House of Commons Hansard Debates for 7 Dec 1988

Dr. Cunningham : I did not mention the Select Committee's report.

Sir Hugh Rossi : My right hon. Friend did. It might be awkward for the hon. Gentleman to be referred to it, but the peak year on the chart is 1970. Until then, the decline occurred during the hon. Gentleman's term in office, and the figure did not begin to climb until 1980.

Mr. Ridley : Perhaps it would be a help if we were to have visual aids in the Chamber. Opposition Members clearly do not understand figures, and they cannot read them.

Mr. Peter L. Pike (Burnley) : If the Secretary of State reads the chart in the Select Committee report, he will recognise that, although the figure dropped during the period stated, it is still only two thirds of the peak figure of 1974. After nine years of Tory Government, that is appalling.

Mr. Ridley : That is not correct. It is an interesting admission that the two periods of highest water investment

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in the hon. Gentleman's history are 1974 and 1988--both under Tory Governments. That rather bears out what I said.

Mr. A. E. P. Duffy (Sheffield, Attercliffe) : Will the Minister give way on that point?

Mr. Ridley : Although Mr. Speaker appealed for brevity, I shall give way to the hon. Gentleman, but then I must make progress.

Mr. Duffy : If we may refer to water authorities such as the Yorkshire water authority, does the Secretary of State recall that in recent years his Department squeezed the borrowing rules for water authorities to such an extent that, although investment has taken place as he has stated, it has had to be borne by water charges? The chairman of the Yorkshire water authority is recorded as saying in recent weeks that even before privatisation he may have to consider a water charge increase of 27 per cent. next year, which is three and a half times the present level.

Mr. Ridley : If the hon. Gentleman believes that there has been a shortage of capital, I am sure that he will join the Government in the Lobby tomorrow night to support the privatisation of authorities so that they can get access to capital markets.

The forward financial planning of the privatised industry will not be affected by any future Labour Government having to make their usual cuts, or bound by the yearly limits of public expenditure planning. The industry will have free access to capital markets, to raise the finance that is essential to investment in higher standards, to diversify, or to compete overseas. The investment programmes will indeed be large. They will start from a raised base, the 20 per cent. increase in investment in the water industry next year, which brings it to £1.43 billion, which was announced in the autumn statement. The privatised industry will have to sustain and increase those levels of investment.

To demonstrate the scale of the environmental improvements that we are planning, I will go through the investment plans for the three main clean- up programmes.

First, water authorities are already planning accelerated capital programmes over the next four years. The programmes will bring almost all sewage treatment works into full compliance with their consent limits by March 1992. We should make the fastest practical progress to getting all treatment works to meet the standards for sewage effluent already laid down in United Kingdom law. At each plant which is prone to failure there will be a costed timetable leading to compliance. As the Government confirmed in response to a question from my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) earlier this afternoon, the total cost of those remedial programmes will be between £900 million and £1,000 million over the four years to March 1992.

Secondly, the industry is also spending £70 million each year on improving bathing waters in areas where they do not come up to standard. About 400 bathing waters are within the scope of the European Community bathing water directive, and 60 per cent. of them already meet the quality standards on coliform bacteria. We are discussing with water authorities a substantial acceleration of that programme, targeted to bring the remainder up to scratch

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by 1995. The estimated total cost is in excess of £1 billion over the seven years, which represents more than a doubling of the present rate of spend.

Thirdly, the Bill provides a new and greatly strengthened legal framework for setting standards for drinking water quality. For the first time, exact and numerical standards for drinking water quality will be set down in United Kingdom law and approved by Parliament. Those standards will include all those in the European Community drinking water directive, including that for pesticides. All water undertakers will have a duty to comply with the standards and to undertake specific sampling and monitoring procedures. Standards apply to private as well as public supplies. In addition, there will be a new criminal offence of supplying drinking water unfit for human consumption, punishable by fines or imprisonment.

As part of my powers to assess compliance with the standards, I shall be able to require information to be published. This will help to make the new companies more accountable. I will also appoint technical assessors to monitor drinking water quality. As in other areas, water authorities and water companies are preparing programmes of improvement where existing water supplies do not meet one or more of the exacting standards in the European Community drinking water directive. It will be one of the main tasks of my technical team to ensure that the programmes progress satisfactorily.

All the programmes for improving water supplies will be agreed with the Government before privatisation. Investors will have to know, and will know, the extent of financial commitment involved, and the work that I have described will enable that to be spelled out. Our provisional estimate is that additional expenditure on drinking water quality over the next 15 years or so will be about £1.5 billion. That is on top of existing capital expenditure levels and plans on water supplies.

The three clean-up programmes, taken together, come to £2.4 billion on top of existing plans. They are only an estimate of the extra funds necessary to achieve the three known requirements going beyond present plans. They can be only broad-brush estimates, and I give them merely to show the magnitude of the cost increases involved. Without prejudice to decisions yet to be taken on the RPI-related price control formula, increased capital expenditure of the order of £2.4 billion to the end of the century would indicate costs in real terms of 7.5 to 12.5 per cent. higher than they would otherwise have been. That shows how wide of the mark the hon. Gentleman is in talking of doubling or trebling water charges.

The water companies will also be investing in other activities and diversifying, just as the French have done so successfully. There has been talk of price increases to meet taxation and pay dividends. Like any other private company, the water service will be subject to corporation tax and will be eligible for capital allowances. The effect of clause 88 is to enable the regional water businesses to benefit significantly from these allowances.

As for dividends, the companies will face the normal choices whether to finance particular activities by borrowing, by increases in equity, from profits or from cash flows. How they decide to finance particular investment will affect their costs. But, as things are now, the water authorities, as well as paying interest on their borrowing, are required by annual orders to earn a rate of return on their assets, which is reflected in their current

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charges. What will change when they become public limited companies is that they will substitute for these capital finance costs, the costs of remunerating equity and debt in a new capital structure.

Mr. Andrew F. Bennett (Denton and Reddish) : There is a great deal of concern about clause 7 and the prospect of the water bodies charging for access to the countryside. It has been suggested that there may be charges for rock climbing and getting on to countryside that has open access. Does the Secretary of State expect much money to be raised from that? Can he set people's minds at rest that he does not envisage a new policy of charging for the recreational uses that are at present provided free?

Mr. Ridley : I do not envisage any such policy, and the matter can be pursued to better advantage in Committee. For many years, water authorities have been asked to sell land and they are selling surplus land all the time. Any land which remains and which their successors want to sell will be subject to the strict planning controls which exist particularly in national parks and areas of outstanding natural beauty. We shall go into the question of access in great detail, but I see no reason why the water companies which retain land would want to change rights of access, nor why they should want to charge for right of access. They charge for many facilities, such as car parking, fishing and yachting.

Mr. Devlin : Where there is a common law right of way over a piece of land, is it not right that that right of way should continue to exist whether or not ownership changes?

Mr. Deputy Speaker (Mr. Harold Walker) : Before the Secretary of State replies, I wish to point out that many right hon. and hon. Members wish to take part in the debate and, the frequency of interventions will have to be taken into account in determining who shall catch the eye of the Chair.

Mr. Ridley : My hon. Friend is right. Where there is a right of way it is impossible to charge for access. Where there is not a right of way and it is technically a trespass, it is not possible to charge for access. Access can be charged only where facilities are provided specially.

The water companies' core activities will be regulated. Regulators will be under a duty to ensure that they can finance their core functions, including a reasonable rate of return on capital. Their ability to pay a reasonable return will depend on their efficiency. The regulator will not ensure rewards for any inefficient company. There is much more work to be done before we can take a view on the initial price formula. I have spent some time on cost increases to show why the figures that the hon. Member for Copeland was parading are absolute rubbish. These increases are entirely due to environmental improvements which the Bill facilitates and are in no sense due to privatisation.

The hon. Member for Dewsbury (Mrs. Taylor) seemed to be getting the wrong end of the stick again in her comments on the statutory water companies in the newspapers this morning. First, they are privately owned and, secondly, their prices are not controlled by the Government. Thirdly, their dividends and reserves are controlled by the Government and, fourthly, the Government have told them that they must stay with the present law and we intend to make no changes. The

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improvements which this Bill brings will be that these privately owned companies are brought within the price control formula which they are not at present.

Although the environmental improvements represent extra cost, they are good value for money for the customer. He will be compensated through the benefits of privatisation, the possible lower cost of finance and the greater efficiency which we expect private ownership to deliver.

In addition, the customer will benefit from higher standards of service and improved safeguards in the delivery of those services. To ensure that customers can rely on the maintenance and improvement of service standards once the industry is privatised, the director general will monitor each company's overall performance against standard indicators of service. As a condition of their appointment companies will be required to set targets for at least three key performance indicators--water pressure, interruptions of supply and foul flooding.

If the director general thinks that a company is not doing well enough, and cannot agree the necessary improvements, he will be able to ask the Secretary of State at the time to make regulations to specify mandatory performance requirements and a timetable for their achievement. That will ensure that investment is well directed to the localities and aspects of performance which most need attention, and that companies give value for the charges that customers pay. This is a good Bill for consumers, for future shareholders, for taxpayers, for workers in the industry; above all, it is a good Bill for the environment. I commend it to the House.

5.17 pm

Dr. John Cunningham (Copeland) : Water is our country's largest natural monopoly. It is the people's most fundamental resource on which their health and well-being depends. We in the Labour party believe that this natural resource and the water industry's assets should be publicly owned and controlled. They should be managed openly and efficiently in the public interest, and the management should be democratically accountable at regional and national levels. Unlike the Tories, we do not believe that an essential resource such as water should be managed and sold for private gain. For us public health and hygiene are not matters to be dealt with by market forces.

We know that the overwhelming majority of British people share our values on these matters. That was confirmed as recently as last weekend when The Sunday Times recorded the results of a MORI poll, which showed that, by 5 : 1, people are opposed to the sale of their water to private ownership, with only 15 per cent. supporting Government policy. We know that Ministers take that information seriously, because they have just engaged MORI to advise them on public attitudes to water privatisation.

Try as he may, the Secretary of State cannot disguise his real motive for this Bill. It is to prepare the nation's water resources for sale and to create circumstances in which water will be sold to every household in England and Wales for private profit. People will have no choice about from whom they must buy their water. Some 99 per cent. of all households will be connected to private monopoly suppliers. Some 94 per cent. of all households are connected to the present public sewerage system. There will be no competition.

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The Bill sets out to create the most far- reaching private monopoly powers ever conceived by a Government. I make it clear that a Labour Government will not hesitate to eliminate private monopolies to ensure that essential fundamental services are controlled and managed in the national interest--balancing the powers among consumers, employers, Ministers and Parliament. That is the only way to ensure that national interests are served and developed and that consumers have a real voice, real powers and effective protection against natural monopolies.

Mr. John Maples (Lewisham, West) rose--

Dr. Cunningham : I shall give way in a moment.

The Secretary of State lamely excuses private monopoly powers under the Bill by saying that water supply and sewerage disposal will be subject to the disciplines of the private sector--comparative competition, I believe, is the euphemism for that.

Everyone in the House knows that such disciplines in the private sector exist only where there is competition. They come from the working of market forces. However, under these proposals, there will be no market, no choice and no option. For consumers, no market forces will exist in the supply of domestic tap water or sewerage services. The Secretary of State's argument is built on a transparently false premise. His ridiculous answer to this is, "Let people buy Perrier," which is another sign of his failure to understand the reality of the lives and circumstances of millions of our fellow citizens. Indeed, we understand that Perrier is ideologically unsound in 10 Downing street.

Mr. Maples : The hon. Gentleman said that it would be inappropriate for the water industry to be under private ownership. He started a paragraph with the phrase, "A future Labour Government would not hesitate", but then he waffled a bit. Is he saying that a future Labour Government would renationalise this industry and, if so, on what basis?

Dr. Cunningham : I say, without any hesitation, that a Labour Government would not allow private monopolies in water to exist--and we shall take them into public ownership.

Sir Anthony Grant (Cambridgeshire, South-West) : rose

Dr. Cunningham : No, I shall not give way.

These proposals are a betrayal of the consumer and of every household in England and Wales.

Sir Anthony Grant rose --

Dr. Cunningham : I shall not give way.

Under this Government, average domestic water bills have already increased by 150 per cent.

Sir Anthony Grant : Will the hon. Gentleman give way?

Dr. Cunningham : I have said no.

That is according to the water industry's own publication, "Water facts".

Mr. Ridley rose --

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Dr. Cunningham : I am dealing with the point made about prices by the hon. Member for Lewisham, West (Mr. Maples). I shall give way in a moment. I am reminding the hon. Gentleman that prices have already gone up by 150 per cent. as this Government fatten up water for privatisation.

Even more revealing is the fact that, since the Government made the decision in principle to sell off the water resources, there has been a deliberate policy of increasing water charges well above the rate of inflation. Between 1983 and now, the index of water price charges has increased by more than 20 per cent. above the retail price index. The consumer, indeed, has already been made to pay for Tory dogma and will be forced to do so again.

Mr. Ridley : I believe that I can stand proxy for my hon. Friend the Member for Cambridgeshire, South-West (Sir Anthony Grant), who was trying to ask the hon. Gentleman whether his recent pledge means that he will nationalise for the first time the statutory water companies which have always been in private ownership. Perhaps the hon. Gentleman could help my hon. Friend, as he did not have the courage to give way to him.

Dr. Cunningham : As the Secretary of State well knows, it is unlikely that those private statutory water undertakings will even be in existence in a few years' time. It is likely that there will be seven or eight major conglomerates owning and controlling our water resources. Far from there being more competition, there will be even less than there is now--if that is possible.

Sir Anthony Grant rose --

Dr. Cunningham : No. I shall not give way.

Prices will again rise sharply even before privatisation, as a major act of Government policy. We know this from a leaked letter from Ernst and Whinney, the accountants advising the water companies and the Department of the Environment. It was writen on 1 December, marked "Urgent--for immediate attention", and was addressed to the general managers of the water companies. It points out that tariff increases should be planned immediately to the maximum possible level. It says :

"under the existing regulatory formula prior to the introduction of price cap control"--

that is prior to that which the right hon. Gentleman proposes-- "as envisaged by the draft licence. Companies should therefore ensure that the next tariff setting process takes full account of the consequences of future asset management plans and the costs of these, which we envisage may well mean each company raising its tariffs to the maximum permitted under the existing regulatory formula." On page 2 it goes on to say :

"Companies are strongly advised not to suggest that privatisation as such makes these tariff increases necessary."

That is what is happening in the right hon. Gentleman's Department. That is what he is trying to hide from the public about prices. Mr. Ridley rose --

Dr. Cunningham : I shall give way in a moment.

I read that from an authentic copy of the letter from the right hon. Gentleman's own advisers.

Mr. Ridley : The hon. Gentleman does not understand. The private water companies are not allowed to increase their prices for any other purpose than investment. That letter is not a leak. It is from the water companies'

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accountants and not mine. The water companies have been to my Department and they have been told that they are not allowed to increase their reserves or their dividends. That letter is asking them, therefore, to increase the prices by the maximum possible to finance the investment in environmental improvements. The hon. Gentleman is wrong again. Now he wants to nationalise them, and they will not be able to get the capital from the private sector.

Dr. Cunningham : The right hon. Gentleman reminds me of a character in Chaucer's "The Canterbury Tales"--the Fraudulent Alchemist. This letter says :

"Following a meeting arranged by The Water Companies' Association today with the Department of the Environment".

It is following the meeting that they are advised. The right hon. Gentleman is now suggesting that somehow all this has nothing to do with privatisation. Frankly, we do not believe him. The letter makes it clear that water charges must increase because the privatisation proposals demand it.

The preferred method for charging consumers under the Government's proposals appears to be water metering. The full consequences for people involved in water metering trials were revealed to me this morning in a letter from a consumer--or perhaps I should say, a victim--of the proposals who is a resident of Brookmans park in Hertfordshire, which is a metering trial area. He said :

"I am part of the water meter trials in the Lee Valley area. From next April my water will be metered on a two part tariff basis. Peak rates will occur at 7 am-10 am and 6 pm-9 pm, exactly the time when one uses water for personal hygiene

Lee Valley have admitted to me that because people use less water when metered, they have already raised the charges between 10 and 15 per cent. They also admit that if people are very frugal with their water consumption, prices will be increased further to maintain an adequate' revenue.

By next April I will be paying between 15 per cent.--20 per cent. more for my water and the overall water bill will probably increase by 25 per cent. All this before privatisation. What will the charges be after? Frankly I can only agree with you and say that it will be a huge rip-off'."

Presently, the industry makes negligible real profit. There is almost no scope to reduce operating costs. Water supply and sewage disposal offer only low growth prospects in most areas. The bulk of investment will not be revenue-earning. Privatisation will increase the buyers' indebtedness. Companies will be liable to corporation tax, top salaries will rocket, as will management costs and expenses. Shareholders demand dividends, but who foots the bill? The consumer, of course.

Even water industry chairmen--it is significant that the Government have not appointed a single woman to one of those posts--admit to charges increasing in the range of 50 to 80 per cent. In view of all that has already happened and all the evidence, we stand by our claim that, if this squalid Bill proceeds, domestic water charges will, effectively, at least have doubled as a result of Government policies and almost certainly risen much higher than that.

The Secretary of State has made another bogus claim by suggesting that the reason for past price increases has been the need, not contested by us, to increase investment in the water industry. But what does the record show? As I said in an intervention, if we compare 1977-78--the last full year of the Labour Government--with the expenditure for 1987-88 and using the water authorities' own figures and the GDP deflator on a 1987-88 price basis, we see that total capital expenditure by English and Welsh water authorities was £1.164 billion in 1978 and £1.187

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billion in 1988. In every one of the intervening years, however, under this Government, investment was lower than in 1977-78. So much for the boastful record that the Secretary of State mentioned. If the comparison is done using the public works deflator as an alternative, the result is effectively the same.

Huge conflicts of interest run right through the Bill. The positions of the Government's dogma and of private profit are elevated above the interests of the consumer and the environment. The National Consumer Council shares our view that the arrangements for the protection of consumers in the Bill are "inadequate". What of the interests of the taxpayer? The public water authorities are holders of massive assets of buildings and land. Often those public assets are in prime town and city centre sites. We, the people, own an estimated 500,000 acres of land, much of it in national parks and areas of special interest or outstanding natural beauty. Under this Bill, it is all to be sold. What is its cash value? No one knows. I shall come to the incalculable heritage and environmental values later.

We are aware that the Secretary of State has appointed, at public expense, Schroder Wagg to quantify those public assets, yet he denies Parliament and the people that information. So much for his claim that he puts "evidence before emotion" when deciding policy. With the scandal of the Royal Ordnance losses to the taxpayer fresh in our minds, the House is asked to approve proposals to rip off the taxpayer yet again by approving the Bill in complete ignorance of the capital value of our own assets that are to be sold. We simply should not do so.

Our water industry assets are many times greater than those involved in the Royal Ordnance sale, of which the Public Accounts Committee of this House said :

"In any similar sales in the future, any feasible planning permissions likely to increase property values should be obtained before offers are invited."

The Government intend to ignore that advice. Why? How does that decision fit with the Tory claims to protect the taxpayer? If fits like the glass slipper on the Ugly Sisters--it does not fit at all. Of course Ministers know that their defence of all this is simply a fairy story. They intend the public assets to be the prize to induce buyers in the first place.

Asset-stripping--

Mr. Ridley : Will I turn into a pumpkin?

Dr. Cunningham : Wicked Uncle Ebenezer, more like.

Asset-stripping will be the name of the game. It has been tacitly agreed, and it is inherent in the Bill. Small wonder that the French are falling over themselves to buy into British water along with other predators such as the apparently Australian Mr. Duncan Saville. He has been doing deals with Southern Water and we have discovered that his company, Associated Insurance Pension Fund, is registered, not in Australia, but in the Cook Islands in the Pacific. In some places asset-stripping is already taking place. The Countryside Commission, the Council for the Protection of Rural England, the Ramblers Association, the Royal Society for the Protection of Birds, the Royal Society of Chemistry, the National Anglers Council, the National Trust and dozens of other sporting and leisure organisations have all expressed their deep concern, if not open hostility, to the plans. They are rightly alarmed.

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Of the land held by North-West Water, 53 per cent. of it is in a national park or areas of outstanding natural beauty. Northumbria Water holds 37 per cent. of such land, Severn-Trent Water holds 64 per cent. of such land and 30 per cent. of South-West Water land is in a national park or an area of outstanding natural beauty. In many cases public access to water authority land has been extended beyond the legal rights of way. That has been achieved through the establishment of permissive paths or access agreements with local authorities. In the Peak District, for example, where 15 per cent. of the land is owned by water authorities, more than 40 miles of permissive paths have been created. In another area, owned by Severn-Trent, more than 50 miles of footpaths run through it, of which only one third are public rights of way.

Mr. Frank Dobson (Holborn and St. Pancras) : Bryngwyn.

Dr. Cunningham : Yes, my hon. Friend is correct.

Mr. Edward Leigh (Gainsborough and Horncastle) rose

Dr. Cunningham : I shall give way in a moment.

After privatisation, the majority of the water authority estate will be transferred to the new private water companies, which may in turn transfer it to subsidiary companies with responsibilities for leisure and recreation or land development. Alternatively, land surplus to requirements may simply be sold of. Both possibilities could jeopardise the continuation of public access and conservation on water authority land.

Mr. Leigh : In view of the hon. Gentleman's comments about the National Anglers Council expressing its concern about the Government's proposals, it is important to set the record straight. If that is true, why, in a brief to hon. Members, does that organisation say :

"The National Anglers Council welcomes the proposals to establish a National Rivers Authority".

Dr. Cunningham : Of course I accept what the hon. Gentleman says. It is true that that council says that, but it goes on to say that it is deeply concerned about access and asset-stripping opportunities in the Bill.

Specific threats include the intensification of agriculture, afforestation, the establishment of inappropriate recreation developments, the curtailment of existing access provisions and the withdrawal of conservation management.

The Secretary of State proposes the incredible and bizarre theory that to protect the Lake District we must sell it, to safeguard the Peak District we must "flog it off" and to enhance Dartmoor, we should hand it over to private enterprise.

That stupefying nonsense undermines national policy to protect our heritage and environment pursued by successive Governments and their agencies throughout the past 50 years. The thought horrifies millions of people of all political persuasions. The results will be to reduce access to the countryside, to increase charges for leisure, recreation and sporting activities and to remove environmental safeguards.

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