Mr. Maples), asked the now Prime Minister:
The principal objective for regulators set in the Bill is
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.
Mr. Luff:
I give way to my hon. Friend and constituent.
Sir Michael Spicer:
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?
Mr. Luff:
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 question that the country asks and that the Secretary of State--
the right hon. Lord Parkinson--
"must 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.
"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.
"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.
"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
31 Jan 2000 : Column 835determination (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.
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 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."
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