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Mr. Andrew George (St. Ives): Does my hon. Friend agree that not only are high charges being made against those on the lowest incomes in the United Kingdom, but, in Cornwall, about 1 per cent. of the nation's population has to pay for 20 per cent. of the coastal clean-up?
Mr. Breed: My hon. Friend is quite right. A relatively small number of people in a poor area have to pay for cleaning up the bathing waters off a large part of the national coastline, but we were told that we need not worry about that because the revenue that would be generated from the tourists who would come to the area because of our clean beaches would offset those costs. For an area with one of the lowest gross domestic products in Europe, let alone the country, that argument does not--forgive me for this--hold water.
The background to the differential in water companies' charges was evident even before privatisation. Geographical factors and other specific characteristics make the area different from other parts of the country, but privatisation--and, perhaps more particularly, the way in which the industry was privatised--has widened that gap over the past 10 years. Neither the Government nor the regulator has clearly addressed the inequity of the position of people living in the south-west.
In 1989, when privatisation of the water industry was introduced, the then Conservative Government approved a 10-year plan by South West Water to clean up the coastline. That plan was costed at roughly 5 per cent. above inflation--the so-called K factor--but, 18 months later, the Government had a rethink. The then Secretary of State for the Environment, Chris Patten, decided to concede to European pressure to clean up our bathing waters more quickly. That meant that the 10-year clean-up plan was squeezed into a five-year funding plan, which worked out at 11.5 per cent. above inflation--more than twice the original K factor. That was a good idea at the time, but the then Government's ill-thought-out decision has had enormous repercussions for us 10 years later.
Ms Candy Atherton (Falmouth and Camborne):
Will the hon. Gentleman give way?
Mr. Breed:
I have only a few moments, so I shall carry on with my speech and then give the Minister an opportunity to reply.
That idea was good at the time, but the then Government's decision was ill thought out, as it has cost customers in the south-west rather dear. It is certainly costing us dearly today.
The latest increase in South West Water bills has grossly affected non-metered customers. Bills for the majority of them have risen well above the 4 per cent. agreed by the regulator. Most customers have meters installed for one reason, and one reason only--they think that they will save money. Not surprisingly, the revenue obtained by South West Water is reducing as more and more people take to meters. To address that shortfall, bills have had to rise. The burden has fallen, harshly, on to customers who are not on meters. Many of them are single-parent families or pensioners and they face huge increases on what were already unacceptably high bills.
In opposition, the Labour party vociferously opposed what is effectively compulsory metering. Less than three years ago, in a debate on water metering, the Secretary of State for Health, who was then shadow environment spokesman, said:
It is estimated that installing a domestic water meter costs water companies between £250 and £300. As more and more people adopt water meters--particularly when they will be available free of charge soon--can we seriously believe that the industry can or will foot that bill? No, I suggest; the simple fact is that that would result in even higher charges.
After 10 years, it is surely time for a wholesale review of the regulatory system. The water industry faces a period of immense change, with the periodic price review occupying the time of the regulator and the Water
Industry Bill making its way through Parliament. In opposition, the Government rightly berated the Tories' performance over water; now, with the added benefit of 10 years' experience, they have an opportunity to put things right.
November 1999 will be a telling time. We will finally see the results of the much-heralded price review. I understand that the Office of Water Services anticipates a one-off reduction of 15 to 20 per cent. on bills. Such a reduction, which would be welcome, would ensure that bills fell well below the 1999-2000 rate--providing that prices do not rise relentlessly after that initial reduction. However, I am sceptical about whether the industry can deliver that much-needed price stability and implement a substantial permanent reduction to ensure that bills are lowered to about the national average for the long-suffering water charge payers in the south-west.
The regulator has expressed uncertainty about the definition of environmental obligations and the costs associated with those future improvements on which Ministers are insisting. From 2000 to 2005, the industry will be expected to deliver an ambitious package of improvements, although the costs have yet to be assessed in relation to how they will be distributed across the various water companies.
Although we are told that the increase in water bills is likely to be relatively small between 2001 and 2004, sewerage bills are clearly likely to increase significantly--yet again, consumers in coastal areas such as the south-west will be hit.
It is now clear that a framework that will ensure fair, affordable and stable prices is essential. We need firm long-term strategies, implemented by the companies and monitored by the regulator, that provide incentives for efficiency so that customers benefit from a stable pricing structure.
The current regime is based on asset management plans over a 15-year period, while the pricing formula is set for only five years. Companies tend to undertake expenditure towards the end of the pricing period, because they must go through a planning system and deliver improvements by the end of the period. That creates an unbalanced budget, which hampers the long-term investment plans.
The implementation of water directives requiring additional tertiary treatment is a welcome and necessary step, but the effect of those directives has hit the south-west particularly hard. South West Water has been investing heavily in sewage treatment projects to meet the requirements of the urban waste water treatment directive. Those improvements and the way in which customers are charged fall directly in line with the regulator's pricing principle.
A customer's bill should reflect the cost of supplying clean water, disposing of dirty water and draining surface water from the property and the highways, but it should not be significantly higher than the bills of comparable customers elsewhere in the country. Water is a national resource and our coastal waters are national assets. A longer-term view of investment and pricing plans by the regulator, combined with interim reports on progress, would benefit the industry, ensure that companies were carrying out necessary environmental improvements and bring an end to the constant fluctuation in prices.
Customers do not want one-off price cuts if those are then followed by even sharper price increases. In the absence of true commercial competition, which I suspect
is a long way off even now, a long-term strategy is the only way to prevent that from happening. The Water Bill offers an opportunity to rectify, within the regulatory system, some of those deficiencies, which have led to unfair bills which often hit the poorest in society.
Although the Bill recognises that there are vulnerable groups, it has failed to replace as a basis for charging the archaic rateable value system, which causes some of those inequities. Indeed, the Bill extends the use of rateable values, many of which are over 30 years old. Both the regulator and the industry representative, Water UK, would like at least a time limit on the use of rateable values as a basis for charging while other methods are properly evaluated.
Some 18 months ago, I introduced a 10-minute Bill advocating the replacement of rateable values with charges based on council tax banding. Metering would continue on a voluntary basis. The introduction of such a system would have many benefits: it would be relatively cheap, easy to administer, easily understandable and, if properly implemented, would broadly reflect the use of water. It would include the ability to give single households discounts and low-income households rebates. Water companies such as Wessex Water have already suggested trialing the council tax banding system as a method of charging. It would certainly provide easier identification of the vulnerable groups whom we all want to support.
"The regulator has rigged the water price formula, beginning with the startling decision that the cost of installing meters should not fall upon the customers who get the meters but upon those who do not have meters. He also came to the extraordinary conclusion that the fixed cost element of the charge to unmetered customers should be higher than that for metered customers."--[Official Report, 9 July 1996; Vol. 281, c. 192.]
In that same debate, he noted that it was "unacceptable" for the Government to pretend that the regulator had nothing to do with the Government.
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