Column 1421The Government's support for training will be cut, as the Department of Employment's three-year virtual cash freeze continues. The national insurance holiday to encourage employers to take on the long-term unemployed will be held back for 18 months. Any new jobs created will be more than offset by public capital spending cuts, which will lead to the loss of thousands of jobs across the economy in the next three years. The four-year freeze on cash spending for Departments could lead to further job losses.
The 1994 Budget is bad news for living standards and for jobs in Britain. Any minor cuts in tax this year are also more than offset by the extra taxes announced in last year's Budget and confirmed in this Budget, especially the rise in VAT.
With cuts in public spending jeopardising jobs in the public and private sectors alike, British workers feel less secure. The prospect of tax cuts in two years' time, if they materialise at all, is cold comfort now. There will be no feel-good factor from the Budget. Higher growth rates in 1994 and 1995 should not obscure the fact that many people will face the immediate consequences of cuts in the public sector and in investment. Benefit changes and special employment measures will have to wait.
Nothing in the Chancellor's statement deals with the long-term need to increase investment in the infrastructure and in quality training, or with the urgent problem of excessive dividend payments. Instead, resources are being cut in all sectors and help for industry is conspicuous by its paucity.
The Chancellor announced that his package of work incentives would cost £680 million, although it is not clear whether that represents a per annum cost--I am sure that it does not. However, the incentive to employers to take on the long-term unemployed will cost only £45 million, less than 7 per cent. of the total, and even that is not due to start until April 1996.
The workstart pilots are to be extended, but at a cost of £8 million. When set against the £10 billion improvement in the GDP this year and the £8.5 billion improvement in the PSBR in the next financial year, those sums are trivial, given the scale of the problem that they need to attack. Moreover, the figures show that there was no need to go ahead with the increase in VAT. The Government are taxing people now in the hope that they will be able to give some money back at a later stage and be congratulated for the exercise.
Workers in companies in the skilled sector, such as British Aerospace, who have recently been told that they are to lose their jobs, found little comfort in any of the Government's schemes for the future. They are highly skilled workers soon to be unemployed. They do not want three-week work trials or fiddle schemes. Ninety-five per cent. of the most highly skilled work force are in aerospace industries and they are losing their jobs. The Government do nothing except offer gimmicks and schemes which do not materialise into real jobs. That is against a background in which the Confederation of British Industry has identified a lower level of skills in Britain than in our main competitor countries and persistent trade deficits in manufactured goods. In the CBI manufacturing bulletin of November 1994, skill levels were identified as the likely significant contributor to the United Kingdom's low productivity. That is continuing.
Column 1422Changing patterns of employment mean that as well as a strategy to keep people in work, we need a strategy to get people back to work. During the Government's reign we have seen a growth in insecurity in the labour market. Most of the new jobs created in Britain between 1993 and 1994 were white collar, insecure jobs. Many were low-paid. Drawing on unpublished figures from the Department of Employment's labour force survey, a new Trades Union Congress report shows that, in the same period, 130,000 new temporary jobs were created, while permanent jobs declined by 26,000. Many of the new jobs are in low-paid industries such as the hotel and catering industry. The situation requires a response which recognises that job security and full employment go together.
The Chancellor said that his second priority for the Budget was job creation, particularly for the long-term unemployed. He said: "We must combine greater prosperity for the majority of our people with measures to prevent the emergence of a deprived underclass, excluded from the opportunity to work and dependent on welfare."--[ Official Report , 29 November 1994; Vol. 250, c. 1079.] Where has the Chancellor been? What does he mean by "prevent the emergence" of an underclass? Has he not discovered the people who are caught in the unbreakable circle of high rent, poverty, benefits and work?
The Government have not discovered a way to break into the interlocking system of personal disaster--a system that relies on housing benefit for its survival. Quite the contrary, they intend to kick away housing benefit. That will plunge that section of our community into isolation and despair. The Budget is long on schemes for April 1996 and short on jobs. It marks a decisive shift in favour of the creation of low-paid employment. Many will find themselves even less able to escape reliance on benefit. Measures designed to encourage employers to take on the unemployed are less likely to result in new jobs than to result in a general lowering of pay in existing jobs. There is more encouragement to follow the low-wage, low- skill strategy than ever before in Britain.
Every economic measure has a different effect on men and on women because of women's different marital status, entitlement to benefits and lower earnings. The Government claim to have understood the changes in the labour market and to be designing policies that will tackle them, but they have not. Women are over-represented among the low-paid and have to bear a disproportionate burden of previous budgets.
The gap between women's and men's earnings is gradually closing, but the divide between people at the top and people at the bottom of the earnings scale remains as wide as ever. Despite the narrowing of the pay gap, women have a long time to wait before they can celebrate real equality. At the present rate of progress, it will take another 33 years for the gap between men's and women's earnings to close completely, and there are potentially worrying signs that the pace of change has noticeably slowed in the past two years. That is not only important for women but crucial in understanding the changing nature of work and of household budgets and in understanding how to tackle that change in making strides to create work.
Recent research by the Joseph Rowntree Foundation shows that the average male contribution to household budgets fell from 75 per cent. in the early 1980s to 60 per
Column 1423cent. by 1991. Families headed by a single male breadwinner are now outnumbered nearly three to one by homes where both parents work. Women work to provide financial security for their families, but the Government have not understood the implications for women's ability to work of the proposals in the Budget. Any increase in living standards that has occurred among dual-earner households has not been matched among one-parent families. The full-time employment rate in the latter households fell to 37 per cent.
In the Budget, measures to help people back to work were concentrated on three policies--relief during the transitional period from benefits to paid work, help for the long-term unemployed and help when moving from part-time to full-time work. Those measures are welcome, although we must recognise that they are very poor and will not assist many people to move out of the poverty trap. The second and third measures, however, do not deal with the problems that many unemployed women face, especially those with caring responsibilities.
Let us consider the proposals for helping the long-term unemployed.
Ms Hodge: Does my hon. Friend agree that the Budget contains no proposals to increase the supply of day care provision for parents who require that to enable them both to work, or to increase any assistance within the taxation system to help with child care?
Ms Primarolo: I am grateful to my hon. Friend for that intervention. As she pointed out in her contribution to the debate, the Government's promises to create nursery places and assist working parents have not materialised. Although child care is identified as one of the major barriers to women taking up full or part-time employment, the Government still refuse to deal with it. Indeed, in their proposals for the long-term unemployed, they have not taken on board the argument about child care and care responsibilities. To qualify for the schemes, a person must have been continuously registered as unemployed for two years, but many women with children cannot register. The rules require them to show that they are available for work and they must demonstrate that they already have in place adequate child care--an impossibility for most mothers. That clearly demonstrates the Government's hypocrisy in claiming to represent all our community, saying that there have been changes in employment patterns, recognising the contribution that women could and should be able to make to employment, but making no changes in their legislation to assist. That is echoed when we look at the proposals for assisting individuals who are moving from part-time to full-time work. Several measures are designed to help people in full-time work, but no such assistance is given to those in part-time work.
It is known that most women need part-time work because they feel that that allows them to balance their care responsibilities. The greatest barrier for mothers who want to work is the lack of affordable care for children and for the elderly, and the Government refuse to address that when they consider how to assist people into paid work. They consider how they can assist men and women without children into the labour market, but women with children are unacceptable.
Column 1424The Budget has not helped the low-paid individually, and it has done nothing to attack the over-reliance in our economy on low-skilled, low-wage labour. As a result, women will continue to suffer. Their potential will remain unused in the economy, and that will brings poverty wages.
Little has been done to compensate for the increased tax burden on the low- paid from freezing their allowances and increasing national insurance contributions in 1993. Improving women's opportunities to get out of the low-wage ghetto has not been helped by encouraging employers to take on more low-paid workers.
Labour's policy for a national insurance holiday for employers taking on the long-term unemployed has been stolen by the Tories, but with the proviso that their policy does not include adequate wage levels and a provision for training. In the absence of those features, there is no encouragement to shift the character of the UK labour market away from a low-wage, low-skill economy to a high-wage, high-skill economy. That is necessary both for our future economic security and for reducing the size of the low-paid sector in which women are disproportionately concentrated.
If more women were Members of this House, those are the issues which would be debated on both sides of the House, and that would ensure that women had fair game in the House. It has been noticeable that, so far in the Budget debate, contributions from Conservative women Members have been absent.
There has been no closing of the poverty trap. Benefit penalties on earnings which act as a disincentive to take up work have been marginally reformed, but those reforms are not radical enough to have any effect on the majority of women lone parents who want to work, but cannot afford it. Mothers earn on average 22 per cent. less than women without children. The average lifetime income for women has reduced by £11,000, while the average for men has increased by the same amount.
The conditions under which the Beveridge welfare state were created half a century ago no longer exist. Beveridge's assumption that women would not work outside the home and that the nuclear family would exist are no longer the norm. Mothers deserve incentives to return to work, rather than having shattered their hopes that they can afford to work and still care for their children. The Government are in a position to provide those incentives with policies aimed at the elimination of the crucial problems which face women.
Jobs and pay segregation stem from inadequate maternity benefits and a fear that women will take time off to look after their children. There is a lack of adequate child care and wage security, and encouraging employers to address those issues is an important step to eliminating the inequality and low pay which faces women in our society.
The challenge to the Government is to pursue policies that speed up job creation by offering more skilled and attractive jobs, while enabling the unskilled and the non-employed to update their skills and to get paid work. After the Budget, the Conservative Government will continue to be held in almost universal contempt and treated with almost universal derision.
The Government have produced a fix-it Budget, to rake money in now in order to give it back, perhaps, in the vain hope that that will assist them to cling on to power.
Column 1425The Budget is an attempt to try to fix it for the Government rather than to fix it for the country. We shall ensure that the Government are fixed at the next general election--fixed to the Opposition Benches--and thrown out of power.
The Minister of State, Treasury (Mr. Anthony Nelson): Despite the somewhat unpleasant sting in the tail of the speech of the hon. Member for Bristol, South (Ms Primarolo), I congratulate her on what I think is her debut performance from the Opposition Treasury Bench, on which I hope she will spend many years successfully deliberating and contributing on Treasury matters.
The hon. Lady made a considered and thoughtful speech and I acknowledge what she said about the rights and opportunities of women. I shared some of her sentiments, although not all of her premises and certainly not many of her conclusions. The hon. Lady's speech was thoughtful, however, and I welcome her contribution to what has undoubtedly been a lively and forthright debate on the Budget.
I do not think the same can be said of the speech of the hon. Member for Peckham (Ms Harman), who is by no means a debutante at Treasury debates. On numerous occasions she has appeared opposite my right hon. Friend the Secretary of State for Employment, when she has been consistently intellectually mauled or politically trounced by him across the Dispatch Box. I am afraid that today was no exception.
As I observed how the hon. Lady became more bitter as her speech progressed, I tried to work out why. It certainly could not have been in reaction to the unassailable reasonableness and effectiveness of my right hon. Friend's arguments. I came to the conclusion that it was because she had not been invited to my right hon. Friend's party to celebrate his 10 years as a Member of Parliament. Perhaps no one gave the hon. Lady a party on her 10th anniversary, I do not know. I feel sorry for the hon. Lady, and I hope that she will not be a Cinderella on future occasions.
I should like to follow the convention and courtesy displayed yesterday by my hon. Friend the Paymaster General and acknowledge briefly the speeches that have been made today. I assure all hon. Members who contributed to this useful debate that their comments will be carefully considered, even though we cannot obviously agree with all of them.
The debate started with a speech from my hon. Friend the Member for Morecambe and Lunesdale (Sir M. Lennox-Boyd), who spoke of the unfair competition between Heysham and Liverpool and asked about the European grants that are available for competing cities and installations.
Although European Community grants are considered carefully on the basis regional gross national product and regional employment, Heysham is covered by the European social fund. We will bear in mind my hon. Friend's comments and the wider issues that he raised.
Column 1426The hon. Member for Norwich, South (Mr. Garrett), who also kindly informed me that he could not be here for the conclusion of the debate, condemned the Budget as irrelevant. I obviously do not agree with that. I come from the great city of Norwich and I was concerned and interested to hear his reports of unemployment and his concern about the future level of economic and industrial activity in Norwich. I firmly assert that prospects for Norwich and other cities will be well served by the Budget judgment of my right hon. and learned Friend the Chancellor. The economic recovery is reflected in Norwich, as it is elsewhere, and therein lies the best prospects for sustained employment.
My hon. Friends the Members for Macclesfield (Mr. Winterton) and for Ayr (Mr.Gallie), along with the hon. Member for Tooting (Mr. Cox), raised the important and controversial issue of VAT on fuel and power. Even though they made their positions clear, I hope that they are not non-negotiable but subject to influence. We acknowledge that the tax is not popular--no tax is--but it is an essential part of the arithmetic in making the books balance and redressing the state of public finances. As I shall tell the House later, the bottom line, objective and issue of principal concern must be the amount that we borrow to finance our public expenditure. That would be an issue, whichever party happened to be in government, and the present Government have the difficult but important principal task of measuring up to it.
Through a tax that will raise a considerable amount of money in gross and net terms, we have sought to contribute to meeting that challenge. The tax will raise slightly less than £3 billion in a full year. However, a substantial package of compensation, targeted to assist the people in most need, will reduce it to about £1.6 billion. A considerable programme of help for pensioners and other people on the lowest means, and help reflecting cold weather or exceptional circumstances, has been built on by my right hon. and learned friend the Chancellor in the Budget.
We cannot afford to run away from the problem of deficit redress, and of the need to tackle that, which will not be met by taxes which will raise fairly minor sums against the amount involved. My hon. Friend the Member for Macclesfield said clearly that he would favour an income tax supplement as an alternative. I hear what he says, but that would directly reverse our trends and intentions on direct taxation.
Other people have not come clean about whether they would favour greater borrowing, other reductions in the expenditure programme, or alternative taxes. It behoves those who seek not to go ahead with or to condemn the second stage of VAT to confront the consequences. I say that not simply for the fiscal judgment, but for monetary policy, because the connection between monetary and fiscal policy is direct and the markets will read clearly and carefully our determination to face up to our responsibilities in government.
The hon. Members for Tooting and for Cambridge (Mrs. Campbell) mentioned the important issue of housing in their constituencies. Housing problems are a subject of direct concern to all hon. Members in our
Column 1427surgeries and our mailbags. Although changes have been announced and proposed in the programmes for housing and in local authority support announced today by my right hon. Friend the Secretary of State for the Environment, it is worth noting some of the changes and improvements that are being made in that sector which will add considerably to the quantity of social lettings. We estimate that the combination of Housing Corporation, local authority and private finance will add about 185,000 new social lettings in the next three years.
In addition, there is help in the form of the revised real guidelines on rent setting, which will taper rent increases to a reduced extent; that will assist many people with their council housing costs. We are doubling the amount that is made available for the cash incentive scheme, to encourage people to move out of the public sector into the private sector and so release resources. The Housing Corporation will spend an extra £6 billion in the next three years, adding to the considerable achievement of not only meeting our manifesto target of 153,000 properties, but exceeding it by 26,000. We shall spend about £30 million on an empties programme to ensure that we release, use and occupy more empty local authority properties. That will affect the quantity of new lettings and their price, at a time when properties are a good deal more affordable and rents much more comparable with the costs of purchasing. Those actions will give hope to many of the people whose interests were rightly represented today.
My hon. Friend the Member for Macclesfield also mentioned in passing the problems of the film industry. I hear what he says. That is a matter not for this Budget, but perhaps for future ones. I am bound to observe that the film industry is a great success. Julia Roberts and Arnold Schwarzenegger are coming to this country. The amount being spent is exciting. The film industry is one of the great success stories--mainly, I have to say, because of the restrictive union policies in the United States, which have driven out employment. [Hon. Members:-- "Oh."] That is undoubtedly true, and much of that money and employment is coming to the United Kingdom. My hon. Friend called for no rises in interest rates. It is not for me to speculate about future rates but I have mentioned the need for a responsible fiscal policy to keep them as low as possible. The hon. Member for Eastleigh (Mr. Chidgey) spoke about his constituency. As I represent a constituency not far from his, I am conscious of the problems that the recession has caused, especially in the south where such unemployment, particularly of professional executives, has not occurred before. But matters are improving in his constituency and mine. The hon. Gentleman sees the employment figure for this year in his local job centre and he knows the extent of the recovery in economic activity and new employment. Not only that, but there has been an increase in the number of people who find employment soon after becoming unemployed.
The hon. Gentleman spoke of the need for a working benefit scheme, but I imagine that such a scheme would go well beyond the Chancellor's proposals. The hon. Gentleman suggested somewhat mischievously that my right hon. and learned Friend the Chancellor was not totally behind my right hon. Friend the Secretary of State for Employment. I can think of no more united and
Column 1428harmonious relationship of intellect and resources on these matters. [Interruption.] Surely that is incontrovertible. My hon. Friend the Member for Bridlington (Mr. Townend) welcomed the reductions in public expenditure as showing that we were cutting our cloth and economising. He referred to the Chancellor as a madman wielding an axe--Ken the magician or Ken the axeman. I took it that those were compliments.
Mr. Nelson: He is Ken the magician. The extent to which my right hon. and learned Friend has cut expenditure and is delivering a substantial recovery in our economic fortunes beyond anything prophesied by the Opposition or outside economists is a considerable personal and political achievement.
My hon. Friend the Member for Bridlington and other hon. Members spoke about the aid budget, which has been increased a little this year. I received representations from the aid lobbies and from the Council of Churches, and again this year we decided to improve the aid budget in real terms. That is supported in all parts of the House.
My hon. Friend the Member for Bridlington and the hon. Member for Newcastle upon Tyne, North (Mr. Henderson), who made a colourful and interesting speech which I shall read and reflect upon, spoke about cross-border shopping. The hon. Member for Newcastle upon Tyne, North unveiled some interesting tricks about how that is done, and they will be of direct concern to my hon. Friend the Paymaster General. Considerable amounts of duty--some £4 billion on alcoholic beverages and £3 billion on tobacco--are involved, and in paying for the public services that we all cherish, we cannot afford to ignore such flows of funds. Total resources from those duties have risen since the implementation of the single market. For the second year running, the Chancellor has been able to freeze those, and that is a reflection of the fact that the disparity has been taken into account. I hope that that will have an impact. This will be a long-term issue and there are no easy resolutions in a single market which, although it confers benefits, presents difficulties because of different systems of indirect taxation on beverages and tobacco.
The hon. Member for Manchester, Central (Mr. Litherland) spoke about housing and clearly spelled out the problems in his constituency. I have said a little about that. I congratulate my hon. Friend the Member for Beaconsfield (Mr. Smith) on his achievements in the Northern Ireland Office where he was responsible for economic and other matters. He spoke about competitiveness and its key importance to British industry. That was the subject of a major White Paper and a Government action programme earlier this year. He asked about the M25 links and the widening at Slough in his constituency. He will know that all those road schemes are subject to reconsideration following the announcement on the roads programme.
The hon. Member for Derbyshire, North-East (Mr. Barnes) spoke about standard spending assessments in his constituency and their impact. I understand that his constituency's position in the league table has risen somewhat, but he made an impassioned plea--as we all do in our constituency capacity from time to time--for a better share of the allocation.
Column 1429I take careful note of what the hon. Gentleman said about expenditure priorities. It will not surprise him to learn that we have different priorities, which were borne out by his comments on indirect and direct taxation. We have a popular mandate for moving the balance away from direct to indirect taxation. That is not easy, but the benefits will become increasingly apparent as the incentives of a lower burden of taxation on earnings and income result in reinvestment, the propensity to save and higher economic activity. My hon. Friend the Member for Wellingborough (Sir P. Fry) asked for his spirits to be raised. He wondered why it was necessary to raise taxes when the economy was doing so well. Obviously, it is good that the economy is doing well and it is regrettable that we have to raise taxes, but I must repeat that it is of central importance to reduce the public sector borrowing requirement and, over the years, get our debts back into balance.
My hon. Friend the Member for Bury St. Edmunds (Mr. Spring) accurately reflected the success of our policies in his constituency. He said quite a bit about exports and the Export Credits Guarantee Department and the extent to which that would fuel industry and trade abroad. He also welcomed the proposed changes on insolvency and made a plea about capital gains tax which we shall bear in mind for the future.
The hon. Member for Wallasey (Ms Eagle) spoke of the need for more generous subsidies and more jobs. As my right hon. Friend the Secretary of State for Employment said, we reject the case for throwing more money at those issues. The quality as well as the quantity of public finance is important. She referred, not for the first time, to the Maples memorandum. There were some ribald comments about that. John Maples was my predecessor as Economic Secretary. The moral must be to keep one's memos to oneself. My right hon. and learned Friend the Chancellor will be pleased to hear that it is not my habit to draft many memorandums.
The hon. Member for Rotherham (Mr. MacShane) said that it was a Budget for the rich and that training had been cut. We reject that, because we believe that our proposals, measured as they are, will sustain the recovery and will, as all forecasts--not just from the Treasury, but from outside bodies --suggest, lead to further reductions in the level of unemployment.
The hon. Member for Barking (Ms Hodge) referred to capital investment, especially in education. I am sure that she would be the first to welcome the fact that another £60 million is being spent on schools' capital programmes.
The hon. Member for Glasgow, Rutherglen (Mr. McAvoy) welcomed the landfill tax. He made a plea for the M74, which we shall take into account. He also said that he wanted action on late payment of debt, which is currently the subject of a Confederation of British Industry working party.
My right hon. and learned Friend's safe and sound Budget had the prime objective of keeping the economic recovery on track, but in so doing he was also able to find substantial resources for a small business programme and for ensuring that the long-term jobless are helped to get back into employment. [Interruption.] However, the central objective remains the necessity to reduce the public sector borrowing requirement. [Interruption.] I
Column 1430remind the House that the national debt stands at £285 billion, of which £238 billion is in gilts and about £51 billion in national savings. The interest costs on our borrowings amount to £22.6 billion a year-- [Interruption.]
Mr. Nelson: Interest costs amount to more than the whole of our defence programme, more than the whole of our education programme and more than the whole of our law and order programme. If we allow them to build up, we shall not just carry forward a heritage of borrowing--we shall be saddling ourselves with ever higher recurrent costs at the expense of other public expenditure priorities. Eventually, if we again reach a point at which we can repay debt and ensure that we can maintain low interest rates, reducing the cost of bearing debt, that will be good. But there are other technical ways of trying to improve the market and the cost of our gilts. One is the announcement of the introduction of a repo market, the other is a debt management review which is currently going on. We are also considering the introduction of certain new types of bond. We do not want anything too bizarre, but certain exotic bonds might be on the menu as we look for ways of supplying the market to ensure that we do not have a scatter gun across the yield curve and that we finance our borrowing requirement at the least cost to the taxpayer.
It is in the business package, however, that my right hon. and learned Friend the Chancellor has done most for the economy, not just a substantial amount to assist those small businesses in the north of England who would otherwise be faced with substantial rate increases and some three quarters- -
It being Ten o'clock, the debate stood adjourned.
Debate to be resumed on Monday 5 December.
Motion made, and Question put,
That Mr. Tony Benn be discharged from the Committee of Privileges.-- [Mr. Andrew Mitchell.]
Motion made, and Question proposed, That this House do now adjourn.-- [Mr. Andrew Mitchell.]
Anyone who has taken an active interest in politics in the past 10 years will remember the famous Conservative party political broadcast from Hazelbourne road. On one side, the residents lived in Wandsworth and on the other the residents lived in Lambeth. The broadcast emphasised the difference in rates between the two sides of the street.
That information sought to give the electorate financial information to help them to decide how best to cast their vote--for a high-cost, low- service Labour-run authority or a low-cost, efficient, well-run Conservative-controlled authority: a clear choice. Farley road in the ward of Selsdon has a similar problem, not with council tax levels but with water charges. A constituent of mine, Mrs. Kendall, has her water supplied by East Surrey water company. She was astonished to find that her neighbour in a similar property paid more than £100 less for his water than she did. The reason for that was, as in the rates example, that the services came from different suppliers. In this case, Mrs. Kendall's neighbour received cheaper water from Thames Water.
Mrs. Kendall and her neighbours on her side of the road had the geographical misfortune of having their water supplied by East Surrey water company. East Surrey is listed as being the third most expensive supplier of water in the country--the average bill, according to the Office of Water Services, being £151.
I am pleased to place on record the fact that I have no complaint against the quality of supply or the service of East Surrey, both of which are well up to standard. Indeed, East Surrey recently won a prize for the quality of its water. My complaint is that its charges are out of line, and that is what I wish to draw to the attention of the House.
The neighbours supplied by Thames Water, whose charges, when sewerage and water services are combined, are among the lowest of all water companies, face an average bill of £79 per annum, almost half that of East Surrey.
The problem is not restricted to Farley road--far from it. East Surrey supplies some 25,000 households in my constituency, representing 65,000 residents. They have been paying almost twice as much as their neighbours in the north of the borough for a similar supply. The area affected covers all the houses in the Coulsdon, East, Kenley, Sanderstead and Selsdon wards and most houses in Croham and Purley, together with a small area of Woodcote and the Coulsdon, West ward.
The borough of Croydon had a hard look at the matter, prompted by Dudley Mead, the excellent Conservative councillor for Selsdon. It proposed that all customers of East Surrey within the borough of Croydon should have their source of supply transferred en masse to Thames Water.
In the spirit of competition fostered by the Conservative Government over the past decade, telephone customers have a choice, as do gas users, and we will soon be able
Column 1432to choose our electricity supplier. The relevant legislation, the Water Industry Act 1991, as amended by the Competition and Service (Utilities Act) 1992, encourages the same.
At the council's request, Thames Water undertook a feasibility study, which confirmed that Thames would be interested in taking on the area in question. The company found that it would have to provide a water main connection in at least one location in the borough, and it proposed using existing pipework to households. The majority of residents who made their views known supported the change. I received many letters from constituents requesting that Thames Water be encouraged to take over their supply. Mr. Ray Rowsell, chairman of Selsdon residents association said:
"We are very hopeful of obtaining a transfer because East Surrey's water charge levels cannot be justified."
This autumn, Croydon council and Thames Water put their proposals to the Director General of Ofwat, Mr. Ian Byatt. He did not make a ruling but gave his interpretation of current legislation: that Thames Water would be permitted to serve customers in the East Surrey supply area only if it constructed its own separate supply network or--and this is important--if Thames Water was appointed the supplier under the inset provisions of the 1991 Act. That Act would permit Thames Water to supply East Surrey if it were a green-field site, which it is not, if the host water company were to agree, and it does not, or if the individual customers concerned used more than a threshold of 250 megalitres of water a year: average family use is 0.15 megalitres.
The combined households of the area in question could transfer en masse. They consume a combined total of 3,000 megalitres--well above the legislative guideline figure. However, in Ofwat's view, each house is a separate entity and together the properties do not constitute a block that could transfer en masse. That is the nub of the argument.
Fortunately, my right hon. Friend the Secretary of State for the Environment can help, without new primary legislation being necessary, by amending the competition threshold in the spirit of competition policy that the Government are always keen to encourage.
Mr. Peter Ainsworth (Surrey, East): My hon. Friend understands that the matter is by no means simple. Were such a transfer to occur, my constituents served by East Surrey would see their water charges rise substantially. Although East Surrey is an efficient water company, it is largely rural--and that is why the cost is higher.
It is required of my right hon. Friend the Secretary of State to make an order, so that groups of individual customers can be considered as one large individual customer for the purposes of the 1991 Act, and possibly to lower the threshold of 250 megalitres a year to one that encompasses a street of customers. That would allow a suitably located street to transfer across a boundary to a more advantageously priced area.
Column 1433Not surprisingly, East Surrey is not in favour of those proposals. Mr. Phil Holder, managing director of the company--for whom I have the highest regard--says:
"Whilst understanding the position of Croydon Council and sympathising with customers who pay more than their neighbours . . . we must emphasise that transfers of this type are not in the best interests of all our customers."
A spokesman added:
"We do not want to lose our customers."
That was a surprise.
East Surrey makes two key arguments. The first is that the pipework belongs to the company and is not available to Thames Water. If my right hon. Friend the Secretary of State ordered a boundary change for areas of responsibility, Thames could take over the existing East Surrey pipes, but would be obliged to reimburse East Surrey for its loss; Ofwat would set the compensation.
The second argument is that allowing transfer of the affected area, which represents a substantial part of East Surrey's business, could mean prices rising for other consumers outside the borough boundaries, as my hon. Friend said.
My response is that, for decades, urban areas have been subsidising rural areas. It is about time that rural areas paid a more realistic contribution to their water charges. That is not a penalty, but a removal of the subsidy. My hon. Friend the Member for Surrey, East (Mr. Ainsworth) perhaps winced a little at that, and I suspect that his constituents would do the same, but I have an answer. If that is unacceptable to the residents of east Surrey, the alternative would be for Thames Water to take over the entire East Surrey water area, and it has assured me today that that would result in significantly lower water charges for everybody in east Surrey. I am sure that that would be very popular. If my hon. Friend were to assist me in that, I am sure that he would be very popular. One could have some sympathy with the users in the rural areas if it were not for the fact that East Surrey Water reported a profit increase last year of more than 45 per cent.--some £8.2 million on a turnover of only £25.5 million--and as such should be prepared to submit to competition. The case is not helped by the fact that, in 1991, two directors, who held almost half the shares, were paid a dividend of £1.17 million at a time when consumers faced an increase of 24 per cent. That prompted Ofwat, in a letter dated 12 July 1991, to express concern about the levels of prices, profits and dividends. Regrettably, it took no further action.
I am afraid that East Surrey Water merely wishing to restrict its customers from obtaining services elsewhere is simply not a good enough reason for preventing access to those households by Thames Water.
In summary, the people of Croydon, supported by their borough council, want a low-cost service and Thames Water is in a position and is willing to provide it. The only objection comes from another company, which, understandably, does not want to lose business, but which is, after all, competing in a market economy. The main argument is that the high cost is due to supplying those who live in rural areas. But Selsdon and the rest of my constituency is not a rural area. It is not even in Surrey. It is a London suburb and, as such, should be supplied by Thames Water.