Labour to woo British Gas by scrapping regulator

Labour is planning to relax controls over British Gas by scrapping Ofgas, the power industry regulator.

The move, to be unveiled in a policy document next month, comes as Ofgas is once again at daggers drawn with British Gas, this time over fears the regulator is planning to cut profits of the company's soon to be hived off pipeline business by pounds 700m.

In a dramatic shift, Labour is keen to reach an accord with British Gas, still seen as a pariah by many on the left. Part of that accommodation will entail the easing of restrictions on a company whose bosses have been paraded as "fat cats" and whose billion-pound profits have been repeatedly attacked.

John Battle, MP for Leeds West and frontbench energy spokesman, has been holding talks with British Gas chiefs to try and devise a new regulatory structure. They have been stressing to Mr Battle their unhappiness with Ofgas and its head, Claire Spottiswoode.

Mr Battle has been surprisingly receptive, making plain his desire to remove the personalities from energy regulation and to achieve a greater consistency of approach in the different sectors.

As head of Labour's regulatory task force, Mr Battle will report next month on the outcome of the talks which have also involved other utility operators and public interest groups. He is keen to stress that those in his party who have what he terms a "1940s to 1960s mindset about utilities" will have their hopes of possible renationalisation dashed.

Instead, he said a new Labour government would work closely with the companies and encourage them. "Energy companies are a major contributor to the economy. There is a vendetta against the former nationalised industries that says they should be smashed up."

But, said Mr Battle: "We've got top British companies in our former nationalised companies. They are major employers, in the league of the top 50 companies in Britain, the top 100 companies in the world. I can't believe our aim should be to withdraw those companies from the international scene."

British Gas, he said, "has got years of credibility and expertise in the bank. I don't want to see that evaporate now".

It was crucial, said Mr Battle, that the regulatory framework is simplified to make the companies' lives easier. "I do not want them to be like Gulliver, tied down with millions of little ropes. That is the problem with over- regulation."

Under the task force's current thinking, Ofgas and Offer, the power regulator, would go, to be replaced by one joint watchdog. A beefed-up Monopolies and Mergers Commission would play a greater role in determining competition issues, releasing the new body to cover problems with supply and pricing.

On the issue of pricing, the existing "RPI minus X" formula - where prices are based on the rate of inflation less a percentage set by the regulator - would probably stay, but with what he called, an "error correction mechanism" to clawback profits on a sliding scale if they proved too high.

As long as a company continued to serve all strands of society, their profits would not be an issue for a Labour government. "Provided they maintain their social obligations, the size of their profits is up to them."