Leading Article: A government lost in confusion

Privatisation was meant to get government out but it keeps on being dragged back into the water industryover the disastrous performance of some of the privatised companies, and into electricity by the wave of mergers that was threatening to sweep through industry. Ian Lang, the Secretary of State for Trade and Industry, was undoubtedly right to block the bids by PowerGen for Midlands Electricity and National Power for Southern Electricity.

But he may well have made the right decision for the wrong reasons, to pre-empt the Tory right opening up a new front of internal opposition over the Government's commitment to competition. Worse, it leaves competition policy in a mess, the position of the Monopolies and Mergers Commission uncertain and the future shape of the electricity industry hanging in the air.

Despite Mr Lang's unexpected decision, overturning a recommendation made by the MMC, the Government's anxieties over the industry will not go away. As on so many other issues the Government appears caught between two ultimately conflicting views of the world. On the one hand there is its legacy from the Eighties: a belief in competition as the motor of economic efficiency. On the other is the influence of Michael Heseltine's view that we need something called an industrial policy to promote companies we can regard as national champions.

That belief that competition policy should partly attempt to create national champions has, too frequently, influenced the MMC, under the chairmanship of Graeme Odgers. The ill-fated report on electricity mergers at times seemed to second-guess what its authors thought ministers might like to hear. There is very little "national" about the "champions" these policies seek to create. Leading British companies often turn out to employ more people overseas than here, and have a stockholder list that starts with addresses in New York and ends with banks in Osaka.

Government regulation of the electricity industry should protect the consumer by promoting competition. The trouble is that the industry is now suspended between two stools. The Government has allowed some integration between power generators and distributors, through Scottish Power's ownership of Manweb and Lord Hanson's move from electricity distribution into generation. The original model of keeping distributors and generators separate is already corrupted. Yet by blocking the two most recent bids, the Government has prevented a new model emerging of an industry dominated by four or five vertically integrated electricity companies.

The electricity companies might be able to survive all this meandering, but the outlook for the regulators is less propitious. Stephen Littlechild, the head of the electricity regulator Offer, looks ever more like what he is - a provincial academic out of his depth in the big league.

He has been undermined both by his own inexperience by and the Government's confusion about competition.The role and function of the MMC have also been put in play. At times in the past few years it has seemed the MMC could easily be rolled up into the DTI. A restatement of the Government's position on competition is urgently needed. But, of course, that is the last thing we will get from an administration which veers between two views on most things.