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Mrs. Gilroy: Will the hon. Gentleman give his constituents a voice and complain about the 57 per cent. increase in prices and the 101 per cent. real increase in profits that they have experienced since privatisation?

Mr. Luff: The hon. Lady betrays such a lack of understanding of the mechanism of the water industry that it is difficult to know where to begin without making a separate speech. I have already explained that companies inherited a massive legacy of underinvestment as a result of state control. The environmental obligations that have been imposed, probably rightly, on the industry require massive investment. Where will that money come from? I doubt whether the hon. Lady is offering to subsidise it from her purse. As for the increase in profits to which the hon. Lady alludes, the water companies invest more than their profits each year. Labour Members' understanding of profits is very poor. The hon. Lady's intervention betrayed a problem, which goes to the heart of why the Bill is wrong--

Mr. John Gummer (Suffolk, Coastal): Old Labour.

Mr. Luff: Exactly. The intervention betrayed a hostility to private sector investment and to profits. I pay tribute to the way Severn Trent has dramatically improved the service to my constituents. Its response to a water pollution incident in Worcester a few years ago was far better than what a nationalised industry was capable of. The hon. Member for Plymouth, Sutton (Mrs. Gilroy) is completely wrong. The investment in improved water services in my constituency has been dramatic and welcome, but someone--not the taxpayer any more--had to pay for it. After many years of paying, the taxpayer was not prepared to do so any longer.

Mr. Alan Simpson: Will the hon. Gentleman give way?

Mr. Luff: With pleasure, if the hon. Gentleman's intervention is similar to the previous one.

Mr. Simpson: Will the hon. Gentleman confirm that, in the regulator's comments about price determination in

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Severn Trent, he focused on the internal costs of capital in relation to the price reductions that he recommended, because the industry charged the public twice as much in returns through dividend payments as it could charge if it financed the investment internally? The reward in dividend payments constituted a double charge on consumers for the single investment that they received.

Mr. Luff: The hon. Gentleman makes an interesting point. The answer is a matter of judgment. The market has made a judgment about the regulation of the water industry, especially Severn Trent. The market price of Severn Trent is below its asset value. That suggests that the regulatory decision is wrong. The hon. Gentleman should consider that carefully when he makes a judgment about whether the regulator is right. I believe that the regulator is wrong, and that he has made Severn Trent vulnerable to foreign acquisition and takeover.

That is an interesting dilemma for the company. It is not eligible for domestic takeover, but a French company could snaffle it. I do not object to foreign inward investment in the United Kingdom, but the regulator's decision has made that prospect more likely. That is surprising, and I am surprised that the hon. Gentleman wants to endorse that, given his perspective on such matters.

The regulator is quoted in The Daily Telegraph of 27 January. He was speaking at a conference entitled "Life after the 1999 periodic review". The article states:

"Mr. Byatt said the Bill 'shows how difficult the government can find it to translate good intentions into sensible legislation' . . . Mr. Byatt said the Bill introduced a 'double jeopardy' for fines, empowering both the secretary of state for trade and industry and the water regulator to mete out penalties for the same offence . . . Mr. Byatt also criticised the Bill for failing to allow for an appeals procedure for penalised companies to go to the High Court or the Competition Commission."

The regulator is right to draw attention to the absence of a right to appeal.

Water UK, the trade association for the water companies, states:

"Clauses 118 and 119 give powers to regulators to impose monetary penalties on companies for past and ongoing breaches of licence conditions",

among other matters. It continues:

"There is deep concern in the industry over the power in the Bill to set unlimited fines, as well as over the proposal that the regulator can define the penalty regime without formal agreement with Government or Parliament."

On both counts, the House should be deeply worried about clauses 118 and 119. The right to set unlimited fines is almost unprecedented, and the House should not grant such a power to any regulator, however talented. I hope that the Government will reconsider that urgently in Committee.

Sir Michael Spicer: I can say in its favour only that it is slightly better than provisions for the Financial Services Authority, which will be allowed to imprison people.

Mr. Luff: I should have preferred it if my hon. Friend had not put that thought into the Government's mind, because they may propose an amendment to that effect. My hon. Friend has done the House a grave disservice by suggesting that draconian possibility. However, I strongly agree with his comment.

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Let us consider electricity. According to the notes on clauses, the Bill is supposed to have regard to the interests of consumers in rural areas. Let us examine the current effect of regulation and the distribution price control review on consumers in rural areas of Worcestershire. It is a meteorological fact that the Almighty inflicts a disproportionate number of electrical strikes on Worcestershire. Any map of thunderstorm activity shows a heavy concentration of lightning activity in my constituency and that of my hon. Friend the Member for West Worcestershire. That means that the Midlands Electricity Board faces a specific challenge in maintaining the supply. Two of the customers in my constituency are my hon. Friend the Member for West Worcestershire and Lord Walker of Worcester, who are both former Energy Ministers. I am sure that they are anxious--as I am--to maintain the electricity supply.

There is a need for MEB to increase investment in its rural network to maintain the supply to rural Worcestershire. The Bill will work against that. It will create uncertainty and increase the cost of capital. The Government's claims that it will reduce that cost are wrong and misplaced and show a lack of understanding of the way in which markets work. The measure will give regulators more discretion; that is bound to increase uncertainty. Its imposition of ill-defined social and environmental obligations will seriously affect the cost structure of an organisation such as MEB.

The Bill has a Catch-22 predicament for MEB, because it provides for fines for interruptions but makes it more difficult to prevent interruptions because it denies the company the cash resources to do that. I hope that the Government will reconsider that.

My objections to the Bill are based on detail and principle. The measure enshrines regulation. The Secretary of State, in his typically courteous, thoughtful and well argued opening remarks, appeared to prefer competition to regulation. The record will show that he said that. However, his actions do not suggest that he believes it. I issue a challenge to the Secretary of State to prove that his heart is in his assertion.

Mr. Gummer: While my hon. Friend is discussing competition, will he explain how it increases competition to claim that coal-fired power stations are better than gas-fired power stations, despite the damage to the environment and the effect on climate change? Yet again, the Secretary of State has failed to explain why he went along with such a reactionary policy.

Mr. Luff: My right hon. Friend answers his own point. I agree with him. I hesitate to use it, but the phrase that comes to mind is, "They say one thing and do another." That is characteristic of so much of the Government's actions. I do not understand how reducing electricity prices will help on climate change--it might increase consumption--but never mind. That is another issue that lies unresolved in the Bill.

The Secretary of State ought to show that his heart is in his professed belief in competition. After clause 134, which is the commencement provision, he should insert a clause representing a completely new but worthwhile concept in legislation--a termination clause. He should

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set a series of tests, rather like the Government's tests for the single European currency, that they could apply to competition in the industries. When they judged that competition had reached the required level they could remove the Bill from the statute book, which would prove that the Secretary of State is interested in competition--although I doubt it.

The Government regulate water, telecoms, electricity, gas, rail, postal services, financial services and food--through the new Food Standards Agency--as well as almost every aspect of business, through the rising tide of regulation. The man from Whitehall knows best, as far as this lot are concerned, and all the commanding heights of the economy are covered. When he was a shadow trade and industry spokesman, the Prime Minister prophesied that a Labour Government would take control of all those things and his prophecy is coming true, but by the back door, not the front. About the only matter that the Government are deregulating is personal sexual behaviour, which is the one thing they should be regulating. Never mind; that is another debate for another day.

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