Membership of the Ofgem board

‘(1) Schedule 1 of the Utilities Act 2000 is amended as follows.

(2) In paragraph 1(1), before “chairman”, insert “lay”.

(3) In paragraph 1(2), after “member”, insert “and shall ensure that the majority of members appointed are lay persons”.

(4) After paragraph 1(1), insert—

“(1A) In this Schedule a reference to “lay” is a reference to a person who has been independent from the energy industry, the government and civil service interaction with the energy sector for a period of at least five years.”.

(5) After paragraph 7(2), insert—

“(3) The Authority must hold its board meetings in public, save for the parts of those meetings where it is necessary for commercially sensitive information to be discussed.”’.—(Simon Hughes.)

Brought up, and read the First time.

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

The new clause covers a ring-fenced issue. However, it reverts to the practice, structure, operation, popularity and effectiveness of the regulator. My belief that the regulator is not a great friend of the consumer is on the record; I do not resile from it. The implementation of the new clause would be a very positive step to improve the chance of the regulator becoming more respected and valued by consumers.

The new clause proposes an amendment to the Utilities Act 2000 that would improve the regulator’s governance and board by requiring it to have a majority of lay persons as members. It would also require it to have a lay chair and to hold its meetings in public, except when commercially sensitive information was being discussed. That would help ensure that Ofgem fulfilled its primary objective of protecting consumers, which is what it says on the tin. The new clause would also ensure that Ofgem offered more effective consumer representation and transparency in its decision-making at the highest level.

Which? is a well respected and popular consumer organisation that stands up for consumers. Its experience of other regulators, such as the Food Standards Agency and the Legal Services Board, has shown that a lay independent majority helps to drive accountability and better outcomes for consumers. We can discuss how to define “lay member”. In the new clause, a lay member is defined as someone

“who has been independent from the energy industry, the government and civil service interaction with the energy sector for a period of at least five years.”

If the Government have a better definition, I am entirely open to discussing it between now and Report. The proposal, however, stands as an absolute win-win; if the Government resist it, they will be being conservative.  I hope that the Minister can be positive. Ofgem needs rescuing from being seen as principally looking after the industry and being too close to the Government. If it were given the ability to speak for the consumer, that would make a significant difference and would be a popular move. I hope that the Government see the merit of the new clause.

I am very sorry that I rise to disappoint the hon. Gentleman, because I understand very much where he is coming from. We all share the desire that Ofgem be seen to be on the side of the consumer, because that is clearly where it is supposed to be.

The new clause would require the chairman of Ofgem and a majority of the board to be lay members, and it would also require the board to meet in public unless considering commercially-sensitive information. The provisions seek to ensure that Ofgem is a consumer-focused body and is transparent in its decision-making. Those are, of course, aims with which the Government sympathise, and which they seek to reflect in the current regulatory regime. Ofgem’s principal objective is to protect consumers, and it will remain so.

To achieve that aim, Ofgem clearly needs people on its board who understand the consumer perspective. In the last recruitment exercise in 2008 we appointed two new board members with a background in consumer issues, including the chief executive of Citizen’s Advice. It is important to note, however, that Ofgem regulates a vital sector within the economy and the decisions it takes are often highly complex, covering issues such as price controls for the monopoly network businesses, and licence modifications that affect the various industry codes that are crucial to the smooth running of energy markets. It therefore needs a broad range of skills and experience on its board, including people with not only energy industry and consumer backgrounds, but skills in and experience of law, economics and regulation, finance and audit, and wider commercial areas.

We do not object in principle to the chair of Ofgem or a majority of its board being lay members as described by the new clause, but the crucial criterion in appointing members is that they should have the necessary expertise and competence to consider the often complex matters that the board is required to consider and decide. To require that the chair and most members of the board be lay persons with no recent experience of the energy industry or of energy issues through the Government or the civil service, could seriously narrow the field of available and interested candidates to the extent that we might have difficulty in appointing suitable people. That would adversely affect Ofgem’s ability to regulate effectively.

It is, of course, vital that Ofgem regulate the markets in an unbiased way, and both the Government and Ofgem go to considerable lengths to address potential conflicts of interest. We consider that major issue during the recruitment process, and otherwise well-qualified candidates have not been appointed because of that. Ofgem will exclude any board members from discussion of an issue if there could be a conflict of interest.

When considering future appointments, we will continue to look at the wide range of experience and skills, including experience of consumer issues, that Ofgem needs, but putting constraints on the background of  board members could adversely affect our ability to ensure that the board is made up of people with the broad range of skills and quality of leadership it needs to regulate effectively.

Turning to the other requirement—that the authority should hold its board meetings in public where possible—I again sympathise with the underlying aim that the regulator should be transparent. Ofgem has taken steps to improve transparency by holding one board meeting a year in public, and that is welcome.

In practice, however, almost all of Ofgem’s board discussions are commercially sensitive. Many of its decisions are also market sensitive and hence covered by stock exchange rules on announcements. There is relatively little, therefore, that would be suitable for discussion in an open meeting. The changes proposed by the hon. Gentleman would simply lead to the creation of expectations that could not be met. Meetings could be open on only a small proportion of occasions, and probably only a small proportion of any agenda of any meeting could be made open to the public. Therefore, it is unlikely that this would do very much to improve transparency. For the reasons outlined, and on this occasion with some regret, I urge the hon. Gentleman to withdraw the amendment.

That was a very unsatisfactory response. I understand that the Minister was trying to let me and the Committee down gently by saying how much she regrets this, but she read the case for the secret, closed cabal of the self-interested. That is exactly what she put to us. I have to say, with respect, that the argument she made—put two people on the board who have experience of consumer interests—is almost tokenistic. Whatever the best intentions, the majority of people on the board would come with an industry background, focus and involvement.

The Minister went on to say that the industry is highly complex and therefore no one else can understand it. I have to say that I have met many people in Britain who are capable of understanding highly complex things, and who may not come from a particular sector. They are often called on by Government, from their list of the great and the good and others, to apply their skills in an area where they have not traditionally worked. That is what Governments have always done—Governments of all persuasions.

The Minister said that there is a need for a broad mix of skills. Of course there is, and that absolutely does not contradict our proposal. A broad mix of skills means that there are people with experience of—she cited five qualifications—the law, economics, regulatory practices and financial audit. It is entirely possible. It is not impossible to find people in all those sectors who do not come from the energy industry, the Government or the civil service. I just do not believe that that would pose a difficulty—it has not in the other examples I gave—and that is not the experience of those who deal with such things all the time. The Minister defies logic to say that the UK does not have, among its more than 60 million people, the people from other sectors who have the skills to do the job.

I wish to intervene only on the point where the hon. Gentleman said that he had given other examples, because the examples he gave are not comparable.  To cite Which? is in no way comparable to citing an independent regulator that has enormous potential effects on commercial markets.

The examples I gave were the Food Standards Agency and the Legal Services Commission. They both do jobs that involve a considerable amount of complex work, and both have a large range of skilled people. They have both been changed relatively recently, as I understand it, from the tradition of a non-consumer majority. I have not heard a criticism that suggests they are doing a less good job now. Indeed, the Government say that they are doing a better job now. The Minister needs to look again at the practice of other agencies where the regulator’s composition has been changed to reflect, and have more people from, the consumer sector.

I have to say that I am completely unpersuaded. Of course this is a complex area and of course the energy industry is fundamentally important. However, there are plenty of people in the industry who can put the case, as they do in any complex area of activity. Many MPs do not have such skills, but we are called on to make decisions on the basis of the evidence and advice given to us.

The hon. Gentleman asked me to look and think again, which I am more than happy to do, but I think he is seeking a majority of lay members. From my understanding of the needs of the board, it would be a complete misjudgment to suggest that a majority of lay people could do the jobs required. The hon. Gentleman may be correct in saying that perhaps more than two would be a good idea, and I would not demur from that.

I hope there is no misunderstanding between the Minister and me. I am not suggesting by “lay” people with no qualifications, A-levels, degrees or academic qualifications. They can be lay in this context, but still be lawyers, economists, or people with a regulatory, audit or financial background. I am not seeking to say that such people are not lay. I am saying that there should be people who do not come with an energy involvement or close liaison with energy, so that they can look at the situation from the point of view of the consumer—the majority of us, who are not energy experts but who consume the products for which these people regulate the price, tariffs and all the other things we have discussed.

The new clause contains two proposals: on the composition of the board and on the nature of the meetings. Of course, there will be matters that are price-sensitive and that need to be dealt with in private because they are stock market-sensitive, and there may be more than in many business activities. The Minister will know that—be it local government, health trusts or other regulatory bodies—people can order into public agendas and confidential elements. It may be that some agendas involve significant discussion that is price-sensitive, and that would have to take place behind closed doors. The presumption should be that the boards are open to the public. One open meeting a year can often be a tokenistic attempt to placate people when they know, as everybody does, that all the other meetings are in secret.

I was disappointed that the Minister did not even say, “I am sympathetic. I do not think we can go as far as the hon. Gentleman wants us to, but we are willing to go some of the way. We are willing to come back with a new clause on Report that says a third, or perhaps an additional three members, will be lay members.” I have not heard any such response. I have heard the Minister say, “We have done a bit and for the moment that is sufficient.” The Government would do everybody a service by adopting a more consumer-focused view in this area. In the end, we would get a much more positive view about Ofgem, and I have no reason to believe we would not get a much more effective Ofgem as a result.

I happily say that I have heard the case the hon. Gentleman has made. Of course, we do have the power to recruit—as and when appropriate, as seen by Government—in liaison with Ofgem. I do not see the need for a new clause—I certainly reject the one he is putting forward—because we have the powers and ability to do what he suggests, if we wish.

I hear what the Minister says. Prompted by that I will ask her one question, as I am obviously not managing to persuade her with the new clause tabled by my hon. Friend the Member for Harrogate and Knaresborough and me. Will she at least be willing before Report to meet Which?—formerly the Consumers Association—which has experience of persuading government in other sectors to change the nature of the regulatory authorities in entirely beneficial ways? If she accepted that as a reasonable next step, that would be something. I would still be minded to press the new clause to a vote, Mr. Bayley, but at least she would be accommodating the possibility of hearing the argument and responding more positively the next time the issue is put to her.

For the record, Mr. Bayley, I mentioned two lay appointments that we have made that may indicate the direction in which things are moving. In fact, three of the eight non-executive directors are lay people at present. I am certainly willing to have a—not too lengthy—meeting with Which?

I shall take that answer as sufficient. No one was suggesting that it need be a lengthy meeting.

Mr. Bayley, I have put the case that we need a different sort of Ofgem if Ofgem is to have the confidence of the public.

Question put, That the clause be read a Second time.

The Committee divided: Ayes 2, Noes 9.

Question accordingly negatived.