Strange days indeed when the party that added Clause Four to the dictionary runs election broadcasts promoting itself as the “natural” party of business.
But the revelation that the Labour Party is secretly offering an olive branch to the utility companies over restrictions on the use of data (MW April 10) indicates that the party’s new found realpolitik may be more than just rhetoric.
The party’s election commitment on not raising taxes has provided it with the very real problem of finding supplementary finance. The one-off windfall tax on the privatised utilities, when it was first proposed by shadow chancellor Gordon Brown in October 1994, was seen as a convenient way to address some finance-raising difficulties.
But last week share prices soared among the major utilities on the news that the Labour Party will seek a much lower sum, estimated at 3bn, rather than the previously quoted 5bn to 10bn. At the same time, the utility companies appear to be shifting their stance from almost total opposition to the tax, amid threats of legal action, to one of benign acceptance.
The reasons for this change of heart are varied – the utility companies do not want to be in conflict with a new administration from day one. But more significantly they believe that their intense lobbying of New Labour, since the windfall tax was proposed, could reap rewards.
Shadow energy spokesman John Battle, along with Brown and other shadow treasury figures, has been the main target of the lobbying on the windfall tax which has come down to the utilities trying to wring concessions out of any new Labour administration. And Labour could be vulnerable to persuasion because it needs the money – it would after all be disastrous for Labour to spend the next two years tied up in legal challenges when it needs the windfall money to pay for its policies.
The utility companies do not want to pay a one-off 3bn, but know that a relaxation of data protection laws to allow the full exploitation of databases is far more valuable because it will allow them to compete across the whole energy sector. While the ability to carry piggy-back mailings is important, the ability to market other energy services is the real Holy Grail.
Any reform would require amendments to the gas, electricity and water Acts, but would not require primary legislation and could, in theory, if the Data Protection Registrar agreed, be in place by the autumn. Each act governing electricity, water and gas privatisation includes sections that preclude use of the utility licence holders database for any use other than supply.
On the surface, it appears that the utility companies’ biggest complaint is with the Registrar, Elizabeth France, who has ruled that they cannot cross-market other goods and services to its customers.
The outgoing Conservative Government relaxed the rules on utility companies to allow takeovers and mergers by US utility companies and the growth of super utilities which straddle water, electricity and gas markets. However, it did not relax regulations governing the use of data.
British Gas intends to become a major player in the national electricity supply business. “The result is that we will be allowed to sell electricity, which we are very keen to do, but the inability to use our own database means competition is a farce,” says a British Gas source. “We pointed out to the Labour Party that if we are to be penalised with the windfall tax, and have to suffer the additional burden of full competition with Ofgas’ additional restraints on prices, then we are also facing further unfair restraint on trade imposed upon us because we are not allowed to use our own database.
“The pro-consumer lobby is much less effective in the Labour Party than it used to be, and there is a convincing argument that some data protection legislation acts as an effective restraint on trade,” says the same source.
The sentiment is echoed by United Utilities, owner of North West Water and Norweb, which has also had secret talks with Labour. “We have a number of plans in the pipeline to become total energy providers, but current legislation appears to prevent us from doing that,” says a UU source.
Existing DPR rules governing utilities are also holding back the wider plans of non-utility companies, such as retailers like Tesco, Asda and Marks & Spencer, to market energy supplies. For instance, if Tesco were to gain a gas supply licence, it could not send Tesco Clubcard vouchers and information of Tesco Clubcard Plus to potential consumers. If it then entered the electricity market, it could not combine gas and electricity billings. As a result, Tesco is understood to have abandoned plans to enter the own-label gas and electricity supply markets (MW September 6 1996) and Sainsbury’s pulled out last week.
Other supermarkets and non-utility groups are also understood to have abandoned such plans. A source from one of the big four high street banks says: “We looked into the possibility of entering the gas and electricity markets, but the rules governing use of data were an absolute minefield.”
Of the 61 licensed industrial and commercial gas suppliers, there are no retailers. Only petrol companies such as Elf, BP and Texaco have joined the deregulated fray in the South-east and South-west.
The DPR first issued a formal warning to the regional electricity companies in March 1996 – specifically against SWEB for selling gas in the South-west during a deregulation trial. The DPR asserted that using the SWEB database for anything other than supply contravened the Electricity Act.
But many of the Regional Electricity Companies (RECs) have flouted or ignored the DPR recommendations. Seeboard and Eastern Electricity publicise their own subsidiaries and carry inserts for others; Northern Electric publicises other services to customers; Midlands and East Midlands Electricity market their subsidiaries; and London Electricity published London Lights magazine, and was then contested by the DPR, for offering tickets to Chessington World of Adventure (MW January 31).
Last year, Marketing Week revealed that the gas and water companies are also breaching DPR guidelines. British Gas used its database for non-supply purposes – with a planned mailing of a Welcome Pack which included third party vouchers (MW June 14 1996).
Though the DPR only issued British Gas with a guideline – the first step in any enforcement action – three weeks ago, it is clear that the same rules have applied all along to gas and water, as the RECs.
Despite this, British Gas has mailed 19 million customers negative consent forms, telling them that mailings would be sent to them advertising products such as the Goldfish credit card (partly owned by British Gas) if they did not actively refuse, thus breaching DPR guidelines on fairness. Severn Trent Water mailed a booklet promoting washing machines and burglar alarms and Thames Water advertised home insurance and replacement windows.
British Gas received a preliminary notice warning of enforcement action, as did Southern Electric. Specific guidelines for the water companies have not been issued, but it is clear that these actions are, at the very least, against the spirit of the law. For British Gas and the RECs, the stonewalling by the DPR has become a major obstacle to becoming total energy providers. It is also affecting their ability to control costs.
Companies such as United Utilities and British Gas are understood to have plans in place to offer joint billings for all types of supply, enabling them to cut costs. DPR regulations outlaw joint billings of gas, water, electricity and telecoms – a move that could substantially reduce costs.
Though easing restrictions may allow the utilities to cut costs and sell more services, it could have a flipside. If British Gas is successful at getting the next government to lift the ban on data use, those retailers and service providers with much stronger brands, like BT, may reconsider their decision to stay out of the market.
All the indications are that the Labour Party is willing to listen, and is likely to respond to the utilities requests if elected. The DPR is also believed to be receptive. The windfall tax could yet have a silver lining for the utilities.