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Mr. Deputy Speaker : Order. I am taking no more points of order. The House has important business to consider, and it is time that we got on with it.


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Opposition Day

[13th Allotted Day] [2nd part]

--

Water Industry

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse) : Madam Speaker has selected the amendment in the name of the Prime Minister.

4.44 pm

Mr. Chris Smith (Islington, South and Finsbury) : I beg to move, That this House notes that since water privatisation in England and Wales, there has been a 48 per cent increase in domestic water disconnections, a 67 per cent increase in consumers' bills, a 125 per cent increase in water companies' profits, and a 133 per cent increase in the average pay of water company chairmen ; believes that in providing a basic necessity such as water, essential to life and health, the needs of the consumer must come first ; regrets that instead of this the privatised companies have put dividend growth and directors' benefits first ; expresses alarm at the rise in domestic water charges, especially in areas such as the South West ; insists that high standards of drinking water quality and sewage treatment must be achieved, but believes that the cost of this investment should not be placed almost entirely as a burden on current customers ; deplores the manner in which the democratically expressed wishes of the Scottish people with regard to water are being overridden by Her Majesty's Government ; calls for an immediate ban on domestic water disconnections and on the compulsory introduction of domestic water meters ; and insists on the introduction of a tougher regulatory regime for water that puts the public first.

Early this morning, I went to the Library and looked up some of the debates on the Water Bill in 1988 and 1989. What a wonderful picture was painted at that time by the then Secretary of State for the Environment. On Second Reading on 7 December 1988, he said that all the Opposition scare stories about what would happen to water charges were completely unfounded and ridiculous. He said that there would be minor increases only as a result of privatisation, and that the shadow Secretary of State had been wide of the mark when he spoke about water charges doubling or trebling by the end of the century. Those who live in the area of South West Water have already seen their water and sewerage charges double, and we are not yet halfway since that time to the end of the century.

We were told that there would be wonderful access to the world's capital markets for money for investment and to clean up the environment. The world's capital markets are not funding the investment : it is being funded by the water companies' customers. In a remarkable little passage on Third Reading on 4 April 1989, Mr. Ridley said :

"The whole country knows that people work more effectively if there is every opportunity for them to better themselves by better performance."-- [ Official Report , 4 April 1989 ; Vol.150, c.91 .] He was talking about the people who run the water companies. They have bettered themselves all right, but I doubt that it is better performance that has resulted in the departing chairman of Severn Trent Water getting a golden handshake of £500,000, or the former chief executive of North West Water getting £398,000 last November as a departing handshake. In the north-west region, two out of three bathing beaches are still illegally polluted with sewage. Privatisation has turned out to be a ghastly mistake.


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Mr. William O'Brien (Normanton) : My hon. Friend spoke about Second and Third Readings of the Water Bill. I served on the Committee that examined the Bill. When we debated compulsory metering trials throughout the country--one was in my constituency--I said that that would be of no value to privatisation, that it would be costly and would inconvenience many constituents. That is exactly what happened : the meters are no longer in use. That is another example of incompetence, of spending taxpayers' money without thought as to the value. It shows how privatisation has failed the customers.

Mr. Smith : My hon. Friend, who played a distinguished role in the Standing Committee that considered the Bill, is absolutely correct. One of the points that he will have noticed in the motion before the House today is that we want to prohibit the introduction of compulsory metering into people's domestic water supply.

After all, water is not just another commodity that one might buy or sell in a supermarket ; water is essential to life and health. Since privatisation, water charges have gone through the roof and many of our beaches remain polluted with sewage, yet company chairmen have awarded themselves massive salary increases while 240 families a week have their water supply disconnected.

Mr. Jacques Arnold (Gravesham) : The hon. Gentleman has referred on three occasions so far to what he calls dirty beaches. They obviously need to be cleared up. Where will the money come from ? If it not raised through the water charges, will it come from taxes and if so, by how much ?

Mr. Smith : I shall come to precisely that point in a moment. The hon. Gentleman has not been listening. It was his Secretary of State who said that the problem would be solved by access to the capital markets-- that that would solve everything.

It is small wonder in those circumstances that it was recently said :

"Water privatisation is a rip-off, a steal, a plunder, legalised mugging, piracy, licensed theft, a diabolical liberty, a huge scam, a cheat, a snatch, a grab, a swindle".

Those are not the modest and moderate tones of an Opposition spokesperson, but Mr. Joe Rogaly writing in the Financial Times on 12 July.

In rather more measured tones, the National Consumer Council said :

"The performance record of many companies and of the water industry as a whole is lamentably poor, with many consumers facing rising prices and poorer services."

Let us look at precisely what has happened since privatisation. Water and sewerage charges have rocketed upwards, the average increase for England and Wales has been 67 per cent. since privatisation. That increase has been worse in some areas--in the north-west it was 75 per cent. and in the south -west it was 108 per cent. It cannot be right that single pensioners in the south-west of Britain are paying more than 9 per cent. of their entire income on water and sewerage charges.

Mr. Patrick Nicholls (Teignbridge) : I would have more sympathy with the hon. Gentleman's concern for the west country if his hon. Friends had not trooped through the Lobby to vote down a Bill that I introduced to bring relief.

The hon. Gentleman is moving inexorably towards saying that the EC directives should be implemented in full, without any negation on the time scale. Will he now


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answer the question that he was asked a few moments ago and say whether that is to be funded by increased water charges, by an increase in general taxation or both ?

Mr. Smith : As I told the hon. Member for Gravesham (Mr. Arnold), I shall come to that point in just a moment, but I would take the hon. Gentleman's intervention rather more kindly if the role that he and others played during the passage of the Water Bill had recognised what the Opposition warned time and again would be the adverse consequence of privatisation.

The water companies say that the water charges must rise because of the necessary investment in cleaning up the water supply. That might have been a believable argument had investment actually risen in line with the rise in the price increase, but it has not. Southern Water has had a 43 per cent. price increase but a zero increase in the level of capital investment.

Mr. Arnold : From what base ?

Mr. Smith : The increases took place from 1989-90 to 1992-93, which are the latest available figures.

Welsh Water has had a 47 per cent. increase in price and a 1.1 per cent. increase in investment. Yorkshire Water has had a 33 per cent. increase in price and a 0.5 per cent. increase in investment. Overall, capital expenditure in the water industry is now running at some £1.65 billion a year. That is more or less the same as the level of capital investment pre-privatisation. When the water companies tell us that those rises in charges have been due directly to improved investment, we should examine carefully what they are saying. How on earth can increased bills be justified if the investment is not being made ?

Mr. Arnold : Will the hon. Gentleman give way on that point ?

Mr. Smith : I shall not give way to the hon. Gentleman ; he has already had one chance to intervene.

At the same time, profits have soared. We are talking about a captive market. Each water company has a monopoly in its own area. We all have to pay, so they have a guaranteed income. It is a very low-risk business. On average, water companies in England and Wales have shown a 125 per cent. increase in pre-tax profits from 1989-90 to 1993-94. The water companies have an answer to that. They say that two thirds of the profit goes into capital investment. That may well be the case, but what about the other third ?

When we examine the dividend growth of the water companies, the answer becomes very clear. As the National Consumer Council pointed out last week,

"Dividend payouts attributed to 31 appointed water businesses were about £300 million in 1989-90 . . . and £1,365 million in 1992-93. The growth of dividend payments"

that is, gross dividends from core services

"was 63 per cent. per year on average."

That is where the profits have gone.

If we ask the water companies, they will tell us openly and brazenly that dividend growth is their No. 1 priority, and that it is their paramount duty because they put it in the prospectus when they floated the companies for privatisation.

The Opposition believe that the customer, not dividend growth, should be the No. 1 priority, because all customers pay for the water and sewerage services we receive.


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Mr. Arnold : Will the hon. Gentleman give way ?

Mr. Smith : No. I have already given way to the hon. Gentleman. Money that should be paying for improved water and sewerage services is going instead into dividend growth. If we want to know why, we have simply to look at the share option schemes that are available to the directors, chief executives and chairmen of the water companies.

Then we have the point about the access to capital markets. There has been a modest increase in the borrowing levels of water companies over the past four or five years, but, as the National Consumer Council points out,

"borrowings have been relatively modest, and no significant capital was raised through equity issues (though one of the key reasons for privatisation was that the companies would be free to raise money in the markets)."

I have to say to both the hon. Gentlemen who have intervened so far that the answer to their question about where the funds for long-term investment --which will last for 40 or 50 years--will come from is precisely where the Government said it would when they put the Bill through the House--from a long-term borrowing strategy on part of the water companies, so that today's consumers do not have to bear the entire burden of 50 years' worth of investment all at once.

Mr. Michael Bates (Langbaurgh) : I assume that the hon. Gentleman agrees with the leader of the Labour party--the right hon. Member for Derby, South (Mrs. Beckett)--who said in The Times on 21 June that she would be in favour of taking water companies back into public ownership. Clearly, that would have a cost attached to it in purchasing the equity stock. Has the hon. Gentleman made any assessment of what that cost would be ?

Mr. Smith : The hon. Gentleman is misquoting my right hon. Friend. She said that the water companies should be brought back within public control. That is something that I and the Labour party wholeheartedly endorse.

Mr. Bates rose

Mr. Smith : I shall not give way to the hon. Gentleman again, because he has in his hand what I suspect to be a Conservative party briefing note, not a copy of The Times .

Mr. Bates : On a point of order, Mr. Deputy Speaker. I am sorry to interrupt the debate, but I seek your guidance. The hon. Member for Islington, South and Finsbury (Mr. Smith) clearly said that I had misquoted the right hon. Member for Derby, South. I would never do that. I want to put the exact quotation on the record. May I have the opportunity to do that ?

Mr. Deputy Speaker : That is not a point of order for the Chair.

Mr. Smith : Even at this distance, I can tell the difference between a copy of The Times and an A4 sheet of briefing paper from Conservative central office.

Mr. Jacques Arnold : Will the hon. Gentleman give way ?

Mr. Deputy Speaker : Order. I heard the hon. Member for Islington, South and Finsbury (Mr. Smith) say earlier that he would not give way again to the hon. Gentleman, who is clearly wasting his time trying to intervene.


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Mr. Smith : I am conscious that time is short, and I know that a number of hon. Members want to speak.

One great claim advanced time and again during privatisation was that the great advantage would be access to borrowing, capital markets and equity funding. That has not happened. There are low levels of borrowing, there have been no requests for equity from the markets, and there have been higher and higher charges for the customer.

We were told that the water companies would invest in non-core activities-- they would roam the globe, seeking opportunities for investment, purchase and enterprise. Perhaps we could be told why no less than £727 million has had to be written off because of a variety of mishaps and losses among the non-core subsidiaries and associates of the 10 principal water companies.

We need to examine the levels of disconnection. After privatisation, the number initially rocketed. In most areas of the country, they have since edged downwards, but in some--such as the Thames Water area--they are still rising strongly. Perhaps it was no accident that Thames Water donated £50,000 to the Conservative party in advance of the last general election.

Dr. Norman A. Godman (Greenock and Port Glasgow) : There is a curious inconsistency in the legislation governing water disconnections. There will be no disconnections in Scotland, because the Government introduced a last-minute amendment to that effect in the Committee stage of the Local Government etc. (Scotland) Bill.

Mr. Smith : My hon. Friend is right. Scottish Ministers said in Committee, "There will be no disconnections in Scotland ; the water authorities in Scotland do not need disconnection as a power to recover debt." However, each time we press the responsible Ministers for England and Wales to adopt the same approach, they say, "The water companies must have disconnection as a power of last resort." One part of the Government says one thing and another part says the opposite.

The Opposition believe that water disconnection has no place in a civilised society. It cannot be right to cut off the means of life and health simply to recover a debt. A Labour Government will ensure that disconnection of domestic water is prohibited.

As my hon. Friend the Member for Greenock and Port Glasgow (Dr. Godman) mentioned Scotland, I shall refer to the Strathclyde referendum. What could be clearer than the result of that ? Some 97 per cent. of people said that they had no time for the Government's proposals for the semi-privatisation of Scottish Water. However, the views of those 97 per cent. were utterly ignored by the Government. Once again, they have ridden roughshod over the wishes of the Scottish people.

Mr. Alex Salmond (Banff and Buchan) : I fully endorse what the hon. Gentleman has said about the Strathclyde referendum. However, is there not some contradiction in the Labour party's approach ? It supports publicly owned and controlled water north of the border, yet the hon. Member for Sedgefield (Mr. Blair) has said that he is prepared to accept privately owned water south of the border.

Mr. Smith : I would take what the hon. Gentleman said more kindly if he had fought anywhere near so well and so


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effectively on the future of water in Scotland as did my right hon. and hon. Friends who represent Scottish seats. We are committed to ensuring full and proper public control of water and sewerage services throughout Britain. In England and Wales, the quickest, most effective and most practical way to achieve that would be to improve and toughen the regulatory regime.

Compulsory water metering has been mentioned. Anglian Water has already introduced, by compulsion, water meters in parts of its patch. By doing so, it is ignoring the severe impact of that on large families and people with disabilities. Metering takes no account of human need, it rations by price, and it produces precious little environmental benefit. A Labour Government will prohibit compulsory metering in people's homes.

I want to concentrate for a moment on what has happened to the salaries and share options of the chairmen and chief executives of the water companies. The chairman of North West Water last year received a salary of £338,000. That is a sixfold increase since privatisation. Is the service provided by North-West Water six times better because of the chairman's remuneration ? Of course it is not. The briefing prepared by Thames Water in advance of the debate notes that its chairman receives a salary of £250,000--modest by comparison with the chairman of North- West Water. The briefing note explains :

"A recent Daily Telegraph survey concluded that he was in fact underpaid, considering the responsibility he holds."

I ask the Minister to consider the responsibility held by a signalman working for Railtrack and to compare and contrast the standards applied in that situation with those that apply to the chairmen and chief executives of water companies.

In most of the water companies, there are poor levels of general service, the handling of complaints is inadequate and it is us, the poor old consumers, who are picking up the price tag. Privatisation has been a mess. What we need is better and tougher regulation. The public interest should come first--on charges, investment, water clean-up, directors' remuneration, what happens to dividends, disconnections and metering policy. There is no sign of the Government rising to that important challenge.

5.9 pm

The Minister for the Environment and Countryside (Mr. Robert Atkins) : I beg to move, to leave out from "House" to the end of theQuestion and to add instead thereof :

congratulates the water industry in England and Wales on its achievements since privatisation and commends the proposals for restructuring in Scotland which will facilitate the use of private finance ; notes the improvements which have been made in environmental standards in particular with regard to the quality of rivers and bathing waters, and the consistently high quality of drinking water ; notes that the industry in England and Wales is pressing ahead with a £3 billion a year investment programme which will result in further improvements to the upgrading of water and sewerage systems without placing undue burdens on consumers ; and further notes that the privatised industry is successfully using its expertise to gain major contracts overseas, something which could not have been achieved under the policies of the last Labour government.'.

I apologise for the fact that I have a stinking cold and therefore may not be so intelligible as I normally am.


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My hon. Friends and I were astonished by the remarkable speech of the hon. Member for Islington, South and Finsbury (Mr. Smith). I heard more ill-informed twaddle, if I am being charitable--or more misleading distortions, if I am not--than I would have believed possible. What the hon. Gentleman said flies in the face of reality, as I shall show ; it was typical of a party and a spokesman who know that they can say what the devil they like because they do not expect ever to be in a position to deliver their promises--and for once, I am not talking about the Liberals.

The motion refers first to water disconnections, which have fallen from some 18,600 in 1992-93 to 12,400 in 1993-94. The hon. Gentleman knows full well that before a disconnection can take place an exhaustive legal process involving considerable time and effort must be completed. I was fascinated to learn that he intends to do away with disconnections, as they have been legal in England and Wales since 1945 and the legislation allowing them was introduced by a Labour Government.

There is no evidence from the Department of Health of any health problems related to disconnections. My local water company carried out a survey in connection with a Bill--a ten-minute Bill, I believe--presented by the right hon. Member for Salford, East (Mr. Orme). The vast majority of customers who were asked for their views on disconnections wanted the ability to disconnect to be retained, because they did not believe any more than we do that genuine payers should subsidise non-payers.

Let us get the facts clear : the number of disconnections is falling ; the power to disconnect has existed since 1945, when it was introduced by a Labour Government ; there is no evidence of health problems resulting from disconnections ; and, as the hon. Member for Islington, South and Finsbury knows, a lengthy legal process is necessary before any action can be taken.

Mr. Alan W. Williams (Carmarthen) : I have here an article from The Guardian of 17 June this year about a British Medical Association report on water disconnections. According to the headline, water firms are "risking health with cut-offs". That is the professional view.

Mr. Atkins : I am sorry to disagree with the hon. Gentleman, but I must take the advice of the Department of Health, the Chief Medical Officer and others associated with them. They tell me that there is no evidence of health problems resulting from disconnections. Personally, I would rather accept their view than that of the BMA. The next issue raised in the motion is the increase in consumers' bills. Of course that has happened, but why ? The real reason is a failure to invest over many years--typically, in the period of the last Labour Government. I remind the House that between 1976 and 1979 a Labour Government cut investment by a third and sewage treatment by 50 per cent., while overall capital expenditure was cut by nearly 50 per cent. When I stood for Parliament for the first time in 1979, the industrial towns of the north-west were experiencing problems : ancient sewers were collapsing because a Labour Government had not invested the amount necessary to ensure that they remained in good order.

Mr. Chris Smith : Why, then, was investment lower in the five years after the Conservative Government took over than in the last year of the Labour Government ?


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Mr. Atkins : We privatised the industry precisely because we recognised that the taxpayer could not go on bearing the burden imposed by a Labour Government's failure to spend money which any Government clearly found difficult to spend. That proves my point decisively ; I rest my case.

The increases in consumers' bills were generated by the need to spend substantial sums in a variety of ways relating to directives that we must-- and do--observe, together with the new infrastructure that has been introduced throughout England and Wales.

Notwithstanding consumers' understandable criticisms of price increases-- which, as I have said, have been caused by a lack of investment and capital expenditure--our prices are still among the lowest in Europe.

Sir Harold Walker (Doncaster, Central) : Will the Minister comment on the absurd inequities of basing water charges on long outdated historical rateable values ? Only today, I received a letter from a Mrs. Woolford, who writes :

"I enclose copies of the water rates for 3 first floor flats all within 50 yards of each other, all of which rightly are in band A for the council tax.

Each flat has 1 bath, 1 toilet, 1 wash basin"

yet the water charges differ widely. That is daft ; what does the Minister suggest should be done about it ?

Mr. Atkins : That is one reason why metering is being considered, along with other alternatives such as council tax banding. I shall deal with the point shortly.

Mr. Salmond : Will the Minister give way ?

Mr. Atkins : I am conscious of the time. An intervention by the hon. Member for Hemsworth (Mr. Enright) on the ten-minute Bill has limited this Opposition day somewhat. I should like to make some progress ; if I give way to everyone, I shall not have the opportunity to reply to the comments of the hon. Member for Islington, South and Finsbury and to allow hon. Members on both sides of the House to speak.

Next, the motion mentions water companies' profits. Of course their profits are up, and so they should be : without those profits no investment would take place, and some two thirds are being reinvested. Last year--the most recent for which figures have been announced--my local company, North West Water, provided a dividend of £86 million, but invested £424 million in new projects. Shareholders are entitled to a return on their investment, to attract them to invest so that the necessary infrastructure improvements can be made.

The motion refers to directors' pay. It is not for me as a Minister--or, indeed, for the Government--to intervene in private sector salaries, but my right hon. Friend the Prime Minister has made it clear--and I agree--that company directors throughout industry should appreciate public concern about the amounts that they pay themselves. Nevertheless, whatever view we may express, shareholders--whether institutional or individual--have the power to intervene, and they should use that power if necessary.

Let us put the matter in perspective. In most cases such as those raised by the hon. Member for Islington, South and Finsbury, the total salary package of directors is about one fifth of 1 per cent. of turnover, and sometimes much


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less. Is this really all that the Labour party can talk about, in the context of the vast sums being spent on the water industry ?

Mr. Derek Enright (Hemsworth) : Will the Minister give way ?

Mr. Atkins : I certainly will not give way to the hon. Gentleman, who has already delayed our proceedings. I suspect that in this I may have the support of the hon. Member for Islington, South and Finsbury, but perhaps not.

The motion refers to the need for high standards of drinking water and sewage treatment. Of course we agree with that. Some 98.7 per cent. of our drinking water is of a very high standard. It is arguably the best in Europe, and possibly in the world.

The other day, the hon. Member for Bristol, South (Ms Primarolo) was reported in one of the more lurid tabloids as having referred to tap water that was "substandard or even dangerous", in spite of the fact that 98.7 per cent. of our water is of a very high standard. Her comments are scaremongering of the worst kind. If there are any problems of water pollution, they are referred to the drinking water inspectorate and prosecutions are brought if necessary. There is a legally binding requirement on operators to make improvements in such cases. The incidents to which the hon. Member for Bristol, South made great play did not merit such treatment.

As for the drinking water directive

Mr. Salmond rose


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