Infrastructure Bill [HL]

Lord Berkeley Excerpts

Monday 10th November 2014 Lords Chamber

[Lord Berkeley (Lab)]

My Lords, I am very pleased to support the noble Lord, Lord Jenkin of Roding, on the amendment. My noble friend Lord Whitty apologises; he had to leave. Presumably he thought this would come up a little earlier in the proceedings. The noble Lord, Lord Jenkin, told the House a number of very useful and interesting ideas about how this issue is going to be taken forward. I shall be very interested to hear the response of the noble Lord, Lord Deighton. First, obviously, I welcome the Government’s commitment to so much new infrastructure. It is not before time. Most of it is sensible and should be good value for money. However, as the amendment seeks to point out, we need to know the effect on consumers, not just this year and next year but in the long term; some of these projects take a long time to construct. If there has been some kind of financial arrangement in the private sector to finance them, we need to know the long-term effect.

It is worth pointing out that many of the sectors mentioned in the amendment are by definition monopolies: railway infrastructure is a monopoly; water services are generally monopolies; and gas and electricity are not generally monopolies, but some of them are. I think it is true to say that all regulators have a duty to protect the interests of consumers while also ensuring that the companies they regulate are financially sound and capable of investing and delivering for the future needs of their customers.

I will take one or two examples. We have to ask how successful these industries and the regulators have been in protecting the customer’s interests. We have had much debate this year over electricity prices, resilience of supplies—are all the lights going to go out?—and people complaining that Hinkley Point EDF may be a deal that has screwed the Government. I do not know whether that is true: I am not an expert on it. Then, of course, there is the latest investigation by the Competition and Markets Authority into the big six electricity suppliers in terms of vertical integration. Where the customers come in all this is quite difficult to understand for the average payer of electricity and gas. That is something that could very usefully come as a result of discussions on the amendment.

On the railways, to take another example, the Office of Rail Regulation’s role is not directly to help the customer—it does, because the charges relating to Network Rail’s costs have come down—but it is relevant because it is regulating a monopoly. Everybody said at the beginning that Network Rail was pretty efficient but it could probably do with a tweak here or there. However, the regulator over the last 10 years has succeeded in reducing Network Rail’s costs, or efficiencies, by something like 40%. If it was 40% over what it should have been as an efficient operator, that is quite an achievement for a monopoly. Now the regulator is expecting another 20% from it in the next five years, and many people say that there is more to come. I do not think that other infrastructure managers of monopolies are probably much different, which is quite worrying. We have very efficient regulators across the sector and they have achieved a lot, but how much more is there to achieve? I just do not know.

The water industry is a different issue. We have had many debates here, some of which I have instituted, about whether the regulator has regulated Thames Water in order to ensure that it had enough assets to provide the investment it believes is necessary for its long-term operation—personally I do not believe it is necessary, but that is not the point—and whether the regulator was doing its job properly in ensuring that there was not a load of asset stripping, which appears to have gone on. More importantly, when is the regulator going to come up with some credible estimate of the effect that the Thames tideway tunnel and the other changes to the industry are going to have on the customers? There has been lots of talk about this; it would be interesting to know, but I suspect that that might require a bit of pressure.

Several newspapers today say that the Prime Minister is apparently going to announce 300 new roads. Whether they are all Highways Agency or strategic road company roads, I do not know—I suspect that the noble Baroness will tell us one day—but that is not the point, really; he is going to announce them, although I do not know how they are going to be financed. Under the Bill, which some of us think is being set up for them eventually to be privatised, the roads will probably be turned into toll roads, although the Minister has strongly denied that at every opportunity. There is still a question of how these new roads will be paid for, though, so should there not actually be some toll roads? However, we are not going to go any further on that today.

The amendment is therefore very important. Having some consistent statistics and data across all these different sectors regarding how much the consumer is going to have to pay, and over what period, would be very useful. It might also put pressure on the regulators to come up with a bit more consistency than they have shown up to now. The UK regulators network is a good idea and I think it is making progress; I have also been involved in some suggestions that there should be a European rail regulator, or an association of European rail regulators, across 26 member states, though at the moment that seems to be a step too far. Still, the concept of regulation is developing, and the question we have to ask ourselves is: is it sufficient that the regulators apply self-regulation to themselves? I have my doubts and would prefer the Treasury to do that to start with, but maybe the Minister will be able to persuade us that they are capable of doing it themselves, with a good deal of Treasury supervision. It will be interesting to see what happens. Again I thank the noble Lord, Lord Jenkin, for bringing this to our attention on Report.

[Lord Davies of Oldham]

My Lords, this gives me the chance to congratulate the noble Lord, Lord Jenkin, on the assiduous way in which he has pursued this topic and the way in which he has clarified many of the issues. He did so to our great advantage in Committee and has been a great strength today, so the noble Lord, Lord Deighton, knows the nature of the opposition to which he needs to respond.

We regard the noble Lord, Lord Jenkin, as entirely right to raise the key question of the costs to consumers; he is certainly right to repeat the call of the Public Accounts Committee, which argued that departments should consider very carefully the costs to consumers of the policies that they pursue on infrastructure. He is also right, of course, to raise the fundamental issue of ensuring that costs are not unfairly passed on to consumers. If we had more time, we would dwell on the number of occasions where we consider that to have been the case. It is clear that in many sectors costs to consumers have risen very significantly: one in eight households says that their water bills are unaffordable, while around one-quarter of households and 64% of the poorest households spend more than 3% of their disposable income on water bills. Those bills are 40% higher in real terms than they were in 1989. Obviously the licence agreements set a maximum price, but whether Ofwat has quite the powers that it needs to alter those agreements is still unclear. Likewise, the rise in energy bills has been very well documented. The House will of course recognise the extent to which we have been concerned about electricity bills, to the point of indicating that under the next Labour Government there will be a period of time when bills are frozen.

There is an apparent lack of connection between wholesale prices and the retail prices that hit the consumer. It seems pretty obvious to us that the consumer is often getting a bad deal. None of us underestimates the extent to which infrastructure needs to be improved. I am sure that the noble Lord, Lord Deighton, will dwell on that point. However, we need to ensure that increased infrastructure investment does not fall on the consumer, mainly because currently we are very badly in need of better infrastructure delivery. It is absolutely clear that, given that output has fallen by over 19% since May 2010, less than a third of the projects in the Government’s infrastructure pipeline are classed as in construction. Therefore there is a great deal to be done. The Government are rather better at indicating promise and intent than at acting in reality. The imperative is clear. We need to ensure that our infrastructure output increases; likewise, we need to ensure that the costs are not unfairly passed on to consumers, as they have been in some areas in the recent past. I hope that, just as the noble Lord, Lord Jenkin, indicated, the presence of the noble Lord, Lord Deighton, will guarantee that we are pointing in the right direction towards achieving the right balance and a better one than has obtained in recent years.