Peter Hain – 1994 Speech on Regulators

Below is the text of the speech made by Peter Hain in the House of Commons on 20 April 1994.

A big thank you, Madam Speaker. I beg to move,

That leave be given to bring in a Bill to reform the accountability and other objectives of the privatised utility regulators.

Without any serious debate, the regulation of the privatised utilities has been hived off to autocratic unaccountable directors general. The invisible hand of Ofman the regulator now guides policy for every light switched on, every bath run and every telephone call made. Regulators are independent and all-powerful, and they have extensive discretion, which has often been exercised in a highly personalised fashion.

Oftel, Ofgas, Ofwat and OFFER cover vital services.

Telecommunications, gas, water and electricity affect major areas of public policy and every citizen in the land.

However, the regulators were largely afterthoughts. Regulation has evolved in an ad hoc fashion, becoming complex, over-technical, rambling and fundamentally flawed. The main beneficiaries are shareholders, whose dividends have soared–dividends had increased by 85 per cent. for water by 1992, and by a massive 63 per cent. in the first year of electricity privatisation. Industry chiefs have also enjoyed a pay and shares bonanza.

By contrast, job losses in the privatised utilities will soon total a staggering 200,000. The National Consumer Council reports at best a mixed record on prices, with anomalies such as a £9,000 charge for a 4 ft water connection to a residential home in my constituency of Neath.

The right-wing assumption that individual shareholder interest necessarily equates with the public interest is nonsense. Individual shareholder or consumer interests, compartmentalised from each other, do not inevitably aggregate into the general public interest. Indeed, selfishly pursued with the support of the regulator, they often thwart achievement of the general interest in such matters as the ability of strategic national companies to compete in world markets, environmental protection and the preservation of precious natural resources.

In 1993 the electricity regulator–a public servant, not an elected representative–insisted that forcing the electricity generators to maintain existing coal volumes would infringe competition rules. He thereby vetoed an alternative energy policy, which led to the closing of dozens of pits. That public servant’s encouragement of the dash for gas for electricity power station base load is depleting North sea oil reserves by more than 15 years’ usage, and causing a most inefficient use of a critical fuel. Coal is sentenced to death, while coal imports soar and nuclear power has a £1 billion-plus subsidy. The driving objective of the regulators to promote competition almost at all costs invites foreign companies to enter the United Kingdom market on advantageous terms, while British companies are barred from reciprocal rights abroad. That is most striking in gas and telecommunications, where American-owned television companies are capturing important local markets. British Telecom cannot enter the United States market on equivalent terms, and is further penalised by being barred from offering broadcast services, such as cable television, over its lines.

Britain’s industrial interests in that vital area of information technology are being undermined, as BT is forced to concentrate on pigmy competition in its backyard at the expense of international competition, where we are now threatened with an American takeover. Competition dogma is also tending to force the privatised utilities to concentrate on the most lucrative, fastest growing markets, where competition from new entrants is fiercest, at the expense of low- income communities. That so-called “cherry picking” means that the most profitable users get the cheapest and most sophisticated services. Telecommunications in the City of London is a good example. By contrast, there is social dumping of rural areas and poor inner city areas, where competition is limited or non-existent. Installation charges for telephones are high, well beyond the reach of many people on low incomes.
Water disconnections trebled after privatisation, and charges soared almost as high as executive salaries and perks in the water industry. Low-income households face discrimination, with higher deposits and pre-payment systems.

Privatised British Gas is refusing to extend the main supply an extra few miles to supply villagers–in Neath’s Dulais and Swansea valleys, for example. The new competition regime will also increase gas charges for the poor and reduce charges, relatively, for the rich, while gas showrooms are closed.

Competition is not value free, nor is regulation a value-free, non- political exercise carried out in an objective, technical fashion. Each regulator has enormous discretion to determine public policy as he sees fit for his own industry without regard to the knock-on effect. We need to put democratic politics back in charge. The Government should take a small stake in each industry and should appoint a Government director, thus securing considerable influence at minimal cost.

New regulators should be appointed with different objectives to ensure that policies to advance strategic national and social interests always take precedence over promoting domestic competition or shareholders’ profits. The regulators should have new performance targets, such as universal tariffs, protection of supplies to the elderly and the disabled, research and development, levels of investment and international competition. Those, rather than competition for its own sake, should be the driving objectives of the regulators.

Democratic accountability could also be improved by establishing a parliamentary Select Committee to scrutinise the utilities, with annual debates on the Floor of the House. A utilities commission should be established to bring the regulators under one roof. That would promote policy consistency between the different regulators housed within it. We do not see that at the moment, especially in gas and electricity.

The commission would be a quasi-judicial body, akin to the Monopolies and Mergers Commission, but with powers of scrutiny and subpoena similar to those of a Select Committee. It could be governed by a board of representatives from all sectors–from consumers, senior managers, trade unions, shareholders and academics appointed by the Secretary of State.

Enabling the different regulators to share common resources would also bring economies. Each regulator would still be proactive and would still have considerable operational autonomy, but each would be supervised by the commission’s board. It would have an advisory role for Government on policy and strategy, and it would help to resolve disputes between the regulators in industries. Such disputes have sometimes dragged on for months.

There must be transparency in the regulators’ decisions and the regulators’ right to silence should be abolished. They should be required to explain the reasons for their decisions, either publicly or at least privately to the industries concerned. It would also make sense for the regulators to be merged and reorganised so that we had one regulator covering communications ; telecommunications and broadcasting are increasingly converging. There should be one regulator for energy, including coal, one regulator for transport and one regulator for water.

The customer is crying out for change and the companies themselves want consistency. Opinion-formers and utilities experts, and even some of the regulators themselves, are casting around for alternatives. The Bill would introduce regulation for the common good.