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1.44 pm
The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Mr. Alan Meale): I am grateful to the hon. Member for South-East Cornwall (Mr. Breed) for raising the subject of water charges on behalf of his constituents. Hon. Members on both sides of the House sympathise with some of the points that he has raised. I welcome the opportunity to set the record straight on the past, the present and the future of water charges in the south-west.
Let me say at once that I entirely agree that, in recent years, water customers everywhere have had a lot to put up with. Customers have seen not only soaring prices, but an industry that sometimes seemed more concerned with the welfare of its shareholders and directors than with its customers.
That is why, within three weeks of coming into office, the new Labour Government held a water summit to start fighting on behalf of the customer for a better deal over
water. My right hon. Friend the Deputy Prime Minister launched a 10-point action plan to help secure reliable, efficient and environmentally sustainable water supplies in the long term.
We are pleased that the water industry has responded positively to our proposals. We are now starting to achieve our aim of giving this country a world-class, water-efficient, and environmentally sustainable water industry. Significant progress has been made since the water summit, but we accept that there is no room for complacency. To take one key example, leakage targets were introduced following the water summit. Those targets will have reduced leakage by a quarter in just three years, but water companies' performance has been mixed and under-performing companies have been told that they will continue to be pressed hard to catch up.
We have informed all water companies that progress with leakage and water conservation must continue. However, overwhelmingly, the most important issue for water customers is still the level of prices. As the hon. Gentleman pointed out, since privatisation in 1989, average household water bills nationally have increased by 36 per cent. and average household sewerage bills by 42 per cent. Those are real-terms increases after allowing for inflation. In nominal terms, household water and sewerage bills have roughly doubled.
Ms Atherton:
Does my hon. Friend agree that many of my constituents and those of colleagues across the region face a real problem in dealing with South West Water because they face huge bills as well as problems with interim schemes to deal with sewage? I am thinking particularly of the Falmouth sewerage scheme, which may directly threaten the existence of a very old oyster fishery. I have written to the Minister and met his colleagues on a number of occasions about this. It is unacceptable that South West Water has introduced schemes that may have such an environmental effect, at the same time as having the highest charges in the country.
Mr. Meale:
I thank my hon. Friend for that intervention. I congratulate her on the long campaign that she has led in that regard. Like her, I have great sympathy with the people who have had to put up with those problems. I have agreed with her suggestion to visit the area to see for myself the problems that have been caused. She rightly points out, as did the hon. Gentleman, that South West Water must act a little differently than it has acted recently in the interests of its customers.
The Government are determined that that rate of increase must not continue, and that determination is shared by the regulator, the Director General of Water Services, Mr. Ian Byatt. Companies are still working under the price limits set in 1994, but new price limits will apply from April 2000. The director general is concluding his periodic review of prices. In July, we expect him to announce draft limits to apply for2000-05. Final price limits will be announced later in the year, following further consultation.
The Government have made it clear that we can provide for an ambitious environmental programme: improving our beaches and rivers, making further improvements to our drinking water quality and protecting our precious nature conservation sites. For example, in the south-west, there will be a scheme to protect the internationally
important River Camel. The Government believe that such a programme should still leave scope for substantial cuts in average water bills in April 2000. That is wholly in line with the Government's manifesto commitment.
Mr. Paul Tyler (North Cornwall):
As the Minister refers specifically to the River Camel, which is in my constituency, may I put a point to him? Does he recognise that, when he and I were on the Opposition Benches, we were united in our concern that the way in which the regulator was operating, and the terms under which the then Government had imposed privatisation, were penalising certain parts of the country? Will he give an assurance that, when the Government examine the way in which the new regulatory system is introduced, the comments by the right hon. Member for Holborn and St. Pancras (Mr. Dobson) in the debate to which my hon. Friend the Member for South-East Cornwall (Mr. Breed) referred will be taken into account? Otherwise, people in the south-west and many other regions will suspect that, in terms of the impact on bills in a low-income area, there is not much change from what happened under the previous Government.
Mr. Meale:
I thank the hon. Gentleman. I seem to be congratulating many hon. Members, but it is true that he has raised the issue on many occasions. He is right to say that my right hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson) gave a view at that time. I have no doubt that, in the consultation, due regard will be paid to pronouncements that have been made by politicians on both sides of the House.
As I have said, the Government believe that such a programme should still leave scope for substantial cuts in the average water bill in April 2000. That is wholly in line with the Government's manifesto commitment to pursue tough and efficient regulation in the interests of the consumer and the environment.
On 1 March, Ministers announced the detailed company programmes to deliver our national objectives. In its investment programme, South West Water will be required by 2005 to complete improvements to morethan 2,000 km of distribution system, to improve 309 unsatisfactory combined sewer outflows and to introduce full treatment of the vast majority of sewage discharges and high-level treatment of all company discharges to bathing and--this is of particular interest to my hon. Friend the Member for Falmouth and Camborne (Ms Atherton)--shellfish waters.
Those environmental improvements are essential if the attractiveness of the region to tourists is to be maintained. That investment programme will strengthen the tourism industry that contributes so much to the south-west's economy. The hon. Member for South-East Cornwall mentioned that people are angry. I realise that, but I think that he would accept the importance of the tourism industry to the region. The Department of the Environment, Transport and the Regions is working hard via its 10-point plan to ensure that there is a proper level of investment to protect the environment.
The Government recognise that the south-west has had the highest price increases of any major water company area since privatisation, and continues to face tough
challenges in funding quality improvements. Therefore, we have ensured that the programme does not overburden consumers, while still offering significant improvements in line with our national aims. We have made it clear that we want to ensure that quality objectives do not have unacceptable impacts on water prices in different parts of England and Wales, and that programmes reflect local environmental priorities.
So far, I have been putting the concerns of the hon. Member for South-East Cornwall into context by setting out the background to the current situation. I shall deal now with the specific points about price rises to apply from 1 April 1999.
In the south-west, as elsewhere, companies are still operating under price limits that were set in 1994. For South West Water, average prices are permitted to rise by up to 1 per cent. on top of the rate of inflation. That is the basic limit set by Ofwat. As the hon. Member for South-East Cornwall said, it is referred to as the K factor.
With inflation at 3 per cent., the bills for customers for 1999-2000, which are being issued at this time of year, must not, overall, rise by more than 4 per cent. Price rises of up to RPI plus 1 per cent. have been permitted for South West Water for each year since 1997-98.
Of course, there is no obligation on companies to raise prices to the maximum extent that is allowed by their price limits. I am glad that South West Water has had the grace, in each of the past three years, to give customers a rebate on their bills: £10 in 1996-97 and £15 in both 1997-98 and 1998-99. However, I am sorry that the company has not yet felt able to offer any rebate for next year. I hope that, in view of the continuing and justifiable public concern about water charges in the region, it will look at its position again and consider whether a further rebate is possible in the coming year.
That is one reason for the very high increases in South West Water bills that have been reported in the press. Calculating the increase from last year's bills after rebate to next year's bills without a rebate produces, as I hope hon. Members will appreciate, significant price rises.
There is a further reason why some customers may experience higher price increases. The price limit that is set by Ofwat applies to average increases, but there may be variations around the average in the "tariff basket" that the companies operate. Some customers will see higher increases and some will see lower.
I understand that South West Water makes two technical adjustments in the balance between measured, or metered, charges and unmeasured charges to ensure that there is a fair distribution of charges between those groups. First, customers who choose to be metered tend to use less water than unmetered customers. The costs of metering are charged to metered customers alone, so that a customer with average consumption would pay slightly more to be metered than to pay on an unmeasured basis, but companies make an adjustment to the unmeasured tariff to prevent the differential becoming so great that metered customers are subsidising unmetered customers.
Ofwat has specified that it believes that the difference should be no more than £29 for customers with average consumption. Therefore, South West Water has made an increase of 1.5 per cent. in average unmeasured bills to ensure an appropriate differential between measured and unmeasured charges.
The second, smaller adjustment is to take account of the change in the average rateable value of those properties remaining on an unmeasured charge. Where consumers in higher rateable value properties switch to a meter, there is a fall in the average rateable value for unmeasured properties, requiring some increase in tariffs to ensure that the company receives the same average income.
In the south-west next year, that final adjustment is no more than about 0.5 per cent. An adjustment in the opposite direction would be made if there were a preponderance of occupiers of smaller-value properties moving on to measured charges.
I emphasise that the average permitted increase in price limits for all South West Water customers next year is 4 per cent. While some customers may see their bills rise by more, others will see smaller increases. I do not pretend that a 4 per cent. price increase is good news, but it is not the sensational 10 per cent. or more that has been reported in the press.
As I have already explained, charges from April next year are the subject of the periodic review of price limits. We have specified the environmental objectives to be achieved by 2005, and we expect the Director General of Water Services to announce draft price determinations in the summer. It is for the director general to make decisions on prices, but we believe that the programme that we have set out will allow for some relief to hard-pressed consumers in the south-west in future.
In the little time left before the debate ends, I want to deal with possible use of council tax for water charges. A number of water companies and others have set out a case for using council tax data instead of, or in conjunction with, rateable values as an unmeasured basis of charging.
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