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Hughes, John (Coventry NE)

Livsey, Richard

Nellist, Dave

Pike, Peter L.

Quin, Ms Joyce

Rooker, Jeff

Salmond, Alex

Skinner, Dennis

Smith, Andrew (Oxford E)

Spearing, Nigel

Vaz, Keith

Wall, Pat

Walley, Joan

Welsh, Andrew (Angus E)

Welsh, Michael (Doncaster N)

Wise, Mrs Audrey

Tellers for the Noes :

Mr. Frank Haynes and

Mr. Allen McKay.

Question accordingly agreed to.


That the draft Legal Advice and Assistance (Scope) Regulations 1989, which were laid before this House on 3rd March, be approved. Resolved,

That the draft Civil Legal Aid (Matrimonial Proceedings) Regulations 1989, which were laid before this House on 3rd March, be approved.-- [Mr. Lightbown.]


That the draft Legal Aid (Functions) Order 1989, which was laid before this House on 3rd March, be approved.-- [Mr. Lightbown.]


Motion made, and Question put forthwith pursuant to Standing Order No. 101(5) (Standing Committees on Statutory Instruments, &c.)

Value Added Tax

That the Value Added Tax (Education) Order 1989 (S.I., 1989, No. 267), dated 27th February 1989, a copy of which was laid before this House on 1st March, be approved.

Coal Industry

That the draft Coal Industry (Restructuring Grants) Order 1989, which was laid before this House on 24th February, be approved.-- [Mr. Lightbown.]

Question agreed to.

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Water Rates (Grampian Region)

Motion made, and Question proposed, That this House do now adjourn.-- [Mr. Lightbown.]

1.35 am

Mr. Malcolm Bruce (Gordon) : I am glad to have the opportunity to raise the issue of metered water rates. I shall refer specifically to Grampian region, although it is an issue throughout Scotland. Before I ask the Minister a number of questions, I should like to put the problem into perspective.

Grampian regional council has always had a very positive attitude towards business and industry. The present Social and Liberal Democrat-led administration has continued to develop what I freely acknowledge to be the previous Conservative administration's pro-business attitude. It has adopted a positive approach to promoting the attractive business environment and enterprising character of the north east of Scotland through its small business enterprise scheme, which dispenses more than £1 million per year in grants and loans. The Grampian Initiative, chaired by Councillor Nicol Stephen has continued this promotional stance with all-party support. Non-domestic rates for Grampian remain the lowest in Scotland. The general climate is positive and pro-business and the council is anxious to ensure that opportunities are encouraged and that businesses flourish in the area.

The rapid expansion of the oil industry in Grampian during the 1970s led to the progressive withdrawal of assisted area status, and traditional industries faced rising local costs as a result of pressure while capital assistance was being removed. In the circumstances, the council was forced to invest in substantial new schemes to provide for the extra demands for water services. The Minister may recall that a proposal to create a large stored water catchment area in the Cabrach in the 1960s was resisted by local landowners. It is a matter of continuing regret that that did not go ahead.

Water in Grampian continues to be drawn from the region's rivers and a high proportion of capital charges are of recent origin, with a consequently high debt service charge--£9.89 million for 1989-90. The region also faces costs well above average for electricity for pumping water out of the rivers in the absence of adequate storage facilities. The council took full advantage of the provision under the Water (Scotland) Act 1980 to provide extra support for the 7,000 metered water users out of the general rate. That legislation was of particular help to the region, given the background that I have described.

The very positive support allowed under the 1980 Act is irreversibly compromised, however, by the requirement of schedule 5, paragraph 4 of the Abolition of Domestic Rates Etc. (Scotland) Act 1987, which effectively removes the option. The Act says : "A local authority may apportion their estimated expenditure under paragraph 2 above on whatever basis they consider appropriate, but"-- and this is a very big but--

"they shall ensure that the apportionment is not such as to show undue preference to, or discriminate unduly against, any class or classes of person liable to pay--

(a) the direct charges ;

(b) the community water charges ; or

(c) the non-domestic water rate, respectively."

Properly, and quite understandably, Grampian regional council consulted its legal advisers and COSLA to

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determine the range of discretion open to it in the light of that change in the law. The council had to ensure that the region's water costs--estimated at £20,062,000 for 1989-90--were fully covered by water charges and fairly allocated among the three classes of user. Total consumption is estimated at 58,807,000 cu m. Some 51 per cent. of that is domestic, 40.7 per cent. is metered and 8.3 per cent. is for other non-domestic users.

COSLA's proposals for how the allocation should be applied were based, as I am sure the Minister will acknowledge, on a technical appraisal of the application of the law and can in no way be interpreted as a political comment. The Scottish Development Department was represented on the working party so presumably it accepted the objective nature of the formula that COSLA worked out. The council did not apply the formula without modification for local circumstances. It did not slavishly follow COSLA's guidelines. It was agreed, for example, that only 80 per cent. of leakages should be allocated across all classes of water, because it was known that 20 per cent. of leaks come from consumers' private pipework. That had a mitigating effect on the metered water charge, but was nevertheless a small proportion of the total amount.

The council concluded that the law

"very severely restricts the Council's ability to assist metered consumers to any material extent."

The council maintains that 10p of the total increase of 22.5p per cubic metre--an increase from 20.5p to 43p--results directly from the abolition of the public water rate, and 10p from the abolition of the provision in the 1980 Act allowing for cross-subsidy from the domestic rate. That leaves only 2.5p to be attributed to the rising cost of providing water, so it is a marginal percentage. In other words, the overwhelming majority of the increase is outside the council's discretion. If it showed more than due preference to any class of user, it could face legal action from other classes of user who felt that they had been discriminated against.

I am sure that the Minister recognises from the representations that he has received from me and from others that the increase has caused widespread concern among metered water users who are facing dramatic and abrupt cost increases. The increases range from several hundred pounds at the bottom-- that is still a significant amount because we are talking about small farms and businesses, for which that kind of increase in cost is still significant--to more than £100, 000 for the largest users. That is a substantial extra cost to absorb on the bottom line.

The situation is especially unfortunate for the food industry, which is of established and growing importance for Grampian. The region is renowned for its quality products from land and sea, and adding value to these is of major importance to the future direction of the local economy. That is why the region is actively promoting food parks at Inverurie in my constituency and also in Forres in Moray. Such substantial increases in water charges as in the council's judgment are required by law are neither helpful nor in any way what the region wishes to impose. Barry Evans of Buchan Meat is chairman of the Grampian Initiative food task force which is spending £75,000 marketing the region's food processing potential. Mr. Evans has expressed considerable concern at the impact of the increases on promotional activities.

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On the basis of my meetings with the Minister and our exchange of letters, I must say that if the Minister believes that there is scope within the law for a substantially different apportionment of charges between metered water users and others than the legal advisers to Grampian and COSLA believe, it seems only reasonable that his officials should at least agree to have a private meeting with Grampian officials to discuss the interpretation. That view is strongly pressed by councillors and users.

Although the right hon. Member for Kincardine and Deeside (Mr. Buchanan- Smith) is not present, he supports my request to the Minister to encourage such a meeting to take place. There is a fundamental difference of view between his interpretation and that of his legal advisers and that of the legal advisers to the council. It does not help to make political statements when the issue at stake is the legal advice given to respective bodies.

Mr. Alex Salmond (Banff and Buchan) : The hon. Gentleman may be aware that my hon. Friend the Member for Moray (Mrs. Ewing) and I are organising a meeting of the many affected businesses in our constituencies at the end of the month in Portsoy. We have sent an invitation for the Minister or one of his colleagues to come to the meeting to explain the Scottish Office case. Would it not be extraordinarily disappointing if, having already refused a meeting with Grampian regional council, representatives of the Scottish Office also refused to attend that meeting?

Mr. Bruce : I agree with the hon. Gentleman that it is not acceptable for the Minister to refuse to meet the council officials and representatives or the users at either a public meeting at Portsoy or at a private meeting. It is essential that the matter is cleared up at a meeting, and I understand why the hon. Gentleman and his colleague are anxious to learn what is happening from a Government representative.

The Abolition of Domestic Rates Etc. (Scotland) Act 1987 is the source of the change and I believe that the Minister steered it through the House. Therefore, he knows the intentions behind that Act and the expected outturn. The impact is not exclusively confined to Grampian, but it is the area worst effected. That observation is borne out by the fact that metered water rates throughout Scotland have increased sharply, Grampian's increase of 110 per cent. is the largest because, ironically, it has done much to help water users in the past and, for physical reasons, it has the highest water costs in Scotland.

Increases elsewhere include 72 per cent. in Highland, 69 per cent. in Strathclyde, 64 per cent. in Dumfries and Galloway and 53 per cent. in Lothian. Even the lowest increases of 18 per cent. in Fife, 24 per cent. in Central and 27 per cent. in Borders are well above inflation. Those increases are mostly due to the fact that those councils had not taken full account of the previous legislation. The impact is so serious that the Government should be prepared to provide some form of transitional funding, especially as the requirement is that the apportionment of sewerage charges should follow suit--over a longer period--and charges for that and water may also be subjected to VAT.

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The Minister has said that he has no power to intervene, but I question that. He could make allocation under revenue support grant orders to provide transitional funding. I remind the Minister that the Government found time for primary legislation to provide for transitional funding to compensate people for the effects of rating revaluation and this is an exact parallel. It is causing considerable hardship and affecting people who would support the Government. Time could quickly and easily be made in the parliamentary programme. I am sure that the hon. Members for Banff and Buchan (Mr. Salmond) and for Angus, East (Mr. Welsh) would agree that there is one Bill which we could do without. If that Bill went we would have the legislative space and time needed to deal with this problem. The crunch question is why the change in the law was introduced. Apparently the main objective is to put water charges on a separate footing from other local authority accounts. Inevitably that appears as the first step towards the privatisation of Scotland's water services. The fact that the Government inserted a major new Scottish section into the Water Bill yesterday reinforces the case to suggest that paving measures for privatisation are being effected. The increases are only the beginning. Once privatisation gathers momentum, all water users will face sustained and rising costs and, of course, all water supplies will eventually be metered. The Minister's refusal so far to meet Grampian regional council or representatives of the 7,000 metered water users shows that the Government are unwilling to admit responsibility for their own laws. Grampian regional council's legal advice is that it had no choice but to impose the increases so as to conform with the law. The council has demonstrated, as my speech has shown, that it is pro-business, has always supported business, is anxious to promote the food industry and would like help it to adjust to the change that has been imposed.

If the Minister believes that his Department has a judgment different from Grampian region about what can be done, the least I ask him to do is to agree to a meeting--even a private meeting--at which officials can get together to discuss the matter so tht if we cannot reduce the charges this year, we can ensure that reductions are possible in the following years. Otherwise the Minister will be putting businesses and jobs unnecessarily at risk. I challenge him to explain how the bulk of the increase is not due to the law introduced by the Government.

1.51 am

The Minister of State, Scottish Office (Mr. Ian Lang) : The hon. Member for Gordon (Mr. Bruce) has afforded the House a useful opportunity to debate the new arrangements for water rates, especially metered water rates, in Grampian region.

At present, under the Water (Scotland) Act 1980, water supplied to the non- domestic sector is paid for in three ways. First non-domestic consumers with an unmetered supply pay the domestic water rate levied on a proportion, usually one half, of the net annual value of the premises concerned. Secondly, metered water users pay a charge according to the volume of water consumed. Thirdly, in addition, in Borders, Dumfries and Galloway, Grampian, Highland and Strathclyde regional councils and Orkney and Western Isles island councils, all ratepayers, domestic

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and non-domestic, pay, through their regional or general rate, a public water rate which can meet up to one third of the net expenditure on water supply. Water consumed in the domestic sector is paid for by the domestic water rate and, in those councils where it is applicable, by the public water rate.

The existing system had to change. People did not know how much it cost to provide their water supply, authorities could charge part of the cost to the general account and there were no provisions in the legislation that required the charges to be fair at all. It is right that everyone should know the true cost of services they receive or commodities they use. Water is a valuable resource and while it may be delivered from the heavens free, it has to be collected, stored, treated and distributed to individual properties. In many places it has to be pumped as well, and this is particularly true of Grampian region.

Mr. Bruce : In the light of what the Minister just said, may I ask him to explain why the Government introduced the 1980 Act, which did exactly the opposite and allowed cross-subsidisation from the general rate? What happened in those eight years that made the Government decide that they wanted to change the system?

Mr. Lang : The hon. Gentleman is inviting me to stray down avenues which would prevent me from replying to his concerns about metered water charges. I have given him the reason why we believe that a change is now desirable.

Under the present system, water is paid for on the basis of rateable value, quantity used or a combination of both. The new arrangements for paying for water are contained in the Abolition of Domestic Rates Etc. (Scotland) Act 1987 and the provisions in the Act have been known since 1986. Specifically, the Act requires that in apportioning costs between community water charges, non-domestic water rates and metered charges, water authorities shall not show undue preference to, or discriminate unduly against, any class of consumer. It also abolishes the public water rate.

The Act does not specify how each authority should make its even-handed apportionment of costs. That is up to them, but almost all have chosen to distribute the costs in proportion to the volume used by each class of consumer. For the first time, authorities had to establish how much of their expenditure should be allocated to each sector. Their apportionments have shown that metered consumers had in the past not borne their full share of the cost of supply. A significant adjustment in metered rates was called for in order not to discriminate against other classes of consumer.

However, the increase in metered rates does not present the whole picture. Offsetting savings from the abolition of the public water rate reduce the impact significantly. Those with high rateable values and low consumptions will pay less than before. For example, in Grampian a business with a rateable value of £10,000 could use up to 500 cu m of water per year and still pay less under the new arrangements. A company with a rateable value of £1 million could use up to 50,000 cu m and still be better off.

Within the fairness provisions, there is, however, scope for authorities to exercise some discretion without making any undue discrimination. In fact, many authorities have made adjustments to the basic volume apportionments to reduce the impact on metered consumers. Grampian, in

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fact, has modified the straight "volume used" criteria recommended by COSLA and has reduced its metered water charge by 2 p below what it would otherwise have been.

There is also provision in the Act to allow different meter rates to be set for different circumstances. This could mean lower rates for bulk users, but equally I have to say that there can be arguments for higher unit charges with increased consumption--to encourage conservation of water or the postponement of major capital investment in new reservoirs. Variable metered rates are not, however, normal practice in the water industry and no council has chosen this course of action.

The total cost of water in Grampian next year is rising by only 6.5 per cent.--less than the rate of inflation--and the new arrangements will do nothing to increase that cost. But although the total operating cost of supplying water will not be increased by the new arrangements, the cost to each class of consumer has varied. Metered water charges have risen generally throughout Scotland and now range from 21p per cubic metre in Central region to 43p per cubic metre in Grampian region, as the hon. Gentleman said. The increases themselves will be from 18 per cent. in Fife to 109 per cent. in Grampian. We have heard tonight, and in the media over recent weeks, the effect that the increases in metered charges will have on Grampian region. Let us look at the reasons for these increases. First, domestic water ratepayers have in the past subsidised the metered water rate by nearly one third. Secondly, the abolition of the public water rate, which was based on rateable values and could meet up to one third of the net cost, has resulted in that largely hidden element being incorporated in the new charges. Thirdly, the water supply system in Grampian is based almost entirely on river abstraction, a situation unique in Scotland but more familiar in England and Wales. This results in higher operating costs from pumping. Finally, the high level of capital expenditure, to which the hon. Gentleman referred, in recent years to service oil-related developments has incurred substantial loan charges, making the running costs for the region very high compared with the rest of Scotland. All these factors have combined to make the metered water rate of 43p per cubic metre the highest in Scotland.

I do not seek to underrate the impact that this year's increase, decided upon by Grampian regional council, will have on high users paying metered charges. However, industry should also bear in mind that the non-domestic rate poundage in Grampian is among the lowest in the country.

The legislation to give effect to the new arrangements was enacted by Parliament in 1987. Grampian regional council, if it had wished, could have prepared for the new charges by reducing the contribution from the public water rate in 1988-89. However, first warning of the new charges was given by the regional council in a statement issued in November 1988, and at a subsequent meeting with non-domestic ratepayers in December, guide figures were issued. Final figures were made known towards the end of January. There is little doubt that industries which use large amounts of water in Grampian and elsewhere will pay more under the new arrangements. However, there will be offsetting reductions to most consumers from the abolition of the public water rate in Grampian and elsewhere in Scotland.

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We must remember that the baseline for calculating the business rate was reduced by 1.4p in Grampian to take account of the public water element. I can tell the House that many businesses, offices and shops will pay less for their water next year ; in the case of large offices and shops in Aberdeen, the reduction could be over 80 per cent. For example, a major high street retail store in Aberdeen will actually save 87 per cent. on its water charges, despite the substantial increase in the metered rate.

Agricultural premises do not pay rates, except on the dwelling houses. They will therefore obtain minimal benefits from the abolition of the public water rate, in Grampian or elsewhere, and will have to pay the new metered charges. However, most farms have a metered supply, and those adults living in farm houses or cottages sharing that supply will not have to pay a personal community charge. In Grampian, this offsetting saving will amount this year to £30 per adult receiving water from the farm's metered supply, which would in many cases include agricultural workers and their wives living in the farm cottages. For the farms themselves, there may be opportunities to conserve water, and I have no doubt that it will be possible to eliminate unnecessary waste.

The hon. Gentleman has suggested phasing in the new arrangements, as was done in England and Wales when the Water Bill 1973 introduced fairness provisions for the first time. But at that time the basis of charging was not changed. We, however, had to introduce a completely new charge--the community water charge--and, as I have already explained, had to lay down the framework within which authorities have to decide how much of their expenditure should be apportioned to each class. Fairness provisions were therefore needed at the outset. The hon. Gentleman and others have complained about high metered rates. I make no apology for prohibiting authorities from showing undue discrimination for or against any class of consumer in making their

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apportionment. That is only fair. Had the fairness provisions not been incorporated in the legislation, community water charges could have risen to subsidise the metered water charges in one area, and the reverse in others. It is only right that all sectors should pay their fair share.

The hon. Gentleman asked me about a meeting with Grampian regional council. Because the law gives Ministers no discretion over these matters, very little would be achieved by a meeting. However, I am sure that officials of Grampian regional council will have explored all their anxieties with my officials in the Scottish Office, and if such exploration were to indicate that a meeting between officials would be useful, of course one could take place.

The average metered charge for water in Scotland will be just over 28p per cubic metre. This is to be compared with the average equated meter charge in England and Wales, which is likely to be around 40p per cubic metre for 1989-90. In Europe, metered rates for 1988 were generally higher, with Germany at 67p per cubic metre, Belgium 53p and France 44p, and can be expected to be even higher in 1989-90. Water in Scotland is still a good buy. Scotland remains an attractive location for companies seeking a European base, and the increase in metered water charges should not have a significant effect on the ability to attract new industries.

Industry is constantly pressing us to introduce a level playing field for business rates, and we are working towards this along a number of avenues. Change in the water charging arrangements is one.

It is only right that people should pay for what they use, and get what they pay for. I believe that there is a general acceptance among those who have commented on the changes that the move towards transparency of costs and fair allocation among users is not only just but long overdue.

Question put and agreed to.

Adjourned accordingly at two minutes past Two o'clock.

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